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Minutes for To: Members of the Board From: Office of the Secretary August 8, 1963 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. Chin. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis :13:7;i9f; Minutes of the Board of Governors of the Federal Reserve System on Thursday, August 8, 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 Shepardson Mitchell Mr. Kenyon, Assistant Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Cardon, Legislative Counsel Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Noyes, Director, Division of Research and Statistics Mr. Shay, Assistant General Counsel Mr. Brill, Adviser, Division of Research and Statistics Mr. Holland, Adviser, Division of Research and Statistics Mr. Solomon, Associate Adviser, Division of Research and Statistics Mr. Sammons, Adviser, Division of International Finance Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Goodman, Assistant Director, Division of Examinations Mr. Benner, Assistant Director, Division of Examinations Mr. Smith, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mrs. Semia, Technical Assistant, Office of the Secretary Miss Hart, Senior Attorney, Legal Division Mr. Hricko, Senior Attorney, Legal Division Mr. Potter, Senior Attorney, Legal Division Mr. Young, Senior Attorney, Legal Division Mr. Porter, Law Clerk, Legal Division Mr. Collier, Chief, Current Series Section, Division of Bank Operations Mr. Veenstra, Chief, Call Report Section, Division of Bank Operations Mr. Egertson, Review Examiner, Division of Examinations http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4,13.-91.7 8/8/63 -2Circulated items. The following items, copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Letter to Ridgefield Park Trust Company, Ridgefield Park, New Jersey, approving an investment in bank premises. 1 Letter to The First Pennsylvania Banking and Trust Company, Philadelphia, Pennsylvania, approving an extension of time to establish brariCh at Grant Avenue and Roosevelt Boulevard. 2 Letter to the Presidents of all Federal Reserve Banks regarding the discontinuance Of the Board's annual survey of common trust funds. 3 Letter to The Summit Trust Company, Summit, New Jersey, approving the establishment of a branch at 37 Beechwood Road. 4 Letter to United California Bank, Los Angeles, California, approving the establishment of a branch at 6380 Wilshire Boulevard. 5 Letter to Wells Fargo Bank, San Francisco, California, approving the establishment of a branch in Lafayette. 6 Letter to the Presidents of all Federal Reserve Ilanks regarding a revision of the form of weekly reporting member bank condition statement to ?all for information on negotiable time certiflcates of deposit. 7 Letter to the Presidents of all Federal Reserve 13anks regarding a revision of the form of report Of changes in commercial and industrial loans by Industry to obtain consistent reporting of bankers' acceptances. 8 MeMorandum dated August 1, 1963, from the Division Operations with reference to providing 11nPub1ished historical condition and earnings l'ePort information for use in a doctoral thesis. 9 °r Bank http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Aralikin 8/8/63 .3.. In connection with Items 5 and 6, Governor Balderston expressed interest in having a report on whether the "stockpiling" of branch sites by large banks in California was increasing or decreasing. It was understood that the Division of Examinations would develop information along the lines Governor Balderston had requested. Report on competitive factors (Jenkintown-Oxford, Pennsylvania). There had been distributed a draft of report to the Federal Deposit Insurance Corporation on the competitive factors involved in the proposed merger of The National Bank of Oxford, Oxford, Pennsylvania, into Industrial Valley Bank and Trust Company, Jenkintown, Pennsylvania. During discussion a change was suggested in the conclusion for the purpose of developing a more adverse tone, after which the report Ilas approved unanimously for transmission to the Corporation. ' The conclusion of the report, as approved, read as follows: Industrial Bank and Oxford Bank do not appear to compete with each other to a significant extent and little direct competition would be eliminated as a result of the merger. However, the proposed transaction would be the third acquisition of a Chester County bank by Industrial Bank since late 1962. Industrial Bank is by far the largest bank serving Chester County, and consummation of the proposed merger would increase its deposit holdings and branch office representation in Chester County. It might also have adverse competitive effects as it would place Industrial Bank in direct competition in Oxford With one much smaller bank and in service area competition With a number of much =Filler banks. Report on competitive factors (Charleston-Bennettsville, South Carolina). There had been distributed a draft of report to the Comptroller http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2S9 8/8/63 -4- of the Currency on the competitive factors involved in the proposed merger of Citizens State Bank, Bennettsville, South Carolina, into The South Carolina National Bank of Charleston, Charleston, South Carolina. The last sentence of the conclusion of the draft report stated that the merger "would also increase slightly concentration of banking resources in South Carolina where the two largest banks hold over one-third of the total banking deposits in the State and illere the six largest banks hold over one-half of such deposits." During discussion Governor Mills indicated that he had reservations about citing percentages such as appeared in the final sentence of the conclusion of the report. The use of such percentages 1146- an appearance of groping toward a definition of the point at which banking concentration became disadvantageous. He doubted that the board was ready to arrive at such a definition, because what constituted undue concentration might vary from one community or area to another. Concurrence with Governor Mills' suggestion having been indicated, the latter part of the final sentence of the conclusion was deleted. The report was thereupon approved unanimously, its conclusion reading as follows: Consummation of the proposed merger would eliminate the moderate amount of competition existing between The South Carolina National Bank of Charleston and the Citizens State Bank. While the proposed merger would not significantly http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/8/63 -5- alter South Carolina National's competitive position in the areas it currently serves, it would enhance its position as the State's largest bank both with respect to deposits and geographical coverage. It would also increase slightly concentration of banking resources in South Carolina. Messrs. Sammons, Collier, and Veenstra then withdrew from the meeting. Quality Stabilization Act. memorandum dated August There had been distributed a 7, 1963, from Mr. Noyes reporting that the Division of Research and Statistics had been represented at a meeting 011 August 6 at the Budget Bureau concerning S. 774, referred to as the Quality Stabilization Act. The various agencies and executive depart- ments represented at the meeting were invited by the Budget Bureau and the Department of Justice to consider submitting voluntary statements to the Senate Commerce Committee in opposition to this bill, which 'would amend the Federal Trade Commission Act to permit manufacturers of brand products to establish, maintain, and enforce through the courts retail prices on their products in the manner of the "fair trade' laws. Discussion of this matter produced a consensus that it would be undesirable to submit a report on the bill in the absence of a formal request from the Budget Bureau or a Congressional Committee. Also, the Board had followed a general practice of expressing views (341Y on proposed legislation affecting areas in which it had a Particular expertise, whereas the subject of this bill was somewhat removed from the field of the Board's primary responsibilities. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ';elil i -6- 8/8/63 At the conclusion of the discussion it was agreed that a voluntary report should not be made. Compensation of bank officers (Item No. 10). There had been of distributed a memorandum dated August 6, 1963, from the Divisions Examinations and Research and Statistics regarding a letter dated August 5 in which Mr. Patman, Chairman of the House Committee on Bahking and Currency, requested the Board to supply aggregate and average information, taken from State member bank examination reports, on compensation of bank officers. (This would be in connection with the Committee's current study of bank management, including succession and compensation.) It was understood that similar requests were being Made of the other bank supervisorary agencies. The staff of the Committee had indicated that it would be satisfactory to have the data classified by size of bank and geographical location, grouped in such 4 manner as to avoid any possibility of disclosure of individual bank dEtta. The sample of banks from which information would be compiled liould approximate 2,800, of which about 700 would be State member banks. In order to preserve the confidentiality of the data, compilation and t abulation would be done by Federal Reserve personnel. Attached to would the memorandum was a draft of letter to Chairman Patman that irldioate the Board's willingness to comply with the request. During discussion Mr. Brill reported that it was understood that the Comptroller of the Currency had agreed to comply with the http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2;02 8/8/63 -7- similar request directed to him by the Committee, and that the Federal Deposit Insurance Corporation was expected also to comply. The letter to Chairman Pathan was approved unanimously, to be sent on receipt of informal advice of favorable action by the Federal Deposit Insurance Corporation. the day.) (Such advice was reported later in A copy of the letter is attached as Item No. 10. Examination work papers (Item No. 11). There had been distributed copies of a letter dated August 1, 1963, from Mr. Patman, Chairman of the House Committee on Banking and Currency, referring to the review being made by the Committee staff of work papers assembled in the course of recent examinations of Federal Reserve Banks. The letter alleged that the work papers supplied to the Committee suffered from two shortcomings. First, they were arranged in such a manner that suPPorting schedules or text materials might be removed from the files and the omission not noted. Second, the procedural manuals prepared for the guidance of the field examining force called for a separate Memorandum on each Federal Reserve Bank's audit department. None of the work papers reviewed by the Committee staff contained such memoranda, Which led to the conclusion that the memoranda had been deliberately removed from the files before the files were made available. The letter concluded with the statement that the Committee's earlier request for the work papers was premised on the idea that all related papers and documents deriving from an examination would be made available. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis " 8/8/63 -8- It was hoped that the Board would instruct its staff to supply these Illissing documents so that the Committee staff could get on with its review and complete it in timely fashion. There had also been distributed a draft of reply to Chairman Patman that would state that the memoranda now requested had not been removed from the work papers, because they were never part of them; that no previous request for such memoranda had been received rrom the Committee or its staff; but that, to remove any question, the 13carld would make available the audit department memoranda and also any Other Board papers deriving from the examination of the Federal Reserve 1/allks that the Committee staff felt would be relevant and helpful to it8 inquiry. The draft letter also contained an explanation of the °I'ganization of the work papers. During discussion general agreement was expressed that it liculd be important, in replying, to set out clearly that the Committee taff had been given all the materials it requested without anything being removed, and that the materials listed in Chairman Patman's August 1 letter were not part of the work papers and had not been requested previously. It was brought out that there were only three items in c°41ection with the examination reports that had not already been made 4141ilable to the staff of the Committee - two confidential sections and a4 accumulation of miscellaneous papers, such as staff personnel files http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7‘,1;04 8/8/63 -9- baiting no connection with the examination itself, that were collected by an examiner who was appointed to perform an administrative function for each examination. The collection of miscellaneous papers, however, included excerpts from the minutes of meetings of boards of directors Of the respective Reserve Banks. It had not seemed appropriate to turn them over to the Committee staff without clearance with the Reserve Banks concerned. In any event, it had been thought that the Committee staff would be visiting the Reserve Banks in the course of ite review and could examine the minutes of directors' meetings at that time if desired. papers, of To avoid any question, Mr. Cardon suggested that all 'whatever nature, arising out of a Reserve Bank examination be furnished to the Committee staff, and there was general agreement on the part of the Board that this would be an appropriate procedure. The question s 0f clearance with the Reserve Banks of releasing the minutes excerpt lias discussed, comment being made that there would seem to be no ground an appropriate for withholding the minutes of directors' meetings when request came from a Congressional Committee. However, in the interest Banks that courtesy it was thought advisable to inform the Reserve the Board felt that, in order to comply fully with the Committee's that request, it must include the minutes excerpts in the material I/ould be made available, and allow the Banks an opportunity to express 44Y views they might care to offer. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/8/63 -10During further discussion a number of editorial changes were agreed upon in the draft of reply to Chairman Patman. Question was raised, for clarification, if it was the Board's intent that the confidential section of each examination report, dealing with management and related matters, should be made available to the Committee staff al°ng with the memorandum on the audit department, and the response Ilas in the affirmative. The letter to Chairman Patman was then approved unanimously in the form attached as Item No. U. Secretary's Note: On August 9, 1963, letters were sent to the Federal Reserve Banks of Boston, Cleveland, Richmond, and Chicago informing them of the Board's intention to furnish the Committee the excerpts from the minutes that were included in the administrative papers associated with the examine.tions, listing the dates of the meetings involved, and providing an opportunity for the submission of any views or comments. Mr. Smith then withdrew from the meeting. Investment powers of Federal savings and loan associations. There had been distributed a memorandum dated August 6, 1963, from the Legal Division regarding a request from the Bureau of the Budget for a l'Port on a draft bill proposed by the Federal Home Loan Bank Board that would enlarge the investment powers of Federal savings and loan associations. Whereas under existing law the associations may invest ' ellY Portion of their assets in obligations of the United States, stocks Or bonds of a Federal Home Loan Bank, or obligations of the Federal http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26U6 8/8/63 -11-S National Mortgage Association, the draft legislation would permit investment without limit in obligations of all agencies of the United States, as well as obligations of the several States and local governmental entities. The obligations of States and local governments would include direct obligations, guaranteed Obligations, and special obligations as defined by the Federal Home Loan Bank Board. Presumably this latter group could include so-called "revenue" bonds. The associations would also be permitted to use up to 10 per cent of their assets to finance the acquisition of major household durable goods and the payment of expenses of college or university education. to 5 The associations would further be permitted to invest up per cent of their assets in financing the acquisition of mobile dwellings. Arguments for and against the proposal were set out in the Memorandum, followed by views expressed by the Commission on Money and Credit and the President's Committee on Financial Institutions bearing UPon the question of broadening the powers of savings and loan associations. Members of the Board's staff had expressed varying views on the current proposal ranging from strong opposition to qualified aPProval. Attached to the memorandum was a draft report that would °Ppose the broadened investment powers except as to Government obligations that were supported by the full faith and credit of the issuing governmental entity. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26(n 8/8/63 -12Following a general discussion of the draft bill, which indicated that some of the members of the Board were generally in accord with the position taken in the proposed letter, Governor Mitchell commented that he was inclined to favor the proposed legislation. As a first point, he felt that revenue bonds were of as (Isod- quality as general obligations and believed there was a great deal of evidence to support this view. In many instances revenue bonds were serviced out of general resources; therefore, if one thought of general obligations as being of high quality, so also were such revenue bonds. In his view, quality depended on the circumstances cn the particular issue, not whether the issue was a revenue bond or 4 general obligation. Governor Mitchell also commented that he believed that the Position taken in the draft report, in effect, said that the Board was cipPosed to competition. As to a passage that would indicate that the 111411Y problems attendant on the extension and servicing of the types of credit permitted by the bill required highly specialized and technical cciziPetence quite different from that required in the area of mortgage le4cling, he remarked that when banks first entered the consumer credit tleld, they did not have much experience and had to learn the hard way; s4vings and loan associations had the same capacity to learn. Governor Shepardson, noting Governor Mitchell's reference to an 1 1)ression of opposing competition, remarked that the Board should not http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2“ -13- 8/8/63 allow such an impression to be given. However, there was a broader question involved than the specific lending authorities of savings and loan associations. The basic problem was the continuing expansion of credit agencies outside the structure of the Federal Reserve System's control and responsibility. It seemed evident that organizations such as savings and loan associations should not be given broader authority ih the absence of regulatory requirements comparable to those under which banks operated. Recently-proposed legislation to bring such organizations under additional control and supervision would place their competition with banks on a more equitable basis. Governor Mills expressed concurrence with the principle Governor Shepardson had mentioned. It would be advisable, he suggested, for different types of financial institutions to operate within their °Ifa areas and not attempt to invade other fields. Attempts to engage 14 credit activities other than those for which they were created had been a source of trouble and recrimination. Current discussion gave the impression that mutual savings banks, savings and loan associations, 44a commercial banks were not prospering, but in fact their business /las increasing. the In response to an inquiry as to what approach he believed report under consideration should take, Governor Mills recommended that the report indicate that decisions on broadened investment powers ror savings and loan associations should at least be preceded by legislation that would set standards of liquidity for such associations. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26()9 -14- 8/8/63 If such standards were set, there might be more justification, if there was any, for their venturing into new fields. Governor Mitchell expressed concurrence in the suggestion that elaPhasis be placed on the need to deal with liquidity problems of savings and loan associations before any broadening of their powers. While he aoted again his views with respect to the quality of revenue bonds, he illdicated that he would find acceptable a report couched in terms of lenlaining uncommitted on the provisions of the present draft bill ' Pending the enactment of legislation expanding regulatory controls War savings and loan associations. of Chairman Martin observed that apparently this was the type 1%ePort on which the Board would be able to reach agreement. He added that he did not feel that the Board should take a position on the revenue h°114 question in this particular context, since broader aspects of the 13rohlem of revenue bond financing were still under consideration by the Board. After further discussion it was understood that the report %/Quid be redrafted in light of the comments and suggestions made at this meeting for the Board's further consideration. Mr. Brill then withdrew from the meeting. Loans by national banks on forest tracts. On June 12, 1963, the 13°4rd reported to the Bureau of the Budget on a Treasury draft bill tha+ 6 would authorize national banks to make amortized loans up to http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis t' 4) 8/8/63 -15- 75 per cent of the appraised fair market value of the "growing timber, lands, and improvements" offered as security, on such terms and conditions as to assure that the loan balance at no time would exceed 75 Per cent of the original appraised total value of the property then remaining. Under existing law, loans could be made in an amount not in excess of 40 per cent of the value of the "economically marketable timber." by The maximum permissible maturity in the case of loans secured amortized mortgages would be increased from 10 to 20 years, with the requirement that instalment payments must be sufficient to amortize the principal at the rate of at least 5 per cent per annum. In the ease of unamortized loans, the Treasury draft bill would increase the MaXimum permissible maturity from 2 to 5 years, and the maximum permissible amount of loan would be increased from 40 per cent to 60 per cent °I the value of the property. The Board's report had been in terms that favored granting authority to make loans on "growing timber, lands, and improvements," esPecially in the case of long-term loans. However, the desirability °f increasing the permissible amount of the loan beyond 40 per cent of the appraised value of the property was regarded as questionable. While It Ilas understood that in recent years considerable progress