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V61
Minutes for
To:
Members of the Board
From:
Office of the Secretary
April 30, 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.
Chm. 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 Tuesday, April 30, 1963.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Mitchell
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Hackley, General Counsel
Noyes, Director, Division of Research
and Statistics
Mr. Solomon, Director, Division of Examinations
Mr. Hexter, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Dembitz, Associate Adviser, Division of
Research and Statistics
Mrs. Semia, Technical Assistant, Office of the
Secretary
Mr. Bakke, Senior Attorney, Legal Division
Mr. Doyle, Attorney, Legal Division
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
The establishment without change by the Federal
Reserve Banks of Boston and Atlanta on April 29, 1963, of the rates on
discounts and advances in their existing schedules was approved unanimously,
With the understanding that appropriate advice would be sent to those
Banks.
Agenda for Federal Advisory Council meeting (Item No. 1).
There
had been distributed a draft of letter to the Secretary of the Federal
Advisory Council suggesting topics for inclusion on the agenda for the
meeting of the Council to be held on May 20-21, 1963.
After discussion during which several changes were agreed upon, the
letter was approved unanimously in the form attached as Item No. 1.
CACI
,
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United States Administrative Court (Item No. 2).
There had been
distributed a memorandum dated April 25, 1963, from the Legal Division
in connection with a request from the House Committee on the Judiciary
for the Board's views on H. R. 43, a bill to provide for a United States
Administrative Court.
It was contemplated that such a Court would provide
a judicial forum where, at the option of a Federal department or agency or
of a party to a proceeding before such a department or agency, certain cases
might be heard.
The memorandum noted that similar proposals had been advanced from
time to time during the past twenty-five years.
The principal argument
that had been urged in favor of such proposals was that there could be
no effective protection of private rights unless there was a complete
separation of prosecuting functions from decision-making functions with
respect to administrative adjudication.
The principal negative argument
was that administrative adjudications usually involved highly complex
and technical issues that the agencies themselves were better equipped
to handle; that to give a court jurisdiction in the first instance would
deprive both the Government and litigants of the expertise of the agencies
in the formulation of decisions.
The current proposal contemplated that the Court would have
concurrent jurisdiction with Federal departments and agencies in specified
classes of cases of a disciplinary or enforcement nature.
Upon examina-
tion of the Board's operations, it appeared that the Board only infrequently
had instituted proceedings such as would fall within the concurrent
Jurisdiction of an Administrative Court.
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The Legal Division concluded that on balance the creation of
an Administrative Court would be beneficial and in the interests of
the Board, by creating a forum to which the Board could transfer jurisdiction over the occasional cases of adjudication that came before it.
Accordingly, the Division recommended that the Board interpose no objection
to the bill.
However, in view of the relatively slight impact that the
proposal would have on the Board's operations, it was believed appropriate
for the Board not to express a strong affirmative position.
Attached to
the memorandum was a draft of reply to Chairman Celler of the Committee on
the Judiciary.
At the Board's request Mr. Bakke commented on the proposed legislation, following which Mr. Hackley added supplementary remarks.
In further discussion, Governor Mills stated that he could find
no pressing reason for the establishment of an Administrative Court.
He
would prefer that the reply sent to the Committee be adverse; at least,
that it be distinctly noncommittal.
He subscribed to the line of reasoning
that an agency that had responsibility in a certain field developed an
expertise that made it better qualified to reach decisions in that field
than an Administrative Court.
Further, the availability of such a Court
would not relieve an agency of its burden of work to any extent, because
the agency would have to develop the information on the basis of which the
Court would consider a case.
Governor Robertson remarked that, since the Board only infrequently
had cases of the nature that might be referred to an Administrative Court,
.•;:tr',71
1
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4/30/63
if one were established, he would not object if the Board's reply to the
Committee on the Judiciary were relatively noncommittal.
More broadly
speaking, however, he considered the proposal important and in the right
direction.
In his view, the contention that only the agency charged with
responsibility in a particular area had the expertise necessary to judge
a case arising in that area in effect impugned the whole court system of
the United States; no court could be completely familiar with the technicalities of all of the cases brought before it, but this process afforded
impartial decisions by judges who were not parties to the controversy.
It
seemed to him a Government agency ought not have to divide its efforts
and those of its staff in an administrative proceeding.
Instead, it
should bend its full efforts to the prosecution of the matter.
During further discussion Chairman Martin suggested, in light of
the views expressed, deleting from the proposed letter to the Committee
on the Judiciary a sentence stating that the availability of an Administrative Court might be useful in certain cases in which the Board's
adjudicatory functions were called into play.
This deletion and a minor editorial change in the wording of the
letter having been agreed upon, approval was given to a letter in the form
attached as Item No. 2.
Litigation involving First Bank Stock Corporation (Item No. 3).
There had been distributed a memorandum dated April 22, 1963, from the
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Legal Division regarding action initiated by the State of South Dakota
in the Federal District Court of South Dakota challenging the merger of
three small State banks into The National Bank of South Dakota, Sioux
Falls, a subsidiary of First Bank Stock Corporation, Minneapolis, Minnesota.
First Bank Stock, in a letter dated March 15, 1963, requested that the Board
file a brief amicus curiae or an affidavit in support of First Bank Stock's
contention that the merger did not require Board approval under section
3(d) of the Bank Holding Company Act.
The Legal Division recommended, for
reasons set out in the memorandum, that the Board not file a brief or affidavit, but that instead a letter be sent to First Bank Stock containing a
statement of the Board's general position with respect to the scope and
applicability of sections 3(d) and 3(a)(3) of the Holding Company Act.
A
draft of such a reply was attached to the memorandum.
After discussion, the letter was approved unanimously.
attached as Item No.
A copy is
3.
Mr. Bakke then withdrew from the meeting.
Interpretation of banking laws and regulations.
In connection with
the question whether a subsidiary of Bankers Trust Company, New York, New
York, might lawfully purchase stock of a national bank, the Comptroller
Of the Currency, in a letter dated March 11, 1963, asked if the Board
sections of the National
reserved to itself the right to interpret "all
Banking laws and regulations issued by the Comptroller of the Currency"
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insofar as they applied to State member banks.
On April 19, 1963, in
discussing the Bankers Trust matter, the Board supported the Legal
Division's opinion that the Board may properly interpret a provision
of the national bank laws that applies to State member banks.
There had now been distributed a memorandum dated April 23, 1963,
from the Legal Division relating to the right of the Board to interpret
regulations of the Comptroller of the Currency insofar as they applied
to State member banks.
The majority of the legal staff saw no logical
distinction between the Board's right to interpret national bank laws and
its right to interpret the Comptroller of the Currency's regulations, where
At the same time, it was believed that,
applicable to State member banks.
where Congress had authorized an agency to issue regulations, that agency's
interpretations of its own regulations should be given persuasive weight
unless clearly erroneous.
The Legal Division's position was reflected in
a draft letter, attached to the memorandum, replying to the Comptroller of
the Currency's letter of March 11.
The same principle, it was noted in the memorandum, would conversely
apply to interpretation by the Comptroller of the Board's regulations that
applied to national as well as State member banks, such as Regulation Q,
Payment of Interest of Deposits.
matter.
The latter point was pivotal in a recent
In a letter to a national bank dated March
4, 1963, which had
been published, the Comptroller of the Currency held that Associated
Hospital Service, Philadelphia, Pennsylvania, was eligible to maintain
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4/3o/63
a savings deposit with a national bank, despite a contrary ruling by
the Board in 1960.
At its meeting on March 18, 1963, the Board instructed
the Legal Division to prepare a letter to the Comptroller of the Currency
reaffirming its 1960 ruling.
This reaffirmation was incorporated in the
draft of reply to the Comptroller's letter of March 11, 1963.
After explaining the basis for the Board's opinion that Associated
Hospital Service was not in fact a charitable institution and therefore
was not entitled to the privilege accorded such institutions under the
definition of "savings deposits" in Regulation Q, the draft letter noted
that an identical definition of "savings deposits" was set forth in the
Board's Regulation D, relating to reserves of member banks, which was
also issued pursuant to the first paragraph of section 19 of the Federal
Reserve Act.
Consequently, deposits of Associated Hospital Service would
be regarded as demand deposits, rather than savings deposits, in determining
compliance by member banks with the reserve requirements of that section.
At the Board's request, Mr. Hackley commented on the issues presented,
after which Mr. Hooff made supplementary comments.
In the discussion that ensued, Governor Mitchell raised a question
as to whether the record clearly showed that Associated Hospital Service
was not a charitable organization.
In response to this question, Messrs.
