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10/59
Minutes for
To:
April 21, 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
Ininutes in the record of policy actions required to
De 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.
Tr You were present at the meeting, your initials will
Indicate approval of the minutes. If you were not present,
Y?ur initials will indicate only that you have seen the
mu:lutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
14()2
Minutes of the Board of Governors of the Federal Reserve System
on
Thursday, April 21, 1960.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 9:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
King
Sherman, Secretary
Young, Adviser to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
O'Connell, Assistant General Counsel
Hostrup, Assistant Director, Division of
Examinations
Mr. Nelson, Assistant Director, Division of
Examinations
Mr. Landry, Assistant to the Secretary
Mr. Walter Young, Assistant Counsel
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Item circulated to the Board.
The following item, which had
been circulated to
the Board and a copy of which is attached to these
1-1411teS as Item No. 1, was approved unanimously:
Letter to The First Pennsylvania Banking and Trust
Company, Philadelphia, Pennsylvania, approving the
establishment of a branch in Glenolden, Delaware
County.
±A!tkplication of First Bank Stock Corporation
(Items 2 through 5).
14 4"OrdanCe with the Board's decision on March 16, 1960
to deny the
tio11
of First Bank Stock Corporation, Minneapolis, Minnesota, for
4P1ica
approval of the acquisition of 1,950 voting shares of Eastern
State Bank of St. Paul, St. Paul, Minnesota, there had been
"
4/21/60
-2-
distributed under date of April 20, 1960, a memorandum from the Legal
Division attaching for the Board's consideration a proposed Order denying
First Bank Stock Corporation's application together with an accompanying
statement thereon.
Also attached to the memorandum were the concurring
statement
of Governor Balderston and the dissenting statement of Governor
Mills) along with a covering press release.
Mr. Hackley noted that the Board had reached its decision on
this aPplication on March 16.
He referred to the comment he had made
Ett that time to the effect that preparation of the statements to
ace°111PszY the Board's Order denying the application might require several
14eek6. It
was almost a certainty that the Board's decision in this case
17°111c1 be litigated, he said, and the Legal Division had taken an unusual
elli°141t of time in preparing and reviewing the statements to accompany
the Boardis
Order. The statements now before the Board constituted the
last of several drafts and, even at this late stage, there were further
edit°rial changes that the Legal Division wished to make, although it
cli4i not contemplate any changes of a substantive character.
There being no suggestions for change in the substance of the
°1 clerAnA
'
&
accompanying statements, unanimous approval was given to the
°
rder
'-uPPorting statement, concurring statement of Governor Balderston,
alba A J
"-Lssenting statement of Governor Mills, with the understanding that
the st
aff was authorized to make changes of an editorial and clarifying
riattlre
5
and that when these changes were completed the Order and statements
Ig°111d be
issued with a statement for the press.
14
4/2
1/6o
-3Secretary's Note: The Order and statements
in the form of attached Items 2 through 5 were
released on Friday, April 22, 1960, at 4 p.m.
EST.
Messrs.
O'Connell and Hostrup withdrew from the meeting at this
Point.
Status as executive officers for purposes of Regulation 0 of
certain non-officer personnel (Item No.
Et MertiOrandUrn
6). There had been circulated
dated April 14, 1960, from Mr. Walter Young making further
reference to the status as executive officers for purposes of Regulation 0,
Loaas
to Executive Officers of Member Banks, of non-officer personnel of
nlealber banks who possess lending authority, and attaching for the Board's
1%zrther consideration a draft letter to the Federal Reserve Bank of
Phil
adelPhia on this question.
A decision on this matter had been deferred
by
4.c
' Board on February 15, 1960, pending exploration of the subject at
the ecnference of examiners of the Federal Reserve Banks to be held in
the Board
building late in March.
Mr. Young's memorandum referred to
the request by the Federal Reserve Bank of Philadelphia by letter dated
)
444417 20 1960, as to whether some 30 persons employed by Girard Trust
Cella Exchange Bank, Philadelphia, Pennsylvania, who have no officer titles
hut are
authorized to make loans in limited amounts, should be classified
".v-4.ecutive officers" for purposes of Regulation O. From the information
8141aitt.A with
the Reserve Bank's letter it appeared that branch managers
ata as
sistant branch managers of Girard have authority to make unsecured
1.0a4s
up to a limit of $5,000 and secured loans up to a limit of $10,000.
V21/60
-4-
Als°, in the consumer credit department of the bank employees listed as
811Pervisors and
assistant supervisors in various units are authorized to
make unsecured personal loans up to a limit of 45,000 and secured personal
loans up to
a limit of U0,000.
14r. Young noted that the question before the Board was submitted
with his
memorandum of February 8, 1960, together with a proposed reply
to the Reserve Bank which took the position that the employees in question
e'l'e
executive
officers for purposes of Regulation O.
When the Board on
Feb
ruarY 15 decided to defer a final decision, there was also a suggestion
that before a decision was issued the question also be discussed with the
or
rice of the Comptroller of the Currency. This had been done, Mr. Young
said,
and the Comptroller's Office expressed the view that a person with
th°ritY to make loans of any amount should be considered to be an
eeelltiveofficer for the purposes of Regulation 0.
Mr. Solomon, who had written a memorandum to the Board on this
811bject under
date of April it, 1960, reported on the discussion of this
question at the
examiners' conference.
He said that it appeared to be
the feeling at the conference that a conclusion such as that suggested
theLegal
ber
Division would not result in undue hardship to either the
uank or the employees concerned.
Mr. Hackley pointed out that the letter attached to Mr. Young's
luill did not state categorically that all non-officer personnel
illeinclratic
13°88e8sing lending authority should be classified as "executive officers"
4/21/60
-5-
for purposes of Regulation 0, but that any branch managers, assistant
branch managers, and supervisors or assistant supervisors in the bank's
consumer credit department having authority to make loans up to $5,000
unsecured or $10,000 secured were to be so considered.
Governor Mills cammented that as a practical matter, a ruling
f this kind
constituted a nuisance inflicted on commercial banks.
The
ipr°blern the Board was attempting to reach by this ruling was one related
t° large banks awning branches and having large-scale consumer credit
operations.
In his view, the larger the bank the smaller the individual
c°11sumer loan was likely to be, relatively speaking, and the lesser the
exec
irtive importance of the individuals who would be empowered to make
He would anticipate that these large banks maintained
84ch
interaa auditing and examination systems adequate to provide a sufficient
'& against abuse by non-officer employees of their authority to
flke Personal loans.
'
As for smaller banks, since a loan of between
$5 °00 to $10,000 would be of substantial importance, most likely such
'
1°8418 'would be made by an officer of the bank who had been elected by
the stockholders.
Although he regarded the proposed letter as a
sence to the banks for the reasons just stated, he would not interPc)se his Judgment and abject to the Board's sending the letter to the
Philadelphia Reserve Bank.
Unanimous approval was then given to a letter to the Federal
Reserv
e Bank of Philadelphia expressing the view that the Board considered
14
4 1/60
/2
-6-
the employees in question to be participants in the "operating manage'lent of the bank in question and that accordingly they should be
"
considered executive officers for purposes of Regulation 0.
18 attached as
Item No. 6.
This letter
It was also understood that the letter would
be sent to all Federal Reserve Banks for their information.
Loans to wives of officers of a national bank
(Item No. 7).
There had been distributed under date of April 18 and April 20, 1960,
melll°randa from Governor Robertson and the Legal Division, respectively,
relating to whether certain loans made to wives of officers of a national
ballk were in violation of section 22(g) of the Federal Reserve Act and
Re
glaation 0.
The memorandum from the Legal Division referred to Board
c°nsideration on April 17, 1959, of a question presented by the Comptroller
of the
Currency as to whether loans by Citizens and Southern National
88.4k Of Charleston, South Carolina, to wives of 20 bank officers were a
Viola
—1°11 of Regulation 0. At that time, in view of differences of
°Iaillic n, it was understood that the matter would be discussed by Governor
)
Robertson at
a meeting of the Interagency Committee.
Attached to the
Leal Division's memorandum, in addition to the memorandum from Governor
llober+
--sOrly Was a copy of a background memorandum prepared by Mr. Walter
1.°44g dated
March 11, 1959, setting forth the history of this question
6
krld
—guments pro and con. Governor Robertson's memorandum recommended
thttt the Board take the position that the loans violated the spirit of
the
Re
in the absence of evidence that the executive officers
j ,1(3
4/21/60
-7-
did not
benefit from such loans, and there was attached to the April 20
memorandum of
the Legal Division a draft of proposed letter to the
Comptroller's
Office to that effect.
Governor Robertson stated that through an oversight he had not
raised this question at a meeting of the Interagency Committee.
However,
-cul talked with Mr. Jennings, Deputy Comptroller of the Currency, since
the Comptroller's
Office was the only other agency involved. Mr. Jennings
c°11ourred in his (Governor Robertson's) view that the examiner was fully
Justified
in criticizing Citizens prld Southern National Bank regarding
the loans because the existence of so many indicated the possibility of
a design
to circumvent the Regulation, and that therefore the examiner
' arranted in looking beneath the surface of the loans to find an
w
intent to benefit
the executive officers by the device of loans to their
Ntives•
a
Mr. Jennings had stated that if the Comptroller's Office received
letter to that effect it would take steps to have the national bank make
Other a
rrangements for financing executive officers and their wives,
liriless there was evidence that the loans were not directly or indirectly
teT the
the
benefit of the bank's officers. Governor Robertson noted that
Proposed letter
to the Comptroller's Office was intended to curb
mention of this type which, although it did not violate the letter
Ot the law,
violated its spirit.
He then suggested certain changes in
he draft
letter that were designed to strengthen the statement to this
"rect.
4 1/6
/2 0
-8Asked by Chairman Martin for his comments on the proposed changes
In the draft letter to the Comptroller's Office, Mr. Hackley referred to
an alternative draft of letter attached to the Legal Division's memorandum
c)r March 11, 1959, regarding this matter that took the position that the
loans did not violate the Regulation.
He recalled that in 1939 the Board
took the position that loans to wives of executive officers of banks did
11°t fall within the scope of Regulation 0, even when the loans were
elearlY for the benefit of their husbands.
He was disturbed by the fact
that the only
benefit that the officers received from the loans to their
Wives
was that they were living with their wives in mortgaged homes against
s°111e of Which loans had been made to the wives.
Governor Mills said he did not like these loans and that if,
/41t4in the law, a letter such as was proposed was permissible, he would
join in approving it. He thought the Board should stand closely to the
letter of the law, however, and should not step over that line on the
l'(31111cla that it was questioning the type of transaction involved.
Loans
or this particular type were open to R11 manner of abuse and could be
lrltinitelY more objectionable than loans to executive officers in the
COrlft-
owmer credit
departments of banks, on the basis of the definition of
eXeclatlye
officers as applied in the case of Girard Trust Corn Exchange
1344k
e.arlier during this meeting.
Mr. Hackley said that he had not intended to suggest that it
\gc>uld be i
- -naPpropriate for the Board to take the position indicated in
I
4/2
1/60
_9..
the proposed letter to the Comptroller's Office. Regulation 0 refers
to indirect credit extended to executive officers and this was a case
'where the number of loans raised a suspicion that it was the bank's
15°11oY to evade the intent of the Regulation.
Governor Robertson said that be had asked Mr. Jennings whether
in the latter's opinion Regulation 0 should be changed so as to make
"Plicit inclusion of the practice engaged in at Citizens and Southern
ard that
Mr. Jennings and he had both agreed that it was not a big enough
Problem to warrant such a change.
The Board then approved unanimously attached Item No. 7, a letter
to the Office of the Comptroller of the Currency expressing the Board's
°Pinion that the loans to wives of executive officers referred to constituted
a violation of the spirit and purpose of section 22(g) of the
Federal Reserve Act and Regulation 0.
Thereupon, the meeting adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board a letter to
the Federal Reserve Bank of Dallas (attached
Item No. 8) approving the appointment of
Lionel Riley as assistant examiner.
BOARD OF GOVERNORS
OF THE
Item No. 1
FEDERAL RESERVE SYSTEM
42
/ 4/60
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 21, 1960
Board of Directors,
The First Pennsylvania Banking
and Trust Company,
Philadelphia, Pennsylvania.
Gentlemen:
Pursuant to your request submitted through
the Federal Reserve Bank of Philadelphia, the Board
of Governors approves the establishment of a branch
at the northeast corner of Ashland Avenue and MacDade
)
Boulevard, Glenolden, Delaware County, Pennsylvania
by The First Pennsylvania Banking and Trust Company.
This approval is given 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.
I I 0‹, .).'s
Item No. 2
42
/ 1/60
UNITED STATES OF AMERICA
BERME THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
: In the Matter of the Application of
: FIRST BANK STOCK CORPORATION
! for Approval of Acquisition of Voting
'Shares
of
DOCKET NO.
BHC-47
: EASTERN HEIGHTS STATE BANK OF SAINT PAUL,
St. Paul, Minnesota
*nos
ORDER DENYING APPLICATION FOR PRIOR APPROVAL
UNDER BANK HOLDING COMPANY- ACT
There having come before the Board of Governors
Pursuant to section 3(a)(2) of the Bank Holding Company Act of
1956 (12 USC
1843) and section 4(a)(2) of the Board's Regulation Y
(12 n'tio
222.4(a)(2
)), an application on behalf of First Bank Stock
C°rPoration, Minneapolis, Minnesota, for the Board's prior approval
°I* the
acquisition of 1,950 voting shares of Eastern Heights State
Sank of Saint Paul, St. Paul, Minnesota; a public hearing on
8aid
application having been held pursuant to section 7(a) of
the
Board's Regulation Y (12 CFR 222.7(a)); opportunity having
been
afforded the parties to file proposed findings and conclusions;
the
Hearing
Officer having filed a Report and Recommended Decision
1413
-2-
in which he recommended that said application be denied; oral
argument on the matter having been held before the Board;
and all such steps having been taken in accordance with the
Board's Rules of Practice for Formal Hearings (12 CFR 263);
IT IS HEREBY ORDERED, for the reasons set forth in
the accompanying Statement of the Board of this date, that the
application of First Bank Stock Corporation be and hereby is
denied.
Dated at Washington, D. C., this 22nd day of April, 1960.
By order of the Board of Governors.
Voting for this action:
Chairman Martin, and
Governors Balderston,
Szymczak, Robertson,
Shepardson, and King.
Voting against this action:
Governor Mills.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
UNITED STATES OF AMERICA
Item No. 3
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
4//60
21
WASHINGTON, D. C.
-------------------
In the Matter of the Application of
FIRST BANK STOCK CORPORATION,
MINNEAPOLIS, MINNESOTA,
DOCKET NO. BHC-47
for prior approval of acquisition of
voting shares of Eastern Heights State '
Bank of Saint Paul, St. Paul, Minnesota'
STATEMENT
Pursuant to section 3(a)(2) of the Bank Holding Company
Act of 1956 ("the Act"), First Bank Stock Corporation of Minneapolis,
Minnesota ("First" or "Applicant"), a bank holding company, has
requested the Board's prior approval of its acquisition of 11950
of the 2,000
outstanding voting shares of Eastern Heights State
Bank °f Saint Paul, St. Paul, Minnesota ("Eastern").
General Background. - On December 30, l9571 First
filed with the Board an application (sometimes hereafter referred
t° as "the earlier application") for approval of its acquisition
°f 1,190 of the 1,250 voting shares then proposed to be issued by
Pr'
°Posed new bank, First Eastern Heights State Bank of Saint Paul
°First
Eastern").
It was proposed that the new bank would be
40ated in the
Sun Ray Shopping Center, about 4.2 miles east of
1415
-2St. Paul's downtown business district.
While that application was
Pending before the Board, the Minnesota Department of Commerce,
having
found a reasonable public demand for either a savings and
loan association or a bank in the area in which the proposed
bank was to be established, granted to a savings and loan
association authorization to commence business in the vicinity of the
Sun Ray Shopping Center if the bank were not activated by
November
25, 1958.
On August
5, 1958,
the Board denied First's
application to acquire shares of First Eastern.
First then
filed a petition for review of the Board's decision in the
United States Circuit Court of Appeals for
the Eighth Circuit.
Meanwhile, in order that the proposed bank might be
established prior to November 25, 1958, the deadline set by the
State Department of Commerce, stock of that bank was acquired by
Minnesota Mining and Manufacturing Company ("3 M"), a manufacturing
ec)neern that had established and is further developing a large
Ile search
center in the vicinity of the proposed bank; and the
bank opened for business on November 17, 1958, as the Eastern
He
State Bank of Saint Paul.
In connection with the organization of Eastern, 3 M
had the
advice and assistance of First; and a stock purchase
aglsement was
'
entered into under which First agreed to acquire
the 13950 shares of Eastern awned by 3 M, subject to approval
°f the Board.
The present application, filed with the Board
November 28, 1958, seeks this approval.
1.416
-3In view of these developments, First's petition for judicial
review of the Board's order denying the earlier application was dismissed by consent of the parties.
By stipulation entered into in
connection with the present proceedings, the parties agreed that
designated portions of the record upon which the Board's order of
August 5) 1958,was rendered would be a part of the record for purposes
of the
present application.
In accordance with an order of the Board published in the
liedsral Register on February
5, 1959,
a public hearing was held on
the aPPlication before a duly qualified Hearing Officer.
Following
submission of Proposed Findings of Fact and Conclusions of
Law) with
supporting brief, the Hearing Officer filed his Report and
Recommended Decision on September 161 1959, re.:ommending denial of
the
aPPlication. First filed exceptions to that Report and Recommended
ciej
°11, with brief, and thereafter presented oral argument to the
BOard
.
As required by section 3(h) of the Act, upon receipt of the
Pl'esent
application, the Board requested the views of the Commissioner
of 10„.
,-,01.nks for
the State of Minnesota. In a letter dated January 20,
1959 -he
Commissioner submitted the findings of the Banking Depart-
°r1 certain of the factors set forth in the Act. The Commissioner
made no recommendation but, as stated by the Hearing Officer, "did
hot 'disapprove' the application".
In reference to the Commissioner's
views, Applicant contends that the Hearing Officer erred in "suggesting
that the views of the Commissioner of Banks
of the State of Minnesota
constitute evidence
in this proceeding." In view of the fact that
the Commissioner's letter was by stipulation made a part of this
record, and was so treated by the Hearing Officer and, further,
elprIsidering the requirement in the Act that the Board request the
views of the appropriate supervisory authority on each application,
the p_
ard finds no merit in Applicant's objection to consideration
cf the
Commissioner's views.
Statutory standards. - In determining whether the present
414aicatio11 should be approved, the Board is required by section
3(c)
the Bank
Holding Company Act (12 U.S.C. 1842(c)) to take into
c°11eideration the
following five factors: (1) the financial history
4411 condition of the holding company and bank concerned;
(2) their
08
131 Pecte; CIN the character of their management;
‘
.3)
(4) the convenience
4eede3 and welfare of the communities and the 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
linlits consistent
with adequate and sound banking, the public interest,
"the
preservation of competition in the field of banking.
Financial condition, prospects
the
and
management. - As to
first three factors enumerated in section 3(c) of
the Act, the
lit
_5_
record reflects that the financial history and condition of First
and Eastern, as well as their prospects and the character of their
114nagement, are satisfactory.
On the subject of management, First has emphasized what
it terms the relative inexperience of
3 M in banking and, while
conceding that this does not render that Corporation "LEE se unfit
to engage in banking", contends that it raises the issue of "whether
the convenience, needs and welfare of the community and area would
be better served by a bank owned by Bank Stock, with its extensive bankexperience
e4)erience.n
or by 3-M, a very large corporation with no banking
In the Board's judgment, ownership by
3 M is not relevant
to the quality of banking service to be reasonably anticipated. The
assertion that ownership of Eastern's stock by a company with no prior
ba 4
-"ng experience is less desirable than ownership of Eastern by
Irst •
ignores the distinction between bank stock ownership and bank
kanageMent.
i8
The record reflects that Eastern's board of five directors
well qualified.
One of the directors who is also Eastern's manag-
ing officer, has had several years of banking experience.
or
On the basis
the evidence, including Eastern's' growth within less than a
year,
the
"clIclusion is reasonably reached that Eastern's directors and
"ticers are well qualified to manage and direct its affairs.
Although not directly related to the competency of
be
°°sInent, an ar
ent advanced by the Applicant may appropriately
noted at this point. Applicant urges that ownership of Eastern's
-6stock by
3 M is inconsistent with the view expressed by the
Board that common control of nonbanking and banking businesses
is undesirable regardless of the number of banks contro
lled.
It cites the Board's 1958 report to Congress pursuant to the
Bank Holding Company Act, wherein the Board expressed
°Pposition to
the control of any bank by a nonbanking organization and, accordingly, recommended amendment of the Act
to
include within the definition of "bank holding company"
4117 millPany controlling 25 per cent of the stock of one bank.
srhis recommendation, however, has not been adopted by Congress.
Moreover, without intending to suggest any such purpose in
the Present case,
it may be noted that adoption of the argubiellt advanced by Applicant could
tend to encourage evasions
or the Act.
Finally, in the present case there is no evi-
dence of the existence of the abuses that could result from
c0r1trol of a
bank by a nonbanking organization.
The Board concludes that the circumstances of this
ease related
to the first three factors are consistent with
aPProval of the application but do not provide substantial
'ffirmative support for approval.
I 1:(
4
Convenience and needs of community. - The business and
resident
ial growth of the area around the Sun Ray Shopping Center,
in which Eastern is located, has been rapid. It has been
estimated by Applicant that Eastern's primary service area,
as hereafter described, had a population of about 17,000
in early 1957
and that by
mid-March 1959 it had grown to about 21,500. Within
the next
10 years, Applicant estimates that Eastern's primary
service area will have a population of 50,000 to 70,000.
Eastern's primary service area has been designated by
APPaicant as compris
ing (1) a portion of the southeast corner of
the City of St. Paul
and adjoining portions of the Village of
lialolewood, both located in Ramsey County, and (2) the portion of
Washington County that adjoins Ramsey County on the east.
In
general, the area is bounded on the north by the Chicago
-Northwestern
Railroad tracks and Maryland Avenue, on the
west by Hazelwood Avenue,
011 +1.,
south by the Point Douglas Road and the Lower Afton Road,
and on the east by a north-sou
th line approximately 1-1/4 miles
east of the Ramsey County/Washington County line.
In April
1959,
aPProximately
1,400 persons were employed in the research center
ch 3 14 is developing in the vicinity of the Shopping Center, an
increase
Of 75 per cent over the employment figure of December 1957.
4PPlicant anticip
ates that employees at the center will number
43°111. 3,00 within the next two or three years and about 12,000
0
Illthia
5 to10
years, assuming future growth by
to its past
growth.
3
M in proportion
1421
-8In connection with First's earlier application, with
most of the above
data available to it, the Board concluded that,
while no strong need for the proposed new bank had been demonstrated, it appeared that the convenience and welfare of the
area
the
the
concerned would be served if a bank were established at
proposed location.
This was a circumstance favorable to
granting of that application.
As previously mentioned,
however, since that time a bank (the one here involved) has
been
established and is being operated in the Sun Ray Shopping
Center.
Accordingly, the question now is not whether the
Proposed acquisition would provide banking facilities in a
gli°141ng
area that now lacks such facilities but, rather,
'whether the convenience, needs, and welfare of that area
e being adequately served by an existing bank and the extent,
any, to which they would be better served if that bank were
'''Tned by
the Applicant.
The Commissioner of Banks for the State of Minnesota
tated that "the convenience and needs of the area are being served
by 11P-to-date banking methods, lending policy appears to fulfill the
tleeds Of qualified lenders, and the depositors are in no way subject to unjust
policies."
Applicant, on the other hand, both in
its application and through witnesses
at the hearing, argues that
glleater benefits would be
realized by the communities and area concern
ed if Applicant's request were approved. It should be noted
that,
APPlicant's evidence in this regard in part dealt with the
ben.
'4.1cia1
effects to be anticipated from the "establishment of
1422
-9Eastern".
As to this testimony, the Board concurs in the Hearing
°fficer's conclusion that it is irrelevant in view of the fact
that Eastern is already established and operating.
To the
eXtent that testimony and documentary evidence offered by
APPlicant related to the benefits to be anticipated from ownershin of Eastern by Applicant, such evidence is relevant and
has been considered.
Applicant has stressed the numerous services and types
Of assistance that would be made available to Eastern as a
subsidiary of Applicant and, in the main, not otherwise. Particular
emphasis was placed upon the ability of Applicant to
1311°v1de continuity of management and a source of capital.
But there is no evidence that either matter constitutes
a PrObiern
under the existing arrangement; Eastern patently has
a Strong capital
position and capable management, and there is
n° reason
to believe that this will not continue to be the case.
Applicant contends that 3 M's banking needs require
sPecialized service and attention that can only be gained
thr°ugh Applicants ownership of Eastern. Apart from the testi11( ny „
)
a principal officer of 3 M that its primary interest in Eastern
centers
on the rendition of banking services to its employees, rather
than in service to the Company itself, the record further reflects that
I 4"r
-10First National, Applicant's downtown subsidiary bank, is 3 M's prime
hank and that Eastern is used chiefly as a depository for a general
checking account, a petty cash fund and withholding
taxes.
Despite
te stimony of efforts by 3 M to further utilize Eastern's
services,
the Board cannot believe that 3 M, regardless of the extent to which
it expands its Center, would utilize the services of Eastern otherwise
than as a "neighborhood bank", as it has been characterized by
APPlicant.
It seems likely that 3 M will continue to have recourse
t° First National for services now being rendered by that bank and
that as to other services it would continue to be adequately served
by Eastern under its present ownership.
Applicant has detailed numerous specialized services
which would result from its ownership of Eastern and which, it
asserts, would enable Eastern to better serve the convenience, needs,
and
welfare of the communities concerned. Conceding that these
sPscialized services would be made available as a consequence of
AP
plicant's ownership of Eastern, the strength of Applicant's
al
'gument is weakened unless it appears that such services will be
sllbs
tantially utilized by the communities.
It is the Board's
/11(47nnt that, in view of the nature of the area concerned, the
l'eccrd does not justify a finding to that effect.
The Board concurs in the Hearing Officer's conclusion
that
the present and prospective banking needs of the communities
11
and area concerned, including those of 3 M's employees, are being
and will continue to be adequately served by existing banking
facilities.
Applicant urges two additional considerations related to
the fourth
statutory factor. It asserts, first,that 3 M's employees
are entitled to a degree of independence and privacy from their
emPloyer as to their financial affairs and, secondly, that Eastern
should be free from pressure to make accommodations for and loans
01I unduly favorable terms to employees of the company which controls Eastern. In raising these points Applicant implies, of
course, that these "problems" either actually exist or could
likely arise, and that they would be solved by its acquisition
Of
Eastern.
As to the abillty of 3 M's employees to conduct their
financial transactions independent of pressure from or knowledge
Of the
employer, officials of3 M testified that there is no
Pressure exerted in this respect, that the employees are free
to use Eastern or not as they see fit, and that employees seeking
l'ecommendations for banking accommodat
ions are given the names
Of three
banks, one of which is Eastern. The proximity of those
banks, as well as others in the immediate commercial area of
Stern and
in downtown St. Paul, lends support to the conclusion
that
adequate freedom of choice is available to 3 Ws employees.
As to the suggestion that Eastern might be subjected to
Ill'essure to relax its normal loan or other operational practices or
-12Policies to accommodate 3 M's employees, 3 M's Vice President stated
that no instances of this kind had arisen and that he did not
7
isualize any difficulties in this regard.
Further, such a
Practice by a bank would be subject to any necessary action by
appropriate State and Federal supervisory authorities.
The competitive factor. - It remains to be considered
Whether the acquisition, if effected, would expand the size or
extent of the Applicant's bank holding company system beyond limits
c°naistent with adequate and sound banking, the public interest,
1/
and the
preservation of competition in the field of banking.
As a bank holding company, First controls 84 commercial
batiks with 91 offices, of which offices 51 are located in
141nhesotal 14 in North Dakota, 10 in South Dakota, 14 in Montana,
44d 2 in Wisconsin.
had
At June 23, 1958, First's subsidiary banks
deposits totaling $1,583 million.
