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Minutes of actions taken by the Board. of Governors of the Peaeral Reserve System on Tuesday, November 25, 1952. The Board met ill the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Mills Robertson Mr. Mr. Mr. Mr. Carpenter, Secretary Kenyon, Assistant Secretary Vest, General Counsel Sloan, Director, Division of Examinations There were presented authorizations covering travel by Chairman tifl to New York, New York, from November 21 through 2, 1952, to attend 14eetlng of the Governmental Securities Committee of the Investment Bankers 4143°c iation, and to Hollywood, Florida, from November 28 through December 1952) t0 3, address the annual convention of the Investment Bankers Association. Approved unanimously. Governor Robertson suggested that appropriate members of the staff he re quested to study whether there should be any change in the Board's " tl. 61 regulations to provide a higher rate of per diem in the case of tl'Et\Tel to Federal Reserve Bank and branch cities. He felt that such act1 °11 //ac justified by the high cost of accommodations in most of these After discussion, it was agreed that the staff should make such a study and submit a recommendation to the Board. 1995 11/25/52 -2- At this point Governor Vardaman joined the meeting. Chairman Martin referred to the discussion at the meeting of tbaBoard Yesterday concerning a request from Mr. Charles H. Kendall, Geteral Counsel of the Office of Defense Mobilization, for the Board's 'flews regarding the continuation and amendment of the Defense Produc- t104 Act) and to the decision of the Board at that time not to reply to th, request pending receipt of a dre.ft of the report on the extenatoll of the Defense Production Act being prepared by Mr. Putnam, Economic Stabilization Administrator. Chairman Martin stated that he had received ec Y of Mr. Putnam's proposed report this morning, that amendments 84°11id be made in the references therein to the programs carried out by the would °ard under authority of the Defense Production Act, and that he Ngsst that no action be taken by the Board until he had had an opportunity tocliscuss the matter further with Mr. Putnam. Approved unanimously. , Vice There was presented a draft of letter to Mr. Armistead '"-derit of the Federal Reserve Bank of Richmond, approving the designatioli Mr. Thomas G. Davis as a special assistant examiner for the RichBank should state in Governor Vardaman questioned whether the Board l theletter that it would not object to retention by Mr. Davis of a beneficia hrterest in the stock of a national bank in South Carolina which he had accl"red through inheritance. IWO; 11/25/52 -3- Following a discussion, during which it was brought out that ** Davis was a trainee assigned to the Bank Examination Department Ilttaler than an employee whom the Reserve Bank wished to designate as a erecial assistant examiner so that he might be used occasionally for clerical 'work in connection with examinations, it was understood that e"3"111°r Robertson would give further consideration to the matter. Before this meeting there had been sent to the members of the Board °1448 of a memorandum dated November 21, 1952, from Messrs. Vest and 834at,reg8,rdii.43 a possible application by Land Title Bank and Trust e°14141Y., Philadelphia, Pennsylvania, for membership in the Federal Re114 13 SYstem. The memorandum stated that the trust company planned to " 4bsorb a large national bark and apply for membership as a State bank, that tt had for over 75 years conducted a profitable real estate title itsure ace business which now amounts to approximately 25 per cent of the title business in the Philadelphia area, and that on November 19 1952, l'ercy . Madeira, Jr., President of the trust company, conferred Vith Governor Robertson with respect to whether the Board would consider te ti "Ale insurance business a bar to membership in the System and, if Bo, vu "ether the Board's objection would be removed by a transfer of the title ittsurance business to a newly organized wholly owned title insurance ' c' 4 41Y0 The memorandum also stated that in 1935 when the trust company (then Itnown as The Real Estate-Land Title and Trust Company) was considereobership and raised the same question the Board advised the trust 1997 A 11 5/52 -4- e°14)611Y that it would not consider the trust company as ineligible or 4484ceptable for membership, even if it should hold the stock of a title corPoration, but that the Board, as a general policy, did not look with on the practice of a member bank engaging in business indirectly f " thMugh a subsidiary which the bank was not permitted to engage in directly if the trust company were admitted to membership, the Board believed that „ it should dispose of the stock of the proposed title company when its re lations with the Reconstruction Finance Corporation permitted and the diePosition of the stock or other plan of disposal was justified by the eaPital position of the trust company. The memorandum stated that theb never became a member of the System. It went on to discuss the hiat ,, °r-‘ of the Board's general policy regarding the retention of a title 14811-ra11ce business by State member banks, either directly or through an the "'late/ minor exceptions which had been made to that policy, and 81c141.1 situation in the State of Pennsylvania with respect to the 8•680elation between the title insurance business and the banking business. The t eracrandum also commented on the fact that the Board was considering 11034111g company legislation which would require bank holding companies to Elt themselves of their interests in nonbanking businesses and that this Ntia seem NAR--A to constitute even more reason why banks themselves should not in extraneous businesses, either as a part of their own activities hroUgh subsidiaries. Attached to the memorandum was a letter from 1998 11/25/52 -5- MI% Madeira, dated November 19, 1972, outlining the position of the trust company and emphasizing the low loss potential involved in the title insurance business. There had also been distributed to the members of the Board c°11 e8 of a letter dated November 21, 1952, from Mr. Hill, Vice President or the The Federal Reserve Bank of Philadelphia, with regard to this matter. ,-etter contained the statement that the Reserve Bank was strongly °I' the ()Pinion that State banks which are otherwise eligible and accept- 8.d, have conducted title operations since prior to 1933 should not be renie 4red to give up their title business as a condition of membership. After reviewing his discussion with Mr. Madeira and the facts 14v°1ved in the situation, Governor Robertson said that he felt the Board d. not Permit the trust company to become a member bank and retain the titi --e insurance business, which he regarded as a nonbanking business 441 in - no sense comparable to a trust business, either direct or through attheidiary. He recognized that prior to 1935 the Board admitted to 14111/erehip a few banks in Pennsylvania which wrote title insurance or 101to, out that had title insurance companies as affiliates but pointed "that time the Board had, with but two minor exceptions, adhered to 841 e. -cY against permitting a bank to continue such business and become 4 t4etber. Board Governor Robertson pointed out that over a long period the -1999 W25/52 -6- has taken the position in connection with bank holding company legislati lthat a combination of banking and nonbankimg interests should not be Permitted. He felt that in the circumstances there would be an in- .()1:mistency in its taking the position that a bank could be permitted to retain a nonbanking business upon being admitted to membership. Governor Robertson also stated that in the course of discussion With Mr. Madeira expressed strong reluctance to separate the title illsilrance business under an arrangement whereby the stock of a new c°4113aY created to conduct the title insurance business would be held tiltrust for the shareholders of the bank because of the tax problem that 1311ell a course would create and because the title insurance business was 811ch a Profitable part of the bank's operations that it might be possible i to , 'crease the capital of the trust company out of the earnings from Bource. Governor Robertson pointed out, however, that the trust et34.1437 was amply capitalized and would not be forced to sell additional Moreover, that under the trustee arrangement the shareholders would licrt 1c)se earnings derived from the title insurance business. Governor Mills referred to the statement in Mr. Madeira's letter that banks in the State of Pennsylvania are permitted to do a title in- etzre. rice business only if they were engaged in that business when the Ae Ylvania Banking Code was ado oted in 1933 and have not since then 11/25/52 -7- sur rendered the right by non-user. (ltd. Trust He commented that if Land Title Bank Company were admitted to membership and were permitted to re- t'Illathe title insurance business, the trust company would be placed in 8. Position comparable to that of several other banks admitted to member"113 Prior to 1935 while, at the same time, the Board would not be placed „ c". Position where it would be confronted with the problem of a member bank d esiring to enter the title insurance business. Governor Vardaman expressed the view that there might be some 841antage in admitting the trust company to membership despite this one 4etor on the theory that it was conducting a business which was permitted bY the State statutes and that as a member bank its operations would be Mlbie u et to the supervision of the Federal Reserve System as are the opera- tion " of certain member banks doing a title insurance business. It was then decided to postpone a decision on the matter pending turt her discussion at a subsequent meeting of the Board. At this point Messrs. Vest and Sloan withdrew from the meeting the following additional actions were taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Re8e, Aye System on November 24, 1952, were approved unanimously. Memorandum dated November 21, 1952, from Mx. Bethea, Director, Divia 1011 of Admintstrative Services, recommending that the resignation 2001 11/25/52 -8- OfCarrie S. Turner, Secretary in that Division, be accepted to be "ctive, in accor&lice with her request, at the close of business 17()verfiber 26; 1952. Approved unanimously. Memorandum dated November 21, 1952, from Mr. Sloan, Director, tivi8iori of Examinations, recommending that John L. Nosker, Assistant C"Ilier of the Federal Reserve 'Rank of Richmond, who had been assigned todutY with the Division of Examinations for a period of approximately 84111°11the pursuant to the plan approved by the Board on October 14, 112; be appointed a Federal Reserve Examiner until June 1, 1953. Approved unanimously. Letter to Mr. Frank C. Newman, Vice Chairman, Committee on Improveet of Administrative Procedures, American Bar Association, University of 41ircrnid School of Law, Berkeley, California, reading as follow: This is in further reference to your letter of October 15, 1952, and its enclosures, concerning a draft °f a Proposed Good Faith Reliance Act. Your lc-Ater was eicknowledged under date of October 29 by Mr. Solomon, the Board's Assistant General Counsel, who indicated hat Your request for informal views concerning the , uraft was receiving consideration. "Briefly, the draft provides that conduct not in conformity with certain Federal laws - as yet unspecified Igould not incur liability for damages or penalties if the Person concerned established that such conduct was in conformity with and in good faith reliance on a rule, adminis?rder, opinion, or other written statement of the t;eri-aig agency. 11/25/52 -9- "The matter to which your proposal addresses ithas not thus far been a source of problems or difficulties in connection with the work of the Board. .1?ecause of this and our consequent lack of experience In this field, we do not feel that we are in a position at this time to comment on the matter. However, we in./rite your attention to section 23(a) of the Securities Exe hange Act of 1934, as amended (U.S.C., title 15, sectioa 78w), which is similar to your proposal." !elf Approved unanimously. Letter to Mr. McConnell, Vice President, Federal Reserve Bank of 1411111LeaPo118, reading as follows: "Reference is made to your letter of November 12, 3952, enclosing a certified copy of a resolution adopted , :7 the Board of Directors of Bank of Sheridan, Sheridan, o_ntana, signifying its intention to withdraw from member.13,14 in the Federal Reserve System, and your telegram stat4ng that the bank requests waiver of the six months' notice (If such withdrawal. It is understood that the bank has apPlied to the Federal Deposit Insurance Corporation for contintlance of insurance of its deposits. "In accordance with the bank's request the Board of Governors waives the requirement of six months' notice of withdrawal. Accordingly, upon surrender of the Federal Re"I've Bank stock issued to the bank, you are authorized to .?ancel such stock and make appropriate refund thereon. Under -the Provisions of section 10(c) of Regulation H, as amended effective September 1, 1952, the bank may accomplish termin4tion of its membership at any time within eight months after notice of intention to withdraw was first given. Please advise when cancellation is effected and refund is made. "The certificate of membership issued to the bank should be obtained, if possible, and forwarded to the Board. The State banking authorities should be advised of the bank's proP°Bed withdrawal from membership and the date such withdrawal becomes effective." Approved unanimously. 2003 11/25/52 -10- Letter to the Board of Directors, State Bank of Albany, Albany, York, reading as follows: "Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors apProves the establishment and operation of a branch in Amsterdam, New York, by State Bank of Albany, Albany, New York, Provided the merger with The Farmers National Bank °f Amsterdam Is effected substantially as proposed, with the exception that banking premises acquired in the transaction are not to be carried on the books of the State 8ank of Albany in excess of present book value, and pro7ided that formal approval of the appropriate State authorities is obtained. "In connection with the proposed merger, the Board ?f Governors also hereby gives its written consent to th transaction as required under Section 13(c) of the vederal Deposit Insurance Act." Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Letter to The St. Johns National Bank, St. Johns, Michigan, readhip u follows: "The Board of Governors of the Federal Reserve Syst verla has given consideration to your supplemental applica' 1°11 for fiduciary powers, and grants you authority to !", when not in contravention of State or local law, as -c7ustee, registrar of stocks and bonds, assignee, receiver, tr in any other fiduciary capacity in which State banks, , r11st companies or other ccrporations which come into eomLition with national banks are permitted to act under he laws of the State of Michigan. The exercise of these , rvers, in addition to those heretofore granted to act as necutor, administrator, guardian of estates, and committee 'L estates of lunatics, shall be subject to the provisions ! o cl the Federal Reserve Act and the regulations of the Board 4 Governors of the Federal Reserve System. r 2004 11/25/32 "This letter will be your authority to exercise the fiduciary powers granted by the Board pending the preparatImn of a formal certificate covering such authorization, 'which will be forwarded to you in due course." Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. Letter to Mr. Royden Brown, President, First Inc., Fort Morgan, C°1-orado, reading as follows: "This refers to your letter of October 14, 1952, to the Federal Reserve Bank of Kansas City requesting a .1stermination as to the status of First Inc., Fort Morgan, : Colorado, as a holding company affiliate. "From the information supplied, the Board understands that First Inc., Fort Morgan, Colorado, owns 535 of the ,000 outstanding shares of common stock of The First Na! 'tonal Bank of Fort Morgan, Fort Morgan, Colorado, but does 11°t, directly or indirectly, own or control any stock of or Illanage or control any other banking institution. 'In view of these facts, the Board has determined that Pirst Inc., Fort Morgan, Colorado, is not engaged, directly °I' indirectly, as a business, in holding the stock of, or allaging or controlling, banks, banking associations, savfags banks, or trust companies, within the meaning of sec'ion 2(c) of the Banking Act of 1933, as amended, and, acngly, First Inc. is not a holding company affiliate Or anY purposes other than those of section 23A of the lederal Reserve Act and does not need a voting permit from he Board of Governors in order to vote the bank stock which It ovne. "If, however, the facts should at any time differ from .!hose set out above to an extent which woitld indicate that ''irst Inc. might be deemed to be so engaged, this matter should again be submitted to the Board. The Board reserves !he right to make a further determination at any time on T he basis of the then existing facts." Approved unanimously, for transmittal through the Federal Reserve Bank of Kansas City. 2005 11125/52 -12- Letter to Mr. Richard W. Cutler, Porter, McIntyre, Johnson 8: elltaer, 622 North Water Street, Milwaukee, Wisconsin, reading as follows: "This refers to your letter of October 30, 1952, regarding the question whether the recipient of a V-loan is under an implied legal duty to expend the proceeds of such loan solely for defense work. "It is understood that suit has been brought against Tle of your clients by a materia1man who delivered materials Lo a certain V-loan borrower and that the materialman claims :the legal right to apply payments made to him by the V-loan borrower not only to debts of the borrower related to the contract financed by the V-loan, but also to other debts of t_he borrower unrelated to such contract. You express the , ',Pellet that the V-loan borrower was under an implied duty () the lending bank to nay out the proceeds of the V-loan olely for 'Government work or overhead'. In this conneci°11, You enclose a copy of an excerpt from your law memowhich states, in effect, that the Federal Reserve Dierks institutionally act as if the borrower under a V-loan ere under an implied legal duty to apply the proceeds of ue V-loan only to defense contracts, and that, if the Reserve Bank did not regard such a duty as already in existlice, it could create it by incorporating such a requirement ! 411 the V-loan credit agreement. "Section 301 of the Defense Production Act of 1950 authorizes the execution of V-loan guarantees with respect to .(35.11s made for the purpose of financing defense contracts. over, we cannot say, as stated in the excerpt from your av memorandum, that there is any uniform custom or practice Under which the Federal Reserve Ranks act as though the .2orrower under a V-loan were under an tmplied legal duty apply the proceeds of the loan solely to debts related ense contracts. tereover, it is not accurate to f as suggested in the excerpt in question, that the Reserve Banks could require the inclusion in a V-loan credit agreement of a provision requiring application of the proceeds of the loan to the defence contract. The Federal Reserve Banks act in connection with V-loan guarantees Z r :Zat, 2006 11/25/52 -13- vILLY in an agency capacity and would have no authority to require the inclusion of such a provision unless so directed bY the guaranteeing agency." Approved unanimously, with a copy to Mr. Young, President, Federal Reserve Bank of Chicago. •
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