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A meeting of the Board of Governors of the Federal Reserve Sys-

W5 held in Washington on Thursday, February 18, 1937, at 10:30 a.m.

PRESENT: Mx. Eccles, ChairmanMr. Ransom, Vice ChairmanMX. SzymczakMr. McKeeMr. Davis

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

It was suggested that as Chairman Eccles would be away from

111"algton on February 19 and 20, 1937, and Mr. Ransom would be absent

t(413Proxi1ate1y two weeks beginning tomorrow, the Board should elect

a Ch"an pro tern to serve during the latter period.

Accordingly, upon motion 'by Mx. McKee,Mr. Szymczak was elected Chairman pro ternfor the period of the contemplated absenceof MT. Ransom to serve during any absenceof the Chairman in that period.

tifr. mo,"rill submitting the joint recommendation of Messrs. Snead and

1910tx1.11.

that Article IX of the by-laws of the Board be amended to readas follows.Copies of Mr. Morrill's memorandum were furnished to the

kerabers of the Board on February 6:

"Article IX

Reference was made to a memorandum dated February 3, 1937, from

Interdistrict Settlement Fund

Federal Reserve Agents' Fund

ti_ "All funds 'deposited by or for account of the respec-pr Federal reserve agents in the Federal Reserve Agents'tend of the Board of Governors of the Federal Reserve Sys-til'a and all funds deposited by or for account of the respec-'7a Federal reserve banks in the Interdistrict Settlement

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"Fund of the Board of Governors of the Federal Reserve Sys-tem shall be held on deposit with the Treasurer of the UnitedStates and shall be subject to withdrawal only by orders orcheeks signed and countersigned on behalf of the Board ofGovernors of the Federal Reserve System by the Chief or anAssistant Chief of the Division of Bank Operations, or, intheir absence, by the Secretary or an Assistant Secretary of!he Board. Such orders or checks may also be signed or coun-zer signed by any member of the Board."

Upon motion by Mr. Ransom theproposed amendment was approved unani-mously.

Consideration was then given to each of the matters hereinafter

l'etell'ed to and the action stated with respect thereto was taken by theBoEird:

The minutes

61%1 Reserve System

of the meeting of the Board of Governors of the Fed-

held on February 17, 1937, were approved unanimously.

Telegrams to Mr. Helm, Vice

•krilt of Xansas City, and Mr.

krac Ot San Francisco,

14et without change by the

e°1111t end purchase in their existing

AtiEtnte,

President of the Federal Reserve

Sargent, Secretary of the Federal Reserve

stating that the Board approves the establish-

respective banks today

schedules.

of the rates of dis-

Approved unanimously.

Letter to Mr. Clark, Secretary of the Federal Reserve Bank of

reading as follows:

a, "Referring to your letter of February 12, the Board Act,1:0431'oves the reappointment of Messrs. A. R. Forsyth, A. M.

rit2b$erls. C. Milner, John P. Sanford, and George Winship

of the Industrial Advisory Committee for thelttsre h Federal Reserve District to serve for terms of one" each beginning on March 1, 1937."

Approved unanimously.

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Letter to Mr.

serve Bank of Dallas

-3-

Gilbert, First Vice President of the Federal Re-

reading as follows:

"Referring to your letter of February 11, the Board ap-PrWes the reappointment of Messrs. Clarence Ousley, T. M.

1.11um, Lewis R. Ferguson, Will B. Marsh, and Charles R.NI°0re as members of the Industrial Advisory Committee forthe Eleventh Federal Reserve District to serve for terms of°Ile Year each beginning on March 1, 1937."

Of Chic

Approved unanimously.

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

ago, reading as follows:

.4„ "Receipt is acknowledged of a copy of your letter of;!bruarY 2, 1937, to the Detroit Agency, Reconstruction"Inance Corporation, wherein you advise that no objectionwould be interposed to the retirement of $15,000 of Class APreferred stock by the 'Bank of Lansing', Lansing, Michigan.

As you know, the Bank of Lansing is subject to a con-

e4.0n which provides that its capital shall not be reduced

)ccept withFed

the permission of the Board of Governors of theReserve System, and in its letters X-9048 and X-9799

a theta oard has authorized the respective Reserve banks todlr." on the Board's behalf reductions in capital notes,,! entures or preferred stock issued by State member bankswVil?re after such reduction is accomplished the member bank0 4"- have an unimpaired capital and surplus of not less than

be -tenth of the Amount of its deposit liabilities'. It willtil t noted

o that the letter does not refer to net sound capital!r tocapital and surplus alone, exclusive of undivided

.%°fits or other capital accounts. Since it appears that046 caPital and surplus of the Bank of Lansing is less thanren'tenth of its deposit liabilities, the application for

the of preferred stock should have been submitted toe --ard for its consideration.

sta.._ The analysis of a report of examination made by the

thatBanking Department as of November 9, 1936, indicates

to 4 the net sound capital structure of the bank was equal04 Z."1!Proxtmately 11.5 per cent of deposits of $4,060,500.

rev same basis it would appear that after the proposedtall:neat of 45,000 of preferred stock the net sound capi-

l'bructure of the bank would still be in excess of 10 percf its deposit liabilities.

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. "In view of the circumstances, the Board confirms youraction in approving the retirement by the bank of 0.5,000Preferred stock."

Approved unanimously.

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

1)411aa) reading as follows:

"Reference is made to your letter of February 3, 1937,!Ubmittinc to the Board the application of the 'GuarantyBond

State Bank', Tomball, Texas, for permission to retireZ5,000 of its 410,000 of outstanding capital debentures owneduY the Reconstruction Finance Corporation.

"It has been noted that, after this proposed retirementOf debentures has been effected, the bank will have a capital30,000, which is less than the amount which would be re-

quired for the organization of a national bank in the sameVia". However, in view of the position taken in its letter4, J'anuary 31, 1936 (X-9475), the Board, in the light of all:".e circumstances involved and in accordance with your recom-ndation, will interpose no objection to the proposed re-alrement , provided, of course, that the transaction has the99r°7a1 of the appropriate State authorities."

Approved unanimously, to ether witha letter to Mr. :Tames F. Herson, Adminis-trative Assistant, Reconstruction FinanceCorporation, reading as follows:

Ped This is to advise that the Board of Governors of theon eral Reserve System interposes no objection to the pro-iK8ed retirement by the 'Guaranty Bond State Bank', Tomball,c)f $5,000 of its $10,000 of capital debentures now

ti arldiriallelovilledbYtheReconstructionFinanceCol'la-Th Provided that the transaction has the approval of theProPriate State authorities."

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

reading as follows:

xa "There is inclosed herewith a copy of a letter datedreT(1,9rY 25, 1937, addressed to the Comptroller of the Cur-

--Y bY Mr. H. B. Noyes, Vice President, Merchandise Bank

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"and Trust Comany, Chicago, Illinois. This letter presentsthe question whether, under the provisions of section 11(m)Of the Federal Reserve Act, a memb3r bank may lend to a cus-trer an amount equal to 10 per cent of its capital and sur-

V s on the security of stock or bond collateral and then

liar securities additional sum to another individual who would use

securities of the first customer as collateral for thePirpose.

"It does not appear to be possible to give a definiteenswer to this question which would be uniformly applicable!? every case of this kind which may arise, and it would seemunat the question is one which should be determined in thefirst instance by the bank itself in the light of all the

;he l

acts of the case and the spirit and intention of the statute.a w does not prevent a member bank from 7aking a loan to;i3 customer on stock or bond collateral which has been borrowed

Y htm from another customer to whom the bank has loaned an"launt equal to 10 per cent of its capital and surplus on!t°ek or bond collateral, provided the transaction is enteredIti.it° in good faith and is not a device to evade the limita-a °11 of the law. However, in the case presented it is under-wZ?od that the proceeds of the loan to the second borrowerthj-1 be made available by him to the first borrower and thusw,e

be

borrower may be merely an agent or medium throughbra the second loan will be made indirectly .to the firsts_ri-b°wer. If this should be the case, the second loan would'elm to be one which exceeds the limitation of the statute.

"In view of the fact that this question is one whichtill' be determined only in the light of all of the facts ofb4kPert1cu1ar case, the matter is being referred to yourthell It will be appreciated if you will communicate with

to ti;e rchandise Bank and Trust Company and make such replyc e letter as seems proper in the light of all the cir-Urn-stances."

Approved unanimously.

Letter to Mr. Harrison, Chairman of the Presidents' Conference,

ss follows:

has e.:141". Strater, Secretary of the Conference of Presidents,

mond "1718ed the Board that the Conference at its meeting onthe 'January 25, 1937, ordered the following statement

ofl"3;i0s, 'le of the Conference brought to the attention of therd of Governors:

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"'The Presidents Conference is concerned by aweakening of the par collection system in certain sec-tions of the country (which may be accentuated by put-ting into effect paragraph (f) of Section I of Regula-tion Q); and recognizes the danger to Federal Reservemembership through an increasing competitive inequalitybetween member and non-member banks with respect to ex-change charges, and also notes a growing tendency insuch sections in the resumption of exchange chargeswith the attendant expense and annoyance to business.

'The Conference believes this situation can bestbe met by a requirement that non-member banks in theF. D. I. C. cease from making charges for the collec-tion of checks drawn on them. It is suggested thatlf the F. D. I. C. does not have the Dower to makethis requirement by regulation that the Board of Gov-ernors recommend at an appropriate time the necessarylegislation to the Congress.'."The various aspects of the problem of par clearance, and

Particularly its bearing upon the competitive situation be-tween

member and nonmember banks, are matters which for someatime Past have been receiving careful thought by the Board,its staff and the Board is glad to have the views of the

rnferenee of Presidents with respect to this subject. How-jer, while the Federal Deposit Insurance Corporation is au-thorized

by the law to prescribe such rules and regulationsit may deem necessary to carry out the provisions of thestatuteu

under which it operates, there appears to be no suffi-c

el!nt reason for believin,7 that this power could be legally:ended to prohibit insured banks from making exchange chargespo to .Justify approaching the Federal Deposit Insurance Cor-l'"lon with such a suggestion at this time.. "The Board of Governors recognizes the importance of thertter and will continue to give it careful study with the

ilePe that a satisfactory solution of the problem may be reached."

APProved:

Approved unanimously.

Thereupon the meeting adjourned.

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