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1155 A meeting of the Board of Governors of the Federal Reserve SYstem was held in Washington on Monday, November 7, 1938, at 10:30 PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Draper 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. &lead, Chief of the Division of Bank Operations Mr. Paulger, Chief of the Division of Examinations Mr. Dreibelbis, Assistant General Counsel Mr. Cagle, Assistant Chief of the Division of Examinations Mr. Chase, Assistant Counsel There were distributed to the members of the Board copies of a 11/ea1 orendum which had been prepared by the staff pursuant to the action telceu at the meeting on November 4, 1938, with respect to the amendof the Board's Regulation L, Interlocking Bank Directorates Under the ClaYton Act, to (1) permit a director, officer or employee of a iliElliber bank who was lawfUlly serving as a director, officer or employee Or one or more other banks on August 23, 1935 (date of approval of the 13enking Act of 1935) to continue to serve such member bank and not 111()re than one of the other banks after February 1, 1939, and (2) extend 115C 11/7/38 -2- the date of the termination of the permission granted by Regulation I. to a director, officer or employee of a member bank to serve also ea e director, officer or employee of aMorris Plan bank. The argu- ments presented in the memorandum for and against the amendment of the Regulation were discussed at length and alternative actions open to the Board were considered. During the discussion Mr. Paulger stated that he had been adthat Mr. D. I. Needham, General Counsel for the American Bankers Ase°ciation, was going to call at his office this afternoon and that he . anticipated that Mr. Needham would request such information as the 8c/ard has with respect to the interlocking directorates which, in the absence of action by the Board, would have to be terminated on or be- e February 1, 1939, 40 ob Mr. Peulger was advised that there would be jection to giving Mr. Needham information with respect to the 111411ber of cases involved and, if requested, the names of directors and banks affected. At the conclusion of the discussion Mr. Thurston and the representatives of Counsel's office present were requested to prepare, for consideration this afternoon, a draft of statement for the press based on action by the Board extending until September 1, 1939, the time limit upon the continuance of existing interlocking directorates. At 1:15 p.m. the meeting recessed and reconvened at 2:30 p.m. he following in attendance: Messrs. Eccles, Ransom, Szymczak, 1157 11/7/38 McKee, Davis, Draper, Morrill, Bethea, Carpenter, Smead, Goldenweiser, Thomas, Currie, Garfield, Gardner, Piser, Longstreet and Krost, and Mrs. Susan Burr Litchfield. The representatives of the Division of Research and Statistics Presented to the Board various aspects of the business and credit sitand. possible future trends were discussed. At the conclusion of the discussion Messrs. Currie, Garfield, Gardner, Piser, Longstreet and Krost, and Mrs. Susan Burr Litchfield left the roam and Messrs. Clayton, Thurston, Wyatt, Paulger, Dreibelbis, Cagle and Chase joined the meeting. Mr. Goldenweiser stated that in accordance with the request 111"e by the Board on April 15, 1938, the Division of Research and Statistics had prepared a study on the subject of reserve requirements and that he would appreciate it if an opportunity could be afforded him to discuss the matter with the Board following which the written l'eP°rt 'would be submitted. It was understood that the matter would be Placed on the docket for presentation by Mr. Goldenweiser at the tilbat meeting of the Board at which all of the members are present. Mr. Smead referred to the efforts which had been made to reach by an agreement upon a uniform condition report form to be used th " Board, the Federal Deposit Insurance Corporation and the Comp- troller of the Currency in calling for reports of condition of member bluaks, and stated that last week he had met with representatives of 1158 11/7/3e -4- the other two agencies and that an agreement was reached on all of the Points of controversy with the possible exception of one which was still under consideration by the office of the Comptroller of the Currency. lie Said that the representatives of the three agencies felt that the 11°11 was a substantial improvement and would be more easily understood by the gublic. He outlined the changes which it was proposed to make In the form of condition report and these changes were discussed briefly. Mr. Davis stated that the suggestion had been made that Mr. 411ead and representatives of the Federal Deposit Insurance Corporation and the Comptroller of the Currency attend the meeting of the National Association of State Bank Supervisors to be held at Hot Arkansas,on November 10, 11 and 12, 1938, for the purpose t Ineating tt "'ley/to State with the Association's committee on condition reports with working out a uniform report form which could be used by supervisors as well as by the three Federal agencies. Mr. Davis l'eco Inmended that Mr. Smead be authorized to go to Hot Springs for the -t,ose referred to with the understanding that he would be authorized to agree to such changes in the report as he thought best for he Purpose of obtaining uniformity in the form used by all of the 811Parvising agencies. Mr. Davis' recommendation was approved unanimously. 