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19 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, November 171 1952. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Szymczak Mr. Evans Mr. Vardaman Mr. Mills Mr. Robertson Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Vest, General Counsel Allen, Director, Division of Personnel Administration Mr. Sloan, Director, Division of Examinations Mr. Chase, Assistant Solicitor Mr. Hackley, Assistant General Counsel Mr. Mr. Mr. Mr. Mr. of the Before this meeting there had been sent to the members Chase Board copies of a memorandum dated November 7, 1952, from Messrs. ller a'aHackley regarding a certification made to the Board by the Comptro f the Currency, in accordance with section 30 of the Banking Act of 1933, of certain facts alleged to constitute violations of law and unsafe or lirlsonxid banking practices by named directors and officers of the City to the ile.ti°11a1 Bank of Fort Smith, Fort Smith, Arkansas. Attached nleill°rendum were copies of the certificate and accompanying exhibits, tiding warnings delivered to the named directors and officers of the by the Comptroller on March 8 and July 10, 1951. The certificate, (14ted October 23, 1952, had been sent to the Board with the Comptroller's 1920 11/17/52 -2- letter of the same date. The memorandum commented on the statute authorizing removal proceedings, the facts certified by the Comptroller, and considerations affecting the question whether proceedings should be instituted. It stated that the facts certified by the Comptroller as constituting unsafe and unsound practices had been discussed with the Division of Examinations and that that Division was of the opinion that the facts, if true, would constitute unsafe and unsound practices. The memorandum further stated that in the opinion of Messrs. chase and Hackley, the certificate of the Comptroller, insofar as it related to alleged violations of law and unsafe or unsound banking ler Practices which had continued after previous warning by the Comptrol t° discontinue the identical or similar violations or practices, constitilted a sufficient legal basis for instituting proceedings under section 3°; that even though the transactions which would be the basis of the they would harges, when taken separately, were not all very substantial, in de8"111 to be sufficient, when taken together, to justify the Board morein its discretion, to institute the proceedings; and that, ng the certificate of the Comptroller contained information regardi the ing to cause verY unsatisfactory experience of his Office in attempt although the bank to manage its affairs properly, and this information, ting proceedings or it c°111d not be used as the legal basis for institu 1921 11/T7/52 for issuing a removal order under section 30, nevertheless might be taken into account by the Board in deciding, in its discretion, assuming first, whether to institute the proceedings and, second, that a removal order would be legally justified, whether the Board w°41d wish to issue such an order. In response to Chairman Martin's request for comment, Mr. Sloan said that the City National Bank had total assets of $7.3 Ofl accounts of deposits of about $6.7 million, and capital about $6 rather low, 00,000, that while its risk asset ratio was °ther capital ratios were not badly out of line, that the bank was n°t insolvent, according to the examiner's report, and that the to Criticisms of the Comptroller of the Currency related chiefly Celltain practices of the management. ication of a Mr. Vest described the legal basis for certif bank 1, ures involved, ,i3r the Comptroller under section 30 and the proced Board to destating that it remained within the discretion of the ter officers to show lnine whether to ask the named directors and eallSe Why they should not be removed from office. National Bank had peen Governor Robertson said that the City banks for a long time, that the (34 the Comptroller's list of problem 1922 11/17/52 manage had been given several extensions of time in which to effect correction of unsatisfactory practices, that it seemed imPossible to obtain corrective action, and that in the circumstances it appeared that the Comptroller had no alternative but to certify the case to the Board. Governor Robertson expressed the opinion that the Board should act promptly to send out notices of a hearto be held in St. Louis, Missouri, in 30 days. There was a discussion of who might be selected to serve as hearing officer and it was stated that Mr. James A. Purcell, a