The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for
To:
April 10, 1961
Members of the Board
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial below.
If you were present at the meeting, your initials will
indicate approval of the minutes. If you were not present,
Your initials will indicate only that you have seen the
minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System
spri Monday, April 10, 1961.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Hackley, General Counsel
Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
Mr. Johnson, Director, Division of
Personnel Administration
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Goodman, Assistant Director, Division
of Examinations
Mr. Leavitt, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office of
the Secretary
Mr.
Mr.
Mr.
Mr.
Mr.
Items circulated or distributed to the Board.
items,
r
The following
which had been circulated or distributed to the Board and copies
which are attached to these minutes under the respective item numbers
cated, were approved unanimously:
Item No.
lete.tter to
First National Bank in Lamed,
r,fled) Kansas, approving its application
'r fiduciary powers.
1
4/10/61
-2Item No.
Letter to the Federal Deposit Insurance
Corporation regarding the application of
11.1e Commonwealth Mutual Savings Bank,
Milwaukee, Wisconsin, for continuation
2f deposit insurance after withdrawal
om membership in the Federal Reserve
SYstera.
2
Letter to The Chase Manhattan Bank, New
1‘°rk, New York, authorizing the establishalent of a branch in Monrovia, Liberia.
3
Letter to Stromsburg Bank, Stromsburg,
Nebraska, interposing no objection to the
,IlpaYMent of certain dividends declared
'
Ilring 1959 and 1960.
Letter to the Comptroller of the Currency
recommending favorably with respect to an
'
4 Plication to organize a national bank at
2
gaslett, Michigan.
,petter to the Federal Reserve Bank of New
ills:/rk interposing no objection to assumption
by
the Bank of the expense involved in
ereasing the principal indemnity amount
foreign travel insurance.
4
5
6
Baort on competitive factors New Haven Connecticut . There
1184 been distributed a draft of report to the Comptroller of the Currency
On the competitive factors involved in a proposed consolidation of The
Sect:3nd National Bank of New Haven, New Haven, Connecticut, and The ComIllunitY Bank and Trust Company, also of New Haven.
In discussion, certain changes in the wording of the conclusion
Or the report were suggested, following which the report was approved
4/1o/61
-3-
unanimously for transmission to the Comptroller of the Currency.
The con-
clusion in the report, as approved, read as follows:
The proposed consolidation of The Second National Bank
Of New Haven and The Community Bank and Trust Company, now
third and fifth largest New Haven banks on the basis of IPC
deposits, will reduce sources of banking services in New
Haven from seven to six. The resulting bank should be able
to provide stronger competition to the two larger city banks
Without adverse effects on the smaller banks in the area.
1.
1ort on competitive factors (Pittsburgh-New Kensington, PennsylThere had been distributed a draft of report to the Comptroller
the Currency on the competitive factors involved in a proposed purchase
c3f assets and assumption of liabilities of The First National Bank of New
Xensington, New Kensington, Pennsylvania, by Pittsburgh National Bank,
Pittsbur_,
6n, Pennsylvania.
Governor Shepardson pointed out that the covering memorandum from
the Division of Examinations and the body of the proposed report indicated
that locally-owned banks near New Kensington did not anticipate any adverse
ertects from the proposed transaction and, in fact, expected that it might
bri
lig them additional deposits from area residents who preferred to deal
With lo
cally-owned banks whose management was well known rather than with
ehes of larger out-of-town banks.
Yet this aspect of the matter was
lic)t reflected in the conclusion of the report, nor was the fact that the
Prqosed transaction would eliminate the only locally-owned bank in New
4erisingt0n.
4.„ck.)
4/10/61
-4Governor Mills expressed the view that on some occasions too much
stress may have been placed on the fact that smaller independent banks
aPParently had been able to compete successfully with larger banks in the
84Me community and to grow at a satisfactory rate.
This point, if expressed
in a report, tended to give the impression of trying to find a reason for
justifYing a merger that would otherwise be objectionable.
8. bank
The fact that
had reached a point where it could compete on relatively equal
terms with a larger entity was hardly a reason in itself why two larger
banks should be permitted to merge and be correspondingly larger than
theY vere
before.
In his opinion it was a matter of principle whether
r not the Board should emphasize the growth of an independent bank as
8°ething offsetting the greater power that would be derived from a
Merger.
He believed that such a case should be treated in much the
8ameIlay as a request for the Board's recommendation to the Comptroller
°r
the Currency
on the proposed organization of a national bank.
There
Irere Protests against some national bank organizations but none in
ecthers, indicating in the latter cases that the proposal was acceptable
to the competing banks. Yet the Board's judgment did not stop at what
the
community
believed was appropriate. Instead the Board reached an
°Irell
'
all judgment on all of the factors, which on occasion had been
e°11trarY to the sentiment of the community.
4/10/61
-5Additional comments by Governor Shepaxdson brought out that his
original
question had been intended principally to call attention to an
aPParent conflict between the conclusion of the proposed report and
certain statements in the preceding portions thereof.
The point raised
by Governor Mills was one that would appear to deserve further consideration
In the analysis of bank merger applications, and he was not sure of the
answer.
In further discussion, suggestions were made for changes in the
language of the conclusion of the report that might take into account
the Points discussed by Governors Shepardson and Mills.
The report was
then ET.R12aK.9d unanimously for transmission to the Comptroller of the
CilrreneY in a form in which the conclusion read as follows:
The proposed purchase of assets and assumption of liabilities of The First National Bank of New Kensington, New Kensington,
Pennsylvania, by Pittsburgh National Bank, Pittsburgh, Pennsylvania, would eliminate little competition between the two
institutions as little now exists. The New Kensington bank, as
a branch of Pittsburgh National, should offer stronger competition
to the branches of other Pittsburgh banks in the area, particularly
to the New Kensington branch of Mellon National Bank. This proPosal will eliminate the only independent bank in New Kensington
and/ while nearby independent banks state that they anticipate no
adverse effects, it would enhance the competitive market power of
the second largest of the Pittsburgh banks.
alpibrella bond" for banks (Item No. 7).
A memorandum dated April 7,
1961
'from Mr. Solomon had been distributed relating to a form of proposed
Isscaution prepared by the Federal Deposit Insurance Corporation, for
A r ,
.4.0‘
4/10/61
-6-
Possible use by State bankers associations, to encourage banks to acquire
the Protection offered by the $1 million excess dishonesty bond--the soca-lied "umbrella bond".
The memorandum, which stated that it seemed
de
sirable to give the proposal as much support as possible, submitted a
draft of letter transmitting the form of resolution to the Federal Reserve
)2enks and suggesting that they endeavor to encourage its adoption by State
bankers associations.
The memorandum also suggested that the Board might
find it desirable to recommend adoption of the resolution to visiting
d'elegations of bankers from the various States, a practice that the
Deposit Insurance Corporation had been following.
In commenting on the memorandum, Mr. Solomon indicated that in
cont
of a possible joint statement on the subject of dishonesty
c°11erage by the three Federal bank supervisory authorities, and possibly
418° bY the National Association of Supervisors of State Banks, a draft
such a statement was sent to the Comptroller of the Currency and the
Peder=0
'
1 4 Deposit Insurance Corporation in accordance with the action of
the
Board on March 15) 1961. The Comptroller's Office had indicated
informally that it was rather strongly in favor of the idea, but the
Corporation was reluctant and offered the resolution instead.
The Corpo-
ration had
sent the resolution to its supervisory exawiners with the
request that
during any conferences they might have with officers of
atato
uankers associations, they suggest that the association consider
A''
4/10/61
-7-
adopting a resolution of this kind.
The idea of encouraging adoption of
the resolution by State associations seemed desirable to the Board's
Division of Examinations, which had therefore prepared the draft of
letter to the Reserve Bank Presidents now under consideration.
Governor Mills suggested that it might be desirable to add to the
letter a reminder that purchase of the recommended dishonesty coverage
clid not relieve a bank of responsibility for proper management safeguards
and audit control, and agreement with that suggestion was expressed.
144111rY was
made as to whether the policy recommended was offered by a
single insurance underwriter or from a variety of underwriters, to which
the
response was made that, although this type of policy originally had
been available from only one insurance company, others were now also
rfering it.
The question was also raised as to why the recommendation
.4as for the purchase of a $1 million policy when larger banks should
have much
more than that.
In reply, members of the staff brought out
that the problem of large uncovered losses arose principally at small
baryke,
--°) most large banks already being covered by policies in adequate
atil°1111ts-
If a greater percentage of small banks could be induced to
44'841 themselves of the protection of a $1 million policy, most uncovered
losse
s such as the several that had recently occurred in small banks
e°111(1 be
averted.
'
4/10/61
-8After further discussion, the letter to the Federal Reserve Banks
14.48 1:...TatEasq unanimously, subject to the addition of language to cover
the Point mentioned by Governor Mills.
A copy of the letter sent pursuant
to this action
is attached as Item No. 7.
Application of BancOhio Corporation (Items 8 and 9).
At its
meeting on March 17, 1961, the Board denied the application of BancOhio
-voration for approval of its proposed acquisition of shares of The
Bank, Hilliards, Ohio.
At that meeting the Board requested
the Legal Division to prepare for the Board's consideration drafts of
an order and an
accompanying statement reflecting the action taken.
Such an order and statement had been distributed with a memorandum from
the Legal
Division dated April 4, 1961. 11
After discussion the documents were approved by unanimous vote.
Gc)vernor Szymczak, who was absent from today's meeting but participated
in the decision on March 17, had informed the Secretary that he wished
to have his vote recorded in the order.
Copies of the Order and Statement are attached as Items 8 and 9,
res
pectively.
Messrs. Young, Adviser to the Board and Director, Division of
Triter
flational Finance, and Noyes, Director, Division of Research and
abetics, joined the meeting during the foregoing discussion, and at
its ,
`onclusion Messrs. Hexter, O'Connell, and Leavitt withdrew.
Certain proposed changes in the statement were distributed under
date of April 7, 1961.
1
4/10/61
AW
-9ply to Hardy Subcommittee question regarding float
(Item No. 10).
A memorandum from Mr. Sherman dated April 7, 1961, had been distributed,
accompanied by an alternative draft of reply to the following question
Presented in the letter of June 10, 1960, from Chairman Hardy of the
Poreign
Operations and Monetary Affairs Subcommittee of the House Com-
mittee on Government Operations:
Whether it would not be of economic advantage to the
Treasury, without substantial detriment to the banking
community, to reduce the "float" by raising the maximum
deferment time for check credits so that it more nearly
coincides with the time required to complete the mechanical
steps involved.
A large part of the alternative draft was identical to the draft
eilsculated to the Board under date of July 28, 1960, after study of
ccunments from the Federal Reserve Banks on an earlier draft.
However, the
alternative reply would conclude with a statement that a weighing of the
taets and arguments relating to "float" had caused the Board to conclude,
at least for the present, that the objections to the present two-day
illa)cimuz
deferment schedule were not sufficient to warrant the amount of
disturbance that probably would be caused in banking procedures by
increasing the maximum to three days. The draft also would state that,
not
/1-thatanding this conclusion, the Board would continue to follow the
question closely and would periodically reconsider whether a change
in Pederal
Reserve time schedules should be made.
4/10/61
-10Chairman Martin commented that it would be desirable to send an
1146Ver to the Subcommittee in the near future, and to that end the Board
should decide whether or not it favored the position taken in the proposed
rePlY. His own position was that the draft was satisfactory, subject to
the deletion of one statement that he indicated.
In his opinion, it
'
lr°111(1 look like a step backward to increase the maximum deferment to
three
days, particularly in view of the improved collection procedures
that were being made possible through the use of electronic and other
devices.
Governor Mills stated that, with the deletion suggested by
Chairman Martin, he regarded the draft reply as a document that did
ill8tiee to all points of view in an objective manner and yet left the
1/4Y oPen to reactivate the subject at any time.
Governor Robertson expressed the opinion that an increase in the
1114)d-11111M deferment was a correction that should be made at an appropriate
ttnle. In a period when restrictive monetary policies were called for,
the i
nerease in deferment should be used as a tightening measure. He
beit
"ved that the reduction of the maximum deferment from three to two
daYs had
been proved by history to be a bad move, none of the contemplated
844.84tages having come about, and he thought that the draft reply put too
tauch
,
welght on the other side. Accordingly, he would not favor the prorepay, the effect of which would be, as he saw it, to put the
8tter on
ice.
t
1'
4/10/61
-11Governor Shepaxdson expressed agreement with the conclusion stated
in the proposed reply.
It seemed to him that if the Board took the position
that the decrease in maximum deferment from three to two days had been an
error
and should be corrected, that would almost have to rest on objection
to the extension of free credit represented by float.
However, increasing
the deferment
schedule would only diminish the amount of such free credit,
ahd therefore the question of principle would not be resolved.
The only
14iaY to eliminate the free credit would be to adopt a practice of extending
ereclit only on actually collected funds, which would be out of keeping
with
present day conditions.
Governor King stated that the draft reply was satisfactory to him.
Governor Balderston expressed agreement with the conclusion of
the r
e13-4Y, Principally for the reason indicated by Governor Shepardson.
Reliever
between the historical presentation and the conclusion there
1?48 an extensive discussion of the reasons for and against changing the
Maximum deferment schedule. This discussion, he believed, might leave
the remer
confused as to whether the Board was arguing for or against a
eh ge. Therefore, he suggested that it might be desirable to go directly
tr
the historical passages to the conclusion.
The Secretary reported that Governor Szymczak had advised that he
ravor a reply substantially in the form of the alternative draft.
• AO .4
.0
_Lgst
4/10/61
In further discussion, Governors Mills and King expressed the
°Pinion that the presentation of the arguments pro and con was advantageous,
in that it
indicated objective consideration of the question by the Board,
/gith a conclusion reached only after weighing the arguments on both sides.
The Chairman then raised the question whether the members of the
Board were in agreement with the proposed reply in substance, and except
'Governor Robertson, who dissented for the reasons that he had stated
11°1
Preyi°1181Y, all of the members responded in the affirmative.
Accordingly,
t was understood that the staff would work with Governor Balderston in
c°nsidering a possible rearrangement of the contents of the reply, or
editorial changes not affecting the substance thereof, and that the
lie131Y would then be sent to Chairman Hardy.
Pursuant to this action the reply was transmitted to Chairman
'Y with a letter dated April 14, 1961.
11111
Copies of the letter and its
encl"ure are attached under Item No. 10.
11221Int_on handling of merger applications.
.&1...
At the meeting of
the Board on March 31, 1961, Mr. Hackley reported that the General Counsel
Of
the Treasury Department had informed him that the Secretary of the
sllrY, the Comptroller of the Currency, and the Attorney General had
'
TI'ee
ae'reed to
a procedure designed to avoid a "proliferation" of suits under
the antitrust
laws growing out of bank mergers. The agreement was that
in n,
-"Y case in which Justice gave the Comptroller an adverse report on
4/10/61
-13-
comPetitive factors and in which the Comptroller nevertheless believed
that he should approve the merger, the Comptroller would so inform the
Attorney General.
If the latter, after conferring with the Comptroller,
indicated that Justice would feel obliged to bring suit to enjoin the
nierger under the antitrust laws, the Comptroller would defer action on
the merger until "a decision resolving the legal issues in question has
been reached in one of the pending court cases".
The General Counsel
for the Treasury, who had given Mr. Hackley a copy of the agreement with
the indication that it was not to be made public at that time, intimated
that the Board and the Federal Deposit Insurance Corporation might wish
t° adopt similar procedures.
Mr. Hackley had suggested, however, that
deferment of action on merger applications might be vulnerable to attack
Under the
Administrative Procedure Act, section 10(e) of which provides
that, upon judicial review of agency action, the reviewing court shall
riVel agency action unlawfully withheld or unreasonably delayed".
On
the other hand, the Treasury's General Counsel apparently felt that the
PI'e8entlY pending court cases constituted a reasonable ground for
cleterrilent of action in any other cases in which the Attorney General
l'r°11341 feel obliged to bring antitrust proceedings.
In a memorandum dated April 3, 1961, which had been distributed,
Mr. Hackley
,
commented further on the agreement by the Comptroller
12:1-1:3
4/10/61
stating that it was by no means certain that the legal issues would be
resolved in the present court cases in the near future.
If a bank
suPervisory agency should defer action for several months on some
Pending application under the merger statute merely because of the
Pendency of proceedings by Justice under other statutes, Mr. Hackley
/las inclined to think that the applicant banks might convincingly argue
that the action was being unlawfully withheld or unreasonably delayed.
An even more serious objection to the procedure, Mr. Hackley's
rilerac)ranclum continued, had to do with the responsibility of the bank
8uPervi80ry agencies under the merger statute.
It was clearly the
Intent of Congress that each of the banking agencies should have full
cliscretion to determine whether any bank merger coming before it would
be in the public interest, after considering not only the effect of the
rilerger on competition but also the other factors stated in the law,
4u-ing the needs of the community concerned.
'
If an affirmative
Judgment was reached on such a basis, delay in giving approval merely
because of an adverse report by Justice on the competitive factor would
seem to be
contrary to the intent of Congress.
For these reasons, Mr.
Ii4ekleY recommended that the Board not adopt the procedure apparently
c°4temPlated under the agreement entered into by the Treasury, the
C°1/113troller, and the Justice Department.
• ,‘
4/10/61
-15At this meeting Chairman Martin referred to the fact that after
the Attorney General reportedly confirmed, at a recent press conference,
that the Comptroller had agreed to the abovementioned procedure, certain
discussions of the agreement had appeared in the press.
In the circum-
stances/ Chairman Martin suggested that the Board consider what position
it would , e
D
shoulA
disposed to take in the event a similar question of procedure
come before it.
In this connection, Chairman Martin noted that
ConiPtroller of
the Currency Gidney and Chairman Cocke of the Federal
tielposit Insurance Corporation were expected to visit the Board's offices
later this week and the subject might be brought up at that time.
After discussion, a unanimous opinion was expressed that the
13°sitionset forth in Mr. Hackley's memorandum was appropriate.
Mr. Hackley stated that he was preparing for the Board's inforOn
a more detailed memorandum relating to various aspects of the
Inatter,
including provisions of the law and their legislative history,
e.rld. the Board
indicated that it would be helpful to have such a memorandum.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
l'etenti Letter to the Federal Reserve Bank of Chicago regarding the
cotin,°n of copies of the reports prepared by the Board's examiners in
With
copi:tetion with the annual examinations of a Federal Reserve Bank.
-S to all
Banks)
Reserve
Federal
4/10/61
IMO
6-
Letter to the Federal Reserve Bank of Cleveland (attached Item No. 11)
aPPrwing the appointment of James Edward Thomas as assistant exminer.
Memoranda from appropriate individuals concerned recommending the
fa
"
1 ring actions relating to the Board's staff:
ointment
vitu David Townsend as Economist in the Division of Research and Statistics,
en," basic annual salary at the rate of $12,470, effective the date of
3,,,rance
3.961) upon duty• (To fill the position approved by the Board on April
Advance of sick leave
for j Elsie T. Nelson, Economist in the Division of Research and Statistics,
the period April 12 to June 5, 1961.
Secretary
125
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 1
4/10/61
ADDRESS OrFICIAL CORRESPONDENCE
TO THE BOARD
April 10, 1961
Board of Directors,
First National Bank in Lamed,
tarried, Kansas.
Gentlemen
:
The Board of Governors of the Federal Reserve System has
given consideration to your application for fiduciary powers and
!rants First National Bank in Lamed authority to act, when not in
avention of State or local law, as trustee, executor, admin'81Lrator, registrar of stocks and bonds, guardian of estates, asojnee, receiver, committee of estates of lunatics, or in any
ot er fiduciary capacity in which State banks, trust companies, or
ager corporations Which come into competition with national banks
ex- Permitted to act under the laws of the State of Kansas. The
s erciee of such rights shall be subject to the provisions of
trtion il(k) of the Federal Reserve Act and Regulation F of the
of Governors of the Federal Reserve System.
A formal certificate indicating the fiduciary powers
that
in Your bank is now authorized to exercise will be forwarded
due course.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 2
4/10/61
ADDRESS OFFICIAL CORRESPONDE
NCE
TO THE BOARD
April 10, 1961
The Honorable Erie Cockel Sr., Chairman,
Federal Deposit Insurance Corporation,
Washington 25, D. C.
near Mr. Cooke:
Reference is made to your letter of March 27,
1961,
concerning the application of The Commonwealth Mutual
0.
fvings Bank, Milwaukee, Wisconsin, for continuance of
.Ltileposit insurance after withdrawal from membership in the
rederal Reserve System.
No corrective programs that the Board of
0vzors
.
believes should be incorporated as conditions
continuance of deposit insurance have been urged
uPon or agreed to by the bank.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
,
Op,z414
,4:05 .411 4_
*
OF THE
"7571
.
74;ft%
14
0%
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
44.Ta
44
Item No.
3
4/10/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
t,
t 4***
April 10, 1961
The Chase Manhattan Bank,
New York 15, New York.
Gentlemen:
The Board of Governors of the Federal Reserve System
authorizes The Chase Manhattan Bank, New York, New York, pursuant to the provisions of Sections 9 and 25 of the Federal
Reserve Act, to establish a branch in the City of Monrovia,
Liberia, at the corner of Broad and Gurley Streets, Monrovia,
and to operate and maintain such branch subject to the provisions of such Sections. The location of the branch may
not be changed, after establishment, without the prior approval of the Board of Governors.
Unless the branch is actually established and opened
for business on or before April 1, 1962, all rights granted
hereby shall be deemed to, have been abandoned and the authority
hereby granted will automatically terminate on that date.
Please advise the Board of Governors in writing,
through the Federal Reserve Bank of New York, when the branch
ls opened for business.
Very truly yours,
Oigned) Elizabeth L. Carmichael
Elizabeth L.- Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No.
4
4/10/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 10, 1961
Board of Directors,
Stromsburg Bank,
Stromsburg, Nebraska.
Gentlemen:
This refers to letter of Mr. W. E. Johnson,
Executive Vice President, dated March 7, 1961, requesting approval of the Board of Governors, pursuant to
Section 9 of the Federal Reserve Act, and Section 5199(b)
Of the U. S. Revised Statutes, for
certain dividends
declared and paid by your bank in 1959 and 1960.
It is believed that these statutes required the
Board's prior approval for the declaration of these dividends and, of course, such prior approval cannot be
given since the dividends have already been paid. In
view of the financial condition and capital position of
the bank, the Board will raise no objectio
n to the action
taken in paying these dividends.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
44i:*441r,r4
OF THE
FEDERAL RESERVE SYSTEM
4
jJiif
z>
WASHINGTON 25. D. C.
Item No. 5
4/10/61
ADDRESS OFrICIAL CORRESPONDENCE
4
TO THE BOARD
*{:tfti01;"4.4
444.0*-
April 10, 1961
,CO2mrtroller of the Currency,
VtsurY Department,
-44Q1ngton 251 D. C.
Attention Mr. W. M. Taylor,
Deputy Comptroller of the Currency.
bear Mr. Comptroller:
Reference is made to a letter received from your office dated
1141,„
b 4 J-9, 1960, enclosing copies of an application to organize a national
,n at Haslett, Michigan, and requesting a recommendation as to whether
0
ot the
application should be approved.
The report of investigation of the application made by an
tta.,
cl;',Iner for the Federal Reserve Bank of Chicago indicates that the
:
112ers have agreed to provide a minimum capital structure for the
balt
tam. Qf $255,000 instead of $210,000 shown in the application. This
a tal structure appears to be adequate. The report discloses gonerot thfavorable findings with respect to the future earnings prospects
e bank, the proposed management, and the potential growth and need
to more convenient banking facilities in the area. Accordingly, the
. of Governors recommends favorable consideration of the applicat4c1
The Board's Division of Examinations will be glad to discuss
de sPects of this case with representatives of your office if you so
titres
any a
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
440,Ati,t,„
e cokR%
111v ,,
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
44
40 $111
0 I)
04
04
0 mv.
'444*.***
Item No.
6
4/1o/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 10, 1961
Mr. Alfred Hayes, President,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Hayes:
Reference is made to your letter of February 28
advising of the Bank's decision to increase the principal
indemnity amount of foreign travel insurance from $20,000
to $5o,000.
The Board of Governors interposes no objection
to.assumption by
your Bank of expense involved in providing
type of insurance protection.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 7
BOARD OF GOVERNORS
4/10/61
OF THE
FEDERAL RESERVE SYSTEM
5-1788
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 11, 1961.
Dear Sir:
There is enclosed a copy of a proposed resolution which may
be nA_
euopted by State Bankers Associations regarding the protection
ofil
bonal::d by the $1 million excess fidelity bond, the so-called umbrella
The Board believes that it would be helpful if, during any
e"ferences or contacts which you or other officers of your Bank may
be ve with officers of State Associations, a copy of the resolution could
tade available to the officers of the Association, and those officers
eauld
tio„ be encouraged to have the resolution considered by the Associau at its next
meeting.
thIn the Board's meetings with State delegations of bankers that
e Board's offices, the Board will similarly encourage adoption
"is resolution.
It is understood that the Federal Deposit Insurance Corporaalso recommending adoption of the resolution through its
bankers and through its
Inge
peripi .with visiting State delegations of
Examiners,
Assoc
Needless to say, in discussions with officers of State Bankers
b041 lations it should be made clear that the protection of a surety
cort can in no sense take the place of adequate audits and internal
. As indicated in the Board's letter (5-1785) of March 15, 1961,
it
aasostessential not only that banks have adequate surety coverage but
cortrois.
hat increased attention be given to suitable audits and internal
Very truly yo
Merritt Sherma
Secretary
trIclosure
IX) THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
S-1788-a
.
PROPOSED RESOLUTION
(For State Bankers Associations)
WHEREAS, in the period from 1955 through 1959 banks without
eXcees surety coverage suffered fidelity losses exceeding in the aggregate
the
amount of their blanket bonds by approximately $10,000,000, causing
Marrr
4
of such banks to close, merge or reorganize, and
WHEREAS, in the past year several smaller banks have sus-
tain
ed extremely large losses due to the irregularities involving one
c47111ore employees, and the nation-wide publicity given to those cases
has IN
'een detrimental to the banking industry as a whole, and
WHEREAS, there is available for commercial banks at moderate
e°st excess coverage of $1,000,000 for fidelity losses, and
WHEREAS, in fairness to themselves, to depositors and to
tock
holders, bank directors should give thorough consideration to the
Tlestion
of
proper coverage for fidelity losses,
NOW, THEREFORE, BE IT RESOLVED, That this Association recomtLat the Board of Directors of every member bank, which does not
he
the protection offered by the $1,000,000 excess fidelity bond, give
ivrq",
late consideration to its acquisition in view of the advantages
'11c1 111
(Xlerate cost of this coverage in relation to the protection afforded,
arici
BE IT RESOLVED, FURTHER that a copy of this resolution be
'
1 to the Chairman of the Board of Directors of every member of this
12Gf
Item No. 8
4/10/61
UNITED STATES OF ARERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
' In the Matter of the Application of
BANCOHIO CORPORATION
DOCKET NO.
for prior approval of acquisition
of voting shares of
The Hilliard Bank, Hilliards, Ohio
BHC-56
ORDER DENYING APPLICATION UNDER
BANK HOLDING COMPANY ACT
WHEREAS, there has come before the Board of Governors,
1311rsuant to section 3(a)(2) of the Bank Holding Company Act of
1956 (12 USC 1842) and section 222.4(a)(2) of Federal Reserve
Y (12 CFR 222.11(a)(2)), an application by BancOhio
e°rDoration, Columbus, Ohio, for the Board's prior approval of the
Ile quisition by BancOhio of 80 per cent or more of the 1,000 outding voting shares of The Hilliard Bank, Hilliards, Ohio; a
11°ties of Tentative Decision referring to a Tentative Statement
(14 said application has been published in the Federal Register
(25 P.R. 1537; February 20, 1960), affording to interested persons
e.4 °PPortunity, before issuance of the Board's final order, to
tile objections or comments upon the facts stated and the reasons
1267
-2-
indicated in the Tentative Statement; the time for filing such
°bjections and comments has expired and all objections and comments
have been considered, including a request by BancOhio for a hearing
°r1 the application; and
WHEREAS, a public hearing on said application has been
held pursuant to section 222.7(a) of Regulation Y (12 CFR 222.7(a)),
following which the Hearing Examiner filed a Report and Recommended
D eision in which he recommended that the application be denied;
oral argument on the matter has been held before the Board; all such
GtePs having been taken in accordance with the Board's Rules of
Practice for Formal Hearings (12 CFR 263);
IT IS ORDERED, for the reasons set forth in the Board's
Statement of this date, that said application be and hereby
is denied.
Dated at Washington, D. C., this 10th day of April, 1961.
By order of the Board of Governors.
Voting for this action: Chairman Vartin, and
Governors Balderston, Szymczak, Mills, Robertson,
Shepardson, and King.
(signed) illerritt Sherman
Merritt Sherman,
Secretary.
(cEAL)
2
BOARD OF GOVERNORS
Item No.
9
4/10/61
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY BANCOHIO CORPORATION, COLUMBUS, OHIO,
FOR PRIOR APPROVAL OF ACQUISITION OF VOTING SHARES
OF THE HILLIARD BANK, HILLIARDS, OHIO
STATEMENT
BancOhio Corporation, Columbus, Ohio ("BancOhio"), a
bank holding company as defined in section 2(a)(1) of the Bank
1101ding Company Act of 1956 ("the Act"), has applied, pursuant
to section 3(a)(2) of the Act, for approval by the Board of
Governors of the acquisition by BancOhio of a minimum of
8° Ver cent of the 1,000 outstanding shares of The Hilliard Bank,
411liards, Ohio.
Views and recommendations of Superintendent of Banks. As required by section 3(h) of the Act, the Board 'forwarded
4"iee of the application to the office of the Superintendent of
1344ks for the State of Ohio.
The First Deputy Superintendent
l'elaied, interposing no objection and recommending approval.
Statutory factors. the
Section 3(c) of the Act requires
Board to take into consideration the following five factors,
14 determining whether to approve acquisitions by bank holding
°111.P4nis3: (1) the financial history and condition of the holding
()Ilia.laY and bank concerned; (2) their prospects; (3) the character
o
t their management; (4) the convenience, needs, and welfare of
12
-2the cmmunities and area concerned; and (5) whether or not the
effect of the acquisition would be to expand the size or extent of
the bank holding company system involved beyond limits consistent
with adequate and sound banking, the public interest, and the
Preservation of competition in the field of banking.
Hearing; Examiner's Report; Oral Argument. - On February
15) 1960, the Board published a Notice of its Tentative Decision
tO
deny
BancOhio's application.
Thereafter, at the request of
PaneOhio, a hearing was held in Columbus on May 31 and June 1, 1960,
before a Hearing Examiner.
On September 15, 1960, the Hearing
Examiner filed with the Board his Report and Recommended Decision,
in which he reckmmended that the application be denied.
eeember
On
6, 1960, counsel for BancOhio presented oral argument in
Wa.shington before all Members of the Board of Governors.
Statement filed by Department of Justice. -
The Department
Qf Justice, on behalf of the United States, filed with the Board a
Statement, dated October
7, 1960, with respect to the competitive
f4etors involved in this case.
This Statement took the position
that the effect of the proposed acquisition on competition would be
(Dlltrary to the public interest and that this effect outweighed any
benefits to be expected from the acquisition.
The Statement
Re Thi3 application was filed before section 222.4(e) of Federal
0,
serve Regulation Y was amended to provide for publication of notice
receipt of applications pursuant to section 3 of the Act in lieu
the previous practice of issuing Tentative Decisions.
12O
-3eXpressed the view that existing competition between The Hilliard
Bank and subsidiaries of BancOhio would cease with the proposed
acqUisition, and that this elimination of competition and the
resulting increase in the degree of concentration in commercial
banking in Franklin County, Ohio, would be seriously inimical to
the public interest.
Discussion. -
In reaching its decision in the present
eaas, the Board has given consideration to all relevant factual
flaterial in
the record of the hearing; to pertinent arguments
Prseented at the hearing or contained in briefs, memoranda, and
statements made a part of the record of the proceeding; to the
ReDort and Recommended Decision filed by the Hearing Examiner; and
t0 statements presented at the oral argument.
BancOhio owns a majority of the stock of 22 banks,
°Del'ating through 52 offices in 20 counties of Ohio, principally
the central and south central sections of the State.
By far the
largest bank in the BancOhio holding company system is the Ohio
44tiona1 Bank of Columbus (the State capital), which is located
14 ?ranklin County.
At the end of 1959 Ohio National Bank held
"er two-thirds of the total deposits ($650,000,000) in all BancOhio
baths.
The Hilliard Bank is located in the town of Hilliards,
14 the northwestern part of Franklin County, about twelve miles
11%-thwest of the business center, and on the outer edge of the
ilitrolaolitan area, of Columbus.
Hilliards has a population of
-4about 516C0 and is chiefly residential.
Most of its employed
residents work in Columbus; a total of slightly over three hundred
Persons are employed in Hilliards.
tank in the town.
The Hilliard Dank is the only
In the decade 1949-1959/ while the population of
the town of Hilliards increased 820 per cent, the total amount of
deposits in The Hilliard Bank did not change materially.
As of
December 31, 1959, its deposits were *2.7 million.
Ohio National Bank, with 19 offices, and BancOhio's two
smaller banks in Franklin County, each with 3 offices, hold some
*302 million of deposits of individuals, partnerships, and corporat1c3ns ("IFC deposits"), which is 52 per cent of the $583 million of
such deposits held by all 16 banks located in Columbus and elsewhere
4
'a Franklin County. Acquisition of The Hilliard Bank would increase
bY less than one-half percentage point BancOhio banks' holdings of
these deposits.
BancOhio banks operate more offices in Franklin
County, and in the important northwest quadrant of that county (which
contains the banking offices in downtown Columbus, and in which
Ililliards is located), than do all other banks combined.
The financial history and condition of both BancOhio and
The Hilliard Bank are satisfactory. The prospects of BancOhio are
ravorable, and it may be anticipated that The Hilliard Bank also
1111- continue to operate profitably.
11111agement is satisfactory.
The character of PancOhiols
The management of The Hilliard Bank
suund, but it has not been progressive and has procrastinated in
l'ecting a solution to its management succession problem.
1272
_5_
Active management of The Hilliard Bank has rested for
14anY years in the hands of its cashier, who is now over 70 years
°f age, although there does not appear to have been any diminution
in his ability or willingness to continue the existing sound
Itanagement of the Bank.
However, it must be recognized that the
business of the Bank presently calls for additional management
and that it cannot be expected that the cashier can continue
indefinitely to head the active management of the Bank.
It is
recognized, therefore, that a management succession problem exists,
atd that solution of that problem will require not only the
recruitment of an additional officer but also an expansion of the
Present banking quarters.
If The Hilliard Bank were acquired by BancOhio, it seems
likely that both the management succession problem and the banking
qUarters problem would be solved.
However, it does not appear
that these problems can be solved only in this way. The record
does not indfcate that, under present ownership and management,
The Hilliard Bank may not expand its physical and personnel
resources in a manner that will permit continuation of sound and
serviceable operations.
12r'
-6In large measure, BancOhi6's contention that its
acquisition of The Hilliard Bank woUld be in the public interest
rests on the argument that the needs, convenience, and welfare of
individuals and businesses in the Hilliards area would be better
served as a result of the proposed acquisition.
Testimony at the
hearing disclosed that, under BancOhio's control, The Hilliard Bank
would offer certain services not presently offered by the Bank and
would seek to expand the scope of existing services.
4n
Although such
expansion of services and activities would serve, to some extent,
the convenience of the banking public in the Hilliards area, there
1.8 no evidence in the record that the principal banking needs of
the community are
not being adequately served, and it further
apPears that additional services not presently offered by The
nilliard Bank are conveniently available at banks in nearby Columbus.
Ilevertheless, the Board concludes that the prospective expansion of
services to be offered by The Hilliard Bank under BancOhio ownership
18 a circumstance that weighs in favor of the proposed acquisition.
There remains for consideration the so-called "fifth
ractor" enumerated in section 3(c) of the Bank Holding Company Act
48 one
which we must take into consideration in determining whether
t° aPProve any acquisition under section
3:
whether or not the effect of such acquisition or
merger or consolidation would be to expand the size
or extent of the bank holding company system involved
beyond limits consistent with adequate and sourd banking, the pu')lis interest, and th2 preservation of
competition in the field of banking."
"
(5)
-7Referring to this and the other factors listed in
section 3(c), in its report in 1955 on the then pending bank holding
company bill, the Senate Committee on Banking and Currency pointed
out that
"It will be noted that these factors extend beyond the
nature of those primary in importance to bank supervisory authorities in the exercise of their supervisory
Powers.... The factors required to be taken into
consideration by the Federal Reserve Board under this
bill also require contemplation of the prevention of
undue concentration of control in the banking field to
the detriment of public interest and the encouragement
of competition in banking." (Report No. 1095, 84th
Cong. (July 25, 1955), p. 10)
A high degree of concentration of banking facilities and
l'esources already exists in the areas relevant to consideration of
the Pending application. Banks controlled by BancOhio presently
cerate 52 per cent of the banking offices in Franklin County and
a slightly higher percentage of the banking offices in the northvest quadrant of that County.
As previously mentioned, BancOhio's
batiks hold almost 52 per cent of all IPC deposits in Franklin
e°1111tY, and those banks hold 47 per cent of the IPC deposits of
banking officcs in the northwest quadrant.
Franklin County, Ohio, including the city of Columbus,
18 served by 16 banks, only 3 of which can be regarded as large
br Present-day standards.
At the beginning of 1960, BancOhio's
410 National Bank, with total deposits of $414 million, was more
tha4 twice as large as the second largest bank (the Huntington
N4ti°nal Bank, deposits $193 million) and more than three times as
large as
the third largest (City National Bank & Trust Company,
i2 i
12"t.)
I-8Posits *133 million).
The largest of the remaining 13 banks
held less than $16 million of deposits, which was less than
4 per cent of the magnitude of Ohio National Bank; the deposits of
the remaining banks range down to $1.3 million, which was less
than four-tenths of one per cent of the deposits of Ohio National
Measured by IPC deposits, the relative position of
ancOhio's banks in Franklin County is not significantly different.
-T-C deposits of Ohio National Bank at the beginning of 1960 ($278
were more than twice as large as the IPC deposits of the
second largest bank ($123 million) and over two and one-half times
those of the third largest bank ($09 million).
Of the remaining
13 banks, only 2 had IPC deposits of more than $10 million, and
both of these are controlled by PancOhio Corporation.
In the case of banks of the size and character of The
Lank, banking tends to be chiefly local in character.
Unlike large banks in metropolitan centers, which draw substantial
deDosits from, and make substantial loans to, customers located
hundreds or even thousands of miles away, most of the business of
81r-all suburban bank ordinarily arises within a relatively few
es of its physical location.
This does not mean, however, that the service area of
SUch a bank extends for a certain distance from its banking house,
4ticl that the service area of another bank takes over beyond that
line. Although many residents and businesses in Hilliards and its
_9_
vicinity utilize the services of the bank in Hilliards, some
Maintain deposit accounts in, and seek loans from, other banks in
the general area, including banks in nearby Columbus.
This occurs
ellIong bank customers for a variety of reasons, such as convenience
of access from place of work or en route to that place, or preferellees as to services or personalities.
This pattern is illustrated by the banking situation of
the Hilliards area.
As of April/May 1960, offices of banks
c°4tro1led by BancOhio held over
$6co,000
of IFC deposits of persons
'and businesses located in the primary service area of The Hilliard
ank., which includes Hilliards and its vicinity within a radius of
scnile four miles.
In other words, BancOhio banks draw from the
Iiilliards area a volume of IFC deposits equal to more than oneteurth of the IPC deposits of The Hilliard Bank itself.
Conversely,
abc3ut 18 per cent of the deposits of The Hilliard Bank originate in
el'eas served by BancOhio's banking offices.
In the light of these figures, as well as the relative
10eations of banking facilities in the northwest quadrant of
County and other characteristics of the banking situation
ill the area brought out at the hearing, it is clear that, despite
the unaggressive policies of The Hilliard Bank heretofore, a subt4latial amount of banking competition exists between that Bank and
4e4t1DY offices of banks under the control of BancOhio.
The physical
alla economic circumstances in the area make the existence of such
II
12r-P-1
-10-
coMpetition inevitable, and its extent is empirically demonstrated
by the data cited, and by additional relevant data in the record.
Acquisition of The Hilliard Bank by BancOhio would
Place under common control that Bank and banks already owned by
BancOhio with which The Hilliard Bank is in substantial competition,
as indicated in the preceding discussion.
In the Board's judgment,
the vesting of control of these competing banks in the same holding
ec/mPanY system would unavoidably result in diminishing the
intensity and the extent of banking competition in the area, even
if it did not completely eliminate competition between The Hilliard
Bank and offices of other banks controlled by BancOhio.
BancOhio's
acquisition of The Hilliard Bank also would deprive the area of the
benefits of intensified banking competition that could develop from
a More aggressive policy on the part of, or expansion by, The
Hilliard Bank.
For the foregoing reasons, it appears to the Board that
4cquisition of The Hilliard Bank by BancOhio would expand the size
and extent of the bank holding company system involved beyond
11:1fl1t8 consistent with the public interest and the preservation of
ecMpetition in banking in the Hilliards area, within the meaning
°f section 3(c) of the Bank Holding Company Act.
In the Board's
dOnent, the unfavorable results of the proposed acquisition, from
the viewpoint of increased concentration of control in the banking
tield and diminution of banking competition, outweigh whatever
benefits might result in the way of expanded facilities and
cltIveniences.
12
-11-
Viewing the relevant facts in the light of the general
Purposes of the Act and the factors enumerated in section 3(c),
it is the judgment of the Board that the proposed acquisition
would not be consistent with the statutory objectives and the public
interest and that the application should be denied.
4ri1 101
1961
9
BOARD OF GOVERNORS
OF THE
Item No. 10
4/10/61
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
April 14, 1961
The Honorable Porter Hardy, Jr.,
?lairman,
°Iieign Operations and Monetary Affairs Subcommittee
'
of the Committee on Government Operations,
Rouse of Representatives,
"ashington 25, D. C.
tear Mr. Chairman:
questions
The Board's responses to all but two of the
d on
transmitte
in your letter of June 10, 1960 were
sent to
June
was
questions
flne 29 and a response on one of the other
3rou on December 22, 1960.
question
There is now enclosed a reply to the remaining
that
"float"
of
matter
Your Committee presented relating to the
that
of
arises under the procedures followed in the collection
'necks by the Federal Reserve. ystem.
Sincerely yours,
11
'
.*
Wm. McC. Martin, Jr.
E4closure
April 13, 1961.
12`c,
9hether it would not be of economic advantage to the
Treasury, without substantial detriment to the banking
community, to reduce the "float" by raising the maximum
deferment time for check credits so that it more nearly
coincides with the time required to complete the mechanical steps involved.
Estimates indicate that an increase in the maximum deferment
time
"L or Check credits from two days to three days lould reduce float by
500 million. 'whether such a withdrawal of reserves from the banking
88telm Would result in an economic advantage to the Treasury and could be
'Plashed without substantial detriment to the banking community would
clePend
-Largely upon economic conditions prevailing at the time the change
Va8 ritade and upon any related actions taken at the same time.
If it were concluded that the resulting shrinkage in reserves
Nht
cause banks generally to be more restrictive in extending Credit—at
time
cktia
when such a policy would be injurious to economic activity and public
Once--the monetary and credit needs of the country would require
l'e8tor
ation in some fashion of the reserves withdrawn from the banking
eYeteme
vihatever action the Federal Reserve System took to this end would,
(f n
-°11rsei be for the purpose of implementing monetary and credit policy
It4ther than increasing Treasury revenue. If the reserves were restored by
Nrof r
eductions in reserve requirements, there would be no increase in
14e4tirT revenue, On the other hand, if the reserves were restored by
4aerai
Reserve purchases of securities in the open market or loans to
trIrrillerl banks, earnings of the Reserve Banks would be increased by the
414°114 Of the yield on such securities or loans--like any other monetary
2h1
-2action which increases Federal Reserve loans and investments. This, in
turn
1.:ould increase Treasury revenue, since all Federal Reserve earnings
and above expenses, dividends, and adjustments in surplus are paid to
"
thc T,
'easury. The gain in revenue would be offset in part, however, by a
decre—
'se in income tax payments by banks and investors, and to some extent
b,7 th0
fact that the Treasury, like the member banks, now benefits from
thee
'editing of checks in accordance with the existing deferment schedule—
Pally at the time of quarterly tax payments.
Federal Reserve "float" may be said to be a result of the
,
atream
lined check collection procedures developed in this country, where
X per
cent of payments are made by check. Under these procedures checks
dePosi+
-ved with the Reserve Banks are credited to member banks' reserve
accou
flts (as well as to Government and other deposit accounts kept at
"al Reserve Banks) in accordance with a deferred availability time
ac**
,
1110 vhich does not always, or exactly, coincide with the actual time
red for the Reserve Banks to collect the checks.
Time schedules are
ather than precise collection time because bulk handling and account'
eatlY reduces the cost and speeds up the process of check clearing
ahd e
°11ection. The cost of an alternative that would result in the
(4111)1 t
elimination of float as a matter of principle--that is, the
,
"ltIn
individually as it is collected-110414 -g of the proceeds of each cheek
be prohibitive to Reserve Banks, member banks, and the general
A QI,zen
About 4 billion cheeks 1^nre processed by the Reserve Banks in 1960.
space,and equipment requirements for individual handling of this
A
—3—
`1°11zne of checks would be stupendous. Such a check collection procedure
(liere it feasible) would be completely out of harmony with the System's
Ipricern for over 40 years in affording maximum benefits to the public of
"ficient check collection system, which is expressed in Regulation J of
the
°arid of Governors in the following way:
"In pursuance of the authority vested in it under these
Provisions of law, the Board of Governors of the Federal
Reserve System, desiring to afford both to the public and
to the various banks of the country a direct, expeditious,
and economical system of check collection and settlement
of balances, has arranged to have each Federal Reserve Bank
exercise the functions of a clearing house and collect
checks...."
The availability period (in Federal Reserve check collection
time
schedules) begins on the day checks are received at the collecting
Peder
41 Reserve Bank, or on the day of dispatch of checks by member banks
or,
101i-strict direct to Reserve Banks in other districts. The periods
'
et
deter
essentially of immediate credit for so-called "city items," 1-day
lied credit for certain other items (principally those drawn on banks
oCat
e- 441 "other" Federal Reserve cities), and deferred credit for a
kaXirriura
Of 2 days for all other items. The time schedules for the first
two
lic)111)8 of items coincide in large measure with actual collection time,
blzt
of the third group of items cannot be collected in less than
e claYs• The measure of float is the dollar amount of those checks
the Federal Reserve Banks have credited to the reserve accounts of
be
t' banks and other deposit accounts, but which have not yet been
eted3 i.e., items for which payment in immediately available funds
k
Alaa n
-c't teen received by the date such credits become available fa. reserve
d)
I''
—4—
PurPoses,
Federal Reserve float thus supplies reserves to the banking
"em without cost to member banks.
In recent years the volume of Federal Reserve Float has averaged
ar°11nd )1 billion, with considerable fluctuations daily, weekly, monthly,
and s
easonally. A substantial portion of the total arises from the fact
that it
takes an average of three days to collect most inter-Federal
Reserve district "country" checks whereas, as above stated, the deferred
availability schedule is set at a maximum of two days. The remaining portiot
(4 float arises from a variety of circumstances; a principal factor
is the need from time to time for holding over checks for processing on
the
"ext business day. These holdovers come about when substantial delays
occur .
ln presentation of checks (due, for example, to irregularities in air
taii
sPortation
caused by bad weather), or when the volume of checks received
o A
- given day--which fluctuates quite widely---is beyond the capacity of
4vailable personnel, space, and equipment.
During the first 25 years of Federal Reserve operations the deterred
availability time schedules ran up to a maximum of eight days, and
rneraber
banks were required to sort their checks according to the days of
avail
abllitY given in these schedules. In September 1939 the maximum
deter
red availabil4ty period was reduced to three days, thereby giving
klch
earlier credit, consistent with improved collection experience, for
eonle
Of the increasing volume of checks deposited for collection. The
Aroce
ssing and collecting of checks was greatly simplified, and operating
ct8te
Ilere reduced for the Reserve Banks, member banks, and large
-5cleP08itors that receive numerous checks in payment of obligations due them:
4was
anticipated also that the simplified procedures would encourage ac-
c"814Ils of banks to Federal Reserve membership, as well as use of the
SYStemls
check collection facilities by member banks that had been reluctant
to plaice
e
previously required detailed sorting of checks. The simplified
'U.es were adopted in the spirit of the Board's Regulation J and were
l'arcl'4
. widely as of immediate and potential benefit.
In 1940, the first year after the maximum 3-day deferment schedule
had b
'eon adopted, Federal Reserve float anounted to about :357 million. Durillg t
he war years float increased to an average of 3468 million in 1945 as a
of a number of factors, principally a tremendous increase in the volume
ecks deposited for collection, shortage of qualified personnel and equip'and irregularities in transportation. In the postwar years float de-
Cl
d
ot 21
substantially; in 1949 the daily average was 3369 million, a reduction
Per cent from 1945. This decrease in float, despite an ever-increasing
41110, „
of checks, was made possible by speedier collections which in turn
'
J.ected greater use of air transportation, an improved personnel situation,
increased availability of needed equipment.
Because of such improved collection experience Federal Reserve
htem
'"-Iicials in 1949 began a new study of the deferment schedule. The
Pal step contemplated was a reduction in the schedule to a maximum of
d4Ye. It was estimated that if this were done Federal Reserve float would
.glerea
8e bY $180 million. After extensive consideration by the Federal Reserve
and Board of Governors it was decided to put the 2-day maximum into
e4eot
—n January 1951. Cne consideration favoring such action was the faster
4111q aiz
pier check collection practices that had been developed over the years.
Alloth
Objective was the elimination of inequities as between member banks
it2S5
-6sections of the country, which had resulted from an exten814)11 10Y individual Reserve Banks of a previously limited practice of giving
2-da„
deferred credit (to conform to certain long-established check collectiorl
Customs) even though collection generally required three days.
Expectations that float would not greatly increase following
a(lcIlt1011 of the 2-day maximum deferment were not borne out; in fact,
dailY average float in 1951 of
billion was about twice that of 1950.
Mcp.
Over, neither the 2-day maximum established in 1951 nor the 3-day
111;1%114
adopted in 1939 appears to have encouraged increased use of Federal
Reee,.
'Ire collection facilities by the smaller member banks. In addition,
vide 4,
luctuations in the volume of float at times presented operating
'
ems to the Federal Open Market Committee in its endeavor to maintain
racilther bank reserve positions at the currently agreed level.
For these reasons a special System committee was established late
14 1956 to study
all aspects of the float problem and to suggest remedial
-". The general program suggested by this committee included certain
recormt
endations aimed at reducing the level of and fluctuations in float.
Variou
8 stePs have been taken to reduce Federal Reserve float pursuant
t
het
° (apart from the time-schedule float resulting from the 2-day
deferment), and the staffs of the Federal Reserve Banks are contheir efforts to improve check collection procedures and thereby
ce float further, Inspection of the statistics over the past
1Z ra
°Ilths indicates that the average level of float is slightly
gigher 4,
when the study was begun, owing mainly to afurther increase
14
the vo
lume of checks presented to the Federal Reserve Banks for collectiorl.
It)
_7_
Besides the question of possible economic advantage to the Treasury,
the
'L'committee of the Government Operations Committee asks whether the
l'edlIction in float co-,id be effected "without substantial detriment to the
bezki
tg community,"
Some of the considerations regarding a possible change in the
d'ne,
"lent schedule from the present 2-day basis to a 3-day basis as one
Of reducing the volume of float are indicated by the following:
Cons
Pros
Would result in closer adherto the
principle that bank
bEl er7es should be represented
c°-Llected funds.
i:
L
l.k)1.11d- tend to reduce fluctudi s in float that create
ti-4-cu1ties in making projeC4 118 for
the guidance of those
4t1lenting directives of the
--arket Committee.
3.
(1.17W`u-cl reduce by perhaps MO
the amount of "free credit"
meeting reserve requirements.
4,
-clad
offset tendency for vol.-&111 °f lioat to increase with grow
17°.1 e of
checks.
1, Would change a practice in effect
for over 10 years with possible disturbances to existing ccmpetitive
pattern,
2, Would be construed by some members
of banking community and public as a
backward step from a decision taken 10
years ago--one that would be untimely
in view of current and prospective
technological advances in check
processing.
3. Would. require an additional sort
of checks with some additions to operating costs.
14,
Would fail to eliminate whatever
objer:tion in principle there may be
to permitting a portion of reserve
requirements to be met by credits
against uncollected funds.
5,
Might induce more indirect routing of checks and consequent delays
in collection of cash items.
6,. Night result in higher service
charges against deposit accounts
where such charges are related to
balances based on available funds,
4ci
—8—
Proponents of a change in the maximum deferment schedule from two
t0 t
"ree days advance the view that such an increase would not directly
affect the majority of member banks since most such banks use the check
collection services of correspondent banks, rather than those of the Reserve
They also suggest that such action ilould not be opposed by the
ellersal Public since few depositors are aware of or take any special account
of Federal
Reserve time schedules.
Those who feel that the objections to restoring the former 3-day
deferment schedule outweigh possible advantages point out that over
the Past
decade the present schedule has become an cstablished element of
ecrnmercial practice for banks that use the Federal Reserve check collection
sYste
m and for those bank custcmers that have occasion, in the handling and
"of their funds, to take close account of Federal Reserve availwile
Y schedules.
Consequently, even though there was a good deal of bank
(1PPcsii-.•
a
—11pri in 1950 to adoption of the 2-day maximum deferment, there is
teel.
Ing that restoration of the former 3-day maximum would be regarded as
necessary disturbance to a smoothly working operation; not to be
1111del"taken unless the resultant benefits to the general public were comkerisil
rate with the risks involved in a change.
CLUSIO
A weighing of the facts and arguments relating to float has caused
the to
4rd to conclude, at least for the present, that the objections to the
131'eerit 2-day
maximum deferment schedule are not sufficient to warrant the
44101.111
t Of disturbance that probably would be caused in banking procedures
—9—
bY
of
increasing the maximum to three days. In concluding that an extension
the deferment schedule would not be wise at this time, the Board is influenced
PaistlY by the belief that some further progress will be made during the next
selreral years in reducing the number and total dollar value of items requirbig more
than two days for collection. It also is impressed by the fact that
for over 10
the existing 2-day maximum time schedule has been in operation
har8
and a move at this time to return to a longer time schedule would be
e°11etrued by parts of the banking and business community as a backward step-Particularly in view of the intensive work now being done by the commercial
'
bark
11g system and by the Federal Reserve to improve methods of collecting
'
Check
in shorter time through use of electronic and other devices.
Notwithstanding its conclusion that the present is not an appro-
iat f4,„,
me for a change in the maximum deferment schedule, the Board will
e --,
cortim
-e to follow this whole question closely, and periodically it will
recall
sicier whether a change in Federal Reserve time schedules should be made.
12S9
BOARD OF GOVERNORS
OF THE
Item No. 11
4/10/61
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
MR 1 1 1961
Mr. Paul C. Stetzelberger, Vice President,
Federal Reserve Bank of Cleveland,
Cleveland 1, Ohio.
Dear Mr. Stetzelberger:
In accordance with the request contained in
Your letter of April 4, 1961, the Board approves the
aPpointment of James Edward Thomas as an assistant
examiner for the Federal Reserve Bank of Cleveland.
Please advise us of the effective date of the appointment.
Very truly yours,
(Signed) azaheth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER