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1861
A meeting of the Board of Governors of the Federal Reserve
SYstem was held
in Washington on Tuesday, September 22, 1942, at 11:00
PRESENT:
Mr.
Mr.
Mr.
Mr.
Ransom, Vice Chairman
Szymczak
Draper
Evans
Mr. Morrill, Secretary
Mr. Carpenter, Assistant Secretary
Mr. Clayton, Assistant to the Chairman
The action stated with respect to each of the matters here-
ixlarter
referred to was taken by the
Board:
The minutes of the meeting of the Board of Governors of the
Pederal
4. Reserve System held on September 21, 1942, were approved unani41.01184
.
Memorandum dated September 19, 1942, from Mr. Goldenweiser,
nirector.
-- of the Division of Research and Statistics, recommending that
lien 8.
lachtash be appointed as an economic assistant in that Division
°11 a t
emPorary basis for a period of not to exceed one year, with salary
at th_
he rate
of $2,000 per annum, effective as of the date upon which he
rItera
11Pon the performance of his duties after having passed satisfacto .
1'14 the
usual physical examination.
Approved unanimously.
Memoranda dated September 17, 1942, from Mr. Paulger, Chief
°r the n.
-Ivision of Examinations, recommending (1) that Mrs. Marie Ann
1862
9/
42
-2who has been employed in that Division as a stenographer on
temporary
basis at a salary of p5.00 per day, be appointed on a per-
manent basis, with
salary at the rate of :1,620 per annum, effective
8 of October
1, 1942, and (2) that Liss Lillian H. Schiller be apPei-rite(' as
a stenographer in that Division, with salary at the rate
1'41,620 per
annum, effective as of the date upon which she enters
13" the Performance of her duties after having passed satisfactorily
the usual
physical examinhtion.
Approved unanimously.
Letter to the Chairmen of all the Federal Reserve Banks,
reE04
n€:
as follows:
'Tour attention is directed to the modification of
the
n
n, ,
Joard's policy with respect to the reappointment of
J
'
C directors who have completed six years of contin:
1 3118 service, except in the case of the Chairmen of the
redsral Reserve Banks, copy of which is enclosed for your
eeadY reference. This statement was published in the Fed/ial Reserve Bulletin for September 1942 on page 881."
;aes
Approved, Mr. Draper voting "no".
Letter to Mr. Gilbert, President of the Federal Reserve Bank
a )
readin3 as follows:
0
, "In view of the circumstances stated in your letter
1-111mb
Septeer 11, the Board will interpose no objection to
:
.
Y?
waiving the penalties incurred by member banks in
uilr district as a result of deficiencies in reserves durig the first half of August if, after investigation, you
tre satisfied that such deficiencies were caused by misin:!Pretation of your circular letter dated July 24, 1942,
4.1;icl the
printed matter on the cover of the reprinted Regulakaon
l
j
"It will be appreciated if you will advise the Board
'Penalties
thus waived."
Approved unanimously.
9/22/42
-3Letter to the Presidents of all the Federal Reserve Banks,
Ile ding as
follows:
"In its letter of March 6, 1942, the Board advised
You that it had decided not to amend Regulation R so as
to Permit
interlockins relationships between member banks
ellA open-end investment companies. Accordingly, in adnistering the Regulation, it will be necessary to determine from time to time whether particular open-end
investment companies are 'primarily engaged' in the issue
distribution of their own stock (see 1941 Federal Reserve Bulletin, page 399; letter of May 26, 1941, S-269,
P.R.L.S. #7610, and letter of October 26, 1934, X-8097).
, "An open-end investment company is defined in section
‘Et)(1) of the Investment Company Act of 1940 as a company
is offering for sale or has outstanding any redeaa,
-,;-4e security of which it is the issuer.' Section 2(a)
1.51) of said Act provides that a 'redeemable security'
ans 'any security, other than short-term paper, under
t,
e teras of which the holder, upon its presentation to
:Le issuer or to a person designated by the issuer, is
11titled (whether absolutely or only out of surplus) to
el
"approximately his proportionate share of the is:
'
er's current net assets, or the cash equivalent thereof.'
el
"It is customary for such companies to have but one
ass of securities, namely, capital stock, and it is ap.vtZrant that the more or less continued process of redemp°11 of the stock issued by such a company would restrict
21d contract its activities if it did not continue to isZ:e its stock.
Thus, the issuance and sale of its stock
4_ essential to the maintenance of the company's size and
the continuance
of operations without substantial cone4s
eti
teri
end therefore the issue and sale of its stock
one of the primary activities of such a company.
"
such Accordingly, it is the opinion of the Board that if
to_ '
4°' company is issuing or offering its redeemable stock
it is 'primarily engaged in the issue***public
e)
or
distribution,*** of securities' and that section
32
?f the Banking Act of 1933, as amended, prohibits an
5Cer, director or employee of any such company from
Diolilng at the same time as an officer, director or emthjee of any member bank. It is the Board's view that
th,,s is true even though the shares are sold to the public
1-Ig11
independent organizations with the result that the
straent company does not derive any direct profit from
the
sales.
Z
;
1864
9/22/42
-4-
"If, however, the company has ceased to issue or offer anY of its stock for sale, the company would not be
n8aged in the issue or distribution of its stock and,
,
herefore, the prohibition contained in section 32 would
inapplicable unless the company were primarily engaged
in the underwriting, public sole or distribution of securities other than its own stock."
Z
Approved unanimously.
Letter to Mr. Turman, Counsel of the Federal Reserve Bank of
Atlaut
reading as follows:
"Your letter of September 1 regarding the effect of
RegulationW on 'The Board of Managers of the City of
./r!illiingham, General Employees Pension and Relief Fund'
es a question which is very similar to one which was
'''eed last year in connection with the Municipal Pension
ezd Retirement
Board of the City of Minneapolis.
In that case, the Board of Governors wrote a letter
t
c°
,Mr
'Swanson discussing the matter at some length. A
T,-11. of that letter is enclosed. Mr. Ebdgson had had some
B.L. contact
with the representatives of the Pension
'
ll-rd and felt that the remaining negotiations could best
Be handled in
that way. Also, he felt that the Pension
r,erd was ready to cooperate but wanted a letter from the
nrd to bolster its position. Therefore, it was contem,ated
that the cooperation of the Pension Board would be
sit
,!ined on a voluntary basis, and the question of compulth-" or legal action was not even considered. Accordingly,
eiret.tYPe of letter which was written to
Swanson may be
lrelY inappropriate in the present situation.
makes 'Actually, the argument which Mr. Janes H. Willis
be
regarding, the definition of the word 'person' would
iti
ong argument even in the absence of the general deftli'lon contained in section 2 of the Trading with the
tinY Act (USCA, Title 50, page 191). However, the clueswhether the word 'Person' includes the sovereign 'de8t:e upon the connection in which the word is found',
725', of Ohio v. Helverin, 292 U.S. 360, 370, 54S. Ct.
is:
1 1934
934 • As you will see, the letter to Mr. Swanson
be
on this principle, and contains an extensive rethe history and background of the provisions of
lisetl°11 5(b) and of the Executive Orders. In this consee the opening dictum and the dissenting opinion
8. lilted States v. Cooper Corporation, 312 U.S. 600, 61
j
e
1865
9/22/42
-5-
"However, in view of the doubtfulness of the matter
id its
relative unimportance from the standpoint of neIlonsl credit conditions, you will probably not wish to
go further than
to seek voluntary cooperation on the basis
Mentioned
above.
t , "The last paragraph beginning on page 3 of the letter
°Ix. Swanson probably should be considered obsolete."
Approved unanimously.
Letter to the Presidents of all the Federal Reserve Banks,
l'el ding as
follows:
"There is attached hereto a copy of a letter from
the Commissioner of Internal Revenue dated September 9,
19421 which sets forth the requirements necessary in
Order to avoid the application of the first-in, first;
.3 -1't rule with regard to the taxation of
dividends on
'ederal Reserve Bank stock.
'Tou will note that the letter suggests that the
11.,ember bank
in making application for cancellation of
"deral Reserve Bank stock specify the shares which it
adesires
to have cancelled. Accordingly, forms F.R. 56
56a (applications for adjustments in holdings of
tt'eral Reserve Bank stock) have been amended so that
member bank may signify the shares desired to be
A copy of the draft of revised form 56 is
and a supply of both forms will be sent to you
der separate cover.
"In order to make it clear that the intention of the
member
bank was carried out in the matter of surrenderFedral;
Reserve Bank stock, you will note that the
pnalissioner of Internal Revenue has suggested that the
liZeral Reserve Bank show on the stock certificate the
1;7!3
,er of shares issued and paid for prior to March 28,
a,r, end the number of shares issued and paid for on or
z
:4er that date. To meet this suggestion,
Federal Reserve
tIc
'
allk stock certificates issued by your Bank
on or after
1,0.111 28) 1942, may be endorsed on the reverse side in the
,
13'
- °wing manner, the endorsement to be signed preferably
0.11, one of the
officers whose signature appears on the face
the certificate:
1866'
9/22/42
-6"'This certificate represents
shares of
Federal Reserve Bank stock which were purchased and
Paid for prior to 'March 28, 1942, and
shares
Of Federal Reserve Bank stock purchased and paid for
on or after March 28, 1942.
Signature
Title of Officer
desired, arrangements will be made with the Bureau of
117-raving and Printing in Vashington to have this endorsement
Printed on the reverse side of all future issues of the Federal Reserve Bank stock certificates. Meantime, the endorseMent may be applied by rubber stamp or in some other manner.
,
"In the next to the last paragraph of the letter from the
Co
of Internal Revenue, he indicates that if it is
l easible to have
two certificates of Federal Reserve Bank stock
standing, one representing stock purchased and paid for
or to Llarch 28,
1942, and the other stock purchased and paid
on or after that date, it would facilitate identification
the purpose of detemining taxability on shares of Federal
Res
Brve
Bank stock. In the circumstances, any Federal Reserve
o ilK that so desires is authorized
to have not more than two
tertificates of stock outstanding in the case of each member
mElnk, one to represent stock purchased and paid for prior to
-,2ch 28) 1942, and the other to represent stock purchased and
4-4-Ld for on or after that date.
This may be done without ret0 the Provision
of Regulation I that no more than one
tjtificate shall be outstanding in the case of any one member
wlink, and an appropriate revision of Regulation I will be made
iten that regulation is reprinted. If this procedure is adopted
to will be necessary,
of course, for the Federal Reserve Bank
or
an appropriate endorsement on any certificate issued on
ptiafter March 28, 1942, but representinc, stock purchased and
d' for prior to that date. This will come about, for example,
'
se_a member bank reduces
its capital and surplus and, as a con)3 11ence, is reouired to surrender some of its Federal Reserve
c;
111c stock. The endorsement in such cases should read 'This
miltificate represents shares of Federal Reserve Bank stock
No eh were purchased and paid for prior to Larch 28, 1942.'
re_ a ndorsement would be required,
of course, on certificates
nting stock purchased and paid for on or after March
28,
1942.
"The alternative Procedure outlined in the preceding
Pare„„
""Pn may be preferred by some of the Reserve Banks, if
It
r
9/22/42
they anticipate that relatively few nenber banks will have
occasion to surrender Federal Reserve Bank stock purchased
before March 28, 1942. Particular care, however, would have
to be
taken that the occasional endorsements on stock certificates which would be required under such a procedure are
not overlooked.
"The Board will appreciate it if you will advise it, in
response to this letter, whether your Bank decides (1) to have
Only ons Federal Reserve Bank stock certificate outstanding
-in the case of
each member bank, as outlined in the third paraFELPh of this letter, or (2) to have two certificates outstandlag in accordance with the alternative plan outlined in the
rourth paragraph.
"It is suggested that, if any circular letter is sent to
the
Member banks on this subject, their attention be called to
the subject
natter of the last paragraph of the letter of the
uoMmissioner of Internal Revenue."
Approved unanimously.
Thereupon the meeting adjourned.
%rayed:
Vice
hairman.
@FedFRASER