Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, December 20, 1954, Volume 41, Part 5

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Minutes of actions taken by the Board of Governors of the Fed—
eral Reserve System on Monday, December 20, 1951. The Board met in the
Board Room at 10:00 aom.
PRESENT:

Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Mills
Robertson
Balderston
Carpenter, Secretary
Sherman, Assistant Secretary
Thurston, Assistant to the Board
Vest, General Counsel
Johnson, Controller, and Director, Division
of Personnel Administration
Mr. Sprecher, Assistant Director, Division of
Personnel Administration

Mr.
Mr.
Mr.
Mr.
Mr.

The following matters, which had been circulated among the mem—
bers of the Board, were presented for consideration and the action taken
in each instance was as indicated:
Letter to Mr. Treiber, First Vice President, Federal Reserve Bank
of New York, reading as follows:
In accordance with the request made in your letter of
November 12, 1954, the Board of Governors approves the fol—
lowing minimum and maximum salaries for the respective grades
of a new salary structure for non—clerical jobs at the Head
Office and Buffalo Branch effective December 23, 1954:
Grade

Minimum Salary

Maximum Salarx

1
2

$2,204
2,306

$2,865
3,009

3
4
5
6
7
8

2,419
2,549
2,705
2,895
3,118
3,386
3,707
4,078
4,475

3,169
3,352
3,571
3,836
4,147
4,520
4,967
5,485
6,040

9

10
11




80
12/2o/54

Imag.,„••••

The Board approves the payment of salaries to the
non-clerical employees within the limits specified for
the grades in -which the positions of the respective nonclerical employees are classified. It is assumed that
all non-clerical employees whose salaries are below the
minimum of their grades as a result of establishment of
the non-clerical structure will be brought within the
appropriate range as soon as practicable and not later
than March 15, 1955.
Governor Mills stated that he had some doubts as to the desirability of establishing a separate and higher schedule of salaries for
non-clerical workers at a Federal Reserve Bank on the grounds that their
actual rates of pay were based on union rates paid workers in other
organizations. It was his thought that recognition of those workers by
a separate schedule might lead to difficulties which the Reserve Banks
Should try to avoid.
Governor Balderston stated that he, too, felt that there was a
question as to the desirability of establishing a separate schedule of
'wages for non-clerical workers for the reason Governor Mills indicated.
He had come to the conclusion, however, for reasons which he outlined,
that it was preferable to approve the separate schedule proposed by the
relif York Bank as a direct means of dealing with the problem of wages for
non-clerical workers rather than the one used at the Chicago Federal Reserve Bank, where approval has been given to paying wages above the
maximum rates of the grades in which the workers are classified. In addition to the point made by Governor Mills, Governor Balderston said that
the other principal argument against a separate schedule was that the




1881
12/2o/54
creation of two separate schedules for wages in the same organization
would violate one of the basic objectives of good salary administration,
namely, proper internal alignment of base rates of pay in accordance
with the relative importance and difficulty of the work done°

He felt

that the latter argument lacked validity in the circumstances under
discussion and that from the standpoint of good personnel management, it
ras much sounder to have definite schedules that could serve as a guide
to the Bank for salary management. For that reason, he would take whatever chance there was that the separate scale for the non-clerical workers
would become knomn and used in an effort to get still higher salaries.
During the foregoing comments Governor Szymczak entered the room.
Governor Mills stated that his views were in line with those exPressed by Governor Balderston and that he, too, was inclined to approve
the New York Bank's request despite the reservations he had concerning
Some

aspects of the separate schedule.
Mr. Sprecher stated that the Federal Reserve Bank of New York had

made a very complete study of the matter and was convinced that the
"Parate scale was the preferable way to deal with the problem. He noted
that in 1947, when the job evaluation and salary classification plan was
first adopted by the Federal Reserve Banks, the New York Bank had considered proposing a separate scale for non-clerical workers but had concluded not to do so since their rates of pay were then close to the
rates
Of Pay
for clerical workers. During the past two years, however, there




