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4 c PO"t 4-000 Minutes of actions taken by the Board of Governors of the Fed.. eral Reserve System on Monday, August 8, 1955. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Vardaman Mills Robertson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Kenyon, Assistant Secretary Riefler, Assistant to the Chairman Leonard, Director, Division of Bank Operations Vest, General Counsel Young, Director, Division of Research and Statistics Nelson, Assistant Director, Division of Examinations Horbett, Assistant Director, Division of Bank Operations The following matters, which had been circulated to the members of the 11.v_ ..ard, -were presented for consideration and the action taken in each instance was as indicated: Memoranda from appropriate individuals concerned recommending thatthe basic annual salaries 14 of the following employees be increased une amounts indicated, effoctive August 14, 1955: Division Basic annual salarz To Ttom Legal Nene C. Harrison, Clerk $3,755 $3,840 1364 8/8/55 41q.,.1111212222.2.1.2ffective August 14, 1955 (continued) and title Division Basic annual salag From To Research and Statistics Clayton Gehman, Chief, Business Condi— tions Section Bessie M. McCrae, Clerk $12,150 $1211420 3,3145 3,1430 3,670 3,755 8,215 8,00 5,845 5,980 14,345 111480 5,710 5,8145 7,035 7,250 3,200 3,285 3,695 3,780' Bank Operations Relen A. Bennett, Clerk—Stenographer Raymond J. Collier, Technical Assistant Rarold F. Stone, Analyst Examinations 41.0.11•••••• Gf3na E. Gander, Special Assistant Fed— eral Reserve Examiner Personnel Administration Alargaret C. Wolverton, Personnel Technician Administrative Services , ,, Rlizabeth L. Carmichael, A _Chief, Publications Section ' ffirew Fassino, Assistant Foreman of Laborers 13 llee L. Rabbitt, ' Assistant Painter Approved unanimously. 136'5 8/8/55 -3- Letter for the signature of the Chairman to The Honorable Arthur S. Flemming, Director, Office of Defense Mobilization, Washington, D. C.$ reading as follows: I have your letter of July 27, indicating that you would like to continue the same representation on the Interagency Planning Group established on the recommendation of the Defense Mobilization Board for developing operational plans for Operation Alert 1955, to provide coordinated planning for future exercises. In accordance With your wishes, Mr. R. F. Leonard, Director of the Board's Division of Bank Operations, has again been designated to work with this Group and Mr. L. P. Bethea, Director of the Board's Division of Administrative Services, has been designated as alternate. Are have no suggestions at this time that would be helpful in establishing guide lines for the fall exercises or on conducting the "surprise alerts" to test individual agency operations. Approved unanimously. Telegram to Mr. Pondrom, Vice President, Federal Reserve Bank of llas, reading as follows: Reurlet July 282 1955. Board approves designation of Robert J. Schoenhoff as a special assistant examiner for the Federal Reserve Bank of Dallas to assist in examinations of State member banks. Approved unanimously. Letter to the Board of Directors, First Bank and Trust Company, Nhdi -scn, N. J., Madison, New Jersey, reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors approves the establishment of a branch by the First Bank and Trust Company, Madison, N. J., Madison, New Jersey, on the east side of Ridgedale Avenue between South Orange Avenue and Brooklake Road, Borough of Florham Park, New Jersey, Provided the branch is established within one year from the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. 7i41. ILIC4 8/8/55 -li- Letter to Mr. Denmark, Vice President, Federal Reserve Bank of Atlanta, reading as follows: In accordance with the recommendation contained in your letter of July 272 19550 the Board of Governors extends to November 292 1955, the time within which the St. Bernard Bank & Trust Co., Arabi, Louisiana, may establish a branch on St. Bernard Highway at Fazzio Road, Chalmette, Louisiana, under the approval given by the Board in its letter of March 4, 1955. Please advise the bank accordingly. Approved unanimously. re . Letter to The Knisely National Bank of Butler, Butler ading as follows: Indiana, The Board of Governors of the Federal Reserve System has given consioelation to your supplemental application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee. The exercise of such authority, in addition to that hereto(pre granted to act as executor, administrator, and guardian of estates, shall be subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve System. . A formal certificate indicating the fiduciary powers which The Knisely National Bank of Butler is now authorized to exercise will be forwarded to you in due course. Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. San Letter to Mr. Millard, Vice President, Federal Reserve Bank of cico, reading as follows: Fran Reference is made to your letter of July 272 1955, reg!'rding the request of the American Trust Company, San Fran? -s00, California, for an extension of time in which to estabJ-Ish a branch in the Hillsdale Shopping Center, San Mateo, Ca lifornia. After considering the information submitted and your favorable recommendation, the Board of Governors extends to ; March 23, 19560 the time within which the American Trust Company may establish the above described branch. Approved unanimously. Letter to the Comptroller of the Currency, Treasury Department, !:ashington, D. C., (Attention: Mr. W. M. Taylor, Deputy Comptroller of 6ne Currency), reading as follows: Reference is made to a letter from your office dated June 31 1.9552 enclosing photostatic copies of an application to organize a national bank at Miami, Florida, under the title of Boulevard National Bank of Miami, and requesting a recommendation as to whether or not the application should be approved. Information contained in a report of investigation of the application made by an examiner for the Federal Reserve Bank of Atlanta discloses generally favorable findings with respect to the factors usually considered in connection with such proposals except that definite plans have not been made for an experienced banker to manage the institution and that an urgent need for the bank is not apparent although it would be an added convenience. It is reported that the organizers have agreed to increase the initial capital structure of the bank from $650,000 to $1,000,000. After considering all of these factors the Board of Governors recommends approval of the application provided arrangements are made for management satisfactory to your office. The Board's Division of Examinations will be glad to discuss any aspects of this case with representatives of Your office, if you so desire. Approved unanimously. wan, Letter to the Comptroller of the Currency, Treasury Department, ot'Zliington, D. C., (Attention: Mr. L. A. Jennings, Deputy Comptroller e Currency), reading as follows: Reference is made to a letter from your office dated 8, 1_955, enclosing photostatic copies of an applica- ion to organize a national bank at Missoula, Montana, and ' l equesting a recommendation as to whether or not the apPlication should be approved. 8/8/55 Information contained in a report of investigation of the application made by a representative of the Federal Reserve Bank of Minneapolis indicates generally satisfactory findings with respect to the factors usually considered in connection with such applications, except the adequacy of the capital structure. On the basis of the potential future deposits of the institution, our informant suggests that a minimum capital structure of at least $200,000 be required instead of $140,000 as proposed by the applicants. The Board of Governors recommends approval of the application provided arrangements are made for a capital structure satisfactory to your office. . The Board's Division of Examinations will be glad to discuss any aspects of this case with representatives of Your office, if you so desire. Approved unanimously. Prior to this meeting there had been sent to the members of the bard copies of a memorandum dated August 4, 1955, from Messrs. Wood, Ecollemist„ Division of Research and Statistics, Young, Assistant Counsel, and Chase, Assistant General Counsel, relating to a request from the 811reau of the Budget for comments on an enrolled enactment of the bill S. 2126, entitled "Housing Amendments of 1955". The memorandum outlined Irall°us provisions of the bill and pointed out that four provisions of a cll'aft bill bearing the same title, to which the Board objected in a letter to the Bureau of the Budget earlier this year, were omitted from S. 2126 48 Passed by the Congress* With the memorandum was submitted a draft of lette r to Mr. Roger W. Jones, Assistant Director, Legislative Reference, Bilre au of the Budget, reading as follows: Receipt is acknowledged of your communication dated August 31 1955 requesting the comments of this Board on the bill entitled "Housing Amendments of 1955" (S. 2126). 1369 8/8/55 You will recall that Board, on March 17, 1955, lier draft of this bill. Objected were eliminated, offer with respect to the in response to your request the gave you its comments on an earThe provisions to which the Board and the Board has no comments to bill at this time. The letter was approved unanimously. Prior to this meeting there had been sent to the members of the Board copies of a memorandum dated August 4, 1955, from Mr. Hexter, Assistant General Counsel, regarding a request from the Bureau of the 811aget for comments on enrolled bill S. 1189, "An Act to permit national banks to make twenty-year real estate loans, and nine-month residential cons truction loans". The memorandum pointed out that in a letter of April 25 irw, '1-7)), to the Senate Banking and Currency Committee, the Board expressed a favorable opinion on S. 1189 as introduced; and that, as passed by the Cangress, the bill had been changed substantively only to the extent that it would permit national banks to make ten-year and twenty-year amortizati°4 mortgage loans in an amount up to 66-2/3 per cent of the appraised of the real estate security, instead of the maximum of 60 per cent 131'escribed in the bill as int2oduced. Since the Comptroller of the Curl'elleYllas reported to have no objection to the change, many State banks all° Permitted to make such loans up to 66-2/3 per cent of appraised value, the Boardts Division of Examinations believed the higher figure would 4" result in the making of unsafe or unsound real estate loans to any illaterial extent, the memorandum recommended that the following letter be 8/8/55 -8- sent to Mr. Roger W. Jones, Assistant Director, Legislative Reference, Bureau of the Budget: This is in response to your communication of August 3, 1955, enclosing a facsimile of the enrolled bill S. 1189 (a bill "To permit national banks to make twenty-year real estate loans and nine-month residential construction loans") and requesting the comments of the Board of Governors thereon for presentation with the report of the Bureau to the President. The views of the Board with respect to S. 11890 as introduced, were expressed in a letter dated April 25, 1955, to the Senate Committee on Banking and Currency, a copy of Which is enclosed. The only substantive difference between the enrolled bill and the bill as introduced is that the enrolled bill authorizes amortization real estate loans in amounts up to 66-2/3 per cent of the appraised value of the real estate security, in lieu of a 60 per cent maximum. The Board of Governors has no objection to approval of the enrolled bill S. 1189. The letter was approved unanimously. There had been circulated to the members of the Board a draft of letter for the signature of the Chairman to The Honorable Rowland R. Rilghes, Director of the Bureau of the Budget, concerning the Board's reof Part II of the Report on Paperwork Management submitted to the cone ress by the Commission on Organization of the Executive Branch of the GO ty.1 -"-unment. When the file Was in circulation, Governor Balderston suggested that the letter be shortened to read as follows: The Board has now reviewed Part II of the Report of the Hoover Commission on Paperwork Management submitted to t110 Congress by the Commission on Organization of the Exec1"ive Branch of the Government. -9While the work of the task force was under way, one of the members of the task force staff met with members of the Board's staff and recommendations which had been made by the Industry Committee on Banking with respect to reports made by banks were thoroughly reviewed. Because of the short time before the Commission went out of existence, it was not possible to resolve all the questions raised by the recommendations. The report of the Commission recommends that the President direct the Bureau of the Budget, together with its Advisory Council on Federal Reports and in cooperation With the General Services Administration, to give increased emphasis in their reports program to the need to protect the public from unnecessary reporting burdens by continuing the method of cooperation between industry and Government Pursued by the task force as outlined in the Commission report. The Board of Governors will be glad to cooperate in .such a program. The letter was approved unanimously in the form suggested by Governor Balderston. The following draft of letter for the signature of the Chairman to The Honorable Rowland R. Hughes, Director of the Bureau of the Budget, had been circulated to the members of the Board prior to this meeting: In accordance with the request contained in your letter of March 4, 1955, the Board has commented on the following reports submitted by the Commission on Organization of the Executive Branch of the Government: Personnel and Civil Service Paper Work Management, Parts I and II Federal Medical Services Lending Agencies Transportation Legal Services and Procedure Surplus Property recommendations in the foil The . Board has also reviewed the owing reports; it does not appear that the recommendations 1,372 8/8/5s -1G- contained therein would affect our operations in any material way and therefore the Board does not have any comments to make: Final Report Food and Clothing Business Enterprises Depot Utilization Research and Development Overseas Economic Operations Real Property Management Budget and Accounting Business Organization, Department or Defense Water Resources and Power . It may be noted that pursuant to the provisions of section 10 of the Federal Reserve Act, funds used for the construction of the building now occupied by the Board of Governors were derived from assessments levied on the Federal Reserve Banks, and funds for maintaining the building are provided in the same manner. Also the law provides that the Board may maintain, enlarge or remodel the building and shall have sole control of the building and space therein. In view of Recommendation No. 7 of the Commission's Report on Real Property Management, which provides for a single appropriation for the operation of all general purpose public buildings, it seems clear that the Real Property Report is directed at agencies in the executive branch of the GovernTent which operate on appropriated funds and, consequently, le not intended to apply to agencies such as the Board. In any event, for reasons which prompted the enactment of the Provision of section 10 of the Federal Reserve Act above referred to, the Board does not believe that any change should be.made in the law affecting the control of the Board's present building and the space therein. Reference might be made to one other point. One of the recommendations in the report on Business Enterprises is that the Postal Savings System be discontinued. on March 26, 1953, 2 ,11 a letter to the Bureau of the Budget the Board expressed !ts.views concerning S. 573, a bill to discontinue the Postal QavIngs System. A copy of that letter is enclosed. 1_0 8/8/55 -11- It is understood from your letter of July 13 that the request for comments on the report on Intelligence Activities of the Government has been withdrawn. The letter was approved unanimously. Mr. Horbett then withdraw from the meeting. There had been circulated to the members of the Board a draft Of letter to Mr. Young, Chairman, Conference of Presidents of the Fed"al Reserve Banks, reading as follows: At the Joint Meeting of the Presidents with the Board June 22, 1955, Mr. Farhart, Chairman of the Committee on Miscellaneous Operations, reported a fundamental difference of opinion among the Reserve Banks regarding the provision of wrapped coin service by them. This is emphasized in the following paragraphs of the Report of the Committee on Miscellaneous Operations dated June 20, 1955: it :I/Zapped Coin Service "Judging from the replies of the Federal Reserve Banks to the Subcommittee questionnaire, the banks may not be able to agree on the extent to which a wrapped coin service should be furnished, if at all. The majority of the Reserve Banks Provide wrapped coin, charging the member bank with the cost of wrapping. This was undertaken in response to the request of member banks for such service, which became more and more insistent as one Reserve Bank after another provided wrapped coin. "On the other hand, some Reserve Banks do not furnish wraPped coin because they consider that it results in an economic waste through the added movement of coin in and out . c).1 the Federal Reserve Bank. Other Reserve Banks are willing to furnish a limited amount of wrapped coin but consider that too large a 77;77Eration of wrapping is uneconomic and Should not be permitted. Such limits have been arbitrarily Placed. Some limitations might be induced by fairly high Charges for the service. In this connection there is a question whether all costs incidental to wrapping are actually recovered under the present cost formula. 8/8/55 -12- "Probably no further study or report will change the differing and firm views held on this often debated subJect„ but if the Presidents' Conference should so desire, the pros and cons of the various arguments can be more specifically and fully presented." The Board has serious reservations as to whether the furnishing of wrapped coin is an appropriate and desirable function for the Reserve Banks. Among the reasons for this doubt are that -1. While the Reserve Banks are sources of supply for the country's needs for currency and coin, the wrapping of coin is essentially a retail operation that more properly might be left to commercial banks themselves or to commercial suppliers. 2. The furnishing of wrapped coin is inherently an uneconomic service. By its very nature it encourages increased shipments to and from the Reserve Banks and the rehandling of coin. 3. Limitations on the service may lead to charges of discrimination, but the supplying without limitation of all requests for wrapped coin could lead to unwarranted expense. 4. The supplying of coin by some Reserve Banks brings pressure on other Banks for similar service, although as a policy they are opposed to the practice. There are, of course, arguments for the continuation, or even expansion, of the service, and undoubtedly there are additional arguments against the practice° In all the circumstances and to focus discussion on the basic issue, the Board suggests that the Presidents' Confer snce, at its next meeting, consider the fundamental question of whether as a System policy wrapped coin service should not be discontinued. Mr. Leonard said that the question of wrapped coin service was a °exit r°vsrsial one, that it might not be possible to achieve unan4 ifity of 8/8/55 -13- Reserve Bank opinion, but that it seemed desirable to solve the fundamental question, if possible, rather than to spend further time and effort in attempting to reconcile various differences in operating procedures. Ho went on to say that efforts were being made to have the practice extended, and that this pressure and other factors made it appropriate to consider at this stage what policy should be followed. He also said that exPenses of the wrapped coin service were not fully disclosed by current accounting procedures, that nine Reserve Banks were furnishing wrapped coin n various degrees, and that the other Banks were under some pressure from member banks to adopt the practice. Following a discussion, the letter to President Young was approved unanimously in the form submitted. Mr. Leonard then withdrew from the meeting. There had been circulated to the members of the Board a draft of letter to the Board of Directors, Fidelity Trust Company, Indianapolis, Indiana, reading as follows: Reference is made to your application, submitted through .110 . Federal Reserve Bank of Chicago, for permission to establish a branch at 5515 West Washington Street, Ben Davis, Indiana. . The Board of Governors has given consideration to all . vallable information and has concluded that it would not be Justified in approving this application. This decision is Principally based upon the facts that a national bank has been granted permission to operate a branch in the immediate ..fea, and this branch, together with facilities existing in re surrounding area, will provide the community with adequate banking service. i_376 8/8/55 -14The file included a memorandum dated July 27, 1955, from Mr. Hexter, Assistant General Counsel, questioning the sufficiency of the stated reason for denial of the application and suggesting the inclusion of affirmative reasons for disapproval, such as the bank's low capital structure and the doubtful prospects for profitable operation of both this branch and a nearby branch being established by another bank. Mr. Nelson made a statement in which he brought out that before this application was filed, an application had been filed by a national bank for a branch about one-half mile from the proposed location, that the national bank application had now been approved, that the national bank had the bulk of the business in the neighborhood, and that one branch w°111d appear sufficient to serve the area. He further stated that the Chicago Reserve Bank originally recommended approval, partly because IldelitY Trust Company appeared to have had some preliminary negotiations with the Indiana State banking authorities prior to the date the national hank, s application was filed; but that the Reserve Bank conditioned its l'ec°111mendation on a $500,000 capital increase and subsequently advised by tel that the trust company probably would not be willing to accept the condition. He pointed out that memoranda concerning this and other tele Phone conversations which he had with the Reserve Bank had been placed ill the file covering the application. In response to a question by Governor Vardaman as to whether the Boa Would be warranted in approving the application subject to the 1377 8/8/55 —15— caPital increase requirement, Governor Robertson said that on the basis of the facts in the record there was not a need for two branches in the area, that although the trust company might have discussed the matter of a branch with the State authorities, the national bank's application Was filed first, and that in all the circumstances there seemed to be ample reason for disapproving the application aside from the trust com— PanY18 capital position. He also expressed the opinion that to raise the question of capital at this point might militate against the chances of securing the bankrs cooperation in a more extensive program for improve— Inent Of its capital structure. Thereupon, the letter to the Fidelity Trust Company was approved unanimously in the form set forth above, for transmittal through the Federal Reserve Bank of Chicago. Governor Robertson referred to the meeting with finance company l'sPresentatives tomorrow to afford the Board information on instalment credit trends. He then distributed (1) a suggested agenda which would be distributed to the participants as a basis for discussion and (2) a back— ErroUnd memorandum for the use of the Board members in preparing for the eetig It was agreed that the agenda should be used as a basis for discus— sion and that a similar agenda should be prepared for the meeting with com— mercial bank representatives on Thursday, August 11. 8/8/55 -16Minutes of actions taken by the Board of Governors of the Fed- erai Reserve System on August 4, 1955, were approved unanimously. The meeting then adjourned. Secretary's Note: Pursuant to the action taken by the Board on August 3, 1955, the following telegrams were sent on August 5, 1955: To mr .....„...4_Johns President Federal Reserve Bank of St. Louis Reurtel today. Board approves effective August 8, 1955, rates of 2 per cent on discounts for and advances to member banks under Sections 13 and 13a, and 2-1/2 per cent on advances to member banks under Section 10(b). Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being handed to Press at 3:30 p.m. EDST today for immediate release. To mr . First Vice President Federal Reserve Bank of Minneapolis Reurtel August 4. Board approves effective August 6, 1955, rates of 2 per cent on discounts for and advances to member banks under Sections 13 and 13a, and 2-1/2 per cent on advances to member banks under Section 10(b). OtherBoard approves establishment by your Bank, without change, of rates of discount and purchase in Bank's existing schedule. Board's announcement on change in discount rate is being handed to Press at 3:30 p.m. EDST today for immediate release.