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A meeting of the Board of Governors of the Federal Reserve 8Y8te3g was held in Washington on Friday, October 29, 1937, at 11:30 PRESENT: Mr. Mr. Mr. Mr. Eccles, Chairman Szymczak McKee Davis Ma.. Mr. Mr. Mr. Consideration re ed WES Morrill, Secretary Bethea, Assistant Secretary Carpenter, Assistant Secretary Clayton, Assistant to the Chairman given to each of the matters hereinafter re- t0 and the action stated with respect thereto was taken by the BOEIrcl : Federal ta040, The minutes of the meeting of the Board of Governors of the Reserve System held on October 28, 1937, were approved unani- Telegrams to Mr. Kimball, Secretary of the Federal Reserve Bank "New York, Mr. Austin, Chairman of the Federal Reserve Bank of Phila- cielPhia, Mr. Taylor, Secretary pro tern of the Federal Reserve Bank of 01eveland, and Mr. Thomas) Chairman of the Federal Reserve Bank of ktinsas City, stating that the Board approves the establishment withollt change by the New York and Kansas City banks on October 28, 1937, and by the P hiladelphia and Cleveland banks today, of the rates of 48c°11nt and purchase in their existing schedules. Approved unanimously. 14 g th Mom -urandum u dated October 26, 1937, from Mr. Morrill recannend188 Helen Lavelle, stenographer, who has been assisting in 1465 10/29/37 -2Perscgunal and voucher work, be assigned full time to the personnel section, with no change in her present salary at the rate of 0.,500 Per annum; that Mr. Frank H. Grimes, Jr., assistant index clerk, be 811)01nted assistant voucher clerk, with salary at the rate of 4,000 Per annIlm; that Mr. Bertram C. Dedman, page, be appointed assistant 1114 "clerk) with no change in his present salary at the rate of q)Osn " Per annum,all effective November 1, 1937; and that Mr. William ' S Fleming, III, be appointed as a page in the Office of the SecretarY) with salary at the rate of 0.,080 per annum, effective as of the 4te 1111°n which he enters upon the performance of his duties after haNrin.. Passed satisfactorily the usual physical examination. Approved unanimously. Me morandum dated October 27, 1937, from :Mr. Goldenweiser, tirector of the Division of Research and Statistics, recommending that 14r. Ge rge P. Hitchings, an intern at the National Institute of Public ktfairs, be appointed on a temporary basis for a period of seven months 4s a.,4 economic assistant in the Division, with salary at the rate of 50.00 Per month, he enters upon effective as of the date upon which the Performance of his duties. Approved unanimously. Letter to Mr. Drinnen, First Vice President of the Federal Re33411 nk °f Philadelphia, reading as follows: ernor lerring to your October 18 letter, the Board of Govapproves the action of the board of directors of your 10/29/37 _3_ "bank on Friday, October 15, 1937, in deciding to make a uP 8plemental contribution to the Retirement Fund in an amount sufficient to provide Mr. David Finlaw, head of the mutilated currency division in the Currency Department of Your bank, with a retirement allowance of 4100 per month. "We have been advised by the Retirement Office that the Ilreeasery supplemental contribution for this purpose will ;e sPproximately $5,100 for retirement of Mr. Finlaw on ' J anuary 1, 1938." Approved unanimously. Letter to Mr. Young, Vice President of the Federal Reserve Bank Of chic ago, reading as follows: "In accordance with the recommendation contained in Your letter of October 25, the Board approves the appoint:tis as examiners for the Federal Reserve Bank of Chicago wh,Ernest H. Anderson, Wilbur D. Esser and Hugh X. Helmer, - are now serving as assistant examiners. "As you know, the original appointment in November 1933Bo ,Of Mr. Esser as assistant examiner was approved by the - u with the understanding that he would continue syste:7.e r eductions in his indebtedness to a national bank, ch indebtedness at that time amounted to approximately .1000 but which, according to reports on Form B-208, has ,1411 "been materially reduced. If there is an unpaid balCe B0ZOn the indebtedness at this time, the approval by the °Mr. Esser's appointment to the position of examiner with the understanding that such balance is being 'ulg reduced systematically and that final liquidation -1 the able ttZ: i ning balance will be effected within a reason- 1 Approved unanimously. Letter to Mr. Day, President of the Federal Reserve Bank of San PrA,. , 4eieco ) reading as follows: airi "The Board approves the changes in the personnel clasl0 plan of the Federal Reserve Bank of San Francisco and it Etz 117 8 branches requested in your letter of October 7, 1937, heated by the revisedForm A pages inclosed therewith. coy .1h regard to Page 55a of the Los Angeles branch plan :g the position of Federal Reserve Agent's Representativ -I it is felt that this page should be allowed to remain 1467 10/29/37 -4"in the branch plan even though the employee who has been given the assigmnent is carried on the