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Minutes for
To:
Members of the Board
From:
Office of the Secretary
December 23, 1963.
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.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Minutes of a meeting of the available members of the Board
of Governors of the Federal Reserve System on Monday, December 23,
1963. The meeting was held in the Board Room at 10:00 a.m.
PRESENT:
Mr. Robertson, Acting Chairman
Mr. Mitchell
Mr. Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Noyes, Director, Division of Research and
Statistics
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Benner, Assistant Director, Division of
Examinations
Mr. Mattras, General Assistant, Office of
the Secretary
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The following actions were taken subject to ratification at
the next meeting of the Board at which a quorum was present:
Circulated item.
The following item, a copy of which is
attached to these minutes as Item No. 1, was approved unanimously:
Letter to Senator Robertson, Chairman of the
Senate Banking and Currency Committee, reporting
,prl S. 2259, a bill to amend section 24 of the
ederal Reserve Act to liberalize the conditions
0,
loans by national banks on forest tracts.
It was reported that Governors Mills and Shepardson had
indicated that they would have approved the letter if present.
A 00 lication of Lorain Count
Savin s & Trust Com an
Items
Pursuant to the decision reached at the meeting on
bacember 11, 1963, there had been distributed a proposed order and
98
12/23/63
-2-
s tatement reflecting the Board's denial of the application of The
Lorain
County Savings & Trust Company, Elyria, Ohio, to merge with
The Central Bank Company, Lorain, Ohio.
There had also been
distributed a dissenting statement of Governor Shepardson in which
G°vernor Balderston concurred.
The issuance of the order, statement, and dissenting statement
was authorized; copies are attached to these minutes as Items 2, 3,
'and 4
All members of the staff then withdrew except Messrs. Sherman,
0
4enY n, Molony, Hackley, and Noyes.
Call report.
Acting Chairman Robertson advised that there had
been no further word from the Federal Deposit Insurance Corporation as
t° whether there would be adherence to the indicated intent of the
Comptroller of the Currency, acting in that capacity and as Acting
Chairman of the Corporation, to fix the close of business December 20,
1963, as the date for the December call on insured banks for reports
°f condition.
Assuming that there would be no change, Acting Chairman
kthertson suggested that consideration be given to the question of the
Board of Governors
issuance of a press statement indicating why the
11°111d have preferred a year-end call date.
been distributed to the
A draft of possible statement that had
board was then discussed, along with reasons, some of which were
84ggested in a memorandum from Mr. Sherman to Governor Robertson dated
beeember 23, 1963, against the issuance of such a statement.
44.99
12/23/63
During the discussion, consideration also was given to the
possible alternative procedure of not issuing a public statement from
the Board's office but instead sending to the Federal Reserve Banks
material that they could use in transmitting the request for reports
Of condition to member banks, and Mr. Noyes offered draft material
that might be used if such a procedure should be decided upon.
In
this connection, it was noted that inasmuch as the Comptroller of the
Currency had adopted a report form that, unless supplemented, would
make reports from national banks irreconcilable with the reports to be
made by State banks, it was planned for the Federal Reserve to call
upon the national banks to submit a reconcilation form.
Having this
in mind, Mr. Molony distributed a possible press statement highlighting
the effort of the Federal Reserve to further the availability of useful
and consistent information on the condition of the nation's banks as a
Whole.
Mr. Molony indicated, however, that he would be inclined
against the issuance of a press statement.
After discussion of the alternatives, a unanimous view developed
among the members of the Board against the issuance of a press statement
Or the inclusion of a statement in the mailings from the Federal Reserve
Danks to the member banks concerning the call.
It was felt that it
Would be desirable, however, to have available to members of the Board,
a ppropriate members of the staff, and the Reserve Bank Presidents a
guideline that could be used in responding to such inquiries as were
4500
12/23/63
-4-
received following the issuance of the call.
The drafts that had
been distributed were reviewed with this thought in mind and a number
Of suggestions were made.
It was understood that the staff would
Proceed with further work on a draft of guideline for consideration
by the Board at another meeting in the light of developments.
The meeting then adjourned.
Secretary's Note: Acting in the absence
of Governor Shepardson, Governor Robertson
today approved on behalf of the Board the
following items:
Letter to the Federal Reserve Bank of Cleveland (attached Item
No.
approving the appointment of Richard W. Hanusz as assistant
examiner.
Letter to the Federal Reserve Bank of Richmond (attached Item No. 6)
aPproving the appointment of Rafael A. Catasus as assistant examiner.
, Memoranda from appropriate individuals concerned recommending the
Iollowing actions relating to the Board's staff:
AZZaLatMall
Phyllis Ann Carson as Stenographer in the Legal Division, with
basic annual salary at the rate of $4,110, effective the date of
"trance upon duty.
'
.
4 .,E5..4nce of resignation
Barbara B. Kay, Statistical Clerk, Division of Research and
Statistics, effective at the close of business January 3, 1964.
BOARD OF GOVERNORS
OF THE
Item No. 1
12/23/63
FEDERAL RESERVE SYSTEM
WASHINGTON
JAMES LOUIS ROBERTSON
MEMBER OF THE BOARD
December 23, 1963.
The Honorable A. Willis Robertson,
C
hairman,
Committee on Banking and Currency,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
November 4 for
This is in reply to your request dated
!report on S. 2259, a bill to amend section 24 of the Federal
by national
1teserve Act, to liberalize the conditions of loans
,
oanks on forest tracts.
to testify
Earlier this year, Chairman Martin was asked
before the House Banking and Currency Committee on a companion
that Combill) H.R. 8230. On September 24, he appeared before
nd
recomme
not
"would
Board
the
that
Tittee and reported to them
ravorable action on this proposal unless further study reveals
ance,
greater evidence of the need for it." Following that appear
tudy by the Board's staff has included the collection of
nformation from a sample of commercial banks, State and national,
chosen as likely to be active in the field of timber loans. The
r'esults are reported in the attached staff memorandum, copies of
Which have also been furnished to the House Banking and Currency
Committee.
I
s
study are
The conclusions emerging from this further
ummarized in the following excerpt:
for national
"A liberalization of maximum terms
unlikely to
seem
banks as proposed in H.R. 8230 would
by banks,
lending
lead to any large increase in forest
ely fastrelativ
except perhaps in the financing of the
The
South.
the
growing species used for pulpwood in
ly,
unlike
more
change in maximum terms would seem even
al
nation
the
to
therefore, to contribute significantly
ceable
irrepla
objective of preserving our country's
-lived forests
natural resources, of which our longer
are, in effect, a part.
4502
The Honorable A. Willis Robertson
-2-
"However, neither does it appear that the changes
in Section 24 that would be made by H.R. 8230 would be
likely to lead to unsound lending by the national banks."
After considering this additional information, the Board
4ees no
objection to favorable consideration of S. 2259.
Sincerely yours,
(Signed) J. L. Robertson
4. L. Robertson
45
December 11, 1963
Bank Lending on Forest Tracts
As background for this report on bank lending on forest
tracts, the Federal Reserve Banks have asked questions of more
than 100 commercial banks concerning their loans and their lending practices and problems in this field.
The information pro-
vided by the cooperating banks, which include both national and
State banks located in various forested areas of the country, is
summarized below.
From the banks' answers, it appears that in much of the
United States the factors that actually limit national banks in
their mortgage lending on forest tracts are factors other than the
restrictions that are now in Section 24 of the Federal Reserve
Act.
However, in the South and to some extent in the Far West,
Section 24 does apparently restrain the activities of some national
banks.
Likewise, amcng State banks, which are not subject to this
and
Pr°vision of the Federal Reserve Act, it is only in the South
Par West that banks appear to be making forest loans which Secbank from
tion 24 in its present form would prohibit a national
Making.
The comments of the respondent banks served also to
emphasize that the making of loans to finance timber ownership or
timber operations is a field in which the judgment and discretion
of the banker and his appraisal of the borrower's character and
451'i
-2
ability are of particularly great importance.
There is much
diversity in an economic sense, among the types of operations
that borrowers may wish to finance, as well as diversity in a
biological sense among the rates of growth of different types of
trees or in different climatic or soil conditions, which affect the
kinds of financing that are appropriate. Some loans by national
banks to finance logging operations, in fact, are made without
real estate security and are therefore outside the scope of
Section 24.
It does not appear, therefore, that any set of mechanical
rules as to loan ratios or maximum
maturities or the like -- either
those now in Section 24 or any others that might be substituted -Could in themselves assure that loans will be sound or that a bank's
funds will be protected.
A liberalization of maximum terms for national banks as
Proposed in H.R. 8230 would seem unlikely to lead to any large increase in
forest lending by banks, except perhaps in the financing
Of the relatively fast-growing species used for pulpwood in the
South.
The change in maximum terms would seem even more unlikely,
th
erefore, to contribute significantly to the national objective
Of
preserving our country's irreplaceable natural resources, of
14111-oh our longer-lived forests are, in effect, a part.
However, neither does it appear that the changes in
Section 24 that would be made by H.R. 8230 would be likely to
lead to unsound lending by the national banks.
Under the present
450.3
Provisions of Section 24, as well as under the more liberal terms
that are proposed, the soundness of forest loans would seem to
depend on the exercise of good judgment on the part of the banks,
reinforced where necessary by the bank supervisory authority, more
than on the specific restrictions of the law.
As is brought out by the comments of the respondent
banks, there are numerous special problems in the making of timber
."°ans, especially in the case of a longer term loan to finance the
Ownership of forest lands as distinguished from short-term credit
to finance a logging operation.
For one thing, the cost of obtain-
ing a competent appraisal may be high compared to the dollar volume
of a typical timber loan by a bank.
Moreover, there are practical
Problems in estimating value as well as in obtaining any reliable
estimates of physical volume and quality.
Also, proper forest
nlanagement is agreed to be essential if forest lands are to provide
good security for a credit, but while foresters would have little
d ifficulty in appraising the quality of the current management of
a tract, it is not so easy for a bank making a long-term loan to
assure that good management will be maintained throughout the life
of the loan.
Furthermore, forest lands are subject to damage by fire,
insects, or disease.
In recent years insects and disease have
done much more damage than fire, and insurance against these risks
seems to be completely unavailable, although important progress
in the control of such damage has been made in recent years.
But
4506
-4
Parallel to these various risks and problems in the field of forest
credit, most other areas cf bank credit provide various problems
and difficulties of their own.
Thus, in the need for awareness
Of the risks involved and for the exercise of expert judgment by
the lender, forest credits do not differ greatly from many of the
Other kinds of credits that banks extend.
Some other sources of credit, as alternatives to bank
credit, include a number of life insurance companies and Federal
land banks that make long-term loans on forest tracts.
Such loans
'nay have maturities of 30 years or more, and may even provide for
the Postponement of all principal repayments during the first few
Years if little or no income is expected during that time.
Borrow-
ers who must rely on income from the forest tract itself from which
to repay their loans, especially in those parts of the nation where
trees grow slowly, naturally seek such credits.
Some idea of tne
eXtent of long-term financing now available to owners of forest
t-acts can be obtained from rough estimates made by the Department
'
Of Agriculture.
These indicate, as of January 1961, about $90 million
in outstanding forest loans by insurance companies and $15 million
bY Federal land banks.
Info
-----,rmation Obtained from Respondent Banks
Reserve Bank personnel contacted commercial banks in
forested areas of 22 States.
Information in some detail was obtained
from 63 banks, including 34 national and 29 State banks.
State
banks were contacted in order that their forest credit activity
4507
-5
and policies, not subject to the restrictions of Section 24 of the
Federal Reserve Act, might be compared with those of the national
banks.
