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1493 A meeting of the Board of Governors of the Federal Reserve SYsteill vms held in Washington on Thursday, November 4, 1937, at 10:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Davis Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Thurston, Special Assistant to the Chairman Mr. Wyatt, General Counsel Mr. Paulger, Chief of the Division of Examinations Mr. Parry, Chief of the Division of Security Loans Mr. Dreibelbis, Assistant General Counsel Ihingfield, Assistant General Counsel Mr. Leonard, Assistant Chief of the Division of Examinations Mr. Sloan, Federal Reserve Examiner 1411'' SzYmczak stated that replies to the Board's letter of July t?' 1937, with respect to the proposed revision of Regulation T, Exte41°11 Elnd Maintenance of Credit by Brokers, Dealers, and Members of litItic)n4-1 Se curities Exchanges, had been received from all Federal reblanks; that a draft of the revised regulation was being prepared bY the ttt sion of Security Loans for consideration by the senior next week; that a revised draft would be ready for consid- bY the Board about the middle of the month; that consideration th 14-4t be given to the question of the desirability of giving the Stock Exchange an opportunity to present any views that it 1494 44/37 -2h -aye; and that it would be desirable if the revised regulation e°111d bea adopted before the end of the month with a view to making the rer'4"ti0n effective as of January 1, 1938, in order that interested Pers°Tas might have at least a month within which to become acquainted with the Provisions of the new regulation before it is made effective. The itilbera of the Board expressed agreement with the program outlined 1 , SzYmczak. At this point Mr. Parry left the meeting. There was presented a memorandum dated September 13, 1937, trcli Mr- Leonard calling attention to copies of correspondence bethe Federal Reserve Bank of Kansas City and the President of the I, -carmers State Bank, Wallace, Nebraska, in connection with the State tileell bk111°8 11.1)Plication for membership in the Federal Reserve System. The letter "dressed by the Federal reserve bank to the President of the tate bank under date of July 24, 1937, stated that, while the appliellt Ilk* was in satisfactory condition with good management, the Itstitation was located in an over-banked community and in a rather and grazing territory and that, because of the many eleellts adv. 8rse to its continued successful operation, the administrative °111111itte8 of the Federal reserve bank had decided that if the itceti on were submitted to the Board of Governors it would be with the re mMendation of the reserve bank that it be not granted. ter Stat The ed that it was thought unlikely that the Board of Governors 1495 11/4/37 -3w°111c1 act favorably on the application for membership without a favor- able rec ommendation from the reserve bank's administrative committee 41tliclIgn final action on the application was in the hands of the Board I'lltther than the Federal reserve bank. The letter requested that the aMicant bank advise the reserve bank whether it wished to withdraw tlia application or whether the reserve bank should send it to the 11°E1N of Governors for consideration. In response to this letter the Pi‘e " ent of the applicant bank advised the Federal reserve bank under cl"e Of August 11 that the application for membership should be canc'elacis The file had been circulated among the members of the Board consi deration of the question whether the case had been handled ill accordance with the System policy of encouraging membership. After discussion, during which the suggestion was made that the Federal Reserve banks should be instructed in situations of this kind to send the application for membership to the Board for consideration before any opinion is expressed by the reserve bank to the applicant bank, the Division of Examinations was requested to Prepare for consideration by the Board a draft of letter to the Federal reserve banks along the lines of this suggestion, and it was understood that Messrs. Davis and Paulger, when they are in Kansas City next week, would discuss the application of the Farmers State Bank, Wallace, Nebraska, With President Hamilton. Reference was made to a memorandum dated November 3, 1937, -4j4 thp - 1-J1-vision of Examinations with respect to the preliminary ap- 1)112' - or membership in the Federal Reserve System made on behalf 1496 11/4/37 -4Union Bank of Commerce Company", Cleveland, Ohio, a new bank °f "121 t0 be °rganized in accordance with a plan for reorganizing the affairs c't the Union Trust Company, Cleveland, Ohio, a former member bank which Was not licensed to reopen following the banking holiday and which was Placed in charge of the State Banking Department in June 1933. There vilts ease presented a memorandum dated November 3 from :Mr. Wingfield With respect to the legal questions involved in the reorganization kard Copies of the memoranda had been sent to the members of the . Pr1°1* to this meeting. The memorandum from the Division of 4arni 11"1°11e, which recommended that the application be approved subto certain conditions and comments, contained the following 8ttestient : w_ "There is a question as to whether the depositors fare better under the proposed plan or under cont raled liquidation. The equity of certain provisions of 211a is open to question. Serious legal questions regic111 ding the power of the authorities to consummate the on "and as to the possibility of having the plan subse4cient1Y upset if approved by the court have been raised. ihe recommendation of this Division is made upon the basis as stated by the Board in its letter of October 7, 1937' 7 ' the responsibility for the protection of the deposit0 , th ' s of the old bank rests with the State authorities, and the organization of the new bank and the transaction 13:40ree .„ the new bank and the liquidators of the old will -egallY and properly carried out." At the conclusion of a discussion of the plan of reorganization as outlined in the memorandum referred to, upon motion by Mr. McKee, unanimous approval was given to a letter to the organizers of the applicant bank stating that, effective if 1497 11/4/37 -5and when the new bank is duly authorized to commence business by the Ohio State Banking Department, and subject to the standard conditions of membership numbered 1 to 6 in the Board's Regulation H and the following special conditions, the Board of Governors approves the application made on behalf of The Union Bank of Commerce Company for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Bank of Cleveland: Prior to admission to membership, such bark shall have been duly incorporated under the laws of the State of Ohio with a paid in, unimpaired capital stock and surPlus of 45,000,000 and $2,000,000, respectively, pursuant to the provisions of a Plan for Reorganizing the Affairs of The Union Trust Company, Cleveland, Ohio, dated September 1, 1937 (Third Proof, uncorrected), bereinafter referred to in this letter as the Plan, With such changes in the Plan as may be necessary under the conditions prescribed in this letter, which Plan including any such changes shall have been approved by the Superintendent of Banks for the State of Ohio, and, efter reasonable notice to all parties at interest and a hearing, by an order of the Court of Common Pleas Of Cuyahoga County of the State of Ohio which has beCome finally effective and is not subject to review !ilr the Appellate Courts of that State or to a restraining order under the statutes of that State. (It is not contemplated that any of the Provisions of this Condition of membership will prevent equitable changes ln the plan which will not adversely affect the interests of the new bank.) tte. At the time of admission to membership, such bank shall have assets and liabilities substantially as described in,the pro forma balance sheet included with the Plan, enc. the assets transferred to the bank under the Plan shall be only such assets as shall be determined to be acceptable by examiners for the Federal Reserve Bank Of Cleveland. tt9. Prior to admission to membership, the stock of Union Properties, Inc., which under the provisions of the Plan is to be owned by the bank, shall be assigned 1498 11/4/37 -6"and delivered in trust by the bank to the Noteholders Committee described in the Plan and such Noteholders Committee shall be charged with the duty to hold and vote such stock in such manner as, in their absolute discretion, will serve the best interests of the holders of Creditors Notes of UnionProperties, Inc. as long as any of such Creditors Notes are outstanding end, when all of such Notes have been retired, to return the stock of Union Properties, Inc. to the bank. "10, UPon the submission of the Plan to stockholders, depositors and other creditors of The Union Trust ComPanY and to the Court of Common Pleas of Cuyahoga County, there shall be included in the Plan, in addition to any other information, the following: (a) A current statement of the trust showing the estimated liquidating value of all classes of assets of The Union Trust Company, including the stockholders' liability assessments, under the proposed plan for reorganization and under continued liquidation by the State Banking Department; the amount of allowed claims against the trust; the amount of all other recognized obligations of the trust; and the amount, nature, and purpose of all reserves. (b) Opinion rendered by counsel for the Deputy Superintendent of Banks in charge of The Union Trust Company under date of October 16, 1937, as to the probability of the Court of Appeals and the Supreme Court of Ohio affirming the decision of the Court of Common Pleas in the case of the suit of certain stockholders contesting the validity of the assessment of their statutory liability, together with his estimate as to the probable date when such case could finally be decided by the court of last resort. (c) A clear and definite statement with respect to the legal right of depositors and creditors of The Union Trust Company to receive interest upon their allowed claims from the date upon which such trust company was placed in the hands of the Superintendent 1499 11/4/37 -7"of Banks until such claims are paid, the rate of interest to which they are entitled, and the aggregate amount of interest accrued to date of statement, the pest practice of the Superintendent of Banks of Ohio with respect to the payment of interest on claims against banks liquidated by the State Banking Department, and the fact that under the Plan the depositors of The Union Trust Company will waive any interest on their claims against The Union Trust Company. HU . Upon the submission of the Plan to stockholders, depositors and other creditors of The Union Trust Company, and to the Court of Common Pleas of Cuyahoga County, there Shell be included in the Plan, in addition to any other information, the following statement: It is contemplated that the proposed new bank, The Union Bank of Commerce Company, will be a member of the Federal Reserve System and the Board of Governors of the Federal Reserve System has approved an application for membership made on behalf of such bank, effective if and when the bank is duly authorized to counence business by the Ohio State Banking Department, subject to certain conditions, including the following: (Here quote condition numbered 7.) . The Board of Governors of the Federal Reserve System wishes it to be understood that its aPProval of the application for membership is net to be considered as an expression of opinion as to the proposed plan of reorganization as it affects the depositors, other creditors, and stockholders of The Union Trust Company. The desirability of the proposed plan of reorganization is a matter for determination by them, and by the Superintendent of Banks and the courts of the State of Ohio upon whom rests the responsibility for safeguarding the interests of those having an interest in the liquidation of the trust company. In approving the application for membership the Board of Governors has not undertaken to share in that responsibility. 1500 11/4/37 -8- 1112 . Prior to the submission of the Plan to the depositors and stockholders of The Union Trust Company and the Court of Common Pleas of Cuyahoga County, such amendments shall be made to the plan as are necessary to make it conform to the requirements contained in the conditions set forth in this letter. Prior to admission to membership, any agreements and contracts entered into between such bank and the Superintendent of Banks of the State of Ohio in charge of the liquidation of The Union Trust Company covering the transfer of certain assets and liabilities of The Union Trust Company to The UnionBank of Commerce ComPanY pursuant to the Plan, and any and all other agreements between the new bank and other individuals or concerns, incident to the organization of such bank and to the consummation of the Plan, shall be satisfactory to the counsel for the Federal Reserve Bank of Cleveland, and, Prior to admission to membership, The Union Bank of Commerce Company shall deliver two certified copies of its charter, together with any amendments thereto, to such Federal Reserve bank." The letter also contained the following special comments: pi "In addition to the inclusion in the statement of the diZ. of certain Portions of this letter as required by conno 1?11 of membership numbered 11, the Board will interpose 4 °L)jeCtiOn to this letter being made Public in whole or ''11 Part. th3I."It is understood that the bank will be vested with aultY to exercise trust powers, and, in the event these 1).0 ' ' allwers are exercised, the Board will expect the bank to conhe operations of its trust department in accordance u aPProved trust practices. half. "Since the application for membership was made on beRan; 311 The Union Bank of Commerce Company prior to its orz"ion, it is requested that, in connection with the aceel ; Of the conditions of membership prescribed by the the board of directors of the bank ratify the action has been taken on its behalf in making application Membershio in the Federal Reserve System." Upon motion by Mr. McKee, the following letter to President Fleming of the Federal Reserve Bank of Cleveland, was also approved unanimously. 1.501 11/4/37 -9-"The Board of Governors of the Federal Reserve System 'Proves the application made on behalf of the proposed -une Union Bank of Commerce Company', Cleveland, Ohio, for membership in the Federal Reserve System, subject to the e°nditions Prescribed in the inclosed letter which you are l'aqllested to forward to the organizers of the proposed institation. Two copies of such letter are also inclosed, °Ile of which is for your files and the other of which you are .4 , requested to forward to the Superintendent of Banks for State of Ohio for his information. "In connection with condition numbered 7, it is consmPlated that, before the bank is admitted to meibership, iar counsel shall be satisfied that any appeal from the : del' of the Court of Common Pleas approving the plan shall Ialve been denied by the court of last resort in Ohio or ahe a time for perfecting any such appeal shall have expired, any proceedings for a restraining order have been -suitated, that the restraining order shall have been denied by the court of last resort in the State or the b,a'41t°rY period within which any restraining order might ' sought shall have expired. of membership numbered 8 provides that only Such assets shall be transferred to the new bank under the paan for reorganizing the affairs of The Union Trust ComfollY as shall be determined to be acceptable by examiners 1,4:Jour bank. In this connection it is felt that any inWhichseaarities so transferred should be securities or would be eligible under the law and the regulations hs Comptroller of the Currency for purchase by the as a member bank. The "Before issuing stock in the Federal Reserve Bank to stiUnion Bank of Commerce Company, you are requested to mentsrY Yourself that the organization papers and all agree211,s and contracts entered into between such bank and the trl : arintendent of Banks of the State of Ohio covering the TZ, s_fer of certain assets and liabilities of The Union C°mPany to The Union Bank of Commerce Company purth;'' to the Plan, and any and all other agreements between the new bank and other individuals or concerns incident to or JrSanization of the new bank and to the consummation he 4 116 Plan, have been considered by your counsel and that or"satisfied as to their legal aspects. It is understood, resiel°1-Irss, that any conclusions reached by Counsel in these has ets may be subject te the reservations of which he er3p tieretofore advised the Board. It is requested that a Y °f the opinion of your counsel in this connection, r L502 11/4/37 -10"together with copies of any such agreenents and organizet r,i°11 Papers, including a copy of the order of the Court of mmon Pleas of Cuyahoga County approving the Plan and of ,ae bank's charter and any amendments thereto, be forwarded ., t,!) the Board as soon as possible. It is requested also tn "You satisfy yourself that the charter of the bank con_ain8 no provisions granting powers other than those usually 13.'7,1nerred upon institutions transacting a banking and trust alness under the laws of the State of Ohio. st The Board understands that the Trustees holding the k of The Union Bank of Commerce Company for the account _ 1 the s tt hold tockholders of The Union Trust Company will not be Les company affiliate of The Union Bank of Commerce A°mPanY within the meaning of Section 2(c) of the Banking of 1933, but it is requested that your counsel satisfy c:'self on this point before The Union Bank of Commerce '13an-Y is admitted to membership. fs. It is understood that under the laws of Ohio trust *glIcls held by a bank and deposited in its own banking deare fully protected by statutory preference. Standard Condit e0 1"ion of membership numbered 6, however, has been pretiflbed ia order that its provisions may be invoked at any 1.24e in the future if necessary. You are, of course, author4 : to waive compliance with the condition until further tailce in accordance with the general authorization conedn in the Board's letter of March 8, 1935." r Chi er orAt this Point Mr. Wingfield left the meeting and Mr. Smead, the Th -°raPso Division of Bank Operations, entered the room. Cons ideration was given to a draft of letter to Mr. Donald S. ecler Acting Chief of the Division of Research and Statistics of al Deposit Insurance Corporation, reading as follows: "Referring to Chairman Crowley's letter of October to tri hd Chai man Eccles' reply of October 28, and pursuant day_:arrangements made while you were in our offices Mon14,'20vember 1, we are arranging to send you the follow.4.eeords pertaining to group and chain banking: (1) A - Photostat copy of a 4-page memorandum dated : laY 7, 1927 from Mr. Smead to Mr. Eddy, subject Chain Banking', and of the accompanying 30-page 4st of chain banks as of June 1926. 1503 11/4/37 -11- 12) A mimeographed copy (St. 6214) of a 3-page memorandum dated Sanuary 17, 1929 from Mr. Van Fossen to the Board, a 4-page summary by States, and a 98-page list of chain banks, all as of the end Of June 1928. (3) A photostat copy of a 61-page summary by States, on Form B-128, of group and chain banking as of the end of Tune and December, 1929, 1930 and 1931. This shows the number of groups and chains in each State, and the agreegate number and loans and investments of national banks, State bank members and nonmember banks, respectively, reported as members of groups and chains. (4) (3) A photostat copy of lists, on Form B-128, covering each group system, showing the name, location and loans and investments of each bank which was a member of the group at the end of June and December of 1929, 1930 and 1931. This is divided into two parts, namely: (a) 34 principal groups (67 pages) (b) 63 other groups (63 pages). The section covering the 63 'Other' groups shows, in the right hand margin, all changes in the status Of 1. of the group banks through December 31, Photostat copy of 44 work sheets showing all Changes in status during 1932-1936 of each bank Which was a member of one of the 34 leading, groups at the end of 1931." Approved unanimously. Mr. Morrill was authorized to arrenr7e with Harris and Ewing and Wm. M. Rittase, Photographers who had made photographs of the exterior and interior of the new building, for twenty sets of photographs, at a total cost of not to exceed 4225.00, for the purpose of sending one set to each Federal Reserve bank and furnishing a set to each member of the Board. At this point Messrs. Thurston, Wyatt, Paulger, Smead, Dreibelbis, Sloan left the meeting and consideration was then given to 1.504 11/4/37 -12" of the matters hereinafter referred to and the action stated with resPeot thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Peds„-Reserve System held on October 29, 1937, were approved unaniIllollsly. The minutes of the meetings of the Board of Governors of the 4deral Reserve System held on October 30, November 1, and 2, 1937, were a PPI1c)ved and the actions recorded therein were ratified unaniTriollsly. Tel egrams to Mr. Leach, President of the Federal Reserve Bank or Rietta d, and Mr. Sargent, Secretary of the Federal Reserve Bank or sat rancisco, stating that the Board approves the establishment without change all( 'PIA by the respective banks today of the rates of discount rebase in their existing schedules. Approved unanimously. or Letter to Kr. Wood, Vice President of the Federal Reserve Bank L°11is, reading as follows: advi "This refers to your letter of September 23, 1937, sing of the plan of the St. Louis County Bank, Clayton, Mis : ci,ZTAri, to divorce the General Realty Company, also of collI'"1°11, Missouri, from the bank and to disassociate the PahY from the bank in the minds of the public. Was "It is understood that the General Realty Company or ,:)rganized in November, 1936, with a paid-in capital . 500, represented by 425 shares of preferred stock, atId ' orh 1,000 shares of nonpar common stock; that part or t'e Preferred stock was purchased by certain stockholders ' he bank but none of it is owned by the bank; that, under 1505 11/4/37 -13"an agreement between the bank and the realty company, the ?3ran0n stock has been issued to three trustees under a voting trust agreement and the trustees, in turn, have issued to the stockholders of the bank on a pro rata basis voting trust certificat es representing the beneficial interests in the common stock of the company; that the three trustees were appointed by, and are directors of, the bank; that v acancies among the trustees are to be filled by the bank; and that, of the five directors of the realty company, two ; Ira directors and one an officer of the bank. As you know, Ir Board, in its letter of May 7, 1937, took the position that, under such an arranaement, it would be in violation bf standard condition of membership numbered 3, which has aan accepted by the bank, for the realty company to en!age generally in the business of selling real estate loans .0 the public. "It is noted that the plan referred to above contematas that the officer of the bank who is now a director 0 13, the liatter realty company will resign from his office in the capacity; that a new director will be elected to c111 this vacancy who will be a stockholder of the realty lliPanY but not a stockholder, director, officer or emof the bank; that the voting trust agreement then 1i be so that vacancies among the trustees shall filled and a successor named by a majority of the holdpreferred stock of the realty company who are ;Tent at a meeting called for that purpose; and that, voj °wing these steps, the present trustees under the whc,'Ilfg trust will resign and will be succeeded by persons di- are neither qubstantial stockholders nor officers, l'ect°rs, or employees of the bank. vio in the circumstances, and in the light of your.prere," discussion with members of the Board's staff with 6,ard to this matter, the Board concurs in your opinion ti ' wil't the consummation of this plan will accomplish that ich is necessary to conform to the principles outlined do 'he Board's letter of May 7, 1937. However, the Board not have sufficient information to enable it to dei whether General Realty Company will be an affilor' c of the bank within the meaning of section 2(b)(2) Act of 1933 if the plan is consummated and it the iat .res not appear necessary to rule upon that question 6his time." a 4 te:2 Approved unanimously. 11/4/37 -14- Thereupon the meeting adjourned. Chairman.
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