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Minutes for December 17, 1964.
To:
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
titth 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. Mitchell
Gov. Daane
Minutes of the Board of Governors of the Federal Reserve
System on Thursday, December 17, 1964.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Mills 1/
Robertson
Mitchell
Sherman, Secretary
Molony, Assistant to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research
and Statistics
Mr. Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Hexter, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Partee, Adviser, Division of Research
and Statistics
Mr. Conkling, Assistant Director, Division
of Bank Operations
Mr. Daniels, Assistant Director, Division of
Bank Operations
Mr. Leavitt, Assistant Director Division of
Examinations
Mrs. Semia, Technical Assistant, Office of
the Secretary
Miss Hart, Senior Attorney, Legal Division
Mr. Plotkin, Senior Attorney, Legal Division
Mr. Sanders, Attorney, Legal Division
Mr. Shuter, Attorney, Legal Division
Mr. Egertson, Supervisory Review Examiner,
Division of Examinations
Mr. Sidman, Financial Accountant, Securities
and Exchange Commission (on loan to the
Board)
Mr.
Mr.
Mr.
Mr.
Mr.
-
Withdrew from meeting at point indicated in minutes.
44;i6
12/17/64
-2-
Report on competitive factors (Brattleboro-Windsor, Vermont).
A report to the Comptroller of the Currency on the competitive factors
involved in the proposed merger of Windsor County National Bank of
Windsor, Windsor, Vermont, into Vermont National and Savings Bank,
Brattleboro, Vermont, was approved unanimously for transmittal to the
Comptroller.
The conclusion read as follows:
Consummation of the proposed merger of Vermont
National and Savings Bank, Brattleboro, and Windsor
County National Bank of Windsor would eliminate Vermont
National's only competitor in the community of Windsor
and reduce the number of alternative banking facilities
in Windsor from two to one. The transaction would also
further increase the concentration of banking resources
in the southern and southeastern sections of Vermont in
the two relatively large Brattleboro banks. The overall
effect of the proposed merger on competition would be
adverse.
Application of Summit Trust Company (Items 1 and 2).
There
had been distributed drafts of an order and statement reflecting the
lloard's approval on December
9, 1964, of the application of The Summit
'11.1st Company, Summit, New Jersey, to merge with The Elizabethport
1
4nking Company, Elizabeth, New Jersey, under the charter of the former
and title Summit and Elizabeth Trust Company.
Issuance of the order and statement was authorized.
Copies
or the documents, as issued, are attached as Items 1 and 2.
Officer's salary at Cleveland (Item No. 3).
Unanimous approval
l/as given to a letter to the Federal Reserve Bank of Cleveland approving payment of salary to William H. Hendricks as an Assistant Vice
12/17/64
-3-
President of the Bank at the rate fixed by the Board of Directors.
4 copy of the letter is attached as Item No. 3.
Messrs. Johnson, Shay, and Egertson, and Miss Hart, then
withdrew from the meeting.
Regulation F.
On December 16, 1964, the Board gave approval
to the general form of a revised draft of Regulation F, Securities
of Member State Banks, that had accompanied distributed memoranda
dated December 11, 1964, from Messrs. Hexter, Partee, and Conkling.
The draft was substantially different from an earlier one that had
been published in the Federal Register on August 26 and September 15,
1964, for comment. At the conclusion of yesterday's discussion it
vas understood that detailed implementation of the regulation to be
Issued would require further review of the content of financial stateMeats, as to which Governor Mitchell wished to resolve a number of
questions, and of points of difference between the Board's regulation
and the Federal Deposit Insurance Corporation's draft of its similar
liegulation applicable to insured nonmember banks.
At the beginning of today's discussion Governor Robertson
stated that he and members of the Board's staff were to meet this
afternoon with Chairman Barr, Director Randall, and members of the
staff of the Federal Deposit Insurance Corporation to try to reach
agreement
on the principal matters involved in the regulations as to
Vbtch the two agencies were of differing views.
'11:stA),
12/17/64
At the Board's invitation Mr. Conkling commented on the
Points presented in his memorandum of December 11, 1964, and discussion led to agreement with the treatment proposed in the memorandum
regarding the following points:
comparability between registration
and statistical forms; allowances for possible losses on loans and
securities; reporting of net operating earnings or of both net operating earnings and net income (the "two earnings concept"); the use
or accrual or cash basis accounting; amortization of premiums and
accretion of discount; hidden assets and reserves; recording of stock
dividends; and reporting of surplus and undivided profits or of capital
84rPlus and retained earnings.
The discussion and disposition of other
Points is summarized in the following paragraphs.
Mr. Conkling commented that consolidated statements were
considered to be more meaningful to an investor and more helpful in
making comparisons among banks than one statement for the domestic
a.nk, another for its foreign branches, and others for various subs
idiaries.
Therefore, the regulation called for relatively full
consolidation (foreign branches, Edge Act corporations, subsidiary
building corporations, and any other significant subsidiaries) but
Permitted an exemption from consolidation of any insignificant subsidiaries.
Governor Mitchell expressed the view that consolidation of
statements impinged on two other problems, namely, description of
12/17/64
the nature of a bank's business, and how far back a bank should be
required to reconstruct its fixed assets. (Both of these were involved in the points of difference between the Board and the FDIC.)
The Board's approach had been to require that a bank identify the
activities that contributed 15 per cent or more to its gross income,
and the service area from which it obtained at least 75 per cent of
its deposits of individuals, partnerships, and corporations.
Governor
Mitchell had the impression that the information as to the nature of
a bank ,s business that was revealed by a breakdown of its portfolio
aId loans might well serve in lieu of the required percentage description, to which the Federal Deposit Insurance Corporation Objected.
If
it seemed desirable, the bank could be required to give some indication
°f the age of the securities.
He questioned whether the narrative
description of business would tell any more than this asset breakdown
vould.
Governor Robertson indicated agreement with Governor Mitchell's
view) after which Governor Mills commented on the information regardnature of business that had been given, following the pattern of
the Securities and Exchange Commission's requirements for nonbank
e°rPorations, in prospectuses issued by banks regarding their offerof stock.
He felt that the required description of nature of
bUsiness must have been framed in the light of information offered
14 such prospectuses; it was his impression that a commercial bank
12/17/64
-6-
did not include comments regarding its securities activities other
than to indicate maturities.
Mr. Hexter remarked that, although an investor could find
information in the schedules that would indicate the nature of a
bank's business, he would have to do a considerable amount of searchWhereas it would not be a great burden for a bank to provide the
brief narrative description that would make the information more conveniently available.
Mr. Partee added that a breakdown of assets
'would not necessarily tell how much of the bank's income came from
each type of asset, nor would it indicate the relative importance of
the trust department or the trading account activity as would the
narrative description.
Governor Robertson said that he did not believe any burden
°4 the reporting bank was involved, but the description of business
vas not worth disputing with the FDIC.
In his view, both of the
Percentage guides to which the Corporation objected -- activities
ge
nerating 15 per cent or more to indicate nature of business, and
geographical source of 75 per cent of deposits to indicate service
e.re
-- could be dropped.
Governor Mills stated that his preference also would be a
ef descriptive paragraph indicating, say, that as a commercial
the registrant's business entailed certain areas, such as real
eState
lending and international operations.
12/17/64
-7-
Further discussion developed a general view in favor of
descriptions of business and of service area in broad terms, without
specified percentages.
Governor Mitchell then turned to the two related problems of
consolidation of statements and reconstruction of assets. (The Board's
regulation required statements of fixed assets for 10 years back, while
the Federal Deposit Insurance Corporation favored going back for no
more than 5 years.) Governor Mitchell agreed that Edge Act and other
e°rPorations should be consolidated with the parent but was concerned
about subsidiary building and service corporations.
Since one bank
might own its building in its awn name while another bank had a subsidiary corporation that owned and operated the building, it was
difficult to obtain a true picture of the value of the building as
44 asset.
One solution might be to require that registrants report
the depreciation claimed under the rules of the Internal Revenue
Service, which could be shown in the statement of either the princiPal corporation or the subsidiary; either way would serve the needs
c't the analyst.
Another possible solution might be to assume that
there was a separate building corporation and require a separate
statement for it showing how its charges were made and its contributi°n to the income of the bank.
If assets were reconstructed for
Past Years, Governor Mitchell believed that it would be necessary to
g° back not for just 10 years but for as many years as a particular
asset had been held.
12/17/64
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In the ensuing discussion of the magnitude of the task that
would be involved in reconstructing the assets of some institutions,
especially those with large branch systems, comment was made that
using the figures for depreciation claimed under Internal Revenue
rules would mean that the depreciation amount shown in a bank's
expense statement would bear no particular relationship to the amount
°I' fixed investment shown in the balance sheet.
Governor Mitchell agreed, adding that an analyst's interest
Igas generally on income flow.
He had suggested the use of the Inter-
441 Revenue depreciation figures because they represented a reasonable approximation of the relationship of an asset to the income
flow, and also because they were readily available to a bank.
Al-
though their use would be a complete departure from earnings and
dividends statements, he did not know that that was important.
Governor Robertson commented that he could see no real
value in showing figures for an indefinite number of past years.
Accordingly, he suggested that a limit be placed according to
depre-
elation schedules essential for Internal Revenue purposes.
After a discussion during which comments were made that some
b44ks might have been allowed to accelerate tax depreciation, and
that the changes made in rules by the 1954 Revenue Act might present
ecMPlications, it was understood that the staff would explore the
feasibility of employing Internal Revenue depreciation figures and
12/17/64
-9-
requiring that registrants list all assets on which they were currently taking income tax depreciation, with a memorandum item showing
fixed assets with depreciation.
Governors Balderston and Mills expressed doubt that the points
that had just been discussed would have much bearing upon an investor's
Choice of one stock over another.
Governor Mills added that an inves-
tor was primarily interested in a bank's income flow and the derivation
of that income.
To go beyond that area would seem to hint that banks
vould not of their own volition disclose the information needed for
iavestment judgment.
He doubted that there would be any determined
effort on the part of banks to maneuver their income figures in a way
that would be adverse to the investor or analyst.
The discussion then reverted to the question of consolidating
statements of the subsidiaries with that of the principal corporation.
Mr* Partee indicated that New York City banks strongly objected to
e°11solidating insignificant subsidiaries, even if they were Edge Act
Or building corporations.
In the course of general comments on the reasons offered for
811ch objections, Governor Mitchell remarked that if he were an analyst
he Would prefer to see an operating statement that excluded a bank's
bUllding corporation, which should be shown separately, and that he
11°111d want to see the bank's income from subsidiaries.
He did not
believe that the regulation should insist that Edge Act corporations
be consolidated, but if they were not they should be shown separately.
12/17/64
-10-
After commenting on the problems that confronted banks with
foreign subsidiaries regarding taxes assessed by foreign governments,
Governor Balderston expressed the view that it should be easier for
banks to consolidate statements for such subsidiaries than to show
them separately. In the ensuing discussion it was brought out that
the regulation called for showing income from foreign offices separately only if it constituted more than 25 per cent of the bank's
total operating income; otherwise, it would be included as remittable
Profit or loss under the item "Other operating income."
Mr. Conkling then described the treatment given in the regulation to capital notes and debentures, which were included in capital
SCCOUnts,
although interest on debentures was shown as a current
°Perating expense on the income statement.
sistent:
This was somewhat incon-
if it was an expense item it should be a liability item,
441 if it was a capital item it probably should be reflected in diviend figures.
However, this proposed treatment was the outcome of
lellgthy discussions of the point in consultation with industry representatives.
Discussion brought out that the proposed treatment also
ellabled concession in the Board's regulation to the position taken
by the FDIC
in regard to the definition of capital.
The definition
14 the
Board's regulation did not recognize capital arising from the
18su8nce of notes and debentures, whereas that of the Corporation's
12/17/64
-11-
draft of its corresponding regulation did so recognize.
A problem
Of administration was involved in that the Corporation had approved
IllanY capital structures of banks that included capital obtained through
notes and debentures.
As a move toward compatibility in the two reg-
ulations it was proposed that both employ general language rather than
sPecific terms of definition.
No objection was expressed to the approach that was proposed.
The next point discussed by Mr. Conkling related to the handling in the report forms of operations of a bank's trading department.
The Proposed balance sheet contained an item for "Trading account securities -- net," and the statement of income an item for "Trading departraellt income -- net," neither of which was included in statistical forms.
TI
'
ading account securities required a different accounting treatment,
414 it was believed that the segregation of both holdings (which might
include all types of securities) and income of the trading department
rrom the accounts of other departments of the bank would result in
better disclosure for an investor's purposes.
The proposed treatment
ht be an improvement that should be considered for adoption also
On the
statistical forms.
Mr. Partee said that it seemed desirable to segregate trading
de
artment operations in the balance sheet because doing so made
inve
stment account figures more significant, and in the income aceckult because trading operations represented one major item of income
)
12/17/64
-12-
on which no light was shed in the normal income statement of a bank.
New York City banks Objected on the ground that showing a separate
item for the trading department would disclose confidential information that would be of aid and comfort to the competition.
Mr. Partee
did not understand how that could be so, since the asset item requested
%/Its an amalgam of the merchandise of Governments, municipals, and
Other bonds, of all maturities and classes, net of short positions, as
°f only one day in the year.
Governor Mills said that the objections were understandable
to him.
Competitors who saw the inventory at the end of the year
coUbd reconstruct, with their sharp pencils and gimlet eyes, the bank's
tliad'ing activities as against its net income.
The figures thus could
reveal information that might be derogatory to the bank or might indicate
speculative activities.
Asking for information on trading depart-
merit operations raised a question about operations in foreign exchange,
Which he had not heard mentioned but which he regarded as infinitely
more
risky and sensitive.
Mr. Partee responded that there seemed to be no feasible way
t0 8110w foreign exchange operations separately, and in any event it
a relatively small part of the business of most of the banks that
1/Ould be
covered.
There was further discussion of the value to an investor or
4441Yst of information on trading operations and of ways in which
12/17/64
-13-
the information might be presented, but no body of opinion developed
in support of any treatment different from the one proposed by the
staff.
Governor Mills then withdrew from the meeting.
Mr. Conkling, noting that the discussion of consolidation of
statements had also covered the subject of valuation of real estate
assets, then commented on disclosure of market value of securities,
as to which industry groups and the Board's staff were sharply divided.
The staff was unanimous in the view that the market value of stocks
aad of non-investment grade securities should be disclosed; the issue
concerned only securities of investment grade.
The proponents of
market value disclosure held that that was the only way by which hidassets and reserves and a more accurate book value of bank stock
could be
disclosed.
The contrasting position, as stated in the com-
illerlts of the special committee of the American Bankers Association
Igith which the staff had consulted, held that disclosure of the market
value
of securities might jeopardize the best interests of the bank:
"With the quality of bonds approved for the Investment Portfolio of
ballks, payment at par at maturity is not questioned.
. . market
values published on any specific date are not necessarily related to
the
values obtained by the bank on the disposition of its securities
at some subsequent date or at maturity. Stated another way, the
market valuation as of a given date has no continuing authority or
12/17/64
Value,
Publication of such figures at the time of a depressed market
might well jeopardize the interests of the depositors while the publication of such information is of no practical value to the investor."
In continuing comments Mr. Conkling pointed out the leverage factor:
at an average weekly reporting member bank, a 1 per cent variation in
market value of its securities had a 3 per cent effect in book value.
The information requested also would help to disclose hidden reserves;
iZ1 the present
report of condition there was nothing to hinder a bank
from arbitrarily reducing the value of its securities from 1 to 10 per
cent by a valuation reserve to cover possible losses.
(The disclosure of market values of investment grade securities was one of the points as to which the FDIC took exception to
the Board's regulation.
The Corporation felt that the information
'
l as of little real value to the investor, and that disclosing it might
jeopardize the position of the bank with its depositors.)
Governor Mitchell stated that his inclination was to require
rePorting of market values of only three classes of assets -- stocks,
bc448 below investment grade, and non-operating real estate.
His
reasoning was that if the finished regulation could retain the positicm regarding amortization of premiums and accretion of discount,
the
investor or analyst would thereby gain the aid to analysis to be
t°114d in market value and cost of securities in the regular portfolio.
(This
Position called for requiring annual amortization of premium,
12/17/64
-15-
even though this would involve reinstatement of premiums charged off
at the time of purchase during prior years if the securities were
still in portfolio, and for optional accretion of discount for investment grade securities only, although accretion would be encouraged.)
As Governor Mitchell saw it, requiring market values to be reported
for assets other than the three categories he had mentioned would be
4uP1icative.
Although banks might object to reporting market values
°f non-operating real estate, the purpose to be served was to call
the analyst's attention to the fact that the particular bank had some
assets of this type.
Further discussion indicated that, although some changes in
the structure of the forms would be necessary, Governor Mitchell's
suggestion seemed feasible and acceptable.
Governor Robertson reviewed, in the light of today's discusthe position he anticipated taking at the meeting this afternoon
/lith representatives of the Federal Deposit Insurance Corporation with
respect to
the points of difference between the regulations of the
t14.0 agencies, as follows:
The Corporation did not wish to provide for hearings for
registrants who applied for special confidential treatment of
some required information. Governor Robertson suggested that
the Board assent to removing from its regulation the provision
for hearings.
The agreement reached at today's meeting
°f market values be required only for stocks,
vestment grade, and non-operating real estate
the reporting of market values for investment
to which the Corporation had objected.
that reporting
bonds below inwould eliminate
grade securities,
12/17/64
-16-
The Corporation wanted to restrict the places of filing
and inspection of statements to Washington and New York, whereas
the Board's regulation contemplated having copies also at the
Federal Reserve Bank of the district in which the registrant
bank was located. The facilities of the Reserve Banks could be
extended to the Corporation for reports by nonmember insured
banks, and therefore Governor Robertson believed that it should
not be necessary to agree to more limited availability of reports.
The Corporation was opposed to the requirement that shareholders' proposals be detailed in proxy materials submitted by
management to shareholders. The Board's regulation contained
a requirement that such proposals be submitted, but the terms
Of the requirement were more relaxed than those of the Securities and Exchange Commission's regulations applicable to nonbank corporations. Governor Robertson believed that the requirement should be retained in the Board's regulation; a matter of
coordination of effort with the Commission was involved in this
Point as well as the desirability that the regulations of the
Board and the Corporation be compatible.
The treatment of capital accounts agreed upon today,
omitting a definition that would exclude notes and debentures
from capital, should meet the policy problem faced by the
Corporation in regard to acceptable components of capital.
The removal of guidelines of 15 per cent and 75 per cent
in the description of a bank's business and its primary service
area, with only broad language being used instead, presumably
would satisfy the Corporation's objection on this point.
The Corporation was in favor of requiring an income statement for only the most recent fiscal year, whereas the Board's
regulation required statements also for the two preceding years.
Governor Robertson felt strongly that no concession should be
made by the Board on this point; if the Corporation could not
be induced to concede the point, the matter would be returned
to the Board for further consideration.
The Board's regulation called for reconstructing fixed
assets for 10 years; the Corporation felt that was too much of
burden on reporting banks and favored going back for only
5 years. Governor Robertson hoped that the Corporation might
be persuaded to adopt the 10-year reconstruction, although
alternatives discussed today, such as Governor Mitchell's
suggestion that Internal Revenue depreciation figures be used,
might provide ground for resolution of this point of difference.
12/17/64
-17-
No objection was expressed by other members of the Board to
the positions Governor Robertson anticipated taking.
Governor Balderston asked if there was any likelihood that
the Corporation might be dissuaded from following its expressed
intention of using a preface to the regulation that would state that
the measure was experimental.
In responding comments, Governor Robertson expressed doubt
that the Corporation would depart from that plan, but in his view
the matter was not of crucial importance.
However, he would stand
firm on the Board's plan to use a press release rather than a preface.
Governor Balderston then asked for views on the question
whether the regulation should be published for a second round of
comments or whether, if agreement could be reached on the points of
dAfference with the Federal Deposit Insurance Corporation, the regIllation should be published to be effective the beginning of 1965.
If more comments were invited, a time drag would result and relatively firm commitments the Board had made would be broken.
Chairman
Martin earlier had been inclined against republication for comments,
bilt after yesterday's meeting he had given some further thought to
the matter from the standpoint of public relations.
Governor Balderston
Vas merely mentioning this for the Board's information:
his awn feel-
vas that, since the earlier draft had been in the Federal Register
Illth an invitation for comments, the regulation should be published to
12/17/64
-18-
be effective January 1, 1965, but with an indication in the accomPanYing press release that the Board was not obdurate.
Governor Robertson expressed the view that the time dreg of
"king and analyzing further comments was unnecessary.
Although
there had been substantial changes since the August-September publication, and although the forms had not been published for comment,
the banking industry was well aware of the nature of the regulation
through liaison with the special committees of bankers.
It seemed
to him that an indication in the press release that the Board was
1411114g to make changes and solicited suggestions regarding anything
that seemed onerous or inaccurate would accomplish everything that
14bu1d be accomplished by republication for comments.
Governor Mitchell suggested that there might be merit in
Publishing the regulation as applicable to banks with deposits of
34)(:) million or more, with regulations for smaller banks to be issued
later.
of
He believed that the primary concern had been the problems
large banks and that the Board had not really wrestled with the
13r6b1ems of small banks, which he thought were quite different.
For
exall1Ple, he believed it was self-evident that the problems of small
balik8 were greater in the areas of conflicts of interest and integrity
Of
accounts.
The ensuing discussion of Governor Mitchell's suggestion
inelud
ed comments on the delay that would be necessary in issuing a
12/17/64
-19-
second regulation for small banks, the question whether two regulations for different size banks would be responsive to the intent of
Congress, and administrative problems that might arise in regard to
banks that fell near the dividing line governing whether they were
subject to one regulation or the other.
It was suggested that refer-
ence might be made in the press release to the exemptive power through
lihich the Board might lift the requirements of the regulation from
Particular institutions for which they seemed to result in inequity.
Governor Mitchell said that he would accept the suggestion
that the regulation be published with an effective date of January 1,
although he regretted that doing so would not give the banking industry
4 chance to express its views regarding the forms.
At the conclusion of the discussion it was understood that,
.41th adjustments that seemed indicated according to the views expressed
at
the meetings yesterday and today, and with such changes as were
called for by Governor Robertson's negotiations with the Federal De(3sit Insurance Corporation, Regulation F would be issued to become
effective
January 1, 1965.
The meeting then adjourned.
Secretary's Note: Acting in the absence of
Governor Shepardson, Governor Robertson today
approved on behalf of the Board the following
items:
No 4Letter to the Federal Reserve Bank of Kansas City (attached Item
,
4„) approving the appointment of William D. Moore as examiner.
1 /17/64
20-
Memoranda recommending the following actions relating to the
Board's staff:
Joyce J. Wood, Clerk-Stenographer, Division of Personnel Administration, from $4,005 to $4,48o per annum, with a change in title to
Stenographer„ effective December 20, 1964.
- a9
t
.Z.a12912.T.119_12
414
David T. Hulett, Summer Research Assistant, Division of Research
Statistics, effective at the close of business December 18, 1964.
Secretary
Item No. 1
12/17/64
UNITED STATES OF ANEflICA
BEFORE THE BOARD 07 GOVEaNMS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
•••
In the Matter of the Application of
IRE SUNNIT TRUST COITANY
!:,2r approval of merger with
19 Elizabethport Banking Company
ORDER APPROVING MERGER OF BANKS
There has come before the Board of Governors, pursuant to the
krik Merger Act of 1960 (12 U.S.C. 1828(c)), an application by The
Trust Company, Summit, New Jersey, a State member bank of the
?ecielial Reserve System, for the Board's prior approval of the merger
()r that bank and The Elizabethport Banking Company, Elizabeth, New
41'seY, under the charter of the former and the title of Summit and
tli
zabeth Trust Company. As an incident to the merger, the three
bank.
()ltices of each bank would become offices of the resulting
Notice
c)f the proposed merger, in form approved by the Board, has been
PlIblished pursuant to said Act.
of
Upon consideration of all relevant material in the light
the
by the
factors set forth in said Act, including reports furnished
C°n1Ptroller of the Currency, the Federal Deposit Insurance Corporation,
41,5,6
—2—
and the Department of Justice on the competitive factors involved in
the Proposed merger,
IT IS HEREBY ORDERED, for the reasons set forth in the
B°41Id ts Statement of this date, that said application be and hereby
18
approved, provided that said merger shall not be consummated
(4) within seven calendar days after the date of this Order or
(b) later than three months after said date.
Dated at Washington, D. C., this
17th day of December, 1964.
By order of the Board of Governors.
Voting for this action:
Unanimous, with all members present.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
(sEAL)
BOARD OF GOVERNORS
Item No. 2
12/17/64
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY THE SifrElIT TRUST COMPANY
FOR APPROVAL OF MERGER WITH
THE ELIZABETHPORT BANKING COMPANY
STATEITCVT
The Summit Trust Company, Summit, New Jersey ("Summit Trust"),
th total deposits of $61 million, has applied, pursuant to the
13ank Merger Act of 1960 (12 U.S.C. 1828(c)), for the Board's prior
413Pr°17e1 of the merger of that bank and The Elizabethport Banking
el511113enY, Elizabeth, New Jersey ("Elizabethport Company"), which has
t(3tal deposits of $39 million./ The banks would merge under the
Charter
of Summit Trust, which is a member of the Federal Reserve
SYStern, and the name "Summit and Elizabeth Trust Company".
As an
Incident to the merger, the three offices of Elizabethport Company would
ec
bome
branches of the resulting bank, increasing the number of its
cttices from three to six.
Under the law, the Board is required to consider, as to each
r the banks involved, (1) its financial history and condition, (2)
the adequacy of its capital structure, (3) its future earnings prospects,
(4) the
corporate
general character of its management, (5) whether its
1(114ere are consistent with the purposes of 12 U.S.C., Ch. 16 (the
Deposit figures are as of October 1, 1964.
44:
Federal Deposit Insurqnce Act), (6) the convenience and needs of the
°°17111111n4Y to be served, and (7) the effect of the transaction on
competition (including any tendency toward monopoly).
The Board may
11°t approve the transaction unless, after considering all of these
factors, it finds the transaction to be in the public interest.
Banking factors.
The financial history and condition of
b°tIa banks are reasonably satisfactory, as are their earnings prospects.
The calpital structure of each institution is fairly adequate. Management
°I the smaller bank has, perhaps, had insufficient depth to support
l'ecent expansion into new lending categories, and merger with Summit
would supply some added strength. This consideration is not,
however, regarded as weighing significantly in favor of approval of the
4131°1i-cation, as Elizabethport Company has been aware of the situation and
e°1134 find remedies without resort to merger. The financial condition,
ngs prospects, and management of the resulting bank would be
`Iti-sfactory and its capital structure would be reasonably satisfactory.
Neither the corporate powers of the two existing banks, nor
those of the resulting bank, are, or would be, inconsistent with the
1)1111008es of 12 U.S.C., Ch. 16. Convenience and needs of communities. — The participating banks
atie located in Union County, New Jersey, which lies in the northeastern
aection of the State and is part of the New York City metropolitan area.
11111.0.,
" uounty, covering 105 square miles, has increased in population
1*°11.1 398,000 in 1950 to 504,000 in 1960, and it is expected that growth
11111 continue, although at a less accelerated rate.
1i)9
The service area./ of Summit Trust is in the northwest corner
or the county, while that of Elizabethport Company covers the City of
1izabeth, some twelve miles away, at the northeastern extremity, bordering
°n Newark Bay. Summit and its immediate surroundings consist in the
nlain of high grade,single-family residences, with some pockets of
industrial development, including the major complex of the Bell
Telephone Laboratories.
New
Most residents commute to New York City and to
to work, and future expansion is expected to involve multiplehousing units and specialized industry.
The City of Elizabeth, by contrast, is densely settled, with
ecnsiderable heavy industry.
Residents are largely blue-collar workers.
Nrther expansion of the Newark Airport Terminal and the Port of
4lizabeth are expected to help sustain growth in the area, and future
idential growth will be in the nature of apartments and multipleralnilY housing units.
Not surprisingly, Summit Trust has tended to
11)ecialize in single-family, non-insured residential mortgages, together
l a substantial volume of collateral loans. The bank has an active
"
t171.1st department. Elizabethport Company, on the other hand, is relatively
inactive in the trust 3rea, but has a.sizable portfolio of commercial
loan8, and a substantial time sales department.
In Elizabeth, the merged bank would supply ample
ePerienced trust services.
and more
The two largest banks in Union County,
Natio
-nal State Bank and Union County Trust Company, which have their
114clquarter3 in Elizabeth, already offer trust services.
However,
.The area from which a bank derives 75 per cent or more of its deposits
Individuals, partnerships, and corporations.
community convenience would be served to some extent by addition of a
third alternative. In another category, a number of customers of
Elizabethport Companyhave had to seek supplemental credit elsewhere, or
their loans have
had to be participated.
Doubling the bankss lending
limit as a result of the merger would substantially serve the convenience
°f customers who prefer to continue doing business with that institution,
but
Whose needs have outgrown its present size.
Recent and anticipated grouth in the Summit area suggests an
illerleasing need for bank activity in time sales and dealer financing, and
14 lending to smaller commercial enterprises. Summit Trust, itself, could
Probably supply these needs over a period of time, but adding the facilities
alld management experience of Elizabethport Company would make possible a
quicker and more certain response.
Competition. - Effectuation of the proposed merger would create
a 4e14 county-wide bank, significantly smaller in deposit size and number
Of
c)ffices than the two leading banks in the county, and about the same
size as one other bank.
there would remain five other banks
3/
deposits are each
111 the $25 to $60 million range, and seven whose IPC
In addition
le88 than $20 million.
Banking competition in New Jersey must be viewed in the framework
Of
"b140 additional facts, (1) the presence of very large New York institutions,
across the river and readily available to local customers, and (2)
the
rule of State law permitting only in-county branching, limited to munici • •
Pallties where a bank is headquartered, or where no other banking office
is
situated. Both tend to focus banking competition on local needs. But
4( D
ePosits of individuals, partnership; and corporations.
It the second factor
tends to protect local banks in their own markets,
the first, in a sense, diminishes or even nullifies that protection.
The
commuter and the customer who bank by mail, as well as the businessman
Ilhese credit needs have reached a stage where he attracts the specific
attention of a larger bank, have ready access to New York City.
Confir-
Illation of this merger will strengthen a local bank in such a way as to
ill1Prove the intrastate competitive picture, and a healthy range of banks
of -various sizes and capabilities will remain in the county.
The head offices of Summit Trust and Elizabethport Company are
about twelve miles apart, and have none of their offices nearer than
eight miles to an office of the other bank.
There is no direct public
tl'ansPortation between Summit and Elizabeth, and there are numerous offices
Of ecmmercial banks and savings and loan associations located between them.
The n
umber of common customers and common accounts, and the amounts involved
al
'
e not substantial. Direct competition between the two banks is no more
than
minimal
Summary and conclusion. - The proposed merger would increase to
f°1ar the number of banks in the top rank in Union County, an adequate
1111111ber of medium and smaller sized banks would remain, and little or no
clireot competition would be eliminated. Additional services and lending
sk
-s would be provided in a community, Summit, which is rapidly reaching
4 Point to need them, and banking convenience in the Elizabeth community
11°11(1 be improved.
Accordingly, the Board finds that the proposed merger would be
the public interest.
ecernber 17, 1964*
BOARD OF GOVERNORS
Item No.
OF THE
12/17/64
3
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 171 1964
CONFIDENTIAL (FR)
Hr. W. Braddock Hickman, President,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio 44101.
Dear Mr. Hickman:
The Board of Governors approves the payment of
salary to Mr. William H. Hendricks as an, Assistant Vice
President of the Federal Reserve Bank of Cleveland at the
rate of $15,000 per annum for the period January 1 through
December 31, 1965. The rate approved is that fixed by your
Board of Directors as reported in your letter of December 10,
1964.
Very. truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No.
OF THE
12/17/64
4
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORINESPONOCNCE
TO THE BOARD
December 17, 1964
Mr. George D. Royer, Jr.,
Vice President,
Federal Reserve Bank of Kansas City,
64106
Kansas City, Missouri.
Dear Mr. Royer:
In accordance with the request
contained in your letter of December 15,
1964, the Board approves the appointment of
William D. Moore, at present an assistant
examiner, as an examiner for the Federal
Reserve Bank of Kansas City, effective
January 1, 1965. Please advise the salary
rate.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER