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Minutes for April 10, 1964 To: 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. Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Minutes of the Board of Governors of the Federal Reserve SYstem on Friday, April 102 1964. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Balderston, Vice Chairman Mills Robertson Shepardson Mr. Sherman, Secretary Miss Carmichael, Assistant Secretary Mr. Broida, Assistant Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Noyes, Adviser to the Board Mr. Fauver, Assistant to the Board Mr. Brill, Director, Division of Research and Statistics Mr. Solomon, Director, Division of Examinations Mr. Koch, Associate Director, Division of Research and Statistics Mr. Partee, Adviser, Division of Research and Statistics Mr. Furth, Adviser, Division of International Finance Mr. Katz, Associate Adviser, Division of International Finance Mr. Axilrod, Chief, Government Finance Section, Division of Research and Statistics Mr. Eckert, Chief, Banking Section, Division of Research and Statistics Mr. Keir, Chief, Capital Markets Section, Division of Research and Statistics Mr. Baker, Economist, Division of International Finance Money market review. There were distributed a table summarizing 111°Iletary developments in the five-week period ending April 8, 1964, and 11 Chart covering business loans and business inventories, 1954-1964. Mr. Axilrod reported on interest rates and developments in the Ckavernment securities market, including reference to the Treasury cash b4lence. Mr. Eckert then discussed bank credit, business loans and 4/10/64 -2- inventories, the money supply, and bank reserves, after which Mr. Baker commented on the foreign exchange market. Following discussion all members of the staff withdrew except Messrs. Sherman, Fauver, and Solomon, and Miss Carmichael, and the following entered the roan: Hexter, Assistant General Counsel Goodman, Assistant Director, Division of Examinations Sanders, Attorney, Legal Division McClintock, Supervisory Review Examiner, Division of Examinations Mr. Sundberg, Review Examiner, Division of Examinations Mr. Mr. Mr. Mr. Discount rates. The establishment without change by the Federal Reserve Banks of Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, and Dallas on April 9, 1964, of the rates on discounts and 44vances in their existing schedules was approved unanimously, with the understanding that appropriate advice would be sent to those Banks. Circulated or distributed items. The following items, copies c4 which are attached to these minutes under the respective item numbers 14dicated, were approved unanimously: Item No. Letter to First National City Overseas InvestIllent Corporation, New York, New York, granting ..,o_nsent to purchase shares of Credit Corporation of r1e Philippines, Manila, Philippines, and approving 4 1e Purchase of shares of Credit Corporation of re Philippines in excess of 10 per cent of the caloorationts paid-in capital. 1 Letter to the Bureau of the Budget reporting on PJ0Posed revisions of S. 2223 and H.R. 8499, iden,leal bills to provide for the regulation of collective '44vestment funds maintained by banks. 2 -11,_ 4/10/64 ...rf' -3Mr. Goodman then withdrew from the meeting. Reports on competitive factors (San Francisco-San Bernardino, California, and Seattle-Endicott, Washington). There had been distributed to the Board drafts of reports to the Comptroller of the Currency on the competitive factors involved in (1) the proposed merger of The American National Bank of San Bernardino, San Bernardino, California, into The Bank of California, N.A., San Francisco, California, and (2) the proposed Nrehase of assets and assumption of liabilities of The Bank of Endicott, 2ndicott, Washington, by The National Bank of Commerce of Seattle, Seattle, Washington. The reports were approved unanimously for transmittal to the Comptroller, the conclusions therein being stated as follows: San Francisco Consummation of the proposed merger of The Bank of California, N.A., and The American National Bank of San Bernardino would further the concentration of banking resources in a few large banks in California but would have little effect on the competitive situation in the service area of the resulting institution. Seattle The proposed purchase of assets and assumption of liabilities of The Bank of Endicott by The National Bank of Commerce of Seattle would have little effect on competition in the service area of National Bank. The participants are not now engaged in direct competition with one another. In Whitman County, competition would be increased with the entry of the State's second largest bank. The proposal would increase the trend toward further concentration of banking resources in Washington, where 5 of the State's 97 banks now control over 68 per cent of total bank deposits. 1264 4/lo/64 Report on competitive factors (Callicoon-Narrowsburg, New York). There had been distributed a draft of report to the Comptroller of the Currency on the competitive factors involved in the proposed consolidation of First National Bank in Callicoon, Callicoon, New York, and The Pirst National Bank of Narrowsburg, Narrowsburg, New York. Following discussion during which a change in the wording of the conclusion was suggested by Governor Robertson, the report was aPProved unanimously for transmittal to the Comptroller. The conclusion read as follows: The proposed consolidation of First National Bank in Callicoon and The First National Bank of Narrowsburg would eliminate some competition; but the offices of these two banks are 14 miles apart and the amount of competition between them is not great. The meeting then adjourned. Secretary's Note: Pursuant to the recommendation contained in a memorandum from the Legal Division, Governor Shepardson today approved on behalf of the Board the appointment of Susan Rowzie as Secretary in that Division, with basic annual salary at the rate of $5,585, effective the date of entrance upon duty. C — Secretary) /NC 1265 Item No. 1 BOARD OF GOVERNORS OF THE 4/io/64- FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 10, 1964. First National City Overseas Investment Corporation, 399 Park Avenue, New York 22, New York. Gentlemen: In accordance with the request contained in your letter of March 3, 1964, transmitted through the Federal Reserve Bank of New York, and on the basis of information furnished, the Board of Governors grants consent for your Corporation to purchase and hold up to 70,000 shares, par value Philippine Pesos 10 each, of Credit Corporation of the Philippines, Manila, Philippines, at a cost not to exceed US$350,000, provided such stock is acquired within one year from the date of this letter. The Board also approves the purchase and holding of shares of Credit Corporation of the Philippines within the terms of the above consent in excess of 10 per cent of Your Corporation's paid-in capital. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. BOARD OF GOVERNORS Item No. 2 4/io/64- OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 10, 1964. Mr. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington, D. C. 20503 Dear Mr. Hughes: This is in reply to your letter of April 3, 1964, in reference to S. 2223 and H.R. 8499, identical bills referred to as the "Bank Collective Investment Fund Act of 1963". On March 26, 1964, the Board of Governors reported on these bills by letters to the Senate Banking and Currency Committee and the House Interstate and Foreign Commerce Committee. Under cover of letter of April 1, 1964, you were provided with a copy of the report. As you will have noted from the report, the adverse position taken by the Board of Governors was based upon its belief that investor Protection, a major purpose of the bills, can best be effected by a uniform statutory and regulatory plan administered by a single Governmental agency - the Securities and Exchange Commission - as to all investments of a similar nature. The specific features of the bills which the Board considers °I)Jectionable are: (1) The law itself would not require the same information to be presented to investors in banks' collective investment funds as is required for collective investment funds subject to the Securities Act Of 1933 and the Investment Company Act of 1940. (2) Two separate agencies would be authorized to issue regulations controlling the presentation of information to investors , t_he Comptroller of the Currency for collective investment funds of panks. the SEC for all other collective investment funds. Mr. Phillip S. Hughes -2- (3) Four agencies would exercise enforcement powers affecting investor protection for similar investments. As to the collective investment funds subject to Federal securities laws, the SEC would have enforcement powers; as to the collective investment funds of banks, however, enforcement responsibility would be divided among the three Federal bank supervisory agencies. None of the proposals set forth in your letter would eliminate entirely the foregoing features of the bills. Those proposals, and the extent to which each might correct shortcomings of the bills, are as f°11ows: 1. To bring the bills' definitions of the terms "collective 2111Ytment fund" and "managing agent" into a reement with the definitions g...2!common trust fund" and "managing agent" in the Comptroller of the !irencyls Regulation • This modification would appear to confine the coverage of the billA.s to funds that would enjoy the income tax exemption provided by ! eetion 584 of the Internal Revenue Code, as interpretated in Revenue nuling 64-59. So modified, the bills would not exempt from the coverage °! the Federal securities laws all collective investment funds which, : neoretically, might be maintained by a bank. However, the practical it is believed, would be much the same as under the bills in t!fects' r present form. Assuming no change in the Internal Revenue Code and the regulations thereunder, there would be little likelihood that anY bank would establish a collective investment fund which would not 4 411 within the proposed definition. Accordingly, this proposed change !7!). the bills probably would have no significant effect on the aspects Chat the Board considers undesirable. 2. To define "collective investment fund" to include only -_ILIAZ_created throu h contributions made under rovisions of the SelfIndividuals Tax Retirement Act of 1962 (Smathers-Keosh Act). t The effect of this proposal would be that, with the exception of s m athers-Keogh plans, bank funds that involve public offering of isecurities" would be subject to the Federal securities laws and the Jur isdiction of the SEC. While, under the present law, the Securities Act of 1933 may be :!Plicable to Smathers-Keogh funds, it is not likely that investors will 'mPare those funds with other investment media. Smathers-Keogh funds Mr. Phillip S. Hughes -3- would represent a unique investment medium, in that, within limits, contributions thereto would be deductible from income, for Federal tax purposes. Therefore, reduction in comparability of data, due to the fact that disclosure requirements for investor protection in regard to Smathers-Keogh plans might vary from those with respect to investment media subject to the Federal securities laws, is not considered significant. The proposal would not, however, eliminate that feature of the Pending bills which would result in three agencies exercising enforcement powers affecting investor protection requirements for similar investment media - namely, Smathers-Keogh funds. As noted in the Board's report, ( !lffusion of enforcement power is as objectionable in the area of investor protection as division of regulatory power, for divergent interpretations and requirements could result in divergent presentations !f information to the public. Furthermore, the Board believes that the ?EC, after decades of experience with the Securities Act of 1933, is better equipped than is any bank supervisory agency to assure effective and economical protection of investors through requirements for disclosure of information regarding competing Smathers-Keogh funds. 3. To approach the problem of regulation of collective invest'tent funds of banks in a manner similar to that utilized in S. 1642 with res —.L to bank stocks. (The Board of Governors reported unfavorably to the Senate Banking Committee on section 13(e) of S. 1642, because of its belief _91at bank securities covered by that bill should be subject to the Federal securities laws and the jurisdiction of the SEC thereunder.) Under this proposal all collective investment funds maintained banks involving the public offering of "securities", within the Purview of the Federal securities laws, would be subject to those laws. : ever, four different agencies would have both regulatory and enforceont powers as to investment media of essentially similar nature. In Other words, regulatory power would be diffused to an even greater extent than would be the case under the bills in their present form. by To recapitulate, none of the three suggested changes in the Pending b ills would eliminate therefrom all the basic features which the Boar.3 t , u considers objectionable. If the bills were revised to incorporate "e Proposals, severally or in conjunction, investments of a similar Mr. Phillip S. Hughes -4- nature would be subject, if not to different statutory and/or regulatory tequirements, at least to enforcement of such requirements by different agencies. Consequently, the Board would continue to recommend against enactment of S. 2223 and H.R. 8499 even if they were revised in accordance with the proposals. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary.
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