1159 11/7/38 There was then read a draft of a press statement prepared by Mr. Thurston and the representatives of the legal division in accordell "with the action taken at the meeting this morning and a further discussion ensued of possible actions by the Board with respect to the elnendment of Regulation L, Interlocking Bank Directorates Under the ClaYton Act. Consideration was also given during the discussion to an alternative draft of press statement prepared by Mr. Clayton which woUld extend the permission granted by the Board for the continuation 431. interlocking directorates until July 1, 1942, the date upon which 111. insured banks with deposits of 4,000,000 or more must become members of the Federal Reserve System. At the conclusion of the discussion Of the proposed press statements, Mr. McKee moved the adoption of the following resolution: RESOLVED, That Regulation L, Interlocking Bank Directorates Under the Clayton Act, be emended, effective immediately, as follows: (1) By adding the following after the semicolon at the end of Section 3(a) thereof: "and any private banker or any director, officer, or employee of a member bank of the Federal Reserve System who is lawfully serving as a director, officer, or employee of a Morris Plan bank or similar institution on January 31, 1939 may continue such service until August 1, 1939;" (2) By changing the period at the end of Section 3 to a semicolon and adding at the end of that section 4 new subsection "(e)" as follows: 1160 11/7/38 -6"(e) Any director, officer, or employee of any member bank of the Federal Reserve System who, on August 23, 1935, was lawfully serving at the sane time as a private banker or as a director, officer, or employee of any other bank, banking association, savings bank, or trust company and whose services in such capacities have been continuous since such date, may continue, until August 1, 1939, to serve such member bank and not more than one other such bank, banking association, savings bank, trust company or private banker." Mr. McKee's motion was put by the chair and carried unanimously, with the understanding that the Federal reserve banks would be advised of the Board's action by telegraph and that a statement for the press with respect to the action would be prepared and released to the press after having been approved by Mr. Ransom. (Secretary's Note) The statement released to the press after having been approved by Mr. Ransom, in accordance with the above action, for publication In the morning papers of November 10, 1938, read as follows: "The Board believes that the principles of Section 8 of the Clayton Act, which relate to interlocking bank directorates, are in the public interest and should be i aPplied to all classes of banks. The law is now discrim,..flatorY in that it applies only to cases involving member "knks of the Federal Reserve System or private banks. The IBoard does not believe that there should be discrimination in any respect among classes of banks subject to Federal authority. "In view of the fact that less than a month will elapse between the convening of the new Congress and lebIllexY 1, 1939, on which date certain existing relationships Would terminate, the Board has exercised its discretion Under the law, as to such relationships involving not more 1161 11/7/38 "than two banks, to extend this time to August 1, 1939. This action was taken for the purpose of calling the matter to the attention of Congress when it convenes, with a recommendation that the existing discrimination between member banks and non-member banking institutions be removed so that the provisions of the law will apply alike to all banks under Federal authority." At this point Messrs. Thurston, Wyatt, Paulger, Smead, GoldenWetsers Dreibelbis, Cagle, and Chase left the meeting. The action stated with respect to each of the matters hereinafter 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 5, 1938, were approved unanir404sly. Letter to Mr. Schaller, President of the Federal Reserve Bank c't Chicago, reading as follows: "This will acknowledge receipt of your letter of October 28 and attached list showing the salary for each officer of your bank as approved by the Board of Directors °f Your bank for the year 1939, subject to the approval or the Board of Governors. "The salaries as shown in the above mentioned list Will be reviewed by the Board of Governors and if the Board desires to take up any question with respect thereto with you before formal action is taken by your Directors at their first meeting in January 1939, it will communicate With You with respect thereto before the end of this year." Approved unanimously. Letter to Mr. Swanson, Vice President of the Federal Reserve 14.41k Of Minneapolis, reading as follows: 1162 11/7/38 -8"This refers to your letter of October 14th requesting advice as to whether anything further need be done to require the elimination by The Commercial Bank of Iron Mountain, Iron Mountain, Michigan, of a loan which may have been made in violation of section 11(m) of the Federal Reserve Act. "It is understood that in January 1937 the directors of The Commercial Bank approved a line of unsecured credit to M. T. Bacco in the amount of $40,000; that in April 1937 Mr. Bacco borrowed $40,000 and voluntarily offered to put up as collateral certain shares of stock; that the member bank feels that Mr. Bacco is entitled to an unsecured line of40,000 but felt that it was not good business to decline to accept his voluntary offer of collateral; and that such loan was not made for the purpose of Carrying or trading in stocks or bonds. You have advised that the member bank states that if directed to do so it will return the collateral to Mr. Bacco and carry the line unsecured. On the basis of these facts and without Prescribing a general rule applicable to all cases, the Board feels that your bank would be justified in not requiring the bank to eliminate the loan or the collateral." Approved unanimously. Letter to Mr. Neely, Chairnan of the Federal Reserve Bank of AIleiltal reading as follows: . "Reference is made to your letter of October 25, 1938, asking whether the Board has any objection to the proposed expenditure of an amount not to exceed 00,000 for alterations at the Jacksonville Branch. It is noted that the Proposed expenditure has been authorized by your board of directors subject to the approval of the Board of Gover11"s, and approved by the directors of the branch; also that prior thereto the executive committee went fully into the matter and recommended that the directors authorize the expenditure. "In view of the circumstances outlined in your letter the Board will interpose no objection to the expenditill*a of not to exceed $60,000 for alterations at the 11/7/38 - "Xacksonville Branch of the Federal Reserve Bank of Atlanta." Approved unanimously. Thereupon the meeting adjourned. Chairman.
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