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1848 A meeting of the Board of Governors of the Federal Reserve 8Ystem was held in Washington on Thursday, October 8, 1936, at 11:00 e. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Eccles, Chairman Ransom, Vice Chairman Broderick Szymczak 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 rereed 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 OD September 23, 1936, were approved unani- 1°4sly. The minutes of the meetings of the Board of Governors of the Federal Reserve System held on September 24, 25, 26, 28, 29, 30, end October 1, 2, 3, end 6, 1936, were approved and the actions recorded tilerin were ratified unanimously. Telegrams dated October 7, 1936, to Mr. Austin, Chairman of the Federal Reserve Bank of Philadelphia, end Mr. Dillard, Deputy Chairman °D the Federal Reserve Bank of St. Louis, and October 8, 1936, to Mr. each, President of the Federal Reserve Bank of Richmond, stating thet the Board approves the establishment without change by the Philadelphia 1849 -2- 10/8/36 and St. Louis banks on October 7, and by the Richmond bank today, of the rates of discount and purchase in their existing schedules. Approved unanimously. Letter to Mr. McKinney, President of the Federal Reserve Bank of Dallas, reading as follows: "Receipt is acknowledged of your telegram of October 5 advising that the Board of Directors of your bank, at its meeting on October 5, elected Mr. W. J. Evans as Vice President and Secretary of the Board, effective on that date. "It is noted that Mr. Evans will receive the same salary, $8,500 per annum, as he has heretofore received as Assistant Vice President and Secretary of the Board." Approved unanimously. Letter to Mr. Young, Vice President of the Federal Reserve Bank of Chicago, reading as follows: "This refers to the last paragraph of your letter of September 4, 1936, with regard to the question whether the Boyne City Exchange, Boyne City, Michigan, is a branch of The First State Bank of Petoskey, Petoskey, Michigan, within the meaning of the applicable provisions of the Federal Reserve Act. "It appears from the facts contained in your letter and in the report of examination of The First State Bank of Petoskey, made as of May 25, 1936, that the Boyne City Exchange is owned by Mr. C. A. Johnson, who is neither an officer nor director of the bank. It is understood that the Exchange cashes checks and makes change for persons in its community and receives deposits as agent of the depositor for transmission to The First State Bank of Petoskey for credit to the account of the depositor. It is stated that the same service is rendered for customers of the State Bank of East Jordan. For its services in transmitting funds received for deposit and for making change and cashing checks a charge is made to the individual for whom this service is rendered. It is also stated that no fees or salaries are 1850 10/8/36 -3- "paid to the Exchange by the bank; that there is no connection between the Boyne City Exchange and The First State Bank of Petoskey; and that the Exchange does not act asagent for the bank. "While it is not definitely stated, it is understood that the Exchange does not receive applications for loans upon behalf of the bank and, apparently, does no business which could be classified as a general banking business; that the Exchange is not under the control of the bank; and that the bank is under no liability with respect to any deposit until such deposit has been received by the bank. Since it is stated that the bank has in no way solicited deposits through the Boyne City Exchange or advertised any connection with it, it is assumed that the Exchange is not fostered by, and was not organized at the instance of, The First State Bank of Petoskey. Please confirm the Board's understanding of these points. "It is also noted from your letter that counsel for Your bank has given careful consideration to the question and is of the opinion that the Boyne City Exchange could not be considered a branch of the member bank within the meaning of the Federal Reserve Act. "On the basis of the Board's understanding of the facts as set forth in this letter, it would not appear that The First State Bank of Petoskey is operating a branch within the meaning of that term as used in section 9 of the Federal Reserve Act. However, if there should be any change in the facts with regard to this matter or if the operations of such Exchange should not be carried out in accordance with the Board's understanding of the facts as stated above, the question whether a branch is being operated would be one for further consideration in the light of the situation as changed." Approved unanimously. Letter to Mr. Peter J. Hincks, Cashier, The National Bank of Middlebury, Middlebury, Vermont, reading as follows: "This refers to your letter of September 29, 1936, preTenting the question whether deposits of co-operative fire 1/1surance companies and co-operative savings and loan associations may be classified by your bank as savings deposits under the definition contained in section 1(e) of Regulation Q. .1 1861 10/8/36 -4- "As you know, the Board has expressed the opinion that deposits of mutual fire insurance companies may not be classified by member banks as savings deposits because, without regard to the question whether or not they are operated for profit, they are not operated for religious, philanthropic, charitable, educational, fraternal or other similar purposes Within the meaning of the definition in Regulation Q. On the basis of the facts stated in your letter, it appears that co-operative fire insurance companies are substantially similar to mutual fire insurance companies and, accordingly, deposits of such co-operative companies may not be classified by member banks as savings deposits. Although you do not state the facts regarding co-operative savings and loan associations, it is assumed that such organizations are similar to mutual building and loan associations and, therefore, under a previous ruling of the Board, such cooperative associations may not maintain savings deposits in member banks. "The Board of Governors now is reconsidering a number of the rulings which it has heretofore made with respect to the question whether particular types of deposits may be Classified as savings deposits. If there should be any modification of the rulings which affect the questions presented in your letter, you will be promptly advised there- Approved unanimously. Letter to Mr. Sargent, Vice President of the Federal Reserve Bank of San Francisco, reading as follows: "This refers to your letter of August 310 1956, inclosing a copy of a letter of August 28, 1936, from First Security Corporation of Ogden, Ogden, Utah, stating that it has recently purchased additional shares of stock of First National Bank of Salt Lake City, Salt Lake City, Utah, and that, by reason of its ownership of a majority of the shares of stock of such bank, it is again a holding company affiliate of such bank. You state that you assume that this fact will revive such corporation's application for a voting permit. "In its telegram of December 9, 19350 the Board authorized the issuance of a general voting permit entitling the 1852 10/8/36 "corporation to vote the stock which it owned or controlled of the First National Bank of Salt Lake City, but the corporation did not execute the agreement prescribed by the Board as a condition to the issuance of the permit. Instead, you were advised in January, 1936, that, in view of the facts with respect to the shares voted at the 1936 election of directors of First National Bank of Salt Lake City, such corporation did not consider that it was any longer a holding company affiliate of such bank. In its letter of May 22, 1936, the Board advised you that, on the basis of the facts stated therein, it agreed with such conclusion and that it would give no further consideration to the application for a voting permit. "In the circumstances, it is the Board's view that First Security Corporation of Ogden does not now have an application for a voting permit pending before the Board. In its letter such corporation does not mention its application for a voting permit or indicate that it desires to obtain such a permit. However, if it does, it should file a new application. Please advise such corporation accordingly." Approved unanimously. Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Reserve Bank of Boston, reading as follows: "This refers to your letter of August 310 1936, submitting the joint recommendation of yourself and of President 7°ung that the Board waive compliance with the following quoted condition of membership by Connecticut member trust companies which are subject thereto and not require Connecticut trust companies hereafter admitted to membership in the Federal Reserve System to accept such a condition: 'If funds held by such bank as fiduciary are deposited in its commercial or savings department or otherwise used in the conduct of its business, it shall deposit with its trust department security in the same manner and to the same extent as is required of national banks exercising fiduciary Powers.' "As you know, the Board, since the early part of 1933, has consistently followed the practice of prescribing the condftion of membership in question for all State trust 1863 10/8/36 -6- "companies and banks exercising trust powers applying for membership in the System, and the Board has taken the position that any deposit of collateral made pursuant to the requirements of the condition must result in the creation of a valid pledge to secure the trust funds involved. "The Board understands that, under the laws of the State of Connecticut, no safeguards by way of statutory preference or otherwise are provided for the protection of trust funds deposited by State member banks and trust companies in their banking departments or otherwise used by them in the conduct of their business, and that State member banks and trust companies are not permitted to pledge collateral with their trust departments to secure trust funds so deposited or used. In the circumstances, the Board, in its letter of October 8, 1935, regarding The Southington Bank and Trust Company, Southington, Connecticut, advised you that State member banks and trust companies for which the condition of membership has been prescribed should not deposit trust funds in their own commercial or savings departments or otherwise use such funds in the conduct of their business. On April 8, 1936, you were advised further that the Board would not waive the requirements of the condition to the extent that trust funds deposited in the banking department of The Southington Bank and Trust Company are insured under the provisions of section 12B of the Federal Reserve Act. "The Board, however, has given very careful considera. tion to the recommendation which you and President Young have made in this connection and to the reasons which have been submitted in support thereof, but it does not feel that the ?ituation existing in the State of Connecticut is such that it would be justified in adopting the recommendation. For Your further information, you may be interested to know that the Board has refused to waive compliance with the requirements of the condition of membership in other States in which circumstances comparable to those existing in the State of Connecticut were involved and that it has reaffirmed this position as recently as September 11, 1936. "It will be appreciated, therefore, if you will advise each State member bank and trust company in Connecticut which is subject to the condition of membership and which is not c°mPlYing with the requirements thereof that it should take Prompt steps to bring its trust department operations into 10/8/36 -7- "conformity with such requirements. Please keep the Board advised as to the results obtained by you in these cases." Approved unanimously. Letter to Mr. McKinney, President of the Federal Reserve Bank of Dallas, reading as follows: "The report of examination of the 'Southern Arizona Bank and Trust Company', Tucson, Arizona, made as of March 7, 1936, shows that the bank has trust funds amounting to $55,343.64 on deposit in its banking department and that it has pledged .',40,000 of Government securities with its trust department to secure such deposit. "The Board has prescribed as a condition of membership for the Southern Arizona Bank and Trust Company a requirement that the bank deposit collateral with its trust department to secure trust funds deposited in its banking department. The Board has understood that, under the laws of the State of Arizona, no safeguards by way of statutory preference or otherwise are provided for the protection of trust funds deposited by a State bank in its banking department and that the State banking authorities have taken the position that it is unlawful for a State bank to pledge its assets to secure the payment of deposits of this kind. The Board, therefore, in its letter of March 8, 1935, to Mr. Talsh ruled that It would not waive compliance by the Southern Arizona Bank and Trust Company with the requirements of the condition and that the bank should not deposit trust funds in its own banking department. "The Board does not understand that the situation existing in the State of Arizona at the present time is in any wise different from the situation which constituted the basis for the Board's ruling referred to above, and, accordingly, if you have not already done so, it will be appreciated if You will request the bank to take prompt steps to bring its trust department operations into conformity with the Board's requirements. In this connection, your attention is invited to the Board's letter of September 30, 1936 (X-9709 - Sec. 13FRA -2) with regard to the receipt of uninvested trust funds by Federal Reserve banks from member banks. Please advise the Board as to the disposition which is made of this matter." Approved unanimously. Thereupon the meeting adjourned.
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