ISS2
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-4-

had been an increasing difference in the wages paid to the two types
of workers and as a result the New York Bank felt it would either have
to adjust its salary maxima for the clerical grades in order to take care
of the non—clerical workers at the Bank, or it would have to request ap—
proval to pay salaries above the grades to a group of non—clerical workers
-- a procedure it was reluctant to adopt. Mr. Sprecher also noted that
he had discussed this question with Mr. Lohmann„ who served as personnel
consultant to the Board in connection with the establishment of the salary
administration plan in 1947, and that Mr. Lohmann felt that the proposal
of the New York Bank was sound and in line with good salary administration.
After further discussion, the
letter to Mr. Treiber was approved
in the form set forth above.
Letter to Mr. Wayne, First Vice President, Federal Reserve Bank
Of Richmond, reading as follows:
This refers to your letter of December 13, regarding the
Penalties of $140.92, $585.7o, and $69.54 incurred by the
American Bank and Trust Company, Suffolk, Virginia, as a
result of deficiencies in reserves for the semi—monthly
periods ended October 15, October 31, and November 15, 1954.
It is noted that the deficiencies resulted from the fact
that the subject bank inadvertently failed to request its
correspondent to transfer $125,000 on October 5 and $3500000
on October 18 to the Federal Reserve Bank, as intended, al—
though the bank put the transfers through its books; that the
bank carried ample funds with its correspondent to transfer
these amounts; that the cashier of the bank, the official
most familiar with the details involved in the maintenance
of the proper reserves, was devoting a major part of his time
to the training of personnel in another department of the
bank, with the result the errors were not detected until it
was too late to make adjustments in its reserves; and that
the bank has an exceptionally good record in the maintenance
of reserves during the past sixteen years.




,

12/2o/54

_5_

In the circumstances, the Board authorizes your bank
to waive assessment of the three penalties above mentioned.
Approved unanimously.
Letter to Mr. Woolley, Vice President, Federal Reserve Bank of
Kansas City, reading as follows:
This refers to your letter of December 3, 195h, with
its various enclosures, concerning The Live Stock National
Bank of Omaha, Omaha, Nebraska, which went into voluntary
liquidation effective August 20, 195h, with a sale of its
assets to The Omaha National Bank, Omaha, Nebraska, and its
desire to surrender its right to exercise fiduciary powers.
It is noted from the letter recently forwarded you by
the liquidating agent that, while good progress has been
made in closing out or transferring to successor fiduciaries
the various accounts for which The Live Stock National Bank
of Omaha held a fiduciary appointment, an additional 60 to
90 days may be required before the affairs of this trust
department are fully liquidated. For this reason, we are
not now requesting the Office of the Comptroller of the Currency to make the special examination required as a prerequisite to the issuance by the Board of a certificate
certifying that such bank is no longer authorized to exercise any of the trust powers previously conferred upon it.
As soon as you have been advised by the liquidating agent
that all action has been taken necessary to discharge or
otherwise properly relieve the bank of its fiduciary activities, will you so notify us in order that we may advise the
Comptroller's Office.
Approved unanimously.
Telegram to Mr. Hodgkinson, Federal Reserve Agent, Federal Reserve
Batik of Boston, authorizing, subject to the following conditions, the
issuance of a general voting permit, under the provisions of section 5111
°f the Revised Statutes of the United States, to The National Shawmut
!lank of Boston, Boston, Massachusetts, entitling such organization to vote
stock which it owns or controls of The Warren National Bank of Peabody,
reabody, Massachusetts, at all meetings of shareholders of such bank:
(1) Prior to issuance of general voting permit authorized
herein, applicant shall execute and deliver to you in duplicate an agreement in form accompanying Board's letter S-964




12/20/54

-6-

(FRLS #7190), except that paragraph numbered 3 shall be
modified in manner stated in paragraph numbered (3) of 5964; and (2) simultaneously with issuance of general voting
permit authorized herein, there shall be issued to Shaymut
Association, Boston, Massachusetts, the general voting permit authorized in Board's telegram of this date.
Approved unanimously.
Telegram to Mr. Hodgkinson, Federal Reserve Agent, Federal Reserve
Bank of Boston, authorizing, subject to the following conditions, the
issuance of a general voting permit, under the provisions of section 5144
of the Revised Statutes of the United States, to Shawmut Association,
Boston, Massachusetts, entitling such organization to vote the stock
Which it owns or controls of The Warren National Bank of Peabody, Peabody,
Massachusetts, at all meetings of shareholders of such bank:
(1) Prior to the issuance of general voting permit authorized herein, applicant shall execute and deliver to you in
duplicate an agreement in form accompanying Board's letter
S-964 (TRLS #7190); and (2) simultaneously with issuance of
general voting permit authorized herein, there shall be
issued to The National Shayout Bank of Boston, Boston, Massachusetts, the general voting permit authorized in Board's
telegram of this date.
Approved unanimously.
Telegram to Mr. Harris, Federal Reserve Agent, Federal Reserve
Bank of Atlanta, authorizing, subject to the following conditions, the
issuance of a general voting permit, under the provisions of section
5144 of the Revised Statutes of the United Statcc, to Trust Company of
Georgia Associates, Atlanta, Georgia, entitling such organization to
!ote the stock which it owns or controls of Dekalb National Bank of
Brookhaven, Brookhaven, Georgia, at all meetings of shareholders of
such bank:
(1) Prior to issuance of general voting permit authorized
herein, applicant shall execute and deliver to you in duplicate an agreement in form accompanying Board's letter S-964
(FRLS #7190); and (2) simultaneously with issuance of general
voting permit authorized herein, there shall be issued to
Trust Company of Georgia, Atlanta, Georgia, general voting
permit authorized in Board's telegram of this date.




Approved unanimously.

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—7—

Telegram to Mr. Harris, Federal Reserve Agent, Federal Reserve
Bank of Atlanta, authorizing, subject to the following conditions, the
issuance of a general voting permit, under the provisions of section
5144 of the Revised Statutes of the United States, to Trust Company of
Georgia, Atlanta, Georgia, entitling such organization to vote the
stock which it owns or controls of Dekalb National Bank of Brookhaveu,
Brookhaven, Georgia, at all meetings of shareholders of such bank:
(1) Prior to issuance of general voting permit authorized
herein, applicant shall execute and deliver to you in dupli—
cate an agreement in form accompanying Board's letter S-964
(FRLS #7190); and (2) simultaneously with issuance of general
voting permit authorized herein, there shall be issued to
Trust Company of Georgia Associates, Atlanta, Georgia, general
voting permit authorized in Board's telegram of this date.
Approved unanimously.
Letter to Mr. Wayne, First Vice President, Federal Reserve Bank of
Richmond, reading as follows:
In the light of the circumstances described in your
letter of December 6, 1954, the Board of Governors inter—
poses no objection to the substitution of insurance pro—
vided by private insurers for your present Blue Cross—Blue
Shield plans with the understanding that detailed cost
figures will be submitted to the Board of Governors before
final commitments are made to the insurer or the personnel
of the Bank.
Approved unanimously.
Letter for the signature of the Chairman to The Honorable Joaquin
Martinez Saenz, President, The National Bank of Cuba, Havana, Cuba,
reading as follows:
Thank you very much for your letter of November 19
advising of the meeting of auditors of central banks which
is to be held in Havana in April 1955, pursuant to arrange—
ments between your Bank and the Center for Latin American
Monetary Studies.
The Board appreciates a great deal your kind Invita—
tion to participate in the meeting. From a perusal of the
agenda, however, it does not appear that the Board will be
in a position to send anyone with the proper combination
of technical and linguistic qualifications.




1886
12/20/54
The Board is impressed by reports which it has re—
ceived of the planning which has gone into the preparations
for this meeting, and trusts that the proceedings in Havana
will be constructive and of much benerit to the partici—
pating central banks.
Approved unanimously.
Letter to Mr. Fulton, President, Federal Reserve Bank of Cleve—
land, reading as follows:
Referring to your letter of December 9, 1954, the
Board of Governors approves the payment to your special
counsel Squire, Sanders and Dempsey, of a bill totaling
$14,749.46 for special services and expenses for the
period December 15, 1951 to November 15, 1954, in connection
with the law suit, brought against your Bank by Bank of
America N. T. & S. A. It is noted that your board of di—
rectors has authorized the payment of this bill subject to
the prior approval of the Board of Governors, and that your
Bank intends to treat such payment as an item for which
your Bank will be reimbursed by the Treasury.
Approved unanimously.
Letter to Mr. Stetzelberger, Vice President, Federal Reserve Bank
Of Cleveland, reading as follows:
Reference is made to your letter of December 9, 1954,
advising that Fidelity Trust Company, Pittsburgh, Pennsyl—
vania, has moved its Monroeville office from 4114 William
Penn Highway to permanent quarters in the Monroeville
Miracle Mile Shopping Center, Monroeville, Pennsylvania,
the latter location being approximately 1,000 feet from its
former quarters.
It appears that this move was a mere relocation of
an existing branch in the immediate neighborhood without
affecting the nature of its business or customers served
and, therefore, the approval of the Board of Governors is
unnecessary.
Approved unanimously.
fni,

Letter to the Presidents of all Federal Reserve Banks reading as
Enclosed are sample copies of the annual profit and
loss statement (Form F. R. 657) which has been revised to




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-9-

bring the terminology of captions used into conformity
with the table currently appearing in the Board's Annual
Report (pages 66-67 of the Report for 1953).
Please use the new forms, a supply of which is being
sent your Bank, beginning with the report for the year

1954.
In reviewing the financial statements in Annual Re—
ports published by the Federal Reserve Banks, considerable
variation in form has been noted. In addition to minor
differences in terminology and general arrangement, there
are variations in the definition of "net earnings" and
the apportionment thereof.
While complete uniformity is not essential, it would
be desirable for the statements of Earnings and Expenses
published by the individual Reserve Banks to be in substan—
tial agreement with the over—all data published by the Board.
Accordingly, it is requested that the same terminology
for captions and the same order of presentation shown in
the Board's current Annual Report be followed in your Bank's
published statements. There is no objection, of course,
to showing more or less detail than appears in the Board'3
Report.
Approved unanimously.
Letter to Mr. Leach, President, Federal Reserve Bank of Richmond,
reading as follows:
In accordance with the request contained in your
letter of December 13, 1954, the Board approves the ap—
pointment of Veron Jacob Meador as an assistant examiner
for the Federal Reserve Bank of Richmond.
Approved unanimously.
Letter to the Board of Directors, Washington Trust Company of
Washington, N. Jo, lashington, New Jersey, reading as follows:
Pursuant to your request submitted through the Fed—
eral Reserve Bank of New York, the Board of Governors
approves the establishment of a branch by Washington
Trust Company of Washington, N. J., Washington, New Jer—
sey, in the vicinity of Wall Street, Village of Oxford,
Township of Oxford, Warren County, New Jersoy, provided




12/2o/54

—10—

the branch is established within six months from the
date of this letter.
Approved unanimously, for
transmittal through the Federal
Reserve Bank of New York.
Letter to Dr. Frederic D. Chapman, 1834 Eye Street, N. W.,
Washington, D. C., reading as folloNs:
The annual physical examination for each employee
in the cafeteria of the Board of Governors of the Federal
Reserve System will be continued during 1955 on the same
basis as set forth in our letter to you of December 22,

1953.
I have been advised by the Division of Personnel
Administration that these arrangements have worked out
satisfactorily and also that the fee of $100 for the
calendar year 1955 is agreeable with you. The number
of examinations to be conducted will be substantially
the same as in 1954.
Approved unanimously.
Messrs. Johnson and Sprecher then withdrew from the meeting.
Before this meeting there had been sent

to the members of the

Board a draft of letter prepared for Chairman Martin Is signature to The
Honorable Walter W. McAllister, Chairman, Federal Home Loan Bank Board,
Washington, D. C., with respect to a proposal that section 13 of the
Federal Reserve Act be amended so as to make Federal Home Loan Bank obli—
gations eligible security for 15—day advances by Federal Reserve Banks
to their member banks.
Chairman Martin stated that Mr. McAllister had visited his office

on

December 8, 1954, for the purpose of discussing the above proposal and

subsequently sent him a letter, dated December 80 which listed this and




Q

12/20/54

-11-

certain other legislative proposals that the Home Loan Bank Board proposed to recommend. Chairman Martin stated that Mr. Vest and Mr. Riefler
were present at the time of Mr. McAllisterfs call, and he then requested
that Mr. Vest outline the proposal which had been discussed and the draft
of suggested reply.
Mr. Vest referred to a memorandum which he had prepared under
date of December 10, 1954, which had been circulated among the members of
the Board before this meeting, which reviewed the several legislative
Proposals which Mr. McAllister had listed in his letter, including the
one discussed at the time of his visit to Chairman Martin's office.

Mr.

Vest stated that while there were several proposals which might be of interest to the Board, Mr. McAllister had asked for the Board's comments
only with respect to the proposal to make Federal Home Loan Bank obligations eligible as security for 15-day advances by Federal Reserve Banks.
Mr. Vest went on to say that this proposal was for the purpose of benefiting certain types of institutions and particular types of paper, whereas
the Board had taken the position in the past that Federal Reserve policy
with respect to the extension of credit should be impersonal and objective
and should not be designed to improve the marketability of obligations of
Particular institutions. Mr. Vest noted that Federal Intermediate Credit
Bank debentures were made eligible in 1923 as collateral for advances by
Federal Reserve Banks to member banks but that there seemed to be no sound
'
l eason for going further in this direction. Accordingly, the draft of




1890

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-12-

letter which had been prepared for Chairman Martin's signature took
the position that the proposed legislation would not be desirable.
Governor Mills stated that he concurred in the view that the
Proposed legislation would not be desirable, and he suggested a change
in the draft of letter which would state that no good purpose is served,
or has been served, by amendments to the law making obligations of particular types of institutions eligible as collateral for Federal Reserve
credit.
Following a discussion, the letter to Mr. McAllister was approved
unanimously, with the understanding
that it would be changed to incorporate
the suggestion made by Governor Millso
Secretary's Note: In accordance with
the foregoing action, the following
letter was sent to Mr. McAllister under date of December 21, 1954:
This refers to your visit to my office on December 8,
1954, and to your letter of the same date, with regard to a
proposal that section 13 of the Federal Reserve Act be
amended so as to make Federal Home Loan Bank obligations eligible security for 15-day advances by Federal Reserve Banks
to their member banks. You inquired as to the view which
might be taken by the Board of Governors with reference to
this proposal.
I have discussed the matter with the Board and have to
advise that it feels that this proposed legislation would not
be desirable. It is the Board's view that Federal Reserve
Policies with respect to credit accommodation should be designed
to assist the member banks in meeting the credit needs of
their communities, and that no good purpose is served, or has
been served, by amendments to the law making obligations of
Particular types of institutions eligible as collateral for
Federal Reserve credit. As indicated in our discussion of
the subject, Federal Home Loan Bank obligations, like other




12/20/54

—13—

assets of member banks, are already eligible as collateral
for borrowings by member banks under section 10(b) of the
Federal Reserve Act at a rate 1/2 of 1 per cent higher than
the usual discount rate, so that there is no question of
their availability as a source of Federal Reserve credit
advances on this basis when the occasion demands.
You left with me a memorandum prepared by your General
Counsel, dated October 18, 1954, of various legislative pro—
posals for possible recommendation by the Federal Home Loan
Bank Board, but inquired as to our view only with respect to
the proposal discussed above. Accordingly, I have not taken
up with the Board of Governors the other proposals mentioned
in the memorandum and am not undertaking to express any views
with regard to them at this time.
There (ere presented telegrams to the Federal Reserve Banks of
New York, Philadelphia, Chicago, St. Louis, and Kansas City approving
the establishment without change by the Federal Reserve Bank of St. Louis
on December 13, by the Federal Reserve Bank of Kansas City on December 14
and 17, and by the Federal Reserve Banks of New York, Philadelphia, and
Chicago on December 16, 1954, of the rates of discount and purchase in
their existing schedules.
Approved unanimously.
The meeting then recessed and reconvened in the Board Room at
11:15 a.m. with the same attendance as at the close of the earlier session
except that Messrs. Chase, Assistant General Counsel, and Shay, Assistant
Counsel

were also present.
Governor Robertson stated that he had received a letter from

Senator Robertson in response to his letter of December 10, 1954, re—
gal'cling holding company legislation, which indicated that Senator Robertson
would not take further action in connection with such legislation until




12/2o/54
some indication had been given by the House Banking and Currency Committee
as to whether it would be prepared to take action with respect to such
legislation°
Chairman Martin referred to a memorandum from Mr. Vest dated
December 16, 1954, with respect to the application of section 32 of the
Banking Act of 1933 to Bank Fiduciary Fund, a mutual trust investment
company which had been authorized by New York statute on April 10, 1954,
to serve as a medium for common investment of fiduciary funds of banks
and trust companies in the State of New York.

Under date of April 7,

1954, the Board advised the Chairman of the Mutual Investment Fund Com—
mittee of the New York State Bankers Association (through the Federal Re—
serve Bank of New York) that it was of the view, on the basis of the in—
formation then at hand, that interlocking relationships between the Fund
and member banks would not be permissible under the provisions of section
32 of the Banking Act of 1933. Subsequently, representatives of the New
York State Bankers Association discussed the matter with members of the
Board's staff, and additional information had been supplied to the Board
for use in its further consideration of the matter, including information
Provided during an informal conference which representatives of the Bankers
Association and the New York State Banking Department had with members of
the Board on December 14, 1954.
Chairman Martin said that in view of the fact that there was a
livergence of opinion in the Legal Division regarding the applicability




12/20/54
of section 32 to Bank Fiduciary Fund, he would like to have Mr. Vest and
other members of the Legal Division express their views at this timeo
Mr. Vest stated that, for reasons set out in his memorandum of
November 3, 1954, he felt the prohibition of the statute was applicable
to the proposed Fund*

He then commented on the alternative courses of

action open to the Board, as stated in that memorandum and also in his
memorandum of December 16, 1954. These alternatives were: (1) the Board
might take the position that the prohibition of section 32 is legally ap—
Plicable, (2) the Board might feel justified, on the basis of all the
facts presented) in resolving doubts in this matter in favor of the con—
clusion that the prohibition of the statute is not legally applicable,
(3) the Board, taking the position that the statute would otherwise be
legally applicable, might amend its Regulation R, Relationships with
Dealers in Securities Under Section 32 of the Banking Act of 1933, so as
to exempt from the prohibitions of the statute interlocking relationships
With Bank Fiduciary Fund and with any similar organizations.
commented further that

Mr. Vest

while the legal question was a close one and there

wat a divergence of opinion in the Legal Division on the question, he had
Concluded there was not sufficient difference between the proposed Bank
Piduciary Fund and ordinary open—end investment companies to justify
4°1-ding other than that the proposed Fund was subject to the statute.

He

also stated that in the event the Board interpreted the statute as not
aPPlYing, such a decision might be taken as a precedent by other open—end




12/20/54
investment companies which would request similar rulings that they are
not subject. Should the Board wish to amend Regulation R to make it
clear that Bank Fiduciary Fund and other similar organizations were exempted from the prohibition of the statute regarding interlocking relationships, Mr. Vest felt that the problem would be to make an exemption
in such a way as to avoid having it subject to abuse.
Chairman Martin then called on Mr. Chase, who stated that while
the question was a very close one, he felt the statute did not apply to
the proposed company. He noted that the prohibition of the statute apPlied to interlocking organizations "primarily engaged" in underwriting
and distributing securities. While the ruling of the Board clearly applied
the prohibitions of the statute to the ordinary open-end investment comPaRY, the proposed Fund was to be organized for a purpose other than selling
Shares: it was to be a unit not to deal with customers of banks but simply
to Provide a means for managing trust investments for a number of banks,
°n

4

basis similar to that of a common trust fund in a single bank. The

Proposed Fund would be so far different from an ordinary investment company,
he said, as to make it clearly distinguishable from the ordinary investment
company to which the statute had been applied in the past.
Mr. Shay stated that in his judgment the proposed Fund was almost
completely

different from other mutual companies which the Board had tried

t° reach under the statute. The situation of an ordinary open-end investIllent company which had a clear profit motive was not present in the




1895
12/20/54

-17-

proposed Fund. On the other hand, it was to be a cooperative arrangement
among banks to accomplish something which the banks might lawfully do in
their own individual institutions but which could not satisfactorily be
done by the banks individually becuase of the smallness of their size.
In the circumstances, Mr. Shay felt the proposed Fund was not of the type
that Congress had in mind when it enacted section 32 for the purpose of
separating commercial and investment banking.
There followed a general discussion during which Governor Robertson
stated that while he did not like the arrangement in principle, he would
suggest that the Board adopt the second alternative contained in Mr. Vest's
memorandum, namely, that on the basis of all of the facts presented, it
resolve any doubts in the matter in favor of the conclusion that the prohibition of the statute was not legally applicable to the Fund. Governor
Robertson stated that if this course were taken, he would suggest that a
letter be written to set forth the reasons why the Board felt justified
in taking such a position.
Governor Szymczak felt that the proposed Fund was so closely similar
to open-end investment companies that he would be inclined to concur in the
Position taken by Mr. Vest that service of an officer or director of a
State member bank on
the board of directors of the Fund would be prohibited.
Re also questioned the need for establishment of such a Fund.
Chairman Martin stated that he did not have strong feelings on the
m

atter. He felt the picture was rather confused and said that he would be




12/20/54
inclined to follow the second alternatives as suggested by Governor
Robertson, Partly on the grounds that the proposed Fund had been au—
thorized by the legislature of the State of New York and, further, on
the grounds that it was desirable under such circumstances to avoid taking
action which mould upset a plan arranged by the bankers of New York State,
if that could be done in a way so as to be consistent with the law and
With sound principles.
Governors Mills and Balderston concurred in Chairman Martin's
views and added the comment that they would favor a letter along the lines
suggested by Governor Robertson.
After some further discussion, it
agreed
unanimously that a letter
was
along the lines suggested, in a form sat—
isfactory to Governor Robertson, should
be sent to the Federal Reserve Bank of
New York.
Secretary's Note: The letter sent to Mr.
Phelan, Vice President, Federal Reserve
Bank of New York, under date of December
22, 1954, in accordance with this action,
was in the following form:
This is in further reference to your letter of October
6, 19541 and its enclosures, concerning whether section 32 of
the Banking Act of 1933, as amended, would prohibit inter—
locking relationships between member banks and the proposed
"Bank Fiduciary Fund", a mutual trust investment company of
the kind authorized to be formed by Chapter 619 of the Laws
of New York, approved April 10, 1954. As you know, this
matter was the subject of correspondence with your Bank
Prior to the latter date, and was discussed at a meeting
With the Board by representatives of the New York State
Bankers Association and the New York State Banking Department
on December 14, 1954.




1897
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-.19-

Briefly, the New York statute authorizes the State
Superintendent of Banks "to approve" the incorporation of
the Fund as 'h medium for the common investment" of trust
funds held by trust companies and banks in New York acting
in fiduciary capacities, either alone or with individual
co-fiduciaries, and restricts the ownership of the Fundlo
shares to such fiduciaries in their capacities as such.
Among other things, the statute also authorizes the Superintendent of Banks "to regulate the conduct and management"
of the Fund, limits the investments of the Fund to legal
investments for fiduciaries under New York law, and provides certain other investment restrictions similar to
those applicable in the case of a common trust fund operated
by a single bank or trust company.
From the information presented, the Board understands
that the Fund will receive only funds of trusts created or
used "for bona fide fiduciary purposes"; that no shares of
the Fund may be purchased by any institution which operates
its own common trust fund; that the Fund ordinarily will
permit the purchase and redemption of shares only on four
days during the year on the basis of valuations prepared
only once each quarter; and that the Fund will be required
to submit to examination by, and make reports to, the Superintendent of Banks who, among other things, may remove
directors or officers of the Fund for continued unsafe or
unauthorized practices.
It is further understood that the Fund'3 board of directors will include one member from each of the Statets
nine banking districts and be composed only of trustees,
directors, or officers of trust companies or banks with
trust powers in New York; that no director or officer of
the Fund will receive any compensation from the Fund; that
the qualified bank to be selected by the Fund as its custodian and investment manager shall have no representation on
the Fund's directorate; that the Fund will have no paid employees, will employ no sales personnel, undertake no active
sales campaign9 impose no sales or loading charges in connection with the issuance or sale of its shares, and have
no connection with any other organization except banks; and
that every attempt will be made to operate the Fund on a
nonprofit basis as inexpensively as possible, to the end
that the participating trusts may benefit to the fullest
extent°
The Board also understands that the Fund will not engage
in the issue, flotation, underwriting, public sale or distribution, at wholesale or retail, or through syndicate




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12/20/54

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participation, of any stocks, bonds or other similar securities, except the issue and sale of snares of its own
stock.
On the basis of all of the information that has now
been presented and the Board's understanding as indicated
above, the Board is of the view that interlocking relationships between the Fund and member banks would not be prohibited by section 32.
You will understand, of course, that the Board's view,
as expressed above, is based upon the facts and circumstances peculiar to this case and would not necessarily be
applicable to other cases where the facts might be somewhat similar or to this case if there should be any material
change in the facts.
There was presented a letter to Mr. Roger 1. Jones, Assistant
Director, Legislative Reference, Bureau of the Budget, Washington, D. Co 2
reading as follows:
This is in reply to your letter of November 302 enclosing a proposed bill "To improve operating procedures
of the Federal land bank system, to facilitate elections
to district farm credit boards, and for other purposes%
While the Board of Governors appreciates the opportunity offered to express its views regarding the proposal
the subject-matter falls largely outside the field of the
Board's special competence and it is not in a position to
present constructive comments or suggestions with respect
thereto.
Approved unanimously.
Minutes of actions taken by the Board of Governors of the Federal
Reserve System on December 161 1954, were aPP

unanimously.

The meeting then adjourned.




i°141111.11P

cretary