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2269 A meeting of the Board of Governors of the Fede ral Reserve System was held in Washington on Wednesday, November 62 1935, at 11:10 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman UK:11in Miller James Szymczak O'Connor (first part of meeting) Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Carpenter, Assistant Secretary Mr. Clayton, Assistant to the Chairman Mr. Goldenweiser, Director of the Division of Research and Statistics The Chairman stated that he had received from Mr. Burgess, Secretary of the Fede ral Open Market Committee, as inclosures with a letter dated November 4, 1935, final drafts of the resolution and mdtions adopted by the Federal Open Market Committee at its meeting in Washington on October 22-24, 1935, as follows: "RESOLUTION ADOPTED BY FEDERAL OPEN MARKET COMMITTEE, OCTOBER 23 1935 "The Committee reviewed the preliminary memorandum submitted by the Chairman and discussed at length business and credit conditions and the banking position in relation to them. Tt.was the unanimous opinion of the Committee that the primary objective of the System at the present time is still to lend its efforts towards the furtherance of recovery. While much Progress has been made, it cannot be said that business activity on the whole is yet normal, or that the effects of the depression are yet overcome . Statistics of business activity and business credit activity, both short and long term, do not now show any undue expansion. In these circumstances, the Committee was unanimously of the opinion that there is n?thing in the business or credit situation which at this time necessitates the adoption of any policy designed to retard credit expansion. 2270 11/6/35 "But the Committee cannot fail to recognize that the rapid growth of bank deposits and bank reserves in the past year and a half is building up a credit base which may be very difficult to control if undue credit expansion should become evident. The continued large imports of gold and silver serve to increase the magnitude of that problem. .Even now actual reserves of member banks are more than double their requirements, and there is no evidence of a let-up in their growth. That being so, the Committee is of the opinion that steps should be taken by the Reserve System as promptly as may be possible to absor b at least some of these excess reserves, not with a view to checking some further expansion of credit, but rather to put the System in a better position to act effectively in the event that credit expansion should go too far. "Two methods of absorbin excess reserves have been discussed by the Committee: (a) the sale of short-term Government securities by the Federal Reser ve System, and (b) the raising of reserve requirements. "While the Committee feels that method (a), if employed, would have the dual effect of absor bing excess reserves and improving the position of the reserve banks, nevertheless, there are two risks in this metho d. First, that it may be a shock to the bond market, inducing sales of securities by banks all over the country; secon d, that however it may be explained publicly, it may be misconstrued by the public as a major reversal of credit policy, since this metho d has never been employed excep t as a means of restraint, which is not desired at this time. A majority of the Committee is opposed to the sale of Government securities at this time, believing that its advantages do not now justify the risks involved in this method of dealing with the subje ct. "There are also risks incident to method (b), - raising reserve requi rements. This method of control is new and untried and may possibly prove at this time to be an undue and restraining influ ence on the desirable further extension of bank credit. The Commjttee feels, therefore, that before this method of deali ng with the problem of excess reserves is employed, it would be wise for the Board of Governors of the Federal Reser ve System to make a thorough study, through the twelve Federal Reserve Banks, of the amount and location of excess reser ves by districts and by classes of banks, in order thus to determine whether, or to what extent if at all, an Increase in reserve requirements might interfere with the extension of loans and investments of member banks. "In view of the monetary power s now possessed by the Treasury, the Committee is impre ssed with the importance of 2271 11/6/35 "advising with the Treasury relative to any steps that may be taken by the Reserve System in order as far as possible to insure reasonable coordina tion of action. "Furthermore, the Committee recognizes the possible dangers of the public misunderstanding of any action which may be taken in this matter, and would favor a careful public statement before acti on is taken. "In making these suggestions to the Board of Governors regarding reserve requirements , the Committee recognizes that it is going somewhat beyo nd its oina immediate jurisdiction, but it has found it impo ssible to consider open market operations independentl y from the whole credit situation and other Federal Rese rve policies." "ACTION TAKEN BY FEDERAL OPEN MARKET COMITT EE OCTOBER 2'4 , . 1935 .NITH RESPECT TO OPERATIONS IN THE SYSTEM SPECIAL INVESTMENT ACCOUNT "After a brief discussion of the authority which it was necessary to give the executiv e committee in order to replace maturities from time to time in the System Account, and in order to make shif ts in maturities to meet changing market conditions, it was unanimously VOTED that superseding prev ious authorizations, the executive committee be authorized to make shifts between maturities of governme nt securities up to $600,000,000, provided that the amou nt of securities maturing within two years be main tained at not less than 11000,000,000 and that the amount of bonds be not over $500,000,000 . "After discussion as to further auth ority which should be given to the executive committee in order to keep the committee in a position to act promptly if any occasion for action arose due to causes not now foreseen, it was VOTED that the executive comm ittee be authorized to buy or sell up to 250, 000,000 of Government securities subject to telegraphic approval of a majority of the Federal Open Mark et Committee and the approval of the Board of Governor s of the Federal Reserve System." Mr. James suggested that the motion authorizing the purchase or sale of securities undoubtedly contemplated also the authority to allo w maturities to run off, and that any approval by the Board should cove r this point clearly. 2272 11/6/35 -4The suggestion was also made that, if the Board approved the authority gran ted to the executive committee to make shifts in maturities of securities in the system account, such approval should be coupled with a reservation of the right in the Board to reconsider the matter at any time in the light of the situation then existing. The Chairman pointed out that the principal reason given for the adoption by the Federal Open Market Committee of the motion authorizing the purchase or sale of Government securities was to put the committee in a position to take action to offset any disturbing effects that might arise should the Board decide to increase the requirements as to the rese rves of member banks. In this connection some of the memb ers expressed the opinion that action on the motion of the Federal Open Market Committee authorizing the purchase or sale of securities might well be deferred until the Board deci ded what action should be taken on the question of increasing reserve requ irements. In connection with the reso lution relating to shifts in maturities attention was directed to the distribution of maturities in the system's investment account as of October 16, 1935, and a chart was exhibite d by Dr. Goldenweiser showing this information. A number of members of the Board commented that the pres ent distribution of maturiti es of securities is very satisfactory . The Chairman referred to a memorandum dated November 1, 1965, from Mr. Smead, Chief of the Division of Bank Oper ations, which 2273 11/6/35 -5- contained a tabulation show ing the distribution by Federal reserve districts and by central rese rve city banks, reserve city banks and country banks of average daily excess reserves during the month of September which amounted to approximately 21628,000,000. The memoran- dum also contained a summary of the reserve position of pll member banks rs of June 29, 1935, the date of the last call report, and showed that out of 6,410 member banks only 897 would have to increase their deposit balances at the Federal reserve banks if reserve requirements were increased 25;', and that the additional amount that they would have to provide would be $99,000,000. It was pointed out that of these 897 banks all but 45 had balances with correspondent banks sufficie nt to provide the additional reserves, and one of the members of the Board called attention to the fact that these banks represented less than 1% of the total of 6,410 member banks. The memorandum further showed that, if reserve requirements were increased 50%, 2,041 banks would have to provide 4528,000,000 of additional reserves at the Federal reserve banks, and that of these 2)041 banks all but 125 had balances with correspo ndent banks sufficient to enable them to meet such increased requirement. In this connection it was pointed out in the memorandum that member banks in reserve cities and country banks presumably would draw on their city correspondents for addition al reserves required to be deposited with Federal reserve banks and that if this were done most of the withdrawals would be made from member banks in large financial centers, particularly New York, that the total amount whic h 2274 11/6/35 -6- would be withdrawn from New York, even if reserve requirements were increased 50%, would not be sufficient to bring about a drain of funds which the New York banks could not meet easily; and that the amount Of funds whic h might be withdrawn from New York to meet such an increase in reserve requirements would be small compared with the huge volume of excess rese rves now held by New York city banks in the aggregate. Mr. James pointed out the possibil ity, that if reserve requirements were raised, some member banks, even though able to meet the requirements at the present time, might take the position that they should have some margin of excess reserves and therefore that they might adop t a less liberal lending policy. Ur. Miller inquired whet her the bank balances held by member banks in the larg e centers were greater at the present time than would be expected under normal money market conditions and it was stated that such balances were probably between 2.00,000,000 and t300,000,000 higher than what might be considered to be normal, and that if reserve requirements were increase d 25% the withdrawal of Valances for deposit with the Federal reserve banks as additional reserves should not result in any disturbance. The Chairman then pres ented memoranda setting forth various reasons for and against increasing reserve requirements, as follows: "REASONS FOR RAISING RESE RVE REQUIREMENTS TIAr a THIs uments for______immediate action "1. Member bank reserves at the present time are 2275 11/6/35 -7- %3,000,000,000 in excess of legal requirements. Further increases in excess reserves through gold imports, silver purchases, and through the ultimate use of the gold in the Stabilization Fund may be expected. Demand deposits of member banks are now higher than they ever were and they can be more than doub led on the basis of existing reserves. This would be injurious cred it expansion. It will be necessary at some time to use the Board's powers for absorbing excess reserves. It is, therefor e, not a question of whether or not the Federal Reserve System will have to act, but merely a ques tion of the best timing of the action. "2. It would seem best to take measures for absorbin g at least a portion of existing excess reserves before the banks have had an opportun ity to expand their activities on the basis of thes e reserves. The banks are being urged by the Government acti vely to seek opportunities for extending additional credit and thereby to facilitate recovery. To let them proceed and later, when many of them may no longer have excess reserves , to put them in debt by increasing requirements or sell ing securities may lay the System open to the char ge of inconsistency. Action at such a time, furtherm ore, might cause banks to liquidate loans or investments and might start a deflationary movement. Early action would avoi d these difficulties. "3. Gradual advances in reserve requ irements started at this time when reserves are ample would be less likely to result in losi ng members from the Federal Reserve System than would dras tic action at a later date. "4. Banks are now in such a posi tion that an advance in reserve requ irements would not inconvenience them and would not act as a rest raint on business recovery. "5. Action at the present time may have a good Psychological effect, indicating that the System is alert to the situation and prepared to take the necessary steps to avoid inflatio n. ka: raising requirements "6. The preceding argument s would apply equally to selling securities and to raising reserve requirements but raising reserve requirem ents would have the advantage of making use of a new method which was not available prior to the passage of the Banking Act of 1955. Previously reserves could not be advanced , except by the declaration of an emergency and with approval of the President. The use of this method now enables the System to say that it could not have acted sooner because of lack of authority. "7. Raising reserve requ irements would have the additional advantage over sell ing Government securities that 2276 11/6/3s -8- "it would not hav e any unfavorable effect on the market for these securi ties. 116. It would also have the advantage of not diminishing the earning assets of the Federal Reserve banks, which may become a serious matter if these banks should be put in a pos ition where they would have to go to Con gress for approp riations. "9. It may be a goo gen eral'policy to use changes d in reserve req uirements as a method of readjusting the banking position to new conditions, such as the present unprecedented reserves, and to use the traditional methods of open market operations and discount rates as the ins truments for direct influence on expansion or contraction of credit. "By raising reserv req e uirements gradually to a point where excess res erves would not be very large, the Reserve banks would be placed in a position to use ope nmarket sales, which are more flexible, to counteract inflationary tendencie s." "REASONS AGAINST RAI SING RESERVE REQUIREMENTS AT THIS TIME "1. There is at this time no indication of an expansion of credit and, therefore, no real occasi on for taking any action of a restraining character . "2. Federal Res erve policy should depend in part its psycholog on ical effect. For that rea son oug it ht to be extremely simple. The public should know that whe eral Reserve n the FedSystem does anything in the dir ection of restraint that thi s constitutes a policy of restra int. A simple understan ding of rea and green signals of credit Policy is an advantage which may be lost or impaired by actions that req uire more or less subtle explan ation. "3. The System 's powers for counteracting the eno mous volume rof excess reserves now in existence and in prospect are limited. The open-mar ket portfolio ia 2,400,000,000 and the max imum by which reserve req uirements may be raised amounts to a sim ilar figure. Excess reserv es might become larger than cou ld be counteracted by bot h of these instruments. Their full utilization, furthermo the sale of re, particularly Gov ernment securities in lar a diffic volume, may be ge ult matter. For thi s rea son , it mig ht be better Policy to husban d the System's resour a position ces ord in er to be in to utilize them to the maximum effect when the need comes. "4. Action at the present time might, even though it 227 11/6/35 -9- "should not, result in a more hesitant atti tude on the part of banks and might, therefor e, retard recovery." Mr. James inquired whether the Secretar y of the Treasury had given consideration to the probability of action by the Board increas- ing reserve requ irements, and the Chairman stated that he did not know what the views of the Secretary of the Treasury were on the matter, but that he plan ned to discuss the matter with him tomorrow when he would scertain his views. Mr. Eccles also read a draft of a press statement which he had had prepared with regard to increasing reserve requirements and a proposed press statemen t which had been sent to him by Governor Harrison, Chairman of the Federal Open Market Committee, on the same subject. Mr. Miller said that during the discussion the thought had occurred to him that it might be desirable to consider the advisability of issuing a pres s statement reviewing the growth of excess reserves through gold imports and other causes, the problems presented by the present large volu me of excess reserves, the powers now possessed by the System to meet the problems thus created, and concluding with a statement that the Boar d is watching the matter closely and will take action when nece ssary to prevent the development of an injurious situation. This suggesti on was discussed. The Chairman stated that he felt that, if action were to be taken ty the Board to increase rese rve requirements, it should be taken not later than Friday of this week to become effectiv e at some subsequent date not late r than January 1, 1936, an announcement of 2278 11/6/55 -10- the Board's action to be made immediately so as to remove from the picture any uncertainty in that connection at the time of the final formulation of the Govern ment's financing program for December. It was understood that the matter would be made special order of busine ss for consideration at a meeting of the Board on Friday , November 8 : 1935. There followed a discussion as to the contents of a press statement to be issued by the Board in the event of a change in reserve requirements and, upon motion by Mr. James, Mr. Miller was requested to con fer with Mr. Goldenweiser, Director of the Division of Research and Statistics, and Mr. Thurston, Special Assistant to the Cha irman, and prepare a proposed press sta tement on the subject for consideration at a mee ting of the Board on Friday mornin g. Mr. Eccles then pointe d out that, if action should be taken by the Board to increase reserve requirementpl a let ter should be sent to the Federa l reserve banks advising them of the Board's action. It was agreed that Mr. Miller in consul tation with Mr. Goldenweiser, would pre par e a draft of letter for considera tion at the meeting on Friday. Mr. Miller stated tha t there was some doubt in his mind as to the amount of the increase and as to whether the inc rease should be made in the immediate future, although he fel tha act t t ion at this time would be eff ective in removing any question as to whether the Board was aware of the problem or as to its being in a position to act. Other members indicated that they were of the opinion that if a cha nge in reserve req uirements were to be made it would be unwise, in view of the 2279 11/6/35 -11- large amount of excess reserves, to make the amount of the increase less than 25%. At this point Mr. O'Connor wit hdrew from the meeting. The Chairman stated for the inform ation of the other members of the Board that following the discussion at the meeting of the Boa rd with the Governors ' Conference on October 242 1935, he had had prepared for the consid eration of the Secretary of the Treasury a progra m for the discontinuance of the issuance of Federal reserve notes of the old form which provid e that the notes are payable in gold at the Tre asury Department or in gold or law ful money at any Federal reserve bank. Mr. Eccles said that he believed the Secretary, under his authority to pre scribe the form of Fed eral reserve notes, would direct that the issuance of notes in the old form be discontinued as promptly as possib le and, in accordanc e with his agreement, request that Congress app ropriate the funds nec essary to enable the Treasury to furnish notes in the new form without cost to the Federal reserve banks in place of the unissued stocks of old notes held by the banks which would have to be destroyed. The Chairman then presen ted a letter addressed to him under date of October 31, 1935, by Mr. Sproul, Secretary of the Federa l Reserve Bank of New York, reading as follows: "In accordance with your con versation with Governor Harrison today, I am writing to inform you that at its meeting this afternoon our board of directors voted that the officers be authorized and instructed to sell the $23,805,200 of United States Government bonds held in this bank's own inv estment account, as and when the market 2280 11/6/55 -12- "for such securities will conve niently permit of such disposal, and to purchase an equivalent amoun t of United States Government securities of shorter maturities. "The bond holdings in this bank's investment account affected by the above action of our board of directors are now as follows: 3 1/4% Treasury bonds of 1941 fi1,171,200 tt 5 5/8% It II 1941-5 750,000 ri 3 3/8% n 1, 1940-5 10,262,000 ii 5 3/8% il 11 1943-7 4,267,000 It 2 7/8% It il 1255-60 4,355,000 Z25,805,200 "The directors were moved to take this action because (a) this bank at present has no need to hold bonds in its portfolio in order to maintain its earni ngs and, as a general rule, the directors would prefe r to confine investments in this account to secur ities of shorter maturity, (b) because of the possi bility that the System may later decide to increase the amount of bonds in the System special investment account, as was discussed at the recent meeting of the Federal Open Market Conmi ttee, in which event this bank may find itself acquiring further bond holdings as part of its participation in the System account, and (c) because of the Possibility that under certain circumstances this bank later may find it necessary to buy government bonds from some of its member banks , especially if reserve requirements should be substantia lly increased. "It is anticipated that this opera tion will be spread over a number of weeks, advantage being taken of periods of strength in the market to effect sales, and the appearance of a large change in the maturity distribution of our published holdings, in any one week, being avoided." After a brief discussion during which it was pointed out that the action contemplated by the Federal Reserve Bank of New York would make no change in the total amount of securities held by the bark, Mr. James moved that the Secretary be requested to prepare a letter to the Governor of the Federal Reserve Bank of New York stating that the Board interposes no objection to the contemplated sale of the long term Government securities held in the bank's own investment account and their replacement by Government securities with shorter maturities in accordance with the program authorized by the directors. Carried unanimously. 2281 11/6/35 -13Mr. Goldenweiser left the meeting at this point and the Board then acted upon the following matters: Letter to Mr. Peyton, Chairman of the Federal Reserve Bank of Minneapolis, stating that the Board appro ves the establishment without Change by the bank on November 5, 1935, of the rates of discount and Purchase in its existing schedule. Approved unanimously. Memorandum dated October 31, 1935, from Mr. James submitting a letter dated October 24 from Mr. Sailer, Deputy Governor of the Federal Reserve Bank of New York, which requested approval of changes in the personnel classification plan of the bank to provide for the creation of a Work Relief Checks Section in the Transit Division of the Collection Department and of twelve new positions therein, and of the assignment of Mr. Charl es E. Diringer, Chief of the Coupon Collection Division, to the organizing and directing of the Work Relief Checks Section until December 20, 1935. The memorandum stated that Mr. James had reviewed the proposed changes and recommended that they be approved. Approved unanimously. Memorandum dated October 30, 1935, from Mr. James, submitting a letter dated October 23 from Mr. Preston, Deputy Governor of the Federal Reserve Bank of Chicago, which requested approval of changes in the personnel classification plan of the bank to provide for the creation of an Emergency Relief Checks Department and of fifteen positions therein, to handl e emergency relief checks. The memorandum stated that 2282 11/6/35 -14- Mr. James had reviewed the proposed chances and recommended that they be approved. Approved unanimously. Letter to the board of directors of "The Farmers State Bank of Waupaca", Waupa ca, aisconsin, stating that, subject to the conditions prescribed in the letter, the Board approves the bank's application for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Bank of Chicago. Approved unanimously, together with a letter to Mr. Stevens, Federal Reserve Agent at the Federal Reserve Bank of Chicago, reading as follows: "The Board of Governors of the Federal Reserve System approves the application of 'The Farmers State Bank of 4auPaca', Waupaca, Wisconsin, for membership in the Federal Reserve System, subject to the conditions presc ribed in the inclosed lette r which you are requested to forward to the board of direc tors of the institution. Two copies of such letter are also inclosed, one of which is for your files and the other of which you are reque sted to forward to the Commissioner of Banking for the State of Wisconsin for his iniormation. "It has been noted that the eliminations recommended by the Reserve Bank Committee as a condition of membership included the elimination of $6,50 2.45 depreciation in bonds bearing a rating of 133; that is, a rating among the four highest grades. As you know, it is not the Board's usual policy to require as a condition of membership the elimination of depreciation in such issues, and, accordingly, the amount of such depreciation has not been included in the elimination required under the provisions of condition of membership numbered 17. Mr. Young has indicated that the condition as revised in accordance with the Board's usual Policy will be satisfacto ry to your office. "It has been noted, also, that the elimination recom mended by the Reserve Bank Committee inclu 0_7,7 ded 13.97 d epreciation in Group 2 securities. The report of examination of the bank as of October 7, 1935, however, indicates 11/6/35 -15- "the correct amount of depreciation in Group 2 securities to be $16,713.97, which amount has been used in arriving at the total of depreciation to be eliminated in accordance with condition numbered 17. . "It appears from the report of examination of the applicant bank made as of October 7, 1935, that, in their capacity as directors, Messrs. R. S. Barber and H. C. FriOwn only one share, and Mr. H. C. Johnson owns only two shares, of Lhe capital stock of the bank. In this connection, section 221.08(4) of the Banking Laws of the State of Wisconsin, as revised to May 1, 1932, which is the latest complete compilation of the banking laws of this State which the Board has available, provides that every director of a State bank shall be the owner in good faith of at least one per cent of the capital stock of the bank if it is less than $50,000, or of stock having a par value of not less than i'500 if the bank has $50,000 or more of capital stock, although any person serving as a director of any bank on January 1, 1932, is eligible for reelection annually thereafter if he meets the requirements in force prior to that date. In the circumstances, it is requested that, if he has not already done so, counsel for your bank satisfy himself that Messrs. Barber, Frihart and Johnson are not disqualified to act as directors of the subject bank, and, prior to its admission to membership, he should also be satisfied that its application for membership and the acceptance Of the conditions of membership prescribed for it by the Board are based upon validly adopted resolutions of its board of directors. "It has been observed that on April 10, 1935, and on at least one occasion prior thereto, the Commissioner of Banking of the State of Wisconsin criticized the bank for its practice in granting overdrafts and that, under date of April 25, 1935, the bank gave assurances to the Commissioner tnat such practice would be discontinued. In this connection, however, the report of examination referred to above indicates that the bank nevertheless has continued to follow this practice, since the report discloses that the bank, during the period from September 7, 1935, to October 100 1955, permitted overdrafts amounting to $782.48, and the examiner states that overdrafts are habitually granted. In the circumstances, you are re,luested to call the bank's specific attention to condition of membership numbered 6. . "It has been noted further that the papers submitted with the bank's application for membership did not include a copy of the certificate issued by the State authorities authorizing the bank to commence business. Since the bank C)r)t..).4 11/6/35 -16- "was organized in 1910, it is possible that a certificate of this kind was not required at that time, but, if it was required, it will be appreciated if you will obtain and forward a copy of it to the Board for its records." Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Reserve Bank of Boston, reading as follows: "In connection with its consideration of the application of 'General Educational Fund, Inc. Founded by Emma Eliza Curtis', Burlington, Vermont, for a voting permit entitling such corporation to vote the stock which it owns or controls of 'The Merchants National Bank of Burlington', Burlington, Vermont, the Board has determined that such applicant is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of section 2(c) of the Banking Act of 19330 as amended by section 301 of the Banking Act of 1935, and that, accordingly, the applicant is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. "Inclosed herewith is a letter to the applicant advising it concerning the Board's action in this matter. If, for any reason, you believe that this matter should be reconsidered by the Board, please communicate with the Board at once. Otherwise, you are requested to transmit the inclosed letter to the applicant. A copy of the letter is also inclosed for your files. "As you will note, the Board expressly reserves the right to make a further determination of this matter at any time on the basis of the then existing facto. In this connection, it is requested that you advise the Board if, at any time, you believe this matter should again be considered by the Board." Approved unanimously, together with a letter to "General Educational Fund, Inc. Founded by Emma Eliza Curtis", Burlington, Vermont, reading as follows: "This refers to the application of your corporation for a voting permit entitling it to vote the stock which it owns or controls of 'The Merchants National Bank of Burlington', Burlington, Vermont. "The Board understands that your corporation was organized 2285 11/6/35 -17-- "Pursuant to the provisions of a testamentary charitable trust for the purpose of aiding young men and women to obtain a common school or university education, or both, or to learn a trade, handicraft, business, or profession, or to obtain instruction in domestic science, or to obtain other useful knowledge. It is understood that your corporation has been and is operated solely for such purpose, and that its stock ownership and control of The Merchants National Bank and The Farmers Trust Company, Burlington, Vermont, a nonmember trust company is incidental to such purpose. "As you know, section 301 of the Banking Act of 1935 amended section 2(c) of the Banking Act of 1933, defining the term 'holding company affiliate', by adding thereto the following paragraph: 'Notwithstanding the foregoing, the term "holding company affiliate" shall not include (except for the purposes of section 23A of the Federal Reserve Act, as amended) any corporation all of the stock of which is owned by the United States, or any organization which is determined by the Board of Governors of the Federal Reserve System not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies.' "In view of the above facts, the Board has determined that your corporation is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of the above quoted statutory provision, and, therefore, is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. Accordingly, it is not necessary for your corporation to obtain a voting permit in order to vote the stock which it owns or controls of The Merchants National Bank and on this basis the Board will give no further consideration to your application for such a permit. "If, however, the purpose for which your corporation is Operated or the nature of its activities should at any time differ from the description thereof contained in this letter to an extent which would indicate that it might be engaged as a business in holding the stock of, or managing or controlling, banks, this matter should again be submitted to the Board for its determination. The Board reserves the right to make a further determination of this matter at any time on the basis of the then existing facts." Letter to Mr. Fletcher, Acting Federal Reserve Agent at the Fed- 2286 11/6/35 -18- eral Reserve Bank of Cleveland, reading as follows: "In connection with its consideration of the application of landber Trust Company', Windber, Pennsylvania, for a voting permit entitling it to vote the stock which it owns or controls of 'Merchants and Miners Bank', Paint Borough, Pennsylvania, the Board has determined that the applicant is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies within the meaning of section 2(c) of the Banking Act of 1953, as amended by section 301 of the Banking Act of 1955, and, accordingly, the applicant is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. "Inclosed herewith is a letter to the applicant advising it concerning the Board's action in this matter. If, for any reason, you believe that this matter should be reconsidered by the Board, please communicate with the Board at once. Otherwise you are requested to transmit the inclosed letter to the applicant. A copy of the letter is also inclosed for your files. "As you will note, the Board expressly reserves the right to make a further determination of this matter at any time on the basis of the then existing facts. In this connection it is requested that you advise the Board if, at any time, you believe this matter should again be considered by it." Approved unanimously, together with a letter to the "Windber Trust Company", Windber, Pennsylvania, reading as follows: "This refers to the application of your company for a voting permit entitling it to vote the stock which it owns or controls of 'Merchants and Miners Bank', Paint Borough, Pennsylvania. "The Board understands that your company is engaged in the general banking business and was organized and is operated for that purpose; that your company owns 56.67% of the stock of Merchants and Miners Bank, Paint Borough, Pennsylvania, 38.8% of the stock of Berwind Bank, Berwind, West Virginia, and stock of four other banks in amounts not exceeding 6% of the outstanding stock in any instance; that the assets of your company are far greater in amount than those of Merchants and Miners Bank, its sole subsidiary bank; that only a relatively insignificant portion of your company's assets is invested in bank stock; and that your company was not organized 2287 11/6/35 -19- "and is not operated for the purpose of managing or controlling banks and does not hold the stock of the above-mentioned banks for such purpose. "As you perhaps know, section 301 of the Banking Act of 1935 amended section 2(c) of the Banking Act of 1933, defining the term holding company affiliate, by adding thereto the following paragraph: 'Notwithstanding the foregoing, the term "holding company affiliate" shall not include (except for the purposes of section 23A of the Federal Reserve Act, as amended) any corporation all of the stock of which is owned by the United States, or any organization which is determined by the Board of Governors of the Federal Reserve System not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies.' "In view of the above facts, the Board has determined that your company is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of the above quoted statutory provisions, and, therefore, it is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. Accordingly, it is not necessary for your company to obtain a voting permit in order to vote the stock which it owns or controls of Merchants and Miners Bank and, on this basis, the Board will give no further consideration to your application for such a permit. "If, however, your company acquires control over any other bank, or the purpose for which your company operates, the purpose for which it holds the stock of the subsidiary bank, or the character of the functions which it performs should at any time differ from the description thereof contained in this letter to an extent which would indicate that it might be engaged as a business in holding the stock of, or managing or controlling banks, this matter should again be submitted to the Board for its determination. The Board reserves the right to make a further determination of this matter at any time on the basis of the then existing facts." Letter to Mr. Stevens, Federal Reserve Agent at the Federal Reserve Bank of Chicago, reading as follows: "In connection with its consideration of the appli- 2288 11/6/35 -20-- "cations of 'G. W. Mead Securities Corporation' and 'Mead Corporation', both of Chicago, Illinois, for voting permits entitling them to vote the stock which they own or control of 'The Illinois National Bank & Trust Co. of Rockford', Rockford, Illinois, the Board has determined that the applicants are not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of section 2(c) of the Banking Act of 1935, as amended by section 501 of the Banking Act of 1935, and, accordingly, the applicants are not holding company affiliates for any purposes other than those of section 23A of the Federal Reserve Act. "Inclosed herewith is a letter addressed to the applicants jointly, advising them concerning the Board's action in this matter. If for any reason you believe that this matter should be reconsidered by the Board please communicate with the Board at once. Otherwise you are requested to transmit the inclosed letter to the applicants. A copy of the letter is also inclosed for your files. "As you will note, the Board expressly reserves the right to make further determinations with reference to such corporations at any time on the basis of the then existing facts. In this connection it is requested that you advise the Board if at any time you believe this matter should again be considered by it." Approved unanimously, together with a letter addressed jointly to "G. W. Mead Securities Corporation", and "Mead Corporation", both of Chicago, Illinois, reading as follows: "This refers to the applications of your corporations for voting permits entitling them to vote the stock which they own or control of 'The Illinois National Bank & Trust Co. of Rockford', Rockford, Illinois. "The Board understands that all of the stock of G. W. Mead Securities Corporation is owned by George W. Mead and his family; that G. W. Mead Securities Corporation owns all of the stock of Mead Corporation but has no other significant assets; and that the following statement of the assets of Mead Corporation, contained in its statement of condition as of April 50, 1935, substantially reflects the character and relative value of the various classes of assets now ownea by that corporation: Consolidated Water Power and raper Company stock ,535,094 2289 "Illinois National Bank & Trust Ldo. 6 218,750 . stock 12,754 Cash 575 Due from G. W. Mead Securities Corporation 250 Interest paid in advance 05,565,403 Total "It is understood that Consolidated Water Power and Paper Company and its subsidiaries are engaged in the manufacture of paper and in related enterprises; that Mead Corporation owns a majority of the outstanding shares of stock of Consolidated Water Power and Paper Company; that Mead Corporation owns 1.2 75 of the 2,000 shares of stock of The Illinois National Bank & Trust Co. of Rockford but does not own or control stock of any other bank; that such bank was organized in 1931, following the closing of several banks in Rockford, in order to provide banking facilities for that city and to make use of a bank building and equipment then owned by George W. Mead; that Mead Corporation acquired 1,885 shares of the stock of such bank at the time of its organization; that Mead Corporation has since sold 135 shares and it is the intention of that corporation to dispose of the remainder of the bank stock as rapidly as possible; and that neither of your corporations was organized or is operated for the purpose of managing or controlling banks. "As you perhaps know, section 301 of the Banking Act of 1935 amended section 2(c) of the Banking Act of 1936, defining the term holding company affiliate, by adding thereto the following paragraph: 'Notwithstanding the foregoing, the term "holding company affiliate" shall not include (except for the purposes of section 23A of the Federal Peserve Act, as amended) any corporation a33 of the stock of which is owned by the United States, or any organization which is determined by the Board of Governors of the Federal Reserve System not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies.' "In view of the above facts, the Board has determined that your corporations are not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of the above quoted statutory provisions, and, therefore, they are not holding company affiliates for any purposes other than those of section 23A of the Federal Reserve Act. Accordingly, it is not necessary for your corporations to obtain voting permits in order to vote the stock which they own or control of The Illinois Natioual Bank & Trust Co. of Rockford 22An 11/6/35 -22- "and, on this basis, the Board will give no further consideration to the applications of your corporations for such permits. "If, however, either of your corporations acquires control over any other bank or if the facts should at any time otherwise differ from those set out above to an extent which would indicate that either or both of your corporations might be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, this matter should again be submitted to the Board. The Board reserves the right to make further determinations with reference to either or both of your corporations at any time on the basis of the then existing facts." Letter to Mr. Wood, Federal Reserve Agent at the Federal Reserve Bank of St. Louis, reading as follows: "In connection with its consideration of the application of 'Bank of Commerce and Trust Company', Memphis, Tennessee, for a voting permit entitling it to vote the stock which it owns or controls of 'National Bank of Commerce in Memphis', Memphis, Tennessee, the Board has determined that the applicant is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies within the meaning of section 2(c) of the Banking Act of 19332 as amended by section 301 of the Banking Act of 1935, and, accordingly, the applicant is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. "Inclobed herewith is a letter to the applicant advising it concerning the Board's action in this matter. If, for any reason, you believe that this matter should be reconsidered by the Board, please communicate with the Board at once. Otherwise you are requested to transmit the inclosed letter to the applicant. A copy of the letter is also inclosed for your files. "As you will note, the Board expressly reserves the right to make a further determination of this matter at any time on the basis of the then existing facts. In this connection, it is requested that you advise the Board if, at any time, you believe this matter should again be considered by it." Approved unanimously, together with a letter to the "Bank of Commerce and Trust Company", Memphis, Tennessee, reading as follows: 2291 11/6/35 -23- "This refers to the application of your company for a voting permit entitling it to vote the stock which it owns or controls of 'National Bank of Commerce in Memphis', Memphis, Tennessee. "The Board understands that prior to May 1, 1933, your company was engaged in a general banking business; that on such date, because of difficulties in which your company was involved, the deposit liabilities of your company were assumed by, and certain of its assets were transferred to, National Bank of Commerce in Memphis, a new bank organized for such purpose by your company with the aid of a loan from the Reconstruction Finance Corporation; that your company owns all of the stock of National Bank of Commerce in Memphis, except directors qualifying shares; that the stock owned by your company is deposited with trustees under a voting trust agreement and, together with substantially all other assets of your company, is pledged with the Reconstruction Finance Corporation; that since May 1, 193o, your company has been operated solely for the purpose of liquidating its assets in order to retire obligations owed to the Reconstruction Finance Corporation and it is hoped eventually to distribute the stock of National Bank of Commerce in Memphis to your company's stockholders; that your company owns substantially all of the stock of the Tennessee Joint Stock Land Bank; that your company does not manage or control any other banking institution; and that your company was not organized and is not operated for the purpose of managing or controlling banks. "As you perhaps know, section 301 of the Banking Act of 1935 amended section 2(c) of the Banking Act of 1933, defining the term 'holding company affiliate', by adding thereto the following paragraph: 'Notwithstanding the foregoing, the term "holding company affiliate" shall not include (except for the purposes of section 23A of the Federal Reserve Act, as amended) any corporation all of the stock of which is owned by the United States, or any organization which is determined by the Board of Governors of the Federal Reserve System not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies.' "In view of the above facts, the Board has determined that your company is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of the above-quoted statutory provisions, and, there- 2292 11/6/35 -24- "fore, it is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. Accordingly, it is not necessary for your company to obtain a voting permit and, on this basis, the Board will give no further consideration to your application. "If, however, your company acquires control over any other bank, or the purpose for which your company operates, the nature of its assets, or the character of the functions which it performs should at any time differ from the description thereof contained in this letter to an extent which would indicate that it might be engaged as a business in holding the stock of, or managing or controlling, banks, this matter should again be submitted to the Board for its determination. The Board reserves the right to make a further determination of this matter at any time on the basis of the then existing facts." Letter to Mr. Wood, Federal Reserve Agent at the Federal Reserve Bank of St. Louis, reading as follows: "In connection with its consideration of the application of 'Lehnhard Investment Company', Monett, Missouri, for a voting permit entitling such corporation to vote the stock which it owns or controls of 'The First National Bank of Monett', Monett, Missouri, the Board has determined that such applicant is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of section 2(c) of the Banking Act of 1933, as amended by section 301 of the Banking Act of 1935, and that, accordingly, the applicant is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. "Inclosed herewith is a letter to the applicant advising it concerning the Board's action in this matter. If, for any reason, you believe that this matter should be reconsidered by the Board, please communicate with the Board at once. Otherwise, you are requested to transmit the inclosed letter to the applicant. A copy of the letter is also inclosed for your files. "As you will note, the Board expressly reserves the right to make a further determination of this matter at any time on the basis of the then existing facts. In this connection, it is requested that you advise the Board if, at any time, you believe this matter should again be considered by the Board." 2293 11/6/35 -25Approved unanimously, together with a letter to "Lehnhard Investment Company", Monett, Missouri, reading as follows: "This refers to the application of your corporation for a voting permit entitling it to vote the stock which it owns or controls of 'The First National Bank of Monett', Monett, Missouri. "The Board understands that your corporation was organized by the heirs of P. J. Lehnhard for the purpose of holding the assets of his estate; that the corporation has never actively engaged in business but has confined its activities to the management of the assets of such estate; that the principal assets of the corporation consist of farm lands; and that the investment in the stock of The First National Bank of Monett constitutes a relatively small portion of the total assets of the corporation. It is also understood that your corporation does not hold stock of, or manage or control, any bank other than The First National Dank of Monett and that your corporation was not organized and is not operated for the purpose of managing or controlling banks. "As you perhaps know, section 301 of the Banking Act of 1935 amended section 2(c) of the Banking Act of 1933, defining the term 'holding company affiliate', by adding thereto the following paragraph: 'Notwithstanding the foregoing, the term "holding company affiliate" shall not include (except for the purposes of section 23A of the Federal Reserve Act, as amended) any corporation all of the stock of which is owned by the United States, or any organization which is determined by the Board of Governors of the Federal Reserve System not to be engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies.' "In view of the above facts, the Board has determined that your corporation is not engaged, directly or indirectly, as a business in holding the stock of, or managing or controlling, banks, banking associations, savings banks, or trust companies, within the meaning of the above-quoted statutory provision, and, therefore, is not a holding company affiliate for any purposes other than those of section 23A of the Federal Reserve Act. Accordingly, it is not necessary for your corporation to obtain a voting permit in order to vote the stock which it OW112 or controls of The First Natioml Bank of Monett and on this basis the Board will give no further consideration to your application for such a permit. 2294 11/6/35 -26- "If, however, your corporation acquires control over any other bank, or the character of the business of your corporation, the nature of its assets, or the purpose for which it is operated should at any time differ from the description thereof contained in this letter to an extent which would indicate that it might be engaged as a business in holding the stock of, or managing or controlling, banks, this matter should again be submitted to the Board for its determination. The Board reserves the right to make a further determination of this matter at any time on the basis of the then existing facts." Thereupon the meeting adjourned. Secretary. Approvedi--- Chairman.
@FedFRASER