Hackley and Hooff reviewed the facts on which the Board's 1960 interpretation
was based.
As the discussion continued, it developed to be the consensus
that the proposed letter to the Comptroller reflected an appropriate
199
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4/3o/63
analysis of the situation.
It was brought out that the problem involved
was inherent in the structure of divided responsibility for bank supervision
at the Federal level, which could admittedly introduce certain practical
difficulties in the absence of cooperation among the supervisory authorities.
Over the years, however, a substantial degree of uniformity of interpretations
had been achieved, with a notable exception in regard to absorption of
exchange charges.
It was pointed out, also, that there had been no
challenge to the Board's regulations, but rather an interpretation thereunder.
This suggested that the Board, if necessary, could always resort
to amendment of its regulations in the event of differing interpretations.
The matter of enforcement was cited as a fundamental problem in the division
of supervisory responsibility, again calling for interagency cooperation
to assure equality of treatment to supervised institutions of various
classes.
Despite these recognized difficulties, it was the consensus,
as indicated previously, that the analysis of the Legal Division was
correct and that the proposed letter to the Comptroller was appropriate.
Accordingly, the letter to the Comptroller was approved unanimously.
Mr. Hackley pointed out, in this connection, that Congressman
Multer had written to the Board on April 17, 1963, asking the Board's
comments on the Comptroller of the Currency's letter of March 4-, 1963,
regarding the Absociated Hospital Service matter.
He suggested that
the reply to Mr. Multer consist of sending him a copy of the Board's
letter to the Comptroller of the Currency.
Mr. Hackley suggested also
)
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that copies of the letter to the Comptroller be sent to the Federal
Reserve Banks, several of which had made inquiries as to the Board's
position regarding the Associated Hospital Service matter.
There was general agreement that the procedures suggested by
Mr. Hackley should be followed.
Secretary's Note: Following the meeting, it
was noted by the staff that certain provisions
of the Federal Reserve Act not mentioned in
the letter to the Comptroller of the Currency
seemed to have a bearing on the Associated
Hospital Service matter. Accordingly, the
subject was again discussed by the Board
on May 6, 1963, at which time a revised letter
to the Comptroller was approved.
Bankers Trust-Farmingdale question (Item No.
)).
At its
meeting on April 19, 1963, the Board considered the question presented
by the proposal of BT New York Corporation, a wholly-owned subsidiary
of Bankers Trust Company, New York, New York, to purchase the stock of
First National Bank of Farmingdale, Farmingdale, New York, a new bank
organized for the purpose of acquiring the assets and assuming the
liabilities of The First National Bank of Farmingdale, an existing
national bank.
The decision as to the formation of the new national
bank was, of course, within the jurisdiction of the Comptroller of the
Currency.
The pertinent question within the sphere of the Board's
responsibilities was whether the proposed purchase of stock of the new
national bank by the subsidiary of Bankers Trust would result in a
violation of the provisions of section 5136 of the Revised Statutes
Oil
4/30/63
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regarding purchases of corporate stock by national banks (made applicable
to State member banks by section 9 of the Federal Reserve Act).
At its April 19 meeting the Board approved a letter to the Comptroller of the Currency indicating that it would be glad to have any
comments he might wish to make on a draft of proposed letter to Bankers
Trust Company that would express the opinion that the proposed acquisition
of national bank stock by its wholly-owned subsidiary would result in a
violation of section 9 of the Federal Reserve Act and section 5136 of
the Ravised Statutes; the letter would also say that the Board was
inclined to feel that the continued holding by Bankers Trust of stock
of BT New York Corporation would be unlawful.
At today's meeting Mr. Hackley reported that under New York law
the proposed transaction must be acted upon by the State Banking Board
Within 120 days of the filing of the application.
This period would
expire about the end of May, but the State Banking Board met only once
each month, on the first Wednesday of the month, which would be tomorrow.
The comptroller of the Currency had not replied to the Board's letter
of April 19 in writing, but in telephone conversation with Chairman
Martin he had indicated adherence to the view that the transaction would
not violate section 5136 of the Revised Statutes.
Accordingly, the Board
might wish to consider sending to Bankers Trust the proposed letter on
Which it had asked the Comptroller of the Currency's comments.
Chairman Martin then reviewed his telephone conversations with
the Comptroller, including reasons for which the latter urged that the
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Board not take an adverse position.
Chairman Martin had indicated to
the Comptroller that, while he could not speak for the Board, as a
result of a careful analysis of the question the Board would probably
decide that the proposed stock acquisition by Bankers Trust's subsidiary
would violate the statute.
The Comptroller had stated that he intended
to issue later today a decision approving the acquisition of assets of
the present Farmingdale bank by the new national bank organized for that
purpose.
During the ensuing discussion it was brought out that, while it
was legal for a member bank to organize a corporation to liquidate assets
that had been pledged as collateral for a defaulted loan, and BT New York
Corporation had been formed in 1952 for that purpose, the salvage operation
had now been completed.
If the currently proposed transaction should
be passed without question, the way would seem to be open for banks
with subsidiaries to use them for purposes contrary to the apparent
intent of the Congress, including the acquisition of other banks outside
the purview of the Bank Merger Act.
At the Board's request the proposed letter to Bankers Trust
Company that the Board had tentatively approved on April 19 was read
again in full, following which there was a general discussion of the
provisions of section 5136 and their applicability, along with interpretations made by the Board in the past, which it was noted were not inconsistent with the position proposed to be taken in the letter to Bankers
Trust Company.
In addition, question was raised as to the applicability
4/30/63
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of the Bank Merger Act and reasons were suggested why Bankers Trust Company
may have elected to proceed in the manner it had, rather than to apply for
approval of a merger with the Farmingdale bank, a transaction that would
have fallen within the Board's jurisdiction under the Bank Merger Act.
Mr. Hackley stated that the Legal Division had carefully considered whether
the proposed transaction would represent an indirect acquisition of another
bank by Bankers Trust Company and thereby would be subject to the Bank
Merger Act.
However, for reasons that he outlined, the Division had reached
a negative conclusion.
Accordingly, at the end of the discussion the proposed letter to
Bankers Trust Company was approved unanimously.
Item No.
A copy is attached as
4.
Messrs. Hooff and Doyle then withdrew from the meeting.
Proposed amendments to Securities Exchange Act.
On April 26, 1963,
there was preliminary discussion by the Board of proposed amendments to the
Securities Exchange Act being drafted by the Securities and Exchange Commission and the Bureau of the Budget.
Sections 13, 14, and 16 of the
Securities Exchange Art relate, respectively, to financial reporting, proxy
regulation, and controls on insider trading.
Those provisions apply to
issuers of securities registered on securities exchanges, but generaPy
do not apply to issuers of securities traded over the counter.
The
amendments being drafted would make those sections applicable to sll
securities of corporations with stock held by 300 or more persons.
Similar
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4/30/63
amendments proposed on previous occasions had contained a specific
exemption for bank stocks, whereas the bill now being drafted did not.
In a distributed memorandum dated April 23, 1963, Messrs. Hexter and
Dembitz had set out the major questions raised by the draft bill that
were of concern to the Board, namely, the Board's general position on
the proposed legislation, the advisability of applying the requirements
of the sections in question to banks with 300 or more stockholders, and,
if the Board was favorably disposed with respect to the second question,
by what agency or agencies those sections should be administered in
their application to banks.
At today's meeting Mr. Hackley reported that the Bureau of the
Budget had arranged a meeting this afternoon for discussion of the
draft legislation by technically qualified representatives of interested
agencies.
At his suggestion, it was agreed that Messrs. Hexter and
Dembitz would attend the meeting.
In a discussion that ensued, there was a reiteration of the view
of the Board that it would favor extension of the pertinent provisions
of the securities Exchange Act to issuers of securities traded over the
counter.
There was also an expression of position that there would be
no objection on the part of the Board to making the amended provisions
Of the Securities Exchange Act applicable to banks with 300 or more stockholders of record.
AS to the administration of such amended provisions
of the Act insofar as they applied to banks, Mr. Hexter described the
administrative requirements in some detail.
After consideration of the
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matter, a consensus was reached that it would be preferable if administration were vested in the Securities and Exchange Commission rather
than the bank supervisory agencies, although a provision calling for
consultation by the Commission with the bank supervisory agencies in
matters such as the adoption of reporting forms was looked upon with some
favor.
The point was made that particularly difficult problems of adminis-
tration might evolve if responsibility in this area were divided among
the three Federal bank supervisory agencies, and the general experience
of the Securities and Exchange Commission in the securities field was
cited as an affirmative reason for placing responsibility for administration
with the Commission.
Thus it was agreed, for the guidance of Messrs. Hexter and Dembitz
at the meeting this afternoon at the Budget Bureau, that they might proceed
on the basis that the Board favored including banks with 300 or more stockholders of record in the coverage of the proposed legislation and that
the Board was inclined to feel that the administration of the proposed
legislation, as it related to banks as well as other corporations, should
rest with the Securities and Exchange Commission.
Subject to further
developments, at the meeting or otherwise, it was understood that views
along such lines would be expressed by the Board in reporting by letter
to the Budget Bureau on the proposed legislation.
All of the members of the staff except Mr. Sherman withdrew from
the meeting at this point.
4/30/63
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Hearings by Multer Subcommittee.
In a letter dated April 16s
1963, Congressman Multer, Chairman of the Subcommittee on Bank Supervision
and Insurance of the House Banking and Currency Committee, invited testimony
by members of the Board on Wednesday, May
8, 1963, in connection with
hearings being held by the Subcommittee on bills to establish a Federal
Banking Commission and to establish a Federal Deposit and Savings Insurance
Board.
After discussion of the matter, it was agreed that four members
of the Board (Chairman Martin and Governors Mills, Robertson, and Mitchell)
would testify before the Subcommittee, each on a personal basis, and that
Chairman Multer would be advised accordingly.
Secretary's Note: The Board later decided to
report by letter to the Subcommittee its views
on the bill to establish a Federal Deposit and
Savings Insurance Board,, so that the testimony
of the Board members appearing on May 8 might
be restricted to the bill to establish a Federal
Banking Commission.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
Letter to the Federal Reserve Bank of Philadelphia (attached Item No. 5)
approving the appointment of David H. Scott as assistant examiner.
Letter to the Federal Reserve Bank of Kansas City (attached Item No. 6)
approving the designation of William H. Leedy as special assistant examiner.
Setretary
Item No. 1
BOARD OF GOVERNORS
4/30/63
OF THE
v oV GOv4..
FEDERAL RESERVE SYSTEM
WASHINGTON 25. 0, C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 30, 1963.
Mr. Herbert V. Prochnow, Secretary,
Federal Advisory Council,
c/o The First National Bank of Chicago,
Chicago 90, Illinois.
Dear Mr. Prochnow:
The Board suggests the following topics for inclusion on the
agenda for the meeting of the Federal Advisory Council to be held on
May 20, 1963, and for discussion at the joint meeting of the Council
and the Board on May 21:
1. How do the members of the Council appraise current
business developments and economic prospects for the remainder of the year? What factors are most important in
influencing the Council's judgment about the economic outlook? Does the Council anticipate a substantial reduction
in unemployment in the near-term future?
2. In the Council's opinion, should the scattered price
increases reported in recent weeks be regarded as forerunners
of a broad upward movement in commodity prices and wages, or
are they more in the nature of selective adjustments to
changing demand and supply relationships? Reports of significant instances of price decreases or cost reductions would be
of interest to the Board.
3. Has the Council observed a general movement toward
increased business investment in plant and equipment? If so,
do the increases seem likely to result in greater actual
spending for such purposes this year than indicated by recent
surveys? Are the tax credit and liberalized depreciation
rules, made effective in 1962, now regarded in business and
financial circles as more stimulative to investment in plant
and equipment than was thought earlier?
4. Does the Council now regard early tax reduction as
essential to sustained business expansion this year?
5. What are the prospects for loan demand at banks during the next several months, including demand in various loan
categories?
Mr. Herbert V. Prochnow
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6. What are the Council's observations regarding current attitudes in the business and financial community toward
U. S. balance of payments developments?
7. How does the Council evaluate the impact of current
monetary and credit policy?
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 2
4/30/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WAS
OFFICE OF THE CHAIRMAN
May
3, 1963
The Honorable Emanuel Celler,
Chairman,
Committee on the Judiciary,
House of Representatives,
Washington 25, D. C.
Dear Mr. Chairman:
This is in response to your request of April 8, 1963, for
the views of the Board of Governors on H.R. 43 of the 88th Congress,
a bill to amend Title 28 of the United States Code to provide for a
United States Administrative Court.
Although the various statutes administered by the Board
provisions for adjudicatory proceedings of the nature
some
contain
the proposed legislation, in the Board's fifty-year
in
referred to
history it has had only infrequent occasion to institute such proceedings. Accordingly, the impact of the bill in question on the
Operations of the Board would be relatively slight.
While the Board perceives no reason for strong objection
to the bill, it feels that to express a strongly affirmative point
of view would not be appropriate in light of the insignificant
impact which the proposed legislation would have on the Board's
be more
Operations. The evaluation of those agencies that would
of
greater
be
to
appear
would
bill
substantially affected by the
value to the Committee.
Very truly yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
4i1
Item No.
BOARD OF GOVERNORS
4/30/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, O. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARD
April 30, 1963.
Mr. Joseph H. Colman,
Chairman of the Board,
First Bank Stock Corporation,
First National Bank Building,
Minneapolis 2, Minnesota.
' Re:
State of South Dakota v. The National Bank of
South Dakota, Sioux Falls and First Bank Stock
Corporation (U.S.D.C. So. Dak.)
Dear Mr. Colman:
In reference to your letter of March 15, 1963, requesting
that the Board submit a brief amicus curiae or an affidavit relative
to the legal issues raised by the sixth paragraph of Count II of the
Complaint filed on February 20, 1963, to commence the above-captioned
litigation, the Board does not consider submission of such a brief or
affidavit to be advisable in this case. However, since the Board is
charged with the responsibility of administering the Bank Holding
Company Act of 1956, it does seem appropriate in this connection for
the Board to state its general position with respect to the scope and
applicability of section 3(d) thereof.
Since shortly after passage of the Act in 1956 the Board has
consistently construed section 3(d) to apply only to cases in which
Board approval is required under section 3(a). The Board has also taken
the position in various cases that section 3(a)(3) does not necessitate
Board approval of a holding company bank's acquisition of the assets
of another bank, although Board consent would now be required in such
a case under the Bank Merger Act of 1960 if the acquiring bank were a
State member bank.
For a more complete statement of the Board's views in this
matter, attention is called to the discussion of Recommendation 15 in
the Board's special report submitted to Congress on May 7, 1958
[44 Fed. Reserve Bull. 776, 787-89 (1958)1, recommending deletion of
the words "other than a bank" in section 3(a)(3) of the Bank Holding
Company Act. It should be noted, however, that Recommendation 15 was
Withdrawn in the Board's Forty-Seventh Annual Report to Congress for
the year 1960, on pages 98-99 of which it is stated as follows:
BOARD OF GOVERNORS Or THE FEDERAL RESERVE SYSTEM
Mr. Joseph H. Colman
4
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"Under present law, a bank in a holding company system
may expand by absorbing another bank without obtaining the
prior approval of the Board of Governors under the Bank Holding Company Act. In its May 1958 Report, the Board expressed
the view that effectuation of the purposes of the Act required that a holding company bank's absorption of an independent bank, by merger or otherwise, should be subject to the
provisions of the Act.
"On May 13, 1960, Section 18(c) of the Federal Deposit
Insurance Act (12 U.S.C. 1828) was amended to provide that, in
practically all cases, bank mergers and absorptions must have
the prior approval of one of the Federal bank supervisory
agencies and that those agencies must take into consideration
factors that are substantially similar to those enumerated in
the Bank Holding Company Act. In view of the provisions of
this so-called Bank Merger Act, the Board believes that extending the coverage of the Holding Company Act to comprise bank
mergers involving holding company banks would produce an unjustified duplication of supervision. Accordingly, the Board
withdraws its recommendation (Recommendation 15 of the May 7,
1958 Report) that the Holding Company Act be amended in this
respect."
The foregoing constitutes a general statement of relevant
interpretations of sections 3(a)(3) and 3(d) of the Bank Holding Company
Act applied by the Board in previous cases. No attempt has been made
to apply these interpretations to the facts of the above-captioned
litigation; nor does the Board express any views regarding other legal
issues before the District Court in that case.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No.
4
4/30/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
4.
ADDRESS OFFICIAL CORRESPONDENCE
2).
TO THE BOARD
,.
44
W„,•••• 4
.4LRE
0
:
••
•
April 30, 1963.
Bankers Trust Company,
16 Wall Street,
New York 15, New York.
Gentlemen:.
In a letter to your bank dated March 6, 1963, the Board
of Governors indicated that it was studying the question whether
the proposed purchase of the stock of the newly-organized First
National Bank of Farmingdale, New York, by BT New York Corporation
("BTNY"), a wholly-owned subsidiary of Bankers Trust Company
("Bankers"), would violate the provision of section 5136 of the
Revised Statutes (12 U.S.C. 24) regarding the purchase of stock by
national banks, which is made applicable to State member banks by
the twentieth paragraph of section 9 of the Federal Reserve Act
(12 U.S.C. 335).
Because of its importance, this question has been given
thorough consideration by the Board's staff and by the Board; and,
in this connection, the Board has carefully considered the views
and arguments set forth in support of the validity of the proposed
transaction in a letter to the Board of March 15, 1963, from
Mr. Robert H. Brome, General Counsel and Secretary of Bankers, and
in an enclosed memorandum prepared by the law firm of White & Case.
Initially, because of statements contained in Mr. Brome's
letter and the White & Case memorandum, the Board has considered
whether the question at issue is one with respect to which the Board
may appropriately express an opinion. In order to discharge properly
its statutory supervisory functions with respect to State member
banks, the Board believes that it must necessarily interpret all
provisions of the Federal banking laws applicable to such banks,
including provisions that, like the stock-purchase provision of
section 5136, are contained in the national banking laws. Obviously,
it is desirable that provisions of Federal law applicable to both
national banks and State member banks be interpreted in the same
manner as to both categories of banks, but in general this objective
has been achieved through consultations between the Comptroller of
the Currency and the Board in cases of this kind.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Bankers Trust Company
-2-
The facts and statutory provisions that give rise to the
substantive question here presented may be summarized as follows:
There is now pending before the Comptroller of the Currency
under the Bank Merger Act an application by First National Bank of
Farmingdale, New York, a newly-organized national bank, to acquire
the assets and assume the liabilities of an existing national bank,
The First National Bank of Farmingdale. All the stock of the new
First National Bank of Farmingdale would be acquired by BTNY. That
corporation was organized in 1952 for the purpose of acquiring and
liquidating certain oil properties pledged as security for a loan
made by Bankers; such properties were sold in November 1960; BTNY
now has assets of approximately $2,900,000, mostly cash; and the
corporation is not now engaged in any business activity.
Paragraph "Seventh" of section 5136 of the Revised Statutes
provides that "Except as hereinafter provided or otherwise permitted
by law, nothing herein contained shall authorize the purchase by the
association [i.e., national bank] for its own account of any shares
of stock of any corporation." The twentieth paragraph of section 9
of the Federal Reserve Act provides that "State member banks shall
be subject to the same limitations and conditions with respect to
the purchasing * * * of * * * stock as are applicable in the case
of national banks under paragraph 'Seventh' of section 5136."
The question presented is whether BTNY's proposed purchase
of stock of the new First National Bank of Farmingdale would be, in
legal effect, a purchase of stock by Bankers Trust Company that is
not "permitted by law".
Counsel for Bankers contend that the stock-purchase provision
of section 5136 is not a "prohibition" but a confirmation of whatever
authority national banks may have under court decisions, as well as
statutes, to purchase stock of other corporations; that national banks,
under court decisions, have authority to purchase stock of corporations engaged in a business in which national banks could engage
directly; that, by virtue of section 9 of the Federal Reserve Act,
State member banks have like authority; that Bankers could directly
acquire the assets of First National Bank of Farmingdale with
appropriate supervisory approval under the Bank Merger Act; and
that, therefore, the proposed stock acquisition as an incident to
such acquisition of assets would not violate the law, even if regarded
as a direct stock acquisition by Bankers itself.
Counsel for Bankers further contend that, even if it could
not itself lawfully purchase the stock in question, section 5136 does
not prohibit the acquisition of that stock by a subsidiary; that in
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Bankers Trust Company
-3-
the present case the stock would be acquired by BTNY, a separate
corporation using its awn funds for the purpose; and that disregard
of the separate corporate existence of BTNY would not be warranted
in this case since the transaction would not evade or defeat any
provision of law.
The Board has considered these and other arguments advanced
by your Counsel in support of the validity of the proposed transaction.
The stock-purchase provision of section 5136 since its
enactment in 1933 has been regarded, consistently and correctly, as
constituting,a prohibition against the purchase of corporate stock
by national banks, except such purchases as are permitted or recognized by statute or as are embraced within the "incidental" powers
of national banks, such as, for example, their power to purchase
stock of Edge Act corporations, bank premises corporations, and
corporations formed to liquidate assets acquired as a result of
default on loans made by such banks. It is well settled that
national banks have no authority under statute or under their incidental powers to purchase stock of other banks. While the separate
existence of a subsidiary corporation should not lightly be disregarded, the Board has concluded that the circumstances of this
case warrant regarding the purchase of the stock in question by
BTNY as in legal effect constituting a purchase of that stock by
Bankers, and that, therefore, such a purchase of stock would involve
a violation by Bankers of the provisions of section 5136 as made
applicable by section 9 of the Federal Reserve Act to State member
banks.
In this connection, the Board has considered (1) whether
the Bank Merger Act, which refers to a bank's acquisition of assets
of another bank "either directly or indirectly", might be construed
as impliedly permitting the purchase of stock of another bank and
(2) whether, in that event, a transaction of the kind here contemplated should have the approval, under that Act, not only of the
Comptroller of the Currency but also of the Board of Governors.
However, it is the view of the Board that the Bank Merger Act may
not properly be construed as impliedly permitting the purchase of
stock of another bank and that the Act clearly indicates by its
language that "dual approvals" of bank mergers were not contemplated
by Congress.
To hold that subsidiaries of Federally supervised banks
could acquire stock of other banks in the manner contemplated by the
Proposed transaction would, in the Board's opinion, be inconsistent
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Bankers Trust Company
-4-
with the general intent of Congress, evident throughout the Federal
banking laws, that a member or nonmember insured bank may not acby the
quire control of additional banking offices without approval
of
superbility
Federal banking agency charged with the responsi
vising the particular bank.
Apart from the substantive question heretofore discussed,
the Board notes that the salvage operations for which BTNY was
and
organized by Bankers apparently have been fully accomplished
able
holds
now
consider
,
that that corporation, although inactive
BTNY
assets. Conceding that the original acquisition of stock of
bank,
the
of
powers
al
by Bankers was embraced within the incident
the legitithe justification for such acquisition terminated when
copy
enclosed
(See
shed.
mate functions of BTNY had been accompli
it is
gly,
of opinion of the Comptroller of the Currency) Accordin
the view of the Board that, under section 5136 of the Revised Statutes
d
and section 9 of the Federal Reserve Act, the indefinite continue
holding of stock of BTNY by Bankers would not be in accordance with
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosure
r of the Currency
Excerpt from Digest of Opinions, Comptrolle
"350.
ities
Corporate stock and other equity secur
or common) acquired by
"(a) Corporate stock (either preferred
lectible loan or otherwise,
a national bank as 'salvage' on an uncol
lative purposes, but must
may not be held indefinitely or for specu
. Stock should not be held
be disposed of within a reasonable time
s to be necessary to disfor any longer period of time than prove
onably near the amount
pose of it for an amount equal to or reas
. Failure to dispose
of the indebtedness for which it was acquired
holders when favorshare
s
of the stock for the benefit of the bank'
in an amount sufficient to
able market conditions permit a sale
ss may create a personal
pay the amount of the original indebtedne
event a subsequent depreciation
liability of the directors in the
in the value of the stock results in a loss.
rate stock owned by a
"(b) There are only two ways in which corpo
sed of by the bank. One is by
national bank can be properly dispo
and the other is by
a bona fide sale for adequate consideration,
Par. 6320. If the
the declaration of a dividend in kind. See
it must be borne in mind that
latter procedure is adopted, however,
ve his participating interest
each shareholder is entitled to recei
of cannot be deterin the asset dividend and the disposition there
planned to turn the stock over
mined without his consent. If it is
to trustees, see Par. 6322.
in the preceding paragraph are
"(The principles outlined
any other assets of a national
equally applicable to disposal of
bank.)"
BOARD OF GOVERNORS
Item No.
OF THE
ot GOvi4,4.
5
4/30/63
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C,
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 30, 1963
Mr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Campbell:
In accordance with the request contained in your letter
of April 23, 1963, the Board approves the appointment of David
H.
Scott as an assistant examiner for the Federal Reserve Bank of
Philadelphia. Please advise the effective date of the appointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No.
6
4/30/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
April 30, 1963 •
AIR MAIL
Mr. L. F. Mills, Vice President,
Federal Reserve Bank of Kansas City,
Kansas City 6, Missouri.
Dear Mr. Mills:
In accordance with the request contained in your letter
of April 22, 1963, the Board approves the designation of William H.
Leedy as a special assistant examiner for the Federal Reserve Bank
of Kansas City.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER