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

tem -"as held in Washington on Saturday, February 5, 1238, at 12:15 p.m.

PRESENT: Mr. Eccles, ChairmanMr. Szymczak

Mr. Morrill, SecretaryMr. Bethea, Assistant Secretary

Mr. Carpenter, Assistant Eecretary

Mr. Clayton, Assistant to the Chairman

Consideration was given to each of the matters hereinafter re-

to and the action stated with respect thereto was taken by theBoard:

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

Philadel .Phia, reading as follows:

a "Referring to your letter of February 3, 1938, the BoardJ13.13 oves the reappointment of Messrs. J. Ebert Butterworth,

S. Chipman, H. W. Prentis, Jr., B. F. Mechling, and JohnkicEade as members of the Industrial Advisory Committee for

'Ile Third Federal Reserve District, to serve for terms of oneYear each, beginning on March I., 1938."

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Approved unanimously.

Letter to Mr. Burke, Chairman of the Federal Reserve Rank of

reading as follows:

"Referring to your wire of February 3, 1938, the Board ap-Proves the reappointment of Messrs. F. A. Smythe, L. R. ravies,theC. Folsom, D. C. Swander, and Herman R. Neff as members of

Industrial AdvL.sory Committee for the Fourth Federal Reserve

Ia rict, to serve for terms of one year each, beginning on

4 rch 1, 1968."

Approved unanimously.

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

leago, reading as follows:

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"Reference is made to your letter of January 18 re-garding the 'State Bank of Clearing', Chicago, Illinois.

"In view of the circumstances involved in this case,and your favorable recommendation, the Board extends toV.,ay 1, 1940, the time within which the State Bank of Clear-

-11g may increase its capital stock to ;:.200,000 as reLjuired!0.7 condition of membership numbered t5 applicable to theInstitution. It has been noted, however, that in your per-!onal opinion the capital will be increased next year, andIn this connection the Board will expect the increase to beeffected as soon as practicable."

Approved unanimously.

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

Dallas, reading as follows:

"This refers to your letter of January 25, l9Z8, andinclosures, requesting advice as to how member banks inYour district should classify for reserve purposes certainpersonal loan deposits'.

"It appears from the sample account book and note formof the First National Bank, Fort tiorth, Texas, that the mem-ber bank makes loans to individuals through its personalloan department, taking in each case a promissory note pay-able at a specified date in the future, and requires the bor-r(Ther to deposit with the bank a specified sum of money eachmonth until the total of such deposits equals the principalof the loan, at which time the accumulated deposits are ap-Plied in payment of the loan and the note is canceled andsurrendered. It is also understood that the borrower is fur-nished a book in which his monthly deposits are entered andwhich contains the following provision: 'This book is sub-ject to the terms of signed agreement made aayof and has been assigned to First NationalEank as collateral'.

"V:e understand that the agreement referred to in theaccount book is the note evidencing the personal loan, whichcontains a provision that upon default in making the monthly

deposits the note, for the full amount thereof less a creditfor such deposits as have been made, shall become due and pay-able at the election of the payee.

"It is our understanding that the borrower is not per-Mitted to withdraw the funds deposited under the above plan

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"and that interest is charged by the member bank on thefull amount of the personal loan until maturity.

"With reference to the question whether amounts de-Posited by the borrower constitute deposits for reserve

purposes, your attention is invited to the ruling publishedat page 538 of the Federal Reserve Bulletin for September,1931, which held, on similar facts, that funds deposited

in I special accounts' in order to provide for the repay-

ment of personal loans are deposits within the meaning ofsection 19 of the Federal Reserve Act against which reservesmust be maintained. This ruling was reaffirmed by theBoard on July 11, 1936, in a letter to the Federal ReserveBank of Cleveland. Accordingly, reserves are required to

be carried against the deposits described in your letter.Since it is understood that interest is charged on the fullamount of the loan until maturity, it seems clear that themonthly deposits can not be considered as partial paymentson the loan.

"You also ask to be advised as to how such depositsShould be classified for reserve purposes. On the basis ofthe facts submitted, it is our view that the deposits evi-denced by the book in question should be classified as 'timedeposits, open account' provided the particular contractmade with the borrower provides that deposits shall be madeduri ng a period of not less than three months as requiredbY footnote 2 of section 1(d) of Regulation D. If a casesould arise in which the contract with the borrower pro-vides that deposits are to be made during a period of lessthan three months, we will be glad to consider the question°f classification upon receipt of a full statement of thefacts of the particular case."

Approved unanimously.

Letter to Mr. Parker, First Vice President of the Federal Re-

serve Bank of Atlanta, reading as follows:

"This refers to your letter of January 18, 1968, with

inclosure, in which you advise that section 1 of Article IIof the by-laws of your bank was amended on January 14, 1938.

"It is noted that under the amended by-laws the execu-61-ye committee consists of three directors of the bank, in-

cluding the chairman of the board, who serves as chairman ofthe committee. Any director who is not engaged in business

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"in Atlanta is to serve as an ex officio member of the com-mittee when in Atlanta, and any two members of the committeeconstitute a quorum. In the absence or disability of thechei man of the board, the deputy chairman serves as chair-man of the committee, and in the absence or disability ofboth of them the third Class C director, if present, servesB s chairman. If no Class C director is present, either asa regular or as an ex officio member, the committee is toelect one of its members as chairman pro tem.

"In response to your request, you are advised that theBoard of Governors has no objection to the above amendmentsto Your by-laws. We will be glad to have you send to the111?ard four copies of the by-laws as amended, in accordancewith your suggestion."

Approved unanimously.

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

°t New York, reading as follow:

"In response to your letter of January 22, 1938, youare advised that the Board approves payment on account ofiP10,000 to Covington, Burling, Rublee, Acheson & bhorb, Esqs.,la connection with their employment in the case of BritishAmerican Tobacco Company vs. Federal Reserve Bank of New York,nIch payment to be applied on the total fee for services inthe case when such fee is determined.

"However, the Board believes that it is particularly um-Portent in view of the size and importance of the case thatthe understanding with Covington, Burling, Rublee, Acheson6tad Shorb, Esqs., with respect to their employment and cam-IID.ensation as authorized in the Board's wire of January 10,936, should be confirmed in writing and therefore approvalof the instant payment is conditioned accordingly. In thisc°nnection, the Board would appreciate a copy of such confir-mation for its files."

Approved unanimously.

Memorandum dated January 26, 1938, from Mr. Morrill submitting

t" ePProval by the Board a draft of entry for the policy record re-

by section 10 of the Federal Reserve Act to be kept by the Board

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c°111ng action taken by the Board on December 21, 1937, with respect

to an amendment of Regulation F, Trust Powers of National Banks.

Approved unaninrnusly.

Thereupon the meeting adjourned.

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