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608 A meeting of the Federal Reserve Board was held in Washington °IIOrlday, October 9, 1933, at 3:30 p. in. PRESENT: Er. Mr. Mr. Mr. Er. Mr. Er. Black, Governor Hamlin Miller James Thomas Szymczak O'Connor Carpenter, Assistant Secretary Bethea, Assistant Secretary Wyatt, General Counsel Paulger, Chief of the Division of Examinations Er. Smead, Chief of the Division of Bank Operations Ir. Vest, Assistant Counsel Lig. Ir. Mr. Er. Governor Black stated that he had given consideration to the 4PPointment of committees of members of the Board for the various Federal reserve districts and that he desired to suggest the following 4 Ppointments: District No. is Lr. Hamlin, Chairman Er. James District No. 7: r. SzymarS, Chairman Er. Miller District No. 2: Er. Miller, Chairman Mr. hamlin District No. 3: —Mc- Tames, Chairman Er. Szymczak District No. 3: Er. Hamlin, Chairman Er. Thomas District No. 3: Nr. Thomas, Chairman Er. Miller District No. 1: ---W: -ffiYmozak, Chairman Mr. Miller District No. 10: 'Yr. Eon -MT-Chairman Mr. James District No. 5: Er. Hamlin, Chairman Er. Szymczak District No. lls Mr. James, Chairman Er. Thomas District No. 6: Mr. James, Chairman Er. Hamlin District No. 12: Mr. Miller, Chairman Mr. Szymczak 809 lo/9/33 -2- Governor Black stated that he would like to receive any suggestions from the other members of the Board as to changes in the proposed appointments by Thursday of this week. Governor Black then stated that Er. Newton, Federal Reserve Agent at the Federal Reserve Bank of Atlanta had called him on the telePhone and advised that a representative of the Banco de Ponce, Ponce, Puerto Rico, organized under the laws of Puerto Rico, had called upon him in accordance with a suggestion received by the Banco de Ponce in a letter from the Federal Reserve Board under date of September 18, 1933, with regard to membership of that institution in the Federal Reserve System; that, in Mr. Newton's opinion, the bank needs some adjustment befa-e it should be permitted to became a member; that the rePresentative had advised Newton that the bank proposes to issue Preferred stock which would be purchased by the Reconstruction Finance Cor poration; and that, if the Board was of the opinion that the appli- cation should be received, Mr. Newton feels it would be desirable to eend some one to Puerto Rico to look into the economic situation and the financial condition of the bank to see whether it would be desirable to admit a bank in Puerto Rico to membership. Governor Black than referred to section 19 of the Federal Reserve Act which provides that Ilational banks, or banks organized under local laws, located in Alaska Or in a dependency or insular possession or any part of the United tatee outside the continental United States may, with the consent of the Federal Reserve Board, become member banks of any one of the Fedreserve districts, and he raised the question as to whether the • 310 10/9/33 -3- Dance de Ponce should submit an application for membership to the Federal Reserv e Bank of Atlanta or to Some other Federal reserve bank-. The discus sion developed the consensus of the members present that, in VieW of the fact that the normal business relationships of Puerto Rico are with New York, it would be advisable for the bank to take up the question of membership with the Federal Reserve Bank of New York, and it 1Tas understood that Governor Black would request Mr. Newton to advise the representative of the Banco de Ponce that, if the institution desires to become a member bank, it should conduct its negotiations reg.41 ding membership with the Federal Reserve Bank of New York. The question vas also raised as to whether the Banco de Ponce may desire member ship 4 .L.0 the Federal Reserve System in order to obtain the benefi ts of the insurance of its deposits by the Federal Deposit Insurance CorporIltion, and it was understood that Governor Black mould request Mr. Newton to advise the representative also that, if the bank's desire f°r membership is actuated by the though t that it mould obtain the ineuremee of its deposits by the Federal Deposi t Insurance Corporation, it should take up with the Corporation the question whether its deposi ts 7/euld be eligible for insura nce under the provisions of section 12B of the Federa l Reserve Act. Governor Black advised the other members of the Board that he 11.