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Minutes for To: Members of the Board From: Office of the Secretary December 11, 1957 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Chin. Martin Gov, Szymczak Gov. Vardaman Gov. Mills Gov, Robertson Gov. Balderston Gov, Shepardson x Minutes of actions taken by the Board of Governors of the Federal Reserve System on Wednesday, December 11, 1957. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Szymczak Vardaman Mills Robertson 1/ Shepardson Carpenter, Secretary Kenyon, Assistant Secretary Hackley, General Counsel Hostrup, Assistant Director, Division of Examinations Mr. Thompson, Supervisory Review Examiner, Division of Examinations Mr. Mr. Mr. Mr. i..,2pointment of director at Philadelphia. Governor Balderston reported that in accordance with the understanding at the meeting on De cember 9, 1 957, he had talked with Mr. Supplee, incoming Chairman of the Federal Reserve Bank of Philadelphia, about the proposed appointment Of Mr, Clifford J. Backstrand, President of the Armstrong Cork C°ThipanY, Lancaster, Pennsylvania, as a Class C director of the Federal Reserve Bank of Philadelphia for the three-year term beginning January 1, 1958) and that the proposed appointment was agreeable to Mr. Supplee 48 /4e11 as to Mr. Meinel, the retiring Chairman of the Reserve Bank. Gcrvernor Balderston also said that the name of Mr. Robert E. MacNeil, ?lieeident of the Curtis Publishing Company, had been suggested in the event that Mr. Backstrand was not available. Invitation extended to Mr. Thomas. Governor Balderston re- ferried to a memorandum which Mr. Thomas, Economic Adviser to the Board, ithdrew from meeting at point indicated in minutes. 12/11/57 -2- had addressed to Chairman Martin under date of December 6, 1957, in Which Mr. Thomas stated that he had been asked by President Irons of the Federal Reserve Bank of Dallas to attend the joint meeting of the directors of that Bank and its branches to be held at El Paso, Texas, °n January 9, 1958, on the occasion of the opening of the new El Paso Branch building. Ni'. Thomas also stated in the memorandum that he had been asked to give a discussion of the current economic situation at the meeting in El Paso and indicated that, if authorized to make the trip, he probably would leave Washington after the meeting of the Federal Open Market Committee on January 7 and be away through January 10. Mr. Thomas was authorized to accept the invitation. Request of Transamerica Corporation for tax certification Items 2 and 3). There had been sent to the members of the Board e°Pies of a memorandum from the Division of Examinations dated December 9, 1957, regarding the application of Transamerica Corporation, San Francisco, California, for a prior tax certification pursuant to the Internal Revenue Code of 1954. After describing the proposed plan reorganization pursuant to which Transamerica would cease to be a bank holding company within the meaning of the Bank Holding Company Act Of 1956, the memorandum recommended that the requested certification be issued. There had also been sent to the members of the Board copies f a memorandum from Mr. Hexter, Assistant General Counsel, dated 4"?(Z 12/11/57 -3- December 9, 1957, which indicated that before proceeding with its plan of organization Transamerica wished to obtain from the Internal Revenue Service a ruling that its shareholders would not be subject to additional income taxation as a result of the reorganization. In order to obtain such a ruling, it appeared that it would be necessary for the Internal Revenue Service to have received not only the Board's prior certification but also the contemplated form of the Board's final certification, which could be actually issued only after the reorganization had taken place. In the memorandum, Mr. Hexer expressed concurrence with the view stated in a memorandum of November 9, 1956, from the Division of Examinations that the Board, on the basis of its own "amination and investigation, would in no case be in a position to certifY without qualification that a particular corporation "had ceased to be a bank holding company." However, he believed that the tax pro- visions of the Bank Holding Company Act might be interpreted as authori2ing the Board to issue a final certification in this case on the basis of appropriate written statements of fact by Transamerica and it8 subsidiary corporations. Accordingly, there was attached to the Itlemcrandum a draft of letter to the Commissioner of Internal Revenue Ilhich would enclose the Board's prior certification and a draft of a form , - 04 final certification intended for issuance after reorganization had been completed. It was understood that if the Internal Revenue Service was satisfied that the reorganization would qualify for the tax 12/11/57 -4- relief provided in the Act, it would give Transamerica a favorable ruling on the basis of which Transamerica would proceed to carry out the reorganization. If the Service should conclude that the Board's cer tifications would not meet the requirements of the applicable provisions of the Internal Revenue Code, presumably it would inform the 18°ard of its views and the Board would then determine what action was aPPropriate in the circumstances. At the request of the Board, Mr. Hostrup commented on the various steps contemplated by Transamerica in carrying out its plan °.f reo rganization. He then discussed the need for a prior tax certifi- eatiOn, the reasons for also furnishing the Internal Revenue Service a draft of the proposed final certification, and the reasons why it Ilas felt that the Board would not be in a position to make an unqualified final certification. On the last point, he said that the System Could not possibly examine all of the various pertinent records and transactions sufficiently to make an unqualified certification that Transamerica WAS no longer a bank holding company. He felt, however, that the Board could reasonably rely on the written statements of or of Transamerica and its subsidiaries which for many years had been the basis of assessment of income taxes. Mr. Hackley emphasized that the law does not require the Board to approve the plan of reorganization, but only to make certain certifieatio , -- of a financial nature. He then reviewed the proposed prior 12/11/57 certification and stated that he saw no legal complications in the s tatements made therein. Concerning the proposed final certification, he said that it seemed desirable to submit a draft to the Internal Revenue Service at this time in order to be sure that the Service would be satisfied with a certification based partly on the Board's direct knowledge and partly on the written statements of the bank holding company and its subsidiaries. He went on to confirm the view e xpressed by Mr. Hostrup that it would not seem feasible for the Board to make an unqualified final certification and said that he did not believe it was contemplated by the Congress that the Board would make an unqualified certification in such circumstances. Rather, it seemed that the proper approach would be for the Board to be able to rely °11. statements by the bank holding company. Governor Robertson stated that he thought the staff had done a good job in coming to a practical solution of a very difficult problem. In a discussion which ensued concerning various aspects of the 'flatter, particularly the form of the final tax certification, Gov- ernor Vardaman inquired whether the Board had in any sense a continuing reeP°nsibility to see that Transamerica did not again become a bank 4-lig company from the tax point of view. Governor Robertson responded that any such responsibility Il°111d rest with the Internal Revenue Service. He pointed out, however, that. lf Transamerica were again to become a bank holding company without 12/11/57 -6- the Board's approval, it would be liable under the Bank Holding Company Acts which is a criminal statute. In further discussion, during the course of which Governor Robertson withdrew from the meeting to keep another appointment, various Tlestions were raised concerning the basis of certifying which should be set forth in the Board's final certification. Governor Vardaman called attention especially to the reference in the draft to facts asc ertained from available sources of information, other than the written ta tements submitted by officers of Transamerica and its subsidiaries, 41 raised the question whether it was advisable to refer to such other 8°11rces or simply to state that the certification was made on the basis or information provided by Transamerica and its subsidiaries. In this connection, Mr. Hostrup mentioned the extent of examination of the records of Transamerica which could reasonably be made by the Federal Reserve Bank of San Francisco and discussed the limitations that would be involved in this respect. Governor Vardaman explained his views further by saying that this was the first instance of a final certification being considered bi the Board and that other bank holding companies might be expected to "ek det erminations phrased in a similar manner. In circumstances which Precillded complete direct examination and ascertainment, it appeared to that it would be preferable to indicate in the certification that it had been issued oh a basis which would place responsibility on the 12/11/57 -7- bank holding company rather than on the Board if questions of fact should be raised at a later date. After a full discussion on this point, it was suggested that the first Paragraph of the draft of final certification, which would indicate the basis on which the document had been issued, be stricken, with the result that the certification would then constitute a simple statement csrt4ying, without specifying the basis, that to the best of the Board's 1121°Qedge and belief Transamerica had ceased to be a bank holding comMr. Hackley pointed out that such a certification might or might ParlY* not be acceptable to the Internal Revenue Service, and it was suggested that the reasons for the form of the proposed final certification be discussed orally with the Service by the members of the Board's staff. If it should be found that a certification in such form would not be acceptable, the matter would then have to come back to the Board for further consideration. The text of the proposed certification in the revised form was then, .12.17al. The prior -Lead and by unanimous vote was given tentative .....22 certification was approved in the form in which it had been submitted • Hexter's memorandum and it was understood that the proposed letter to the Commissioner of Internal Revenue would be sent in a form 141lich would be modified slightly in the light of the decision reached this meeting concerning the form of the draft of final certification. It wa 3 also understood that a duplicate original of the prior certificatiorl would be sent to Transamerica Corporation. a't 362S 12/11/57 -8. The letter sent to the Commissioner of Internal Revenue, the Prior certification, and the draft of final certification were in the fcrm attached hereto as Items 1, 2, and 3, respectively. The members of the staff then withdrew and the Board went into executive session. Health insurance program. Governor Shepardson later informed the Secretary that during the executive session he reported to the Board that the Office of the Controller had raised a question whether the payments which the Board had approved to be made on behalf of its emPloyees for group hospitalization and major medical insurance should be extended to the members of the Board. He said that this point was dis cussed and that it was a,ceed, for the same reasons which led the Illoard to the decision that the members of the Board should not be included in the group life insurance program provided by the Connecticut General Life Insurance Company, that the payments for group hospitalization and major medical insurance should not be extended to include the ri embers of the Board. Outside activities of the Board's staff. Governor Shepardson also informed the Secretary that there had been discussion during the e ecutive session of questions raised in an earlier informal discussion °r Outside business and teaching activities of members of the Board's 8taff, as reported in a memorandum from the Division of Personnel Administration dated October 23, 1957. He said that at this meeting °I' the Board it was agreed unanimously that no objection should be 12/11/57 -9 - raised with regard to the outside activities listed in the memorandum, but that the Division of Personnel Administration should be requested to amend the form of report made annually by employees concerning outside business activities to call for the listing of all such activities Whether or not they involve compensation and regardless of whether the activity has previously- been approved by the Board. The meeting then adjourned. Secretary's Notes: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board increases in the 1basic annual salaries of the following persons on the Board's staff, as indicated: 11- 2_and title Division Basic annual salary To From Effective December 15, 1957: Research and Statistics T. Allen, Economist eua C. Driver, Statistical Clerk -"rile L. Glass, Statistical Assistant Robert Solomon, Economist Elizabeth Ann Pike Ulrey„ Economist 8,990 40075 4,; 9,205 41°75 10,320 6,605 4,210 10,535 6,820 3,670 3,805 5,440 5,575 5,440 5,575 4,210 Bank Operations Nalinchock, Statistical Clerk Examinations Att w. Hammons, Jr., Assistant Federal . Reserve Examiner 4drien P. Francoeur, Assistant Federal Reserve Examiner 1, 4 12/11/57 -10- increases (continued) Division I124fle and title ...,...... 4.•....rP.. Basic annual salary To From _ Effective December 15, 1957:(continued) Administrative Services $3,115 Aaron Dortch, Messenger $3,200 al Effective December 29, 1957: Examinations Lawrenceli. Waller, Jr., Assistant Federal Reserve Examiner Governor Shepardson also auroved on behalf of the Board today a letter to the Chairman of the Committee on Miscellaneous Operations, Conference of Presidents of the Federal Reserve Banks, advising of the designation of Mr. Kelleher to succeed Mr. Bethea as Associate Member of the Subcommittee on Cash, Leased Wire, and Sundry Operations in matters pertaining to the Federal Reserve Leased Wire System. A copy of the letter is attached hereto as Item No. 4, 2.-1 Effective November 171 1957. 4,215 4,525 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item Lb. 1 12/11/57 WASHINGTON 25. D. C. ADDRESS OFFICiAL CORRESPONDENCE TO THE BOARD December 11, 1957 Co mmissioner of Internal Revenue, llashington 25, LL C. Dear Sir: Enclosed is a Certification by the Board of Governors, fl'ursuant to section 1101(c)(3) and section 1103(b) of the Internal bevenue Code, with respect to a proposed exchange and distribution d7: T ransamerica Corporation, San Francisco, California, which is a i nak holding company" as defined in section 2(a) of the Bank HoldAct of 1956. A duplicate original of the Certification ueing sent to Transamerica Corporation. Also enclosed is a draft of a Final Certification which the , 114.4 vard of Governors intends to issue, pursuant to section 1101(e)(2) the Internal Revenue Code, after Transamerica Corporation shall haveR made the exchange and distribution pursuant to the Plan of arrganization referred to in the enclosed Certification, if the 4 1, 1rd is satisfied at that time that Transamerica "has ceased to be tiuelik holding company". This draft is submitted for your considerar,°11 in connection with Transamerica's pending request for a tax '4-4-rig covering these transactions. „ With respect to the draft of a Final Certification, is directed to the fact that the definition of "bank hold2,,hcerVane in section 2(a) of the Bank Holding Company Act of 1956 is s-1. as to render it impracticable for the Board to confirm through relect examination or investigation the complete absence of any 4 ationshi s of the several kinds that can give rise thereunder to bank holding P company" status. The Board of Governors therefore intend, for purposes of certifying pursuant to section 1101(e)(2)(A) e Code, to rely in large part on statements in writing from 0/,america and its subsidiary corporations negating the existence b circumstances that would cause Transamerioa to continue to be a b!nk holding company after the proposed Plan of Reorganization has arl carried out. att 4 " 4 .0n 32 COI sioner of Int(2'naI Revenue The foregoing explanation of the Boozes proposed procedure vith- respect to Final Certification in this case is presented in ' -e1 to assist the Internal Revenue Service to pass upon Transamerica rrporationts pending request for a ruling by the Service regarding Table Federal-tax consequences of the proposed Plan of Reorganization, 410108Ure3 O C. f.13-1Pk. BOARD OF GOVERNORS OF THE Item No. 2 12/11/57 FEDERAL RESERVE SYSTEM WASHINGTON CERTIFICATION 1. The Board of Governors of the Federal teserve System has been informed by Transamerica Corporation, San Yranci.eco, California, that it proposes to take the following actions after the Close of business on June 30, 1958: (a) to exchange (i) 20,0000000 in cash and (ii) all of Transamericats directly-owned shares in its majority-owned banks for all of the stock of FireLameriea Corporation, a corporation organized under Delaware law for the purpose of receiving such property; on September 20, 1957, the numbers of shares of said banks directly owned by Transamerica were as follows: Bank Number of Shar36 First Western Bank and Trust Company, San Francisco, California 1,622,431 The First National Bank of Portland, Portland, Oregon 941,044 Walker Bank !z Trust Company, Salt Lake City, Utah 171,557 National Bank of Washington, Tacoma, Washington 200,O24 :3631 -2 Bank Number of Shares Bank of Idaho, Boise, Idaho 133,430 First National Bank of Nevada, Reno, Nevada 480,719 Bank of Nevada, Las Vegas, Nevada 6,593 First National Bank of Arizona, Phoenix, Arizona 537,540 Southern Arizona Bank and Trust Company, TUcsons Arizona 231,325 The American National Bank of Denver, Denver, Colorado 18,988 Englewood State Bank, Englewood, Colorado 21,650 The First National Bank in Fort Collins, Fort Collins, Colorado Bank of New Mexico, Albuquerque, New Mexico First State Bank at Gallup, Gallup, New Mexico Lea County State Bank, Hobbs, New Mexico Roswell State Bank, Roswell, New Mexico 2,252 41,165 1,373 12,744 9,630 Santa Fe National Bank, Santa Fe, New Mexico 12,258 Bank of Glacier County, Cut Bank, Montana 1,305 The Conrad National Bank of Kalispell, Kalispell, Montana Montana Bank, Great Falls, Montana 35,725 3,639 3E335 Bank Number of Shares First National Bank of Casper, Casper, Wyoming 32,483 The First National Bank of Laramie, Laramie, Wyoming The First National Bank of Riverton, Riverton, Wyoming 930 5,0503 (b) immediately after the exchange described in (a), to distribute (in accordance with section 1101(b)(2)(A)(i) of the Internal Revenue Code of 1954) all of the stock of Firstamerica to the stockholders of Transamerica, pro rata, without the surrender by such stockholders of any stock of Transamerica. TIremaamerica has also informed the Board of Governors regarding other Pecta (including the composition of the proposed management of " Ilratamerica) of the "Plan of Reorganization" adopted at a meeting 4 the Board of Directors of Transamerica on September 19, 1957, of ' Ithich said exchange and distribution form a part. 2. Pursuant to the provisions of section 1101(c)(3) an election 1103(b) of the Internal Revenue Code of 1954, the Board of °Wernore of the Federal Reserve System hereby certifies that: (a) Transamerica Corporation satisfies the requirements of subsection (b) of section 1103 of the Internal Revenue Code of 1954 and therefore is a "qualified bank holding corporation" as defined in that subsection. (b) The following property, constituting part of the Property itemized in "1" above, is all or part of the property by reason of which Transamerica Corporation controls (within the meaning of section 2(a) of the Bank Holding Company Act of 1956) the following-named banks: Number of Shares Bank First Western Bank and Trust Company, San Francisco, California 1,531,464 The First National Bank of Portland, Portland, Oregon 940,964 First National Bank of Nevada, Reno, Nevada 479,271 Bank of Nevada, Las Vegas, Nevada 6,360 National Bank of Washington, Tacoma, Washington 179,466 First National Bank of Arizona, Phoenix, Arizona 386,788. (c) The proposed exchange and distribution, referred to in "1" above, are appropriate to effectuate the policies of the Bank Holding Company Act of 1956. Executed in Washington, D. C., pursuant ion of the cl of Governors of the Federal Reserve Systi ' 13°84 AI 'NOMlir (SEAL) December 11, 1957 A AITAII/Ltand - nter, Secretary Car• ' DRAF2 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON Item No, 3 12/11/57 FINAL CERTIFICATION ••••••• PUrsuant to section 1101(e)(2) of the Internal Revenue Code of 1954, the Board of Governors of the Federal Reserve System here-Y certifies, to the best of its knowledge and belief, that lirlInsamerica Corporation, San Francisco, California, which formerly .las a, bank holding company as defined in section 2(a) of the Bank R°1ding Company Act of 19560 has ceased to be a bank holding company before the expiration of the period specified in sUbparagraph (B) Gt section 1101(e)(2) of the Internal Revenue Code of 1954. Executed in Washington, D. C., pursuant to direction of the Bo ar of Governors of the Federal Reserve System. S. R. Carpenter, eeretary. tate: (szAL) 3638 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. L. 12/11/57 WASHINGTON 25, O. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD December 11, 1957 Mr. W. D. Fulton, Chairman, Committee on Miscellaneous Operations, Conference of Presidents, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Dear Mr. Fulton: In response to your letter of December 6. the Board has designated Mr. Joseph E. Kelleher to succeed Mr. Bethea as associate member of the Subcommittee on Cash Leased Wire and Sundry Operations in matters pertaining to the Federal Reserve Leased Wire System. Mr. Kelleher, now Assistant 7iirector of the Board's Division of Administrative Services, viii succeed Mr. Bethea as Director of that division upon Nr. Betheats retirement effective January 1, 1956. Very truly yours, (Signed) S. R. Carpenter S. R. Carpenter, Secretary.
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