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S9
V61
Minutes for
December 17, 1962
Members of the Board
From:
Office Of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
With respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
-0-41
A
t
Minutes of the Board of Governors of the Federal Reserve
System on Monday, December 17, 1962.
The Board met in the Board
Roam at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardson
Mitchell
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Young, Adviser to the Board and
Director, Division of International Finance
Mr. Molony, Assistant to the Board
Mr. Fauver, Assistant to the Board
Mr. Spencer, General Assistant, Office
of the Secretary
Messrs. Noyes, Garfield, Holland, Koch,
Williams, Dembitz, Eckert, Gehman,
Partee, Solomon, Yager, Freedman,
Trueblood, and Wernick of the Division
of Research and Statistics
Messrs. Furth, Hersey, Sammons, Katz, Wood,
Irvine, Gekker, Klein, Maroni, Reynolds,
and Swerling of the Division of International
Finance
Economic review.
The Divisions of International Finance and
Research and Statistics presented a review of recent foreign and
(4/41estic economic and financial developments.
All members of the staff except Messrs. Sherman, Kenyon,
44c1 Spencer then withdrew and the following entered the room:
Mr. Hackley, General Counsel
Mr. Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
12/17/62
-2Mr. O'Connell, Assistant General Counsel
Mr. Potter, Senior Attorney, Legal Division
Mr. Collier, Chief, Current Series Section,
Division of Bank Operations
Circulated or distributed items.
The following items, copies
c)f which are attached to these minutes under the respective item
numbers indicated, were approved unanimously:
Item No.
Letter to the Federal Reserve Bank of Boston
lving the assessment of a penalty incurred
'Y Franklin County Trust Company, Greenfield,
M4ssachusetts, because of a deficiency in its
required reserves.
1
Letter to the Federal Reserve Bank of Cleveland
,DProving the appointment of James D. Kelly as
"ssistant Federal Reserve Agent.
2
Letter to The Farmers and Merchants State Bank,
3
Letter to Muscatine Bank and Trust Company,
Muscatine, Iowa, approving the declaration of
4 dividend in December 1962.
14
g
5
Letter to the Federal Reserve Bank of Dallas
regarding use of a Federal radio transmitting
equency at the Bank's head office and branches
Or
communication between the armored cars and
'ard headquarters.
6
Letter to the Federal Reserve Bank of St. Louis
thglIrding possible violations of section 6 of
DpLBank Holding Company Act involved in loan
G-"dcipations among certain subsidiaries of
m7neral Bancshares Corporation, St. Louis,
04.ssouri, (with the understanding that copies
Rr the letter would be sent to the Federal
.eserve Banks, the Comptroller of the Currency,
the Federal Deposit Insurance Corporation.)
7
n
Ol
denburg, Indiana, approving the declaration
c)f a dividend in December 1962.
etter to The Farmers and Merchants State Bank,
2113Y, Kansas, granting permission to exercise
'
Qditional fiduciary powers.
(1
12/17/62
In the course of commenting upon Item No. 7, Mr. Potter
l'eviewed a memorandum that he had received from Governor Mills in
Ilhich agreement was expressed with the reply being made to the
Federal Reserve Bank of St. Louis.
Governor Mills expressed serious
concern about a practice whereby a bank holding company would develop
a large volume of consumer instalment loans and allocate such paper
4111Ong its subsidiary banks, since he felt that this practice was likely
to emphasize earnings advantages to the detriment of the solvency
standards of those banks and their ability to serve the legitimate credit
lisede of local communities.
In his (Governor Mills') view, however,
411ch objections appeared to be largely obviated, in the instant case
bY limiting the intersubsidiary participations to new loans rather
than. outstsnaing loans.
The meeting then adjourned.
Secretary
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 1
12/17/62
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 17, 1962
Earle O. Latham,
t Vice President,
!eaeral
Reserve Bank of Boston,
J6013ton, Massachusetts.
1)e4r Mr. Latham:
This refers to your letter of November 30, 1962, regarding
the
, Penalties of $64.01 and $64.15 incurred by the Franklin County
re st Company, Greenfield, Massachusetts, on deficiencies in its
rves during the hi-weekly computation periods ending February 21
-4qMarch 7, 1962, respectively.
It was noted that the deficiencies resulted from a misunderata,n,14
'"u-rig by the clerk who computes the bank's reserve position re11g the proper treatment of federal funds sold which were treated
e.5
111 `41e from banks and as a deduction item; that although this occurred
ha 81x periods, it resulted in deficiencies in only two; that the bank
oted.had an excellent reserve record in the past; and that the penalty
t 964.01 for the period ended February 21 can be waived by your
(S. larider the provision of Paragraph E of the Board's instructions
3; FR1S #6120).
In the circumstances, the Board authorizes your Bank to
IEL1Ve
mar the assessment of $64.15 penalty for the reserve period ended
ell 7, 1962.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No. 2
12/17/62
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONOENCE
TO THE BOARD
December 17, 1962
101 ,Joseph B. Hall,
-4aIrman of the Board and
Pederal Reserve Agent,
cleral Reserve Bank of Cleveland,
eland 1, Ohio.
tear
/4r. Hall:
In accordance with the request contained in your letter of
11°\rember 26, 1962, the Board of Governors approves the appointment of
lames D. Kelly as Assistant Federal Reserve Agent at the Federal
4,'
beierve Bank of Cleveland to succeed /Ir. Clifford G. Miller, who is
ng Promoted to official status.
This approval is given with the understanding that Mr. Kelly
b
or, e solely responsible to the Federal Reserve Agent and the Board
krrvernors for the proper performance of his duties, except that,
pac
'
ang the absence or disability of the Federal Reserve Agent or a
00v neY in that Office, his responsibility will be to the Board of
erners.
When not engaged in the performance of his duties as
the,ant Federal Reserve Agent Mr. Kelly, may, with the approval of
kr;ederal Reserve Agent and the President, perform such work for the
a3 uill not be inconsistent with his duties as Assistant Federal
11.
ere
Agent.
It will be appreciated if Mr. Kelly is fully informed of
th
e
?ecie "iPortance of his responsibilities as a member of the staff of the
maintenance of independence from
the ral Reserve Agent and the need for
°Perations of the Bank in the discharge of these responsibilities.
It is noted from your letter that, upon the approval of the
tment
of Mr. Kelly by the Board of Governors, he will execute
the
the 4211a1 Oath of Office which will be forwarded to the Board giving
effective date of his appointment.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 3
FEDERAL RESERVE SYSTEM
12/17/62
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 17, 1962
Board of Directors,
The Farmers and Merchants State Bank,
Oldenburg, Indiana.
Gentlemen:
The Board of Governors has received a copy of
a letter dated December 3, 1962, written by Mr. Howard R.
Heppner, Cashier of The Farmers and Merchants State Bank,
to Mr. Hugh J. Helmer, Vice President of the Federal Reserve
Bank of Chicago, requesting approval for the declaration of
a dividend of $750 in December 1962. The permission of the
Board is required under the provisions of paragraph 6, Sec.
tion 9 of the Federal Reserve Act and Section 5199(b),
United States Revised Statutes.
After consideration of the facts, the Board
approves the declaration of this dividend. This letter
does not authorize any other declaration of dividends
during 1962 or later.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary,
BOARD OF GOVERNORS
Item No.
OF THE
12/17/62
l.
FEDERAL RESERVE SYSTEM
WASHINGTON 25, ID. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 17, 1962
1
,ard
of Directors,
1111soatine Bank and Trust Company,
Nscatine, Iowa,
Gertlemen:
The Board of Governors has been advised by the Federal Reserve
Chicago that Muscatine Bank and Trust Company in a letter dated
r 29, 1962, requested approval for the declaration of a dividend
:
'
Of 3rie
0 in December 1962 and payable in January 1963. The permission
100
Of' ti
the )O0
for the declaration of this dividend is required by the proof paragraph 6, Section 9 of the Federal Reserve Act and Section
\u), United States Revised Statutes.
8
llove
The Federal Reserve Bank has advised the Board that dividends
w287,500 have already been paid in 1962 in contravention of the
noted above. These dividend payments apparently were pursuant to a
1 of reducing total capital funds to an amount which it is understood
the 7
of Directors believes to be consistent with the capital needs of
thc.
bait,
tiot,
The present dividend program has brought about an approximate
Year*eduction in capital funds and reserves of 4377,988 during the three
1.960 to 1962, inclusive, when dividends of $500,000 (including
,
1
s'
Nvic
'
for which approval is presently requested) will have been paid,
1101/ ;:ing no net retained earnings in the capital accounts. It would
'
a en1 to be appropriate for the directors to give consideration to
'
a ell
lge in the dividend paying program, making provision for the future
Ni,rj
Provi:
zi °f capital funds through sound retention of earnings in order to
e for possible increases in deposits and risk assets.
tot
.Laws
1960
This letter authorizes a declaration of a dividend in December
17
0-',500
only and does not authorize any other declaration of divi'n 1962 or later.
°f
4_
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
12/17/62
5
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 17, 1962
Board of Directors,
The Farmers and Merchants State Bank,
Colby, Kansas.
Gentlemen:
under
This refers to your request for permission,
numship
member
of
ion
condit
PPlicable provisions of your
.
ary
powers
fiduci
oered 1, to exercise additional
submitted,
Following consideration of the information
grants
System
e
Reserv
l
Federa
the Board of Governors of the
exercise
to
Bank
State
nts
Mercha
Permission to The Farmers and
by its
ized
author
ter
hereaf
or
all other fiduciary powers now
,
Kansas
of
State
the
of
laws
the
and
Articles of Incorporation
7,
er
!al addition to permission granted by the Board on Novemb
958, to exercise limited fiduciary powers.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 6
12/17/62
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 28, D. C.
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
December 17, 1962
11r, Watrous H. Irons,
Vesident,
ederal Reserve Bank of Dallas,
as 2, Texas.
DearMr. Irons:
Reference is made to the correspondence between Mr. Pritchett
ot
foiour Bank and Mr. Massey of the Board's staff, particularly the
matter of obtaining a
PePer's letter of October 25, 1962, in the
effective system
more
a
for
frequency
'eral
of
radio transmitting
communication, at each of your four offices, between your armored
're and guard headquarters.
Enclosed is a copy of a letter dated December 6, 1962,
'Ir. D. C. Spitz, Alternate Treasury Department Representative
Illterdepartment Radio 2.dvisory Committee, indicating approval
Reserve System for such
a ftti aPPlication on behalf of the Federal
equency for use by your Bank. This will be your authority to
L
,the radio frequency as set out and according to the particulars
that letter.
tro.,
You will note that this authorization includes the use
c)f th• frequency at your relocation center in Denton, Texas,
arml-t should be needed there in order to communicate with your
Ii4:.?red cars between that point and Dallas. Please note particulio -LY the reference to the situation at Houston and advise the
lrld °T any interference between your facility and the one alrea
a'
.4 in use by the Rational Aeronautics and Space Administration.
Please also advise the Board of the date on which the
this facility begins at each of your offices and when any
,
"ge is desired in this authorization.
klae
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 7
BOARD OF GOVERNORS
12/17/62
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS
orractAL
CORRESPONDENCE
TO THE BOARD
December 20, 1962
Z
1 ; OrTille 0. Wyrick, Vice President,
si`terai Reserve Bank of St. Louis,
Louis 665 Missouri.
1)e4
'
Wyrick:
This refers to Mr. Kroner's letter of November 17, 1961,
1,...nc1
osures, including a memorandum by your Bank's Counsel,
IIXb
Iloasi,t4Inne, concerning possible violations of section 6 of the Bank
by iflg Company Act ("the Act") disclosed in reports of examination
Federal Deposit Insurance Corporation of The Baden Bank of
(itjis ("Baden") and the Jefferson-Gravels Bank of St. Louis
1)
, The possible violations involve participation by the above'
Izaucl banks in certain loans originated by the Commercial and
ffial Bank ("C&I"), Memphis, Tennessee, all three banks being'
81034
.t
Bt. lk-..!-Laries of General Bancshares Corporation ("General Bancshares11)
.""uis, a registered bank holding company.
with,
The Board of Governors has considered the questions
kettlluether the provisions of the form of "Loan Participation AgreeUsed by the banks are consistent with section 6(a)(4) of the
114 (2) whether the standards followed for determining loans
eld.2
seXule for participation under said Agreements are consistent with
Droc„,n 6(a)(4). The Board is of the opinion (1) that the general
'
Datin llres established under the Agreements for handling the partici-1133 apart from the question of proper selection of "new" loans,
thelict Contravene the prohibitions of section 6(a)(4), and (2) that
%1,1,8t8nclards for selection of eligible "new" loans are in need of
ection, as indicated below.
The Loan Participation Agreement and procedures thereunder. The •r _
to t7, an Participation Agreement form enclosed with Mr. Kroner's letter
baaCe Board sets up a general procedure to be followed on a routine
Whereby the Memphis bank (G&I) will from time to time tender
St• Louis bank (in. this case J.-G), by telephone or telegram,
to bPations of 75 per cent in personal loans made by MI, each loan
rlote identified by the name of the borrower and the face amount of the
43 "minimum information". This tender is to be made "before loan
RESERVE SYSTEM
BOARD OF GOVERNORS OF THE FEDERAL
11r* Orville 0. Wyrick
-2-
Proce_
uds are disbursed to borrower", and impliedly is to be accepted
lo geiected before such disbursement. On the day of disbursement of
4s accepted for participation, C24I is to charge J.-G's account
kes eh will contain sufficient funds), make other necessary bookig entries, and mail a participation certificate to J-G. G&I
shares
service all loans, crediting J-0's account daily with its
ot
monthly
account
-G's
J
crediting
wit'lloipal payments received and
Der its agreed share of interest or discount, which is 6 per cent
aralim "on the average unpaid balance of your participations
,
her
The distinction may be observed between participations of
the
orC44ald described above, which serve the purpose of enabling the
Vottlating bank to handle a larger volume of loans than its resources
bazlit t otherwise permit, and participations that enable the originating
requirements that exceed its capacity in
ter,„ ° serve individual loan
°f the magnitude of the risk, legal lending limits, or otherwise.
hi5
: appears to be a distinction without a difference for the purkise
!°f section 6(a)(4) of the Act as interpreted by the Board. See
11144
:gtI
t
viatter of General Contract Cor22!ation, 1958 BULLETIN 260. The
tiZ,t17617& agreed with the view of ta —Hearing Examiner that sec;(a) was, generally, intended to prohibit transactions involving
the 114
1958 tinancing of the business operations of ... an affiliate".
tiria.,'ULLETUI at 264, 265. The Board concluded, in effect, that such
participation
by ,:'111g would not be involved if "when one bank seeks
her bank to aid in meeting the credit needs of a borrower, ..
ths''uother
se
bank joined at the outset in making its portion of the loan,
to
his would not involve the second bank in either a direct loan
BULLF,TIN
at
269.
This Irst bank or a purchase of paper from it". 1958
kaeinciple may be applied equally to participations in a volume of
lzkt *Loans as to participations to meet the credit needs of a single
ge
borrower.
P
The offer and acceptance by telephone in conjunction with the
toallYing written document seem to meet the need for a prior agreement
at that time ascertained
kej4e5.te the risk. Each subject loan is
1,11u1.10thing remains to be done for the participating bank to be obligated
'
espect thereto, even though mechanical steps remain, and must be
tkkenl
the'llromptly, for the participation to be a permissible "joining at
procedures
,e et4/11et". As Er. Dunne points out in his memorandum, the
each
regarding
appear,
funds
"kok 'shed for the commitment of J.-G's
the
in
examples
given
the
of
tokr8TeParately to be within the scope
the
to
seem
It
not
does
1059.
''s interpretation
at 1956 BULLETIN
'
remove
case
procedures
in
this
the
hat the "blanket" aspects of
,k 11
Itle Participations from the permissible "outset" category described
ti eneral Contract. The Board considers it significant that the parting ank has no standing obligation to accept all participations
FEDERAL RESERVE SYSTEM
BOARD OF GOVERNORS OF THE
0. Wyrick
~3-
that
That is, while the
partilutY be offered it by the originating bank.
manner, their
routine
4%e*L4iPations may be effected in a fairly
for the exercise
remains
fact
ot ilt)tarice by the participating bank in
In this manner,
offered.
the 8 discretion with respect to each loan
for conresponsibility
ticipating bank appropriately accepts
compliance
their
for
0,,,f its participations with the standards
'
'
, the Act, as discussed below.
torir
FDIC examination
at Th_ 33 Standards for selection of "new" loans. - The
214 pardisclosed
1961,
ugust
ttj
aden Bank of t. ouis as ofrefinancings of existing loans.
11\leIrted loans that appeared to be
examination of J-G as of
,ight such loans were disclosed by the
:
47-a
Atti,
to your Bank that 5 of
reported
thea-u,f, 1961. General Bancshares has
by General 13ancshares
uncovered
e )2 Participations, plus 6 others
04 jt
policy and
Bancshares'
General
la 01411 y were found not to conform to
have ,
established
that
is
to
referred
by. 6'een "returned to Mitt. The "policy"
loans
personal
"participation
of
that
Illios-ellaral Bancshares out of concern
the
due
accounts
pre-existing
of
ort@y,Praceeds were applied in payment
possible violation of the spirit,
ating bank" might involve "a
41,
the holding company's
°11gh not the letter, of the Act". In brief,
(1) the borrower
if
only
refinancings
f3 A',v„ Permits participations in
or (2) new
loan,
pre-existing
kt'citzferent from the borrower on the
increased.
or
changed
is
collateral
axe advanced, or (3) the
opinion
In line with Mr. Dunne's comments, the Board is of the
that
subis
borrower
new
thase standards do not go far enough. Where a
atitut
autofinanced
of the sale of a
,
t4obil:,_cl in good faith, as in the case
and the assumption of the loan
thereon
th- DY the original borrower
therefore eligible
,Purchaser, the loan may be treated as "new" and
()1, te
the same, the
remains
borrower
kare'Zlticipation. Where, however, the
collateral does
the
the changing of
rn:fancing of additional funds or
cases the rethese
ii"e the whole loan an eligible "new" loan. In
tirlathe extent of
to
only
participation
loan will be eligible for
funds advanced.
of the questioned loans
Under the foregoing standards, many
information
enclosed with
b0 nonconforming on the basis of the
questioned
participated
loans
thner s letter. The total number of
total
the
relation
to
small in
Darti-,EDIC nevertheless appears to be
the
reason,
For
this
ti hte
caPation activity among the three banks.
to
seem
letter
would
this
with
&1117011,111rig of standards in accordanceparticipations in refinanced loans
,
14,are , v 4e_ no great difficulty, even if
small number, and on the
,PPed entirely. Also, because of the
uEtzia-u()
letter, the Board does
Kroner's
°I the material submitted with Mr.
Act ("Penalties")
the
of
8
111 tgliaider it necessary to invoke section
that do
participations
outstanding
'
a matter, provided (1) that all
REBERVE SYSTEM
S A D OF *3OVERNORB OF THE FEDERAL.
lie
or
clrm to the standards set forth above are returned to the
conform to
Ltating bank and (2) that all future participations
standards.
You are requested to advise General Bancshares Corporation
the
to the extent and
ilith Bc`ardl s conclusions, as set forth herein,
taci. mariner that seems appropriate in the light of yourBank's cont4211th the holding conpany on this subject. You are also requested
l 1-se the Board when the procedures and outstanding participations
ot t'i7
torim!
Bancshares' subsidiaries have been brought into con7 with
Board's interpretation of the statute.
Very truly yours,.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER