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Minutes for To: Members of the Board From: Office of the Secretary April 3, 1957 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Chin. Martin Gov. Szymczak 1/Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson 1/ In accordance with Governor Shepardsonts memorandum of March 8, 1957, these minutes are not being sent to Governor Vardaman for initial. Minutes of actions taken by the Board of Governors of the Federal Reserve System on Wednesday, April 3, 1957. The Board met in the Board Room at 10:00 a.m. in executive session. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Shepardson At the conclusion of the executive session, the following members of the staff were called into the meeting: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Young, Director, Division of Research and Statistics Sloan, Director, Division of Examinations Hackley, General Counsel Noyes, Adviser, Division of Research and Statistics Masters, Associate Director, Division of Examinations Hexter, Assistant General Counsel Items which had been circulated to the Board. The following items, which had been circulated to the members of the Board and copies Of which are attached to these minutes under the respective item numbers Indicated, were approved unanimously: Item No. Letter to The First Pennsylvania Banking and Trust Company, Philadelphia, Pennsylvania, approving the establishment of a branch at City Line Avenue and Presidential Boulevard. (For transmittal through the Federal Reserve Bank of Philadelphia.) 1 4/3/57 -2Item No. Letter to American Trust Company, Charlotte, North Carolina, approving the establishment of a branch at Douglas Municipal Airport. (For transmittal through the Federal Reserve Bank of Richmond.) 2 Letter to First National Bank of Myrtle Beach, Myrtle Beach, South Carolina, approving its application for permission to exercise fiduciary Powers. (For transmittal through the Federal Reserve Bank of Richmond.) 3 Letter to Security Bank, Lincoln Park, Michigan, approving the relocation of a branch from one site to another in Southgate, Ecorse Township, Wayne County, Michigan. (For transmittal through the Federal Reserve Bank of Chicago.) 14. Letter to the Federal Reserve Bank of San Francisco waiving the assessment of certain penalties for deficient reserves incurred by Occidental Savings and Commercial Bank, Los Angeles (North Hollywood), California. 5 Letter to Bank of Belmont Shore, Long Beach, California, approving the establishment of a branch in Seal Beach, California. (For transmittal through the Federal Reserve Bank of San Francisco.) 6 Letter to the Comptroller of the Currency recommending approval of an application to organize a national bank at Princeton, West Virginia, provided arrangements are made for a capital structure satisfactory to the Comptroller. (With a copy to the Federal Reserve Bank of Richmond.) 7 Letter to the Comptroller of the Currency recommending disapproval of an application to organize a national bank at Treasure Island, Florida.(With a copy to the Federal Reserve Bank of Atlanta.) 1 8 1/ This matter was discussed by the Board at its meeting on March 18, 1957, following which the Federal Reserve Bank of Atlanta reviewed the application at the Board's request and reaffirmed its unfavorable recommendation. -3- 4/3/57 Item No. Letter to the Antitrust Division of the Department of Justice transmitting a copy of the report on the study of banking conditions in the State of Arizona conducted by the Federal Reserve Bank Of San Francisco. Letter to the Federal Reserve Bank of San Francisco concerning the transmittal of the abovementioned report to the Department of Justice. 9 10 Applicability of the proposed Financial Institutions Act (S. 1451) to a Federal Reserve Bank director whose second consecutive term expires this year. (Item No. 11) In a letter dated March 11, 1957, President Bryan of the Federal Reserve Bank of Atlanta inquired on behalf of Mr. Sherman Drawdy, President of the Georgia Railroad Bank and Trust Company, Atlanta, Georgia, concerning the applicability of section 17(a) of Title II of the proposed Financial Institutions Act to the service of a Reserve Bank director whose second consecutive term expires this year. Section 17(a) provides, among other things, that no director of a Federal Reserve Bank (except a director designated as chairman of the board of directors) who has served two full consecutive terms of three years each shall be eligible to serve again as a director pursuant to a new election or new appointment until after an intervening period of not less than three years. It appeared that both Mr. Drawdy and the present election incumbent, now completing two terms of service, had announced for to the Group I, Class A directorship of the Atlanta Reserve Bank in the election to be held this fall. A draft of reply to Mr. Bryan had been prepared which would Point out that the Act was still in the legislative stage and that the 828 4/3/57 final context of any given section therefore could not be determined at this time. The letter would go on to mention that the application of the pertinent section would depend on the facts obtaining at the time of enactment, and would state that the Board therefore would prefer not to express any opinion at this time as to the applicability of section 17(a) of Title II. In view of questions raised by Governor Balderston when the file was in circulation concerning the adequacy of the proposed reply, an alternative draft of letter was prepared and circulated which would attempt some interpretation of the applicability of section 17(a) under various circumstances, depending on the time when S. 1451 might be enacted into law. Governor Robertson indicated that he would not be inclined to attempt any interpretation at this time, on the basis that the Act was Still in the legislative stag, its provisions might be changed, the time of enactment could not be predicted, and the full legislative history should be available in order to make any interpretation of the bill if it became law. He also referred to the circumstances in which the question had been raised in the Atlanta District and expressed apprehension that any interpretative statement by the Board might be used out of context in a way which would be detrimental to one or the other of the candidates for the directorship. Governors Balderston and Mills were inclined to feel that the explanation given in the alternative draft of letter was appropriate. 4/3/57 -5- They pointed out that the pertinent section of the Act had been recommended by the Board, and this suggested to them that some clarifying statement might reasonably be expected. However, following a reading of the two drafts and further discussion concerning the contest in the Atlanta District, they indicated that they would go along with a reply limited to the statement that at the present time the final context of any given section of the Act could not be determined. Accordingly, unanimous approval was given to a letter to President Bryan in the form attached to these minutes as Item No. 11. Proposed consolidation of certain banks in Flint, Michigan. There had been circulated to the members of the Board a memorandum from the Division of Examinations dated March 12, 1957, recommending that the Board give its consent, under the provisions of section 18(c) Of the Federal Deposit Insurance Act, to the consolidation of the Genesee County Savings Bank and the Merchants and Mechanics Bank, both of Flint, Michigan, and approve the establishment of six branches by the consolidated bank. This recommendation was in accord with the recommendation of the Federal Reserve Bank of Chicago. Attached to the memorandum from the Division of Examinations was a memorandum from the Legal Division dated March 26, 1957, raising certain questions from the standpoint of the competitive situation involved in the proposed transaction. The desirability was suggested of requesting the Federal Reserve Bank to develop this phase of the matter more fully. 830 -6- 4/3/57 Messrs. Hackley and Hexter stated that the Legal Division's memorandum was not intended to suggest that the Board should disapprove the proposed transaction. However, it had been noted that the material furnished by the Federal Reserve Bank contained little or no information regarding the competitive aspects of this case, and the Board had indicated to the Congress on various occasions that in all such cases consideration was given to the competitive situation. Therefore, no matter what the final decision might be, it would seem advisable to develop information along lines suggested in the memorandum from the Legal Division. Mr. Sloan said that it would be helpful to the Division of Examinations if the Legal Division would indicate more specifically the nature and extent of the information considered necessary in cases of this kind, and Chairman Martin suggested that the two Divisions collaborate on the preparation of a letter to the Federal Reserve Bank of Chicago requesting the development of information regarding the competitive aspects of the proposed transaction in Flint, Michigan. This suggestion was approved unanimously, with the understanding that the letter would be sent in a form satisfactory to Messrs. Sloan and Hackley. Arizona banking study. During the discussion of the above matter, unanimous agreement was expressed with a suggestion by Chairman Martin that copies of the report by the Federal Reserve Bank of San Francisco concerning its study of the banking situation in Arizona be made available to all of the Federal Reserve Banks for their confidential information. -7- 4/3/57 Application of Citizens Commercial & Savings Bank, Flint, to establish a branch. (Item No. 12) Along with the file Michigan on the proposed consolidation of two banks in Flint, Michigan, there had been circulated to the members of the Board a file relating to the application of Citizens Commercial & Savings Bank to establish a branch at the intersection of Richfield and Center Roads in Flint. This application raised no question from the standpoint of competitive aspects and the recommendations of the staff and the Federal Reserve Bank of Chicago were favorable. Accordingly, unanimous approval was given to a letter to the applicant bank approving the establishment of the branch, for transmittal through the Federal Reserve Bank of Chicago. A copy of the letter is attached to these minutes as Item No. 12. Report on S. 1711. (Item No. 13) Under date of March 27, 1957, the Chairman of the Senate Banking and Currency Committee requested the Board's comments on the subject bill, which would provide for the establishment of a Commission on National Housing Policy. Since the Proposed bill was substantially the same as S. 3186, introduced in the 84th Congress, on which the Board expressed its views in a letter to the Banking and Currency Committee dated March 16, 1956, there had been distributed to the members of the Board a draft of letter which would note the similarity between the two bills, state that the Board reaffirmed the views expressed previously, and transmit copies of the 1956 letter. Following a brief discussion, unanimous approval was given to the proposed letter to the Chairman of the Banking and Currency Committee. A copy is attached to these minutes as Item No. 13. 4/3/57 -8Report on H. R. 4602. (Item No. 14) There had been distributed to the members of the Board copies of a memorandum from Mr. Noyes dated April 2, 1957, submitting a draft of letter to the Chairman of the Senate Banking and Currency Committee in response to a request for the Board's comments on the subject bill, which would provide additional authority for direct loans by the Veterans Administration to veterans in rural areas and small cities, increase the maximum amount of such loans from $10,000 to 413,500, and permit advance commitments. Following a discussion, during which an editorial change in the proposed reply was suggested by Governor Balderston, unanimous aPProval was given to a letter in the form attached to these minutes as Item No. 14. Proposal to exempt certain loans from section 24 of the Federal Reserve Act. (Item No. 15) There had been sent to the members of the Board copies of a memorandum from Mr. Hexter dated April 2, 1957, relating to a request from the Bureau of the Budget for the Board's views on a legislative proposal by the Small Business Administration that disaster loans covered by deferred participations of the Administration be exempted from the requirements and limitations of section 24 which pertain to real estate loans by national banks. It was understood that the Comptroller of the Currency would not object to the proposed amendment. Submitted with Mr. Hexter's memorandum was a draft of pro- posed reply to the Budget Bureau. 4/3/57 -9Following explanatory comments by Mr. Hexter based on the material contained in his memorandum, unanimous approval was given to the proposed letter to the Bureau of the Budget. A copy of the letter is attached to these minutes as Item No. 15. Mr. Hexter then withdrew from the meeting and Messrs. Leonard, Director, Division of Bank Operations, Solomon, Assistant General Counsel, and Sammons, Chief, Latin American Section, Division of International Finance, entered the room. Proposed mission to Puerto Rico. On Thursday, March 28, Governor Balderston, members of the Board's staff, and Assistant Vice President Crosse of the Federal Reserve Bank of New York met With Dr. Rafael Pico, Secretary of the Treasury of Puerto Rico, to discuss a request by the Governor of Puerto Rico that a survey group from the Federal Reserve System visit the island to study certain questions pertaining to the Puerto Rican banking system and the economy as a whole, including the possible establishment of a Federal Reserve Bank agency. The request for such a survey, which would bring up to date and supplement the study conducted by Federal Reserve System representatives in 1951, had been a matter of discussion at the staff level at the Board and the Federal Reserve Bank of New York. At Governor Balderston's request, Mr. Sammons had prepared a memorandum on the conference with Dr. Pico and copies thereof had been sent to the members of the Board along with a lettk!r from President Hayes of the Federal Reserve Bank of New York providing certain background data and views with respect to the request from the Governor of 834 -10- 4/3/57 Puerto Rico. The memorandum discussed the composition of such a mission, the scope of the investigation, procedural questions in connection with the study, and a possible time schedule. Assuming that the mission was approved by the Board, the memorandum suggested the possibility that the study group could go to Puerto Rico for a visit near the end of April or in the early part of May. At that time a program of research to be conducted in Puerto Rico would be mapped out, and the Federal Reserve group then would return at a later date to analyze the information collected, discuss it with interested parties, and prepare a final report. In commenting on the matter, Governor Balderston read a copy of a memorandum on the subject which Mr. Crosse had prepared for the files of the New York Bank. This memorandum verified the principal Points covered in the memorandum prepared by Mr. Sammons and expressed concurrence in the view that the proposed study mission would be desirable. In response to a question by the Chairman, Governor Szymczak said that it had always been contemplated that the 1951 survey would be supplemented by another study and that he favored the proposal for another mission at this time. While there was no dissenting opinion on the part of the other members of the Board regarding the mission as such, question was raised by Governor Robertson regarding the composition of the Federal Reserve 35 -U- 4/3/57 study group, which it had been suggested would include representatives of the Board and the Federal Reserve Bank of New York. Without having gone into the matter in detail, it appeared to Governor Robertson that if a Federal Reserve agency were established in Puerto Rico, it perhaps should be an agency of the Federal Reserve Bank located closest to the island. With that in mind, he inquired whether it would be desirable to expand the study group to include a representative of the Atlanta Reserve Bank. In response to the question raised by Governor Robertson, comments were made on the reasons which would favor a Federal Reserve Office in Puerto Rico being an agency of the Federal Reserve Bank of New York, including the current lines of communication and business relationships. For these reasons, as well as the fact that to date the study of the Puerto Rican situation had been carried on by the Board and the New York Reserve Bank, the thought was expressed that the inclusion in the study group of a person representing another Federal Reserve Bank might be inadvisable. With regard to the com- Position of foreign missions in general, there was unanimity of opinion regarding the desirability of utilizing personnel from all of the Federal Reserve Banks to the extent possible, if for no other reason than the educational value of such projects to the participants, but in this instance it was suggested that to go beyond the Board and the New York Reserve Bank could create problems. The point was made that, 836 4/3/57 -12- if further study of the Puerto Rican situation indicated the feasibility of establishing a Federal Reserve agency in Puerto Rico, consideration could then be given to the question of the Reserve Bank with which the agency should properly be affiliated. At the conclusion of the discussion, there was unanimous agreethat the proposed study mission should be undertaken on the general basis discussed in the memorandum of the meeting with Dr. Pico. As to the composition of the mission and similar questions, there was agreewith a suggestion by Chairman Martin that such aspects of the matter be referred to Governors Balderston and Szymczak with power to act. Proposed changes in the Retirement System of the Federal Reserve Banks. With reference to the discussion at the meeting of the Board Yesterday, the Chairman reported that President Johns of the Federal Reserve Bank of St. Louis would be available to meet with the Board at 10:00 a.m. next Monday, April 8, for further consideration of the pro- posals of the Special Joint Committee for changes in the Bank Plan of the Retirement System. Possible designation of Miami, Florida, as a reserve city. With reference to the understanding at the meeting of the Board yesterday that repremAatives of the member banks in Miami would be invited to meet with the Board to present their views on the possible designation of Miami as a reserve city, the Secretary stated that the Miami bankers would be available for such a meeting on Wednesday, April 17. He also -13- 4/3/57 said that President Bryan, who would be in Washington on April 16 for a meeting of the Federal Open Market Committee, could remain for the meeting with the Miami bankers. Accordingly, it was agreed unanimously that the meeting would be held on the date suggested. Salary structure for official positions at the Federal Reserve Bank of Dallas. (Item No. 16) Reference was made to a memorandum from the Division of Personnel Administration dated March 29, 1957, which had now completed circulation to the members of the Board, discussing a proposed revision in the salary structure for official positions at the Federal Reserve Bonk of Dallas which the Bank would like to make effective April 1, 1957. The memorandum recommended that the revision be approved by the Board. Pursuant to this recommendation, unanimous approval was given to the letter to the Dallas Bank of which a copy is attached to these minutes as Item No. 16. The meeting then adjourned. Secretary's Note: Governor Balderston, acting as alternate to Governor Shepardson, today approved on behalf of the Board a telegram to the Federal Reserve Bank of Boston approving the designation of Joseph Samuel Winning as a special assistant examiner. A copy of the telegram is attached to these minutes as Item No. 17. Pursuant to recommendations contained in memoranda from appropriate individnAls concerned, Governor Balderston, acting as S3S 4/3/57 _l11_ alternate to Governor Shepardson, also approved on behalf of the Board today the following actions with respect to members of the Board's staff: Extension of term of service as Special Assistant Federal Reserve Examiner Extension of the term of service of Winifred J. Black as Special Assistant Federal Reserve Examiner in the Division of Examinations until May 31, 1957: effective April 8, 1957. Transfer and appointment as Special Assistant Federal Reserve Examiner Transfer of Ann C. Tompros, Secretary in the Division of International Finance, to the Division of Examinations for a period of approximately one year, with appointment as a Special Assistant Federal Reserve Examiner and an increase in her basic anniml salary from *3,670 to $3,805, effective the date she assumes her new duties, and with the understanding that at the termination of her assignment with the field examining staff, Miss Tompros would return to the position of Secretary, either in the Division of International Finance or in some other Division of the Board. Item No. 1 4/3/57 April 3, 1957 Board of Directors, The First Pennsylvania Banking and Trust Company, Philadelphia, Pennsylvania. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Philadelphia, the Board of Governors Of the Federal Reserve System approves the establishment Of a branch in the Madison House, Presidential Apartments, at the southeast corner of City Line Avenue and Presidential Boulevard, Philadelphia, Pennsylvania, by the First Pennsylvania Banking and Trust Company, Philadelphia, Pennsylvania, provided the branch is established within six months from the date of this letter, and the approval of the State authorities is in effect as of the date of the establishment of the branch. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 841) Item No. 2 4/3/57 April 3, 1957 Board of Directors, American Trust Company, Charlotte, North Carolina. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Richmond, the Board of Governors of the Federal Reserve System approves the establishment Of,a branch at Douglas Municipal Airport which is located about two and three-fourths miles west of the city limits Of Charlotte, North Carolina, by American Trust Company, Charlotte, North Carolina, provided the branch is established within six months from the date of this letter and the approval of the State authorities is in effect as of the date of the establishment of the branch. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Item No. 4/3/57 April 3, 1957 Board of Directors, First National Bank of Myrtle Beach, Myrtle Beach, South Carolina. Gentlemen: The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in anY other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of South Carolina, the exercise of all such rights to be subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve SystPm. A formal certificate indicating the fiduciary powers which the First National Bank of Myrtle Beach is now authorized to exercise will be forwarded to you in due course. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 842 Item No. 4 4/3/57 April 3, 1957 Board of Directors, Security Bank, Lincoln Park, Michigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors approves the relocation of the branch operated by the Security Bank at 13161 Dix-Toledo Road, to the intersection of Dix-Toledo Road and Eureka Road, both sites in Southgate, Ecorse Township, Wayne County, Michigan, provided the branch is established at the new location within one year from the date of this letter, and the aPProval of the State Banking Department is in effect as of the date the change of location is effected. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. • Item No. 5 4/3/57 April 3, 1957 Mr. H. N. Mangels, President, Federal Reserve Bank of San Francisco, San Francisco 20, California. Dear Mr. Mangels: This refers to your letter of March 20, regarding Penalties totaling 3837.40 incurred by the Occidental Savings and Commercial Bank, Los Angeles (North Hollywood), California, as a result of deficiencies in reserves in the six semimonthly Periods in December 1956 and in January and February 1957. It is noted that the deficiencies resulted from the bank's considering drafts drawn on its Los Angeles correspondent and sent to tha Los Angeles Branch in payment of its daily cash letters as "Cash items in process of collection" for one day against a deferred charge to the account of its correspondent bank, which in effect resulted in a double deduction on the reserve reports; this procedure was the result of a misunderstanding Of a conversation with the Los Angeles Branch; the bank has reverted to the correct reporting procedure; and since opening for business in January 1954, the bank had only three minor deficiencies, which were waived under the provisions of Paragraph A of the rules. In the circumstances, and in view of your recommendation, the Board authorizes your Bank to waive the assessment of these penalties. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 844 Item No. 6 4/3/57 April 3, 1957 Board of Directors, Bank of Belmont Shore, Long Beach, California. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors approves the establishment of a branch in the vicinity of the intersection of Main Street and Pacific Coast Highway, Seal Beach, California, by Bank of Belmont Shore, Long Beach, California, provided the branch is established within six months from the date of this letter and that formal approval of the Superintendent of Banks of the State of California is effective at the time the branch is established. It is understood that capital funds will be increased by not less than 5200,000 through sale of additional common stock. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 845 Item No. 7 4/3/57 April 3, 1957 Comptroller of the Currency, Treasury Department, Washington 25, D. C. Attention: Mr. W. M. Taylor, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated February organize a 11, 1957, enclosing photostatic copies of an application to recommendation a requesting and Virginia, national bank at Princeton, West approved. be should n as to whether or not the applicatio A report of investigation of the application made by an examiner for the Federal Reserve Bank of Richmond indicates that the proposed capital structure of the bank would be adequate for the volume of business anticipated by the proponents but that more capital should be provided if the institution is to function soundly in a community of this size and in competition with the existing bank. The prospects for profitable operaof the bank are fair, and it appears that the proposed directorate and management could operate the bank capably. While it is indicated that the banking needs of the community are being met fairly satisfactorily tY the existing institution, it would seem that another bank could be supPorted, and, in view of the desirability of providing banking competition 111 the community, it is believed that favorable consideration may be given the proposal. Accordingly, the Board of Governors recommends approval of the aPPlication provided arrangements are made for a capital structure satisfactory to your office. The Board's Division of Examinations will be glad to discuss any aspects of this case with representatives of your office if you so desire. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Item No. 8 4/3/57 April 3, 1957 Comptroller of the Currency, Treasury Department, Washington 25, D. C. Attention: Mr. W. M. Taylor, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated July 31, 1956, enclosing photostatic copies of an application signed by Emerson L. Parker and associates to organize a national bank at Treasure Island, Florida, and requesting a recommendation as to whether or not the application should be approved. A report of investigation of the application made by an examiner for the Federal Reserve Bank of Atlanta indicates that the proposed capital structure of the bank would be ade quate provided the investment in fixed assets is held to a reasonable amount. However, the prospects for profitable Operations are not favorable, and there does not appear to be sUfficient need for the bank in the area at this time. No managing officers have been selected, and the majority of the directors as proposed appear to be engaged in real estate depment and promotion. In view of these unfavorable factors, the Board of Governors does not feel justified in recommending approval of the application. n The Board's Division of Examinations will be glad to discuss any aspects of this case with representatives of your c)ffice if you so desire. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. S7 Item No. 9 4/3/57 April 3, 1957 Honorable Victor R. Hansen, Assistant Attorney General, Antitrust Division, Department of Justice, Washington 25, D. C. Dear Mr. Hansen: At the request of the Board of Governors, in 1956 the Federal Reserve Bank of San Francisco conducted a study of banking conditions in the State of Arizona, with particular reference to certain corporate acquisitions of bank stocks within recent years and the possible application thereto of section 7 of the Clayton Act. The results of that study were embodied in a two-volume report entitled "Investigation of Banking in Arizona", dated November 23, 1956. The banking situation in Arizona, as reflected in the above-mentioned report and other data, is currently receiving consideration from the point of view of the Board's responsibilities under section 11 of the Clayton Act with respect to enforcement of section 7 thereof. In view of the jurisdiction of the Department °f Justice in the enforcement of the antitrust laws, the Board is transmitting to you herewith a copy of the report for your information and use. Needless to say, transmittal of this study does not indicate that the Board of Governors has reached a conclusion as to whether there has been any violation of either the Sherman Act or the Clayton Act. The Board's staff is available at all times for discussion Of this subject, and the Federal Reserve Bank of San Francisco and tne Board will be glad to make available such information as they can. In that connection it is mentioned that The American Banker of March 14, 1957, stated that The Bank of Douglas plans to absorb the Farmers and Stockmens Bank of Phoenix "early in the summer". Sincerely yours, (Signed) Enclosur S. R. Carpenter S. R. Carpenter, Secretary. Item No. 10 4/3/57 April 3, 1957 Mr. H. N. Mangels, P-esident, Federal Reserv,:. Bank of San Francisco, San Francisco 20, California. Dear Mr. Mangels: Enclosed are copies of (1) a letter sent today to the Antitrust Division of the Department of Justice transmitting for Its use a copy of the report entitled "Investigation of Banking in Arizona", which was prepared by yOur Bank, and (2) a memoto the Board of Governors dated March 18, 1957, with respect to "Sending to Department of Justice a copy of the Arizona banking study". It would be appreciated if your Bank would make available to the Department of Justice, upon its request, such information as YOU properly can on the subject of the banking situation in Arizona, Sincerely yours, (Signed) S. R. Carpenter S. R. Carpenter, Secretary. Enclosures. 849 Item No. 11 4/3/57 April 3, 1957 Mr. Malcolm Bryan, President, Federal Reserve Bank of Atlanta, Atlanta 3, Georgia. Dear Mr. Bryan: This refers to your letter of March 11, 1957, With enclosures, regarding the question whether section 17(a) of Title II of the proposed Financial Institutions Act of 1957 (S. 1451) would be applicable to a Federal Reserve Bank director whose second consecutive term is expiring this year. The Financial Institutions Act of 1957 is, as you knw, still in the legislative stage and thus the final context of any given section of the Act cannot be determined at this time. Very truly yours, (Signed) S. R. Carpenter S. R. Carpenter, Secretary. 850 Item No. 12 4/3/57 April 3, 1957 Board of Directors, Citizens Commercial & Savings Bank, Flint, Michigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves the establishment of a branch by Citizens Commercial & Savings Bank in the vicinity of the intersection of Richfield and Center Roads in Flint, Michigan, provided the branch is established vlthin six months from the date of this letter, and that approval of State authorities is effective as of the date the branch is established. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 85-1_ Item No. 13 4/3/57 April 3, 1957 The Honorable J. W. FUlbright, Chairman, Committee on Banking and Currency, United States Senate, Washington 25, D. C. Dear Senator FUlbright: This is in reply to your letter of March 27, 1957, requesting a report on 8.17111 a bill to provide for the establishment of a Commission on National Housing Policy. The proposed bill is substantially identical to S.31861 which was introduced during the second session of the 84th Congress and Which was referred to the Board for a report by your letter of February 16, 1956. The Board has reviewed the comments contained in its Previous letter and reaffirms them. For your convenience I am attaching five copies of that letter. Sincerely yours, (Signed) Wm. McC. Martin, Jr. WM. Mee. Martin, Jr. Enclosures 5 852 Item No. 14 4/3/57 April 3, 1957 The Honorable J. W. Fulbright, Chairman, Senate Committee on Banking and Currency, United States Senate, Washington 25, D. C. Dear Senator Fulbright: This is in response to your request of March 27 for the Board's views on the bill H.R.4602 now before your Committee on Banking and Currency. This bill would expand the authority of the Administrator of Veterans Affairs to make direct loans to veterans, and would empower the Administrator to make loan commitments to builders in "housing credit shortage areas" for a fee of not more than 2 per cent of the amount of loans committed for. The interest rate on these loans would be the maximum rate permitted on guaranteed loans. The Board is aware of the fact that mortgage credit is usually available to borrowers in large eastern metropolitan districts on terms more favorable than those obtainable by borrowers ta less thickly populated regions. In the latter sections, the making and servicing of loans is more expensive for the lender, and the cost of borrowing in such areas has historically been higher than in metropolitan areas. The most effective way of assuring that the cost of borrowing is kept as low as possible is to have as ManY lenders as possible freely competing for loans, and the Board believes that public policy may properly be directed to encouraging more lenders to invest funds in such areas. The Voluntary Home m?rtgage Credit Program has made a very useful contribution in this direction. A strong deterrent to the entrance of many lenders into small or remote areas has been the maximum interest rate on fede rally-underwritten loans, which would otherwise be the best vehicle for large investors to use in competing for loans in such areas. The program embodied in H.R.4602 may be expected to make iovernment funds available in small and remote areas, but it is -Likely, by creating Government competition on terms that private investors cannot meet, to increase rather than reduce this deterrent to the entrance of lenders into such markets. 853 The Honorable J. W. Fulbright -2- For this reason, as well as because of the drain the Program would make on the Federal Treasury, the Board believes that greater flexibility with respect to the maximum rate of interest on VA loans would be a preferable approach to the Problem. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. 854 Item No. 15 4/3/57 April 3, 1957 Mr. Roger W. Jones, Assistant Director for Legislative Reference, Bureau of the Budget, Washington 25, D. C. Dear Mr. Jones: This is in response to your Legislative Referral Memorandum of March 19, 1957, requesting the Board's views with respect to a proposal submitted by the Small Business Administration to amend section 24 of the Federal Reserve Act, which prescribes limitations and re quirements with respect to loans by national banks on real estate security. The proposal is that "disaster loans" covered by SBA deferred participation agreement "shall not be subject to the restrictions or limitations of this section 5.e., section 247imposed upon 1°ans secured by real estate." It ii—understood that SBA considers that such an amendment is needed in order to enable national banks to make residential disaster loans more freely than is possible under existing law. Section 24 establishes minimum standards for real estate 1°5ns by national banks and limits the aggregate amount of such loans. These provisions are designed to safeguard solvency and liquidity. Under the instant proposal, a national bank would be subject to no aggregate limit on the amount of "disaster loans" secured by real estate that it could have outstanding; and such loans could be made (1) on the security of second or third mortgages, (2) without any provisions with respect to amortization, and (3) in amounts that might equal or exceed the value of the real estate security. When a bank makes disaster loans in compliance with the De Tlirements of its Disaster Participation Agreement with SBA, the ank is protected against loss on such loans by a commitment on the Part of SBA to take over upon demand whatever percentage has been designated by the bank. That percentage can not exceed 90 per cent of 1°ans of less than $20,000 or 75 per cent of loans in excess of c 855 Mr. Roger W. Jones -2- $20,000, and it may be a smaller percentage if the bank so elects. However, the Board has been informed that in most cases SBA's deferred Participation in residential disaster loans is 90 per cent. When occasion for making disaster loans arises, the demand for such loans in a particular community or area may be very substantial, and a national bank might be under considerable pressure to make such loans with less than the usual attention to safeguards of the kinds prescribed by section 24. If such a bank elected to have only a relatively small percentage of such loans covered by SBA deferred participation, the risk exposure might be sufficient to endanger the bank's capital structure or liquidity. However, if most loans affected by the proposed amendment would be protected to the extent of 90 per cent by SBA deferred participations, the aggregate risk may not be excessive as a practical matter. The Comptroller of the Currency, who is the primary supervisor of the national banking system, has detailed information regarding its condition and operations, and accordingly the views of the Treasury Department presumably would be accorded particular weight in passing on the advisability of the proposal. In the interest of clarity and uniformity, it is suggested (1) that any provision on this subject should be inserted at the end Of the fourth paragraph of section 24 rather than in the first paragraph, and (2) that the provision should begin "Loans made to borrowers • • -" rather than "All loans, referred to in this section, made to borrowers . . .". Attention is called to the fact that the March 13, 1957 letter •Irom SBA to your Bureau is not complete and accurate in all respects ln describing the present provisions of section 24 with respect to such matters as the permissible percentage relationship of real estate loans tO the value of the security, amortization requirements, aggregate limitations, and existing exemptions. It is also mentioned that the next-to-last paragraph of that letter should refer to national bank e xaminers rather than Federal Reserve Bank examiners. Very truly yours, (Signed) S. R. Carpenter S. R. Carpenter, Secretary. 85 Item No. 16 4/3/57 April 3, 1957 CONFIDENTIAL (FR) Mr. Robert J. Smith, Chairman, Federal Reserve Bank of Dallas, Dallas 13, Texas. Dear Mr. Smith: The Board of Governors has approved, effective April 1, 1957, the adjustments proposed in Mr. Irons' letter of March 14, 1957, in the minimums mad maximums of the salary structure of the Officers' Salary Administration Plan of the Federal Reserve Bank Of Dallas, as follows: Group A Minimum Maximum $ 8,000 9,800 12,100 15,000 $12,000 14,700 18,200 22,500 Very truly yours, (Signed) S. R. Carpenter S. R. Carpenter, Secretary 857 Item No. 17 4/3/57 TELEGRAM April 3, 1957 LATHAM - BOSTON Reurtel April 21 1957. Board approves designation of Joseph Samuel Winning as a special assistant examiner for the Federal Reserve Bank of Boston. (Signed) Merritt Sherman SHERMAN
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