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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
@FedFRASER