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1198 Minutes of actions taken by the Board of Governors of the Pederal Reserve System on Wednesday, August 20/ 1947. The Board tilet In the Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Szymczak, Chairman pro tern Draper Evans Vardaman Clayton Sherman, Assistant Secretary Morrill, Special Adviser Thurston, Assistant to the Chairman Vest, General Counsel Leonard, Director of the Division of Examinations Mr. Nelson, Director of the Division of Personnel Administration Mr. Young, Assistant Director of the Division of Research and Statistics Mr. Mr. Mr. Mr. Mr. Mr. Clayton referred to an application for membership by the 11- organized "Union State Bank", Carrizo Springs, Texas, stating that the bank's application for membership, which was discussed in rtiera°randUla prepared by the Division of Examinations under date or A, LAgust 12, 1947, had been accompanied by a recommendation of the Pcieral Reserve Bank of Dallas that it be disapproved, and that the 18 Division of Examinations recommended that the application be -11°t approved on the basis of the information submitted. The recommendations against admission to membership resllited, Mr. Clayton said, from the fact that there was already orle • lsured nonmember bank operating in Carrizo Springs, a town °t about 3,500 population in an agricultural section with a 1199 W20/47 -2- tlding area population of about 10,000, that there was not evideuce that an additional bank should be established for the purpose f8erving the convenience and needs of the community, and that there was doubt as to the future earning ability of the applicant ballk. He added that the new bank was well sponsored by persons thigh Integrity and financial responsibility, that the bank's caPital structure was entirely adequate, that the management was aceePtable, and that the corporate powers appeared to be consistet with the purposes of the Federal Reserve Act. Mr. Clayton also . eald that the withholding of membership would not be a means or 4-- eventing the establishment of a second bank in the community the bank had indicated that, if this application were not ar'allted, it expected to open for business on a noninsured basis, 4nd that the question appeared to be whether to continue the tos.v4, s general policy of withholding membership where there was allbatantial doubt as to the need for establishment of an addit6, ""41 bank and where the Reserve Bank serving the district 4iaed to recommend admission. Mr. Morrill recalled that some banks had been admitted to rilembershiP in situations where there was uncertainty as to future earn. Inge prospects, and there was a discussion of instances in 1111.0- zembership had been granted without the favorable recomksada, 'ion of the Reserve Bank serving the district. 1200 8h0/47 -3Mr. Leonard stated that the banks so admitted were either existing insured banks or were new banks being established in coin— i1-ties which did not then have banks, whereas in this ease there lras nuw an insured bank operating in the same community and giving ' At least part of the banking service that might be required. With respect to the applicant bank, Mr. Leonard stated that t had been organized by local businessmen who felt that the pres— erit bank, the Citizens State Bank, was not adequately serving the ileecis of the community in that loans were made to a limited group 1'1411014 adequate consideration to applications of other deserving s°ns, that exorbitant exchange and service charges were being ' Pel Ilseessed, and that the present bank was failing generally to ren— der a broad, enlightened, and courteous service to the public. this group expected, Mr. Leonard added, that a considerable amount ot deposits of local business firms now carried elsewhere would be bli°1-Ight back to Carrizo Springs and placed in the new bank, but aPseific information to support this expectation had not been Mr. Leonard also said that in past years there had been two baro, - 4*8 ' ta Carrizo Springs and at one time three banks, that when there httd been more than one, the banks had not prospered, that although there had been a growth in population since that time, the community 1201 8/4/47 -4- relladned almost entirely an agricultural section with little prosPeet of further substantial increases in bank deposits in the near A1111111e, and that establishment of another bank might result in an (/ver-banked condition under which neither bank would prosper and each might be driven to competitive practices that would be dis- nc'us to both and harmful to the public interest. " Mr. Leonard theill reviewed some of the steps taken by the group organizing the 411bank, and made substantially the following statement: The Reserve Bank's conclusions in this case are said to be concurred in by the District Chief National Bank Examiner, with whom the organizers of the applicant bank tentatively discussed the plan of applying for a ilstional charter, and who discouraged them on the ground that he doubted that the need for additional facilities could be established. These views were concurred in also by the District Supervising Examiner for the Federal Deposit Insurance Corporation, who was approached recently by the applicant's representatives, and who discouraged their filing an application for deposit insurance. State authorities also believe that the bank's outlook is poor. The Bank Commissioner of Texas Igas reportedly not in favor of granting a charter to the 1202 8/20/47 —5- applicant bank and voted against it as a member of the State Banking Board. Vice President DeMoss of the Re- - serve Bank stated that, in view of the large number of applicants clamoring for bank charters in Texas within recent months, the attitude of supervisory authorities regarding organizers of new State banks, who often have Only a faint hope of successful operation, has changed considerably, and that it is believed future applications will not be finally passed upon until it has been ascertained whether the applicant can obtain deposit insurance or membership in the System. Mr. DeMoss said that the Reserve Bank made its recommendation only after giving the matter unusually careConsideration. It was the firm opinion of the Re- serve Bank's executive committee that the application should be denied. The applicant's representatives have indicated that, at a future date, if and when the bank has obtained a reasonable volume of deposits and is on a profit basis, another application for membership in the System or an application for Federal Deposit Insurance Corporation insurance would be filed. In response to an inquiry from Mr. Vardaman, Mr. Vest said 1203 8/20/47 -6- that the two factors which had caused the recommendation that the beIlic not be admitted to membership at this time - earnings prosPeet's and the convenience and needs of the community - were among the factors the Board was required by law to consider in certify- tile to the Federal Deposit Insurance Corporation that a bank had become a member of the Federal Reserve System, which admission to nisinbership automatically carried with it deposit insurance. Mr. 17"t added that the factors which the Board was required by law t° consider in issuing the certificate were the same as the fact°1.2 which the Federal Deposit Insurance Corporation was required law to consider in granting insurance to a nonmember bank. Mr. Vardemr;n then asked whether the Board had a definite l'ec°1'd showing that the Comptroller of the Currency had declined to — 6-rant a charter to the newly organized bank and whether, if nietab s h - p in the Federal Reserve System were denied, the Federal tle13°Bit Insurance Corporation had indicated what its position would be a s to granting deposit insurance to the bank in question, and Mr. el -i-aYton stated that no formal application for a national charter had been filed, that the Federal Deposit Insurance Corporation heid -.ken the position that it would not give an opinion on whether cielsit insurance would be granted until after an application had bee l4 submitted, and that such an application would not be filed 1204 8/20/47 -.7- until the application for Federal Reserve membership had been acted /11)(41 since, if membership were granted, it automatically made deP°stt insurance available to the bank. There was a further discussion of the action that should be 4., VtLiCen in connection with the application for membership and of the Procedure that should be followed in notifying the applicant of the decision of the Board in the event membership was not Upon motion by Mr. Clayton, it was agreed unanimously to inform the "Union State Bank" that, on the basis of the information submitted, it would not appear that the Board would be justified in approving its application for membership at the present time. In taking this action it was understood that the action would be transmitted to the Federal Reserve Bank of Dallas by telephone with the suggestion that that Bank notify the applicant that under the circumstances it might wish to withdraw the application. At this point Messrs. Knapp, Morse, Exter, Grove, Garfield, schenkron, Holthausen, Koch, Musgrave, and Youngdahl, of the Di' Gel Of Research and Statistics, entered the meeting. Mr. Exter was called upon by Mr. Szymczak to present a rekrt of his work as a member of the joint American-Philippine Commission during the period from January to June of 1947. Exterts remarks are summarized in a memorandum dated September 2, 1947. 1205 8t4/47 -8During Mr. Exter's report Mr. Szymczak was called from the zeeting. At the close of the report Mr. Vardaman left to keep an 40Pointment. Following Mr. Exter's report Mr. Grove made a statement with l esPect to his work during May and June 1947 as a consultant to the ' e"rernment of Ecuador in connection with a revision of the banking 14ws of that country. A memorandum prepared by Mr. Grove under date c4 August 21, 1947 contains the substance of his remarks. At this point Messrs. Vest, Leonard, Nelson, Young, Knapp, Exter, Grove, Garfield, Gerschenkron, Holthausen, Koch, Maeand Youngdahl withdrew and the action stated with respect to 4 of the matters hereinafter set forth was taken by the Board: " Minutes of actions taken by the Board of Governors of the Pecleral Reserve System on August 19, 1947) were approved unanimously. Memorandum dated August 18, 1947, from Mr. Young, Assistant 4reetor of the Division of Research and Statistics, recommending that the resignation of Mrs. Mary Gwyn Curtis, a library assistant that Division, be accepted to be effective, in accordance with her -vequest, at the close of business August 22, 1947. Approved unanimously. Memorandum dated August 15, 1947, from Mr. Bethea, Director Of the Division of Administrative Services, recommending the ap13°121tzent of Mrs. Ethelyn M. Palmer as a stenographer in that Diiei°n with basic salary at the rate of $2,168.28 per annum, ef- 1206 8/20/47 _9_ fective as of the date upon which she enters upon the performance of duties after having passed the usual physical examination. The tetorandum also stated that it was contemplated that Mrs. Palmer would become a member of the Federal Reserve retirement system. Approved unanimously. Memorandum dated August 11, 1947, from the Division of PerAdministration recommending, for the reasons stated in the raelll°randum, that the following resolution be adopted by the Board: "WHEREAS, under the Board of Governors Plan of the Retirement System of the Federal Reserve Banks it is provided that upon discontinuance, other than by death or retirement, of employment with the Board of any participant in the Board of Governors Plan, regardless of the length of his service, there shall be paid to him, uPon his written application and in lieu of any other benefit, a lump sum equal to the full amount of his contributions, together with one-half of the interest accumulated thereon, and "WHEREAS, Public Law No. 263, 80th Congress approved July 30, 1947, provides, in effect that an emPloyee of the Government who is a member of the Civil Service Retirement System upon separation from employment subject to the Civil Service Retirement System with less than ten years of creditable service may withdraw his contributions with interest computed at 4 per cent per annum compounded on December 31 of each Year, and WHEREAS, it is provided in the Board of Governors Plan that a participant therein is entitled to receive the benefits from the Retirement System of the Federal Reserve Banks equivalent to those to which he would be entitled under the provisions of the Civil Service Retirement Act (as now existing or hereafter amended) if he were in the classified Civil Service of the United States; except as otherwise provided by the terms of the Board of Governors Plan or by section 10 of the 1207 8/20/47 -10- "Rules and Regulations of the Retirement System of the Federal Reserve Banks; now, therefore be it "RESOLVED, that Public Law No. 263, 80th Congress, aPproved July 30, 1947, shall not be construed as being aPplicable to participants in the Board of Governors Plan nor shall it be construed as modifying in any respect the provisions of the Board of Governors Plan, except with respect to the computation of interest payable by an employee upon reemployment with the Board covering periods of separation from service." Approved unanimously. Assistant Secretary. APPtoved:
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