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1202 A. meeting of the Board of Governors of the Federal Reserve System was held in Washington on Tuesday, October 3, 1939, at 11:00 a. in. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman McKee Davis Draper Mr. Morrill, Secretary Mr. Bethea, Assistant Secretary Mr. Clayton, Assistant to the Chairman The action stated with respect to each of the matters herein.after referred to was taken by the Board: The minutes of the meeting of the Board of Governors of the Federal Reserve System held on September 29, 1939, were approved unanimously. Letter to the board of directors of the "Welcome State Bank", Welcome, Minnesota, stating that, subject to conditions of membership numbered 1 to 3 contained in the Board's Regulation H and the following special condition, the Board approves the bank's application for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Bank of Minneapolis: "4. Such bank shall make adequate provision for depreciation in its banking house and furniture and fixtures." Approved unanimously, together with a letter to Mr. Peyton, President of the Federal Reserve Bank of Minneapolis, reading as follows: "The Board of Governors of the Federal Reserve System i203 10/3/39 -2- "approves the application of the 'Welcome State Bank', Welcome, Minnesota, for membership in the Federal Reserve System, subject to the conditions prescribed in the enclosed letter -which you are requested to forward to the Board of Directors of the institution. Two copies of such letter are also enclosed, one of which is for your files and the other of which you are requested to forward to the Acting Commissioner of Banks for the State of Minnesota for his information. "In view of the fact that estimated losses classified in the report of examination for membership were only nominal in amount, the usual condition of memberchip regarding the elimination of estimated losses has not been prescribed." Letter dated October 2, 1939, to Mr. Guy T. Helvering, Cam-3ioner of Internal Revenue, reading as follows: "This refers to the credit allowed holding company affiliates of member banks of the Federal Reserve System by section 26(d) of the Revenue Act of 1936. Pursuant to the provisions of that section and of article 26-3 of Regulations 94 of the Bureau of Internal Revenue, the Board has received, through the Federal Reserve Bank of Atlanta, a request from the Internal Revenue Agent in Charge at Jacksonville, Florida, for certificates from the Board as to the amounts of earnings or profits devoted to the acquisition of readily marketable assets other than bank stock during the years 1936 and 1937 by Atlantic Trust Company and Barnett National Securities Corporation, both of Jacksonville, Florida. "In order to determine an appropriate procedure to be followed by the Board in furnishing the certificates requested, a conference was held recently between representatives of the Board and Messrs. Sunderlin, Dunlap and Peterson of your Bureau. At the suggestion of Mr. Sunderlin this letter is written to present formally for your consideration a procedure suggested and discussed during the conference referred to. "The procedure suggested is that the Board do not undertake to issue certificates until (1) the audit of the income tax returns filed by the taxpayers claiming credit is completed by the field representatives of your 1204 10/3/39 "Bureau, subject to receipt of such certificates, which affect only the final computation of the tax, and (2) the returns are made available for inspection by representatives of the Board in Washington, in accordance, of course, with the established procedure under which income tax returns may be inspected by representatives of the various Governmental departments and agencies. 'The purpose for which the Board's certificates were required was solely to place upon it the responsibility for the interpretation of the provisions of section 5144 of the Revised Statutes, and it is desirable, through the prior audit of the tax returns by your Bureau, to eliminate in so far as possible any necessity for the Board to became involved in questions of interpretation of the tax laws. "Furthermore, it is believed that most, if not all, of the information necessary for the Board's consideration of the issuance of the certificates will be contained in the tax returns and it is desirable for your Bureau to have satisfied itself as to the correctness of such information before the certificates are issued, in order to avoid the issuance of certificates by the Board which may be inconsistent with facts later ascertained by your Bureau. "In the discharge of its responsibility for the regulation of holding company affiliates it has not been necessary for the Board to obtain the precise information which will be necessary to support the certificates and, unquestionably, it will avoid duplication of effort, and expense and inconvenience both to the taxpayers and to the Federal Reserve System, for the Board to have available for its use the information contained in the audited returns. "The certificates must be issued by the Board and, while the Board endeavors to decentralize the operations of the Federal Reserve System, it appears desirable in this instance to have the matter handled by the Board's staff in Washington rather than by the Federal Reserve banks. Various questions involved in the issuance of the certificates have been handled here almost entirely and the Board's staff is generally familiar with the problems which may arise. In view of the mall number of cases, it appears undesirable to issue instructions and require the officers of the Federal Reserve banks to familiarize themselves with the subject to the extent 1205 10/3/39 -4- "which would be necessary for the handling of this matter in the field. Moreover, the issuance of such instructions undoubtedly would require anticipation of and action upon numerous questions which, when the facts are ascertained, may prove to be entirely hypothetical. "As you know, your regulations provide that the credit is allowed only to holding company affiliates which hold general voting permits granted by the Board. Excluding holding company affiliates which are banks and are therefore taxable under different provisions of the Revenue Act, there are now twenty-one holding company affiliates which hold such permits. We have been definitely advised of only four of such holding company affiliates which have made claims for credit pursuant to section 26(d). Three others have made inquiries concerning the credit but the circumstances are such as to indicate that it is doubtful whether they actually claimed the credit. The credit is eliminated by the Revenue Act of 1939 except as to such few holding company affiliates, if any, as may be personal holding companies. Accordingly, it is certain that it will be necessary to consider the issuance of the required certificates in only a very few cases, and it is believed that the procedure suggested above would not seriously interfere with the established administrative procedure of your Bureau. "In all the circumstances, it is felt that the procedure suggested above will be practicable and satisfactory for all concerned, and therefore warrants your favorable consideration. Advice as to your views will be appreciated." Approved unanimously. Thereupon the meeting adjourned. Approved: th Chai nnan.
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