(1 r°quest ed Yr. Goldenmeiser, Director of the Division of Resear ch the StatisLics, and Mr. Wyatt, General Counsel, to prepare opinions on question of the devaluation of the dollar; that these opinions are 11(3.Pr ' l eadY3 and that he mould furnish copies to members of the Board for 1 311 10/9/33 -4- such suggestions as they may care to male after which the matter can be discussed by the Board. Governor Black then stated that since his return this morning trcz a short vacation he ascertained that the plan to recapitalize nonrlember banks proposed by the BAnking Committee appointed by the President i8 being held in abeyance and that it has not yet been determined what final action will be taken in that connection. He stated that he had Participated in a conference with Li.. Henry Bruer°, mho is assisting the President of the United States in correlating the activit ies of the various credit agencies of the Government, Mr. Obodin, Secretary of the Treasury, Mr. Robert, Assistant Secreta ry of the Treasury, Mr. J. A. Br oderick, Superintendent of Banks of the State of New York, and :r. 4irtimer N. Buckner of Naw York, in connection with the proposal to °I‘Zani ze a new emergency corporation which will sell preferred stock t° the Reconstruction Finance Corporation and 'with the proceed s liquidate the assets of banks closed since the first of January, 1933, and that 114der the plan the corporation would male available up to 50,; of the deP°sits of each closed bsrk depending upon the value of its assets. Governor Black added that Mr. Bruere had requested that two members of the staff of the Federal Reserve Board be assigned to him for the next f" claYs in connection with a study of this problem and that he had reIllested Mr. Martin, Assistant to the Governo r, and Mr. Morrill, Secretary or the Board, to cooperat e in the matter. At this point, Er. Harrison, Governor of the Federal Reserve /31111k of New York, joined the meeting. 312 10/9/33 -5- Governor Black presented for consideration the following letter dated September 29, 1933, from Governor Harrison, copies of which prelii°1181y had been furnished to the members of the Board: "During the years 1918 and 1919 this bank began to assemble the Property on which its building now stands. All the land comprised Within the city block bounded by Nassau Street, Liberty Street, Maiden Lane and "alliam Street, consisting of 45,750 square feet, vas acquired with the exception of a small plot of about 2700 Square feet at the extreme easterly end of the block, as indicated by the letter "K" on the enclosed diagram, on which is located an Obsolete eight story and basement office building known as the Montauk Building. "It was the desire and intention of the directors of this bank at the time of making the original assembly to purchase the Montauk Property. We then had the verbal agreement of the agent for the owners to sell the property to us for 4400,000, provided a better offer was not received before me obtained the approval of the Federal Reserve Board to make the purchase. Pending receipt of such approval, the property was sold to a real estate speculator for v425,000. Thereafter, Governor Strong personally took charge of the nogotiationz for the acquisition of the property but nothing Was accomplished inasmuch as the new owner had ideas of value Which to us seemed exorbitant. At one time it was suggested that We might have the property for 41,250,000. As we now remember it, a number of reputable business men in the downtown district of New York urged the owner to sell the property to us at a reasonable figure so that our building project, covering the entire block, could be completed, and so that there would not be an "eye-sore" adjacent to our property. "At the present time the Montauk Building is owned by the Ormond Realty Company which, we are advised, is controlled by the Bank of the Manhattan Company, as pledgee of all the stock of the Ormond Company. We are advised that there is a first mortgage on the Property of 4325,000, due June 30, 1934, with interest written at 6% but now reduced to 4'10 to October 1, 1933, which is held by the Julliard Foundation; that taxes on the property have not been paid for the year 1933, which together with accrued interest on the mortgage and the principal thereof aggregate liens against the Property of approximately $350,000, and that all leases of space ln the Montauk Building expire on or about May 1, 1934, with the exception of the lease of roams 714 and 715 which expires on May 1, 1935, and the lease of the basement which expires in the year 1939 but under which the tenant is in default, by reason of which we believe such lease could be terminated. "During recent years this property has been offered to us from ti2Te to time at prices ranging from 4750,000 to 4410,000. We were recently advised by our real estate agent, Horace S. Ely a: Company, 10/9/33 that the property could probably be purchased for $375,000, the assessed valuation of the land. The building we are advised is assessed at $75,000, making a total assessed valuation of $450,000. "At a meeting of our directors held on Thursday, September 21, 1933, it was the consensus of opinion that an offer of sale in the neighborhood of 3375,000 would merit consideration, and accordingly it was voted that the officers negotiate for the purchase of the property, with the understanding however, that the proposed Purchase would be submitted to your Board for approval before consurraation. Pursuant to such authorization, negotiations were conducted and we now have a definite offer of sale at $366,250 (with adjustments for taxes, interest, insurance, current operating expenses and rentals), which is little more than the present amount Of the liens and encumbrances affecting the property. It is the Opinion of our Board of Directors that such price is fair and that such offer affords us a favorable opportunity to acquire this Property. In view of the general state of the real estate market, we, feel that it is important to accept the offer without delay, for with the return of better conditions, we shall undoubtedly never again be able to acquire the property at the price offered. "There are many considerations that prompt us to make this acquisition, and to do so at this time. Besides improving the general appearance of our premises and eliminating the possibility of Others capitalizing on a location adjoining us, there are other and more practical reasons for purchasing the site in question. Our trucking enclosure, the entrance to which is on Maiden Lane, one-way street, westbound, is now taxed to capacity. The acquisition of the Montauk property would permit us to extend such enclosure by the construction of a through driveway from Maiden Lane to William Street, thus permitting trucks to drive in one way and out of the other. Our various departments at the east end of our present building could advantageously use additional space and the acquisition of this property would meet their requirements aM provide needed space for our board roam. Moreover, We feel that any building immediately adjacent to our property jeopardizes our police protection, and is a potential source of danger which would be removed if we controlled the entire block and had all our exposures on street fronts. In addition, we think it should not be overlooked that the demolition of the Montauk Building and the extension of our building to William Street at this time, being ln line with the national efforts looking toward recovery, would be in the public interest, and at the same time permit us to take advantage of present construction costs. "You will note that the price at which the property has been offered is equivalent to approximately $132 per square foot, whereas its assessed valuation is 3139 per square foot. The average cost per square foot of our present plotage was $103, which made our total cost of land acquisition $4,744,020 against an assessed valuation at this time of $5,850,000, or an average assessed valuatlon per square foot of $127. However, by referring to the enclosed 4 10/9/33 -7- "diagram you will note that the parcel marked "A." at the corner of Maiden Lane and Nassau Street, containing 580 square feet, cost us $180,960 or an average cost per square foot of 012 and that the parcel marked "C" at the corner of Liberty and Nassau Streets containing 2700 square feet (the same area as the Montauk property) cost us 4580,500 or an average cost per square foot of C2l5. The Montauk property, represented by letter "K" on the enclosed diagram, you will note, is bounded on three sides by Maiden Lane, and William and Liberty Streets, thus containing two important corners, and it is for this reason that we consider an average price of approximately ,132 per square foot for this Property most reasonable. "We earnestly request that the Board give this proposal its prompt approval, as the offer of sale is limited to a period of two weeks from September 27, 1933, expiring with the close of business on October 10." In response to a request that he give the Board any additional information. he may have in connection with the purchase referred to in the above letter, Governor Harrison stated that immediatel y after writing the letter he had requested SCUD of the officers of the bank to tkke up with the architects the question as to what the cost mould be 4't Present prices to build on the Montauk property an addition to the Pl'esent building in accordance with the bank's original plans, it being felt that such addition to the present building would not cost in excess et 0- 000,000. He also stated that, in connection with the action of he board of directors with regard to the proposed purchase, no decision •11.s reached as to whether the bRnIr should proceed immediately with the elreetion of the addition to the present building; that no immediate necessity exists for the additional construction work; that he personally l'elt that if the bank could have plans prepared and, without delay, could btain satisfactory bids for the erection of the addition to the present bilildIng it perhaps would be a desirable thing to do, and that the di"tors of the bank had reached no conclusion as to whether that step 315 10/9/33 -8- should be taken at the present