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Minutes for August 13, 1959 To: Members of the Board From: Office of the Secretary 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 av question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King x Minutes of the Board of Governors of the Federal Reserve System on Thursday, August 13, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Szymczak Mills King Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Kenyon, Assistant Secretary Fauver, Assistant Secretary Riefler, Assistant to the Chairman Shay, Legislative Counsel Johnson, Director, Division of Personnel Administration Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Noyes, Adviser, Division of Research and Statistics Sprecher, Assistant Director, Division of Personnel Administration Hexter, Assistant General Counsel Hostrup, Assistant Director, Division of Examinations Solomon, Economist, Division of Research and Statistics Young, Assistant Counsel The establishment without change by the Federal Reserve Bank of Kansas City on August 12, 1959, of the rates on discounts and advances in its existing schedule was approved unanimously, with the Ilnderstanding that appropriate advice would be sent to the Bank. Items circulated to the Board. The following items, which had been circulated to the members of the Board and copies of which are attached to these minutes under the respective item numbers indicated, g. unanimously: . . 141elle Iliplays -2- 8/13/59 Item No. Letter to the Federal Reserve Bank of Boston regarding the statement of purpose required under Regulation U When a bank purchases a collateral loan from a note broker. 1 Letter to the First National Bank & Trust Co., Havre de Grace, Maryland, approving its application for a specific fiduciary power. 2 Letter to the Federal Reserve Bank of St. Louis concurring in the recommendation that no change be made in the classification of Eighth District member banks for the purpose of electin7 Class A and B directors. 3 Letter to the Federal Reserve Bank of San Francisco aPProving a change in the classification of Twelfth TAstrict member banks for the purpose of electing Class A and B directors. 13. Letter to the Federal Reserve Bank of Boston approving an adjustment in the employees' salary structure. 5 Messrs. Johnson and Pprecher then withdrew from the meeting. Decision on First Bancredit Corporation. There had been distributed to the members of the Board copies of a memorandum addressed by Mr. Solomon to Chairman Martin under date of August 12, 1959, relating t° a telephone call received by the former from Mr. Joseph Colman, ?resident of First Bank Stock Corporation, Minneapolis, Minnesota. The purpose of Mt. Colman's telephone call was to advise that he and at torneys for First Bank Stock would like to come to Washington for discussion with the Board of questions of both law and policy resulting from the recent adverse decision with respect to First Bank Stock's IseqUest for a determination under section 4(c)(6) of the Bank Holding 8/13/59 _3- Company Act with respect to First Bancredit Corporation. Certain possible avenues of compliance with the decision and questions relating to such courses of action were mentioned by Mr. Colman in rather general terms. Following comments by Mr. Solomon concerning his conversation 'With Mr. Colman, the view was expressed that the Board would want to be as helpful as it reasonably could in assisting First Bank Stock in resolving the questions resulting from the decision in the section 4(c)(6) case. Reference was made, however, to the difficulties inherent in meeting with Mr. Colman and his associates on problems of a technical and complex nature until after definite proposals had been submitted fcsr consideration. It was suggested, therefore, that Mr. Solomon might respond to Mr. Colman in terms that the Board believed it would be helpful_ if Mr. Colman would submit a letter or memorandum indicating the nature of his problems. This would not foreclose the possibility of a meeting or meetings at the staff or Board levels after there had been an opportunity to review such issues as might be set forth in the letter or memorandum. There was agreement with this procedural suggestion, and it vas -1111-tE1,1221 that Mr. Solomon would talk with Mr. Colman along the lines in dicated. At this point Mr. Molony, Assistant to the Board, entered the room. _I. 8/13/59 Report on H.R. 8159 and H.R. 8160_ (Item No. 6). Under date of June 1, 1959, the Board reported to a subcommittee of the House 88.nking and Currency Committee with respect to bills H.R. 6092 and H.R. 6093, both relating principally to national banks. The Board's report raised questions with regard to some of the provisions of the two bills, and certain changes were made which took the Board's comments Partially into account. After discussion of the Board's report by Chairman Martin with Subcommittee Chairman Brown, a letter was sent to Mr. Brown on June 23, 1959, indicating that the Board would not wish to insist upon the few changes suggested by it, if to do so would Jeopardize favorable consideration of many other provisions of the ills. The original bills, with certain changes, were renumbered as HeR• 8159 and H.R. 8160, following which they were passed by the House Of Representatives. In letters dated August 5, 1959, the Senate Cftmittee on Banking and Currency requested a report from the Board on the two bills in the form passed by the House. A memorandum from Mr. Walter Young, which had been distributed t° the Board under date of August 12, 1959, summarized the questions that the Board had raised concerning H.R. 6092 and H.R. 6093, along vith the extent to which the Board's comments had been taken into account. ate Submitted with the memorandum vas a draft of letter to the Banking and Currency Committee which would note that the Board had. submitted a report to a subcommittee of the House Banking and Ctirrency Committee making certain suggestions. Hovever, in view of the 8/13/59 letter of June 23, 1959, the proposed report would state that the Board, after review of the legislation in its present form, recommended favorable consideration. Mr. Young's memorandum also dealt with a suggestion to the Senate Banking and Currency Committee by a member bank that there be included in H.R. 8160 an amendment to section 11(m) of the Federal Reserve Act corresponding to an amendment proposed in section 3(c) of the bill -which would change paragraph (8) of section 5200 of the Revised Statutes by deleting the words "in the form of notes". The proposed report would recommend that the suggestion of the member bank be incorporated in H.R. 8160 and would note that elimination of "in the form of notes" from paragraph (8) of section 5200 and from section 11(m) of the Pederal Reserve Act had been recommended in connection with the proposed Pinancial Institutions Act of 1957. In essence, the omission of reference t° section 11(m) constituted an oversight in the drafting of the pending legislation. In discussion of the matter, Mr. Shay stated that the Senate }3ar1king and Currency Committee had scheduled hearings on the bills t°14°I.row, with the Comptroller of the Currency and Mr. Aubrey Lanston as 'vitnesses. He understood that Committee Chairman Robertson was a4X1ous to obtain passage of the bills at this session of Congress and that he might not welcome having to go back to the House for further diecussion. Since Mr. Robertson was fully familiar with the circumstances relating to the section 11(m) matter, Mr. Shay felt that the Board might be -6- 8/13/59 Justified in shortening its proposed report to the Senate Committee and tasking no more than a relatively brief reference thereto. There being agreement with Mr. Shayla suggestion, unanimous !EPITal was given to a letter to the Senate Banking and Currency Committee in the form attached as Item No. 6. Mr. Young then withdrew from the meeting. Firstamerica Corporation (Item No. 7). In a decision rendered Utder section 3(a)(2) of the Bank Holding Company Act in January 1959, the Board approved the acquisition by Firstamerica Corporation of stock of the California Bank, Los Angeles, California. Thereafter, the Depart- 43ent of Justice initiated a civil antitrust suit on the ground that the st"k acquisition and surrounding circumstances involved violations of section 7 of the Clayton Act and section 1 of the Sherman Act. Firstarnerica had acquired 97 per cent of the stock of California Bank but had stipulated that California Bank and First Western Bank and Trust C°4t,PsrlY would not be merged or consolidated until the termination of the antitrust suit. Firstamerica then endeavored to have the suit (118111issed on the ground that the Board's approval under the Bank Holding e°mPsnY Act barred the United States from challenging the stock aeTlisition, but the United States District Court in San Francisco clerlied the motion to dismiss. Accordingly, Firstamerica vas now atte— .ipting to persuade the United States Supreme Court to review the C8,8 reverse the District Court decision, and dismiss the antitrust -7- 8/13/59 ed 841t. In a letter dated July 7, 1959, Counsel for Firstamerica request the Board to consider filing a statement asking the Supreme Court to review the District Court's order. While Firstamerica did not request that the BcaDa take a position on the merits of the controversy, it asked the Board to indicate that prompt resolution of the issue would assist the Board by Act. clarifying its authority and duties under the Bank Holding Company dum The opinion of the Legal Division, expressed in a memoran that dated August 11, 1959, which had been distributed to the Board, was assist the Board 4 rlaing in the antitrust case would not significantly by clarifying its authority and duties under the Bank Holding Company Act) for each decision on an application under section 3(a) of the Act 1114st be based on a judgment as to whether the proposed acquisition would be consistent with the objectives of the Act and the public interest. l by These would be the governing criteria regardless of whether approva the Board Government in a particular case would constitute a barrier to 4ction under the antitrust laws. Furthermore, it was the view of the dum dated Ipivision of Examinations, as stated in an attached memoran st Allglist 6, 1959, that delay and uncertainty incident to the antitru Suit interest would not adversely affect, to a material degree, the public two banks concerned. 14 the field of banking or the welfare of either of the he Of that the position Legal Division's memorandum also expressed the opinion the United States,that is, that the Board's prior approval of the -8- 8/13/59 acquisition would not bar the antitrust proceeding, was correct, so it seemed unlikely that the Supreme Court would dismiss the antitrust suit the matter. even if it decided to grant a writ of certiorari and review justification 14 all the circumstances, there appeared to be little or no for the Board's participating in the litigation being conducted by the DePartment of Justice on behalf of the United States. Accordingly, there /las sUbmitted for the Board's consideration a draft of reply to Counsel fOr Pirstamerica indicating that the Board had concluded it would not with be advisable to comply with Counsel's request and file a statement the Supreme Court. memorandum, After comments by Mr. Hexter in amplification of the proposed letter certain editorial changes in the second paragraph of the to Counsel for Firstamerica Corporation were suggested. Unanimous No. 7. 4PProval then was given to a letter in the form attached as Item Mr. Hostrup then withdrew from the meeting. Suestions of Joint Economic Committee. When Chairman Martin testified before the Joint Economic Committee on July 30, 1959, several qUestions were raised by Committee members to which it was indicated that written replies would be furnished for the hearing record. At its proposed 'fleeting yesterday, the Board gave preliminary clearance to 8.4814ers to several of the questions. However, revised drafts were sman l'eqUested with respect to questions by Senator Douglas, Congres Rellss, and Congressman Coffin. Iltder date of August 12, 1959. These revised drafts were distributed -9- 8/13/59 Governor Mills, who was not present at the meeting yesterday, stated that he had not yet had an opportunity to review the proposed allsl'iers fully. However, a partial review of them raised in his mind qUestions with respect to the tone of certain of the draft replies, for he thought that the language implied something of a crisis atmosphere and he would consider it preferable to respond to the questions in a Completely impersonal and unexcited manner. Governor Mills then indicated changes that he would suggest to contributeto the modification °f to that he considered desirable. The changes suggested by Governor Mills were acceptable to the Other members of the Board. Accordingly, since it was understood that 4 few days were still available for submission of the answers for incorPoration in the hearing record, the Chairman suggested that the staff e°41Pile a clean draft of all of the replies for the Board's consideration next Monday. Congressman Discussion then turned to the revised draft of reply to Reuse,t ° question with respect to the need for consumer credit regulation, 44d Governor Balderston noted that the issue involved was the posture of the Board as reflected in the concluding sentences of the reply. He l'eealled that in the discussion yesterday it was considered important t the Board avoid implying that it was not concerned with trends in ' the this area of credit. On the other hand, the Board in 1957, following -10- 8/13/59 the consumer credit study undertaken at that time, adopted the position that in peacetime any destabilizing impact of instalment credit on the ec°naAY was not sufficient to offset the administrative difficulties inherent in the regulation of such credit. The Board yesterday came to about the same conclusion, he noted, but with perhaps a little d ifference in tone. There followed a number of suggestions as to how the answer to this question might most appropriately be worded to reflect the basic thinking outlined by Governor Balderston, and it was understood that these comments would be taken into account by the staff in preparing the draft that would be available for the Board's consideration next Monday With respect to the question by Representative Coffin concerning the use of the several instruments of monetary policy under varying e°4clitions, the revised draft answer distributed prior to this meeting l'eflected the suggestion during yesterday's discussion that portions of the t140 alternative drafts considered at that time be combined. Further consideration of the matter at this meeting raised the qUestion whether there would not be value in reverting to the more e°111Prehensive type of reply to Representative Coffin's question in an rt°rt to provide the guidance in the philosophy of central banking that the r, `'ongressman evidently was seeking when he submitted his question. The slAg10.0.. -86ion was made that one of the difficulties mentioned yesterday in ' 'A t -11- 8/13/59 connection with a comprehensive reply might be overcome by bringing out in the answer that the formulation of monetary policy involved the thinking 411 analysis o- seven members of the Board of Governors, as well as other views as Ilersons within the System, among whom the.-e might be differing to the appropriateness of the use of the several instruments of monetary 13°11cY at any given time. At the conclusion of the discussion, it was uaderstood that the draft material to be presented for the Board's consideration next Monday would include a proposed answer to Representative account the ec3ffine s question in rather comprehensive form, taking into odifications of the originpl draft answer that were suggested in the COLIrSe Of today's meeting. The members of the staff then withdrew and the Board met with Mr. ?xiall, Chairman of the Federal Reserve Bank of Chicago, for consideration Of certain matters pertaining to the affairs of the Chicago Bank. At the e°4clusion of the discussion with Mr. Prall, the meeting adjourned. Secretary's Note: Governor Balderston, in the absence of Governor Shepardson, today authorized leave without pay for a period of approximately five months beginning August 9, 1959, and ending on or about January 9, 1960, for Ann Van Eckhardt, Statistical Assistant, Division of Research and Statistics. Assistant Secretary/ BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 1 8/13/59 WASHINGTON 25, O. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 13, 1959. 1-1,1's Benjamin F. Groot, Vice President, 'ederal Reserve Bank of Boston, Boston 6, Massachusetts. Bear Mr. Groot: This is in reference to your letter of July 14, 1959, eh raises a question regarding the statement of purpose provided ,r)r bY section 221.3(a) of the Board's Regulation U. It is a common ( ice in your district for banks to purchase collateral loans from note iet'e brokers. In many cases these loans are secured by stocks. The a II:ling officer of the bank has no contact with the maker of the note, : et„4.in the past banks have usually accepted from the note broker a for-,ement signed by the borrower to the effect that the loan was not Le purpose of purchasing or carrying a registered stock. A barikth as inquired whether a similar form may be used in the future, in if ;',..sw of the requirement of the amended section 221.3(a), that merely states what is not the purpose of the loan, a statement 01,1 not only be "accepted in good faith and signed by an officer a m..he bank as having been so accepted" but must be "supported by -Tri°1'sndurn or notation of the lending officer describing the , pl) --Pose of the loan". f It would be desirable, of course, for the note broker to obtain from the borrower and to forward to the bank a full, affirmative me„ signed statement as to the purpose of the loan. Such a stateto;'d should go into sufficient meaningful detail to make it possible thnta..lending officer to accept it in good faith. A mere statement woo:the loan was intended to "replenish business funds", for example, not be sufficient. If the note broker is unable to supply a statement by the borro riNst wer which meets these requirements, then the lending officer who in 0,certify- that he has accepted the borrower's nonpurpose statement l'1,0Woo faith should be thoroughly fortified by a signed statement loan.the note broker detailing the circumstances surrounding the To accept a statement of either borrower or broker in good 4) the lending officer must be alert to the general circumstances ' 291 Mr. Benjamin F. Groot -2- surrounding this and other loans made by the broker. For example, if numerous loans handled by this broker were secured by stock certificates dated within a short time of the loan, or if brokers or dealers were to deliver registered stock to secure this or 9ther loans, or were to receive the proceeds of such loans, the lending officer could not accept the broker's statement without o btaining a reliable and satisfactory explanation. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 1!) BOARD OF GOVERNORS OF THE Item No. 2 8/13/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 13, 1959. Board of Directors, First National Bank & Trust Co., Havre de Grace, Md., Havre de Grace, Maryland. Gentlemen: The Board of Governors of the Federal Reserve System 1 " given consideration to your application for a specific flduciary power and grants First National Bank & Trust Co., Havre de Grace, Md. authority to act, when not in contravention of State or local law, as trustee under the will of Benjamin Harman. The exercise of such right shall be subject to the rovisions of Section 11(k) of the Federal Reserve Act and egulation F of the Board of Governors of the Federal Reserve SYstem. A certificate covering such authorization is enclosed. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. Enclosure BOARD OF GOVERNORS ,,,01040,44 OF THE • ,-;""".s..`e:- Item No. 3 8/13/59 FEDERAL RESERVE SYSTEM 4 1-4* WASHINGTON 25, D. C. ADDRLSS 01- VIDIAL CORRESPONDENCE TO TI HOARD 1Y '14/1140 '4.44.010* August 13, 1959. Mr. Delos C. Johns, President, Federal Reserve Bank of St. Louis, St. Louis 66, Missouri. Dear Mr. Johns: Your letter of August 4, 1959, with regard to the Classification of member banks for the purpose of electing Class A and Class B directors in the Eighth District, expresses the view that the present classification, which has been effective since May 12, 1958, is satisfactory. You therefore recommend that no change be made at this time. The tabulation shown in your letter indicates that the distribution of the member banks has not become out of line with the Board's formula, and the Board therefore concurs in your recommendation. Very truly yours, (Signed) KennethA. Kenyon Kenneth A. Kenyon, Assistant Secre-,ary. BOARD OF GOVERNORS ti* OF THE Item No. 4 8/13/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 13, 1959. Mr. H. N. Mangels, President, Federal Reserve Bank of San Francisco, San Francisco 20, California. Dear Mr. Mangels: As recommended in your letter of July 8, 1959, the Board Governors has changed the classification of member banks in the ',,..welfth Federal Reserve District, for the purpose of electing L'lass A and Class B directors, to the following: 2f 21:2112 Banks with Capital and Surplus of: 2 $7,000,000 or more In excess of $700,000 and less than 3 $700,000 or less $7,000,000 Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 5 8/13/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 13, 1959. colir A. i2sident Erickson, ijueraa RZserve Bank of Boston, ' 41 ' 04 63 Massachusetts. 414' Mre Erickson: (10‘ ,ernor6 In accordance with your letter of July 30, 1959, the Board of respective approves the following minimum and maximum salaries for the !rea Of the employees' salary structure at the Federal Reserve Bank of Boston -e0tive August 12, 1959. Grade 1 2 3 Minimum Salary $ 2,090 2,260 2,490 Maximum Salary $ 2,820 3,050 3,360 4 2,730 3,690 5 3,000 6 7 8 9 10 11 12 13 14 15 16 3,340 3,700 4,120 4,600 5,1h0 $,760 6,470 7,270 8,170 9,360 10,340 4,050 4,510 5,000 5,56o 6,210 6,940 th 7,780 8,730 9,810 11,030 12,600 13,960 , The Board approves the payment of salaries to the employees, other q4: ; 11 Lfieers, within the limits specified for the grades in which the positions ,,11?8Peotive employees are classified. It is understood that all employees ' aries are below the minimum of their grades as a result of this struc' 44 ila -4rease will be brought within the appropriate ranges by December 31, 1959. S "(419 ickson it is understood that provision has been made in the 1959 budget t°1 'the increased salary costs resulting from this salary structure revision. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 6 FEDERAL RESERVE SYSTEM , Vb sf-t. 8/13/59 WAS 1'1 OFFICE OF THE CHAIRMAN August 13, 1959. The Honorable A. Willis Robertson, Chairman, Committee on Banking and Currency, United States Senate, Washington 25, D. C. Dear Mr. Chairman: This is in response to your two letters, each dated August 5, 1959, requesting a report on two bills, H.R. 8159 and H.R. 8160, which, respectively, propose "To amend the national banking laws to clarify or eliminate ambiguities, to repeal certain laws which have become obsolete, and for other Purposes" and "To amend the lending and borrowing limitations applicable to national banks, to authorize the appointment of an additional Deputy Comptroller of the Currency, and for other purposes." At the time H.R. 6092 and H.R. 6093 were being considered by a Subcommittee of the House Banking and Currency Committee, the Board submitted a statement making suggestions regarding certain provisions. These suggestions were adopted, in part, by the Committee and the House. The Board recommends favorable consideration of the pending legislation. We understand that, following referral of these two bills to your Committee, you received from a member bank a suggestion that there be included in H.R. 8160 an amendment to section 11(m) of the Federal Reserve Act corresponding to the amendment proposed in section 3(c) of the bill, which would amend paragraph (8) of section 5200 of the Revised Statutes by deleting the words "in the form of notes". It will be recalled that S. 1451, 85th Congress (the "Financial Institutions Act of 1957"), would have eliminated "in the form of notes" from both Provisions (see title I, section 34(b)(8) and title II, section 39(1); also S. Rep. No. 121, 85th Cong., Page 44). Sincerely yours, a t..7.1.)'.-- ).4, --i-- V Wm. McC. Martin, Jr. .."- 4,„ BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 7 8/13/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 13, 1959. Gerhard A. Gesell, Esq./ Covington & Burling, Union Trust Building, Washington 5, D. C. Dear Mr. Gesell: On July 7 you wrote the Board of Governors with respect to P irstamerica Corporation's Petition to the Supreme Court for an ! xtraordinary writ of certiorari to review the District Court's ?Is?nial of a motion to dismiss the pending antitrust suit against !?rstamerica. You suggested that the Board consider filing a s tatement with the Supreme Court asking the Court to review the order of the District Court at this stage of the litigation. The legal and practical significance of this phase of the .gation, and the information and arguments presented in your 4,etter and Petition, have been considered, and the Board has conthat it would not be appropriate to file with the Supreme clurt a statement of the nature suggested. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 4
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