19390405_Minutes.pdf

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

System was held in Washington on Wednesday, April 5, 1939, at 11:00

a• m•

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

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

The action stated with respsct to each of the matters herein-

after referred to was taken by the Board:

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

Federal Reserve System held on April 4, 1939, were approved unani-

mously.

Bond, in the amount of $;50,000, executed under date of March

29, 1939, by Elmer F. Fricek as Alternate Assistant Federal Reserve

Agent at the Federal Reserve Bank of Cleveland.

Approved unanimously.

Letter to the board of directors of "The Goodland State Bank

in Goodland", Goodland, Kansas, stating that, subject to conditions

of membership numbered 1 to 3 contained in the Board's Regulation H,

and the following special condition, the Board approves the bank's

application for membership in the Federal Reserve System and for the

appropriate amount of stock in the Federal Reserve Bank of Kansas

City:

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"4. Such bank shall make adequate provision for depre-ciation in its banking house and furniture andfixtures."

Approved unanimously, together witha letter to Mr. Hamilton, President ofthe Federal Reserve Bank of Kansas City,reading as follows:

"The Board of Governors of the Federal Reserve Sys-tem approves the application of 'The Goodland State Bankin Goodland', Goodland, Kansas, for membership in theFederal Reserve System, subject to the conditions prescribed

. in the enclosed letter which you are requested to forwardto the Board of Directors of the institution. TWO copiesof such letter are also enclosed, one of which is foryour files and the other of which you are requested toforward to the Bank Commissioner for the State of Kansasfor his information.

"As is pointed out in your comments in the presen-tation memorandum accompanying the bank's application,the usual condition of membership regarding the elimina-tion of estimated losses is not necessary since thelosses shown in the report of examination for membershipwere eliminated at the close of the examination."

Letter to Mr. Hitt, lirst Vice President of the Federal Reserve

Bank of St. Louis, reading as follows:

"Reference is made to your letter of March 25, 1939,relative to the proposed absorption of the Lafayette Na-tional Bank & Trust Company of Luxemburg by the LemayFerry Bank, Luxemburg, Missouri.

"The Board has noted your opinion that in view ofthe fact that both banks have the same general characterof assets and are doing the same kind of business, thetransaction would not involve any change in the generalcharacter of assets of the Lemay Ferry Bank or broaden-ing in the functions exercised by such bank within themeaning of condition numbered 3 under which the bank wasadmitted to membership. In the circumstances, the Boardlikewise does not regard the transaction as coming within

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"the scope of the aforementioned condition and the ap-

proval of the Board to the transaction which relieves an

overbanked condition is, therefore, not required."

Approved unanimously.

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

Bank of Chicago, reading as follows:

"Reference is made to the report of examination of

the Citizens State Bank, bheboygan, M.sconsin, as of

January 23, 1939, and to your letter of March 15, 1939,

with respect to the corrections made of criticized mat-

ters shown in the report."It has been noted that no particular comment was

made in the report of examination relative to the cor-

porate stocks and speculative bonds carried as nonbookassets. In the report of examination as of February 15,

1937, considerable criticism was made of the purchase by

the bank of corporate stocks and speculative bonds with

the proceeds of nonbook assets, and on August 16, 1937,

you advised that such stocks and bonds would be eliminated

in a few days. A comparison of the nonbook securities

shown in the report of January 23, 1939, with those shown

in the previous reports indicate that very little progress

has been made in disposing of these criticized securities

and apparently the bank has failed to comply with the as-

surances heretofore given with respect to the correction

of this matter."It has been noted also that the bank was again

subject to criticism for failure to amortize premiums

on securities as required by the Comptroller's regulation

issued under the provisions of section 5136 U.S.R.S.

This same criticism has been made in the last three reports

of examination of the bank despite the fact that the

management has repeatedly given assurances that it would

comply with the provisions of the Comptroller's regula-

tion."The investment practices and policies of the manage-

ment of the bank have been subject to considerable criti-

cism for some time. There appears to be no excuse for

the failure to comply with the assurances given with

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"respect to correction of the violations of the Comptrol-

ler's regulation, and such failure and the repeated vio-

lations reflect unfavorably on the management."It has been noted in the current report as well as

in Previous reports of ex-rination that the bank has been

criticized repeatedly for the lack of organization and

proper supervision of its trust department, and it is re-

ported that President Hansen has no sympathy for the fidu-

ciary business. In the bank's letter of March 6, 1939to the Banking Commission it is stated that arrangements

have already been made whereby the board of directorswill review once or twice each year all trust investments.

However, it is not clear that the proposed review of

trust investments will be sufficient to insure proper

administration of the department.

"The Board feels that the acceptance of trust busi-ness creates a responsibility which can only be satisfiedif the transactions are carried out efficiently and withthe best interests of the beneficiary constantly in mind,and that if a bank is not equipped to handle trust busi-

ness properly it should not be accepted. One of the

fundamental principles in the operation of a trust de-

partment, recognized both in the statement of principles

of trust institutions approved by the Executive Council

of the American Bankers Association and the Board's Reg-

ulation F pertaining to the trust powers of national banks,is that the responsibility for the administration of trusts

should not be vested in an individual but in a committee

composed of capable and experienced officers and direc-

tors of the institution. It is suggested, therefore,

that you discuss this matter with the management of the

bank with a view to bringing the operations of the trust

department into conformity with recognized principles

of sound fiduciary Practice, and advice as to your suc-

cess in this respect will be appreciated.

"The schedule of banking premises shown in the re-

port of examination includes a property known as the

Acker Building which is located across the street from

the bank and is reported to have been purchased in 1926

for a future banking site. This property is also in-

cluded as a part of the banking °remises in the report

of condition of the bank as of December 31, 1938. Ac-

cordirs: to the instructions for the preparation of reports

of condition, banking premises should only include premises

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"actually owned and occupied by the bank and its branchesand therefore the Acker property should be reported as

other real estate."In the schedule on page 4 of the report it appears

that your examiner has failed to include the common stockOf 500,000 in the total of capital accounts shown foreach period."

Approved unanimously.

Letter to Mr. Swanson, Vice President of the Federal Reserve

Bank of Minneapolis, reading as follows:

"This refers to your letter of March 21, 1939, andits enclosures, relating to the request by Northwest

Bancorporation, Minneapolis, Minnesota, that the Boardcertify to the Commissioner of Internal Revenue that dur-ing 1938 such corporation devoted to the acquisition of

readily marketable assets in compliance with the provi-

sions of section 5144 of the Revised Statutes earnings

or profits in the amount claimed in its income tax re-turn as a credit pursuant to section 26(d) of the Revenue

Act of 1938."The procedure with respect to claims for such credit

is governed by article 26-3 of Regulations 101 of the

Bureau of Internal Revenue and follows that prescribed

by article 26-3 of Regulations 94 for like claims pursuant

to the Revenue Act of 1936. A copy of the pertinent pro-

visions of Regulations 101 is enclosed herewith and itis suggested that such provisions be brought to the at-

tention of Northwest Bancorporation."As you will note, it is contemplated that any such

claim shall be made in the holding company affiliate's

tax return and supported by a supplementary statement

of facts and that any certification by the Board is tobe made when requested by the Commissioner of Internal

Revenue subsequent to the filing of the return. The

Board has not attempted to prescribe what information

must be included in the supplementary statements accom-

panying the returns in all cases and the additional in-

formation which may be required in a particular case if

the Board's certification is requested by the Commissioner

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"will depend upon the facts before the Board when suchrequest is received.

"In the circumstances, it does not appear that anyaction by the Board with respect to this matter is appro-priate at this time. No opinion is expressed, of course,concerning the question whether Northwest Bancorporationis entitled to the credit claimed by it."

APProved:

Approved unanimously.

Thereupon the meeting adjourned.

Chairman.

Assistant Secretary.

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