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1_497 A meeting of the Board of Governors of the Federal Reserve System was held in Washington on Wednesday, October 13, 1943, at 2:00 p.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Draper Evans Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman 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 Federal Reserve System held on October 12, 1943, were approved unanimously. Memorandum dated October 7, 1943, from Mr. Paulger, Chief of the Division of Examinations, recommending, for the reasons stated therein, that the Board authorize the reimbursement of Federal Reserve Bank employees assigned to assist the Board's examiners in the conduct of examinations of the Federal Reserve Banks on the following basis: 1. Transportation and subsistence expenses on the same basis as provided for the Board's examiners; 2. As compensation for the extra services rendered, $5 per day or fraction thereof, but in no case more 5; and than 3. The actual amount of overtime paid by the Reserve Bank. Approved unanimously. 1_498 10/13/43 -2- Letter to Mr. Day, President of the Federal Reserve Bank of San Francisco, reading as follows: "Reference is made to the application for membership of the newly organized Custer County Bank, Challis, Idaho, submitted with Mr. Clerk's letter of September 14, 1943. "The Board understands that your Executive Committee does not feel justified in recommending favorable consideration of the application at the present time because the surrounding circumstances do not afford, in the Committee's estimation, sufficient assurance that the applying bank can obtain the volume of earnings necessary to permit it to operate with safety and reasonable profit under expected varying economic conditions. It is understood also that the Committee feels that consideration of the application should be deferred for at least six months to ascertain the possible effect of the establishment of the bank upon the business of neighboring banks as it does not appear that the business available in the immediate vicinity of Challis would be sufficient to support a bank. "The Board would have approved the application if it had been submitted with the favorable recommendation of the Reserve Bank. However, in view of the position taken by your Committee, action on the application is being deferred and it will be held in abeyance for six months with the understanding that you will review the case at that time and submit your further recommendation." Approved unanimously. Letter to "The Second National Bank of Ravenna", Ravenna, Ohio, reading as follows: "This refers to the resolution adopted on January 28, 1941, by the board of directors of your bank, signifying the bank's desire to surrender its right to exercise fiduciary powers heretofore granted to it. "The Board, understanding that your bank has been discharged or otherwise properly relieved in accordance With the law of all of its duties as fiduciary, has issued a formal certificate to your bank certifying that 1499 10/13/43 -3- "it is no longer authorized to exercise any of the fiduciary powers covered by the provisions of section 11(k) of the Federal Reserve Act, as amended. This certificate is enclosed herewith. "In this connection, your attention is called to the fact that, under the provisions of section 11(k) of the Federal Reserve Act, as amended, when such a certificate has been issued by the Board of Governors of the Federal Reserve System to a national bank, such bank (1) shall no longer be subject to the provisions of section 11(k) of the Federal Reserve Act or the regulations of the Board of Governors of the Federal Reserve System made pursuant thereto, (2) shall be entitled to have returned to it any securities which it may have deposited with the State or similar authorities for the protection of private or court trusts, and (3) shall not exercise any of the powers conferred by section 11(k) of the Federal Reserve Act except with the permission of the Board of Governors of the Federal Reserve System." Approved unanimously. Letter to the Presidents of all the Federal Reserve Banks, reading as follows: "Under date of September 2, 1943, we transmitted to you a copy of the Board's ruling with respect to the question whether the absorption of exchange charges by a member bank in the circumstances of a particular case constitutes a payment of interest on deposits. As you know, this ruling appeared in the September issue of the Federal Reserve Bulletin, at page 817. "While the ruling related only to the facts of the specific case involved, the principles stated in the ruling are applicable to any member bank. Accordingly, it Will be appreciated if you will request your examiners to familiarize themselves with the principles set forth in this ruling for their guidance in connection with the examination of member banks. The question whether there is a 'payment of interest' by a particular member bank in absorbing exchange depends upon whether the facts of the case are such as to bring it within the principles set forth in the Board's ruling. In this connection, it should be -1500 10/13/43 -4- "borne in mind that the Board's Regulation Q provides that 'Within this regulation, any payment to or for the account of any depositor as compensation for the use of funds constituting a deposit shall be considered interest'. "In order that the Federal Reserve Bank and the Board may give consideration to the question whether a member bank is indirectly paying interest on deposits by absorbing exchange charges, it is requested that, where a bank under examination is engaged in the practice of absorbing exchange charges, the examiner report on page 2 of the report of examination all of the essential information with such comments as he may deem necessary. The examiner should set forth with respect to the bank under examination any facts of the kind which were present in the case ruled upon by the Board and any other facts or circumstances which he may feel have a material bearing upon the question. Also, in some cases, he may wish to add further comments and expressions of opinion in the confidential section of the report or in a separate memorandum. In every case the information submitted should be in sufficient detail to enable the Federal Reserve Bank or the Board to determine whether or not the practices under review are such as to constitute the payment of interest in contravention of law. In submitting any such case to the Board for consideration the views of your counsel should, of course, be included." Approved unanimously. Thereupon the meeting adjourned. Secreta APproved: Chairman.
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