804

A meeting of the Board of Governors of the Federal Reserve Sys-.

tM was held in Washington on Wednesday, April 15, 1936, at 11:30 a. m.

ferred

Bc'ard:

PRESENT: Mr. Broderick, Chairman pro ternMr. SzymczakMr. Ransom

Mr. Morrill, SecretaryMr. Bethea, Assistant SecretaryMr. Carpenter, Assistant SecretaryMr. Clayton, Assistant to the Chairman

Consideration was given to each of the matters hereinafter re-

to and the action stated with respect thereto was taken by the

Telegrams to Mr. Curtiss, Chairman of the Federal Reserve Bank

°f Boston, Mr. Austin, Chairman of the Federal Reserve Bank of Phila-

cielPhia, and Mr. Wood, Chairman of the Federal Reserve Bank of St.

Low. ss stating that the Board approves the establishment without change

by the banks today of the rates of discount and purchase in their ex-

Schedules.

Approved unanimously.

Letter to the board of directors of the "Deuel County State

Bank", Chappell, Nebraska, stating that, subject to the conditions of

membership numbered 1 to 5 contained in the Board's Regulation "lin,

4nd the following special condition, the Board approved the bank's ap-

Plicetion for membership in the Federal Reserve System and for the

aPProPriate amount of stock in the Federal Reserve Bank of Kansas

City:

"4. Such bank shall make adequate provision for depre-ciation in its banking house and furniture andfixtures."

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Approved unanimously, together witha letter to Mr. Thomas, Federal ReserveAgent at the Federal Reserve Bank of Kan-sas City, reading as follows:

'The Board of Governors of the Federal Reserve Systemapproves the application of the 'Deuel County State Bank',Chappell, Nebraska, for membership in the Federal ReserveSystem, subject to the conditions prescribed in the in-closed letter which you are requested to forward to the boardOf directors of the institution. Two copies of such letterare also inclosed, one of which is for your files and theOther of which you are requested to forward to the Superin-tendent of Banks of the State of Nebraska for his information.

"It has been noted that the articles of incorporationOf the Deuel County State Bank and the laws of the State ofNebraska provide that the bank shall have not less than 3 normore than 15 directors. As you know, under the provisionsOf section 31 of the Banking Act of 1933, as amended, thedirectorate of a State member bank shall consist of not lessthan 5 nor more than 25 members. While it appears that, atthe present time, the Deuel County State Bank has 6 direc-tors, it is suggested that you call its attention to the pro-visions of section 61 and to the desirability of taking ap-propriate action to amend its articles of incorporation toProvide for a minimum of at least 5 directors, in order toavoid the possibility of any violation of law in the future."

Letter to the board of directors of the "Bank of Hartington",

Harting:ton, Nebraska, stating that, subject to the conditions of member-

s hiP numbered 1 to 3 contained in the Board's Regulation "H", and the

f°110 Ing special conditions, the Board approved the bank's application

fell membership in the Federal Reserve System and for the appropriate

444)unt of stock in the Federal Reserve Bank of Kansas City:

"4.

115.

Such bank shall make adequate provision for deprecia-tion in its banking house and furniture and fixtures.

Prior to admission to membership, such bank, if it hasnot already done so, shall charge off or otherwiseeliminate estimated losses of 4145 as shown in thereport of examination of such bank as of February 19,

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"1936, made by an examiner for the Federal Reserve Bankof Kansas City."

Approved unanimously, together witha letter to Mr. Thomas, Federal Reserve Agentat the Federal Reserve Bank of Kansas City,reading as follows:

"The Board of Governors of the Federal Reserve Systemapproves the application of the 'Bank of Hartington', Harting-ton, Nebraska, for membership in the Federal Reserve System,subject to the conditions prescribed in the inclosed letterWhich you are requested to forward to the board of directorsOf the institution. Two copies of such letter are also in-closed, one of which is for your files and the other of whichYou are requested to forward to the Superintendent of Banksof the State of Nebraska for his information.

