19361218_Minutes.pdf

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

Ifas held in Washington on Friday, December 18, 1936, at 10:45 a. in.

PRESENT: Mr. Eccles, ChairmanMr. SzymczakMr. McKee

Mr. Morrill, SecretaryMr. Bethea, Assistant SecretaryMr. Carpenter, Assistant SecretaryMr. Clayton, Assistant to the ChairmanMr. Thurston, Special Assistant to the

ChairmanMr. Wyatt, General CounselMr. Goldenweiser, Director of the Division

of Research and StatisticsMr. Vest, Assistant General Counsel

Chairman Eccles said that he had received an informal note under

de.te of December 8, 1936, from Mr. F. Livesey, Acting Economic Adviser

Of the State Department, inclosing a copy of a cablegram received from

'Secretary of State Hull stating that the Secretariat of the Council of

the League of Nations appeared eager to make a new American appointment

to the financial committee of the League either as principal or as

41ternate and had expressed a desire to have someone suggested to be

4PP0inted in either capacity, at the same time indicating the belief

that m-r. John H. Williams would be an excellent member. The cablegram

l'ecillested that the Treasury and the Board of Governors be consulted forthe

Purpose of ascertaining their attitude toward Mr. Williams' appoint-

or whether they had an alternative suggestion to make. Chairman

„,kei'8 stated that, after discussing the matter informally with members

Or the Board, he had addressed a letter to Mr. Livesey under date of

-Luluer 14, 1936, expressing the view that it was doubtful whether Mr.

'4ras, because of his duties as a professor at Harvard University, as

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

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/lice President of the Federal Reserve Bank of New York, and as Associate

Economist of the Federal Open Market Committee, could go to Geneva often

enough to meet the requirements of the committee, and that it had been

liggested that an alternative candidate would be Mr. Winfield W. Riefler

who is n_ov connected with the Institute for Advanced Study at Princeton,

N" Jersey. The State and Treasury Departments, Chairman Eccles said,

Preferred to have Mr. Williams appointed, and Mr. Livesey had called him

(Chai-rman Eccles) again on the telephone and had inquired whether the

Board would interpose any objection to Mr. Williams serving on the

",oyamittee.

During a discussion of the matter the members present agreed that

in view of Mr. Williams' relationships with the Federal Reserve System

45 Vice President of the Federal Reserve Bank of New York and Associate

'ecilmnist of the Federal Open Market Committee, together with the

Board,3 responsibilities with resnect to the foreign relationships of

the Federal reserve banks, it would be inadvisable for Mr. Williams to

liceePt aPpointment as a member of the committee unless he first resigned

hisconnections with the Federal Reserve System. Therefore, it was

al'eed that Chairman Eccles should advise President Harrison of the Fed-

erel Reserve Bank of New York, or Mr. Williams, or both, as he thought

bet ' that it was the opinion of the members present that the Board would

not approve the acceptance by Mr. Williams of the proposed appointment

"cupying the positions of Vice President of the Federal Reserve881.04

of New York and Associate Economist of the Federal Open MarketCo, 4

-kttee and that Chairman Eccles should report to the Board the resultOf'0 discussions.


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Consideration was then given to a list of suggested amendments

to the laws affecting the Federal Reserve System which had been prepared

by the senior staff at the request of Chairman Eccles as a basis for

citscussion at a meeting which is to be held in the office of the Secre-

tarY of the Treasury on December 221 1936, of representatives of the

T'rea6111 the Federal Deposit Insurance Corporation, the Reconstruction

4nance Corporation, the Comptroller of the Currency, and the Board of

Governors on the subject of legislation which might be recommended at

the forthcoming session of Congress. Copies of the list had been

l'urnished to the members of the Board prior to this meeting. Chairman

ecles stated that it was his thought that at the conference he should

11111ke it clear that the Board had not had an opportunity to consider and

cletelliline what amendments it would approve; that the list was merely a

tentative one which might be modified; and that it had been presented

terely as a basis for consideration.

With this understanding the members present proceeded to dis—

ellsa the items in the list but because of lack of time were unable to

e°raPlete the review. As a result of the discussion some of the items

el'e changed and the list as thus changed read as follows:

"SECTION 4 OF THE FEDERAL RESERVE ACT

"Separation of offices of Chairman and Federal Re-A9119,10at. - An amendment authorizing the Board in itsdiscretion to designate one of the class C directors toserve only as Chairman of the board of directors of the Fed-eral Reserve bank and to appoint a different person, whoneed not be a director, to serve as Federal Reserve Agent.

In such event, relieve the Chairman of all statutory dutiesexcept those of director and the duty of presiding at meet-flgs of the board of directors. Also an amendment author-121ng an Assistant Federal Reserve Agent to perform the


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"duties of the Agent during a vacancy in the latter's officeas distinguished from the absence or disability of the Agentand eliminating the requirement that an Assistant Agent be aperson of 'tested banking experience'.

SECTION 7 OF THE FEDERAL RESERVE ACT

"Dividends of Federal Reserve banks. - An amendment for-

bidding the Federal Reserve banks to pay more than a 4 per cent

cumulative dividend, except that they may pay up to a 6 percent non-cumulative dividend when earned during the currentYear.


"Capital requirements. - An amendment modifying the

capital requirements for admission of State banks to member-shlp in the Federal Reserve System so as to place such require-ments on the basis of capital adequate in the judgment of theBoard of Governors in relation to deposit and other corporateresponsibilities rather than upon arbitrary requirements basedon the population of the place in which located; together witha similar amendment to the law regarding capital requirementsfor the organization of national banks, substituting, ofcourse, in the latter case the judgment of the Comptroller ofthe Currency for that of the Board of Governors. However,there should be retained the requirement that no national bankmay be organized with a capital less than 4,50,000 in any case:nd no State bank may be admitted with a capital less thany50,000 except in those cases where a capital of 25,OOO is

lIfficient under the present law."Also an amendment eliminating (1) the minimum capital

requirements for the establishment of branches of national and

State member banks ($500,000, $250,000, and 0_00,000, depend-

ing upon the size of the State of location) and (2) the pro-

vision that the aggregate capital of a bank and its branchesshall not be less than the aggregate minimum capital required

for the establishment of an equal number of national banks inthe various places where the bank and its branches are located,

and substituting (1) a provision that a bank having branchess/Iall have capital adequate in relation to its deposit liabili-ties and (2) that such capital shall not be less in any case than

the amount required by State law of State banks operating theEame number of branches in the places where the bank's branchesare located.


"Waiver of membership requirements. - An amendment to

illake effective immediately, instead of in 1941, the Board's


12/18/36-5-

authority to waive requirements for admission to membershipfor the Purpose of facilitating the admission of any Statebank which is required to be a member in order to continue inan insured status.


"Retire(aent of Board members. - An amendment makingthe members of the Board eligible for participation in thePresent Federal Reserve Retirement System.


"Assignment of duties. - An amendment authorizing the

Boardof Governors to assign to designated members of the

board or its representatives, under rules and regulationsPrescribed by the Board, the performance of specific duties,r1c1 functions, not including the determination of national orQYstem policies, the power to make rules and regulations, oranY power which under the Act is required to be exercised byspecified numbr of members of the Board.

2235 I

SECTION 11 OF THE FEDERAL REStliVE ACT

"Facilitating hearings by the Board. - In connectionwith all hearings conducted by the Board regarding theremoval of directors and officers of member banks, theexPlasion of State banks from the Federal Reserve System, therevocation of voting permits, and similar matters, an amend-Tie_nt giving the Board authority similar to that Possessed by

Federal Trade Commission, the Interstate Commerce:)rnmission and other administrative agencies to have testimony'aken by one or more members of the Board or by such trial?xaminers as it may designate, and authorizing the Board orits designated representatives to administer oaths. Also an

ZI:lendment authorizing the Board to prescribe rules governing_Ile Procedure in such hearings and permitting the service of

ice in such cases by registered mail.

SECTION 12A OF THE FEDERAL RESERVE ACT

"Membership of Federal Open Market Committee. - An(1,111erldment changing representation of Federal Reserve banks on'Jen Market Committee so that there will be four representatives,s-ch of whom will be elected by a group of three Federal Re-t!rve banks, and one representative at large elected by the'a esidents of the twelve Federal Reserve banks. Require thato 1 representatives of Federal Reserve banks on Open Market°Inmittee, including alternates, shall be Presidents of Fed-


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"eral Reserve banks. Make it clear that in electing suchrepresentatives each Federal Reserve bank has one voteInstead of each director having one vote. Prescribe methodof election.

SECTION 14(g) OF THE FEDERAL RESERVE ACT

"Service of Board member as director of the Bank for ILII2snational Settlements. - An amendment making it clear thata member of the Board of Governors, with the approval of thePresident of the United States, may serve as a director of theBank for International Settlements, in order to enable theBoard more effectually to carry out its functions undersection 14(g) of the Federal Reserve Act with regard to re-lationships of Federal Reserve Banks with foreign banks andbankers.


"Government securities as collateral for Federal Re-:serve notes. - An amendment making permanent the authoritygranted to the Board and which will expire on March 3, 1937,e?() authorize Federal Reserve banks, when the Board deems it?:11 the public interest, to pledge direct obligations of the;Itte:.(1 States as collateral security for Federal Reserve

(Note: This should probably be taken up separately111 order to get action by Congress before March 3, 1937.)


:Penalty fox...paying. out notes of another Federal Re-- An amendment repealing the provision which

Prevents a Federal Reserve bank from paying out notes ofanother Federal Reserve bank."

At this point Messrs. Thurston, Wyatt, Goldenweiser and Vest left

the zeeting and consideration was then given to each of the matters

hereinafter referred to and the action stated with respect thereto was

t4lIcen bY the Board:

Telegrams to Messrs. Kimball and Clark, Secretaries of the Fed-

trea"serve Banks of New York and Atlanta, respectively, stating that

thel3°Erd approves the establishment without change by the New York bank

04ecember 17, 1936, and by the Atlanta bank today, of the rates of dis-


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count and purchase in their existing schedules.

Approved unanimously.

Letter to Mr. Strater, Vice President of the Federal Reserve Bank

Of Cleveland, reading as follows:

"Referring to your letter of December 7, 1936, theBoard approves the continuation of the assignment of Mr.Harry H. Ostendorf to the position of Supervisor, Loansand Discounts, Cincinnati Branch, at his present salary oft7 000 per annum, which is :;250 in excess of the maximumprovided for that position, for a further period of sixmonths beginning December 1, 1936."


Letter to Mr. Leach, President of the Federal Reserve Dank of

kic u

lunon,,reading as follows:

"Receipt is acknowledged of your letter of December 12,1936, in which you state that you have been authorized byYour board of directors, subject to the approval of theBoard of Governors, to employ Dr. E. A. Kincaid, Professorof Finance at the University of Virginia, in connection withthe economic research work of your bank, on a two-days perweek basis, at an annual salary of .i.',2,000 plus subsistenceand transportation expenses which are expected to amount toabout 6700 per annum. You also state that the subsistenceallowance is to be at the rate of 47 per week for regulartriPs to Richmond or Washington, and that for special tripsto other points actual expenses will be allowed in accordanceWith the regular practice of your bank.

"It is noted that Dr. Kincaid, Ivho will report directlyyou as president, will function in the beginning at least

largely as an adviser or consultant rather than as an°Perating executive, and that the research and statistics"Partment,as well as the bank relations department, will beunder the direct supervision of Mr. J. T. Garrett, who also!;?Ports directly to you. It is noted further that Dr.

V-ncaidls employment will probably become effective on January1937, that any arrangement which your bank may make withwill be subject to termination on short notice, and that

?oll would like to have advice of the Board's approval promptly

Universitythat Dr. Kincaid may rearrange his classes at the

unlversity.


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"In accordance with your recommendation, in which Dr.Goldenweiser concurs, the Board arTroves the employment ofDr. Kincaid by your bank on the terms and conditions setforth in your letter. Please advise as to the date upon whichhe enters upon the performance of his duties."

Letter

Bank of Kansas


to Mr. Worthington, Secretary pro tern of the Federal Reserve

City, reading as follows:

"Receipt is acknowledged of your letters of December 11and 12, 1936, advising the Board of Governors of the re-aPpointment by your board of directors of certain branchdirectors and requesting its permission to reappoint Mr.Harold Kountze as a director of the Denver branch for thethree-year term ending December .31, 1939.

"Inasmuch as the Board's records indicate that Mr.Kountze has served continuously as your bank's appointee onthe directorate of the Denver branch since September 195,it appears that your bank desires the Board of Governors tomake an exception to that portion of its revised rules andregulations regarding the appointment of directors of branches°f Federal reserve banks, a copy of which was transmitted to

Tr bank with Chairman Eccles' letter of January 9, 1935-9O9Z), which reads as follows:

'No director, other than the Managing Director,shall be reappointed for a term immediatelyfollowing six or more years of continuous serviceas a director.'

"There has been no change in the Board's attitude with1,:esPect to the general policy involved in the selection ofuirectors of Federal reserve banks and of their branches as

forth in Chairman Eccles' letter of January 9, 1935. In'ne circumstances, the Board regrets that it could not con-

T-stently sanction the reappointment of Mr. Kountze as a.rector of the Denver branch."


Letter to Mr. Wood, Vice President of the Federal Reserve Bank

St. Louis,reading as follows:

, "This refers to your letter of December 2, 1936, in-e-Losing a copy of a letter of December 1, 1936, from Mr.


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"Menefee Wirgman, President, Fidelity and Columbia TrustCompany, Louisville, Kentucky, relating to the voting permitaPplication of 'Trustees Under Trust Agreement, Dated January31, 1919, As Amended July 30, 1920, And January 26, 1923,Zith Reference To Stocks In The Citizens Union National BankOf Louisville And Fidelity And Columbia Trust Company, Both ofLouisville, Kentucky'.

"It is noted that Mr. Wirgman states that the undistributed?rofitc tax does not affect the applicant since all of its incomelE immediately distributed, but that he indicates that theapplicant desires to obtain either a limited or general votingPermit if it can do so without executing an agreement of thekind prescribed by the Board as a condition to the issuanceof all general voting permits at the time the Board authorizedthe issuance of a general voting permit to such applicant inDecember, 1935.

"In its telegram of December 7, 1936 (Trans. 2433), theBoard advised you that it had modified in certain respectsthe standard form of agreement theretofore prescribed as ac?ndition to the issuance of general voting permits and that,With such special conditions which might be prescribed in thelight of the facts of the particular case, the Board wouldthereafter require that, as a condition to the issuance ofanY general voting permit, the holding company affiliateexecute the revised form of agreement. It is assumed thatYou have advised the above named applicant accordingly andthat the Board will be advised if, in the light of such infor-W:Ition, the applicant desires to have further considerationgiven to the granting of a general voting permit.

"There has been no modification of the Board's policyunder which it has consistently declined to grant limitedv°t1ng permits authorizing the voting of stock of subsidiarymember banks to elect directors and act upon routine matterswhere the Board previously authorized the issuance of generalvoting permits which were not accepted."


Letter to Mr. McRae, Assistant Federal Reserve Agent at the Fed-erzo

Iteserve Bank of Boston, reading as follows:

"This refers to your letter of November 17, 1936, withfulther regard to the Board's condition of membership re-quIring Connecticut State member banks and trust companies!Ubject to such condition to deposit security with their trustuePartments if trust funds held by the institutions are de-1?°sited in their banking departments or are otherwise used inthe conduct of their business.


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"It appears from your letter that deposits of trustfunds held by such State member banks and trust companieshave been made in their banUng departments and that thenecessary amount of securities has been deposited with theirtrust departments. However, the Board understands that theAttorney General for the State of Connecticut has expressedthe opinion that State banks and trust companies do not havethe legal power to effect a valid pledge of securities tosecure trust funds held by such institutions and depositedln their banking departments. As you know, the Board hastaken the position that in order to comply with the conditionof membership a valid pledge of the securities must beeffected.

"You have advised that the Deputy Bank Commissioner ofConnecticut has submitted a number of questions to theAttorney General for that State, the answer to one of whichYOU feel may have a bearing upon the right of banks and trustcompanies in that State to secure trust funds held by suchinstitutions and deposited in their banking departments, andthat the Deputy Bank Commissioner expects the Attorney Generalt? dispose of these questions 'any day now'. You have ad-vlsed also that there is a strong probability that amendmentsto the laws of this State will be introduced shortly afterJanuary 1, 1957, which may eliminate any difficulty withregard to deposits of trust funds in compliance Ihith the con-(Elition of membership. You have suggested, therefore, that

would be desirable, pending the outcome of there possibili-tles, to hold in abeyance any further question regarding thevalidity of the pledge of the securities which has been madeWith the trust departments of the State member banks and trastcompanies referred to above.

"The Board has heretofore carefully considered thesituation existing in the State of Connecticut, and since,as noted above, it is understood that under the laws of thatState, as construed by its Attorney General, State banks andtrust companies cannot make a valid pledge of securities to”cure trust funds held by such institutions and depositedln their banking departments, the Board has taken the position'9hat Connecticut State member banks and trust companies sub-ject to the condition under discussion should not deposittrust funds in their commercial or savings departments orc herwise use such funds in the conduct of their business.,flls matter has been under consideration by your bank and the400ard for some time and the Board does not feel that com-Pilance with the requirements of the condition by such StateTember banks and trust companies should be further deferred.Eor your information, it may be stated that the Board hasrecently taken the position that a somewhat analogous situa-tIon existing in a State in another district did not justifyr,furtherdeferment of the enforcement of the requiremente of

condition."


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

Cleveland, reading as follows:

"There are transmitted herewith copies of a letterand of its inclosures received by the Board from counselfor The Cleveland Trust Company, Cleveland, Ohio, in whichthere is requested on behalf of The Cleveland Trust Companyan interpretation of the phrase 'in process of collection'in section 5204 of the Revised Statutes of the UnitedStates a s applied to the collection procedure adopted bythe Trust Company towards obligations on which interest isPast due and unpaid for a period of six months but on whichsults for collection have not presently been instituted.In this connection the letter refers to a dividend of 2 percent proposed to be made by The Cleveland Trust Company at anearly date and it is understood from the letter that thisProposed dividend does not in any other respect conflict withthe provisions of section 5204.

"It is understood from the information submitted byThe Cleveland Trust Company that it is the practice of theCompany to place with a committee or group of officers oremployees loans on which interest is past due and unpaid fora Period of six months and that it is the duty of thiscommittee or group to give constant and active attention tothese loans, to take all such steps as are deemed practicablefor their collection as soon as possible, to communicate withthe debtors in an attempt to bring this about, and, wheneverthis method of collection after a reasonable trial provesunsatisfactory, to place the obligationsin the hands ofItttorneys for foreclosure or other appropriate legal steps.it is also noted that formal demand for payment is made ineach such case. It is the view of the Board that debts owingto The Cleveland Trust Company which are undergoing theITocedure described and with respect to which active and con-tlnucus steps are being taken with a view to their collection,though they have not yet been placed in the hands of attorneys

ror foreclosure or other appropriate legal steps, may be con-eidered as debts in process of collection within the meaning°f section 5204 of the Revised Statutes provided that there'n no reasonable ground for believing that this procedurewill not be effective. On the other hand, no debt should be!onsidered as in process of collection, even though formal;'emand for its payment has been made and it has been placed3;11 the hands of a special committee such as that above"scribed, unless the efforts to effect its collection areactively continued. Likewise, when it is apparent that themethods described will not produce satisfactory results, a


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"debt should not be regarded as in process of collectionunless appropriate legal steps are being taken with a viewto its collection.

"In any case in which a debt undergoing the procedureabove described is classified by The Cleveland Trust Companyas a debt in process of collection, the Company will beexpected to show clearly to the examiner, upon request, thatits classification as such is justified on the basis aboveset forth. The question whether a debt may be classifiedas one in process of collection within the meaning of thestatute is one which must depend upon the facts and circum-stances surrounding the particular case and the expressionof the above views Should be understood as applying only tothe c ircumstances of this particular case on the basis ofthe facts presented by The Cleveland Trust Company. It isnot the purpose of the Board to undertake to lay down anygeneral rule for the determination of this question inOther cases where the facts may not be in all respects thesame.

Boardts"Kindly advise The Cleveland Trust Company of theposition as expressed above."


Memorandum dated December 15, 1936, from Mr. Morrill recommending,

fclr the reasons stated in the memorandum, that the practice adopted by

the Board on April 25, 1936, of having the Federal Reserve Bulletin

Printed by a commercial establishment rather than the Government PrintingOffi

ce be followed hereafter, unless future experience indicated the

W.44(1z of a change, and that a contract for printing, binding, and mail-

g the Federal Reserve Bulletin during 1937 be executed with Judd and

tetwaner, Inc., on the basis of its bid dated December 7, 1936,

"-mated at $23,474.58, with the understanding that the Board will

tell the paper stock and franked addressed containers for mailing, asit haA

ln the past. The memorandum stated that Mr. Goldenweiser,bire

etca' of the Division of Research and Statistics, concurred in the



Thereupon the meeting adjourned.

ecretary.


19361218_Minutes.pdf

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