A, meeting of the Board of Governors of the Federal Reserve

8Ystem was held in Washington on Friday, August 26, 1938, at 10:30

a • M.

PRESENT: Mr. Ransom, Vice ChairmanMr. SzymczakMr. DavisMr. Draper

Mr. Morrill, SecretaryMr. Carpenter, Assistant SecretaryMx. Thurston, Special Assistant to the

ChairnanMr. ead, Chief of the Division of Bank

OperationsMr. Dreibelbis, Assistant General Counsel

There were presented telegrams to Messrs. Kimball and Post,

Secretaries of the Federal Reserve Banks of New York and Philadelphia,

l'aePsctively, Mr. Leach, President of the Federal Reserve Bank of

Pichm i, A41u--'s Mr. MeLarin, Vice President of the Federal Reserve Bank of

Atlanta, Messrs. Young, Stewart and Powell, Secretaries of the Fed-

Reserve Banks of Chicago, St. Louis and Minneapolis, respectively,

Gilbert, First Vice President of the Federal Reserve Bank of Dallas,

erld Mr- Sargent, Secretary of the Federal Reserve Bank of San Francisco,

"Etting that the Board approves the establishment without change by the

l'etlersl Reserve Bank of San Francisco on August 23, by the Federal Re-

)3allks of New York, Richmond, Chicago, St. Louis, Minneapolis and

-as on August 25, 1938, and by the Federal Reserve Banks of Phila.-

41Ph1s and Atlanta today, of the rates of discount and purchase in

their existing schedules.

Approved unanimously.

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Mr. Morrill reviewed briefly the further developments which had

taken place in connection with the closing of the Havana Agency of the

Federal Reserve Bank of Atlanta as set forth in memoranda which had been

PrePered for the files on August 23 (three memoranda), August 24, and

A4gust 25 (two memoranda). Reference was also made to a letter dated

Ang4st 25, 1938, from Mr. Parker, First Vice President of the Federal

Reserve Bank of Atlanta, inclosing a letter dated August 24 from Mr.

l'rezer, Manager of the Havana Agency, in which he stated that in ac-

cordance with instructions issued by the Federal reserve bank he had

itetructed Dr. de Cells, Cuban attorney engaged by the bank to do the

necessary legal work in connection with the closing of the agency and

to Proceed with the closing of the agency as soon as possible, and that

111** de Cells had advised that there was considerable work to be done

betore legal notices to the proper government offices could be pre-

sented) that this work would require a week or ten days, that it would

be necessary to set a definite date for the closing and that October

1 Or is was suggested in that connection. Mr. Parker had advised in

4 telephone conversation on August 25 that in his opinion October 1

W" the earliest practicable date on which the agency could be closed

end that if this met with the approval of the Board he would advise

1pr. de Cells to proceed accordingly.

Mr. Morrill was requested to advise

Mr. Parker by telephone that October 1,

1938, would be satisfactory to the Board

as the closing date.

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Mr.Smead reviewed briefly the discussions which had taken

Place at a meting of the Standing Committee on Collections of the

Conference of Presidents which was held in Richmond on Wednesday,

Angust 24, 1938, and outlined the tentative conclusions reached by

the Committee with respect to changes in the check collection services

rendered by the Federal reserve banks.

At this point Messrs. Thurston, amead and Dreibelbis left the

raeeting.

Thereupon the action stated with respect to each of the matters

hereinafter referred to was taken by the Board:

The minutes of the meeting of the Board of Governors of the

liederal Reserve System held on August 23, 1938, were approved unani-

tpUsly.

theLetter dated August 25, 1938, to Mr. Fry, Vice President of

Federal Reserve Bank of Richmond, reading as follows:

"This refers to your letter of August $ to the Boardin which you request that the Form 105b (Schedule 0) sub-mitted by the Wachovia Berk & Trust Company, Winston-Salem,North Carolina, in response to the Tune 30, 1938 callfor condition reports be amended by the inclusion ofanother affiliate, the Winston-Salem Hotel Company, Winston-

North Carolina, and to a copy of your letter ofXulY 22, 1938 to the member bank in the same connection.

"It appears that the member bank on June 30, 1938owned 2,582 shares of stock of the Winston-Salem HotelCompany, that these shares constitute more than a majorityO f the shares of the affiliate voted at the last electionof its directors, and that, accordingly, the Winston-SalemHotel Company was an affiliate of the member bank under

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"the terms of Section 2(b)(1) of the Banking Act of 1933.

Reference to the examination report of the bank as ofJune 20, 1938 indicates that the Wachovia Bank & TrustCompany was carrying these 2,582 shares on its books at50,891.22, which amount exceeds the limitations givenin the terms of waiver of affiliate reports printed onForm F.R. 220b. If that was also the situation on June30) 1938, e report of the tinston-Salem Hotel Companyshould have been submitted and published as of that date.

Since, however, no useful purpose would be served by hay-the affiliate now render and publish a report as of

June 30, 1938, the Board waives a report as of that date.The member bank should be advised that if the affiliationexists at the time of the next call a report on Form F.P.220 should be rendered and published unless waived underthe terms of waiver printed on Form F.R. 220b."

Approved unanimously.

Letter dated August 24, 1938, to the Presidents of all Federal

reserve banks, reading as follows:

"Inclosed are two copies of the revised form of re-

Port of examination which the Board has approved for use,effective September 1. A supply of the forms sufficientto Provide for examinations during the next few months is

being forwarded by express. Additional supplies may beobtained from the Board's Division of Examinations uponrequest. Advice of the cost of the forms will be sent toYou as soon as possible.

"In revising the form of report an effort has beenmade to conform strictly with the spirit, as well as withthe letter, of the recent egreement regarding bank exam-ination procedure as announced by the Secretary of theTreasury and published in the July Bulletin. The agree-ment refers specifically to the classification only ofloans and depreciation in securities, end the definitionsO f the loan classifications as set forth in the agreementhave been copied verbatim at the head of the schedule onPage 11. On page 3 of the report, however, brief generaldefinitions of the classifications applicable to all typesof assets have been given. The definitions of classifica-tions I, III, end IV as shown on page 3 are identical withthe definitions incorporated in the revised forms of the

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"Comptroller of the Currency and the Federal Deposit In-surance Corporation. The definition of classification IIon Page 3 is similar to that in the Comptroller's reportbut differs from the definition in the Federal DepositInsurance Corporation report in that it contains no specificreference to securities, while the Federal Deposit InsuranceCorPoration definition includes 'securities which lackrecognized investment merit' among the assets to be classi-fied as II.

"It will be expected that the classifications ofassets by examiners for the Federal reserve banks will bein accordance with the definitions set forth in the reportand that the examinations will be conducted in strict con-formity with the terms, spirit, and purposes of the agree-ment. In this connection, it is requested that, especiallyat first until the use of the revised form is well es-tablished, the officers in charge of the bank examinationdepartments review the reports carefully, particularlythe classifications of assets, in order to insure that theexaminations are being made in conformity with the agree-ment.

"Included in the supplies furnished are some pageswithout headings but ruled for columns and some blankPages to be used for such supplomental schedules or com-ments as may be considered necessary or advisable, thusProviding flexibility in the form of report. One of thePurposes of having the forms printed in Washington, how-ever, is to attain uniformity in the form of reports used0Y the twelve Federal reserve banks and it is requested,

therefore, that no schedules be incorporated in a reportOf examination which would be inconsistent with the schedulesas Printed in the forms furnished.

"Attached is a memorandum prepared by the Board'sDivision of Examinations with respect to some details inconnection with the new form. A separate letter will dealwith the appraisal of securities and the classificationOf depreciation in securities.

"A supply of the forms for use in the examination oftrust departments will be forwarded as soon as they areavEtilable, which, it is anticipated, will be within thenext two weeks."

Approved unanimously.

Letter dated August 25, 1938, to Hon. Morris Sheppard, United

tates Senator, reading as follows:

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"In response to your letter of August 19, 1938,requesting copies of regulations issued by the Board ofGovernors regarding political activity and political as-sessment of officials and employees of the Board, I havebeen requested to advise you that the Board of Governorshas issued no instructions or regulations on this subject.However, the printed circular issued from time to timeby the Civil Service Commission relating to political ac-tivity of Federal employees has been brought to the at-tention of officers and employees of the Board and it hasalways been understood that they would not participate ina political campaign or the collection of assessments ofa.political character or otherwise engage in political ac-

other than to cast their individual ballots at thePlace of their legal residence in accordance with theregistration and election laws of that place. So far asthis office is informed this understanding has never beenviolated."

Approved unanimously.

Letter dated August 25, 1938, to Mr. Harrison, Vice Chairman

Or the Federal Open Market Committee, reading as follows:

"In accordance with our previously established policy,there are attached drafts of entries for the policy recordcovering actions taken by the Federal Open Market Committeeat its meetings on March 1, April 22 and April 29, 1938.It will be appreciated if you will review the drafts andadvise as promptly as possible whether you have any com-Ments or suggestions to make with respect thereto.

"A letter identical with this is being sent to theOther representative members of the Federal Open Market

Committee."

Approved unanimously.

Thereupon the meeting adjourned.

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