19400227_minutes.pdf

306

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A. meeting of the Board of Governors of the Federal 'Reserve

waS held in VashinEton on Tuesday, February 27, 1940,. at 11:00

PPESEM: Mr. Eccles, ChairmenMr. 'Ransom, Vice ChairmanMr. SzymczakMr. McKeeMr. Draper

Mr. Morrill, SecretaryMr. Bethea, Assistant SecretaryMr. Carpenter, Assistant SecretaryMr. Clayton, Assistant to the ChairmanMr. Wyatt, General CounselMr. Dreibelbis, Assistant General CounselMr. Wingfield, Assistant General CounselMr. Cagle, Assistant Chief of the Division

of Examinations

Chairman Eccles stated that, in accordance with the action

at the meeting of the Board on February 24, 1940, a copy of the

or tzneti°11 adopted by the Board at that meeting with respect to Bank

' tei

C°mPtroller of the Currency, and that Mr. Delano called onth

Ilea Natlonci Trust and Savings Association was sent to Mr.44110

qt.41411

ct

ct t„,„.Lqie minimum recuirements for the correction of conditionsthe

nel banl- to vtich the Board of Governors had agreed, and

tc, c°13Y of the letter end a copy of the program were being sentthe

Chairman Eccles said he told Mr. Delano that he would.

ePh°11e Yesterday and stated that he was sending to Mr. L. M.

tli s President of the Bank of America, at his hotel in WashinFr,ton,

01' the proposed program of the Comptroller of the Currency with

Nroendinp the program with a. letter of transmittal, but Mr.

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

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telex,replied that the Secretary of the Treasury and other represents-

tive°f the Treasury were insisting that the matter be handled in that

rttatrier as the proposed program was intended to be final and they did

tot

vrarit any misunderstandin to arise. Chairman Eccles made the fur-

ther 8tetement that he suggested to Mr. Delano that he call Mr.

Q'111111-111 on the telephone and tell him that the letter was being sent,

th" hlr. Delano agreed to that and subseauently called again andzt t

that he had talked to Mr. Ferrari, Counsel for the national

htlIk' it the absence from the hotel of Messrs. Giannini and Cushing,

Counsel for the bank, and had stated to Mr. Ferrari that thelettez,

6bein,„

sent and that the representatives of the Government

iletes Who had been meeting with the representatives of the bank

be itoti meet with them again at any time to answer any ques-ots.

Chairman Eccles added that nothing further had been heard from

the 4-lik's representatives up to the present time.

Nir. *Morrill presented a letter received from Mr. Delano yester-kr

Ileet(1111g as follows and raised the auestion whether the Board de-

to make any reply thereto:

et "I have received your letter of February 26, 1940,otie;°,einq a copy of the resolution adopted by the Board'epruary 24.

"In view of the second paragraph of the resolution,ove'sh to confirm my understanding with Chaiman Ecclesqlcol',the telephone today that if, for any reason, itle"-kd become necessary to consider the acceptance of

i.s,that the requirement of6,900,000 in paragraph (2)"lie statement of requirements, this office reserves


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the right to insist upon 75,000,000 in lieu of S30,000,000

Zs stated in paragraph (1) of the requirements. If

25)000,000 is insisted upon, under these circumstances, wevresume we shall have the support of your Board in that re-

It was agreed unanimously that noreply should be made to the letter atthis time.

Reference was then made to a memorandum prepared by Mr. Wingfield1111c1

date of February 20, 1940, referring to a discussion had on Feb-

' 19 by Mr.

tives of the Securities and ExchanFe Commission on the subject of proposed

leqslation relating to investment trusts which was being prepared by

'aellrities and Exchange Commission, and presenting for considerationtile t

questions raised by the representatives of the Commission

he discussion with respect to (1) whether bank holding company

"Itstes the bank stock holdinfrs of which do not exceed say POrti of

A S2et5

should be left under the Board's jurisdiction as holdingvottiDlart

affiliates and exempted from the jurisdiction of the Securities

tm -Re Commission as investment trusts, (2) the extent to which

1104ci J-egislation relating to bank holding companies and the pro-

t14 (:)egislation relating to investment trusts should be integrated,

Ransom and members of the Board's staff with representa-

14 c:thether there should be a provision in the legislation requir-a

°1"ca11ent of investment trusts from banks both by termination

ttstQerrshl•P Of bank stock as well as by termination of interlocking

"d director relationships. Copies of the memorandum had


been

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sent to members of the Board before this meeting and lir. Wingfield

statedthat, inasmuch as the discussion with the representatives of

t e P

L "111'i:ties and Exchange Commission had been an informal one, itw'Es

O' expected that any cornents that the Board might make would

be

tted in a formal way but would be transmitted by him over the

hone There ensued e discussion of various situations effecting

teier,

41114

t0 Which the oroPosed new legislation might apply and Mr. Morrill

et draft of memorandum which Mr. Wingfield had prepared for con-

q1411„" Commission of the Board's comments on the questions involved.

"1" by the Board for use in advising the Securities and Fx-

th

Messrs. Morrill, Wingfield, and CagleWere requested to revise the memorandumlest referred to in the lip!ht of the dis-classion and resubmit it to the Board forapproval.

At this point Messrs. Wyatt, Dreibelbis, Win field and Cagle

meetin,z end the action stated with respect to each of the

hereinafter referred to was then taken by the Board:

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

leeerve System held on February 26, 1940, were approved unani-

tetter to Mr. Young, Vice President of the Federal Peserve

Chic /101 reading as follows:

te -Ln accordance with the request made in your let-ot Of February 24, the Board approves the designations

erlIPI0Yees William C. Whitney and John M. Clark as


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pecial assistant examiners to assist your regular exam-''Ing staff when necessary. Approval is given with the1,1nderstanding, of course, that the two employees will nota transferred permanently to examination work without the

b6"rd's approval."

Approved unanimously.

Latter to Mr. Stewart, Secretary of the Federal Reserve Bank of

°Ilist reading as follows:

"Referring to your letter of February 24, 1940, thePearA -40 _8 of Governors approves the appointment of E. T.Ilen, Louisville, Kentucky, as a member of the In-

Advisory Committee for the Eighth Federal Re-Strict to serve for a term of one year beginning

erah 1, 1940."


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

"Minneapolis, referring to the application of the "Securitytflte

McIntosh, South Dakota, for permission to withdraw im-

t el- 'ram membership in the Federal Reserve System, and stating41t th

'cl'erd waives the usual requirement of six months notice of

tt1, °lit() withdraw, and that, accordingly, upon surrender of the

Reserve bank stock issued to the Security State Bank, the Fed-Pea.—

'I've Bank of Minneapolis is authorized to cancel such stock

I PPralpriate refund thereon.

Approved unanimously, together witha letter to Mr. Leo T. Crowley, ChairmanOf the Federal Deposit Insurance Corpora-tion, reading as follows:

"Neeipt is acknowledged of your letter of February


2/27/40-6-

:23) 1940, advising that the 'Security State Bank', McIntosh,th Dakota, contemplates withdrawing from membership in

u,he Federal Reserve System and has filed notice of intention?Triake application for continuation of its status as an'ilsilred bank after withdrawal from membership in the Sys-tem.

Go"As requested in your letter, therefore, the Board ofvernors of the Federal Reserve System hereby grants written

7( 1°c111;ent, in accordance with the provisions of subsectioni,,k 2) of section 11B of the Federal Reserve Act, for exam-

for the Federal Deposit Insurance Corporation to ex-'Ile the Security State Bank, McIntosh, South Dakota."

Letter to Mr. Gidney, Vice President of the Federal Reserve Bankof New

York, reading; as follows:

24 "Enclosed herewith is a copy of a letter of January

ti' n1,1”0, from 'Mr. N. B. Unbehend, President, Lincoln Na-Bank and Trust Company of Syracuse, Syracuse, Newraauesting an expression of opinion as to whether

de: benk's practice with respect to audits of its trusttia lltment complies with the provisions of section 8 ofeoe Board's Regulation F. Such section provides that a0.1.ttea of directors, exclusive of any active officerstw ;Ile bank, shall, at least once during each period ofrae"e months, make suitable audits of the trust depart-hielitOr cause such audits to be made by auditors responsi-1,nlY to the board of directors. We are informing!Ar.

-'end that this matter has been given due considerationE41d tbe hat we are communicating with you and that you will

°-ad to advise him fully with respect to his inquiry.the 1:11r. Unbehend states that during the past two yearst 'S comptroller has assisted the examining commit-01„

0 the directors in its regular semi-annual examination

Derna bank and in its annual examination of the trust de-byrnt. According to the by=laws of the bank, as quotedRen -1"• 1-Tnbehend, the comptroller's duties are to exerciseofsapervision over the accounting systems and recordstio'lle bank and to direct its auditing and examining func-

14.1,!, In such duties he is responsible to the chairmanfe1414e board of directors and the president and is to per-

"slich additional duties as they may from time to time/lot et to him. The letter states that the comptroller is

1%eRarded as an active officer of the bank in that he


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"does not not pass upon loan applications or have direct con-tact with the public.

"Mr. Unbehend states that in order that the comptrol-1°11's work in assisting the committee shall be in complianceI'dth section 8 of Regulation F the board of directors pro-

to adopt a resolution which (1) states that for somet'llne the comptroller has assisted the examining committeecr the bank in its semi-annual examination of the bank, the3(1n113troller is not an active officer of the bank, and thecard of directors believes that it is for the best inter-

of the bank that the Comptroller should audit the trustePartment for the examining committee; (2) authorizes and

rPowers the examining committee to appoint the comptrol-i., as auditor for the Purpose of auditing the trust de-

from time to time in the future; and (3) providesbi t said comptroller as such auditor shall be responsi-e Only to the board of directors.

"Aside from the fact that there may be some question118 to the efficacy of the proposed directors' resolutionsthout an amendment to the bank s by-laws, it appears that,

jse,ePt as to the audit of the trust department, the comp-0-1,(3-11-er would continue to be responsible to the chairmanto the board of directors and the president with respect

his various duties in connection with the operations1,1' the bank. The letter does not state whether the chair-

Of the board of directors is an active operating of-cer or the bank.

th "From the facts presented and in the circumstancesBoard is of the opinion that the comptroller properly

th°1-ad be regarded as an active officer of the bank andiset despite the intent of the proposed resolution theresp considerable doubt that he could be regarded as re-thele only to the board of directors of the bank intic audit of the trust department as contemplated by sec-

t' 8 of the regulation.he,2 "Mr. unbehend's letter states that the comptroller%III assisted the examining committee in its audits of the

dePartment and that it is the intent of the resolu-th: that he be authorized to continue to do so. However,11t 0p03ed resolution would authorize the examining corn-

tou appoint the comptroller as auditor for the our-time auditing the trust department of the bank from

to time in the future.riot ."Or course, the provisions of the regulation are

intended to preclude the committee from calling upon


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"the comptroller, or any other active officer or employee°f the bank, for assistance in certain work of the audit,:71ch as the compilation of lists, schedules, and other'ata end the performance of certain routine verifications

arid clerical work. However, neither the comptroller norallY other officer or employee should be expected to as-slinle or share in the responsibility for the directionc)tr the audit or participate as an auditor in the verifica-tOn or review of any operating functions or activitiescUrrently under his supervision.

t"In order that audits of the trust department by thebariv s own auditor instead of by outside accountants employed

:sPeeially to make such audit comply with the intent oftrtion 8 of Regulation F, it would appear necessary that2.1e auditor be entirely responsible to the board of di-

torsec in all his duties and that these would be confinedotoltirelY to auditing functions and would include no ac-orlinting or other matters generally regarded as a part

the he operating activities of the bank and as being under

oj supervision or dominant influence of the president oroperating officers. Such audits of the trust depart-

()flit should be at the direction of the examining committeea,,,,directors and the reports should be carefully considered

adopted by it or the board of directors.ta It is hoped that the foregoing will be of some assis-

Ilca to you in discussing this matter with Mr. Unbehend."


Letter to Mr. Young President of the Federal Reserve Bank of11(1 tori

l'eadina as follows:

12 "Receipt is acknowledged of your letter of Februaryto)1,1940 regarding the applicability of the Clayton Act00,r7. Louis Oakes who is a director of the Guilford Trust

Parly) Guilford, Maine, end a director of The Yea-Till-'t Company, Bangor, Maine.of t "The Merrill Trust Company has a branch in the 'Torn'the "er-Poxcroft, the corporate limits of which touchit,l e°11Porate limits of the 'Town' of Cuilford. Accord-

the question presented is whether the Guilfordttl.es. Company and the branch of The Me/Till Trust CompanyInett t°cated in 'contiguous or adjacent' towns within the

11111F of exception numbered (5) in section 8 of the


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"ClaYton Act, in view of the fact that footnote R in Reg-ulation L says that 'The Board has interpreted the termconti Pliousn as referring to cities, towns, and villages'hose corporate limits touch or coincide at some point•+: * *

th."You have furnished detailed information regardingtwo towns and a map which shows that a 'Town' in Maine

'8 Merely a subdivision of a county, and is not, as in1"111Y ()the-, States, an area drawn so as to include e large.1:ster of houses. For example, the nearby 'Town' ofnrland has in it no large community, but contains nearlydozen scattered Proups of houses with different names

slIch as Twin Brook, Gordon Corner, etc.'Althouph the corporate limits of the 'Towns' of

lford and Dover-Foxcroft touch, the communities in:lich the Guilford Trust Company and the branch of The

Trust Company are located are actually eight-14-Les apart, the intervening area being composed of wildceIld and scattered farms. Each has its own Chamber of1°91,1.111 srce, motion picture theatre, and hotel. Prior to,01J-51 Dover and Foxcroft were two separate 'Towns' el-in°11r?-h a community of some size was located on the divid-at line. In 1915, the two 'Towns' were made into one

the the names were hyphenated. The name now applies toon community, which has an area of a little more thantl,e square mile, as well as to the 'Town' which has an

-Les- of about 48 square miles.0,, "Counsel for The Merrill Trust Company in their

41fliat on dated February 5, 1940, which you enclosed,their belief that the Clayton Act should be con-

cjed in the light of the abuses it was designed tohiject, and, to this end, should be construed to pro-ti "Lt interlocking relationships 'between two institu-th0ns existing in the same collection of people, whether13oat collection of people legally constitute an incor-tl:led town or not, * * * and even if they constitute

'°17118 or cities or villages or even more, providedc collection of people is residing in cities, towns,

aljillaFes contiguous or adjacent to each other so thatbeicether they make one collection of people.' It is14'isved that the point is well taken. See footnote 8

legulation L.1 A

eorit t'tt you point out, a ruling that the corporate limitsin all cases would be capable of more precise

't'-Lication than a ruling reou4 ring each case of this kind


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"to be determined individually in the light of the facts"(I circumstances involved. However, the Board is of the°Pinion that the word 'town' in section 8 of the ClaytonAet does not refer to a 'Town' such as Guilford, and thatthe question whether two communities such as those hereindiscussed are 'contiguous or adjacent' is similar to the(14esti0n which would be presented in the case of two unin-e21130rated villages in another State having a different'‘_Ystem of subdivisions. In such a case, unless the two.h_e°11zitu.nities were, geographically, a single community, as

rver and Foxcroft were before their names were hyphenated211915 it would be necessary to apply the principles

Statedt in footnote 8 of Regulation L for determiningether or not two places are 'adjacent'.

teA "In view of the information which you have submit-u' the Board is of the opinion that the communities of

C4_,ilford and Dover-Foxcroft are not 'contiguous or adjacent'lthin the meaning of the Clayton Act."


Thereupon the meeting adjourned.

6red, Secretary.


19400227_minutes.pdf

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assistant secretarymr

assistant general counselmr

board of governors

assistant chief

federal reserve bank

bank of america

proposed program

sentthechairman eccles