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609
Minutes for December 22, 1966
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
With respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Robertson
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
Gov. Brimmer
1
•
Minutes of the Board of Governors of the Federal Reserve
System on Thursday, December 22, 1966.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Robertson, Vice Chairman
Shepardson
Mitchell
Daane
Maisel
Brimmer
Sherman, Secretary
Kenyon, Assistant Secretary
Bakke, Assistant Secretary
Young, Senior Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research
and Statistics
Mr. Solomon, Director, Division of Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. O'Connell, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Koch, Deputy Director, Division of Research
and Statistics
Mr. Partee, Associate Director, Division of
Research and Statistics
Mr. Axilrod, Associate Adviser, Division of
Research and Statistics
Mr. Sammons, Associate Director, Division of
International Finance
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Dahl, Assistant Director, Division of
Examinations
Mr. Staiger, Assistant Director, Division of
Data Processing
Miss Wolcott, Technical Assistant, Office of
the Secretary
Messrs. Cloth and Via of the Legal Division
Messrs. Eckert and Keir of the Division of
Research and Statistics
Messrs. Egertson and Goodfellow of the Division
of Examinations
Messrs. Vander Noot and Veenstra of the Division
of Data Processing
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
12/22/66
-2-
Approved items.
The following items were approved unanimously
after consideration of background information that had been made available to the Board.
Copies are attached under the respective numbers
indicated.
Item No.
Letter to The Louisville Trust Company,
Louisville, Kentucky, approving the establishment of a branch in Jefferson County.
1
Letter to Chase International Investment
Corporation, New York, New York, modifying
the Board's letter of September 21, 1966,
and granting permission for the Corporation,
either directly or through its wholly-owned
s ubsidiary, Arcturus Investment and Devel°Pment, Limited, Montreal, Canada, to purchase
additional shares of Liga Financiera, S.A.,
Madrid, Spain.
2
Letter to the New York Stock Exchange authorlzing discontinuance, as of the last Wednesday
of December 1966, of the monthly report (MF-4)
On borrowings of member firms carrying margin
accounts.
3
Letter to the Federal Reserve Bank of Philadelphia
aPproving a revision of the Bank's salary structure applicable to employees.
4
Application of Security Bank (Items 5 and 6).
There had been
dis tributed drafts of an order and statement reflecting the Board's
4PProval on December 12, 1966, of the application of Security Bank,
Webster, South Dakota, to merge with Farmers and Merchants State Bank,
Roslyn, South Dakota.
The issuance of the order and statement was authorized.
°f the documents as issued are attached as Items 5 and 6.
Copies
12/22/66
-3-
Time and savings deposit survey (Item No. 7).
There had been
distributed a memorandum dated December 21, 1966, from the Division of
Research and Statistics recommending that a new survey of interest rates
Paid at all member banks on time and savings deposits be initiated as
of the end of January 1967.
It was proposed that at least three quar-
terly surveys be conducted; consideration would then be given to the
question of frequency of further surveys.
The proposal reflected rec-
ommendations of a subcommittee of the System Research Advisory Committee,
which recommendations were approved by that Committee, and then by the
Committee on Research and Statistics of the Conference of Presidents at
its meeting on December 12, 1966.
It was contemplated that similar
surveys would be conducted by the Federal Deposit Insurance Corporation
for nonmember insured banks and mutual savings banks and by the Federal
}Lome Loan Bank Board for insured savings and loan associations.
Attached
tO the
memorandum was a proposed letter to the Presidents of all Federal
Res
erve Banks relating to the new series.
In commenting on the proposal Mr. Eckert indicated that for
effective administration of rate ceiling regulations, as well as for
analytical purposes, there was a continuing need for up-to-date inforIllation on time and savings deposit rates, terms, and balances.
In
addition, current data would be essential in the preparation of testi111°oY for anticipated Congressional hearings that probably would be held
any
next year in connection with possible extension of the rate ceiling
12/22/66
yt
-4-
legislation enacted in September 1966.
The proposed questionnaire
would collect much the same information as that obtained in the joint
survey made by the Federal Reserve and the Federal Deposit Insurance
Corporation last May, with certain modifications to remedy inadequacies
Of the earlier survey and to take account of subsequent rate ceiling
a ctions.
Universe coverage was again recommended so as to provide max-
inlum flexibility for obtaining definitive answers to whatever questions
might arise in the course of hearings and in the determination of System
14511eY.
While it might be possible to obtain reasonably reliable data
elating to most prospective policy issues through sampling, such a
course was not recommended at this time.
Governor Maisel expressed the view that the May survey had had
significant informational gaps in it and noted that the proposed survey
would not fill those gaps.
The proposed survey again would request
information only on the highest rate offered by the respondent instituti°n and the most common rate.
In his view, the survey should seek to
de termine the volume of deposits outstanding at various rate levels if
the results were to provide answers to policy questions likely to be
asked, such as, for example, what deposit losses were indicated for
vari°us categories of savings institutions if rates were rolled back
by
a certain amount.
Governor Mitchell observed that it was proposed to send the
"eY questionnaire to every bank in the United States, whereas half
12/22/66
-5-
of the banks held only a small percentage of total time and savings
deposits.
If the questionnaire were sent to about 2,200 banks, that
would provide about 80 per cent deposit coverage.
Also, he felt that
it was as important to obtain information on gross flows as on rates
Paid.
Whether those two objectives could be married, he did not know.
But his inclination was to reject the present proposal and try to develop
a survey covering an adequate sample of banks in an effort to obtain
information on flows along with rate information.
In his opinion, the
Proposed survey would not improve the Board's knowledge to any useful
extent.
Governor Maisel suggested that universe coverage might be justified from the standpoint of determining the number and distribution of
banks that would be affected by a change in rate ceilings, regardless
Of size of bank, while Governor Mitchell questioned the necessity, from
an
analytical standpoint, of seeking information from a large number of
8111all banks.
He pointed out that the larger banks should be in a posi-
tion to
furnish meaningful information more easily due to automated
°Perating procedures.
Governor Brimmer noted that there had not been sufficient time
between distribution of the staff recommendation and this morning's
Meeting to study carefully the underlying problems relating to the
survey.
He observed that the questions presented today by members of
the Board were similar to those that had been raised when the May 1966
t'itt`.4
'I, 1 41i
12/22/66
-6-
survey was being prepared.
The question of a sampling technique appar-
ently had been given some consideration by the subcommittee, as indicated
in the December 21 memorandum, but it was not clear why the subcommittee
had not devoted more time to solving the problems involved instead of
simply rejecting that alternative.
As to the usefulness of the proposed
survey for policy purposes, he felt that the idea of a series of surveys
was good, but there remained the question whether the kind of data
O btained would be particularly helpful in reaching policy judgments.
With the first survey scheduled to be conducted as of January 31, 1967,
and an early need for data foreseen, it appeared that there might be no
Practical alternative to proceeding with a survey along the lines pro-
Posed by the staff.
But it was his opinion that the staff should devote
fUrther attention to the development of a sophisticated sampling proced ure, to the question of obtaining information on flows, and to the
feasibility of developing information such as Governor Maisel had mentioned.
With respect to the question raised by Governor Maisel, members
°f the staff pointed out that it was necessary to bear in mind the cost
t° respondents of providing information on deposits outstanding at part-i
cular rates, and a number of comments were made on the amount of work
that would appear to be required in reporting data of that character.
S°111e doubt was expressed as to whether estimates would produce data of
sufficient statistical reliability.
If not, the question was whether
12/22/66
-7-
the agencies would be justified in asking respondent institutions to
search their files at an expenditure of considerable time and effort.
On the question of a sampling technique, comment was made that
one reason arguing in favor of universe coverage was that some variation
in ceiling rates still prevailed on a geographical basis, which meant
that policy questions might arise that it would be difficult to answer
Without having geographical data.
In such a situation the difficulty
Of developing
a satisfactory sample was obviously magnified.
In any
event, although the longer-run objective was to move to a sampling basis,
the problem was complex and would require considerable staff effort.
Another reason that could be given in favor of sending the questionnaire
to all banks in the form proposed was that comparable data then would
be available for dates before and after the September interest rate
legislation.
On the question of the short notice given to the Board to consider the proposal, it was pointed out that the Committee on Research
and Statistics had acted on the survey only ten days ago.
It had
seemed to the staff desirable to bring the matter before the Board
Pl"ior to the December holidays in order to ascertain whether the Board
14°111d be agreeable to conducting the survey as of the end of January,
in which event plans for the survey would have to move forward rapidly.
It was also noted that the other agencies concerned intended to conduct
Surveys
on the same basis and as of the same date.
12/22/66
-8-
Further continents by members of the Board reflected general concurrence in the view that the several questions raised at this meeting
should be given further attention by the staff.
However, the likely
need for information in the area concerned in preparing testimony for
Congressional hearings was recognized, and it appeared that it would
not be feasible to conduct a survey at a date in the near future on a
basis other than the one currently proposed.
Members of the Board
expressed the hope that in the future proposals of this character could
be presented for consideration on a schedule such that if the Board had
reservations regarding the contemplated procedures, time would permit
ad justments to be made.
The conducting of the initial surveys on the basis proposed was
then authorized, Governor Mitchell dissenting, with the understanding
that the staff would devote further attention to possibilities for
accommodating the suggestions that had been made by members of the
Board in developing plans for the longer run.
Governor Mitchell dis-
sented from granting the authorization because in his judgment the
Proposed survey would not produce useful intelligence and it would be
better to return the matter to the staff for exploration of alternatives
4 copy of the letter sent to the Federal Reserve Banks reflecting the
BOard s
decision on the survey is attached as Item No. 7.
Michigan National Bank matter (Item No. 8).
Certain Michigan
banks had filed a complaint against the Comptroller of the Currency,
12/22/66
-9-
with the Board of Governors also named as a defendant, to prevent the
Proposed acquisition of Michigan Bank, National Association, Detroit,
Michigan, by Michigan National Bank, Lansing.
At issue were the pro-
visions of section 5136 of the U.S. Revised Statutes prohibiting a
bank from purchasing stock of another corporation, with certain exceptions.
By letter of November 23, 1966, the Department of Justice
requested that the Board forward a report on the case for use by the
Department in defense of the Board.
There had now been distributed a
draft reply that would suggest that consideration might appropriately
be given to the filing of a motion to dismiss the Board as a party
d efendant on grounds that the allegations in the complaint reached the
Comptroller but not the Board.
In couffitenting, Mr. O'Connell observed that the Comptroller of
the Currency (Mr. Saxon) had given preliminary approval to the proposed
transaction, holding that the restrictions of section 5136 would not be
v iolated, whereas the Board had uniformly interpreted that statute as
Prohibiting one State member bank from acquiring the stock of another
bank, and the Board's position had been publicized by administrative
interpretation.
Additionally, plaintiffs alleged that a violation of the Bank
14/1ding Company Act would be involved in the proposed acquisition.
On
this point, Mr. O'Connell recalled that a short time prior to the filing
12/22/66
-10-
of the complaint in this case Michigan National Bank made public
a nnouncement of its proposal to acquire the outstanding common stock
of Michigan Bank, the details being set forth in an October 20, 1966,
Proxy statement.
Upon learning of this proposal, the Board reminded
Michigan National Bank, by letter dated October 31, 1966, that the
bank's profit sharing trust reportedly held for the benefit of the
banki s
employees in excess of 50 per cent of the outstanding voting
stock of Central Bank, Grand Rapids, Michigan, and that in those
circumstances Michigan National Bank's acquisition of the stock of
Michigan Bank would constitute Michigan National Bank a bank holding
any as defined in the Bank Holding Company Act, as amended.
Sub-
sequently, Michigan National Bank advised the Board that the profit
Sharing trust had arranged for the sale of sufficient shares of the
stock of Central Bank to bring its holdings in that bank below 25 per
cent and that no exchange offer would be made to the shareholders of
Michigan Bank until consummation of such sale.
Under the circumstances
11° apparent violation of the Bank Holding Company Act was involved.
However, the most recent report of examination of Livonia
National Bank, Livonia, Michigan, revealed that the profit sharing
trusts of Michigan Bank and Michigan National Bank each owned 24 per
cent of the outstanding shares of common stock of Livonia National Bank.
Should the proposed acquisition be consummated, Michigan National Bank
would then become a bank holding company under the Bank Holding Company
t
12/22/66
-11-
Act by virtue of its control of more than 25 per cent of the stock of
two or more banks.
However, in view of previous actions by Michigan
National Bank to avoid conflict with or violation of the Bank Holding
Company Act, Mr. O'Connell thought it not unreasonable to assume that
the bank would take appropriate steps with respect to its control of
stock in Livonia National Bank to avoid violation of the Bank Holding
Company Act.
Mr. O'Connell went on to say that if Michigan National Bank
should fail to take such action as was necessary to avoid violation of
the Act, the question of violation could then be raised and determined
even though the Board had been dismissed as a party defendant.
Also,
should a violation of the Bank Holding Company Act later be evident the
B°ard could institute proceedings independent of the present litigation.
However, questions might be raised if it later became known that one of
the
major issues involved in the suit was violation of the Holding Com-
PanY Act and the Board had pulled back from an opportunity to litigate
the issue.
In addition, there was the possibility that the District
Court would be reluctant to dismiss the Board, anticipating the possibilitY that shortly thereafter the Board might make an administrative
determination on an issue pending before the court.
Accordingly, Mr. O'Connell recommended that an alternative
letter be sent to the Department of Justice that would discuss the questin
11 of the propriety of the Board's remaining in the case by giving
12/22/66
-12-
argument5 pro and con, leaving it up to the Department to decide whether
or not, in light of the considerations mentioned, to ask for dismissal.
Following discussion, unanimous approval was given to a letter
revised along the lines suggested by Mr. O'Connell.
A copy of the
letter subsequently transmitted to the Department of Justice is attached
as Item No. 8.
Several members of the staff withdrew from the meeting at this
Point.
National American Bank of New Orleans.
Mr. Solomon reported
that the steady borrowing of National American Bank of New Orleans, New
Orleans, Louisiana, from the Federal Reserve Bank of Atlanta had been
d
iscussed with the bank by the Reserve Bank several times.
The latest
arrangement had been that the bank would discontinue its borrowing no
later than January 15, 1967, and in the meantime would not exceed the
level of its current borrowing.
Vice President McCorvey of the Reserve
Bank had now informed Mr. Solomon of difficulties experienced by National
A
merican Bank in meeting its clearings.
Mr. Solomon then got in touch
141-th Acting Comptroller of the Currency Camp and Deputy Comptroller
Watson, and it had been arranged that a regional representative of the
C°mPtroller's Office would join Mr. McCorvey in New Orleans this morning.
The Purpose of Mr. Solomon's report was to alert the Board to the problem and to let the Board know that the Comptroller's Office and the
Reserve Bank were now following the matter actively.
12/22/66
-13-
During discussion it was observed that this situation pointed
IV the questions concerning administration of the discount window at
the Atlanta Bank that had been the subject of Board discussions.
The
New Orleans member bank, understood to be the largest State depository,
evidently had not managed its affairs with sufficient competence to
cope with the large swings in such deposits, meanwhile, its borrowings
from the Reserve Bank had continued over an extended period.
