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Minutes for
To:
Members of the Board
Pram:
Office of the Secretary
December 22, 1961
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
vith 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
Delay. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
°Illy that you have seen the minutes.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
kik)
Minutes of a meeting of the available members of the Board of
Governors of the Federal Reserve System which was held in the Board
Roam at 10:00 a.m. on Friday, December 22, 1961.
PRESENT:
Mr. Balderston, Vice Chairman
Mr. Mills
Mr. Robertson
Mr. Sherman, Secretary
Mr. Thomas, Adviser to the Board
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. Noyes, Director, Division of Research and
Statistics
Mr. Holland, Adviser, Division of Research and
Statistics
Mr. Koch, Adviser, Division of Research and
Statistics
Mr. Landry, Assistant to the Secretary
Mr. Yager, Economist, Division of Research
and Statistics
Money market review.
Mr. Yager reviewed recent developments
14 the money market, following which Mr. Thomas reported on bank reserves,
cl7elolit, and the money supply.
Following this presentation Mr. Yager withdrew from the meeting.
Certain actions, as described hereinafter, were taken subject to
1‘4tIfication at the next meeting of the Board when a quorum was present.
Discount rates.
eVe
The establishment without change by the Federal
Banks of Philadelphia and Chicago on December 21, 1961, of the
l'4te8 on discounts and advances in their existing schedules was approved
111:411-11mously, with the understanding that appropriate advice would be
to those Banks.
12/22/61
-2-
Item circulated to the Board.
The following item, which had
been circulated to the Board and a copy of which is attached to these
ra
itaxtes as Item No. 1, was approved unanimously:
Letter to The Sterling State Bank, Mt.
Sterling, Ohio, interposing no objection
to the declaration of a dividend on June
30, 1961, and approving the declaration
of a dividend in December 1961.
Letter from Deputy Comptroller re proposed merger (Item No. 2).
lillere had been received under date of December 18, 1961, a letter from
the Deputy
Comptroller of the Currency advising that a public hearing
4441been ordered to be held on January 5, 1962, in connection with the
°Posed merger of Bank of Livonia, Livonia, Michigan, into National
'
131
1364111t of Detroit, Detroit, Michigan, and indicating that any views the
Il
imight care to submit either orally or in writing with regard to
thia matter for inclusion in the record would be welcome.
A draft reply,
6441Iressed to the Comptroller, had been distributed as attachment to a
41ellIcIrandum from the Division of Examinations dated December 21, 1961.
48 noted in the memorandum, the reply would be in the same general vein
"hat forwarded by the Board to the Comptroller on November 28, 1961,
Illeoanection with a similar letter regarding a hearing on the proposed
er of National Bank of Westchester, White Plains, New York, into
Pirst National City Bank of New York.
There being no objection, the letter to the Comptroller, a copy
op IA,
"'ich is attached as Item No. 2, was approved unanimously.
A'
12/22/61
-3-
Letter to Professor Edwards
December
(Item No. 3).
A letter dated
6, 1961, had been received from Professor Edward E. Edwards
°I' Indiana University referring to the Board's letter of November 29,
1961, and requesting further information regarding the capital stock
84.1 surplus accounts of banks.
A draft of reply had been distributed
1111(ler date of December 20, 1961.
During a discussion of the draft reply, agreement was expressed
with a suggestion by Governor Robertson for a modification of the conding sentence.
The letter, in the form attached as Item No. 3, was
then approved unanimously0
Application of Fifth Third Union Trust Company (Items
4, 5,
Pursuant to the decision reached at the meeting on November 22,
1961, and subsequent discussion at the meeting on December 12, there
been distributed drafts of an order, revised statement, and dissenting
1:atement in connection with the application of The Fifth Third Union
rx
Company, Cincinnati, Ohio, for approval of acquisition of assets
alici assumption of liabilities of The Norwood-Hyde Park Bank and Trust
e°41Parly, Norwood, Ohio.
The issuance of order and statements was authorized.
kr'e attached as Items
Copies
4, 5, and 6, respectively.
Application of Wells Fargo Bank American Trust Company (Items
8
1961
7,
Pursuant to the decision reached at the meeting on December 12,
copies had been distributed of a draft of order, statement, and
4,1„.1,)
12/22/61
-4-
dissenting statement in connection with the application of Wells Fargo
Ikak American Trust Company, San Francisco, California, for approval
°f a merger of The Farmers and Merchants National Bank of Santa Cruz,
Santa Cruz, California, with and into applicant.
The issuance of the order and statements was authorized.
C°Pies are attached as Items 7, 8) and 9) respectively.
The meeting then adjourned.
Secretary's Notes: Pursuant to recommendations contained in memoranda from
appropriate individuals concerned) Governor
Robertson, acting in the absence of Governor
Shepardson, today approved on behalf of the
Board the following actions relating to the
Board's staff:
klary
increase
b4 . Stephen P. Taylor, Chief, Flow of Funds and Savings Section,
/lsion of Research and Statistics, from $12,210 to $12,730 per annum,
:
rective January 7, 1962.
