frsbog_mim_v33_0129.pdf
TRANSCRIPT
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FEDER L RESERVE BO RD
129
WASHINGTON
T O
T H E FEDERAL RESERVE BOARD
X-6692
•September 4 , 19 30.
SUBJECT Topic
f o r
Fall Conference
-
Revision
of
Membership Condition
r e
Purchase
of
Bank Stocks#
Dear S i r :
The r ep l i e s t o t h e Board ' s l e t t e r of June
27 , 1930 , (X-6646) re la ti ve t o t h e a d v i s a b i l i t y o f
a r ev i s ion of the condition of membership regarding
t h e purchase of stock i n o ther in s t i t u t ions by State
member banks, disclose
a
considerable variance
of
opinion
on the
question
and
accordingly
th e
Board
h a s decided to r e f e r t h e matter to the Conferences
Of
Governors
and
Federal Reserve Agents which
c on-
vene on October 6 .
F o r your information there i s enclosed
copy
of a
memorandum prepared
by the
Board's
Assistant Counsel summarizing
th e
r e p l i e s
to tho
c i r cu l a r l e t t e r r e f e r r ed t o above.
Very truly yours,
E. M.
McClelland,
Assistant Secretary.
Enclosure.
TO AM,
GOVERNORS
AHD
FEDERAL RESERVE AGENTS.
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i 1.30
C O P Y X-6692-a
August 9 , 1930t
The Fed era l Reserve Board Proposed re vi si on of condit ion No. 3,
M r.
Wingfield, As si st an t Counsel. Section
IV, of
Board 's , Regulat ion
H.
Under t h e presen t p rovis ions of condition No. 3 of Section
IV of the
Board's Regulation
H, a
State member bank subject
t o
such condition
may not
purchase
any of the
stock
of
another bank
o r t r u s t company un le ss i t obtains i n each case th e permission of
t h e Fede ral Reserve Board. Recentl y th e Board considere-1 t h e a d -
v i s a b i l i t y of revising this condit ion so as to perm fc Etate member
banks subject t o i t t o purchase a l imited percentage of: the cap i ta l
s tock of other banks and trust companies without being under the
necess i ty of obtaining t h e Board's permission t o make such purchases.
This off ice was requested t o prepare a d r a f t of a rev is ion o f c o n -
d i t i o n No. 3 along this l ino. The following revision of t h i s c on-
d i t i o n was accordingly prepared and submitted to the Board:
( 3 ) Such bank o r trust company, except after
applying f o r a n d receiv ing t h e permission of the Federal
Reserve Board, shall n o t acquire more than 5 0 p e r cent o f
t h e cap i ta l s tock of any other bank o r trust company; a nd ,
except with th e Board's permission, i t s total investments
i n t h e
s tock
of
other banks
and
trust companies shall
n o t
exceed
2 0 p e r
cent
of i t s own
cap i ta l s tock
an d
surp lus ."
Before reaching a determination as to whether this revision
of condit ion No. 3 should b e adopted, however, th e Board decided to
submit i t t o t h e Governors and Federal Reserve Agents o f a l l Federal
reserve banks f o r thei r suggest ions . The Board acc ordi ngly on June 27,
1930 , addressed a letter (X-6646) t o a l l Governors a n d Federal reserve
agents and requested them to advise th e Board whether i n their opinion
a r ev i s ion o f this condition of membership Mo. 3 was advisable and as
to whether th e percentages contained i n t h e revision above quoted with
reference to the amount of stock of other banks and trust companies,
which might b e purchased by a member bank were appropriate a n d advis-
able. Replies
to the
Board 's l e t t e r have
now
been received from
a l l
of the Governors a nd Agents an d these rep l ies wi l l be summarized f o r
th e
Board's information.
I t appears that s i x o f t h e Governors and Agents a r e of the
opinion that
i t i s n o t
des i r ab le
f o r t h e
Board
a t
this time
t o
make
a ny change i n t h e condition No. 3 contained i n Sect ion IV of the Board's
Regulation
H. In
this connection,
t h e
Board' s specia l a t te n t ion
i s
ca l l ed
t o t h e
l e t t e r s rec eive d from Governor Black
of
Atlanta, Governor
Harrison
of New
York,
and Mr.
Heath
of
Chicago, which
s e t o u t i n
some
d e t a i l t h e ob ject ions t o a change i n t h e present provisions o f th is
condit ion. Theso l e t t e r s discuss th e question whether i t i s advisable
f o r t h e
Board
t o
r e t a i n
an y
condition
of
membership with reference
t o
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2 **
X-6692-a 1 %
t h e purchase of bank st oc ks . They po in t o u t , however, that group
a nd branch banking i s being investigated with a view t o poss ible
l e g i s l a t i o n on the subjec t and tha t th e Board i t se l f h a s appointed
a committee t o investigate group and branch bank ing. Under th ese
circumstances, they suggest that any change i n condit ion Uo. 3
should be d e fe r r e d u n t i l a la ter da te .
All o f the
other Governors
and
Federal reserve agents seem
to
fool that some change i n this condit ion i s de si ra bl e. Three of this
l a t t e r group bel ieve tha t i t i s advisable f o r t h e Board t o eliminate
from
i t s
Begula t ions ent i re ly
t h e
condit ion
Ho. 3 . The
others
b e -
l i e v e i t i s des i rab le f o r t h e provis ions of th is condi t ion to be
rev i sed so as to permit a member bank t o purchase limited amounts of
t h e
s tock
of
other banks
and
trust companies without obtaining
s p e -
cific permission from th e Board. Various per cen tag es with re fe ren ce
t o t h e
amount
of
stock which should
b e
purchased without
t h e
Board's
permission a r e suggested by these Governors and Federal Reserve Agents#
One Governor and two Federal Reserve Agents think that th e percentages
contained i n t h e revision above quoted a r e a p p ro p r i a t e . The great
ma jo ri ty , however, fee l that these percent ages a re t oo l i b e r a l and in
most cases suggest considerably lower percentages of varying amounts#
I n this connection t h e p a r t i c u l a r a t t e n t i o n of the Board i s ca l l ed to
t h e l e t t e r s of Governor Uorris of Philadelphia, Governor Martin of
S t . Louis, and Mr. Walsh of Dallas .
The r e p l i e s of each of the Governors a nd Federal Reserve Agents
w i l l
bo
summarized
f o r t h e
Board's information
i n
greater detail below:
SUMMARY OF REPLIES
BOSTOH-
Doputv Governor Pad doc k.- Deputy Governor Paddock be l i eves th at
condi t ion No. 3 might Well b e el iminated entirely because i t docs not
prov ide sa t i s fac to ry con t ro l of group banking. I f condit ion i s to be
retained, however,
he
suggests that
a
member bank
b e n o t
permit ted
t o
purchase more than 4 0 p e r cent of the capi ta l s tock of any other bank
or
t r u s t company wit hou t
t h e
Board's permission
a nd
tha t
t h e
l im i t
of
i t s
total investments
i n
bank stocks should
bo 40 per
cent
of i t s own
c a p i t a l and surp lus .
Mr.
Curt iss
- Mr.
Curtiss believes that
i t
would
be
des i rab le
t o
eliminate condit ion No. 3 en ti re ly because th is condit ion i s n o t e f -
f e c t i v e i n g iv ing t h e Board control over group banking. I f t he con -
d i t i o n i s t o bo retained, however, h e suggests that t h e purchase with-
ou t t he Board's permission b y a member bank of s tock of any other bank
o r trust company be l imi ted to 40 pe r cent o f t he cap i ta l of such other
bank o r trust company. I t i s n o t clear what limit with reference to
total investments i n t h e s tock of other banks and trust companies he
be l ieves i s des i rab le .
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1 33
- 3 -
X-6692—a
HEW
YORK.
Governor Harrison.- Governor Harrison suggests
t h e d e -
s i r a b i l i t y
o f
e l iminat ing ent i re ly
t h e
condit ion
o f
membership
Ho.
3. He fu rt he r sugges ts, however, that any amendment of t h i s c o n -
d i t i o n
of
membership
be
de fe r red un t i l a f t e r
th e
committee appoint-
ed by the
Board
t o
investigate group
and
chain banking
h a s
made
i t s
r ep or t. Governor Harris on appears
t o
fool that condition
o f
membership
No. 3
would
n o t b e
e f f e c t i v e
i n
controll ing group
and
chain banking an d that investment i n bank stocks b y State member
banks
i s n o t
inadvisable , unless
th e
aggregate amount
o f
such
i n -
vestments
by any one
member bank
i s
such
a s to
indica te tha t
t h e
member ba nk 's ge ne ra l inve stment pol ic y i s unsound.
Mr»
Case,-
M r.
Case
h a s
advised
th e
Board that
he
concurs
i n
Governor Harr ison 's l e t t e r .
PffTT.ATffiTT.PffTA.
