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Minutes for August 5, 1965
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 proposed to place in the record of policy actions
required to be kept under the provisions of section 10 of the
Federal 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 1
Amendment to Regulation Q, Payment
of Interest on Deposits.
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. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
Minutes of the Board of Governors of the Federal Reserve
System on Thursday, August 5, 1965.
The Board met in the Board Room
at 10:00 a.mPRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Shepardson
Mitchell
Maisel
Sherman, Secretary
Kenyon, Assistant Secretary
Hackley, General Counsel
Solomon, Director, Division of
Examinations
Mr. O'Connell, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Leavitt, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office of
the Secretary
Mr. Young, Senior Attorney, Legal Division
Mr. Egertson, Supervisory Review Examiner,
Division of Examinations
Mr.
Mr.
Mr.
Mr.
Discount rates.
The establishment without change by the Federal
Reserve Banks of Minneapolis and Kansas City on August 4, 1965, of the
rates on discounts and advances in their existing schedules was approved
unanimously,
ith the understanding that appropriate advice would be
sent to those Banks.
Application of Wells Fargo Bank (Item No. 1).
Unanimous approval
was given to a letter to Wells Fargo Bank, San Francisco, California,
aPproving the establishment of a branch at Homestead Road and Kiely
Boulevard, Santa Clara.
A copy of the letter is attached as Item No. 1.
Amendment to Regulation Q (Item No. 2).
There had been distributed
a memorandum dated August 3, 1965, from the Legal Division reconmiending
-2-
8/5/65
that section 217.3(a) of Regulation Q, Payment of Interest on Deposits,
be amended to reflect the approval on July 21, 1965, of an act amending
section 19 of the Federal Reserve Act so as to continue from October 15,
1965, until October 15, 1968, the exemption of deposits of foreign
governments and certain foreign institutions from regulation by the
Board of Governors as to rates of interest member banks may pay on time
deposits.
Attached to the memorandum was a draft of amendment.
The amendment, a copy of which is attached as Item No. 2, was
...ausly.td unanimously effective August 5, 1965.
Application of Marine Midland Trust Company (Items 3-5).
At
Yesterday's meeting the Board had discussed drafts of an order and statement reflecting the Board's approval on July 14, 1965, of the application
of The Marine Midland Trust Company of New York to acquire the assets
and assume the liabilities of Grace National Bank of New York, both banks
being in New York CityYr A related problem concerned the question to what
extent and in what terms the statement should mention allegations made in
a letter addressed to Mr. Hackley by Thurman Arnold, of the law firm of
Arnold, Fortas & Porter, as counsel for Michael P. Grace, II, to the
effect that the proposed acquisition by Marine Midland would violate
Principles of equitable protection of minority stockholders' rights and
of creditors' rights.
There had now been distributed a second draft of
statement, revised to reflect the views expressed during yesterday's
discussion.
* The title of the acquiring bank would be changed to Marine Midland
Grace Trust Company of New York,
-3-
8/5/65
Comments during today's meeting related principally to editorial
suggestions and matters of procedure.
The members of the Board expressed
general satisfaction with the substance of the revised statement, but it
was noted that Governor Robertson, who was testifying before a Congressional committee today, had not had an opportunity to finalize his dissenting statement.
Under the Board's internal rules of procedure it
would be possible for a dissenting statement to be issued subsequent
to the release of the majority statement.
However, it was the consensus
that it would be preferable to have both statements issued at the same
time.
Comment was made also that Judge Arnold had indicated orally that
additional material bearing upon his complaints on behalf of his client
would be submitted to the Board toward the end of this week, and the Board
might be somewhat vulnerable to criticism if it issued its order and statement without waiting to receive that material.
At the conclusion of the discussion the issuance of the Board's
order and statement was authorized, with the understanding that they
would be issued in company with Governor Robertson's dissenting statement.
Secretary's Note: At the meeting on August 6,
1965, Mr. Hackley reported that a further letter,
with certain enclosures, had been received from
the law firm of Arnold, Fortas & Porter. There
was general agreement with Mr. Hackley's recommendation that the contents of the latest submission
should be digested by the Legal Division and that
the pertinent portion of the majority statement
should be reviewed and amended to such extent as
might appear appropriate in the light of such
analysis. It was also agreed that in the absence
8/5/65
-4of unforeseen developments necessitating further
Board consideration, the order, statement, and
dissenting statement would then be issued. The
hope was expressed that the review of the latest
submission would not delay too greatly the issuance
of the Board's order.
The aforementioned review having been accomplished, and it appearing to the Legal Division
that there was no compelling reason to bring the
matter back to the Board, the order, statement,
and dissenting statement were issued on August 10,
1965. Copies of the documents, as issued, are attached as Items 3, 4, and 5.
Messrs. Young and Egertson then withdrew from the meeting.
Manufacturers Hanover antitrust suit.
On July 8, 1965, the Board
received a confidential report from Mr. Solomon, based on information
received informally from a representative of the Department of Justice,
regarding possible settlement of the antitrust suit against Manufacturers
Hanover Trust Company, New York City.
At today's meeting Mr. Solomon
reported further advice on the negotiations, which contemplated that
Manufacturers Hanover would sell to a selected bank in New York City a
S pecified number of branches.
One feature of the plan was said to be
the acceptance by Manufacturers Hanover of debentures of the other bank.
There ensued a general discussion of the advice received, including the reported means of financing the sale of the branches, and in
broader terms the implications of a pyramiding of bank capital from the
standpoint of consequences for the banking system.
Since the negotia-
tions in the Manufacturers Hanover case apparently were still in the
formative stage, it was pointed out that it could not be
said with
'
-5-
8/5/65
certainty what final plan, if any, might come before the Board for
approval.
However, there was a consensus that, since a representative
of the Department of Justice had furnished the information to Mr. Solomon,
it would be appropriate for the latter to indicate to the Justice representative informally that there might be some question if a proposal
should come before the Board for approval that involved a financing
element such as reportedly was under consideration.
All of the members of the staff except Mr. Sherman then withdrew
and Mr. Holland, Associate Director, Division of Research and Statistics,
entered the room.
Study of discount mechanism.
Governor Mitchell stated that
the committee appointed at yesterday's meeting of the Board (Governor
Mitchell, Chairman, and Governors Shepardson and Maisel) had prepared a
tentative program with respect to organizing the study of fundamental
reforms that might be made in the discount mechanism.
He then proceeded
to read a memorandum as follows:
In response to the Board's request, we have considered the
organizational and staffing requirements of the fundamental study
of the discount mechanism approved at the meeting of August 4,
1965, and have the following recommendations to make.
We recommend that the overall direction of the study be
undertaken by a Steering Committee consisting of four Federal
Reserve Bank Presidents and three members of the Board, plus the
Chairman of the Board ex officio. This Committee should be
assisted by a small Advisory Committee of Federal Reserve Bank
Chairmen and Deputy Chairmen to advise on considerations of public
relations and the public interest.
8/5/65
-6-
The Steering Committee should be served by an 11-man Secretariat, comprised of senior Reserve Bank and Board officials
plus one senior economist from the Board staff. The Secretariat
would be responsible for organizing all aspects of the discount
study under the guidelines laid down by the Steering Committee.
Such organizational activity would include developing suggestions
for studies to be considered by the parent committee, arranging
for the personnel and other resources necessary to conduct such
studies, and assembling and integrating the results of the studies
for presentation to the Steering Committee. It is expected that
a number of small working groups of System personnel would be
organized to study various aspects of the discount mechanism,
some concentrating on possible improvements in rules and operations
that could be developed and instituted fairly quickly and others
undertaking longer-range reappraisals that might provide a basis
for more fundamental reforms of the discount mechanism as time
progresses.
Progress reports and possible recommendations for action
would be presented periodically by the Steering Committee to the
Board. Such reports and recommendations could also be transmitted
to the Conference of Presidents, with requests for the views of
the Presidents whenever appropriate.
Listed below are suggestions for membership on the groups
proposed in this memorandum.
Steering Committee
Governor Mitchell, Chairman
Governor Shepardson
Governor Maisel
Chairman Martin, ex officio
President Bopp (Philadelphia)
President Clay (Kansas City)
President Scanlon (Chicago)
President Shuford (St. Louis)
Secretariat
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Holland, Chairman (Board)
Young (Board)
Farrell (Board)
Hackley (Board)
F. Solomon (Board)
Shull, Secretary (Board)
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8/5/65
Mr.
Mr.
Mr.
Mr.
Mr.
Coldwell (First Vice President, Dallas)
Strothman (First Vice President, Minneapolis)
Bilby (Vice President, New York)
Melnicoff (Vice President, Philadelphia)
Merritt (Vice President, San Francisco)
Chairman Martin noted that the Board's committee suggested the
formation of a Steering Committee that would consist of eight members,
as indicated in the memorandum read by Governor Mitchell, and a Secretariat that would consist of eleven members, with widespread System
representation.
Governor Mitchell stated that he had talked with President Bopp,
who was enthusiastic about moving ahead on the study and who concurred
in the arrangement both for the Steering Committee and for the Secretariat.
Mr. Bopp also had concurred in a suggestion that the Steering Committee
hold a meeting on August 10 when the Presidents of the Reserve Banks
Would be in Washington for a meeting of the Federal Open Market Committee.
Question was then raised as to the proposed Advisory Committee
of Reserve Bank Chairmen mentioned in the memorandum read by Governor
Mitchell and referred to in the staff memorandum of April 21.
Governor Mitchell stated that the formation of such an Advisory
Committee was to be considered further by the Steering Committee, that it
Probably would not be desirable to appoint the Advisory Committee until
the study had been organized more fully and gotten under way, but that
it seemed desirable to provide for such a committee that might advise on
considerations of public relations and the public interest.
Governor
e- vs.
8/5/65
-8-
Mitchell also suggested, in response to a question, that the Advisory
Committee might include representation from the Reserve Banks not
represented on either the Steering Committee or the Secretariat.
He
noted, however, that the specific appointment of the Advisory Committee
would probably be deferred for some period of time.
After further discussion of the proposed arrangements for
carrying forward the study, the Board approved unanimously the appointment of the Steering Committee as proposed in the memorandum read by
Governor Mitchell, with the understanding that the latter would communicate with the four Reserve Bank Presidents listed to ascertain whether
they would serve on the canmittee.
It was also understood that appropriate
advice would be given to the members of the Secretariat and that if possible
a meeting of the Steering Committee would be held on August 10.
Chairman Martin suggested that it would also seem desirable to
have a brief joint meeting of the Board and the Presidents of the Reserve
Banks following the meeting of the Federal Open Market Committee on
August 10 to acquaint the Presidents fully with the steps being taken to
implement the study of the discount instrument, as discussed at this
Meeting and as reviewed by Governor Mitchell with Mr. Bopp as Chairman
of the Conference of Presidents.
Messrs. Young and Noyes, Advisers to the Board, entered the
room during the foregoing discussion.
Report on international developments.
Chairman Martin reported
On informal discussions that he had had with the Secretary of the Treasury
8/5/65
-9-
and others regarding current developments in the foreign exchange situation,
particularly as related to the United Kingdom.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board a letter to
J. M. Thayer, Jr., Cashier, Federal Reserve
Bank of Boston, advising that Mr. Kelleher,
Director, Division of Administrative Services,
would serve as an associate of the ad hoc subcommittee of the Committee on Systems and Procedures
of the Conference of Presidents that had been
requested to make a study of System purchasing
procedures.
Secretary_,
Item No. 1
8/5/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADORIC•• OfFICIAL CORNIIIIIPONOCNOIC
TO THE •OARD
August 5, 1965.
Board of Directors,
Wells Fargo Bank,
San Francisco, California.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Wells Fargo Bank,
San Francisco, California, of a branch at the intersection
of Homestead Road and Kiely Boulevard, Santa Clara, California,
provided the branch is established within one year from
the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
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.)
Item No. 2
8 /5 /65
TITLE 12 - RANKS AND RANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A -- BOARD OF GOVERNORS Of THE FEDERAL RESERVE SYSTEM
[Reg. Q]
PART 217 - PAYMENT OF INTEREST ON DEPOSITS
Foreign Time Deposits
1.
Effective August 5, 1965, paragraph (a)
.
of § 217.3 is
amended to read as follows:
217.3
Maximum rate of interest on time and savings deposits.
(a) Maximum rate prescribed from time to time.
Except in
accordance with the provisions of this part, no member bank shall pay
interest on any time deposit or savings deposit in any manner, directly
or indirectly, or by any method, practice, or device whatsoever.
No
member bank shall pay interest on any time deposit or savings deposit
at a rate in excess of such applicable maximum rate as the Board of
Governors of the Federal Reserve System shall prescribe from time to
time; and any rate or rates which may be so prescribed by the Board
will be set forth in supplements to this part, which will be issued
in advance of the date upon which such rate or rates become effective.
During the period commencing on October 15, 1962, and ending on
October is, 1968, the provisions of this paragraph shall not apply to
the rate of interest which may be paid by member banks on time deposits
of foreign governments, monetary and financial authorities of foreign
governments when acting as such, or international financial institutions
of which the United States is a member.
-2-
2a.
The purpose of this amendment is to amend the last
sentence of f 217.3(a) so that it will conform with Public Law 89-79
(79 Stat. 244), approved July 21, 1965.
That law extended for a
Period of three years the exemption of deposits of foreign governments
and certain foreign institutions from regulation by the Board of
Governors as to the rate of interest that member banks may pay on
time deposits.
b.
There was no notice and public participation with
respect to this amendment, nor is the effective date thereof deferred.
In the circumstances, twat procedure and delay would serve no useful
Purpose. (See 5 262.1(e) of the Board's Rules of Procedure
(12 CFR 262.1(e)).)
(12 U.S.C. 248(i).)
Dated at Washington, D. C., this 5th day of August, 1965.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(SEAL)
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
UNITED STATES OF AMERICA
Item No. 3
8/5/65
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
TRE MARINE MIDLAND TRUST COMPANY OF NEW YORK
for approval of acquisition of assets of
Grace National Bank of New York
ORDER APPROVING ACQUISITION OF BANK'S ASSETS
There has come before the Board of Governors pursuant to the
Ilarik Merger Act of 1960 (12 U.S.C. 1828(c)), an application by The Marine
Ilidland Trust Company of New York, New York, New York, a State member bank
Of
L
tue Federal Reserve System, for the Board's prior approval of its
acquisition of assets and assurnption of deposit liabilities of Grace
1Zat1°nal Bank of New York, New York, New York, and, as an incident
thereto, The Marine Midland Trust Company of New York has applied, under
section 9 of the Federal Reserve Act, for the Board's prior approval of
the
establishment by that bank of a branch at the location of the sole
c)tfice of Grace National Bank of New York.
Notice of the proposed
eequison of assets and assumption of deposit liabilities, in form
4PPtoved by the Board, has been published pursuant to said Act.
Upon consideration of all relevant material in the light of
the
factors set forth in said Act, including reports furnished by the
-2on,
Comptroller of the Currency, the Federal Deposit Insurance Corporati
and the Attorney General on the competitive factors involved in the
Proposed transaction,
IT IS HEREBY ORDERED, for the reasons set forth in the Board's
are approved,
Statement of this date, that said applications be and hereby
Provided that said acquisition of assets and assumption of deposit
consummated
liabilities and establishment of the branch shall not be
or (b) later
(a) within seven calendar days after the date of this Order
than three months after said date.
Dated at Washington, D. C. this 10th day of August, 1965.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Shepardson, Mitchell,
Daane, and Maisel.
Voting against this action:
Governor Robertson.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No. 4
8/5/65
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY TUE MARINE MIDLAND TRUST COMPANY OF NEW YORK
FOR APPROVAL OF ACQUISITION OF ASSETS OF
GRACE NATIONAL BANK OF NEW YORK
STATEMENT
The Ma-zinc Midland Trust Company of New York, New York,
44
'York ("Marine"), with total deposits of $951 million, has applied)
Pursuant to the Bank Merger Act of 1960 (12 U.S.C. 5 1828(c)), for the
4ard's prior approval of its acquisition of assets and assumption of
•
abilities
of Grace National Bank of New York, New York, New York
("crace"),
which has total deposits of $292 million:—
As an incident
to the transaction, the name of the acquiring bank would be changed
to it
Marine Midland Grace Trust Company of New York", and the sole
ce of Grace would become a branch of Marine, increasing its number
() °ffices to 14.
Under the law, the Board is required to consider, as to
eaci,
" of the banks involved, (1) its financial history and condition,
(2)
the adequacy of its capital structure, (3) its future earnings
h°aPects, (4) the general character of its management, (5) whether
its
corporate powers are consistent with the purposes of 12 U.S.C.,
ehaPter 16 (the Federal Deposit Insurance Act), (6) the convenience
-Posit figures are as of December 31, 1964.
-2-
and needs of the community to be served, and (7) the effect of the
transaction on competition (including any tendency toward monopoly).
The Board may not approve the transaction unless, after considering
all of these factors, it finds the transaction to be in the public
i
nterest.
Shortly before the issuance of its Order in this case, the
Board received letters from a law firm representing a stockholder of
Grace, requesting that the Board's decision be deferred until consideration was given by the Board to alleged inequities and violations of the
rights of minority stockholders and creditors of Grace.
The letters
alleged (1) that the proposed transaction was "structured" as an acquisition of assets in order to avoid requirements of provisions of the
national banking laws with respect to appraisal of the interests of
r°inority stockholders in the case of a merger or consolidation 1.equirements that do not expressly apply to an acquisition of assets;
and (2) that
the transaction involves an absence of arm's-length dealing,
in violation of the fiduciary obligation owed by majority stockholders
to minority stockholders.
The allegation that the proposed transaction is a de facto
ger and therefore is, or should be
subject to the "appraisal"
Provisions of
Federal law (12 U.S.C. 214-214c) designed to protect the
L
tig ts of minority stockholders of national banks, ignores the fact that
Congress clearly has drawn a distinction in this respect between mergers
4nd acquisitions of assets.
It ignores also the fact that the Bank Merger
-3-
Act of 1960 recognizes the existence of that distinction by specifically
PrOviding
for approval of "acquisitions of assets" as well as "mergers".
The Comptroller of the Currency is principally responsible for
administration of the national banking laws, including those relating
to raergers and voluntary liquidations of national banks.
He was ac-
with the terms of the proposed transaction, and has presented
11° objections of the
kind now raised by counsel for a stockholder of Grace.
In these circumstances, the Board concludes that it would not
be Warranted in deciding that the proposed transactio would involve
n
a
14°1etion of sections 214-216.c of Title 12 of the United States Code,.
The allegation that the transaction violates a general fiduciary
°bligation owing by majority stockholders to minority stockholders is
riot
based upon specific provisions of any Federal statute; and the Board
d°ea tot interpret Federal statutes and judicial decisions as requiring
the
Board to adjudicate nonstatutory rights of minority stockholders.
Information regarding the matters that were the subject of
the
ktorementioned letters was contained in the record before the Board
"
11 °r to receipt of such letters and, in essential respects, in the
4Pplication in this case received by the Board January 15, 1965.
the
Notice
proposal was published pursuant to the Bank ijerger Act in February
4114
'larch 1965. The substance of the various points in the letters is
eas4,
'117 identifiable
from documents supplied by Grace with the notice,
44ted April
20, 1965, of the special meeting of that bank's stockholders
Li
°11 ay 13,
1965, at which the proposal was approved. Nevertheless, no
-4-
reason has been advanced on behalf of the protesting shareholder for
his failure to present his objections at an earlier time, during the
months that the pending proposal has been before the Board.
In view of the circumstances stated above, the Board has
concluded, after consideration of the arguments advanced in the letters
case,
Previously mentioned, that deferment of the Board's action in this
for the reasons advanced in those arguments, would not be in the public
interest.
The Board's action does not, of course, preclude determina-
tion of the rights of minority stockholders of Grace in an appropriate
forum, and legal proceedings to determine such rights actually have
been instituted.
Banking factors. - Marine is an affiliate of Marine Midland
Corporation, Buffalo, New York, a bank holding company registered under
the Bank Holding Company Act of 1956,
and Grace is the sole banking
subsidiary of U. R. Grace & Co., New York, New York, the owner of over
80 per cent of the stock of the bank.
W. R. Grace & Co. is engaged
Chiefly in the chemical and food processing industries.
The financial
histories of Marine Midland and Grace are satisfactory, and each bank
has a sound asset condition and an adequate capital structure.
Each
bank has a good earnings record and satisfactory future earnings prospects,
and the management of each is experienced and competent.
The acquiring
bank would have capable management, a sound asset condition, an adequate
al stucture, and good future earnings prospects.
There is no indication that the corporate powers of the banks
are, or
16.
would be, inconsistent with the purposes of 12 U.S.C., Chapter
_5-
Convenience and needs of the communities. - Marine and Grace
are headquartered in the borough of Manhattan, New York City. Of
Ilsrine's 13 domestic offic
es, 5 are located in the financial district
Of lower Manhattan, 5 in the midtown area, and 3 in the central portion
of the borough of Queens.
The sole office of Grace is located at the
outer fringe of Manhattan's financial distr
ict, about 6 blocks from the
main office of Marine and sever
al blocks further from the latter's
nearest branch.
In the 6 blocks separating the proponent banks, there
"
4 11 offices of other comme
rcial ba4s.
Marine offers complete "retail" banking services at all its
°ffices and, although the princ
ipal local area served is Manhattan, the
'
bInk is closely linked through the holding company with other subsi
diary
banks elsevhere in New York State.
Marine is also active in the national
4nd international markets.
The bank recently established an office in
Lnndon and
a foreign banking subsidiary, Marine Midland International
C°rPoration.
The international transactions of Marine center around
134t8 of Europe, the Middle East, and, to a lesse
r extent, the Far East.
Grace, under the ownership of U. R. Grace & Co., has become
a 8PeCialist
in international banking, concentrating, in this respect,
irt
Latin American
transactions. The bank does not solicit "retail"
tr.,A
it discourages small check
ing and savings accounts, offers no
to4stamer
loans, has no real estate mortgage department, and normally
4tilizes
the services of only a few tellers.
With the abundant number of commercial banking offices
in
11411hettan
and the New York City metropolitan area provi
ding a multitude
1'4.70
•-• )
-6-
of services, the banking needs and convenience of the local community
are being adequately satisfied.
The proposed transaction, however, would result in a higher
lending limit for Marine (but one still markedly lower than that of
its next larger rival), and make possible certain economies in its
°Perations.
Of particular significance would be the ability of Marine
to offer a broader range of international banking services and to do
80 throughout a broader geographical area.
Thus, the customers of the
Proponent banks would have available a somewhat wider variety of banking services than is presently provided by either bank.
This would be
e8pecial1y beneficial to the convenience of those customers crigaged in
int
ernational operations.
—
Competition. - Marine, with 1.8 per cent of the IPC deposits,'
is the ninth largest of 44 commercial banks located in New York City
4nd Grace, with .6 per cent of such deposits, ranks fourteenth in this
e8Pect.
With the acquisition of Grace, Marine would rank eighth among
44 York City banks in terms of IPC deposits, but would be less than
"e'half the size of the seventh largest bank and slightly more than
°ne-fourth larger than the ninth ranking bank.
Marine obtains 79 per
Qetlt of its IPC deposits from the New York City metropolitan area and
63 per
cent of such deposits from Manhattan.
about 50 per
Although Grace derives
cent of its IPC deposits from customers located in Manhattan,
of these use Grace only because of its well known connections and
ti
ytrtlse
in international banking. They emphasize different types of
1)41m
,
'
.1rIg services and such competition as exists between the two banks
is
quite limited.
are eposits of individuals, partnerships, and corporations.
as of June 30, 1964.
The figures
()(4,/4.7
-7and
As was pointed out in the discussion of the convenience
needs factor, Marine offers a full range of retail services, whereas
Grace does not compete for such business.
Indeed, it appears that the
bulk of such "retail" services as are provided by Grace are for accommodation purposes, either for personnel of its own corporate family or
f°r those of its corporate customers.
In this connection, it is pertinent
to note that the average IPC deposit of Grace is more than twice the
size of that of narine. Further, a substantial number of the proponent
bank_,
deposit and loan accounts originating in nanhattan are attri-
butable to large commercial and industrial enterprises for whose banklnr
business there is a national market.
While both banks are active in international banking, the
de
Pendence of Grace on business from this market is substantially
ateater than that of Marine, a relative newcomer in the field.
Harine
attlIbutes about 5 per cent of its IPC deposits and 9 per cent of its
1°44s to the international market; comparable figures for Grace are
36 per
cent and 30 per cent, respectively.
This allocation was made
°4 the
basis of accounts with addresses outside the United States
and a
ccounts maintained primarily for business outside the United States.
14 ad
dition, some companies have been attracted to these banks Part
icularly so in the case of Grace with its high degree of
4Pecialization - because they wish to have expertise in international
fin
m4cial transaction available even though this service is used inecluently or for only a small part of their business.
If these accounts
-8-
were included, over oae-half of Grace's IPC deposits and almost
0 °-hnlf of its loans outstanding would be attributable to the
international market.
As indicated earlier, the international transactions of the
470 banks center around different areas.
Neither bank offers interna-
tional banking services comparable to those offered by the major
international banks of New York City. However, as a result of combining
the international banking skills and resources of the two institutions
as is proposed, Marine could readily develop an international banking
department capable of increasing the vigor of competition in the
international market.
It seems quite unlikely that the acquisition of Grace by
llarine would thwart significant potential competition in any market.
Grace is a part of a corporate structure in which the banking business
141a generated as a by-product of other corporate operations.
The funda-
Mental purpose of Grace has been to deal with international banking
tr ansactions for its parent.
the
The parent corporation now has shifted
emphasis of its operations from transportation and trading to other
fields and no longer regards a banking affiliate as of special usefulness.
In these circumstances, the parent merely wants to get out of
the banking field and is not interested in having Grace expand its
t4ther limited range of banking services.
Marine, as previously noted, is a subsidiary of Marine Midland
Cor poration, a registered bank holding company with a total of 11
corn-
banks that operate 201 offices in 119 communities in New York
-9State. The $3.1 billion aggregate deposits held by Marine Midland
Corporation's banking a2filiates represent 5.4 per cent of the total
deposits of all commercial banks in New York State; with the acquisition
(4 Grace the portion of such deposits held would increase to 5.9 per
cent. The nearest affiliate of Marine Midland Corporation to Marine
in Nyack, some 40 miles north of downtown Manhattan.
Although the
10 subsidiaries of Marine Midland Corporation located outside New York
City derive about 3.7 per cent of their deposits from accounts with
metropolitan area addresses, and 3.1 per cent of their loans are to
borrowers with such addresses, these deposits and loans are less than
*2 Per cent of the deposits and loans held by New York City headquartered
1144ks.
OZ
Grace obtains about 2 per cent of its deposits and 5 per cent
tts loans from portions of New York State outside the metropolitan area.
Because of Marine Midland Corporation's banking subsidiaries
4cated in various parts of the State, an application to absorb a bankina
unit into the I;arine Midland group requires that consideration be
"ven to the possibility that the absorption may have adverse effects
cn
banks that compete with subsidiaries of the holding company. On this
Point it
is relevant that Grace's correspondent activity is, and gives
Very prospect o2 being no more than, extremely limited both as to the
444 of services of:ered and the extent to which it is availed of by
banh
' in the areas served by the holding company's subsidiaries. Grace
has
10 correspondent banks located in areas served by banks of the Marine
and group; all 10 have other New York City bank correspondents, with
A
9
IV .4.„,
-10-
numerous other alternatives also available to them.
While the size of
liarine Midland Corporation is impressive, it does not appear that the
addition of Grace would lead to any significant adverse effects upon
banking competition.
Summary and conclusion. - The proposed acquisition of Grace
by
Marine, if consummated, would result in a slight increase in con-
cenlration of banking resources. However, competition (existing and
Potential) between the two banks is quite limited, and such acquisition
vould not result in any significant adverse competitive effect.
tOue
It is
expected that the transfer of Grace to Marine would provide for
the continuation and improvement of a banking office which seems almost
certainly destined for liquidation or other disposition by its parent;
and it would seem likely that the absorption of Grace - if this proposal
Ilete to be rejected - would be more attractive to a bank larger, instead
of
a bank smaller, than Marine.
The banking public, and especially the
eonvenience for banking customers in the international market, would be
benefited as a result of combining the resources and complementary skills
Of
th
-e proponent banks, and this would also enhance competition, most
si„
Olificantly in the market for international banking services.
Accordingly, the Board finds that the proposed transaction
11(341d be in the public interest.
August 10, 1965.
DISSENTING STATEMENT OF GOVERNOR ROBERTSON
Item No. 5
8/5/65
I am unable to find evidence in the record of this case to
support the view of the majority that the proposed transaction would
be in the public interest within the meaning of the Bank Merger Act
of 1960.
The majority concludes that there is little significance in
the fact that Marine and Grace obtain, respectively, about 63 per cent
and 50 per cent of their IPC deposits from Manhattan (and neglects to
mention that each also obtains about 50 per cent of its loan accounts
from the same area). Essentially, two reasons are given for this
"nclusion:
first, it is said that "Marine offers a full range of
retail services,whereas Grace does not compete for such business";
and, secondly, it is said that "a substantial number of the proponent
banks' deposit and loan accounts originating in Manhattan are attributable
t° large commercial and industrial enterprises for whose banking business
there is a national market".
Taken at face value, these two reasons
together lead to the conclusion that the banks are substantial competrs in offering wholesale banking services for those businesses that,
desPite access to a national market, find it desirable to have alternati
ve sources of such services in New York City.
414Y
The fact that there
ea national market for a product or service does not preclude
the existence also of a meaningful local market for the same product
°r service. See, e.a., Brown Shoe Co. v. United States, 370 U.S. 294,
336-37 (1962).
This possibility, unfortunately, is given short shrift
bY the majority.
Nwl
4 1
-2-
Further - although the majority is so unimpressed as to omit
the fact - it is not without significance, I think, that the acquisition
of Grace will boost iiarine fourteen places in rank among the nation's
largest banks, from thirty-sixth to twenty-second in terms of total
dePosits.
In addition, I cannot accept the view that, simply because
Grace has, in effect, been labeled a limited service bank and Marine
4 full service bank, there is no significant competition existing
between them.
The record shows that of the twenty-one principal banking
services provided by Marine, Grace provides twenty - every one except
consumer instalment loans.
In considering the market for international banking services,
the majority
u stresses that the international transactions of the two
banks center around different areas:
Latin American in the case of
Grace; Europe, the -Addle East and, to a lesser extent, the Far East
in the case of '21arine.
Apparently, the intended implication is that
Gl:ace and Marine do not compete for the same kind of international
banking business and the proposed acquisition can, therefore, have no
adverse competitive effects in this market.
that
The fact is, however,
Grace maintains more than 500 international banking correspondent
l'elationships in 55 countries.
These circumstances do not support the
e°nclusion that there is no significant competition between the proponent
banks in the international market.
Further, I do not think it is particularly meaningful that
tine attributes only 5 per cent of its IPC deposits to the
r,I
0
'
lt.„7k5
-3-
Grace.
international market as compared to 36 per cent for
In absolute
international
figures, the IPC deposits of Grace attributed to the
$29 million.
market total over $62 million and those of Marine total over
with resources
Marine, a member of a gigantic bank holding company group
erable
about eighteen times as great as those of Grace and with consid
needs to acquire
Personnel and skills in the international field, hardly
ss.
Grace to develop its international - or any other - banking busine
proponent
In this connection, if the international transactions of the
areas, Marine's
banks do in fact center around different geographical
in any
Ilish to acquire Grace suggests that it is a potential competitor
event - i.e., desirous of entry through internal expansion into the
areas now served by Grace.
Instead of increasing the vigor of competi-
of Grace will
tien in the international banking market, the acquisition
ational banking by
enable Marine to augment its position in intern
eliminating a substantial competitive force.
that the
A most disturbing finding by the majority is
acquisition of Grace by Marine would not foreclose significant potential
ation no longer
c°mPetition in any market since Grace's parent corpor
wants to withfinds a banking affiliate of special usefulness, merely
in having Grace
from the banking field and is not interested
e Pand its range of banking services.
Of course, if the transaction
were not approved and Grace failed to offer new services, it would
or would
not mean that Marine - or other commercial banks - could not,
those presently
11(3t, offer banking services in direct competition with
.
4)I)0t)
-4-
offered by Grace.
More fundamentally, by its willingness to approve
asset acquisitions under the circumstances of this case, the majority
effectively removes the reed for banks such as Grace to offer
additional services.
The denial of the application would, no doubt, entail some
inconvenience for the owners of Grace.
Under the Bank Merger Act,
however, the paramount consideration is the general public interest,
not the convenience of stockholders.
More particularly, it is
incredible that the majority is capable of giving as a reason for
approving the proposal that Grace "seems almost certainly destined
for liquidation or other disposition by its parent; and it would seem
more likely that the absorption of Grace - if this proposal were to be
rejected - would be more attractive to a bank larger, instead of a bank
smaller, than Marine."
Does the majority actually fear that, if it
rejects this proposal, it (or another banking agency, depending on
the Federal affiliation of the applicant) will, or must, approve the
absorption of Grace by a bank larger than Marine?
The very purpose of
the Bank Merger Act, although not to prevent the owners of banks fr.=
d isposing of their holdings, is to assure that such dispositions are
agencies,
in the public interest and, in this connection, the banking
including this Board, are charged with the responsibility of assessing,
and giving weight to, the consequences for banking competition.
The acquisition of Grace will increase Marine's IPC deposits
move
by more than 30 per cent; in terms of total deposits, Marine will
.5..,
well into the billion dollar category.
The 14 largest commercial banks
headquartered in New York City, which include the proponent banks,
account for nearly 97 per cent of the IPC deposits held by all such
banks.
After the proposed acquisition, the city's eight largest
commercial banks, which include Marine, will hold more than 39 per cent
of the IPC deposits of the city's commercial banks - and it is no
answer that Grace presently holds only .6 per cent of such deposits.
un the contrary, if concentration is already great, the importance of
Preventing even slight increases in concentration and so preserving
the possibility of eventual deconcentration is correspondingly great."
United States. v. Philadelphia National .3ank, 374 U.S. 321, 365 n. 42
(1963).
Finally, the finding of the majority that the addition of
Grace's resources to Marine Midland Corporation's bank holding company
sYstem would lead to no significant adverse effects for banking compethe
tition, as well as the finding that the transaction would benefit
convenience of banking customers, cannot be reconciled, in my judgment,
With the Board's denial of an earlier application by Marine i1idland
C°rPoration to acquire all of the voting shares of the Security National
Bank of Long Island. 48 Federal Reserve Bulletin 1597 (1962).
In that case, now inexplicably ignored by the majority, the
Board, in discussing the "convenience and needs" factor, stated:
-6H
• . Applicant [Marine Midland Corporation] goes to
great length in describing the improved and additional
services Security would be able to offer as a subsidiary,
but gives very little specific information on the area's
need for such services. ... [T]here is little in the
application to indicate that banking services of the types
listed are inadequate or unsatisfactory in Security's service
[T]here is little, if any, real evidence that
areas. • •
the public is inconvenienced because Security does not now do
what it might as a subsidiary of Applicant. ... [and] ,the
Board cannot assume that what is not being done needs to be
done or is material to the public's convenience." Id. at 1602.
Similarly, if there is a scintilla of evidence in the record of this
ease that the public served by the proponent banks is inconvenienced
by lack
of banking services, the majority fails to point it out;
actually,
there is none.
Yet, the majority is now unaccountably
14illing to "assume that what is not being done needs to be done . • •
[and] is material to the public's convenience."
In considering the effect on competition of the proposed
acquis
on of Security National Bank by Marine Midland Corporation,
the Board stated:
H .. Applicant [Marine Midland Corporation] presently
controls 11 banks in New York State which operate 181 banking
of
located in each of the State's nine banking districts
and had, at the end of 1961, aggregate deposits of $2.54 billion. Applicant advertises its size and State-wide coverage
and places much weight on this unique feature of its operations.
According to Applicant, it can provide better services for its
customers throughout the State of New York than can its
competitors through regular correspondent relationships.
Acquisition of Security would further enhance Applicant's
Position in the New York State banking structure. . • • The
Proposed acquisition would also result in a substantial
addition to Applicant's over-all size; it would acquire
33 banking offices (an increase of 18.2 per cent in its banking
Offices) and $221.5 million deposits (an increase of 8.7 per
cent). The result of this acquisition, which in and of itself
-7-
is not insignificant, would give Applicant hiore complete
State-wide coverage and banks headquartered in all nine of
the State's banking districts. .. ."
... As to the effect of the proposed transaction upon
the size and extent of Applicant's holding company system as
it relates to adequate and sound banking, the public interest,
and preservation of competition in the field of banking, the
concentration of banking resources and activities which would
result from the proposed acquisition would be inimical to the
preservation of banking competition and inconsistent with the
the
public interest. This being the case, it is the view of
1606-07.
at
Id.
denied."
be
should
n
Board that the applicatio
Marine Midland Corporation has the most geographically
extensive banking system in New York State and ranks seventh, behind
six New York City headquartered banks, in total banking resources.
4esently, as was true at the time of its application to acquire
Security National Bank, Marine Midland Corporation has 11 banking
subsidiaries, but these subsidiaries now operate 201 banking offices,
subnot 181 as was then the case; the aggregate deposits of these
sidiaries is now $3.1 billion, not $2.54 billion as was then the case;
to
and, consummation of the present transaction will add $292 million
the total deposits of the holding company group, not $222 million as
then the case.
If the Board was on sound ground in refusing to permit the
n
4ddition of Security National Bank to the Marine Midland Corporatio
OUp
- I think it was, and the majority offers no reason as to why it
as not - then, a fortiori, the addition of Grace to that group should
be prohibited.
I would deny the application.
August 10, 1965.
@FedFRASER