The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for
To:
Members of the Board
From:
Office Of the Secretary
April 24, 1963
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.
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 Wednesday, April 24, 1963.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mills, Acting Chairman
Robertson
Shepardson
King
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Hackley, General Counsel
Solomon, Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Conkling, Assistant Director, Division
of Bank Operations
Mr. Goodman, Assistant Director, Division
of Examinations
Mr. Leavitt, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office
of the Secretary
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
The establishment without change by the Federal
Reserve Bank of Atlanta on April 19, 1963, of the rates on discounts and
advances in its existing schedule was approved unanimously, with the
Understanding that appropriate advice would be sent to that Bank.
Circulated or distributed items.
°I' which
The following items, copies
are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to the Federal Reserve Bank of Philadelphia
iv1ng the assessment of a penalty incurred by
v"lYne County Bank and Trust Company, Honesdale,
Pennsylvania, for a deficiency in its required reserves.
1
4/24/63
-2Item No.
Letter to The Buffalo Bank, Buffalo, West
Virginia, approving an investment in bank
Premises.
2
Letter to Manufacturers National Bank, Detroit,
Michigan, granting permission to organize a
corporation to be known as "Manufacturers-Detroit
International Corporation," Detroit, Michigan,
to engage in international or foreign banking,
and transmitting a preliminary permit.
3
Letter to Davenport Bank and Trust Company,
Davenport, Iowa, approving an investment in
bank premises.
Letter to Farmers & Merchants Bank, Aberdeen,
South Dakota, approving its application for
membership in the Federal Reserve System.
5
Letter to Southern Arizona Bank and Trust
Company, Tucson, Arizona, authorizing the
acceptance of drafts or bills of exchange
drawn for the purpose of furnishing dollar
eXchange.
6
Letter to The Chase Manhattan Bank, New York,
New York, approving the establishment of a branch
in the Town of New Castle.
7
Letter to The Bank of Georgia, Atlanta, Georgia,
approving the establishment of a branch at 494
Peachtree Street, N. E.
8
Letter to The Company for Investing Abroad,
Philadelphia, Pennsylvania, granting its request for
consent to purchase and hold stock in generally
designated types of corporations.
9
In connection with Item No.
9, it was noted that all of the
olltstanding general consents, like the one now before the Board, were
scheduled to expire June 30,
1963, that date having been fixed in the
1
ti
4/24/63
thought that a revision of Regulation K, Corporations Doing Foreign
Banking or Other Foreign Financing under the Federal Reserve Act,
might have been decided upon by such time.
If it developed otherwise,
the staff would contemplate recommending extension of the general
consents for such further period of time as the Board might deem
appropriate.
It had been arranged for the Federal Reserve Bank of
Philadelphia to explain to The Company for Investing Abroad why its
requested general consent was being granted only through June 30, 1963.
Messrs. Shay, Conkling, and Goodman then withdrew from the
Meeting.
Eligibility of notes for discount (Item No. 10).
There had
been distributed a draft of reply to an inquiry from the Securities
and Exchange Commission as to whether certain notes that The Colwell
Company, Los Angeles, California, proposed to issue would be eligible
for discount by Federal Reserve Banks.
Upon that question rested the
right of the company to an exemption of the notes from the registration
44d prospectus requirements of section 5 of the Securities Act of 1933.
The position taken in the draft was that the notes would be ineligible
for discount.
It was pointed out that they would be not unlike notes
°riginated by investment bankers, which were specifically excluded from
discount eligibility in section 13 of the Federal Reserve Act.
At the Board's request, Mr. Hexter commented on the circumstances leading to the inquiry from the Securities and Exchange Commission
and the application of various tests of discount eligibility.
4/24/63
In the discussion that ensued, the members of the Board
expressed the view that the position taken in the draft reply was well
reasoned.
Governor Mills indicated some concern, however, that the
Position was based on tests for the eligibility of paper for discount
under section 13 of the Federal Reserve Act, whereas the Colwell notes
conceivably could be used as collateral for advances under section
10(b) of the Act if a Federal Reserve Bank considered them satisfactory
for that purpose.
Also, while the Board for some time had felt some
concern about the restrictiveness of the definitions of eligibility in
the existing law and Regulation A, which definitions he considered
oUtmoded in many ways by the evolution of banking practices, it was
Proposed to use such definitions as the basis of an interpretation upon
vhich the Securities and Exchange Commission would rely to deny the
Colwell Company's request.
It appeared, also, that the Colwell notes
Might not be too readily distinguishable from certain notes of finance
companies that had been ruled eligible for Federal Reserve discount.
In response to the latter comment by Governor Mills, Mr. Hackley
remarked that the interpretation pertaining to the finance company paper
//as based on the fact that the proceeds would be used ultimately for
commercial purposes, whereas the proceeds of the Colwell notes found
their ultimate use in permanent investments in land and buildings.
During further discussion it was suggested that the letter
indicate that, while it was assumed that the Securities and Exchange
4/24/63
-5-
Commission's inquiry contemplated eligibility for discount and the
Position expressed was confined to that question, it did not necessarily
follow that the Colwell notes would be barred from all Federal Reserve
credit, such as that available through advances under section 10(b)
Of the Act.
There being agreement with that suggestion, the letter was
.92proved unanimously with the understanding that language along the
lines indicated would be added.
A copy of the letter sent to the
Securities and Exchange Commission pursuant to this action is attached
aS Item No. 10.
Regulation A.
Governor Robertson commented that the preceding
discussion pointed up the desirability of considering a revision of
Regulation A, Advances and Discounts by Federal Reserve Banks.
In his
view, the time might not be too far off when a regulation more consistent
with present-day banking practices would be needed.
Mr. Hackley reviewed the developments that had taken place
looking toward possible revision of the Regulation.
At its meeting on
September 10, 1962, the Conference of Presidents, having considered the
report of the system Committee on Eligible Paper, approved a recommendation
the Conference Subcommittee on Legislation for a broad revision of
the law.
The Subcommittee had prepared a draft of proposed legislation,
Inlich it recommended be submitted to the Board of Governors.
The
Slibcommittee's recommendation also contemplated that the Farm Credit
Administration, the American Bankers Association, and the Association
4/24/63
-6-
of Reserve City Bankers would be asked to comment before proposed legislation was submitted to the Congress. (This recommendation was discussed
by the Board at its meeting on September 27, 1962.)
At its meeting on
September 28, 1962, the Board decided to defer consideration of the
Matter until it could have available draft regulations that would implement
the proposed statutory changes.
Such a draft was now in preparation,
Mr. Hackley stated, and it was hoped that it could soon be submitted
for the Board's consideration.
Governor Robertson expressed the view that a revised regulation
might be needed before it would be possible to have legislation enacted,
Ilhich suggested that the staff should also explore the possibilities for
limited revision of Regulation A under the existing statutes.
American Banker article.
Governor Robertson expressed concern
l'egarding the content of an article on current monetary policy that had
4Ppeared in the American Banker on April 23, 1963, particularly insofar
as the article reflected views expressed at the most recent meeting of
the Federal Open Market Committee.
The meeting then adjourned.
Secretary's Notes: Under date of April 24,
1963, a letter was sent to the Civil Service
Commission requesting that the detail to the
Board of Governors of Charles W. Schneider,
Associate Chief Hearing Examiner for the
National Labor Relations Board, be extended
for a period not to exceed six months from
May 14, 1963, on a reimbursable when-actuallyemployed basis, for the purpose of allowing
Mr. Schneider to conduct a hearing on a request
for a determination pursuant to section 4(c)(6)
of the Bank Holding Company Act.
,
4/24/63
-7On April 23, 1963, Governor Shepardson
approved on behalf of the Board the
following items:
Letter to the Federal Reserve Bank of New York (attached Item No. 11)
approving the appointment of John F. Weber as assistant examiner.
Memoranda from appropriate individuals concerned recommending the
following actions relating to the Board's staff:
APpointment
Richard John Niebuhr as Summer Research Assistant in the Division
Of Research and Statistics, with basic annual salary at the rate of
$5,540, effective the date of entrance upon duty.
Salary increase
Bishop Hart, Bindery Worker, Division of Administrative Services,
from $5,949 to $6,136 per annum, effective April 28, 1963.
Acceptance of resignation
Janice L. Schoonover, Clerk-Stenographer, Division of Research
and Statistics, effective at the close of business April 26, 1963.
Governor Shepardson today approved on
behalf of the Board the following items:
Memorandum from Thomas J. O'Connell, Assistant General Counsel,
requesting permission to teach an evening course in banking law as an
Adjunct Professor of Law at the Georgetown University Law Center.
Memorandum dated April 23, 1963, from the Division of Personnel
Administration recommending that a "Certificate of Availability of
Federal Employee" for entry on active duty if ordered to active military
service in the U. S. Air Force during a period of mobilization be
executed for George G. Noory, Assistant Review Examiner, Division of
45111inations, with the understanding that the certificate may be
rescinded by the Board at any time within a 60-day period, unless an
emergency has been proclaimed by the President or declared by the
Congress.
Memorandum dated April 22, 1963, from the Division of Administrative
Services recommending that authority be granted to that Division to
Proceed with necessary repair work, as outlined in the memorandum, on the
4/24/63
-8-
1n roof of the Federal Reserve Building and three roof decks at the
first floor level at an approximate cost of $34,700. This authorization
constituted approval of a corresponding overexpenditure in the 1963
budget of that Division, to be carried as an unbudggted special project.
"
Item No. 1
BOARD OF GOVERNORS
14124/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 24, 1963
Mr. Harry W. Roeder, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Roeder:
10 regarding
This refers to your letter of April
period of
-day
nine
the penalty of $40.56 incurred for the
,
Company
Trust
and
March 21-29 by the Wayne County Bank
Ronesdale, Pennsylvania.
daily deficiency of
It is noted that tilere was a
voluntarily
bank
the
$32,900 in its reserves but, since
as of the
System
Reserve
withdrew membership in the Federal
that it
feels
Bank
your
close of business March 29, 1963,
ent.
assessm
the
vould be inappropriate to make
authorizes your
In the circumstances, the Board
of $40.56 for
penalty
the
of
Bank to waive the assessment
the period March 21-29, 1963.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman
Secretary.
Item No. 2
BOARD OF GOVERNORE3
4/24/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 24, 1963
Board of Directors,
The Buffalo Bank,
Buffalo, West Virginia.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves, under the provisions of Section 24A
Of the Federal Reserve Act, an investment in bank
Premises in an amount not exceeding $125,000 by The
Buffalo Bank, Buffalo, West Virginia, for the purpose
of purchasing land and constructing a new building.
The proposed expenditure represents the entire cost of
new premises to be contructed in Eleanor, West Virginia,
in connection with the bank's relocation of its head
office from Buffalo to Eleanor, West Virginia.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
Item No.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
4/24/63
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE ISOARO
April 24, 1963
Mr. R. A. Mewhort, Executive Vice President,
Manufacturers National Bank,
151 Nest Fort Street,
Detroit 26, Michigan.
Dear Mr. Mewhort:
The Board of Governors has approved the Articles of
Association and the Organization Certificate, dated March 21,
1963, of Manufacturers-Detroit International Corporation, and
there is enclosed a preliminary permit authorizing that Corporation to exercise such of the powers conferred by Section
25(a) of the Federal Reserve Act as are incidental and preliminary to its organization. The Corporation may not exercise
any of the other powers conferred by Section 25(a) until it
has received a final permit from the Board authorizing it
generally to commence business. The steps which must be taken
Prior to issuance of a final permit are enumerated in Section
211.3(c) of the Board's Regulation K.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Eli:abeth L. Carmichael,
Assistant Secretary.
Enclosure.
iry
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
Preliminary Permit
the Board of Governors of
IT IS HEREBY CERTIFIED that
to authority vested in it
the Federal Reserve System, pursuant
Act, as amended, has
by Section 25(a) of the Federal Reserve
of Association and Organization
this day approved the Articles
1963, of MANUFACTURERS-.DETROIT
Certificate, dated March 21,
d of Governors,
duly filed with said Boar
INTERNATIONAL CORPORATION
INTERNATIONAL CORPORATION is
and that MANUFACTURERS—DETROIT
it by
of the powers conferred upon
authorized to exercise such
dental and preliminary to its
said Section 25(a) as are inci
s of
issuance by the Board of Governor
organization pending the
final permit generally to
the Federal Reserve System of a
with the provisions of said
commence business in accordance
and regulations of the Board of
Section 25(a) and the rules
rve System issued pursuant thereto.
Governors of the Federal Rese
BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
(SEAL)
BY
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
April 241 1963
I
BOARD OF GOVERNORS
Item No.
4
4/24/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 24, 1963
Board of Directors,
Davenport Bank and Trust Company,
Davenport, Iowa.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves, pursuant to Section 24A of the Federal
Reserve Act, an additional investment in bank premises
of not to exceed $2,525,000, by Davenport Bank and
Trust Company through its Wholly owned affiliate,
Davenport Bank Building Corporation. This amount includes
$7251oloo for the purchase of real estate and $1,800,000
for the construction of a two-story building,with basement,
for expansion of banking quarters and customer parking.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No.
5
4/24/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 24, 1963
Board of Directors,
Farmers & Merchants Bank,
Aberdeen, South Dakota.
Gentlemen:
Reserve System approves
The Board of Governors of the Federal
n, South Dakota,
Aberdee
Bank,
s
Merchant
the application of Farmers &
lis,
subject to the
Minneapo
of
6ank
for stock in the Federal Reserve
forth:
set
numbered conditions hereinafter
1.
2.
its business and
Such bank at all times shall conduct
to
the safety of
regard
due
with
exercise its powers
the
on of the
with
permissi
except
and,
its depositors,
such
System,
Reserve
Federal
the
of
Board of Governors
any
to
change
be
permit
made
or
bank shall not cause
in the general character of its business or in the
scope of the corporate powers exercised by it at the
time of admission to membership.
The net capital and surplus funds of such bank shall
be adequate in relation to the character and condition
of its assets and to its deposit liabilities and other
corporate responsibilities.
In connection with the foregoing conditions of membership,
the provisions of the Board's
Particular attention is called to
of State banking institutions in
ip
Regulation H, regarding membersh
especial
reference to Section 208.7
the Federal Reserve System, with
is
.
enclosed
thereof. A copy of the regulation
It is noted that under its articles of incorporation the
bank may exercise fiduciary powers but that at the present time is
net exercising such powers. Should the bank at any future time desire
to exercise any powers not exercised at the time of admission to membership it will be necessary, under condition of membership numbered 1,
to obtain permission of the Board of Governors.
BOARD
:Farmers
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Eerchants Bank
-2-
to the bank's charter
If at any time a change in or amendment
Bank, furnishing
Reserve
Federal
is made, the bank should advise the
be determined
may
it
that
order
in
copies of any documents involved,
as a member
status
bank's
the
way
Whether such change affects in any
Of the Federal Reserve System.
hip contained in this
Acceptance of the conditions of members
by the Board of
adopted
ion
resolut
letter should be evidenced by a
ed copy of such
certifi
a
and
,
minutes
Directors and spread upon its
Bank. Arrangements
Reserve
Federal
the
resolution should be filed with
iate amount
appropr
an
for
payment
accept
will thereupon be made to
the required
of
deposit
the
accept
to
stock,
Of Federal Reserve Bank
of
Federal
Reserve
amount
iate
appropr
the
issue
reserve balance, and to
Bank stock to the bank.
membership in the Federal
The time within which admission to
accomplished is limited
Reserve System in the manner described may be
bank applies to
to 30 days from the date of this letter, unless the
Board is advised
the
the Board and obtains an extension of time. When
that the
and
with
that all of the requirements have been complied
issued to
been
has
4PPropriate amount of Federal Reserve Bank stock
cate of
certifi
the bank, the Board will forward to the bank a formal
Membership in the Federal Reserve System.
will find
The Board of Governors sincerely hopes that you
the Reserve
with
ns
relatio
your
and
m embership in the 'System beneficial
be glad
will
Bank
Reserve
Federal
Bank pleasant. The officers of the
Federal
the
with
nships
relatio
your
to assist you in establishing
ntatives of your
Reserve System and at any time to discuss with represe
to you.
useful
most
the
System
of
s
service
bank means for making the
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
4aclosure.
Item Nc«Arl
BOARD OF GOVERNORS
4124163
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 241 1963
Southern Arizona Bank and Trust Company,
Tucson, Arizona.
Gentlemen:
The Board of Governors of the Federal Reserve System
of Section 13 of
authorizes your Bank, pursuant to the provisions
of exchange
bills
or
drafts
the Federal Reserve Act, to accept
as required
e
exchang
dollar
ing
drawn for the purpose of furnish
by the usages of trade in such countries, dependencies, or insular
designated by
Possessions of the United States as may have been
the Federal
of
ons
provisi
the
to
the Board of Governors, subject
t thereto.
pursuan
issued
C
ion
Regulat
Reserve Act and the Board's
bank
member
no
that
s
provide
Act
Section 13 of the Federal Reserve
any
at
ng
exceedi
amount
an
in
shall accept such drafts or bills
time the aggregate of one-half of its paid-up and unimpaired capital
and surplus.
upon
The right is reserved to terminate this authorization
ion.
d
in
the
Regulat
provide
as
Bank
90 days' notice to your
Enclosed is a list of the countries with respect to which
the Board of Governors has found that the usages of trade require
the furnishing of dollar exchange. The Board of Governors may at
any time after 90 days' published notice, remove from such list the
/lame of any country, dependency, or insular possession contained
therein.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
Enclosures.
330
Item No. 7
BOARD OF GOVERNORS
4/24/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE E3OAR0
April 24, 1963
Board of Directors,
The Chase Manhattan Bank,
New York, New York.
Gentlemen:
al
The Board of Governors of the Feder
lishment of a
Reserve System approves the estab
Center,
ing
Shopp
Plaza
ic
branch in the Tacon
of New
Town
ood,
Millw
of
Unincorporated Area
New York,
York,
New
y,
Count
r
Castle, Westcheste
the
ded
branch
provi
Bank,
ttan
Manha
by The Chase
of
the
from
date
year
one
n
withi
d
is establishe
this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elicabeth L. Carmichael,
Absistant Secretary.
Bank stated that the
(The letter to the Reserve
onth extension
Board also had approved a six-m
lish the branch;
of the period allowed to estab
d be requested,
and that if an extension shoul
the
Board's letter
in
ribed
presc
the procedure
should be followed.)
of November 9, 1962 (s-1846),
331
BOARD OF GOVERNORS
Item No. 8
4/24/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 24, 1963
Board of Directors,
The Bank of Georgia,
Atlanta, Georgia.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment of a
branch by The Bank of Georgia, Atlanta, Georgia,
in the Doctors Building, 494 Peachtree Street,
Y.E., Atlanta, Georgia, provided the branch is
established within six months from the date of
this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary,
kThe letter to the Reserve Bank stated that the
Board also had approved a six-month extansion
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
BOARD OF GOVERNORS
Item No.
9
4/24/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 24,
1963
Stewart M. Walker, Secretary-Treasurer,
he Company for Investing Abroad,
;95 South Broad Street,
rhiladelphia 9, Pennsylvania.
bear Mr. Walker:
Consideration has been given by the Board of Governors to
h e request contained in your letter of April 9, 1963, transmitted
!
hrough the Federal Reserve Bank of Philadelphia, for the Board's
"
floral consent to The Company for Investing Abroad ("TCIA") to
1311rehase and hold stock in generally designated types of corporations.
On the basis of the information furnished as to investment
1,°licies to be pursued by TCIA, the Board grants its general consent,
13
r the purposes of the first sentence of Section 211.9(c) of Regulat'°11 K, to TCIA to purchase and to hold shares of stock of any
foreign corporation, provided the aggregate investment in any one
:feign corporation and its subsidiaries (on a combined basis) shall
t;' exceed 5 per cent of the capital and surplus of TCIA, subject to
"following conditions:
J
(1) This authorization shall be applicable only to investments made on or before June 30, 1963. Options to
acquire stocks subsequent to the termination date
(June 30, 1963) of the general consent may not be
exercised unless specifically approved by the Board or
permitted under a then effective general consent.
(2) The Board of Governors shall be informed promptly in
writing, through the Federal Reserve Bank of Philadelphia,
when any such investment is made, together with pertinent
details regarding such investments, and the Board of
Governors shall be furnished within thirty days after
acquisition: (a) a balance sheet of the corporation
whose stock has been acquired, showing the financial
position of the corporation as of a recent date,
together with an income statement for the preceding
fiscal period; (b) a brief description of the business
of the corporation; (c) a list of officers and directors,
with addresses and principal business affiliations; (d) a
description of the stock acquired; (e) information
BOARD
OF GOVERNORS
or
THE FEDERAL RESERVE SYSTEM
Mr. Stewart M. Walker, Secretary-Treasurer
concerning the rights and privileges of the various classes
of stock of the corporation outstanding; (f) a list of all
stockholders holding 5 per cent or more of any class of
stock of such corporation and their holdings; and (g) a
brief description of any loan or credit transaction with
the corporation in connection with which the stock was
acquired. If, upon review of such information, the
Board of Governors determines that an investment is contrary to the investment program of TCIA as submitted to
the Board in your letter of April 9, 1963, or is otherwise objectionable to the Board of Governors, TCIA shall
take the necessary steps to divest itself of such investment, upon notice to that effect and within such time as
the Board may specify.
(3)
Investments by TCIA under thia general consent shall be
made in accordance with sound financial policies, including
among others, (a) appropriate diversification of its loan
and investment portfolios so as to avoid undue concentrations in loans to, and investments in, individual enterprises, industries, or otherwise, and (b) proper regard
to the relationship between its assets and the maturities
of its obligations.
(4) TCIA shall be expected to dispose of its holdings of
stock of such foreign corporation, as promptly as practicable, in the event that such foreign corporation should
at any time (a) engage in the business of issuing, underwriting, selling or distributing securities; (b) engage
in the general business of buying or selling goods, wares,
merchandise, or commodities in the United States or transact any business in the United States except such as is
incidental to its international or foreign business; or
(c) conduct its operations in a manner which, in the
judgment of the Board of Governors, is inconsistent with
Section 25(a) of the Federal Reserve Act or regulations
thereunder.
(5) Such investments shall not be made in the shares of
financial corporations or holding companies.
(6) The investment in any such foreign corporation shall not
include more than 49 per cent of its voting shares or
otherwise enable TCIA to designate a majority of the
foreign corporation's board of directors or similar
management group.
(7) The aggregate equity investment (at cost) in foreign
corporations engaged in the same business (i.e., the
manufacture or mining of similar products or the carrying on of similar activities) shall not exceed 25 per
cent of TCIA's capital and surplus.
2.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Stewart M. Walker, Secretary-Treasurer
(8) The aggregate equity investment in all foreign corporations doing business in any one country, colony, possession or dependency shall not exceed 25 per cent of TCIA's
capital and surplus.
(9)
Under this general consent, shares shall be acquired only
from the issuer directly.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
3,4
.1
BOARD OF GOVERNORS
Item No. 10
OF THE
#44br.,
ilKiph\t\.1
‘'‘
l)vvi-40.\\
5
4/24/63
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
•
April 24, 1963.
Mr. Charles E. Shreve,
Executive Assistant Director,
Division of Corporation Finance,
Securities and Exchange Commission,
Washington 25, D. C.
Dear Mr. Shre've:
This is in reply to your letter of April 4, addressed to
the Board's General Counsel, inquiring whether certain notes proposed
to be issued by The Colwell Company, Los Angeles, California, would
be eligible for discount by Federal Reserve Banks. Enclosed was a
draft (dated March 20, 1963) of a letter proposed to be sent to the
Commission on behalf of Colwell, describing its operations and the
nature of the proposed notes.
Section 3(a)(3) of the Securities Act of 1933 provides that,
certain described types of notes are exempt from the registration and
Prospectus requirements of section 5 of that Act, and Colwell contends
that this exemption is applicable to the notes it proposes to issue.
According to Securities Act Release No. 4412 (a copy of which you
enclosed) the exemption provided by section 3(a)(3)
"applies only to prime quality negotiable commercial paper...
of a type eligible for discounting by Federal Reserve banks."
It is inferred that the Commission's position that section 3(a)(3)
applies only to paper that is eligible for Federal Reserve discount
relates to eligibility at the time the security is offered for sale.
If this were not so, the exemption would apply to certain securities
despite the fact that the requisite Federal Reserve discount eligibility would not come into being until long after the securities were
issued and would exist only during the last few months of the period
during which they would be outstanding, as explained hereinafter.
Colwell's draft letter states that the notes in question will
have a maturity of "nine months or less". In view of this, it is
assumed that their usual maturity probably will be in the range of six
months to nine months--in any event, in excess of ninety days.
BOARD
FEDERAL RESERVE SYSTEM
OF GOVERNORS OF THE
Charles E. Shreve
-2-
is the opinion of the
On the basis of this assumption, it
they were issued, would
time
the
at
Board of Governors that the notes,
l Reserve banks."
Federa
by
ting
discoun
not be "of a type eligible for
s described
the
purpose
for
notes
which
The only provision of law under
l
Reserve
discount
Federa
for
e
eligibl
ln the Colwell letter might be
l
e
Act
Federa
Reserv
the
of
13
is the second paragraph of section
as
reads
ph
follows:
paragra
that
of
(12 U.S.C. 343). The last sentence
discount under the terms
"Notes, drafts, and bills admitted to
at the time of discount
y
maturit
a
of this paragraph must have
"
of not more than 90 days, exclusive of grace.
a)(4) of Federal Reserve
4 similar provision appears in section 201.3(
Regulation A (12 C.F.R. 201.3(a)(4)).
question had a maturity of nine
Accordingly, if the notes in
ineligible for Federal Reserve dismonths, for example, they would be
of issuance and throughout
count (even if otherwise qualified) at the time
..he first two-thirds of the period during which they would be outstanding.
ble at the time of
If the maturity was six months, they would be ineligi
to
period
maturity.
of the
issuance and throughout the first half
of the Board that, if the
To recapitulate, it is the view
at the time
notes to be issued by The Colwell Company had maturities,
of
of
days
sive
grace), such
cf issuance, in excess of ninety days (exclu
for
Federal
by
ting
discoun
ri,otes would not be eligible, at that time,
Reserve Banks.
3(a)(3)
e
If, however, the Commission should conclud that section
l
Federa
for
may
be
e
that
eligibl
cf the Securities Act applies to paper
eliginot
ce
though
even
its
existen
Reserve discount at any time during
ble at the time of issuance, or if the notes of The Colwell Company had
days, exclusive of grace, there would
maturity of not more than ninety
whether such notes would be eligible
be
presented the difficult question
for discount, apart from the problem of maturity.
the Board of
Section 13 of the Federal Reserve Act authorizes
.eligible
paper..
ter
the
of
the
charac
Governors "to determine or define
)(1) of
201.3(a
section
zation,
authori
for discount". Pursuant to this
has
"which
paper
to
lity
ble
eligibi
negotia
il egulation A limits discount
!
to
are
or
used
been
of
which
have
s
proceed
,een issued or drawn, or the
s:
purpose
De used", for one of the following
goods in
(1) "producing, purchasing, carrying or marketing
ion,
product
of
the
process
of
steps
one or more of the
ution";
distrib
manufacture, or
BOARD
FEDERAL RESERVE SYSTEM
OF GOVERNORS OF THE
Mr. Charles E. Shreve
-3-
ses of a commercial,
(2) "meeting current operating expen
ess";
busin
agricultural or industrial
t obligations of the United
(3) "carrying or trading in direc
States".
applies to the proposed notes
Clearly, neither (2) nor (3)
the question is whether the
ly,
quent
of The Colwell Company. Conse
producing, purchasing, carry"in
used
Proceeds of such notes would be
of the steps of the process of
ing or marketing goods in one or more
Production, manufacture, or distribution".
"origination" of mortgage loans
Colwell is engaged in the
nies and
for sale to the ultimate investors [such as insurance compa
of such
cing
finan
nent long-term
sayings banks] who furnish the perma
to five
two
some
in
loans." Its inventory of mortgage loans turns over
the
uces"
"prod
or
"manufactures"
onths. Colwell contends that it
the proceeds of its notes would
fore,
there
for sale, and that,
beDe used "in producing, purchasing, carrying or marketing goods".
T
(a)(1) of Regulation A provides
Footnote 5 to section 201.3
that "As used in this Regulation the word 'goods' shall be construed
or agricultural products, includto include goods, wares, merchandise,
enumeration, it is questionable
ing livestock." In view of this
of the short-term current inventory
whether mortgage loans, even as part
"goods" for this purpose. Nevertheless,
Of
.f a mortgage banker, constitute
of section 13, the Board might be
view of the underlying objectives
ly in this connection, if the pro4nolined to interpret "goods" broad
cable provisions of law and
Posed notes would comply with other appli
to decide this question, for
sary
egulation. However, it is not neces
reasons set forth hereinafter.
Regulation A denies discount eligibility
Section 201.3(a)(2) of
be used for permanent or fixed
0 notes "the proceeds of which...are to
ings or machinery, or for
build
land,
Investments of any kind, such as
ugh
the proceeds of the Colwell
Altho
any other fixed capital purpose".
in land and buildings, it
tment
inves
notes would be used, literally, for
e
estat
loans are not "permanent
realmay be reasonably argued that these
,
they constitute a current
since
hands
' fixed investments" in Colwell's
?I
within a few months,
to
tors,
inves
sale
'nventory that is liquidated, by
the obligations
to
cient
meet
suffi
Presumably in time to provide funds
ve Bulletin
Reser
1921
al
See
Feder
°11 Colwell's notes as they mature. (
the prothat
ains
maint
ll
Colwe
ning,
reaso
1079.) On the basis of this
s"
"good
t
marke
and
,
ce,
carry
produ
ceeds of its notes would be used to
manun,
uctio
"prod
of
ss
the
proce
in
real-estate mortgage loans)
or fixed investments".
4 acture or distribution", rather than "for permanent
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Charles E. Shreve
-4-
Even if the foregoing contentions were accepted, however,
the Colwell notes would be ineligible for Federal Reserve Bank discount, for another reason. Section 13 of the Federal Reserve Act, in
addition to restricting discount eligibility to paper "issued...for
agricultural, industrial, or commercial purposes, or the proceeds of
which...are to be used, for such purposes", provides that the Board's
further definition of paper eligible for discount "shall not include
notes...covering merely investments or issued...for the purpose of
carrying or trading in stocks, bonds, or other investment securities,
except bonds and notes of the Government of the United States." This
limitation is reiterated in section 201.3(a)(3) of Regulation A.
Uncterwriters of "stocks, bonds, or other investment securities" (i.e., investment bankers) often "originate" such securities in
a manner that, for present purposes, is not unlike the process by which
Colwell originates mortgage loans. Such investment bankers, like mortgage bankers, need funds to acquire securities for their inventories
and to carry those securities (usually for a short period) pending their
sale to permanent investors. Likewise, the proceeds of sale of such
securities frequently are used "for permanent or fixed investments...
such as lands, buildings or machinery, or for...other fixed capital
Purpose".
In view of this specific prohibition in the statute and
regulation, and the similarity, in relevant respects, of notes covered
by that prohibition and the proposed Colwell notes, the Board concludes
that notes of the nature described in the draft of letter (dated March
20, 1963) to the Commission on behalf of Colwell would not be eligible
for discount by Federal Reserve Banks, even if those notes complied with
the ninety-day maturity requirement of section 13 of the Federal Reserve
Act and section 201.3(a)(4) of Regulation A. In this connection, see
also 1937 Federal Reserve Bulletin 1190 and 1938 Bulletin 86.
Apart from the question whether notes of The Colwell Company
would be disqualified from the exemption provided by section 3(a)(3) of
the Securities Act because they would not be eligible for Federal
Reserve discount, it is noted that Securities Act Release No. 4412 states
that "the current transactions standard [of section 3(a)(3)] is not
satisfied where the proceeds are to be used for...the funding of commercial real estate developing or financing; the purchase of real estate
mortgages or other securities; [or] the financing of mobile homes or
home improvements".
The following comment is made in order to avoid possible
Misunderstanding, although it is not otherwise relevant to your inquiry.
The question presented in your letter is whether the proposed notes of
FEDERAL RESERVE SYSTEM
BOARD OF GOVERNORS OF THE
Mr. Charles E. Shreve
The Colwell Company would be eligible for discount by Federal Reserve
Banks. Accordingly, the Board's response relates to that question
alone. However, it should not be inferred that the Federal Reserve
Banks could not in any event extend credit to member banks on the
that is not eligible for
security of such notes of Colwell. Paper
al for advances made
collater
as
dlscount may nevertheless be eligible
(12
Act
U.S.C. 347b), which
Reserve
under section 10(b) of the Federal
Provides that
ons
"Any Federal Reserve bank, under rules and regulati
Federal
Reserve
the
of
s
Governor
prescribed by the Board of
bank on its time or
System, may make advances to any member
than four months
more
not
of
es
demand notes having maturiti
such Federal
of
tion
satisfac
and which are secured to the
added)
Reserve bank." (emphasis
must bear interest at a rate not
Advances under section 10(b), however,
less than one-half per cent higher than the highest discount rate in
effect at the Reserve Bank when the advance is made.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
140
Item No. 11
4/24/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 23, 1963
14r- Howard D. Crosse, Vice President,
Pederal Reserve Bank of New York,
New York 45, New York.
ilear
. Crosse:
accordance with the request contained in your letter of
Apr.
7, In
11
1963, the Board approves the appointment of John F. Weber
as an assistant examiner for the Federal Reserve Bank of New York,
effective May 2, 1963.
Very truly yours,
igned) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER