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/6 Minutes for August 22, 1963 To: From. Members of the Board 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 proposed to place in the record of policy actions required to be kept under the provisions of section 10 of the P?deral Reserve Act an entry covering the item in this set of minutes commencing on the page and dealing with the subject referred to below: Page 16 Revision of Regulation K, Corporations Engaged in Foreign Banking and Financing Under 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. °therwise, please initial below. If you were present at the illeeting, your initials will indicate approval of the minutes. If, ou were not present, your initials will indicate only that you eve seen the minutes. K Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2847 Minutes of the Board of Governors of the Federal Reserve SYstem on Thursday, August 22, 1963. 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 Robertson Shepardson Mitchell Mr. Mr. Mr. Mr. Kenyon, Assistant Secretary Fauver, Assistant to the Board Hackley, General Counsel Shay, Assistant General Counsel Furth, Adviser, Division of International Finance Conkling, Assistant Director, Division of Bank Operations Goodman, Assistant Director, Division of Examinations Leavitt, Assistant Director, Division of Examinations Landry, Assistant to the Secretary Bakke, Senior Attorney, Legal Division Doyle, Attorney, Legal Division Porter, Law Clerk, Legal Division Circulated items. The following items, copies of which are Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. attaolled hereto under the respective item numbers indicated, were 4PPxtrved unanimously: Item No. tette 1. 01it r to County Trust Company, White Plains, New 5094 aPProving the establishment of a branch at eolicau'raraatan Avenue, Mount Vernon, branch operations to blicted at Broad and Locust Streets, Mount Vernon, discontinued simultaneously with the establishor the new branch. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 2848 8/22/63 -2Item No. Itktter to Citizens Fidelity Bank and Trust Company, a°111-sville, Kentucky, approving the establishment of br'arleh in the Chomoweth Plaza Shopping Center on "rownsboro Road near Chenoweth Lane. Report on S. 1642 (Item No. 3). 2 Under date of August 20, 1963, c)1)1.ss had been distributed of a memorandum from Mr. Hackley attaching til'aft of letter to the House Committee on Interstate and Foreign ecftlerce reporting on S. 1642, a bill to amend the Securities Act of 1933 and the Securities Exchange Act of 1934. Among other things the till) which had been passed by the Senate on July 30, 1963, would exreporting requirements, proxy rules, and "insider trading" provisio 4s of the Securities Exchange Act to banks whose securities are t in the over-the-counter market. The draft letter would note that 8 ' Copy of the Board's report of June 21, 1963, on H. R. 6789, a bill substantially similar to S. 1642, was being enclosed for convenient 1"erenee. (On June 21, 1963, a report also was maie to the Senate e°11111littee on Banking and Currency on the originally introduced veriOn of S. 1642.) The memorandum recalled that the June 21 report favored extension Of 14e11°Itirig requirements, proxy rules, and "insider trading" provisions °4148 but urged that they be administered by the Securities and txQlati. ke Commission rather than by the Federal banking agencies. At that the bill would have provided for delegation of the Commission's http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2849 _3_ 8/22/63 %actions as to banks to the Federal banking agencies on their request, hUtthe bill as passed by the Senate, and as it was now before the House eQnzlittee, would require administration of the provisions in question 1:1` the three Federal banking agencies. At the request of the Board, Mr. Hackley commented on the 4rt report, basing his comments substantially upon his memorandum. During further discussion, Governor Mills raised the question 'hether the Board might wish to reconsider its position on the proposed leEislation. The draft letter would take an adverse position, he noted, Oil a bill that had passed the Senate and met with the approval not only "he banking fraternity but also, he would judge, of the Federal lieDosi# Insurance Corporation and the Comptroller of the Currency. This °146- leave the Federal Reserve Board as the sole contestant against 441tval of the bill. The Board majority had originally approached this, .4egislati0n with the thought that the Securities and Exchange Corft4 --".seion. should carry the entire program and prescribe the regulations, bt us decision, in the Senate at least, had moved in the direction of g4kci, ' 41-16 administrative responsibility with the three Federal bank super- agencies. e441-ier In so doing, the Senate failed to remove the Board's criticism to the effect there might not be uniformity in the 4d4litalstrat1on of the law by the three banking agencies. As he had telt strongly from the beginning, however, the matter should have been 144141ed by vesting authority with the Securities and Exchange Commission http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2850 8/22/63 -4- to Prescribe regulations under which the bank supervisory agencies /klulci handle delegated powers. It was hardly likely, he thought, that the Commission would not give credence to the thinking of the bank supervisory authorities as to the most practical approach to discharging the statutory responsibilities. With the Commission 8111131Ying guidelines, and consultations taking place between the bank 8141ervisory agencies and the Commission, it should be possible to "'eve the uniformity that was sought. It seemed to him that there 1748 aa oPPortunity at this point for the Board constructively to call 4ttention to an approach that would solve its own difficulties and 41thleve uniform administration of this particular law and the respon81141ities that would go with it. When Chairman Martin commented that the proposed letter would 8111/1)1Y carry forward a position that the Board previously had taken, '151terrIcr Mills responded that since the Board's position was stated the Senate had passed a bill that varied from the original ' Re felt that this provided an opportunity for a revision of the bill 11°E"t a views, if the Board should choose to revise them. Governor Robertson raised the question whether there should be ih 'iserted in the letter a provision to the effect that uniformity airastration might be achieved by asking the Securities and ' —44ge Commission to draw up regulations, to which Chairman Martin http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2851 8/22/63 -5that this possibility had been explored and was opposed, he IllIderstood, by the Comptroller of the Currency, following which the SecUrities and Exchange Commission had worked out the general approach ele4°6-ied in the current bill. The Chairman continued to feel that it /7°144 be preferable for the Securities and Exchange Commission to 8411111ister the proposed legislation, and in his view the Board should 11(3t ehange signals at this point. There developed to be a consensus favoring the position suggested 1:1' Chairman Martin, but several changes of language in the proposed letter Ile/'e suggested and agreed upon, principally for the purpose of making that if the current bill were enacted the Board would discharge the Ponsibilities assigned to it to the best of its ability. Accord- '!Eplioval was given to a letter to the Chairman of the House e°tMittee on Interstate and Foreign Commerce in the form attached as Xtek Governor Mills dissenting. Mr. Cardon„ Legislative Counsel, joined the meeting during the 1511eleMAJ —*41ng discussion. Letter to Congressman Celler regarding merger applications Itera No. 4 In a letter dated August 14, 1963, Chairman Celler of the °Ilse Committee on the Judiciary requested an opportunity for his 14E11' .,.LA) . ez,amine applications to the Board for bank mergers in connection /lith a studY of the problem of interlocking relationships among banks that 4s being made by the Antitrust Subcommittee of the Committee on http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2852 8/22/63 -6- theJ udiciarY. In a memorandum dated August 21, 1963, from the Division q4aminations that transmitted a proposed reply to Mr. Celler, it was Ilqed that in July 1963 the Board made available to the House Banking 8.11 Currency Committee 56 merger applications filed with the Board in 196° and 1961. Since such applications had already been made available to °Ile Committee of the Congress, there would seem to be no reason why theY should not be maae available to another Congressional Committee. f+ reply would note that since the Board retained only one copy dra --. ore841 zerger application for its files, some of the applications l'eWeated could not be made available until their return to the Board *c411 the House Banking and Currency Committee. In discussion, Governor Shepardson suggested that it be made le c 1/1 the proposed letter that the request from the Judiciary i ttae was understood to include only those merger applications that "ad been acted upon by the Board, and that it did not include Detila„ -66 applications. There was general agreement with this suggestion. The letter was then approved unanimously in the form attached Mr* Molony, Assistant to the Board, joined the meeting at thi, 1:11-neY Holding Corporation matter hted. 144Y co Item No. 5j. By order 3, 1962, the Board approved the application of Whitney Holding New Orleans, Louisiana, to become a bank holding company http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2853 8/22/63 -7- by acquiring stock of Whitney National Bank of New Orleans and Whitney ilati°11a1 Bank in Jefferson Parish, a proposed new bank. Following the 13°8.1.6-i s approval, but before Whitney National Bank in Jefferson Parish e°144 be opened for business, certain banks in Louisiana (1) filed 8111t in the United States District Court for the District of Columbia eeeking to enjoin the Comptroller of the Currency from permitting the Ilel/bank to open for business, and (2) petitioned the United States COt Of Appeals, New Orleans, to set aside the Board's May 3 order 81° ' illig formation of the bank holding company. the On December 5, 1962, ulstrict Court entered an order enjoining the Comptroller from 14414 a certificate of authority to Whitney National Bank in Jefferson "'O open for business. From this order, both the Comptroller and 14hitri eY National Bank in Jefferson Parish filed a notice of appeal. On 414Nat 14, 1963, the Court of Appeals for the District of Columbia ren- 4reA a decision with respect to the following two issues: (1) the legal 1140t Of oPposing banks to challenge in court the Comptroller's deter- 1 to issue a certificate of authority to Whitney National Bank 1/1 jet ferson Parish, and (2) the validity of the District Court order reetrai , --"-ng and enjoining the Comptroller from issuing such certificate. 14ith espect to the first issue, the Court of Appeals affirmed the trbt -- court's finding; with respect to the second issue, the Court or A bi 151)eals held that the District Court had correctly enjoined the °41t1.401 4.1er from issuing a certificate of authority for the reason http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2854 8/22/63 -8- that the proposed banking facility would be in reality a branch office Of Whitney National Bank of New Orleans and that establishment of it /ras forbidden by a Louisiana statute applicable to State banks and made 4P11cable to national banks by provisions of Federal law. In its clecision the Court of Appeals also held it unnecessary to decide whether the formation of Whitney Holding Corporation as a bank holding company 1.418 Prohibited by Act 275 of the State of Louisiana, which was enacted 14t0 law subsequent to the Board's order of May 3, 1962. This State 14/ nulde it unlawful for a bank holding company or subsidiary thereof to °Den any bank for business after the date of the Act. In a distributed memorandum from the Legal Division dated k4gilm+ " 21, 1963) reference was made to receipt of a letter of August 20, 1963) from the Department of Justice asking for any comments and recomtions that the Board might have on the advisability of seeking ehe irIg and/or certiorari in the cases decided by the Court of Appeals. Attach eu to the memorandum was a draft of reply stating that from the Viewpoint there appeared to be no particular need for such action, c)431ciell-rig. particularly the manner in which the Court had framed its deeisione Following comments by Mr. Shay, Governor Mills inquired regarding the glziParent effect of the Court decision in relation to the Board's t44 -4-vilities under the Bank Holding Company Act. Mr. Hackley replied t 14 the opinion of the Legal Division this matter had been decided on http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2855 8/22/63 -9- the Particular facts of the given case, on the basis of which the Court telt warranted in piercing the corporate veil. Mr. Hackley did not believe that the decision would constitute a precedent for holding that every subsidiary bank of a bank holding company in a nodbranch Ste'vte would constitute the establishment of a branch contrary to State 431. In the Whitney case, the funds for the establishment of the 144°Posed new bank were supplied by Whitney National Bank of New Orleans 4411 80me members of the Board's staff had felt at the outset that this v"in effect a subterfuge. Governor Mills then inquired whether the proposed letter should ticltbe amplified to explain why the decision reached by the Court was 11(1te°neidered applicable to the ordinary functioning of the Board's 1141PcInsibi1ities under the Bank Holding Company Act. There was general 411reement with this suggestion, and with certain language to implement it that was suggested by Mr. Hackley. In light of a point raised by Governor Balderston, it was also %reeci that there should be inserted in the proposed letter a sentence exl?r'es04 4.11g the Board's understanding that the decision of the Court of ' Appe . 1 -.48 in no way implied that the Board was Obliged to construe and 111)1Y State branch banking statutes in the course of considering 111)lications under the Bank Holding Company Act. For the purpose of further clarification, Governor Shepardson 111411 ' ecl whether the Court decision should be interpreted to mean that http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 285t; 8/22/63 -10- future holding company cases of a somewhat similar nature the Board ellolad be prepared to look into the question whether a proposed subsidie'rYbank would be in effect a branch. Mr. Hackley replied in the lietilre, expressing the opinion that the question whether a proposed "Isidiary bank would be in effect a branch of a State bank would be platter for decision and determination by the respective States; if the, Proposed subsidiary bank was to be a national bank, the matter would ° be 40 for determination by the Federal courts, as in the New Orleans case. Question was raised with regard to the necessity or appropriateness a - Paragraph in the draft letter which would state that the issue on Vaio, - the Court decision turned would seem to be of direct and primary Of 84:4ificance so far as it concerned the functions of the Comptroller of the lIrrency, and that for that reason the Department of Justice might Vish ' 4) rely primarily upon the Comptroller's views with respect to the Etcbl1sab1li4 of seeking rehearing or certiorari. After discussion of this 11°14t, Mr. Hackley suggested alternative language that would state the 14 assIt-„ -"Pulon that the Department, in reaching its ultimate conclusion this matter, would solicit the views of the Comptroller since the deeiai °4 'would appear to have a direct and substantial impact upon his 1\1114etim, There was general agreement with this suggestion. to e. At the conclusion of the discussion, unanimous approval was given a. tt er to the Department of Justice in the form attached as Item No. 5. Mr. Bakke then withdrew from the meeting. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2857 8/2463 -11Publication of information regarding applications. On July 2, /963) the Board discussed the possibility of expanding its weekly K.2 release to include the receipt of applications for approval of the estab lishment of branch offices, domestic or foreign. Before acting, 11°Ve7er) it was thought advisable to obtain the views of the Federal Rea erve Banks not only with regard to this question but also with reePect to the inclusion of applications and actions on other matters ill the nature of licensing functions. Accordingly, the views of the Reserv 'e Banks were requested in a letter dated July 22, 1963, concerning the .e.Lease of information with respect to branch applications, appli-13. ... cation 0 form Edge Act corporations under section 25(a) of the Federal Reserv e Act, applications to invest in agreement corporations under sectin„ 25 of the Federal Reserve Act, applications for permission to 4.1.1.1p reduced reserves, and applications for admission to membership 14 the Federal Reserve System. Copies had been distrfbuted under date of August 16, 19630 of a keit° landura from Mr. Fauver summarizing the views of the Reserve Banks ' receiv ed in response to the July 22 letter of the Board. It appeared t14tt the Reserve Banks generally favored publicizing applications for br0140.. uea, both foreign and domestic, and for the establishment of, or of Me-- In, Edge Act and agreement corporations. On the question 4 444044cj'llg applications for permission to carry reduced reserves the tev, Vere about evenly divided, but a majority were against any announce- e4't Or aPPlications for membership. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis On the basis of the views expressed 2858 W2/63 -12- by the Reserve Banks, and also taking into account the degree of public interest as evidenced by inquiries on various occasions, it was Mr. Fauvert l'Immendation, as stated in his memorandum, that: (1) the weekly K.2 I lease be expanded to include applications for branches, both foreign end domestic, and applications to form, or invest in, Edge Act and agreeMent corporations, and to establish any branches thereof, as well as " 40ns on such applications; and (2) there be no change regarding aria °1111oement of applications for admission to, or withdrawal from, IlleltthershiP in the System, or regarding applications for permission to earr,r J reduced reserves. With respect to the membership and reduced s questions, the memorandum noted that admissions to and withd.430.0 time from membership now appeared in the weekly K.3 release at the slach changes became effective and that information on permission re ' llted to member banks to carry reduced reserves had been published in the4 - Federal Reserve Bulletin about once each year. Following comments by Mr. Fauver based substantially on his tiemor 841clunil Governor Mitchell expressed the thought that the granting or Peralission to a bank to carry reduced reserves was a matter of Qozief, v111 to the banking community, because it was possible that an -ce would be done by granting such permission to one bank in a rea Ver ' I ve city but not to others that might wish to apply if they emare of the situation. It appeared to him that it would be in the Pliblic interest to announce applications for permission to http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28 8/22/63 -13- reduced reserves and actions thereon, and he noted that the Pecleral Reserve Bank comments were rather evenly divided. In further discussion, Mr. Goodman suggested that under the c)cedures prescribed by the revised Regulation MI Foreign Branches of 41/14°nal Banks, there might be little interest to the public at large in the fact that a national bank had advised the Board that it was proposing t° establish an additional branch in a country in which the bank was 41readY operating, or in the fact that the Board had interposed no (*jecticm. It was his opinion that it might be preferable, instead (Ifl/leicIng public announcement, simply to respond to any specific les about pending foreign branch proposals. Mr. Goodman also P°illted out, as to Edge corporations, that it was the Board's practice top.rant preliminary permits. He felt it would be sufficient to report ktio ns taken in this area rather than the filing of applications. In discussion of these points, Mr. Shay suggested that under then e/s/ Regulation M procedure, the fact that a national bank sent to the B oard a notice that it proposed to establish a foreign branch unless the B°8-rd Objected within a period of 30 days, constituted in effect he riling of an application. From the standpoint of the public interest, this Could easily be regarded as the filing of an application. Then, lt the - Prescribed 30-day period elapsed without Board objection, that b e considered as constituting approval. He concurred with the viev °f Mr. Fauver that it would be desirable to go as far as possible 14 11114 °t1neing publicly the receipt of applications. NIA http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2860 8/22/63 Chairman Martin commented at this point that if the Board Irished to discourage public speculation in such matters, this could bed-011e best by laying all the cards on the table. If that were clOrle) public interest would tend to be reduced, generally speaking, t° those cases where there was something involved that actually exranted attention. Governor Shepardson indicated that he agreed with such an aPP°4eh. The matter of announcement of the filing of applications cireign branches, on which he had had some question, apparently " r e°1441 be covered in the manner outlined by Mr. Shay. He had no t404 'ng that the Board should not announce everything appropriate tct announcement) and he tended to agree with Governor Mitchell's \lel? on the matter of applications to carry reduced reserves. Governor Robertson also expressed the view that the Board 444 Put everything on the table. This would include the filing or , 4-Lications for membership in the Federal Reserve System, where he re, j-t that the same arguments were generally applicable as on the 9,14eletin, Of announcing applications for the establishment of branches. the re Governor Mills indicated that his preference would be to accept commendations set forth in Mr. Fauver's memorandum, as modified b the 14 the suggestions of Mr. Goodman. If the Board went a little slowly matter of making announcements, it could always go further if, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2861 8/22/63 -15- after additional consideration, that should seem desirable. He noted that Mr. Fauver's recommendations were in line with the opinions of the majority of the Federal Reserve Banks. Chairman Martin, however, expressed the view that if it appeared likelY that the Board was going to come eventually toa full disclosure aPPlications and actions, it might be better to move in that direction Governors Robertson and Shepardson indicated that they a&reed. Chairman Martin also commented that he thought Governor 1c)13erts(Dri's position on announcing applications for membership in thePederal Reserve System was correct. If applications were filed, aladthe applicant banks were not sufficiently sound to qualify for klaission to membership, one might say that the public had a right t kal C47• Mr. Conkling commented that the only real interest of the Diyi 4 8'4°4 of Bank Operations had to do with the announcing of applications aeticmz with respect to the carrying of reduced reserves. While there atTeared to have been little general interest in this type of ktion ) several years ago the practice was instituted of publishing 14 thp - zederal Reserve Bulletin on approximately an annual basis the Q4aes 14 Which such applications had been granted. He felt that the banks . ln the cities affected usually were aware of such applications, 441 he doubted the necessity of announcing them. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2862 8/22/63 -16Governor Mitchell observed, however, that in Chicago for many Y'141.rs it apparently was not known generally that some banks had reeeiv'ed the privilege of carrying reduced reserves. Chairman Martin then commented that all of the points that 44dbeen raised were worthy of consideration. Nevertheless, it seemed t0 him that on balance less difficulty would be caused by putting everything on the table. Thereupon, Governor Mills' reservations having been noted, it 111„„ -Q,El!eed to institute a procedure for expanding the weekly K.2 re/ease to include notice of the receipt of applications for the e8tEtblisbment of branches, domestic and foreign, for the establishment 14) 0r investment in, Edge Act and agreement corporations, for perktselon to carry reduced reserves, and for membership in the Federal Rese e System. It was understood that the announcement of applications be made at such time as applications in form suitable for coniii by the Board had been received at the Board's offices. It 11413 '4-80 understood that a procedure likewise would be instituted for the °uricenient of actions on the various types of applications hereOre mentioned. Messrs. Molony, Cardon, and Conkling then withdrew from the laeetiria. Revision of Regulation K Items 6 and 7 Pursuant to the Itaa 1,, tariA4 ----kng at the meeting on July 3, 1963, copies had been distributed, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2863 8/22/63 -17- vi.th a memorandum from the Legal Division and the Division of Examdated August 20, 1963, of "edited" and "clean" drafts of a revision of Regulation K, Corporations Doing Foreign Banking or Wlar Foreign Financing Under the Federal Reserve Act. At its July 3 nieeting the Board had directed that a redraft of the proposed revision Of Regulation K be forwarded for comment to the supervised institutions, thePaderal Reserve Banks, and interested Government agencies. Copies 1etters received in response were distributed to the Board limier date of August 16, 1963. The memorandum from the Legal Division and the Division of zetnlinations indicated that most of the changes shown in the draft Nlaation were editorial in nature. With respect to the procedural (illesti°11 vhether there should be a meeting with representatives of the stipe „ "Isad institutions regarding the revision of Regulation K, the Melttor.„-, ' 1141cLum expressed the view that since careful consideration had be" given to all comments received and since many of the suggestions nuttzleu "ad- been adopted in the draft revision, no oral presentation by th s_ '41pervised institutions would seem necessary. Governor Mitchell noted that the changes incorporated in the Dre, -ent revised draft of Regulation K were based in part on an effort to 4z1c.e the Regulation consistent with the recently revised Regulation MI Porei 1.1 Breaaches of National Banks. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Also, it would be in order to take 2864 8/22/63 into -18- Consideration certain objections to the earlier draft that had been raised by the supervised institutions Me as set forth in the staff morandum. Attention then turned to the procedure to be followed in reviewing the revised draft of Regulation K, and it was agreed to follow the section-by-section analysis set forth in the memorandum. Governor Mills indicated at this point that his participation in the review °I' the draft regulation would be subject to the over-all consideration that, ue intended, for reasons he would explain later, to dissent from a442t1on of the revised Regulation K. The first question considered in reviewing the proposed regulati04 on a section-by-section basis was whether a statement of national 1114113c/ae should be retained in section 211.1. The Division of Examinations had expressed the view that such a statement should be retained, the Legal Division was of the opinion it should be omitted. After discussion a consensus was reached that the statement of nstionni Purpose should be retained, although with certain changes in the a -raft language. (Governor Shepardson indicated that he would have beeti . Inclined to agree with the Legal Division because he questioned 14beth r e- anYthing significant would be accomplished by the inclusion t th , 4 e' - 41tement.) tio4 G°vernor Mitchell then reviewed the language of the proposed sec- 3 211 ' 2 , 211.3, 211.4, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 211.50 and 211.6, and questions in connection 2865 8/22/63 therewith and it was indicated in each instance that no change should be Made in the provisions of the revised draft. As to section 211.7, l'elating to operations in the United States) the draft regulation illcilded a listing of specific types of business that would be permis131'4e. The inclusion of such a listing was favored by the Division of inations, but the Legal Division suggested its deletion. Governor Mitchell- expressed agreement with the view of the Division of Examinati0 1181 and this view was concurred in by other members of the Board. With one minor exception, the remaining parts of section 211.7 were e l3t". in the form set forth in the draft regulation. Discussion then turned to the section on acceptances that had been , Included in the previous draft revision of Regulation 1i:but did 1.44E13n*laz in the latest draft. Two subsections, relating to character and Maturity of acceptances, had been omitted in order to establish (111-tcl litY with the recently revised Regulation M; a subsection on 414°1110it 1imitations would be transferred to section 211.9, relating to lianitations and restrictions. Accordingly, an Edge corporation would be tree to make acceptances under its statutory authority without linlitation. as to character or maturity, and subject only to amount The New York Reserve Bank had expressed the view inforhat the problem be faced in Regulation CI Acceptance by Member : 4,171 Of Drafts or Bills of Exchange) before omitting the two subsections) 4/41 the 1.14 --vision of Examinations felt that no difficulty would be created http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 286f; 8/22/63 -20- if those subsections were retained in the revised Regulation K. The Legal and Examinations Divisions agreed, however, that the restrictions 15172dge corporations in this regard should be the same as for member banks. The Board had long taken the position that State member banks //ere not restricted by Regulation C as to the character and maturity cI4ecePtances, and the Comptroller of the Currency had recently held that national banks were not so limited. For these and other reasons, the recently revised Regulation M had subjected foreign branches of 4151;10nal banks only to the amount limitations of Regulation C. The Lem „, lavision felt, therefore, that there was no sufficient reason to impose restrictions on the acceptance powers of Edge corporations the't °Ilid be more severe than those applicable to State member banks 8144 t0 ' national banks (including their foreign branches). In a discussion of this point, Governor Robertson indicated that, "evould be inclined to retain the subsections contained in the earii el' draft, adding that if the Board wanted to make a change in Reale. ation K after it had reviewed Regulation CI this could always be ClOne In the meantime, there would apparently be no great harm to corporations. Governor Mitchell referred, on the other hand, to the discusthat had. occurred with regard to the acceptance provisions of the rev-it:lea tiozix Regulation MI and pointed out that the current draft of Regulaliould be consistent with the Board's decision on Regulation M. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2867 e22163 -21Mr. Hackley noted that Regulation M related to the powers of f°reign branches of national banks. In the case of Regulation K, it Illigtt be said that there was not the same problem of equity as between different types of banks. In further discussion of this question, Chairman Martin asked confirmation that the earlier draft of Regulation K would be inecnisistent with Regulation M. Mr. Shay replied in the affirmative, e4cling that to the extent that Edge corporations and foreign branches erea1ternatives, there would be a loss of equality. Governor 11814"Ston indicated that he favored the principle of keeping Regulati°11 M and Regulation K as much alike as possible, and Chairman Martin 8440,0„, vernor Shepardson expressed agreement. Accordingly, the consensus favor ed the treatment of acceptance powers found in the latest draft R ation K. re Consideration was given next to the provisions of section 211.8, ---‘b to investments in shares of stock in other corporations. In thei4"4Iest revised draft, general consent was provided for an Edge e01,1101,.. 4tion to acquire shares of corporations organized under foreign ittv slach acquisition was incidental to an extension of credit by th 'clge corporation to the corporation whose shares were acquired, if th 44,1111,4 sit10n consisted of shares in a foreign bank, or if the ElgIllait1-on was otherwise likely to further the development of U. S. commerce, provided that no such acquisition would cause an http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2868 8/22/63 -22 Eage corporation to hold 25 per cent or more of the voting shares or e. foreign bank and that the aggregate amount invested in the shares ()t 44Y other corporation (as being likely to further the development or U. S. foreign commerce) would not exceed $200,000. Governor Mitchell indicated that he would favor the language the revised draft, following which Mr. Hackley noted that the 14estion whether an acquisition of stock would further the developof the foreign commerce of the United States involved a matter or Judgnient. Presumably, if an Edge corporation felt that such an 4ecillasiti0n would further the development of U. S. foreign commerce, it 'vcAlld have permission to go ahead and acquire the stock under the gelleral consent. After further consideration, the language of the revised draft vae indicated to be acceptable to the members of the Board. It Vas z, 4460 agreed to retain a provision indicating that Edge corporations, / °1 4 th„-Y wished, could request an advisory opinion of the Board as to -4'a particular acquisition would be covered by the general consent. There were no further questions with respect to the provisions °tee,. tlon 211.8 except for a question raised by Governor Shepardson regalia ing the reporting requirements. These stated, among other things, that ell Edge corporation must inform the Board within 30 days after the C108e or each quarter with respect to any acquisition or disposition of http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2869 8/22/63 -23- during that quarter, including information concerning shareholders (known to the issuing corporation) holding 10 per cent or more an class of the corporation's shares (and the amount held by each). G°vernor Shepardson inquired whether such information was essential; ould be required only in the case of known shareholders. Mr. Goodman NIlled that a relatively new area of administration was involved, which Ngeated proceeding cautiously. With more experience, it might be th°Ught appropriate to propose some modification of the reporting rents. He believed that only in rare instances would the names O -44 larger shareholders not be known to the issuing corporation. At thee°4clusion of the discussion of this point, Governor Shepardson cated that although he still had reservations, he would not pursue the matter further at this time. The provisions of sections 211.9 and 211.10, relating, respect: 1- ‘,0 limitations and restrictions and to corporations with 414eMents under section 25 of the Federal Reserve Act, were accepted /11th -out change. There followed discussion of the question whether arrangements b e made for supervised institutions to appear before the Board beto , 'e the revised Regulation K was issued, and there was general 41 411'eeinp. --nt that in the circumstances this step would not seem necessary. There was also discussion as to the date on which the revised (Kati() n should be made effective, and agreement was reached on an date of September 1, 1963. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2870 8/22/63 Thereupon, subject to the understanding that the changes agreed 14150n at this meeting would be incorporated, the revised Regulation K vas 2:L9Plial, effective September 1, 1963, Governor Mills dissenting. A Copy of the revised Regulation in the form in which it was published ill the Federal Register pursuant to this action is attached as Item No. 6. Copy of the press release issued on August 23, 1963, is attached as "f• In explanation of his dissent, Governor Mills said he thought the decisions reached against the background of the staff memorandum t August 201 1963, were correct, and further that the positions taken th e staff memorandum on several questions were correct because they vex.. - 44 the direction of retaining some vestige of control over the cTerations of Edge corporations. However, the essential effect of the aticmy in his opinion, was to open the gates to improper financial Etki. 'banking practices. It was stated in the first part of the Regulation thm; „, 4age corporations should confine the scope of their activities, botia -n the United States and abroad, to practices consistent with high tat erds of banking and financial prudence, but he did not believe that 4., wie Principle espoused at that point was carried out in the body or the Regulation. He had found the same difficulties in the recently revise 4 Regulation M. The authorities granted in the area of acceptances 1414 gllar -antees were vehicles for permitting credit transactions that 4/4 not be consistent with sound banking practices in this country. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2871 8/22/63 -25- W11ile he recognized that the revised regulations reflected an effort to allow Edge corporations and national banks to compete more effectively abroad, this did not mean that subsidiaries or branches of 4°"lcan banks should be permitted to engage in transactions that, so 1'84 'as the domestic operations of the parent banks were concerned, had been r egarded as questionable, at best, over the years. Authorities 811e4 as to make acceptances for indefinite periods of time, to issue letters of credit for indefinite periods for unknown purposes, and tc " arderwrite, sell, and distribute securities abroad in a manner 1/Naibited in the United States were not, in his opinion, proper "thorities to grant. theie As to the acceptance and guarantee provisions, the Board was permitting Edge corporations to advance their ellellt and expand their risk exposure to a great extent in areas that 414ez 'RegUlation C were properly confined to transactions with limited 111411-rities, and of a self-liquidating nature. Principles of long tar4ing were being disregarded because American banks had taken the bit i 11 their teeth, were not looking back at history, and were willing to e ll' gege in transactions that in the past had involved banks in serious ,it4.culties. t * make In addition, the greater liberality to accept and guarantee dollars investments would encourage the outflow of gold and he United States at a time when a critical balance of payments Drobi fl existed. He construed the liberalized authorities, particularly thoae relating to acceptances and guarantees, as a completely inappropriate http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2872 8/22/63 -26- Of powers to Edge corporations that was not consistent with PrUdent banking practices in the United States and should not be reas consistent with prudent financial practices. The administIlaticm of the provisions would inflict a burden on examiners to determine insolvent credits of the Edge corporations, and they would be able to enter their criticisms effectively only after there had been defaults and losses. Governor Robertson said that he voted for adoption of the reNIsed Regulation K with reluctance, because he felt that the timing riA -kloption of the revised Regulation was inappropriate. The revised Regta -on provided more liberal opportunities for investments abroad a " ate. +4_ "J-me when the balance of payments problem was of great concern. ¶rhe. evlsed Regulation went so far as to authorize the acquisition of hares the by Edge corporations inancing when such acquisitions were not related to of U. S. international trade. He would have much preferred it If the matter had been dealt with five years ago, or it were possible tc"e l with it a couple of years hence. Governor Shepardson likewise stated that he wished the problem coll1A Ilave been dealt with earlier. 0 hed. not That not having being done, however, see what would be gained by deferring action. Such action Derhe. /38 Ilas unfortunate in the context of the existing balance of pay- 41ents ''°131eml but it seemed that a purpose of the Edge Act—like the vOse Of the recent statutory amendment pertaining to the powers of http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2873 8/22/63 -27- foreign branches of national banks--was to afford more opportunity United States financial institutions to engage in international ities. The whole approach had been in the direction of liberal- 144ttion, though admittedly this involved moving into an area of incomplete itlrormation. In the circumstances, he felt that the Board should provide all of the liberality that seemed reasonable, at least on an exploratory bctsis, with any necessary rebuilding of fences later if that should he r°1Ar1d necessary. Governor Balderston commented that he considered it imperative thet 611e foreign activities of U. S. banks and Edge corporations be hie d by a single Federal bank supervisory agency. One of the 13311)ort ant reasons for making Regulations M and K consistent with each the Igas to resist pressure for a separation of regulatory powers. Thia Igaz one reason he had favored simplification of the two regulations mutually consistent manner. 1?0111.a. In further discussion, Governor Robertson suggested that it 11°1e desirable, under present and anticipated circumstances, to the staff of the Division of Examinations that was concerned 1)r°bleills of international banking and financing, and there appeared leneral agreement with this expression by Governor Robertson. li%111 The foregoing action by the Board in adopting the revised K included authorization to the Board's staff to make *late changes in the forms for articles of association and http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/22/63 -28- °Irganization certificates (F.R. 151 and F.R. 152) of Edge corporations, 8° as to conform with the provisions of the revised Regulation. The meeting then adjourned. Secretary's Notes: Governor Shepardson today approved on behalf of the Board the following recommendations contained in a memorandum from the Division of Personnel Administration dated August 21, 1963, with regard to arrangements in the case of James A. McIntosh, Technical Assistant in the Division of Bank Operations, who had selected an academic year's period of study at Stanford University, Palo Alto, California, as recipient of a Career Education Award from the National Institute of Public Affairs; (1) that Mr. McIntosh be granted leave with pay for the academic year 1963-64, beginning on September 14, 1963; (2) that the Board pay the travel costs of Mr. McIntosh and his family, with Government transportation requests to be used for the travel of his family and Mr. McIntosh to be paid for his use of Private automobile at the rate of 12 cents a mile from Washington to Palo Alto and return, plus necessary per diem; (3) that Mr. McIntosh be paid 12 cents a mile, Plus necessary per diem and other expenses such as Parking fees, in connection with his assignment by the Division of Bank Operations to review and discuss, at the Federal Reserve Bank of San Francisco, matters Pertaining to functional expense reports; (4) that the cost of moving necessary household goods be paid direct to the carrier by the Board; (5) that should arrangements to sublease his apartment not materialize, and should it become necessary to place the remainder of his furniture in storage, the Board make direct remittance to the storage company for the costs involved; and (6) that Mr. McIntosh be permitted to obtain a travel advance for the amount of expenditures he would be expected to make through December 31, 1963; that he account for this travel advance at the end of the year; and that he be permitted another travel advance for expenditures through the remainder of his stay at Stanford, to be accounted for upon his return. It was anticipated that at any time during his period at Stanford, or at the conclusion of that period, Mr. McIntosh might submit a revised estimate of expenses http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2875 8/22/63 -29with a request for possible additional payments by the Board. It was stated in the memorandum that nothing in the recommendations with respect to this case should be considered as establishing a precedent for future award winners or for other training activities, or as changing the Board's present practices with regard to leave of absence for completion of doctoral dissertations. Pursuant to the recommendation contained in a memorandum from the Division of Data Processing, Governor Shepardson also approved today on behalf of the Board the granting of military leave to Bernard A. Thomasson, Operator-Tabulating Equipment, Division of Data Processing, for a two-year tour of duty beginning August 30, 1963. Assistant Secretary/ http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28'76 Item No. 1 BOARD OF GOVERNORS OF THE 8/22/63 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 22, 1963 Board of Directors, County Trust Company, White Plains, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment of a branch at 509 Gramatan Avenue, Mount Vernon, Westchester County, New York, by County Trust Company, provided the branch is established within one year from the date of this letter, and provided further that branch operations conducted at Broad and Locust Streets, Mount Vernon, Westchester County, New York, are discontinued simultaneously With the establishment of the above branch. 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.) http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2877 Item No. 2 8/22/63 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. O. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 221 1963 Board of Directors, i'itizens Fidelity Bank and Trust Company, '°11isville„ Kentucky. 4litlernen: The Board of Governors of the Federal Reserve System s the establishment of a branch by Citizens Fidelity and Trust Company in the Chenoweth Plaza Shopping Center il,:orownsboro Road near Chenoweth Lane in Louisville, Kentucky, Wa'jided the branch is established within one year from the ef this letter. Prove Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. The letter haa to the Reserve Bank stated that the Board also e,aPproved a six-month extension of the period allowed to rtablish the branch; and that if an extension should be ,:illested, the procedure prescribed in the Board's letter November 9, 1962 (S-1846), should be followed.) http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2878 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 3 8/22/63 WASHINGTON OFFICE OF THE CHAIRMAN August 22, 1963 The Honorable Oren Harris, Chairman, °Illmittee on Interstate and Foreign Commerce, "use of Representatives, 14ashington 25, D. C. bear Mr. Chairman: This is in response to your communication of August 13, 1963, Ac, requesting a report on S. 1642, a bill to amend the Serities of 1933 and the Securities Exchange Act of 1934. This bill, which passed the Senate on July 30, 19o3, substa its ntially similar to H. R. 6789 on which the Board reported in he letter to you of June 21, 1963. A copy of that letter is enclosed ujiewith for your convenient reference. (A memorandum enclosed with is t letter, regarding the language of section 3(e) of H. R. 6789, to 11°t enclosed with this letter, since the memorandum is not pertinent the language of S. 1642.) As stated in its letter of June 21, the Board is principally e°11cer ned with those provisions of the bill that would extend reporttri s4' re quirements, proxy rules, and "insider trading" provisions of the see rities Exchange Act to certain corporations, including banks, whose belt ties are traded in the over-the-counter market. The Board eves that such provisions should be applicable to banks and that the, Jt should be administered by the Securities and Exchange Commission por he case of banks as well as in the case of corporations generally. Of tithis reason, the Board questioned the advisability of section 3(e) Colltm. R. 6789 which would have provided for the delegation of the reaulesion's functions with respect to banks to the Federal bank at°rY agencies upon the request of such agencies. befor As amended and passed by the Senate, S. 1642, the bill now tradie ylour Committee, would require the reporting, proxy, and "insider Pede,.ng provisions of the bill to be administered by the appropriate bank regulatory agencies in the case of banks, instead of proVtj 41)04 g for delegation of the Commission's functions in this respect request of the banking agencies. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2819 The Honorable Oren Harris The views expressed by the Board in its letter of June 21 are equally applicable to S. 1642; and therefore the Board recommends the deletion of section 3(e) of that bill. In the Board's opinion, ragmentation of responsibility for administration of the provisions of the bill applicable to banks, as contemplated by section 3(e), !ould result in inequities, inefficiency, and unnecessary confusion. However, if your Committee should nevertheless endorse, and if the Congress should enact, S. 1642 in its present form, the Board is Prepared to carry out the new responsibilities that would be placed Upon Sincerely yours, (Signed) Wm McC. Martin, Jr. Wm. McC. Martin, Jr. Enclosure http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis (c);c'c• 2880 Item No. 4 BOARD OF GOVERNORS 8/22/63 OF THE FEDERAL RESERVE SYSTEM WAS OFFICE OF THE CHAIRMAN am.10,%1* 41 ktlooi) August 23, 1963 The Honorable Emanuel Celler, Chairman, Committee on the Judiciary, Rouse of Representatives, Wa shington 25, D. C. bear Mr. Chairman: This is in reply to your letter of August 14, 1963, d to requesting that Mr. Philip Marcus of your staff be permitte "amine certain bank merger applications. d to one As you know, applications to merge are submitte you °f the three Federal bank supervisory agencies. I assume that bank ng ish to see only those applications in which the continui W and System Reserve Federal the 1448 to be a State member bank of of the p,‘ich, therefore, were filed with the Board of Governors ederal Reserve System. ordered a In a relatively few instances the Board has respect to with views of tion hearing or public oral presenta is availion applicat the s elr°Posed merger, and in these instance : ng containi portions certain e for public inspection except for the in be not would re disclosu a pub°rm tion of such nature that its its with ts statemen s publishe a,lie interest. While the Board cCunced decisions, insofar as practicable it attempts to avoid the business of incli, 1,°sing unpublished information concerning hual banks and particularly of individual bank customers, and it ''Pes that such information in the applications will continue to be 8° treated. Publi such merger The Board will make available to Mr. Marcus aPp14_ that have been acted upon by the ;:cations as he may wish to examine mention that 56 this connection, however, I should Inergl6clard* In Banking and cur er applications have been forwarded to the House ions filed with the toaren cY Committee. These include 14 applicat retains only one Board the cen d in 1960 and 42 filed in 1961. As be unable to would we nige of a merger application for its files, been returned to us. have e those applications available until they Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2881 Item No. BOARD OF GOVERNORS 5 8/22/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 22, 1963. Mr. Carl Eardley, Sec°11c1 Assistant, 0' • • • Division, Nted States Department of Justice, Washington, D.C. 20530. „lira . Attention: Re: Mr. Morton Hollander, Chief, Appellate Section Whitney National Bank V. Bank of New Orleans (C.A.D.C. No.7772-) Saxon v. Bank of New Orleans (C.A.b.C. No. 17681) Mr. Eardley: for a Your letter of August 20, 1963 (CE:MH:DLR 145-3-562), asked Isespen3 :comments or recommendations that the Board may have with cola et, to the advisability of a rehearing and/or certiorari in necti on with the decision of August 14, 1963, in the above-captioned ea2es, PNic The Board understands that the decision in question was PiQlreiated upon the particular facts of the cases at bar warranting ,prec,lin of the corporate veil, and that the holding would not constitute noldi-'"ent with respect to the usual relationsnip between a bank that t,l "mPany and a proposed subsidiary bank. It is further understood decision in no way implies that the Board is obliged to construe 4Ppli'v'Y State branch banking statutes in the course of considering 1 be t1°11s under the Bank Holding Comp'iny Act of 1956. Accordingly, it hq s,'eved that the manner in which the Court framed its decision does Tiecifically affect the Board's function under that Act. Therefore, foltell! Board's point of view, there appears to be no particular need e'`ing either rehearing or certiorari. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2882 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 4. Carl Eardley , f, cur -2- It is assumed, however, that in reaching your ultimate Sion in this matter the views of the Comptroller of the 11111,1:encY will be solicited, since the decision would appear to 4 direct and substantial impact upon his functions. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Item isr?.V3 8/22/63 TITLE 12—BANKS AND BANKING CHAPTER II--FEDERAL RESERVE SYSTEM SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. K] PART 211--CORPORATIONS ENGAGED IN FOREIGN BANKING AND FINANCING UNDER THE FEDERAL RESERVE ACT 1. Effective Septenber 1, 1963, Part 211 is revised to read as OUow Sec 211.1 J- Authority, scope, and national purpose. 211.2 Definitions. 211.3 Organization and ownership of shares. 211,4 Issuance of obligations. 211.5 Underwriting, sale, and distribution of securities. 211.6 Branches and agencies. 211.7 Limited operations in the United States. 211.8 Investments in shares of other corporations. 211.9 Limitations and restrictions. 211.1 Corporations with agreements under section 25 of the Act. AUTHORITY; U.S.C. 248(i). §§ 211.1 to 211.10 issued under 12 IltePrete or applies 12 U.S.C. 611-631; 12 U.S.C. 601-604a. Authority, scope, and national purpose. 00„, (a) 6.11aalty 1. 'rtor-8 and scope.--This part is issued by the Board of of the Federal Reserve System (the "Board") under authority of http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2884 -2the Federal Reserve Act (the "Act"). It applies to corporations °I.ganized under section 25(a) of the Act (12 U.S.C. 611-631) and, to the extent specified in § 211.10, to corporations having an agreement or undertaking with the Board under section 25 of the Act (12 TT -.S.C. 601-604a). (b) National purpose.--The Congress, in enacting section 25(a) Of the Act, provided for the establishment of international banking atld kIllancial corporations operating under Federal supervision with ' sufficiently broad to enable them to compete effectively with similar foreign-owned institutions and to afford to the United States Cr and importer in particular--and to United States commerce, itidllstrY, and agriculture in general--at all times a means of financ- g 4 ' Iltarnational trade. In light of the public purposes involved, Corporrtions should be . in their activities abroad to operate, as best meets their corpo4te through branches, agencies, and correspondents or through Land indirect ownership in foreign-chartered companies engaged 41 bankin, 6 or other international or foreign operations, so long as their e'dit and other activities are in the interest of the United States. CO Po at. ations Shall confine the scope of their operations both in the d e- States and abroad to practices consistent with high standards of 1)411., 1. fl ° financial prudence. Activities in the United States shall teztricted _ 0 t operations clearly related to international or foreign http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2885 -3S211.2 Definitions. For the purposes of this part, unless the context otherwise re quires-(a) "Abroad", "foreign", or "foreign country" refers to one or foreign nations or colonies, dependencies, or possessions thereof, (3/7erseas territories, dependencies, or insular possessions of the United 8 tate8, or the Commonwealth of Puerto Rico. (b) "Capital and surplus" means paid-in and unimpaired capital a" allrPlus. (c) "Corporation" when spelled with a capital "C" means a corporation areAnized under section 25(a) of the Act. (d)A Corporation is "engaged in banking" whenever it has aggregate detna nd deposits and acceptance liabilities exceeding its capital and sarPlus. (e)"Person" includes an individual or an organization. (t)"Organization" includes a corporation, government, partnership or ass °elation, or any other legal or commercial entity. 211 , si Organization and ownership of shares. (a) Organization.--A proposed Corporation shall become a body torpor ate upon issuance by the Board of a preliminary permit approving ita na ale, articles of association, and organization certificate.1/ Ap tertitpr°Priate forms feate (FR 151 t!rt oi : - s the original ziitiat4 .e 10 .- the district ated. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis for articles of association and organization and 152, Revised 9-1-'63), filed .is document, may be obtained from the Federal Reserve in which the home office of the Corporation is to 288G -4- The name shall incluJc "InLerAational", "foreign", "overseas", or s°111e similar word, but may not resemble the name of any other organi4tinla to an extent that might milead or deceive the public. After -uance of its preliminary permit, a Corporation may (1) elect office_ rs and otherwise complete its organization and (2) invest in Obl1 8ations of the United States Government; but none of its other PoIlers mit to ma-i be exercised until the Board has issued to it a final percommence business. No amendment to the articles of association shall become effective until approved by the Board. (b) Ownership _of shares.--Shares of stock in a Corporation (14lich may not include no-par value shares) shall be issuable and tInsferable only on its books, and no issue or transfer that would cause a violation of sect4 on 25(a) of the Act shall be so effected. C(1tPoration shall notify the Board as soon as possible of any change ill status of a shareholder which causes a violation of said section 25(a) 414 shall take such action with respect thereto as the Board may direct. 4Ch class of shares shall be so named and described in the share elctiEicates as to indicate its character and any unusual attributes, 4" such c ertificates shall conspicuously set forth the substance of (1) tations upon the rights of ownership and transfer of shares 4111°seci. by sid section 25(a) and this part and (2) rules which the e°tPoration shall prescribe in its by-laws to insure compliance with this p,,racraph. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 28S' -5- 1211.4 Issuance of obligations. Except in accordance with prior Board approval, no Corporation TaaY issue or have outstanding any debentures, bonds, promissory notes (ether than notes due within one year), or similar obligations. , 211•Underwriting, sale, and distribution of securities. (a) General.--Except as permissible for member banks under section 5/36 of the Revised Statutes (12 U.S.C. 24), a Corporation liDlad in banking may not engage in the business of underwriting, or distributing securities other than obligations of the government of a foreign country in which it has a branch or allency.2/ (b) In the United States.--No Corporation may (1) engage in the usine ss of selling or distributing securities in the United States (exce Pt Private placements of participations in its investments or eltten4 -4°ns of credit) or underwrite any portion thereof so sold or tr ibuted or (2) act in the United States as trustee, registrar, in -nY similar capacity, with respect to securities distributed in the United States. 21 (4) Branches and agencies. tIjnited States.--A Corporation may not establish any 4ch in the United States, but with prior Board approval may establish Z/ instrumentality, and 0 tu 4.141:( dina obligations issued by any agency or "ed by the full faith and credit, of such a government. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- 288 agencies in the United States for specific purposes, but not generally to.— csrLy on its business. (b) Abroad.--With prior Board approval, a Corporation may establish branches or agencies abroad. If a Corporation has established a branch by the c) agencY in a foreign country, it may, unless otherwise advised BOard thirty establish other branches or agencies in that country after dihp nOtiCe pending operations abroad durinL; disturbed conditions. - (c) The to the Board with respect to each such branch or agency. °Ificer in charge of a branch or agency abroad may suspend its akrations during disturbed conditions which, in his judgment, make r ' e 41dut. be -- of such operations impracticable; but every effort shall 1ttade before and during such suspension to serve its depositors and customers. 11114P t1 Y reported to the home office of the Corporation, which shall iltlediate aerwe be Full information concerning any such suspension shall Federal RelY send a copy thereof to the Board through the Bank of its district. 5 211'7 Limited operations in the United States. permit (a) g2Deral zolicy..--It is the Board's general policy to this e°rPc)rations to transact, subject to section 25(a) of the Act and 'art, such usual in financlimited business in the United States as is 4 inte loan, overrnational commerce, including deposit facilities; dtaft, commercial advance, acceptance, and other credit facilities; letters of sale of foreign credit; foreign collections; purchase and http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -7- 2889 el thange; remittance of funds abroad, purchase, sale, and custody of seellrities and acceptances for account of customers abroad; and f°reign credit information. (b) Employment of funds.--Funds of a Corporation not currently el111110Yed in its international or foreign business, if held or invested in the United States, shall be only in the form of (1) cash, (2) de- P°81ts With banks, (3) bankers' acceptances, or (4) obligations of, °t°bligations fully and unconditionally guaranteed by, the United State , any State thereof, or any department, agency, or establishment Of, 0 r corporation wholly owned by, the United States. (c) Receipt of deposits.--It will ordinarily be considered incidental to ,. 'o for the purpose of carrying out transactions abroad for a Corpora- tion t receive in the United States demand and time (but not savings) depo . sits that are not to be used to pay expenses in the United States Of a n office or representative therein-(1) from foreign governments, persons conducting business hirleiPallY at their offices or establishments abroad, and individuals esid ent abroad and (2) from any other person if the deposit (i) is to be transmitted 413rd'(ii) is to provide collateral or payment for extensions of credit bY the Corporation, (iii) represents proceeds of collections abroad which 1:e to be used to pay for goods exported or imported or for other direct /ste of export or import, or periodically transferred to the depositor's http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -8- 2890 account at another financial institution, or (iv) represents proceeds of e xtensions of credit by the Corporation. Such deposits shall be subject to Parts 204 (Reg. D) and 217 (Reg. Q) and be reported in the same manner as if the Corporation were a member ball of the Federal Reserve System; but in no event shall reserves againSt such deposits be less in the aggregate than 10 per cent. (d) Other permissible activities.--It will ordinarily be considered incidental it to to the international or foreign business of a Corporation for engage in the following transactions in the United States: (1) Finance the following types of transactions, including Payments or costs (but not expenses in the United States of an office (1r rePresentative therein) incident thereto: (i) contracts, projects, el. activities performe6 abroad, (ii) the importation into or exportation the United States of goods, (iii) the delivery through domestic tratisPort facilities of goods so imported or their assembly or packaging resale without essential change therein, if the Corporation financed the imPortation, and (iv) the domestic shipment or temporary storage (but net production) of goods being exported or accumulated for export, 4 the corporation is financing their exportation; (2) Take over or acquire subsequent participations in Lens s of credit, or acquire obligations, growing out of trans- actions it could have financed at inception under (1) above; (3) Guarantee customers' debts or otherwise agree for their berfi Ito make payments on the occurrence of readily ascertainable http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis _9- 2891 el7"ts,31 if the guarantee or a reeiaent specifies its maximum monetary thereunder and is related to a type of transaction described in (1) above; (4) Buy and sell spot and future foreign exchange; (5) Receive checks, bills, drafts, acceptances, notes, bonds, "41143ns, and other securities for collection abroad, and collect such illsttunlents in the United States for customers abroad; (6) Hold securities in safekeeping for, or buy and sell Setur4 ' -ties upon the order and for the account and risk of, customers abroad; (7) Act as paying agent for securities issued by foreign gOVer nments or other organizations organized under foreign law and not (We ied under the laws of the United States or any State or the btst et of Columbia to do business in the United States. " Investments in shares of other corporations. () General consent.--Subject to section 25(a) of the Act' and this Part, the Board hereby grants its general consent for any Corporati°11 to atquire (other than through a broker, dealer, or stock exchange fi representative) and hold the shares of corporations 3 /rici ing, but not limited to, such types of events as nonpayment of taXes aoko,:?entals, customs duties, or costs of transport and loss or "Lormance of shipping documents. • —1118 the limitations therein based on capital and surplus. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2892 -10°rganized under foreign law if such acquisition (1) is incidental to .LLL extension of credit by the Corporation to the corporation Ilboae shares are acquired, (2) consists of shares in a foreign bank, Or (3) is otherwise likely to further the development of United States fc)reign commerce; but no acquisition under this paragraph may cause Corporation to hold 25 per cent or more of the voting shares." Of a foreign bank and the aggregate amount invested in the shares 4 Of anY other corporation under (3) above may not exceed $200,000 or its e quivalent. A Corporation may request an advisory opinion of the 13°41'd as to whether a particular acquisition is covered by the preceding sentence. (b) §.2Lcific consent.--Prior specific consent of the Board is 4.14recl with respect to the acquisition of any shares by a Corporation 4 4.n any situation not covered by § 211.3(a) or the ninth paragraph Of section 25(a) of the Act. (c) Conditions.--(1) Shares of stock in a corporation shall be (lisp() should sed of as promptly as practicable if (i) such corporation ellgage in the business of underwriting, selling, or distributing securities in the United States or (ii) the Corporation is advised bY the Board that their holding is inappropriate under section 25(a) Of the Act or this part. (2) In computing the amount which may be invested in the sha res of any corporation under section 25(a) of the Act or § 211.8(a), ive http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis rights to acquire shares. -11- 2893 there shall be included any such investments in other corporations ec4trolled by such corporation. Unless otherwise specified, "shares" in this section includes any rights to acquir,! shares. (d) Eu2rts.--A Corporation shall inform the Board through the Federal Reserve Bank of its district within thirty days after the elos„ of each quarter with respect to any acquisition or disposition ' of sh area during that quarter, including the following information Center ing any corporation whose shares it acquired for the first tine (unless previously furnished): (1) Recent balance sheet and ins tatement, (2) brief descriptions of the corporation's business nel "lng full information concerning any such business transacted in u-, "lted States), the shares acquired, and any related credit transetion , ' 0) lists of directors and principal officers (with address arld . business affiliation of each) and of all shareholders (43 144 to the issuing corporation) holding 10 per cent or more of any class of the corporation's shares (and the amount held by each), and (1) i4formation concerning the rights and privileges of the various c4138es °f shares outstanding. 211 '9 Limitations and restrictions. (a) Acceptanres.--A Corporation shall be and remain fully secured 4z to (1) 50 per cent of all acceptances outstanding in excess of the °E its capital and surplus, ( ) all acceptances in excess of ce h amount, and (3) all acceptances for any one person in excess http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2894 -12of )n -,, per cent of such a7lount, except to the e::tent any such excess represents the international shipment of goods and is fully covered by Primary obligations to reimburs it which are also guaranteed by 4 ' 14 or bankers. (b) Liabilities of one bozrower.--Except as the Board may °-net ise specify, the total liabilities to a Corporation of any Pers°11 shall at no time exceed 50 per cent of the Corporation's capital arid surplus, or 10 per cent thereof if it is engaged in banking. this arid In borrowed Paragraph "liabilities" includes: any obligations for money shares of stoC:; unsecured liabilities resulting from issuance by then °rPorat:on of guarantees or similar agreements (described in ' 211 1, any the aggregate of which liabilities incurred for Ilersc'n may in no event exceed 10 per cent of any Corporation's capital and surplus; in the case of a partnership or firm, liabilities of the 14ernbQrs incurred thereof; in the case of a corporation, liabilities in the f° its benefit by other corporations which it controls; and cas or of a foreign government, the liabilities of its departments ag c tax ie4 deriving their current funds principally from its general u 8* to The limitations of this paragraph shall not apply (1) bills or Iklues, (2) existing drafts drawn in good faith against actually commercial or obligations arising out of the discount of any acceptance --kness paper actually owned by the negotiator, (3) ta(le b held by it, or Y a Corporation which has not matured and is not http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2895 -13(1) obligations to the extent supported by the full faith and credit of the following: (i) The United States or any department, agency, or esta blishment thereof or corporation wholly owned thereby, the Internat1°11a1 Bank for aeconstruction and Development, the International 4rlance Corporation, the International Development Association, or the later-American Development Bank; (ii) A foreign national government or its appropriate fitlancial or central banking authority, if at least 25 per cent of slich an obligation or of the total credit is also supported by the 40.1 faith and credit of, or participated in by, any institution designated in (i) above in such manner that default to the Corporation I/ill n ecessarily include default to such institution; (iii) The national government of any foreign country in the Corporation has a branch or agency with at least equal c41tct'Ilaing liabilities payable in the same currency; (iv) Any person if the Corporation is not engaged in banki_ ug and the obligations or total credit are subject to 25 per Cert -upport or participation of the type described in (ii) above; but th 110 ti e total liabilities of such person to the Corporation shall at exceed 100 per cent of its capital and surplus. (e) Aggregate liabilities.--Except with prior Board permission, e Cor on account of Porationis aggregate outstanding liabilities http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2896 -14- acceptances, monthly average deposits, borrowings, guarantees, endorsements, debentures, bonds, notes, and other such obligations shall not exceed ten times its capital and surplus; provided that qEMegate outstanding unsecured liabilities under guarantees or similar aareezents Ciesc:ibed in § 211.7(d)(3)) may in no event exceed 50 cent of its capital and surplus. In this paragraph "liabilities" does not include endorsements of bills having not more than six months to run, drawn and accepted by others. may (d) Relations with banks.--A Corporation controlled by a bank lIcst incur any liability to such bank that would cause (1) the total of 81* liabilities to exceed 10 per cent of the bank's capital and surall Corporations Plus Or (2) the total liabilities to such bank of ch it controls to exceed 20 per cent thereof. A Corporation incurs bank or any liability to a bank under this paragraph whenever such 134;anization controlled by such bank (other than the Corporation or 411Y °rganization controlled by it) makes (i) any investment in, or adva CorporaIlee on the security of, the shares or obligations of such tioon extension of °r any organization controlled by it or (ii) any credit from, such - to, or any purchase under repurchase agreement C°11/c'rati0n or any organization controlled by it. endorses or (a) Endorsement or guaranty..--A Corporation which here ntees any securities, notes, bills, drafts, acceptances, or other evitie books proper records nees of indebtedness shall enter on its http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2897 -15thereof, describing in detail each such instrument, including its amount, its maturity, the parties thereto, and the nature of the Corporation's liability thereon. Every financial statement of the C°11)oration submitted to the Board or made public in any way shall 8414 the aggregate of such liabilities outstanding as of the date 8401 statement purports to show the Corporation's financial condition. reports (f) Reports.--Each Corporation shall make at least two antur,„ Board may "J-LY to the Board at such times and in such form as the Pl:escribe. or The Board may require that statements of condition s3ther reports be published or made available for public inspection. will examine (g) Examinations.--Examiners appointed by the Board each Corporation at least once a year. Each Corporation shall obtain "make available to such examiners, among other things, information as to the earnings, finances, management, and other relevant aspects 131411Y organization whose shares it holds. Men required by the b uoard, a Corporation shall cause any organization controlled by it to approved submit to examination by examiners selected or auditors Board b' the Board. The cost of examinations shall be fixed by the atid Paid by the Corporation. 1 211.in of the Act. Corporations with agreements under section 25 In addition to any other requirements to which it may be subject, to with the Board under ..Poration having an agreement or undertaking settin asset or otherwise -4 25 of the Act shall purchase or hold any http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -16- 28W-3 exercise any power in the United Statas or abroad in any manner not Pe r:aissible for a Corporation engaged in baniting. y, 2a. The purposes of this revision are (1) to clarify, simplif and condense this part and to delete therefrom provisions which merely re first iterate statutory requirements, (2) to incorporate for the ing *Ile statements of national purpose and of general policy concern op— . large measure the 'tations in the United States, (3) to eliminate in 1.011rier distinction between "Banking" and "Financing" Corporations, (10 debentures or to require prior Board approval for the issuance of ize the procedure 8irnilar obligations by any Corporation, (5) to liberal corporations tinder which Corporations may invest in the shares of other (6) t. or agencies -0 simplify the procedure for establishing branches ng receipt of deposits in 440ad, (7) to modify restrictions regardi financing of transactions the United States, (3) to pernit subsequent Ilhich a on, (9) to impose Corporation could have financed at incepti ticht_ r the United u restrictions on permissible investment of funds in State _ , Po/ler. guarantee (10) to prescribe limitations on exercise of the seems appropriate. and (11) otherwise to modify this pert as Proposed Rule b. This part was the subject of a Notice of Maki F. R. 2533, March 16, published in the Federal Register (20 1963‘ of all ) and was adopted by the Board after consideration reiev ted ant material, including responses received from interes Perso— "6 pursuant to said notice. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The prior publication described 2899 -17- in section 4(c) of the Administrative Procedure Act is unnecessary in Connection with this part for the reasons and good cause found as stated in § 262.1(e) of this chapter, and especially because this Part operates mainly to relieve restrictions otherwise applicable 40(1 such prior publication would not aid the persons affected or Otherwise serve any useful purpose and would prevent this part 401Tibecaming effective as promptly as desirable for the convenience °f the institutions affected. Dated at Washington, D. C., this 23rd day of August, 1963. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2900 Item No. 7 8/22/63 Or August 23, 1963. immediate release effective The Board of Governors has adopted a revision, Selnember 1, 1963, of its Regulation K affecting "Corporations Engaged Reserve Act". ii/hroign Banking and Financing Under the Federal The in 4348ion follows a comprehensive review of the existing rules, to so-called Edge e"eet since January 15, 1957, that are applicable Act and Agreement corporations operating under sections 25 and 25(a) O the Federal Reserve Act. Presently there are 30 Edge Act corpora- 4048 business) and five (including four which have not opened for 48reement corporations. enable Edge The primary objective of the revision was to Act in financand Agreement corporations to operate more effectively hip a -0 tnternational and foreign commerce. Another important objective ons which 1'48 to shorten and simplify the Regulation by deleting provisi 4°:elY reiterated statutory requirements. distinction between The revision eliminates the formal htankine and "Financing" Corporations. The substance of this dis- 44etion has also been considerably modified. 1211'2(d) tn For example, in Corporation is not "engaged it is stated, in effect, that a s and acceptance liabilities banking" unless its total demand deposit http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2901 -2- exceed its capital and surplus. LL a Corporation is engaged in banking under this definition, it would be precluded by § 211.5(a) from elagagialg,even abroad, in the business of underwriting, selling, or disttibuting securities except to the extent permissible for member banks under section 5136 of the Revised Statutes or for foreign branches of national banks under the new Regulation 14; and the apPlicable limitation in § 211.9(b) on its total holdings of the capital li abilities of any one borrower would be 10 per cent of its and surplus (rather than 50 per cent thereof if it were not "engaged 14 banking"). former Since Edge Act corporations were regarded under the Aer, Corporations", -ulation as either "Banking Corporations" or "Financing revision, e may wish to combine these activities, as permitted by the by amending their articles of association in accordance with the usual Procedure. It is possible that some member banks having both CorporatYlles of Corporations may want to merge them into a single tiQn in view of the changes made in the revised Regulation. revision also With respect to substantive matters the major respects: differs from the former Regulation K in the following would contain a 1. For the first time the Regulation st ternent of national purpose in § 211.1(b). It will also be noted that a statement of general policy concerning operations in the tutted States has been added in § 211.7(a). http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2902 -3- 2. Prior Board approval is required in § 211.4 with respect to the issuance by any Corporation of debentures, bonds, or similar ebligations. This provision for prior approval replaces detailed Provisions of the former Regulation. 3. The procedure for establishing branches or agencies abroad has been simplified in § 211.6(b) so that a Corporation which has established a branch or agency in a particular foreign country with Board approval may, unless otherwise advised by the Board, establish additional branches or agencies in that country alter 30 days' notice to the Board. ation 4. The revision represents a substantial modific are and simplification of the procedure by which Corporations allowed to invest in the stock of other corporations. For ex- Corporation arnPle, it would be unnecessary under § 211.0(a) for a incidental t° aPPly for specific Board consent (1) to acquire shares of t° an extension of credit, (2) to purchase less than 25 per cent $200,000 he voting shares of a foreign bank, or (3) to invest up to would be in the shares of a foreign corporation if such investment foreign commerce. likelY to further the development of United States Regulation would be 5. The restrictions of the former to accept time detela:l'ed in § 211.7(c)(1) to allow Corporations 8 safekeeping or P°8it from foreign depositors for the purpose of investment. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -4- 2908 6. The provisions of the former Regulation uould also be relaxed in § 211.7(d)(2) to permit a Corporation to take over or acquire participations in credits or obligations relating to transactions which it could have financed at inception. 7. The restrictions in § 211.7(b) regarding a Corporation's in the United States of funds not currently employed in its 11111e8 tMent to preclude the purchase /11tetnational bus4ness would be tightened so q0 Pen market commercial paper and domestic "investment securities", other than United States Government or State obligations. 8. The guarantee poIer of Corporations has been patterned a4er that of foreign branches of national banks under the recently 444ted revision of Regulation N [§§ 211.7(d)(3), 211.9(b) and (c) qthp - revision of Regulation M. The revision has been prepared in light of comments l'eeeived by the Board subsequent to publication of a proposed Sion of the Regulation in the Federal Register of March 16, 1963. The text of the revision is attached. aChm ent http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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