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Minutes for To: Members of the Board From: Office of the Secretary August 9, 1965 Attached is a copy of the minutes of the m on Board of Governors of the Federal Reserve Syste the above date. It is not proposed to include a statement with respect to any of the entries in this set of red to minutes in the record of policy actions requi al Feder be maintained pursuant to section 10 of the Reserve Act. Should you have any question with regard to advise the minutes, it will be appreciated if you will al initi the Secretary's Office. Otherwise, please your below. If you were present at the meeting, es. If initials will indicate approval of the minut ate you were not present, your initials will indic only that you have seen the minutes. Chin. Martin Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Minutes of the Board of Governors of the Federal Reserve System on Monday, August 9, 1965. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Robertson Shepardson Mitchell Daane Maisel Sherman, Secretary Kenyon, Assistant Secretary Broida, Assistant Secretary Young, Adviser to the Board and Director, Division of International Finance Mr. Noyes, Adviser to the Board Mr. Molony, Assistant to the Board Mr. Furth, Consultant Mr. Morgan, Staff Assistant, Board Members' Offices Miss Eaton, General Assistant, Office of the Secretary Mr. Mr. Mr. Mr. Messrs. Brill, Holland, Garfield, Partee, Ettin, Freedman, Manookian, Osborne, Thompson, Trueblood, Walker, and Wernick, and Miss Stockwell of the Division of Research and Statistics Messrs. Hersey, Katz, Sammons, Irvine, Reynolds, Wood, Dahl, Gekker, Hayes, Lee, and Redding, and Mrs. Junz of the Division of International Finance Economic review. A review of significant international financial developments and of domestic business and financial trends 14as presented by the Divisions of International Finance and Research and Statistics. Following a discussion based on this review, all members of the staff who had been present except Messrs. Sherman and Kenyon withdrew and the following entered the room: -2- 8/9/65 Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Hackley, General Counsel Farrell, Director, Division of Bank Operations Hooff, Assistant General Counsel Daniels, Assistant Director, Division of Bank Operations Kiley, Assistant Director, Division of Bank Operations Leavitt, Assistant Director, Division of Examinations Forrestal, Attorney, Legal Division McClintock, Supervisory Review Examiner, Division of Examinations Application to establish branch during tobacco auction season .(Item No. 1). Pursuant to the staff recommendation in the file on the matter, which had been circulated, unanimous approval was given to a letter to Wachovia Bank and Trust Company, Winston-Salem, North Carolina, approving the establishment of a seasonal branch in the Big Winston Warehouse. A copy of the letter is attached as Item No. 1. As pointed out in the file, the authorization recommended in this instance was of a continuing nature, in lieu of requiring the applicant to submit a new application each year. In the past, the latter procedure had generally been followed by the Board in approving the operation of a branch for a short period of time each year to furnish services at, for example, an exposition or a fair. Report on competitive factors (Morristown-Whippany, New Jersey). Unanimous approval was given to the transmittal to the Comptroller of the Currency of a report containing the following conclusion on the competitive factors involved in the proposed merger of The First National Bank of Whippany, Whippany, New Jersey, into The First National Iron Bank of Morristown, Morristown, New Jersey: 8/9/65 -3- The proposed merger of The First National Iron Bank of Morristown and The First National Bank of Whippany would eliminate existing and potential competition, and increase the concentration of banking resources in Morris County. The effect of the proposed merger on competition would be significantly adverse. Draft bill to increase deposit insurance coverage, place regulation of interest rates on standby basis, and amend other provisions of law (Item No. 2). The Bureau of the Budget had requested the Board's views on a bill proposed by the Treasury Department "to Provide for an increase in the maximum amount of insurance coverage for bank deposits and savings and loan accounts, to protect further the safety and liquidity of insured institutions, to strengthen safeguards against conflicts of interest, and for other purposes." A memorandum from the Legal Division dated August 5, 1965, Pointed out that the basic provisions of the proposed bill had been before the Board for consideration on several occasions in the past. As early as April 1963 the Board expressed no objection in principle to a so-called "omnibus deposit insurance" bill, which was essentially the Same as the current Treasury bill. In the intervening period, however, additional consideration had been given to the proposed legislation by the agencies concerned and various changes, including several proposed by the Board, had been incorporated into the present bill. There was submitted with the memorandum a draft of reply to the Budget Bureau commenting favorably on the objectives of the proposed legislation, including those provisions of the bill that would place on 8/9/65 -4- a standby basis the authority of the Board of Governors and the Federal Deposit Insurance Corporation to regulate maximum interest rates on deposits in insured banks and authorize the Federal Home Loan Bank Board to regulate dividend rates on share accounts in members of the Home Loan Bank System. However, the proposed letter would reiterate that in lieu of a requirement that before fixing maximum interest rates the Board of Governors must "consult" with the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Federal Home Loan Bank Board, the Board would prefer a provision requiring only that such action be taken after "advising" the other agencies. A memorandum from Mr. Hackley dated August 6, 1965, informed the Board that subsequent to preparation of the August 5 memorandum there had been received from the Federal Deposit Insurance Corporation a draft of a proposed amendment to the Treasury Department's draft bill. As the bill was now drawn, if the Board or the Corporation should feel that the present restrictions on maximum interest rates should continue in effect after the effective date of the new law (January 1, 1966), it would be necessary for them to take positive action to such effect before the date indicated. The suggested amendment would authorize the Corpora- tion to "rescind" the present interest rate limitations and later, if such action was considered desirable in the light of general credit conditions and prevention of unsound credit practices, to "restore" such limitations. It would be contemplated that similar amendments would be -5- 8/9/65 made to the provisions of the bill regarding the authority of the Board of Governors. The suggested amendment would make it clear that the existing maximum interest rates could continue in effect without any Positive action by the Board of Governors or by the Federal Deposit Insurance Corporation. The Board of Governors had heretofore taken the Position that it would favor placing regulation of deposit interest rates on a standby basis, but that under existing conditions it would not propose to eliminate the maximum rate limitations. The suggested amendment seemed to be in accordance with this approach. If the Board concurred, the draft of letter to the Budget Bureau would need to be revised. In discussion Mr. Hackley said it was felt by the staff that the proposal of the Federal Deposit Insurance Corporation had merit. However, the form of proposed amendment contained some ambiguities, and the Board's staff would like to suggest an amendment in simpler form. It was understood that this would be agreeable to counsel for the Corporation. Mr. Hackley then read the proposed alternative language of the amendment and the changes he would suggest in the letter to the Budget Bureau. Governor Maisel inquired what the Board's position had been With respect to putting the regulation of deposit interest rates on a standby basis, in reply to which it was stated that in a letter to Senator Robertson, Chairman of the Banking and Currency Coitunittee, the -6- 8/9/65 Board had endorsed placing such regulation on a standby basis but had indicated that if such legislation were passed the Board might want to wait for a while before removing the restrictions in the light of conditions existing at the time. Governor Maisel said his concept of standby authority would be that maximum interest rates would not be prescribed unless credit conditions required them. In his opinion the proper posture would be one that would require an action in the light of existing credit conditions to put the maximum interest rates into effect. Governor Robertson suggested that a question of timing was involved. There was the matter of moving to a standby basis at a time When such a move would involve the least repercussions. This aspect of the proposed legislation was important because of the problem of reinstating the limitations if the Board determined them to be required. As a practical matter the Board could not reinstate them in the absence of similar action by the Federal Deposit Insurance Corporation with respect to nonmember insured banks. At present there was a vacancy on the Board of Directors of the Corporation, and one of the two present members (the Comptroller of the Currency) had indicated that he did not favor imposing maximum interest rates, so it might not be possible for the Corporation to take a positive action. Governor Daane said he would not like to see legislation enacted that would remove the interest rate limitations automatically, following 7.3't 8/9/65 -7- which Governor Maisel commented that if the interest rate ceilings were retained by the Board of Governors and the Federal Deposit Insurance Corporation, the Home Loan Bank Board probably would act to place limitations on dividend rates of member savings and loan associations. Governor Daane observed that he would want freedom, after the ceilings were removed, to reinstate them if needed, which might not be practicable for the reason stated by Governor Robertson. Governor Robertson pointed out that it could not be foretold what the credit situation might be at the time the Proposed legislation became effective. Mr. Hackley noted that adoption of the amendment proposed by the Board's staff would not mean that the rate ceilings would necessarily continue in effect after the effective date of the bill. The Board could always determine prior to the effective date to remove the ceilings on such date. Governor Maisel commented that it came down to the difference between the necessity for taking a positive action and not being required to take such action. He had made his point, he added, and if the other members of the Board felt that it was not desirable to require a positive action he would not pursue the matter further at this time. It was therefore the consensus that the Board should support the amendment that had been suggested by Mr. Hackley as an alternative to the amendment proposed by the Federal Deposit Insurance Corporation. The discussion then turned to the implications of the provision in the bill that before acting on maximum interest rates for member bank 8/9/65 -8- time deposits the Board would have to consult with the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Home Loan Bank Board. Question was raised as to what, if any, difference was involved in a requirement for "consulting" as contrasted with a requirement for "advising." Mr. Hackley said that this question had been discussed at some length with lawyers of the other agencies concerned. There was a general feeling that as a practical matter this would make little difference. However, since the Board had previously expressed its preference for a Provision that wpuld call for "advising," the staff had felt compelled to reiterate this preference in the proposed letter to the Budget Bureau. Mr. Hackley said it appeared clear that as a legal matter the Board, after consultation, could act as it deemed best. All of the lawyers who had considered the matter agreed that views expressed upon consultation would not be binding on the Board. Governor Mitchell commented that the important point was to be sure that the right to act was reserved to the Board. He inquired whether it would be desirable to mention this point in the letter to the Budget Bureau. Mr. Hackley replied that he would be rather reluctant even to raise the question, and thereby suggest that perhaps a requirement for consultation before taking action meant that the Board would not be free to act in its best judgment. Governor Robertson said he would be inclined to base the letter on an assumption that, notwithstanding the requirement '700 8/9/65 -9- for consultation, the responsible action agencies retained the power to act. Governor Daane indicated that he also would favor basing the letter on such an assumption. For this reason he would be inclined not to express a preference for a requirement of "advising" instead of "consulting." Governor Robertson agreed. Governor Shepardson said this was likewise his reaction; since the Legal Division had given assurance that a requirement for consultation would not inhibit the Board from acting, the Board's letter should not indicate that there was any question on this score. At the conclusion of the discussion unanimous approval was given to a letter to the Budget Bureau in the form attached as Item No. 2. Matter involving Denver Branch building site. There had been circulated a memorandum from Mr. Farrell dated August 2, 1965, informing the Board of complaints that had been presented to Chairman Martin and to him by and on behalf of Mr. Hewitt Cochran concerning the Denver Branch building program. The property that had been acquired by the Federal Reserve Bank of Kansas City for a new Denver Branch building comprised an entire square except for a corner occupied by a building owned by Mr. Cochran, who now complained that he was losing tenants because of newsPaper stories indicating that his property, along with part of the property owned by the Reserve Bank, was to be used for a memorial park. Among Other things, Mr. Cochran seemed to feel that certain activities of Vice 8/9/65 -10- President Snider of the Denver Branch, who was said to be a member of the Downtown Denver Improvement Association's liaison committee formed to work with the Denver Urban Renewal Authority, were directed toward the end of obtaining Mr. Cochran's property for the memorial park. Mr. Farrell's memorandum indicated that arrangements had been made for Mr. Cochran to meet with President Clay on the matters involved in his complaints. The memorandum also raised the question whether the Board might wish to consider the desirability of involvement by Vice President Snider in the program of the Downtown Denver Improvement Association. Governor Maisel said he did not see why any question had been raised about an officer of a Reserve Bank being active in civic affairs. He had supposed it would be considered entirely appropriate for Reserve Bank personnel to be active on civic bodies such as the Downtown Denver Improvement Association. Governor Robertson observed, however, that a Reserve Bank officer should not be engaged, except with official sanction, in an activity that contemplated a Federal Reserve Bank's giving away a parcel of property to an organization such as an urban renewal authority. Governor Daane felt that Vice Presidents in charge of Reserve Bank branches should be encouraged to be active in civic affairs. How- ever, there might be, as Governor Robertson had suggested, some question in terms of the direction of their efforts in specific circumstances. The 8/9/65 -11- disposition of Federal Reserve property was, of course, a matter clearly Within the jurisdiction of the Board of Governors and the Federal Reserve Bank concerned. Governor Shepardson inquired whether Mr. Farrell, in raising the question in his memorandum, had thought that some advice should be conveyed to Mr. Snider, and Mr. Farrell said he had wanted the sense of the Board, which he now understood was basically that the idea of a branch Vice President's participating in an urban renewal program was not, in the eyes of the Board, improper, although any such activities Should not go to the point of the officer's committing himself on what might be done with property owned by the Federal Reserve System. It was understood that the flavor of the foregoing discussion Would be related by Mr. Farrell to President Clay. During the foregoing discussion Chairman Martin stated that he had just received a letter from Senator Allott of Colorado indicating that he would appreciate knowing whether the Federal Reserve felt it had a need for the lots on which the Cochran Building stood or whether the Property presently owned by the Federal Reserve was sufficient for its Purposes. It was understood that a reply would be made to Senator Allott saying that the Board had been advised that the property presently owned by the Denver Branch was sufficient for its purposes. Possible realignment of Federal Reserve districts (Item No. 3). In a letter dated August 2, 1965, Senator Allott recalled that in early -12- 8/9/65 1959 he had written to Chairman Martin concerning possible realignment of the Federal Reserve districts and that in a reply dated April 23, 1959, Chairman Martin advised that the Board had the whole matter under review. Senator Allott said that since he found nothing in his file to indicate that any conclusions were ever reached, he would appreciate knowing the status of the matter, including the possibility of creating a new district in the Mountain States' area. There had been distributed a draft of reply stating that the Board, after weighing various factors mentioned in the April 23, 1959, letter, had concluded that the economic interests of the country were being effectively served by the existing alignment of Federal Reserve districts; and that the Board further concluded that whatever advantage there might be in some other arrangement would not be great enough to warrant the additional expense of creating a new district in the Mountain States' area or making any other substantial realignment of districts. After discussion, the letter to Senator Allott was approved unanimously; a copy is attached as Item No. 3. S. 1698. Chairman Martin noted that on Wednesday, August 11, he was to testify before the House Banking and Currency Committee on S. 1698, Senator Robertson's bill exempting bank mergers from the proof the antitrust laws. He had testified earlier on S. 1698 before the Senate Banking and Currency Committee, and the bill subsequently passed the Senate subject to an amendment sponsored by Senator 8/9/65 -13- Proxmire providing in effect that if the Department of Justice wished to institute action against a proposed merger, it would have to institute such action within a period of 30 days following announcement of the decision of the appropriate bank regulatory agency. Chairman Martin noted that this amendment reflected a suggestion he had made in his testimony before the Senate Banking and Currency Committee. He said he assumed that the Board had no objection to supporting the bill as thus amended. In response to a question, Mr. Cardon stated his understanding that the exemptive provisions of the bill would apply to the cases now Pending before the courts in which the Department of Justice had instituted proceedings after the respective mergers were consummated. Governor Mitchell said it was his recollection that he and Governor Robertson had expressed dissent from supporting the retroactive feature of the bill when the Board reported by letter to Senator Robertson, as Chairman of the Senate Banking and Currency Committee, on S. 1698. Re and Governor Robertson asked that the minute record be checked on this point. Secretary's Note: The minutes referred to by Governors Robertson and Mitchell were those for the Board meetings on April 22 and April 27, 1965. Governor Maisel pointed out that he had not yet entered upon service as a member of the Board when the letter report on S. 1698 was 8/9/65 -14- discussed and sent to Senator Robertson. However, if a situation should arise in which his opinion on the pending legislation was requested, his Position would be one of opposition to the retroactive feature. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board a memorandum from Edward S. Green, Cafeteria Laborer, Division of Administrative Services, requesting permission to work part-time for a local hotel. Secretary Item No. 1 8/9/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. SOSSI , 101At. OONNIC•PONIOCNOC A00111112111 011 TO TM( 1110A010 August 9, 1965. Board of Directors, Wachovia Bank and Trust Company, Winston-Salem, North Carolina. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Wachovia Bank and seasonal Trust Company, Winston-Salem, North Carolina, of a tion of intersec the at e Warehous branch in the Big Winston Carolina, North -Salem, Winston Street, 32nd Shorefair Drive and Very truly yours, (Signed) Karl E. Bakke Karl B. Bakke, Assistant Secretary. Item No. 2 8/9/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 ADDRESS orriciAL CORRESPONDENCE TO THE BOARD August 9, 1965. Mr. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington, D. C. 20503 Dear Mr. Hughes: This refers to your Legislative Referral Memorandum of August 2, 1965, requesting the Board's views concerning the Treasury Department's draft bill, "To provide for an increase in the maximum amount of insurance coverage for bank deposits and savings and loan accounts, to protect further the safety and liquidity of insured institutions, to strengthen safeguards against conflicts of interest, and for other purposes." The draft bill enclosed with your memorandum (1) would increase insurance coverage for both insured banks and institutions insured by the FSLIC from $10,000 to $15,000; (2) make provision for assuring the liquidity of all members of the Home Loan Bank System; (3) vest in the Board of Governors, the Federal Deposit Insurance Corporation, aid the Federal Home Loan Bank Board standby authority to fix maximum interest and dividend rates paid by member banks, nonmember insured banks, and members of the Home Loan Bank System, respectively, on time and savings deposits and share accounts; and (4) strengthen and extend the applicability of certain provisions of present law that are designed to prevent conflicts of interest in dealings by financial institutions with their affiliates, directors, officers, substantial shareholders, and with public examiners. The Board favors those provisions of the draft bill that would Place on a standby basis the authority of the Board of Governors and the FDIC to regulate maximum interest rates on deposits in insured banks and authorize the Federal Home Loan Bank Board similarly to regulate dividend rates on share accounts in members of the Home Loan Bank System. However, the Board recommends that these provisions be appropriately amended to provide that interest rate ceilings in force on the effective date of the Act with respect to deposits in insured banks shall continue in effect until modified or rescinded. This would permit the continuance 1 ( ,4444 Mr. Phillip S. Hughes -2- of existing interest rate limitations, without the need for positive action, until the agencies concerned determine that economic conditions clearly warrant removal of such limitations and a shift to regulation on a standby basis. The conflict of interest provisions of the draft bill are desirable and the Board is in favor of them. The Board also endorses the objectives of the provisions of the bill designed to assure the liquidity of institutions that are members of the Home Loan Bank System. • With the qualification above indicated, the Board would have no objection to the introduction and enactment of the proposed legislation. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. 3 8/9/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN August 9, 1965. The Honorable Gordon Allott, United States Senate, Washington, D. C. . 20510. Dear Senator Allott: In your letter of August 2, 1965, concerning the possible realignment of Federal Reserve districts, you asked to be advised of the status of the review the Board had previously indicated it was making of the matter, and in particular about the possibility of creating a new district in the Mountain States' area. After weighing the various factors mentioned in my letter of April 23, 1959--such as land area, population, economic activities, banking assets, and communication facilities--the Board concluded that the economic interests of the country are being effectively served by the existing alignment of Federal Reserve districts. In this light the Board further concluded that whatever advantage there might be in some other arrangement would not be great enough to warrant the additional expense of creating a new district in the Mountain States' area or of any other substantial realignment. I regret our oversight in not having brought this conclusion to your attention. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr.
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