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Minutes of actions taken by the Board of Governors of the Niel-al Reserve System on Wednesday, November 26, 1952. The Board met ill the Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Vardaman Mills Robertson Mr. Mr. Mr. Mr. Carpenter, Secretary Kenyon, Assistant Secretary Vest, General Counsel Sloan, Director, Division of Examinations There was further discussion of an inquiry concerning membership illthe Federal Reserve System made by Land Title Bank & Trust Company, l'hilaclelPhia, Pennsylvania, an insured bank operating a title insurance 11118111e8. Preliminary consideration had been given to this matter at the tlie'ztilig of the Board yesterday. During the discussion it was brought out that three State banks in Nat sYlvania which were admitted to membership in the System prior to 1933 tork Ilua to operate title insurance departments; that two other State banks a to 844Elittemembership prior to 1933 transferred their title business to a title insurance company and received stock in that company which they have NtEti,„, -; -kL that one trust company which was admitted to membership in 1945, while holding stock in a title insurance company, was permitted to exercise e to-s title powers to Prevent their lapse under the Pennsylvania Benking C(xLe; that one New Jersey trust company, a member bank, was permitted by 2008 11/26/52 -2- the Board in 1938 to acquire, through absorption of another trust company, 8.11 of the stock of a title insurance company, the majority of which it e°4tinued to own; and that some 8 or 10 nonmember insured banks in the Stets of Pennsylvania which operate title insurance departments might 41PNY for membership in the System if it should be decided that the Board 1/°111(1 follow a policy under which they would be permitted to continue the title business as member banks. at Governor Robertson reiterated the opinion which he expressed the Meeting not be yesterday that Land Title Bank & Trust Company should Mraitted to membership and permitted to retain its title business, either (11rect or through a subsidiary company. Zads In support of his position he the following points: The Board would have to reverse a position which it adopted in 1935 when an inquiry regarding membership was Tads by the same trust company (then known as Real Estate!And Title Bank & Trust Company) and to which it had adtiered since that time with only two minor exceptions. , A reversal of that position would be contrary to the .0oard'8 general policy against the combination of banking elid nonbanking functions. A reversal of that position would be inconsistent with 141e Board's position in relation to proposed bank holding e°1PanY legislation, that is, that a bank holding company should divest itself of nonbanking enterprises. The State member bank would be placed in a preferred Position as compared with national banks, which are not Permitted to conduct a title business. 2009 11/26/52 -3- If the Board were to admit a bank to membership and allow it to continue a title business, other member banks might be encouraged to request permission to conduct other tYpes of nonbanking businesses. As a matter of equity, the Board would have to reconsider the limitation placed on another trust company which, at the time it was admitted to membership in 1945, agreed exercise its title insurance authority only sufficiently to keep that authority alive under State law. The Federal Reserve System has had no substantial super18°rY experience with banks operating title insurance dePartments. Governor Robertson also said that he was not impressed with the e°11tenti 0n of the Federal Reserve Bank of Philadelphia, as set forth in -, Vice President Hill's letter of November 21, 1952, that it would not be 151Letical for TAnd Title Bank & Trust Company to transfer the title hs "eas to another corporation and trustee or distribute to its stockhoide ra the stock of that company, which would result in a substantial l'echlet 0 n in the capital account and operating earnings of the trust CO ) a4Y. He stated that the trust company was amply capitalized and had 3(5ci earnings from its banking business and that under a trustee arrangetaarlt th, %' shareholders would not be deprived of income they now receive r17°M their shareholdings. It was Governor Robertson's opinion that if the Board responded /11-tavo„ 8134 to the current inquiry, the trust company would divest itof its title business and would become a member of the System, 2010 11/26/52 either as a national or State member bank, following its contemplated consolidation with a national bank. Governor Vardaman said that on the basis of the facts brought out 8° far, he would be inclined to favor the admission of Land Title Bank & CMPany without requiring it to dispose of the title insurance business. lienoted that the State of Pennsylvania Banking Code adopted in 1933 pro7ided that that those institutions which were conducting a title business at time should be permitted to continue, thus indicating that the legis- re recognized the legality and soundness of the function, and that there *Ire now three member banks engaged in the title business. Governor Vardaman rePeated the comment which he made at the meeting yesterday that there might been-4e benefit in bringing the banks operating a title business under the I,ory v-authority of the System. He also thought that as a matter of 84er etitY the Board would have to reconsider any case where it imposed a limiteti , ' 41 on a bank's title business as a condition of membership if it acted rkliros, “ThlY in the instant case. He went on to say that his views concernof Land Title Bank & Trust Company should not be taken to ileEtn that other banks operating a title business should be admitted to 41$1413ellah1P automatically. However, if they applied for membership and ther - 'were no other adverse factors, he felt they should be admitted, Governor Vardaman thought that the Board should be fully informed q41. .411e reasons why the Federal Reserve Bank of Philadelphia favored admission 2011 11/26/52 —5— of Land Title Bank & Trust Company without a requirement that it dispose ' the title business, stating that the problem " Nem]. was peculiar to the Third Reserve District, that the Philadelphia Bank had a background of erperience in the matter, and that in the circumstances he would hesitate to vote contrary to the Bank's recommendation. Governor Mills said that he did not believe a title insurance b118111e138 Was a proper activity for a commercial bank, that the views which he exPressed at the meeting yesterday were in the light of his understandat that time that Land Title Bank & Trust Company was a single, isolated e486, that if such were the fact he would feel that the language of the e1118Ylvania Banking Code might justify the Board in making an exception to 1143 general policy against the combination of banking and nonbanking functi048, but that the fact that there were a number of other banks in the same catego—, ) some perhaps not as sound as the subject institution, raised 4-., °Ilbt I, -- hie mind whether the Board should take a step which would place it 1114 Position where it would be more difficult to impose conditions of 41'4113erehiP Upon any other banks which applied. At the request of Chairman Martin, Mr. Vest commented that the tOard . Might want to give some consideration to the statement of the NladelPhia Reserve Bank that it felt the provisions of paragraph 13 of 9 of the Federal Reserve Act were designed to encourage State banks to e. 151)1Y for membership with assurance that they might retain their full r cheateand statutory rights as State banks subject to the provisions of 2012 1426/52 -6- the t, xederal Reserve Act and the regulations of the Board. out He pointed however, that these provisions had not been construed as limiting the .j of the Board to impose conditions of membership on banks join- 14 the System. Mr. Vest also felt that the Board would want to consider 1118:t it8 Position would be with respect to the other nonmember banks in Petnsylvania that conduct a title business should they apply for member8114 f ollowing favorable action by the Board in the case of Land Title 441k& Trust Company. Chairman Martin then stated that there might be personal factors 443'certain interrelationships involved which would not make it practical .vr -' ,rust company to separate itself from its title business, either e°4113lete-Y or through the establishment of a subsidiary company, that he oned whether the Board should act without having before it all of the r acts of the case, and that he would suggest, in the circumstances, that Mr. Williams, President of the Federal Reserve Bank of Philadelphia, be invited to come to Washington in the near future and discuss with the 13'°ard not only the particular case in question but the over-all situation Vith respect to Pennsylvania banks that carry on title operations. Chairman Martin's suggestion was approved unanimously, with the understanding that he would talk to Mr. Williams and arrange a meeting to which Mr. Williams would be invited to bring with him such other officers of the Reserve Bank as he might desire. 11/26/52 -7- At this point Mr. Sloan withdrew from the meeting. There was presented a memorandum dated November 25, 1952, from Mrs Bethea, Director, Division of Administrative Services, recommending, krr easons stated, that the Board's public liability insurance policy, exiliring today, be renewed on a three-year basis with the same insurer, General Accident Fire and Life Assurance Corporation, Ltd. t $2,162.93, at a premium including a premium of $22.80 to place the coverage on a comprehensive basis. The memorandum stated that in view of the sharp illellease in rates quoted for this type of policy, the amount provided for this PurPose in the 1952 budget of the Division of Administrative Services ' li°111d be exceeded by approximately $1,200. The memorandum also stated that self-insurance had been considered bUt Ion A_ uelieved to be inadvisable because the Board would have to defend Itself ag6tinet any claims by the public, the awards for settlement of claims 13111Dlie liability suits are often large in amount, and the Board would 114/Ie t Pay the cost of elevator inspection, which is provided without ° 110 under the insurance policy. Following a brief discussion, the recommendation was approved unanimously. At this point Mr. Thurston, Assistant to the Board, and Mr. Young, 1)ir ect°1 ' , Division of Research and Statistics, entered the room. 2014 11/26/52 -8- Reference was made to a memorandum dated November 13, 1952, from Messrs• Thurston and Young, which had been circulated among the members °I' the Board, recommending that the Board authorize (1) a revision of the booklet, "The Federal Reserve System -- Its Purposes and Functions", illorder to bring it up to date and permit certain other textual changes, 441 (2) the retention of Mr. Warren Chappell on a consultant basis to BiblidY the format of the booklet. Attached to the memorandum were two 81111)1ementa1 memoranda, as follows: Memorandum dated November 6, 1952, also from Messrs. c Thurston and Young, recommending the appointment of Mr. ,haPPell as a Consultant to the Division of Research and otatistics on a temporary contractual basis until December 1953, with compensation at the rate of $50 per day for each day worked for the Board, either in Washington or outside the city, plus per diem in lieu of subsistence at the rate of $15 while in travel status in connection with his assignment. The memorandum also recommended that, if enas a consultant, Mr. Chappell receive transportation 3(1Denses in accordance with the Board's travel regulations 11313licable to assistant division directors and that his 2fric1a1 headquarters for purposes of travel be Norwalk, connecticut. The memorandum further stated that it was not anticipated that Mr. Chappell's services would be reaired for more than 10 days during the remainder of 1952 and all of 1953. Memorandum addressed to Messrs. Thurston and Young nder date of October 23, 1952, by Miss Burr, Assistant i rector, and Miss Butler, Economist (Editorial), Divi1°n of Research and Statistics, submitting a plan for revising the text of the booklet. At the request of the Board, Mr. Thurston and Mr. Young discussed the 1411311c demand for the booklet, which was last revised in 1947, the 2015 11/26/52 (31ralloility of undertaking a further revision before the present supply (ItC°Ples was exhausted, probably in the early part of 1953, the nature or the textual changes contemplated, and the conclusion of the staff that it vo,,, A """' be helpful to obtain professional advice as to changes in format would make the presentation more effective. During the ensuing discussion, members of the Board spoke of the ee . for a second booklet designed for groups such as students at the pre- College level and the difficulties involved in working out an easily under814111116ble Pliblication of this sort. Mr. Thurston was requested to consider the 11,40 setbility of undertaking such a publication, and it was also suggested that 1i Obtain the views of Mr. Chappell with respect to the Board's Annual RePort and the. brochure describing the Federal Reserve Building. Thereupon, the staff was authorized by unanimous vote to proceed with the revision of the System booklet along the lines proposed and unanimous approval was given to the appointment of Mr. Chappell on the terms recommended in the memorandum of November 6, 1952, from Messrs. Thurston and Young. At this point Messrs. Thurston, Vest, and Young withdrew and the Ni0-. wing additional actions were taken by the Board: Minutes of actions taken by the Board of Governors of the Federal Re 8erve 0 QYstem on November 25, 1952, were approved unanimously. 2016 11/26/52 -10- Memorandum dated November 21, 1952, from Mr. Carpenter, Secretary °Irthe Board, reading as follows: "It will be recalled that Robert H. Craft, Technical Consultant, returned to the Guaranty Trust Company in New Y°rk the latter part of September on the condition that he !ould be available to the Federal Open Market Committee ,P"om time to time in connection with the report prepared 057 the ad hoc subcommittee appointed to study the GovernTent securities market. Mr. Craft was requested to come 10 Washington on three occasions during October and November 952 for this purpose. It will be necessary that he make e.Leveral additional visits to Washington in connection with report, and a continuation of his service as Technical ?nsultant is requested for such period as is necessary 1411-1e the report is under consideration. Under this arangement the Board would continue to reimburse Mr. Craft : Or travel and other expenses incurred in the discharge if his official duties on the same basis as approved May i) ( 1952, i.e., in accordance with the provisions of the °ard'e official travel regulations applicable to the !embers of the Board except that it would not be required at his vouchers set forth such expenses in detail or B UPPorted by hotel or other receipts. "It is also recommended that the attached voucher reting reimbursement of $86.01 for hotel bills and in14" ciental5, as well as the transportation requests listed 1or the three trips to Washington made by Mr. Craft dur: llag October and November, be approved for payment." V Approved unanimously. Letter to the Board of Directors, The Vienna Trust Company, Virginia, reading as follows: "Pursuant to your request submitted through the Federa,1...Reserve Bank of Richmond, the Board of Governors ap1 es the establishment and operation of a branch in McLean, 1" .113., 'rginia, by The Vienna Trust Company, Vienna, Virginia, Provided that formal approval is first obtained from the 6/45Propriate State authorities, that prior to establishment 11/26/52 -11- "of the branch your capital stock is increased to an amount not less than $100,000, and provided further that such branch is established within six months after the date of this letter." Approved unanimously, for transmittal through the Federal Reserve Bank of Richmond. Letter to the Board of Directors of the Security State Bank, ElartleY, Iowa, stating that, subject to conditions of membership 41z1bered 1 and 2 contained in the Board's Regulation H, the Board 611P1)1'"ee the bank's application for membership in the Federal ReSYstem and for the appropriate amount of stock in the Federal Nerve Bank of Chicago. The letter also contained the following 138 'lligraph: ” It appears that the bank is authorized to exercise t lust Powers but that such powers are not being exercised 1.1 L this time. Attention is invited to the fact that if _ 11.e bank should desire to exercise any powers not actually rercised at the time of admission to membership, it will 13.! necessary, under condition of membership numbered 11 to ain the permission of the Board of Governors before exerj e sing them. In this connection, the Board understands that :lere has been no change in the scope of corporate powers ' ocercised by the bank since the time of its application for Me mbership." Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. Letter to the Board of Directors, American State Bank, Lansing, 14ichigan, reading as follows: A, 018 ) 11/26/52 -12- "Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors approves the ! stablishment and operation of a branch in Holt, Michigan, wY the American State Bank, Lansing, Michigan, provided the c°11solidation with the Holt State Bank is effected substantially as proposed and that prior formal approval of the apProPriate State authorities is obtained with respect to the consolidation and the establishment of the branch. "In recognition of the fact that the growth in capital !Fcounts of the bank has not kept pace with the increase in icle volume of its business, it is understood the board of airectors has approved a plan for increasing the common ?tock of the consolidated bank from $675,000 to $1,000,000, including the sale of not less than 8170,000 par value of new stock at a premium of $127,500, and that this program 11 be submitted to the shareholders at their annual meetin January 1953. The Board feels that this increase in eaPital funds is very desirable; however, since it will not Illtogether correct the deficiency in capital, it is assumed O"at the directors will continue their stated policy of not rei -nvesting maturing municipal or general market bonds in iek assets, as well as the policy of conserving a substan'lel portion of earnings." r f Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. Letter to Mr. Purrington, Assistant Vice President, Federal Reserve tank °f Chicago, reading as follows: ,, "This refers to your letter of November 19, regarding e penalty of $54.25 incurred by The Farmers Bank, Mount le 'ski, Illinois, on a deficiency in its reserves for the Period ended October 31, 1952. "It is noted that the deficiency resulted from a delay in reserve credit of $150,000 due to the fact that thereceiving slibject bank's request for a transfer was lost or was misd at its correspondent bank; that the bank normally carries ! 1 11 excess reserve of from 10 to 20 per cent; and that it has ueen assessed but one penalty in the last three years. g 2019 11/26/52 -13- "In the circumstances, the Board authorizes your Bank to waive the assessment of the penalty in this case." Approved unanimously. Letter to the Presidents of all Federal Reserve Banks, reading 843 f011Ows "There is enclosed a copy of the Board's letter of Octdber 27, 1952, addressed to the Vice President of a Fed"al Reserve Bank with respect to limitations on proposed 44vestments by a member bank in its wholly-owned subsidiary ighich became such through acquisition of a majority of the stc3ck in satisfaction of debts previously contracted. "This letter should not, of course, be interpreted as mewJ-446 that stock acquired in satisfaction of debts precontracted may be retained for an indefinite period. 1 1-r101181Y the case referred to, the stock, with the approval of 'Ile State Bank Commissioner, had been transferred to bank premises account and the affiliate's operations confined t° holding property for that purpose." Approved unanimously.
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