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9/61 30, 1963 Minutes for August To: Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of ed to minutes in the record of policy actions requir the of l 10 n Federa sectio to nt pursua be maintained 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 g, your below. If you were present at the meetin the s. If of minute al approv initials will indicate will ls te initia indica your you were not present, s. minute the only that you have seen Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell 2976 Minutes of the Board of Governors of the Federal Reserve System on Friday, August 30, 1963. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mr. Kenyon, Assistant Secretary Miss Carmichael, Assistant Secretary Mr. Molony, Assistant to the Board Mr. Fauver, Assistant to the Board Mr. Noyes, Director, Division of Research and Statistics Mr. Koch, Associate Director, Division of Research and Statistics Adviser, Division of Research Brill, Mr. and Statistics Mr. Furth, Adviser, Division of International Finance Mr. Yager, Chief, Government Finance Section, Division of Research and Statistics Mr. Axilrod, Senior Economist, Division of Research and Statistics Miss Dingle, Senior Economist, Division of Research and Statistics Economist, Division of Goldstein, Mr. International Finance Money market review. There had been distributed tables on ()) monetary developments in the four weeks ending August 28, 1963, e" lld (2) gross national product, time deposits, and liquid assets. ' Mr. Yager reported on developments in the Government secue rities market, including announced and prospectiv Treasury financing °Perations, following which Mr. Axilrod discussed bank reserves, bank credit, the money supply, and related matters, with comments on the 297-1 -2- 8/30/63 second of the two tables that had been distributed. Mr. Goldstein commented on foreign exchange developments. All of the members of the staff except Mr. Kenyon and Miss Carmichael then withdrew from the meeting and the following entered the room: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Hexter, Assistant General Counsel Shay, Assistant General Counsel Kiley, Assistant Director, Division of Bank Operations Smith, Assistant Director, Division of Examinations Leavitt, Assistant Director, Division of Examinations Hricko, Senior Attorney, Legal Division Harris, Assistant Review Examiner, Division of Examinations Discount rates. The establishment without change by the Federal Reserve Banks of Chicago and San Francisco on August 29, 1963, of the rates on discounts and advances in their existing schedules was approved thaanimously, with the understanding that appropriate advice would be sent to those Banks. Iowa). Report on competitive factors (Sioux City, There hmi been distributed a draft of report to the Comptroller of the Currency °n the competitive factors involved in the proposed merger of Woodbury Bank and Trust Company, Sioux City, Iowa, into First National Bank in 81°11x City, Sioux City, Iowa. had been suggested After an editorial change in the conclusion by Governor Balderston and agreed upon, the report was approved unan1 Inl°11s Y for transmittal to the Comptroller. The conclusion read as follows: 2978 -3- 8/30/63 Combining Woodbury Bank and Trust Company and First National Bank in Sioux City would eliminate a substantial amount of existing and potential competition between Sioux City's second and fifth largest banks and the resulting bank would be the largest in the area. Effectuation of the proposal would probably have little effect on the smaller banks. Application of West Branch Bank and Trust Company (Item No. 1). There had been distributed a memorandum dated August 26, 1963, in which the Division of Examinations recommended unfavorably on an application Of West Branch Bank and Trust Company, Williamsport, Pennsylvania, to merge with Bank of Newberry, Williamsport, Pennsylvania, under the charter of the petitioner and title Northern Central Bank and Trust C°mPanY. The Federal Reserve Bank of Philadelphia had recommended stIpProval of the application. banking factors in the proposal According to the memorandum, the were nor against considered to be virtually neutral, weighing neither for 413Proval. on were conThe effects of the proposed merger on competiti sidered adverse by the Division of Examinations as well as by the Compt in their reports to troller of the Currency and the Justice Departmen the Board on competitive factors. In order to justify approval of the merger, it was the view of the Division of Examinations that the factor of support such action quite convenience and needs would have to strongi_. by having Y The Williamsport area possibly would benefit ava ilable a larger bank; however, little tangible evidence to support the need for a larger bank had been submitted by the applicant. 2979 8/30/63 After considering all the factors, the Division of Examinations had recommended disapproval of the application. However, since this was considered to be a close case, it was recommended that if the Board Should be inclined at this point to deny the application, an opportunity be afforded for oral presentation before the Board. If such an oppor- tunity were granted, it was suggested that in particular the banks concerned be requested to furnish comments and views regarding the need for a larger bank in the Williamsport area. At the Board's request, Mr. Leavitt commented on the proposal and the conclusions reached, his remarks being based mainly on the memorandum that had been distributed. Governor Mills stated that he was inclined to side with the °Pinion of the Philadelphia Reserve Bank, which had recommended approval of the application. He agreed that this was a close case, and as a close case he thought there were reasons to give the applicant banks the benefit °f the doubt. In many ways the different factors were neutral, and it /las the expressed wish of the owners of the banks to merge. On the more Positive side, it was his view that the convenience and needs of the c ommunity would be served by the merger. tion He considered that the situa- involved essentially a matter of judgment as to the number of banks that could most effectively serve a community such as Williamsport. The Proposed merger of two of the five existing banks would appear to give 2980 _5- 8/30/63 the community better credit facilities and not to result in an undue concentration of banking resources. In his judgment the Williamsport area could be served better by a few substantial banks than by a larger number of banks that could not provide the services needed for the growth Of the community. Chairman Martin suggested at this point that the Board consider the question of affording an opportunity for oral presentation. Mr. Shay referred to public proceedings that had been ordered by the Board in 1962 with respect to applications of (1) United California 1344k, Los Angeles, California, to merge with The First National Bank °f Vista, Vista, California, and (2) Asbury Park and Ocean Grove Bank, Asbury Park, New Jersey, to merge with The Central Jersey Bank and Trust Company, Freehold, New Jersey. there In regard to the instant application, was some indication that the proposed merger would benefit the community, but the facts presented in the application did not strongly sUPPort such a conclusion. oral presentation. Accordingly, it might be helpful to have an There appeared to be a need for further information elating to the convenience and needs of the community, and it was his view that by offering an opportunity for oral presentation the Board 11°141d in no way be favoring or making matters more difficult for the a pplicant. Governor Robertson stated that he would be agreeable to holding 44 (3ral presentation prior to the Board's decision on the application. a2.f.).41 -6- 8/30/63 Governor Mills then said that he would not object to an oral Presentation if that were the disposition of the Board, although in this instance he did not think that such a presentation was necessary. Governor Shepardson expressed the view that it would be helpful to have an oral presentation since it seemed difficult at the moment to evaluate the facts presented. Conceivably there might be a greater need for the merger than was evidenced by the application as submitted. Governor Balderston likewise indicated that he would find an oral presentation helpful. After further discussion it was agreed to arrange an oral Presentation regarding the proposed merger. Secretary's Note: An oral presentation was subsequently arranged for September 19, 1963. A copy of the Board's order is attached as Item No. 1. Messrs. Hexter, Shay, Leavitt, Hricko, and Harris then withdrew from the meeting. Report of examination of Federal Reserve Bank of Philadelphia (Item No. 2). There had been circulated to the Board the report and the usual related papers with respect to the examination of the Federal " 11. erve Bank of Philadelphia by the Board's examining staff as of ja4uarY 3, 1963. At the Board's request, Mr. Smith reviewed information developed by the examination, his comments being based mainly on the material that 2982 8/30/63 -7- had been circulated to the Board. In the course of his remarks, Mr. Smith called attention especially to a problem that had arisen relating to the handling of postal money orders. Late in 1962 the Post Office Department had introduced a new money order form and during the period Of transition the Reserve Bank had been handling both the old and new forms, which had resulted in a delay in processing money orders. Also, a number of errors had developed, some of which were still not reconciled. Mr. Smith indicated that he believed the matter had now been cleared up and that there was no longer any substantial problem in this area. Mr. Smith also noted that in the review of the reports submitted by Reserve Bank employees with regard to their indebtedness, bank stock Olgnership, outside business connections, etc., it had been Observed that an assistant examiner in the Bank Examinations Department had reported a debit balance of $1,500 in a margin account with a stock broker. Upon discussion with the Reserve Bank management, it was indicated that the Matter had been fully reviewed and a decision reached against prohibiting the carrying of such a margin account. In this connection, Mr. Smith Pointed out that the Board's letter of March 24, 1948, to the Federal Reserve Banks regarding outside business affiliations, teaching activities) and ownership of bank stocks did not refer specifically to margin accounts except as they might be construed to be included within more 131*°adlY stated general principles. 2983 8/30/63 -8Governor Mills recalled that some time ago the Board had asked the staff to prepare a letter to the Reserve Banks that would state the Board's views with respect to the maintenance of margin accounts by Reserve Bank personnel, and it was agreed that a draft of letter should be presented to the Board for consideration as promptly as possible. Governor Robertson observed that the Philadelphia Reserve Bank had been examined as of January 3, 1963. It seemed to him that the findings of examinations should be considered by the Board more promptly sO that any needed action could be taken without undue delay. There was Solomon referred to a revision general agreement with this comment, and Mr. °f procedure being worked out by the Division of Examinations to make sUmmary comments on examination reports available to the Board expeditiously. During the course of the discussion, Governor Balderston referred t° a recent report by Peat, Marwick and Mitchell covering the results of 4 SUrvey by that firm of the Philadelphia Reserve Bank's audit function. 14 view of the quality of the report, he felt that the Audit Committees °f the other Reserve Banks might find it useful, and it was understood that the possibility of distributing copies of the report would be cliecussed with President Bopp. regarding the difReferring to Mr. Smith's earlier comments ficulties experienced by the Philadelphia Reserve Bank in processing if the Division of Bank 13°stal money orders, Governor Mills inquired O had been corrected. rations had information as to whether this situation 2984 -9- 8/30/63 Mr. Farrell replied that he believed it had. He described the cir- cumstances involved and certain changes that had been made in operating Procedures. Mr. Farrell then referred to another matter at the Philadelphia Reserve Bank. This involved the use of a high-speed currency counting machine to verify incoming deposits of predominantly fit $1, $5, and $10 bills. It was understood that this procedure resulted in substantial oPerating economies but that it afforded little or no opportunity for the detection of counterfeits. Each strap of incoming currency was "fanned" to determine that all pieces were of the same denomination, after which the currency was processed without each piece being handled individually, a procedure differing from that followed at the other Reserve Banks. Under such a procedure, counterfeit bills were not likely to be detected until they were returned at some later date to the Reserve Banks as unfit bills. Mr. Farrell noted that the use of this equipment at the Philadelphia Reserve Bank had come to the attention of the Presidents' Conference Subcommittee on Electronics in connection with a study by Stanford Research Institute of the possibilities of automating the currency sorting and counting work of the Reserve Banks. Use of the high-speed equipment had been discussed at a recent meeting of the cash °fricers of Reserve Banks and the Subcommittee on Cash, Leased Wire, and rY Operations. It appeared, however, that the Subcommittee did not 2985 -10- 8/30/63 plan to pursue this matter further; accordingly, Mr. Farrell believed that it would be appropriate for the Board to give consideration to it. Mr. Farrell noted that the record of the Reserve Banks in and he believed it might detecting counterfeit currency had been good, also be undesirable from a public relations standpoint for commercial banks to receive from Reserve Banks straps of currency containing counterfeit bills. He suggested that the matter be referred to the Banks for consideration Conference of Presidents of the Federal Reserve and recommendation. If it was decided that the use of the high-speed hia Bank, perhaps it would be equipment was acceptable at the Philadelp veil for the other Reserve Banks to acquire similar equipment. was a trend on the part of Governor Mills observed that there procedures in certain areas, on the commercial banks to cut corners on far outweigh any losses that theory that the resulting savings would the banks might be obliged to assume. In a sense, it might be argued that the same principle attached to the matter of currency sorting and counting. and of Governmental responsibility Leaving aside considerations a question of weighing the pride in detecting counterfeits, it was cost savings against the possible disadvantages of using the high-speed equipment. such considerations were laid Mr. Farrell commented that, if aside, there might be strong arguments for use of the high-speed equipment by all of the Reserve Banks. He mentioned the counterfeit warning 2986 -11- 8/30/63 been sending to commercial banks and cards that the Secret Service had in view of a recent survey the plan for discontinuing this service was being made of the cards. Which had revealed that little use The that now in use at the Philanelphia Utilization of equipment such as lly the question whether the Federal Reserve Bank involved essentia to permit counterfeits to circulate Reserve System should be willing then picked up through piece verificauntil they became unfit and were tion at the Reserve Banks. Along this line, he also noted that the an early stage was helpful in making the detection of counterfeits at counterfeit activities. Secret Service aware of new it was agreed to refer the matter of After further discussion, the Conference of Reserve BFink the high-speed counting equipment to the benefit of the Presidents' views. Presidents with a request for of the Conference of Presidents A copy of the letter sent to the Chairman attached as Item No. 2. Pursuant to this action is Federal Reserve Bank of New York. Report of examination of Board the report and the usual related There had been circulated to the examination of the Federal Reserve Bank of Papers with respect to the examining staff as of January 25, 1963. New York by the Board's Mr. Smith reviewed the information At the Board's request, his comments being based on the material developed by the examination, Board. It was agreed that there was no that had been circulated to the 2987 -12- 8/30/63 examination that warranted specific action information developed by the on the part of the Board. pointed out that both the New York Governor Mills, however, contained statements to the effect and Philadelphia examination reports reviewed and none were considered worthy that all expenditures had been of comment. Banking and Currency Committee had Noting that the House for an analysis of expense items such as recently asked Reserve Banks t, he expressed the view that it would foreign travel and entertainmen e certain that it had adequate be desirable for the Board to feel quit representing money spent for purposes outside information on expenses ns. Such items might often be the normal course of routine operatio lessness Reserve Banks were apt to mike quite trivial, but through care comment. same expenditures that deserved the Board's examiners reviewed all Mr. Smith brought out that of relating Reserve Bank expense vouchers and followed the practice of instruction from the Board. expenditures to outstanding letters examination reports to items that They did not take exception in instructions or were covered in fell within the limitations of such the ordinary budgetary processes. Using such guidelines, however, ation as to whether specific payments they tried to make a determin 'ere proper or improper. ented that in the past expenditures Governor Mills then comm Christmas parties for employees, by Reserve Banks for purposes such as 2988 -13- 8/30/63 Christmas gifts to outside parties for services rendered, and entertainment for bankPrs associations had come to the Board's attention. Expen- into the operations of a ditures in that general area tended to creep Bank, and he would be surprised if the Reserve Banks were completely free of them. Also, in at least one Reserve Bank there had been the work of outside economists occasion from time to time to subsidize on projects not directly related to the ordinary research and statistical functions. He felt that it would be desirable for the examiners to rather comment on such items, although not necessarily to criticize them, than to have the examination reports so frequently include the notation that there were no expenditures appearing to warrant comment. To put it another way, he had in mind expenses not falling completely within the scope of a Reserve Bank's ordinary scheme of operations. It might also be advisable, he thought, for the Board's letters of instruction to the Pederal Reserve Banks to be reviewed. In summary, it was his impression that the frequency of comments on expense items in examination reports had tended to diminish significantly in recent years, and it was hard for him to believe that the Reserve Banks had reached such a standard of perfection in their operations. Foreign travel. The proposed attendance of President Irons of the Federal Reserve BFInk of Dallas at the October monthly meeting of the Bank for International Settlements in Basle, Switzerland, as rePorted by Chairman Martin, was noted without Objection. The meeting then adjourned. 2989 8/30/63 Secretary's Notes: Governor Balderston today approved on behalf of the Board a letter to the Federal Reserve Bank of Atlanta (attached Item No. 3) approving the appointment of James Lee Jones as examiner. Governor Shepardson today approved on behalf of the Board the following items: Letter to the Federal Reserve Bank of Boston (attached Item No. approving the designation of Roderick W. Downie as special assistant examiner. 4) Telegram to the Federal Reserve Bank of Chicago (attached Item No. 5) approving the appointment of Clifford R. Miller, II, as assistant examiner. Memoranda from appropriate individuals concerned recommending the following actions relating to the Board's staff: Appointment George C. Maniatis as Economist, Division of International Finance, With basic annual salary at the rate of $9,475, effective the date of entrance upon duty. Salary increases, effective September 1, 1963 Name and title Division Basic annual salary To From Research and Statistics Stephen H. Axilrod, Senior Economist Mona E. Dingle, Senior Economist Levon H. Garabedian, General Assistant Eleanor Jean Pratt, Research Assistant Stephen P. Taylor, Chief, Flow of Funds and Savings Section ruing T. Thoresen, Economist ! John H. Wood, Economist Charles A. Yager, Chief, Government Finance Section $14,565 166:46875 $15,045 6,905 16,965 6,675 14,565 6,900 15,045 8,310 9,790 5 1N5 14,565 15,045 2990 -15- 8/30/63 Salary increases, effective September 1, 1963 (continued) Basic annual salary From To Division Name and title International Finance Robert F. Emery, Economist Judy D. Taylor, Secretary $10,105 4,725 $10,14.20 4,885 15,525 16,005 4,030 4,135 8,045 8,310 4,250 4,390 Examinations W. J. McClelland, Assistant to the Director Administrative Services Carol Lee Dixon, Clerk-Typist Office of the Controller L. Waite Waller, Jr., Supervisory Accountant Personnel Administration Sandra Lee Wolfe, Clerk-Stenographer Acceptance of resignations James M. Howell, Economist, Division of Research and Statistics, effective at the close of business September 6, 1963. Richard D. Raddock, Research Assistant (Summer), Division of Research and Statistics, effective at the close of business August 30, 1963. Walter Ford Carter, Research Assistant (Summer), Division of International Finance, effective August 30, 1963. Max E. Fieser, Economist, Division of International Finance, effective August 30, 1963. James T. Fegan, Supply Clerk, Division of Administrative Services, effective at the close of business September 6, 1963. Assistant 8ecretary 2991 Item No. 1 8/30/63 UNITED STATES OF AMERICA THE FEDERAL RESERVE SYSTEM BEFORE THE BOARD OF GOVERN= OF WASHINGTON, D. C. a OD NO IND In the Matter of the Application of West Branch Bank and Trust Company, Williamsport, Pennsylvania for prior approval of proposed merger with the Bank of Newberry, Williamsport, Pennsylvania ORDER FOR PUBLIC PROCEEDING y, Williamsport, West Branch Bank and Trust Compan under the provisions of Pennsylvania, has filed an application Insurance Act, as amended, section 18(c) of the Federal Deposit Newberry, for the Board's prior approval of the merger of the Bank of Bank and Trust Williamsport, Pennsylvania, into the West Branch title "Northern Company, under the charter of the latter and the Central Bank and Trust Company". Notice of the filing of this to the requirement application was published by the Applicant pursuant of section 18(c). interest of the It now appears to the Board to be in the the Public, as well as the Applicant, to afford an opportunity for proceeding expression of views and opinions by persons in a public beforeLthe Board. Accordingly, 2992 -2a public proceeding before the IT IS HEREBY ORDERED, that on September 19, 1963, at the Board be held commencing at 2:00 pm. Washington, D. C. Offices of the Board of Governors, any person desiring to appear IT IS FURTHER ORDERED, that d file with the Secretary before the Board at this proceeding shoul W., Washington, D. C. of the Board, 20th and Constitution Avenue,,N. a written request setting 20551, on or before September 13, 1963, he wishes to express. fort4 a brief statement of the nature of the views notified of the Board's decision Persons submitting such requests will be thereon. By order of the Board of Governors. (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. (SEAL) August 30, 1963* 291(43 BOARD OF GOVERNORS Item No. 2 8/30/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD September 3, 1963. AIR MAIL Mr. Watrous H. Irons, Chairman, Conference of Presidents, Federal Reserve Bank of Dallas, Station K, Dallas, Texas. 75222. Dear Mr. Irons: It has come to the Board's attention that the Federal Reserve Bank of Philadelphia has for some time been using a high-speed (De La Rue) currency counting machine to verify incoming deposits of predominantly fit $1, $5, and $10 bills. It is understood that this procedure results in substantial operating economies but, on the other hand, affords little opportunity for the detection of counterfeits. The Board would appreciate having the views of the Conference of Presidents with respect to the advantages and d isadvantages of this method of proving currency deposits and With respect to whether a uniform System position concerning the utilization of such a procedure would seem desirable. Very truly yours, $ Kenneth A. Kenyon, Assistant Secretary. 2994 Item No. BOARD OF GOVERNORS 3 8/30/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 30, 1963 Mr. J. E. Denmark, Vice President, Federal Reserve Bank of Atlanta, Atlanta 3, Georgia. Dear Mr. Denmark: In accordance with the request contained in your ent of letter of August 22, 1963, the Board approves the appointm James Lee Jones, at present an assistant examiner, as an e examiner for the Federal Reserve Bank of Atlanta, effectiv September 3, 1963. Very truly yours, (signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 2(.3( fk, BOARD OF GOVERNORS Item No. 1. 8/30/63 OFTHE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE EICIARO August 30, 1963 Mr. Luther M. Hoyle, Jr., Vice President, Federal Reserve Bank of Boston, Boston 6, Massachusetts. Dear Mr. Hoyle: In accordance with the request contained in Mr. Aubrey's letter of August 23, 1963, the Board approves the designation of Roderick W. Downie as a special assistant examiner for the Federal Reserve Bank of Boston for the purpose of participating in examinations of The Connecticut Bank and Trust Company, Hartford, Connecticut; Depositors Trust Company, Augusta, Maine; The Merrill Trust Company, Bangor, Maine; and Rhode Island Hospital Trust Company, Providence, Rhode Island. The authorization previously given your bank to designate Mr. Downie as a special assistant examiner is hereby canceled. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 2R943, Item No. 8/30/63 TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON August 30, 1963. ROSS - CHICAGO Relet Morrison August 20, 1963, Board approves appointment of Reserve Clifford R. Miller, II, as assistant examiner for Federal Bank of Chicago effective September 3, 1963. It is noted Miller owns six shares of stock of City Bank and Trust father Company, Jackson, Michigan, a State member bank of which his is vice president, trust officer and director, and that his brother is employed by National Bank of Detroit, Detroit, Michigan. Accordingly Board's approval of appointment is given with understanding that he Will not participate in any examination of City Bank and Trust Company 80 long as he owns its stock or is related to an officer or director of that institution, or of National Bank of Detroit so long as his brother is employed by that bank. The Board feels Mr. Miller should take steps to dispose of stock of the member bank. While the Board does not wish to impose undue hardship on Mr. Miller, the Board's letter of March 24, 1948 (S-1018, 11.R.L.S. 9054) contemplates that officers of the Federal Reserve Banks and employees occupying responsible positions should not purchase any stock of a member bank and should dispose of such stock as they might have when employed as soon as practicable without undue hardship. (Signed) Elizabeth L. Carmichael CARMICHAEL 5
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