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Minutes for To: Members of the Board From: Office of the Secretary August 5, 1966 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. Robertson Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Gov. Brimmer 280f) Minutes of the Board of Governors of the Federal Reserve System on Friday, August 5, 1966. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Robertson, Vice Chairman Shepardson Mitchell Daane Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Young, Senior Adviser to the Board and Director, Division of International Finance Mr. Holland, Adviser to the Board Mr. Molony, Assistant to the Board Mr. Fauver, Assistant to the Board Mr. Solomon, Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Furth, Consultant Messrs. Brill, Koch, Partee, Axilrod, Gramley, Ettin, Fry, and Kelty, and Mrs. Peskin and Miss Stockwell of the Division of Research and Statistics Messrs. Sammons, Hersey, Katz, Baker, and Gemmill of the Division of International Finance Money market review. Mr. Axilrod commented on the current Treasury refinancing, other developments in the Government securities market, and bank credit trends, following which Mr. Baker reviewed developments with respect to the pound sterling, System foreign currency operations, and the London gold market. Copies of the materials distributed in connection with the staff presentations have been placed in the Board's files. After discussion based on the reports all members of the research staff withdrew from the room except Messrs. Brill, Koch, Partee, and Sammons. Mr. Furth also withdrew at this point and the following entered: (jtt)sy V . 8/5/66 -2Cardon, Legislative Counsel Hackley, General Counsel Kakalec, Controller Byrne, Director, Division of Data Processing Kiley, Assistant Director, Division of Bank Operations Kern, Assistant Director, Division of Administrative Services Mr. Rowe, Chief, Economic Graphics Section, Division of Data Processing Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. The establishment without change by the Federal Reserve Bank of Boston on August 1 and by the Federal Reserve Banks of New York, Philadelphia, and San Francisco on August 4, 1966, of the rates on discounts and advances in their existing schedules was approved unanimously, with the understanding that appropriate advice would be sent to those Banks. Time for establishment of branch (Item No. 1). Unanimous .LIERE2y.21 was given to the application of The Peoples-Liberty Bank and Trust Company, Covington, Kentucky, for an extension of time within Which to establish a branch in the vicinity of Fourth Street and Madison Avenue. A copy of the letter sent pursuant to this action is attached as Item No. 1. Graphics presentation conference. The recommendation contained in a distributed memorandum dated August 3, 1966, from the Division of Data Processing that a two-day System-wide graphics presentation conference be held at the Board's offices was approved unanimously, along with the contemplated expenses to the Board that would be involved. It was understood, however, that the Division would reconsider the suggested 8/5 /66 -3- dates (September 29-30, 1966) to determine whether some change might be desirable in view of the Fund-Bank meetings and other activities scheduled in Washington during the week in question. Messrs. Kakalec, Byrne, Kiley, Kern, and Rowe then withdrew. Gold loan. After consideration of a distributed memorandum from Mr. Young dated August 4, 1966, and oral comments by Mr. Young in supplementation thereof, unanimous approval was given to the granting by the Federal Reserve Bank of New York to the Central Bank of Costa Rica of a loan or loans on gold up to a total of $2 million, subject to the following conditions: (a) to be made up to 98 per cent of the value of gold bars set aside in the vaults of the Federal Reserve Bank of New York under pledge to the Reserve Bank; (b) to mature in 3 months with option to repay at any time before maturity, advances to be made in multiples of $500,000 and repayments in multiples of $100,000; (c) to bear interest at the discount rate of the Reserve Bank in effect on the date on which such loan or loans were made; (d) to be requested and made at any time during a period of 30 days beginning with the date of the Central Bank's acceptance of the terms and conditions. It was understood that the usual participation in any such loan or loans would be offered by the New York Reserve Bank to the other Federal Reserve Banks. It was also understood that advice of the Board's action would be sent to the New York Bank by wire. 8/5/66 -4Unemployment in construction industry. There had been distrib- uted, with a transmittal memorandum from Mr. Koch dated August 3, 1966, a memorandum from Mr. Wernick of the Board's research staff dated July 29 dealing with unemployment in construction. Submission of the memorandum was responsive to a suggestion by Board members during the staff economic review at the meeting on July 25 that a brief paper be prepared on this subject and that Congressmen Reuss and Ullman might be interested in receiving copies in view of the concern they had expressed on recent occasions. After consideration it was decided (1) that the memorandum would be edited in certain respects for purpose of clarification; (2) that a copy of the edited memorandum would be sent to Congressman Reuss with a personal note from Vice Chairman Robertson highlighting some of the main points in the memorandum; and (3) that another copy of the memorandum would be left with Congressman Ullman or his staff by Mr. Cardon. A copy of the memorandum, as transmitted, has been Placed in the Board's files. Secretary's Note: Copies of the memorandum were subsequently delivered to both Congressmen, at Vice Chairman Robertson's request, by Mr. Cardon. Dividend rate limitations (Item No. 2). Toward the conclusion of Yesterday's hearing before the Senate Banking and Currency Committee (111 legislation to broaden the authority to prescribe maximum rates 2860 -5- 8/5/66 payable on deposit-type savings, and related proposals, Senator Proxmire raised a question concerning the effect of imposing dividend rate limitations on savings and loan associations. It was understood that the Point of inquiry was whether and in what way the introduction of such ceilings could improve the home mortgage market. A draft of letter to Committee Chairman Robertson relating to Senator Proxmire's question Was distributed at this meeting. Suggestions were made for changes in the format of the draft reply, following which unanimous approval was given to a letter in the form attached as Item No. 2 with the understanding that copies would be sent to the Secretary of the Treasury, the Chairman of the Federal Deposit Insurance Corporation, and the Chairman of the Federal Home Loan Bank Board since those parties were also preparing letters on the same subject. The meeting then adjourned. Secretary's Notes: Attached as Item No. 3 is a copy of a letter sent today to the Secretary of the Retirement System of the Federal Reserve Banks reflecting action taken by the Board on July 25, 1966. Governor Shepardson today approved on behalf of the Board a letter to the Federal Reserve Bank of Boston (copy attached as Item No. 4) approving the appointment of John S. Morneault as assistant examiner. Secre V.4161 Item No. 1 8/5/66 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON,, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 5, 1966 Board of Directors, The Peoples-Liberty .Bank and Trust Company, Covington, Kentucky. Gentlemen: The Board of Governors of the Federal Reserve System extends to January 26, 1967, the time within which The Peoples-Liberty Bank and Trust Company, Covington, Kentucky, may establish a branch in the vicinity of the intersection of Fourth Street and Madison Avenue, Covington, Kentucky. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 28644; BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM t tâ. Item No. 2 8/5/66 WASHINGTON t , 4 JAMES LOUIS ROBERTSON 4 MEMBER OF THE BOAR() August 5, 1966. The Honorable A. Willis Robertson, Chairman, Banking and Currency Committee, United States Senate, Washington, D. C. 20510. Dear Mr. Chairman: raised by This letter is in response to the question Committee your Senator Proxmire at yesterday's hearings before limitations rate dividend Concerning the effect of imposing maximum of point the n savings and loan associations. As I understand inquiry it concerns whether and in what way the introduction of associations 'fective dividend rate ceilings on savings and loan could improve the home mortgage market. considerations of The Board believes there are fundamental banks equity commercial for that argue for comparable regulation and savings and loan associations, especially with respect to those the egments of their activity in which they compete directly for saver's dollar. There have been periods in the past when banks, could pay on Under d regulatory restraint as to interest rates they disadvantage substantial a at operating _ePosits, have found themselves higher rates :ls-a-vis savings and loan associations offering much r savings. Such circumstances could easily recur in the absence 0 1., two t a more even-handed regulatory posture with respect to the types of institutions. one outlet to another Sharp diversions of savings flows from and intensive competitive escalation of interest rates have sometimes Ideveloped as a consequence of extremely aggressive promotion of savings and l_gh-interest-rate accounts by a relatively few large followed when ' b an associations. Such an aggressive rate policy, of stimulative such savings and loan associations, can be just as by initiated been _ ate war" competition as if the rate actions had ' ummercial banks. 4 aggressive associations Some of the funds attracted by overly are ,. and loan savings community likely to be drawn from smaller to finance ability latter's the associations, thereby curtailing tA The Honorable A. Willis Robertson August 5, 1966. local home purchases. At the same time, the funds gained by such aggressive competitors may not go entirely to finance home mortgages, for there has been a tendency for some of the larger savings and loan associations to funnel a considerable portion of their loanable funds into other than family home financing, namely, financing income" Producing apartment houses and a variety of commercial construction. Considering all the issues involved, the set of proposals embodied in the legislative suggestion conveyed by the Board to Your Committee and endorsed by all the Federal agencies involved is regarded by the Board as an integrated package of actions, of Which the provision for controlling maximum dividend rates by savings and loan associations is regarded as an essential feature. Sincerely, '2864 BOARD OF GOVERNORS Item No. 3 8/5/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 5, 1966 Valerie R. Frank, Secretary, Retirement System of the Federal Reserve Banks, Federal Reserve Bank of New York, New York, New York. 10045 near Mrs. Frank: under The Board of Governors has approved increasing the benefits in Banks the Board Plan of the Retirement System of the Federal Reserve order to conform with increased benefits provided in Public Law 89-504, slgned by the President July 18, 1966. A. Effective July 18, the law provides the following changes: 1. Permits retirement at a full annuity at age 55 after 30 years' service and at age 60 after 20 years' service. 2. Eliminates the requirement that a child be dependent upon a Federal -employee parent in order to receive a survivor annuity, and raises from 21 to 22 the maximum age for student survivors to receive annuity payments. 3. B. Permits the widow of a Federal employee to continue receiving her survivor annuity if she remarries after attaining age 60, or to have her annuity reinstated in the event a remarriage prior to age 60 is terminated, if certain conditions set out in the Act are met. Effective July 31: Increases the maximum age limit from 21 to 22 for health insurance coverage for student children. Ilts. Valerie R. Frank C. 2865 - 2 Effective September 1, 1966: Increases, by 10 per cent,,the annuities of widows and widowers of Federal employees who died or whose retire ment was based on a separation from service prior to October 11, 1962. the amount It will be appreciated if you will bill the Board for of the actuarial estimates necessary to fund these increases. Very truly yours, . ⢠-1,-â ,1_,N-,1CA/\i/// Merritt Sherman, Secretary. 28f Item No. 4 8/5/66 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 5, 1966 Mr. Luther M. Hoyle, Jr., Vice President, Federal Reserve Bank of Boston, Boston, Massachusetts. 02106 Dear Mr. Hoyle: in In accordance with the request contained Board the Mr. Aubrey's letter of August 2, 1966, as an approves the appointment of John S. Morneault of Bank e Reserv l assistant examiner for the Federa the of date ive Boston. Please advise the effect appointment. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.
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