time although they did feel that it is desirable to acquire the property while the opportunity is offered and to determine later what should be done with regard to a building proVa.. In response to an inquiry as to the possibility of a substantial increase in the activities of the Federal reserve bank in the future, Governor Harrison stated that he had tried to be over-cautious about that phase of the matter, for the reason that the present increased activities of the bank are largely due to the services being rendered by the bank as fiscal agent of the United States, and that, while such activities may increase considerably, they are not apt to be permanent alld can be taken care of by utilizing more space on the seventh floor of the main building and transferring the records which are at present stored on that floor to the annex building which is owned by the Fedreserve bank. He also added that the proposed purchase seemed to him to be desirable because, (1) it offered an opportunity to expand the directors' room and other offices in the present building and make 4 more desirable arrangement in the trucking inclosure, (2) it would °frer greater protection to the bank, (3) the present building on the 11°11tauk property is unsightly, and the acquisition of the ground would rell1"e the possibility of someone else acquiring the property and ereoting a building which would not be in harmony the with the architecture of bank building, and (4) the erection of an addition to the present hilding at this time would be a contribution to the movement toward the revival of business. 316 1o/9/3 Governor Harrison then left the meeting, and upon his return stated that he had communicated with the officers of the Federal Reserve Bank of New York, and had been advised that, after a hurried estimate, the architects had reported that an addition to the present building, in accordance with the original building plans of the bank, would cost approximately 0860,000. He also stated that in taking ac- ti°n at their meeting on September 21, 1933, the directors had all 13ted in favor of the proposed purchase, with the exception of Mr. George Y. Davison, who did not vote for the reason that the Central Ilanover Trust Company of New York, of which he is chairman, now holds the mortgage on the property. Governor Harrison again withdrew from the meeting, and a disc4,T.sion of the proposed purchase ensued during which certain of the III3nbers present indicated that they did not favor the acquisition of the riontauk property by the Federal Reserve Ban of New York. The chairman and Er. O'Connor were invited into the meeting " 4 Were advised of the consideration which had been given by the Board t° the proposed action of the New York bank. A further discussion followed, and, upon the suggestion being Illade that it would be desirable to withhold action on the matter for 8i tY or ninety days in order to enable further consideration to be "n to it, Governor Llack pointed out that the bank's option on the Proper , , expires tomorrow, October 10. It was then suggested that G°Iternor Harrison be requested to rejoin the meeting, and upon his rehe stated, in response to an inquiry, that he thought it would be 10/9/33 Possible for the bank to obtain an extension of the option. He also stated that he had no strong feeling as to the proposed purchase, and that, if there is any objection on the part of the members of the Board, he would rather drop the natter than to request an extension of the °Ption, although he did not know haw the directors of the bank would feel regarding that phase of the matter. Governor Harrison was informed that some of the members felt that the property should be acquired to give the bank ownership of the entire block on which its present building is located and as a cont ribution in the movement to aid business recovery, but that others felt that Federal reserve banks should not acquire any additional real estate just at this time. After some further discussion, Ia.. Harrison stated that during di cussion of the natter by the directors of the New York bank they had °°11sidered whether they should approve the purchase of the property without submitting the matter to the Federal Reserve board. He also 8tated that if there is some particular reason why the Board does not 1444t to take action at the present time, he would prefer to drop the Iratter. The suggestion was then made that action on the matter be dei'cIrred for a meeting of the Board tomorrow morning, following which the ch41, 1111an and Er. Miller left the meeting. Mr. James referred to Governor Harrison's statement that the diren4. - ors of the New York bank had considered whether to purchase the ilr°PertY without referring the natter to the Board, and he inquired of ;318 10/9/33 -11- 14r• Wyatt whether the Board has the right to require Federal reserve banks to obtain the approval of the Board in connection with purchases of real estate. Mr. 'Wyatt replied that there is no express provision in the Fed- eral Reserve Act requiring a Federal reserve bank to obtain the permission 01 the Federal Reserve Board before acquiring land for the bank's head office. nr. James then moved that the Board advise all Federal reserve banks that it is not vrithin the province of the Federal Reserve Board to Pa8s upon the purchase of real estate by Federal reserve banks on which to erect bank bui1din7s. :Ir. James' motion was discussed briefly, and, upon being put by the chair, was unanimously carried. There was then presented a proposed telegraphic reply to a letter dated October 5, 1933, from Lr. Crane, Deputy Governor of the Federal Reserve Bank of New York stating that the Dank for International Settlements 48 advised that a new formula of partial repayments in connection with the Pr°Posed consolidation of the credits to the 1:ational Bank of Hungary has been suggested which it is believed will be agreeable to all participants alld that the now formula provides for the utilization of the 11640,000 of 1(31d held in the name of the bank for International Settlements in London (111 behalf of the participants in the first credit to effect partial pro 11V4t r ePayMentS to members of the first syndicate credit as follows: in160,000 O °otober 18, 1933, and im96,000 on April 16, 1934 and each succeeding halfre ' llr until April 18, 1936, inclusive. The letter also stated that at the 111°etinP: of the board of directors of the 1:ew York bank on October 5, 1933 it I n-s voted to authorize the officers to accept partial repayment of the bozk, s share in the credits to the National Bank of Hungary and to arrange 319 10/9/33 -12- for the renewal for a period not exceeding three years of the balance remaining unpaid on the same terns and conditions as set forth in the resolution adopted by the board of directors of the bank on July 13, 1933, except that the new formula of repayments mentioned above would be followed and that the three year period would now terminate on October is, 1936. The letter added that the Bank for International Settle- Illents had advised that a decision will be made by its board on October 9 and that they would like to hear from the Federal Reserve Bank of New York on or before that date. The reply stated that the Board of- fers no objection to the action of the board of directors of the bank, on the understanding that the new formula for partial repayments will be acceptable to all other participants in the credits and that such Participants will renew the unpaid balance of their participations for the same period of time as the New York bank renews its participation. The reply also requested that if and when the credits are renewed in accordance with the authority of the directors of the New York bank, the Board be advised as to the exact dollar amount of partial repayments 04 the credits received by the bank in connection with the renewal of the unpaid balance. Approved. At this point L:r. O'Connor and Governor Harrison left the meet- There was presented a proposed telegram to Deputy Governor 14eiCe.Y of the Federal Reserve Bank of Chicago, referring to a telephone e°11versation between Counsel for the Federal reserve bank and Er. t4. 10/9/33 -13- Szymczak, and to a letter addressed to Yr. Szymczak under date of September 16, 1933, by Lr. Charles B. Dunn of Counsel for the bank, with regard to interest on deposits of funds of Cook County, Illinois. The proposed telegram stated that the Board understands that the State law provides that the county treasurer in counties of more than 150,000 inhabitants shall advertise for bids from banks for interest on county funds deposited with them; that he shall ask for separate biCs for interest on deposits remaining for periods of thirty, sixty and ninety daYe; that awards may be made to the highest and best responsible bidder; that any and all such bids may be rejected; that if all bids are rejected the treasurer shall immediate ly readvertice and continue to do 80 until awards have been made; and that apparently there is no specific l*equirement that banks pay interest on such funds, and it would seem legally Possible that awards might be made to banks which have not agreed to pay interest. The telegram also stated that, in the circum- Stances, after careful consideration, it is the Board's opinion on the information at hand that it cannot be said that the payment of interest °4 deposits of county funds made by the treasurer of counties of Illinois 41T-Ing more than 150,000 inhabitants is required under State law, within the meaning of section 19 of the Federal Reserve Act, and,accordingly, that a member bank may not lawfully pay interest on such deposits which ' 8' 10 Payablo on demand. Ijr. Wyatt stated that a number of extremely close and difficult lUestions with regard to whether the payment of interest is required by Sta te law within the meaning of section 19 of the Federal Reserve Act 321 1o/9/33 -14- have been presented, and that his office is endeavoring to find a line Of demarcation, and that, in his opinion, the only reasonable distinction is that if it is lawful for the State official to deposit the Public funds in a bank without receiving interest then the payment of interest is not required, but that if it is not lawful to make such dePosits the payment of interest is required. taken lie referred to the action atthe meeting of the Board on September 12, 1933, at which it 17118 held that member banks could lawfully pay interest on funds of the State of Illinois, and stated that the present case can be distinguished froM the previous one on the grounds that it cannot be said that the PaYzent of interest is required on deposits of funds of Cook County, iblaamuch as the statute provides that awards may be made to the highest knd best responsible bidder, and that, if no responsible banks bid on the funds, they then may be deposited by the county treasurer without interest in banks which are responsible. Szymczak stated that he felt that the practical situation 1Nith regard to the deposits of the funds of Cook County is identical Ilith that involving funds of the State of Illinois previously considered by the Board, and that the statute with regard to the payment of illterest on deposits of the county should be interpreted in the same 11181111er and as requiring the payment of interest on deposits. After discussion, the secretary was requested to advise the Federal Reserve Agent at Chicago that, in the circumstances, it is the Board's opinion on the information at hand that the payment of interest on deposits of county funds made by the treasurer of counties in Illinois having more than 150,000 inhabitants is required under the State law within the - ;):-•"•3 lo/9/33 -15- meaning of section 19 of the Federal Reserve Act, and, accordingly, that a member bank may lawfully pay interest on such deposit6 which are payLble on demand. Reference was made to the letter received from Er. Stevens, Chairman of the Federal Reserve Bank of Chicago under date of September 25 '1933, advising that at the meeting of the board of directors of the hank on September 22, 1933, it was unanimously voted to extend the leave previously granted to Governor EcDougal to January 1, 1934, uith full compensation. The Secretary was requested to advise Er. Stevens that the Board approves the salary payment involved in the action of the directors of the Chicago bank. Consideration MS also given to a letter dated October 4, 1933, from /j,r. Sproul, Secretary of the Federal Reserve Bank of New York, Stating that, at the meeting of the executive committee of the board of directors of the bank held on October 2, 1933, it was voted, subject to the aPProval of the Federal Reserve Board, to establish, effective immediately and until further notice, a rate of 4% per annum for all adlicillees to member banks on their time or demand promissory notes under the provons of section 10(b) of the Federal Reserve Act, as amended, f°r all direct loans for nonmember State banks and trust companies U4de2 the provisions of section 404 of the Act of March 24, 1933, and t°r all advances to individuals, partnerships or corporations on the Pliseory notes of such individuals, partnerships or corporations seellred by direct obligations of the United States under section 13 of the ?ederal Reserve Act, as amended. The letter also stated that this 8.cti°11 was taken in the light of the recent reductions in the rate 10/9/33 -16- charged by the Reconstruction Finance Corporation on its loans to bEmks, and of the view of the Federal Reserve Bank of New York that the rate charged on the three classes of loans referred to should be uniform. The Secretary was requested to advise the Federal Reserve Bnnk of New York that the Board approves the rates referred to, effective as of October 2, 1933. Governor Black then stated that upon his return to the office he had discussed with lir. "Lartin the delays which have occurred recently in connection with applications for membership in the Federal Reserve System submitted to the Board through the various Federal reServe banks; that it appears the Board is taking entirely too much time t° handle the applications; that in his opinion the work in this and Other connections will be greatly increased in the near future and after the first of the year; and that he is definitely of the opinion that the Division of Examinations and the Legal Division should have additional help. He stated that there have been some instances in the pi7ision of Examinations where applications for membership have been held since July, and where they have been held in the Legal Division for from thirty to forty days, and he expresse d the opinion that the 13°4rd must expedite this phase of its work before the first of January in order to avoid subjecting itself to serious criticism. There was a discussion as to the reasons for the delay in Particular instances, Mr. Paulger stating that in many cases it is necessary to hold applications pending the receipt of additional inferIllation from the Federal reserve bank and in many cases the applicant 1o/9/33 -17- bank has failed to furnish necessary data. Mr. Wyatt stated that his Office is overwhelmed with inquiries which have been received direct from member banks and he suggested that the Board might consider the Policy of requiring the submission of all such inquiries to the Federal reserve bank in the district in which the inquiry arises, which would relieve his division of considerable detailed work and enable it to concentrate on the moreimportant matters. Both Messrs. Paulger and Wyatt stated that they realize the great amount of work which is coming to their respective divisions, and that they are trying to build up their forces as rapidly as possible. After discussion, Messrs. Thomas and Szymczak were appointed members of a committee to take up with the staff the question of what steps should be taken to enable the Board to handle its work expeditiously, and to make recommendations to the Board with regard thereto. At this point, Messrs. Smead, Paulger and Vest left the room, eald Miller and Mr. Morrill, Secretary, joined the meeting. Reference was made to the action taken earlier in the meeting with regard to advising all Federal reserve banks that it was not withthe province of the Board to pass upon purchases of real estate by l'sderal reserve banks on which to erect bank buildings, and Mr. Miller ta'ted that, particularly in view of the long established procedure of t110 Board of requiring that such matters be submitted to the Board for 413PrOval, he was opposed to the action. Upon inquiry regarding the Board's authority in the matter, la-. 14 tt stated that he mould prefer to have that question referred to him 10/9/3s -18- so that he could study the matter and ascertain the background for the long standing practice of the submission of such matters by the Federal reserve banks to the Federal Reserve Board. After some further discussion, Mr. Hamlin moved that the Board reconsider its action with regard to advising Federal reserve banks that it is not within the Board's province to pass upon purchases of real estate by Federal reserve banks. Hamlin's motion was put by the chair and carried, and it was understood that Governor Black would advise Governor Harrison accordingly, and that the Board would give further consideration at a meeting to be held tomorrow morning to the request of the Federal Reserve Bank of New York for approval of the purchase by the New York bank of the Montauk property. The minutes of the meetings of the Federal Reserve Board held on S eptember 12, 13, 15, and 16, 1933, were approved. The Board then considered and acted upon the following matters: Letter dated October 5, 1933, from Mr. Sproul, Secretary of the Federal Reserve Berk of New York, and telegrams dated October 5, 1933, l'r°271 Neuton, Chairman of the Federal Reserve 13FzIk of San Francisco, October 6, 1933, from Er. Strater, Secretary of the Federal Reserve Bank Of C leveland, and October 7, 1933, from Er. Powell, Chief Statistician the Federal Reserve bank of Minneapolis, and Lir. Walsh, Chairman of the Federal Reserve Bank of Dallas, all advising that, at meetings of the boards of directors on the dates stated, no changes were made in the ''•8' existing schedules of rates of discount and purchase. Without objection noted with approval. 326 10/9/33 -19- Letter dated October 6, 1933, to Llr. O'Connor, Comptroller of the Currency, approved by three members of the Board, replying to his zemorandum of August 28 recommending approval of a reduction in capital of The Central National Bank of London, Ohio, from 1.00,000 to 50,000 and the Immediate increase of such capital to 0.00,000 by the sale of v5u,000 of preferred stock; the released capital in the amount of (tc, "'3000 to be used to eliminate an equal amount of estimated losses, securities depreciation and doubtful assets as classifie d in a report Of examination of the bank as of /larch 15, 1933. The reply stated that the Board approves the proposed reduction under the plan submitted, subject to the conditions set forth in the reply. The reply stated also that, while the corrections contemplated by the proposed plan of reduc- tion in capital are desirable, it is observed that, on the basis of the 4st report of examination as of March 15, 1933, the bank mill still be a frozen condition with ,1-288,000 invested in loans as compared with de posits of 0241,700, and with 565 of its loans classified as slaw; that the extent of local participation, if any, in the purchase of the preferred stock is not