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2051

A meeting of the Board of Governors of the Federal Reserve
SYstem was held in Washington on Friday, November 13, 1936, at 11:00

PRESENT:

Mr.
Mr.
Mr.
Mr.

Ransom, Vice Chairman
Broderick
McKee
Davis

Mr. Morrill, Secretary
Mr. Bethea, Assistant Secretary
Mr. Carpenter, Assistant Secretary
Mr. Thurston, Special Assistant to the
Chairman
Mr. ';Iyatt, General Counsel
Mr. Smead, Chief of the Division of
Bank Operations
Mr. Wingfield, Assistant General Counsel
Mr. Ransom stated that jar. T. K. Smith, President of the American Bankers Association, had called on him yesterday and had presented
a problem of considerable importance arising out of the report of the
Securities and Exchange Commission on the study and investigation of
the work,
activities, personnel and functions of protective and reorganization committees, which he (Mr. Ransom) felt should be presented
to the Board.
In accordance with Mr. Ransom's suggestion, Mr. Smith was invited into the meeting.

Upon being advised that the Board was familiar

with the report referred to above, which was made under the direction
°f Mr. William O. Douglas, a member of the Commission, and which includes the findings of the investigation with respect to the activities of banks and trust companies acting as trustees of bond issues,
Mr. Smith stated that it had been ascertained that on the basis of




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11/13/36
these findings the Commission was studying the question of legislation
which would either require the segregation of trust business from com—
mercial banking or permit the regulation of trust activities of banks
and trust companies by the Securities and Exchange Commission, and
that during a conference with itIr. Landis this morning the latter had
advised that the Commission had not reached a conclusion as to what
form its recommendation would take but was considering legislation which
would authorize the regulation of trust activities.
Mr. Smith said he had raised the question with Mr. Landis whether
the objectives sought could be achieved by amendments to Regulation F
of the Board of Governors and that Mr. Landis had replied that he had
not considered that aspect of the matter.

The American Bankers Asso—

ciation, Mr. Smith said, had appointed a committee to consider the ques—
tion presented by the report and to discuss it with the Securities and
Exchange Commission, and that the committee had prepared a statement
of principles the first draft of which had been sent to the Securities
and Exchange Commission.

Mr. Ransom inquired whether the Board might

have a copy of the draft and Mr. Smith said he would send a copy to
the Board.
Mr. Landis stated, Mr. Smith said, that he felt an understand—
ing should be reached by the Commission and the American Bankers Asso—
ciation on the matter, but that he (Mr. Smith) did not see how a satis—
factory understanding could be reached on the basis of the Commission's
report, and that he proposed to request Mr. Blaine B. Coles, Trust




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-3-

Officer of the First National Bank, Portland, Oregon, and President
of the trust division of the American Bankers Association, to come to
Washington to take charge of the matter for the Association.
Mr. Smith added that he had an appointment with Mr. Douglas
to discuss the matter further with him and that he would see the Comptroller of the Currency and the Chairman of the Federal Deposit Insurance Corporation concerning it.
Upon inquiry from Mr. Ransom as to the thought of the Association regarding the enlargement of the authority of the Board over trust
activities of member banks, Mr. Smith stated that he felt that would
be the desirable solution, for the reason that if the power of regulation were placed in the hands of the Securities and Exchange Commission
it would result in giving another Federal agency overlapping supervision
Over member banks.

He also expressed the opinion that on important

legislation of this kind the Securities and Exchange Commission should
confer with the Board.
Mr. McKee suggested that Mr. Smith discuss the matter with
Chairman Eccles and he replied that he would be glad to do so.

He

4150 said he would be glad to take whatever steps may be necessary to
find a practical solution of the problem and that he would keep the
Board advised of developments.

At the conclusion of his statement

Mr. Smith left the meeting and a discussion of the question referred
to by him ensued.

The suggestion was made that the matter was one

which should be taken up with Mr. Landis by Chairman Eccles and Mr.




