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609
Minutes for
To:
Members of the Board
From:
Office of the Secretary
August 12, 1964
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. Mitchell
Gov. Daane
:4,1
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, August 12, 1964.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Shepardson
Mitchell
Daane
Kenyon, Assistant Secretary
Bakke, Assistant Secretary
Noyes, Adviser to the Board
Cardon, Legislative Counsel
Hackley, General Counsel
Farrell, Director, Division of
Bank Operations
Mr. Solomon, Director, Division of
Examinations
Mr. O'Connell, Assistant General Counsel
Mr. Holland, Associate Director, Division
of Research and Statistics
Mr. Partee, Adviser, Division of Research
and Statistics
Mr. Dembitz, Associate Adviser, Division of
Research and Statistics
Mr. Furth, Adviser, Division of International
Finance
Mr. Conkling, Assistant Director, Division
of Bank Operations
Mr. Daniels, Assistant Director, Division
of Bank Operations
Mr. Goodman, Assistant Director, Division
of Examinations
Mr. Leavitt, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office of
the Secretary
Mr. Forrestal, Attorney, Legal Division
Mr. Lyon, Review Examiner, Division of
Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
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8/12/64
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 Metropolitan Investments Corporation, Chicago,
Illinois, granting a determination exempting it from
all holding company affiliate requirements except those
in section 23A of the Federal Reserve Act.
Letter to
New York,
of all of
organized
Chase Manhattan Overseas Banking Corporation,
New York, granting consent to the purchase
the shares of a nominee corporation to be
under the laws of the Colony of Hong Kong.
Telegram to the Federal Reserve Bank of New York
authorizing the opening and maintenance of an account
in the name of Banque Nationale du Congo.
1
2
3
Application of Barnett National Securities Corporation
lItems
4 and 5). There had been distributed drafts of an order and
statement that would reflect the Board's action on July 23, 1964,
aPproving the application of Barnett National Securities Corporation,
Jacksonville, Florida, for permission to acquire 80 per cent or more
Of the voting stock of The San Jose Barnett Bank, Jacksonville, Florida,
a proposed new bank.
After discussion, the issuance of the order and statement was
authorized, subject to an editorial change in the language of the statement.
Copies of the documents, as issued, are attached as Items
4 and 5.
Messrs. Furth, Forrestal, and Lyon then withdrew from the meeting
and Mr. Molony, Assistant to the Board, entered the room.
•••• *rid
KO I Ay'
j "to
8/12/64
-3Graduated reserve requirements.
On March 26, 1964, the Board
considered a memorandum dated March 16 in which Governor Balderston
suggested submitting to Congress proposed legislation on reserve requirements.
He had in mind the recommendations of the President's Committee
on Financial Institutions in its April 1963 report, which had contemplated
the establishment of a graduated system of reserve requirements to extend
to all commercial banks.
The staff was requested to prepare a memorandum
Pointing up the particular questions on which it would need further guidance
from the Board in order to draft a bill.
memoranda dated April 21, 1964:
There were then distributed two
one, from Messrs. Brill, Director, Division
Of Research and Statistics, and Farrell, Director, Division of Bank Operations, posed 11 questions as to which guidance was needed; the other, from
Mr. Dembitz, reviewed the background of the proposal for a graduated system
of requirements and analyzed the effects that such a system would have.
An additional memorandum from Mr. Farrell dated April 23, 1964, containing
certain additional observations also had been distributed.
At the beginning of today's discussion, Chairman Martin commented
that the purpose of the discussion was to give guidance to the Legal
Division in drafting possible legislation for the Board's consideration.
It was not the intent to reach a final decision at this time on whether
the Board actually would recommend legislation.
Mr. Dembitz then outlined, at the Board's request, the questions
submitted in the memorandum from Messrs. Brill and Farrell.
The tenor
1,c.o."4,11b
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8/12/64
of the ensuing discussion is indicated in the following paragraphs,
Which are numbered to correspond to the questions presented in the memorandum.
1. The memorandum suggested that reserve requirements apply to
any commercial bank, which might be defined to include any person, corporation, etc., that engaged to any extent in the business of receiving deposits subject to check.
It was noted that in the deliberations of the
Committee on Financial Institutions the then Chairman of the Federal
Deposit Insurance Corporation had taken the position that, since all
commercial banks create money, reserve requirements should apply to noninsured as well as insured banks, pointing out that failure to include
them would attach a burden to deposit insurance and might encourage banks
to abandon it.
However, the memorandum brought out that uninsured banks
are not examined or supervised by any Federal Government agency; application of reserve requirements to them at the Federal level would give rise
to administrative and enforcement problems.
Governor Mills observed that the Legal Division, in a memorandum
distributed under date of August 10, 1964, had expressed the opinion
that the Board had authority under present law to establish graduated
reserve requirements for member banks.
If that was possible, it seemed
to him the better course; legislation such as that contemplated for
Proposal would be highly controversial.
8/12/64
-5Governor Mitchell commented that even though the Board might
have authority to establish a graduated system of reserve requirements
for member banks, the step would be such a departure from what had been
done in the past as to be a sensitive matter.
This was an area in which
he believed that the Congress should have an opportunity to assert itself.
Hs favored going through the memorandum from Messrs. Brill and Farrell
to dispose of the issues raised, with a view to considering whether to
recommend a bill to Congress.
Governor Daane expressed agreement with Governor Mitchell's
view.
While serving with the Treasury, he had participated at staff
level in the work of the Committee on Financial Institutions.
In his
recollection the Committee had regarded graduated reserve requirements
as a transitional device looking toward the end result of uniform reserve
requirements; a large segment of the Committee, at least, had had reservations regarding the recommendation for graduated requirements unless they
"ere regarded as transitional.
If graduated requirements were expected
to be permanent, he believed there should be flexibility as to amount
classifications of deposits for purposes of requiring different reserve
Percentages; especially, it would seem to him desirable to set the highest
cut-off at a level that would segregate the money market banks.
Also,
elien if it was thought that the Board had authority under present law to
establish graduated reserve requirements, he did not believe that the
Principle of such a system could be divorced from the broader question
8
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to what banks should be covered.
8/12/64
-6Governor Balderston commented on problems that had arisen
regarding classification of reserve cities and administrative difficulties attendant upon the structure of reserve requirements specified
in present law.
It seemed to him that it was desirable to face immedi-
ately the task of presenting to the Congress a package of constructive
legislative proposals.
Even though it might take a long time for enact-
ment of such proposals, he was anxious to see the Board put forward a
Package of legislation that it felt would be beneficial to the public
interest, and he believed that the package should include a proposal on
reserve requirements.
As to coverage, it seemed to him that the same
reserve requirements should be imposed on nonmember insured banks as on
member banks, so as to remove an inducement to withdrawals from System
membership.
Governor Shepardson said that he felt it was important to cover
nonmember banks, not only because of the prospective loss of small member
banks if nonmembers were not subject to the same reserve requirements but
also because of competitive considerations.
If reserve requirements were
essential to the control of the money and credit system, there would
4PPear to be little justification for not imposing them on every bank.
However, he did have some question as to whether covering noninsured
banks would not present more administrative problems than advantages.
It would be difficult to find a mechanism for policing those banks. Even
if they were not covered, he doubted that many banks would withdraw from
8/12/64
deposit insurance, which had come to have an importance outweighing
competitive advantages banks might gain if they were not subjected to
reserve requirements at the Federal level.
With this possible exception,
though, all banks should be subject to the same system of reserve requirements.
Much support would be lost, he thought) if graduated requirements
were applied to member banks first and an attempt was made later to extend
the requirements to nonmember banks.
Chairman Martin indicated a view that the reasoning in favor of
exclusion of noninsured banks was fairly persuasive; there seemed to be
rather good reasons for omitting them on practical grounds.
After further discussion, during which Governor Balderston
Pointed to the need of support from the Federal Deposit Insurance CorPoration for any legislation to be proposed, Chairman Martin suggested
that perhaps the best way to proceed would be to determine first what
the Board regarded as the best provisions in any legislation to be proposed.
Governor Daane said he started with the premise that all banks
Should be covered and that reserve requirements should be uniform. For
Practical reasons, however, he agreed with Governor Shepardsonts analysis.
In pursuit of the thought mentioned by Chairman Martin that any bill to
be Proposed should be drafted according to principle rather than expedience, Governor Daane suggested that an important question of principle
Ifts involved, namely, compulsory System membership.
The Committee on
Pinancial Institutions had recommended continuance of voluntary membership
8/12/64
-8-
for State-chartered banks, but compulsory membership would be one means
Of achieving a general application of reserve requirements.
Governor Mills observed that as a practical matter it was necessary to submit a bill that had some chance of acceptance, even though
it might not encompass all features that would be considered ideal.
If
the Federal Reserve were to sponsor a bill providing for compulsory
membership, both small banks and correspondent banks would no doubt protest vigorously.
He could not see any likelihood that such a measure
would be enacted except in an emergency, and even then only if the proposal
originated with some source outside the Federal Reserve.
Governor Mills added that if there were uniform reserve requirements for all classes of banks, and if discount privileges were extended
to nonmembers as a quid pro quo, this might encourage banks to withdraw
from membership and go off the par list.
In short, the proposals being
discussed could lead to various complications.
Chairman Martin agreed that problems might arise.
He suggested,
however, that it might be desirable to arrive at a draft bill that the
Board thought embodied the right principles, and one that would arouse
Ptiblic awareness of the pros and cons.
He believed that in the past there
had been too many compromises of principle.
Governor Deane remarked that a similar line of thought had
Prompted him to raise the question of compulsory membership.
It would
be well to consider whether to go straight to that point or whether to
8/12/64
-9-
advocate only an extension of reserve requirements to nonmember banks,
Which System critics would say was merely subterfuge.
Governor Mitchell said that, while he concurred with the need
for strong advocacy of right principles, he doubted whether compulsory
System membership was a matter of great concern.
Member banks at present
had about 85 per cent of total deposits; while it would be desirable to
have a greater percentage of member banks, he would not attach public
Policy importance to reaching 100 per cent.
As he saw it, if some sort
Of arrangement for similar reserve requirements could be achieved for
all insured banks, public policy purposes would be met.
Then, if Federal
Reserve discounting facilities could be broadened, the advantages of
System membership might become more obvious.
Governor Balderston indicated that he shared this view.
The
Moment the nonpar question was brought into the picture--which compulsory
membership in the System would involve--the whole package of legislative
Proposals would probably be defeated.
In the past, the nonpar question
had contributed to the defeat of worthwhile measures.
Governor Daane then stated that he would be willing to limit
the legislative proposal to the scope of the recommendations of the ComMittee on Financial Institutions, although those recommendations represented a compromise.
He had merely thought that the question of compulsory
tambership should be considered specifically rather than ignored.
Ot'rr"0(
8/12/64
-10Mr. Hackley expressed the understanding that it was the sense
Of the Board that the initial draft legislation should be limited to
insured banks, and no exception was indicated to that understanding.
As
to the question of nonpar banks, Mr. Hackley continued, legislation along
the lines being discussed might represent some element of progress in
that nonmember insured banks would be required to maintain reserves with
the Federal Reserve Banks, but would not be able to use those balances
actively unless they cleared checks through the Federal Reserve.
Thus,
some nonpar banks might be induced to go on the par list.
Governor Shepardson asked if the nonpar question had not entered
into previous discussion of the possible content of a legislative package.
Response was made that the subject was inherent in a possible proposal,
which had been among those previously considered by the Board, to seek
legislative definition as to whether or not absorption of exchange charges
constituted payment of interest on deposits.
Further comments indicated
a general view that the nonpar question would best be handled separately
from draft legislation on reserve requirements.
Governor Shepardson then expressed agreement with remarks that
had been made as to the necessity of facing up to principles on which a
stand must be taken.
As he saw it, if the question of compulsory member-
Ship was injected into draft legislation, greater weight would be added
to the case for eventual centralization of Federal bank supervision.
The
Board in effect would be saying that supervision over State banks should
ILJ
8/12/64
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reside with the Federal Reserve.
He questioned whether that issue should
be drawn into a reserve requirement proposal.
2.
The second issue raised for the Board's consideration in the
memorandum of April 21, 1964, from Messrs. Brill and Farrell was what
should be recommended in any proposed legislation as to the ranges within
Which the Board would have power to set reserve requirements.
The dis-
cussions in the Committee on Financial Institutions seemed to lead to
suggestion of the following ranges: that the law should direct the Board
to set a requirement, on the first $5 million of a bank's net demand
deposits, between limits of 5 and 9 per cent; on the next $95 million,
between 8 and 20 per cent; on the excess over $100 million, between 10
and 22 per cent; and on time and savings deposits, between 3 and 6 per
cent.
The memorandum suggested that it might be desirable also to in-
clude the percentages that were contemplated as the initial requirements.
The ranges of percentage requirements (5-9, 8-20, and 10-22) for the
three strata of demand deposits had been the subject of considerable
negotiation during the Committee's discussions. In particular, it had
been agreed that the percentages for the two upper deposit strata ($5
million to $100 million, and over $100 million) should be largely overlaPPing, but that there should be assurance that the requirement on
dePosits under $5 million would remain under 10 per cent.
However, the
Committee's published report did not include any figures on the proposed
ranges.
It merely said: "By way of illustration, banks, at least initially,
1
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;
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8/12/64
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might be required to keep a 7-percent reserve requirement against the
first $5 million of net demand deposits; a 12-percent requirement (the
Present country bank level) against the next $95 million, and a 16-1/2percent requirement (the present city bank level) against net demand
deposits above $100 million."
These latter figures, if included in the
draft law, would serve to tie it more clearly to the report of the Committee and to the present requirements, even though the figures would
merely be given as a standard from which the Board could depart.
Governor Daane stated that during the Committee's deliberations
question had been raised repeatedly whether there was any real rationale
in the $100 million cut-off, or whether it should be moved higher.
He
did not have any firm feeling, except that the money market banks formed
a distinct class, and the $100 million mark would not separate them from
a number of other banks.
There were about 300 banks above the $100
million mark.
Mr. Noyes commented that $100 million had been selected primarily
as a figure that would cause a minimum of disruption under present circumstances.
However, whether the Board wanted to write $100 million
into a bill as a permanent figure or provide flexibility for moving it
UP or down was another question.
Governor Daane said his feeling was that the ranges suggested
were all right as original or transitional figures, but he believed that
instead of locking those figures in there should be flexibility to adjust
them if deemed advisable.
8/12/64
-13After further comments were exchanged as to the reasons under-
lying the suggested ranges, Governor Mitchell suggested that the primary
reason for classification of banks according to deposit size apparently
was to give an earnings advantage to smaller banks.
It should be pos-
sible, he thought, for the staff to develop a quantitative analysis or
where the breaking points should be.
Generally speaking, he was inclined
to agree with the view that the very small bank was at a disadvantage
earnings-wise, and also that banks at $100 million were in a different
situation from banks of $1 billion or $2 billion.
Perhaps there should
be more size classifications if it was desired to preserve competitive
equilibrium.
It seemed to him that this was a policy issue.
Mr. Noyes repeated that the range structure suggested substantially carried forward the existing situation.
If present relationships
were disturbed unduly, windfall gains and losses would be realized.
In
general, small banks that were now System members would be subject to
lighter requirements than at present, while small nonmembers would have
to maintain somewhat higher reserves than under State law.
The adjust-
ments would about offset each other in aggregate.
Governor Daane expressed the view that there was not a good
rationale for a fine gradation of requirements according to size; a
uniform requirement would be preferable.
However, he would go along
With a structure that would give some advantage to small banks.
8/12/64
-14There followed further discussion during which the thought was
expressed that unless there were strong reasons for departing from the
recommendations of the Committee on Financial Institutions, adherence to
the range structure contemplated by the Committee would provide a measure
Of built-in support for proposed legislation.
Governor Balderston referred to the range of from
3 to 6 per
cent for reserve requirements against time deposits that had been contemplated in the Committee's discussions, and asked if there had been
any serious consideration of removing reserve requirements against time
deposits altogether, as recommended in 1961 by the Commission on Money
and Credit.
Mr. Noyes responded that the time deposit form was now being
used, in effect, for some deposits that were essentially demand deposits.
The problem would be further aggravated if time deposits were reserve-free.
The recommendation of the Commission on Money and Credit had been debated
in the Committee, but the general view had been that it would be undesirable to cut the reserve requirement against time deposits to zero.
3. The April 21 memorandum suggested that a draft bill provide
that required reserves might be in the form of either balances at a
Reserve Bank or vault cash.
There seemed no reason to retain the Board's
Power to "permit, under such regulations as it may prescribe" the counting
Of vault cash.
278t1
8/12/64
-15No exception was taken to this suggestion.
4.
The memorandum suggested that perhaps the Board should have
Power to move the $100 million dividing line upward or downward, and to
move the $5 million line upward.
It was thought that presumably the
Board would not want power to move the $5 million line downward, since
if it had such power it would be able to increase the requirement Above
9 Per cent on the first $5 million, which the Committee had not favored.
Governor Mitchell remarked that he was not entirely satisfied
With the top dividing line of $100 million, but would probably be less
satisfied with a provision giving the Board discretion to alter that
line:
at least in the preliminary draft of legislation, he would be
inclined to omit provision for discretion.
In his view, fixing the rules
on such a matter should be a Congressional prerogative because those
rules influenced bank profitability.
Governor Daane expressed a preference for flexibility to change
the classifications; to move as close as possible to Governor Mitchell's
Position, he would suggest retaining the breaks outlined in the memorandum
and adding another at the top.
He did not see that the virtue of a mini-
mum of transitional impact was a good reason for freezing the size classifications.
It would be well, he thought, to provide enough leeway initially
that it would not be necessary to ask for changed authority soon thereafter.
Governor Mitchell said he did not think it would be necessary to
ask Congress for a change frequently. However, he also was not entirely
8/12/64
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satisfied with the rationale that the proposed initial classifications
would cause the least disturbance.
He would like to see earnings anal-
yses that would support the need for providing an advantage to small
banks because of their operating costs.
Mr. Hackley suggested the possibility of providing authority
for the Board to move each of the dividing lines upward - for example,
to move the upper limit for the lowest size classification from $5 million
to $10 million, and the line for the top one from $100 million to $500
million.
Governor Shepardson commented that some flexibility was inherent
in the percentage spreads; providing ranges such as Mr. Hackley had
suggested for the amount brackets might allow as much leeway as would
be reasonable.
Governor Balderston expressed substantially the same view.
After further discussion, the members of the Board agreed that
a Provision such as suggested by Mr. Hackley might be used for initial
drafting purposes.
5.
The next question raised in the April 21 memorandum turned
on the present provision in paragraph 7 of section 19 of the Federal
Reserve Act, which empowered the Board to raise or lower reserve requirements in order to "prevent injurious credit expansion or contraction."
Although that provision presumably should be retained, it was suggested
that the requirement for the affirmative vote of four members of the
2r.ft.,
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8/12/64
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Board might be omitted.
It was noted that in connection with the pro-
posed Financial Institutions Act of 1957, the Board had recommended
that all actions of the Board be permitted to be taken by a majority
of a quorum.
Discussion touched upon the history and intent of the statutory
criterion that reserve requirement changes be made in order to prevent
injurious credit expansion or contraction, and the possibility that
changes in reserve requirements could be desirable in certain circumstances even though not directly attributable to that purpose.
General
agreement was then expressed with a suggestion by Mr. Hackley that the
Present provision of the law be retained in draft legislation, but that
there be added language somewhat like the provision in section 12A of
the Federal Reserve Act that open market operations "shall be governed
with a view to accommodating commerce and business and with regard to
their bearing upon the general credit situation of the country."
Discussion of the requirement that changes in reserve requiretents be adopted by the affirmative vote of at least four members of
the Board included comments that it had been the Board's practice to
have its full membership present) or at least as many members as possible, whenever any important monetary policy or bank supervision matter
'was to be decided.
At times in the past, however, there had sometimes
been delays in appointments to fill vacancies in the membership, and
this suggested a potential problem if a similar circumstance should
8/12/64
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again occur.
The background of the Board's recommendation in connection
With the Financial Institutions Act was also reviewed.
Various suggestions
were offered for alternate provisions in the draft bill, but at the end
Of the discussion it was the sense of the Board to retain, at least for
the present, the requirement of four affirmative votes.
6. The April 21 memorandum suggested that paragraph 6(2) of
section 19 of the Federal Reserve Act, empowering the Board to permit
anY bank in a reserve city to hold "country bank" reserves, be deleted
since it would no longer be needed, and that the Board's authority to
Classify cities as reserve cities likewise be repealed.
There was no disagreement with these suggestions.
7. The memorandum suggested that the Board might request authority
to set different requirements, within the range of 3 to 6 per cent, on
different kinds of time and savings deposits (although such a differentiation could be regarded as being outside of the subjects suggested by the
Committee on Financial Institutions).
Governor Mitchell commented that, while he did not feel strongly,
be thought there was something to be said for obtaining authority that
Would enable the Board to make deposits represented by negotiable certificates the subject of higher reserve requirements than other time and
savings deposits.
After discussion of such an approach in the light of problems
that might arise, it was understood that the draft bill would include
VW",QS
4.4
8/12/64
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provision that would allow different reserve requirements to be imposed
on different classes of time and savings deposits.
8. The April 21 memorandum suggested that continuation of the
Board's present authority to prescribe rules and regulations presumably
would be adequate for establishing a reserve-averaging period so that
the requirements did not have to be met on every single day.
Discussion disclosed a consensus that the present provisions
Probably would be adequate, although Governor Mitchell remarked that he
would like to be sure that the law provided reasonable flexibility
within which the Board could operate.
9. The April 21 memorandum recommended that a draft bill include
authority for the Board to require from nonmember banks such reports as
might be necessary to determine and police the reserve position of such
banks.
The Legal Division had indicated that it would want to consider
further a number of alternatives relating to enforcement in the case of
nonmember banks.
These might include provision for a daily penalty for
continued noncompliance; provision authorizing the Board to make examinations of nonmember banks, and to institute proceedings to determine
c°mPliance; provision for criminal penalties; or provision for denial
°f the discount privilege (assuming it had been extended to nonmember
banks) upon failure to comply with reserve requirements.
Governor Mitchell said his reaction was against asking for more
authority than was really needed, and consequently drawing more attention
t° the problem than was necessary.
8/12/64
-20Governor Daane expressed agreement with Governor Mitchell's
general approach.
After further discussion there was agreement that the particular
provisions to be included should be left to the determination of the
Legal Division, within the framework of a minimum approach.
10. The memorandum of April 21 suggested that the two parts of
the proposal (the change to graduated reserve requirements, and the
extension of requirements to nonmember banks) be included in a single
bill rather than proposed in separate bills.
risk.
This would be a calculated
On the other hand, use of a single bill might lessen the chance
Of losing half the package in the legislative process.
Furthermore,
While the part relating to member banks, if presented separately, would
not be opposed by nonmember banks, it would presumably be opposed by
member banks that now had a "country bank" status and whose requirements
You'd be increased; there would seem more chance of overcoming opposition
Of this kind if the bill were a single proposal that could be advocated
as setting up a system of requirements that would apply in an equitable
Manner to all of the nation's banks.
Finally, if a graduated system
'were being proposed for member banks alone, without extension to nonMembers, a somewhat higher set of percentage requirements would be called
the proposed figures took account of the transfer of nonmember bank
baaan es to the Reserve Banks.
1,,,yr00
2
8/12/64
-21Discussion disclosed agreement that the two parts of the proposal
Should be included in a single initial draft bill.
11. The final question raised in the April 21 memorandum was
Whether, along with the extension of reserve requirements to nonmember
banks, Federal Reserve discount privileges should be extended to them,
as recommended by the Committee on Financial Institutions.
Comments indicated a consensus that, if nonmember banks were
brought within the coverage of reserve requirements, they should be
granted the discount privilege.
It was understood, at the conclusion of the discussion, that
the Legal Division would take into account the views that had been
expressed at this meeting in preparing an initial draft of proposed
legislation for the Board's consideration.
All members of the staff then withdrew and the Board went into
executive session.
Nomination of Mr. Irvine.
The Secretary's Office was informed later
that the Board had approved the recommendation by Mr. Young, Adviser
to the Board and Director, Division of International Finance, in a memorandum dated August 7, 1964, that Reed J. Irvine, Associate Adviser in
the Division, be nominated to attend the International Banking Summer
School to be held in Melbourne, Australia, February 7-20, 1965.
It
//as understood that if Mr. Irvine was accepted for participation, Board
aPProval probably would be requested for him to visit central banks in
°
8/12/64
-22-
Japan and other Australasian countries, at which time approval would
also be requested for travel and other expenses in connection with the
trip.
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 Cleveland requesting an
arrangement under which Oscar Beach, of that Bank's staff, would spend
one or two days a week at the Board's offices over a three-month period
ln connection with a pilot project for the collection of data on small
samples of consumer loans made, refused, paid off, and charged off at
about 20 commercial banks during the third quarter of 1964, with indication given that the Board would be willing to pay Mr. Beach's travel
exPenses. (Note: In the light of the reply from the Cleveland Reserve
Bank, minor changes in the details of the arrangements were agreed upon.
Memoranda recommending the following actions relating to the Board's
Staff:
APPointment
Nathaniel Greenspun as Economist, Division of Research and Statistics,
with basic annual salary at the rate of $14,065, effective the date of
entrance upon duty.
Salary increases, effective August 16, 1964
.11..me and title
Division
Basic annual salary
To
From
Legal
Robert F. Sanders, Attorney
$7,260
$8,410
6,285
5,170
8,690
5,330
6,460
5,330
8,970
5,490
Research and Statistics
Juanita S. Carpenter, Secretary
Mary Therese Gregory, Statistical Assistant
neva G. van Peski, Economist
Frances D. Skehan, Statistical Assistant
i•-? .wir
#4,
8/l2/61.
Salary increases
-23effective August 16 1964 (continued)
Name and title
Division
Basic annual salary
From
To
International Finance
Michael A. Gomez, Economist
$io 64o
$10,970
5,330
3,305
5,490
3,41.0
9,980
10,310
Administrative Services
Willa McChesney Davis, Utility Clerk
Opal I. O'Dell, Charwoman
Data Processing
Donald B. Fitzhugh
Data Processing Planner
Acceptance of resignations
Ann Sherman, Secretary, Division of Research and Statistics,effective at the close of business August 21, 1964.
Walter J. Baker Guard, Division of Administrative Services, effective at the close of business August 28, 1964.
4.0f
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
Item No. 1
8/12/64
ADDRESS orriciAL CORRESPONDENCE
TO THE BOARD
August 12, 1964.
Mr. Eugene P. Heytow,
Metropolitan Investments Corporation,
105 South La Salle Street,
Chicago, Illinois.
Dear Mr. Heytow:
This refers to the request contained in a letter
submitted through the Federal Reserve Bank of Chicago for a
determination by the Board of Governors of the Federal Reserve
System as to the status of Metropolitan Investments Corporation
as a holding company affiliate.
From the information presented, the Board understands
that the object and purpose of Metropolitan Investments Corporation is to own and hold stock and other interests in a banking
corporation and other corporations; that it is a holding company
affiliate by reason of the fact that it owns 1,100 (55 per cent)
of the 2,000 outstanding shares of stock of Metropolitan State
Bank, Chicago, Illinois; and that it does not, directly or indirectly, own or control any stock of, or manage or control, any
other banking institution.
In view of these facts, the Board has determined that
Metropolitan Investments Corporation is not engaged, directly
or indirectly, as a business in holding the stock of, or managing
or controlling banks, banking associations, savings banks, or
trust companies within the meaning of section 2(c) of the Banking
Act of 1933 (12 U.S.C. 221a); and, accordingly, it is not deemed
to be a holding company affiliate except for the purposes of
section 23A of the Federal Reserve Act and does not need a voting
permit from the Board of Governors in order to vote the bank
stock which it owns.
t
BOARD
Or
GOV RNDRS OF THE FEDERAL RESERVE SYSTEM
Mr. Eugene P. Heytpw
If, however, the facts should at any time indicate
that Metropolitan Investments Corporation might be deemed to be
so engaged, this matter should again be submitted to the Board.
The Board reserves the right to rescind this determination and
make further determination of this matter at any time on the
basis of the then existing facts.
' Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2794
it It
eCe I
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
Item No. 2
8/12/64
ADDRESS orriciAL CORRCIIIPONOCHOC
TO THC IIDAND
August 12, 1964.
Chase Manhattan Overseas Banking Corporation,
1 Chase Manhattan Plaza,
New York 5, New York.
Gentlemen:
In accordance with the request and on the basis of
the information furnished in your letter of July 27, 1964, the
Board of Governors grants its consent to the purchase by your
Corporation of all the shares of a nominee corporation to be
organized under the laws of the Colony of Hong Kong at a cost
not to exceed approximately US$165.
It is understood that the nominee corporation is to
be organized and maintained solely for the purpose of acting as
nominee for the registration of securities acquired or held by
the Hong Kong Branch of The Chase Manhattan Bank for the account
of its customers; that all shares of the nominee corporation are
to be owned by your Corporation, except such shares as may be
held by individuals in order to meet Hong Kong legal requirements
as to number of shareholders and as to qualifying shares for
directors, and all such shares would be held in trust for or
assigned to your Corporation finder appropriate instruments of
transfer; and that it is anticipated that the authorized capital
of the nominee corporation would not exceed HK$1,000 (equivalent
to approximately US$165) and that the paid-in capital would not
exceed HK$100 (equivalent to approximately US$16).
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
C„:
27
,
6
TELEGRAM
LEASED WIRE SERVICE
Item
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
August 121 1964.
COOMBS - NEW YORK
Your wire August 6.
Board approves opening and maintenance of an
account on your books in the name of the Banque Nationale du Congo,
subject to the usual terms and conditions.
It is understood that
Participation in this account will be offered to other Federal
Reserve Banks.
(Signed) Kenneth A. Kenyon
KENYON
No. 3
8/12/64
2797
Item No. if.
8/12/64
SYSTEM
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE
UNITED STATES OF AMERICA
WASHINGTON, D. C.
•
In the Matter of the Application of
BARNETT NATIONAL SECURITIES CORPORATION
for approval of the acquisition of voting
shares of The San Jose Barnett Bank,
J acksonville, Florida, a proposed new bank.
ORDER APPROVING APPLICATION UNDER
BANK HOLDING COMPANY ACT
pursuant to
There has come before the Board of Governors,
(12 U.S.C.
section 3(a)(2) of the Bank Holding Company Act of 1956
1842(a)(2)) and section 222.4(a)(2) of Federal Reserve Regulation Y
(12 CFR 222.4(0(2)), an application on behalf of Barnett National
Securities Corporation, Jacksonville, Florida, a registered bank
tion of
holding company, for the Board's approval of the acquisi
80 per cent or more of the voting stock to be issued by The San Jose
new bank.
tarnett Bank, Jacksonville, Florida, a proposed
Board notified
As required by section 3(h) of the Act, the
the Florida State Commissioner of Banking of receipt of the application
thereon.
and requested his views and recommendation
recommended approval of the application.
The Commissioner
Notice of receipt of the
-2-
aPPlication was published in the Federal Register on April 9, 1964
(29 Federal Register 4976), which provided an opportunity for
submission of comments and views regarding the application.
Time for
filing such comments and views has expired and all comments and views
filed with the Board have been considered by it.
IT IS ORDERED, for the reasons set forth in the Board's
Statement of this date, that said application be and hereby is
granted, provided that the acq,lisition so approved shall not be
consummated (a) within sevea calendar days after the date of this
Order or (b) later than three months after said date, and that
The San Jose Barnett Bank shall be opened for business not later
than six months after said date.
Dated at Washington, D. C., this 12th
day of August, 1964.
By order of the Board of Governors.
Voting for this action: Vice Chairman Balderston, and
Governors Mills, Robertson, Shepardson, and Mitchell.
Absent and not voting:
Chairman Martin and Governor Daane.
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
(SEAL)
BOARD OF GOVERNORS
Item No.
8/12/64
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY BARNETT NATIONAL SECURITIES CORPORATION FOR APPROVAL
OF THE ACQUISITION OF VOTING SHARES OF THE SAN JOSE BARNETT BANK,
JACKSONVILLE, FLORIDA, A PROPOSED NEW BANK
STATEMENT
Barnett National Securities Corporation, Jacksonville,
Florida ("Applicant" or "Barnett"), a registered bank holding company,
has applied to the Board of Governors, under the Bank Holding Company
Act of 1956 ("the Act"), for permission to acquire 80 per cent or more
of the voting stock to be issued by The San Jose Barnett Bank
Jacksonville, Florida ("Bank"), a proposed new bank.
Views and recommendation of State supervisory authority. As required by section 3(h) of the Act, the Board notified the Florida
State Commissioner of Banking of receipt of the application and
tequested his views and recommendation thereon.
The Commissioner
recommended approval of the application.
Statutory factors. - Section 3(c) of the Act requires the
Board to take into consideration the following five factors:
(1) the
inancial history and condition of the holding company and the banks
concerned; (2) their prospects; (3) the character of their management;
(4) the convenience, needs, and welfare of the communities and the
area concerned; and (5) whether the effect of the proposed acquisition
l'ould be to expand the size or extent of the bank holding company
5
2800
-2-
system involved beyond limits consistent with adequate and sound
banking, the public interest, and the preservation of competition in
the field of banking.
Applicant owns 60 per cent or more of the stock of four
subsidiary banks located in the State of Florida and is affiliated
through common ownership with The Barnett National Bank of Jacksonville
("Barnett National").
At December 20, 1963,
Applicant's four sub-
sidiary banks and Barnett National held combined deposits of
$214 million, of which Barnett National held $141 million.
(Herein-
after the phrase "Barnett Group" will refer to Applicant's four
subsidiary banks and Barnett National.)
One of Applicant's subsidiary
banks and Barnett National are located in Duval County, the county
in which Bank will be situated.
Applicant's three remaining subsidiary
banks are located at St. Augustine, DeLand, and Cocoa.
With the
exception of Barnett National, the Group banks range in size from
$12 million to $27 million.
Applicant proposes to establish Bank in an unincorporated
area of Duval County known as San Jose, approximately 6-1/2 miles
southeast of downtown Jacksonville on the eastern bank of the
St. Johns River.
It is estimated that at the end of its third year
Of operation Bank will have deposits of $5.5 million.
)prospects, and management
Financial history and condition
.2.1,_,I.Tplicant and Bank. -
Applicant's financial history and condition
arc considered to be satisfactory.
Its prospects, measured in part
by the sound financial condition of the Group banks, appear favorable.
Unless otherwise indicated, all banking data noted are of this date.
J:
-3..
Vlhile Bank has no financial history, on the basis of its proposed
capital structure, and its estimated deposits at the cad of its third
Year of operation, the Board concludes that Bank's financial condition will be satisfactory and that its prospects as a subsidiary of
Applicant are favorable.
The management of Applicant and of its subsidiary and
affiliated banks is satisfactory.
The Board concludes that the pro-
posed management of Bank should be similarly satisfactory inasmuch
as such management will be drawn initially from the staffs of Barnett
National and Applicant's subsidiary bank in Jacksonville.
. needs, and welfare of the community and area
,
Convenience
concerned. - As earlier indicz.:ted, Bank will be located in a southeastern suburb of Jacksonville known as San Jose.
Bank's primary
service area will encompass approximately ten square miles and will
be primarily residential in character.
A study of the area reflects
a growth in population from 2,500 in 1950 to 15,000 in 1960.
estimated 1964 population of the area is about 19,000.
The
The number of
residential dwelling units within the area, a large number of which
are high-cost units for families with incomes considerably above the
average for Duval County, increased from approximately 900 in 1950 to
4,800 in 1960.
Applicant estimates that approximately 2,700 addi-
tional residential units will be constructed in the area by 1970.
While there are a few industrial and manufacturing concerns
in the area, the commercial activity therein is principally related
to servicing the several residential developments.
Within Bank's
i
?<it Ci0
-4-
service area there are approximately 120 retail and 65 service
establishments.
The largest complex of retail and commercial outlets
in the area is tho San Jose Shopping Center located at the same intersection as, and across from, Bank's proposed site.
This center has
30 - 40 establishments of the nature normally found in a complex
serving a large residential area.
A similar shopping center contain-
ing 14 establishments is located less than a mile from Bank's proposed
site, and a third shopping center is now in the process of development
approximately one mile from Bank's proposed site.
There is no banking office located within Bank's proposed
service area.
There is evidence that the area is now served by three
banks located from 3 to 5 miles from Bank's proposed site and by at
least five downtown banks.
The three suburban banks are located
generally between the northern edge of Bank's service area and downtown Jacksonville and offer the same general type of banking service
that Bank proposes to offer.
Applicant does not contend, nor is there evidence to support
a finding, that the major banking needs of the San Jose area are not
being met by existing facilities.
However, considering the past and
Prospective development of that area, and the distance from Bank's
site of existing banking facilities, the fact that through consummation of Applicant's proposal there will result an additional and
substantially more convenient source of banking service than is now
available is a consideration weighing toward approval of the application.
-5..
Effect of proyosed acquisition on adequate and sound bankina,
public interest, and banking conpetition. -
Duval County is co-
extensive with the Jacksonville metropolitan area.
Within Duval County,
the area principally affected by Applicant's proposal is the San Jose
Also to be considered are the suburban communities in which
area.
are located banks that presently serve the San Jose area, and the downto
section of Jacksonville.
As earlier indicated, two of the
Barnett Group banks are located in Duval County.
Barnett National,
the largest of the Group's banks and third largest of the Jacksonville
banks, holds deposits equal to 20 per cent of the combined deposits
of all banks ($714 million) in Duval County.
The Group's other Duval
County bank, the Murray Hill Barnett Bank, holds deposits of
$12 million, or about 2 per cent of the deposits held by all banks in
the County.
In addition to the Barnett Group banks, there are 20
Other banks located in Duval County, 11 of which are components of
one of tx.:o "bank groups".
The Atlantic Trust group consists of
10 banks, 5 of which are located in Duval County.
One of the five,
The Atlantic National Bank of Jacksonville, is the largest bank in
the County.
Six of the banks in the County, including the second
largest in Jacksonville, belong to the Florida National group.
The Duval County banks of the Atlantic Trust group hold
combined deposits of $246 million, or 34 per cent of the deposits of
all banks in the County.
The Florida National group banks in Duval
County hold $199 million of deposits, or 28 per cent of the deposits
°f all banks.
The remaining nine banks in the County hold combined
deposits of $115 million, or 16 per cent of the total deposits of all
banks.
4111C)4,,
Kai C7.41,1
-6-
In terms of dollar volume of depoSits held by subsidiary
and/or affiliated banks, the extent to which deposits of banks in
Duval County are concentrated in both holding company and group banks
iS not insignificant.
At the save time, however, such concentrations
do not appear to represent, either in the case of the Barnett Group
or in respect to either of the other two groups operating banks in
Duval County, a dominance inimical to the nonaffiliated banks in the
County.
Since Bank is to be newly established, its acquisition by
Applicant will not immediately alter the Barnett Group's competitive
Position in Duval County.
Even adding to the combined deposits of
that Group's banks the deposits expected at the end of three years
Of Bank's operation, the percentage of deposits of all banks in the
County held by the Group's banks would be increased by less than one
Per cent.
Turning to consideration of the probable effect of
APPlicant's proposed acquisition on competing banks in the area, as
earlier noted there are no other banks located in Bank's proposed
Primary service area.
The only bank in the Barnett Group that
competes measurably in the San Jose area is Barnett National.
Some
$365,000 of its deposits of individuals, partnerships, and corporations (representing .4 per cent of its total of such deposits) and
$100,000 of its commercial loans (representing .5 per cent of the
total of such loans) are derived from Bank's designated service area.
Even when viewed alone, these totals are not such as to suggest the
Potential for substantial competition between Barnett National and
-7_
Bank were Bank to be operated independent of the Barnett Group.
The
Potential for any substantial competition between Barnett National
and Bank is further lessened by the location of the earlier mentioned
banks between Bank's proposed site and downtown Jacksonville, and the
tact that other downtown Jacksonville banks, including the two that
are larger than Barnett Uational, would also compete for business
in the San Jose area.
The three suburban banks serving the San Jose
area, their distances from Bank's proposed site, and their sizes by
d
eposits are as follows:
Southside Atlantic Dank (member of the
A
tlantic group), 3.3 miles distant, with deposits of about $8 million;
32 million;
Aaerican
National Bank, 3.7 miles distant, with deposits of $
4nd State Bank of Jacksonville, 5 miles distant, with deposits of
$27 million.
In view of the fact that each of these banks is located
(41tside Bank's designated primary service area, and considering their
respective sizes in relation to that projected for Bank at the end of
it8 third year of operation, there is no basis for a finding that
4PPlicant's acquisition and operation of Bank will have any significant
adverse effect on these banks.
In this regard, the Board has noted the
absence of any expressed opposition by these banks to Applicant's
Proposal.
The facts earlier related as to the location, size, and
Competitive position of Barnett National warrant the conclusion that
its affiliation with Bank in the Barnett Group will have no consequences of a nature requiring denial of Applicant's proposal.
Conclusion. - Viewing the relevant facts in the light of
the general purposes of the Act and the factors enumerated in
section 3(c) thereof, it is the Board's judgment that the proposed
acquisition would be consistent pith the public interest and that
the application should be approved.
August 12, 1964.
@FedFRASER