indicated, although the sharehold ers are apparently being relieved through the capital reduction of an assessmen t liability Etgg regating 50,000; and that it is assumed that the Comptroller's of- tic() has given consideration to the foregoing matters in approving the ellPital reduction. Approved. Reply on October 7, 1933, approved by three members of the Board, to a letter dated September 29 from L:r. Newton, Federal Reserve Agent 627 10/9/33 -20- at Atlanta; the reply reading as follows: "Reference is made to your letter of September 29, 1933, in which you advise that, on September 27, 1933, you attended a conference of bankers from a number of cities in the southeastern section of the country at which one of the matters discussed was the practice of member banks with respect to the absorption of collection or exchange charges in connection -with items received by them on deposit. It is noted that the conference, by a majority vote, adopted a resolution on this subject, a copy of which you inclosed with your letter. It is also noted that Mr. R. C. Williams, Chairman of the meeting, in a letter, a copy of which you inclosed, requests that the Federal Reserve board issue a definite ruling as to the interpretation of the law with respect to this matter. "The Federal Reserve Board has Given careful consideration to this matter but does not feel that it is possible to issue a General ruling by reference to -which it could be determined definitely under the circumstances of all cases whether the absorption of exchange or collection charges by member banks is lawful or unlawful. Questions as to whether such an absorption of charges does or does not constitute a payment of interest within the meaning of Section 19 of the Federal Reserve Act, forbidding member banks to pay interest on deposits payable on demand either directly or indirectly by any device whatsoever, must be determined as and when they arise in particular cases and in the light of the special facts of each such case. As pointed out to you in the Board's letter of September 21, 1933, the absorption of exchange or collection charges iI1 an amount equivalent to a certain percentage of the amount of the balance of the depositor, in the Board's opinion, is clearly in violation of the law on this subject, and no member bank wherever located may lawfully absorb exchange or collection charges on such a basis. "The Board feels that the banks and the clearing house associations should themselves consider whether, in the light of the spirit and purpose of the prohibition of the statute upon the payment of interest, the practice which they wish to follow with reapect to the absorption of exchange or collection charges is lawful. If in any case it appears questionable whether the practice proposed conforms to the requirements of the law on this subject, the question may be submitted, if desired, to the Federal Reserve Bank of the district for consideration; and, of course, the Federal Reserve ! Jahk, in cases where it appears necessary, may present the matter 60 the Federal Reserve Board with a request for a ruling. Such a request should be accompnnied by an opinion of the Bank's counsel. "Referring to your suggestion that the substance of the Board's letter to you of September 21, 1933, be communicated to member banks, You are advised that the board has sent a copy of that letter to each Federal Reserve Agent, with the request that the matter be taken up with any of the clearing house associations located in his district which are following practices in conflict with the spirit 10/9/33 "or the letter of the law on this subject and that he endeavor to have any such associations cooperate voluntarily in a modification or adjustment of this practice which will bring them into conformity with the statute. The Board has no objection, however, to your commmicating the substance of its letter of September 21 to such member banks as you may deem desirable." Approved. The Secretary reported that the Chairman of the Board and the Cornptroller of the Currency had concurred in the designation at the meet021 September 30, 1933, of Mr. Szymczak as a member of the Executive Committee, and as chairman thereof in the absence of the Governor, for the fourth quarter of the current year, the designation to be effective ot October 2, 1933. Reports of Standing Committee dated October 5 and 6, 1953, recom14endins approval of the followino; changes in stock at Federal reserve banksi „4!tn lications for ORIGINAL Stock: uistrict No. 4. irst National Bank, Sharon, Pa. Shares District Do. 7. AeoPles National Bank of Grand Rapids, Mich. ,skerican National Bank of Kalamazoo, Mich. zirst National Bank in Paxton, Paxton, Ill. ne Security National Bank, Cairo, Ill. 216 216 600 174 36 810 72 Total 72 1,098 Approved. Thereupon the meeting adjourned. crPp Secretary.' APProveds
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