4
Ch4lIge of title
Peter M. Keir, from the position of Chief, Government Finance
ion, to the position of Senior Economist, Division of Research and
i Vistics, with no change in basic annual salary at the rate of
")380, effective January 7 1962.
seO
\t.x3Lincrease with change of title
14 Charles A. Yager, from $12,730 to $13,250 per annum, with a change
or title from Economist to Chief, Government Finance Section, Division
Research and Statistics, effective January 7, 1962.
Mary Anne McVeigh, from the position of Clerk-Stenographer in the
-81on of Personnel Administration to the position of Clerk-Stenogr'
in the Division of International Finance, with no change in
azi
e annual salary at the rate of $4,145, effective December 24, 1961.
12/22/61
-5Governor Robertson also approved today
on behalf of the Board a letter to the
Federal Reserve Bank of Philadelphia
(attached Item No. 10) approving the
appointment of Thomas K. Desch as examiner.
(1361.
BOARD OF GOVERNORS
OF THE
Item No. 1
12/22/61
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1961
Board of Directors,
The Sterling State Bank,
Sterling, Ohio.
Gentlemen:
GhipfThe Board of Governors has received from Mr. G. T. Quast,
a 1-,Examiner of the Federal Reserve Bank of Cleveland, a copy of
etter dated December 11, 1961, from Mr. R. G. Webber, President
Ilf The Sterling State Bank, Mt. Sterling, Ohio, requesting the
°
71°Proval of a dividend of V1,800 declared June 30, 1961, in contra4(f It10n. of the provisions of paragraph 6, Section 9 of the Federal
mflel've Act and Section 5199(b), United States Revised Statutes.
Webberls letter also requests permission under the provisions
these statutes to declare a dividend of 000 during December 1961.
The Board has given careful consideration to the facts
ar4
1 make no objection to the declaration of the dividend of
4
100 on June 30, 1961, and approves the declaration of a dividend
de Bo--rl in December 1961. This letter does not authorize any other
el-aration of dividends for 1961 or later.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 2
12/22/61
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1961
The Honorable James J. Saxon,
Comptroller of the Currency,
Washington 25, D. C.
Dear Mr. Comptroller:
This refers to Deputy Comptroller Taylor's letter of
December 18, 1961, advising that you have ordered a public hearing to be held on January 5, 1962, in connection with the
rposed merger of Bank of Livonia, Livonia, Michigan, into
atichal Bank of Detroit, Detroit, Michigan, and indicating that
the Board may appear or submit a statement at that hearing or,
It desired, file a brief in rebuttal to anything adduced by the
Parties.
The Board's report with respect to the competitive
fa
ctors involved in this proposed merger was furnished to your
?frice, pursuant to the requirement of section 18(c) of the
',.ederal Deposit Insurance Act. Having thus discharged its staturrY responsibility, the Board feels that it would not be
2Propriate for it to express any view as to whether the proposed
'Jrger should be approved or for any representatives of the Board
,° aPPear or make representations at the forthcoming hearing in
urliS
case.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
44#
Item No,
12/22/61
3
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
\
41.
December 22, 1961
it11‘4
Edilard E.
Edwards,
[srcireeser of Finance,
'
T 1°01 of
!
Business,
t',"diana
University,
..Loolliirigton, Indiana.
Nar
111% Edwards:
tiovemb
Your letter of December 6, 1961, refers to the Board's letter of
4ock :r 29, 1961, and requests further information regarding the capital
surplus accounts of banks.
The interest of the Federal Reserve is principally in total capital
"h"cniiit of
8
banks, and it has not followed a policy of requiring that any
ettrti,,,,
stock
zItt tZar Portion of those capital accounts be represented by capital
Nevertheless,
It 1,7-Plus as contrasted with undivided profits and reserves.
the "
13 recoenized that if a particular amount of losses occurred in a bank,
inclined to
allYs managemnnt and stockholders would probably be more
losses rethe
if
a3counts
capital
necessary
NItjeld4":9t action to replace
stock or surplus than
lit the,.in an impairment or near-impairment of capital
merely reduced undivided profits or reserves.
In other words, the fact that an unusually small proportion of a
caPital accounts is in capital stock or surplus may intensify the
0f assuring that the bank's total capital accounts are maintained
t
411p-qxviacleouate level. It is understandable, therefore, that some bank
authorities consider it desirable that banks maintain a certain
stock
of capital accounts in the form of capital stock or capital
,1
e41
to
inclined
been
+. -1-111-'-4 However, as indicated above, the System has
ss*()Ileen-lj
mainof
problem
'
411111;'1.ate, attention on what it believes to be the basic
kataoerz adequate total capital accounts in the light of the quality of
rlent and the character of the bank's business*
bahltr
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
436,1
Item No.
12/22/61
UNITED STAPES OF AIERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
vAsniurTor,
D. C.
Xi the
matter of the application of
chr2IPTH THIRD UNION TRUST COMPANY,
QtMIIATI, OHIO,
a
/14 11Prolral of acquisition of assets of
Norwood-Hyde Park Bank and Trust
rrur, Norwood, Ohio
OM"
ORDER APPROVING APPLICATION
ACT
INSURANCE
DEPOSIT
FEDERAL
OF
18(o)
SECTION
There has come before the Board of Governors, pursuant to
18(c) of the Federal De-nosit Insurance Act (12 U.S.C. 1828(c)),
ication by The Fifth Third Union Trust Company, Cincinnati,
Ohio
tor the Board's prior approval of t
. he acquisition by The Fifth
n
0
:11on Trust Company of the assets of The Norwood-Hyde Park Bank
41"rlIst Company, Norwood, Ohio, and the assumption of the liabilities
'e latter Bank.
Pursuant to said section 18(c), notice of tile proposed
tion of assets and assumption of liabilities, in form approved
the zoard
of Governors, has been published and reports on the
eti+4
-ore factors involved in tne proposed transaction have been
4
-2-
lliShed by the Comptroller of the Currency, the Federal Deposit
'
ttli
I11811zwance Corporation, and the Department of Justice and have been
Nleidered by the
Board.
IT IS ORDERED, for the reasons set forth in the Board's
stat
ement of this
date, that said application be and hereby is granted,
tile proposed acquisition of assets and assumption of liabilities
hereby are approved, provided that said acquisition and assumpCh
all be consummated within not less than seven calendar days nor
1)re than three months from the date of this Order.
Dated at Washington, D. C., this 22nd day of December, 1961.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Mills, Kinc, and Mitchell.
Voting against this action: Governors Robertson and Shepardson.
Absent and not voting: Governor Balderston.
(signed) Merritt Sherman
1,1erritt Sherman,
Secretary.
(4,At)
Item No. 5
12/22/61
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
A•PPLICATIoN BY THE FIFTH THIRD UNION TRUST C0i4PANY, CINCINNATI, OHIO,
FOR APPROVAL OF THE ACQUISITION OF THE ASSETS OF
THE NORWOOD-HYDE PARK BANK AND TRUST COMPANY
STATEMENT
The Fifth Third Union Trust Company, Cincinnati, Ohio
'L1 Third"), has applied, pursuant to section 18(c) of the Federal
evult Insurance Act, for the Board's prior approval of the acquisition
"Ifth Third of the assets of The Norwood-Hyde Park Bank and Trust
Ir'
4111Y, Norwood, Ohio ("Norwood Bank"), and its assumption of the
'
4D3eit
liabilities of Norwood Bank.
Fifth Third currently operates
Z7 01,
l'ices. Norwood Bank operates two offices. Fifth Third proposes
to.
°Perate the main office and branch of Norwood Bank as branches upon
the
e°111Pletion of the transaction.
The nine banks now serving Cincinnati and its suburbs (with
lation of more than 500,000) as of April 1961 held $1.23 billion
dePosits and slightly over $1 billion in deposits of individuals,
at
el*Ships, and corporations ("IPC deposits").
klia4 _
The three largest
(including Fifth Third) held IPC deposits in excess of $250
4t *L°11 each, constituting in the aggregate about 80 per cent of the
IPC deposits. Of the remaining six banks
one had $128 million
-2-
(I811ch deposits, another about $27 million, a third (Norwood Bank)
alzao
St
$20 million, and the remaining three less than $10 million each.
Under the law, the Board is required to consider (1) the
rirm,
history and condition of each of the banks involved, (2) the
Etcleg cY of its capital structure, (3) its future earnings prospects,
t
e general character of its management, (5) whether its corporate
18 are consistent with the purposes of the Federal Deposit Insurance
r
3
k°) the convenience and needs of the community to be served, and
(7) the effect of the transaction on competition (including any tendency
t4rarA
Li. monopoly).
The Board may not approve the transaction unless,
4te'r considering all these factors, it finds the transaction to be in
Dtiblic interest.
For convenience, the first five of these factors may be
1181(lered together as "banking factors". The sixth and seventh factors
:Ittire separate consideration.
Banking factors. - The financial history and condition, the
-- structures, and the future earnings prospects of both banks are
--Le.etory.
The management of Fifth Third is capable.
Norwood Bank's
gettent also is competent; and, while there is Some indication that
tb
11.1c. has had a problem of management succession, it does not appear
Italified executive management cannot be obtained, when needed,
the Bank's present personnel or from outside sources. Based on
delzonstrated competence of management at Fifth Third with the
—4 of officers from Norwood Bank, it appears that the continuing
-3Would have competent management. There is no evidence that the
ecnorate powers of the continuing bank would in any way be inconsistent
/4-th the purposes of the Federal Deposit Insurance Act.
