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Minutes for
To:
Members of the Board
From:
Office of the Secretary
August 23, 1961
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
With respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System on
WechiesdaY, August 23, 1961.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
King
Mr. Kenyon, Assistant Secretary
Miss Carmichael, Assistant Secretary
Mr. Molony, Assistant to the Board
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Solomon, Director, Division of
Examinations
Mr. Hooff, Assistant General Counsel
Mr. Conkling, Assistant Director, Division
of Bank Operations
Mr. Fuerth, Legal Assistant
Mr. Harris, Assistant Review Examiner,
Division of Examinations
Discount rates.
The establishment without change by the Federal
ile8erve Banks of Boston and Atlanta on August 21, 1961, of the rates on
LEleounts and advances in their existing schedules was approved unanimously,
Ilth the understanding that appropriate advice would be sent to those Banks.
hzp.syn_-bLlicationofHomBankiemNo.l.
There had been
4trib1 ted under date of August 14, 1961, a memorandum from the Division
-Aezninations recommending, as had the Federal Reserve Bank of Cleveland,
441'Wal of the proposed consolidation of The Gibsonburg Banking Company
It1t11711e Home Banking Company, both of Gibsonburg, Ohio.
The Comptroller
q the Currency, the Federal Deposit Insurance Corporation, and the
-"anent
of Justice each had expressed the view that the proposed conwould not have any significantly adverse effect on competition.
-2-
8/23/61
On the basis of a suggestion by Governor Mills, Mr. Solomon stated
that it was proposed to change the August 14 memorandum so that the basis
te'r approval would read as follows:
While the proposed consolidation of The Gibsonburg Banking
Company with The Home Banking Company would eliminate one of
Gibsonburg's two banks, in view of the smaller bank's relative
unimportance as a competitor, a local lessening of competition
would not be significant, nor should the enhanced competitive
ability of the merged bank be adverse to the banks situated in
the immediate trade area. The continuing bank would be able to
compete more effectively with the larger banks in Fremont and
its customers would have a larger source of credit at their
disposal.
The applicant has capable management and offers fairly
broad banking services as contrasted to the more limited
services of the consolidating bank, which also is handicapped by a current management succession problem.
There was agreement with the suggested revision, and the application
°IThe Home Banking Company was then approved unanimously.
letter
A copy of the
sent to the applicant bank pursuant to this action is attached as
Ite
Mr. Harris then withdrew from the meeting.
Payment of interest on deposits
(Item No. 2).
A memorandum from the
Division dated August 21, 1961, had been distributed with reference to
inquiry from Osage Valley Bank, Warsaw, Missouri, transmitted through the
?edral Reserve Bank of St. Louis.
The member bank inquired, in effect, (1)
whet
her a member bank must pay the same rate of interest on all savings and time
cl
its, (2) whether it could require savings depositors "to keep a certain
°.t4c)1121t on checking account in order to get the 3 per cent rate" (rather than
8/23/61
8O
lesser rate), and (3) whether it could pay a higher rate on savings
dePosits of less than $5,000 than the rate paid on greater amounts.
It seemed reasonably clear to the Legal Division that the first
VeEtion should be answered in the negative and the third in the affirmative.
There was some difference of opinion, however, on the second question.
As pointed out in the August 21 memorandum, the law and Regulation Q,
tent of Interest on Deposits, do not prevent a member bank from paying
Ilifterent rates of interest on time and savings deposits of different
cle
itors, provided the rate does not exceed the maximum prescribed by
the Board.
higher
Also, it might be considered reasonable for a bank to pay a
rate on deposits of a "good customer" than that paid on deposits of
cltiler customers, a "good customer" being one who frequently utilizes the
barlk ts services, such as borrowing facilities, trust department, safe
4elftit boxes, etc.
On the other hand, if a higher rate should be paid
°Ileondition that the savings depositor maintain a "certain amount" in a
account with the bank it would appear, in the opinion of a majority
f3rthe Legal Division, that such added interest was actually being paid as
ti
Corm,
—wensation" for the use of funds constituting the demand deposit rather
thez
the savings deposit, even though the added rate was computed on the
bawl_
Of the amount maintained in the savings deposit. This was also the
°141140n of counsel for the Federal Reserve Bank of St. Louis.
the
Attached to
orandum was a draft of letter to the Federal Reserve Bank of St. Louis
thEt
Irould reflect this view.
4,4
8/23/61
-4Mr. Hackley commented on the questions raised by Osage Valley Bank,
4s outlined in the August 21 memorandum, and supported the view that the
1°ElYzent of a higher rate of interest to a depositor solely on the basis
or the maintenance of a prescribed demand deposit balance would constitute
c°r[Pensation for the use of funds payable on demand.
Mr. Hooff, who represented the minority position within the Legal
II
'vision, expressed the view that since a bank may pay higher rates of
interest to "good customers" and since the interest would be computed on
the basis of the amount in the savings deposit, the payment of the higher
I'l/te should not be considered an indirect payment of interest on the
cleDositor's checking account.
He commented that a number of different
et°rs could enter into the determination of a "good customer" status,
which might be the fact that a customer maintained a demand deposit
Ill the bank, and that the position taken in the proposed reply could easily
he circumvented.
Governor Mills commented that this appeared to be an isolated sort
or
question that probably would not recur.
It was his feeling that the
ic)ition expressed in the proposed reply was the correct one.
He noted,
llY'\
'43•Y of comparison, that the Board had ruled, in cases where minor
trid'Ileements were offered on a one-time basis to attract savings deposits,
that
the practice did not constitute a payment of interest.
In the instant
Caae
/ however, the bank proposed to offer consideration in the way of a
8/23/61
-5-
rate of interest to persons maintaining a demand deposit of some
Prescribed amount, which would constitute a continuing requirement.
Governor Robertson expressed doubt that the position taken in the
ProPosed letter could be enforced.
There was no question, he pointed out,
or violating the maximum interest rate limitation prescribed by the Board;
itistead„ the bank apparently was anxious to compete with other banks for
checking accounts.
If it merely required depositors to maintain a checking
he felt that little could be done about the matter.
Many banks,
he noted, require depositors to maintain minimum balances in demand accounts,
44cl those banks also usually carry savings accounts.
Therefore, various
Practices could be followed simply on the basis of understandings, and he
cl°tIbted whether an attempt to prohibit such understandings could be enforced.
1h short, he felt that little ill effect could result from permitting a bank
to isequire a depositor to maintain a certain demand balance in order to be
ligible for a higher rate of interest on a savings deposit, whereas he felt
that ham could come from the making of rulings that could not be enforced.
the ceiling rate of interest was not violated, he would not be inclined
to °Nect.
Mr. Hackley commented that the point was admittedly a technical one.
-11 Pointed out that Regulation Q defines interest as compensation for the
4seo
.
J- funds constituting a deposit. As a legal matter, the conclusion
fteci- inescapable that interest would be paid for holding a certain amount
or
tullas
on demand.
However, he agreed with Governor Robertson that enforce-
illerit of such a matter might be difficult.
8/23/61
-6Governor Mills indicated that he did not have the same concern as
Governor Robertson with respect to the enforcement problem.
He noted that
banks tend to pay a rate of interest, within the ceiling, that is found
84X!eptable.
If two customers of a bank had the same amount in a savings
Posit, he thought it would be rare for the bank to pay one depositor a
higher rate of interest simply because he maintained a checking account.
It such a procedure were followed, banks would be likely to get into trouble
/11th their customers.
Governor King said that in general principle he was inclined to
6441lee with the feeling of Governor Robertson against pursuing matters that
c°11111, not be enforced.
to
If this question seemed likely to recur or to lead
extensive debate, then he might be inclined to go along with Governor
11()bertson's view.
In this case, however, he felt it was likely that the
'natter soon would be forgotten if the proposed letter was sent, and therekrehe would follow that course.
There ensued a discussion as to possible alternative replies that
e°111(ibe made, during which Mr. Hackley commented that in line with the
€elleral practice of achieving as much uniformity of interpretation as
1)°Bs1b1e this question had been discussed with the staff of the Federal
1)el)oSit Insurance Corporation.
In this instance, he said, it was the
Of the corporation's staff that an indirect payment of interest on
4411alicl deposits would be involved.
8/23/61
-7Question was raised again with respect to the matter of enforcement,
44a in this respect Mr. Solomon said that quite possibly a position such as
814:6:ested by the majority of the Legal Division would be difficult to enforce.
At the
same time, he was somewhat concerned about the implications of a
4:14!flerent ruling and where such a ruling might lead in terms of precedent.
It the Board were to start saying that it would close its eyes to all the
811-rrou11ding circumstances and look only at the question of the maximum rate
°t interest permissible under Regulation Q, that would almost invite member
13414c18 to maintain that they were paying a certain rate on savings accounts
rs3:1* reasons other than the use of demand balances, although it might be quite
eleax that the rate of interest represented compensation for the use of such
ttinds.
Mr. Hackley expressed agreement with the view stated by Mr. Solomon.
-`u...
ON
ls'el for the St. Louis Reserve Bank and attorneys for the Federal Deposit
111811rance Corporation had both expressed the opinion, he noted, that a
114111g which held that the payment of a higher rate of interest, in the
*eumstances described in the incoming letter, would not constitute an
/14-irect payment of interest on demand deposits would be inconsistent, as
4legal matter, with the definition of interest contained in Regulation Q.
the Board were to publish such a ruling, he felt that it might give rise
to
qUestions of interpretation in the future.
In this connection, Governor Mills suggested that if the question
e answered in the manner suggested by Mr. Hackley, there would seem to
'
Irel
2 tci
8/23/61
-8-
ben() necessity for the publication of a ruling by the Board. If such a
lielaY were made, he felt that in all probability the question would not
be raised again.
Governor Balderston commented that Governor Mills might be right
844
that the sending of the proposed letter would settle the matter.
However,
it a savings depositor agreed to keep some of his money in a checking account,
that 'would mean a reduction in the effective rate of interest paid on his
tAnds rather than a violation of the maximum prescribed rate on savings
ateCruats.
If the situation were turned around, he could understand better
the concern of the Legal Division. Perhaps, he suggested, the question was
Prilltarily whether the Board thought it desirable to try to stop an advertised
154a or program offering a higher rate of interest on the basis of maintenance
or
certain demand balance.
Following a discussion bearing upon whether there would be cause for
the Board to attempt to prohibit the advertising of such a plan, during
mixed views were expressed, Governor Balderston stated his concurrence
11/the view, previously expressed, that the Board should not set up rules
that it could not enforce. In this instance, he doubted that effective
elltcTeement would be possible. Therefore, he was inclined to subscribe
to
the position advanced by Governor Robertson.
Chairman Martin raised the question whether there was not danger
he Point of view that the Board should not rule against various practices
(16,,
-114-1r because of doubt as to whether its rulings would be enforceable.
He
8/23/6l
-9-
then presented for further consideration the question whether it would be
desirable, from the standpoint of banking practice in general, if the way
left open for banks to proceed along the lines suggested by the question
&A the incoming letter.
Governor Robertson reiterated that he could see nothing harmful
4014 using savings accounts as a device for Obtaining other kinds of
14181 ess as long as the ceiling rate on savings deposits was not violated.
G°vernor Balderston commented that the legislation underlying Regulation Q
14/4 aimed at preventing banks from lending and investing unsoundly. The
IlleEtion, as he saw it, was whether the attracting of demand deposits in
the manner contemplated would lead to the evils that the law had sought to
15revent; that is, whether banks would be paying out interest they could not
8.tfQrci. in order to obtain demand deposits.
Governor King suggested that the
t411€ of a rate of interest on savings accounts to a requirement for the
434111tenance of a certain demand balance could react detrimentally to the
bell'ir
lUg
profession from the public relations standpoint, in which connection
%511.eztor Robertson raised the question whether it was the responsibility of
the Board to try to protect the banks from that kind of public reaction.
Mr. Hackley commented that it should be borne in mind that the law,
Ill
her one agreed with it or not, was still on the statute books and that
ollibited member banks from paying interest on demand deposits, directly
itdirectly, by any device whatsoever.
If the practice contemplated by the
8/23/61
inquiry were followed generally, he felt it
would, as a legal matter,
clearly be a practice by which banks would be paying interest indirectly
()n demand deposits in order to attract checking accounts.
Chairman Martin then commented that clearly the law and Regulation
were designed to promote better banking.
dia or
He was not sure whether they
not; in fact, he was rather persuaded in his awn mind that the
rePeal of the Regulation in entirety might be advisable.
However, he
c°11-14 not help but feel that it would be undesirable if banks generally
began, advertising a rate on savings deposits in relation to demand balances.
AeccIrdingly, he came out on the side of the Legal Division represented by
Hackley.
Thereupon, the views of Governors Robertson and Balderston having
been noted, the proposed letter to the Federal Reserve Bank of St. Louis
A copy of the letter, as transmitted, is attached as Item
110
MT. Conkling then withdrew from the meeting.
petition by Northwest Bancorporation
(Item No. 3).
Mr. Hackley
ePortea that there had been received at the Board's offices yesterday a
letition filed by Northwest Bancorporation, Minneapolis, Minnesota,
regllesting that (1) the Board's order of August 8, 1961, denying North-
Igestts application for permission to acquire shares of the proposed
Northwestern National Bank be reconsidered, (2) Northwest be
U.ve,
-- an opportunity for oral argument before the Board, and (3) the
8/23/61
-11-
1/1°ard's order be set aside pending reconsideration of the application.
The
order had stated in effect that, because of a tie vote within the Board, the
aPPlication had not obtained the approval required by statute and therefore
Igas denied.
The petition for reconsideration argued that the order was not
Iletually a decision and that it denied Northwest its legal right of appeal
since no reasons for denial, other than the tie vote, were given and a
reviewing court would be obliged to remand the matter to the Board for
clecision.
Mr. Hackley further stated that the Legal Division had been planning
t° submit a memorandum to the Board recommending that the petition for
l'ec°nsideration be granted.
He also said that if an opportunity for oral
ELIVament should be granted, it was the view of the Legal Division that
certain parties who had testified at the hearing before the Hearing
Ott'cer
in opposition to the granting of the application should be advised
°r the oral argument and given the privilege of appearing and presenting
statements if they so desired.
There was general agreement on the part of the members of the Board
tha4.
the request for oral argument should be granted.
Question was raised
l'r°M the standpoint of timing, and there was concurrence in the view that
4c) Inore than a quorum of the Board need be present, it being pointed out
thst a transcript of the oral argument would be available to the other
raerab
ers of the Board for study. Accordingly, the Legal Division was
llosted to determine from Counsel for Northwest Bancorporation whether
-12-
8/23/61
s°1111e date during the week of August 28 would be satisfactory for the holding
of oral
argument, with the understanding that, if so, the appropriate steps
1431•11c1 be taken.
It was understood also that the parties who had appeared in
°Pllosition to the application would be notified and afforded an opportunity
to
present statements if they so desired.
Secretary's Note: It was subsequently ascertained
by the Legal Division from Counsel for Northwest
Bancorporation that oral argument could conveniently
be presented before the Board on Friday, September 1,
1961. Accordingly, an order in the form attached as
Item No. 3 was issued.
Application of Manufacturers Trust Company.
Mr. Molony noted that
l'ererence had appeared in one publication to the fact that an oral presentation before the Board was scheduled to be held on September
.
+
,
eetiOn
'
C0.
in
The
with the proposed merger of Manufacturers Trust Company and
littri°ver Bank, both of New York City.
this
6, 1961,
He raised the question whether, since
other
article had appeared, there would be any objection to advising
be
4e14113ers of the press of the fact that this private proceeding was to
hel4 on the date indicated, and no objection was indicated.
The meeting then adjourned.
Secretary's Notes: Acting in the absence
of Governor Shepardson, Governor Balderston
approved on behalf of the Board on August 22,
1961, a letter to the Federal Reserve Bank of
Richmond (attached .Item No. 4) approving the
appointment of Earl M. Harvey as assistant
examiner.
8/23/61
-13Pursuant to recommendations contained in memoranda from appropriate individuals concerned,
Governor Balderston also auraved on behalf of
the Board on August 22, 1961, the following
actions relating to the Board's staff:
Wendell E. Thorne, Assistant to the Director, Division of International
'Lllance, from $13,770 to $14,030 per annum, effective September 3, 1961.
It ZZance of resignations
's4
Donald P. Tucker, Research Assistant (Summer), Division of Research and
Q14iiti5tic5, effective at the close of business September 8, 1961.
Carl W. Sims, Messenger, Division of Administrative Services, effective
at the close of business September 8, 1961.
(
Assistant Secretary
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 1
8/23/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
August 23, 1961
Board of Directors,
The Home Banking
Company,
Gibsonburg,
Ohio.
Gentlemen:
The Board of Governors of the Federal Reserve System, after
eQnsideration of all the factors set forth in section 18(c) of the
deral Deposit Insurance Act, hereby consents to the consolidation
B The Gibsonburg Banking Company, Gibsonburg, Ohio, with The Home
banking Company, Gibsonburg, Ohio, as it finds the transaction to
e in the public interest.
4
This approval is given provided (1) the proposed consolidat*ion is
• effected within six months from the date of this letter
fl substantially in accordance with the Agreement of Consolidation
Zopted by the boards of directors of the two banks on May 25, 1961,
did (2) shares of stock acquired from dissenting shareholders are
sPosed of within six months of acquisition.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
0‘..c
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
*
Item No. 2
8/23/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
4N
4_44
TO THE UOARO
tatrli
"
August 23, 1961
MI% Geo. E. Kroner, Vice President,
Federal Reserve Bank of St. Louis,
'8t. Louis 66, Missouri.
tear Mr. Kroner:
This refers to your letter of August 4, 1961, en10s1ng a copy of a letter dated July 27, 1961, from the Osage
;
,
alleY Bank, Warsaw, Missouri, raising certain questions as to
vaYment of interest on deposits.
Neither the law nor the Board's Regulation Q prevents
4 Member bank from paying different rates of interest on savings
id time deposits to different depositors, assuming that the
sate paid does not exceed the maximum rate prescribed by the
A member bank may properly pay a reduced rate of intersuch as 2 per cent or 2-1/2 per cent on savings deposits of
re than $5,0001 while paying 3 per cent on deposits of less
ivan that amount. However, if the payment of a higher rate of
02terest on a savings deposit is conditioned upon the maintenance
t;
,
. a demand deposit in a prescribed amount, it is the opinion of
cue Board that such added interest would constitute a payment as
1Pensation for the maintenance of the demand deposit as thus
i !scribed and would therefore constitute an indirect payment of
ll'erest on a demand deposit in violation of the law.
r
j
4
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Item No. 3
8/23/61
UNITED STATES OF AMERICA
BEFou THE BOARD OF G07ERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
the Ilatter of the Application of
1)PCTRWEST BANCORPORATION
tor
.
vw
.or approval of acquisition of
ling shares of proposed Roseville
kilwestern rational Bank, Roseville,
sota.
ORDER GRANTING PETITION
FOR RECONSIDERATION
WHEREAS, the Board of Governors on August 3, 1961, entered
°Nor denying the application of Northwest Bancorporation ("Northwest")
to the Bank Holding Company Act of 1956 for prior approval
t th.
- acquisition of stock of Roseville Northwestern National Bank,
410, Minnesota, a proposed new bank;
WHEREAS, on August 22, 1961, Northwest filed with the Board
l'(44.t4.4-0n for Reconsideration in this matter;
WHEREAS, in connection with such Petition, Northwest has
NkRi.
-"ed that the Board direct an oral hearing and, further, that the
411
aet aside the Boardts Order of August 3, 1961, until final
'
Imination of the matter on reconsideration;
,
-2—
IT IS HEREBY ORDERED, (1) that the Petition for Reconsideration
41 granted; (2) that oral argument in this matter will be held before
the Board of Governors at its Offices in Washington, D. C. on September 1,
96i, at
10
a.m., such proceeding to be open to the public; and (3) that,
11144uant to Petitioner's request, the Board's Order of August
8, 1961,
4 sot aside pending issuance of a further order of the Board finally
cletern•
-"aning this matter.
Dated at Washington, D. C. this 23rd day of August, 1961.
By order of the Board of Governors.
(Signed) Kenneth A. Kenyon
Kenneth A. rayon,
Assistant Secretary.
11-",c2C
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 1.
8/23/61
ADDRESS OFFICIAL CORRIEBPONOCNCC
TO THE BOARD
August 231 1961
Mr. John L. Nosker, Vice President,
Federal Reserve Bank of Richmond,
Richmond 13, Virginia.
Dear Mr. Nosker:
In accordance with the request contained in
your letter of August 15, 1961, the Board approves the
appointment of Earl M. Harvey as an assistant examiner
for the Federal Reserve Bank of Richmond, effective today.
Very truly yours,
(signed) 11i zabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER