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4,7
Minutes for
To:
Members of the Board
From:
Office of the Secretary
August 13, 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
2807
Minutes of the Board of Governors of the Federal Reserve System
on Thursday, August 13, 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
Mr. Kenyon, Assistant Secretary
Miss Carmichael, Assistant Secretary
Mr. Molony, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Farrell, Director, Division of Bank Operations
Mr. Solomon, Director, Division of Examinations
Mr. Kiley, Assistant Director, Division of Bank
Operations
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Miss Hart, Senior Attorney, Legal Division
Mr. Sanders, Attorney, Legal Division
Mr. Forrestal, Attorney, Legal Division
Mr. Goldstein, Law Clerk, Legal Division
Mr. Margolius, Law Clerk, Legal Division
Mr. McClintock, Supervisory Review Examiner,
Division of Examinations
Circulated or distributed items.
The following items, copies of
Idlich are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to Manufacturers Hanover Trust Company, New York,
Nev York, approving the establishment of a branch at 11121 William Street, Borough of Manhattan.
1
Letter to Bankers International Financing Company, Inc.,
New' York, New York, granting permission to purchase shares
c)f The Industrial Credit and Investment Corporation of India
Limited, Bombay, India.
2
2803
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8/13/64
Item No.
Letter to Boston Overseas Financial Corporation, Boston,
Massachusetts, granting permission to purchase shares of
The Industrial Credit and Investment Corporation of India
Limited, Bombay, India.
3
Letter to The First-Mason Bank, Mason, Ohio, approving an
investment in bank premises.
4
Letter to the Federal Reserve Bank of New York authorizing
waiver of assessment of a penalty incurred by The Peoples
National Bank of Long Island, Patchogue, New York, because
Of a deficiency in its required reserves.
5
Telegram to the Federal Reserve Agent at Chicago authorizing
the issuance to First Wisconsin Bankshares Corporation,
Milwaukee, Wisconsin, of a general voting permit covering
its stock of Brookfield National Bank,Brookfield, Wisconsin.
6
Letter to the Presidents of all Federal Reserve Banks requesting them to put into effect certain policies and
7
Procedures designed to help relieve the coin shortage.
Request for reconsideration of Regulation U interpretation (Item
1112.1,_§1.
At its meeting on July 30, 1964, the Board ruled that certain
loans proposed to be made by The First National Bank of Boston, Boston,
Massachusetts, against shares of First Participating Fund, Inc., an
°Pen-end mutual fund in process of organization, would be "purpose"
1°ans subject to Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Registered Stocks.
Subsequently, in a conference
vith Governor Balderston and members of the Board's staff on August
6,
1964, Mr. Edward M. Gadsby, President of the Fund, asked that the Board
reconsider its ruling in the light of an additional proposal by the
-Innd.
A letter of August
7, 1964, had been received from Mr. Frank J.
ki
A
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8/13/64
Dowd, Jr., Vice President of First National Bank of Boston, supporting
Mr. Gadsby's request for reconsideration.
These facts were cited in a
memorandum from the Legal Division dated August 11, 1964, which had been
distributed.
Briefly, the Board had held that First National Bank of Boston
could not accept "in good faith," within the meaning of section 221.3(a)
Of Regulation U, purpose statements to be submitted in connection with
loans that would be made by the bank against shares of the Fund under
a prearranged plan.
The plan provided that each prospectus of the Fund
would contain application forms, explanatory matter relating to Regulation
U, and a statement to be filled out detailing the purpose of the loan.
The borrower's signature would be witnessed by an authorized dealer in
Fund shares and forwarded to the bank, where it would be scrutinized by
a lending officer for compliance with Regulation U.
Loans would be
Made in amounts ranging from $1,000 to $10,000 for six months, with an
oPtion for the borrower to renew for an additional three months.
No
loan would be made until the borrower had owned his shares free and
clear for a minimum period, and the borrower would not be permitted to
make further purchases of Fund shares while his loan was outstanding.
The Board held that, despite these precautions, it would not seem
feasible under the proposed plan "for the circumstances surrounding
each loan, and each borrower, to be adequately known to the loan officer,
Co that the officer could become aware of indications that might require
fUrther investigation."
8/13/64
It was naw proposed by the Fund and First National Bank of
Boston that, in the case of each loan application, there should be a
telephone conversation between the proposed borrower and a loan officer
Of the bank before the loan was approved.
After reconsidering the question in the light of the proposed
additional safeguard, the Legal Division had concluded reluctantly that
Purpose statements obtained under these circumstances would still not
comply with the requirements of section 221.3(a) of Regulation U.
While
telephone calls would afford some opportunity for contact between borrowers and loan officers, it was felt that such a conversation would not
be a satisfactory substitute for a face-to-face meeting.
A draft of
letter to the Boston Reserve Bank reflecting this position was attached
to the memorandum.
At the Board's invitation, Miss Hart commented on the conference
With Mr. Gadsby and the conclusion that had been reached by the Legal
Division.
Following additional comments by Governor Balderston, during
WhiCh he expressed the view that the conclusion of the Legal Division
lras correct, the letter to the Federal Reserve Bank of Boston was
'
-.P..P.LaK9.1. unanimously.
A copy is attached as Item No.
8.
Miss Hart and Mr. Forrestal then withdrew from the meeting and
Messrs. Noyes, Adviser to the Board, Hexter, Assistant General Counsel,
Holland, Associate Director, Division of Research and Statistics, and
Partee, Adviser in that Division, entered the room.
i
8/13/64
-5Activity in certificates of deposit (Item No. 9).
There had
been distributed a memorandum from the Division of Examinations dated
August 11, 1964, relating to activity in the negotiable certificate of
deposit market.
In the Board's letter of May
6, 1964, to Chairman McMurray of
the Federal Home Loan Bank Board it was suggested that the Home Loan
Bank Board might wish to "consider limiting or excluding the use of
certificates of deposit as assets that a savings and loan association
may use to meet liquidity requirements."
Subsequently, the Home Loan
Bank Board amended its regulation relating to the definition of cash
effective August 15, 1964, and an explanatory press release dated July 15,
1964, included the following statement: "Member institutions will not
be permitted to count as cash any certificate of deposit established
hereafter with a given bank if the total deposits of the member institution
in the bank exceed the greater of $10,000 or one-quarter of 1 percent of
the total deposits of the bank."
It was not yet known what effect the amended regulation would
have on the attitude of savings and loan associations toward renewing
bank certificates of deposit.
However, if a substantial contraction in
the volume of such certificates outstanding should result, this could
have a significant impact on commercial bank liquidity. It was noted
that in at least one instance a national bank's borrowing from a Federal
Reserve Bank was the result of refusal by a savings and loan association
,
44
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8/13/64
to renew maturing time certificates of deposit.
In another instance a
State member bank had indicated that it might have to borrow if it became necessary to pay some of its outstanding certificates of deposit
at maturity.
Also, it was believed that a fairly large number of banks
had expanded significantly their time deposits by participating in
arrangements, often involving a broker, whereby they issued their certificates of deposit to out-of-area customers, particularly savings and loan
associations.
There had been in existence an informal arrangement by which
the Board's staff was to be advised by officers at Reserve Banks regarding instances in which member banks were borrowers because of the
failure of customers to renew certificates of deposit.
In order that
the Board might be kept advised of developments more generally and more
Systematically, it was now recommended that a letter be sent to the
Presidents of all Federal Reserve Banks requesting that reports be submitted at least monthly on any known instances of past or prospective
maturities of certificates of deposit in excess of an issuing member or
nonmember bank's capacity to redeem them out of its own cash resources;
resort by a bank to borrowings from its Reserve Bank, the Federal funds
Market, correspondent banks, or others to meet the pressures attendant
UPon large certificate of deposit maturities; or substantial sales of
certificates of deposit by means that effectively circumvented the ceiling
Illtes specified under Regulation Q, Payment of Interest on Deposits.
clraft of letter was attached to the memorandum.
A
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8/13/64
Mr. Solomon, in commenting on reasons for sending the proposed
letter, mentioned among other things the possibility that if after further analysis it appeared that sales of certificates of deposit were
being made to any considerable extent by means that circumvented the
ceiling rates specified in Regulation Q and the similar regulation apPlicable to nonmember insured banks, the matter might be discussed with
the Federal Deposit Insurance Corporation, perhaps with a view to issuance
Of a joint interpretation.
Governor Mitchell expressed some concern that the Board might be
stirring up trouble more than anything else.
extent abuses existed.
He did not know to what
Some had been revealed, to be sure, but the
Board should be careful about how far it went in what amounted to interfering with normal competitive practices.
The draft letter would call
for establishing a "formal reporting system," and he questioned the tone
Of such a communication.
Suspicion might be cast on some transactions
that really were not objectionable. While he did not feel too strongly,
he was not entirely happy about the proposal.
Governor Daane commented that although there might be some risk,
as Governor Mitchell had mentioned, this was an area of potential trouble.
Re believed that probably the net value of obtaining the reports outl eighed the risk.
Chairman Martin raised a question as to whether the letter might
be modified in some way to help meet Governor Mitchell's specific obJection, and a change in wording was suggested by Mr. Leavitt.
-8-
8/13/64
Governor Balderston said he was concerned that the Board not
Stop with sending the proposed letter to the Reserve Banks.
He was
Interested in working out an enforcement procedure if it should be
determined that certificates of deposit were being sold by member banks
In such manner as to circumvent the ceiling rates of interest specified
In Regulation Q.
Governor Mills stated that his greater concern had to do with
the practice of issuing negotiable certificates of deposit--borrowing
Short so to speak--and then lending long in such a way as to undermine
the stability of banks that followed such a practice.
In the ensuing discussion Mr. Noyes noted that the sale of
certificates of deposit by banks sometimes involved arrangements in
which premiums were paid to purchasers of the certificates.
involve violation of Regulation Q.
This might
In such circumstances, moreover,
the possibilities of renewal might be substantially reduced, with the
result that the banks involved could find themselves with a substantial
liquidity problem.
At the conclusion of further discussion, Chairman Martin commented
that it seemed to be the consensus that the Board should try to obtain
411 the information it could get in this area.
The proposed letter to
the Presidents of all Federal Reserve Banks, with certain modifications,
Ifts then approved.
A copy is attached as Item No.
9.
Messrs. Holland, Goodman, and McClintock then withdrew from the
Meeting.
2815
8/13/64
-9Regulation of trading in bank stocks.
Mr. Hexter reported
that it was expected that S. 1642, which had passed the Senate and the
House, would be signed by the President in a few days.
The bill would
amend the Securities Exchange Act of 1934 to require public disclosure
(through registration and periodic reports) of information regarding
corporations whose securities were actively traded "over the counter."
At the present time, the Securities Exchange Act of 1934 required such
disclosure only with respect to nonbank securities traded on national
securities exchanges.
Administration of the disclosure requirements
With respect to bank stocks, whether traded over the counter or on
exchanges, would be vested in the three Federal bank supervisory agencies.
Mr. Hexter quoted portions of a Senate Banking and Currency
Committee report with respect to S. 1642 that outlined the responsibilities of the three bank supervisory agencies.
He stated that for a
number of months the staff of the Legal Division had been working on
regulations, registration forms, and other matters looking forward to
Probable enactment of the bill.
The lengthy regulations of the Securities
and Exchange Commission relating to registered securities had been developed
over a period of 30 years, and to the extent possible the Board's staff
was utilizing the experience of the Commission as it studied forms and
regulations for the Board's consideration.
An effort was also being
made to coordinate the work of the three bank supervisory agencies under
the bill.
Representatives of the Board and the Federal Deposit Insurance
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8/13/64
Corporation had been working cooperatively, but there had been an indication that the Comptroller of the Currency preferred making his own
Plans,
Mr. Hexter noted that at the present time no bank securities
were registered under the Securities Exchange Act for trading on exchanges.
Under the new legislation it would be necessary for banks
whose shares were held by as many as 750 shareholders (later by as many
as 500) to be registered within 120 days after the last day of the
issuing corporation's first fiscal year following enactment of the
legislation.
This would mean that banks whose shares were traded over
the counter would be required to register by the end of April 1965.
However, registration would be a prerequisite to listing a bank's shares
for trading on a national securities exchange.
The Board would have
authority to exempt securities of State member banks from registration
requirements where considered "necessary or appropriate in the public
Interest or for the protection of investors."
Pending adoption of appropriate regulations and forms, the New
York Stock Exchange had expressed the hope that the Board and the Comptroller of the Currency would grant temporary exemptions that would
Permit securities of banks to be traded on national securities exchanges
without registration.
However, there was a question as to whether it
WAlld be appropriate for bank supervisory agencies to grant temporary
exemptions.
The question had been submitted, by letter dated July 27,
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8/13/64
1964, to the Securities and Exchange Commission for comment.
In a reply
dated August 12, the staff of the Commission expressed the view that
"registration of bank securities other than those presently being traded
Should be in effect prior to the commencement of trading therein.
This
requirement for prior registration of new issues is believed consistent
With our general position that financial and other information resulting
from registration should be available to the general public at or prior
to the beginning of trading on an exchange.
This has been the general
practice over the years, in fact since the passage of the Securities
Exchange Act, and the public has come to rely upon it.
To permit listing
and trading in bank securities not heretofore traded on an exchange without the general availability of information resulting from registration
Would be an exception to that practice which we do not believe would be
in the best interests of public investors."
Mr. Hexter reported that the Board's staff had been informed by
Counsel for the Comptroller of the Currency that it was not expected that
the Comptroller would take action in the next few weeks that would permit
national banks to proceed immediately with listing their stocks on the
,York Stock Exchange.
Nei.
The Legal Division planned to submit to the
Board in the near future a memorandum outlining the Board's responsibilities under the legislation and providing other information that would
enable the Board to evaluate the program and act on the immediate request
Dor the temporary exemption of bank shares from registration requirements
before listing on a national securities exchange.
2818
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8/13/64
Governor Mitchell noted that the Securities and Exchange Commission
had been in the business of regulating stocks traded on exchanges for
many years.
Since the Board's staff was in a position to draw on that
exPerience, he wondered whether the staff could not have drafts of forms
and regulations available quite promptly for the Board's consideration.
There followed comments by the staff on some of the complications
involved in adapting forms and regulations for use in the case of banks,
after which Chairman Martin suggested that all possible steps be taken
to expedite development of the necessary Board regulations and forms.
If
the Board was not in a position to permit State member banks to proceed
vith reasonable promptness, this would have undesirable connotations.
Mr. Hexter noted that to expedite the matter the staff could,
if desired, move forward without as much care and study as might ordinarily
be the case.
He felt it was important, however, to keep in mind the
Congressional intent of providing appropriate information for the investing
Public.
He went on to point out that the forms and regulations of the
Securities and Exchange Commission had been developed over time by a
large staff of trained persons.
If it were possible for the Commission
to loan to the Board experienced members of its staff, some of the Board's
/r°rk could be greatly expedited. (Note:
It was indicated later in the
Meeting that the question of obtaining such assistance would be pursued
I/ith Commission officials.)
Chairman Martin commented that the Board's work should of course
be carried out in an orderly and proper way.
However, as he had indicated
8/13/64
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previously, it would be unfortunate if there was undue delay.
During
the discussion that followed regarding possible ways of facilitating
the conduct of the Board's functions in this area, Chairman Martin also
commented that there appeared to be short-term and longer term problems.
First, there was a need to set up the basic machinery for compliance
with the law; then more time could be taken to work out refinements and
details.
He added that one factor to be considered was that shares of
many banks were already being traded over the counter freely.
Governor Balderston inquired, in this connection, whether the
Board might want to consider further the possibility of exempting
temporarily from registration the securities of those banks that desired
to list their shares for trading on a national securities exchange.
He
noted that a request to such effect had been received from Chase Manhattan
Bank, New York City.
Or perhaps a short registration form could be
Published promptly in the Federal Register and adopted pending the
development of regulations and a more elaborate form.
In discussion of this question, Mr. Hackley referred to the
August 12 letter from the Securities and Exchange Commission in which
it had been stated that exemption from registration would be contrary
in principle to the practice that had been followed by the Commission.
He questioned whether, in all the circumstances, the Board would want
to
grant such exemptions, particularly for specific banks.
After additional consideration of possible alternatives, Chairman
144rtin commented that eventually the Board should get into a position
8/13/64
Where it was able to provide complete analytical service for investors.
So far as the current problem was concerned, however, he believed that
the staff should attempt to prepare a basic set of regulations and forms
as quickly as possible and let the Board make a decision as to whether
they were adequate to comply with the spirit of the new legislation.
The Board would also have the benefit, of course, of comments from
interested parties following publication of proposed regulations and
forms in the Federal Register.
With this pressing responsibility dis-
charged, there would be more time available for the development of
procedures comparable to those adopted by the Securities and Exchange
Commission for nonbank corporations.
As the discussion concluded, it was understood that the staff
would expedite the preparation of draft regulations and forms for the
Board's consideration along the lines that had been suggested.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
Memorandum from the Division of Bank Operations recommending the
aloPointment of Peter N. Sapsara as Analyst in that Division, with basic
annual salary at the rate of $5,795, effective the date of entrance
Upon duty.
Memorandum from the Office of the Secretary dated August 12, 1964,
l'equesting authorization to proceed with arrangements for the annual
visit to the Board's offices of trainees from the Center for Latin
American Monetary Studies during the week of September 14, 1964. It
was understood that the costs of the program would include a luncheon,
translating facilities, a conducted tour of Washington, and certain
1111nor expenditures, provision for all of these items having been made
.
111 the budget of the Secretary's Office.
ssistant Secre
ry
BOARD OF GOVERNORS
Item No. 1
8/13/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20581
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
August 13, 1964.
Board of Directors,
Manufacturers Hanover Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by
Manufacturers Hanover Trust Company, New York, New
York, of a branch at 111-121 William Street,
Borough of Manhattan, New York, New York, provided
the branch is established within six months from
the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
cl000
04•40,
BOARD OF GOVERNORS
......
.octpov Got::.
44;•
:0
Item No. 2
8/13/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADOREMB OFFICIAL CORRESPONOCNCIC
TO TN( •OARD
:titREst.
••
August 13, 1964.
Bankers International Financing
Company, Inc.
16 Wall Street,
New York 15, New York.
Gentlemen:
In accordance with the request contained
in your letter of July 24, 1964, and on the basis
of information furnished, the Board of Governors grants
consent for your Corporation to purchase and hold 3,000
shares, par value Indian Rupees 100 per share, of The
Industrial Credit and Investment Corporation of India
Limited, Bombay, India, at a cost of approximately
US$63,000, provided such stock is acquired within one
year from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
4
t
BOARD OF GOVERNORS
f
Item No.
OF THE
"01; •
15.9°
1°
•
10
p
4\
3
8/13/64
ois••••
t
'7.
A.01 71'
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AODRESS
orricrAL
CORRESPONDENCE
TO THE BOARD
August 13, 1964.
Boston Overseas Financial Corporation,
67 Milk Street,
Boston 6, Massachusetts.
Gentlemen:
In accordance with the request contained in
your letter of July 31, 1964, the Board of Governors
grants consent for your Corporation to purchase and
hold 5,000 shares, par value Indian Rupees 100 per
share, of The Industrial Credit and Investment Corporation
of India Limited, Bombay, India, at a cost of approximately
US$96,800, provided such stock is acquired within one
year from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assiseant Secretary.
"Jo
Item No.
BOARD OF GOVERNORS
I
Are
h.
8/13/64
OF THE
44.
Ot...
.1
FEDERAL RESERVE SYSTEM
..
WASHINGTON, D. C. 20551
ADDRESS
OFFICIAL.
CORRESPONDENCE
TO THE BOARD
August 13, 1964.
Board of Directors,
The First-Mason Bank,
Mason, Ohio.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves, under the provisions of
Section 24A of the Federal Reserve Act, an investment in bank premises by The First-Mason Bank,
Mason, Ohio, of not to exceed $51,410.70 for the
purpose of new construction to expand the present
banking house and for remodeling of present
quarters. This approval includes $7,500 for the
cost of land adjoining present banking quarters
recently acquired by the bank as a part of its
expansion program.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No.
5
8/13/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
August 13, 1964.
Mr. William H. Braun, Jr.,
Assistant Vice President,
Federal Reserve Bank of New York,
New York, New York. 10045.
Dear Mr. Braun:
This refers to your letter of July 28, 1964, regarding
the penalty of $345.55 incurred by The Peoples National Bank of
Long Island, Patchogue, New York, on an average daily deficiency
• in its reserves of $163,800 for the computation period ended
July 8, 1964.
It is noted that (1) the deficiency resulted from an
error in arithmetic by a substitute bookkeeper during vacations,
and (2) with the exception of a one-day overdraft in its reserve
account occurring on May 26, 1964, also due to a clerical error,
the bank has had a good record in maintaining an adequate reserve
balance.
In the circumstances, the Board authorizes your Bank
to waive the assessment of the penalty of $345.55 for the period
ended July 8, 1964.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
2826
AM
TELEGR
WIRE SERVICE
Item No. 6
LEASED
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
8/13/64
August 13, 1964.
BRIGGS -- CHICAGO
KEBJE
A.
First Wisconsin Bankshares Corporation, Milwaukee, Wisconsin.
B.
Brookfield National Bank, Brookfield, Wisconsin.
C.
Permit authorized herein shall not be issued until Federal
Reserve Bank stock has been issued to such bank.
Meanwhile,
you may assure First Wisconsin Bankshares Corporation that
voting permit will be issued upon the issuance of the Federal
Reserve Bank stock.
(Signed) Karl E. Bakke
BAICICE
Definition of KEBJE
The Board authorizes the issuance of a general voting permit, under
the provisions of section 5144 of the Revised Statutes of the
United States, to the holding company affiliate named below
after the letter "A", entitling such organization to vote the
stock which it owns or controls of the bank(s) named below
after the letter "B" at all meetings of shareholders of such
bank(s), subject to the condition(s) stated below after the
letter "C". The period within which a permit may be issued
pursuant to this authorization is limited to thirty days from
granted
the date of this telegram unless an extension of time is
instructhe
with
accordance
in
proceed
Please
by the Board.
tions contained in the Board's letter of March 10, 1947, (S-964).
!,k .
Item No.
BOARD OF GOVERNORS
8/13/64
OF THE
S-1924
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
August 13, 1964.
Dear Sir:
This refers to the Board's letter of July 10, 1964, asking for
Your comments on the following changes in policies and procedures that
might be made to help relieve the current coin shortage, as suggested by
the American Bankers Association.
1.
Pay transportation costs on shipments of coin from
nonmember banks.
2.
Accept deposits of wrapped coin.
3.
Break Mint-sealed bags and mix therein at least some
circulated coin for payment to commercial banks.
The comments on these proposals from the Reserve Banks indicate
general agreement that for the duration of the present critical coin
Shortage the Reserve Banks should do all that can reasonably be done to
ease the shortage. Most of the Reserve Banks are already opening MintSealed bags of coins and mixing therein at least some circulated coin
for payment to commercial banks, while others are transferring Mint-sealed
"in into Reserve Bank bags of the same or smaller amounts, even though no
circulated coin is available for mixing, in order to discourage efforts on
the part of collectors, dealers, and others to acquire quantities of
uncirculated coin.
Accordingly, the Board requests that your Bank adopt the above
!
)
.roPosals as early as practicable, including the transfer of coin in
mint- sealed bags to Reserve Bank bags of the same or smaller amounts before
!Itle payment of such coin to commercial banks. The Board believes that
nese procedures should continue until such time as the Secretary of the
treasury, as provided in S. 2950, determines that adequate supplies of coin
're available and resumes the practice of placing the year of mintage on
Very truly yours,
TO THE PRESIDENTS OF ALL
l'EDERAL RESERVE BANKS.
Kenneth A. Kenyon,
Assistant Secretary.
4
Item No.
BOARD OF GOVERNORS
8
8/13/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
August 13, 1964.
Mr. Laurence H. Stone, Secretary and
Associate General Counsel,
Federal Reserve Bank of Boston,
Boston, Massachusetts. 02106
Dear Mr. Stone:
This refers to the Board's letter of July 30, 1964, in
connection with a request for interpretation submitted by First Participating Fund, Incorporated ("Fund") and First National Bank of
Boston ("Bank"), to a conference between Mr. Edward M. Gadsby of
Fund, Governor Balderston, and members of the Board's staff on
August 61 1964, in which Mr. Gadsby asked that the Board reconsider
its interpretation in the light of an additional proposal by Fund,
and to a letter of August 7, 1964, from Mr. Frank J. Dowd, Jr.,
Vice-president of Bank, supporting Mr. Gadsby's request for
reconsideration.
Briefly, the Board's letter of July 301 1964, held that
Bank could not accept "in good faith", within the meaning of section 221.3(a) of Regulation U, purpose statements to be submitted in
connection with loans that would be made by Bank against shares of
Fund under a pre-arranged plan. The plan provided that each prospectus
°f Fund would contain application forms, explanatory matter relating
to Regulation U1 and a statement to be filled out detailing the
Purpose of the loan. The borrower's signature would be witnessed
where
by an authorized dealer in Fund shares and forwarded to Bank,
with
ce
complian
for
officer
lending
it would be scrutinized by a
Regulation U. Loans would be made in amounts ranging from $10000
to $10,000 for six months, with an option in the borrower to renew
for an additional three months. No loan would be made until the
period,
borrower had owned his shares free and clear for a minimum
and the borrower would not be permitted to make further purchases
of Fund shares while his loan was outstanding. The Board held that,
despite these precautions, it would not seem feasible under the
and
Proposed plan "for the circumstances surrounding each loan,
that
so
officer,
each borrower, to be adequately known to the loan
require
might
the officer could become aware of indications that
further investigation".
4wl).4....
Mr. Laurence H. Stone
-2-
of each loan
Bank and Fund now propose that in the case
conversation between the
application, there should be a telephone
re the loan is approved.
Proposed borrower and Bank's loan officer befo
light of this
The Board has carefully reconsidered its views in the
ctantly concluded that
Proposed additional safeguard, and has relu
circumstances would still
purpose statements obtained under these
221.3(a) of the regulation.
not comply with the requirements of section
circumstances would inevitably
Telephone conversations under these
satisfactory substitute
tend to become perfunctory. Nor is there any
lending officer.
for a face-to-face confrontation between borrower and
ship, or the
tion
rela
omer
In addition, the Board believes that a cust
re, tends
futu
the
in
ip
ionsh
Possibility of developing such a relat
footing in
c
isti
real
more
a
on
er
to put both customer and loan offic
respect to Regulation U.
secured loans involve
While it is true that not all stockloan officer, or a customer
a personal interview between borrower and
normal case. To approve the
relationship, these do obtain in the
to create a new class of stockProposal of Bank and Fund would be
tively small amount for each loan,
secured loan, to be made in a rela
complete absence of
and potentially made in large numbers, in the
s would be made, at the borrower's
these safeguards. Moreover, the loan
d with the securities business.
end, in an atmosphere intimately connecte
it would be justified,
For these reasons, the Board does not believe
osed by Bank and Fund, in altering
despite the additional safeguard prop
30, 1964. It would
the conclusion expressed in its letter of July
copies of this
osed
encl
be appreciated if you would transmit the
letter to Mr. Gadsby and Mr. Dowd.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Enclosures
2S3()
Item No. 9
BOARD OF GOVERNORS
.•.
pO?Goi,
tie
8/13/64
OF THE
FEDERAL RESERVE SYSTEM
S-1925
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
ALFtEs 5`.•
'.;t:
August 13, 1964
Bear Sir;
Uith further reference to the subject of the issuance of
certificates of deposit to savings and loan associations referred to
in the Board's letter of May 8, 1964, there is enclosed a copy of the
Federal Home Loan Bank Board's recently amended regulation and an
explanatory ruling covering the definition of cash for liquidity purPoses for savings and loan associations. At this time it is impossible
to tell what, if any impact this regulation will have on the commercial
banking system.
In at least one instance a national bank borrowed from a
Psderal Reserve Bank because of refusal by a savings and loan association to renew maturing time certificates of deposit. In another
instance a State member bank has indicated that it may have to borrow
if it becomes necessary to pay some of its outstanding certificates of
(ilePosit at maturity. Furthermore, it has been determined that a fairly
1481.gs number of banks have expanded their time deposits significantly
)
4y participating in arrangements involving brokers whereby they issued
heir certificates of deposit to out-of-area customers, particularly
"0 savings and loan associations.
Through an informal understanding, officers at the Reserve
plinks have informed the Board's staff of instances where member banks
Countered difficulties or where problems were anticipated because
ut the failure of customers to renew maturing time certificates of
dePosit.
It now seems appropriate to broaden the scope of information
Ported to include not only intelligence from the discount window but
18° from examination, research, and bank relations sources as well.
iS suggested that reports should include pertinent information on
'alY known instances of past or prospective maturities of certificates
1
-2-
capacity
deposit in excess of an issuing member or nonmember bank's
to borbank
a
to redeem them out of its own cash resources; resort by
ent
correspond
owings from its Reserve Bank, the Federal funds market,
e
certificat
banks, or others to meet the pressures attendant upon large
deposit
of
es
Of deposit maturities; or substantial sales of certificat
by means that effectively circumvent the present ceiling rates specified under Regulation Q. With regard to a bank cited for any of the
above reasons, it would also be helpful to receive Reserve Bank comments concerning the soundness and marketability of the major earning
assets acquired by the bank with the proceeds of its previous certificate of deposit sales, and the attitude of management toward the bank's
certificate of deposit position and its plans for any major adjustment
thereof. It is requested that these reports be submitted at least
monthly for the next year, with the first report as of August 30, 1964.
of
Very truly yours,
Kenneth A. Kenyon,
Assistant Secretary.
E nclosures
1° THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
S-1925-a
AMENDMENT RELATING TO DEFINITION OF CASH
•
Section 561.18 of the Federal Home Loan Bank Board's Rules
and Regulations for Insurance of Accounts was revised effective August
1964, to read as follows:
"The term 'cash' means cash on hand and cash on deposit
in banks, including Federal Home Loan Banks."
S-1925-b
AMENDMENT OF RULINGS RELATING TO CASH AND RESERVES
Section 570.1 of the Federal Home Lcan Bank Board's Rulings
Relating to Cash and Reserves uas revised effective August 16,1964, to
read as follows:
"Section 561.18 of this subchapter provides that the
term 'cash' means cash on hand and cash on deposit in
banks, including Federal Home Loan Banks. No deposit
evidenced by a certificate of deposit established
hereafter shall be considered as cash under the regulation unless 1) the insured association itself made
the deposit for which the certificate was issued,
2) the deposit, together with all other time deposits
of the association in the same bank does not exceed
the greater of one-quarter of one percent of such
bank's total deposits as of the bank's iast published
statement of condition or $10,000, and 3) no consideration was received from a third party in connection with
the making of the deposit."
@FedFRASER