19400419_minutes.pdf

522

SPA em

A meeting of the Board of Governors of the Federal Reserve

was held in Washington on Friday, April 19, 1940, at 2:30 p.m.

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

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

ChairmanMr. Wyatt, General CounselMr. Smead, Chief of the Division of

Bank OperationsMr. Dreibelbis, Assistant General CounselMr. Vest, Assistant General CounselMr. Wingfield, Assistant General CounselMr. Boothe, Technical Assistant in the

Division of Bank Operations

Mr. Ransom referred to the discussions at the meetings of theBoard on April 2 and 9, 1940, with respect to a suggested amendment tothe

Investment Company Act of 1940 and stated that he had been follow-

the matter at M. McKee's request during the latter's absence. At4r. Ran

8°m's suggestion, Mr. Wingfield stated that, as a result of fur-the,

cascussions by him and Mr. Cagle, Assistant Chief of the DivisionOf kv.„.._

'411-111at1011S, with representatives of the Securities and ExchangeCommis

81°n, it now appeared likely that the Securities and ExchangeCommi_80.

would agree to an exchange of correspondence with the Board

-44-ch the Securities and Exchange Commission would address a letterto

the _ Board

stating that the Commission was prepared to recommend tothe sub

-committee of the Banking and Currency Committee of the Senate

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

523

4/19/40-2-

before which hearings on the bill were being held, that the bill be

amended to exclude expressly from the definition of "investment company",

bank holding company affiliates which hold general voting permits issued

by the Board and which are primarily engaged in bank holding company

activities, and upon receipt of this letter a reply would be addressed

to the Commission by the Board which would read as follows:

"This refers to your letter of April 18, 1940, advisingthat, in accordance with conversations between representativesof the Board and members of your staff, the Securities andExchange Commission is prepared to recommend to the subcom-mittee of the Banking and Currency Committee of the Senate,before which hearings are being held on the investment company1?111 (s. 3580), that the bill be amended in certain respects111 order to avoid additional duplication of supervision by-Federal agencies of banks and holding company affiliates ofbank3.

holding he Board considers apIxopriate the suggestion that

h?idVoting affiliates of member banks which obtain and

uing permits issued by the Reserve Board under the pro-visions of the Banking Act of 1933 and which are priLlarilyengaged in the business of holding the stock of and managingOr controlling banks be exempted from the provisions of theProposed investment company act, since these companies aresubj ect to examination and supervision by the Reserve Board.

TittedAZ o you know, from the information which has been sub-representatives of your Commission during the con-

ferences which have been held with members of the Board's staff,, ere are a number of holding company affiliates of memberIrks which now hold voting permits issued by the Reserverd hen it granted these permits, the Board, pursuant to

coauthority given in the statute, in effect determined that suchanrcTanies were engaged as a business in holding bank stocksrp managing and controlling banks. If the Board should be2quired to make a determination in these cases, it would,nthe.facts now in its possession, determine that they are11111-maily engaged in the business of holding bank stocks andth,r_ gtrti,gw:lcontrolling banks. Accordingly, the Board feels

e2ens- involve unnecessary consumption of time andp,both to the Federal Government and the holding corn-

affiliates, and would not serve any useful purpose, for'" a determination to be made in each of these cases. For


524

4/19/40 -3-

"these reasons, the Board suggests that these holdingcompanies, a list of which has been furnished to yourstaff, which now hold voting permits and are thereforeunder supervision and examination by the Beard be ex-empted from the provisions of the proposed investmentcompany act by the terms of the act itself. The Boardbelieves that such an exemption would be in conformitywith the suggested orinciole under thich only companiesWhich hold voting permits and are primarily engaged inholding the stock of and managing or controlling bankswould be exempted from the provisions of the proposedinvestment company act. (In addition to the holdingcompany affiliates to which reference is made above,there are a few banks which control other banks andhold voting permits issued by the Board. However, theseare already exempted from the provisions of the billunder exceptions relating to banks.) In order to accom-Plish the exemption which the Board has in mind, it isslIggested that section 3(c) of the bill S. 3580 beamended by adding an additional paragraph as follows:

"Any holding company affiliate, as definedin the Banking Act of 1933, which is under thesupervision of the Board of Governors of theFederal Reserve System by reason of the factthat such holding company affiliate holds a gen-eral voting permit issued to it by such Boardprior to January 1, 1940; and any holding com-Pany affiliate which is under such supervisionby reason of the fact that it holds a generalVoting Permit thereafter issued to it by theBoard of Governors and .which is determined bysuch Board to be primarily engaged, directlyor indirectly, in the business of holding thestock of, and managing or controlling, banks,banking associations, savings banks, or trustcompanies. The Commission shall be given ap-propriate notice prior to any such determinationand shall be entitled to be heard.'

any holding

will observe that under this proposed amendmentafT, holding company affiliate of a member bank which here-130_er desires to obtain a voting permit from the ReservemZd and be exempted from the provisions of the invest-

Company, act must, after your Commission has had an8Zrtunity to be heard, be affirmatively determined by the

Ztd to be engaged primarily in the business of holdingk of and managing or controlling banks. It is believed.this procedure would effectively prevent evasion of

"' investment company act by investment companies


525

4/19/40-4-

"which might attempt to evade it by using a relativelysmall portion of their assets to acquire control of twoor three banks.

"It is understood from your letter that the Com-mission will recommend such amendment as may be neces-sary to exempt from the "investment adviser" provisionsof the bill those holding company affiliates which areexempted from the provisions of the bill relating to in-vestment companies. It is also understood that theCommission will recommend that an appropriate amendmentbe made to section 26(a) of the bill to make it clearthat at least in the case of any trustee which is amember bank of the Federal Reserve System the statementof the trustee's combined capital and surplus in itsmost recent published report of condition shall be con-clusive.

"As representatives of your Commission were ad-vised by members of the Board's staff, the Board hasfelt for some time that the statutes relating to the,s_upervision of holding company affiliates of member°auks should be strengthened. The Board feels that itwould be more appropriate to consider these matters in'.f°11nection with a broad investigation of banking andredit matters such as that which the Banking and Cur-rency

Committee of the Senate has been authorized to'4Liclertake under the provisions of Senate Resolution 125.

"The Board and its staff appreciate the cooperationn the representatives of your Commission in working outLnis problem."

F°110wing receipt of this letter, Mr. Wingfield said, the Com-

4114144 w°uld address another letter to the Board in which it would4gl'ee that all of the holding companies which hold voting permits fromthe B

arc' are primarily engaged in bank holding company activities,With aPossible exception of Transamerica Corporation and Shawmut Asso -

eiationP but that inasmuch as the Board had reached the conclusion that

811ch c(.1„,-Panies are primarily so engaged the Commission would accept that44,1 rec

°mIllend to Congress that the amendment recommended in the Board'sletter be

adopted. Mr. 44ingfie1d added that the reason for this suggested


526

4/19/40

Procedure was was that the Securities and Exchange Commission was reluc-

tant to recommend the amendment on its own initiative but was willing

t° agree thereto if recommended by the Board. He also said that if

theexchange of correspondence with the Securities and Exchange Com-

raission takes place the Board might give consideration to sending a

letter to Senator ..agncr, Chairman of the Senate Committee on Banking

and Currency, reading as follows:

"This refers to your letter of :arch 15, 1940, request-ing a rleport from the Reserve Board on the bill E. ?580relating to the registration and regulation of investmentcompanies.

The Board is advised that the evidence submitted toYour Committee discloses the desirability of legislationwhich will provide for adequate regulation of investmentomc panies in the interest of the public and in the interest°f Investors. It is understood that representatives ofthe

Securities and Exchange Commission and of investment.ctompanies are submitting detailed comments to your Commit-4.!e with respect to the various provisions of the bill, andL'Ile Board will not undertake to comment on all of theseprovisions.

