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A meeting of the Federal Reserve Board was held in Washington on Saturday, September 16, 1933, at 11:30 a. m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Black, Governor Miller James Thomas Szymczak O'Connor Morrill, Secretary Bethaa, Assistant Secretary Martin, Assistant to the Governor Paulger, Chief of the Division of Examinations Mr. Winfield, Assistant Counsel Mr. Mr. Mr. Mr. The Board considered and acted upon the following matte's: Telegraphic reply on September 15, 1933, approved by six members °t the Board, to a letter dated September 11 from Mr. Peyton, Federal B serve Agent at Minneapolis, stating that it has been the practice to have three men other than the Federal reserve agent bonded and authorized to 18 "and retire Federal reserve notes, and to handle other currency transactions for the Federal reserve agent, and that, in view of the terrilinsti°n of the services of Mr. Mosher as Assistant Federal Reserve Agent, It is requested that the Board approve the designation of Mr. E. W. Swanwho is acting as Manager of the Bank Examination Department, to act "rsPresentative of the Federal reserve agent, acting as alternate for /4% "11. Bailey and Mr. 0. S. Powell in the performance of currency duties ' The reply stated that the Board approves the designation of Mr. 198118°n as the agent's representative to act as alternate for Messrs. Ballo Y and Powell in the perfoimance of currency duties at the bank but that v_ Swanson should execute a surety bond in the same form as used in the e aBe °f M. Powell, in the amount of 4100,000, and should not enter 9/16/33 -211Pon his duties until the agent has received advice of the Board's approval Of the bond. Approved. Telegraphic reply on September 15, 1933, approved by five members Of the Board, to a telegram dRted September 8 from Mr. Wood, Federal Reserve at St. Louis, referring to condition number 16 imposed by the Board in its letter of August 30, 195, approving the application of the Fordyce Bank Trust Company, Fordyce, Arkansas, for membership in the Federal Reserve Sys- tell; and stating that the bank proposes to set up accrued interest of approxi41Y ,4,000 in order to provide the reserve for depreciation required by the corldition of membership. The reply observed that the applicant has not been °Derating on an accrual basis, and that no provision is made for reserve for 148/.4., accrued on deposits or accrued expenses; and stated that the Board vlotad, uot consider the proposed plan of providing a reserve for depreciation as a c°mPliance with the condition of membership and that such reserve should be pro vided from actual collected earnings and/or contributions. Approved. Mr. Morrill presented for the Board's consideration the application Or the Security National Bank of Greensboro, Greensboro, North Carolina, for Derzi . ' 810n to exercise full fiduciary powers under the provisions of Section 11(k) of the Federal Reserve Act. business :14 Cu It was stated that the applicant bank opened as a national btInk on August 28, 19Z3, and is practically 100';6 ; that it is the only commercial bank operating in Greensboro, which is irrIP°Ittant community in North Carolina; that there is no corporation in the %ty doing a trust business, three other banks in the city being in liquidation; that 1t proposes to select and talie such trusts from the closed North 9/16/33 -3- Carolina Bank and Trust Company as seem desirable and can be transferred to it by c011rt order. It was stated also that the applicant institution is a conversicn of The Guaranty Bank of Greensboro, a nonmember State bank which was all outgrowth of the North Carolina Bank and Trust Company which was not licensed to re°Pen following the banking holiday; that the capital structure of the appli°44t consists of y300,000 preferred stock owned by the Reconstruction Finance Corporation and of .000,000 common stock owned by the State Commissioner of 8&1111c8 of North Carolina as liquidating agent of the North Carolina Bank and TIllst Company ana that no examination of the trust department of the old bank has been made either by a national bank examiner or an examiner from the Fed- oral Reserve Bank of Richmond. Mr. Morrill said that, in the circumstances, °°rIsideration of the application involved two important questions of policy the Board would doubtless wish to consider in taking action in connection therewith, namely: (1) whether the Board would desire to approve the application without first requiring an examination to be made of the trust department Or the North Carolina Bank and Trust Company by either a national bank exami_ °r an examiner from the Federal Reserve Bank of Richmond, and (2), whether the, .°0ard would desire to grant trust powers to a bank the entire capital stock or 11114 is owned by public agencies, involving a total absence of private capital With respect to these matters, Mr. Morrill stated that a recent examination had been made of the trust department of the North Carolina Bank and Trust e°17113E111Y bY a State Bank Examiner, in whom the Chief Examiner at the Federal Re*7E1' 13ank of Richmond had confidence, and that the Board's Division of Exami141t1"s had reviewed such examination report and after making careful inouiry it was willing to accent it in lieu of a report by a national bank ex°r an examiner from the Federal reserve bank. It was stated also that 0‘,? 9/16/33 he management of the applicant bank had apparently been carefully selected; that the trust officer and assistant trust officer were formerly connected with the trust department of the North Carolina Bank and Trust Company and their rec°r1141 and reputation appeared to be good; and that the Comptroller of the Currency and the executive committee of the Federal Reserve Bank of Richmond recommend that the trust powers applied for be granted. After discussion, upon motion of Mr. Miller, which was unanimously adopted, the Board approved the application of the Security National Bank of Greensboro for permission to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in which State banks, trust companies, or other corporations which come into competition with national banks are Permitted to act under the laws of the State of North Carolina, the exercise of all such rights being subject to the provisions of the Federal Reserve Act and the regulations of the Federal Reserve Board. Memorandum dated September 15, 1933, from Mr. Morrill stating that at the Illeeting of the Board on August 4, 1933, the Board authorized the Secretary, Riad , Y *Issistant , Secretary charged with the responsibility of approving voucher 8 ' t0 execute the administrative approval of all routine vouchers for office eilDP1lee amounting to not more than '410.00, all vouchers for the cost of telel'41311 and telephone services and all vouchers for bills rendered by the GovernOffice, without the necessity of such vouchers being submitted to the , \-'-overnor or a member of the Executive Committee of the Board for approval, 1324 th t is recommended that the above authorization be amended to include: 1. 2. 3. Purchase orders for office supplies amounting to not more than ,A0.00. Repairs to eouiplent where tih: amount does not exceed10.00. Requisitions for printing and binding work, which is done by the Government Printing Office. Approved. 9/16/33 Governor Black stated that Mr. H. Lane Young, Vice President and Executive Manager of the Citizens and Southern National Bank, Atlanta, Georgia, 1124 written a letter to Mr. Martin under date of September 14, 1933, stating that, after considerable discussion with the Atlanta Clearing House Association end co rrespondence directly and through the Federal Reserve Bank of Atlanta with the Federal Reserve Board, the Atlanta banks mentioned below had definitereached the conclusion that the absorption of exchange on checks drawn on non -Par points by balances maintained in the bank in any way, shape or form is 11°t Permitted under the provisions of the Banking Act of 1933. He said that 11r. Y°unE had stated in his letter that his institution, together with the National Bank of Atlanta, the Fulton National Bank, and the Trust Compa4Y or Georgia, were notifying their correspondents that they no longer value a collre spondent's collected balance for the purpose of absorbing exchange as, ill their opinion, that was the proper course to be taken under the law, but that in order to retain their business, the banks must have protection against h".k8 in Birmingham, Chattanooga and other points in the Southeast territory 1111c1 such protection would have to come through a definite ruling from the FedReserve Board on the subject. Mr. Morrill reported that he had talked °Irer the long distance telephone to Mr. Newton, Federal Reserve Agent at Atlanta i, -" regard to the action of the Clearing House at Atlanta with respect to Elher.Ption of exchange on checks and had mentioned the fact that Mr. Martin had , 'eceived the letter from Mr. Young referred to above. Mr. Morrill said that LY'r. Newton did not understand why Mr. Young had made reference to other ballke in Birmingham, Chattanooga, et al, inasmuch as Mr. Young was not present (It tie meeting which was held in Atlanta on September 14th, but that Mr. Newton eaid that he had written a letter setting forth what had happened and the plan 9/16/33 kr Pursuing the matter further. that Mr. Morrill stated that, while Mr. Newton said he had not attended the meeting, he indicated that Mr. Robert S. Parker, Counsel for the Federal Reserve Bank of Atlanta, had done so and that it had been. decided at the meeting that there should be called as soon as practicable nle"ing of representatives of clearing houses in the southeastern part of the e°11"1 Y for bringing about action similar to that taken by the Atlanta Clearing Flous,„. ' Governor Black stated that, in his opinion, the Board, in replying to Mr. 14117t°fli e letter should state its position clearly and forward copies of such lettel ' to all other Federal reserve agents with a covering letter requesting the tallts to take the matter up with any of the clearing house associations in their 11"Dective districts that might have adopted practices which in any way conflicted lth t he position taken by the Board, and to endeavor to have any such associav7hich were following conflicting practices to cooperate voluntarily in ad- kstilig such differences. Governor Black suggested also that the Board should 1141% a clear statement of its position on this subject for presentation at its rfleetirig with the Federal Advisory Council to be held on Tuesday next. After discussion, it was the consensus of those present that the comments and suggestions of Governor Black expressed the attitude of the Board, and that, upon receipt of Mr. Newton's letter, an appropriate reply should be drafted for the Board's consideration. Mr. Morrill reported that he had discussed with the Comptroller's °rtice the question of publishing in the Federal Reserve Bulletin, the opinion l'er4"ed by the Attorney General under date of September 7, 1933, and of dis1134ting copies thereof, in regard to affiliates, which is as follows: "I have the honor to refer to your letter of August 23rd, requesting my reconsideration of the questions submatted in your letter of August 11th as arising under the Banking Act of 1933. 9/16/33 "I understand from your letters and from conferences between members of our respective Departments that the Comptroller has called upon the national banks to render reports and, in connection therewith, to furnish reports of their affiliates, as provided by Section 27 of the Banking Act, and the banks, finding it burdensome or otherwise objectionable to follow the letter of the statute and conceiving that it may not be literally applied in all instances, have submitted to your Department many questions with requests for rulings. As stated in my letter of Auguet 18th, I cannot properly undertake to resolve such questions for the banks. "You refer to the duty of the Comptroller to determine whether or not the banks have complied with the statutory obligation to furnish reports of their affiliates in resporse to his call. This question, I think, cannot properly be said to arise except as particular banks may fail or refuse to furnish the reports. 'You also call attention to the statutory provision concerning the examination of affiliates in connection with examination of national banks. Section 28 (a) provides for examining affiliates 'as shall be necessary to disclose fully the relations between such bank and such affiliates and the effect of such relations upon the affairs of such bank.' The ordinary and preferable course would be to decide the question of the Comptroller's power to examine particular affiliates as occasion may arise and in the light of the facts and circumstances then apparent. "While, as stated, I prefer not to pass upon these questions except as particular cases actually arise, it does not seem objectionable to say that I perceive the force of your Solicitor's conclusion that ownership and control through majority stockholding does not include a holding by a bank merely as executor or in some other such fiduciary or representative capacity, subject to control by a court, or by a beneficiary or a principal, and without the incentive and opportunities which might arise from a holding of the stock by the bank as its own property. "Upon the question of excluding from the operation of the statute classes of concerns which the bank owns or controls, or by which the bank is owned or controlled, or in which a majority of the directors are also directors of the bank, upon consideration of the nature of the business of t'-e concern or the manner in which ownership or control was obtained, the only Safe course is to assume that the statute means just milet it says, with the burden upon any one assuming an exception in the Particular case to establish it. In interpreting the Act of Congress I could not properly be concerned with the scruples of the banks about literal compliance, but it is nevertheless worthy of note that the Senate Committee which reported the Bill stated a purpose to discourage 'affiliates of all kinds.' (S. Rept. 77, p. 10) I am familiar with the statements of me hers of Congress made to your Department and to mine, that 9/16/33 -8Congress did not intend to go so far as apparently it has in the definition of 'affiliates.' However this may be, the executive department must accept the law as Congress has written it, leaving it to Congress to correct by amendment any inequities which may appear. "To illustrate the difficulties confronting us in any attempt to distinguish between 'affiliates' Upon a consideration of the nature of their business, I invite your attention to the following: Section 13 of the Act regulates certain transactions between a bank and its affiliate -- and it is quite probable that the reports by and examinations of affiliates are required largely in aid of this and similar provisions. If an unsecured loan, forbidden without qualification by Section 13, is to be deemed as forbidden when the affiliate is engaged in one business but permissible if the affiliate is engaged in another, perhaps equally hazardous, my attention has not yet been directed to any provision making such a distinction. "I have thus gone into the matter at same length in order that you may understand the difficulties that would be encountered in attempting to answer at this time the questions submitted by you and, aside from that, the apparent inadvisability of doing so. Please be assured, however, that I shall be glad to advise you promptly and definitely, upon your request, in connection with any particular cases in which banks may fail to submit reports of 'affiliates,' observing the letter of the statutory definition, or in which it may be desired to make some examination and the right to do so is challenged by the parent bank or by the 'affiliate.'" 1.tr, stated that he had been informed by Mr. Await, Deputy Comptroller of the Currency that, while the Comptroller was not satisfied with the ell, he felt that it was desirable to have it published in the Federal Reea,_ 've Bulletin and to have copies thereof given out in response to in- After discussion, the Board authorized the publication of the foregoing opinion in the September issue of the Federal Reserve Bulletin and authorized the Secretary to distribute copies of the opinion to all Federal reserve agents. Reports of Standing Committee dated September 14 and 15, 1933, recomnaerldi ng approval of the following changes in stock at Federal reserve banks: g/I6/33 _9- A lication for ORIGINAL Stock: District No. 5. Citizens National Bank of Hampton, Hampton, Virginia. Shares 285 4T1111. ...r.roations for ADDITIONAL Stock: -121 1122.J.7.2: Colorado Bank & Trust Company, Delta, Colo. (Increase in surplus) Liberty National Bank, Oklahoma City, °k1a. (Issue of Preferred stock, Partly offset by reduction in Common stock and surplus) 1 !:19talloations for SURRENDiR of Stock: 4.144',12.1.91t No. 7 . rirst gETTI7I7 Bank, Audubon, Iowa. (Voluntary liquidation, succeeded by First State Bank of Audubon, Iowa, nonmember) vir8.t 285 National Bank, Ringfisher, Okla. 192 193 75 75 21 21 Z.Z12I_No. 1at . National Bank, Cameron, Texas. (Voluntary liquidation, succeeded by First National Bank in Cameron, Texas) 90 Total 90 186 Approved. Thereupon the meeting adjourned. Secretary. 4131101red:
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