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FEDERAL RESERVE BOARD

WASHINGTON _ X-?393

a d d r e s s o f f i c i a l c o r r e s p o n d e n c e t o t h e f e d e r a l r e s e r v e b o a r d M B P c j l 3 1 , 1 9 3 3 •

SUBJECT: Procedure i n Submitting Appl icat ions for Membership by Telegraph.

Dear S ir :

Referring to the Board's telegrams of March 12, 1933, (Trans 1628

and 1630), v>ith regard to appl icat ions for membership i n the Federal Reserve

System, the Board requests that i n the future there be handled by telegraph

only urgent cases , which for spec ia l reasons cannot await submission by mail

and on which, i n your opinion, the Board would be j u s t i f i e d i n ac t ing on the

basis of a te legraphic report and recommendation. Hereafter , information

with respect to such appl icat ions should be submitted as indicated in t h i s

l e t t e r .

Each telegram should begin with the code word "AITCHORIST", meaning

"We have appl icat ion bank (Use A.B.A. t r a n s i t number) f o r membership i n the Federal Reserve System, the condit ion and management of which are not subject to sub-s t a n t i a l c r i t i c i s m and we f e e l that the Board would be f u l l y j u s t i f i e d i n admitting such i n s t i t u t i o n to membership. I concur i n recommendation of executive committee of t h i s bank that such act ion be taken by the Board".

The s e c t i o n number should be indicated , the symbols A, B, C, e t c . ,

should be used i n p lace of captions i n each s e c t i o n , and a l l f i g u r e s should

be s tated i n even hundreds except the c l a s s i f i c a t i o n of c r i t i c i z e d a s s e t s

which should be given i n actual f i g u r e s . Where there are no f i g u r e s for

any given symbol, the word "None" should appear. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

117 X-7393

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Sect ion 1 .

The f i g u r e s given i n t h i s s e c t i o n should he taken from

statement of condit ion appearing i n hank's a p p l i c a t i o n .

Date of statement.

B) Loans and discounts including overdrafts .

C) Total s e c u r i t i e s investments.

D) Banking house.

E) Furniture and f i x t u r e s .

Other real e s t a t e .

Cash, exchanges and due from hanks. Indicate any balances i n c losed or non-l icensed hanks.

Other resources . Explain b r i e f l y any unusual or large items.

Total resources .

Capital .

Surplus.

Undivided p r o f i t s .

Reserves for l o s s e s , depreciat ion or cont ingencies .

Reserves for i n t e r e s t , taxes , e t c .

Depos i t s , (01) due to hanks, (02) demand and (03) t ime.

Borrowed money, (PI) Reconstruction Finance Corporation and (P2) other .

Other l i a b i l i t i e s . Explain b r i e f l y any unusual or large i tems.

Total l i a b i l i t i e s .

Contingent l i a b i l i t i e s . I f of unusual nature, descr ibe b r i e f l y and-give amounts.

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

118 X-7393

M 3 M

(T) Nature and value of a s s e t s not shown on "books.

Sect ion 2.

The information requested i n t h i s s e c t i o n , and i n s e c t i o n s

3 and 4 and i n 5 where appl icable , should be taken from the l a t e s t

report of examination, g iv ing the date thereof and ind ica t ing by

what authori ty the examination was made.

The c r i t i c i z e d a s s e t s should be c l a s s i f i e d , g i v i n g f i r s t the

t o t a l c r i t i c i z e d and then the break-down i n slow, doubtful and l o s s

under each of the fo l lowing headings:

(A) Loans and discounts , (Al) slow, (A2) doubtful and (A3) l o s s .

(B) S e c u r i t i e s investments, (Bl) slow, (B3) doubtful and (B3) l o s s .

(C) Claims and judgnents, (CI) slow, (C2) doubtful and (C3) l o s s .

(D) Banking house, furni ture and f i x t u r e s , (Dl) slow, (D2) doubtful and (D3) l o s s .

(E) Other rea l e s t a t e , (Bl) slow, (E2) doubtful and (E3) l o s s .

(?) Miscel laneous, (Fl ) slow, (F2) doubtful and (3P3) l o s s .

((>•) Total c r i t i c i z e d , (f l l ) t o t a l slow, (G2) t o t a l doubtful and (G3) t o t a l l o s s .

Sect ion 3 .

S e c u r i t i e s investments should be c l a s s i f i e d and the book

value and net depreciat ion or appreciat ion given under each of

the fo l lowing headings, us ing (X) for net deprec iat ion and (Y)

for net appreciat ion.

(A) U. S. Government.

(B) Federal Land Banks.

(C) S ta te , county and municipal.


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X-7393

(D) Issues i n f i r s t four grades.

(E) Issues below f i r s t four grades, including unrated and defaul ted i s s u e s and s tocks .

(F) Total "book value and net depreciat ion or net appreciat ion.

In case of any dupl icat ion of amounts s e t out under t h i s

s e c t i o n and under 2(B) above, the extent of any such dupl icat ion

i n each ins tance should "be s t a t e d .

Sect ion 4 .

Miscel laneous: Where the information c a l l e d for i s not

a v a i l a b l e , i t should be so s ta ted a f t e r the appropriate symbol.

(A) Past due paper, (Al) s i x months or more past due.

(B) Loans predicated on rea l e s t a t e .

(C) Potent ia l other rea l e s t a t e i n loans.

(D) L i a b i l i t y of o f f i c e r s , d i rec tors , and the i r i n t e r e s t s , (Dl) d irec t and (D2) i n d i r e c t .

(E) Public d e p o s i t s .

(F) Total a s s e t s pledged to secure public depos i t s .

(G-) Total a s s e t s pledged to secure borrowings.

Sect ion 5.

Brief statements should be included with respect to each of

the fo l lowing:

(A) Liquidi ty .

(B) Any undue concentrations of a s s e t s .

(C) Borrowing record.

(D) Extent to and manner i n which any of c r i t i c i z e d a s s e t s have been el iminated s ince l a s t examination.


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(E) Bank's earning and dividend record over past few years .

(F) A f f i l i a t i o n s or subs id iar i e s , ind icat ing "briefly scope of operations and r e l a t i o n s of each with appl icant ,

(Gr) Branches, i f any, located outside of corporate l i m i t s of c i t y in which "bank i s located and date of establishment of each such branch.

(H) Examiner's comments on condition and management of bank.

( I ) Your own opinion of bank and i t s management, including d i r e c -tors and t h e i r a c t i v i t y , f i n a n c i a l standing, e t c .

(J) Whether bank has been l i censed to reopen and whether any r e -s t r i c t i o n s have been imposed upon i t s usual or normal operations.

Section 6 .

General; The telegram should include:

(A) Advice that your counsel has approved form of app l i ca t ion and has executed c e r t i f i c a t e of counsel usua l ly accompanying membership appl icat ions and a statement from your counsel as to what powers, i f any, other than usual commercial bank-ing powers, the applicant i s authorized to exerc i se under i t s Charter or State law.

(B) Statement from you as to whether, and to what ex tent , the appl icant i s exerc i s ing , and the extent to which i t has exerc i sed , any unusual powers such as trust powers, surety, t i t l e insurance, sa le of mortgage s e c u r i t i e s with or without guarantee or recourse, or other powers not coming within the usual meaning of the term banking powers.

(C) S p e c i a l condit ions of membership, i f any, which in the opinion of yourse l f and executive committee of your bank should be prescribed in addit ion to those contained in Trans 1619, as amended by Trans 1635.

(D) In case of banks exerc i s ing t rus t powers, concise statement regarding condit ion and management of t rus t department, bearing in mind Board's a t t i tude toward trus t investments as r e f l e c t e d by condit ions 15, 16 and 17 in Trans 1619.

(E) Att i tude of applicant toward condit ions of membership which are recommended, including charge-off s to be made, new funds to be introduced, e t c . , pr ior to admission to membership.


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The A.B.A. t r a n s i t number of the appl icant should "be r e s t a t e d

as the l a s t word in the telegram.

In a c t i n g upon a p p l i c a t i o n s rece ived by te legraph, the Board

n e c e s s a r i l y w i l l rep ly to an unusual ly large extent upon your recommendation

and that of the execut ive committee of your tank. Accordingly, the most

c a r e f u l cons idera t ion should he g iven to the quest ion whether or not the

condi t ion of the appl icant i s such as to warrant i t s admission to member-

sh ip . In t h i s connect ion, a t t e n t i o n i s d i r e c t e d to the Board's telegram

of March 23, 1933 (Trans 1720) , s t a t i n g that the Board f e e l s that i t s

usual standards o f membership should not be re laxed, and that there has

been no change i n the usual requirement that , p r i o r to admission to

membership, a l l known l o s s e s and a l l deprec ia t ion on s e c u r i t i e s other

than those c l a s s i f i e d in the four h ighes t grades by a recognized i n v e s t -

ment serv ice organizat ion regu lar ly engaged in the b u s i n e s s of r a t i n g or

grading s e c u r i t i e s , inc luding a l l deprec ia t ion on s tocks and on de fau l t ed

and unrated i s s u e s , should be charged o f f .