"It has been noted from the report of examination of theBank of Hartington, made as of February 19, 1936, that thearticles of incorporation and the by-laws of the bank and thelaws of the State of Nebraska provide that the bank shall havenot less than 3 nor more than 15 directors. As you know,under the provisions of section 31 of the Banking Act of 1933,aS amended, the directorate of a State member bank shall con-sist of not less than 5 nor more than 25 members. While itis understood that, at the present time, the Bank of Harting-ton has 5 directors, it is suggested that you csli its atten-tion to the provisions of section 31 and to the desirabilityof taking appropriate action to amend its articles of incor-poration and by-laws to provide for a minimum of at least5.directors, in order to avoid the possibility of any viola-tion of law in the State."

Telegram to Mr. Young, Assistant Federal Reserve Agent at the

Federal Reserve Bank of Chicago, reading as follows:

"In accordance with your recommendation, the Board ap-proves the establishment and operation by 'The Citizens Com-mercial and Savings Bank of the City of Flint, Michigan',of a branch at Mount Morris, Michigan, with the understandingthat the establishment and operation of such branch has beenapproved by the appropriate State authorities. Please ad-vise the bank accordingly."

Approved unanimously.

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Letter to to "The First National Bank of Idaho", Boise, Idaho, read-

ing as follows:

"The Board of Governors of the Federal Reserve Systemhas given consideration to your supplementary applicationfor fiduciary powers, and, in addition to the authority here-tofore granted to act as trustee, executor, administrator,registrar of stocks and bonds, and guardian of estates, grantsyou authority to act, when not in contravention of State orlocal law, as assignee, receiver, committee of estates oflunatics, or in any other fiduciary capacity in which Statebanks, trust companies or other corporations which come intocompetition with national banks are permitted to act underthe laws of the State of Idaho, the exercise of all such rightsto be subject to the provisions of the Federal Reserve Actand the regulations of the Board of Governors of the FederalReserve System.. "This letter will be your authority to exercise thefiduciary powers granted by the Board pending the prepara-tion of a formal certificate covering such authorization,which will be forwarded to you in due course."

Approved unanimously.

Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Re-

serve Bank of Boston, reading as follows:

"This refers to your letter of March 16, 1936, and itsinclosures, relating to the status of 'Consolidated Invest-ment Trust', Boston, Massachusetts, as a holding company af-filiate under the provisions of section 2(c) of the BankingAct of 1933, as amended by section 301 of the Banking Actof 1955.

"The Board has determined that Consolidated InvestmentTrust is not engaged, directly or indirectly, as a businessIii holding the stock of, or managing or controlling, banks,banking associations, savings banks, or trust companies,Within the meaning of section 2(c) of the Banking Act of 1953,as amended by section 301 of the Bnnking Act of 1955, and,accordingly, that organization is not a holding company af-filiate for any purposes other than those of section 23A ofthe Federal Reserve Act.

"Inclosed herewith is a letter to Consolidated Invest-ment Trust advising it concerning the Board's action in this

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"matter. Please transmit the letter to that organization.A copy of the letter is also inclosed for your files.

"As you will note, the Board expressly reserves the rightto make a further determination of this matter at any time onthe basis of the then existing facts. In this connection, itis requested that you advise the Board if, at any time, youbelieve this matter should again be considered by it."

Approved unanimously, together witha letter to the "Consolidated InvestmentTrust", Boston, Massachusetts, reading asfollows:

"This refers to the application of your organization fora voting permit entitling it to vote the stock which it ownsor controls of 'The Union Trust Company of Boston', Boston,Aassachusetts; to the general voting permit issued to yourorganization on June 28, 1954; and to your organization's re-quest that the Board determine that it is not engaged, di-rectly or indirectly, as a business in holding the stock of,or managing or controlling, banks, banking associations,savings banks, or trust companies.

"The Board understands that your organization is operatedsolely as an investment trust; that it owns or controls di-rectly 8,968 of the 13,125 outstanding shares of stock of TheUnion Trust Company of Boston, and 9,000 of the 90,000 out-standing shares of stock of Malden Trust Company, Malden, Mas-sachusetts; that The Union Trust Company of Boston holds 1,000Shares of the stock of Malden Trust Company and 100 shares ofthe stock of Guaranty Trust Company of New York; that your or-ganization does not own or control any other bank stock anddoes not manage or control any bank other than The UnionTrust Company of Boston; and that your organization was notorganized and is not operated for the purpose of managing orcontrolling banks.

"In view of such facts, the Board has determined thatYour organization is not engaged, directly or indirectly, asa business in holding the stock of, or managing or control-ling, banks, banking associations, savings banks, or trustcompanies, within the meaning of section 2(c) of the BankingAct of 1933, as amended by section 301 of the Banking Act of1935, and, accordingly, your organization is not a holdingcompany affiliate for any purposes other than those of sec-tion 23A of the Federal Reserve Act.

"If, however, your organization acquires control overany other bank, or if the facts should at any time otherwise

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"differ from those set out above to an extent which wouldIndicate that your organization might be engaged, directlyor indirectly, as a business in holding the stock of, ormanaging or controlling, banks, this matter should again besubmitted to the Board. The Board reserves the right to makea further determination of this matter at any time on thebasis of the then existing facts.

"In view of the fact that your organization is no longera holding company affiliate for any purposes other than thoseof section 25A of the Federal Reserve Act, the voting permitheretofore issued to your organization is void and of no ef-fect. If your organization is later determined by the Boardto be a holding company affiliate subject to the provisionsOf law relating to voting permits, it will be necessary forYour organization to obtain a new voting permit before thestock which it then oans or controls of any subsidiary memberbank can lawfully be voted."

Letter to Mr. Curtiss, Federal Reserve Agent at the Federal Re-

serve Bank of Boston, reading as follows:

"This refers to your letter of March 31, addressed toDr. Carl E. Parry, Chief of the Division of Security Loans,lnclosing a copy of a letter dated March 500 1956, from WrennBros. & Co.

"It appears from the letter of Wrenn Bros. & Co. thaton March 18 they purchased for delivery on March 20 regis-tered securities for a customer, in a special cash accountunder section 6 of Regulation T. It appears also that onMarch 20 they debited the account in the amount of the pur-chase price and commissions and on March 24 wrote the customeras follows:

'A review of our transactions for your account dis-closes that in the case of almost every purchase wehave written to you requesting payment. By this timeyou are undoubtedly familiar with the relevant provi-sions of the Securities Exchange Act of 1954. In fu-ture we shall not trouble you with this correspondence.If a delayed payment should make it necessary for us toliquidate any of your holdings in order to comply withthe provisions of the Act, we shall c831 this to yourattention when we send you our notice of sale.'

It further appears that on March 27 without further noticethey sold the securities, and others, leaving the account witha small credit balance and that subsequently the customer de-manded repurchase of the securities or their restoration to

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"his account under threat of lawsuit, stating that Wrenn Bros.& Co. had violated their duty not to sell without prior noticeand requests for payment.

"It is not the function of the Board to attempt to passUpon the rights of parties in threatened litigation of thissort and it is understood that the request is only for an in-terpretation as to whether or not restoration of these securi-ties to the customer's account would be permissible underRegulation T.

"It is assumed that such a transaction would consist ofa repurchase of the securities by the broker and might includea payment by the broker to the customer of part of the cost.A payment by the broker to the customer in consideration of abona fide settlement of a claim of the customer against thebroker would not be an extension of credit subject to Regula-tion T. An advance by the broker to the customer to repur-chase the securities for the customer's account, whether pur-suant to an adjustment of a dispute or otherwise would be per-missible under Regulation T if in compliance with its require-

Approved unanimously.

Letter to the presidents of all Federal reserve banks, reading

as follows:

"At the conference of Governors of the Federal Reservebanks on October 261 1955, the matter of the acceptance of de-posits of uninvested trust funds from member banks by Fed-eral Reserve banks was discussed, and the conference expressedItself as favoring such a practice with the qualificationthat transactions in an account in which such trust fundsare received be confined to transfers to and from the reserveaccount of the member bank. Four of the Governors voted inthe negative.

"This matter had been placed upon the program of the

Governors' conference pursuant to a suggestion contained ina letter addressed by the Board to the Deputy Governor ofthe Federal Reserve Bank of San Francisco, a copy of whichwas inclosed with the Board's letter of July 1, 1955 (X-9255).The Board's letter suggested that the Governor and Counselfor each Federal Reserve bank give careful consideration tothe practical and legal aspects of the problem involved.

"Since the action of the Governors' conference this mat-ter has been receiving study, but before any conclusions are

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“reached by the Board it is desired to have the benefit ofthe consideration which has been given to the problem by theFederal Reserve banks. Accordingly, it will be appreciatedlf you will furnish to the Board copies of any opinions ormemoranda (not previously submitted to the Board) which mayhave been prepared by Counsel or other officers of your bank,either prior to the consideration of this question at theGovernors' conference in October or since that time, withregard to the authority of your bank to receive such depositsO1• uninvested trust funds or as to the legal or practical re-sponsibilities which may be assumed by the bank in acceptingsuch deposits.

"It will also be appreciated if you will advise theBoard of your views, after consulting with Counsel, on thequestion whether, if deposits of uninvested trust funds arereceived from member banks by Federal Reserve banks, a memberbank should be permitted to deposit in one account with the.rederal Reserve bank the funds of any number of trust estatesheld by the member bank without earmarking or segregation,or whether it is necessary or advisable from the standpointeither of the Federal Reserve bank or member bank that a sepa-rate account be opened for each trust estate whose funds aredeposited in the Federal Reserve bank. In this connectionattention is invited to the principle that a fiduciary shouldkeep the properties of various trusts separate and distinctone from another.

"The action of the Governors' conference appears tocontemplate the possibility of a Federal Reserve bank re-ceiving trust funds awaiting investment or distribution notonly from a member bank but also from a trust company en-gaged exclusively in conducting a trust business and ownedby a member bank. Such a trust company, it is assumed, wouldnot be a member of the Federal Reserve System and it does notappear on what basis the receipt by a Federal Reserve bankof uninvested trust funds from such an institution could belegally justified, even if the receipt of such funds froma member bank is legally authorized. The Board will be gladto haveany comments you may care to offer with respect tou

or any other aspect of the problem which you feel mightwell be considered in arriving at a conclusion in this mat-ter.”

Approved nnenimously.

Letter to ir. Yaeger, Vice President of the Federal Reserve Bank

of Minneapolis, reading as follows:

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"In your letter of April 1 you state that your bank hasextended its group life insurance policy aith the EquitableLife Assurance Society of New York for another year on apremium basis of .86 a month per 1,000.00, aJ1 of whichPremium payment will be made by the employees insured andthat the bank will not contribute any part of the premium.

"It is understood that under the group life insurancePolicy, written by the Equitable Life Assurance Society, em-ployees may not be charged more than $.60 a month for groupLife insurance except that an additional charge of 0.10 amonth may be made in the case of policies which include, asit is understood yours does, accidental death and dismember-ment benefits. It is assumed that the ..86 mentioned inYour letter covers group life insurance only and that you an-ticipate that the dividends to be paid on the policy will besufficient to fully offset the portion of the premium, .26a month, which must be currently paid by the bank. With thisunderstanding, the Board has noted with approval the extensionOf your group life insurance policy for another year."

Approved unanimously.

Letter to Mr. Geery, Chairman of the Federal Reserve Bank of

Minneapolis, reading as follows:

. "This refers to Mr. Poaell's letter of March 12, 1936,with which was inclosed a copy of a revision of the by-lawsof the Helena Branch approved by the board of directors ofthe Federal Reserve Bank of Minneapolis on March 9, 1936.

"The Board has considered this revision and approvesthe by-laws as so revised.

"It will be appreciated if you will forward to the Boardfor its use two additional copies of the revised by-laws ofthe Helena Branch."

Approved unanimously.

Memorandum dated April 16, 1936, from Mr. Wyatt, General Counsel,

l'ec°111mending, for the reasons stated in the memorandum, that the budget

i‘c3r the Office of General Counsel for subsistence expenses for the

calendar year 1936 be increased from t200 to 000, and for transporta-

tionexpenses for the calendar year 1966 from fi400 to 11200.

Approved unanimously.

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Letter to the George A. Fuller Company, Washington, D. C. read-

1116 as follows:

"Reference is made to Vice President Distler's letterOf April 6, 1936, submitting for the consideration of theBoard the name of the Alberene Stone Corporation of Virginia,419 4th Avenue, New York, New York, as proposed sub-con-tractor for Black Serpentine Stone Spandrels specified forthe new building of the Board of Governors.

"I am authorized by the Board to advise you in accord-ance with Article 31 of the construction contract that theabove-named firm is not objectionable to the Board for thePurposes stated in your letter."

Approved:

Approved unanimously, the sub-con-tractor referred to having been approvedby the Board's architect, the Board'ssuperintendent of construction and byMr. Miller.

Thereupon the meeting adjourned.

Ore,0

Chairman pro tem.

Secretary.

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