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A meeting of the Board of Governors of the Federal Reserve Systern was held in Washington on Wednesday, October 14, 1956, at 11:00 a. in. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Szymczak McKee Davis Mr. Mr. Mr. Mr. Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman Consideration was given to each of the matters hereinafter referred to and the action stated with respect thereto was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on October 13, 1956, were approved unanimously. Telegram to Mr. Young, President of the Federal Reserve Bank of Boston, stating that the Board approves the establishment without chailge by the bank today of the rates of discount and purchase in its existing schedule. Approved unanimously. Letter to Mr. Harrison, President of the Federal Reserve Bank °f New York, prepared in accordance with the action taken at the meetof the Board on October 9, 1956, and reading as follows: "Reference is made to your letter-of September 29, 1936, with respect to the foreign exchange control measures instituted by the Polish Government, and particularly with respect to the decision of the Polish Government to suspend for the time being transfer of service due on the Republic of Poland seven per cent stabilization loan of 1927. A representative of the Board has discussed this matter 1879 10/14/36 -2- "and your letter with representatives of the State Department and a copy of your letter has been furnished informally to that Department. "The Department has had this matter under consideration for some time and was appreciative of the information contained in your letter. It also expressed interest in any further information that might develop. Accordingly, it will be appreciated if you will forward to the Board any information of importance that you may receive with respect to the situation in order that it may be available for transmission to the State Department. The Board has also requested me to advise you that it will communicate with you in due course in the event further action by your bank is desired in the matter." Approved unanimously. Telegram to Mr. Sproul, First Vice President of the Federal Reserve Bank of New York, reading as follows: "Retel October 13 regarding advice received from Bank for International Settlements that Hungarian National Bank on October is, 1956, will make semi-annual payment of interest at rate of one percent per annum on Second Syndicate Credit in accordance with Article 5 Consolidation Agreement. Board approves proposal that your bank advise Bank for International Settlements of your willingness to have payment due Federal reserve banks aggregating $11,339. according to legal definition of dollar in force on December 17, 1951, converted into present United States dollars, and upon receipt of dollar proceeds to credit $11,559. as interest and the balance as partial repayment of principal, with understanding that the Other Federal reserve banks have assented to proposal. onal "Board assumes that in advising Bank for Internati clear it make will Settlements in this connection your bank the acceptance of this payment of interest and of partial rebank's payment of principal shall be without prejudice to your s repayment or on interest right to require future payments of the of credits two the in tions of principal of your participa Hungarian National Bank to be made in accordance with terms of the agreements affecting such credits, and in the same and manner as payments to other participants in said credits, rights bank's your of any of shall not be regarded as a waiver modificawith respect to such payments or an amendment to or r." whatsoeve s agreement tion of any of the terms of such Approved unanimously. 10/14/36 -3- Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Reserve Bank of Boston, reading as follows: "Receipt is acknowledged of Mr. Sawyer's letter of August 26, 1936, addressed to Dr. Parry, Chief of Division of Security Loans, in which the following is quoted from a letter from A. B. Pimm and Company, note dealers in Hartford, Connecticut. 'CASE I A wealthy doctor in this City borrowed last year and has since paid off in part a sum of money which was in turn privately loaned to a friend to engage in the security business. There is now a possibility that another loan will be made for the same purpose. If the business for which this loan was obtained was a mercantile establishment the question would not arise but being used to finance indirectly a security business we ask if this would be a regulated or an unregulated loan. 'CASE II A partner in a security business has for the last two years or more allowed the partnership to use his own personal stock on a letter of hypothecation to obtain a loan at their own bank said money being used wholly to in part at least finance their deliveries and not to carry stocks for customers. He now wants to put the loan out under his own name with his own stock and in turn loan the proceeds of the loan to the partnership for the same purpose, that is, to help finance deliveries. Again the same question arises, i. e. Is the loan regulated or unregulated when the money is used in the security business?' "In connection with the aforesaid cases, inquiry is made as to whether or not a loan by the bank to an intermediary is subject to Regulation U, and whether or not the bank may accept a statement from an individual that he is not borrowing the money to purchase or carry securities bank registered on a national securities exchange when the 1881 10/14/36 -4- "has knowledge that the money is to be used in the purchase of securities. "It is not possible for the Board to pass upon cases When additional facts, not known to the Board might materially alter its conclusion and, as there may be, in the particular cases, additional facts not known to you or to the Board which would materially alter its conclusions, the Board cannot give a categorical answer with respect to the same. "However, for your use in connection with the inquiry, you may find the following comments to be of some benefit. "In connection with case I, it would appear from the statement that the 'wealthy doctor' is neither a 'creditor' Within the meaning of Regulation T, nor a 'bank' within the meaning of Regulation U. Accordingly, it would not appear that the loan by him is subject to either regulation. Furthermore, even if the loan to him was made by a bank upon the security of stock, it would not appear that such loan would be subject to Regulation U, since it would not be for the purpose of purchasing or carrying a registered stock. "With respect to case number II, it does not appear from the facts of the letter of Messrs. A. B. Pimm and Company whether or not the partnership is a 'creditor' within the meaning of Regulation T, or whether or not any part of Its business is the purchase or carrying of registered stock. It is assumed, however, for the purposes of this letter that such is the case and if this is true, it would not appear that there is any substantial distinction under Regulation U and under the Act between a bank making such a loan to a partner and making a loan to the partnership itself, the proceeds in both cases to be used by the partnership in financing the delivery of registered stocks; and, it could hardly be said that such a loan would not be for the purpose of purchasing or carrying such registered stocks. "Furthermore, in such a case, it would not seem that the acceptance of a statement from the individual that he is not borrowing the money to purchase or carry securities registered on a national securities exchange would be of as any effect in the face of the bank's actual knowledge proceeds. the of use and loan the to the purpose of "On the basis of the foregoing, it is hoped that Mr. a Sawyer will be able to satisfactorily carry the matter to 1882 10/14/36 "conclusion with Messrs. A. B. Pim and Company." Approved unanimously. Letter to Mr. A. Carlyle Smith, Assistant Cashier, The Somerset National Bank, Barker, New York, reading as follows: "This refers to your letter of October 7, 1936, in Which you inquire whether a vice president and the cashier of your bank should be regarded as executive officers within the meaning of section 22(g) of the Federal Reserve Act and the Board's Regulation O. You state that the vice President and cashier in question are also directors but that they take no active part in the management of the bank other than the performance of their duties as directors and that they receive no salary other than the regular fees allowed to all the directors. "As you perhaps know, section 22(g) of the Federal Reserve Act prohibiting the making of loans to executive officers of member banks was amended by the Banking Act of 1955, approved August 25, 1955. Under this amendment the Board of Governors of the Federal Reserve System was authorized to issue regulations and to define the term 'executive officer' for the purposes of such section. At the time of the consideration of Regulation 0, the Board was aware of the fact that some banks had honorary or inactive officers who did not actively participate in the management of the bank; but it was the view of the Board that bank officials whose titles may cause the public to consider them executive officers should comply with the rules governing executive officers. Moreover, a vice president or cashier of a member bank, although actually inactive in the management of the bank, nevertheless is in a position to exercise actively the duties of his office Should occasion arise. Also, Congress did not make a distinction in section 22(g) between active and inactive officers, and the Board, in prescribing a general rule applicable to all member banks alike, did not feel that it Should make such a distinction when defining the term 'executive officer' pursuant to the authority vested in the Board by the law. Accordingly, every vice president and the cashier of a member bank have been included within the definition contained in subsection (b) of section 1 of the Board's Regulation 0, whether or not they are active; and, therefore, the vice president and the cashier of your bank 1883 10/14/36 -6- "to whom you refer should be regarded as executive officers within the meaning of the regulation. "For your information in this connection, there is inclosed a copy of the Board's Regulation 0." Approved unanimously. Letter to Mr. C. S. Yeager, Browns Valley, Minnesota, reading as follows: "Reference is made to your letter of September 3 addressed to the Federal Reserve Bank of Minneapolis in which you in,quire whether the statement made by H. Parker Willis in the September issue of the Readers' Digest is true--that there is no metallic backing for the currency in circulation in the United States and that none of the currency is redeemable in anything but paper. "The Gold Reserve Act of 1934 transferred to the United States title to all the gold held by the Federal Reserve banks and gave the Federal Reserve banks in exchange therefor deposit credit with the Treasurer of the United States payable in gold certificates. The Act of May 12, 1933, as amended, had made all coin and currency of the United States legal tender for all debts public and private. "The Federal Reserve banks are not authorized to pay out gold certificates and under the existing law and regulations of the Secretary of the Treasury no currency of the United States may be redeemed in gold, except that gold certificates held by the Federal Reserve banks may be redeemed In gold for the purpose of settling international balances and for certain other purposes. Silver certificates are, however, secured by deposit in the Treasury of an amount of silver bullion and standard silver dollars of a monetary value equal to the face amount of the certificates outstanding and such certificates may be redeemed in standard silver dollars. "The Gold Reserve Act of 1954 provides that gold certificates owned by the Federal Reserve banks shall be redeemed at such times and in such amounts as, in the judgment of the Secretary of the Treasury, are necessary to maintain the equal purchasing power of every kind of currency of the United States. Furthermore, the Act of May 12, 1935, provides that the gold dollar shall be the standard 1884 10/14/36 -7- "unit of value, and all forms of money issued or coined by the United States shall be maintained at a parity with this standard and it shall be the duty of the Secretary of the Treasury to maintain such parity. "As of Wednesday, September 30, the Federal Reserve banks had obtained $4,346,943,000 of Federal Reserve notes from the Federal Reserve agents of which $4,049,143,000 were in circulation and $297,800,000 were held by the Reserve banks. Against these Federal Reserve notes the Federal Reserve banks had pledged collateral as follows: $4,346,943,000 Federal Reserve notes outstanding Collateral pledged with the Federal Reserve Agents by the Federal Reserve banks against Federal Reserve notes outstanding 4,337,838,000 Gold certificates 5,306,000 Eligible paper 88,000,000 U.S. Gov't. Obligations $4,431,144,000" Approved unanimously. Letter to Mr. Daiger, Special Assistant to the Board, readas follows: "Chairman Eccles has advised the Board of your conversation with him in which you stated that you have had in view another connection which you desired to make not later than the first of next year, and that you felt that the work upon which you are now engaged could be finished by that time. Accordingly, the Board extends your appointment for such additional period as in the judgment of the Chairman your services are required, not longer than the close of December 31, 1936, at your present rate of compensation. It is understood that the Chairman will give you the necessary instructions regarding the performance of your duties during this Period, and, in this connection, the Board's action carries with it a change of designation to that of Special Assistant to the Chairman." Approved unanimously. Thereupon the meeting adjourned.
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