The commercial banks were asked whether they made loans
secured by forest tracts, whether such loans were to finance production or harvesting, the typical and maximum terms of the loans,
the experience with regard to repayment and physical damage to the
collateral, and the procedures followed in appraising the value
of the timber and the qualicy of the management.
Banks that re-
Ported making few or no loans secured by forest tracts were asked
the reasons for the lack of activity in this area.
Banks were found to be making two distinct kinds of
forestry loans: (1) short-term loans to finance the harvesting
and marketing process, and (2) longer term loans based on growing
timber.
Also, many banks in forested areas said they did not maize
anY loans involving the use of the growing timber as collateral.
4 summary of the reports from banks in each of these categories
is presented below.
a- Short-Term Loans to Finance Harvesting,
Throughout the nation, many State and national banks
finance the harvesting and marketing of lumber and pulpwood by
'flaking loans for the purchase of timber to loggers, pulpwood
clealers, and sawmills.
According to the survey, these loans are
most often made on the same basis as other commercial loans, by
extending a line of credit on the basis of the borrower's net
14°rth, income, and credit record.
4508
6
Some State banks in the survey reported taking a mortgage
on the land and timber involved in the transaction.
The typical
amount of the loans in these cases was 50 to 60 per cent of the
appraised value, and typical maturities were reported as 6 months
or I year.
Maximum maturities that were employed were most often
1 year, with a few banks going up to 2 years and 3 years.
Some
of the banks making these mortgage loans stressed that the credit
record and net worth of the borrowers were given more consideration than the forest collateral, or that other collateral was also
Obtained.
National banks appeared less likely to use the real
estate mortgage instrument in extending credit for the harvesting
Process, probably because of the provision of Section 24 limiting
m°rtgege loans to 40 per cent of the value of the timber.
In view
of the secondary position generally accorded to such collateral
14
'
making the decision to extend credit and also because of the
Possibility, exercised by some banks, of obtaining a chattel
mortgage on the timber, this effect of the present provision of
Section 24 does not appear to impose, in practice, a restriction
On the activity of national banks in the short-term credit field.
In areas where much of the timber is owned by the
Government, or where loggers normally purchase only the stumpage
rather than the land and timber, financing of the harvesting
°Peration by either group of banks obviously does not involve the
of real estate mortgages on the land in question.
II
"
4509
-
to Finance Growing Timber
24—L2ans
1
Bank loans to finance growing forests appear to exist
Primarily in the Southern States, where the soil and climate are
such as to permit trees to mature much faster than in the North
and West and where substantial areas of privately owned forests
Some bank financing of growing forests was also found
are found.
On the West Coast, but it was reported that most of these borrowers also operated sawmills, and that loans were likely to be made
when harvesting was imminent.
State banks that made loans based on growing timber
reported typically lending 50 to 75 per cent of the value of the
land and timber, amortized over a period of 3 to 5 years.
The
maximum maturities permitted for such loans by these banks ranged
from 3 to 15 years, with most banks citing 5 or 10 years as the
maximum maturity that would be considered.
Of the national banks that made loans of this type,
most stated that their activities were restricted by the provision
limiting such real estate loans to 40 per cent of the value of
the timber.
A smaller number cited the maturity limitation as
imPosing a real restriction.
These findings are compatible with
the information obtained from State banks.
National banks appear
to be at some disadvantage with regard to the amount they can
lend on a given tract.
The maturity limitation is a factor in
4 smaller number of cases, because on many loans other factors
Prompt bankers to keep the length of maturity below the legal limit.
4510
-8
• Reasons for Bank Inactivit
in Lendin
on Forest Tracts
In the case of both State and national banks, most banks
that were contacted in the survey reported making few or no loans
secured by forest tracts.
This finding is impressive because the
banks were chosen on the basis of being likely to be active in
this field, either because of their location or because of other
information available to the Reserve Bank making the contact.
A lack of requests was the reason most frequently given
for not making these loans.