payroll of the Head ffice. It is requested, however, that a new page 55a be 'urnished the Board on which the words 'Work performed by a Federal Reserve Examiner stationed at the Branch but carried on the head office payroll' be substituted for the r11,1?'xrmum salary of .ce.,000 shown on the Form A page inclosed ith Your October 7 letter. The employees' salary list of I e Los Angeles branch to be submitted to the Board as of RanuarY 1, 1938, need not include Mr. Swengel, as Federal arerve Agent's Representative, since the employees' salary e st of the Head Office will include Mr. Swengel classified an examiner. A note indicating that Mr. Swengel is also the Federal Reserve Agent's Representative at the Los Angeles branch should be included in the Head Office salary list." 2 j Approved unanimously. Letter to Mr. Stewart, Chairmen of the Federal Reserve Bank of San Francisco, reading as follows: decid"The Board of Governors of the Federal Reserve System ed same time ago that surveys should be made of the Bank E xamination and Auditing Departments at all of the Federal pc:0; r Reserve Banks. There is attached a copy of a resurvey of the Auditing Department of the Fed,1a1 Reserve Bank of San Francisco recently conducted by cliejoardts Examiners Jones and Cagle. An additional copy : h report is inclosed for President Day. tio, While the survey indicates that the auditing funcis the Federal Reserve Bank of San Francisco in general 11.d eing performed in substantial conformity with the standoral recommended by the Conference of Auditors of the Fedthe Reserve Banks held in Washington in November 1936, be,conclusions set forth by the examiners indicate a num'of matters which merit consideration. to„ "It Will be appreciated if you and any of your directhis wil°111 You may designate and President Day will review you rePort of survey and give the Board the benefit of othe reactions to the matters referred to above and any yo ,r statements concerning which you would like to express "r views. tiot "The footnote of the letter transmitting the recommendsson sr°r the Conference of Auditors to Mr. George L. Harri' hairmen of the Conference of Presidents of the Federal 4 10/29/37 -5"Reserve Banks, called attention to the confidential nature Of the material contained in that report and other informa1,10n relative to the auditing activities at the Federal Rerve Banks. As the inclosed report refers frequently to "e Auditors recommendations and also contains other inforon of a confidential nature concerning the activities 9% the Auditing Department of your bank, it will be appre) icleted if the report itself is not made available to the "k's employees and the officers directly in charge of the 0jerating departments. Of course, the Board sees no objeclon.to the report, or parts thereof, being submitted to, c.11scussed with, your directors and such of the bank's v'ficers as you and President Day deem advisable." j Approved unanimously. Letter to Mr. Martin, President of the Federal Reserve Bank of St, L °Lae/ reading as follows: arld"Inclosed herewith are copies of letters of August 26, yuleSeptember 15, 193,7, from Mr. William W. Crawford, Louiss Kentucky, relating to the application of subsections f and (c) of section 5144 of the Revised Statutes of the Uluted States to 'Trustees Under Trust Agreement With Refer• to Stock of The First National Bank of Louisville, Ky. ' ce-t:' Other Corporations, Dated July 1, 1925' (hereinafter called the 'Trust' %) , a holding company affiliate which holds Bo• enerel voting permit. Also inclosed are copies of the mird's letter of August 31, 1937, to Crawford, Middleton, forfliar 8c Seelbach and its letter of this date to MT. CrawIt will be appreciated if you will communicate with dsemeliawford, furnishing him with such advice as you may Boal.aPr°Per in the premises. For your information, the views concerning the inquiry are set forth below. to tb"Iou will note that Mr. Crawford states that, pursuant Banking Act of 1935, the so-called double liability hn• s-rreholders of The First National Bank of Louisville rac,ueen terminated and suggests that, by reason of such plifie, su bsections (b) and (c) of section 5144 are not apwhi! n ble to the Trust. No reference is made to the stocks the Trust owns or controls of other banks. be el„,"As a condition upon which all voting permits shall reiglated, subsection (b) prescribes certain requirements to bC to readily marketable assets, other than bank stocks, Possessed or acquired by holding company affiliates. 1469 10/29/37 -6'7 ,z 8 an exceptio n different to subsection (b), subsection (c) prescribes requirements for any holding company affiliate the S hareholders or members of which shall be individually end severally liable in proportion to the number of shares Of auch holding company affiliate held by them respectively, th addition to amounts invested therein, for all statutory liability imposed on such holding company affiliate by rea!TI of its control of shares of stock of banks. The amount Of readily marketable assets required under either subsec1,1°n is dependent upon the amount of bank stocks controlled by the holding company affiliate. "Under ih 19R • subsections (b) and (c), as originally enacted intrOljieltquite clearly was immaterial whether bank stocks by -Y a holding company affiliate carried double and this fact was recognized by the Banking Act Of 1935 which amended subsection (c) by adding the follow* * * and the provisions of this subsection, instead of subsection (b), shall apply to all holding c)IglpallY affiliates with respect to any shares of uank stock owned or controlled by them as to which there ino statutory liability imposed upon the t holders of such bank stock.' ! til.n r ll'a,amendment, substituting the requirements of subsechoi:: ke) for those of subsection (b) to the extent thata ime,: (ing company affiliate otherwise subject to the requireea-us of subsection (b) controls bank stocks which do not ij rY double liability, Congress specifically confirmed its witrtioh to require holding company affiliates to comply certain requirements concerning readily marketable as caseta although the bank stocks controlled by them do not mertY d°11ble liability. It is noteworthy that this amendas a Part of the same Act which provided for the terMAIrl of double liability on national bank stock issued -(31. to June 16, 1933. that "In view of the foregoing, the Board is of the opinion or T ) with respect to the stock of The First National Bank the-°111sville which the Trust controls, the law requires con .krUst to comply with the requirements of subsection (c) truc e.erning readily marketable assets. This is likewise the -Twith respect to any other bank stocks controlled by eppe;rust which do not carry double liability. Since it 1 unlikely that any of the bank stocks controlled by ; /' the : ered-/4:1U,st carry double liability, the Board has not considdoub," question whether, if any such bank stocks carry -Le l iability, the requirements of subsection (b), or ; 10/29/37 -7"those of subsection (c), would be applicable with respect t° such stocks. This question of course would turn upon the effect of the provisions of the trust agreement, one of Iti.hich Mr. Crawford ouotes, relating to the liability of the olders of the trustee's certificates. ir- Crawford urges that there is no reason to require the holding company affiliate to retain any part of its asin anY particular form where the bank stocks controlled hy pliri.a holding company affiliate do not carry double liability. d is question for Congress, rather than the Board, to 0 83. 5e. However, it may be suggested that the ability or incifi Y of holding company affiliates to assist their subt"arY banks in time of need, regardless of legal requirezents ) may structure.„materially affect the strength of the banking Approved unanimously. Betk Telegram to Mr. Sargent, Vice President of the Federal Reserve , Of 'an Irancisco, reading as follows: let. "Re Your wire October 21 and letter October 18 re Reguell 1°11 T. It is understood that question is whether, if a th st°mer substitutes exempted securities for a portion of e l'eEistered nonexempted securities in a restricted acCount in , the broker may treat the exempted securities as havit% nlaximum loan value not greater than they would have sub: leY were registered nonexempted securities, and at some wijequent period when the account is still restricted may, eeci*ut demanding additional margin, permit the exempted tieUllities to be replaced by registered nonexempted securis ?f equal market value. or a "Section 2h) of Regulation defines 'maximum loan value' tend.!eeLlritY as maximum amount of credit which may be exsectr4 on the security in conformity with section 3. Under ent: °I1 3(e) this maximum for exempted securities in presAltt-ase would be not more than their current market value. pos ' °11Eh broker may fix lower loan values for his own purpos:: this would not affect 'maximum loan value' for guremot-, of the regulation. Accordingly, replacement of exeq41. 4 securities with registered nonexempted securities of deti. ‘ market value would increase the excess of the adjusted loan balance of the restricted account over the maximum - 74414e of the securities in the account and could not 1471 10/29/37 -8"be Permitted unless broker demanded additional margin." Approved unanimously. Letter to Mr. Gidney, Vice President of the Federal Reserve Bank (3f New y reading as follows: "Reference is made to your letter of October 18, 1937, regarding Regulation U. age"It is understood that a bank made a loan to brokerfirm Pursuant to Regulation U and that subsequently, enati cr:=0 e .172he collateral declined below that Fircht requires to be maintained for si;,°wn Protection, the bank issued a demand for margin, .'"11(3uE/1 such margin was not required by the regulation. 1-111oe the brokerage firm received the margin call on SatrrdeY and it was customary with the firm to eliminate the soutine °Aerations incident to entering vaults to obtain securities on Saturdays when deliveries and clearances of are not usually effected, the firm proposed that it be in be Permitted to deposit a certified check on Saturday tha:!e4443°rerY satisfaction of the demand for margin, and it be permitted to replace the certified ; ck°4%nd sEtlY 0c. chf to Certified check would be made for an amount equal the rather current market value of the securities to be deposited a ,2f.then the maximum loan value of such securities, since 8e-'4"ulfied check limited to the maximum loan value of the teleill:ietelZ3ATI41 .1t not afford the bank as much protection as The question presented is whether this proIlre A may be followed. Au "118 indicated in the Board's letters S-26 and 5-32 of tiedst 5 and September 3, 1937, the withdrawal of a certisto kcheek against the deposit of an equal market value of o Of the rdinarily would not be permissible when the amount 1°En exceeds the maximum loan value of the collateral, eit of .e t e the substitution would reduce the maximum loan value 4e. eollateral and thus increase the deficiency. It ap; : 0 s in the present case, however, that margin would be de1 thslated to setisfy the bank's maintenance requirements rather ecti,l ellY requirement of Regulation U, that the entire transpsr 'n would be completed within what amounts to only a camfolr olTY few business hours, that the procedure would be eirvi.v.u. in entire good faith and not for the purpose of -'ne the regulation, end that the net effect of the pro- 1472 10/29/37 _9cedure, which would facilitate the usual operations of the brckerage firm, would be the same as if the securities had °riginally been deposited on Saturday or the margin call aad not been met until Monday. "In the circumstances, the Board is of the opinion that the substitution of the securities for the certified check eed not be separated from the other portions of the transecti°n and that the entire transaction may be considered ccordint - to its net results and be treated for the purPoses of the regulation as if the securities had been deP .osi . ted on Saturday or the margin call had not been met until Monday. The Board believes the transaction would be 13!rm1ss1ble on this basis although, of course, an entirely `ifferent situation might be presented if any of the cirumstances were altered. It i S"In View of the discussion above, it is believed that not necessary at this time to express any opinion as to the other considerations referred to in your letter." : Approved unanimously. Letter to Mr. Sam H. Boefer, President, The Bankers Association or Late yette-Ray Counties, Missouri, Higginsville, Missouri, prepared c e°1.(1811ce with the action taken at the meeting of the Board on October 22, 1937, and reading as follows: couT,4.74Pon receipt of the petitions of banks in thirteen fer;"1 ,,es in Missouri requesting that such counties be transfrom the jurisdiction of the Eighth Federal Reserve wh, to that of the Tenth Federal Reserve District, 16'4°1 were forwarded to the Board with your letter of July the 1937) the Board forwarded copies of your letter and of er:l a, , cc1PanYing petitions to the Presidents of the Fedileserve Banks of Kansas City and St. Louis, with the eat the petitions be brought to the attention of and officers of their respective banks and witb the Board be furnished with a statement of their views respect to the merits of the proposal. etd r After giving careful consideration to the petitions tereAring all of the information submitted with rethe proposed transfer, including that obtained 1 'e Federal Reserve banks of Kansas City and St. Louis, the , concluded that it would not be warranted in /4173 10/29/37 -10"transferring the thirteen counties frou which petitions were recei ved from the jurisdiction of the Eighth Federal Reserve pl.strict to that of the Tenth Federal Reserve District. It will be appreciated if you will advise the petitioninw, banks of the Board's decision in this matter." Approved unanimously. Letter to the Presidents of all Federal reserve banks, reading as rollows: "It appears that since the Reconstruction Finance Corrati°n, in accordance with its program, may not grant ' lay further commitments to make industrial advances and may riot ca make any more industrial advances, except under commitrents heretofore granted, the Federal Reserve banks may re"a much larger number of requests for industrial advel: !Ilaces or commitments to make such advances than has been re case in the recent past. The Board hopes that sympathetic ; )Tasideration will be given to such applications as are ceceived and that advances will be made where the banks can usistently do so under the provisions of the 18w and the regulations. Szymczak has already talked with an official of Your bank over the telephone and acquainted him with the Board, s position in this matter; he has also been in touch 1,44. Washington officials of the Reconstruction Finance barPoration and he requested the representative of your With whom he talked to get in touch with the local ,7construction Finance Corporation agency with a view of workout a procedure by which all worthy applicants will be llierred to the Federal Reserve bank. able "For obvious reasons the Board does not think it desirat this time to conduct a campaign on this subject, ; hopes that particular pains will be taken to guard 4etitst the public getting the impression that the Federal 17,,,erve 6ystem has also discontinued making industrial adtZ, ees- In this connection you may think it desirable to to 4. with representative bankers in your district from time time with respect to the facilities in this field which the Federal Reserve banks have to offer." r Approved unanimously. Letter to Mr. Evans, Vice President of the Federal Reserve Bank 1474 10/29/37 —11— Of DEIlles, reading as follows: "This letter of October 18, 1937 request- refers to your 1/10 an opinion upon the question whether State member banks In Texas purchase for their own account shares may lawfully ?1* stock of Federal Savings and Loan Associations insured by Ihe Federal Savings and Loan Insurance Corporation. You state that such inquiries have been made by a number of State meluber banks because of the recent enactment of a Texas bstatute euthorizing State banks to buy and sell shares insured Y the Federal Savings and Loan Insurance Corporation. In view of the provisions of section 5136 of the Revised Statutes and section 9 of the Federal Reserve Act wrifi,ich make it unlawful for a State member bank to purchase ti'lr its own account shares of stock of any corporation, ()fere aPPears to be no reason to differ from the opinion s ,Your officers that no State member bank may purchase IALares of stock of Federal Savings and Loon Associations. believed that the exemptions stated in section 5136 r not cover shares of stock of Federal Savings and Loan sociations and that the provisions of the Texas statute not operate to exempt State member banks from the prosi°ns of the Federal statute." r Approved unanimously. Memorandum dated October 12, 193'7, from Mr. Snead, Chief of the 411S1011 of Bank Operations, stating that an informal request had been 11"e1 lred from Mr. Fred L. Garlock, Senior Agricultural Economist in the tureau of Agricultural Economics, for certain data showing the exteat to which member banks in Wisconsin restricted or deferred pay' lett or "ePosits, obtained waivers from depositors, or employed meale Yr rehabilitating their capital structures during the period -1933. The memorandum recommended, for the reasons stated therein, , 14 the Board authorize Mr. Garlock to compile the desired data cover- tte member banks from examination reports on file at the Board's ()rile es' Provided that arrangements were made to compile similar in— _1475 10/29/37 -12- f°1111atio n at the office of the Comptroller of the.Currency with reel 'et to national banks, and that, if the Comptroller's office does 11" filid it Practicable to have the desired compilation covering national banks made in Washington but is willing that the Federal Reserve Batqc8 of Chicago and Minneapolis compile the data from copies of examreports on file there, the Board authorize Mr. Smead to rethe two Federal reserve banks to make the compilations covering both n ational and State member banks in Wisconsin. Approved unanimously. Letter to Mr. Harrison, Chairman of the Presidents' Conference, re6414 as follows: ,, "Receipt is acknowledged of your letter of October stating that at a recent meeting of the Conference of f; esidents you were requested to appoint representatives p n the Chicago, Kansas City, San Francisco and New York E(a;karal Reserve Banks, and such member of the staff of the teard as the Board might select, to constitute a subcommittIde of the Leased Wire Committee, and requesting the Board's „1/ca as to the person whom it wishes to represent it on subconmittee. "It is understood that the function of such subcommitte e is to make such recommendations to the Leased Wire Comttee relative to the revision of the Leased Wire Code Ilec* and to any other matters of policy or practice in cond2tion with the operations of the Leased Wire System as it is advisable. "In response to your inquiry, the Board would be glad , to to have Mr. S. R. Carpenter, Assistant Secretary of the 81 ' 4, serve as its representative on such subcommittee." Z Approved unanimously. here was submitted a recommendation, which had been approved bY the p ersonnel Committee, that the Board authorize the purchase of 1476 10/29/37 -13- 8) aluminum trays, and cups for feet of desks and tables, and the -`'Ing of President Roosevelt's address at the ceremonies in connectin, . '44 With the official opening of the Board's building on October 20, 1937, as listed in purchase orders Numbered 2375, 2383, 2384, and 2402, tOtal cost or Approved unanimously. Thereupon the meeting adjourned. Chairman.
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