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l'7f/56 4 meeting of the Board of Governors of the Federal Reserve Sys— tem. was held in Washington on Wednesday, November 30, 1944, at 10:30 PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak Draper Evans Mr. Morrill, Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters herein— after referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Pederal Reserve System held on November 28, 1944, were approved unan1140484. Memoranda dated November 25, 1944, from Mr. Leonard, Director 't th n, e-Ivisioa of Personnel Administration, recommending that the ict1 1111 1) increases in basic annual salaries of employees in that Divi— e aPProved, effective December 1, 1944: kkLe Designation liNu .ert A. plor --uson Administrative Assistant el:04e en "M. Pound— Personnel Clerk Salary Increase From To $4,600 $5,000 2,300 2,500 Approved unanimously. Letter to Mr. Meyer, Assistant Cashier of the Federal Reserve °r Chic ago, reading as follows: 757 11/30/44 —2— "The Board of Governors approves the changes in the v po ersonnel classification plan of the Detroit Branch, in— .-Lying the establishment of three new positions, as sub— tted With your letter of November 24, 1944." Approved unanimously. Letter to "The Citizens Bank of Windsor", Windsor, Missouri, rekri; as follows: a Board is glad to learn that you have completed all Rr erangements for the admission of your bank to the Federal serve System and takes pleasure in transmitting herewith af °mal certificate of your membership. of !It will be appreciated if you will acknowledge receipt t,his certificate." Approved unanimously. Letter dated November 27, 1944, from The National City Bank of 417 York 01,i a---alag of the opening of a branch at Calcutta, India, on 4veAlber 20, 19'1', 44 in accordance with the approval granted by the Board SePt era-- (' 1944, of the establishment of the branch. Noted. Meni °randum dated November 30, 1944, from Mr. Smead, Director Of the tivi slon of Bank Operations, reading as follows: Reee "The present loss—sharing agreement between the Federal trierZlie Banks became effective March 1, 1943. This agree— knit Pr°vides for distribution among the Federal Reserve reael,.% in proportion to their Section 7 surplus and contingent colv:!8, of losses in excess of $500,000 which would be bY the bankers blanket bond except for the limitation wollid-,,araount thereof and losses regardless of amount which covered by such bonds except for war risk and other aillon, s;:°n clauses. It also provides for the distribution cw, the Federal Reserve Banks of any loss which would be versed, 1— ctea e, u.Y the registered mail and express insurance poll— tairie, 4cePt for war risk and other exclusion clauses con— ' 4 in such policies. 4'4 1113oA4 -3'Proposed amendments to this loss-sharing agreement losses on registered mail and express shipments 2ave now been approved by each of the twelve members of the surance Committee and by the President of each Federal e.erve Bank. The revised agreement, a copy of which is uached greementhereto, provides that 'After approval of this by the Board of Governors of the Federal Reserve tem, each party hereto shall duly execute a counterpart B lginal hereof and mail the same to the Secretary of the Governors of the Federal Reserve System. When fre" clulY executed counterpart originals have been received Go°111 all the parties hereto, the Secretary of the Board of ellirl"nors of the Federal Reserve System shall notify all 1.9c 4. Parties, and this agreement shall take effect January 1, of 6, °r on such later date as may be specified by the Board rnors of the Federal Reserve System.' wil l If the agreement is to become effective January 1, it Go ; -L need to receive the prompt approval of the Board of tee : rn°rs in order that Mr. Leach, Chairman of the CommitOperations of the Conference of Presidents, may• ap'lfY the President of each Federal Reserve Bank of such te el'i°1Yal in time for any necessary action to be taken by exec1-13-rectors of the Banks and for the agreement to be d and received by the Board prior to January 1, 1945. zent , is recommended that the revised loss-sharing agreether approved by the Board and prompt notification on Ge°f be given to Mr. Leach, Chairman of the Committee of aPerations of the Conference of Presidents. A draft .;elegram to Mr. Leach is attached. vicles Subject to certain limitations, the agreement proReee for the discontinuance of the purchase by the Federal : all /e Banks at their own expense of registered mail insurraeritsagainst losses on currency, coin and security shipbetween points and places anywhere in the continental States excluding Alaska, which are made (1) to, ota Or 1,.... others a Federal Reserve Bank or (2) to, from, or by or the (a) account of a Federal Reserve Bank, either (b) Isegistered mail, express or armored car service or or er special guard by railroad, automobile, airplane, re47 other method of transportation. These limitations o IrPrincipally to losses in excess of a specified amount tone shipment, to losses resulting from any dishonest, addr-"-Lent, or criminal act of an employe of a sender or er4seee, and to any losses to the extent they are r?cov8Uoll j fr°m any insurance, surety, or indemnity covering shiZs. In general the limitation as to each loss on " ent made by a Federal Reserve Bank (and shipments r Z Z X T t 1_759 11/30/44 -41,00 -L Federal on any one Reserve notes from 'Washington) to any one addressee day is as follows: BY registered mail or express, $10,000,000. BY registered airmail or airexpress, $5,000,000. T_ BY armored car or under special guard, 51000,000. -ta-.111.1pe case of shipments to a Federal Reserve Bank by member sh. n?nmember banks, the agreement provides that the bank 811113Ping, or causing, or ordering the shipment will assume oj e it°88 in excess of $2,000,000 on all shipments by any day, anking office to the Federal Reserve Bank on any one a "Under the agreement the first $10,000 of any loss on ,registered mail and express shipment is to be absorbed the Federal Reserve Bank sustaining the loss. The portion all " loss in excess of $10,000 is to be distributed among th Fe Reserve Banks on the basis of the volume of tria",r shipments in the preceding three years until the diso.f."11:table losses total $500,000 in any one year. Any excess dist ributable losses over $500,000 in any calendar year ti„tobe distributed among Federal Reserve Banks in propor-" to their Section 7 surplus and contingent reserves. as,'In order to make the coverage on shipments as nearly 1.1 acticable the same as that now covered by purchased Of ;:ance, the agreement provides that subject to the terms in,::""8 circular a Federal Reserve Bank will assume all risks ejldent to the transportation of shipments of currency or trl%(a) by registered mail and (b) by such other means of Barik-P f.°rtation as may be selected by the Federal Reserve ' sandir IrOm the time such shipments leave the office of the bank.-8 bank until delivered to the office of the addressee 3 shall4-"The agreement provides that the Federal Reserve Bakn 108; establish reserves on its books for registered mail to ) 8 The initial reserve is to represent a sum equal 1' st.Per thousand dollars on the total dollar volume of all eith 1Pments of paper currency, coin, and securities tkl: made or received by such Federal Reserve Bank at its Tric(excluding only shipments by Railway Express Agency, the ' tnch i has assumed the ordinary risks of loss) during Pedel,"iree Years ending on the preceding November 30. Each ' rese-a Reserve Bank is thereafter required to add to such total :an amount equal to 20 per thousand dollars on the the am-4' 11e of all shipments sent and received by it. If ttraefInt of a Federal Reserve Bank's reserve should at any kaolitii7 reduced to a figure less than 80 per cent of the t° th y Provided initially, such reserve is to be restored e amount initially provided within 10 days." 1 ri4. 11/3%4 —5— Approved unanimously, with the understanding that the following telegram would be sent today to Mr. Leach, President of the Federal Reserve Bank of Richmond: op.p . g your letter of November 28, 1944, Board has apoved revised loss-sharing agreement and Exhibit A atched thereto, copy of which was received from Dillard ;t°Rg with copy of his letter to you dated November 27. ,'"7„.ardhopes that copies of agreement will be executed all Banks in time for revised agreement to become efzecttve January 1, 1945." r Or Letter to Mr. Sproul, President of the Federal Reserve Bank ew Yo„142 reading as follows: 19LL "This is in response to Mr. Gidney's letter of October 13, on the subject of the application of section 32 of the Thol-ng Act of 1933 to the continued service of Mr. H. I. wesiP 4,.as a director of Peoples Bank and Trust Company of ale:'leld, Westfield, New Jersey. Mr. Thorp, it appears, is york - a partner in the firm of Laurence M. Marks & Co., New CitY. It is also clear that the firm of Laurence M. eeets , & Co. engages in business of the kinds described in lishl°r1 32, and your bank, following the precedents estabed bY the Board in other cases, expressed the opinion to tr_ taii7 Thorp and to Peoples Bank and Trust Company that the ! lee M. Marks & Co. is 'primarily' so engaged within Ifiettaning of section 32. T lb. Henry L. Rost, president of the Peoples Bank and tiolo,2°n1PanY, questions the correctness of an interpreta, Plice,i7, the word 'primarily' which would result in the apvkterv,741..-°n of the statute to an interlocking relationship 32 d' us firm's business of the types described in section 131431Zs not constitute at least 50 per cent of its total atii,:88. In these circumstances Mr. Rost wishes to arrange -41,-terview in Washington. ther The Board will be very glad to discuss the question fur'. l-iv.!".;t h Mr. Rost but, at the same time, believes that it is Which -1:-'-r that he should know in advance some of the factors fore : Lave influenced the Board in adopting the views heretoe 1,1xpressed in other cases. lestpt,Srtion 32 is one of several measures enacted in 1933 trIg.7,t_I to divorce commercial banking from investment bank441e general background of these provisions is fully and e'tsi 11/3o/44 -6"authoritatively discussed in Senator Bulkley's speech intr°ducing the bill on May 10, 1932, reported in the Congressional Record beginning page 10222. In this speech Senator , 811ekleY described the growth of the securities business in -°111111ercial banks and their affiliates, and the resulting conflicts of interests; he referred to the fact that comTercial banks were not only in contact with prospective issuers of securities, but were also well situated to r Uniclertake the distribution of securities because of their 4.ati°ris with their correspondent banks; he referred to the rs::.of lists of depositors as a means of distributing secuand he referred to the rule of English and American .1,,l'es; 1, 'e-4-1-8Prudence that a trustee shall not sell to his trust. fr, rt,airil,Y, the fact that 49 per cent (as distinguished un ' cr A per cent) of a firm's business happened to be sough rwriting would not, in itself, avert the consequences by the legislation, the tit is a fact, of course, that one construction of c1 'Primarily' could lead in some cases to the adoptionw°1 ; the -' o a quantitative test such as Mr. Rost suggests. On the other hand, such is not the only accepted meaning of inst"ord. It is frequently used in another sense. For 40., red pialdrithe only is one of the 'primary' colors but it is ef primary color; Saturn is one of the 'primary Ststui-8 uut it is neither the only nor the largest one, word ard dictionaries cite asemmples of the use of the sioi;ial the latter sense expressions similar to the expres..ary the causes of war'. has The Board, in its prior considerations of the question, by tiallwaYs had in mind the rules of construction laid down siderecourts that, while all of the words should be conhaving meaning, where a word used in a statute is Ibis of several meanings, that meaning should be tP ado 1 ed ,nich best accords with the intention of the legisstatui 4-11 enacting the statute and that a word used in a slacm,e should not be construed to produce an absurd con141e_e when it is susceptible of another meaning in accord With 7. alleee'"e legislative intent. Under the quantitative test essel.:;e.c,1 by Mr. Rost, underwriting could be one of the or fundamental parts of the company's business but, bliain :it constituted at least 50 per cent of the total, the statlisa of the firm would not come within the scope of the Presumably if the firm engaged in three types of 8, each of which constituted a third of its total I4de esa, it would not be primarily engaged in any business. i4 ed 'in the light • of the reduced amount of underwriting, w, to the other types of business in which underit 'irms engage which has taken place since the enactti (4 the . statute, it might well be that there would be no rMs to Which section 32 would be applicable. 4(1 '040 v:i4- 11/30/44 -7, "These are the circumstances which have caused the Board 60 construe the word 'primarily' in a different sense from that suggested by Mr. Rost. Moreover, while it has always 2°ked at the sources from which a particular firm derives "(1).1:8 operating revenue, it considers that factor as but one all the factors. It also considers such factors as the and functions of the organization, the business ires st3.-cettaolds itself out as doing, and such other circummay have a bearing upon the question. ta 'Every interlocking relationship of the type described Nic-e"ion 32, of course, did not result in the consequences selch the statute was designed to prevent. However, it ssells clear that Congress, in order to prevent such a conre.c,luen.ce, directed its attention to the elimination of the -Latlonships. Accordingly, while the Board is in sympathy Rost's desire to retain experienced and qualified 'stors2 it has not felt that it could properly construe ' 1! ) .11 32 in the manner he suggests. is "As to a date for Mr. Rost to come to Washington, it ra suggested that a mutually convenient date can best be arRorTsed through your bank as intermediary. Please have Mr. 6 advised of the substance of this letter." r Approved unanimously. Thereupon the meeting adjourned. Secreta