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

Systen was held in Washington on Wednesday, January 3, 1940, at

11:30 a.m.

PRESENT: Mr. Eccles, ChairmanMr. Ransom, Vice ChairmanIva% McKeeMr. DavisMr. Draper

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

The action stated with respect to each of the matters herein-

after referred to was taken by the Board:

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

Federal Reserve System held on January 2, 1940, were approved unani-

mously.

Mr. Morrill reported that the Comptroller of the Currency

today issued a call on all national banks for reports of condition

as at the close of business on December 30, 1939, and that, in ac-

cordance with the usual practice, a call was made on behalf of the

Board of Governors of the Federal Reserve System today on all State

member banks for reports of condition as of the same date.

The call made on behalf of the Boardwas approved unanimously.

Bond, in the amount of i?'100,000, executed under date of De-

cember 21, 1939, by Mr. Robert E. Wood as Federal Reserve Agent at

the Federal Reserve Bank of Chicago.

Approved unanimously.

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1/3/40 ir.das.

Letter to Mr. Gidney, Vice President of the Federal Reserve

Bank of New York, reading as follows:

"In accordance with the recommendation containedIn your letter of Tanuary 2 on the subject, the Boardextends to February 18, 1940, the time within which the'Nyack Bank and Trust Company', Nyack, New York may ac-complish membership in the System."

Approved unanimously.

Telegrams to Mr. Shortt, Assistant Federal Reserve Agent at

the Federal Reserve Bank of San Francisco, authorizing him to issue

limited voting permits to the "Old National Corporation", and "Invest-

ment and Securities Co.", both of Spokane, V,ashington, entitling such

°rganizations to vote the stock which they own or control of "The Old

National Bank and Union Trust Company of Spokane", Spokane, Washington,

and the "First National Bank in Spokane", Spokane, Washington, at any

time prior to April 1, 1940, to elect directors of such banks at the

annual meetings of shareholders, or any adjournments thereof, and to

act thereat upon such matters of a routine nature as are ordinarily

acted upon at the annual meetings of such banks.

Approved unanimously.

Letter to Mr. Gidney, Vice President of the Federal Reserve

Bank of New York, reading as follows:

"This refers to your letter of December 23, 1939, en-closing a copy of a letter dated December 16, 1939, addressedto you by The Westfield Trust Company, Westfield, New Jersey,

requesting an extension of time beyond February 1, 1940,Within which to effect the necessary corrections of certainunsafe and unsound practices specified by the Federal De-

posit Insurance Corporation in its citation of the trust

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"company to the Board of Governors under the provisionsOf section 12B(i) of the Federal Reserve Act.

"The trust company states that certain applicationsfiled with the Federal Deposit Insurance Corporation andthe Reconstruction Finance Corporation have not as yet beenacted upon and that, until action is taken by these corpora-tions, the trust company will be unable to take furthersteps to consummate the proposed merger with the NationalBank of Westfield, which action will automatically cor-rect the criticisms made by the Federal Deposit InsuranceCorporation.

"The law makes no provision for an extension of timewithin which an insured bank has to make corrections ofunsafe and unsound practices complained of by the FederalDeposit Insurance Corporation where the maximum period of120 days has been given as was done in this case. Thenext step provided under the law, if the Federal DepositInsurance Corporation determines to proceed further, isfor the Corporation to hold a hearing on the matter. Wehave been advised informally by the Federal Deposit Insur-ance Corporation that, in view of the action now being takento have the National Bank of libestfield assume the businessof the Westfield Trust Company, and in anticipation of theabsorption, the Corporation is not planning to proceedfurther at this time under the citation."

Approved unanimously.

Letter to Mr. Sinclair, President of the Federal Reserve Bank

Of Philadelphia, reading as follows:

"You will find enclosed a copy of a letter whichthe Securities and Exchange Commission has referred tothe Board from Mr. F. B. Stansbury, Baltimore & Ohio R.R. Station, 24th and Chestnut Streets, Philadelphia, Penn-sylvania, regarding Regulation T, and a copy of our reply.

"it appears that Mr. Stansbury held certain securi-ties lonF: in an account, that he sold the same quantityof the securities but did not deliver against the sale thesecurities held in the account, and that he later boughtin securities to cover the sale. 1. auestion has arisenas to whether Regulation T requires the broker to obtaina deposit of margin as a result of the final purchase of

securities."As indicated in the ruling on 'Sale of Securities

Held in Account But Not Delivered Against Sale', which

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"was published at page 353 of the Niay 1938 Federal ReserveBulletin, and of which we are enclosing a copy for yourconvenient reference, a sale of securities in the situa-tion described is considered for the -„mrposes of Regula-tion T as a short sale which neither requires nor releasesmargin. Accordingly, the buying in of the securitieslater, as described by Mr. Stansbury, would simply removefrom the account a short sale against which no margin isheld, and it would result in no need for additional margin.

"It appears, therefore, on the facts stated in Mr.Stansbury's letter, that his broker, Laird, BissellMeeds, may not have understood the application of theregulation on this point, although it may be noted, ofcourse, that section 7(e) of the regulation provides thatnothing in this regulation shall . . . modify or restrict

the right of any creditor to require additional securityfor the maintenance of any credit, to refuse to extendcredit, or to sell any securities or property held ascollateral for any loan or credit extended by him.'

"It will be appreciated if you will communicate withthe broker, as well as with Mr. Stansbury, and assist themtoward an understanding of the matter."

Approved unanimously.

Telegram to Mr. Knoke, Vice President of the Federal Reserve

Bank of New York, reading as follows:

"Board of Governors will interpose no objection toYour bank sending to Governor Rooth the cable Quoted inYour letter of January 2."

Approved unanimously.

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

Minneapolis, reading as follows:

"Reference is made to your letter of December 27,1939, with respect to the preliminary draft of the min-utes of the Conference of Chairmen of the Federal Re-serve Banks in Washington on December 5 and 6. It wasmarked confidential because it was not a final copy andwe wanted any criticisms or suggestions you might offer,but there is, of course, no objection to your making the

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"draft available to Mr. Peyton or to the members of yourboard for their information with this understanding, andit was anticipated that when the final draft was sent toyou this would be done."

Approved unanimously.

Telegram to Mr. Evans, Vice President of the Federal Reserve

Bank of Dallas, reading as follows:

"Relet December 20. For purposes of first annual re-Port of Republic National Bank of Dallas on Form F.R. 437,period since date of banic's recent application for votingpermit should be covered by items 4(a) and 7 on page 9.Inazmuch as report form as a whole requests disclosure bythe holding company affiliate itself of current facts onvarious matters, it appears unnecessary, in the absenceof inquiry from Republic National Bank, to give it specificinstructions as to whether or not it should report RepublicNational Company or any other organization under item 4(a)or 4(b). In this connection, it is noted that no securi-ties companies were listed in Exhibit 0 of bank's recentapplication for voting permit, which required informationsimilar to that requested in item 4(b)."

Approved unanimously.

Letter to Mr. Hitt, First Vice President of the Federal Reserve

Balik of St. Louis, reading as follows:

"Reference is made to your letter of December 18,1939, presenting for the consideration of the Board thequestion whether St. Louis, Missouri, and East St. Louis,Illinois, are 'adjacent' within the meaning of section8 of the Clayton Act, since the question has a bearingon the service, after February 1, 1940, of a director ofThe lecurity National Bank 6avings and Trust Company ofSt. Louis, St. Louis, Missouri, who is serving also as adirector of the Union Trust Company of East St. Louis,East St. Louis, Illinois.

"Since you raise only the question whether the twocities referred to are 'adjacent', it is assumed thatthey are not in fact 'contiguous' within the meaning of

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"that term as defined in footnote numbered 8 of the Board'sRegulation L, since, as you know, if they are 'contiguous'the question whether they are 'adjacent' is immaterial.

"It appears that the two cities are readily accessibleto each other by means of bridge facilities; that certainretail and other establishments in St. Louis Probably re-gard the city of East St. Louis as within their immediatetrade area; that toll free telephone service may be ar-ranged between the two cities by patrons of the telephonecampany; and that a few industries in the East St. Louisarea may, because of their size, find it advantageous touse the facilities of the larger banks in St. Louis. Onthe other hand, the two cities are situated in differentStates, are separated by the Mississippi River, and itappears that there is comparatively little use of thebankinE facilities of one city by residents of the other.With respect to the use of the facilities of the largerbanking institutions of St. Louis by industries in theEast St. Louis area, it is understood that this use isProbably comparable to that which a large concern locatedanywhere in the United States might make, for example,of a New York or Chicago banking connection, and is notthe result of a competitive banking situation as betweenthe two cities. In its letter of October 11, 1935(X-9341-a) the Board stated that in case of doubt as tothe applicability of exception numbered (5) of section8 of the Clayton Act, consideration might properly begiven to the question whether there is any substantialconflict of competitive interest between the banks ofone city, town or village and the banks of the other.Since there appears to be some doubt whether the twocities are 'in practical effect a single city', and sincethere does not appear to be any substantial conflict ofcompetitive interest between the banks of the one cityand the banks of the other, the Board is of the opinionthat St. Louis, Missouri, and East St. Louis, Illinois,Should not be regarded as 'adjacent' within the meaningOf the exception set forth in section 2(d)(5) of theBoard's Regulation L.

"With respect to the inquiry contained in the firstParagraph of your letter relative to contemplated legisla-tion which might permit certain interlocking relationshipsto continue after February 1, 1940, the Board has no defi-nite information regarding proposed legislation on thesubject.“

Approved unanimously.

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Thereupon the meeting adjourned.

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ecretary.

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