19370707_Minutes.pdf

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

was held in Washington on Wednesday, July 7, 1937, at 3:00 p.m.

PRESENT: Mr. Eccles, ChairmanMr. Ransom, Vice ChairmanMr. Broderick

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

Consideration was given to each of the matters hereinafter referred

to and the action stated with respect thereto was taken by the Board:

Telegrams to Messrs. Young and McKinney, Presidents of the Federal

Reserve Banks of Boston and Dallas, respectively, and to Messrs. Austin and

Thomas, Chairmen of the Federal Reserve Banks of Philadelphia and Kansas

City, respectively, stating that the Board approves the establishment with-

out change by the respective banks today of the rates of discount and pur-

chase in their existing schedules.

Approved unanimously.

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

of Chicago, reading as follows:

"In accordance with the request contained in your letterof July 3, the Board approves the appointment of Henry B. Tes-mer as an assistant examiner for the Federal Reserve Bank ofChica go. Please advise of the effective date."


Letter to the board of directors of the "Rushville State Bank",

Rlishville, Illinois, stating that, subject to the conditions of member-

shit) numbered 1 to 3 contained in the Board's Regulation H and the fol-

1"1ng special conditions, the Board approves the bank's application for

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

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membership in the Federal Reserve System and for the appropriate amount

of stock in the Federal Reserve Bank of Chicago:

Such bank shall make adequate provision for depreciationin its banking house and furniture and fixtures.

Such bank shall stamp, as soon as practicable, in legibleform on each certificate for stock of the bank outstand-ing, and, so long as the legend referred to below is ap-plicable, shall stamp in legible form on each certificateissued upon transfer or in lieu of the certificates nowoutstanding a legend reading substantially as follows:

'Before any dividend or distribution of any kindor character is made to stockholders as such, theoutstanding Deferred Certificates issued by thebank to certain depositors who waived the paymentof a part of their deposits in 19350 pursuant towaiver agreements, copies of which are on filewith the Rushville State Bank, must be paid.'

(In the event that shareholders of the bank failor refuse to surrender their stock certificatesfor the purpose of enabling the bank to placethereon the legend referred to in the foregoingcondition numbered 5, this condition will be con-sidered as having been complied with by the inclu-sion in each published statement of condition ofthe bank of appropriate information showing therelation of the rights of the holders of outstand-ing Deferred Certificates to the rights of stock-

holders.)"

Approved unanimously, together with aletter to Mr. Schaller, President of theFederal Reserve Bank of Chicago, readingas follows:

"The Board of Governors of the Federal Reserve Systemapproves the application of the 'Rushville State Bank', Rush-yule, Illinois, for membership in the Federal Reserve System,subject to the conditions prescribed in the inclosed letterWhich you are requested to forward to the board of directorsof the institution. Two copies of such letter are also in-closed, one of which is for your files and the other of whichYOU are requested to forward to the Auditor of Public Accountsfor the State of Illinois for his information.


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has been noted from the presentation memorandumaccompanying the application that the institution will berequested to reduce the balance which it was carrying witha nonmember bank to an amount within the limitations fixedby section 19 of the Federal Reserve Act."

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

Richmond, reading as follows:

"Receipt is acknowledged of your letter of June 25,1937, and the inclosed letter from Mr. Cutler, presidentof Safe Deposit and Trust Company of Baltimore, in whichhe requests that an amendment be made to the Board's Reg-ulation L, dealing with interlocking directorates underthe Clayton Act.

"The immediate purpose of Mr. Cutler's request is toobtain an amendment which will permit Messrs. Davis andRandall to serve at the same time as directors of the trustcompany and of The First National Bank of Baltimore, but,as Mr. Cutler points out, he seeks an amendment which isgeneral in scope, since the Board is no longer authorizedto issue individual permits.

"Before the proposed amendment is considered finallyby the Board, it 111.11 be appreciated if you will suggestto Ji". Cutler that he give consideration to the mattersdiscussed below in order that he may have an opportunityof meeting certain objections which may be raised to theamendment in the form in which he has suggested it.

"He suggests an amendment which would permit a direc-tor of a member bank to be a director of not more than onetrust company which is not a member bank, provided thetrust company is engaged 'primarily' in the business ofacting as trustee, executor or administrator, agent orOther fiduciary, and provided it 'does not generally ac-cept deposits subject to check'. As you know, one of thePrimary purposes of the revision of section 8 of the Clay-ton Act which was made by the Banking Act of 1935 (a pur-pose which the Board attempted to follow in the revisionof its Regulation L) was to lay down a set of clear andeasily applied rules which would permit the director orbank involved to determine for itself whether or not therelationship was prohibited, without the necessity ofhaving to appeal to the judgment and discretion of aboard in Vlashington for its determination. Such a deter-mination, if based upon an indefinite standard and madeby a board located sometimes at a great distance from the


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"banks involved, necessarily could not produce entirelyuniform results even though a great deal of time and en-ergy were expended in an effort to give proper consider-ation to each individual case.

"The amendment which Mr. Cutler proposes refers toa trust company which is engaged 'primarily' in the busi-ness of acting as fiduciary and which 'does not generallyaccept deposits subject to check'. It seems possible thatincorporating such a standard in the Board's regulationmight produce a number of borderline cases in which theBoard would be required, first, to lay down some generaldefinition of the word 'primarily' and then attempt to ap-ply that definition to the facts of the particular case asascertained through correspondence, investigation by theoffice of the Federal Reserve agent, study of examinationreports, and possibly hearings of the interested partiesby the Board in Washington. The same would be true of thequestion whether the trust company 'generally' accepteddeposits subject to check.. "Although Mr. Cutler in his letter discusses the ques-tion of substantial competition between the institutions in-volved, and although it may be assumed that this was thebasic question which Congress had in mind when section 8was amended to the form in which it now stands, it is note-worthy that the word 'competition' does not now appear insection 8. This fact serves to emphasize what has beensaid above regarding the purpose of the amendment to sec-tion 8; namely, to lay down definite and easily appliedrules. It is even possible that the fundamental purposeof preventing interlocking relationships between competinginstitutions has been slighted to a small degree in an ef-fort to achieve this definiteness, and Mr. Cutler refersin his letter to the exception applicable to banks not lo-cated in the same city, which of course may apply to banksbetween which there is a degree of competition, and alsoto mutual savings banks and to Morris Plan banks and sim-ilar institutions which are excepted by the Board's Regu-lation L.

"If Mr. Cutler could suggest a revision of his pro-posed amendment which would establish a clear-cut distinc-tion and would not have a tendency to produce borderlinecases, it would not be open to the objections discussed?love, which may possibly be deemed important by the Boardin deciding whether or not the amendment should be incor-porated in Regulation L."



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Thereupon the meeting adjourned.

Approvedt


19370707_Minutes.pdf

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