Convenience and needs of the community to be served. - The
eitY of Norwood, a politically independent community completely
81 Tounded
by Cincinnati
is located about six miles northeast of the
4°14utown business district of Cincinnati.
35,001 in 1950 to 34,580 in 1960.
Its population decreased
Hyde Park, about two miles
"heast of Norwood, is part of the municipality of Cincinnati.
IIMe Pis primarily a wealthy residential area, whereas Norwood
ec)t ains a considerable amount of industry.
Norwood Bank, with total
in
410sit8 of about $21 million, is the smallest bank with offices
the N
orwood-Hyde Park area.
As stated, the city of Norwood contains a number of
Allis
ft'sified industries, including General Motors Corporation,
No
.Lnlers Manufacturing Company, and the United States Playing Card
facilities
Although Norwood Bank provides general banking
°414 a reasonable degree of customer service, it appears that its legal
lero4
"ng limit is insufficient to meet the requirements of the large
trla,Ilstrial
compete
concerns located in Norwood, and its ability to
Illth larger banks in certain specialized services is limited.
It
her appears that a number of specialized services which are not
114 directly available at Norwood Bank would be made directly available
by p•
present
lrth Third at the two branches that would replace the
1°111A)od Bank offices.
Competition. -
The main office of Fifth Third is located
'
5 1/2Hmiles southwest of the main office of Norwood.
Fifth Third has
Ib branches in the city of Norwood or in the Hyde Park area.
Its
However,
Ilana & Montgomery office is located 1-1/2 miles southwest of
4°114()°c1 Bank's main office and is very clAse to the city limits of
11°11/00d. Its Bond Hill office is 2 miles northwest of Norwood Bank's
tae411 office.
3
tarao„
Its Oakley office is about one mile northeast cf Norwood
Hyde Park office, and about 1-1/2 miles southeast of Norwood
main office. Its Pleasant Ridge office is about 2-1/4 miles
11°Itheast of Norwood Bank's main office and its Woodburn-Madison office
1821/2 miles southwest of Norwood Bank's Hyde Park office.
The continuing bank would substitute competition by Fifth
Thil„
". for that previously offered by Norwoed Bank without detrimentally
krah.
-lalling total banking competition in the Norwood-Hyde Park area or
14.0„
Cincinnati metropolitan area.
While the larger banks in Cincinnati compete vigorously among
thenise
lyes, they do not customarily solicit customers of their smaller
°Dondents in the area.
Due to the existing correspondent relation-
it is quite likely that after the merger banking competition
1°111cI lls intensified in the Norwood and Hyde Park areas. In addition,
%Itit
stition for savings and for important categories of loans in these
E1N
8 is not limited to banking offices located there; a large nuMber of
Ot4er
Ilnancial institutions, including more than ten savings and loan
4to
Qt°tions with aggregate resources exceeding $100 million in Norwood
4/4 HYde Park alone, offer unusually strong competition.
This is
Iltticularly significant in view of the fact that the lending operations
Norwood Bank are concentrated largely in real estate and consumer
el'e4-tt) in which nonbank institutions are most active.
Consequently,
the Proposed absorption of Norwood Bank by Fifth Third does not present
4 Sittlation in which one of a relatively few competing institutions is
tebs eliminated, to the significant detriment of the general level of
)11q)stiti0n.
Likewise, it is clear that consummation of the transaction
not have any tendency toward monopoly.
Fifth Third, as the continuing bank, would add to its IPC
tleP°E31ts only 1.9 per cent of the total in Hamilton County (in which
Nei
nnati and Norwood are located) and its number of banking offices
ar14.
per cent.
It would continue to rank first in number of banking
otti
ees and in second place with respect to total deposits and IPC
411081+
-.
8. In operating one office each in Norwood and Hyde Park,
Pitth
Third would be brought into more effective competition with the
thre
C
local offices of the First National Bank of Cincinnati, which is
the
4.u'rgest bank in the city, and without materially adverse effects on
the,.
40
' re distantly located smaller banks serving the area.
Summary and conclusion. - The existing competition between
14'.th Third and Norwood Bank, which would be eliminated by the proposed
t1'41saction, is not a substantial element in the banking situatien in
44ei
nnati, whereas Fifth Third's entry into Norwood and Hyde Park would
4-t in increased competition between the two largest banks in the
Cincinnati area. Adequate alternative banking sources would remain in
the City and in the local area, and the increase in concentration of
b ni„
4-ag resources resulting from the acquisition would be relatively
4—
'
841411; Fifth Third's IPC deposits would be increased by only 1.9 per cent
"total
Hamilton County deposits.
Furthermore, any possible management
klecession problem of Norwood Bank would be solved.
Therefore, in the
(38.rd's judgment, the benefits to be anticipated from consummation of
th
Proposed acquisition outweigh any adverse effects on one aspect of
10
,
Danking competition. For these reasons the Board findsthat the
tre.„
"saction would be in the public interest.
1)ecetaber 22,
1961
43';
Item No. 6
12/22/61
DISSENTING STATEMENT OF GOVERNORS ROBERTSON AND SHEPARDSON
The decision reached by a majority of the Board allows the
seInd. largest banking institution in the Cincinnati metropolitan area
t°4equire a successful, substantial, healthy bank that has been
4dequately serving the needs of its community.
We cannot agree that
the ttlzount of competition that would be eliminated by the proposed
49A1siti0n would be insubstantial.
The record shows that Fifth Third
a sizable number of accounts that originate in the Norwood-
Park
area, and it is clear that the Norwood Bank is presently
cc)1qeting with Fifth Third.
Furthermore, Fifth Third has applied for
111411(1111tY to establish one office in Norwood and another in Hyde Park,
44(lestablishment of those offices inevitably would intensify that
t°111.10etition.
This existing and potential competition will be eliminated
117 the
- acquisition.
The majority Statement emphasizes that the proposed
'
448ition will enable Fifth Third to compete more effectively with
te
three offices of The First National Bank of Cincinnati in Norwood
4Yde Park. This objective would beEqually achieved, and over-all
kkoeti
--tion in the areas would be greater, if the branches for which
hrth
Third has heretofore applied were established without eliminating
the craPetition of the Norwood Bank. Obviously, banking competition
'
41thi
'
4 the areas would be increased if three banks were operating there,
'
her than only two.
The majority also points .out that a number of specialized
4riti
ces which are not now directly available at the Norwood Bank could
tle4le directly available by Fifth Third, should the acquisition be
-2414'clv'ed.
support
While this may be true, we feel that it furnishes little
'4Proval. The fact that the Norwood Bank does not furnish these
41
4ecl.44.1zed
services does not mean that it is not now competing effecthe,
"Yin the area of its operation.
The fact that the Norwood Bank has
11-lion in deposits demonstrates that a substantial number cf people
'
riliClitS services to be satisfactory, despite the absence of certain
•
141iZed
services that Fifth Third might provide.
In this connection, it is noted that
80 per cent of the banking
'ees of the Cincinnati area already are held by three banks, and over
'cent by four banks.
el
/11011
The proposed acquisition will increase this
the sixth
egree of concentration by combining the second largest and
141.
gest banks in the Cincinnati area, leaving approximately 95 per cent of
the b
in
anking resources of this important industrial and commercial city
thq
e011trol of four banks. The significance of this is not materially
188elaed
by the existence in Cincinnati of a number of institutions that
t)11113et
ewith its banks in certain fields.
be
It has been suggested that the proposed acquisition may
eial with respect to management succession for the Norwood Bank.
re
eord indicates that, to whatever extent there may formerly have been
111411e.
genlent succession problem in that Bank, it has been solved by employ3r
additional official personnel.
Hence, the proposed acquisition will result in a definite
Illt'°n of banking competition and an increase in banking concentration,
/t.tho,
For
any significant offsetting benefits to the public interest.
t4
:
l'easons, we would disapprove.
t'lber 22, 1961
Item No. 7
12/22/61
UNITED STATES OF AMMICA
BEFORE THE BOARD OF GOVERNORS OF THD FEDEUL RESERVE SYSTEM
WASHINGTON, D. C.
Illthe Matter of the Applicaton of
FARGO BANK AILRICAN TRUST COITANY
,r01
,
1111
c-Pproval of merger with
Parmcrs and Merchants National Dank of Santa Cruz
ORDER APPROVING MIRGLD, OF BANKS
There has come before the Board of Governors, pursuant to
" -Li(e) of the Federal Deposit Insurance Act (12 U.S.C. 1823(c)),
vPlication by wells Fargo Bank American Trust Company,
PI ncisco, California, for the Board's prior approval of the
'of The Farmers and Merchants National Bank of Santa Cruz,
P
Cruz, California, with and into 1e1ls Fargo Bank American Trust
undor the charter and title of the latter.
Pursuant to said section 18(c)„ notice of the proposed
In form approved by the Board of Governors, has been published,
rts on the competitive factors involved in the proposed transt Orl
IlL'N'e been furnished by the Comptroller of tlie Currency, the
posit Insurance Corporation, and the Department of Justice
hz,,lre been
considered by the Board.
4'
IT IS ORDERED, for the reasons set forth in the Board's
kat
ement of this date, that said merger be, and hereby is, approved,
Illt0171ded that said merger shall be consummated within not less than
8even calendar days nor more than three months from the date of this
Order.
Dated at vashington, D. C., this 22d day of December, 1961.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Mills, Shepardson, and King.
voting against this action:
Robertson, and Mitchell.
Governors Balderston,
(Signed)Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
k
r."(
Item No. 8
12/22/61
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
.APPLICATION BY WELLS FARGO BANK AMERICAN TRUST COMPANY
FOR APPROVAL OF MERGER WITH
THE FARMERS AND MERCHANTS NATIONPL BANK OF SANTA CRUZ
STATEMENT
ells Fargo Bank American Trust Company, San Francisco,
Ckli
("Wells Fargo"), with deposits of about $2.5 billion and
offi
ces in northern California, has applied, pursuant to
tettlon
let(c) of the Federal Deposit Insurance Act, for the Board's
'Tel of the merger of that bank with The Farmers and Merchants
- -a-L Bank of Santa Cruz, Santa Cruz, California ("Farmers"), with
1.us of about 3lL million. Under the Agreement and Plan of Merger,
the b,
'flks would merge under the charter and title of Wells Fargo; and
the
Pl'ccent head office of Farmers and its branch at Opal Cliffs would
°r[,nchos of the resulting bank.
Under the law, the Board is required to consider (1) the
la1 history and condition of each of the banks involved, (2) the
Ntinn
-Y of its capital structure, (3) its future earnings prospects,
(4) the
general character of its management, (5) whether its corporate
Doltera
ere consistent with the purposes of the Federal Deposit Insurance
(6) the convanience end needs of the community to be servod, and
(1)
the
effect of the transaction on competition (including any tendency
-2-
tot a-i'd monopoly).
The Board may not approve the transaction unless,
aft
er considering all these factors, it finds the transaction to be
&lithe public interest.
For convenience, the first five of these factors may be
ccillslotered together as "banking factors".
The sixth and seventh
taet°rs require separate consideration.
Banking factors. - The financial history and condition of
the
Qariks involved are satisfactory, and the same should hold true of
the
e sulting bank.
4.ed
The capital structure of Farmers indicates a
4or additional capital funds, although a plan has been developed
NA .1,,eld in
abeyance pending merger negotiations) that would, if
ilccessful, correct this situation by sale of additional common stock.
argots capital structure is adequate. Earnings prospects of
both
-anits appear to be good.
N30 .
There is no evidence that the corporate
Of the banks are or would be inconsistent with the Federal
Insurance Act.
The management of Wells Fargo is competent and experienced
ti
11 Phases
of commercial banking. The management of Farmers is
4tiRp
--- ctory and particularly experienced in mortgage lending. However,
)
1
118e of the limited range of services offered by Farmers, the bank
8 experienced personnel necessary to service adequately loans in
'
l eeently more active commercial loan operations. It appears that
Suiting bank would have competent management.
,
-3banking
In summary, the merger would substitute for Farmers a
institution with a stronger capital structure and ability to service
1c)re adequately the growing commercial loan demands of the area.
approval
consideration of the banking factors lends support for
°rthe nerger.
and needs of the community to be served. Convenience
---Parra
situated on the
s is located in the city of Santa Cruz, which is
el
'
aciP.
J-le Ocean and Nonterey Bay, about 79 miles south of San Francisco.
/)4111e
Santa Cruz
ra? primary service area covers the western half of
84,000 resian area containing about 45,000 of the more than
e()1111.tv
8
tiorr
of the county.
Santa Cruz County is participating in the popula-
population
eXPansion of the San Francisco Bey Region; the county's
eased about 27 per cent between 1950 and 1960. The city and county
h e
attractions
residential, agricultural, industrial and recreational
Ch
constitute a basis for diversified economic growth.
of
Within Santa Cruz County there are 14 banking offices
rcrtz,,
banks,
Cruz, two
There are seven offices in the city of Santa
Cruz (total county
ated by Farmers, three by County Bank of Santa
Soa'
i+ A,
- 8 z'042
g8
and
million), and two by Bank of America National Trust
Association (total county deposits $50 million).
In Watsonville,
has two branches
of Farmerst primary service area, Wells Fargo
of America has one.
Nh.
es in the county.
Co
County Bank operates the remaining four
branches
In addition, the establishment cf two
California N.A. in
k'Y County Bank in Santa Cruz and one by Bank of
14"'sonville) has been approved although they are not yet in operation;
applications for five additional branches in the county are pending.
he last, one is an application by Wells Fargo for a branch in the
(444-1t0 n business section of Santa Cruz, but Wells Fargo has indicated
that this application would be withdrawn upon approval of the proposed
Prior to the end of World War II, Farmers' primary service
a'rea experienced little economic and industrial growth. In response
totl,
Character of the area, Farmers developed as a conservative
tl'Y bank without the specialized services for which there is now
'ceasing demand. After the War, Farmers continued to maintain
1101lf,4
'
.4es attuned to the area's pre-war economic environment, while the
41'e.ter of the community altered radically in terms of growth in
144)41
e'lon, industry, and business. As indicated, the trend of growth
Drom
-'ess to continue.
County Bank
a principal competitor of Farmers although over
t ie
e as large, apparently reacted to the changing economy with an
seive policy of expansion of offices and services.
Farmers,
ho
vel', fell behind in the resources, personnel, facilities, and
rvic
es apparently required to meet fully the growing and changing
4111 Of the community. Although deposits of Farmers increased by
-1
'cent between June 1954 and June 1960, depocits of County Bank
4Nas
ed 63 per cent during the same period.
-5Formers has not made a strong effort to develop or improve
the
kinds of commercial lending techniques that might be considered
table to the growth of the area and its increased demand for con-
kel'cial credits.
For example, it is notable that, although 65 per cent
rl'armers! total loans are in real estate mortgages, it has not
tfel'ed financing for the large tract real estate development which
4,51ortant to growing communities.
Similarly, in making automobile
Farmers has restricted itself to "over-the-counter" loans
3
rqher than attempting to develop dealer-originated loans.
Other large
41*e consumer and commercial loan services necessary to encourage and
r°8t
e- the development and growth of the area are not available at
Fey,,
1,1era
It can be expected that, following the merger, the resulting
1)4111. .
/7111 be able to offer the more complete services needed to match
the
grOlith of the area. The present loan limit of Farmers ($75,000)
1,14 b
e greatlir increased, trust services useful to the large number
Or
-14.red persons in the area will be offered, and the advantages
Or
.4()re
broadly experienced and trained personnel .will become available.
In these circumstances, it appears that the proposed merger
enable the resulting bank to provide the community in which
?,4„,taer
L5 located with a range of banking services more commensurate
gr(3wing economic needs, including increased commercial loan
tti
atilties, a larger source of credit, and fiduciary services.
and Wells Fargo
Competition. - Competition between Farmers
tan, .
"111111al.
located in Watsonville,
Wells Fargo's nearest offices are
16m,
—1-Les southeast of the city of Santa Cruz.
They are separated from
411t. Crim by the natural barrier created by a mountain range.
The
draws 90 per cent of its
l'IllnarY service area of Farmers (from which it
depo ,
corporations) does not overIts of individuals, partnerships, and
'
4P the
Watsonville offices. It
Primary service area of Wells Fargo's
deposits and 4.1 per
ars that only 5.5 per cent of Farmers' total
'
tert
Wells Fargo's present
ef its loans are derived from arcas served by
Wells Fargo's
hCS; and, in reverse, only insigificant percentages of
service area.
eposi+
-us and loans come from Farmers' primary
County Bank, with three
Farmers' principal competitors are
offices in that
'es in Santa Cruz, and Bank of America, with two
qty.
Farmers
deposits within its
has about 16 per cent of total
America have
Y sqrvioe area, while County Bank and Bank of
Santa Cruz County,
er cent and 35 per cent, respectively. In
41111
of America has
ells has 10.5 per cent of total deposits, while Bank
37 Der cent, County Bank 31 per cent, and Wells Fargo nearly 22 per cent.
the resulting bank mould
proposed merger should be consummated,
have
commercial bank deposits.
a little over 32 per cent of the county's
the
smallest bank in the
Although County Bank would become the
because of its
Y after the merger, there is little likelihood,
tzta,_
favorable rate of growth, that
lashed place in the community and
h 14
extent by the proposed
ould be adversely affected to any substantial
I
-7independent
lel‘ger. Thus, even though the merger will eliminate an
bank (Farmers) which is not presently highly competitive with other
44/k8 in the area, the services of a vigorously competitive bank will
141le been substituted and an equally competitive independent bank will
l'emain. Competition should be enhanced, therefore, among the three
"essive banks remaining after the merger.
Granted that Wells Fargo
)111d otherwise seek to enter the area through a de novo branch,
tfective competition could be offered more promptly to Bank of
'ea and County Bank through the proposed merger route than through
e tablishment of such a de novo branch.
Wells Fargo is the third largest bank in the State of
0a14.
--"ornia and the second largest in the Central California - San
"Isco Bay Region. However, it may be noted that, while Wells Fargo
11 ,
127 offices, Bank of America has about 700 and Security nrst
n .
4ti.°nal Bank (in southern California) about 250.
tb
Moreover, the
here under consideration would increase Wells Fargo's present
t
-er cent of total deposits in the 19-county area served by it by
than 1/2 of one per cent, although in Santa Cruz County its
ilereelltage would he increased from 22 to 32 per cent.
From these facts, it appears that the proposed merger
not significantly lessen banking competition but, on the
t)/it
rarY, would probably result in some intensification of competition
the area concerned.
it
t
-8-
Summary and conclusion. - Consideration of the "banking
404
4rs" set forth in the law suggests that, in comparison with
41711ers, the grenter capital structure of Wells Fargo as the bank
from the merger, together with its capacity for supplying
/4370rsely
- trained personnel and developing specialized commercial loan
"
8 -ces, will redound to the benefit of the community.
The continued growth of the local area concerned appears
certain..
The merger would provide present and potential customers
palIners
with a stronger, more aggressive banking institution
ekering
wider range of banking services, greater capital, and a
41,0
credit source.
There is virtually no overlapping of the primary service
area
8 Of Farmers and the nearest offices of Wells Fargo, 16 miles
across a range of mountains. Therefore, the amount of present
tortilpf,
tltion that would be eliminated is not substantial. The entry
oI 11.a)
Fargo into the city of Santa Cruz would result in increased
tition, since that bank would be able to compete more effectively
offices of Bank of America and County Bank.
While the
-ould increase slightly the percentage of banking resources in
411.f
°rnia controlled by the Statets third largest bank, there is no
4tion that the merger would have any tendency toward monopoly.
For these reasons, the Board finds that the proposed merger
10111,4
be
in the public interest.
ber 22, 1961.
Item No. 9
12/22/61
DISSENTING STATEMENT OF GOVERNORS BALDTRSTON,
ROBERTSON, AND MITCHELL
The Farmers and Merchants Bank, a healthy, sound, growing,
4-Inanaged institution, has been operating in Santa Cruz for many
Recently it applied for the right to open a branch and took
41'8.
Ste
es to increase its capital through the issuance of new common stock.
11
the Wells Fargo Bank applied to the State authorities for the
to open a branch in Santa Cruz.
Thereafter the Farmers and
'chant5 Bank decided to explore the possibility of a merger with a
41,0
er hank. The Wells Fargo Bank presented to the shareholders of
'
the
rermers and Merchants Bank an attractive offer which culminated
1-4 this
merg6r application.
This pattern is reminiscent of the way in which big businesses
have
eltmineted small businesses over the years.
141clerStand
One can readily
the legitimate motivations on both sides of the transaction.
er, this alone does not provide an adequate basis for a supervianry
Nellcir
klb14
J-c
to approve the application to merge.
Our job is to protect the
interest.
The majority aecision indicates that this merger is being
4144,0,,
"ed because replacement of the Farmers and Merchants Bank by
4 b,
Of Wells Fargo will provide the area with a "stronger, more
441,ea„
'llre banking institution offering a wider range of banking
4t1,1tie
greater capital, and a larger credit source".
4rici
A bank can be an effective competitor even if it is small
elren though
it
does not engage in department store banking.
cz.
•
AL*JR__it.
—2—
ell8tomers with $14 million of deposits are doing business with the
'ner5
411
and Merchants Bank.
This continued and growing attachment of
it8 c
ustomers is surely evidence that a locally owned and controlled
611,.
-'Ing institution, even with limited services, has elements of public
Pea
Farmers and flerchants Bank has displayed a favorable growth
"earnings record as a specialist in residential mortgage credit in
the
Presence of two not insignificant bank competitors and several
1111134111c competitors.
There is little reason to suppose that it could
tIcIt continue profitably in its present role even if another bank
e°111Petitor were added. nbreover, the anticipated growth for Santa Cruz
col
41tY is of a nature which suggests a rapid growth in the demand for
the very type of credit in which Farmers and Merchants has demonstrated
4Y to be competitive.
In this case it is contended that replacement of a smaller
bat* by
a larger one - one that can provide a broader range of
lees - will provide better competition for the larger banks already
(10111
business in the community. If the injection of another large
belik
Into the community is advantageous to the public welfare from
thiz
Point of view, it could be accomplished equally well through the
1))%t
'eh that Wells Fargo intended to establish before this merger prok)41
originated - without at the same time eliminating an independent
batit.
Even more vital is the preservation to present and potential
mers of Farmers and Merchants Bank of the opportunity, if they
-3than
Peter, to deal with a so-called independent local bank rather
itution. This
1 a banking office that is a branch of a large inst
"
starting a
clPoaal would not add to present alternative choices by
'
Pl
rb into a large bank one hew banking office; instead, it would abso
County. Such
t the two independent banks now existing in Santa Cruz
the independent local banks
Illiacquisition would reduce from two to one
.1411.1.able to residents of the County.
a long series - and
This merger represents one more step in
ent
41111tnecessary step - toward the disappearance of small independ
bank
8 from the State of California.
application.
For these reasons we would disapprove the
t/e'inber 221 1961.
BOARD OF GOVERNORS
OF THE
Item No. 10
12/22/61
FEDERAL RESERVE SYSTFM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1961.
CONFIDENTIAL (FR)
Mr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Campbell:
In accordance with the request contained in your
letter of December 13, 1961, the Board approves the appointment of Thomas K. Desch as an examiner for the Federal Reserve
Bank of Philadelphia. Please advise the effective date of
the appointment.
It is noted that Mr. Desch is indebted to Cumberland
County National Bank and Trust Company, New Cumberland,
Pennsylvania, in the amount of .,210, and that his father is an
assistant trust officer of Dauphin Deposit Trust Company,
Harrisburg, Pennsylvania, a State member bank. Accordingly,
the Board's approval of the appointment of Mr. Desch is given
With the understanding that he will not participate in any
examination of Cumberland County National Bank and Trust Company
until his indebtedness has been liquidated, or in any examination of Dauphin Deposit Trust Company so long as his father is an
officer of that institution.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER