19340226_1100a_Minutes.pdf

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A meeting of the ederal deserve Board was held in :ashinTton on

Monday, ii'ebruary 26, 1934, at 11:00 a. m.

PRESENT: Mr. raack, GovernorMr. Hamlinhr. MillerLr. ThomasEr. „aymczak

Er. horrill, 6ecretary—r. L,arpenter, Assistant SecretaryMr. Bethea, Assistant SecretaryYr. Martin, Assistant to the GovernorLi*. Wyatt, General CounselMr. Goldenweiser, Director of the

Division of Research and Statistics

The draft of the bill to provide for the creation of credit banks

industry w.lich was considered at the meeting on February 24, 1934, was

discussed further, particular attention beinF, given to the portion of

ection 2 of the bill providing for the selection of directors of the

el'edit banks for industry, and Section 5(c) with regard to the issuance

OfPreferred stock by the banks.

At the conclusion of the discussion, the draftof the bill in the following form was unanimouslyapproved, and it was understood that the approveddraft would be presented to the Secretary of theTreasury in accordance with the statement made byGovernor Black at the meeting on February 24:

BILL

To provide for the creation of credit banks for industry, and forOther purposes.

"Be it enacted by the Senate 'and House of Representatives of

.1.11.11J.1-1a9s States of America in Congress assembled, That this actIllaY be cited as the 'Credit Banks for Industry Act'.

"Sec. 2. The Federal Reserve Board shall issue charters underWhich there shall be established in each Federal reserve districtcredit bank for industry, hereinafter referred to as credit bank,

Which shall be located in the same city as the Federal reserve bank,all(L the title of which shall include the name of such city. Eachcredit bank shall be organized in accordance with, and the conductor its affairs shall be subject to, regulations prescribed by the

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

6262/26/34

"Federal Reserve Board. Each credit bank shall be a body corporateand shall have power to adopt, alter and use a corporate seal; tomake contracts; to lease such real estate as may be necessary forthe transaction of its business; to sue and be sued, to complain andto defend, in any court of competent jurisdiction, State or Federal;and to prescribe, amend, and repeal, by its board of directors, by-laws, rules and regulations governing the manner in which its generalbusiness may be conducted and the powers granted to it may be exer-cised and enjoyed, including the selection of its officers and em-Ployees, together with provision for such committees and the func-tions thereof as may be necessary for facilitating its business. Theboards of directors of the credit banks shall be constituted in ac-cordance with regulations, and shall be selected by the common stock-holders subject to the approval, of the Federal Reserve Board. Not-withstanding the provisions of any other law, any director, officer,or employee of a Federal reserve bank may also serve as a director,Officer or employee, respectively, of a credit bank. Each creditbank shall continue in existence for such period as shall be deter-mined by the Federal Reserve Board and, when in the judgment of theFederal Reserve Board its operation will no longer be in the publicinterest, its assets sball be liquidated and its corporate existenceShall be terminated under the direction and supervision of the Fed-eral Reserve Board. Each credit bank shall have all such incidentalPowers, not inconsistent with the provisions of this act, as arecustomary and usuaJ_ in corporations generally.

"Sec. 3. Each credit bank shall have power, subject to theregulations of the Federal Reserve Board, to discount for, or pur-chase from, any bank, trust company, mortgage company, credit corpora-tion for industry, or other financing institution, obligations havingMaturities not exceeding five years, entered into for the purposeOf providing working capital for any established industrial or com-mercial business; to make loans or advances direct to any such insti-tution on the security of such obligations; and to make commitmentsWith regard to such discount or purchase of obligations or with re-spect to such loans or advances on the security thereof. Each suchfinancing institution shall obliate itself, through satisfactoryindorsement, guaranty, collateral pledge agreement, or otherwise,for at least 20 per cent of any loss which may be sustained by thecredit bank upon any of the obligations acquired from such financinginstitution, the existence and amount of any such loss to be deter-mined in accordance with regulations of the Federal Reserve Board.

. "Sec. 4. In exceptional circumstances, when it appears to thesatisfaction of a credit bank that an established industrial or com-mercial business located in its district is unable to obtain requisitefinancial assistance on a reasonable basis from the usual sources, thecredit bank may make advances to, or purchase obligations of, suchbusiness, or may make commitments with respect thereto, for the pur-

Pose of providing it with working capital. No obligation shall be

"quired or caumitment made hereunder with a maturity exceeding fiveYears.


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-3-

"Sec. 5(a) The Secretary of the Treasury shall purchase fromeach Federal reserve bank the stock of the Federal Deposit InsuranceCorporation for which such Federal reserve bank has subscribed. Heshall pay for such stock the amount paid in to the Federal DepositInsurance Corporation by the Federal reserve bank, and such Federalreserve bank shall no longer be obliated to subscribe or pay forany stock of the Federal Deposit Insurance Corporation. If such pur-chase shall take place before the Federal reserve bank shall have paidin to the Federal Deposit Insurance Corporation the second half ofits subscription, pursuant to the call for the payment to be madeOh April lb, 1934, the Secretary of the Treasury shall pay such halfto the Federal Deposit Insurance Corporation instead of the FederalreServe bank. All amounts required to be expended by the Secretaryof the Treasury in order to carry out the provisions of this para-graph shall be paid out of the miscellaneous receipts of the Treasurycreated by the increment resulting from the reduction of the weightOf the gold dollar under the President's proclamation of January 31,19b4; and there is hereby appropriated, out of such receipts, suchsum as shall be required for such purpose.

"(b) Each Federal reserve bank shall pay in to the credit bankestablished in its district common capital and surplus equal to thePar amount of the capital stock of the Federal Deposit InsuranceCorporation for which such Federal reserve bank was required to sub-scribe under the provisions of section 12B of the Federal ReserveAct as amended. Such capital and surplus shall be subject to changefrom time to time in accordance with the regulations of the FederalReserve Board.

"(c) Upon vote of their common stockholders, and with the ap-proval of the Federal Reserve Board, credit banks may issue and sellPreferred stock on such terms and conditions as may be authorized bysuch vote.

"Sec. 6. Each credit bank for industry, with the approval ofthe Federal Reserve Board, shall have power to issue, severally orJointly with other credit banks, notes, deoentures, bonds or othersuch obligations, for the repayment of which all of the credit banksShall be jointly liable. Such obligations nay be secured in such

Illanner, and shall contain such terms and conditions, as shall be ap-proved by the Federal Reserve Board. The aggregate amount of obliga-tions issued by any credit bank which may be outstanding at any onetuae shall not exceed five times the aggregate capital and surplusof: such credit bank. The United States Government shall assume no

'lability, direct or indirect, for any obligations of credit banks,and such obliz7ations shall contain conspicuous and appropriate lan-Page, to be prescrised in form and substance by the Federal Reserve460ard, clearly indicating that no such liability is assumed.

"Sec. 7. Subject to the approval of the Federal Reserve Board,each credit bank shall have power to purchase or rediscount obliga-

0113 acquired by any other credit bank, with or without the indorse-'exit of such credit bank, to purchase and sell obligations issued


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"by any such bank; and to pay off and retire before maturity anyObligations issued by it; and the Federal Reserve Board shall havePower to require such action by any such bank. All rates of inter-est or discount on the basis of which any obligations may be ac-quired or issued by any credit bank, and all rates of interestborne by any such obligations, shall be within limitations to bePrescribed by the Federal Reserve Board in its discretion. Thecredit banks and the stocks, notes, debentures, bonds and otherObligations thereof shall not be subject to the provisions of theSecurities Act of 1933. The Federal Reserve Board shall have thesane supervisory and visitorial powers with respect to credit banksthat it has with respect to Federal reserve banks, but this provi-sion shall not be construed as having the effect of modifying or re-stricting the exercise of any power granted by this act.

"Sec. 8. Any and all stocks, notes, debentures, bonds and otherob ligations issued by any credit bank, and the income therefrom, shallbe exempt from all taxation (except surtaxes, and estate, inheritanceand gift taxes) now or hereafter imposed by the United States, by anyterritory, dependency or possession thereof, or by any State, county,Municipality or local taxing authority. Each credit bank, includingits franchise, its capital, reserves, and surplus, and its income'shall be exempt from all taxation now or hereafter imposed by theUnited States, by any territory, dependency, or possession thereof,Or by any State, county, municipality, or local taxing authority;except that any real property of any credit bank shall be subjectto State, territorial, county, municipal or local taxation to thesame extent according to its value as other real property is taxed.

"Sec. 9. ',Then designated for that purpose by the Secretary ofthe Treasury, any credit bank shall be a depository of public moneys,except receipts from customs, under such regulations as may be pre-scribed by said Secretary, and it may also be employed as a financialagent of the Government. The Federal reserve banks are authorizedto act as depositories, custodians, and fiscal agents of the creditbanks. All moneys of the credit banks not otherwise employed may bedeposited or invested in accordance with regulations of the Federal%serve Board. Obligations of the credit banks shall be lawful in-vestments, and may be accepted as security, for all fiduciary, trust,1311133-lc, and other funds the investment and deposit of Which shall beuader the authority or control of the United States or any officer?I' officers thereof. Such obligations shall be eligible for purchaseY all corporations organized or operating under the laws of theunited States, including all member banks of the Federal reservesYstem.

"Sec. 10. Section 5202 of the Revised Statutes of the United

--es, as amended, is hereby amended by adding at the end thereof a11" clause as follows: 'Tenth. Liabilities incurred under the provi-

81°11s of the Credit Banks for Industry Act'.

'Sec. 11. Paragraph 'Seventh' of Section 5133 of the RevisedStatutes, as amended, is amended by inserting in the last sentence

r Said paragraph after the words 'Home Owners' Loan Corporation' a


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"comma and the words 'or issued under the authority of the CreditBanks for Industry Act'.

"Sec. 12(a) The first sentence of the eighth paragraph of sec-tion 13 of the Federal Reserve Act, as amended, is further amended byinserting before the comma after the words 'section 13(a) of this Act'a comma and the following: 'or by the deposit or pledge of obligationsOf the Credit Banks for Industry'.

"(b) Paragraph (b) of section 14 of the Federal Reserve Act, asamended, is further amended by inserting before the comma after thewords 'bonds and notes of the United States' a comma and the follow-ing: 'obligations of the Credit Banks for Industry'.

"(c) The second paragraph of section 23A of the Federal ReserveAct, as amended, is amended, by inserting immediately after the commafollowing the words 'Federal Home Loan Banks' the words 'the CreditBanks for Industry' and a comma.

"Sec. 13. The provisions of the second paragraph of section 25(b)Of the Federal Reserve Act, as amended, shall apply to all suits ofa civil nature to which any credit bank shall be a party, to the sameextent as if it were a Federal reserve bank.

"Sec. 14(a) Whoever makes any statemont, knowing it to be false,or whoever wilfully over-values any security, for the purpose of in-fluencing in any way the action of a credit bank upon any application,advance, discount, purchase, or loan under this act, or any extensionthereof by renewal, deferment of action or otherwise, or the accept-ance, release or substitution of security therefor, shall be punishedby a fine of not more than „;,5,000, or by imprisonment for not morethan two years, or both.

"(b) Whoever (1) falsely makes, forges, or counterfeits any note,debenture, bond or other obligation, or coupon, in imitation of orPurporting to be a note, debenture, bond or other obligation, or coupon,issued by a credit bank; or (2) passes, utters or publishes, or at-tempts to pass, utter or publish, any false, forged or counterfeitedtote, debenture, bond or other obligation, or coupon, purporting tohave been issued by a credit bank, knowing the same to be false,forged or counterfeited; or (3) falsely alters any note, debenture,bond or other obligation, or coupon, issued or purporting to have beenissued by a credit bank; or (4) passes, utters or publishes, or at-tempts to pass, utter or publish, as true, any falsely altered or8Anrious note, debenture, bond or other obligation, or coupon, issuedor purporting to have been issued by a credit bank, knowing the samet° be falsely altered or spurious, shall be punished by a fine of notmore than 40,000,or by imprisonment for not more than five years, orboth

"(c) Whoever, beinp; connected in any capacity with a creditbaro, (1) embezzles, abstracts, purloins or wilfully misapplies any111°11eYs, funds, securities or other things of value, whether belonging!0 it or pledged or otherwise entrusted to it, or (2) with intent touefraud any credit bank, or any other body politic or corporate, or44Y individual, or to deceive any officer, auditor, or examiner, makesany false entry in any book, report, or statement of or to a credit


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"bank, or, without being duly authorized, draws any order or issues,Puts forth, or assigns any note, debenture, bond or other obligation,or draft, mortgage, judgment or decree, shall be punished by a fineOf not more than 40,000, or by imprisonment for not more than fiveYears, or both.

"(d) It shall be unlawful for any individual, partnership,association or corporation which is not a credit bank establidhedunder this act to advertise or represent in any way that he or it issuch a credit bank or to publish or display any sign, symbol or ad-vertisement reasonably calculated to convey the impression that he orit is such a credit bank. Any violation of this paragraph shall bePunishable by a fine not exceeding 4,000, or by imprisonment not ex-ceeding one year, or both.

"(e) The provisions of section 112, 113, 114, 115, 116 and 117Of the Criminal Code of the United 6-bates, in so far as applicable,are extended to apply to contracts or agreements of any credit bankUnder this act, which, for the purposes hereof, shall be held to in-clude advances, loans, discounts, purchase and repurchase agreements;extensions and renewals thereof; and acceptances, releases and sub-stitutions of security therefor.

"(f) It shall be unlawful for any person to stipulate for orgive or receive, or consent or a7ree to give or receive, any fee,commission, bonus, or thing of value for procuring, or endeavoring toprocure from any credit bank any advance, loan or extension of cred-it or discount or purchase of any obligation or commitment with re-spect thereto, either directly fram such credit bank or indirectlythrough any financing institution, unless such fee, commission, bonus,or thing of value and all material facts with respect to the arrange-ment or understanding therefor shall be disclosed in writing in theaPPlication or request for such advance, loan, extension of credit,discount, purchase or commitment. Any violation of the provisionsOf this paragraph shall be punishable by imprisonment for not morethan one year, or by a fine of not exceeding 05,000, or both. If adirector, officer, employee, or agent of any credit bank shall know-ingly violate this paragraph, he shall be held liable in his personaland individual capacity for any loss or damage sustained by suchcredit bank in consequence of such violation.

"3ec. lb. If any provision of this act, or the applicationthereof to any person or circumstances, be held invalid, the remain-der of this act, and the application of such provision to other, per-sons or circumstances, shall not be affected thereby.

"Sec. 16. The right to alter, amend or repeal this act is here-by4 expressly reserved."

The Board then considered and acted upon the following matters:

Memorandum dated February 21, 1934, from 11.. Faulger, Chief ofthat

of Examinations, recounendiw: that Mrs. Nancy 2. Porter, who4413,,

A employed temporarily as a stenographer, be appointed permanently


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48 a stenographer in the division, with salary at the rate of 4,560 per

44nUm, effective February 24, 1934. The recouuendation was approved by

licalr members of the Board on February 24, 1934.

Approved.

Memorandum dated February 24, 1934, from Yr. Paulger, Chief of

the Division of Examinations, stating that Mr. Burton P. Allen, who on

hbrilarY 10, 1934 was appointed by the Board as an examiner, effective

48 of the date he entered upon the performance of his duties, had de-

to accept the appointment.

Memorandum dated February 21, 1934, from Mr. Smead, Chief of the

bbrision of Bank Operations, submitting the resignation of Mrs. Gladys

L. Xu1lberg as Secretary to the Chief of the Division of Bank Operations,

errective as of the close of business on February 28, 1934, and recommend-

that the resignation be accepted and that Miss Jewell Barnett be ap-

lIcliated to fill the vacancy caused by Yrs. Kullberg's resignation, with

11414117 at the rate of 4,800 per annum, effective February 26, 1934. The

4ccuonendations were approved by four members of the Board on February 24,

Recommendations approved.

Memorandum dated February 21, 1934, from Yr. Snead, Chief of the

'1°11 of Bank Operations, recoaaending the appointment of Mrs. Eleanor

."4.18raon as a file clerk in the division, with salary at the rate of

4,56n' Per annum, effective February 26, 1934. The recommendation was

413ProvAA--" by three members of the Board on February 24, 1934.

Approved.


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:Memorandum dated February 21, 1934, from Er. Smead, Chief of the

DiVleion or Bank operations, referring to the Board's approval on February•

1) 1934, of the temporary appointment of Miss Zelpha M. Wright as a

e°Mptameter operator in the division for the period from February 2 to 28,

194) and recommending that the appointment of Miss dright be made perma-

lleat as of March 1, 1934, with salary at the rate of A,440 per annum.

Approved.

Letter dated February 23, 1934, approved by four members of the

11(541'cl, to the board of directors of "The Castalia Banking Company", Gas-

Ohio, stating that, subject to the conditions prescribed in the

letter, the Board approves the institution's application for membership

ill the Federal Reserve System and for the appropriate amount of stock in

tIle Federal reserve Dank of Cleveland.

Approved.

Telegram dated February 24, 1934, approved by three members of

the Board, to Er. Curtiss, Federal ileserve Agent at the Federal ?eserve

kllk of Boston, reading as follows:

the

"Re your letter February 21, 1934, Board grants extension oftime to March 25, 1934 within which Canton Trust Company, Canton,Lassachusetts may accomplish its admission to membership."

.Approved.

Telegram dated February 24, 1934, approved by three members of

Board, to Mr. Curtiss, Federal Reserve Agent at the Federal Reserve

1144kCT Boston, reading as follows:

"Re your letters February 16 and 20, 1934, Board grants exten-elon of time to March 30, 1934 within which Stoughton Trust Company,StoUghton, Massachusetts mny accomplish its admission to membership."

Approved.


633

2I*34

Letter to to Mr. Stevens, Federal Reserve Agent at the Federal Re-

IleIN'e Bank of Chicago, reading as follows:

"Reference is made to Yr. Young's letter of July 5, 1933, rela-

tive to the absorption on April 6, 1933, of the Cedar Grove State

Bank, Cedar Grove, Wisconsin, by the Citizens State Bank of Sheboygan,

Wisconsin, and his letter of December 27, 1933, reconraending approval

Of the application of the Citizens State Bank of Sheboygan, Wisconsin,

for permission to operate branches at Cedar Grove and Sheboygan Falls,

Wisconsin."The Board has reviewed the information submitted in connection

With the absorption of the Cedar Grove State Bank and the operation

Of branches at Cedar Grove and Sheboygan Falls, with particular refer-

ence to-the general condition under which the Citizens State Bank of

Sheboygan was admitted to membership in the Federal Reserve System

Wherein it is provided that, except with the approval of the Federal

Reserve Board there shall be no change in the general character of

the assets of or broadening in the functions exercised by the member

bank. The application for the establishment of the two branches in

question has been submitted to the Comptroller of the Currency and he

advised the Board on February 13, 1934 that he approves the operation

of receiving and disbursing stations in Cedar Grove and Sheboygan

Falls, Wisconsin, subject to the following condition:

1. That such bank, not later than thirty days after the

date of the approval by the Comptroller of the Currency

of the establishment and operation of the receiving and

disbursing stations at Cedar Grove and Sheboygan Falls,

if it has not already done so, shall charge off or

otherwise eliminate losses on loans of :)69,874 and

depreciation on securities other than those in the four

highest grades as classified by a recognized investment

service organization regularly engaged in the business

of rating or grading securities, amounting to l03,463,

all as shown in the report of examination made by an

examiner for the Federal Reserve Bank of Chicago as of

October 30, 1933.

. "In the circumstances and in view of the favorable recommenda-

tion of your office, the Board will interpose no objection to the ab-

sorption of the Cedar Grove State Bank by the Citizens State Bank of

Sheboygan.

"It is noted that the bank carries in its investments 997 shares

°f stock of the American Parlor Frame Company, (Nordby Furniture Cam-

panY) and has also advanced this company :42,500. Your attention is

called to the Board's letter of January 28, 1933, relative to the

bE.tnk's investment inthis stock, and it will be qppreciated if you

Will forward complete information as to the circumstances surrounding

the acquisition of this stock and the operations of the company, to-

ether with a statement from the bank as to what disposition it


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"proposes to make of such stock. It appears that the State Examinerin his report of May 22, 1933, reauested the bank to dispose of this

stock by August, 1933."It is noted that the stock of the member bank also represents

ownership of stock in the affiliated Citizens Security Company, andin this connection it is understood that the bank's attention has been

called to the provisions of Section 9 of the Federal Reserve Act as

amended by the Banking Act of 1933, with reference to the stock of a

member bank representing the stock of any other corporation."

Approved.

Telegram dated February 24, 1934, approved by four members of the

>el̀ I'cl, to Mr. Peyton, Federal Reserve Agent at the Federal Reserve Bank of

reading as follows:

4"Refer Swanson's telegrams February 17 and 21, 1934 re applica-

tion 'State Bank of Aurora', Aurora, Minnesota. In view of the pro-posed strengthening of the bank's capital structure through the saleto the Reconstruction Finance Corporation of „20,000 capital debenturesand the recommendation of your office, Board amends conditions numbered16, 18 and 19 prescribed in connection with the application for member-

Ship of the State Bank of Aurora to read as follows:

"16. Such bank shall make adequate provision for depreciation in

its banking house and furniture and fixtures, in amounts

which in any one year shall be not less than 2 per cent of

the present carrying value of its banking house and 10 per

cent of the present carrying value of its furniture and fix-

tures."18. .Prior to admission to membership, such bank shall increase

the aggregate amount of its capital accounts to not less than

O,000, of which not more than20,000 may be capital deben-

tures subordinate to the claims of depositors and other cred-

itors, and of which not less than „5,000 shall be surplus.

"19. Prior to admission to membership, such bank, if it has not

already done so, without impairing or reducing its capital

stock or capital debentures below 445,000 and without re-

ducing its surplus below ,A,000, shall charge off or other-

wise eliminate loans amounting to -,;1,057.91 classified as

doubtful or estimated losses, other real estate of ',;808

classified as doubtful, and depreciation of 12,016 in de-

faulted securities and in securities other than those in

the four highest grades as classified by a recognized in-

vestment service organization regularly engaged in the busi-

ness of rating or grading securities, all as shown in the

report of examination of such bank as of November 14, 1933,

made by an examiner for the Federal Reserve Bank of Minne-

apolis, with the securities repriced to show the depreciation


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635

"as of February 17, 1934; and likewise prior to admission

to membership shall charge off or otherwise eliminate any

other known losses and depreciation in defaulted securi-

ties and in securities other than those in the four highest

grades as classified by a recognized investment service

organization regularly engaged in the business of rating

or grading securities.Board grants an extension of time to I.:arch 2/1, 1934, within which the

State Bank of Aurora may accomplish its admission to membership."

Approved.

Telegram dated February 24, 1934, approved by four members of the

8°114(1 1 to idr. Walsh, Federal Reserve Agent at the Federal Reserve Bank of

411413, readin as follows:

"Refer your telegram February 19, 1934 re application 'Security

State Bank', zearsall, iexas. In view of all the Circumstances and

your recommendation, Board amends conditions numbered 19 and 20 pre-

scribed in connection with such bank's application for membership to

read as follows:"19. Prior to admission to membership such bank, if it has not

already done so, shall sell its banking house and furniture

and fixtures to five individuals named in the agreement

dated February 1, 1934, for not less than .;6,000 in cash

and a note for Q7,500 secured by a vendor's lien on the

property and which shall be the joint and several obliga-

tion of the five individuals purchasing the property, all

as set forth in the agreement of purchase dated February 1,

1934."20. Such bank shall acquire no assets from The Pearsall Na-

tional Bank except the assets having a carrying value of

.J07,b06.60 as shown in the revised agreement dated Feb-

ruary 1, 1934 between such bank and The Pearsall 1:ational

Bank and which have been expressly approved by an examiner

for the Federal Reserve Bank of Dallas as being acceptable

assets. Such assets shall be carried on the books of the

Security State Bank at an amount not to exceed ,86,930.09,

the total of the liabilities to be assumed.

please advise the bank accordingly."

Approved.

Letter to 1.1r. O'Connor, Comptroller of the Currency, reading as

t011ows:


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"In accordance with your recommendation, the Federal ReserveBoard a_proves the reduction in the common capital stock of 'TheMarine national Bank of Erie', Erie, Pennsylvania, from 600,0O1:to "i'400,000, pursuant to a plan which provides that the bank'scapital shall be increased by the sale at par of .400,000 parvalue preferred stock to the Reconstruction Finance Corroration,and that the released capital funds, together with a portion ofthe surplus and/or undivided profits, shall be used to eliminate,if the bank has not already done so, the estimated losses andsecurities depreciation, all as set forth in your memorandum ofFebrinry 15, 1934."

Approved.

Letter to r. O'Connor, Comptroller of the Currency, reading as

"The Federal :leserve Board approves the reduction in commoncapital stock of 'The Commercial Kational Bank of Demopolis',Demopolis, Alabama, from '400,000 to 75,000, pursuant to a planWhich provides that the bank's capital shall be increased by thesale at par of -25,000 par value preferred stock to the Reconstruc-tion Finance Corporation, and that the funds released by the reduc-tion in common capital shall be used to eliminate a corresponding,amount of substandard assets, all as set forth in your letter ofFebruary 16, 1934."

Approved.

Letter to Er. O'Connor, Comptroller of the Currency, readinc, as

rollows:

"The Federal :?eserve Board approves a reduction in the corrunoncapital stock of 'The First National Bank of Anniston', Anniston,Alabama, from 4300,000 to 150,000, pursuant to a plan which providesthat the bank's canital shall be increased by the sale at par of'450,000 par value preferred stock to the Deconstruction FinanceCorporation, and that the funds released by the reduction in corral-Ioncapital stock, together with a portion of the bank's surplus and/orI nc.ivided profits, shall be used in eliminatins. approximately';e80,000 of unsatisfactory assets and in establishing a reserve forcontinencies of approximately .462,750, all as set forth in yourletter of February 15, 1934."

Approved.

Letter to Er. O'Connor, Comptroller of the Currency, readinr asr011ows:


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"The Federal Reserve Board approves the reduction in commoncapital stock of 'The Morgan County National Bank of Decatur',L`ecatur, Alabama, from c;200,0D0 to .100,000, pursuant to a planWhich provides that the bank's capital shall be increased by thesale at par of ,A00,000 par value preferred stock to the Recon-struction finance Corporation and that the released capital shallbe used to eliminate a corresponding amount of substandard assets,all as set forth in :teting Comptroller Awalt's letter of February21, 1934. In this connection it is assumed that the eliminatedassets are to remain the property of the subject bank."

Approved.

Letter to kir. O'Connor, Comptroller of the Currency, reading as

follows:

"In accordance with your recommendation, the Federal ReserveBoard approves a reduction in the common capital stock of 'TheNational Bank and Trust Company of Chariton', Chariton, Iowa, from100,000 to ,A0,000, pursuant to a plan which provides that thebank's capital shall be increased by the sale at par of 50,000Par value preferred stock to the Reconstruction Finance Corporation,and that the released capital funds shall be used to eliminate acorresponding amount of unsatisfactory assets, all as set forth inYour memorandum of February 14, 1934."

Approved.

Letter to Mr. O'Connor, Comptroller of the Currency, reading as

follows:

"In accordance with your recommendation, the Federal ReserveBoard approves a reduction in the common capital stock of 'The

Larshall National Bank of Unionville', Unionville, Ydssouri, from

q50,000 to ,-;25,000, pursuant to a plan which provides that the bank'scapital shall be increased by the sale at par of •25,000 par value

Preferred stock to the Reconstruction Finance Corporation, and thatthe funds released by the reduction in common capital shall be usedtO eliminate a corresponding amount of substandard assets, all asset forth in your memorandum of February 17, 1934.

. "In considering the plan under which the reduction in common

eaPital is to be effected it was noted that, on the basis of the re-Port of examination of November 14, 1933, there will remain, unpro-lded for, securities depreciation in an amount sufficient to material-

1" Pair the bank's common capital. It is recognized, however, thathe recent improvement in the securities market has no doubt broughtabout at least a partial correction of this very unsatisfactory featureCT the bank's condition."

Approved.


638

2/26/64

tollows:

-14-

Letter to Mr. O'Connor, Comptroller of the Currency, reading as

"In accordance with your recommendation, the Federal Reserve

Board approves a reduction in the comuon capital stock of 'The

First National Bank of Beresford', Beresford, South Dakota, from

50,000 to ',20,000, pursuant to a plan which provides that the

bank's capital shall be increased by the sale at par of Q30,000 par

value preferred stock to the Reconstruction Finance Corporation;

that the funds released by the reduction in common stock, together

With voluntary contributions by stockholders of 015,000 and a por-

tion of the surplus and undivided profits, shall be used to elim-

inate substandard assets in the amount of 152,000; and that c'.3,4l5

additional unsatisfactory assets are to be removed, all as set forth

in your memorandum of February 19, 1934."

Approved.

flemornndum dated February 20, l934, from Mr. Vest, Assistant

C°Unsel, recommending that there be published in the next issue of the

?ederai Reserve Bulletin the statements attached to the memorandum with

teftria to rulings which the Federal Reserve Board has recently made

baterPreting the provisions of the Banking Act of 1933.

Approved.

Letter to Lx'. H. E. Dow, Vice President of the Bank of Manhattan

e°111PerLY, New York, New York, reading as follows:

"This refers to your letters of October 9, 1933, and January 23,

1934, regarding the question whether deposits made in your Christmas

Club accounts are to be regarded as 'time deposits' within the mean-

Of Section Iv of the Federal Reserve Board's Regulation Q, whichProhibits the payment of time deposits before maturity. I regret

that the pressure of other matters of urgent importance arising underne 138.nkin6 Act of 1933 has prevented the Board from making an ear-

'tier reply in connection with this matter.

. "It appears from the rules and regulations contained in the de-

Posit book inclosed with your letter that deposits in the accounts

here in auestion are made in the form of weekly payments for a period

50 weeks; and that the funds so deposited may not be withdrawn,

ransferred or assigned during such fifty-weeks payment period. You

state that such deposits are not within the definition of savings


639

2/26/34 -15-

"deposits contained in Section V of Regulation Q because no pass bookor other form of receipt evidencing such deposits need be presentedWhen a withdrawal is made. You explain that it has been your customto send out checks to Christmas Club depositors at some time duringthe fifty first week after the Christmas Club has begun, but that you

have never agreed to pay the depositors on any specific day.

"While the rules contained in the deposit book do not expresslystate that deposits made in such accounts shall be payable at the

expiration of a certain specified period, nevertheless it is provided

that such deposits may not be withdrawn before the expiration of the

fifty-weeks payment period and it would appear, therefore, that such

deposits are in fact payable upon the expiration of such period. Itls the view of the Board that all deposits made in such accounts upto thirty days prior to the expiration of the fifty-weeks period are

'deposits * * * in respect to which a written contract has been enter-

ed into with the depositor at the time the deposit is made that neitherthe whole nor any part of such deposit may be withdrawn by check or

Otherwise, prior to the date of maturity, which shall be not less than

30 days after the date of the deposit', and that, therefore, such

deposits must be regarded as 'time deposits, open accounts' withinthe meaning of paragraph (2) of Section III(a) of the Board's Regula-

tion Accordingly, such deposits may not lawfully be paid before

their maturity, that is, before the expiration of fifty weeks from

the date of the first weekly deposit.

"With respect to deposits made in such accounts within thirty

days prior to the expiration of the fifty-weeks payment period, a

somewhat different situation is presented. Since such deposits are

Payable within thirty days, they may not be regarded as time deposits

Within the meaning of Section 19 of the Federal Reserve Act or the

Board's Regulation ),; and as to these deposits, therefore, the pro-

hibition against payment before maturity is not applicable."

Approved.

Telegram to Mr. Hoxton, Federal Reserve Agent at the Federal Reserve

11441c Of Richmond, reading as follows:

- "Receipt is acknowledged your letter February 16 and telegram

Pebruary 21, 1934, regarding proposed circular coverinr!, violations of

6ection 22(g) Federal Reserve Act. Board has no objection to pro-

Posed circular provided third sentence after quotation in circular

reads as follows: 'However, all apparent violations of the criminal

Provisions of the banking statutes of the United States discovered

in the course of an examination or otherwise are required to be re-

Ported to the Department of Justice for such action as it deems proper'."

Approved.

Letter to Mr. McClure, Federal Reserve Agent at the Federal Reserve


640

2126/34 -16-

of Kansas City, reading as follows:

"This is in reply to your letter of January 16, 1934, in whichyou inclose certain documents having reference to Mr. John M. Priceand his election as a director of City National Bank, Atchison,

iiansas. The Federal Reserve Board understands that these documents

were submitted to you by Mr. Ralph U. Pfouts, an attorney, and thatthey indicate that Mr. Price was in 1923 convicted of the crime of

embezzlement, that he subsequently received a conditional pardon

from the Governor of Kansas, that as a result of the cumulative

voting of his own shares of stock of the bank he was, on January 9,

1934, elected a director of the bRnk, that all members of the boardOf directors, other than 1:r. Price, are opposed to his becoming a

director and that they are desirous that the Comptroller of the Cur-

rency or the Federal Reserve Board take action to prevent 1r. Price

from serving as a director."Mr. Pfouts suggests that the Board may act under the provi-

sions of :3ection 30 of the Banking Act of 1933. The provisions of

this section, however, authorize action by the Board with respectto the removal of a director of a national bank only if, in the

Opinion of the Comptroller of the Currency, such director shall have

continued to violate any law relating to such bank or shall have

continued unsafe or unsound practices in conducting the business of

such bank after having been warned by the Comptroller of the Curren-

cy, and only after the facts of the case have been certified to the

Board by the Comptroller of the Currency. The Comptroller of the

Currency has not to date certified to the Board any facts with re-

spect to the conduct of Mr. Price as a director of City National Bank.It is therefore clear that the Board is not authorized to take any

action under Section 30 and it is equally clear that in the circum-

stances there is no authority for any action by the Board under any

Other provision of law unless Mr. Price is serving as a director ofCity National Bank, in violation of the provisions of Section 8 or

Section 8A of the Clayton Antitrust Act, as amended, or of Section32 of the Banking Act of 1933. At the date of the writing of this

letter no application for a permit under any of the last three sec-

tions above mentioned has been received from Mr. Price and the Board

has no reason to believe that his serving as a director of the bank

vfould be in violation of law. It will be appreciated, however, if

You will inquire and notify the Board whether, by reason of being a

Private banker or because of his relations with some other bank,

banking association, trust company or an organization engaged pri-

Marily in the business of purchasing, selling or negotiating securi-

ties, or a corporation or partnership which makes loans on stock or

bond collateral, it is unlawful for Mr. Price to be a director of the

City National Bank. You are also requested to notify Mr. Pfouts of

the contents of this letter." •

APproved.


2/26/34

There were then presented the following applications for original

stock of Federal reserve banks:

44.2Pl1cations for ORIGINAL Stock: 19.12rict iTo. 5. The Peoples National Bank in Brunswick,

Brunswick, Maryland

Distri t No. 7c 144sing National Bank,

Lansing, Michigan

Distr' t iTo. 10 .1.rst National Bank in Exeter,

2xeter, Nebraska

aqRict No. 12.140r-6i-1- Bend National Bank,

North Bend, Oregon

Approved.

Shar

36 36

420 420

36 36

36 36Total * 528

Thereupon the meeting adjourned.

%roved:

1


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