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Minutes for To: Members of the Board From: Office of the Secretary April 23, 1962 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 vith 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 (InlY that you have seen the minutes. Chin. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell Minutes of the Board of Governors of the Federal Reserve System on Monday, April 23, 1962. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson King Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Sherman, Secretary Kenyon, Assistant Secretary Fauver, Assistant to the Board Solomon, Director, Division of Examinations Johnson, Director, Division of Personnel Administration Hexter, Assistant General Counsel Hooff, Assistant General Counsel Dembitz, Associate Adviser) Division of Research and Statistics Daniels, Assistant Director, Division of Bank Operations Kiley, Assistant Director, Division of Bank Operations Goodman, Assistant Director, Division of Examinations Smith, Assistant Director, Division of Examinations Leavitt, Assistant Director, Division of Examinations Spencer, General Assistant, Office of the Secretary The establishment without change by the Federal lieserve Bank of Atlanta on April 20, 1962, of the rates on discounts and 114114inces in its existing schedule was approved unanimously, with the Ill ' standing that appropriate advice would be sent to that Bank. Circulated or distributed items. had The following items, which been circulated or distributed to the members of the Board and 4/23/62 -2- eoPies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Telegram to the Federal Reserve Bank of New York interposing no objection to the purchase of an 11M 1401 general purpose computer. 1 Letter to Bank of America, New York, New York, Proving an extension of time to establish an 11-tiona1 branch in the City of Singapore, (4°4Y of Singapore. 2 Letter to the Federal Reserve Bank of Chicago P1/roving the appointment of Robert W. Cook Federal Reserve Agent's Representative at Detroit Branch. 3 ,eter to The First National Bank of Stevens 1111t, Stevens Point, Wisconsin, approving its ' qPPlemental application for a fiduciary power. 4 Lett4. cal.er to United California Bank, Los Angeles, ifornia approving an extension of time to establ. ' ish a branch at 3029 Harbor Boulevard, esta Mesa. 5 2 Mr. Goodman then withdrew from the meeting and Messrs. Molony, As8istant to the Board, and Benner, Assistant Director, Division of Ex". -Aulnations, entered the room. Report on competitive factors (New York, New York-Brooklyn, r4). There had been distributed, with a memorandwm from the ion of Examinations dated April 18, 1962, a draft of report to the Peder al Deposit Insurance Corporation regarding the competitive factors . involved in the proposed merger of The Peoples National Bank of trooki Yr'. in New York, Brooklyn, New York, into the Commercial Bank of Ilerth America, New York, New York. a.S follows: The conclusion in the report read 4/23/62 -3While the negligible amount of competition existing between these two institutions would be eliminated, the over-all effect of the merger on competition in their service areas would be beneficial. to the The report was approved unanimously for transmittal Co rporation. ics, Mr. Noyes, Director, Division of Research and Statist entered the room at this point. United Security Account Plan. At the meeting on February 1, 1962, consideration was given to the status under Regulation Q, Payment Of Interest on Deposits, as amended January 15, 1962, of the United Security Account Plan offered by Citizens Bank and Trust Company, Park Ridge (Chicago), Illinois. At the conclusion of the discussion, the 8°4111 approved a letter to the Federal Reserve Bank of Chicago asking to be advised of the actual manner in which operations under the Urlited Security Account Plan were being conducted. In a memorandum dated April 4, 1962, prepared by the Legal s of Division, it was pointed out that on February 23 representative to Citizens Bank had met with certain members of the Board's staff y diseues further the operation of the Plan; a memorandum dated Februar 27 containing the substance of that discussion was attached. The memorandum of April 4 went on to discuss the information that had been obtained by the Chicago Reserve Bank from an examination (It the bank, particularly the United Security Plan. Although the bank 4/23/62 hai taken no action to transfer funds from savings deposits to pay "1°ans" created by the bank's payment of checks drawn by savings clePositors, this was probably because of operating difficulties, including a breakdown of the bank's electronic accounting equipment; irlstructions on file from several hundred savings depositors authorized 114thdrawals. " It was the belief of the Legal Division that it IT°111d. be proper for the Board to inform Citizens Bank again that contracts with its customers, if carried out in accordance with one °f the alternatives therein, would result in violations of section 19 Of the Federal Reserve Act and of Regulation Q0 which violations might %la-rrant termination of the bank's membership in the Federal Reserve SfEitem. This would afford the bank an opportunity to achieve compliance Illth the applicable statute and regulation. atteelled. A draft letter was However, pursuant to a suggestion by Governor Robertson, 'fts decided at the meeting on April 10, 1962, to defer action on the matter. Subsequently, under date of April 16, 1962, there was distributed "lemorandum prepared by the Legal Division commenting on an attached viraft of letter that had been prepared pursuant to suggestions made by 4c)vellior Robertson. As indicated in the memorandum, the purpose of the (*aft letter was to approach the problem presented by the United Security ke°11nt Plan in a different manner. The proposed letter would advise thel, "Etnk that frequent examinations, possibly monthly, at the bank's enseX.1e, would be made until the System was satisfied that actual 111°1cttion5 of Regulation Q had ceased or until the bank notified the ' 4/23/62 -5- Board that use of the plan had been abandoned. The memorandum pointed out certain questions that such a letter might raise and noted that it was not in form suitable for use as the first step in a possible "Pulsion proceeding, as was the draft letter distributed with the Legal Division's memorandum of April 4. During discussion, Governor Mills stated that he would favor the letter that had first been proposed. The approach taken in the second draft letter might create the impression that the Board was elltcking down on the bank by subjecting it to special examinations because of a practice that had to do with a breach of a Board regulation, /'8*.ther than because of the quality and standing of the bank itself. Governor Robertson said that, as the Board would recall, the Qiiiginal draft letter implied the possibility of action to remove the 11841k from membership in the System. However, such a proceeding would be based on a strained construction of the Regulation; the construction taight stand up, but that was doubtful. Therefore, he felt that it was 41)111 ' 0Priate to devise some means whereby the Federal Reserve could stay On toP of the situation. Further, in his judgment, this plan probably .11°144 not prove profitable to the bank. nilf*It stop it. A letter like the one proposed Such a letter could be considered as a "crackdown"; it l'Ise intended to be. Following Governor Robertson's remarks, Governor Shepardson 404 he was aware of the difficulties that any membership proceeding 4/23/62 -6- would involve. However, it seemed to him that the approach now being considered was one that could hardly be justified. be likely to be charged with harassment. The Board would He would therefore favor the first draft letter. Governor King expressed the view that there might be some Merit in waiting a little longer before taking any action. While he /lould not object strongly to sending a letter along the lines proposed bY Governor Robertson, he would leave out that portion with respect to the bank paying for the special examinations; also the reference to the Pcssibility of examinations having to be mptie as frequently as every 41°11th. A statement that examinations might have to be made quite treqUently would seem sufficient. Governor Balderston said that he liked Governor Robertson's 41113roaoh, but would feel that the last two sentences, telling the bank of the Pl'ospect of frequent examinations, should be deleted. He would 11°'t threaten the bank with frequent examinations or indicate that it 11°141c1 have to pay the cost of those examinations. As he saw it, the Oac 1 was appropriate insofar as it would provide for obtaining the P' 11.11 4ettli, He would favor a membership proceeding only as a final recourse. Chairman Martin stated that, as he read the letter suggested by ri `4Arernor Robertson, he saw no implication of harassment if the last tvo fltences of the letter were omitted. Mr. Hexter commented that to both the Examinations and Legal °ns it seemed that the approach in the second draft would be 4/23/62 -7- tantamount to saying that the Board was not going to take action against what it regarded as a violation of the law, but instead Proposed to let the practice continue with the hope that it would fall °f its awn economic weight. It should be borne in mind that banks t hroughout the country were asking questions about this plan and were being advised that the operation of plan appeared to be in violation of the law and the Board's regulation. There was nothing in this picture that would discourage the bank from going ahead; frequent examinations ‘goulia not stop it. Governor King inquired whether the Legal Division felt that the l'ecent examination had revealed any violation of the law and regulation, t0 .4111oh Mr. Hooff replied that he thought it did. The bank had clearly entered into agreements with numerous depositors whereby funds would he Withdrawn by the bank from savings accounts in settlement of loans created by checks drawn on the bank. The bank was obligated to pursue that course by the agreements. Only because its equipment had broken (law, - vas it temporarily estopped. Governor King then asked whether the Legal Division did not feel that the Board would be on more solid gli°141(1. if another examination was conducted. Mr. Hexter replied that the 4.'gal Division would not recommend instituting any proceeding 8.1gainst the bank until transactions deemed to be in violation of the 44 and regulation had actually taken place. However, the Board could asErh,_ "4ne that such violations would exist and probably now existed. 4/23/62 -8In further discussion, Mr. Benner reported that an examination of the savings department of Citizens Bank was begun last week by the Federal Reserve Bank of Chicago. The results of the examination should be available within the relatively near future. Accordingly, it was understood that the matter would be considered further following receipt of the report of the examination now being conducted by the Federal Reserve Bank of Chicago. Interest rates on time deposits in New York State. There had been distributed a memorandum from the Division of Examinations dated April 201 1962, stating that Vice President Crosse of the Federal Reserve Ilank of New York had telephoned Mr. Leavitt on April 19, 1962, regarding ple"ne by Mr. Oren Root, Superintendent of Banks for New York, to permit e444gea in the maximum rates of interest payable on time and savings dell3sita by State chartered banks. The Superintendent thought that it 151%°be•blY would be desirable to allow commercial banks in that State to y.4tY interest as provided by Regulation Q. He was also considering Dellaitting savings banks to pay interest at the rate of 4 per cent for ic3cle shorter than now permitted by State law. ' Del The memorandum further stated that Mr. Root was considering the, k438sibility of removing entirely the maximum rates payable on aavi 48 deposits, feeling that there was little desire on the part of Nell/ York State chartered banks to pay interest at higher rates than Dermitted by Regulation Q might be an appropriate time and that this to l'elli°ve all restrictions. e 4/23/62 -9Mr. Solomon reviewed the memorandum and called attention to the fact that the State Superintendent reportedly would be glad to have any comments the Board might wish to make. Governor Mills expressed the view that the Board should not niake any comment. This was a field of responsibility for Mr. Root. Ile went on to say that he viewed with much concern the interest rate situation across the country. Contributing causes were the Board's cieci3ion to go as high as a 4 per cent maximum rate of interest on time and savings deposits and its subsequent refusal to compromise with Mr. Root and, in effect, move the maximum rates back to coincide with those that New York State had set for State commercial banks. Following Governor Mills' remarks, the Chairman asked whether allYbsember felt that the Board should comment with regard to Mr. Root's 114118 and there was agreement that it should not. Accordingly, it was illstood that Mr. Solomon would advise the New York Reserve Bank to stzeh effect. Messrs. Noyes, Hexter, Hooff, Dembitz, Benner, Leavitt, and SeIlLeer then withdrew from the meeting. Report of examination of Federal Reserve Bank of Atlanta. Mr, 0_ kmith commented on the examination of the Federal Reserve Bank c't Atlanta made as of November 27) 1961) the report on which had e°41DI.eted circulation to the members of the Board. On the basis Of hi 8 COMMe1t51 it was agreed that there were no matters disclosed 15Y theexamination that required action on the part of the Board. 4/23/62 -10- It was understood, however, that the Examinations and Bank Operations Divisions would continue to follow carefully the operations of the Baak's Fiscal Agency Department, in view of certain defects that had been noted. Report of examination of Federal Reserve Bank of St. Louis. The report covering the examination of the Federal Reserve Bank of St. Louis made as of February 1, 1962, had been circulated to the /13ara, along with the usual accompanying memoranda. Mr. Smith commented on matters disclosed by the examination, 814 on the basis of his comments it was agreed that there were no ' Matters appearing to require action on the part of the Board. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Memorandum from the Division of Administrative Services ree— ti_rmending an increase in the basic annual salary of Bishop Hart, ti„"gsrY Worker in that Division, from $4,763 to $5,429, effective 29, 1962. Memorandum from Thomas M. Klein, Economist, Division of Inter to national Finance, requesting permission to teach a course in neY and banking during the summer session at Georgetown University. Memorandum dated April 11, 1962, from the Division of trnations recommending the establishment of a new position of Trtrung Technician in that Division. Letter to the Federal Reserve Bank of Atlanta (attached ) approving the appointment of George D. Loomis as . I12.t.6 4.stant examiner. Itera Secretary 1451 TELEGRAM LEASIED WIRE SKRVICE E3QARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON , Item No. 1 4/23/62 Ap i 23 1962 Treib r - New York Board interposes no objection to proposed purchase of general data processing system referred to in urlet of April 18, 1962 (Signed) SHERMAN Sb BOARD OF GOVERNORS 44ittitttr il.4 OF THE 14 % P.1 ki, * t* A* 44. , . FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. gi* Item No. 2 4/23/62 AOORE5S OFFICIAL CCIRRESPONOENCE TO THE EJOARO t‘ttip:04.4 April 23, 1962 Bank of America, 41 Broad Street, New York 15, New York. Gentlemen: In view of the request contained in your letter of March 29, 1962, transmitted through the Federal Reserve Bank of New York, and on the basis of the information furnished, the Board of Governors extends to November 1, 1902, the time within which your Bank may establish an additional branch in the City of Singapore, Colony of Singapore, to be located in the vicinity of Carpenter Street, Singapore, as authorized by the Board on April 26, 1961. Please advise the Board of Governors in writing, through the Federal Reserve Bank of New York, when the branch is opened for business, furnishing information as to the exact location of the branch. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 4011 BOARD OF GOVERNORS 4, 4120 OF THE 4,*0 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 3 4/23/62 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 23, 1962 Mr e Roberto P. Briggs, Chairman, 'cleral Reserve Bank of Chicago, o 90, Illinois. pear • Briggs: As requested in your letter of April 12, 1962, the Board of G4ern --ers approves the appointment of Mr. Robert W. Cook as Federal Ileaa, aadive Agent,._ Representative at the Detroit Branch to succeed Mr. Otis R. ord. be soilThis approval is given with the understanding that Mr. Cook will e Y responsible to the Federal Reserve Agent and the Board of Governors tor the erdi ,r performance of his duties, except that, during the absence 4a1„!aQility of the Federal Reserve Agent or a vacancy in that office, his oC, 7"sibility. will be to the Assistant Federal Reserve Agent and the Board wo , ve'nors. Ileser When not engaged in the performance of his duties as Federal Pedern Agent's Representative, Mr. Cook may, with the approval of the PertoZ Reserve Agent and the Vice President in charge of the Detroit Branch, 4per such work for the Branch as will not be inconsistent with the duties eral Reserve Agentls Representative. It will be appreciated if Mr. Cook is fully informed of the °rt ance of his responsibilities as a member of the staff of the Federal -eserv. ' Agent and the need for maintenance of independence from the operations the A, flk in the discharge of these responsibilities. It is assumed that Mr. Cook will execute the usual Oath of Office, lich tioll will be forwarded to the Board of Governors along with the notifica°f the effective date of his appointment. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 4atott,trr, log?001,44,o BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 4 4/23/62 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD a April 23, 1962 Board of Directors, The First National Bank of Stevens Point, Stevens Point, Wisconsin. G entlemen: The Board of Governors of the Federal Reserve System has given consideration to your supplemental application for a fiduciary Power and grants you authority to act, when not in contravention 5 State or local law, in any other fiduciary capacity in which State banks, trust companies, or other corporations which come into ?°mPetition with national banks are permitted to act under the taws of the State of Wisconsin. The exercise of such right shall i subject to the provisions of Section 11(k) of the Federal Reserve t and Regulation F of the Board of Governors of the Federal Reserve SYS tem r In addition to the fiduciary power herein authorized, the was granted authority, on April 14, 1922, to act as trustee, executor, adminibtrator, registrar of stocks and bonds, guardian 4 estates, assignee, receiver, and committee of estates of lunatics. A formal certificate indicating the fiduciary powers that pour bank is now authorized to exercise will be forwarded in due cuurse. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE %C:do fr FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. r?1 / Item No. 5 4/23/62 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD ' 't44111',111 April 23) 1962 Board of Directors, United California Bank, Los Angeles, California. G entlemen: The Board of Governors of the Federal Reserve System extends to August 20, 1962, the time within which United California Bank may establish a brunch in Costa Mesa, Orange ,01Inty, California. It is noted that the address of the vl'anoh will be 3029 Harbor Boulevard. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 1456 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 6 4123/62 WASHINGTON 25. D. C. ADORE Et OFFICIAL. CORRESPONDENCE TO THE BOARD April 23, 1962 Mr. J. E. Denmark, Vice President, Federal Reserve Bank of Atlanta, Atlanta 3, Georgia. Dear Er. Denmark: In accordance with the request contained in your letter of April 16, 1962, the Board approves the appointment or George D. Loomis as an assistant examiner for the Federal Reserve Bank of Atlanta, effective April 30, 1962. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary*
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