Federal Reserve Bulletin May 1936 · 2018. 11. 6. · FEDERAL RESERVE BULLETIN VOL. 22 MAY 1936 No....

FEDERAL RESERVEBULLETIN

MAY 1936

ISSUED BY THE

BOARD OF GOVERNORSOF THE FEDERAL RESERVE SYSTEM

AT WASHINGTON

Recent Gold Movements and Credit Developments

Condition of Banks

Regulation F—Trust Powers

UNITED STATES OF AMERICA1936

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

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

MARRINER S. ECCLES, Chairman

JOSEPH A. BRODERICK RONALD RANSOM

M. S. SZYMCZAK RALPH W. MORRISONJOHN K. MCKEE

CHARLES S. HAMLIN, Special CounselLAWRENCE CLAYTON, Assistant to the ChairmanELLIOTT THURSTON, Special Assistant to the ChairmanCHESTER MORRILL, Secretary

LISTON P. BETHEA, Assistant SecretaryS. R. CARPENTER, Assistant SecretaryJ. C. NOELL, Assistant Secretary

WALTER WYATT, General CounselGEORGE B. VEST, Assistant General CounselB. MAGRUDER WINGFIELD, Assistant General CounselJ. P. DREIBELBIS, Assistant General Counsel

LEO H. PAULGER, Chief, Division of ExaminationsR. F. LEONARD, Assistant Chief, Division of ExaminationsC. E. CAGLE, Assistant Chief, Division of ExaminationsFRANK J. DRINNEN, Federal Reserve Examiner

E. A. GOLDENWEISER, Director, Division of Research and StatisticsWOODLIEF THOMAS, Assistant Director, Division of Research and StatisticsLAUCHLIN CURRIE, Assistant Director, Division of Research and StatisticsGEORGE W. BLATTNER, Assistant Director, Division of Research and Statistics

E. L. SMEAD, Chief, Division of Bank OperationsJ. R. VAN FOSSEN, Assistant Chief, Division of Bank OperationsJ. E. HORBETT, Assistant Chief, Division of Bank Operations

CARL E. PARRY, Chief, Division of Security LoansPHILIP E. BRADLEY, Assistant Chief, Division of Security Loans

O. E. FOULK, Fiscal AgentJOSEPHINE E. LALLY, Deputy Fiscal Agent

FEDERAL ADVISORY COUNCIL

District no. 1 (BOSTON) THOMAS M. STEELE.

District no. 2 (NEW YORK) JAMES H. PERKINS.District no. 3 (PHILADELPHIA) HOWARD A. LOEB, Vice President.District no. 4 (CLEVELAND) ARTHUR E. BRAUN.District no. 5 (RICHMOND) CHARLES M. GOHEN.District no. 6 (ATLANTA) H. LANE YOUNG.District no. 7 (CHICAGO) EDWARD E. BROWN.District no. 8 (ST. LOUIS) WALTER W. SMITH, President.District no. 9 (MINNEAPOLIS) THEODORE WOLD.

District no. 10 (KANSAS CITY) W. T. KEMPER.

District no. 11 (DALLAS) JOSEPH H. FROST.

District no. 12 (SAN FRANCISCO) M. A. ARNOLD.

WALTER LICHTENSTEIN, Secretary


SENIOR OFFICERS OF FEDERAL RESERVE BANKS

Federal ReserveBank of—

Boston

New York..

Philadelphia-

Cleveland

Richmond..

Atlanta

Chicago

St. Louis

Minneapolis

Kansas City.. .

Dallas

San Francisco..

Chairman and FederalReserve Agent

F. H. Curtiss..

R. L. Austin

E. S. Burke, Jr..

F. A. Delano..

H. W. Martin,

W. B. Geery.

J. J. Thomas..

C. C. Walsh..

President

R. A. Young

G. L. Harrison..

J. S. Sinclair.._.

M. J. Fleming..

Hugh Leach.

Oscar Newton.

G. J. Schaller..

W. McC. Martin.

J. N. Peyton

G. H. Hamilton..

B. A. McKinney.

W. A. Day ._

First Vice President

W. W. Paddock.

Allan Sproul

Vice President

W. WilletU

W. R. Burgess.L. R. Rounds.L. F. Sailer.W. S. Logan.J. H. Williams.C. H. Coe.

C. A. Mcllhenny.*

R. S. Parker...

H. P. Preston.

F. J. Zurlinden H. F. Strater.W. F. Taylor.i

R. H. Broaddus.J. S. Walden, Jr.G. H. Keesee.i

H. F. Conniff.M. W. Bell.i

C. R. McKay.J. H. Dillard.W. H. Snyder.2

O. M. Attebery. _ . . J. S. Wood.I J. G. McConkey.

Harry Yaeger.H. I. Ziemer.2

J. W. Helm.a

R. B. Coleman.2

W. M. Hale.C. E. Earhart.i

C. A. Worthing ton

R. R. Gilbert

Ira Clerk

i Cashier. 2 Also cashier.

MANAGING DIRECTORS OF BRANCHES OF FEDERAL RESERVE BANKS

Federal Reserve Bank of—

New York:Buffalo branch.__ __ .

Cleveland:Cincinnati branch.__ _Pittsburgh branch

Richmond:Baltimore branch __Charlotte branch _

Atlanta:Birmingham branch.. . .Jacksonville branch.._Nashville branch __New Orleans branch.. __

Chicago:Detroit branch

St. Louis:Little Rock branchLouisville branch . . _Memphis branch

Managing director

R. M. O'Hara.

B. J. Lazar.T. C. Griggs.

W. R. MilfordW. T. Clements.

J. H. Frye.G. S. Vardeman, Jr.J. B. Fort, Jr.Marcus Walker.

R. H. Buss.

A. F. Bailey.J. T. Moore.W. H. Glasgow.

Federal Reserve Bank of—

Minneapolis:Helena branch

Kansas City:Denver branch.. .Oklahoma City branchOmaha branch.

Dallas:El Paso branch... . .Houston branchSan Antonio branch.__ . .

San Francisco:Los Angeles branch .Portland branch._. . . .Salt Lake City branchSeattle branch. . . . .

1 Spokane branch. . .

Managing director

R. E. Towle.

J. E. Olson.C. E. Daniel.L. H. Earhart.

J. L. Hermann.W. D. Gentry.M. Crump.

W. N. Ambrose.R. B. West.W. L. Partner.C. R. Shaw.D. L. Davis.

SUBSCRIPTION PRICE OF BULLETIN

The FEDERAL RESERVE BULLETIN is the Board's medium of communication with memberbanks of the Federal Reserve System and is the only official organ or periodical publication ofthe Board. The BULLETIN will be sent to all member banks without charge. To others thesubscription price, which covers the cost of paper and printing, is $2. Single copies will be soldat 20 cents. Outside of the United States, Canada, Mexico, and the insular possessions, $2.60;single copies, 25 cents.

in


TABLE OF CONTENTS

Review of the month—Recent gold movements and credit developments 311Balance of international payments of the United States 321Polish control of gold and foreign exchange transactions 322Definitive establishment of gold standard in Belgium 322Government control of credit institutions and security issues in Italy 323Law department:

Rulings of the Board:Applicability of exception to section 23A of Federal Reserve Act relating to indebtedness of affiliate

on assets acquired from member bank 324Lending of trust funds by a bank included within the provisions of section 22 (g) of the Federal Re-

serve Act 324Renewal of loan to person who was not executive officer at the time of making of loan 325Ruling No. 1 interpreting Regulation U 325

Applicability of Public Utility Holding Company Act of 1935 to banks 325Loans by Federal Deposit Insurance Corporation to insured banks—extension of time limit 326Regulation F—Trust powers of national banks 327

Annual report of the German Reichsbank 337Annual report of the Swiss National Bank 344Condition of all member banks on Mar. 4, 1936 (from Member Bank Call Report No. 69) 388-389Condition of all banks in the United States on Dec. 31, 1935 316, 358, 394-396Condition of insured commercial banks, Dec. 31, 1935 316, 399New averages of yields on United States Treasury notes and prices of United States Government bonds 317-320National summary of business conditions 351Financial, industrial, and commercial statistics:

Reserve bank credit, gold stock, money in circulation, etc 352-356Member and nonmember bank credit:

All banks in the United States 358All member banks 357,359,360,387Weekly reporting member banks in leading cities 361, 362, 390, 391

Acceptances, commercial paper, and brokers' borrowings 363Discount rates and money rates 364Security prices, bond yields, and security issues 365Treasury finance 366Assets and liabilities of governmental credit agencies 367Reconstruction Finance Corporation'—Loans and investments 367Farm Credit Administration—Loans and discounts outstanding, by institutions 368Federal Home Loan Bank Board—Loans outstanding, by institutions 368Obligations fully guaranteed by the United States—Amounts outstanding, by agencies 368Production, employment, car loadings, and commodity prices 369Merchandise exports and imports 370Department stores—Indexes of sales and stocks 370Freight-car loadings, by classes 370

International financial statistics:Gold reserves of central banks and governments 371Gold production 372Gold movements 372-374Central banks 375-378Bank for International Settlements 378Commercial banks 379Discount rates of central banks : 380Money rates • 380Foreign exchange rates. 381Price movements:

Wholesale prices 382Retail food prices and cost of living 383Security prices 383

Federal Reserve statistics by districts, etc.:Banking and financial statistics 384-395Industrial and commercial statistics 400-405

IV


FEDERAL RESERVE BULLETINVOL. 22 MAY 1936 No. 5

Recent goldmovements

REVIEW OF THE MONTH

Gold movements to this country, which hadpractically ceased by the beginning of this

year, were resumed on a consid-erable scale in the last week ofApril. From April 24 to May 8,

about $125,000,000 of gold was engaged forshipment from France to the United States.Earlier in the year an outward movement ofgold occurred, and for the three and a halfmonths as a whole to the middle of April goldimports were smaller than for any similarperiod since January 1934. This was mainlydue to a reduction in the volume of Europeanshort-term balances held in this market. For-eign purchases of American securities con-tinued on substantially the same scale as inthe latter half of 1935.

The reduction in European short-term bal-ances held in this country appears in itsearlier stages to have reflected in part thegradual subsidence of the war fears that hadinitiated the transfer of British and otherbalances to this market in September andOctober, and in part the passing of the acutefiscal and political issues in France which hadcome to a crisis in November. When capitalagain began to leave France in the latterpart of January, it was transferred to Eng-land rather than to the United States. Theanticipated effect on the budget of legislationfor adjusted service compensation and of thecourt decision invalidating taxes imposedin connection with the agricultural adjust-ment program, together with the extensionof the President's power to devalue the dollar,created some uncertainty abroad as to thecourse of American monetary policy, and theslow reduction of European balances in thiscountry continued.

The strength of the franc in New York at atime when substantial British purchases wererequired to support the franc in London isindicated on the chart. The chart also bringsout the fact that by the end of March foreignuncertainties in regard to monetary develop-ments in this country had lost much of theirforce. During April the withdrawal of Euro-pean balances ceased, and in the first week ofMay a sharp inward movement developed.Net gold imports from all sources and goldreported as engaged for shipment to thiscountry from the middle of April throughMay 8 totaled about $150,000,000.

FRENCH FRANC IN LONDON AND NEW YORKDAILY EXCHANGE RATES

1936 iNCS PER POUND

JANUARY FEBRUARY

While the franc in New York was heldclose to the gold import point by gold ship-ments to this country, the effect of the con-tinuing French demand for sterling at thebeginning of May was only in part offset byBritish purchases of French gold, and thefranc fell in London.

Capital has been moving out of Francesince the fall of the Laval Cabinet in the third

week of January. The movement wasintensified after the German occupa-

tion of the Rhineland early in March. Fur-

France

311


312 FEDERAL RESERVE BULLETIN

ther uncertainty was created by the approachof the Parliamentary elections in France atthe end of April. Between January 17 andMay 1 the Bank of France lost $375,000,000of gold notwithstanding the fact that the pro-ceeds of a sterling credit, amounting to nearly$200,000,000, were transferred to France dur-ing this period. After the run-off election onMay 3, in which there was a pronounced shiftto the left, the volume of gold exports in-creased. Effective May 7 the Bank of Franceraised its discount rate from 5 to 6 percent.

The outflow of capital from France duringthe past three months has caused a furthertightening of money market conditions. Thetable shows the effect of the loss of gold dur-ing the last three quarters of 1935 and sinceJanuary 1936, upon borrowings at the Bankof France and upon deposits, which includethe reserve balances of the banking system.It also shows the increase in interest ratesthat has occurred in the past year.

MONEY MARKET FACTORS IN FRANCE

March 29, 1935January 17, 1936May 1, 1936

B a n k of France(billions of francs)

Gold

836661

De-posits !

1697

Loansanddis-

counts

71319

Discount rates(percent per

annum)

Bankof

France

45

Openmar-ket

2K

i Government deposits excluded.

The next table, which shows the positionof the four commercial banks reportingmonthly, indicates the extent to which thesebanks lost deposits and reserves and reducedtheir bills discounted between March 1935and January 1936. April figures are notyet available.

It is clear from the situation shown by thetables that the Bank of France now occupiesa dominant position in the French moneymarket. The market has borrowed from thebank far more than the deposits maintainedas reserves, and the bank's loans and dis-

M A Y 1936

counts approach in magnitude those of thefour large commercial banks combined. Asa consequence of this situation market rateshave been closely responsive to the discountpolicy of the Bank of France.

POSITION OF FOUR LARGE COMMERCIAL BANKSIN FRANCE

End of month

March 1935January 1936

Cashandbal-

anceswith

Bank ofFrance

Billsdis-

countedLoans

Totalde-

posits

(Billions of francs)

63

1917

88

3128

Ratioof re-servesto de-posits

(Per-cent)

19. 312.5

Changes in reserve balances of memberbanks in the first four months of 1936 re-

flected largely the effects of Treas-Excess u ry operations. The growth of thesereserves

balances through gold imports,which was continuous in 1934 and 1935, washalted last December with the cessation ofthe heavy flow of gold to this country. Themore recent engagements of gold abroad forshipment to this country had not by the endof April had any substantial effect on bankreserves in this country.

During the four months from November1935 to February 1936 total reserve balancesof member banks averaged approximately$5,800,000,000 and excess reserves about $3,-000,000,000. In the last half of March theTreasury increased its deposits at the Fed-eral Reserve banks from $400,000,000 to$1,100,000,000 out of the proceeds of securityflotations and tax collections, and memberbank excess reserves were consequently re-duced to $2,300,000,000. Subsequent expen-ditures from Treasury deposits, however,partially restored the excess reserves, as isshown by the chart on page 352, and by theend of April they amounted to nearly $2,700,-000,000.


MAY 1936 FEDERAL RESERVE BULLETIN 313

Recent changes in excess reserves havebeen confined to the larger cities. Changesin excess reserves by classes of banks areshown on the accompanying chart. Excessreserves of country banks have maintained afairly steady growth since the middle of 1933,with moderate fluctuations. Of the declineduring March about two-thirds occurred inNew York City and most of the remainderin other reserve cities. Increases in Apriloccurred principally at banks outside NewYork City, and at the end of the month excess

EXCESS RESERVES OF MEMBER BANKSBILLIONS OF DOLLARS BILLIONS OF DOLLARS

1934 1935 1936Averages of daily figures for weeks ending Friday ; figures

for country banks and for all banks estimated ; figures forweek ending May 1 preliminary.

reserves of those banks were about the sameas at the beginning of March, while excessreserves of New York City banks amountedto approximately $1,000,000,000, comparedwith about $1,300,000,000 early in March.

At the end of April reserve balances of allmember banks were about 100 percent in ex-cess of requirements. Those of New YorkCity banks were about 80 percent in excessof requirements, compared with an excess ofover 100 percent early in March. Reservebalances at other reserve city banks, includ-

ing Chicago, were more than 100 percent inexcess of requirements in both periods andthose at country banks were approximately130 percent iii excess.

The following table shows for the variousclasses of member banks the reserve position,balances with correspondent banks, and bal-ances due to other banks, as of March 4,1936,which is the date of the latest call report andalso reflects conditions existing prior to thetemporary reduction caused by Treasuryoperations in March.

RESERVE POSITION OF MEMBER BANKS, BY CLASSESOF BANKS, March 4, 1936

fin millions of dollars]

Central reserve city banks:New YorkChicago

Reserve city banksCountry banks

All member banks,_.

Reserve balances

Re-quired

1,230257861432

2,780

Excess

1,263223934584

3,004

Bal-ancesduefrom

banks

Bal-ancesdueto

banks

105 j 2,527184 ! 594

1,832 j 2,5941,692 j 433

6,1483,813

In addition to excess reserves countrybanks carried balances with correspondentcity banks amounting on March 4, 1936, toabout $1,700,000,000, as compared with lessthan $1,000,000,000 of such balances gener-ally carried by country banks prior to 1934.Reserve city banks have also been carryinglarger balances with other banks than inearlier years, and the balances which theyhold for other banks have increased by acorresponding amount. New York Citybanks, which do not carry any substantialamount of balances with other banks, havehad in recent years a large increase in theirbalances carried for other banks. This in-crease in fact has been in approximately thesame amount as the total of the New Yorkbanks' excess reserves. A considerable pro-portion of existing excess reserves, therefore,is in effect owned by country banks, though itis carried in part on the books of city corre-spondents. Stated in another way, a large


314 FEDERAL RESERVE BULLETIN MAY 1936

part of the idle funds available in the centralmoney market represents funds belongingto country banks, for which they have notfound a satisfactory outlet in local loans orin investments.

Not only do the various classes of bankstaken in groups have large amounts of excess

reserves, but also most indi-Reserve position vidual banks hold reservesblnkfVidUal w e l 1 ^ excess of require-

ments. A tabulation of thereserve position of individual member banksbased upon daily averages for the first halfof March is summarized in the followingtable. It shows that about 4,300 out of thetotal of nearly 6,400 member banks had re-serves that were more than 50 percent inexcess of requirements. About 68 percentof all country banks and 57 percent of allcity banks were in this group. Correspond-ing percentages from an earlier survey, whichapplied to the one day November 1, 1935, andnot to an average for a period, were 66 forcountry banks and 49 for city banks. Theresults of this earlier survey are given inthe Board's Annual Report for 1935 recentlypublished.

NUMBER OF MEMBER BANKS, DISTRIBUTED ACCORDINGTO PERCENTAGE OF EXCESS RESERVES

[Daily averages for first half of March 1936]

Ratio of excess torequired reserves

Less than 25 percent25-49 percent50 percent and over

Total number of memberbanks

Allmem-

berbanks

1,132960

4,285

6, 377

Central re-serve city

banks

N e wYork

126

20

38

Chi-cago

519

15

Re-servecitybanks

7767

192

336

Coun-try

banks

1,038886

4,064

Loans and investments of reporting mem-ber banks in leading cities increased further

in April, and deposits, whichh a d b e e n r e d u c e d sharply inMarch by payments to the

Treasury, were restored to above the Feb-ruary levels. From the beginning of the year

to the end of April, as shown on the accom-panying chart, total loans and investments ofthis group of banks showed an increase ofabout $900,000,000 to $21,800,000,000, thelargest amount outstanding at any time sincethe autumn of 1931. Deposits at these banks,however, have shown little further growthsince last December; demand deposits, ad-justed to exclude United States Governmentand interbank deposits and items in processof collection, have fluctuated around $14,000,-000,000, the high level reached in December,and time deposits have remained at slightlybelow $5,000,000,000. Bankers' balances havealso failed to show further growth in 1936.

The absence of growth in deposits at banksthis year, while loans and investments have

REPORTING MEMBER BANKS IN 101 LEADING CITIES

BILLIONS OF DOLLARS Wednesday figures BILLIONS OF DOLLARS

1935 1936 '34 1935 1936

been rapidly expanding, is in contrast to thesituation during most of 1935, when depositsincreased and loans and investments showeda somewhat smaller growth. The increase indeposits, other than Government and inter-bank deposits, last year reflected large goldimports and Treasury payments from pre-viously accumulated balances, as well as theincrease in bank investments. In the first



four months of 1936, on the other hand, goldimports were small and the Treasury in theearly weeks of the year held its balances prac-tically unchanged. As previously explained,the Treasury working balance was increasedsubstantially in March and reduced in April.At the end of April it was still considerablylarger than at the beginning of the year.Further reduction in the Treasury balancewould result in an increase in deposits of thegeneral public at banks. With the existinglarge volume of excess reserves held by mem-ber banks these short-time variations in de-posits and in reserves have no perceptibleeffect on changes in the banks' loans and in-vestments.

Most of the increase in bank loans and in-vestments between December 31, 1935, andApril 29, 1936, was in investments, whileloans declined somewhat in the early weeksof the year and increased considerably inMarch and the early part of April. The prin-cipal changes are shown on the chart.

Holdings of direct obligations of the UnitedStates Government increased by $330,000,-000, those of obligations guaranteed by theGovernment by $150,000,000, and holdings ofother securities increased by $320,000,000.The growth in other securities was the largestshown for any other period since 1930. Mostof the increase in holdings of Governmentobligations and more than half of that inother securities was at New York City banks.

Since the latter part of February loans tobrokers and dealers in securities, and moreparticularly the "other" loans, which includeloans to business borrowers, have increased.Loans to brokers and dealers in securitiesshowed wide fluctuations in March and April,reflecting temporary borrowings by dealersin Government securities as well as stockmarket developments, and at the end of Aprilwere about $180,000,000 larger than in Feb-ruary. Other loans on securities showed asmall decline in the early weeks of the yearand little change thereafter. Other loans to

customers, which include loans for agricul-tural, industrial, and commercial purposes,declined in January, but from February tothe middle of April showed an increase of$240,000,000, which was distributed amongall the Federal Reserve districts. In the lat-ter part of April they showed a small decline.There is often an increase in these loans inthe early spring, but the increase this yearwas larger than during other similar periodssince 1929.

Developments at country member banks,which are only to a small extent includedamong the weekly reporting member banks,are shown for the first two months of the yearby figures from the call report for March 4,which are published on page 389. Loansand investments of country banks showed asmall decrease between December 31, 1935,and March 4, 1936. This period, however,ended prior to the sale of new issues of Treas-ury securities on March 16 and before thespring increase in commercial loans at citybanks. Deposits at country banks, on theother hand, increased somewhat in the period,as did their reserves and their balances withother banks.

Appointment of Assistant Director in Division ofResearch and Statistics

Effective May 1, 1936, the Board appointedGeorge W. Blattner, who has been a mem-ber of the Board's research staff since 1929,an Assistant Director of the Division of Re-search and Statistics. The principal linesof work of the division will be in charge ofthe three assistant directors as follows:Credit and business developments, underWoodlief Thomas; monetary problems, underLauchlin B. Currie; and problems of bankstructure and supervision and statisticalwork of the Reserve banks, under Mr.Blattner.

Changes in Officers at Federal Reserve Banks

On April 30, 1936, the Board issued thefollowing statement:

At the request of the Board of Governorsof the Federal Reserve System, F. H. Curtiss



of Boston, R. L. Austin of Philadelphia, andC. C. Walsh of Dallas, who were designatedas Chairmen and Federal Reserve Agentsuntil April 30, 1936, have consented to re-main as Chairmen and Federal ReserveAgents at the Federal Reserve banks in thosecities, respectively, until the end of the cur-rent year, serving on an honorary basis inaccordance with the procedure initiated bythe Board on March 1.

J. H. Case, Chairman of the Federal Re-serve Bank of New York, whose term alsoexpired today, preferred to sever his officialconnection with the New York Bank in orderto be free to engage in private business and,accordingly, tendered his resignation asChairman and Class C Director, which hasbeen accepted by the Board. I

J. S. Wood, previously Chairman and Fed-eral Reserve Agent at the Federal ReserveBank of St. Louis, has been elected VicePresident of that bank, effective May 1.

Vacancies in the office of Chairman andFederal Reserve Agent remain to be filled atNew York, San Francisco, St. Louis, andChicago.

On April 30, 1936, Mr. W. H. Hutt, FirstVice President of the Federal Reserve Bankof Philadelphia, resigned his position withthat bank.

Condition of All Insured Banks

The Federal Deposit Insurance Corpora-tion has recently issued a detailed statementof the condition on December 31, 1935, of allbanks whose deposits were insured on thatdate. A summary of the statement for allinsured commercial banks, excluding mutualsavings banks of which 56 are insured, is re-published on page 399 of this issue of theBULLETIN along with a similar statement asof June 29, 1935. On December 31, 1935, in-sured commercial banks numbered 14,123,of which 6,387 were member banks of theFederal Reserve System and 7,736 were non-member banks. While member banks consti-tute a minority of insured banks, they accountfor almost nine-tenths of the resources of allinsured commercial banks.

In the last half of 1935 total loans and in-vestments of insured commercial banks in-creased by $1,280,000,000 to a total of $34,-810,000,000. Of this increase $1,200,000,000was at member banks. During the 6-monthsperiod both member and nonmember insured

banks added further to their holdings ofthe different classes of investments. Theincrease was $700,000,000 in United StatesGovernment direct obligations, $220,000,000in obligations fully guaranteed by the UnitedStates Government, and $160,000,000 in othersecurities, principally securities of publicutilities and of State and local governments.

Loans of insured banks increased in the lasthalf of 1935. The increase was confined toloans of member banks in central reserve andreserve cities and reflected chiefly an increaseof $190,000,000 in so-called "other" loans, inwhich loans for industrial, commercial, andagricultural purposes are included. Loansto brokers and dealers in securities also in-creased, while other loans on securities de-clined. Loans at country member banks de-clined by $40,000,000, about half of whichwas in so-called "other" loans, and loans atnonmember insured banks declined by about$45,000,000, reflecting decreases in loans tocustomers on securities and on real estateother than farm land, while so-called "other"loans showed little change.

Adjusted demand deposits of insured com-mercial banks, representing deposits of indi-viduals, partnerships, corporations, and Stateand local governments, increased by $1,520,-000,000 in the last half of 1935. These de-posits increased by $760,000,000 at centralreserve city and reserve city member banks,by $510,000,000 at country member banks,and by $250,000,000 at nonmember insuredbanks. Time deposits, excluding interbankdeposits and deposits of the Postal SavingsSystem, increased by $320,000,000 duringthe period, of which $290,000,000 was atmember banks. Balances held by insuredbanks for other domestic banks increased by$740,000,000 to a record total of $5,940,000,-000 at the year end.

Deposits of All Banks in the United States

As shown by figures in the table on page358, deposits of all banks in the United States,excluding interbank deposits, amounted to$48,960,000,000 on December 31, 1935, ascompared with $38,000,000,000 on June 30,1933, the smallest total for any report date inrecent years, and with $56,770,000,000 onDecember 31, 1928, the pre-depression peak.At the end of 1935 these deposits amounted to$32,160,000,000 at member banks, $5,570,-



000,000 at nonmember insured commercialbanks, $9,960,000,000 at mutual savingsbanks, $470,000,000 at private banks forwhich reports are available, and $800,000,000at other banks.

Annual Report

The text of the Annual Report of the Boardis now available. The report deals with op-erations of the Federal Reserve System andcredit and business developments; it also in-cludes an appendix giving records of actionstaken on questions of policy by the Board ofGovernors of the Federal Reserve System andby the Federal Open Market Committee.These records are published this year for thefirst time, in accordance with provisions inthe Banking Act of 1935, approved August23, 1935. The report will be later reprintedwith the usual statistical tables and othermatters of record.

List of Registered Stocks

The Board of Governors of the FederalReserve System has published a "List ofStocks Registered on National Securities Ex-changes as of March 31, 1936", for the pur-pose of facilitating compliance by banks withthe provisions of Regulation U. One copywas mailed to each member and nonmemberbank in the United States. Regulation U ap-plies to loans by banks for the purpose of pur-chasing or carrying stocks registered on anational securities exchange, and in deter-mining, for the purposes of Regulation U,whether or not a security is a "stock regis-tered on a national securities exchange", abank may rely upon the list published by theBoard. Additions and changes in the list willbe indicated in supplementary lists, the firstof which will be issued during June 1936.Copies of the list may be obtained from theFederal Reserve banks.

NEW AVERAGES OF YIELDS ON UNITED STATES TREASURY NOTES AND PRICES OFUNITED STATES GOVERNMENT BONDS

In the regular table on open-market ratesin this issue of the BULLETIN, page 364, a newset of figures has been included showingaverage yields on United States Treasurynotes with 3-5 years to maturity, as com-puted from bid and asked prices of thesenotes. In the regular table on bond prices,page 365, new average prices of United StatesGovernment bonds have been substituted forthe series formerly published.

The average yields on United States Treas-ury notes have been computed beginning Au-gust 1932. Treasury notes issued during thepost-war period until early 1928 were par-tially tax-exempt and during the latter partof the period the issues were callable forredemption before maturity. There were noissues of notes between January 1928 and De-cember 1931. Beginning December 1931 is-sues have not been callable for redemption be-fore maturity date and are wholly tax-exempt,but until August 1932 all issues offered hadmaturities of three years or less. The fol-lowing issues have been included in theaverages:

3',:(% Series A—19361[4% Series A—19373% Series B—19372%% Series B—1936 _. -2^% Series A—19382%% Series B—19383% Series C—1938_.2V87o Series A—193923̂ 2% Series D—1938-iy8% Series A—1940VA% Series B—1940\Y%% Series B—19391H% Series C—19391H% Series C—1940l>-2% Series A—1941

Amountissued (inmillions

of dollars)

365834508361278624455

1,294596

1,378738526942737677

Date includedin average

Aug. 1, 1932Sept. 15, 1932Oct. 15, 1932Dec. 15, 1932Feb. 1, 1933June 15, 1933Mar. 15, 1934June 15, 1934Sept. 15, 1934Mar. 15, 1935June 15, 1935July 15, 1935Sept. 15, 1935Dec. 15, 1935Mar. 15, 1936

Date removedfrom average

Aug. 1, 1933Sept. 15, 1934April 15, 1934Dec. 15, 1933Jan. 31, 1935June 15, 1935Mar. 15, 1935

Sept. 15, 1935

The averages have been derived from theyields on individual issues computed by theUnited States Treasury Department. Eachissue with a maturity of more than threeyears has been included upon date of issueand dropped when its period to maturityreached three years. Thus the average isrepresentative of the yields on medium-termGovernment issues. Each daily figure is anunweighted average of the yields of the issues


318 FEDERAL RESERVE BULLETIN M A Y 1936

included, based on averages of closing bidand asked quotations for the day.

Monthly and weekly averages of daily fig-ures from August 1932 are given in the ac-companying tables.

AVERAGE YIELD OF UNITED STATES TREASURY 3-5YEAR NOTES, BY MONTHS

[Monthly averages of daily figures. Percent per annum]

Month

January _FebruaryMarch__ _ _ „AprilMay _ _ _ _ _ . . _ _ _ _ .JuneJulyAugust _ _ - - _ - - _ _SeptemberOctoberNovemberDecember .

Year.. _. .

1932

3.002.962 762.772.50

1933

2.402.543.092.902.682.532.492.482.312 322.983.23

2.66

1934

3.112.802 A32.051.921.731.571.752.252 001.991.78

2.12

1935

1.601.421.211.201.121.141.161.221.431 371.291.26

1.29

1936

1.211.151.091.10

AVERAGE YIELD ON UNITED STATES TREASURY

3-5 YEAR NOTES, BY WEEKS—CONTINUED

[Averages of daily figures. Percen t per a n n u m ]

Weekending

1934

Dec. 18152229

1935

an. 5121926

Feb. 291623

Mar. 29162330

Yield

1.971.841.781.741.73

1.691.641.641. 53

1.491.511.461.33

1.241.201,211.201.22

Weekending

1935

Apr. 6132027

May 4111825

June 18

152229

July 6132027

Aug. 310

Yield

1.211.231.201.17

1. 121.131. 121.13

1. 151.151.131.181. 1

1. 171.161.151.1?

1.131. 15

Weekending

1935

Aug. 172431

Sept. 7142128

Oct. 5121926

Nov. 29

162330

Dec.

il

Yield

1.161.221.37

1.381.401.551.49

1.481.421.331.30

1.321.281.291.281.29

1.261.241.251.22

Weekending

1936

Jan. 4111825

Feb. 18

152229

Mar. 7142128

Apr. 4111825

Yield

1.231.211.181.22

1.221.191.161.131. 11

1.051.111.131.12

1.121.071.091.09

AVERAGE YIELD ON UNITED STATES TREASURY3-5 YEAR NOTES, BY WEEKS

LAverages of daily figures. Percent per annum]

Weekending

1932

Aug. 6" 13" 20" 27

Sept. 3" 10" 17" 24

Oct. 18

" 15" 22" 29

Nov. 5" 12" 19" 26

Dec. 3" 10

" 24" 31

1933

Jan. 714

" 21" 28

Feb. 4" 11" 18" 25

Yield

3.013.063.002.95

2.972.952.952.96

2.862.832.762.712.75

2.742.822.792.74

2.732.682.652.462.37

2.442.462.452.31

2.272.302.422.92

Weekending

1933

Mar.

Apr.

M a y

June

July

Aug.

Sept.

4111825

18

152229

6132027

3101724

18

152229

5121926

29

162330

Yield

3.410)2.833.01

3.103.002.722.982.87

2.832.712.672.57

2.542.542.522.51

2.482.432.472.542.52

2.552.532.502.43

2.352.272.262.362.33

Weekending

1933

Oct.

Nov.

Dec.

M A Y 1936 FEDERAL RESERVE BULLETIN 319

series was available only for the period be-ginning 1926. Each figure is an unweightedaverage of the prices as published by theTreasury Department. These are daily clos-ing prices, or monthly averages of daily clos-ing prices, except prior to July 1933, whenthe mean of the bid and asked prices was usedin some instances. The new averages differfrom those formerly published in the exclu-sion of short-term issues, that is, those due or

callable within eight years. This results invariations from the former averages whichare greatest during the period from 1926 to1928, when a larger proportion of the issuesincluded in the old averages were short-termbonds.

Monthly averages from 1919 to date andWednesday figures from 1929 to date appearin the tables below:

AVERAGE PRICE OF UNITED STATES GOVERNMENT BONDS, BY MONTHS

Month

January. _ __ .FebruaryMarch . . .AprilMay . _ . . .JuneJuly .AugustSeptember. _ . _OctoberNovemberDecember.. . _. _.

Year,

1919

94.894 194.294 595.194 894.393 894.494 693.793.3

94.3

1920

92.891 691.289 486.787 086.986 087.189 387.885.6

88.4

L Monthly averages

1921 1922

87. 5 97. 487 0 96 787.1 97. 887 5 99 687. 5 99. 987 3 100 187.4 '100.987 9 101 089.1 :i00.592 6 99 495. 0 98. 697. 2 • 98. 7

89. 4 , 99. 2

1923

99.199 098.398 198.498 898.898 898.698 198.598.7

98. 6

1924

99.399 699.6

100 3101.1102 6103. 6104 0103. 9104 5104.1103.5

102.2

of daily figures]

1925 1926

102.5 105.1102 6 '1055 0102.4 106.0102 8 104 3103.5 104.7104 5 104 7104.5 104.6103 8 104 2103.9 104.3103 9 104 5104.8 105.4104.7 106.2

103.6 105.0

1927

106.9107 3108.9109 1109.7109 2106.8107 3107.5107 7108.5109.3

108. 2

1928 1929

109.1 ' 103.0108 9 ilO1.8109.3 .100.2108 8 101 6108.2 101.5107.4 -100 9105.7 101.5103 5 100 8103.8 101. 0103 7 102 0104.8 ; 105.0103.9 .104.8

106.4 102.0

1930

104.0104.2105.7104.8105.5106.2106.2106.0106.2106.5106.8106.4

105. 7

1931 1932

106. 6 91. 3105. 5 93. 6105.6 95.9105.1 98. 3106. 2 97. 7106. 5 97. 6105. 4 99. 7105.2 101.3104.0 101.698.8 101.599.0 101.495.3 102.3

103. 6 98. 5

1933

103.6102.5101.1101.3102.7103. 7103.9103.7103.8103.5100. 699.9

102.5

1934

100.2102.1103.1103.7104.7104.9105.6104.3102.3103.4103.7104.1

103.5

1935

105.4106. 4106.2106.8106.8107.0107.3106.5104. 7104.9105. 3105.2

106.0


320 FEDERAL RESERVE BULLETIN M A Y 1936

AVERAGE PRICE OF UNITED STATES GOVERNMENT BONDS, BY WEEKS[Wednesday figures]

1929

Date

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

29

162330

6132027

6132027

3101724

18

152229

5121926

310172431

7142128

4111825

29

162330

6132027

411182431

Price

103.9103. 3102.7102.8102.7

102.7102.2101.3101. 5

101.199.4

100.2100.0

100.3100.8102.9102.4

102.3102.1102.0100.6101.1

100.9100.6101.1101.5

101.9102.1101. 6101.2100.9

100.8100.8100. 8101.1

101.1101.0101.2101.0

100.7100.8101.7103. 3103.4

104.6104.7105.5105.4

105.6105.1104.7104.4104.4

1930

Date

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

8152229

5111926

5121926

29

162330

7142128

4111825

29

162330

6132027

3101724

18

152229

5121926

31017243L

Price

104. 7104.2103.7103.4

104.1104.4104.1104.3

105. 2106. 1106. 4105. 8

105.2104.7104. 3104. 8104.9

105. 6105.6105. 6105. 8

105. 9106. 3106. 2106. 3

106.3106.4106.2106. 2106.2

106. 2106. 1106.0105.9

108. 0108. 0106. 2108. 2

106.6106. 4106.5106. 5106.7

106.7106. 8106. 8 !108. 9 '

108.8106. 3108.5108.3 !

103. 2

1931

Date

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

7142128

4111825

4111825

18

152229

6132027

3101724

18

152229

5121926

29

162330

142128

4111825

29

162330

Price

106.8107.0107.1106. 4

105. 8106. 3105. 6104.9

105.2105. 7108. 1105.7

105.1105.0105. 1105.1105.5

105.4106.4107.1106. 4

106.6106.7106.7108.2

105. 5105.5105. 5105. 7105.3

105.1105. 3105.3105.1

105.2104.8104.2103.9102.2

101.999.497.197.2

98.299.599.898.7

98.096.495.294.292. 6

] 932

Date

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

6132027

3101724

29

162330

6132027

4111825

18

152229

6132027

310172431

7142128

5111926

29

162330

7142128

Price

91.491.191.491.1

91.892.094.795.5

95.596.695.996.295.6

95.998.399.299.9

98.199.297. 496.5

96.296.498.598.698.1

98.799.699.9

101.2

101.1101.7101.2101.3101.3

101.4101.6101.9101.8

101.8101.4101.6101.4

101.4101. 3101.6101.5101.6

101.7102.2102. 6103. 3 '

1

D a

Jan.

Feb.

Mar.

Apr.

M a y

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

1933

,e

4111825

18

1521

18

152229

5121926

310172431

7142128

5121926

29

162330

6132027

4111825

18

152229

6132027

1

Price

103.7104.0103.1103.9

104.0103.6103. 2101.2

99.7

101.2102.0101.5

101. 6102.0100.5101.3

101.8102.7103. 0103.3103.3

103. 6103. 7103.9103.7

104.0104.0103. 8103.8

103.5103.6103.8103.9103.9

103. 9104. 2103. 4103. 7

103. 5103. 5103. 7103.6

102.7101.5100.398.8

100.2

100.0100.199.799.8

1934

Date

Jan.

Feb.

M a r

Apr.

M a y

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

310172431

7142128

7142128

4111825

29

162329

6132027

3111825

18

152229

5121926

310172431

7142128

5121928

Price

100.799.0

100.4100.3101.3

101.8102.0102.4102.1

102. 7103. 4103.5103.5

103.9104.0103.7104.0

104.3104.7104.8104.7104.9

105.0105. 4105.0105. 0

105.2106.0106.0105.8

105.0104.6104. 2103. 9104.0

103. 0101.9101.6101. 9

102.2102. 9103. 8104.2103. 6

103. 3103. 3103. 8103.9

104. 1104. 3104. 3104.1

|

1935

Date

Jan.

Feb.

Mar.

Apr.

M a y

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

29

162330

6132027

6132027

3101724

18

152229

5121926

310172431

7142128

4111825

29

162330

6132027

411182431

Price

104.5105.0105.4106. 2105.9

106.0106.1106.6106.9

106. 9106.6106.0106.4

106.6106.8106.6107. 0

107.3107. 1106.9107.0106. 6

106. 7107. 0107. 1107.2

107.2107.3107.3107.3107.2107.1106.8106.4105.4

105. 8105. 6104.4104.7

104.2104. 5105.2105. 3105. 1

105.5105. 3105.3105.2

105.2105.3105.2105.4105.6

1936

Date

Jan. 8152229

Feb. 5111926

Mar. 4111825

Apr. 18

152229

Price

105.7105.8105.8105.8

105.9106.1106.5106.6

106.9107.0106.5106.8

106.8107.0107.1107.0107.0

1 Bank holiday.



BALANCE OF INTERNATIONAL PAYMENTS OF THE UNITED STATES

The Department of Commerce has published a summary of the international trans-actions of the United States in 1935. The summary is given below in substantially thesame form as that employed by the Department of Commerce.

Balance

Dollarreceipts

1. Merchandise: jGoods sold by United States abroad $2,282,000,000Goods purchased by United States abroad 2,048,000,000

Net receipts from merchandise..

$234,000,000

234, 000, 000

2. Service items:Receipts for shipping and freight services...Payments for shipping and freight services..

62,000,000102,000,000

Receipts from foreign tourists 129,000,000Expenditures of United States tourists 393,000,000

426,000,000140. 000,000 286,000,000

Interest and dividend receipts on United States investments abroad

Interest and dividend payments on foreign investments in United States

Remittances and contributions to foreigners (net) !

Receipts from miscellaneous trade and service transactions i 247,000,000Payments for miscellaneous trade and service transactions i 201,000.000 I 46,000,000

Net payments on service items !3. Gold and silver:

Receipts from gold exports 2,000,000 :Payments for gold imports 1,741,000.000 ;

Receipts from silver exports..Payments for silver imports..

19,000,000355. 000,000

Net payments on gold and silver.

4. Capital items:A. Reports of banks and brokers— !

Stocks and bonds sold to foreigners 1,964,000,000 'Stocks and bonds purchased from foreigners 1,522,000,000 j 442,000,000

Net inflow of short-term funds..

B. Other d a t a -Net receipts from direct investment and other capital transactions..

_ I 970,000,000

_j 115,000,000

Receipts from paper currency exports (partly estimated) 30,000,000Payments for paper currency imports 31,000,000

Net receipts from capital items j 21,526,000,000

5. Residual item 402,000,000

Total of summary items j 2,162,000,000

Dollarpayments

$40,000,000

264,666,000

115,000,000

87, 000, 000

1, 739, 000,000

336, 000,00022, 075,000, 000

1. 000, 000

2,162,000.. 000

1 These miscellaneous items include merchandise adjustments, governmental receipts and expenditures, and miscellaneous service items.2 Differs from the Department of Commerce total because of transfer of $1,000,000 net movement of currency from section 3 to section 4. Foreign

holdings of dollar currency are regarded as similar to foreign holdings of dollar deposits.



Polish Control of Gold and Foreign ExchangeTransactions

Control of foreign exchange transactionsand of gold exports and imports was insti-tuted by decree of the President of Poland onApril 27. Official exchange rates will be es-tablished by the Bank of Poland and all trans-actions in foreign exchange will be under con-trol of a special committee of the bank. Deal-ing in foreign exchange will be restricted toa few banks designated by the Minister ofFinance. Bank deposits in Poland to the ac-count of foreigners and extension of creditsto foreigners will be subject to control. Theofficial text of the decree is not yet available.

From the adoption of the program of cur-rency and banking reform in October 1927,which was summarized in the BULLETIN forNovember 1927, until the decree of April 27,1936, Poland substantially maintained thegold standard, although for some time mer-chandise imports have been subject to manyrestrictions. An official statement issuedwith the decree called attention to the recentheavy drain of gold and foreign exchange forhoarding and the resulting depletion of thereserves of the Bank of Poland.

Definitive Establishment of Gold Standard in Belgium

Definitive establishment of the gold parityof the belga, restoration of the convertibilityof the notes of the National Bank of Belgiumand other related measures which became ef-fective on April 1 were summarized briefly inthe BULLETIN for April 1936. Official textsof the two decrees of March 31, 1936, effect-ing these measures are now available, andtranslations of them are given below. Pro-vision for the redemption of notes, whichwas earlier reported in an official cable as re-quiring redemption in gold, is made by restor-ing the effectiveness of article 8 of the royaldecree of October 25, 1926. This article,which had been suspended, provides for re-demption in gold, in silver at its gold value, orin foreign exchange, at the option of the Na-tional Bank.

In the BULLETIN for May 1935 translationswere given of the monetary law of March 30,1935, and the royal decree of March 31 estab-lishing the basis for purchase and sale of for-eign exchange by the Exchange EqualizationFund. The royal decree of April 16, 1935,with the appended Convention of April 4 be-tween the Belgian State and the NationalBank of Belgium, and the royal decree ofApril 19, creating an Office of Economic Re-covery, were given in translation in the BUL-LETIN for June 1935. Translations of thetwo recent decrees follow.

No. 273

ROYAL DECREE RELATIVE TO THE CONVERTIBILITY OFNOTES OF THE NATIONAL BANK OF BELGIUM—MARCH 31, 1936

Leopold III, King of the Belgians, to all present andto come, greetings:By virtue of the law of July 31, 1934, extended by

those of December 7, 1934, of March 15 and of March30, 1935, granting to the King certain powers in ref-erence to economic and financial recovery and the re-duction of public expenditures;

By virtue of the monetary law of March 30, 1935;By virtue of royal decree No. 160 of April 19, 1935.

creating the Office of Economic Recovery;Upon proposal of Our Council of Ministers, we

have decreed and do decree:ARTICLE 1. Article 1 of the monetary law of March

30, 1935, suspending the obligation placed upon theNational Bank of Belgium to redeem its notes in ac-cordance with the provisions of article 8 of the royaldecree of October 25, 1926, relative to monetary stab-ilization, is abrogated.

ARTICLE 2. Our Minister of Finance is chargedwith the execution of the present decree, which willbecome obligatory on the day of its publication in theMoniteur.1

Given at Brussels, March 31, 1936.

ROYAL DECREE DEFINITIVELY ESTABLISHING MONE-TARY PARITY AND ABOLISHING THE EXCHANGEEQUALIZATION FUND—MARCH 31, 1936

Leopold III, King of the Belgians, to all present andto come, greetings:By virtue of the monetary law of March 30, 1935;By virtue of the royal decree of March 31, 1935,

fixing the basis for operations of purchase and saleof foreign exchange by the Exchange EqualizationFund;

By virtue of the royal decree of April 3, 1935,creating an Exchange Equalization Fund:

By virtue of royal decree No. 159 of April 16, 1935,giving specific approval to the convention concludedApril 4, 1935, between the State and the NationalBank of Belgium;

By virtue of royal decree No. 160 of April 19, 1935,creating the Office of Economic Recovery;

1 Published in Moniteur Beige, April 1, 1936.



Upon proposal of Our Council of Ministers, wehave decreed and do decree:

ARTICLE 1. The monetary parity, determined pro-visionally by the royal decree of March 31, 1935, ata weight of 0.150632 gram of fine gold to the belga,is definitively fixed at this rate.

The National Bank of Belgium will on this basisrevalue its gold reserve existing on the date whenthe present decree becomes effective.1

The foreign exchange belonging to the Bank as ofMarch 29, 1935, will be revalued on the same basis.

The increment in assets resulting from these re-valuations will accrue to the Treasury.

ARTICLE 2. The royal decree of April 3, 1935, creat-ing an Exchange Equalization Fund, is abrogated.

The assets of the Exchange Equalization Fund areto be returned to the Treasury.

ARTICLE 3. Our Minister of Finance is chargedwith the execution of the present decree, which willbecome obligatory on the day of its publication in theMoniteur.1

Given at Brussels, March 31, 1936.1 Published in Moniteur Beige, April 1, 1936.

Government Control of Credit Institutions andSecurity Issues in Italy

State control of the banking and creditsystem in Italy was completed by a royaldecree-law of March 12, 1936, following adecree of the Cabinet on March 3. The latermeasure, entitled "Provisions for the protec-tion of savings and for the regulation ofcredit," places under Government control newsecurity issues and all institutions for sav-ings, personal loans, and agricultural andcommercial banking, including branches offoreign banks.

The Bank of Italy becomes a public institu-tion to be owned by banks and other financialinstitutions. Private shareholders are re-

quired to sell their shares at a fixed price.The bank will become primarily a bankers'bank, and after July 1, 1936, will rediscountonly for credit institutions, public and pri-vate, but it will continue to make advances toprivate individuals on Government obliga-tions and certain other types of securities.Certain of the larger banks are to be declaredpublic institutions and the banks already soconstituted are confirmed in that status. Al-though a number of these banks are wholly orpartly owned by the Government, Govern-ment ownership is not an essential feature ofthe new status.

A new agency of control, the "Inspector-ship for the protection of savings and for theregulation of credit," is established, to bepresided over by the Governor of the Bankof Italy acting under a Committee of Minis-ters. The Committee will define the object-ives of the Inspectorship and will consult theCentral Corporative Committee in order toprovide for meeting the credit needs of thecountry. The new Ministerial Committeewill take over existing powers of variousministers to supervise or control financial in-stitutions such as stock exchanges, mortgagecredit banks, and other specialized creditagencies.

New statutes for the Bank of Italy are tobe issued in pursuance of the decree ofMarch 12.



LAW DEPARTMENTApplicability of exception to section 23A of Federal

Reserve Act relating to indebtedness of affiliate onassets acquired from member bank

Section 23A of the Federal Reserve Actcontains certain limitations on loans or ex-tensions of credit by a member bank to itsaffiliates and on investments by a memberbank in, or loans on, stock and obligations ofits affiliates. This section contains a numberof exceptions, including the following whichwas incorporated therein by the Banking Actof 1935:

The provisions of this section shall likewise notapply to indebtedness of any affiliate for unpaidbalances due a bank on assets purchased from suchbank * * *.

In response to an inquiry the Board recentlyexpressed the opinion that such exception,considering its intent and the substance ofthe transactions involved, should be construedto apply to extensions of credit which resultwhen, upon the foreclosure of a real estatelien by a member bank, an affiliate of thebank acquires title to the real estate and thebank charges the amount of the defaultedobligation against the affiliate. The Boardalso expressed the opinion that the provisionsof section 23A of the Federal Reserve Act arenot now applicable to such extensions ofcredit even though they were made before theenactment of the Banking Act of 1935.

The inquiry also related to loans made by amember bank to an affiliate for the purposeof enabling the affiliate to pay carryingcharges on the real estate acquired by it inthe above-described manner. In this connec-tion, the Board stated that it believed that, inorder to carry out the real intent of the ex-ception quoted above, such exception shouldbe construed as applying to indebtedness aris-ing out of incidental advances subsequentlymade by the bank in good faith to protectitself against loss on the original indebted-ness.

Lending of trust funds by a bank included withinthe provisions of section 22 (g) of the FederalReserve Act

The Board recently received a request fora ruling as to whether the restrictions con-tained in section 22 (g) of the Federal Re-serve Act and the Board's Regulation 0 in-clude loans to executive officers of memberbanks from trust funds administered by such

banks and whether executive officers of mem-ber banks are required to report to the boardsof directors of such banks loans made to themfrom trust funds held by other banking insti-tutions.

In response to the inquiry the Board statedthat an indebtedness of an executive officerof a member bank arising as a result of thelending of trust funds administered by suchbank falls within the purposes of the law,since the opportunity of an executive officerto use his influence to obtain a loan of suchfunds is present and the board of directors ofa member bank should be informed of any in-debtedness of its executive officers arising outof the lending of trust funds administered byother banks. Moreover, there is no justifica-tion, under well recognized rules of statutoryconstruction, to place a restricted meaningupon the provisions of the statute so as toexclude an indebtedness arising out of thelending of trust funds administered by abank. Accordingly, the Board expressed theview that the restrictions contained in section22 (g) of the Federal Reserve Act and theBoard's Regulation 0 include loans to execu-tive officers of member banks from trustfunds administered by such banks and like-wise that an indebtedness of an executiveofficer of a member bank to another bankarising out of the lending of trust fundsshould be reported to the board of directorsas provided in section 5 of the Board's Regu-lation 0.

In reaching the conclusion that section22 (g) includes an indebtedness arising outof the lending of trust funds, the Boardpointed out that a question might be raisedas to what effect the $2,500 exception con-tained in section 22 (g) might have on theprovision in secton 11 (k) of the Federal Re-serve Act which prohibits a national bankexercising trust powers from lending fundsheld in trust to any of its officers, directors,or employees. However, the provision in sec-tion 22 (g) can be applied to loans of thebank's own funds and thus be given full effecteven though it is not considered as repealingthe provision in section 11 (k) just above re-ferred to. Under the usual rules of statutoryconstruction, the repeal of statutes by impli-cation is not favored, especially if the pro-visions of both statutes involved can be givenfull effect and, in the circumstances, theBoard stated that section 22 (g) does not in



any manner affect the provision in section11(k).

The Board also observed that it is contraryto the established principles regarding thehandling of trust funds for a trustee to haveany interest in the funds of a trust which heis administering and likewise such principlesare applicable to executive officers of a cor-porate trustee. These principles are so wellestablished that some States have enactedlaws forbidding corporate fiduciaries fromlending trust funds to their own officers,directors, or employees; Congress has pro-hibited national banks from lending trustfunds to their own officers, directors, or em-ployees ; and the Board has prescribed a simi-lar prohibition in the form of a condition ofmembership applicable to State memberbanks. While there may be some State mem-ber banks which are not subject to the condi-tion and the laws of the State under whichthey operate may not prohibit such loans, theBoard expressed the view that such banksshould not lend trust funds to their own ex-ecutive officers.

Renewal of loan to person who was not executiveofficer at time of making of loan

The Board has recently been presented withthe question whether, under section 22 (g) ofthe Federal Reserve Act, a loan which wasmade by a member bank in June, 1935, to anindividual who was not at that time an execu-tive officer of the bank may now be renewedor extended at maturity where such indi-vidual is now an executive officer of the bankwithin the meaning of that term as definedin the Board's Regulation 0.

Section 22 (g) of the Federal Reserve Act,as amended by the Banking Act of 1935, pro-vides that loans made to executive officers ofmember banks prior to June 16,1933, may berenewed or extended, under certain condi-tions, for periods expiring not more than fiveyears from that date. Since, under the factsstated in the inquiry, the loan in question wasnot made to an executive officer of a memberbank prior to June 16,1933, a renewal of suchloan would not fall within the scope of thisprovision of section 22 (g) of the FederalReserve Act and the making of such a renewalwould not, therefore, be subject to the condi-tions prescribed in the statute or in section 4of the Board's Regulation 0.

A renewal of a loan in the circumstancesdescribed would be prohibited by the statute

only if such renewal may be regarded as aloan or extension of credit within the mean-ing of its provisions. In a case arising undersection 23A of the Federal Reserve Act whichrelates to loans and extensions of credit toaffiliates of member banks, the Board hadpreviously taken the position that the re-newal of an existing loan does not constitutean extension of credit within the meaning ofsuch section. While the question was notdirectly involved in that case, the Board hadexpressed the view that the proviso in section22 (g) of the Federal Reserve Act permittingthe renewal of loans made to executive offi-cers prior to June 16, 1933, may properly beinterpreted as imposing a limitation upon theperiod during which such loans may be re-newed or extended, rather than as conferringa right of renewal or extension which did nototherwise exist. Moreover, the Board statedthat under the more usual interpretation ofthe words "extension of credit," such wordsmean a grant or an allowance of credit ratherthan an extension of the time of payment ofa debt already in existence.

In the circumstances, the Board expressedthe view that a renewal or extension of a loanmade by a member bank subsequent to June16,1933, to a person who was not at that timean executive officer of the bank is not to beregarded as a loan or extension of creditwithin the meaning of the prohibitions ofsection 22 (g) of the Federal Reserve Act.

Transfers of loans

Ruling No. 1 interpreting Regulation U.—In response to an inquiry from certain banksin New York City concerning section 3(e)of Regulation U, the Board of Governors ofthe Federal Reserve System rules as follows:

A bank may accept the transfer of a loanfrom another lender, provided the loan is notincreased and the collateral for the loan is notchanged, even though the "maximum loanvalue" of the collateral be less than theamount of the loan, but may not thereafterpermit at any time withdrawals or substitu-tions of collateral that would increase thedeficiency at such time.

Applicability of Public Utility Holding Company Actof 1935 to banks

For the information of member banks,there is set out below the text of a letteraddressed to a number of banks by the Chair-



man of the Securities and Exchange Commis-sion regarding the applicability of the PublicUtility Holding Company Act of 1935 tobanks, and the text of Rule 3A3-1 of the Com-mission referred to in the letter.

Any inquiry relating to this matter shouldbe addressed to the Securities and ExchangeCommission.

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON

GENTLEMEN: It has come to our attention that anumber of banks are apparently unaware of thefact that, as a result of acquiring public utility securi-ties in liquidation of debts or holding them in trustcapacities, or otherwise, such banks may constitute"holding companies" as defined in the Public UtilityHolding Company Act of 1935.

Section 2(a) (7) of the Act defines as a "holdingcompany" any company which owns, controls, or holdswith power to vote, 10 per cent or more of the out-standing voting securities of a public utility company.A public utility company is defined in section 2 (a) (5)as an electric or gas utility company, and the latterare further defined in paragraphs (3) and (4) ofsection 2(a).

Section 4(a) of the Act required all holding com-panies which use the mails or interstate commerce inany of the ways therein specified, to register with thisCommission, except that the Commission is directedby section 3 (a) to exempt certain classes of holdingcompanies. Acting pursuant to this authority, theCommission has promulgated Rule 3A3-1 exemptingcertain banks from the provisions of the Act applica-ble to them as holding companies, subject to the con-dition that they file quarterly statements with thisCommission on Form U-3A3-1. The first of thesestatements is due not later than April 30, 1936.

Enclosed you will find copies of the Act and also ofthe Rule and Form mentioned above.

Very truly yours,(Signed) JAMES M. LANDIS, Chairman.

RULE 3A3-1, AS PROMULGATED NOVEMBER 25, 1935(RELEASE NO. 24) AND AMENDED MARCH 18, 1936(RELEASE NO. 115)

Rule 3A3-1. Exemption of certain banks, (a)Any bank as defined in paragraph (b) of this Ruleshall, except insofar as specified in paragraphs (c)and (d) of this Rule, be exempt from any obligation,duty, or liability imposed by the Act upon such bankas a holding company, if such bank does not own,control, or hold with power to vote, 10 per cent ormore of the voting securities of any public-utility orholding company other than—

(1) securities of which such bank is not thebeneficial owner;

(2) securities pledged as security for, or ac-quired in connection with the liquidationof, a debt resulting from a loan or othercredit at any time in good faith extendedby such bank either alone or in conjunc-tion with other lenders;

(3) securities acquired by such bank, underany plan of reorganization or otherwise,

in satisfaction in whole or in part of anysuch debt or in exchange for such debt;

(4) securities acquired by such bank in ex-change for securities described in para-graphs (1), (2) an

M A Y 193G FEDERAL RESERVE BULLETIN 327

of such a bank, or guarantee any other in-sured bank against loss by reason of its as-suming the liabilities and purchasing theassets of an insured bank. Such action maybe taken by the Corporation if it will reducethe risk or avert a threatened loss to the Cor-poration and will facilitate a merger or con-solidation of an insured bank with anotherinsured bank or will facilitate the sale of theassets of an insured bank to and assumptionof its liabilities by another insured bank.

Revision of Regulation F relating to the exercise oftrust powers by national banks

The Board of Governors has recently re-vised its Regulation F relating to the exerciseof trust powers by national banks. The textof the revised regulation, which will becomeeffective on June 1, 1936, is set forth below.

REGULATION F(Revised effective June 1, 1936. Superseding Regulation F,

Series of 1930)

TRUST POWERS OF NATIONAL BANKSAUTHORITY FOR REGULATION

This regulation is issued under authority of theprovisions of section 11 (k) of the Federal ReserveAct, as amended, which, together with related pro-visions of law, are published in the Appendix hereto.

SECTION 1. APPLICATION

A national bank desiring to exercise any or all ofthe powers authorized by section 11 (k) of the Fed-eral Reserve Act, as amended, shall make applicationto the Board of Governors of the Federal ReserveSystem for a special permit authorizing such nationalbank to exercise such powers. If the applying bankis not authorized to exercise any of such powers, theapplication should be made on Form 61; and if the ap-plying bank is authorized to exercise one or more butnot all of such powers, the application should bemade on Form 61b.

In the case of the organization of a new nationalbank, the conversion of a State bank or trust com-pany into a national bank, or the consolidation oftwo or more national banks or of a State bank ortrust company with a national bank under thecharter of the latter, when none of the nationalbanks involved in such consolidations is authorizedto exercise trust powers, application for such a per-mit may be made in advance on behalf of the new,converted or consolidated national bank, and the per-mit may be issued simultaneously with the consum-mation of such organization, conversion or consolida-

tion. Such application may be made by the or-ganizers in the case of a new national bank, by theState bank or trust company in the case of a con-version, and by the national bank the charter ofwhich is to be retained in the case of a consolidation.

Each application made under the provisions ofthis section shall be executed and forwarded in dupli-cate, together with duplicate copies of any docu-ments containing any information submitted withthe application, to the Federal Reserve bank of thedistrict in which the applying bank is located.

SECTION 2. CONSIDERATION OF APPLICATIONS

In passing upon an application for permission toexercise the fiduciary powers authorized by section11 (k) of the Federal Reserve Act, as amended, theBoard of Governors of the Federal Reserve Systemwill give special consideration to the following mat-ters:

(a) Whether, under the provisions of sec-tion 11 (k) of the Federal Reserve Act, asamended, the bank has sufficient capital andsurplus to render it eligible to receive permis-sion to exercise the fiduciary powers applied forand whether the granting of any or all of suchpowers would be in contravention of State orlocal law;

(h) The needs of the community for trustservice of the kind applied for and the probablevolume of such trust business available to thebank;

(c) The general condition of the bank, par-ticularly the adequacy of its net capital andsurplus funds in relation to the character andcondition of its assets and to its deposit liabili-ties and other corporate responsibilities, includ-ing the proposed exercise of trust powers;

(d) The general character and ability of themanagement of the bank;

(e) The nature of the supervision to be givento the proposed trust activities, including thequalifications and experience of the members ofthe proposed trust investment committee;

(/) The qualifications, experience and char-acter of the proposed executive officer or officersof the trust department;

(g) Whether the bank has available com-petent legal counsel to advise and pass upontrust matters whenever necessary; and

(h) Any other facts and circumstances thatseem to it proper.

SECTION 3. CONSOLIDATION OF TWO OR MORENATIONAL BANKS

Where two or more national banks consolidateunder the provisions of the Act of Congress ap-



proved November 7, 1918,1 as amended, and any oneof such banks has, prior to such consolidation, re-ceived a permit from the Board of Governors of theFederal Reserve System to act in fiduciary capacitieswhich is in force at the time of the consolidation, therights existing under such permit pass by operationof law to the consolidated bank and the consolidatedbank may act in such fiduciary capacities in thesame manner and to the same extent as the bankto which such permit was originally issued; and nonew application to continue to act in such capacitiesis necessary. However, in order that the records ofthe consolidated bank may be complete and that itmay have convenient evidence of its right to exercisetrust powers, the Board, upon receipt of advice fromthe Comptroller of the Currency that the consolida-tion has been consummated, will issue a certificateto the consolidated bank showing its right to exercisethe trust powers theretofore granted by the Boardto any of the national banks taking part in the con-solidation.

SECTION 4. CONSOLIDATION OF STATE BANK WITH

NATIONAL BANK

Section 3 of the Act of Congress approved Novem-ber 7, 1918,2 as amended, authorizes any bank, trustcompany, savings bank, or other banking institutionincorporated under the laws of any State or in theDistrict of Columbia to be consolidated directly witha national bank located in the same State, county,city, town, or village under the charter of such na-tional bank, and provides in effect that, when suchconsolidation is consummated, the consolidated na-tional bank shall succeed to the specific fiduciary ap-pointments, designations and nominations of theState institution at the time of the consolidation. Itis not necessary for the national bank to have a per-mit from the Board of Governors of the Federal Re-serve System in order to administer the specifictrusts to which it thus succeeds, but the provisiondoes not confer upon the consolidated national bankthe right to act generally in fiduciary capacities orto undertake any other trust business. Unless thenational bank already has a permit from the Boardof Governors of the Federal Reserve System to actin fiduciary capacities which is in force at the timeof the consolidation, it will be necessary for the bankto obtain such a permit before undertaking to actgenerally in fiduciary capacities or to accept anyother trust business.

SECTION 5. CHANGE OF NAME

If a national bank has received a permit fromthe Board of Governors of the Federal Reserve Sys-

1 Applicable provisions of the Act of Congress approved November7, 1918, as amended, are printed in the Appendix to this regulation.

2 Section 3 of the Act of Congress approved November 7, 1918, asamended, is printed in the Appendix to this regulation.

tern to act in fiduciary capacities and subsequently,while the permit is in force, changes its name underthe provisions of the Act of Congress approved May1, 1886,3 it is not necessary for the bank to make anew application to continue to act in such capacities.However, in order that the records of the bank maybe complete and that it may have convenient evidenceof its right to exercise trust powers under its newname, the Board, upon receipt of advice from theComptroller of the Currency that such change inname has been legally effected, will issue a certificateto it under such new name evidencing its right toexercise the trust powers previously granted to itunder its old name.

SECTION 6. TRUST DEPARTMENT AND MANAGEMENT

(a) Separate trust department.—Every nationalbank which obtains permission from the Board ofGovernors of the Federal Reserve System to act ina fiduciary capacity shall, before undertaking to actin such capacity, establish a trust department whichshall be separate and apart from every other de-partment of the bank.

(b) Directors' supervision of trust department.—The board of directors is responsible for the in-vestment of trust funds by the bank, the dispositionof trust investments, the supervision of the trust de-partment, the determination of the policies of suchdepartment and for the review of the actions of allcommittees appointed by the board of directors forthe conduct of the trust department. The accept-ance of all fiduciary accounts shall be approved bythe board of directors or a committee appointed bysuch board, and the closing out or relinquishment ofall such accounts shall be approved or ratified bythe board of directors or a committee appointed bysuch board. Any such approval or ratification shallbe recorded in the minutes of the board of directorsor of such committee as the case may be.

(c) Trust investment committee.—Before anysuch national bank undertakes to act in any fiduciarycapacity, the board of directors of the bank shallappoint a trust investment committee which shallbe composed of at least three members, who shall becapable and experienced officers or directors of thebank. All investments of trust funds by the trustdepartment of every such national bank shall bemade, retained or disposed of only with the approvalof the trust investment committee; and such com-mittee shall keep minutes of all its meetings, show-ing the disposition of all matters considered andpassed upon by it. Such committee shall, at leastonce during each period of twelve months, reviewall the assets held in or for each fiduciary accountto determine their safety and current value and the

3 The applicable provisions of the Act of Congress approved May 1,1886, are printed in the Appendix to this regulation.



advisability of retaining or disposing of them; anda report of all such reviews, together with the actiontaken as a result thereof, shall be noted in theminutes of the trust investment committee. Suchcommittee may have such additional duties relatingto the trust department as may be prescribed by theboard of directors.

(d) Executive officer.—Before any such nationalbank undertakes to act in any fiduciary capacity,its trust department shall be placed under the man-agement and immediate supervision of an executiveofficer or officers qualified and competent to ad-minister trusts, and the duties of such officer orofficers shall be prescribed by the board of directorsof the bank. Such duties shall be evidenced by theby-laws of the bank or by a resolution duly adoptedby and entered in the minutes of the board of di-rectors. All officers and other persons taking partin the operation of the trust department shall beadequately bonded.

(e) Competent legal counsel.—Every such na-tional bank shall designate, employ or retain com-petent legal counsel who shall be readily availableto pass upon trust matters and to advise with thebank and its trust department; but the bank shallnot engage in the practice of law.

(/) Principles of trust institutions.—Every suchnational bank shall conform to sound principles inthe operation of its trust department.4

SECTION 7. BOOKS AND ACCOUNTS

(a) In general.—Every national bank which hasreceived permission from the Board of Governorsof the Federal Reserve System to exercise fiduciarypowers shall keep the books and records of the trustdepartment separate and distinct from other recordsof the bank. All trust accounts opened shall be sokept as to enable the national bank to furnish suchinformation or reports with respect thereto as maybe required by the Comptroller of the Currency orthe Board of Governors of the Federal Reserve Sys-tem. The records of the trust department shall con-tain full information relating to each trust.

(6) Record of pending litigation.—Every suchnational bank shall keep an adequate record of alllitigation pending against it in connection with itsadministration of any trust.

SECTION 8. EXAMINATIONS OF TRUST DEPARTMENT

In addition to examinations by examiners appointedby the Comptroller of the Currency5 or designated by

4 The Statement of Principles of Trust Institutions approved by theExecutive Council of the American Bankers Association under dateof April 11, 1933, is included in the Appendix to this regulation and iscommended to banks operating trust departments.

6 Section ll(k) of the Federal Reserve Act, as amended by the BankingAct of 1935, approved August 23,1935, provides that "The State banking

the Board of Governors of the Federal Reserve Sys-tem, a committee of directors, exclusive of any activeofficers of the bank, shall, at least once during eachperiod of twelve months, make suitable audits ofthe trust department or cause suitable audits of suchdepartment to be made by auditors responsible onlyto the board of directors, and shall, likewise atleast once during each period of twelve months, as-certain by thorough examination made or caused tobe made by such committee—

(1) Whether a review of all the assets in eachtrust as to their safety and current value andthe advisability of retaining or disposing ofthem has been made in accordance with section6 (c) of this regulation;

(2) Whether trust funds awaiting invest-ment or distribution have been held uninvestedor undistributed any longer than was reason-ably necessary.

Such committee shall promptly make a full reportof such audits and examination, in writing, to theboard of directors of the bank, together with arecommendation as to the action, if any, which maybe necessary to correct any unsatisfactory condi-tions. The board of directors shall give due con-sideration to such report and recommendation, to-gether with the latest report of examination by theComptroller of the Currency or examiners designatedby the Board of Governors of the Federal ReserveSystem 6 furnished to the bank, and shall take suchsteps as are appropriate to correct any criticizedmatters. A report of the audits and examination re-quired under this section, together with the actiontaken thereon, shall be noted in the minutes of theboard of directors; and such report shall be made apart of the records of the bank.

SECTION 9. TRUST FUNDS AWAITING INVESTMENT

OR DISTRIBUTION

(a) In general.—Funds received or held by a na-tional bank as fiduciary awaiting investment or dis-tribution shall not be held uninvested or undis-tributed by the bank any longer than is reasonablynecessary.

authorities may have access to reports of examination made by theComptroller of the Currency in so far as such reports relate to the trustdepartment of such bank, but nothing in this Act shall be construedas authorizing the State banking authorities to examine the books,records, and assets of such bank."

While this provision denies to the State banking authorities the rightto examine the trust department of any national bank without thebank's consent, it does not prohibit the bank from permitting an in-spection of its records by any one it desires.

6 This does not relieve the board of directors of any responsibility forprompt consideration of, and action on, matters criticized in the latestreport of examination by the Comptroller of the Currency or the Boardof Governors of the Federal Reserve System furnished to the bank or forthe prompt consideration and action on any matter coming to the atten-tion of the board of directors from any other source which requires actionfor the protection of parties at interest.



(b) Use in conduct of business of trustee bank.—Funds received or held by a national bank asfiduciary awaiting investment or distribution shallnot be used by the bank in the conduct of its busi-ness, unless the bank, under authorization by itsboard of directors, first delivers to the trust depart-ment, as collateral security:

(1) Bonds, notes, bills, certificates of in-debtedness or other direct obligations of theUnited States, or obligations fully guaranteedby the United States as to principal and in-terest; or

(2) Other readily marketable securities ofthe classes in which State trust companies orState banks exercising trust powers are au-thorized or permitted to invest trust funds underthe laws of the State in which such nationalbank is located; or

(3) Other readily marketable securities ofthe classes defined as "investment securities"pursuant to section 5136 of the Revised Statutesof the United States, as amended.7

The securities so deposited as collateral shall beowned by the national bank and shall at all timesbe at least equal in market value to the amount ofthe trust funds so used in the conduct of the bank'sbusiness.8

SECTION 10 . INVESTMENT OF TRUST FUNDS

(a) Private trusts.—Funds received or held by anational bank as fiduciary shall, with the approvalof the trust investment committee and subject to therules of law applicable to fiduciaries, be investedpromptly and in strict accordance with the will, deedor other instrument creating the trust. When theinstrument creating the trust contains provisionsexpressly authorizing the bank, its officers or its di-rectors to exercise a discretion in the matter, fundsreceived or held in trust shall be invested only withthe approval of the trust investment committee.

» Section 5136 of the Revised Statutes of the United States, as amended,provides that as used in that section ''the terra 'investment securities'shall mean marketable obligations evidencing indebtedness of anyperson, copartnership, association, or corporation in the form of bonds,notes, and/or debentures commonly known as investment securitiesunder such further definition of the term 'investment securities' as mayby regulation be prescribed by the Comptroller of the Currency"; and acopy of the regulation prescribed by the Comptroller under the authorityof section 5136 may be obtained upon request made to his office.

s Section ll(k) of the Federal Reserve Act, as amended, requires thatthe national bank shall set aside in the trust department "United Statesbonds or other securities approved by the Board of Governors of theFederal Reserve System". This subsection of this regulation is in-tended as a general approval by the Board of all securities which complywith the requirements thereof and the Board will not give specific ap-proval to any particular securities.

If a national bank desires to substitute securities for securities alreadydeposited in the trust department as collateral for trust funds used inthe conduct of the business of such bank, such a substitution may bemade provided the substituted securities comply with the requirementsof this subsection and the substituted securities and other securities sodeposited as collateral at all times are at least equal in market value tothe amount of trust funds so used in the conduct of the bank's business.

When such instrument does not specify the char-acter or class of investments to be made and does notexpressly vest in the bank, its officers or its directorsa discretion in the matter, funds received or held intrust shall be invested, with the approval of t

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