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192 A meeting of the Federal Reserve Board was held in the office of the l'ederel Reserve Board on Wednesday, October 10, 1928 at 10:30 a.m. PRESENT: Governor Young Mr. Platt Mr. Hamlin Mr. Miller Mr. James Mr. Cunningham Mr. Eddy, Secretary Mr. McClelland, Asst. Secretary The minutes of the meeting of the Federal Reserve Board held on October 9th were read and approved as amended. The Governor aubMitted draft of a proposed reply to letter dated September 14th from the Director of the Bureau of Foreign and Domestic Commerce of the Do Partment of Commerce, with reference to the discount charged on Canadian currelleY by American banks and merchants, and suggesting that this charge might be overcome by the Reserve banks agreeing to stand the expense of currency shi PMellts from member banks and accepting the currency at par. 6481,ea as A discussion to the possibility of establishing a currency clearing arrangement between the United States and Canada by which could be eliminated at least to some degree the discount or charge made in each country on the currency "in of the other. Following the discussion, the Governor was requested to reply to the above letter that while the Board does not see much opportunity of relieving the situation because of its lack of control over small banks, merchants, hotels and others, it will be glad to take the matter up with the Federal Reserve banks in an effort to find some solution. He was also requested to suggest that the matter be taken up by the Department of Commerce with the United States Chamber of Commerce. The Governor also presented a proposed reply to letter dated October 2114 from the Deputy Governor of the Federal Reserve Bank of Kansas City, trans- 193 10/10/28 -2- Initting a communication from the Philadelphia Sunday Transcript requesting information as to how the Federal Reserve System prevents bank failures, etc.; the Proposed letter to the Deputy Governor setting forth a suggestion as to the , orm of reply which should be made by the Federal Reserve bank to the in411ir7, pointing out the purposes of the Federal Reserve System which are not construed to include responsibility for the solvency of member banks. Upon motion, the letter submitted by the .iovernor was approved. The Governor then presented to the Board a memorandum prepared by Counsel at his request, under date of April 25, 1928, submitting a form of bill to amend the Federal Reserve Act authorizing the Federal Reserve Board, in its discretion, to waive the six months' notice now required before permitting a state member bshi, to Withdraw from the Federal Reserve System and to permit any such bank to withdraw prior to the expiration of six months from the date of written notice Of its intention to withdraw. The Governor stated that while the reasons for the ProPosed amendment set forth in Counsel's memorandum do not agree with his (11J1 views in support of it, he is of the opinion that the amendment should be reco mmended by the Board. After discussion, upon motion, it was voted to refer the proposed amendment to the forthcoming Conferences of Governors and Federal Reserve Agents and to the next meeting of the Federal Advisory Council. Letter dated October 9th from the Deputy Governor of the Federal Reserve 26th for 441c Of New York, replying to a request made by the Board on September 44 expression of the views of the officers and directors of that bank on an 4131plication received from the Equitable Eastern Banking Corporation that it be lartnit ted to use as reserves against deposits and acceptances (1) demand loans 194 10/10/28 -3- against acceptances and (2) demand loans against stock exchange collateral; the De ,n4. "Y % Governor stating that the officers and directors of the bank are in favor t Permitting demand loans against acceptances to be used as reserves but believe t ilaaavisable to permit the use of demand loans against stock exchange collateral for that purpose. The above views being in accordance with those of the members of the Board, it was voted to approve of the Equitable Eastern Banking Corporation counting demand loans against acceptances as reserves against deposits and acceptances, but not to permit the use of demand loans against stock exchange collateral. 2he Governor then referred to the special order of business for this meeting, liamely9 the resolutions submitted by Mr. James at the meeting yesterday, Mr. James Moved adoption of the first resolution as follows: 'WHEREAS, the Board has today adopted a policy and established certain principles relating to Examinations of State Member Banks, and WHadEAS, the Board has petitioned Congress to so amend the Federal Reserve Act as to make it discretionary as to assessment of costs of examinations to banks examined; BE IT RESOLVED, that the ruling just made on the matter of assessing costs of examination be held in abeyance pending action of the Banking and Currency Committee and Congress." 