Governor Morris.- Governor Morris believes that
a
revis ion
of the Board's condition of membership No. 3 i s des i rab le . He sug -
gests that
t h e
purchase
by a
member bank
o f
s tock
of any
other bank
o r
t r u s t company withou t
t h e
Board's permission
b e
l imi ted
to 20
p e r
cent
o f t h e
capital s tock
of
such other bank
o r
trust company
a nd
tha t
t h e
total amount
of
bank stock
a
member bank
may
purchase
be
l imi ted
t o 5 p e r
cent
of i t s own
cap i ta l
an d
surplus ,
o r a t t he
most
to 10 p e r
cont
of i t s own
cap i ta l
a n d
surplus .
M r.
A u s t i n . -
M r.
Austin beli eves that
a
change
i n t h e
Board's
condit ion o f membership ITo. 3 i s des i rab le . He suggests that the
purchase
b y a
member bank
of
s tock
in a ny
other bank
o r
t r u s t con>*
pany
b e
l imi ted
to 20 pe r
cent
of
such other bank's capital stock
without
t h e
Board's permission
and
also suggests that
t h e
t o t a l
i n -
vestment
b y a
member bank
i n
bank stocks
b e
l imi ted
t o 2 0 p e r
cent
of i t s own
c a p i t a l
an d
surp lus .
M r.
Austin also suggests that
i f
this condit ion
i s
revised,
i t b e s o
framed that
i t i s
appl icable
to
member banks which
are now
subjec t
t o
this condit ion
i n i t s
present
form
o r in the
form
i n
which
i t wa s
appl ied pr ior
to the
Board's
Regulations, Series
of 1928.
CLEVELAND,
Governor rancher
and Mr.
BeCamp.
-
Governor Fancher
and Mr.
DeCamp have replied
t o t h e
Board 's l e t t e r (X-6646)
i n a
jo int le t te r .
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1 3 3
— 4 — X~6692~a
They seem t o feel that i f t h e Board's condition of membership
No# 3 i s rev ised a s proposed, group "banks will be able to evade
t h e
s p i r i t
of
this condit ion
b y
reason
of the
fact that several
member "banks which a r e members of a particular group might hold
t h e permitted amount of stock i n a particular "bank and the a g-
gregate amount
so
held
by a l l
members
of the
group would consti-
tute control of the "bank# They su gg es t, however, t ha t th e to t a l
amount of bank stock which a member bank might purchase should
n o t without t h e Board's permission exceed 20 or 25 p er cent of
i t s own cap i t a l and su rp lu s• They seem t o f ee l t ha t a rev is ion
of the condit ion so as to permit a member bank without th e Board's
speci f ic permiss ion t o purchase up to 50 p er cent o f the cap i ta l
of any one bank o r trust company i s n o t inadvisable#
RICHMOND.
Governor Seay and Mr. Hoxton - Governor Seay and Mr. Hoxton
have also made a jo in t rep ly t o t h e Board's l e t t e r (X-6646).
They suggest that
t h e
rev is ion
o f the
Board's condition
of
member-
ship No. 3 contained i n t h i s l e t t e r i s extremely l i be ra l a n d goes
much further than could be rea son abl y expe cted. They sugg est tha t
t h e
amount
of
s tock
of any
bank which
a
member bank
may
purchase
without t h e Board's permission b e placed a t 2 5 p e r cent of the
cap i t a l of such other bank o r t r u s t company# They f u r t h e r s u g -
gest that th e total amount of bank stock which a member bg&k may
purchase without th e Board's permission be f i x ed a t 2 0 p e r cent of
th e
cap i t a l
a nd
surplus
of the
member bank#
ATLANTA.
Governor Black.- Governor Black feels that there should
be no change i n t h e present provisions of the Board's condition
of
membership
Ho# 3 . He
fe el s that th is c ondition should
not be
l iberal ized because (1 ) national banks a r e n o t permit ted t o p u r -
chase bank stock, (2) the Board might be accused of f ix ing i n i t s
regulat ion th e wrong percentage, since what would be a proper l i m -
i t a t i o n , in one case might be obviously improper i n another , and
(3.) that a change i n this condit ion, while legislat ion on the sug-
j e c t
of
group banking
i s
being considered, might
bo
p o l i t i c a l l y
construed ei ther as an a id or an obstacle t o group, chain o r branch
banking#
Mr. Hew to n . - Mr# Newton feels that no change in the Board's
condit ion of membership No# 3 i s desirable because a part icular bank
might not be j u s t i f i e d i n purchasing any number of shares of the stock
of another bank and each case should stand upon i t s own merits#
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X-6692~a
CHICAGO.
Governor McDougal. - Governor McDoagal suggests that t he
Board.
1
s
condit ion
of
membership
Mo, 3 be
e l iminated en t i re ly
from th e Board's conditions of membership. I t appears that
he
does
n o t
fee l tha t
th e
Board should,
by
r e t a in in g th i s
c o n -
di t ion , a t tempt e i ther t o r e s t r a i n o r encourage group banking#
Mr*
Heath , -
Mr,
Heath suggests that
t h e
Board's condi-
t io n of membership No, 3 should remain unchanged or should h e
eliminated from th e Board's conditions of membership entirely*
He p o in t s o u t th a t i f a member bank i s permitted without the
Board 's permission
t o
purchase
up to 50 p er
cent
o f t he c a p -
i t a l of any one hank and purchase an aggregate amount of bank
stock up t o 20 p e r cent of i t s ovm cap i t a l a n d su rp lu s , a
la rg e member bank could a c t ua l l y contr ol
a
considerable number
Of smaller banks and thus become a holding company f o r a group
banking system
of
considerable size,
Mr,
Heath fe el s , the re-
fo re , tha t t h e proposed revision of condition of membership
No. 3 with th e percentages contained i n th is p rov is ion , a s
s e t o u t i n t h e
Boa rd' s l e t t e r (X«»6646) would co ns t it ut e
v i r -
tual approval of the p r in c ip le of group banking, Mr. Heath
fu rt he r suggests that t h e Board h a s appointed a committee to
i n v es t ig a te a l l phases of group, chain and branch banking and
t h a t
i t
would
n o t b e
advisable
t o
l i b e r a l i z e
th e
provisions
of condit ion of membership Ho, 3 in advance of the report o f
this committee, which
may
possibly make
a n
adverse report
on
t h e p r i n c i p l e o f group banking,
T
LOUIS.
Governor Martin.- Governor Martin suggests that
condit ion of membership Uo, 3 be rev ised so as to l imit
t h e purchase b y a member bank without th e Board's permis-
sion of s tock i n a ny other bank o r trust company to 20 per
cent
of
c a p i t a l
of
such other bank
o r
trust company
and
t o l i m i t t h e total investments i n bank stock b y a member
bank, t o 2 0 p e r cent of i t s own cap ita l s tock and surplus
#
Mr,
Wood.
— Mr,
Wood su gg es ts tha t
t h e
condition
of
membership
Ho, 3 be
revised
so as to
l im i t
th e
r i g h t
of a
memoer bank to purchase stock ei ther d irect ly o r in d i rec t ly
through an a f f i l i a t e d c o r p o r a t i o n or otherwise in any other
bank o r trust company, without th e Board's permission, to 20
p e r
cent
of the
cap i t a l
of
such other bank
o r
trust company*
M r, food does n o t suggest a n y l i m i t a t i o n on t he aggregate
amount of bank stock which a member bank may purchase with-
ou t t he Board's permission*
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6
X-6692-a
MINNEAPOLIS.
Governor Geery.
-
Governor Geery feels that
a
revi s ion
of the
Board's condit ion
of
membership
No. 3 is
des i rable
and he
suggests
tha t
a
member bank should
be
authorized
t o
purchase without
the
Board's permission
n o t
more than
2 5 p e r
cent
of the
stock
of any
other bank
o r
trust company
and to
inves t
n o t
more than
20 pe r
cent
of i t s own
cap i t a l
and
surplus
i n t h e
stocks
o f a l l
other
•
banks and trust companies,
Mr.
Mi tche l l .
- Mr.
Mitchell states that
h e
thinks
t h e
amount
of
bank stock that
a
member bank should
b e
permit ted
t o
hold should
b e
l imi ted
t o t h e
smallest possible amount, since
a
national bank
i s
n o t
permit ted
t o
inves t
in any
bank stock,
he
fee l s tha t
a
State
bank
o r
trust company should
no t bo
permit ted
to do s o . I t
appears,
therefore , tha t M r. Mitchell i s of the opinion that no change should
be
made
i n t h e
present provis ions
of the
Board's condit ion
of
member-
ship
No. 3,
KANSAS CITY.
Governor Bailey.
-
Governor Bailey f ee ls th at
i t i s
desi rable
t o
l i b e r a l i z e
t h e
present provis ions
o f t h e
Board's condit ion
of
membership
No. 3 . He
sugges ts th at
a
member bank
be
authorized
t o
purchase n o t more than 2 5 p e r cent of the capi tal s tock of any other
bank o r t r u s t company without th e Board's permission and that such
a member bank be authorized t o make aggregate investments i n t he
s tocks
o f a l l
banks
and
trust companies
n o t i n
excess
o f 25 p e r
cent
of i t s own
c a p i t a l
and
surplus .
Mr.
McClure.
- Mr.
McClure feels that
a
l i b e r a l i z a t i o n
of the
present provis ions of the Board's condition of membership No. 3 is
advisable and he feels that t h e percentages of 50 p er cent and 20
p e r
cent , respect ively, contained
i n t he
revised condit ion
s e t ou t
i n t h e
Board's letter (X-6646)
a r e
reasonable l imitat ions
on the
amount
of
s tock
of any one
bank which
may be
purchased
by a
member
bank
and on the
aggregate amount
of
bank stock which
may be
purchased
by a
member bank.
DALLAS.
Governor Talley.
-
Governor Talley feels that
a
revi s i
on of
t h e
Board
8
s condit ion
of
membership
No, 3 is
des i rable ,
b u t
suggests
t ha t
a
member bank should
n o t b e
permit ted
to
purchase more than
20
p e r
cent
of the
capi tal s tock
of any one
bank
o r
trust company
e x -
cept with t h e Board's permission, and tha t t h e total investments
i n bank stocks b y a member bank should b e l imi ted t o 10 p e r cent of
t h e
cap i t a l
a n d
surplus
of the
member bank.
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1 3 6
7 -
X-6692-a
Mr. Walsh.- Mr. Walsh believes that t h e r ev i s ion of the Board's
condit ion of membership No. 3 is des i r ab le , b u t bel ieves that t h e p e r -
centages o f 50 p e r cent and 20 per cent contained i n th is rev is ion a s
s e t o u t i n t h e Board's letter (X-6646) should b e reduced to 25 p er
cent a nd 10 p e r cent , respect ively,
SAN
FRANCISCO.
Governor Calkins.
-
Governor Calkins approves
th e
proposed
r e -
vision contained i n t h e Board's le t t e r (X-6646) includ ing t h e p e r -
centages o f 50 p e r cent and 20 per cent contained therein. He s ta tes
tha t h e would be i n favor of a l imitat ion upon th e purchase of stock
of any one bank below th e 60 pe r cent contained i n t h e Board's p r o -
posed revision, i f such condi tion was p ra c t i ca l ly en fo rceab le. He
believes, however, that
i t c a n be
evaded,
a n d ,
therefore, approves
t h e
condition
a s se t ou t i n the
Board ' s l e t t e r .
Mr.
Sargen t . -
I n the
absence
of Mr.
Newton,
Mr.
Sargent, Assistant
Federal Reserve Agent a t San Francisco, advises that a r ev i s ion of the
Board's condition of membership No* 3 i s des i r ab le . ' He approves t h e r e -
v i s ion of this condition contained i n t h e Board's letter (X-6646.) con-
t a in ing t h e percentages contained therein of 50 p er cent and 20 p e r
cent , respect ively .
For the
Board's information, percentages
th e
various Governors
a nd
Federal Reserve Agents have suggested
th e
proposed revision
of
condit ion of membership No. 3 should contain may be b r i e f l y s e t ou t
a s follows:
P e r cent of stock : Per cent of cap-
of any one bank : i t a l a n d surplus
: of
member bank
may
: be invested i n bank
; stock
BOSTON - Deputy Governor Paddock 40$
M r. Curtiss 40%
i s i
40$
NEW YOEK - Governor Harr ison
_ M r .
Case
o i
0$
0$
PHILADELPHIZ'.«i>f)vernor Norris
M r. Austin
CLEVELAND
—
Governor Fancher
__ M r. DeCamp
50$
50&
20$ or 25$
20# or 25#
7/17/2019 frsbog_mim_v33_0129.pdf
http://slidepdf.com/reader/full/frsbogmimv330129pdf 9/9
1 3 7
8
X-6692-a
P e r
cent
o f
stock
of any one
"bank
P e r
cent
of cap-
i t a l
and.
surplus
o f member bank may
b e
invested
i n
bank
EI
CHMOiro
-
Governor Seay
M r.
Hoxton
25$
2 5
20$
2 0 i
ATLANTA
-
Governor Black
M r.
Newton
0$
0 #
0 $
0
i
CHICAGO - Governor McDougal
M r.
Heath
O i
0 i
ST.
LOUIS
-
Governor Martin
M r.
Wood
2 0
20#
20$
MINNEAPOLIS
-
Governor Geery
M r.
Mitchell
25$
0
i
20$
O i
KANSAS CITY
-
Governor Ba il ey
M r.
McClure
25$
5 0 i
25$
2 0 i
DALLAS
-
Governor Talley
M r. Walsh
20$
25
i
SAN IRAN CI SCO
- Governor Calkins
M r.
Sargent
50$
50$
20$
20$
Respectful ly ,
B. M.
Wingfield,
Assistant Counsel.
BMW: v b r - omc