"The Board has noted that enactment of the bill in1868 Present form might result in duplication of Federal

OPervision of banks and holding company affiliates ofvall.k.s• The Board feels that such duplication of super-_1810n should be avoided and to that end representatives

tLL e Board have discussed the matter with representa-Blves of the Securities and Exchange Commission, and theaoard and the Securities and Exchange Commission are ingrseement that certain amendments should appropriately be

4:rittel.bill to avoid such additional duulication of

"These amendments are described in some detail in,n attached copies of correspondence between the Board;ad the

Securities and Exchange Commission and are to theowing effect:. "Amend section 3(c) of the bill by adding an

additional paragraph as follows:"Any holding company affiliate, as defined

in the Banking Act of 1933, which is under thesupervision of the Board of Governors of the


527

4/19/40 —6—

"Federal Reserve System by reason of the factthat such holding company affiliate holds ageneral voting permit issued to it by suchBoard prior to January 1, 1940; and any hold-ing company affiliate which is under suchsupervision by reason of the fact that itholds a general voting permit thereafterissued to it by the Board of Governors andwhich is determined by such Board to be pri-marily engaged, directly or indirectly, inthe business of holding the stock of, and man-aging or controlling, banks, banking associa-tions, savings banks, or trust companies. TheCommission shall be given appropriate noticePrior to any such determination and shall beentitled to be heard.'"Make such amendment as may be necessary to exempt

from the 'investment adviser' provisions of the billthose holding company affiliates which are exempted fromthe provisions of the bill relating to investment com-panies.

"Make an appropriate amendment to section 26(a) ofthe bill to make it clear for the purposes of such sec-tion that at least in the case of any trustee which isa member bank of the Federal Reserve System the state-ment of the trustee's combined capital and surplus inits most recent published report of condition shall beconclusive.

bill "The Board recommends that such amendments be made to the."

had been considered by Mr. McKee before he left Washington on April 17

Mr. Ransom stated that the proposed exchange of correspondence

e'lld that theprocedure was agreeable to him.

Upon motion by Mr. Davis, the proposedProcedure under which the exchange of corres-pondence with the Securities and ExchangeCommission would take place was approvedunanimously with the understanding thatUr. Ransom was authorized to approve anychanges of form in the letters set forthabove as may appear to be necessary andthat when the exchange of letters with theSecurities and Exchange Commission had beencompleted the letter to Senator Wagnerwould be sent.


528

4/19/40 -7-

MT. Wingfield left the room at this point.

There were then presented telegrams to Mr. Sanford, Assistant

Secretary of the Federal Reserve Bank of New York, Mr. Post, Secre-

tarY of the Federal Reserve Bank of Philadelphia, ix. :ecLarin, First

Vice President of the Federal heserve Bank of Atlanta, Mr. Dillard,

Secretary of the Federal Reserve Bank of Chicago, Jr. Gilbert, Presi-

dent of the Federal Reserve Bank of Dallas, and Mr. Hale, Secretary

°f the Federal Reserve Bank of San Francisco, stating that the Board

aPProved the establishment without change by the Federal 1=,eserve

Bank,of New York, Atlanta, Chicago, Dallas, and San Francisco on

April 18 1940, and by the Federal Reserve Bank of Philadelphia today,

°f the rates of discount and purchase in their existing schedules.

Approved unanimously.

Mr. Draper stated that in accordance with the action taken

lit the meeting of the Board on April 10, 1940, there had been pre-oared

a draft of reply to the letter received from Congressman Ford

Of California under date of April 9, 1940, inquiring whether, in theOpinion

Of the Board, Bill 8.3343 which would amend in certain re-ePect

8 Section 13b of the Federal Reserve Act relating to industrial

he r, achi-lied; that the draft had been circulated among the members of

the Bo

would accomplish in any important degree the purposes sought to

arc' and a question had arisen as to whether the report should

be sentOr Whether Chairman Eccles should discuss the matter with

Ford over the telephone; and that he (Mr. Draper) felt

ecision should be reached as to the action to be taken.

.904gress

that


• 529

4/19/40 -8-

In a discussion of the matter it was stated that a bill

(11•13;s8536) identical with 3.3343 had been introduced in the House of

Representatives on February 19, 1940, and Chairman Eccles expressed

the °Pinion that, inasmuch as the Board could not undertake to answer

411 inquiries that might be made of it by individual members of the

Senate and the House of Representatives, the suggestion might well

be taade to Congressman Ford that a request for a report be made by

the committee on Banking and Currency of the House of Representatives

Which is the usual and most effective procedure.

At the request of the Board Mr. Morrill read a revised draft

r'eP3-37" to Congressman Ford's letter and there was a discussion of

Secti-°n 13b of the Federal Reserve Act as it would be amended by the

Mr. Ransom pointed out that the amendment would remove from

the elieting law the provisions which (1) limit to five years theterm 4,

4or which such loans could be made, (2) limit advances for work-

capital purposes only, and (3) authorize loans only to established

-gess concerns, and stated that, although upon further study he

ietit eh-ange his position, he would be opposed at the moment to

bjj

broadening the authority of the Federal Reserve Banks in this field

Of direct loans, and if a decision had to be made at the present time

he woulAPrefer the alternative of having Section 13b repealed.

Messrs. Eccles, Szymczak, Davis, andDraper indicated that they were in generalagreement with the proposed amendment toSection 13b and it was agreed unanimouslythat Chairman Eccles should call Congressman


4/19/40

At

-9-

Ford on the telephone and state to himthat it would be a more desirable pro-cedure if a request for a report weresent to the Board by the Banking andCurrency Committee, that a majority ofthe members of the Board are in generalagreement with the bill) and that it wasprobable that a favorable report wouldbe made on the bill in response to a re-quest from the Banking and CurrencyCommittee.

this point Mr. Boothe withdrew from the meeting.

Mr. Ransom said that the suggestion had been made to him by

530

certain outside parties that the provisions of the bill H.R.960 with

respect to the extension of the classified civil service might be re-

as a mandate to the President to place the Board's employees

in the classified service, but that it was his opinion that from a

Practical standpoint the bill did not materially change the existing

8ituation and that no action should be taken by the Board in the mat-ter at

this time.

The provisions of the bill that mightbe applied to the Board were consideredand it was agreed unanimously that no ac-tion should be taken by the Board in thematter at the present time.

There was presented an undated letter from President Day of

the Federal Reserve Bank of San Francisco, submitting salaries fixed

bY. the board of directors for the officers of the bank, effective May 1,

194°' 48 follows:


4/19/40-10-

AnnualName Title Salary

Wm. A. DayIra Clerk

President 25,000First Vice President 18,000

W. M. Hale 'R. B. Vest

Vice President 15,000Vice President 10,000

C. E. Earhart Cashier 10,000C. D. Phillips Assistant Cashier 6,300H. N. MangelsE. C. Mailliard

Assistant Cashier 7,000Assistant Cashier 5,500

j. M. Omer Assistant Cashier 5,500H. F. Slade Assistant Cashier 5,200R. T. Hardy Assistant Cashier 5,200F. H. Holman General Auditor 7,500

W. N. AmbroseH. M. CraftM.

McRitchieL. C. Meyer

D. L. DaviS. A. MacE:chronJ. P.

Blanchard

.!11. L. LPartner Managing Director 8,500M. eisner Assistant Manager 5,400n M. Scott Assistant Manager 3,900

Los Angeles Branch

Managing Director 10,000Assistant Manager 7,500Assistant Manager 5,500Assistant Manager 4,800

Portland Branch

Managing DirectorAssistant ManagerAssistant Manager

Salt Lake City Branch

8,5005,3004,500

C. R. ShawF. C. BoldB. A. Russell. E.

Everson

Seattle Branch

Managing Director 8,500Assistant Manager 5,500Assistant Manager 4,800Acting Assistant Manager 4,200

531


- 532

4/19/40 -11-

Mr. Szymczak stated that he had discussed the proposed changes

in salaries of officers of the San Francisco Bank with Mr. Day in

Chicago earlier this week and that it was his (Ir. Szymczak) recom-

Mendation that the salaries as fixed by the board of directors for

the Year beginning May 1, 1940, be approved by the Board.

There was a brief discussion of thequestion whether the increase of $1,000each in the salaries of Managing DirectorsDavis, Partner and Shaw were justified atthis time, at the conclusion of which thesalaries as fixed by the board of direc-tors of the Federal Reserve Bank of SanFrancisco were approved unanimously forthe period from May 1, 1940, to April 30,1941, except that the salaries for thePresident and First Vice President wereapproved for the remainder of their pres-ent terms of office.

tors „,°I the Federal Reserve Bank of Minneapolis for the officers of

the"41K for the period of one year beginning June 1, 1940. The pro-

salaries included increases for five officers as follows:

There was also presented a memorandum dated April 18, 1940,from

Mr Szymczak submitting the salaries fixed by the board of direc-

Netia

0, s.t, OWell

ro sivan.0, rt. sonA: w

C

.

j • lerSon

tir 8

qine Zak I s

TitlePresentSalary

ProposedIncrease

First Vice President $12,000 $3,000Vice President and Secretary 9,000 1,000Assistant Cashier 5,500 500Assistant Auditor 4,500 500Assistant Cashier (Helena) 3,600 400

memorandum recommended approval of the salaries as


533

4/19/40 -12-

fixed by the board of directors for the officers of the bank with

the exception of the salary proposed for r. Powell and suggested

that the increase proposed for him be considered by the Board.

In the discussion that followed the opinion was expressed

thatsalar-j advances approved for Powell in recent years had

been relatively large and that an increase of as much as 25 per

cent in his present salary should not be made at this time unless

there were special reasons therefor.

Accordingly, it was agreed unanimouslythat Mr. Szymczak should discuss the matterWith iAr. Peyton, and Er. Szymczak was author-ized, if in the light of such discussion hethought it advisable, to advise Er. Peytonthat the Board would prefer an increase offrom 0.,500 to .,21000 for !4r. Powell at thistime but if there were special reasons there-for the Board would approve an increase ofUP to 3,000 per annum in Er. Powell's salary.

There was also presented a draft of letter to Er. Leach,

?resident of the Federal Reserve Bank of Richmond, which had beenPrepared

In accordance with the action taken at the meeting of theBoal,A"4 on April 15, 1940, and which read as follows:

lett "The Board has given careful consideration to yourer of t" March 29, 1940, and to the data transmittede—• •

co 1-with regarding the proposed transfer of a number ofof ties in North Carolina from the territory of the Headit'lce to that of the Charlotte Branch, and feels thatac w°111d be desirable for you to come to It'lashington to0,Tlaint it more fully with respect to the proposed14,17.ge before taking action thereon. Accordingly, itthis be aPPreciated if you will come to vashington for

Purpose On April 24, 1940, at 11:00 a.m., if this


534

4/19/40

"date is convenient to you."


-13-

(Secretary's note: The date set for Mr.Leach to come to liiashington for a dis-cussion of the above matter was subse-quently changed to Friday, April 26,1940, at 11:00 a.m.)

At this point Messrs. Thurston, Idyatt, Smead, Dreibelbis, Vest

left the meeting and the action stated with respect to each of the

Matters hereinafter referred to was then taken by the Board:

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

Federal iieserve System held on April 18, 1940, were approved unani-MOusly.

Memorandum dated April 16, 1940, from Mr. Goldenweiser, Direc-tor

°f the Division of Research and Statistics, recommending, for the

l'es°118 stated in the memorandum, that he be authorized to complete

rleg°tiati°ns with the Federal Reserve Bank of San Francisco for theServi

ee8 of Mr. N. Merritt Sherman, Assistant Chief of the DivisionOf ytes

earch of the San Francisco Bank, for a period of four months inthe /3

°ard ts Division of Research and Statistics in connection with theSYstem

-is retail trade renorting services, with the understanding thatthe 14,

d will reimburse the Federal Reserve Bank of San Francisco for41% h

1*Q"Imlan's salary at the rate of .00 per month, and will pay his

t'114813°rtation expenses and provide him with a per diem allowance of

Per day for the period he is absent from the bank in connection


4/19/40

With this work.

-14-

Approved unanimously, with the furtherunderstanding that the Board would alsoreimburse the San Francisco Bank for itsusual contributions to the Retirement Sys-tem for Mr. Sherman during the period.

Memorandum dated April 15, 1940, from Mr. Goldenweiser,

Director of the Division of Research and Statistics, recommending,

t°1* the reason stated in the memorandum, that the salary of Ray R.

Foster, Junior Economist in the Division, be increased from $3,600

to ,„&+,400 per annum, effective at the same time as other salary

changes which had been recommended by Li-. Goldenweiser and are now

efcre t he Board, are approved.


Memorandum dated April 17, 1940, from Mr. Goldenweiser,

1rec4.°r of the Division of Research and Statistics, submitting the

res.ation of Andrew M. Kamarck as a junior economist in the Divi-

siOxeffective at the close of business on April 15, 1940, and

l'ec°Iniriending that the resignation be accepted as of that date.


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

eerite Bank of St. Louis, reading as follows:

Palo--ser, regarding Sandborn Banking Company, Sandborn,lana, an uninsured bank which has indicated an interesti;omembership. You report that the bank ASS organized in

he has has a capital of $25,000, and is located in a townto ,"g a population of 641, and ask whether it would have'e examined by the Federal Deposit Insurance Corporation

"This refers to your letter of April 12, 1940, to Mr.

535


536

4/19/40 -15-

"in order to be admitted to membership in the System. Insubmitting the question, you refer to the fact that priorto the admission of Farmers Bank, Clay, Kentucky, to member-8114 last year, it was considered necessary for the FederalDeposit Insurance Corporation to make an examination ofFarmers National Bank, which was to be succeeded by thenewly organized Farmers Bank.

"As your counsel has correctly pointed out, the twocases are not comparable, the distinction arising fromthe fact that Farmers Bank was organized subsequent toJune 16, 1933, and Sandborn Banking Company was organizedprior to that date. In order to be eligible for member-8114, it was necessary for Farmers Bank to be entitledto the benefits of insurance under section 12B of theFederal Reserve Act at the time of its admission. Thatis not required in the case of Sandborn Banking Companyand, thus, while it was necessary for Farmers Bank to4c:,x11PlY with the orovisions of subsection (f)(2) of sec-t-Lon 12B under which a State nonmember bank may becomen insured bank 'upon application to and examination byre (Federal Deposit Insurance) Corporation and approvaly the board of directors', Sandborn Banking Company may,°,e admitted to membership without action by the FederaluePosit Insurance Corporation.

Fed "Although there is no necessity for action by the—,7-uul Deposit Insurance Corporation except in the

ililMited class of cases like that of Farmers Bank, theF°ard has consistently endeavored to cooperate with theanieral Deposit Insurance Corporation in acting upon2Plications for membership by noninsured as well as-,-Zsured banks. In this connection, reference is madein fircular letter 5-10 of June 26, 1937 (F.:Z.L.5.716477).was6he case of Sandborn Banking Company, since the bankbe at one time an insured bank but withdrew, it would1,,,„xpected that the information submitted to the Board

flthe application would contain full information con-Imi fig the circumstances involved."


Letter to Mr. Sinclair, President of the Federal Reserve BankOr Philaaelphia,

reading as follows:

response to your letter of April 8, 1940, youRe- advised that the Board of Governors of the Federalserve System has approved the payment to your Counsel,


4/19/40

537

-16-

4MacCoy, Brittain, Evans & Lewis, of a fee in the netamount of $4,0001 in addition to the annual retainer°f le'2,500, for the legal services covered by thememorandum included in your letter. The Board under-stands from your letter that the payment of this ad-ditional fee has already been approved by your boardof directors."


Thereupon the meeting adjourned.

124tiasIt'LL1101j'A2'eSecretary.

Chairman.


19400419_minutes.pdf

Documents

reserve board

assistant general counselmr

assistant secretarymr

assistant chief

board of governors

technical assistant

special assistant

company affiliates ofbank3