hearirig examiner for the Federal Trade Commission, might be available for this purpose. matter Governor Robertson considered it possible that the 4°111d never come to a hearing since he felt that the bank's President, Mr. H. S. Nakdimen, who is the majority stockholder, might disPose of his interest in the bank upon learning that proceedings had been instituted by the Board. In response to a question, Mr. Vest said that according to the Administrative Procedure Act, a member of the Board could act as hearing officer but a member of the staff of the Board or a FedReserve Bank could serve in that capacity only if he was 1923 11/17/52 qualified with the Civil Service Commission. securing Governor Mills inquired who would be responsible for new directors and officers to manage the City National Bank if the Board should order the removal of the named directors and officers, and Governor Robertson responded that, if necessary, the Comptroller of the Currency would be forced to appoint a conservator for the institution. to show that Governor Vardaman said he would like the record in the early 1920s (about 1923-1926) he was in the investment business 1-4 St. Louis in partnership with a Mr. W. J. Echols, who was also President of the Merchants National Bank in Fort Smith, Arkansas. Governor Vardaman said that he was interested in the bank at that time and worked closely with Mr. Echols, whom he understood was now deceased. The Merchants National Bank was in competition with the City National 14411k, the President of which was Mr. I. H. Nakdimen, now dead. If this Mr. Nakdimen were now alive, Governor Vardaman felt he would have to disconsideration of the (114114 himself from sitting with the Board in its he Proposed section 30 proceeding because, as an active competitor, f0rMed certain conclusions which would preclude his eideration of the matter. However, in view of the fact that both Echols and Mr. Nakdimen were dead unbiased con- and inasmuch as he did i24 11/17/52 not -6- recollect ever having met the Mr. H. S. Nakdimen named in the Comp- troller's certificate, he felt he could sit with the Board in this case. phase of the Governor Vardaman also stated that there was another 'natter that he would like to discuss in executive session. Thereupon, it was voted unanimously to cause to be served on the directors and officers of the City National Bank of Fort Smith, Fort Smith, Arkansas, named in the certificate of the Comptroller of the Currency a Notice of Hearing as follows: "'UNITED STATES OF AMERICA BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. IN THE MATTER OF Hudson Cooper, G. L. Grant, Arthur F. Hoge and Gus Krone, Directors, and irs S. Nakdimen, President and Director, and ! "• B. Fitch, Vice President, Cashier and Director .?,f CITY NATIONAL BANK OF FORT SMITH, Fort Smith, Arkansas. Naria the Pursuant to the provisions of Section 30 of n Presto (12 U.S.C. 77), Act of 1933, as amended -)elano, Comptroller of the Currency, being of the opinion that you, Hudson Cooper, G. L. Grant, Arthur F. Hoge and Gus Krone as directors, and H. S. Nakdimen and W. B. Fitch Bank of directors and officers of the City National rort Smith, Fort Smith, Arkansas, have continued to violate have continued Provisions of law relating to such bank and unsafe and unsound practices in conducting the business of 1.'f,44;1 W17/52 -7- "such bank, after having been warned by the Comptroller of the Currency to discontinue such violations of law and such unsafe or unsound practices, has certified to the Board of Governors Of the Federal Reserve System that: VIOLATIONS OF LAW 1. A loan was made by the bank to the Pharr Canning ComPany in the early part of 1952 in an amount which exceeded 10 Per cent of the bank's capital and surplus, in violation of R. S. 5200 (12 U.S.C. 8)4). 2. A loan in the amount of $650 was made by the bank on March 21, 1949, to the Oklahoma-Arkansas Telephone Company, an by affiliate of the bank, which was not secured as required 371c). (12 U.S.C. Act e Reserv Section 23A of the Federal 3. A loan in the amount of $23,000 was made by the bank on September 25, 1950 to the Oklahoma-Arkansas Telephone ComPanY, an affiliate of the bank, which was not secured as required by Section 23A of the Federal Reserve Act (12 U.S.C. 371c). , 4. An advance of $3,800 was made by the bank to the Okla- , 5. An advance of $1,082.98 was made by the bank to KNIIN noma-Arkansas Telephone Company by carrying that amount in cash items from April 2, 1952 to April 26, 1952 in violation of Section 23A of the Federal Reserve Act (12 U.S.C. 371c) and of Paragraph Seventh of R. S. 5136 (12 U.S.C. 2)4). 460adcasting Company, Inc., an affiliate of the bank, by permitting an overdraft in that amount on February 11, 1952 in violation of Section 23A of the Federal Reserve Act (12 U.S.C. 3710, and Paragraph Seventh of R. S. 5136 (12 U.S.C. 2)4). 6. An unsecured loan in the amount of $2,000 was made by 1, in the amount the u „ank on November 8, 1951, and an unsecured loan to the Buell 1951 19, er Novemb on °I 013,500 was made by the bank Ranch Land and Development Company, an affiliate of the bank, in violation of Section 23A of the Federal Reserve Act (12 U.S.C. 371c), 1926 11/17/52 -8- "7. A loan in the sum of $2,500 was made by the bank to President Nakdimen on January 8, 1952 without the prior apProval of a majority of the entire Board of Directors, in violation of Section 22(g) of the Federal Reserve Act (12 U.S.C. 375a). 8. Advances in the amount of $1,170.25 were made by the 1?ank to President Nakdimen in the form of personal checks carried in cash items at the time of the April 1952 examination by national bank examiners, in violation of Section 22(g) of the Federal Reserve Act (12 U.S.C. 375a) and Paragraph Seventh of R.S. 5136 kl2 U.S.O. 24), in that it made the total indebtedness of President Nakdimen to the bank exceed $2,500 and in that the approval of a majority of the entire Board of Directors was not obtained. 1952, 9. On a date between February 18, 1952, and April 16, a loan of $175 was made by the bank to its Vice President and Cashier, W. B. Fitch, without the approval of the entire Board Of Directors, in violation of Section 22(g) of the Federal Reserve Act (12 U.S.C. 375a). 10. A report with respect to KWHN Broadcasting Company, Inc., ail affiliate of the bank, was neither furnished to the Comptroller 011 the Currency nor published in connection with the report of condition called for on April 14, 1952,in violation of Section 5211 of the Revised Statutes (12 U.S.C. 161). . 11. As of July 28, 1952, the date of the most recent examior naton of the bank by national bank examiners, no examination had rs directo audit of the trust department by a committee of been made since May 4, 1950, on which date an examination was made by three active officers of the bank, in violation of Section 8 of Reserve gulation F of the Board of Governors of the Federal by tion Ystem both with respect to the making of the examina of time lapse active officers of the bank, and with respect to the without examination or audit. r UNSAFE OR UNSOUND PRACTICES 12. Although the Directors were aware of the poor condition of rst the" bctnk and their responsibility to the bank, only two directo 11/17/52 -9- 0 meetings were held between January 29, 1952 and July 28, 1952, the date of the most recent examination of the bank by national bank examiners. 13. At the time of the most recent examination by national bank examiners as of July 28, 1952 the direct liability of directors to the bank was $65,845.01, consisting entirely of unsecured advances. 114. The bank has large amounts of loans and overdrafts classified as substandard, doubtful and loss, which result from the unsafe and unsound manner in which the bank's credit policies have been handled. Adequate corrective action has not been taken, although this matter has been repeatedly called to the attention of the Board of Directors by national bank examiners. 15. The bank fails to keep detailed records of its operations, Particularly with regard to cash items, thereby impeding verificaIon of the bank's books. 16. The bank has not discontinued the practice of 'holding overt cash items for an unreasonable length of time, although it as been repeatedly requested and warned by national bank examiners 0 discontinue the practice. t 17. C. Davis 74 H. S. furnished In a letter dated August 7, 1951, signed by Directors C. W. B. Fitch, G. L. Grant, Arthur F. Hoge, Gus Krone, Nakdimen, certain untrue or misleading information was the Comptroller of the Currency regarding - (a) The payment in cash of notes of Virginia B. Whiteside and Myra 0. Brown. oklah(b) Alleged negotiations to dispose of the properties of the oma-Arkansas Telephone Company. (c) The ceasing of kiting operations. (d) The Plimination of all violations of law except the Oklahana-Arkansas Telephone Company. 