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Minutes for T Members of the Board From: Office of the Secretary April 27, 1965. Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your Initials will indicate approval of the minutes. If You were not present, your initials will indicate only that you have seen the minutes. Chm. Martin Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Minutes of the Board of Governors of the Federal Reserve System on Tuesday, April 27, 1965. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:30 a.m. Martin, Chairman Balderston, Vice Chairman Robertson Shepardson Mitchell Sherman, Secretary Kenyon, Assistant Secretary Noyes, Adviser to the Board Molony, Assistant to the Board Fauver, Assistant to the Board Hackley, General Counsel Brill, Director, Division of Research and Statistics Mr. Solomon, Director, Division of Examinations Mr. Shay, Assistant General Counsel Mr. Holland, Associate Director, Division of Research and Statistics Mr. Daniels, Assistant Director, Division of Bank Operations Leavitt, Assistant Director, Division of Mr. Examinations Mr. Thompson, Assistant Director, Division of Examinations Mr. Langham, Assistant Director, Division of Data Processing Mrs. Semia, Technical Assistant, Office of the Secretary Messrs. Forrestal and Robinson, Attorneys, Legal Division Mr. Egertson, Supervisory Review Examiner, Division of Examinations Mr. Smith, Senior Economist, Division of Research and Statistics Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Re The establishment without change by the Federal erve Bank of Boston on April 26, 1965, of the rates on discounts and advances in its existing schedule was approved unanimously, with the urlde rstanding that appropriate advice would be sent to that Bank. 4/27/65 -2Circulated or distributed items. The following items, copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Letter to Marine Midland Trust Company of Rockland County, Nyack, New York, approving the establishment of a branch in Bardonia, Town of Clarkstown. 1 Letter to Liberty State Bank, Hamtramck, Michigan, aPproving the establishment of a branch in Sterling Township. 2 Letters to Farmers and Merchants Bank of Long Beach, Long Beach, California, approving the establishment of branches in the Lakewood Shopping Center, Lakewood, fl.d. near Woodruff and Rosecrans Avenues, Bellflower. 3-4 Letter to the Federal Reserve Bank of Cleveland regarding classification of member banks in the Pourth District for the purpose of electing Class A and Class B directors. 5 Letter to the Federal Reserve Bank of New York granting the request of Marine Midland Corporation, Buffalo, New York, for an extension of time to file its 1964 nual report as required by the Board's Regulation Y, ank Holding Companies. 6 Letter to the Bureau of the Budget reporting on a :aft bill to amend the National Housing Act and 'he Federal Deposit Insurance Act. 7 r Igetter to Chairman Patman of the House Banking and ' rnrrency Committee reporting on bill H. R. 7133, elating to the placing of authority to approve the , : stablishment of State member bank branches, organit1011 of new national banks and establishment of s elr domestic branches, and admission of noninsured state banks to membership in the Federal Reserve ,steln- (The letter in the form transmitted reflected 'anges suggested by Mr. Hackley during discussion.) 4 j 8 4/27/65 -3With reference to Item No. 8, Governor Robertson stated that during his recent appearance before the Subcommittee on Bank Supervision and Insurance of the House Banking and Currency Committee to testify cm bills introduced by Congressmen Patman and Multer to unify bank supervision at the Federal level, he was also asked for his views on H. R. 7133. He had subsequently sent a letter to Subcommittee Chairman Multer expressing his views, which he thought did not differ significantly in tenor from those stated in the Board's letter. He added that a copy of his letter was being made available to the other members of the Board for their information. Report on competitive factors (Turtle Lake-Washburn, North A report to the Federal Deposit Insurance Corporation on the competitive factors involved in the proposed acquisition of certain assets and assumption of certain liabilities of The Farmers Security }lank of Washburn, Washburn, North Dakota, by Bank of Turtle Lake, Turtle Lake, North Dakota, was approved unanimously for transmittal to the Corporation. The conclusion read as follows: The proposed acquisition of certain assets and assumption of certain liabilities of The Farmers Security Bank of Washburn, Washburn, North Dakota, by Bank of Turtle Lake, Turtle Lake, North Dakota, would have no adverse effect on competition. Mr. Egertson then withdrew from the meeting. Requests from Chairman Patman (Item No. 9). dis There had been tributed a memorandum dated April 26, 1965, in which Messrs. Langham 4/27/65 -4- and Holland, after commenting on a request from Chairman Patman of the House Banking and Currency Committee that the Board's staff bring up to date and expand studies of banking concentration made in 1952 and 1962, recommended that the Board agree to provide the material requested, with a qualifying assumption as to the amount of staff time to be committed. A draft of letter to Chairman Patman reflecting that recommen- dation was attached. After discussion, the letter was approved unanimously. A copy is attached as Item No. 9. Mr. Sherman reported that Chairman Patman had also requested that the data from the 1962 study of chain banking be reactivated to Obtain information on nominees, and perhaps brokers, identified as bank stockholders. It was estimated that the necessary tabulating work would require approximately 3 or 4 days. Compliance with this request by Chairman Patman was also approved unanimously. Report on S. 1698 (Item No. 10). On the basis of a distributed memorandum dated April 20, 1965, from the Legal Division the Board on APril 22 discussed the response to be made to a request from the Senate Banking and Currency Committee for a report on bill S. 1698, which would 4alend the Bank Merger Act to exempt bank mergers from the Federal antitrust laws. There had now been distributed a draft of reply to Chairman Robertson of the Committee revised to reflect the tenor of the April 22 discussion. 4/27/65 -5Governor Robertson made certain suggestions for changes in the draft letter, which changes proved acceptable to the other members of the Board, and the letter was then approved unanimously in the form attached as Item No. 10. Loans to foreign affiliates (Items 11 and 12). There had been distributed a memorandum dated April 20, 1965, from the Legal Division regarding a request by Mr. George Champion, Chairman of The Chase Manhattan Bank, New York City, that the Board recommend legislation that would exempt from the limitations of section 23A of the Federal Reserve Act loans or extensions of credit by a member bank to any subsidiary of an Edge Act or agreement corporation subsidiary of the bank. Section 23A, with certain exceptions, required each loan or e tension of credit by a member bank to an affiliate to be secured by collateral equal to at least 120 per cent of the amount of the credit, or 110 per cent of the credit if the collateral consisted of certain kinds of obligations. The statute also contained limitations on the atnount of credit that a member bank could extend to one affiliate and to all affiliates combined. The restrictions did not apply to a member bank's Edge Act or agreement corporation, nor to subsidiaries wholly°Igned by such a corporation, but did apply to Edge Act or agreement c'erPoration subsidiaries that were not wholly-owned. The Board had in the past agreed in principle that it was unnecessary that the restrictions ' 1)131Y to majority-owned subsidiaries of Edge Act and agreement corporations - 4/27/65 -6- in order to prevent the practices at which section 23A was directed. In recommendations submitted to the Congressional Banking and Currency Committees on March 15, 1965, for amendments to the Bank Holding Company Act, the Board included a section exempting from the security requirements of section 23A an affiliate principally engaged in banking. How- ever, no bill had as yet been introduced embodying these legislative recommendations. The memorandum noted that it was understood informally that the difficulties in relations with foreign affiliates that Chase Manhattan had mentioned in support of its request would be resolved by an exemption extending only to the security requirements of section 23A. With the thought that, even though a similar recommendation had been included in the proposed Bank Holding Company Act amendments, the Board might wish to request that a separate bill to amend section 23A be introduced, a draft of such a bill was attached to the memorandum. Also attached were a draft of transmittal letter to the Senate and House Co mmittees on Banking and Currency and a draft of letter that would inform Mr. Champion that the Board had submitted the recommendation to Congress. After a discussion during which there was agreement with suggestions for deletion of one sentence in the proposed letter to the Banking and Currency Committees and for an editorial change in the draft bill L, the letters to the Committees and to Mr. Champion were approved 4/27/65 -7- unanimously. A copy of the letter sent to the Chairman of the Senate Committee is attached as Item No. 11. (A similar letter was sent to the Chairman of the House Committee.) A copy of the letter to Mr. Champion is attached as Item No. 12. Messrs. Shay, Holland, Langham, Forrestal, and Smith then withdrew from the meeting. Application of Denver U.S. Bancorporation. A memorandum from the Division of Examinations dated April 14, 1965, and other pertinent Papers had been distributed in connection with an application by Denver U.S. Bancorporation, Denver, Colorado, for permission to acquire shares of Weld County Bank, Greeley, Colorado. The Division's recommendation was favorable. Mr. Thompson summarized the circumstances involved in the application, after which he responded to several questions posed by members of the Board. Governor Robertson stated that he would approve, his favorable P°sition being based to a significant extent on the opinion of the Colorado State Bank Commissioner that the acquisition would be beneficial to Weld County Bank and would eliminate some of the problems existing at that bank. (The Commissioner had commented that the bank had been a problem bank in the past, had been weak in management in some areas, and was prosentlY in an undercapitalized position.) Governor Robertson added, how- ever, that in 1963 when the Board authorized Denver U.S. Bancorporation '0ofk, 4/27/65 -8- to become a bank holding company he had expressed the expectation that the corporation would make further efforts to expand. application was a case in point. The present In his view, if the Board did not at some stage call a halt, Denver U.S. would eventually grow into an °r ganization that would effectively circumvent Colorado's law prohibiting branch banking. The other members of the Board also indicated that they would vote for approval. The application was thereupon approved unanimously, with the understanding that an order and statement reflecting this decision would be drafted for the Board's consideration. Messrs. Noyes, Leavitt, Thompson, and Robinson then withdrew from the meeting. New York building program (Item No. 13). On April 13, 1965, the Board discussed with First Vice President Treiber and Vice President Bilby of the Federal Reserve Bank of New York the request made by the Sank in a letter of March 11, 1965, for authority to arrange for termi44tion or substantial shortening of leases or for other action that would reduce the cost of obtaining possession of buildings across Maiden Lane ft°m the Reserve Bank that had been acquired as a building site. had now There been distributed a draft of letter to Mr. Treiber that would authority to the Bank to arrange for termination of leases where thia could be done advantageously, without a specific limitation on cost 4/27/65 -9- but with the request that proposed action to terminate any particular lease be discussed with the Board in advance if the cost involved would be a great deal larger than the figure of $25,000 mentioned as a limitation in the March 11 letter. Governor Mitchell observed that the letter did not mention that the Board expected the Bank to submit the results of its current study of projected space needs, including its recommendation as to timing of the beginning of construction of a new building. Response 14as made that this point had been omitted because of expressions by members of the Board during the April 13 discussion to the effect that the question of timing was a matter to be resolved separately and because it seemed to have been fully understood that the study and recommendations would be forthcoming from the Bank in due course. After further discussion during which there was agreement on a suggested minor change in wording, the letter was approved unanimously in the form attached as Item No. 13. Request of American City Bank and Trust Company (Items 14 and 15\ Chairman Martin referred to the request of American City Bank and Trust Company, Milwaukee, Wisconsin, for permission to carry reduced I'eserves, on which the Board decided to defer action after discussion c/h April 16, 1965. He suggested that, since the Federal Reserve Bank of Chicago, including its directors, had recommended approval of the original seqUest, President Scanlon be advised of the letters that had been prePared reflecting the Board's decision and invited to submit additional comments if the Reserve Bank so desired. 4/27/65 -10There was agreement with this suggestion, it being understood that unless President Scanlon wanted to have the matter reconsidered, American City Bank and Trust Company would be informed of the Board's d ecision by letter transmitted through the Reserve Bank. Secretary's Note: Messrs. Sherman and Daniels subsequently discussed the matter by telephone with President Scanlon, who suggested that the letter be forwarded to him. Accordingly, letters addressed to the Reserve Bank and to American City Bank and Trust Company were mailed to President Scanlon. Copies are attached as Items 14 and 15. Luncheon for Governor Maisel. Chairman Martin noted that it Was planned to have a luncheon on May 11, 1965, and an afternoon r eception in honor of Sherman J. Maisel, who would by then have taken office as a member of the Board. The date was one on which the Presidents °f the Reserve Banks would be in Washington for a Federal Open Market C°Inmittee meeting, and the meeting would be the first attended by Hugh D. Galush a, Jr., who was to assume the Presidency of the Federal Reserve sank of Minneapolis on May 1. Following the luncheon, arrangements would be made for a meeting, which Assistant Secretary of the Treasury Wallace had requested, for further discussion of the coin problem with the Reserve Bank Presidents. All members of the staff except Messrs. Sherman and Brill then Withdrew from the meeting. Call for condition reports. Ins The Chairman of the Federal Deposit urance Corporation, the Acting Comptroller of the Currency, and the Chairman of the Board of Governors had selected the close of business 4/27 /65 -11- April 26, 1965, as the date for the first call for reports of condition to be made by insured banks within the calendar year 1965. was to be announced on Thursday, April 29. The call Accordingly, the usual tele- gram had been sent this morning to the Presidents of the Federal Reserve Banks requesting that a call be made upon State member banks on April 29 for reports of condition as of the close of business April 26. The sending of the telegram was ratified by unanimous vote. At this point Mr. Sprecher, Assistant Director, Division of Personnel Administration, joined the meeting. Training program. At Governor Shepardson's request, Mr. Brill outlined a suggestion that had been advanced for strengthening the Board's recruitment program in the economic and related areas of staff work by offering assistance to selected younger persons in the Preparation of their doctoral dissertations. Under this proposal, which would represent an extension of the Employee Training and Development Pr°gram, a limited number of well-qualified applicants would be offered, in connection with their employment with the Board's staff, an appropriate amount of time to devote to the preparation of their theses, typing and clerical assistance in connection with such dissertations, and occasional trips at Board expense to their respective campuses for consultation 14ith members of the faculty. the Every effort would be made to insure that Parties involved brought their dissertations to the stage of completion and submission. In other respects also, the responsible members of the 4/27/65 -12- Board's staff would be expected to exercise close supervision over the Program, including careful screening of all travel requests incident to proposed campus visitations. The discussion resulted in authorization to implement the proposal on an experimental basis as an extension of the Employee Training and Development Program, with the understanding that the appropriate Officers of the Board's staff would assume responsibility for close s upervision of all aspects of the project, including such travel as might be involved, to insure that its scope was suitably restricted. The meeting then adjourned. Secretary's Notes: On March 3, 1965, the Board approved the issuance of a set of guidelines for the use of comwercial banks under the voluntary foreign credit restraint effort, a part of the President's balance of payments program. With the approval of Governor Robertson, acting under the authority vested in him by the Board for administration of Federal Reserve functions related to the conduct of the voluntary program, there was sent today to the Presidents of the Federal Reserve Banks, for transmittal to all commercial banks with a suggested covering letter, a revision of guideline 13, having to do with loans to U. S. residents and substitution of domestic credit for credit from foreign sources. A copy of the text of the revised guideline is attached as Item No. 16. Governor Shepardson approved on behalf of the Board on April 26, 1965, the following items: iU 4/27/65 -13- Letter to the Comptroller of the Currency (copy attached as Item No. 17) requesting that a supplemental order be placed with the Bureau of Engraving and Printing for the printing of $1 Federal Reserve notes of the Federal Reserve Banks of Minneapolis and San Francisco during fiscal year 1965. Letter to the Federal Reserve Bank of Chicago (copy attached as Item No. 18) approving the designation of William J. Hocter as special assistant examiner. Memorandum from the Division of International Finance dated April 22, 1965, recommending that an additional position of Economist be established in the Special Studies and Operations Section of that Division. Memoranda recommending the following actions relating to the Board's staff: alary increases Lee S. Elliott, Supervisor, Clearing Unit, Office of the Secretary, from $6,450 to $6,650 per annum, effective April 26, 1965. Johnny S. Fox, Jr., Messenger, Division of Administrative Services, Om $3,500 to $3,805 per annum, with a change in title to Messengerutiver, effective April 26, 1965. T..../.211i5sion to eng,2.ge in outside activity Perry Williams, Jr., Supply Clerk, Division of Administrative Services, to work as a cab driver on a part-time basis. Governor Shepardson today approved on behalf of the Board a telegram to the Federal Reserve Bank of Atlanta (copy attached as Item No. 19) approving the designation of Donald L. Charles as special assistant examiner. Secretary— BOARD OF GOVERNORS Item No. 1 4/27/65 OF THE FEDERAL RESERVE SYSTEM :o WASHINGTON, D. C. 20551 .16 •ft ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD .••• *,i.tALRESV:4' April 27, 1965 Board of Directors, Marine Midland Trust Company of Rockland County, Nyack, New York. Gentlemen: The Board of GOvernors of the ,Federal Reserve System approves the establishment by Marine Midland Trust Company of Rockland County, Nyack, New York, of a branch at 340 Route 304, Bardonia (unincorporated area), Town of Clarkstown, Rockland County, New York, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension 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. 2 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965 Board of Directors, Liberty State Bank, Hamtramck, Michigan. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Liberty State Bank, Hamtramck, Michigan, of a branch at 44474 Van Dyke Road, Sterling Township, Macomb County, Michigan, provided the branch is established within six months from the date of this letter. . Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension 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. 3 4/27/65 OF THE FEDERAL RESERVE SYSTEM • WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965 Board of Directors, Farmers and Merchants Bank of Long Beach, Long Beach, California. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Farmers and Merchants Bank of Long Beach, Long Beach, California, of a branch on Graywood Avenue in the Lakewood Shopping Center, Lakewood, Los Angeles County, California, provided the branch is established within one year from the date of this letter. Very truly yours, • (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension 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.) z BOARD OF GOVERNORS Item No. 4 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESB OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965 Board of Directors, Farmers and Merchants Bank of Long Beach, Long Beach, California. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Farmers and Merchants Bank of Long Beach, Long Beach, California, of a branch in the vicinity of the southwest corner of the intersection of Woodruff and Rosecrans Avenues, Bellflower, Los Angeles County, California, provided the branch is established within one year from the date of this letter. • Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension 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. 5 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OffiCIAL CORRESPONDENCE TO THE BOARD April 27, 1965 Mr- W. Braddock Hickman, President, Federal Reserve Bank of Cleveland, Cleveland, Ohio. 44101 Dear Mr. Hickman: This refers to your letter of April 8, 1965, concerning reclassification of member banks in the Fourth District for the Purpose of electing Class A and Class B Directors. It is noted that after reviewing the present classification, which has been in effect since April 26, 1961, your Bank believes that it is satisfactory. The Board concurs in this °Pinion and will make no change in the existing classification at this time Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. g BOARD OF GOVERNORS Item No. 6 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO TI-4E BOARD April 27, 1965 Mr. J. P. Ringen, Manager, Bank Examinations Department, Federal Reserve Bank of New York, New York, New York. 10045 Dear Mr. Ringen: Please advise Marine Midland Corporation, Buffalo, New York, that the Board has granted its request for an extension of fifteen days to May 15, 1965, for the filing of its annual report to the Board for the year 1964. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. BOARD OF GOVERNORS Item No. 7 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965. Mr. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington D. C. 20503 13ear Mr. Hughes: This is in response Ed YOUt ffiemorandum of April 22, 1965, equesting the Board's views on d draft bill proposed by the Pederal Home Loan Bank Board "To amend section 402 of the National Rousing Act and section 14 of the Federal Deposit Insurance Act, and for other purposes." This is to advise that the Board has no objection to the Proposed legislation. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 4 0GOviii BOARD OF GOVERNORS t :ft) Item No. 8 4/27/65 OF THE 0 FEDERAL RESERVE SYSTEM 41, WASHINGTON OFFICE or THE CHAIRMAN April 27, 1965. The Honorable Wright Patman, Chairman, Committee on Banking and Currency, House of Representatives, Washington, D. C. 20515 Dear Mr. Chairman: This is in response to your request of April 15, 1965 for s report on H. R. 7133 "To amend the Federal Reserve Act, the Federal Deposit Insurance Act, and section 5155 of the Revised Statutes, as amended, and for other purposes". It appears that the effect of this bill would be to require (1) the consent of the Federal Deposit Insurance Corporatio n, instead of that of the Board of Governors, for the establishment of branches by State member banks, (2) the consent of the Federal Depos it Insurance Corporation, in addition to that of the Comptroller of the Currency, for the organization of new national banks and the establishment of domestic branches by such banks, and (3) the consent of the Federal Deposit Insurance Corporation, in addition to that of the Board of Governors, in connection with the admission of any noninsured State bank to membership in the Federal Reserve System. The bill might also be regarded as requiring the consent of the FDIC, in addition to that of the Board of Governors, for the establishment of foreign branches of national banks , although this point is not clear. In the Board's opinion, there is no sound reason for tr ansferring to the FDIC the Board's present authority to approve branches of State member banks. Moreover, this bill would create a dditional confusion and duplication of functions in the area of !ederal bank supervision. It would mean, for example, that a nation al 4:snk charter or a branch of a national bank would require the approval f two Federal banking agencies instea d of one agency as under present law. R. R. 7133. Accordingly, the Board would not favor the enactment of Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. BOARD OF GOVERNORS Item No. 9 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN April 27, 1965. The Honorable Wright Patman, Chairman, House Banking and Currency Committee, 2129 Rayburn House Office Building, Washington, D. C. 20515. Dear Mr. Chairman: r of April 14, 1965 This is in reply to your lette e updat and expand two of its requesting that the Board's staff banking concentration. economic studies dealing with the amount of work required While a firm estimate of ng more detailed discusfor this project must be delayed pendi Board assumes the scope of the sions between our staffs, the will be held within manageable study as it finally materializes Board's staff will proceed with the limits. On this basis, the project and will consult with Planning necessary to launch this Your staff as the study develops. Sincerely yours, Wm. McC. Martin, Jr. ki() BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 10 4/27/65 WASHINGTON OFFICE OF THE CHAIRMAN April 27, 1965. The Honorable A. Willis Robertson, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. 20510 Dear Mr. Chairman: 7, 1965, This refers to your requests of April 6 and April Merger Bank the amend would for a report on your bill, S. 1698, which antiFederal the from mergers Act (12 U.S.C. 1828(c)) to exempt bank trust laws. ler Under the bill, the authority of the Board, the Comptrol to ion e Corporat Insuranc Of the Currency, and the Federal Deposit Act approve mergers and other transactions covered by the Bank Merger ions transact in ating particip Banks . would be "exclusive and plenary" transsuch to as bill, the by aPproved under the Act would be relieved Act and the Clayton actions, from the operation of the Sherman Antitrust ion "has been or transact ar Act. This would be true whether the particul the antitrust from exempt would is hereafter consummated". The bill also to the pursuant ted consumma laws any bank merger or similar transaction y authorit ory supervis bank approval of the appropriate State or Federal 1960). 13, (May Act Merger Prior to the date of enactment of the Bank is In introducing the bill on April 5, 1965, you indicated that it mergers all to but mergers future to intended "to be applicable not only inapproval ry regulato ate appropri to heretofore consummated pursuant the under Justice of nt Departme the cluding mergers now under attack by a ntitrust laws". regulated, and closely Because banking is a licensed, strictly s upervised industry that offers problems acutely different from other Merger Act, tYpes of businesses, the Congress, in enacting the Bank on bank mergers in deliberately chose to place the authority to pass competitive the Federal bank supervisory agencies. Of course, the bank absorptions obviously effects or possible antitrust implications of were the major reason prompting adoption of the measure. It is abunnantly clear from the legislative history of the Act, however, that the Congress did not believe the public interest would be served best if the ive factors alone, legality of bank mergers were to be tested by competit to the exclusion of banking factors, including offsetting benefits to the public. The Honorable A. Willis Robertson -2- The Bank Merger Act contains no specific exemption from the of the Act antitrust laws for bank mergers, and the legislative history - and hand other the On ence. indicates that this was not an inadvert of the enactment of time the at as the legislative history emphasizes as Act, the Clayton of 7 section that d Act it was generally understoo was little there and mergers, bank to ble inapplica amended in 1950, was or no experience by which to judge the usefulness of the Sherman Act in dealing with such matters. a proposal In any event, the Congress specifically rejected of approvals for criteria the as adopted be that antitrust standards be permitted General Attorney the that proposal a as well bank mergers, as pending before to intervene and obtain court reviews in bank merger cases , in the Congress Instead, the Federal bank supervisory agencies. banking the by approvals advance for nt deciding to rely on the requireme the antiof cases such in tion considera agency agencies, concluded that in ent requirem the by tly sufficien aided be trust implications would on the Bank Merger Act for advisory reports from the Attorney General the competitive factors involved. And, in the words of your Committee t in in reporting the measure, "The advance approval feature is importan g preservin in and ed consummat are halting bank acquisitions before they be otherwise might which on instituti the depositors' confidence in an after an acquisition has destroyed by an attempt to unscramble assets April 17, 1959, p. 22) 1062, S. on 196 No. Report been completed." (S. the Well known are the problems that have resulted from n litigatio This recent antitrust court cases involving bank mergers. the face now customers their and makes unmistakably clear that banks proposals receive the advance uncertainty that, even though merger agency, the transactions banking Federal te approval of the appropria are subject to veto in the courts on the basis of competitive or antid antitrust litigation trust considerations alone. Indeed, protracte on the bank involved effects al detriment to unscramble a merger risks and the public. should examine the The Board believes that the Congress urges enactment of and n situation with a view to prompt correctio bill. your legislation such as that proposed in unable to agree on the Should the Congress, however, be it might wish to consider 1698, S. in proposed approach to the problem such possibility would be One Other, although less positive, measures. time necessary for specified to amend the Bank Merger Act to allow a prevent consummation of to court the filing of an antitrust action in of such an action, absence the in which, an approved transaction, after from the antitrust exempt be would and ed the merger could be consummat of pending notice ample receives General laws. Because the Attorney 4 the Honorable A. Willis Robertson _ for the submission of competitive mergers under the procedure in the Act should be relatively short. factors reports, the specified period Sincerely yours, Wm. McC. Martin, Jr. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 11 4/27/65 WAS OFFICE OF THE CHAIRMAN April 27, 1965. The Honorable A. Willis Robertson, Chairman, Committee on Banking and Currency, United States Senate, Washington, D. C. 20510 pear Mr. Chairman: draft of a There is enclosed for your consideration a ements of requir ty securi the from ed Propos bill which would exempt banks which are section 23A of the Federal Reserve Act those foreign or Agreement corporacontrolled by a member bank through an Edge Act of tion organized pursuant to the provisions of sections 25 and 25(a) the Federal Reserve Act. Federal Reserve Under the provisions of section 23A of the or Act, as amended (12 U.S.C. 371c), member banks may not make loans at of extensions of credit to affiliates except against collateral of credit least 120 per cent of the amount of the loan or extension tions of certain (or 110 per cent if the collateral represents obliga ctions do Governmental entities in the United States). These restri affil?ot apply to any Edge Act or Agreement corporation which is an r, Howeve affiliate. nor to any wholly-owned subsidiary of such ation corpor 1-f the member bank owns through an Edge Act or Agreement than 100 per an interest in a foreign commercial bank which is less ion of extens cent, the restrictions are applicable and any loan or ibed. prescr as d credit to the foreign commercial bank must be secure such under ed impair ssly Normal commercial banking relations are needle r estrictions. 23A suggests that its The legislative history of section cial banking relacommer °riginal purpose was not to restrict normal making loans to of ce tionships but was rather to prohibit the practi ties. Such securi ative a ffiliates so that they could invest in specul g through arisin ations affili of Practices are not possible in the case of Board the of ity author tdge Act holdings. The broad regulatory against insure to ient suffic Governors of the Federal Reserve System is of es the purpos the istent with practices which would be incons Under these circumstances, 23A. n sectio Prohibitions contained in applicability of the existing pro,,there is no reason to continue the since, as indicated above, ilibitions to this situation particularly wholly-owned subsidiary they do not at present apply in the case of a in the case of a only but °f an Edge Act or Agreement corporation, Partly owned subsidiary. 414 The Honorable A. Willis Robertson tion be The Board recommends that the proposed legisla of ration conside enacted into law and urges prompt and favorable this proposal by your Committee. Sincerely yours, Wm. McC. Martin, Jr. Enclosure A BILL To amend section 23A of the Federal Reserve Act Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, that the second paragraph of section 23A of the Federal Reserve Act, as amended (12 U.S.C. 371c), is amended by adding at the end thereof the following new sentence: "The limitations contained in the first sentence of this Paragraph shall not apply to any affiliate that is organized under the laws of a foreiga country or a dependency or insular possession of the United States and is principally engaged in banking." BOARD OF GOVERNORS Item No. 12 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN April 27, 1965. Mr. George Champion, Chairman, The Chase Manhattan Bank, I Chase Manhattan Plaza, New York, New York. 10015 bear George: r of April 7, 1965, containing This is in reply to your lette al Reserve Act. As you a proposal to amend section 23A of the Feder sympathetic with the position know, the Board for some time has been to the restrictions of secin which member banks find themselves due member banks to make unsecured tion 23A which make it impossible for , other than Edge or Agreeloans or extensions of credit to affiliates es of such corporations. ment corporations or wholly-owned subsidiari is currently exercised by the The degree of control which corporations makes the provisions of Board over Edge and Agreement respect to subsidiaries of these section 23A no longer necessary with in the past has recommended .corporations and, as you know, the Board that this section be amended. March 15, 1965, as part of its The Board, as recently as Bank Holding Company Act of 1956, Proposed legislation to amend the Federal Reserve Act be amended so recommended that section 23A of the security requirements of section 23A 48 to exempt from the collateral by a member bank through an those foreign banks which are controlled amendment would permit continuance Edge or Agreement corporation. This usually in existence prior to °f the normal correspondent relationship the foreign bank. This legislathe acquisition of stock interest in introduced into the Congress. ti°n, however, has not yet been accomplishing the result which you and In order to aid in transmitted a proposed bill ?ther member banks desire, the Board has Committees on Banking and 5,0 the Chairmen of the Senate and House requirements of seekairrency which would exempt from the security . ment corporations. Agree Lon 23A foreign banks controlled by Edge or n. matio infor your copy of this bill is enclosed for Sincerely yours, 1 / api) 6) .y Wm. McC. Martin, Jr. Enclosure BOARD OF GOVERNORS Item No. 13 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965. Mr. William F. Treiber, First Vice President, Federal Reserve Bank of New York, New York, New York. 10045 Dear Mr. Treiber: This refers to your letter of March 11, 1965, and the Board's discussion with you and Mr. Bilby on April 13. In view of the circumstances, the Board authorizes your Bank to terminate or substantially shorten tenancies in the buildings recently acquired, or to effect other arrangements for that purpose, where this can be done advantageously. When you and Mr. Bilby met with the Board on April 13, you indicated that you did not expect to conduct an aggressive campaign to terminate leases. Rather, you would like to proceed under a plan that would involve terminating all of the leases in a couple of years, en such termination could be effected advantageously. In authorZing your Bank to proceed, the Board has in mind that only the eases having a relatively long term to run or which, in the Bank's ' ion, ilIdgment, might be "bothersome" would come under this authorizat 8iflee obviously there would be no need for taking any action with resPect to leases that will expire within the next couple of years. r advance The Board feels that a specific limitation in egarding the maximum cost of terminating a lease may not be Practicable. However, it will appreciate your discussing in advance n or ith the Board any proposed arrangement for the terminatio be significantly !hortening of a lease if the cost involved would letter of your in requested liarger than the $25,000 limitation , "rch 11. It would also appreciate being informed of each "Peuditure made in the termination of a lease. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, SeLretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 14 4/27/65 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965. Mr. C. J. Scanlon, President, Federal Reserve Bank of Chicago, Chicago, Illinois. 60690 Dear Mr. Scanlon: Reference is made to Vice President Ross' letter of March 29, 1965, recommending that the American City Bank and Trust Company, Milwaukee, Wisconsin, be permitted to maintain the same reserves against deposits as are required to be maintained by banks in nonreserve cities. In view of the statements made at the time of the Proposed combination of American State Bank and City Bank and . Trust Company that approval of such proposal would permit the new bank to compete more effectively with the three larger banks in Milwaukee, the Board has decided to defer action on the request of the applicant for permission to carry reduced reserves until the extent of its competition with the other reserve city banks can be determined with more certainty. The Board will be happy to give further consideration to the request after the end of this year, and in that connection would appreciate receiving updated information that may have a bearing on the application, along with your Bank's recommendation and any Other pertinent data, as set forth in Regulation D and in the Board's letter to the Federal Reserve Banks dated July 31, 1959, Please forward the enclosed letter addressed to the subject bank, a copy of which is enclosed for your files. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Enclosure. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 15 4/27/65 WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE ElOARD April 27, 1965. Board of Directors, American City Bank and Trust Company, Milwaukee, Wisconsin. Gentlemen: This refers to the application from your bank, submitted through the Federal Reserve Bank of Chicago, for permission to maintain the same reserves against deposits as are required to be maintained by banks located outside of reserve cities. The Board feels that it is too early to evaluate the extent of competition between your bank and the other reserve city banks in Milwaukee and, accordingly, has decided to defer action on the request for permission to carry reduced reserves. The Board will be happy to give further consideration to your request after the end of this year, when the extent of such competition can be determined with more certainty. In that connection, the Board would then wish to receive information updating the application submitted with your letter of March 19, 1965, addressed to President Scanlon of the Federal Reserve Bank of Chicago, along with any other data that would have a bearing on your request. Very truly yours, (Signed) Merritt Sherman • Merritt Sherman, Secretary. .'0 TEXT OF REVISED GUIDELINE 13 OF GUIDELINES ISSUED FOR USE OF COMMERCIAL RANKS UNDER VOLUNTARY FOREIGN CREDIT RESTRAINT EFFORT (13) Item No. 16 4/27/65 Loans to U.S. residents, and substitution of domestic credit for credit from foreign sources. There are a number of situations in which loans to domestic customers may be detrimental to the President's Balance of Payments Program. These include: (A) Loans to U.S. companies which will aid the borrower in making new foreign loans or investments inconsistent with the President's program. The Secretary of Commerce has requested large companies to improve their own balance of payments position during 1965 and to report certain loans to and investments in foreign affiliates and other foreign interests on Form 41-R2289. Domestic non-bank financial institutions have been asked to observe guidelines Issued by the Federal Reserve System. Banks should avoid making new loans that would directly or indirectly enable borrowers to use funds abroad in a manner Inconsistent with the Department of Commerce program or with the guidelines for non-bank financial institutions. (B) Loans to U.S. subsidiaries and branches of foreign companies which otherwise might have been made by the bank to the foreign parent or other foreign affiliate of the company, or which normally would have been obtained abroad. Subsidiaries and branches of foreign companies are being requested by the Department of Commerce to file a special quarterly report. (C) Loans to U.S. companies with foreign activities which take the place of credit normally obtained abroad. Even though such loans are made to domestic firms or those domiciled here, the impact on the U.S. balance of payments is the same as if the bank had made loans to foreigners in the first instance. le391 -2- To the extent possible, banks should also avoid making loans to domestic borrowers which have an effect similar to that of the loans described in paragraphs (B) and (C). BOARD OF GOVERNORS Item No. 17 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965. The Honorable, The Comptroller of the Currency, Treasury Department, Washington, D. C. 20220. Sir: Reference is made to the Board's letters of August 14, 1964, and February 4, 1965, about the fiscal year 1965 printing order for Federal Reserve notes. It is respectfully requested that you place a supplemental order with the Bureau of Engraving and Printing for printing 7,680,000 additional Federal Reserve notes (single units) of the 1963 Series in the $1 denomination during the fiscal year ending June 30, 1965, for the Federal Reserve Banks of Minneapolis and San Francisco, as shown below: Number of notes Minneapolis San Francisco Total Dollar amount 2,560,000 5,120,000 $2,560,000 5,120,000 7,680,000 $7,680,000 Respectfully, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS Item No. 18 4/27/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD April 27, 1965 Mr. Leland M. Ross, Vice President, Federal Reserve Bank of Chicago, 60690 Chicago, Illinois. Dear Mr. Ross: In accordance with the request contained in your letter of April 21, 1965, the Board approves the designation of William J. Hocter as a special assistant examiner for the Federal Reserve Bank of Chicago. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. TELEGRAM SERVICE LERsito WIRE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON Item No. 19 4/27/65 April 28, 1965. 8REFFE1 - ATLANTA on of Donald L. Charles as Reurlet April 22, 1%5, Board approves designati 8Pecial assistant examiner for Federal Reserve Bank of Atlanta. (Signed) Karl E. Bakke BAKKE
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