First's five-State operation
represented, in 1958, control of 16 per cent of the deposits of all
c°114ercial banks in those States. In Minnesota, First had
e
scu s on
at follows will contain references to data
-4c1 conclusions drawn therefrom, portions of which appeared in
'
s
az,!Joard's Statement of August 5, 1958, on First's earlier
trlcation. To the extent that the present record reflects that
theee data and conclusions continue to obtain and are relevant to
e
Present application, they will be repeated.
-13-
7 per cent of the total offices and 31 per cent of the total
deposits of that State's commercial banks.
Eastern is in that part of St. Paul commonly referred to
as "the East Side". It is included in what may be called "the
Greater St. Paul area", and is described by the Hearing Officer as
"the area with which we are concerned" and by Applicant as "the
inunediate commercial area of St. Paul".
This area comprises the
CitT of St. Paul, West and South St. Paul, Lake Elmo and Newport
in Washington County, The Village of Maplewood, White Bear Lake,
North St. Paul and all other areas in Ramsey County except
ew Brighton and certain far northern portions of that County.
Within this area, there are 28 commercial banks,
(4nled by First.
6 of which are
On December 31, 1958, these 6 held 21 per cent of
the offices and 56 per cent of the total deposits of all commercial
hanks in the Greater St. Paul area.
First's banks and those con-
trolled by another bank holding company, Northwest Bancorporation,
t°gether held 32 per cent of the offices and 67 per cent of the
tc/tal deposits of all commercial banks in the same area.
In the
CitY of St. Paul, First's banks alone held 60 per cent of total
Pessits, while in downtown St. Paul, its control of such deposits
equaled 66
per cent.
I 27
4
First urges that any judgment on the significance to
be attributed
to the figures above set forth should take into
consideration
two facts:
(1) that its position in the Greater
St. Paul area is primarily due to the size of a single subsidiary, First National Bank of St. Paul, and (2) that, as to
the Portion
of its entire system located in the area here involved, the percentage of the area's commercial bank deposits
held by
its banks has declined in the period 1930-1958.
Admittedly, if the deposits of First National Bank of
St. Paul were to be excluded in determining First's position in
the Greater St. Paul area, the total deposits of First's banks
14°13,14 be substantially less. However, to exclude these deposits
1.70uld
not conform to reality. The record reflects that First
National's
competitive impact is felt within Eastern's primary
4vice area /Regardless of the volume of business obtained
bY First National from Eastern's primary
service area, the mere
fact that it does draw customers from that area has significanc
e
7
iew of the fact that First National and Eastern would be
subsidiaries of
the same holding company system if this applicatiqa is
approved and that
consequently, competition between
"e banks would be lessened, if not completely eliminated.
th
If First National's deposits were excluded in determining
the Percentage of deposits held by Applicant in the Greater St. Paul
2
arY service area means the area from which at least 75 per
c
e' of the total amount of deposits arises.
142
-15area, logic would also compel the exclusion of the deposits of the
Other downtown St. Paul banks.
Excluding all such deposits, First's
banks in the Greater St. Paul area held 29 per cent of the area's
total
commercial bank deposits at December 31, 1958.
First maintains that, if First National's deposits are
included in determining the over-all competitive position of
First's banks in the Greater St. Paul area, there should at least
he excluded from the total deposit figure First National's corresPchdent bank deposits originating from banks outside that area, as
well as deposits of certain large national corporations.
If these
exclusions are appropriate as to First National, they are equally ap131 °Priate as to all commercial banks in the area.
'
The record does
ti°t reflect the correspondent bank deposits or deposits of large
national corporations held by banks other than First National which
°
nate outside the Greater St. Paul area.
However, record data
'
al e available to show that if all correspondent bank deposits held
by
all commercial banks in the area are excluded from consideration,
the
Percentage of the area's total commercial bank deposits held by
banks at December 31, 1958, was 56.03, as compared with
'
55 96 for total deposits including correspondent bank deposits.
As negativing any suggestion that it has an expansionist
tendency in the St. Paul area, Applicant points to the decline in the
Pel'oentage of its banks' deposits in that area in the years
-161930-1958.
The Hearing Officer minimized the significance of this
decline by referring to the fact that, in the period 1940-1958,
First's banks gained 49.6 per cent of the total increase of all bank
deposits in the Greater St. Paul area.
The Hearing Officer also
found a substantial percentage increase in the same area by First's
barilts for the same period, excluding the deposit increases of First
National
Bank.
The Board cannot agree with the Applicant's contention that
by
using the period 1940-1958, including the abnormal years of
World War II, the Hearing Officer presented a distorted picture.
There is no more of a distortion in such an analysis than in
Applicant's use of a period dating from 1930, a year of great
financial and economic instability. If 1945 is used as a base year,
as urged by Applicant, comparisons of deposits at the end of 1945
and
1958 show that Applicant's banks obtained the following percentof the increase in deposits of all commercial banks in the stated
al eas:
'
Greater St. Paul Area, 37; Ramsey County, 42; City of St. Paul,
4° (downtown St. Paul,
4)4, and St. Paul other than downtown, 39); and
in +1,
- ' east portion of the immediate commercial area of St. Paul, 51.
41e
he latter area at December 31, 1958, First's banks held
55
per
cerit of the deposits of banks located therein. In the area referred
to a
8 the "east portion of the immediate commercial area of St. Paul",
there are
located eight commercial banks including Eastern. (This
area 4 _
-4.3 hereafter designated as the "East St. Paul and Adjacent Area".)
1430
-17-
In any event, whatever significance may be attached to a
demonstrated decline in the Applicant's percentage of control of
bank deposits during any particular period, this consideration must
be weighed against the extent, if any, to which the acquisition here
PrcTosed will lessen existing competition or adversely affect the
competitive position of other banks. It is necessary, therefore,
t° consider whether First's subsidiary banks presently compete
Eastern and, further, whether First's acquisition of Eastern
would have an adverse competitive effect upon banks outside First's
sYstem.
There are no other banks located within Eastern's
designated primary service area, nor is there evidence of actual
°Irsrlap of the designated primary service areas of other banks
with that
of Eastern.
However, this is not to say that First's
dc/wntown St. Paul subsidiary, First National, as well as all the
banks located in the East St. Paul and Adjacent Area, do not compete
to so
me extent with Eastern. True, the record does not reflect a high
riegree of competition between Eastern and certain of these banks.
14at
ever the degree of competition, to the extent it can be shown
that
approval of the instant application would result in the
elj
'LLnation thereof, to that extent the acquisition proposed can
be .
'ald to be adverse to the public interest, absent an overreason for approval.
-18There are 8 commercial banks operating in the East St. Paul
and Adjacent Area.
At December 31, 1958, 2 subsidiaries of First held
5 per cent of the total deposits of those banks, compared to
5
23 per cent held by Northwestern State Bank (a subsidiary of Northwest
Bancorporation) and 22 per cent held by the
banks, including Eastern.
5
nonholding company
Applicant states that the present accounts
in First State Bank and First Merchants State Bank (its two local
subsidiaries)
originating in Eastern's primary service area were acquired before Eastern's establishment in November 1958; that each
"
I
:sects to lose considerable of such business once Eastern has become
/lell established; and that there will be no significant continuing
competition between Eastern and those
banks. It must be noted,
however, that, during the period 1957-1959, both of First's local
b44k5 increased their total accounts
derived from Eastern's primary
service area.
As of March 16, 1959, First State Bank had 468 accounts,
checking and savings, originating within Eastern's primary service
al ea, an increase of 145 accounts over 1957.
'
These figures do not
cate either a lack of present competition or substantiation of
the
assertion that there will be no significant continuing competiti
,
' Eastern can be expected to continue to seek customers from
11
.
its 1,4
'''marY service area and, similarly, it may be presumed that
Ilr st State Bank will at least attempt to retain the customers
'
it
11(1/ has in that area. This is certainly a form of competition.
1
11:7;‘,c.r.
-19-
Similarly, as to competition between Eastern and First
Merchants State Bank, First's other subsidiary located in the
East St. Paul and Adjacent Area, the record reflects that in the
first quarter of 1959, First Merchants had a total of 1,793
accounts, savings and checking, originating from Eastern's primary
service area, representing an increase of 635 accounts from 1957
and constituting 15 per cent of the total number of First Merchants'
Checking and savings accounts.
A logical conclusion, based on
Eastern's operating record to date, would be that, as it becomes
111(pre firmly established, existing competition with Applicant's two
subsidiaries in the East St. Paul and Adjacent Area will not only
continue, but become keener.
In the same period, 1957-1959, Fir3t National Bank,
-cant's subsidiary in downtown St. Paul, also increased the
111.1111her of its accounts derived from Eastern's primary service area
fr°111 836 to 1,285.
Neither the increase nor the total number of
slIch accounts at the later date axe suLstal when compared with
National Bank's total accounts and the dollar volume of deposits
the
J rePresent. However, the ac2ountr; derived by First National
from
Eastern's
primary service area, reprsenting, during the first
I
llarter of 1959,
.
ba1P-Ac.ls of $1,191,648, 1a7e considerably more sigieanoe when compared with Eastern's total deposits of $7011000
4.t
e• end of
1958.
Regardless of any judgment as to the extent or
et of the competition thus offered, the fact is established that
Pir
st Tv .4
does compete for banking customers withiu Eastern's
Dri
ry
sarrice area.
-20-
The Board concurs in the Hearing Officer's conclusion
that the acquisition of Eastern by First would eliminate presently
existing competition between Eastern and Applicant's present
subsidiaries
- First National Bank of St. Paul, First State Bank of
St Paul, and First Merchants State Bank of St. Paul - as well as
.
Potential
competition between Eastern and the three other banks.
Within the East St. Paul and Adjacent Area, earlier
identified, there are five banks in addition
to First's two banks
and
Eastern.
One of these, Northwestern State Bank, is a subsidiary
a bank holding company.
As to the latter bank and as to each
( the other
If
banks not affiliated with First, the Hearing Officer
found either that competition with Eastern did exist or that he
was unable to find
that it did not exist.
In the Board's denial of First's earlier application, one of
the
major considerations was the Board's conclusion "that IFirst]
8a4k Stock's establishmen
t of First Eastern probably would have adverse
ffects on the growth and competitive strength of Hillcrest".
Rillcrest State Bank is located some 3.6 miles to the northwest of
48tern, in the Hillcrest Shopping Center. Applicant now points to
the
record of Hillcrest's growth in the first six months of 1959 as
evid_
'flee of the lack of competition between Hillcrest and Eastern
and as evidence also of Hillcrest's favorable business prospects.
Cone ,.
eclIng that Hillcrest's growth in this period could be evidence
4:34
-21-
the lack of competition with Eastern, it is perhaps even more
susceptible of the explanation that both banks have grown because of
the
growth within the area.
Consequently, the Board does not view
he evidence of Hillcrestls growth as invalidating its earlier judgment.
that operation
of 13astern by First probably would have adverse effects
On the growth and competitive strength of Hillcrest State Bank.
First
Contends that
the circumstances of the present application differ
from the earlier one in that a bank has now been established and
the
effect of its operation, if any, on existing competitors has
already taken place. This contention, however, ignores the distb.,,,t,
-ulon between the competition offered by.astern under control 0-a nonholding
company interest, such as 3
11,
and that which would be
Offered by
Eastern as a subsidiary of a large holding company system
thai
.
'
Presently controls two of the larger banks in the same area.
Applicant contends that, in determining the degree of
c°P1Petit*
lon offered for banking business in a given community or
area,
competition provided by savings and loan associations, credit
small loan companies, thrift companies, and other such
instit,+4
should be taken into consideration.
Stated other-
First maintains that the phrase "competition in the field of
g , as used in section 3(c)(5) of the Act, includes
-22
-
competition offered by financial institutions of these types.
First presented considerable evidence bearing on the
competition offered to its banks, and all banks in the relevan
t area,
by- such
institutions. The Hearing Officer concluded that such
financial institutions do in fact engage in activities that may be
regarded
as "banking activities", but stated that his interpretation
Of the Bank
Holding Company Act compelled the conclusion that
Congress did not intend to encompass such financial institutions in
the phrase "field of banking".
The Senate Report on the bill which subsequently was
enacted as the Bank Holding Company Act of 1956, contained the
following statement:
• . . 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 . . . Under . . [the bill's]
provisions, the expansion of bank holding companies in the
banking field would not be nrohibited. . •n (S. R. 1095,
1st Seas., 8).th Congress, p. 10)
Since section
4
of the statute prohibits any expansion through stock
acquisition of companies other than "banks", and since the definit
ion
q a "bank" does
not include savings and loan associations, it seems
l'easonably clear that such associations and similar institu
tions are
not for the purposes of the Act, deemed to be institu
'
tions in the
"bank
ing field". Additional support for the position that only
4aticnal banks, State
banks, savings banks and trust companies are
J4
-23-
to be
included within the meaning of "banking field" is found in
the following language in the Senate Committee's Report:
. . Nor does it [the bill] attempt to regulate
.
centralized control of such financial institutions as
savings and loan associations or insurance companies.
It has been designed to provide appropriate regulation
Of centralized control of banking institutions by bank
holding companies as defined in the bill." (p. 11)
In the latter connection, it is significant that Congress has recently
enacted a law dealing specifically with holding companies in the savings
and loan association
field.
There is no question but that, if one considered the share
and dePosit accounts, as well as the loan accounts, of all financial
inst
itutions in the here involved areas, First's banks' percentages of
these totals would be substantially lowered. This is exemplified
by
figures in the record relating to the Greater St. Paul Area, showing
the
percentage of the combined deposits of commercial banks and the
Share
accounts of savings and loan associations in that area held by
APPlicant's banks.
Similar figures were not presented for the East
St. Paul and Adjacent Area.
Despite the competition for certain types of banking business °ffered by financial institutions other than banks, it is the
Boarril
s judgment that such institutions are not properly considered
48 oPe
rating in "the field of banking", within the purview of the Act.
On the basis of all the facts, the Board must conclude that
the
Proposed acquisition would result in a significant lessening of
13t4e8ent c
ompetition and would have potentially adverse effects upon
_4tr7
banking competition in the future.
To this extent, the acquisition
would not be consistent with preservation of
competition in the field
Of bankin
g. The Board rejects Applicant's suggestion that only such a
lesseni
ng of competition as would violate section 7 of the Clayton
Act
MaY be regarded as an advers consid
e
eration under the Holding Company
Act. The
latter Act, however, requires the Board to consider, as one
factor, whether
a proposed acquisition would be consistent with the
Preservation
of competition", and in the Board's opinion, in reaching
a dec
ision, any significant lessening of competition, even though it
1114Y not be such as to violate the Clayto
n Act, is to be weighed as an
adverse consideration against any relevant favorable
considerations.
Conclusion. - In view of the foregoing discussion, the
Board ts decision in this case must turn upon
a weighing of its
dverse findings with respect to competition
under the fifth statut(lrY factor against any favorable consideratio
ns with respect to
the other
factors, particularly the convenience, needs, and welfare
"
the area and communities
concerned.
At the time of the Board's denial of First's earlier application,
dissenting members of the Board expressed the view that the
issue was "whether the 'convenience
needs
and welfare' of
this
growing suburban population must go unserved, until an
independent bank, of which there is no current prospect, would be organi
zed,"
143S
-25and they concluded that the needs of the communities concerned constituted an
affirmative basis for approval that was not outweighed by
adverse findings under the fifth factor.
The bank then proposed, which both the majority and
dissenting
members of the Board recognized would serve the communities
and area
concerned, has now been established.
The record reflects
that Eastern is currently serving the convenience and needs of the
area with
up-to-date banking methods.
To the extent that considera-
ticns under the fourth factor were favorable to approval of First's
earlier application, their weight is now greatly reduced.
'Rather than a question of the needs of the area for additional
banking
facilities, the issue here is whether that area would be benefited by
the transfer
to First of ownership of the facility now serving that
41'ea.
As previously indicated, the Board concurs in the Hearing
4ficer's finding that the banking needs of Eastern's primary service
area
are presently being served and that, even assuming the growth
of
the
area as expected, those needs will continue to be adequately
served.
The Board has carefully considered the changes in circumstane
es asserted by Applicant to have occurred since its earlier
4Plication that would justify approval of its request. In
the,
coard's judgment, however, the present record fails to establish
that
acquisition of Eastern by First would materially meet an
e)(1.844
need in the area concerned or that the convenience and
I 139
-26welfare of the banking public would be benefited by such acquisition
to a
degree that would constitute affirmative grounds for approving the
application.
To the extent that more specialized banking services would
be made available in the area concerned as a result of First's
acquisition of Eastern, it does not appear that such services are
likely to be used by residents of that area. In any event, any such
Probable benefits are overshadowed by the facts that the proposed
acquisition would lessen competition between Eastern and certain of
Pirst s
present subsidiaries in the Greater St. Paul area, and, in
via
-w of the dominant position occupied by First in the area, would
Probably result hereafter in further lessening of competition, particrly
ula
within the East St. Paul and Adjacent Area.
After balancing all considerations in the light of the
factors
stated in section 3(c) of the Act, it is the Board's judgment
that, on the basis of the record in this case, whatever
favorable
ecqleiderations may exist are outweighed by adverse considerati
ons with
'
l eePect to the effects
of the proposed acquisition upon preservation
or
competition in the banking field and that, therefore,
the application should be
denied. It is so ordered.
1 410
Concurring Statement of Governor Balderston
Item No.
4 1/60
/2
When First Bank Stock Corporation applied, two years ago,
for approval of
the acquisition of the stock of a bank in the
3111 Ray Shopping Center, I was one of the minority members of the
1
Board who concluded that the application merited approval.
In the
instant case, Bank Stock again seeks to acquire the stock of a bank
in the Sun Ray Shopping Center, and I concur in the Board's denial
or the application.
These circumstances justify a brief statement
( the reasons for these
pf
seemingly divergent positions.
As pointed out in the Dissenting Statement in the earlier
ease) the question, as we saw it, was "whether the 'convenience,
needs, and welfare' of this growing suburban population must go
unserved until an independent bank, of which there is no current
13r°sPeot, would be organized."
44
Federal Reserve Bulletin
1064
(1958). There were no banks within three and one-half miles of the
131()1)osed Sun Ray location, and there were strong indications that
'
the
"d for banking facilities in the immediate area would increase
in the predictable future.
Consequently, we concluded that
urlsideration of the fourth factor ['the convenience, needs, and
14elrare of the communities
and the area concerned'] provides a
silbstantial basis for approval."
Reliance was placed on the Board's
decision in Southgate National Bank of Milwaukee,
44
Federal
4
144
-2-
Reserve Bulletin 10 (1958) in which the Board approved a similar
:
aPPlication to establish a new bank in a shopping center.
In the Dissenting Statement in the prior case, we weighed
the effect
on competition against the banking-service benefits that
w°111c flow from the new bank and concluded that the impact of the
1
e°mPetitive factor did not "warrant ignoring the community's need
f°11 additional banking facilities in the proximate and foreseeable
future."
The instant application presents an entirely different
situation from that obtaining two years ago when Bank Stock first
8°11ght to
acquire a bank in the Sun Ray Shopping Center.
At that
time/ it appeared to me that the decisive factor was the need for
b44king facilities in the Sun Ray Shopping Center.
Since that date,
however, a
bank has been established in this location by interests
°the . than Bank Stock.
'
The need for banking services having been
84tisfied, it is my view that the former justification for permitting
8e llk Stock to hold a bank in the Sun Ray Shopping Center no longer
'
eXists.
4
ril 22,
1960
Item No.
5
4/2116o
Dissenting Statement of Governor Mills
On the premise that the two proposals that the First Bank
Stock Corporation has made to provide commercial banking facilities
for the Sun
Ray Shopping Center area of St. Paul, Minnesota, are
inseparable in purpose and effect, the application which was made in
1957 to acquire stock in the First Eastern Heights State Bank of
Saint Paul, St. Paul, Minnesota, and the pending application to acquire
stock
in the Eastern Heights State Bank of Saint Paul, St. Paul,
Minaesota, must be considered in conjunction.
The stipulation entered
illt0 between the Applicant and this Board that the record in the case
°f the
First Eastern Heights State Bank application should be treated
4 Part of the record on its application to acquire the Eastern Heights
StIlte Bank indicates a mutual acknowledgment of the inextricable
l'elationship
between the two applications.
The major distinction
bet
"en the two applications is that the First Eastern Heights State
844k case related to the contemplated establishment and ownership of
Ilew bank, while the Eastern Heights State Bank case relates to the
4ccill151ti012
of ownership in an existing bank.
In both cases the bank-
site and the trade
area served are identical and most other
"47c110Lstances surrounding both applications bear a close resemblance.
Bearing these facts in mind, a finding on the present appli-
esti()
n must appraise the operating record of the Eastern Heights
stat
Bank to ascertain (1) whether its services have met a public need
-2
and (2) whether this has been accomplished without competitive damage
to competing banks operating in the same general trade area.
The
61
'clwth of the Eastern Heights State Bank in the time since its organization offers clear proof of the community need for additional banking
tacilities while) on the other hand, the continued growth of the
Rillcrest State Bank and other local banking institutions disproves
the contention that has been made that the establishment of the
Ea stern Heights State Bank would be injurious to small competing banks.
'
Te. ing. these factors into account, approval of First Bank Stock
- euration's application to acquire shares in the Eastern Heights
State Bank has even greater justification than had the position of the
di
eeenting members of the Federal Reserve Board who favored approval
"
)3ank Stock's original application to acquire shares in the First
ketern
Heights State Bank.
In the case of the earlier application the unfavorable
;
decis4
4-on of a majority of the Board was based largely on the ground
th4t the resulting bank would increase unduly an assumed dominating
on of First Bank Stock Corporation's subsidiary banks in this
sectols
- of the St. Paul metropolitan business area and would result
1 en
4
—111Petitive detriment to a small bank located in the area. In my
--) the majority Statement failed to recognize that the "public
-3interest" factor required to be considered in reaching decisions
under the Bank Holding Company Act is properly susceptible of some
elasticity in interpretation, and such being the case,
mere adequacy
of banking services in a geographical area does not signify that
the
Public interest would not be better served by the availability of
a
dditional banking facilities.
The prohibition against branch banking
in the State of Minnesota has placed the metropolitan area of
the city
of St. Paul in a paradoxical situation as compared to metropolitan
areas located in States where branch banking
is permitted and where,
under similar circumstances, State and
Federal bank supervisory
authorities
have frequently acted favorably on applications to establish branches
that in effect have extended the services of the
applicant banking association
further into an area directly tributary
to its central banking facilities. If the broad /View is then taken
,
tha+
.where the public convenience is at issue and where positive
legal impediments are absent, bank supervisory authorities should
gil/e Comparable treatment to comparable situations, the persuasiveof the arguments that were ranged on the side of the Dissenting
Statement in the First Eastern Heights State Bank case gather greater
fol*ee. The Statement said in part:
"It is not size per se that is the heart of the problem
in this case but whether the starting of a new bank in Sun
Ray would increase the extent of Bank Stock's
activities contrary to the public interest. 0 0 0 If the intent of the
statute is neither to kill holding companies nor to 'freeze'
them into their existing molds, the fifth factor
in this case
does not warrant ignoring the community's need
for additional
banking facilities in the proximate and foreseeable future."
Arguments that were expressed in the Dissenting Statement of
the members of the Federal Reserve Board who were in favor of approving
the application of the First Bank Stock Corporation in the First Eastern
Heights State Bank are applicable to the Eastern Heights State Bank
application.
As has been mentioned, the successful operation of that
bank since the time of its organization is irrefutable evidence that
itS existence has added to the convenience and needs of its trade area
ancl is in the public interest. Furthermore, the concurrent growth of
the Hillcrest State Bank and the other banks operating in this sector
Of the St. Paul metropolitan area removes any basis for concern lest
they be injured by the operations of the Eastern Heights State Bank.
The adventitious circumstances by which the ownership of
the Eastern Heights State Bank cant into the hands of the Minnesota
Mining and Manufacturing Company interests, and the strength of that
cutership, are meaningful only as proof that responsible interests
/
'"°gnized a need and were ready and willing to provide a growing
"Irimunity with banking services pending authority for transfer of
their
property to the First Bank Stock Corporation.
Ownership of
the Eastern Heights State Bank of Saint Paul by the Minnesota Mining
ahd Manufacturing Company has no relevance to the equitable, economic, and legal considerations that stand patently in favor of
4PProving the proposed acquisition.
APril 221 1960
1 44;
BOARD OF GOVERNORS
OF THE
Item No. 6
FEDERAL RESERVE SYSTEM
4/21/60
WASHINGTON 25. D. C.
AcfoREas arrictAL
CORRESPONDENCE
TO THE BOARD
0,t rat
4
twvs-
April 22, 1960
lir. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
°ear Mr. Campbell:
This is in response to your letter of January 20, 1960,
with enclosures, in which you request a ruling as to whether
!ertain persons employed by the Girard Trust Corn Exchange Bank,
Philadelphia, Pennsylvania, who have no official titles but are
aUthorized to make loans in limited amounts should be classified
48 "executive officers" for purposes of Regulation 0.
The information which you have submitted indicates that
Ilranch Managers and Assistant Branch Managers of the bank have
thority to make unsecured commercial loans up to a limit of
, 2000 and secured commercial loans up to a limit of $10,000.
5
Likewise, employees listed as Supervisors or Assistant Superin the bankts Consumer Credit Department are authorized
make personal loans on an unsecured or secured basis up to
r
e Elaine limits.
This is to advise you that the Board considers that the
e
!Ployees in question participate in the "operating management"
°L the bank and that, accordingly, they should be considered
'
lcecutive officers for purposes of the regulation.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
14 tt
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No.
7
4/21/60
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 21, 1960
W. M. Taylor,
'ePuty Comptroller of the Currency,
TT„reasury Department,
"aehingten 25, D. C.
Dear Mr. Taylor:
This is in further response to your letter of March 2,
with which was enclosed an excerpt from a report of examinaZ: of the Citizens & Southern National Bank of South Carolina,
°n
,1arle8t0n, South Carolina. You request the Board's advice as to
1
nether specified loans made to wives of certain officers of the
:
al* are in violation of section 22(g) of the Federal Reserve Act
and Regulation 0.
15<ob
The examination report indicates that a total of 23
ion-1-,18 have been made to wives of 20 bank officers. For purposes
!
° Your inquiry it is assumed that these officers are executive
0
within the meaning of the law and the Board's regulation.
While the information supplied by your examiner indicates
the husbands, in a strict legal sense, have no liability in
with these loans, it is assumed that all of the parties
Understand that the income of the husbands will be the primary source
derstand
yrifrUnds for meeting the loan payments, except possibly where the
th e,maY have a separate income. Furthermore, it is presumed that
'
th nusbands derive benefits as a result of the loans, particularly
e mortgage loans.
that
4
In the circumstances of this case, it is the Board's
letrew.that the existence of so many such loans indicates a policy
O
8; circumvent the objectives of the regulation. Hence, in the abinl” of evidence that the executive officers do not directly or
th
'-rectly benefit from such loans, the Board is of the opinion
()tat the examiner was justified in criticizing such loans as violative
the spirit and purpose of the law and regulation.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
-I 11i
BOARD OF GOVERNORS
OF THE
Item No. 8
FEDERAL RESERVE SYSTEM
4 1/60
/2
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONOENCE
0
0
TO THE BOARD
rak tat
°01 10tr
;
April 21, 1953
CONFIDENTIAL (FR)
Mr. L. G. Pondrom, Vice President,
Federal Reserve Bank of Dallas,
Station K,
Dallas 2, Texas,
Dear Mr. Pondrom:
In accordance with the request contained
in your letter of April 11, 1960, the Board approves
the appointment of Lionel Riley as an assistant examiner for the Federal Reserve Bank of DAllas, effective today.
It is noted that Mr. Riley is indebted to
The First National Bank of Athens, Athens, Texas, in
the amount of approximately $700. Accordingly, the
Board's approval of Mr. Riley's appointment is given
With the understanding that he will not participate
in any examination of that bank until his indebtedness has been liquidated,
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
@FedFRASER