had been 'de in controlling timber losses resulting from fire, disease, and trisects, those hazards still represented serious dangers. Furthermore, ir the borrower was required to assume a substantial portion of this http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/8/63 -16- risk, he might be more inclined to adopt effective procedures for the Protection and management of the property. The Board expressed the view that some increase in the permissible maturities of amortized 1°ans might be justified in order to afford a better opportunity for developing more efficient management of timber tracts, which presumably Iras one of the important objectives of the proposal. The Board, however, questioned the advisability of permitting commercial banks to make such loans with maturities as long as 20 years. Likewise, an increase in the Permissible maturities of unamortized loans to 5 years was not ' lecommended. It was suggested that 3-year maturities would provide the flexibility needed to meet adequately the credit needs of applicants for loans of this type. There had been distributed copies of a memorandum dated August 2) 1963, in which the Comptroller of the Currency commented on the clraft bill and the views of the Board and the Federal Insurance Deposit e°rPoration. The latter had questioned the desirability of an increase t° 75 per cent of the appraised value and opposed increasing maturities t0 20 years. The Corporation also suggested amendments to the draft bill to provide that guidelines on proper management and appraisals c/f the fair market value be placed under the authority of the National ().rest Service. The Comptroller's memorandum stated that national b#1,1. s were presently operating at a competitive disadvantage with respect to State banks in the field of loans on forest tracts. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Very " , 26'1 8/8/63 -17- few States had specific provisions concerning lending on forest tracts, but the general restrictions on real estate loans under State law were, as a rule, more liberal than those placed on lending by national banks °n forest tracts. tO 15 The raising of the limitations on forest tract loans and per cent of appraised value in the case of amortized loans to 60 per cent of appraised value in the case of unamortized loans, the Comptroller of the Currency continued, was justified in view of the increase in forest tracts under management for continuous timber production. protection Great progress had been made in improving forest-fire f°r stands of merchantable timber. The stability of loans on forest tracts had been increased because of the vigilance exercised by managethe fire Illent and governmental authorities, thus significantly reducing h4zard. were able State-chartered banks in the majority of the States draft bill. to lend up to the level to be permitted national banks by the increase in The Comptroller of the Currency also considered the iable. the limitation upon the terms of loans on forest tracts justif of More than half of the States had no limitation on the maturities 54ch loans. credit Considerable dependence must be placed on long-term forest-crop 14 this field because of the relative long-range nature of Production. of forest Short-term credit tended to force the harvesting Pl‘oclucts at inopportune times. The Department of Agriculture and the to 75 per cent 174tiona1 Forest Service supported not only the increase limitation on the term of appraised value but also the extension in the http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 21;1 -18- 8/8/63 of loans. In fact, the Department of Agriculture urged loans from 40 to 60 years as ultimately desirable because of the long-term nature Of timber-growing in this country. The Comptroller considered impractical the proposals of the Federal Deposit Insurance Corporation concerning authorization of development by the Forest Service of guidelines on ty Proper management and appraisals of the fair market of the securi involved. for an underThe Forest Service, he said, was not equipped taking of this kind. sThe Comptroller's memorandum concluded by expres the ing the view that to properly encourage capital investment in was important to Protection and development of forest resources, it Obtain more liberalized loan conditions. Longer terms were necessary percentages of the because of the nature of the industry and higher by national security were necessary to increase the volume of activity banks in forest-tract lending. a liberalization Governor Mills noted that he had been a party to 4 al bank loans on forest nuMber of years ago of the law regarding nation and lumber tracts, which was justified in order to allow a logging its operations °rganization to mortgage timber that would be liquidated by vithin a few years. land, Previously, timber was considered undeveloped and national banks could not take a mortgage on it. However, the high provided in the legislation Percentage of appraisals and the long terms such loans in e urrently proposed would, in Governor Mills' view, make liquidate. effect of a capital character, with no compulsion to http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 261 8/8/63 -19Mr. Noyes commented that the question was essentially whether banks should be allowed to lend on growing timber. Present law limited them to loans on timber that was sufficiently developed to permit cutting. If lending on growing timber was to be allowed, a short-term loan did not make much sense. Governor Mills observed that the intent of the 1953 change in the law was to assist smaller operators who would buy small tracts of timber but could not finance them because banks could not make a mortgage loan on them. Banks were not encouraged to invest in forest tracts over an indefinite period of time. Governor Shepardson stated that when the Board's report on the current proposal was made to the Budget Bureau, he had had some qUestions in his mind. Recently he had attended a meeting in Georgia clf people who were interested in reforestation, a great deal of which s going on in that area. He had now checked a number of questions Ilith the Forest Service and it seemed to him, on the basis of these inquiries, that there was a real question in regard to the financing °f growing timber. The people in the Forest Service were very much 14 favor of some program of this kind. The small woodlot man would not be involved as a practical matter, because it would not be profitable tclr him. However, there was quite a development toward growing timber °4 land taken out of crops, and there was need for credit to carry the °Perators until it was possible to get some return from such investments. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2615 8/8/63 -20- APParently, the proposed liberalization of the law would be useful largely in the pulpwood areas, where timber-land operators got their first cuttings in about 10 to 15 years; in about 20 years they would begin to make their major harvest. From the standpoint of the collat- eral, the 75 per cent of appraised market value was based on growing timber which increased in value every day. At the meeting he attended there had been descriptions of present-day methods of control of both aisease and fire that had significantly reduced loss hazards. The Comptroller of the Currency's memorandum had indicated that there was some inequity between State and national banks, Governor Shepardson continued. The Forest Service had said that as far as they haa observed, even the State banks had not been going extensively into this kind of financing up to this time. The Federal Land Banks had been handling most of it, and their record was good. They supported this recommendation for enlarging the authority for national banks to ell-ter into such financing. It seemed to Governor Shepardson that the 1)111 Would enable national banks to move into an area of needed financing; he saw real merit in providing some opportunity for credit financing of torestation programs. Governor Mills stated that in his mind the sole question was whether banks should be in this area, with the risks involved in longtert financing of this kind. The proposal got into the philosophy of hat banks, operating with demand deposits, should do with their funds 44a whether the risk should not be taken by other types of institutions. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/8/63 -21There followed discussion of the salvage value of timber injured by disease or fire, after which Chairman Martin remarked that in his view the basic problem was whether, as Governor Mills had indicated, banks should be in this type of business. He asked whether, if banks did want to enter this field and if the Forest Service and the Department of Agriculture thought it was sound, the matter should not be left to the judgment of the individual bank. This was a permissive operation, not a mandatory one. Governor Mitchell indicated that he had no strong feeling. He doubted that banks would enter the field to any extent even if they ere given a chance. State banks that had had the opportunity previ- °4sly apparently had not taken advantage of it. Governor Balderston suggested that the real question before the lloard was whether to encourage the Treasury to submit this draft bill Or not. In view of the comments made at this meeting, he did not see that anything would be gained by cutting back the maturity very much, although the 20-year maturity had disturbed him at first. Perhaps the 11°ard could encourage the Treasury to set a lower maximum for loans than 75 per cent of appraised value. According to Governor Shepardson's l'elliarks, however, 75 per cent on young, growing timber that gained in 141-111e every year was quite different from loaning such a percentage of praised value on mature timber. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -22- 8/8/63 am of Governor Shepardson then spoke further about the progr r reforestation, noting that in the typical case the person with timbe from which land not only had young plantings but also marketable timber he obtained some current income. He needed financing on the new stand. priate. Governor Shepardson considered the 20-year maturity appro In engage in such Practice, he added, even the State banks that now could financing were not rushing into it, but there were apparently some Ilational banks that wanted to enter the field, and he did not see why they should not be allowed to do so. nted that although After further discussion, Chairman Martin comme sal within the Board, there was obviously some question about the propo he gathered that the majority of the Board would not be prepared to °PPose the measure vigorously. It was understood that Chairman Martin liould convey this general impression informally to the Treasury. the meeting. Messrs. Solomon and Benner then withdrew from (Items 12 and 13). There Advances by Federal Reserve Banks 1963, from Mr. Hackley had been distributed a memorandum dated August 1, of the light of the discussion slIhmitting a draft letter, revised in the ChairBoard on July 31, 1963, to the matter at the meeting of the regarding on Banking and Currency Men of Senate and House Committees . by Federal Reserve Banks Proposed legislation on advances certain further changes in the After a discussion during which was approved unanimously. draft were agreed upon, the letter http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis A copy 8/8/63 -23- of the letter addressed to the Chairman of the Senate Committee is attached as Item No. 12. Mr. Hackley recalled that when the Board on July 24, 1963, decided to submit the proposed legislation to the Congress as soon as possible, it had been agreed that the Reserve Bank Presidents would be furnished copies of the letter transmitting the legislative proposal to the Banking and Currency Committees, the enclosures with the letter, and also copies °f a proposed revision of the Board's Regulation A, to be entitled Advances by Federal Reserve Banks, asking the comments of the Presidents °a the draft regulation in general and on two questions regarding it in Particular. A letter to the Reserve Bank Presidents had been drafted 44a was approved by the Board on July 31, 1963. Mr. Hackley suggested that the Bureau of the Budget, the Comptroller r the Currency, and the Federal Deposit Insurance Corporation be furnished c°Pies of the Board's letter to the Banking and Currency Committees and its enclosures. He further suggested that copies might be sent to the Ainerican Bankers Association and the Association of Reserve City Bankers for their information. The members of the Board expressed concurrence with Mr. Hackley's all Egestions. Secretary's Note: It had been understood at the meeting on July 31, 1963, that Chairman Martin would visit the offices of the Chairmen of the Committees on Banking and Currency to present the Board's letter personally. The letter was http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2619 8/8/63 presented under date of August 21, 1963. A copy of the letter to the Reserve Bank Presidents, which was transmitted on August 22, 1963, is attached as Item No. 13. Messrs. Young (Adviser to the Board), Cardon, Noyes, Holland, Conkling, and Potter then withdrew from the meeting. Application of Wells Fargo Bank. There had been distributed a memorandum dated August 1, 1963, from the Division of Examinations in connection with the application of Wells Fargo Bank, San Francisco, California, to merge with State Center Bank, Fresno, California. The Division of Examinations recommended that the application be approved. At the Board's invitation, Mr. Leavitt summarized the circumstances underlying the application, basing his remarks principally on the Division's memorandum. A fact having a special bearing was that the President of State Center Bank, who apparently had been personally responsible for attracting to the bank a number of large accounts, was nOW 76 years of age and in poor health, and wished to retire. It seemed Probable that upon his retirement some of the large accounts would be lost to other banks. The directors of the bank reportedly had made repeated efforts to obtain a qualified successor, but had not been able t° find a well-qualified person. After a discussion of the California banking structure, Governor 14Itchell asked a number of questions regarding the recent Supreme Court 1141ing that the planned merger of The Philadelphia National Bank and °Irard Trust Corn Exchange Bank, both of Philadelphia, Pennsylvania, 11041d violate the Clayton Antitrust Act. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis He also asked if, given the 2f;21 8/8/63 -25- present state of the law, the Board would be justified in denying a merger application that would have a definite adverse effect on the value of a bank's stock. If this merger were turned down on the ground that it would contribute, although slightly, toward a larger measure of banking concentration in California, the question was whether a court would be likely to say that the stockholders had been deprived of their Property without due process because the denial whittled away part of the value of the bank's stock. Mr. Hackley noted that in the Brown Shoe Company case the Court had held that there would not be a violation of the Clayton Act, despite 4 considerable lessening of competition, if an acquisition was for the Pose of taking over a failing company. The Philadelphia case appeared to indicate an attitude on the part of the Court that the failing company doctrine might be applied somewhat more liberally if the institution involved was a bank than if an industrial or commercial institution was in volved. It was also noted that other and more attractive offers reportedly had been made to State Center Bank; it was not clear that the bank's stockholders would lose a large part of the value of their stock if the 111°411 denied this merger. The bank indicated that it had chosen to Meqe with Wells Fargo because such a merger could do more to benefit the community. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/8/63 -26The members of the Board then expressed their views, beginning with Governor Mills who stated that he regarded this as a borderline ama difficult case, but that he would accept the Division's recommendation for approval. Fresno was a large community and, according to the available information, many of the businesses located there required banking accommodations reaching beyond the ability of State Center Bank to supply. State Center Bank was not a typical neighborhood bank c atering to individuals and small businesses. It was unusual for its size in that it had catered to larger businesses. to have come Yet the point seemed when it could no longer fully meet those needs. Through the merger, an additional alternative source of banking services for those customers would be provided in Fresno. /14s a difficult one. Nevertheless, the case The proposal seemed in tune with the banking situation in California, where the larger banks had grown to such size that smaller banks that could not provide equal services found difficulty 14 establishing and retaining their positions. Governor Shepardson indicated that he would approve on the basis °t the reasoning advanced by the Division of Examinations. Governor Mitchell commented he was unhappy about the case. t°1114 no basis for approval in the Division's recommendation. He While he approve, he did not think there was any shortage of banking services Fresno with large banks, such as Bank of America, having branches there. However, he found himself unable to say that banks could not http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 8/8/63 -27In this case the merge if one of them wanted to go out of business. owners would undoubtedly get a handsome capital gain out of the transaction; the merger was greatly in their interest. Further, he considered this merger an unfortunate thing for the community. However, if the bank wanted to go out of business, he was not sure that it should be stopped, even though it disturbed him that a vigorous independent competitor would be eliminated. Governor Shepardson remarked that if State Center Bank had a inallaging officer 50 or 55 years old, the situation would be different, but an executive 76 years of age might reasonably be expected to be 1°°king for a way out. Governor Balderston stated that his reaction was much like that Of Governor Mitchell. He did not think that the Board could properly 14sist that a bank built up and headed by a man now 76 years old must continue in business regardless of the desires of the shareholders. The talent of this particular banker seemed to be intimately connected Ifith the success of the bank; the nature of the bank's accounts was somewhat different from what would be found in many independent banks that catered largely to small businesses. He would vote for approval, but he had some concern as to haw a statement could be dratted that would be valid and legally acceptable. Governor Mitchell, he noted, was really espousing the right of the owners of private property to dispose of it, Provided the community would not thereby be hurt. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Governor Balderston 8/8/63 -28- did not believe that the proposed transaction in this case would hurt the community of Fresno, though unfortunately the city would lose a sound independent bank. Chairman Martin stated that he would vote for approval on the basis of the recommendation of the Division of Examinations. The application of Wells Fargo Bank was thereupon approved Ilnanimously. It was understood that the Legal Division would draft for the Board's consideration an order and statement reflecting this d ecision. Application of Asbury Park and Ocean Grove Bank. There had been aistributed a memorandum dated August 5, 1963, from the Division of EXaminations in connection with the application of Asbury Park and Ocean Grove Bank, Asbury Park, New Jersey, to merge with New Jersey Trust Company of Long Branch, Long Branch, New Jersey. The Division of Examinations recommended that the application be approved. After comments by Mr. Leavitt, several questions were posed bY the Board, to which the staff responded, and the members of the 1)°ard then expressed their views regarding the case. Governor Mills stated that he would approve for the reasons cited by the Division of Examinations, principally because the resulting 15841k 'would be a more effective bank to serve the growing community. In 4° sense, however, should approval be premised on a merger movement in the area, with two banks being permitted to merge so that they would be in a better position to compete with other merged banks. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Board's 2624 8/8/63 -29- statement should emphasize the factors considered in the case and 11°t give any indication that the merger was brought about by a need to preserve a competitive position in the area. There was always the Possibility of a race of mergers, but this was not a valid reason for a pproving. In this case the basic reason for approval was the needs and requ irements of the area to be served, which would be benefited by the services of a larger well-managed bank. Governors Shepardson, Mitchell, and Balderston and Chairman Martin concurred in approval. The application of Asbury Park and Ocean Grove Bank was there" 1 212Eall unanimously. 14 It was understood that the Legal Division ' 14)111d prepare for the Board's consideration an order and statement reflecting this decision. All members of the staff except Mr. Kenyon then withdrew from the meeting. Lease of additional space. Governor Shepardson referred to the 11°6"'s action on June 19, 1963, authorizing him to negotiate with the l'ederal Deposit Insurance Corporation for additional rental space in that Corporation's building in the amount of approximately 3,000 square r";) on terms similar to those contained in the contract executed bet een the Board and the Corporation as of August 23, 1962. He reported that these negotiations had resulted in an agreement on the part of the Corporation to amend the original lease to cover an additional http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis e -1rOr. Awr)A;‘) 8/8/63 -30-- area comprising 2,276 square feet on the seventh floor of the building, that the agreement to amend the lease had been executed on behalf of the Federal Deposit Insurance Corporation as of August 1, 1963, and that the agreement was now ready for execution on behalf of the Board. The execution on behalf of the Board of the agreement to amend the original lease was authorized. Committee on Organization, Compensation, and Building Plans. 27, Chairman Martin referred to the action taken by the Board on June 1962) in establishing a Committee on Organization and Building Plans (later known as the Committee on Organization, Compensation, and BuildPlans), with the understanding that the function of such committee vould be to meet once a year with each Federal Reserve Bank President for the purpose of considering officer development and compensation and anY contemplated changes in major Reserve Bank programs, including sizable building projects, but with no intention of over-all budget review. (It 141.s understood, however, that if nothing seemed to require a meeting with a particular Reserve Bank President, such meeting need not be scheduled by the Chairman of the Committee.) At the June 27, 1962, meet- the Board had designated Governors Balderston, King, and Mitchell t° serve as members of the Committee, with Governor Mitchell as Chairman. At this meeting Governors Balderston and Mitchell were designated as members of the Committee on Organization, Compensation, and Building that Plans) with Governor Mitchell as Chairman, and it was understood a third member of the Committee would be designated later. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r, AA) 1r I 8/8/63 -31The meeting then adjourned. Secretary's Notes: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson approved on behalf of the Board on August 7, 1963, the following actions relating to the Board's staff: Transfers Carmen H. Feliciano, from the position of Clerk-Stenographer in • theDi vision of Personnel Administration to the position of Stenographer ia the Legal Division, with no change in basic annual salary at the rate °f $4,110, effective upon assuming her new duties. . Dorothy Ann Gheen, from the position of Clerk-Stenographer in the vlsion of Personnel Administration to the position of Clerk-Stenographer in the Office of the Secretary, with no change in basic annual salary at the rate of $4,030, effective upon assuming her new duties. Acceptance of resignation Judith E. Locknane, Clerk, Division of Research and Statistics, effective at the close of business August 16, 1963. Pursuant to the recommendation contained in a memorandum from the Legal Division, Governor Shepardson today approved on behalf of the Board the appointment of Robert F. Sanders as Attorney in that Division, with basic annual salary at the rate of $6,900, effective the date of entrance upon duty. Assistanttretary http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 40t1i4C- BOARD OF GOVERNORS OF THE Ott cis itao41, Item No. 1 6/8/63 FEDERAL RESERVE SYSTEM Vol WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 04 , ,417 1— 44*** August 8, 1963 Board of Directors, Ridgefield Park Trust Company, Ridgefield Park, New Jersey. Gentlemen: The Board of Governors of the Federal Reserve System approves, pursuant to Section 24A of the Federal Reserve Act, an additional investment of $159,500 in bank Premises by Ridgefield Park Trust Company for the purpose of enlarging and modernizing its banking quarters. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2628 BOARD OF GOVERNORS Aef GO Item No. 2 8/8/63 OF THE 4 k . :41 FEDERAL RESERVE SYSTEM i WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD RES August 8, 1963 Board of Directors, The First Pennsylvania Banking and Trust Company, Philadelphia, Pennsylvania. Gentlemen: The Board of Governors of the Federal Reserve System extends to October 19, 19631-x- the time within which The First Pennsylvania Banking and Trust Company may establish a branch at the southeast corner of Grant Avenue and Roosevelt Boulevard, Philadelphia, Pennsylvania. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. *Should have read October 19, 1964. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis W029 S-1884 Item No. BOARD OF GOVERNORS OF THE 3 8/8/63 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORREIPONOENCE TO THE BOARD August 8, 1963. Dear Sir: The Board's letter of August 18, 1955 (S-1572, F.R.L.S. #4109), which inaugurated an annual survey of common trust funds, is hereby rescinded. Since transfer to the Comptroller of the Currency of regulatory authority with respect to these funds, negotiations for the discontinuance of the series have been under way with the Bureau of the Budget. The Bureau has advised that the Comptroller plans an annual survey of common trust funds comparable to that previously conducted by the Board, and that it will be appropriate to discontinue the Board's survey. Very truly yours, Kenneth A. Kenyon, Assistant Secretary. TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2630 Item No. BOARD OF GOVERNORS 8/8/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 8, 1963 Board of Directors, The Summit Trust Company, Summit, New Jersey. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by The Summit Trust Company, Summit, New Jersey, of a branch at 37 Beechwood Road, Summit, New Jersey, provided the branch is established within six months from the date of this letter Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, 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-l846), should be followed.) http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 263i BOARD OF GOVERNORS Item No. 5 8/8/63 SYSTEM FEDERAL RESERVE OF THE WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 8, 1963 Board of Directors, United California Bank, Los Angeles, California. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment of a branch by United California Bank at 6380 Wilshire Boulevard, Los Angeles, California, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, 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.) http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis )1'*14 Adi) 1/14r, BOARD OF GOVERNORS Item No. 6 8/8/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 8, 1963 Board of Directors, Wells Fargo Bank, San Francisco, California. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment of a branch by Wells Fargo Bank, San Francisco, California, in the vicinity of the downtown business district of Lafayette, an unincorporated community in Contra Costa County, California, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, 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-l846), should be followed.) http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0i 4 . 0 BOARD OF GOVERNORS Item No. 7 8/8/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. 4m6 (t444**** ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 8, 1963. Dear Sir: The Board has approved the recommendations of the System Research Advisory Committee and its subcommittees to request all weekly !.!porting member banks to report as a weekly memorandum item on FR 416 the total amount of all negotiable time certificates of deposit outs tanding in denominations of $100,000 or more. Copies of the revised FR o 416 are attached. Preliminary negotiations indicate that the Bureau !the Budget will approve the form; the number assigned to the form 14111 be telegraphed to the Reserve Banks. All weekly reporting banks should be informed that, beginwith the first Wednesday in January (January 1, 1964), the total unt of all negotiable time certificates of deposit outstanding in uienominations of $100,000 or more should be reported as a memorandum otem on form FR 416, with this exception: the 32 banks that had , utstandings of $50 million or more certificates of deposit on u jcember 5, 1962 (list of banks attached) should be requested to begin wteleir reporting of these certificates of deposit with the first ifdnesday in September (September 4, 1963). It would be appreciated re the Reserve Bank personnel, when consulting these large respondents ofgarding the new series, would obtain an estimate of the total volume ,, each bank's certificates that mature during the September tax and 'ivldend period, and forward the information to the Division of Research and Statistics, report, "negotiable" time certificates • For the purpose of this defined as those certificates issued in a form which legally permits 8 ra ele hY the holder with no restrictions imposed by the issuing bank on cesale of such certificates. The intention of the issuce to sell a inr tificate or to hold to maturity is not to be considered in determin8 whether a certificate is negotiable. are http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ) `Ar '4,634 , -2- Those reporting banks which indicate in their memorandum report an outstanding total of $50 million or more of certificates Of deposit in denominations of $100,000 or more should be asked to submit a special confidential report FR 416b, copy attached, every six months on the amount of such certificates of deposit maturing in each of the succeeding 12 months and the total amount maturing after one year. Your Bank will be informed later as to the timing of these semiannual surveys. Very truly yours, Kenneth A. Kenyon, Assistant Secretary. E nclosures PRESIDENTS OF ALL FEDERAL RESERVE BANKS http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ..c10; • Item No. BOARD OF GOVERNORS 8 8/8/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD August 8, 1963. bear Sir: The Board has approved the recommendations of the System Resesr tu. c Advisory Committee and its subcommittees to revise the re r_ ing of bankers' acceptances by weekly reporting member banks anr, by pY those banks in the series of commercial and industrial loans FR ii:Illustry. Copies of the revised form FR 416a are attached; form ind:" is not affected by this revision Preliminary negotiations n„lcate that the Budget Bureau will approve the revised form; the ,'w number will be telegraphed to the Reserve Banks when it is L eoeived. dnesdayAlthough the new form is not to be used until the first We in January (January 1, 1964--actually December 31 because m_ u°11daY), all weekly reporting banks should be given as much a'rivance notice as practicable that, beginning then, bankers' acceptej ttems for the creation of dollar exchange should be excluded from for ?rcial and industrial loans and should be reported as "loans to snd"n banks" if they represent accommodation to private banks abroad and 'le ,all other loans" if they are credits for foreign central banks; tra,that all other acceptances, i.e., those related to commercial LL loasactions, should continue to be reported as commercial and industrial (irns on the 416 report, and should be reported in a separate category - 1) in the 416a report. An exception may be made for acce ingeni ttances purchas d but not in the physical possession of the reporte bank aoce In such instances, the reporting bank may assume that these co_ Ptatic..._ relate to commercial transactions and report them as n'illercial and industrial loans. Weekly and the creation acenrA°8e in the borhs:::ng to the that old and in m_aPProPriate Lus series forth http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis reporting banks that have reported bankers' acceptances of dollar exchange as commercial and industrial loans, 416a series that have classified bankers' acceptances industry of the borrower, should be asked to report on new basis for the week ending January 1, 1964, in order footnotes may indicate the volume involved in the break -2- So that all changes in reporting on this form will take place n the same date, the changeover from "net changes" to "outstandings," described: in the enclosure with the Board's letter of July 25, 1961, is °'so 13 set for January 1, 1964. Banks still reporting on a "net change" sasie should be asked to report on both bases for that week, and the ii°111arY report to the Board for that week should be on both bases. Assurances have been received from the other Federal bank suPervisory agencies that the revision in the reporting of bankers' acceptances for the creation of dollar exchange will be included in 2 Instructions for the Preparation of Reports of Condition when they qre reprinted Very truly yours, Kenneth A. Kenyon, Assistant Secretary. PRESIDENTS OF ALL FEDERAL RESERVE BANKS http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS Item No. 9 8/8/63 ,THE 01 FEDERAL RESERVE SYSTEM 19offiee Pto Correspondence Board of Governors Division of Bank Date August 1, 1963 Provision of unpublished, historical condition and earnings report information outside the System. Subject: erations Mr. Albert Cox, Jr., Secretary, Research Committee, American Bankers Association, has requested that the Board provide access to historical microfilm records of member bank ondition and earnings reports for use in preparing his doctoral under Professor Paul McCracken at the University of chigan School of Business Administration. As explained in the Elttached letter from Mr. Cox, the data to be abstracted will be .929 figures for member banks located in 4o to 80 cities. This 41formation is to be used in a chapter on statistical evidence _!°f destructive rate competition in the 1920's as part of his Lhesis on the general topic of deposit interest regulation. We have written assurance that figures for individual bani, will not be disclosed and that presentation of the data in the thesis will be in the form of groupings of banks or of ferentials in ratios for individlial unnamed banks. Mr. Cox Is also stated that a member of the ABA research staff will be : gvailable to abstract the data from microfilm records but that :embers of the Division's clerical staff may be requested to 3sist on a time available basis. r It is recommended that the information requested be rn!'41e available to Mr. Cox with the usual understanding that no figures for individual banks will be published or disclosed in any T. A. Veenstra, Jr., Chief, Call Report Section. Attachm ent http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26:38 Item No. BOARD OF GOVERNORS 8/8/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN August 9, 1963 The Honorable Wright Patman, Chairman, Banking and Currency Committee, House of Representatives, Washington 25, D. C. Dear Mr. Chairman: This is in response to your letter of August 5, 1963, requesting information on the compensation of bank Officers as reported on bank examination reports. The Board has agreed to supply the information needed in such form as would obviate any possibility of disclosure or identification of the information for any individual bank, and will arrange to tabulate the figures according to the classification agreed on by members of the staff of the Committee and the Board. As soon as the tabulations have been made, they will be forwarded to the Committee. Sincerely yours, (Signed) Wm. McC. Martin, Jr. WM. McC. Martin, Jr. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 10 ....... 4.• •0*. o. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 11 8/8/63 WASHINGTON OFFICE OF THE CHAIRMAN August 8, 1963 The Honorable Wright Patman, Chairman, Co mmittee on Banking and Currency, Rouse of Representatives, Washington 25, D. C. Dear Mr, Chairman; This refers to your letter of August 1 concerning your staff's review the"ot the reports of examination of the Federal Reserve Banks and of w°rking papers developed in the course of such examinations. Both us hope want to see your review completed promptly, and I would add the ti. that the project will support my own belief that the System has a tough and efficient examination program. The Board's staff has cooperated fully with your staff in this review ea."w, and has furnished all material requested, complete and unexpurgatare Your letter indicates you now wish to see certain memoranda, which no t r eferred to in the working papers furnished your staff, but which are YOU included in these papers. The fact that they were not included leads before the conclusion that they "were deliberately removed from the files remore the files were made available to us." These memoranda were not Part of from the material given to your staff, because they were never give of it. Your staff did not ask to see the memoranda, nor did they had us any grounds for believing they wanted to see them. In fact, I ot tVerY reason to believe, on the basis of our last previous discussion matter (in 1960), that you were no longer interested in seeing these e memoranda. We will make available to your staff the memoranda to which your letter staff refers, and have authorized our staff to make available to your Reser anY other Board papers deriving from the examination of the Federal gnive Banks that your staff feels would be relevant and helpful to their or i r cY. In return, I request that you treat these papers as confidential, You should feel that any of them should be made public, you consult lth Me before doing so. You expressed concern because the work papers previously made e to your staff "are arranged in such a manner that supporting sched riot riules or text materials may be removed from the file and the omission are n°ted. Pages are not numbered, and facts and figures noted thereon The °t cross-referenced to other pertinent worksheets or schedules." for each segment of an examination are bound in a separate Cover which bears the title of the bank department or function to which http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable Wright Patman y1 f -2- they relate. Within the binder, the papers are contained in separate each folio bearing a subtitle and number corresponding to the of contents--usually the first page within the binder. Where relevant the table of contents is followed by a summary of control ances reflecting the accountability of the department or function :-?which the binder relates, and the following pages are in a sequence Which follows the order in which the control balances are listed on the summary sheet. . The work papers comprise a systematically organized record of exam work performed, and a compilation of the material underaYstng the formal report. They serve as a means for the examiner on an slgnment to control his work, and as a reference and guide for the miner in a succeeding examination to enable him to know what was prerI v evt.'slY done and to have a starting point for his current examination is lew. They are reviewed by a senior examiner before an examination b,c°ncluded, rather than being sent to the Board's office for review _P!rsons who might not be as familiar with the matter as the senior ecriner in the field. In the circumstances, it would not seem to be al of examiner time to require more elaborate cross-referencing 0_ ?°mical 1. ident of the material. the e_% 4 r The papers reviewed by your staff were obtained from their Places °I storage and made available to your staff intact, just as they were Prepared in the field. The Board shares your desire that the investigation of your ittee proceed with all possible dispatch. Indeed, until we received z e the brecent letter, we thought all was going well with the project. On cond asis of our observations since the members of your staff have been 110 ructing their studies in the Board's office, there would appear to be cooneas°n why the project cannot go forward expeditiously with mutual stai:ration and understanding on the part of the Board's staff and the ' of your Committee. Sincerely yours, t Wm. McC. Martin, Jr. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ,1'r . is i et.,‘ (6141562, @OAR OF GOVERN ORS OV•tt FEDERAL RESERVE SYSTEM I Item No. 12 8/8/63 voAtIN4INGYON OFFICE OF THE CHAIRMAN August 21, 1963 The Honorable A. Willis Robertson, C hairman, C ommittee on Banking and Currency, United States Senate, W ashington 25, D. C. Dear Mr, Chairman: The Board of Governors recommends the introduction and enactment of legislation that would, in effect, substitute for the Present technical and restrictive requirements of the Federal Reserve Act. relating to the "eligibility" of paper for discount or as security for advances by the Federal Reserve Banks, a new provision broadly authorizing the Reserve Banks to make advances to their member banks or til any security satisfactory to the Reserve Banks, subject to limitar2ns, restrictions, and regulations prescribed by the Board of 7vernors. A draft of a bill that would accomplish this objective Is enclosed. to d4 ... 0 The original Federal Reserve Act authorized the Reserve Banks unt only certain types of paper arising out of "actual"commercial °r agricultural transactions, subject to specified maturity limitailons. The concept underlying this limited authority was that the 13,,quidity of commercial banks could be assured only if the loans made tcl.them were short-term and self-liquidating in character. Related to pals concept was the assumption that the pledging of such discounted &err by the Reserve Banks as security for the issuance of Federal ex erve notes would serve as the basis for an elastic currency; it was inPected that the volume of currency would expand and contract directly theresPonse to the varying credit needs of the economy, as reflected by etp. v°1ume of short-term borrowing by commercial and agricultural Lerprises. The principle that Federal Reserve credit should be extended on the basis of short-term, self-liquidating paper was departed from : as early as 1916, during the First World War, when the law was am to authorize the Reserve Banks to make 15-day advances to member banks see's, not only on the security of "eligible paper" but also on the : itY of direct obligations of the United States. A more significa 'd eparture occurred in 1932, when Congress authorized the Reserve http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ;4 The Honorable A. Willis Robertson -2- Banks to make advances to member banks in exceptional and unusual circumstances on any security satisfactory to the Reserve Banks, 1.though at a penalty rate of interest. This authority, at first eorary, was made permanent in 1935, and it is no longer limited c°mpexceptional and unusual circumstances, although such advances ontxnue to carry a penalty rate of interest. The concept that limitation of discounts to short-term, Self l• llquidating paper would serve automatically to regulate the iume of Federal Reserve notes in circulation has also been breached ,..a mendments to the law and has been refuted by experience. In 32 2 Congress authorized the issuance of Federal Reserve notes on security of Government obligations in addition to eligible paper and gold. This authority was originally of a temporary nature, but tc_:was made permanent in 1945. The volume of Federal Reserve notes uaY fluctuates with the changing demands of the economy without 'ileegard to the nature of the paper offered as collateral for Federal erve credit or pledged as security for Federal Reserve notes. n 7 J Each of these legislative changes took place during a period of ec omic • stress that served to make clear the inadequacy of the neetcilnonal framework for Federal Reserve credit extension. The credit in s of American businessmen, farmers, and consumers were evolving metilltiany ways that could not be adequately handled by the old instruboth °f short-term, commercial-type paper; and the rapid growth of re .Private and Governmental economic activity generated credit rauirements far in excess of those that could be supported by the ivelY small volume of "eligible paper". Despite changes in the character of paper held by commercial and the repeated and necessary departures from the original li7!pt that discounts should be based only on short-term, selfrer.dating paper, the law continues to impose unduly restrictive di -lrements as to the nature and maturity of the paper that may be j!unted by the Reserve Banks or offered as security for advances by e 'le Reserve Banks. banks For many years, it has been generally recognized that the COncePt er of an elastic currency based on short-term, self-liquidating Pap Of th is no longer in consonance with banking practice and the needs Illent,e economy. It has long been apparent that the narrow requireand °f the law regarding "eligible paper" serve no useful purpose the hat it Would would be preferable to place emphasis on the soundness of the Pa offered as security for advances and the appropriateness of batIkPurPoses for which member banks borrow. The one-year paper of many factocustomers that is not now eligible for discount may be as satisrY collateral as the 90-day notes of other customers. Moreover, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The Honorable A. Willis Robertson -3- the nature of the collateral provides no assurance that the borrowing bank will use the proceeds for an appropriate purpose. • As long as member banks hold a large enough volume of Government securities, they need not, of course, be particularly c oncerned as to the eligibility for discount with the Reserve Banks of customers' paper held by them. Since World War II, however, there has been a sharp net decline in the aggregate holdings of Government securities by member banks. If any substantial increase in economic activity should cause banks to reduce their holdings of Government , ?ecurities in order to meet increased credit demands, many banks would Obliged to tender other kinds of collateral if they should seek to Obtain Federal Reserve credit. If such a situation should develop, the Reserve Banks could accept technically "ineligible" paper as collateral for advances to their member banks only under section 10(b) of the Federal Reserve Act at a rate of interest one-half of one per cent above the regular dis( "!rate. However, the necessity for distinguishing between "eligible" a ineligible" paper would give rise to cumbersome administrative Procures that are not warranted by the exigencies of current banking „ncitions. In order to avoid these problems, it would clearly be Preferable 0 to move in advance and to revise and up-date the law so as eliminate the existing restrictions with respect to "eligible Paper% 2 The Board of Governors and the Federal Reserve Banks believe that _ .such a revision of the law would be desirable so that the Reserve B arites . on ') . 14111, always be in a position to perform promptly and efficiently cr!,?f their principal responsibilities - the extension of appropriate 1 _'ult assistance to member banks to enable the latter to meet the 3-gitimate credit needs of the economy. Accordingly, the Board urges that legislation of the kind he,13:7. proposed be given, favorableconsideration by your Committee and s/ ecthe Congress. 7..,n addition to the draft bill, there are enclosed a chati°n- by-section explanation of the bill and a document showing the nges that would be made by the bill in provisions of present law. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. tnclosures http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis • ,1 DRAFT OF PROPOSED BILL REGARDING ADVANCES BY FEDERAL RESERVE BANNS A BILL e the Federal Reserve 2rld the Federal Reserve Art in order to enabl ' others in accordance Banks to extend credit to member banks and ses. with current economic conditions, and for other purpo Renresentatives in Be it enacted by.the Senate and House of ..a.allow mimNsm on is inserted in the -areas assembled, That the following new secti C911 ' ' Federal Reserve Act immediately preceding section 14: may make advances "Sec. 13A. (a) Any Federal Reserve Bank d notes of such banks t° any of its member banks on the time or dzman to secured to the satisfaction of such Federal Reserve Bank, subject such limitations, restrictions, and regulations as the Board of Cevarnors of the Federal Reserve System may prescribe. section, each Federal "(b) In making advances pursuant to this 11,4e, enance of sound credit 17a Bank shall give due regard to the maint ' try, and agriculture. e°41itions and the accommodation of commerce, indus the general Each Federal Reserve Bank shall keep itself informed of of its member banks character and amount of the loans and investments ate use is being 141th a view to ascertaining whether undue or inappropri of or trading in rci4de of bank credit for the speculative carrying c other purpose inities, real estate, or commodities, or for any t conditions; and, in eellsistent with the maintenance of sound credi al Reserve (letermining whether to grant or refuse advances, the Feder http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 264fi -2- shall give con3ideration to such information, Whenever the Board of Governors of the Federal Reserve System, in the light of any reports made to it by a Federal Reserve Bank, determines that any member bank is making such undue or inappropriate use of bank credit, the Board notice and an may, in its discretion, after reasonable o portunity for a hearing, suspend such bank from the use of the credit terminate such suspent4cilities of the Federal Reserve System and mly Sion or may renew it from time to time. advances to any "(c) Any Federal Reserve Bank my make promissory notes, illdividual, partnership, or corporation, on its such secured by direct obligations of the United States, subject to limitations, restrictions, and regulations as the Board of Governors O the Federal Reserve System may prescribe." SEC 2. Federal Reserve Act The following provisions of the re herebY repealed: n 10(b) section 10(a) (12 U.S.C. 30a); sectio the second, third, (12 "%S.C. 347b); section 11(b) (12 U.S.C. 248(b)); paragraphs of fc)titth, fifth, sixth, eighth, tenth, and thirteenth 347c); section 13a 8ecti°n 13 (12 U,SC. 343, 344, 345, 346, 347, 361, paragraph of (12 U.SC. 348-352); and the last sentence of the third eeti°n 24 (12 U.S.C. 371),, SEC, 3. of the Federal The eighth paragraph of section 4 follows: leserve Act (12 U.S.C. 301) is amended to read as the affairs of said "Said board of directors shall administer bank F in favor of or -alrly and impartially and without discrimination 4111St any member bank or banks." http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 641: - 3- SEC. 4. Federal The thfrteenth paragraph of section 9 of the Ileserve Act (r% U.S.C. 330) is amended by Changing the colon after the 14131:ds "member banks" in the second sentence to a period and by striking remainder cf comuencing with the words "Provided, however,", the the paragraph. out 3 SEC. 5. the Federal In the last sentence of section 11(c) of R.*Iserve Act (12 U.S.C. 248(c)) the words "and discount fixed by the board of changed to read Governors of the Federal Reserve System" are "arged by the Reserve Bank on advances under section 13A(a) of this Act". SEC. 6. of the Federal In the last sentence of section 11(m) Re5 er7e Act (12 U.S.C. 248(0) the words "of all rediscount privileges at pod eral reserve banks" are changed to read "from the use of the eedit facilities of the Federal Reserve Banks." SEC. 7. of the Federal In the second paragraph of section 12 Reserve Act (12 U.S.C. 262) the words "discount rates, rediscount busi„ "ess" are changed to read "advances under section 13A of this Act, ratoR of advances". interest charged by the Federal Reserve Banks on such SEC. 8. Federal The first paragraph of section 14 of the 'ye Act (12 U.S(C. 353) is amended to read as follows: 11 the regulations of Any Federal Rescrve Bank may, subject to the pc2d in the open market, eral Open Market Committee, purchase and sell at home or banks, firms, abroad, either from or to domestic or foreign riC3Z.at 40 atICI bt11 acceptances, s, or individuals, cable transfers, bankers' member bank." of exchange, with or without the indorsement of a http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ';' -4Reserve Act (12 U.S.C. 356) SEC. 9, Section 14(c) of the Federal transacIS amended by striking out the words "arising out of commercial ticns, as hereinbefore defined". SEC, 10, ve Act (12 U.S.C. 357) Section 14(d) of the Federal Reser is amended to read as follows: subject to review and "(d) To establish from time to time, Reserve System, determination of the Board of Governors of the Federal Reserve Bank on ad(1) ates of interest to be charged by the Federal shall be fixed with a vances under section 13A(a) of this Act, which ulture, and of of accommodating commerce, business, and agric rent rates may be fixed illaintaining sound credit conditions; and diffe other basis or f°t different classes of paper or according to such such purposes; bases as may be deemed necessary in order to accomplish fourteen days, or but each such bank shall establish such rates every often (2) rates of interest to -er if deemed necessary by the Board; and be ..., charged by the Federal Reserve Bank on advances under section 13A(c) °f this Act;" SEG. 11. 16 of the Federal The second paragraph of section ing out the third sentence Iteserve Act (12 U.S.C. 412) is amended by strik ity thus an4 substituting therefor the following: "The collateral secur under the pro°Qered shall be notes of member banks or others acquired exchange or bankers' ens of section 13A of this Act, or bills of Act, or gold certificates, accePtances purchased under section 14 of this cIt' direct obligations of the United States." http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis VG4S the ninth paragraph of The second sentence of by U.S.C. 463) is emended section 19 of the Federal Reserve Act (12 sentence to read "advances". changing the word "discounts" in such Federal h of section 23A of the SEC. 13. The second paragrap s by striking out the word Reserve Act (12 U oS.C. 371c) is amended with the "d m the clause beginning rafts," and "for rediscount or" fro SEC. 12. "Provided,". of July 21, 1932, as Section 201(e) of the Act 'various striking out the words attended (12 U.S.C. 1148) is amended by SEC. 14. aderal reserve banks and" from that section. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 264 I EXPLANATION OF PROPOSED BILL REGARDING ADVANCES BY FEDERAL RESERVE BANKS upon In general, the first section of this bill would confer advances on any satisReserve Banks broad authority to make the bill are largely of security; and the remaining sections of c"forming nature. the 17 factory a 'vrY 13A would be inserted in the Federal • Section 1. - A new section ReQwe Bank to make adv,_ 4 ve fict. It would authorize any Federal Reserve t'ces to any of its member banks on the note of the member bank secured ' O resthe satisfacf.ion of the Reserve Bank, subject to such limitations, rs of the Federal Re frictions, and regulations as the Board of Governo es, the Reserve Bank 70 r-ve System may prescribe. In making such advanc : of sound credit d be required to give due regard to the "maintenance ' co ry, and agriculture" ;d:'-tions and the acconanodation of commerce, indust atil anu, to keep itself informed as to the character and amount of the loans -Investments of its member banks, with a view to determining whether for speculative ue or inappropriate use is being made of bank credit pu, sound credit ocZ°ses or for purposes inconsistent with the maintenance of those now ultions. These requirements are substantially the same as pr_ s Reserve Act. l eribed by tha eighth paragraph of section 4 of the Federa Banks In addition to advances to member banks, the Reserve , and rships partne %lid oe " to make advances to individuals, , aurjorations on the security of obligations of the United Staes an paragraph of sectiol°ritY similar to that now contained in the last authority, like 13 of the Federal Reserve Act, although the new specify any t' 71-th respect to advances to member banks, would not ' rilat ty to make advapuritY limitation. As under present law, the authori ecs to "corporations" would cover advances to nonmember banks. ' or rendered Section 2. - Because they would be superseded obsolet, the pro13A, n by- the authority conferred by the new sectio ' vista be repealed. would "of the Federal Reserve Act hereafter described enacted in 1932, Section 10(a). of the Act (12 U.S.C. 347a), autho,. This auth "-zes advances to groups of five or more member banks. the light in sary unneces 2ritY has never been utilized and would be the new authority. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis on—r-11 $4.•13k31 containing authority for Section 10(b) (12 U.S.C. 347b), oneadvances to member banks on any satisfactory security but at a be would likewise half of one per cent penalty interest rate, legislation. rendered unnecessary by the new U.S.C. 248(b)), authorizing Section 11(b) of the Act (12 a Federal Reserve Bank the Board of Governors to permit or require other Reserve Banks, has not it)c)rediscount the discounted paper of importance today. een useci since 1933 and is of no practical fi5th, sixth, eighth, tenth, and The second, third, fourth, the Act (12 U.S.C. 343, 344, th i , -rteenth paragraphs of section 13 of respectively), contain the basic pro346, 31:7, 361, and 347c, and advances by the Federal 1sious of present law regarding discounts "is limit "eligible paper" to paper s2serve Banks. These provisions industrial, or commercial purposes, or or drawn for agricultural, be used, for such purle proceeds of which have been used, or are to discounting (never used) for the s"; provide emergency authority partnerships, and corporations; , 'eligible paper" for individuals, limited circum"sight" drafts in certain tit d/°I:ize the discounting of Ls: and "Collar acceptances discounting of bankers' e: ances; authorize the 7 and 12 paragraphs kinds described in o ellange" acceptances of the may be that amount of paper of one obligor distinguished dt section 13; limit the (as zlscounted for a member bank; authorize advances obligations Government by secured or°111 "discounts') to member banks by the discounts regulation of tc, "eligible paper"; provide for the corporations and rd; authorize advances to individuals, partnerships, discounting the the security of Government obligations; authorize credit intermediate Federal bia- agricultural paper, paper held by provide and associations; marketing „nks, and paper of cooperative be shall banks nt certain types of real estate loans by national these of All purposes. prgarded as "commercial" paper for discount section 13A superseded or covered by the new adedv isl'-ons would either be ed by section 1 of the present bill. ;. PoTT re paragraph of section 4 of the Act Section 3. - The eighth Federal Reserve Bank to (12 ITS -..C.-301) presently requires each accormilocredit conditions and the rns ider the maintenance of sound agriculture in extending credit to ! ri t=lon of commerce, industry, and regarding undue uses of brber banks, and to keep itself informed the Board of Governors is a'nk credit for speculative purposes; and Federal Reserve member bank from access to clrIth°r ized to suspend any provisions These Il _edit for any such undue use of bank credit. Accordingly, 13A. section uuld be retained in substance in the new http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3aled, so that the "tIle similar provisions of section 4 would be repe - as it does now only ide prov .!. glith paragraph of that section would l adminhat the board of directors of each Federal Reserve Bank shal out discrimination s er its affairs "fairly and impartially and with 'La favor of or against any member bank or banks." paragraph of section 9 of the Section 4. - The thirteenth Act (12 U.S,. 230) would be amended to repeal the proviso limiting discounted for any ithe amount of paper of one obligor that may be lar limitation in sactelllber bank. This limitation, like the simi the fact that most 9 of the Act, appears unnecessary in view of to one borrower State laws limit the amount of loans that may be made national banks to State banks, in terms similar to those applicable under section 5200 of the Revised Statutes. of section 11(c) of the Act Section 5. - The last sentence the "discount" rate of (12u 7 0), regarding the addition to [8( n, -.S.C, 0 deficiencies in their reserves -7Y tax paid by the Reserve Banks on s refer to the ainst Federal Reserve notes, would be modified to ion 13A. sect new '&11tereSt" rate charged on advances under the 4 last sentence of Section 6. - The language of the rding suspension of -— io laAm) of sect the Act (12 U.S.C. 21i8(m)), rega n, . s secured by loan s edlscount privileges" for certain increases in to suspension r refe Stock or bond collateral, would be conformed to Banks. rve Rese Federal • 'lase of the credit facilities" of the ion 12 of the Act Section 7. - The provision of sect Advisory Council to make (12 u -.S.C. 2n)7—Ethorizing the Federal and "rediscount da ons in regard to "discount rates" l 3mmomti ir under the new nces siness", would be changed to refer to adva . nces adva Qection 31-1 and interest rates on such of section 14 of the Act Section 8. - The First paragraph inate a reference to paper (12T •, r -.S.C. 353) would be amended to elim time, to omit a reference o-Ligible for rediscount" and, at the same te et operations by th l'egulation of Federal Reserve Bank open mark the been subject to regulation • Board of Governors, a function that has et Committee. 1935 by the Federal Open Mark would be made in section 14(c) Section 9. - A conforming change ot reference to paper "arising t le Act (12 U.S.C. 356) to eliminate a , . Of commercial transactions, as hereinbefore defined" http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Section 10. - Section 14(d) of the Act (12 U.S.C. 357), 11°-oting to the fixing of "discount" rates, would be amended to refer ) nterest" rates under the new section 13A. At the same time, different : ' 11 1s provision would be broadened to authorize the fixing of "according also but paper, of not only for different classes 'bates' 4.2 such other basis or bases as may be deened necessary" to accomplish ;sue purposes of this provision. The amended provision would also Cude separate authority as to rates on advances to individuals, new sect:,:,rtnerships, and corporations under subsection (c) of the 1 Lon 13A. - - the Act Section 11. - The provision of section 16 of 02 U..-).C.707-711Tarizing the use of paper acquired under section 13 1.1 security for Federal Reserve notes would be modified to refer to .° the provisions of [jtes of member banks or others acquired under "e new] section 13A of this Act." Act Section 12, - The provision of section 19 of the for agents acting as (12 U.S.C.767.375F6Wibiting member banks from the without "discounts", 13 11° 0rinlember banks in obtaining Federal Reserve instead "advances" cypard's Permission, would be conformed to refer to .4 discounts. relating Section 13. - A provision of section 23A of the Act, , tos confor curity for loans to affiliates of member banks, would be Pled to eliminate a reference to drafts "eliible for rediscount". 21, 1932 Section 14. - A provision of the Act of July to 02 u corporations re,i4 .u.C.71746), authorizing agricultural credit be would Banks, r `‘Lscolult, "eligible paper" with the Federal Reserve epealed. J12-1Y 29, 1963. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis tn. BOARD OF GOVERNORS Item No. 13 8/8/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRIEBB orrictAL CORREEPPONOENCE TO THE BOARD August 22, 1963. Dear sir: As you will recall, the ad hoc System Committee on Eligible Paper in its Report of May 25, 1962, recommended that the System ec°mmend to Congress a bill that would repeal provisions of present law regarding eligibility of paper for discount by the Reserve Banks and authorize the Reserve Banks to make advances to member banks on notes secured to the satisfaction of the Reserve Banks, subject to r egulations of the Board. The Conference of Presidents on June 18, 0962, concurred in the basic principles set forth in the System nmmittee's Report and referred the matter to the Committee on Legislation for study as to implementation of the System Committee's r ec°mmendation; the Subcommittee on Legislation of the Committee on Le gislaton, in its Report of August 28, 1962, concurred in the System ,-43ramittee's recommendation and submitted a draft of proposed legis_i_ation on this subject; and on September 10, 1962, the Conference of Presidents approved generally the draft bill submitted by the Subcommittee on Legislation. c12 The Board of Governors has concluded that it is desirable this time to recommend such legislation to the Banking and Currency . C .ttees of Congress. It was the Board's feeling that it was uncessary to obtain the comments of banking groups, such as the American sar , lkers Association and the Reserve City Bankers Association, before iu mitting the legislation to Congress. Such groups, as well as others terested, will of course have an opportunity to express their views and when the legislation is introduced in Congress. 4t r 4 For your information, there is enclosed a copy of a letter that is being sent to the Chairmen of the Senate and House Banking and Curt. bil encY Committees recommending favorable consideration of a draft tb ' l on this subject. The draft bill enclosed with the letter is in 1111 e form submitted by the Subcommittee on Legislation except for two &nor changes in language. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2- 265, If and when the proposed legislation is considered by the Co mmittees of Congress, it is reasonable to anticipate that questions be regulations that might be issued by the raised as to the nature of any Board of Governors on this subject if the proposal should be , Racted. With this likelihood in mind, the Board has considered, but has not reached any conclusion with respect to, a draft of a possible revi,"si°n of Regulation A in the form enclosed with this letter. This _eylsion would eliminate all provisions of the present Regulation A to "eligibility" of paper; it would retain the substance of Pprreisent provisions setting forth "general principles" regarding approbil te uses of Federal Reserve credit, provisions relating to negotiay of paper, and provisions regarding paper acquired from nonmember ba " ; and it would include new provisions with respect to advances to 4_4 urimember banks, corporations, partnerships, and individuals. f tating A major question with respect to any such revised Regulation might be issued under the proposed legislation relates to the to ' ent to which the Regulation should set forth standards or guides as orA the nature and amount of paper offered as collateral for advances in 2oul er to encourage the holding of liquid paper by member banks. Section pro 3 of the enclosed draft of Regulation would retain the substance of andliisions of the present Regulation A with respect to amount of security coll_ financial statements and would include certain new language regarding paper offered as collatrai. eration of the nature and quality of the whether any such revision of the however, raised, Question has been lea1,7gulation should be couched in general language of this kind, anio lug broad discretion and latitude of judgment as to the nature and pedunt of collateral to be exercised by the discount officers of the Reserve Banks, or whether, on the other hand, more specific Stand Re21,cilards or guides in this respect should be set forth either in the isr-ation itself or in statements of operating policy that might be that lied from time to time. One suggested approach to this problem would be to include in the secjr°Posed legislation provisions somewhat like those of the present pap 1°n 10(b), expressly requiring that advances secured by long-term a rel.) such as paper with a maturity of more than 18 months, shall bear st4te 0f interest higher than advances on other types of paper. If lihet,a Provision is not included in the statute itself, question arises the fixing of different rates f the Regulation should contemplate due ir any event, advances secured in by oc'ferent types of paper or whether, given preferential rate be should States igations of the United treatment The Board will appreciate the comments of your Bank regarding the cornzPr°Posed draft of revision of Regulation A and particularly your ents regarding the specific questions above mentioned. Ver `-k0 Sures truly yours, Kenneth A. Kenyon, Assistant Secretary. 1° T4E PRESIDENTS OF ALL FEDERAL RESERVE BANKS. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis
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