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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 2062 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 2053 11/13/36 -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. 2054 11/13/36 -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. 2065 11/13/36 _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. 2066 11/13/36 -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, 2067 11/13/36 -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. o'W (we'r7- 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: 206'0 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. 2061 11/13/36 -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. tirlf$! 11/13/36 -1-- "'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.
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