Factors cited by various banks as
being responsible for the paucity of demand were (1) much of the
forest land in the area is not privately awned; (2) much of the
forested land is in the hands of owners who regard their tracts
as an investment for their funds and therefore infrequently seek
1°ans on such property, or is in the hands of corporations which
linance such holdings out of earnings or which obtain long-term
financing from sources other than the banks in the area; or
(3) most of the timber tracts are on farms and the owners secure
financing based on the value and earning power of the farm as a
vhole, including the timber, rather than asking for credit on the
timber alone.
Some bankers cited various elements of risk associated
With forest loans as an additional factor preventing them from
making such loans.
Among these risk elements were the fire hazard
and the high cost of fire insurance, prevalence of poorly managed
tracts in the area, and difficulty in obtaining an accurate estimate of the value of the timber.
4511
National banks that do not make forest loans secured by
real estate mortgages generally reported that the provisions of
Section 24 were not responsible for the inactivity.
de Loan experience
When asked about their experience with forest loans,
bankers reported an excellent repayment record.
cited any difficulties at all.
Only a few banks
One of these resulted from poor
management of the tract, and several cases of slow repayment were
related to worsening market conditions or changes in marketing
Plans.
Banks were also asked specifically about their experience
with fire and insect damage to timber.
Only one banker recalled
such damage, and in that case the loan was repaid.
In describing their loan experience, many bankers mentioned
the factors to which they attributed the good record.
Most prom-
among these were their care in selecting borrowers with good
Illanagement and credit reputations and their special attention to
Provisions made for fire protection.
Some banks also said that
borrowers were asked for collateral in addition to the timber, or
that wme borrowers repaid their loans from nonforest income.
raivation of Management
*-e.A
---P-2.-4alaalEval
Many banks said that they employ professional personnel
°4 a Part-time basis to appraise the value of forest tracts and the
quality of the management.
Some employ professional management
services to make periodic checks during the term of the loan.
4me banks appear to rely solely on their own personnel for these
4512
10-
functions.
In general, ho eve
e reports indicate that adequate
advisory assistance is available and that it is used by banks in
areas.
Board of Governors of the
Federal Reserve System
becember 11, 1963.
4513
UNITED STATES OF AMERICA
Item No. 2
12/23/63
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
14 the Matter of the Application of
LORAIN COUNTY SAVINGS & TRUST CO:IPANY
&approval of merger with
Central Bank Company
BANKS
ORDER DENYING APPLICATION FOR APPROVAL OF MERGER OF
pursuant to
There has come before the Board of Governors,
the Bank Nerger Act of 1960 (12 U.S.C. 1823(c)), an application by
The Lorain County Savings & Trust Company, Elyria, Ohio, a member State
bartk of the Federal Reserve Syqtem, for the Board's prior approval of
Lorain, Ohio,
the merger of that bank and The Central Bank Company,
44der the charter and title of the former.
As an incident to the merger,
the Seven offices of The Central Bank Company would be operated as
°riches of The Lorain County Savings & Trust Company.
Notice of the
'0Posed merger, in form approved by the Board, has been published pur14
'811ant to said Act.
material in the light of
Upon consideration of all relevant
th
reports furnished by the
factors set forth in said Act, including
C(IN
-Ptroller of the Currency, the Federal Deposit Insurance Corporation,
4514
-2-
atld the Department of Justice on the competitive factors involved in
the proposed merger,
IT IS HEREBY ORDERED, for the reasons set forth in the
114td's Statement of this date, that said application be and hereby
is
denied.
Dated at Washington, D. C., this 23rd
day of December, 1963.
By order of the Board of Governors.
Voting for this action:
and Daane.
Governors Robertson, Mitchell,
Voting against this action:
and Governor Shepardson.
Absent and not voting:
Vice Chairman Balderston,
Chairman Martin and Governor Mills.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
4515
BOARD OF GOVERNORS
Item No.
3
12/23/63
OF THE
FEDERAL RESERVE SYSTEM
SAVINGS & TRUST COMPANY
APPLICATION BY TITX LORAIN COUNTY
WITH
MERGER
OF
FOR APPROVAL
Y
COMPAN
BANK
THE CENTRAL
STATEMENT
Company, Elyria, Ohio
The Lorain County Savings & Trust
(Trust Company"), with IPC deposits of $51 million,* has applied,
)), for
111.1zsuant to the Bank Merger Act of 1960 (12 U.S.C. 1828(c
l
the Board's prior approval of the merger of that bank and The Centra
Bank"), with IPC deposits of
1344k Company, Lorain, Ohio ("Central
$26 million.* The banks would merge under the charter and title of
T14.1st Company, which is a State-chartered member bank of the Federal
rtet3e
merger, the seven offices of
rye System. As an incident to the
sing the
eerltral Bank would become branches of Trust Company, increa
%raj
* er of its offices to eleven.
required to consider, as to each
Under the Act, the Board is
y and condition, (2) the
f the banks involved, (1) its financial histor
its future earnings prospects,
eilecluaolr of its capital structure, (3)
(4) th
ment, (5) whether its corporate
e general character of its manage
, Ch. 16 (the
114evrs are consistent with the purposes of 12 U.S.C.
ience and needs of the
Pederel Deposit Insurance Act), (6) the conven
."Posits of individuals, partnerships, and corporations (IPC deposits)
uti Of
June 29, 1963.
45113
-2-
cotmunity to be served, and (7) the effect of the transaction on
%petition (including any tendency toward monopoly).
eot
it
The Board may
approve the transaction unless, after considering all these factors,
finds the transaction to be in the public interest.
Banking factors. - Both Trust Company and Central Bank have
satisfactory financial histories.
The asset condition of each bank also
is satisfactory.
Central Bank's capital structure is adequate.
There exists
a need
for strengthening the capital structure of Trust Company quite
aide from any considerations in connection with this proposal.
the
ble
Although
net earnings of both banks are below the average for banks of comparasize in the Fourth Federal Reserve District, due largely to their
11 41)Y volume of time deposits and high interest expense, their future
"
eatIlin8s prospects are fairly satisfactory.
Neither the capital posi-
ticl,,
of Trust Company nor the earnings situation at either bank raises
'
etlY
question as to the essential soundness of the banks or indicates
Pers
unsively the need or appropriateness of recourse to merger.
Management of Trust Company is competent.
held
Differing views
by two groups in the board of directors of Central Bank have interwith the adoption of decisive management policies.
one
The members of
of these groups own a majority of the shares of stock of the bank.
e
it should
D
th" merger.
possible to solve the management problem by means other
of
There is no indication that the corporate powers of any
the banks are, or would be, inconsistent with the provisions of
121J.S.C„ Ch. 16.
Lorain and
Convenience and needs of the communities. are situated in the
the two chief cities of Lorain County,
in
dustrial northern part of the county.
The two cities are about
respectively, from Cleveland.
miles apart and are 27 and 25 miles,
of 217,500, an increase
Lorain County had a 1960 population
Of about 47 per cent from 1950.
In 1960, Lorain had a population of
firms employing about 20,000
1113"t 69,000, with over 100 manufacturing
Persons.
8,800 employees, and the
The National Tube Company, with
the bulk of
l's3rd Motor Company, with 4,500 employees, account for
84c4 employment.
population of 44,000,
Industry in Elyria, with a 1960
estimated
:4 widely diversified, with 135 manufacturers employing an
14o00 persons.
or in Cleveland.
Many residents work in Lorain
between Lorain and Elyria
Until 1950, the area directly
_
traditional separation, both
'
sparsely populated, and there was a
ccIt ercial and societal, between the two.
However, as the environs of
10.4_
diminished,
'a have developed, the physical separation between them has
received approval for a branch
recently the Lorain National Bank has
tO b
the traditional boundary
'e located on the Elyria side of Route 254,
line.
communities have been served by
The banking needs of the
cev
en banks headquartered in the county.
The largest is Trust Company,
4518
-4-
having its head office and one branch in Elyria and one branch each in
Oberlin and Amherst, about nine miles from Elyria in opposite directions.
The Elyria Savings & Trust Company, with IPC deposits of
$48 million, is second in size.
IPC deposits of 06 million.
The third, Lorain National Bank, has
The fourth is Central Bank, with its head
(Iffice and four branches in Lorain and one branch each in Sheffield Lake
and Avon, residential communities east of Lorain.
there
After Central Bank
million of
is a drop to First National Bank of Elyria, with $15
IDC deposits, The City Bank Company, Lorain, with $12 million of IPC
million of IPC
Posits, and The Oberlin Savings Bank Company, with $10
In addition, the largest Cleveland bank, The Cleveland Trust
Posits,
branch.
CcillPany, with a lending limit of $14 million, has a Lorain
tend to
Accounts of the larger commercial and industrial enterprises
be handled by big city banks, whether headquartered in Cleveland or
el
sewhere.
now headquartered in
Lending limits of the seven banks
•
1,0rain
and the resulting bank would
County range up to $356 thousand,
4417e had a lending limit of just over $536 thousand.
However, banking
met more than adequately, and
ileeds of the community are already being
does not appear that this inirt view of the proximity of Cleveland, it
to the convenience of
lending limit would significantly add
taanY customers.
merger would eliminate an
On the other hand, the
41ternative source of banking services from the Lorain-Elyria area.
4519
-5Competition. - The seven banks with Lorain County headquarters
°Perate a total of 36 offices in the county.
As indicated above, three
of these banks have headVarters in Lorain, three in Elyria, and one in
°berlin.
The application asserts, in effect, that because of the tra-
ditional separation of Lorain and Elyria and the orientation of each
to17ards Cleveland, relatively little competition exists between Trust
not
C°111Pany and central Bank so that consummation of the proposal would
reduce competition between the two banks significantly.
8rowth is bringing Elyria and Lorain closer together.
Ho-Jever, steady
Recently, the
traditional line of separation was crossed when Lorain National Bank
Ilaa authorized to establish a branch on the Elyria side, as noted above.
eciasummation of the proposal would clearly eliminate substantial
Potential competition in addition to the competition now existing
between the two banks.
by the application,
It is undoubtedly true, as indicated
that
a significant amount of banking business from Lorain County is
transacted with Cleveland banks.
However, if the proposal were to be
%summated, approximately 35 per cent of the IPC deposits in all comwould be concentrated in
etcial banking offices in Lorain County
trust Company. In addition, the resulting bank, with 11 offices,
in operation in the county
117°41d have the greatest number of offices
and the greatest coverage in the most populated areas in the county.
The size
by the resulting bank would
and number of offices operated
telld to give it a competitive advantage over other banks operating
ill Lorain County.
4520
-6-
The application urges that effectuation of the proposal
would importantly increase the resulting bank's potential for competing with Cleveland barks.
the case.
The Board concludes that this would not be
The half-million dollar lending limit of the resulting
bank would still be so far below those of its larger Cleveland
neighbors (the lending limit of Cleveland Trust Company, for example,
iS
$14 million, as noted above), that the proposed merger would not
efifectively raise it out of the competitive category in which Trust
Company and Central Bank now operate.
Summary and conclusion. - The application proposes the
merger of the largest and fourth largest of the seven commercial banks
headquartered in Lorain County, which is the location also of a branch
Of the largest Cleveland bank.
There is no evidence that banking needs
Of the county are not being adequately cared for; nor does it appear
that the expanded banking services of the resulting bank would contribute significantly to the convenience of the area.
Moreover, the
efZect on banking competition would be adverse since consummation of
the merger would create a bank significantly larger than any of the
°ther locally headquartered banks and one which would operate the most
°ffices in the best locations in the county.
11°41d eliminate
some
The transaction also
existing and the potential for substantial
enMPetition between the two banks.
Furthermore, the Board believes
that the
management problem of the smaller bank can be solved by means
4521
_7-
*ler than merger, and that the application does not otherwise establish
allY reason why the merger should be approved.
Accordingly, the Board finds that the proposed merger would
tIot be
the public interest.
mber 2
190.
522
DISSENTING STATEMENT OF GOVERNOR SHEPARDSON
IN WHICH GOVERNOR BALDERSTON CONCURS
Item No.4
12/23/63
The Board's disapproval of this application will deny to the
14tain-Elyria area a locally headquartered commercial banking institu"-on commensurate with the dynamic residential, commercial, and indus*ial growth which the area has experienced over the past decade and
Ithich is virtually certain to continue.
This will give unnecessary pro-
tc tion to the position of the big Cleveland banks which will continue
siPhoning off more and more of the banking business of growing local
)ncerns in the Lorain-Elyria area with need for expanded banking servtees
not currently available, even though they might prefer to bank with
1°cally headquartered institution and would be able to do so but for
al of this application.
An increase in lending limit, expanded services, operating
eecnomies, and strengthened management would have resulted from the
tsetUr and would have provided a basis for accommodating more adequately
at the local level the banking needs of small businesses in the area.
the same token
these benefits would have paved the way for significant
eliNes in the deposit and asset structures of the two banks needed for
411/r°vement in the earnings of both banks and also would have lightened
the task of strengthening the capital position of Trust Company.
In a
situation such as this it would be especially ill-advised to leave soluq04
°' a fundamental management problem to the same frailties from which
the difficulties have developed.
It is clear to me that the benefits to
4523
-2-
the public from the banking factors as well as the factor of needs and
e°nvenience warrant approval of the merger unless they are offset by
detrimental effects arising under the competitive factor.
It is true that consummation of the proposal would eliminate
the modest amount of existing competition between the two banks and
the increase in competition that can be expected to materialize as the
Ilcipated further development of Lorain County lessens the traditional
"
Noaration of Lorain and Elyria.
While it is true that the resulting
bankwould have over 35 per cent of the total IPC deposits in all bankoffices in Lorain County, this does not take into account the admittedly large although undetermined amount of deposits originating
14 the Lorain-Elyria area and held by the Cleveland banks.
Although
now unable to establish branches in Lorain County, Cleveland banks have
12 branches located within 2 - 2-1/2 miles of the Lorain-Cuyahoga County
It
Furthermore, there would remain in the county, five other locally
heA quartered banks, as well as the Lorain branch of the Cleveland Trust
ColPanY.
The next highest concentrations of IPC deposits in the county
41t in one of the Elyria banks with 22.4 per cent of the total, and in
()4 of the Lorain banks with 16.6 per cent of the total.
the
Undoubtedly,
competition between the locally headquartered banks would be intensiif the proposal were consummated, and the Cleveland banks would also
be
de
raced with some increase in competition even though not of substantial
tree, from a larger, locally headquartered bank. Thus, even under the
4524,
competitive factors, there are some considerations weighing in support
Of approval of the application.
On balance, it is my view that consummation of the proposal
%tad be in the public interest and, therefore, I would approve the
NWication.
be
ember 23, 1963.
4525
BOARD OF GOVERNORS
Item No. 5
OF THE
12/23/63
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AOORCIIIII OFFICIAL CORIFICISPONOCNCIE
1C2 THE BOARD
December 24, 1963.
14r. Paul C. Stetzelberger,Vice President,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio 44101.
Dear Mr. Stetzelberger:
d in your
In accordance with the request containe
the
approves
Board
appointment of
letter of December 17, 1963, the
for
the
Reserve
examiner
Federal
Richard W. Hanusz as an assistant
of
e
date
the
the
effectiv
Bank of Cleveland. Please advise
aPpointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
452t
BOARD OF GOVERNORS
Item No.
12/23/63
'00*
OF THE
6
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
•
December 24
1963.
Hi. John L. Nosker, Vice President,
Federal Reserve Bank of Richmond,
Richmond, Virginia 23123.
Dear Mr. Nosker:
In accordance with the request contained in your
letter of December 19, 1963, the Board approves the appointment of
Rafael A. Catasus as an assistant examiner for the Federal Reserve
Bank of Richmond, effective today.
Very truly yours,
Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER