Full text of Federal Reserve Bulletin : January 1969
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28 FEDERAL RESERVE BULLETIN • JANUARY complete these discussions and study the information gained very carefully before I make any recommendations to the Board as to whether the program should be continued in its present form or modified in some way. • APPENDIX A Progress Report on the Federal Reserve Foreign Credit Restraint Programs THE PROGRAM FOR BANKS, 1965-69 In February 1965 the President requested the voluntary cooperation of U.S. financial institutions and nonfinancial corporations in solving the problem of the persistent deficit in the U.S. balance of payments. The Board of Governors was asked to administer a program for financial institutions, and on March 3, 1965, issued guidelines for banks and nonbank financial institutions. The major objective of the program for banks was to reduce, but not to eliminate, the banks' foreign lending. This was to be done without endangering other important national objectives, such as the financing of exports of U.S. goods and services, and meeting the credit needs of the developing countries. The guidelines issued on March 3, 1965, requested the banks to hold loans and other foreign assets covered by the program to 105 per cent of the amount of credits outstanding on the base date of December 31, 1964. Since the amount of "covered" assets approximated $10 billion, this formula would have permitted an increase of about $500 million in 1965. While the program applied to all banks, only banks with total foreign assets of $500,000 or more were requested to report to the Federal Reserve Banks. The number of reporting banks has varied closely around 150 since the beginning of the program. During 1965 the reporting banks increased their holdings of covered assets by $168 million, as compared with an increase in total foreign assets of $2.5 billion in 1964. At the end of the year, the 1969 banks were $321 million below the target ceiling effective on that date. In December 1965 the Board announced revised guidelines for banks for 1966 that increased the target ceiling to 109 per cent of the end of 1964 base, or by about $430 million. The room for additional expansion, the Board said, was allowed because the Board believed that the additional leeway would be used only to meet priority credit requirements and because it wished to make certain that such requirements could be met. Because the additional leeway was added to an existing leeway of more than $300 million, the Board requested that the banks use the additional ceiling provided at a rate of not more than 1 per cent of the base figures per quarter during 1966; that is, the target ceiling was set at 106, 107, 108, and 109 per cent by quarters. The guidelines for 1966 also contained the first provisions to reduce the inequities inherent in a program that is based upon a particular point in time. Banks with bases between $500,000 and $5 million were permitted to adopt ceilings of base plus $450,000 ($225,000 in each calendar halfyear) even though in most cases that amount exceeded 109 per cent of their end of 1964 base. Bank holdings of covered assets declined by $156 million during 1966, bringing the total down to about the amount outstanding on the base date. The leeway available on December 31, 1966, was $911 million. The bank program for 1967, announced in December 1966, was essentially unchanged from the 1966 program. The ceiling remained at 109 per cent of the December 1964 base. Since the banks had a large leeway available at the time the program was announced ($1.2 billion as of October 31, 1966), the banks again were asked to phase any increase in their foreign lending during 1967, this time at a rate of not more than 20 per cent of the leeway on October 31, 1967, in each quarter, cumulative, beginning with the fourth quarter of 1966. The provision for banks with small bases was modified by raising the maximum base for these "special" ceilings to $10 million, and the amount of the ceiling to base plus $900,000. The first step in the direction of a geographical focus, other than the priority for developing countries, was taken in 1967 when the banks were asked to use no more than 10 per cent of their available leeway to increase nonexport credits to developed STATEMENT TO CONGRESS countries. The related reporting requirement was dropped on February 2, 1967, because the banks found it difficult to identify export credits, particularly in the short maturities. However, the banks were asked to continue to conform as closely as possible to the spirit of the request. Bank foreign assets covered by the program increased by $370 million in 1967, but the banks ended the year with a net leeway for further expansion of $1.2 billion, half of which reflected an increase in the ceiling under the revised guidelines for 1968 described below. Revised guidelines for banks for 1968 were issued by the Board in November 1967, to be effective as of the date of issue. The ceiling was in general retained at 109 per cent of the end of 1964 base. However, in a major move to overcome the inequitable effects of the program already referred to, the guidelines provided that banks whose foreign assets on October 31, 1967, were $500,000 or more could take as a ceiling for 1968 their 1967 ceilings or 2 per cent of total assets as of December 31, 1966, whichever figure was larger. The amount by which the ceiling calculated on this basis exceeded the 1967 ceiling was to be used only for priority credits. This provision added about $600 million to the aggregate ceiling. Again, the size of the leeway available led to a request by the Board that any expansion of foreign lending during the last quarter of 1967 and in 1968 be limited to not more than 20 per cent of the leeway, cumulative, in each calendar quarter, beginning with the fourth quarter of 1967. The geographical emphasis introduced into the 1967 program was given sharper focus by a provision in the guidelines which requested that banks not increase nonexport credits to developed countries of continental Western Europe above the amount outstanding on October 31, 1967. These countries were singled out because to a large extent their balance of payments surpluses corresponded to our deficit, and because they were in the best position to meet their own credit needs. A reappraisal of the U.S. balance of payments results for 1967 in December of that year led to the announcement by the President on January 1, 1968, of a more restrictive balance of payments program. The bank program announced in November 1967 was replaced by revised guidelines which for the first time requested an outright re- 29 duction in the level of foreign assets outstanding (in the amount of $400 million) as compared with the earlier objective of restraining the rate of increase in such assets. The reduction was accomplished by reducing the ceiling to 103 per cent of the end of 1964 base or, for banks electing the "2 per cent" calculation, to the 1967 ceiling plus onethird of the difference between that amount and 2 per cent of total assets as of December 31, 1966. As was true in the earlier guidelines for 1968, any amount over the 1967 ceiling was to be used only for priority credits. These measures immediately reduced the ceiling for 1968 by $960 million. The guidelines provided that the ceiling would be further reduced during 1968 by measures relating to bank foreign lending to developed countries of continental Western Europe. The banks were requested to make no new term loans to those countries (including renewals of term loans outstanding) except to finance U.S. exports, and to reduce their ceilings on each reporting date by the amount of repayments received during the preceding month of such loans outstanding on December 31, 1967. The banks also were asked to reduce their ceilings over the year by 40 per cent of the amount of short-term credits to developed countries of continental Western Europe outstanding on December 31, 1967. The reduction in the ceiling was to take place at 10 percentage points in each quarter; the banks were expected to reduce their short-term credits outstanding to those countries at about the same rate. There was one major change in the January 1, 1968, guidelines during the year. On March 1, 1968, because of a difficult financial situation that had developed in that country early in the year, Canada was exempted from all of the U.S. balance of payments programs. Changes in foreign assets held by financial institutions in Canada after February 29, 1968, were excluded from the target ceilings. There are data on the performance of the reporting banks under the January 1, 1968, guidelines only through November 30, 1968. On that date the banks had reduced their holdings of covered assets by $673 million below the level outstanding on December 31, 1967, or by $273 million more than the objective for the year. The banks on November 30, 1968, actually were $300 million below the 1964 base figure and had a net leeway for further expansion of $581 million. 44 FEDERAL RESERVE BULLETIN • JANUARY 1969 of March 14 was that with the Bank of Italy, for which negotiations looking toward an increase of up to $250 million equivalent had been authorized. Recently these negotiations had been successfully completed, and on the day of this meeting Chairman Martin determined that an increase in the swap arrangement with the Bank of Italy from $750 million to $1 billion equivalent was in the national interest. Accordingly, the corresponding amendment to paragraph 2 of the authorization for System foreign currency operations became effective on October 8, 1968. Law Department Administrative interpretations, new regulations, and similar material REGULATION P: MINIMUM SECURITY DEVICES AND PROCEDURES FOR FEDERAL RESERVE BANKS AND STATE MEMBER BANKS Pursuant to authority conferred by the Bank Protection Act of 1968 (82 Stat. 294), the Board of Governors has issued a new Regulation P, effective January 13, 1969. The regulation implements the Act with respect to Federal Reserve Banks and State-chartered banks that are members of the Federal Reserve System. It (1) provides minimum standards for security devices and procedures both to discourage robberies, burglaries and larcenies involving financial institutions and to facilitate the identification and apprehension of persons who commit such crimes; (2) establishes time limits for compliance and procedures for reporting on compliance; and (3) assures flexibility in application of such standards to accommodate differing circumstances of individual banking offices. The text of the regulation is as follows: MINIMUM SECURITY DEVICES AND PROCEDURES FOR FEDERAL RESERVE BANKS AND STATE MEMBER BANKS* SECTION 216.0—SCOPE OF PART Pursuant to the authority conferred upon the Board of Governors of the Federal Reserve System by section 3 of the Bank Protection Act of 1968 (82 Stat. 295) with respect to State banks which are members of the Federal Reserve System and to Federal Reserve Banks * the rules contained in this Part— (a) establish minimum standards for the installation, maintenance, and operation of security devices and procedures to discourage robberies, burglaries, and larcenies and to assist in the identification and apprehension of persons who commit such acts; (b) establish time limits for compliance; and (c) require the submission of reports. SECTION 216.1—DEFINITIONS For the purposes of this Part— (a) The term "State member bank" means any bank that is a member of the Federal Reserve System (other than a national bank or a District of Columbia bank). (b) The term "banking hours" means the time during which a banking office is open for the normal transaction of business with the banking public. * This text corresponds to the Code of Federal Regulations, Title 12, Chapter II, Part 216, cited as 12 CFR 216. The words "this Part," as used herein, mean Regulation P. 1 See section 216.7 regarding the applicability of this Part to Federal Reserve Banks. (c) The term "banking office" includes the main office of any State member bank and any branch thereof. (d) The term "branch" includes any branch bank, branch office, branch agency, additional office, or any branch place of business located in any State of the United States or in any Territory of the United States, Puerto Rico, Guam, or the Virgin Islands at which deposits are received or checks paid or money lent. (e) The term "Board" means the Board of Governors of the Federal Reserve System. (f) The term "teller's station or window" means a location in a banking office at which bank customers routinely conduct transactions with the bank which involve the exchange of funds, including a walk-up or drive-in teller's station or window. SECTION 216.2—DESIGNATION OF SECURITY OFFICER On or before February 15, 1969 (or within thirty days after a State bank becomes a member of the Federal Reserve System, whichever is later), the board of directors of each State member bank shall designate an officer or other employee of the bank who shall be charged, subject to supervision by the bank's board of directors, with responsibility for the installation, maintenance, and operation of security devices and for the development and administration of a security program which equal or exceed the standards prescribed by this Part. 45 59 LAW DEPARTMENT cept that a bank may establish a branch in any town that has no banking office. The possibility is remote that competition between Applicant's present subsidiaries and Bank would occur as a result of either Applicant's present subsidiaries establishing a branch in Aroostook County, since all towns in the County sufficiently populous to support a banking office have such an office. The proposed transaction would not result in a monopoly or be in furtherance of any combination, conspiracy or attempt to monopolize the business of banking in any relevant area. Approval of the application and consummation of the proposal would not substantially lessen competition, tend to create a monopoly, or restrain trade in any section of the country. Financial and managerial resources and future prospects. The financial condition of Applicant and its subsidiary banks is satisfactory, and the prospects of each appear favorable. Applicant's management is regarded as experienced and competent, as is that of its subsidiary banks. Bank's condition is also regarded as satisfactory, as is its management, and its prospects are favorable; thus, considerations relating to the banking factors are consistent with approval of the application. Convenience and needs of the communities involved. Consummation of the proposed transaction would have no effect on customers of Applicant's present subsidiaries. Nor does it appear that any major banking service in the area served by Bank is not being provided by the banks located in and near that area. However, Applicant has indicated that it intends to make Bank a more convenient alternative source for a complete line of banking services by providing investment management and data processing services, improving the lending ability of Bank through loan participations with Applicant's other subsidiaries, and providing specialized advice with regard to trust services. Considerations under this factor lend some weight toward approval of the application. Summary and conclusion. On the basis of all relevant facts contained in the record, and in light of the factors set forth in section 3(c) of the Act, it is the Board's judgment that the proposed transaction would be in the public interest and that the application should be approved. CHARTER BANKSHARES CORPORATION, JACKSONVILLE, FLORIDA In the matter of the application of Charter Bankshares Corporation, Jacksonville, Florida, for approval of acquisition of 80 per cent or more of the voting shares of First National Bank in Milton, Milton, Florida. ORDER APPROVING APPLICATION UNDER BANK HOLDING COMPANY ACT There has come before the Board of Governors, pursuant to section 3(a) (3) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a)(3)), and section 222.3 (a) of Federal Reserve Regulation Y (12 CFR 222.3(a)), an application by Charter Bankshares Corporation, Jacksonville, Florida, a registered bank holding company, for the Board's prior approval of the acquisition of 80 per cent or more of the voting shares of the First National Bank in Milton, Milton, Florida. As required by section 3(b) of the Act, the Board notified the Comptroller of the Currency of the application and requested his views and recommendation. The Comptroller recommended approval of the application. The present application was originally filed under the name of Commercial Associates, Inc. As part of a corporate reorganization which occurred during the pendency of the application, the name of the applicant was changed to Charter Bankshares Corporation. Notice of receipt of the application was published in the Federal Register on August 1, 1967 (32 Federal Register 11185), providing an opportunity for interested persons to submit comments and views with respect to the proposed transaction. A copy of the application was forwarded to the United States Department of Justice for its consideration. Time for filing comments and views has expired and all those received have been considered by the Board. IT IS HEREBY ORDERED, for the reasons set forth in the Board's Statement of this date, that said application be and hereby is approved, provided that the application so approved shall not be consummated (a) before the thirtieth calendar day following the date of this Order or (b) later than three months after the date of this Order unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Atlanta pursuant to delegated authority. FEDERAL RESERVE BULLETIN n JANUARY 60 Dated at Washington, D.C., this 18th day of December, 1968. By order of the Board of Governors. Voting for this action: Chairman Martin and Governors Robertson, Mitchell, Maisel, and Sherrill. Absent and not voting: Governors Daane and Brimmer. (Signed) ROBERT P. FORRESTAL, Assistant Secretary. [SEAL] STATEMENT Charter Bankshares Corporation, Jacksonville, Florida ("Applicant"), a registered bank holding company, has applied to the Board of Governors, pursuant to section 3 ( a ) ( 3 ) of the Bank Holding Company Act of 1956 (12 U.S.C. 1 8 4 2 ( a ) ( 3 ) ) , for prior approval of the acquisition of 80 per cent or more of the voting shares of First National Bank in Milton, Milton, Florida ("Milton Bank"). Views and recommendation of supervisory authority. As required by section 3(b) of the Act, the Board notified the Comptroller of the Currency of receipt of the application and requested his views and recommendation thereon. The Comptroller recommended approval of the application. Statutory considerations. Section 3(c) of the Act provides that the Board shall not approve an acquisition that would result in a monopoly or would be in furtherance of any combination or conspiracy to monopolize the business of banking in any part of the United States. Nor may the Board approve a proposed acquisition the effect of which, in any section of the country, may be substantially to lessen competition, or to tend to create a monopoly, or which in any other manner would be in restraint of trade, unless the Board finds that the anticompetitive effects of the proposed transaction are clearly outweighed in the public interest by the probable effect of the transaction in meeting the convenience and needs of the community to be served. Tn each case, the Board is required to take into consideration the financial and managerial resources and future prospects of the bank holding company and the banks concerned, and the convenience and needs of the community to be served. Competitive effect of the proposed transaction. Applicant, the smallest bank holding company in Florida, controls deposits of about $17 million, representing .18 per cent of the total deposits in the State.1 Upon completion of the acquisition 1 Unless otherwise noted, all banking data are as of December 30, 1967. 1969 proposed, Applicant would control .27 per cent of the total deposits in the State and would remain the smallest bank holding company in Florida. Consummation of the proposal would not significantly affect the present degree of State-wide concentration. Milton Bank, which has deposits of $9.5 million, is located in Milton, Santa Rosa County, and primarily serves that city. Santa Rosa State Bank, with deposits of $7 million, is the only other bank in Milton, and is a capable competitor of Milton Bank. Applicant's present subsidiary banks, Commercial National Bank of Pensacola, Escambia County ($13.3 million deposits), and Bank of Gulf Breeze, Santa Rosa County ($3.6 million deposits), are located 24 miles and 30 miles, respectively, from Milton Bank. Although consummation of the proposed acquisition will give Applicant a second subsidiary bank in Santa Rosa County and will result in its controlling a large percentage of commercial bank deposits in the County, that circumstance is of limited significance in view of the locational factors which separate the trade areas served by Bank of Gulf Breeze and Milton Bank. The most convenient route between Gulf Breeze and Milton is through Pensacola, and the Pensacola Bay, which separates Gulf Breeze from Pensacola, serves as an additional barrier to travel between the two sections of the County. In the Pensacola Standard Metropolitan Statistical Area, which encompasses the areas served by all three banks, Applicant's share of deposits held by 13 banks would increase from 10.3 per cent to 16.1 per cent. It does not appear that any significant competition exists between Milton Bank and either of the subsidiary banks, due to their respective sizes and the distances and natural barriers which separate them. These same considerations, plus a State law prohibition of branching, similarly limit the possibility that such competition might develop in the future. Finally, it is reasonably foreseen that the acquisition proposed will increase the competitive ability of the acquired bank, without adversely affecting the viability or competitive effectiveness of competing banks. In the light of these facts, the Board concludes that consummation of the proposed acquisition would not result in a monopoly or be in furtherance of any combination, conspiracy, or attempt to monopolize the business of banking in any area. LAW DEPARTMENT It does not appear that consummation of the proposal would have the effect of substantially lessening competition or tending to create a monopoly in any section of the country, or would in any manner be in restraint of trade. Financial and managerial resources and future prospects. The management and prospects of Applicant, its present subsidiaries, and Milton Bank are considered satisfactory. Capital of both Milton Bank and Commercial National Bank of Pensacola is somewhat low in relation to the deposits of the banks, and Applicant proposes to increase the capital of both by amounts which appear sufficient to meet present needs. Based on that proposal, the Board finds the financial condition of Applicant, its present subsidiaries, and Milton Bank to be reasonably satisfactory. Considerations under this factor are consistent with approval of the application, and, insofar as the proposed acquisition is a step in strengthening the resources and overall operations of both Milton Bank and Applicant, lend some weight in favor thereof. Convenience and needs of the communities involved. Consummation of Applicant's proposal would not affect the convenience or needs of the communities served by its present subsidiaries. The banking needs of the Milton community appear to be reasonably well served by the two commercial banks located there, except with respect to trust services. Milton Bank has an inactive trust department and Santa Rosa State Bank has none. Applicant plans to provide fiduciary services as they are needed by employing a trust officer whose services would be shared by the subsidiary banks as required. The proposed affiliation could also facilitate loan participations between Milton Bank and Applicant's present subsidiaries, thus enhancing Milton Bank's ability to serve the credit needs of its locality. These considerations are consistent with, and provide some additional weight in favor of, approval of the application. Summary and conclusion. On the basis of all relevant facts contained in the record, and in the light of the factors set forth in section 3(c) of the Act, it is the Board's judgment that the proposed transaction would be in the public interest and that the application should be approved. 61 FIRST BANK SYSTEM, INC., MINNEAPOLIS, MINNESOTA In the matter of the application of First Bank System, Inc., Minneapolis, Minnesota, for approval of acquisition of all of the voting shares (less directors' qualifying shares) of First Plymouth National Bank, Minneapolis, Minnesota, a proposed new bank. ORDER APPROVING APPLICATION UNDER BANK HOLDING COMPANY ACT There has come before the Board of Governors, pursuant to section 3(a)(3) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a)(3)) and section 222.3(a) of Federal Reserve Regulation Y (12 CFR 222.3(a)), an application by First Bank System, Inc., Minneapolis, Minnesota, for the Board's prior approval of the acquisition of all of the voting shares (less directors' qualifying shares) of First Plymouth National Bank, Minneapolis, Minnesota, a proposed new bank. As required by section 3(b) of the Act, the Board gave written notice of receipt of the application to the Comptroller of the Currency and requested his views and recommendations. The Acting Comptroller recommended approval of the application. Notice of receipt of the application was published in the Federal Register on May 21, 1968 (33 Federal Register 7505), providing an opportunity for interested persons to submit comments and views with respect to the proposed acquisition. A copy of the application was forwarded to the United States Department of Justice for its consideration. Time for filing comments and views has expired and all those received have been considered by the Board. IT IS HEREBY ORDERED, for the reasons set forth in the Board's Statement of this date, that said application be and hereby is approved, provided that the action so approved shall not be consummated (a) before the thirtieth calendar day following the date of this Order or (b) later than three months after the date of this Order unless such time shall be extended by the Board, or by the Federal Reserve Bank of Minnapolis pursuant to delegated authority; and provided further that the First Plymouth National Bank shall be opened for business not later than six months after the date of this Order.