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-4-

Ransom stated that he would advise the Chairman of the discussion
at this meeting and of this suggestion.
Reference was then made to the discussion at the meeting yesterday with respect to the meeting on November 16, 1936, of the Permanent Committee on Standardization of Bank Report Forms.

Mr. Davis

stated that yesterday noon he and Mr. McKee had discussed with Mr.
Crowley, Chairman of the Federal Deposit Insurance Corporation, the
matter of representation on the committee and had suggested that a
desirable step in the circumstances would be for all Federal agencies
to withdraw
representation on the committee and attempt to develop a
uniform report to be agreed upon by the Board, the Federal Deposit
Insurance Corporation and the Comptroller of the Currency.

Mr. Crow-

ley took the position, Mr. Davis said, that the committee had been in
operation for a considerable length of time and had done considerable
work, that cooperation with the State banking officials in the matter
Was very important; and that, regardless of the decision reached by
the Board, the Federal Deposit Insurance Corporation would continue to
Participate.

He had agreed, however, Mr. Davis said, to suggest to the

committee that, in view of the fact that the Comptroller of the CurrenoY previously had withdrawn from the committee and, therefore, an
invitation had not been extended to him to be represented at the forthccming meeting, such invitation now be sent to him.

Mr. Crowley also

indicated, Mr. Davis said, that he would regard withdrawal by the Board
Of its representation on the committee as an unwillingness to cooperate
the Federal Deposit Insurance Corporation.




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_5_.

Mr. Ransom again expressed the opinion that the composition
and activities of the committee were not such as to produce constructive results and stated that when he had conferred with the Comptroller

of

the Currency regarding it shortly after becoming a member of

the Board he had suggested that the Board, the Federal Deposit Insurance Corporation and the Comptroller of the Currency should reach an
agreement before conferring with any outside bodies and that if the
present committee were to be continued he would recommend that representation of the Board thereon be withdrawn.
During the ensuing discussion various suggestions were made
as to the action which should be taken and reference was made to the
Position taken by the Board on September 18 that Air. Goldenweiser,
Director of the Division of Research and Statistics, should not serve
as a member of the exploratory committee of the National Bureau of
Economic Research but that there would be no objection to his attending the meetings of the committee as an observer.

It was suggested

that the policy adopted by the Board in that case should also apply

in the present instance.




Thereupon, Mr. Davis moved that, it having
been determined heretofore to be a general
policy of the Board that no member of the Board
or its staff should serve as a member of a committee composed of representatives of both
Federal agencies and non-Federal bodies, Mr.
Smead be instructed to advise the chairman of
the Committee at the opening of the meeting of
the Committee on Monday, November 16, 1936,
that, in view of the Board's general policy,
it would not be possible for him to serve as a
member of the Committee.
Carried unanimously.

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-6-

Mr. Morrill stated that a telegram was received yesterday
from President Day of the Federal Reserve Bank of San Francisco stating that the Bank of Haines, Oregon, desired to withdraw from member8111P in the Federal Reserve System effective at the close of business
on

November 14, 1956, preparatory to the bank's moving to Baker, Ore-

gon/ and opening for business as a nonmember bank on Monday, November
16, 1936.

The reason for the bank's application, it appeared, was

that it has a capital of only d25,000 which it expects to increase to
$50,000, and which would be adequate under State law, but that as a
member bank it would be required under the Federal Reserve Act to have
a capital of at least $100,000 in the city of Baker, which has a population of about 8,000 people.

Mr. Morrill added that it had been

ascertained from the Federal Deposit Insurance Corporation that no
aPPlication had been received from the bank for insurance of deposits
as a nonmember bank, which raised a question in the minds of the Board's
staff whether the bank understood that immediate withdrawal from membership would result in the discontinuance of insurance of its deposits.
Mr. McKee moved that action on the application
be deferred until more information is received from
the bank, through the Federal Reserve Bank of San
Francisco, as to the intention of the member bank
to continue as an insured or an uninsured bank.
Carried unanimously.
Mr. Morrill then referred to the letter addressed by the Board
tO the Comptroller of the Currency under date of April 14, 1936, with
respect to the payment of expenses of the Federal Reserve Issue and
Redemption Division, and to the Board's letter of November 5, 1936,



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-7-

to the
Comptroller calling attention to the fact that no reply to the
earlier letter had been received and stating that, in view of the
short time remaining before i4ovember 15, when the temporary appointment of Mr. William John Rusch as Chief of the Division would expire,
it Would be appreciated if the Comptroller would advise fully as to
his views
with respect to the question submitted in the Board's letter of
April 14.

Mr. Morrill stated that the Comptroller has failed

to reply
to either of the letters, that unless further action were
taken by the
Board Mr. Rusch's salary would be discontinued as of
the close
of November 15, and that the question might arise whether,
in

View of the absence of a statement from the Comptroller as to his

intentions, action should be taken extending the appointment of Mr.
Rusch for a
further period.
After a discussion, upon motion by Mr.
Davis, Mr. Morrill was requested to call
Deputy Comptroller Lyons or, in his absence,
Deputy Comptroller Prentiss and draw attention to the fact that no reply had been received to the Board's letters, that unless
further action were taken Mr. Rusch would
go off the payroll at the close of November
15, that if the discontinuance of Mr. Rusch's
services was contemplated nothing further
needed to be done in the matter, but that,
if such was not the case, and the Board was
so advised, the extension of Mr. Rusch's appointment for a further short period would
be given consideration.
At this point Messrs. Thurston, Wyatt, Smead and Wingfield
left the
meeting and consideration was then given to each of the matters
hereinafter referred to and the action stated with respect thereto was
taken by the Board:



11/16/36

-8-

The minutes of the meeting of the Board of Governors of the
Federal Reserve System held on November 12, 1936, were approved unanimously.
Telegrams to Messrs. Kimball, Strater and Young, Secretaries
of the Federal Reserve Banks of New York, Cleveland and Chicago, respectively, stating that the Board approves the establishment without
change by the New York bank on November 12, 1936, and by the Cleveland
and Chicago banks today, of the rates of discount and purchase in their
existing schedules.
Approved unanimously.
Memorandum dated November 10, 1936, from Mr. Goldenweiser,
Director of the Division of Research and Statistics, submitting the
resignation of Mr. Simon N. Whitney as a junior research assistant in

the

Division, to be effective as of the close of business on November

18
'1936, and recommending that the resignation be accepted as of that
date.
Accepted.
Letter to Mr. Peyton, President of the Federal Reserve Bank of
nneapolis, reading as follows:
"This refers to your letter of October 19 with respect to
the salaries of officers and employees of your bank for 1937.
"It is noted from the quotation from the minutes of the
Directors' meeting held on October 17 that the Directors unanimously approved the report of the Salary Committee recommending that, subject to the approval of the Board of Governors
of the Federal Reserve System, all salaries of officers and
employees of the Head Office and the Helena Branch should continue during 1937 as fixed on August 1, 1936, except that
Assistant Statistician H. C. Timberlake should be promoted
to Statistician and his salary increased from 4,5OO to :41800
per annum.



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11/13/36
"As you know, it has been the practice since 1928 for
the directors of the Federal Reserve banks to fix the salaries of their officers for the current year, subject to
the approval of the Board, at their fist meeting in January
of each year and to submit a statement to the Board promptly
thereafter showing the salary thus fixed for each officer.
The Board will expect the same procedure to be followed in
1937. In the meantime, however, the Board will give careful consideration to the recommendations contained in your
letter of October 19 and will communicate with you further
Should there be any question with respect to the recommendations about which it desires further information. In accordance with the established procedure no formal action will
be taken by the Board on the recommendations until the recommendations approved by your directors at its first meeting
in January have been received."
Approved unanimously.
Letter to Mr. Gidney, Vice President of the Federal Reserve
Bank of New York, reading as follows:
"Reference is made to Mr. Dillistin's letter of October 24, 1936, and previous correspondence, submitting information and various documents relating to the absorption,
on September 26, 1936, of The First National Bank and Trust
Company of Rochester by the 'Lincoln-Alliance Bank and Trust
Company!, both of Rochester, New York.
"It is noted that in the opinion of your office the
transaction was a desirable one and did not result in any
change in the general character of the assets of or broadening in the functions exercised by the State member institution within the meaning of the general condition under
which it was admitted to membership in the Federal Reserve
System. Accordingly, the Board will take no action affecting the membership of the Lincoln-Alliance Bank and Trust
Company in the Federal Reserve System by reason of the
transaction with the understanding that the matter has the
approval of the appropriate State authorities and that your
counsel will satisfy himself as to the legal aspects involved."
Approved unanimously.
Letter to Mr. Wheeler, Chief of the Division of Research of

the Federal Reserve Bank of San Francisco, reading as follows:




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11/13/36

-10-

"Receipt is acknowledged of your letter of September
25, 1936, concerning an inquiry made by the Los Angeles
Stock Exchange, with respect to a joint account in unregistered stocks maintained by a member firm upon its books and
Participated in by a nonmember firm and such member firm.
"While several questions have been submitted, it would
appear that the solution of the problem depends upon whether
or not the member firm in such transaction is extending credit
to the nonmember firm within the scope of the Board's Regulation T and the rulings thereunder. This, in turn, depends
Upon the agreement between the two firms and whether or not
such agreement results in a debtor-creditor relationship or
a partnership, joint undertaking, or other similar relationat'ip. There are many factors which may enter into a determination of this question, any of which might alter what
Otherwise might appear to be a clear legal relationship
Within one category or the other. Therefore, since under
the present provisions of Regulation T the conclusion seems
to depend upon a question of local law, it is suggested
that in the light of the foregoing discussion the interested
Parties should be able to obtain appropriate advice from
their counsel."
Approved unanimously.
Letter to gr. William R. McQuaid, President, The Barnett National Bank of Jacksonville, Jacksonville, Florida, reading as follows:
"This refers to your letter of October 20, 1936, relating to the credit provided in section 26(d) of the Revenue
Act of 1936 in the case of holding company affiliates.
"The Board will, at the proper time and upon proper
showing, certify to the Commissioner of Internal Revenue
the amount of earnings or profits which have been devoted
by a holding company affiliate during this calendar year
(assuming that the holding company affiliate's taxable
Year is the calendar year) to the acquisition of readily
marketable assets in compliance with section 5144 of the
Revised Statutes. It is understood that the Commissioner
is preparing regulations to be promulgated in the near
future which will relate in part to the credit allowed
holding company affiliates and to the procedure with respect to claims for such credit.
"In your letter you refer only to the provisions of
section 5144 of the Revised Statutes contained in subsection (b) thereof and, in this connection, your attention
iS also directed to the provisions of subsection (c) of
such section, as amended by the Banking Act of 1935.




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-11-

"For your ready reference, there is inclosed a copy of the
Board's Regulation P, revised effective January 1, 1936,
in which the pertinent provisions of section 5144 are set
forth."
Approved unanimously.
Letter to the Presidents of all Federal reserve banks, reading as follows:
"You will shortly receive from the Board's Division
of Bank Operations a copy of the balance sheet, Form 34,
used by the Federal Reserve banks during 1936, on which
have been indicated changes it is proposed to make in the
form to be used during 1937. The first two items in the
miscellaneous assets block on the proposed revised form read
as follows: 'Misc. assets acquired acct. industrial advances'
and 'Industrial advances past due 3 months'.
"The amount of industrial advances outstanding on the
last day of the month, as reported on Form 58, should be in
agreement with the amount of industrial advances reported
on the balance sheet against item 'Industrial advances
(sec. 13b)1, code TURK, on the last day of the month.
"While the memoranda items at the bottom of Form B-23,
copies of which are forwarded to the Treasury Department
monthly by the Board, have heretofore been adequate to determine the proportion of net earnings on industrial advances
and commitments derived from the use of funds received from
the Secretary of the Treasury, losses which are now being
sustained on industrial advances make it impossible to determine such proportion properly from the present memoranda
items. Form B-23 has therefore been revised in accordance
With the form attached hereto, and a supply has been sent
to your bank under separate cover. You will note from the
revised form that the two memoranda items 'Average daily
amount of Industrial Advances outstanding' and 'Average
daily amount of Commitments to make Industrial Advances
outstanding have been eliminated, and in lieu thereof the
following new item has been inserted: 'Average daily amount
of Federal Reserve bank funds advanced and under commitment'.
The amount to be reported against this caption should be
calculated on the basis of daily averages as follows:




11/13/56

-12-

"Industrial advances outstanding
Commitments to make industrial advances outstanding
Misc, assets acquired acct. industrial
advances
Industrial advances past due 3 months. .
Total*
Less: Surplus, Section 13b. .
Reserves for losses on
industrial advances ...
Federal Reserve bank funds advanced
and under commitment
*If write-offs of losses on industrial advances at any
time exceed the amount of reserves set aside for the
purpose, such excess, as reported on Form B-23 against
the caption 'Losses charged off (other than those
charged to reserves)', should be added to this total.
"As you have heretofore been advised, the caption 'Industrial advances past due 3 months' relates only to advances
Which are past due three months or more as to both principal
and interest."
Approved unanimously.
Letter to President Harrison of the Federal Reserve Bank of
New

York as Chairman of the Presidents' Conference, reading as follows:
"The Board recently received from Mr. George 0. Barnes,
Executive Assistant to the Treasurer of the United States, a
copy of a report made by the Accounting Division of the
Treasurer's office with respect to the costs of handling
work relief checks at the twelve Federal Reserve banks. In
furnishing the Board a copy of the report Mr. Barnes stated
that:
"Of course this office recognizes the fact that
conditions vary at the various banks not only with
regard to the range of salaries for personnel of
like qualifications but also as to certain details
of procedure which have been adopted at the various
banks. It is not the purpose of this office to insist that the procedure shall be exactly the same in
all instances so long as the general rules laid down
by the Treasury in instructions to the banks are complied with. However, it does appear from this survey
that there is a considerable variance as to cost between the minimum and the maximum and that there is
possibly a means of adjustment to bring the relative
costs more in harmony as between the various banks.




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"'No doubt with respect to many of the banks
the work is being performed by a greater proportion
of personnel taken from the bank rolls as compared
to the personnel taken from Work Relief or other
sources. It is thought there may be a tendency
in such cases to continue paying former salaries
to such employees as have been absorbed in this
work notwithstanding that the work on which such
employees were previously engaged for the bank
were of a character of work demanding salaries
higher than the character of work involved in the
work relief check operation. Continuance of such
salaries indefinitely would not seem to be in the
interest of a reasonable cost for the performance
of such duties.'
"A copy of the report is inclosed and it will be appre.
elated if you will have it placed on the program for the
forthcoming Presidents' Conference.
"It would seem that the Transit Conference, to be held
in Washington beginning December 7, would offer an excellent
opportunity for those who are responsible for the handling
Of the work relief checks to discuss the various factors
entering into the cost of such work, and it will be appreciated if you will have the report placed on the program
for that Conference. It is hoped that the managers of the
Transit Departments will make a thorough study of the report
before the Conference is held and that it will be possible
at the Conference to determine the principal factors responsible for the wide variations in the costs and whether
there is a practicable means of adjustment which will eliminate some of the wide variations in unit costs as disclosed
by the report.
"Copies of this letter and the report referred to above
are being sent to the Presidents of all Federal Reserve
banks. It is understood that a copy of the report is being
forwarded by the Treasury to each of its Work Relief representatives stationed at the Federal Reserve banks."
Approved unanimously.

Thereupon the meeting adjourned.

-6qc7"

Isf)

Secretary.
An
'
-Proved:




Vice Chairman.