11r, Hamlin suggested and Mr. James accepted an amendment to the resolution, 174king it read as follows: "WHEREAS, the Board has today adopted a policy and established certain principles relating to Examinations of State Member Banks, and WHEREAS, the Board has petitioned Congress to so amend the Federal Reserve Act as to make it discretionary as to the assessment Of costs of examinations to banks examined; BE IT RESOLVED, that the ruling just made on the matter of assessing costs of examination shall not take effect until action by the Banking and Currency Committee and Congress." 411'. Miller moved, as a substitute for Mr. James' motion, as amended, adoption of „ '14) following resolution: 95 10/10/28 -4- "WHEREAS, the Board has today adoptea a policy and established certain principles relating to Examinations of 3tate Member Banks, and .:11_12.2,-.S, the Board has petitioned ConaTess to so amend the Federal Reserve Act as to make it discretionary as to assessment of costs of examinations to banks examined; BE IT _a30LITED, that the ruling just made on the matter of assessing costs of examinations or investigations be held in abeyance as to investigations pending action of the Banking and Currency Committee and Congress." After discussion, Mr. Miller's substitute motion was put to a vote and lost, the members voting as follows: Mr. Platt, "aye" Mr. Miller, "aye" Governor Young, "no" Mr. Hamlin, "no" Mr. James, "no" Mr. Cunningham, "no" Mr. James' motion, as amended, was then put to a vote and lost on a tie, the members voting as follows: Mr. Platt, "aye" Mr. Hamlin, "aye" Mr. James, "aye" Governor Young, "no" Mr. Miller, "no" Mr. Cunningham, "no" Mr. James then moved adoption of the second resolution submitted by him at the meeting yesterday, as follows: "BE IT ,-;ESOLVED that the Board - through the Governor - address a letter to the Chairman of the Banking and Currency Committee of the House, calling especial attention to the recommendation made in the Board's Annual Report for 1927 - Page 48 - (4) 'An amendment making it discretionary with the Federal Reserve Board to assess the costs of examining member banks against the banks examined.' and urgently request prompt action on the part of the coming session of Congress." Mr. James' motion being put to a vote was carried. 1 96 10/10/28 -5_ Miller then submitted and moved adoption of the following: "That the Law Committee, with Counsel, be instructed to prepare a revision of the Board's letter to all Federal Reserve Agents of April ?, 1923 (X-3688) on the subject 'Rules Governing Examinations of State 4ember Banks', so as to make said rules conform to the resolutions adopted .3Y the Board on October 9th on the subject of state member bank examinak lOns, and that when said rules have been submitted to the Board and , adopted, an effective date on which they are to be applied be fixed." 1 Miller's motion being put by the Chair was carried. Considerable discussion then ensued as to the legality of the present practiee Of ma Federal Reserve banks of making credit investigations of member banks absorbing the expense thereof, charging the banks only in cases of regular nations, Mr. Miller pointed out that under the resolutions adopted by the Board yesterday, costs of both examinations and investigations would have to he assessed against the member banks. He expressed the opinion that the l'eference to investigations should be eliminated from the resolutions. Thereupon, he moved that the Board reconsider the resolutions adopted at the meeting yesterday on the subject of state bank examinations. lir. Cunningham moved, as a substitute for Mr. Miller's motion, that the resolutions adopted yesterday be amended by striking out the word "investigstions", so as to read as follows: "BE IT RESOLVED, That the Federal Reserve Board recognizes its cllItY under the Federal Aeserve Act to keep itself informed as to the condition of all member banks; "BE IT FURTHER RESOLVED, That the Board is of the opinion that . it is justified in relying upon the Comptroller of the Currency for such information as to National banks; "BE IT FUATHER RESOLVED, That whenever the reports of examination Of State member banks furnished by the State authorities are not deemed satisfactory either to the Federal Reserve bank of the district concerned or to the Federal Reserve Board, the Federal Reserve bank OX the 3oard shall cause to be made at least one examination each year Of such character as to furnish satisfactory information, the cost Of such examinations to be assessed against the member banks examined." Cunningham's substitute motion being put by the Chair was carried. The meeting adjourned at 1:15 p.m
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