1928 -10(e) The payment of all items over 300 on the date on which received and the keeping of a Cash Item record. (f) Alleged negotiations by Frank Cohen to liquidate his note. (g) The question whether a Discount Committee was function ing and a record was being kept. 18. Transactions involving the checks described below drawn bY the Oklahoma-Arkansas Telephone Company, an affiliate of the ?sank, of which President Nakdimen was also president, were handled such a manner as to constitute unsafe or unsound practices in that said checks were deposited when the accounts on which they ''ere drawn did not contain sufficient funds with which to meet hem (in the following list City National Bank of Fort Smith is e erred 'Fort Smith/ 3 Central National Bank of Poteau is referred to as 'Poteau', and State National Bank of Heavener is referred to as Illeavenerl): Date Check 11222214,ed Amount of Check Dee, 30, '50 Jari. 23 $6,000.00 $6,000.00 '51 Jan. 13,'51 Jan. 17, 'Si Jan, 20,'Si Jan, 22,'Si Jan. 27,'51 Jan. 30, 'Si Feb. 3, 51 Feb. 8,'51 Feb. 10,'51 Feb. 14,'51 APr, 6,'Si Apr, 9,'51 Apr, 171'Si Apr, 18,1 51 Apr, 21,'51 Apr, 24, '51 Drawn On Poteau Fort Smith by H.S.Nakdimen Poteau $6l000.00 Fort Smith $62000.00 Heavener $6,100.00 Fort Smith $6,100.00 Poteau $3,500.00 Smith Fort 0 $3,500.0 Poteau c $3,750.0 Fort Smith $3,750.00 Poteau $2,500.00 Fort Smith $2,500.00 Poteau 0 $3,000.0 Fort Smith 0 $3,000.0 Heavener 0 $1,500.0 Smith Fort 0 $1,500.0 Poteau $3,500.00 Fort Smith $3,500.00 Deposited In Fort Smith Poteau Fort Smith Poteau Fort Smith Heavener Fort Smith Poteau Fort Smith Poteau Fort Smith Poteau Fort Smith Poteau Fort Smith Heavener Fort Smith Poteau 1929 11/17/52 -11.- "Date Check Apr, May May May May MAY May May May MAY MAY June 28,151 4,751 51 151 10,151 111 151 15,151 18,151 21,151 23,151 24,151 26,151 8,151 Amount of Check $4,000.00 $4,000.00 $4,000.00 $4,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $5,000.00 $2,393.95 Drawn On Deposited In Fort Smith Heavener Fort Smith Poteau Fort Smith Poteau Heavener Fort Smith Heavener Fort Smith Poteau Merchants Natl. Bank Fort Smith Fort Smith Fort Smith Poteau Poteau Fort Smith Board & Switch Kellogg to payable Supply Co., on Fort Smith Fort Smith Fort Smith Fort Smith Poteau Poteau Fort Smith Heavener Fort Smith Poteau Fort Smith Poteau Heavener Fort Smith Heavener Fort Smith Poteau Fort Smith Fort Smith June 21,151 June 30,151 5,151 , 'JU-3-5r 15,151 $1,603.75 July 25,151 JulY 30,151 Aug, 3,1151 $1,521.04 $8,000.00 $8,000.00 Date of Amount of Check Drawn On Payable To July 27,151 $2,466.75 Fort Smith Aug. 28,151 $1,422.58 Fort Smith Sept.21, 1 51 $1,533.11 Fort Smith SePt.13,151 $2,543.46 Fort Smith Sept.13,1 51 $2,577.04 Fort Smith 1,1 51 $4,475.99 Poteau 7,151 $8,000.00 Fort Smith Southwestern Bell Telephone Co. Collector of Internal Revenue Oklahoma-Arkansas Telephone Co. (payroll account) Southwestern Bell Telephone Co. Southwestern Bell Telephone Co. Oklahoma-Arkansas Telephone Co. Farmers National Bank of Green Forest Arkansas. Dec. Nov. $2,000.00 $2,000.00 $4,213.44 1930 11/17/52 -12- y . "Also, bond coupons on Oklahoma-Arkansas Telephone Compan on t accoun in the amount of $300 credited to Cooper Estate credited October is, 1951, and like coupons in the amount of $700 a such in d to four accounts on November 27, 1951 were handle tconduc in ces manner as to constitute unsafe and unsound practi ing the business of the bank. 19. The bank is trustee of a bond issue of the Oklahomaand since Telephone Company, an affiliate of the bank, adverse become the interests of the holders of the bond issue may identibe to the interests of the company, the trustee should not fied with the company. of 20. The directors and officers of the City National Bank the of oller !art Smith have been warned repeatedly by the Comptr )11rrency to discontinue such violations of law and such unsafe and unsound practices in conducting the business of such bank. II The Board of Governors of the Federal Reserve System, having considered the certificate of the Comptroller of the Currency, deems it necessary and appropriate to cause notice to be served City 11,130n you, the above-named directors and officers of the to show 30, n "ational Bank of Fort Smith, pursuant to said Sectio cause why you should not be removed from office. III the above-named Accordingly, notice is hereby given to you, directors and officers of the City National Bank of Fort Smith, that the 22nd day of December, 1952 at ten o'clock, a.m., is fixed 111 the time, and the Federal Reserve Bank of St. Louis, St. Louis, bessouris as the place when and where a hearing will be held fore a trial examiner to be appointed by the Board of Governors, contained for the purpose of taking evidence on the allegations in the certificate of the Comptroller of the Currency aforesaid, at whie-' have the right under said statute n time and place you will removed ° appear and show cause why each of you should not be from office as a director or officer of the aforesaid bank. IN WITNESS WHEREOF, the Board of Governors of the Federal Reserve by its Secretary System has caused this notice to be signed 1931 11/17/52 -13- "arid its official seal to be annexed at Washington, D. C., on this 17th day of November, 1952. By the Board. (Signed) S. R. Carpenter S. R. Carpenter, Secretary." SEAL In connection with the above action, it was also agreed unanimously that arrangements should be made with the Fed— oral Trade Commission for the services of Mr. James A. Pur— cell to conduct the hearing, with the understanding that the Board would reimburse the Commission for Mr. Purcell's salary and any travel expenses involved for the period of time that his services were utilized in this connection. At with— this point Messrs. Vest, Sloan, Chase, and Hackley drew from the meeting. on October Reference was made to the action of the Board r 23, 1, 72, establishing, beginning with 1954, a policy of rotation of Claes C Federal Reserve Bank directors. n of the Question was raised at this time whether the actio 1932 11/17/52 -14- Board should be interpreted as meaning that a person who had served more than three full years as a Class A, B, or C director and during that time had served one full term as Chairman and Federal Reserve Agent would not be permitted to serve a total of more than two full terms. It was agreed unanimously that this interpretation was correct. Chairman Martin referred to a letter which he had received '°111 fl Lunding, Chairman of the Federal Reserve Bank of Chicago, suggesting the appointment of Mr. Leonard Spacek, a partner in the accounting firm of Arthur Andersen and Company, as a Class C director Of the Chicago Bank for the unexpired portion of the term ending December 31, 1954. After a discussion, it was agreed that Chairman Martin would advise Mr. Lunding that inasmuch as the Board had retained the firm of Arthur Andersen and Company to audit its accounts, it should not consider the appointment of Mr. Spacek. made at Governor Robertson referred to the comments which he Ing the meet. on November 4, 1952, with respect to the suggestion that 1933 11/17/52 the Federal Reserve Banks be audited by certified public accounting firm and stated that he subsequently discussed with Mr. Lang, Chief Federal Reserve Examiner, the possibility that a firm of auditors might be engaged to review the procedures of the Board's field examining staff in conducting Federal Reserve Bank examinations and to ace c/mPanY the Board's staff on one examination each year to observe Whether these procedures were being carried out properly and consti- tuted a sufficient audit, with the thought that copies of the auditing *Mile reports might be turned over to the Senate and House Banking and alilirencY Committees. Governor Robertson recommended that, as a first step in that diIlecti°112 Arthur Andersen and Company be engaged to accompany the Board's staff on the examination of a Reserve Bank scheduled for examination 14ter this year to observe the examining procedures and the Bank's intellial audit procedures and make a critical report. Following a discussion, Chairman Martin was authorized to negotiate for the services of Arthur Andersen and Company for the purpose described by Governor Robertson, with the understanding that he would thereafter make a recommendation to the Board. Chairman Martin also was authorized to negotiate with Arthur Andersen and Company to audit the Board's accounts for the 1953, last nine months of 1952 and the year therewould he that with the understanding after make a recommendation to the Board. 1934 11/17/52 -16- At this point the following members of the staff entered the room: Mr. Thurston, Assistant to the Board Mr. Leonard, Director, Division of Bank Operations Mr. Young, Director, Division of Research and Statistics Mr. Myrick, Assistant Director, Division of Bank Operations Mr. Farrell, Chief, Reserve Bank Budget and Expense Section, Division of Bank Operations Mr. Massey, Technical Assistant, Division of Bank Operations tion of Governor Mills stated that the Mortgage Bankers Associa America was planning to hold a conference of about 350 younger execuIS of mortgage banking institutions in Washington on January 1516 lac, and had inquired through the Director of the Division of Research and Statistics whether a program could be arranged on January 15 to e xPlain the operations of the Federal Reserve System, especially as they affect the cost and availability of loanable funds. He said it 1448 being planned to have Vice President Wayne and his colleagues from the Federal Reserve Bank of Richmond come to Washington the morning Of ja nuarY 15 to offer their visual presentation and that, if agree- address al" to the Board, Mr. Young or one of his associates would he would theec3nference that afternoon. Governor Mills said that 'Ill:mend authorizing Mr. Young to participate in the program on the 11/17/52 baSis -17- outlined and also to make the necessary arrangements with Mr. Wayne for participation by the Richmond Bank. Governor Mills' recommendation was approved unanimously. At this point Mr. Thomas, Economic Adviser to the Board, and /4r*Vest, General Counsel, entered the room. FedConsideration was given to the budgets submitted by the procedure eral Reserve Banks for the year 1953. In accordance with the ' handling the budgets which was approved by the Board on October 6, f°1 19521 27, Governor Evans sent to the other members of the Board on October 1952, a memorandum transmitting (1) a general summary of the budgets covering all functions, with separate summaries of the budgets for the I'larch and statistical, bank and public relations, and provision of Pel‘s°11nel functions, and (2) a reference volume comprising a detailed, factual analysis of the budgets. At the request of the Board, Mr. Leonard made a statement con, Operations in "g tne procedure followed by the Division of Bank e°tIllnetion with the Reserve Bank budgets. He pointed out that this work constituted only a part of the work of the Board's staff relating to Reae, 've Bank expenses, other parts including the review of expenses by the field tion to the examining staff, the preparation and distribu Reale. ve Banks by the Division of Bank Operations of functional expense ' 11/17/52 —18— l'ePorts compiled from data submitted by the Banks in accordance with the accounting manual, and the making of field surveys by the Division Of Bank Operations. since 1951, Regarding the budgets, Mr. Leonard pointed out that f°110 ing a report by Price, Waterhouse and Company, they have been submitted by objects of expenditures, with, in addition, a detailed breakof three functions, namely, the research and statistical, bank and PlIblic relations, and provision of personnel functions, in which the Board has indicated a particular interest since the level of expendi- rations. ture3 therefor is determined to a major extent by policy conside Re noted that statistics also are submitted by the Banks showing salaries °II employees (but not officers' salaries) by functions, together with related data on manpower and volume of work statistics for the various flItictionse was made somewhat Mr. Leonard said that the work on the budgets Reserve difficult because of the legal responsibilities vested in the with the s and the Board. The Reserve Bank directors are charged directors of 11"linsibility for performing duties normally performed by bark power to approve ng institutions while the Board has the specific each officer's c°1riPemsation, which it exercises through the approval of Bank. 419.17 and approval of the employee salary structure of each Reserve 1937 W17/52 -19- Thus, there is a borderline area in which it is difficult to determine itere the responsibilities of the Board begin and those of the Reserve BarlICS end, and over the years there has been an attempt to work this cut through cooperation. the The budgets are approved by the directors of Board respective Reserve Banks and it has been the practice of the Board may to accept the budgets, subject to any reservations which the choose to express. In response to a question by Governor Vardaman, Mr. Leonard said that of acting since 1947, when the Board instituted the practice 11150 r1 the budgets submitted by the Reserve Banks, it had in no instance approved" them but instead had "accepted" them either finally or teat atively, subject to further review and final acceptance. Following a discussion of this point Ste Ps Mr. Farrell outlined the referral taken in reviewing and analyzing the budgets, including the of items back to the Reserve Banks for further explanation. He also men- tion ed that the budgets for the research and statistical function were cs, l'e/lelved and the analysis prepared by the Division of Research and Statisti that the were reviewed and budgets for the provision of personnel function the ration, and that analysis prepared by the Division of Personnel Administ the budgets for the bank and public relations function were reviewed by 14. Thurston's office* 1938 -20- 11/17/52 Mr. Farrell then discussed the review of the budget data for significant trends, exhibiting in this connection charts relating to salary trends over the period 1941-1953 and expenses of handling country checks over the same period. functionThere was discussion of these trends, as well as of the al expense data shown in the budget analysis volume, and Mr. Leonard Pointed out several instances where there were substantial differences in unit costs for the same function as between Reserve Banks and exPlaiod the reasons for these differences. He also commented on certain eases where the budget data indicated that there would be a signifi cant increase or decrease at a particular Bank in 1953 as compared with 1952• Mr. Leonard brought out that variations in functional expenses t o ive evidence one Reserve Bank to another did not constitute conclus cl variances in efficiency because of certain uncontrollable factors but that they did indicate the desirability of investigation. In this con- by the staff he described the nature of the field surveys made °I* the Division's Reserve Bank Budget and Expense Section. made of the reports Governor Robertson asked what disposition was Ott reports of the major he field surveys, and Mr. Leonard responded that 814.7eYs other reports were rewere submitted to the Board but that the it was not felt that Within the Division of Bank Operations since the Y would be of particular interest to the Board. Governor Robertson 1939 -21-- 11/17/52 expressed the opinion that it might be desirable to submit all of the reports to the Board as a matter of keeping the members informed as to the efficiency of operations at the Reserve Banks. be Mr. Leonard said that condensations of the reports might reviewing Preferable for that purpose, and that the Board members, in "I material, should bear in mind that the report on a particular ency °Peration was not necessarily indicative of the over-all effici Of the Reserve Bank. might Mr. Leonard also offered the suggestion that the Board fish to set aside meetings periodically to consider the operations of entaor two of the Reserve Banks, bringing into the meeting repres concerned with "of all of the divisions of the Board that are ti7 IOUS phases of the operations. In this way, he thought, the Board d bring to bear a wealth of information and background over the '8 Which could be related to the current situation. )al tion, Chairman At the conclusion of a discussion of this sugges 14411ti -4 discussions in prerequested the Secretary to provide for such gs of the Board. 114114 the list of matters to be considered at meetin the Division of Bank Governor Vardaman then inquired whether ves °Perations was continuing the practice of arranging for representati or the the field surveys so as Reserve Banks to accompany its staff on to „ afford an exchange of ideas among the Reserve Banks. Mr. Leonard 1940 11/17/52 -21- replied the practice had been discontinued temporarily because of a c4r1ge in the pattern of the surveys but that it appeared to have been worth-while and its resumption was contemplated. In response to a question by Governor Szymczak, Mr. Leonard said that the procurement of two additional persons provided for in the 1953 blIciet should enable the Reserve Bank Budget and Expense Section to de vote more time to the field surveys and that the 1953 schedule envisaged Irieite to each Reserve Bank and branch. In reply to another question by Governor Szymczak, Mr. Farrell ekid that the Board's staff had received very good cooperation from the Reserve Banks in working toward the solution of any criticized matters. Re explained that the general approach of the staff was that they desired to be helpful to the Banks, that the nature of the problems was *ten such that they could be worked out only over a period of time, ahd that this should be taken into account in reviewing any reports of the field surveys. of the Chairman Martin then suggested that the consideration ileserve Bank budgets for 1953 be resumed at the meeting on November 19. The Board then went into executive session, after which the Chairman advised the Secretary that the Board had discussed the retention of Mr. Robert B. Dawkins, Assistant General Counsel in Charge of Appeals at the Federal Trade Commission, for the purpose of assisting in such manner as the Board might wish in the 1941 11/17/52 -23conduct before the courts of the Clayton Act proceeding against Transamerica Corporation and to advise the Board with respect to the proceeding, including changes in the situation affecting the proceeding such as the death of Mr. L. M. Giannini and the disposition by Transamerica Corporation of its remaining holdings of the stock of Bank of America National Trust & Savings Association, and that by unanimous vote Governor Evans had been authorized to negotiate with Mr. Dawkins for his retention by the Board, with the understanding that when the arrangement with Mr. Dawkins was completed, Governor Evans would submit a recommendation to the Board for its approval. The meeting then recessed and reconvened in the special library at 2:3O P.m. with the same attendance as just prior to the executive session except that Messrs. Myrick, Farrell, and Massey were not Present, and Messrs. Riefler, Assistant to the Chairman, and Horbett, 4ssistant Director, Division of Bank Operations, were present. Mr. Vest reported that he had received a telephone call from 4. , uarles H. Kendall, General Counsel of the Office of Defense Mobil.; -Lzation, who stated that the staff of that agency was considering What recommendations might be made to Congress for amendments to the Dere Ilse Production Act of 1950, that the views of interested Government alcies had been sought, but that through oversight a letter had not , bee) " sent to the Board requesting its views. He said that Mr. Kendall 11/17/52 indicated that he would be glad to receive the Board's suggestions either informally or in a letter. Following a discussion, Chairman Martin suggested that Mr. Vest say to Mr. to reKendall informally that the Board would be glad ceive a letter requesting its views and would thereupon consider the Matter and transmit its suggestions. Chairman Martin's suggestion was approved unanimously. of Before this session there had been distributed to the members the Board a memorandum of topics to be discussed at the joint meeting of the Board 10:30 a.m. at and the Federal Advisory Council to be held tomorrow The matters were discussed and it was understood that Chair- Mall Martin would present the views at the joint meeting substantially as l'ecorded in the minutes of that meeting. In connection with the suggestion of the Council that a study be ad e at the end of 1952 to bring up to date the study of the impact of the excess profits tax on banks which covered the years 1950 and 1951, tire memorandum "orbett outlined a procedure which he had suggested in a to rt„ the vernor Mills dated November 17, 1952. The plan contemplated s for the 114e of a supplement to the report of earnings and dividend Cale requested if tidal' year 1952, with five items of information to be the -re decided to limit the data called for to the minimum, i.e., 1943 11/17/52 -25- amount of excess profits taxes on 1952 taxable income, two additional items to be requested if it were decided that the information should be expanded to show the amount of taxes applicable to net current income) and four more items which might be requested should it be decided to collect additional data that would permit satisfactory estimates to be made of the effect of borrowings on banks' 1952 tax situations. Mr. Horbett suggested that if it should be decided to obtain suPlolementary statistical data covering the year 1952: (a) the above-mentioned supplementary schedule, in whatever form decided upon, be sent only to those insured commercial banks, numbering about 1,300, that comprised the sample of banks that actually reported for the previous excess profits tax study; (b) with the concurrence of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, the distribution, receipt, tabulation, and analysis of the supplements be handled by the Board through the Federal Reserve Banks; (c) the Division of Bank Operations be authorized to discuss the form with representatives of banker groups and make such technical changes as might be agreed upon, with the understanding that any changes of substance would be 1944 11/17/52 -26brought to the Board's attention; and (d) the supplements be distributed early in 1953 with a return date of about March 25, 1953, unless future circumstances should dictate otherwise. At this point all of the members of the staff except Messrs. Carpenter, Sherman, and Kenyon withdrew and the following additional action was taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Reserve System on November 14, 1952, were approved unaniMOtisly.
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