Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, April 20, 1960, Volume 47, Part 4

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Minutes for

To:

April 20, 1960

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. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King

Minutes of the Board of Governors of the Federal Reserve System
On Wednesday,
April 20, 1960.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

The Board met in the Board Room at 10:00 a.m.

Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
King
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Discount rates.

Sherman, Secretary
Kenyon, Assistant Secretary
Thomas, Adviser to the Board
Young, Adviser to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Noyes, Director, Division of Research
and Statistics
Farrell, Director, Division of
Bank Operations
Solomon, Director, Division of Examinations
Connell, Controller
Nelson, Assistant Director, Division
of Examinations
Smith, Assistant Director, Division
of Examinations
Wood, Senior Economist, Division of Research
and Statistics

The establishment without change by the Federal

Re8erve Bank of Boston on April 18, 1960, and by the Federal Reserve
Of Minneapolis on April 19, 1960, of the rates on discounts and
8.cbiallees in their existing schedules was approved unanimously, with the
1114eilltanding that appropriate advice would be sent to those Banks.
Items circulated to the Board.

The following items, which had

befti
Cireltiated
to the Board and copies of which are attached to these

fltrlt
e - under the respective item numbers indicated, were approved
111111fl1Ous1y.




1 39(
4/20/60

-2Item No.

Letter to The
Chase Manhattan Bank, New York City,
s°11ing the establishment of a branch at 110 West
"
52nd Street.

1

Liceatter to the
Industrial State Bank of Kalamazoo,
a 11,8-ma4o0, Michigan, approving the establishment of
-ranch on West Main Street at Piccadilly Avenue.

2

Letter
to the Citizens Fidelity Bank and Trust
1111113811Y, Louisville, Kentucky, approving the estab:
T ahment of a branch in the vicinity of Strawberry
-c-ne and
Southside Drive.
Report requested by Housing Subcommittee.
dietr
ibUted

3

There had been

to the members of the Board copies of a letter dated

IR I,
1 --) -LE,10, from Senator Sparkman, Chairman of the Subcommittee
011
a

Ho
llsing of the Senate Banking and Currency Committee, which enclosed
ecIPY of the
Subcommitteets report on its study of mortgage credit that

in the fall of 1958 and referred particularly to Recommendation
No. ,
), 'which vas to the effect that the Board of Governors be requested
to silb
mit a report not later than January 1, 1961, on certain matters
relating to residential construction activity.
Chairman Martin suggested that a reply be sent to Chairman
Sipe'rkman indieattng that the Board would endeavor to submit the requested
rePort'tl1ifl the specified time, and agreement was expressed with this
Bil&Aestion.
Mr. Wood
then withdrew from the meeting.
21.212.111-19..tion techniqu-s and procedures.

In a memorandum dated

larch rvq
1960, copies of which had been distributed to the Board, the




1391
4/20/60

-3-

Division of Examinations discussed the report of Price Waterhouse & Co.
dated December 18, 1959, covering that firm's 1959 study of techniques
and procedures used by the Board's examining staff in conducting
"altinations of Federal Reserve Banks.

The memorandum indicated that

the examining procedures had been or would be amended to adopt, at
least in substance, the majority of the recommendations and suggestions
bY Price Waterhouse.

In certain instances, however, it was felt

that final action on the proposals should be deferred pending the outc°111e of trial experience with the suggested procedures, and in a few
instarIces it was believed that the advantages to be gained would not
be.
-ufficient to warrant a change in the present examination procedures.
One of the recommendations of Price Waterhouse was to the effect
that the present review of the auditing departments of the Reserve Banks
be "gmented by H on-the-spot" surveys of those departments during the
4ctIlal performance of an audit.

In a memorandum dated April 11, 1960,

11111ct also had been distributed to the Board, the Division of Examinations
re commended that it be authorized to proceed with an experimental
1)1'ctram of on
-the-spot surveys of auditing departments and that Price
Wsterhou_
'be & Co. be engaged to furnish guidance to the Board's examiners
c14114 the
experimental period.

In the thought that three or four

814'veYs might be regarded as constituting a reasonable trial program,

It
%las estimated that the proposal would require authorization to spend
Ele

4111ch as $7,500 for accountants' fees, travel, and subsistence expenses,




392
4/20/60
erld no provision had been made in the approved Division
budget for
196°. In a letter dated March
8, 1960, a copy of which was attached
to the
memorandum, Price Waterhouse indicated a willingness to
"tabliah
$1,500 as the maximum fee for its participation in an
vidual survey of the kind in question.
At the request of the Board, Mr. Solomon reviewed the Price
Waterhouse report of December 18, 1959, and the conclusions reached
13Y the Division of Examinations,
as set forth in the memorandum dist11-buted under
date of March 28, 1960.
No disagreement with
the position taken by the Division of
)(11111inations was indicated by the members of the Board.
Mr. Solomon then turned to the Price Waterhouse suggestion for
Makin
,
6

on-the-spot surveys of audits conducted by the auditing
depart-

Of

--L the respect
ive Reserve Banks and, after outlining the reasons
d.ven .
in favor of such an approach, indicated that the Division of
Exatai
nati°
", as stated in its memorandum of April 11, 1960, believed
that 8
a procedure merited experimentation on a trial basis. He
also
P°inted out that such surveys might provide an opportunity for
`'lng the
training program of the Boardss examining staff. He
elriPhasi
Zed that the proposal to have representatives of a public
"c°11nt
in- firm, pres

bly but not necessarily Price Waterhouse,

'llanY members
of the examining staff on the initial surveys emanated
th
e Division of Examinations rather than Price Waterhouse.




4/20/60
-5Following a general discussion of the trial procedure suggested
bY the Division of Examinations, the Board authorized expenditure of
an amount not to exceed $7,500 for the purpose of retaining representatives of an accounting firm to accompany representatives of the
113ardts

Division of Examinations in making on-the-spot surveys of

audits conducted by auditing departments of the Reserve Banks, it
being understood that the program would be reconsidered by the Division
in the light of the results of the first two experimental surveys.
During the course of the discussion that preceded the Boardts
43.cti°11, consideration was given to whether the aforementioned audit
811I
'
veY6 should be used in substitution, this year, for the general
Iseviey of examination procedures and techniques that had been made
411
"
allY by public accounting firms for the past several years, but a
decis4
lOn on that point was deferred. Consideration also was given to
a "Inbar of

questions relating to procedures that would be most appropriate

in en
-4114cting the on-the-spot audit surveys, particularly whether the
e°117veYa should be
conducted with the advance knowledge of the management
of the
auditing departments concerned or whether they should be concillc,ed 0
,
a surprise basis. On this question, and on certain related
gilestions
Of procedure, the Division of Examinations was authorized to
reach a
decision in the light of various factors that required further
Stldy
The suggestion was made, in this connection, that representatives

°r

the ac
counting firm and the Division of Examinations be joined in the




V20/60
811r7eY8

the

-6by a representative of the Division of Bank Operations, but

consensus was that such a procedure need not be followed, at

least in the case of the initial surveys.
In his comments relating to the audit surveys, Governor Mills
indicated that he would not be averse to going forward with such a
15r°gram on a trial basis.

However, he felt that efforts should be

Made to
guard against duplication of work by the auditing departments
Snq the
Board's examining staff.

It appeared to him that a regular

1111)gram of this kind could prove to be superfluous unless the results
Irsre d
etermined to give concrete assistance to the Boardta examining
Start'

in its general examination practices.

In this light, he felt

Illthsr strongly that the contemplated procedure would fall short of
the desired
results if it failed to take into account the earlier sugcille and recommendations of Price Waterhouse dealing with decentralizati„
'
11 Of the Board's examining practices and the use of spot checks
to el.,
4111inste procedures that might be growing into a duplication of effort.
During the foregoing discussion Messrs. Thomas, Young, and Noyes
ithdrew
from the meeting.
First Bank Stock case.

Mr. Hackley indicated that drafts of

Orde-p. a
supporting statement, a concurring statement by Governor
111-derit-+
--°11, and a dissenting statement by Governor Mills with respect to
,
tile
vPlication of First Bank Stock Corporation to acquire shares of




4/20/60
-7Eastern Heights State Bank, St. Paul, Minnesota, would be distributed
to the
members of the Board later in the day.
In order that all of the members of the Board might participate
in the

consideration of those documents, it was agreed that the meeting

(4 the
Board tomorrow would be held at 9:00 a.m.
The members of the staff then withdrew and the Board went into
executive session.
Assignment to be undertaken by Mr. Taylor.

The Secretary later

1418 informed by Governor Shepardson that during the executive session
the Board.
gave consideration to a recommendation of the Division of
Ilesearch and Statistics that Stephen P. Taylor, Economist in that Diviaion
'be made available, in response to a request of the International
Bank ,
/' Reconstruction and Development, to participate in an operational
t18

-011 to be conducted by the International Bank for the Government of

141.11.. For this purpose

Mr. Taylor would take annual leave for six

/geeks be
ginning April 24, 1960, and then take leave without pay for
the re
mainder of the total period of approximately 10 to 12 weeks
e8tilllated to be necessary for the completion of the project, including
Of about six weeks to be spent in Malaya.

The International

88.11k '
0.1.11d pay Mr.
Taylor directly for the entire period at an annual
salarY rate
somewhat higher than his salary rate as a member of the
r4dta
Staff, and would also pay his expenses, while the Board would
44111-flUe its
retirement and group hospitalization contributions throughout

the Period.




4/20/60

-8Governor Shepardson informed the Secretary that he had been

L1,2

213,21 to approve on behalf of the Board the memorandum from the

Livision of Research and Statistics covering this matter, and that

he had done so following the meeting.
The meeting then adjourned.

Secretary's Notes: On April 19, 1960,
Governor Shepardson approved on behalf of
the Board the following items:
Memoranda from appropriate individuals concerned recommending
'
following actions affecting the Board's staff:
advance of sick leave

Norma L Neitzey, Secretary, Division of Examinations, for the
„r

Irom April 18, 1960, through May 15, 1960, or to the date of
return to duty, whichever is earlier.

Ac ePtance

of resignation

,„..frec!lsie M. Hart, Substitute Maid, Division of Personnel Administration,
ve April 18, 1960.

apl)rov, Letter to the Federal Reserve Bank of Boston (attached Item No. 4)
'
jllg the designation of Eugene W. Kenney as special assistant examiner.

Governor Shepardson today approved on behalf
of the Board a memorandum from Mr. Solomon,
Director, Division of Examinations, dated
April 15, 1960, requesting permission to
deliver a lecture an bank capital at the
School of Banking at the University of Wisconsin, Madison,Wisconsin, during the August
1960 session, it being understood that the




91
'
I

lecture would be delivered while Mr. Solomon
was on annual leave and that it would not be
inappropriate for him to accept compensation
for the lecture.




13f s
BOARD OF GOVERNORS
OF THE

Item No. 1
4/20/60

FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

April 20, 1960

Board of Directors,
The Chase Manhattan Bank,
New York, New York.
Gentlemen:
Pursuant to your request submitted through
the Federal Reserve Bank of New York, the Board of
Governors of the Federal Reserve System approves the
establishment of an in-town branch at 110 West
52nd
Street by The Chase Manhattan Bank, provided the
branch is established within one year from the date
of this letter.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS
OF THE

:F

FEDERAL RESERVE SYSTEM
WASHINGTON 23, D. C.

4,74
4

Item No. 2
4/20/60

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

*slt.44
'4400-

April 20, 1960

Board of Directors,
Industrial State Bank of
Kalamazoo,
Kalamazoo, Michigan.
Gentlemen:
Pursuant to your request submitted through
the Federal Reserve Bank of Chicago, the Board of
Governors of the Federal Reserve System approves the
establishment of a branch in Westwood Shopping Plaza,
located on West Main Street at Piccadilly Avenue,
Kalamazoo, Michigan, by Industrial State Bank of
Kalamazoo, Michigan, provided the branch is established within ten months from the date of this letter.




Very truly yours,
(Signed) Kenneth A. Kenyon

Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS

ophtts,,,4

eoro

%

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.

Item No. 3

4/206o

ADDRESS OFFICIAL CORRESPONDENCE

°A)
°a:4.Mat
Q44***

Ti THE BOARD

April 20, 1960

Board of Directors,
Citizens Fidelity Bank and
Trust Company,
Louisville, Kentucky.
Gentlemen:
Pursuant to your request submitted through
the Federal Reserve Bank of St. Louis, the Board of
Governors of the Federal Reserve System approves the
establishment by Citizens Fidelity Bank and Trust
Compally, Louisville, Kentucky, of a branch in the
vicinity of Strawberry Lane and Southside Drive,
Louisville, Kentucky, provided the branch is established within nine months from the date of this
letter.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Item No. 4

4/20/60

WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

April 19, 1960

Mr. B. F. Groot, Vice Presiden
t,
Federal Reserve Bank of Boston, .
Boston 6, Massachusetts.
Dear Mr. Groot:
In accordance with the request contained
in your letter of April 14, 1960, the Board approves
he designat
ion of Eugene W. Kenney as a special assistant examiner for the Federal Reserve Bank of
!oston for the purpose of participating in examinaions of Rhode Island Hospital Trust Company,
rrovidence, Rhode Island; Depositors Trust Company,
Augusta, Maine; The Merrill Trust Company, Bangor,
!
ilaine; and The Connecticut Bank and Trust Company,
dartford,
Connecticut.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.