You w i l l a l s o observe from Trans 1720 tha t , a l though deprec ia t ion

in the four h i g h e s t grades i s not required to be charged o f f , the Board

f e e l s that any s t a t e i n s t i t u t i o n admitted to membership should have s u f f i -

c i e n t surplus , undivided p r o f i t s or reserves to cover any such deprec ia -

t i on without impairing i t s c a p i t a l s tock. I t i s p r e f e r a b l e , of course ,

to cover such deprec ia t ion through the in troduct ion of a d d i t i o n a l funds when

necessary , although, in proper c a s e s , the s i t u a t i o n might be met by d i r e c t o r s

or stockholding i n t e r e s t s subordinating t h e i r own d e p o s i t s or furn i sh ing

adequately secured guarant ies , under agreements that such subordination

of d e p o s i t s or guarant i e s s h a l l continue in e f f e c t u n t i l r e l e a s e d by


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the Federal reserve bank, with the approval of the Federal Reserve Board,

and w i l l "be used f o r the e l iminat ion of the depreciat ion covered thereby,

not otherwise removed, e i t h e r a t a s tated future date or a t the d i s c r e t i o n

of the Federal reserve bank, with the approval of the Federal Be serve

Board, a s the circumstances of the part i cu lar case appear to warrant»

In case any such subordination agreement or guaranty i s proposed, i t s

terns should be examined by your counsel to determine that i t has been

properly executed and i s l e g a l l y binding on the p a r t i e s thereto .

Carefu.1 consideration a lso should be given to the adequacy of

the a p p l i c a n t ' s cap i ta l funds, a f t e r required charge-o f f s , in re la t ion

to i t s present and prospect ive deposit l i a b i l i t i e s and in the l i g h t of

the l i q u i d i t y of such cap i ta l funds, keeping in mind the investment of the

bank in bank bui ld ing , furniture and f i x t u r e s , other real e s t a t e , e t c .

In any case handled by telegraph, the bank's app l i ca t ion and

a l l papers u s u a l l y accompanying such an appl i ca t ion should be forwarded

to the Board promptly. In advis ing you by wire of approval of any a p p l i -

cat ion, the Board w i l l use the word "ANCHORIVET" fo l lowing the name of

the appl icant . Such word w i l l mean:

"Application of such bank f o r membership has been approved by Board subject to f i r s t 14 condi-t i ons s e t f o r t h in Trans 1619 and s p e c i a l condi-t i ons s ta ted h e r e a f t e r . Please advise such bank of Board's approval and condit ions of membership prescr ibed, together with explanation thereof contained in Board's wire Trans 1619. Letter con-ta in ing d e t a i l e d advice regarding such approval w i l l be forwarded bank through you as soon as p o s s i b l e . When you have received c e r t i f i e d copy of r e s o l u t i o n of board of d i rec tors of such bank accept ing condit ions of membership prescribed by # Board, together with advice of compliance with any spec ia l condit ions to be complied with pr ior to admission to membership, the Federal reserve bank


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"is authorized upon payment therefor to i ssue appropriate amount of Federal reserve bank stock and to accept required reserves . Please advise Board date upon which membership of bank becomes e f f e c t i v e and amount of Federal reserve bank stock i s sued to i t , forwarding copy of r e s o l u -t ion accept ing condit ions of membership and advis ing of compliance with any condit ions to be complied with pr ior to admission."

In connection with any d i s t r i b u t i o n of the Board's Regulation H

to banks applying f o r , or making inquiry regarding, membership in the

Federal Reserve System, i t i s expected tha t , as suggested in the Board's

Trans 1720, you w i l l a l so furn i sh information as to the general condit ions

of membership prescribed by the Board as s e t out in i t s telegram of March

11, 1933, (Trans 1619), and l e t t e r of the same date (X-7356), as amended

by telegram of March 12, 1933, (Trans 1635); that such explanation regarding

the general condi t ions of membership, along the l i n e s s e t out in X-7356, as

you may deem appropriate, w i l l a l so be furnished to such banks, and that , in

any event, the a t t e n t i o n of such banks w i l l be c a l l e d to the Board's prac-

t i c e of prescr ib ing spec ia l condit ions as indicated in the l a s t paragraph

of X-7356.

Very truly yours,

Chester Morr i l l , Secretary.

TO ALL FEDERAL RESERVE AGENTS.


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