It was understood that the Division of Examinations would keep
Closely in touch with developments in respect to the New Orleans member
bani,
also that it would continue to follow closely the administration
of the discount window at the Atlanta Reserve Bank.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board a
letter to the Federal Reserve Bank of
Richmond (copy attached as Item No. 9)
approving the appointment of John E.
Thompson as Federal Reserve Agent's
Representative at the Baltimore Branch.
Secretaty
BOARD OF GOVERNORS
Item No. 1
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1966
Board of Directors,
The Louisville Trust Company,
Louisville, Kentucky.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by The Louisville
Trust Company, Louisville, Kentucky, of a branch at
7923-7925 Preston Highway, unincorporated area of
Jefferson County, Kentucky, provided the branch is
established within one year from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
BOARD OF GOVERNORS
Item No. 2
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO TI-4E BOARD
December 22, 1966.
Chase International Investment Corporation,
1 Chase Manhattan Plaza,
New York, New York. 10005
G
entlemen:
In accordance with the request contained in your letter
of November 17, 1966, the Board of Governors modifies its letter
September 21, 1966, and grants consent for your Corporation
CIIC") either directly or through CIIC's wholly-owned subsidiary,
:.',roturus Investment and Development, Limited ("Arcturus"), Montreal,
anada, to purchase and hold additional shares of Liga Financiera,
S*A. ("LIGA"), Madrid, Spain, at a cost of approximately US$750,000,
Provided such shares are acquired within one year from the date of
this letter. In this connection the Board also approves the purchase and holding of such shares in excess of 10 per cent of CIIC's
or Arcturus' capital and surplus.
The Board's consent to the proposed additional purchase
and holding of shares of LIGA by CIIC or Arcturus is granted subject to the same conditions as set forth in the Board's letter of
March 30, 1965, as modified in its letter of August 3, 1966.
The foregoing consent is given, in the event that CIIC
make the investment, with the same understanding as set forth
the third paragraph of the Board's letter of September 21, 196,6,
and with the further understanding that should Arcturus make the
Proposed investment no additional investment by CIIC in Arcturus
!
would be required.
should
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 3
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orriciAL
CORRESPONDENCE
TO THE BOARD
December 30, 1966.
Mr. Leon T. Kendall,
Vice President and Economist,
New York Stock Exchange,
11 Wall Street,
New York, New York.
Dear Mr. Kendall:
Your desire to discontinue the New York Stock Exchange
monthly report on member firm borrowing (MF-4) was brought to
the
ar,ttention of the Board through Mr. Keir of our Capital Markets
!eotion. In view of the uses to which these data are now put,
L°gether with other sources of information that apply to the
Statile universe, the Board concurs in the desirability of disconinuing the report. This letter may be regarded as giving any
tleeded authority to eliminate the report with completion of data
48 of the last Wednesday of December 1966.
Sincerely yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(
BOARD OF GOVERNORS
Item No. 4
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 22, 1966
CONFIDENTIAL (FR)
Mr, Karl R. Bopp, President,
Federal Reserve Bank of Philadelphi,
Philadelphia, Pennsylvania. 19101
Dear Mr. Bopp:
As requested in your letter of December 15, 1966, the Board
of Governors approves the following minimum and maximum salaries for
.the respective grades of the employees' salary structure at the Federal
Reserve Bank of Philadelphia, effective January 23, 1967.
Grade
Minimum Salary
1
00.1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
$ 2,915
3,120
3,440
3,885
4,370
4,885
5,435
6,015
6,635
7,315
8,045
8,935
9,940
11,080
12,340
Maximum Salary
$ 3,785
4,210
4,645
5,250
5,900
6,595
7,340
8,125
8,960
9,880
10,865
12,065
13,430
14,960
16,660
The Board approves the payment of salaries to employees within
the limits specified for the grades in which their respective positions
are classified. All employees whose salaries are below the minimums of
their grades as a result of the structure increase should be brought
Within appropriate ranges not later than three months after the effective date of the new structure.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
47E;9
Item No. 5
12/22/66
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
Ilathe Matter of the Application of
SECURITY BANK
for
oPProval of merger with
-'1111er8 and
Merchants State Bank
ORDER APPROVING MERGER OF BANKS
There has come before the Board of Governors, pursuant to
e
Bank Merger Act, as amended (12 U.S.C. 1828(c), Public Law 89-356),
ah a
PPlication by Security Bank, Webster, South Dakota, a State member
141111.
Of
the Federal Reserve System, for the Board's prior approval of
th
Illerger of that bank and Farmers and Merchants State Bank, Roslyn,
44th Dakota, under the charter and title of Security Bank. As an
41""dent to the merger, the sole office of Farmers and Merchants
Stat
sank would become a branch of the resulting bank.
Notice of
the Proposed merger, in form approved by the Board, has been published
1114'811ant to said Act.
Upon consideration of all relevant material in the light of
the f
a tors set forth in said Act, including reports furnished by the
e°DaP -0
11er of the Currency, the Federal Deposit Insurance Corporation,
-2-
12114 the Attorney General on the competitive factors involved in the
Proposed merger,
IT IS HEREBY ORDERED, for the reasons set forth in the
44°4/8 Statement of this date, that said application be and hereby
i8aPProved,
provided that said merger shall not be consummated
(0 before the thirtieth calendar day following the date of this
Order or (b)
later than three months after said date.
Dated at Washington, D. C., this 22nd day of December, 1966.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Robertson, Shepardson, Mitchell,
Daane, Maisel, and Brimmer.
(signed)
Merritt Sherman
Merritt Sherman,
Secretary.
(stAL)
Item No. 6
12/22/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION OF SECURITY BANK
FOR APPROVAL OF MERGER WITH FARMERS
AND MERCHANTS STATE BANK
STATEMENT
Security Bank, Webster, South Dakota, with total deposits
fab°ut $4 million, has applied, pursuant to the Bank Merger Act
1828(c), as amended by Public Law 89-356), for the Board's
141 'clr aPproval of the merger of that bank with Farmers and Merchants
tat
—e Bank, Roslyn, South Dakota ("Roslyn Bank"), which has total
1/
depo
Sits of about $1 million.
The banks would merge under the
ell4tter and name of Security Bank, which is a member of the Federal
"e System. As an incident to the merger, the single office of
Yn Bank would become a branch of Security Bank, increasing the
t1ber
of its offices to two.
Competition. - The single office of Security Bank is in
er, which is the seat of Day County and its largest community
'
6Pul
ation about 2,700).
Roslyn (population about 260), the site
th
e sole office of Roslyn Bank, is 12 miles north of Webster.
130th
"mmunities are in northeastern South Dakota.
Cures are as of June 30, 1966.
The economy
-2-
t I
4eC
of tis
ue area is supported by agriculture, with an emphasis on the
ng of livestock and small grain.
There is no significant competition between the two banks.
Recenti_ _,
Y
Roslyn Bank was acquired by the interests which control
SeclIritY Bank. Even if common control were terminated, however, the
development of meaningful competition between these banks is unlikely
Ileeause of their small size and the essentially local nature of
their
business.
The nearest other banking offices to Roslyn and Webster
°Perated by six small banks, which are situated from 11 to 24
r4ties distant and range in deposit
size from about $1 million to
4 million.
These banks draw the vast bulk of their business from
their oun communities, and would not
be adversely affected by the
tergere
The effect of the proposed merger on competition would not
be adverse.
Financial and manaRerial resources and future
ros ects. -
The bn14
a-4.-ng factors with respect to the subject banks are satisfactory,
as
tileY
shell
would be with respect to the resulting institution.
Convenience and needs of the communities. - The evidence
8 that the increased lending limit of the resulting bank would
bellef
it the residents of both the Webster and Roslyn areas. In
41ditin
-n, the replacement of Roslyn Bank by an office of Security
taNt
would bring par banking and other improved services to the
itoS1
Yn area.
Summary and conclusion. - In the judgment of the Board, the
PiTosed merger would benefit the banking convenience and needs of
Roo.
Yn and Webster, and would not have an adverse effect on banking
cotapet tion.
Accordingly, the Board concludes that the application should
be aPproved.
bete
ber 22, 1966.
F
.....
• Of Got
,
.•
k'4. •
SO
ffr
BOARD OF GOVERNORS
Item No. 7
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 29, 1966.
Dear Sir:
The Board has authorized the institution of a regular
reporting series to collect information on rates, terms, and amounts
outstanding for various types of time and savings deposits at all
member banks, similar to the surveys made in December 1965 and
MaY 1966. This survey is to be conducted as of the last business
day of the first month of each calendar quarter. Thus, the first
survey will be as of January 31, 1967. Enclosed are two copies of
the survey reporting form, which is to be duplicated at the Reserve
Banks. The forms provide space for the Reserve Bank to insert the
appropriate survey and report-filing dates for each survey.
The specific recommendations regarding the survey were
developed by a Subcommittee of the System Research Advisory Committee,
and these recommendations were cleared without dissent through the
Parent Committee and the Committee on Research and Statistics of the
Conference of Presidents prior to submission to the Board.
While a quarterly survey has been authorized at this time,
it is recognized that continuation of the survey in its present
form as often as quarterly may prove unnecessary, particularly
after conditions in the savings markets become less unsettled than
they have been this year. Accordingly, the question of frequency
and also of content will be reviewed after completion of the first
three surveys, and any changes that prove desirable would be
authorized at that time.
It is our understanding that the Federal Deposit Insurance
Corporation will conduct an identical stirvty for nonmember insured
banks on January 31. In addition* the FDIC and the Home Loan Bank
Board will make comparable surveys on that date for all mutual
savings banks and all insured savings and loan associations.
Copies of a technical memorandum outlining procedures for
Preliminary processing of the data at the Reserve Banks will be
mailed shortly to Reads of Research and Data Processing offices.
As you will appreciate, in order to complete the survey within the
relatively tight time table that has been scheduled 14111 require
Particular care in the review and edit of respondent reports on the
part of the Reserve Banks so as to minimize error corrections after
the data have been received at the Board.
Very truly yours,
Merritt Sherma
Secretary.
Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
BOARD OF GOVERNORS
Item No. 8
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 23, 1966
The Honorable H. Barefoot Sanders,
Assistant Attorney General,
Civil Division,
Department of Justice,
Washington, D. C. 20530
Attention
Re:
Mr. Harland F. Leathers, Chief,
General Litigation Section.
The Detroit Bank and Trust Company, et al. v.
James J. Saxon, Comptroller of the Currency, and
the Board of Governors of the Federal Reserve
System, Civil Action No. 3003-66 (U.S.D.C. D. D.C.)
Your Ref: BS:IG:af, 145-3-846
Dear Mr. Sanders:
This acknowledges your letter of November 23, 1966,
aquesting that a report on the above case be prepared and forwarded
to your office in aid of your representation of the Board of
Governors as a defendant in the case. In view of discussion between
Irwin Goldbloom of your staff and Mr. Thomas J. O'Connell of the
ard's
4
legal staff, this reply will assume knowledge by your staff
.,?f the position occupied in this case by Michigan National Bank,
Lansing, Michigan, and Michigan Bank, National Association, Detroit,
illchigan (herein "Michigan Bank"). The Board is advised that, stibsequent to the filing of the complaint, a motion for leave to interue as a party defendant was filed on behalf of Michigan National
ank, and that on behalf of defendants Comptroller of the Currency
au(' Board of Governors your office has filed a "no objection" to that
Accordingly, the Board assumes that Michigan National Bank
as been or will be admitted as a party defendant.
Subject to certain legal and policy constraints hereafter
Ill!ntioned, it would appear that consideration would appropriately be
'
81-yen to the filing of a motion to dismiss the Board of Governors as
Party defendant. Plaintiffs' allegation that Michigan National
_ank i s proposed purchase of the capital stock of Michigan Bank for its
4711 account, if consummated, would violate the prohibitions of para'
graPh Seventh, R. S. 5136 (12 U.S.C. § 24) is unaccompanied by any
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
The Honorable 1.1,. Barefoot Sanders
-2-
allegation of unlawful or wrongful act in this respect contemplated
or proposed by, or statutorily available to the Board. No request
of any nature for injunctive or restraining relief is made with respect to the Board, as it is against the Comptroller of the Currency
(Paragraphs B.I, 2, and 3 of the complaint's prayer). While plaintiffs correctly allege (Compl. para. 5) that the Beard of Governors
is "empowered by Congress to regulate certain activities performed
by member banks, both State and national", there is no allegation,
nor could there properly be, of statutory or regulatory authority in
the Board of Governors to take any action with respect to authorizing,
validating, or effecting the action in issue, namely, Michigan
National Bank's proposed increase of authorized capital stock, or its
issuance thereof to the shareholders of Michigan Bank. Regarding
Michigan National Bank's proposal to acquire the voting stock of
Michigan Bank, paragraph Seventh of R. S. 5136 provides "Except as
hereinafter provided or otherwise permitted by law, nothing herein
contained shall authorize purchase by the association [National Bank]
for its own account of any shares of stock of any corporation". The
twentieth paragraph of section 9 of the Federal Reserve Act (12 U.S.C.
35) subjects State-chartered banks that are members of the Federal
Reserve System "to the same limitations and conditions with respect to
the purchasing ... of ... stock as are applicable in the case of
national banks." Consequently, both national banks and State member
hanks are governed by the above-quoted provisions of R. S. 5136. However, the Comptroller of the Currency enforces and interprets those
Provisions with respect to national banks, and the Federal Reserve
System enforces the same in its supervision of State member banks.
Accordingly, any allegation of a wrongful act or of a failure to act
Oil the part of a Federal bank supervisory authority with respect to a
national bank's proposed action in violation of the quoted provision
°f R. S. 5136 is to be asserted against the Comptroller of the Currency.
2
As applied to State member banks, the Board has publicly
taken the position that the cited provisions of R. S. 5136, made'
4PPlicable to State member banks under section 9 of the Federal Reserve
-Act, make unlawful the voluntary acquisition by a State member bank of
the stock of another bank, whether the consideration given for the
stock consists of cash, other bank assets, or shares of stock of the
acquiring bank. A more detailed statement of the Board's position is
contained in the May 1966 issue of the Federal Reserve Bulletin at
Page 655 a copy of which is attached to the complaint and marked
Exhibit C.
In view of the responsibility of defendant Comptroller of the
rrency with respect to the alleged violations of the cited provisions
°f R. S. 5136, and considering that no allegation of similar
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
1
•
The Honorable H. Barefoot Sanders
1
-3-
responsibility is made, or could properly be made, against the Board,
nor is injunctive or restraining relief sought against the Board, it
appears that, in relation to the R. S. 5136 issue, a motion to dismiss on behalf of the Board would properly lie for failure to state
a claim as to which relief can be granted.
An additional violation of law alleged (Compl. para. 15)
is that the subject proposal would contravene the provisions of the
Bank Holding Company Act of 1956, 12 U.S.C. § 1841, et seq., as
amended by Public Law 89-485, 80 Stat. 236. The complaint contains
no specification of the alleged violation of the Bank Holding Company
Act, nor asserts the fact or facts upon which this allegation is based.
As Mr. O'Connell has discussed with Mr. Goldbloom, a short time prior
to the filing of the complaint in this case, Michigan National Bank
made public announcement of its proposal to acquire the outstanding
common stock of Michigan Bank. The details of that proposal were set
forth in an October 20, 1966 proxy statement issued by Michigan
National Bank. Upon learning of this proposal, the Board advised
Michigan National Bank of the Board's understanding that the Bank's
Profit Sharin Trust held for the benefit of Bank's employees in excess
of 50 per cent: of the outstanding voting stock of Central Bank, Grand
Rapids, Michigan, and that, in these circumstances, Michigan National
Bank's acquisition of the stock of Michigan Bank would constitute
Michigan National Bank a bank holding company as defined in the Bank
Holding Company Act.
The rationale of the Board's conclusion was as follows.
-Section 2(a) of the Bank Holding Company Act, as amended, defines a
bank holding company as "any company (1) that directly or indirectly
owns, controls, or holds with power to vote 25 per centum or more of
the voting shares of each of two or more banks or of a company that is
or becomes a bank holding company by virtue of this Act; . • .". Section 2(g)(2) of the Act, as amended, provides that "shares held or
controlled directly or indirectly by trustees for the benefit of'.
(C) employees (whether exclusively or not) of a company, shall be
deemed to be controlled by such company; . .". Michigan National
Bank was advised that, assuming the trustees of the Profit Sharing
Trust owned at least 25 per cent of the stock of Central Bank at such
time as Michigan National Bank's proposal to acquire the stock of
Michigan Bank was consummated, Michigan National Bank would directly
or indirectly control more than 25 per cent of the voting stock of
each of two banks, namely, Central Bank and Michigan Bank. In response
te the Board's communication, Michigan National Bank advised the Board
that the Profit Sharing Trust had, by sale of stock, reduced its hold.
3-ngs in the Central Bank to less than 25 per cent of the total outstanding voting stock, and that, accordingly, the proposed acquisition of
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(Z1
The Honorable H. Barefoot Sanders
-4-
4ichigan Bank stock would not constitute Michigan National Bank a
bank holding company as defined by the Bank Holding Company Act.
The Board acknowledged Michigan National Bank's letter, noted the
Bank's expression of opinion as aforestated, but made no statement
With respect to the validity of that opinion.
In the course of review of the most recent report of
examination of Livonia National Bank, Livonia, Michigan, the Board's
attention was brought to the following reported ownership of stock
of the Livonia National Bank: of the total of 50,000 outstanding
shares of common stock, 12,000 shares are held by the Profit Sharing
Trust of Michigan Bank, and 12,000 shares are held by the Profit
Sharing Trust of Michigan National Bank, The Federal Reserve Bank
of Chicago has confirmed that at current date the aforementioned
ownership continues. Accordingly, the combined holdings of the
Profit Sharing Trusts of the two banks represent control of 48 per
cent of the outstanding voting stock of Livonia National Bank.
Assuming consummation of Michigan National Bank's proposal to acquire
the stock of Michigan Bank, it is the Board's opinion that Michigan
National Bank would become a bank holding company under the Act, since,
Pursuant to the above-quoted section 2(g)(2) of the Act, the shares
held by the Profit Sharing Trust of Michigan Bank are deemed to be
controlled by that Bank, and the shares held by the Profit Sharing
Trust of Michigan National Bank are deemed to be controlled by that
Bank. Upon acquisition of control by Michigan National Bank of
Mlchigan Bank, Michigan National Bank will come into control of the
Livonia National Bank stock now controlled by Michigan Bank, Michigan
National Bank would then control more than 25 per cent of the stock of
tw° or more banks, namely, Michigan Bank and Livonia National Bank.
While the foregoing analysis is pertinent to plaintiffs'
allegation that consummation of the proposal in issue would constitute
Ilichigan National Bank a bank holding company, the following observatlions are considered equally pertinent. The Board's inquiry into the
current status of Michigan National Bank's holding of the stock of
Llvonia National Bank involved a discussion of such holding between
an official of the Federal Reserve Bank of Chicago and a principal
Officer of Michigan National Bank. During this conversation Michigan
National Bank's official was informed of the view that, assuming continuation of the aforestated control of Livonia National Bank stock,
uPon consummation of the Michigan Bank acquisition, Michigan National
Bank would become a bank holding company. In the light of previous
actions by Michigan National Bank to avoid conflict with or violation
Of the Bank Holding Company Act, it is not unreasonable to assume that
the Bank has taken, or will take, appropriate steps with respect to its
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
The Honorable H. Barefoot Sanders
-5-
control of stock in Livonia National Bank to avoid violation of
the Bank Holding Company Act, .
Even should Michigan National Bank fail to take such action
as necessary to avoid violation of the Act, it would appear that the
fact and effect of such a violation can be determined at trial of
this case even though the Board has been dismissed as a party defendant. The issue of such violation can be joined as between plaintiffs
and defendants Michigan National Bank and the Comptroller of the
Currency. However, the Board believes that persuasive reasons can
be advanced in favor of the Board's remaining a party in this case.
The Board's statutory responsibility with respect to
interpretation and enforcement of the Bank Holding Company Act, viewed
in relation to the alleged prospective violation of that Act, presents
ample reason for the District Court to want available to it both the
person" of the Board for jurisdictional purposes, and the views of
the Board regarding the alleged violation of the Act. Thus, it is
logical to assume that the court would be reluctant to dismiss the
Board as a defendant, anticipating the possibility that shortly thereafter the Board might make an administrative determination on the very
issue pending before the court. There is also the possibility that a
motion to dismiss could precipitate efforts by plaintiffs to amend
their complaint to ask mandatory relief of the Board with respect to
the asserted Bank Holding Company Act violation. We believe that the
Present prayer for relief, directed as it is solely to the Comptroller
Of the Currency, most favorably positions the Board with respect to
its role in this case.
A final consideration that appears to argue against any
effort to dismiss the Board, unless similar effort is made with respect to the Comptroller of the Currency, is the possibility that
the court might desire, or at least not resist, the Board's participation in the resolution of the aforementioned conflicting intvpretations with respect to the prohibitory effect or not on Michigan
National Bank's proposal of paragraph Seventh of R. S. 5136. As
mentioned, the R. S. 5136 issue is not raised in this case because of
any action taken or threatened by the Board pursuant to its interpretation of that provision of law; however, the Board's interpretation
has been brought indirectly into issue by plaintiffs' allegations and
their Exhibit C to the complaint. Considering the recent action of
the District Court for the District of Columbia in the Baker, Watts
case (Civil Action No. 97-66) in requesting the Board to file
an amicus brief setting forth the Board's interpretation of a portion
of paragraph Seventh of R. S. 5136, it is not unreasonable to assume
that similar assistance in the same or a related form will be asked
ln this case.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
The Honorable H. Barefoot Sanders
-6-
As to other of the complaint's allegations of violations
of Federal law, it is alleged (Compl. para. 15) that the subject
Proposal would violate the provisions of 12 U.S.C. §§ 36 and 81
(R. S. 5155 and 5190), which relate, respectively, to the operation
of branches by national banks and the locations at which the general
business of a national bank may be transacted. As noted earlier
With regard to the alleged violation of R. S. 5136, a determination
as to whether a particular transaction proposed to be undertaken by
a national bank would violate the provisions of 12 U.S.C. §§ 36 and
81 is a matter for determination by the Comptroller of the Currency.
Although the Board has taken the position that the acquisition by a
State member bank of the stock of another bank would violate at least
the spirit of the branch banking provisions of 12 U.S.C. § 36, no
Position has been taken on this issue by the Board in this case. In
view of the fact that the proposal here involves a national bank, it
would seem that the questions relating to alleged violations of
12 U.S.C. §§ 36 and 81 should be decided in the context of plaintiffs'
allegations and defendant Comptroller of the Currency's answer thereto.
The Board believes that there are no relevant documents,
list of names, or other supporting data that might be beneficial to
You at this time. Further, in view of the apparent conflict represented, respectively, by positions of defendants Comptroller of the
Currency and the Board with respect to several of plaintiffs' allegations, the Board believes advisable its withholding of specific statements of admission or denial with respect to the allegations of the
complaint. At such time as you have reached a decision on the question
of filing a motion to dismiss on behalf of the Board, the matter of
Specific admissions or denials of the complaint's allegations can be
mutually resolved.
In the foregoing connection, Mr. O'Connell will render
Whatever assistance is considered appropriate in any phase of the
Department's preparation of the Board's position.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
it
BOARD OF GOVERNORS
Item No. 9
12/22/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 23, 1966
Mr, Edwin Hyde,
Chairman of the Board and
Federal Reserve Agent,
Federal Reserve Bank of Richmond,
Richmond, Virginia. 23213
Dear Mr. Hyde:
In accordance with the request contained in your letter of
December 8, 1966, the Board of Governors approves the appointment of
Mr. John E. Thompson as a Federal Reserve Agent's Representative at
the Baltimore Branch to succeed Mx. Talbott D. Cockey.
This approval is given with the understanding that
Thompson will be solely responsible to the Federal Reserve Agent
and the Board of Governors for the proper performance of his duties,
!cept that, during the absence or disability of the Federal Reserve
?Zent or a vacancy in that office, his responsibility will be to the
4ssistant Federal Reserve Agent and the Board of Governors.
When not engaged in the performance of his duties as Federal
Agent's Representative, Mr. Thompson may, with the approval of
a Federal Reserve Agent and the Vice President in charge of the
46altimore Branch, perform such work for the Branch as will not be in"nsistent with his duties as Federal Reserve Agent's Representative.
Reserve
It will be appreciated if Mr. Thompson is fully informed of
the
Importance of his responsibilities as a member of the staff of the
?ed
eral
t,
Reserve Agent and the need for maintenance of independence from
"e operations of the Bank in the discharge of these responsibilities.
It is noted from your letter that, with the approval of
111'' Thompson's appointment by the Board of Governors, he will execute
th
usual Oath of Office which will be forwarded to the Board together
'th advice of the effective date of his appointment.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER