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Minutes for April 11, 1957 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Chm. Martin Gov. Szymczak 1/ Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson /161 , x‘ 1/ In accordance with Governor Shepardson's memorandum of March 8, 1957, these minutes are not being sent to Governor Vardaman for initial. 926 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, April 11, 1957. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Mr. Carpenter, Secretary Mr. Kenyon, Assistant Secretary Mr. Young, Director, Division of Research and Statistics Mr. Sloan, Director, Division of Examinations Mr. Hackley, General Counsel Mr. Noyes, Adviser, Division of Research and Statistics Mr. Solomon, Assistant General Counsel Mr. Eckert, Chief, Banking Section, Division of Research and Statistics Items which had been circulated to the Board. The following items, which had been circulated to the members of the Board and cqPiss of which are attached to these minutes under the respective item nUmbers indicated, were approved unanimously: Item No. Memorandum from Mr. Young recommending that additional &.ta from the quarterly survey of interest rates on nIsiness loans be released to the public beginning with he March 1957 survey. 1 tter to The Chase Bank, New 'York, New York, acknowledgJ-Ilg withdrawal of the bank's request for reconsideration clf its reserve requirements under Regulation K. (With a c(Y,PY to the Federal Reserve Bank of New York.) Letter to National Boulevard Bank of Chicago, Chicago, Illinois, approving its application for limited fiduciary Powers. (For transmittal through the Federal Reserve sank of Chicago.) 3 927 -2Item No. Letter to First Old State Bank, Elkhart, Indiana, approving the establishment of a branch at 420 East Jackson Boulevard. (For transmittal through the Federal Reserve Bank of Chicago.) Pursuant to the understanding at the meeting of the Board on April 2, 1957, the Division of Examinations asked the Federal Reserve Bank of Chicago to review the application. Following such review, the Reserve Bank submitted a favorable recommendation. 4 Telegram to the Federal Reserve Bank of Chicago approving acceptance of the low bid received for excavations and foundations for the first unit of the proposed addition to the head office building. 5 Letter to th, . Commissioner of Banks of Massachusetts requesting his views and recommendations with respect to the aPPlication of Baystate Corporation, Boston, Massachusetts, tO acquire up to 60 per cent of the voting shares of Union Trust Company, Springfield, Massachusetts. (With a copy to the Federal Reserve Bank of Boston.) 6 7 Letter to Provident Trust Company of Philadelphia, Philac3,'elPhia, Pennsylvania, consenting to its merger with ,, Iradesmens Bank and Trust Company under the title of Provident Tradesmens Bank and Trust Company, and approving the establishment of seven branches in Philadelphia. Letter to the Federal Reserve Bank of Philadelphia with respect to the abovementioned merger. 8 Messrs. Young, Noyes, and Eckert then withdrew from the fleeting. Proposed reorganization of American Overseas Finance Corporation Pursuant to the understanding at the meeting of the Board on 4-rsuant April 1, 1957, American Overseas Finance Corporation, an Edge Act c°rporation of New York, New York, had been advised informally that the Board was favorably disposed in principle to the reorganization °f the Corporation under a new Edge Act charter, with the understanding 42 4/11/57 -3- that details would be subject to further consideration. Since then study had been given to a draft charter presented to the staff for informal consideration which, among other things, would provide for two classes of stock - ordinary common with voting rights and class "A". The class "A" stock would be essentially nonvoting common stock, and question was raised with American Overseas Finance Corporation regarding the possible inclusion of some provision in the charter which would give such stock equal voting rights with the regular common stock if it should come to be held by more than some specified minimum number of stockholders. Counsel for the corporation then suggested a provision to the effect that beginning in 1963 the class "A" shares would be entitled to elect a minority of the board of directors if the books of the corporation showed 25 or more holders of the class "AV shares. The proposed use of the nonvoting common stock was discussed in a memorandum from Mr. Solomon dated April 9, 1957, prepared following consultation with Governor Szymczak. The memorandum, copies of which had been distributed to the members of the Board, brought out that the banks that now shareholders of American Overseas Finance Corporation were to take " five-year debentures of the new corporation in return for their present ccmmon stock, and that International Basic Economy Corporation, the Principal voting common stockholder, had agreed with those banks to Illsintain control of the new corporation for at least five years. The Illsmorandum also pointed out that when the present American Overseas 929 4/11/57 Finance Corporation was being organized, the Board approved a charter Provision contemplating the use of nonvoting preferred stock, but that the Corporation later decided not to use this provision. While that Provision might be regarded as something of a precedent for the current proposal, it was somewhat different because it related to Preferred rather than common stock. Mr. Solomon's memorandum also stated that American Overseas Finance Corporation had asked the Board's staff to review informally a Press statement which it proposed to issue describing the reorganization. Upon review by the staff, it appeared that the draft did not contain any Material which would be objectionable from the point of view of the Board. It was to be issued, however, when the application for new Charter was filed with the Board rather than after the Board had acted uPon the application. Mr. Solomon reported that after his memorandum was prepared he received a telephone call from counsel representing the interests that would control the new corporation who said that, after consulting his principals, he could say that they felt rather strongly about limiting the voting rights of the class "A!' stock until 1963 because a five ear period was believed necessary to establish policies and chart the course of the new corporation. However, they would be prepared to grant full voting rights to the class "A" shares beginning in 1963 if sUch shares should come into the hands of a certain number of stockholders. 8Pecification of 40 stockholders as a minimum number would be preferred bgt they would go along with a minimum of 25. 930 t 4/11/57 -5Governor Szymczak stated that he would favor accepting the latest suggestion from American Overseas Finance Corporation under vhich the class "A" stock would be given full voting rights after aPproximately five years. In his opinion, some deferment of voting Privileges might be justified in order to assure International Basic conomy Corporation control of the new corporation during its formative Period. Governor Mills commented that, while he would look with favor on the proposed reorganization in general terms, the Board should be fully aware that it was embarking on the supervision of a new type c)t Edge Act corporation - one that may or may not have been contemplated by the Edge Act itself. Governor Robertson stated that he had not been able to find 49-4Y real justification for use of the nonvoting stock, although there might be very good reasons which he had not discovered. He could eloPreciate the desire of the organizers to maintain control of the corporation for five years and to get other people to invest their Inds, but the Board would be granting something for an Edge Act D' corporation that is not permitted for commercial banks. Therefore, he felt that the permission, if granted, should be fully justified. If 84 exception was made for a five year initial period, he could see no reason why the class "A" stock ought not to have full voting rights after that time. With reference to Governor Robertson's comments, Mr. Solomon 93 -6that he thought the answer would have to be in terms that this vaS an experimental type of operation, and also that the chief criticism of nonvoting stock in the past had arisen because of the possibility that uninformed investors would be misled. In this case, it appeared that the shareholders would be a relatively small, well-informed group 'ho would be able to protect their own interests. Furthermore, under the most recent proposal, the restriction of voting rights would be limited to a period during which considerations relating to the experimental nature of the undertaking would carry particular weight. Governor Robertson inquired whether the International Basic Economy interests, holding a majority of the regular common stock, l'IoUld not be able to maintain control of the new corporation even if ell of the stock had voting rights, to which Mr. Solomon responded by commenting on the apparent difficulty in establishing consistent and /1°rkable policies which had resulted from the diffusion of ownership of the present corporation. Mr. Solomon gathered that the International laasic Economy interests considered it quite important that the new corporation have firm, definite, and strong management for at least five years. He also stated that it was planned to distribute the stock cf the new corporation in such a manner that no one would own class nA," common stock only, although the majority of the common stock would be ovned by International Basic Economy Corporation, in whose hands the management would be concentrated. 932 4/11/57 Governor Balderston inquired why, if International Basic Economy was fearful that control could not be maintained for five years even though they would have a majority of the common stock originally, consideration was not given to a voting trust arrangement effective for the five year period. If such a plan were worked out, the Board of Governors would not be called upon to approve a proposal for the use of nonvoting shares, and the questions incident to such a proposal could be avoided. Mr. Solomon said it apparently was believed that if the class "A" stock had voting rights, steps might be taken to upset the control initially exercised through majority ownership of the common stock. With regard to a possible voting trust arrangement, he said there had been no discussion of such a plan with American Overseas Finance Corporation. However, he outlined certain tax considerations which he surmised illight have influenced the decision to seek authority for the use of class "A." shares. Governor Balderston then said that the point which was illogical tO him was the proposal to refrain from granting full voting privileges to the class "A" shares after five years unless they were held by a certain number of stockholders, and Governor Szymczak also indicated that he considered this point questionable. He said it was understand- 'Why the controlling interests wanted to assure themselves of retainControl, but the initial five year provision would offer protection (illring a period when lines of policy were being established. With regard to the proposed press statement, Governor Szymczak fl; ,1 -8felt there might be some reason for deferring the release until a charter had been granted by the Board to the new corporation. He Pointed out, however, that American Overseas Finance Corporation had the right to issue any kind of factual statement that it might desire at aboY time. Governor Robertson then suggested requesting Mr. Solomon to advise American Overseas Finance Corporation informally that the questions discussed with the staff had been taken up with the Board, that the Board appreciated the problems which would make it desirable for International Basic Economy Corporation to maintain control of the new corporation for the first five years of its existence, that for that reason alone the Board would not object to the use of the proposed class shares, but that after the five year period all stock of the corporation should, in the Board's opinion, have full voting privileges. With regard to the proposed press statement, it was suggested that the Position be taken that the decision on the release of such a statement 14as one for determination by American Overseas Finance Corporation. There was unanimous agreement with these suggestions. Authorization to lecture. Governor Robertson reported that Mr. Allison, Special Consultant to the Board, had been invited by the Federal Civil Defense Administration to lecture at Battle Creek, Michigan, on May 221, 1957, in connection with a training course being arranged by the Administration for its own staff. Upon Governor Robertson's recommendation, Mr. Allison was authorized to accept the invitation. The meeting then adjourned. 934 -9Secretary's Note: Governor Balderston, acting as alternate to Governor Shepardson, approved the following items on behalf of the Board on the dates indicated: April 10: Letter to the Federal Reserve Bank of Kansas City approving the designation of Billy R. Stanley as special assistant examiner. A copy is attached to these minutes as Item No. 9. April 11: Memorandum dated April 4, 1957, from Mr. Young, Director, Division of Research and Statistics, recommending that permission be granted to Paul F. Smith, Economist in that Division, to teach a Class in money and banking at American University on Monday and Wednesday evenings beginning July 29 and ending September 4, 1957. Memorandum dated April 3, 1957, from Mr. Young, Director, Division of Research and Statistics, recommending that the resignation Of Eithne Tabor, Editorial Clerk in that Division, be accepted effective April 26, 1957. 935 Item No. 1 4/11/57 1, 1957 To: Board of Governors Date: April From: Ralph A. Young Subject: Release of additional data from quarterly interest rate survey. It is recommended that additional data from the quarterly survey of interest rates on business loans be released to the public beginning with the March survey. The proposed release would show the Percentage of reported loans at various interest rates and the dollar volume and number of loans in various size-of-loan categories, in addition to the average rates regularly published in the Bulletin. This is essentially the same information as has been distributed to the Reserve Banks and by them to respondent banks since the Survey was revised in 1948. However, the release would provide less detail than is regularly published for their Districts by the New York and Chicago Reserve Banks. A copy of the proposed format of the release is attached. It is contemplated that back data for 1955 and 1956 would be distributed With the first release and data for earlier years would be available Upon request. The additional information should prove useful in the analysis Of business-loan trends as well as provide the basis for better understanding of interest rate behavior. Although confined mainly to large money-market banks, the Survey is at present our only regular source of information on the amount and number of new business loans by size Of loan. These data were used in preparing the answer to the supplemental question on small business impact of general credit controls recently submitted to the Joint Economic Committee. Publication of additional data from the Survey was approved by the System Research Advisory Committee and the Subcommittee of the Presidents' Conference Committee on Research and Statistics at their joint meeting on March 5. 936 Item No. 2 4/11/57 April 11, 1957 Mr. Charles A. Agemian, Comptroller, The Chase Bank, 18 Pine Street, Nem- York 15, Nem-York. Dear Mr. Agemian: This will acknowledge your letter of March 28, 1957, withdrawing the request contained in your Bank's letter of March 5, 1957, addressed to the Federal Reserve Bank of Nem-York, that the Board reconsider the conditions set forth in its letter dated February 21, 1957, in connection with the reserve requirements of The Chase Bank under the revised Regulation K. A copy of your letter of March 28, 1957, is being furnished to the Federal Reserve Bank of Nem-York. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Item No. 4/11/57 April 11, 1957 Board of Directors, National Boulevard Bank of Chicago, Chicago, Illinois. Gentlemen: The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as registrar (3f stock and bonds, paying agent for bonds and coupons, transfer agent, custodian, escrow agent, and trustee Under land trusts, to the extent that State banks, trust companies, or other corporations which come into competition with national banks are permitted so to act under the laws of the State of Illinois. The exercise of all such powers shall be subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve System. A certificate covering such authorization is enclosed. There is also enclosed a certified photostat °f the certificate for filing with the Auditor of Public Accounts of the State of Illinois. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Enclosures-2 3 938 Item No. 4/11/57 April 11, 1957 Board of Directors, First Old State Bank, Elkhart, Indiana. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors approves the establishment by First Old State Bank of a branch at 420 East Jackson Boulevard, Elkhart, Indiana, provided the branch is established within six months from the date of this letter and the approval of the State supervisory authorities is effective at the time the branch is established. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 4 939 Item No. 5 4/11/57 Telegram April 11, 1957 Allen - Chicago Reurlet April 4, 1957, Board approves acceptance of low bid for excavations and foundations for the first unit of the proposed addition to your head-office building, as recommended by your directors. Board authorizes expenditures of approximately $200,000 fcm this part of the program. (Signed) S. R. Carpenter Carpenter 940 Item No. 6 4/11/57 April 11, 1957 REGISTERED MAIL Mr. Charles P. Howard, Commissioner of Banks, State of Massachusetts, State House, Boston, Massachusetts. Dear Mr. Howard: Under the Bank Holding Company Act of 1956, this Board, in Passing upon any application for the Board's approval of certain transactions under that Act, is required to give notice to the appropriate supervisory authority of the interested State if the applicant company Or any bank the voting shares or assets of which pre sought to be acquired is a State bank and to allow 30 days within which the views and recommendations of the State supervisory authority may be submitted. In accordance with this requirement of the law, you are advised that Baystate Corporation, Boston, Massachusetts, a bank holding ?°111PanY, has made application to this Board pursuant to the Bank HoldCompany Act of 1956, for the prior approval by the Board of the ac quisition of direct or indirect ownership or control of up to 60 per cent of the voting shares of Union Trust Company, Springfield, Massachusetts. There is enclosed, for your information, a copy of the aPPlicetion, together with the supplemental information furnished by the applicant. It will be appreciated if your will advise the Board in writr of your views and recommendations with respect to this aipplication. ror Your informatio n in this connection there is enclosed a copy of section 3 of the Bank Holding Company Act of 1956. For your registered mail, Of the letter by 'with respect to convenience, this letter is being sent to you by return receipt requested, because the date of receipt your office must be made a part of the Board's records the application. Very truly yours, (Signed) S. R. Carpenter S. R. Carpenter, Secretary. 'Enclosures 2 Item No. 7 4/11/57 April 11, 1957 Board of Directors, Provident Trust Company of Philadelphia, Philadelphia, Pennsylvania. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Philadelphia, the Board of Governors of the Federal Reserve System hereby gives its written consent, under the provisions of Section 18(c) of the Federal Deposit Insurance Act, to the merger of Tradesmens Bank and Trust Company and Provident Trust Company of Philadelphia, both of Philadelphia, Pennsylvania, under the charter of Provident Trust Company of Philadelphia and under the title of Provident Tradesmens Bank and Trust Company, and approves the establishment of branches at the following locations in Philadelphia by the surviving institution: Southeast corner of 17th and Chestnut Streets, Market and Juniper Streets, Northeast corner of 4th and Chestnut Streets, 19 South 52nd Street, 150-154 West Chelton Avenue, Broad and Louden Streets, and Erie Avenue and I Streets, Bald locations being the present sites of the main office of Provident Trust Company of Philadelphia and the branches of Tradesmens Bank and Trust Company, provided the merger is effected substantially in accordance with the agreement between the parties dated February 14, 1957, and the transactions are effected within six months from the date of this letter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 942 Item No. 8 4/11/57 April 11, 1957 Mr. E. C. Hill, Vice President, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pennsylvania. Dear Mr. Hill: Reference is made to your letter of March 11, 1957, regarding the proposed merger of Tradesmens Bank and Tust Company, Philadelphia, Pennsylvania, into Provident Trust Company of Philadelphia, Philadelphia, Pennsylvania, and the establishment of branches by the continuing institution at the present locations of the in office of Provident Trust Company Of Philadelphia and the branches of Tradesmens Bank and Trust Company. After consideration of the information submitted and the favorable recommendation of the Reserve Bank, the Board has given its consent to the merger, as required under Section 18(c) of the FederP1 Deposit Insurance Act, and has approved the establishment of the branches, as shown in the enclosed letter to be forwarded to the board of directors of the bank. A copy is enclosed for your files. With respect to the bank's request for a waiver of the requirement for reports of the affiliated Commonwealth Land Title and Insurance Company, please advise the bank that the submission of such reports in all cases is governed by the terms of the general waiver requirements uniformly applicable to all banks, and it is the policy of the Board not to grant waivers in individual cases. Furthermore, the Board concurs in your views that the submission of the reports in the accepted manner should not prove onerous to the bank. It is understood that Counsel for the Reserve Bank 14111 review and satisfy himself as to the legality of all steps taken to effect the merger and establishment of the branches. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Enclosures 2 943 Item No. 9 4/11/57 April 10, 1957 Mr. D. W. Woolley, Vice President, Federal Reserve Bank of Kansas City, Kansas City 6, Missouri. Dear Mr. Woolley: In accordance with the request contained in your letter of April 5, 1957, the Board approves the designation of Billy R. Stanley as a special assistant examiner for the Federal Reserve Bank of Kansas City to assist in the examinations of the Commerce Trust Company, Kansas City, Missouri, and The International Trust Company, Denver, Colorado. The names of Stanley Andrews, Robert A. Brown, and Thomas N. Duva11 have been deleted from the list of special assistant examiners. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary.
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