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19-19 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, December 27, 1954. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr, Mr. Mr. Martin, Chairman Szymczak Mills Robertson Balderston Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Thurston, Assistant to the Board Vest, General Counsel Johnson, Controller, and Director, Division of Personnel Administration The following matters, which had been circulated among the members of the Board, were Presented for consideration and the action taken in each instance was as indicated: Letter to Mr. Myron R. Bone, Vice President, American Industrial Bankers Association, Fort Wayne, Indiana, reading as follows: The Board of Governors is pleased to know of the prospective annual visit of the officers of your Association to Washington in January and your desire for a meeting with members of the staff on January 19. That period will be a busy one for the Board but arrangements have been made for a member of the Board and appropriate members of the staff to meet with your group at 2:30 p.m. on Wednesday, January 19. The other members of the Board whose programs will permit will also meet with you. It will be helpful if, prior to January 19, you will send the names of the individuals who will comprise your group. Approved unanimously. Letter to Mr. Earhart, President, Federal Reserve Bank of San Francisco, reading as follows: In letters dated March 11, 1949, requests were made of the Reserve Banks to estimate the daily required reserves for reserve city banks in selected cities. 1920 12/27/54 -2- San Francisco and Los Angeles were selected in your District and these estimates have been received from your Bank and the Los Angeles Branch since that time in code word CELL telegrams. These estimates have been very helpful to the Board and the Open Market Committee, but to improve the total estimate of required reserves the coverage is being expanded. Hereafter, beginning as soon as arrangements can be made, it would be appreciated if you would have similar estimates telegraphed to us daily by the Portland, Salt Teke City, and Seattle branches, covering the reserve city member banks in those cities. A complete estimate is desired covering reserve city banks in each city. However, in the case of the smaller banks, It will be satisfactory to use daily average figures computed from the most recent weekly reports of deposits. Another estimate that should be improved, if practicable, is the one now being made of total required reserves of country banks by the Board's Division of Bank Operations. These daily estimates, later revised for consistency with tabulated bench-mark figures reported by the Reserve Banks on form F.R. 413, are made on the assumption that, when there is a net increase-decrease in reserve balances as reported by your Bank, there is a corresponding increase-decrease in net demand deposits subject to reserve. Tests have indicated that this basis of estimating is somewhat better than other assumptions, including the one that the increase-decrease in reserve balances results in a corresponding increase-decrease in excess reserves. Exceptions are made in this estimating procedure on days of large subscriptions to Government issues or cash redemptions thereof, on days of large calls on the war loan and tax accounts, and on days when changes In reserve percentage requirements occur. It seems obvious that this estimating process for country banks could be done more accurately on a district basis because seasonal trends may vary considerably in different parts of the country. However, if these estimates are not already being made at Reserve Banks for other Purposes, a request for them might entail work not commensurate with the improved accuracy. If daily estimates of country bank required reserves are already being made daily at your Bank, it would be appreciated if you will telegraph them daily, using the code word CLOG for this purpose. The data may be included on the same telegram as the head office CELL figure, but they 1921 12/27/54 -3- should be sent separately if the combined telegram would mean as much as a half hour's delay in figures first available. If they are not being made, we would appreciate your comments on the practicability of starting the procedure, including the use of your Bank's records of tax and loan accounts for the purpose and whether it might be feasible and worth while to obtain daily estimates from the larger country banks. Approved unanimously, with the understanding that similar letters would be prepared and sent to certain of the other Federal Reserve Banks. Letter to Tradesmens Land Title Bank and Trust Company, Philadelphia, Pennsylvania, reading as follows: The Board of Governors of the Federal Reserve System authorizes your bank, pursuant to the provisions of section 13 of the Federal Reserve Act, to accept drafts or bills of exchange for the purpose of furnishing dollar exchange as required by the usages of trade in such countries, dependencies, or insular possessions of the United States as may have been designated by the Board of Governors, subject to the provisions of the Federal Reserve Act and the Board's Regulation C issued pursuant thereto. Section 13 of the Federal Reserve Act Provides that no member bank shall accept such drafts or bills in an amount exceeding at any one time the aggregate of one-half of its paid-up and unimpaired capital and surplus. In determining such aggregate, the amount shall include any such drafts and bills of exchange accepted by other banks for the account of your institution. The right is reserved to terminate this authorization upon 90 days' notice to your bank as provided in the Regulation. Enclosed is a list of the countries with respect to which the Board of Governors has found that the usages of trade require the furnishing of dollar exchange. The Board of Governors may at any time, after 90 days' published notice, remove from such list the name of any country, dependency, or insular possession contained therein. Approved unanimously, for transmittal through the Federal Reserve Bank of Philadelphia. 1922 12/27/54 _14_ Letter to the Board of Directors, Liberty Bank of Buffalo, Buffalo, New York, reading as follows: The Board of Governors of the Federal Reserve System approves the establishment of a branch by Liberty Bank of Buffalo, Buffalo, New York, at 151 West Mohawk Street, Buffalo, New York, as a successor to the branch now located at 236 Main Street, provided this move is accomplished within one year from the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Before this meeting there had been sent to the members of the Board a memorandum from the Division of Personnel Administration dated December 22, 1954, recommending approval of proposed merit salary increases as listed in the memorandum, effective January 2, 1955. Mr. Johnson described the procedure followed in arriving at recommendations for merit salary increases, stating that the Division of Personnel Administration brought to the attention of the head of each division or office the need for reviewing the work of each member of the staff for consideration for such increases. The thirty-six proposed in- creases, Mr. Johnson said, were fairly well distributed throughout the Staff as between professional and nonprofessional employees and among the various classification groups of employees. In response to a question frOra Governor Balderston, Mr. Johnson stated that all divisions particiPated in the program although one office made no recommendation for a Illerit increase at this particular time. It was Mr. Johnson's opinion that the division heads realized the potential value of the program in terms of -5- 12/27/54 its serving as an incentive to improved performance on the part of the staff. Following discussion, unanimous approval was given to increases, in the amounts indicated, in the basic annual salaries of the following employees, effective January 2, 1955: Division Name and title Increase in basic annual salary From To Board Members' Offices Henry K. Tidwell, Messenger $2,990 $3,070 3,785 3,910 3,030 3,110 3,415 3,1495 9,600 9,800 7,440 7,640 6,140 6,340 6 140 6,340 5,310 5,435 5,120 5,245 Office of the Secretary Margaret J. Dougherty, Clerk Kathryn H. Fortunato, Minutes Clerk Legal Eugene C. Harrison, Clerk Research and Statistics Paul B. Simpson, Acting Chief, Business Finance and Capital Markets Section Orville K. Thompson, Economist John A. Frechtling, Economist Stephen P. Taylor, Economist Mary Jane Harrington, Economist Ethel L. Evans, Statistical Assistant -6- 12/27/54 Merit increases, effective January 2, Name and title 1955 (continued) Division Increase in basic annual salary From To Research and Statistics Mary P. McCormick, Draftsman-Illustrator Joan N. Yamamoto, Statistical Assistant Joan R. Winter, Clerk Gladys Mae Davis, Draftsman Elinore G. Magee, Clerk $4,705 $4,830 3,785 3,910 3,255 3,335 3,110 3,190 3,110 3,190 10,800 11,050 10,800 11,050 8,360 8,560 3,030 3,110 3,575 3,655 3,335 3,415 3,175 3,255 6,14o 6,340 4,705 4,830 International Finance J. Herbert Furth, Chief, Western European & British Commonwealth Section Arthur B. Hersey, Chief, Special Studies Section Ernest C. Olson, Economist in Charge of Latin American Section Gladys W. Willard, Clerk Bank Operations Eleanor I. Klein, Statistical Clerk Jean S. Glascock, Clerk-Stenographer Kathryn P. Holland, Statistical Clerk Examinations William S. Wait, Assistant Federal Reserve Examiner W. M. Williams, Assistant Federal Reserve Examiner 1 925 12/27/54 -7- Merit increases, effective January 2 1955 (continued) Division Name and title Increase in basic annual salary From To Examinations Gena Gander, Special Assistant Federal Reserve Examiner Ruth Deck, Clerk-Typist Paula Rowley, Stenographer $3,910 $4,035 3,190 3,270 2,950 3,030 5,56o 5,685 5,310 5,435 41330 4,455 3,495 3,575 2,872 2,952 2,712 2,792 2,792 2,872 2,770 2,84o 4,170 4,295 Personnel Administration John H. Stetson, Personnel Technician Administrative Services Harry E. Kern, Supervisor, Procurement Section Donald W. Moon, Purchasing Assistant Oda R. Johnson, Clerk-Stenographer Henry A. Bates, Messenger Esmond C. Langley, Messenger William R. Smith, Laborer Vera V. Dulin, Cafeteria Helper Office of the Controller Ruth H. Goodyear, Secretary 1926 12/27/54 -8- There were presented telegrams to the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, Minneapolis, Dallas, and San Francisco approving the establishment without change by the Federal Reserve Banks of Boston and St. Louis on December 20, by the Federal Reserve Bank of San Francisco on December 22, by the Federal Reserve Banks of Philadelphia, Cleveland, Richmond, Atlanta, Minneapolis, and Dallas on December 23, and by the Federal Reserve Bank of New York on December 24, 1954, of the rates of discount and purchase in their existing schedules. Approved unanimously. Messrs. Johnson and Thurston withdrew from the meeting at this point and Messrs. Riefler, Assistant to the Chairman; Marget, Director, and Dembitz, Assistant Director, Division of International Finance; Sloan, Director, and Goodman, Assistant Director, Division of Examinations; and Solomon, Assistant General Counsel, entered the room. At Chairman Martin's request Mr. Vest commented on a letter adby Mr. John J. dressed to the Chairman under date of December 14, 1954, Mccloy, Chairman of the Board of Directors of The Chase Bank, New York, New York, which had been transmitted to the Board by the Federal Reserve Bank of New York under date of December 15, 1954, with further reference to the possible investment by The Chase Bank in a proposed Canadian investment corporation. A copy of Mr. McCloy's letter, which was in re- sPonse to the Board's letter to him dated November 24, 1954, requesting 1927 12/27/54 The Chase Bank to prepare a draft of a suitable stockholders' agreement covering certain points set out in a memorandum) had been sent to each member of the Board before this meeting. In his comments, Mr. Vest stated that members of the staff had considered Mr. McCloy's letter and had come to the conclusion that there were only two points of difficulty remaining for consideration by the Board in connection with the request made by The Chase Bank, since the Bank indicated a willingness to accept the substance of the other conditions set out in the memorandum which accompanied the Board's letter of November 24. The first of the two points, Mr. Vest said, related to the condition under which the Canadian corporation would be restricted with respect to the underwriting, selling, or distributing of securities. On this point, he said) Mr. McCloy's letter proposed a condition under Which the Canadian corporation would not engage or participate in the underwriting, sale, or distribution of securities in the United States and would not so engage or participate directly or indirectly or through an agency or on a commission or consignment basis or in any other manner. Rowever, Mr. McCloy had also provided that the Canadian corporation would not be restricted from underwriting or purchasing outside of the United States securities which at the same time were being underwritten, sold, or distributed in the United States by others, so long as the securities Purchased by the Canadian corporation pursuant to its underwriting agreeor otherwise were not underwritten,sold, or distributed by the Canadian corporation in the United States directly or indirectly. Mr. 12/27/54 -10- Vest went on to say that the staff felt there was something to be said for permitting the Canadian corporation to engage in underwriting outside the United States that part of a security not being sold or distributed in the United States. That is, if a security issue was being sold or distributed in separate tranches so that one tranche was being sold or distributed in the United States and another was being sold or distributed wholly outside the United States, the Canadian corporation would be prevented from underwriting, even on a stand-by basis, that portion being sold or distributed in the United States hut it would not be prevented from underwriting the portion not being sold or distributed In the United States. Mr. Vest said that on December 23 Mr. Rockefeller and Mr. Rockhill, as representatives of The Chase Bank, called upon Chairman Martin in connection with another matter and indicated that such a modification of the proposal made in Mr. McCloy's letter of December 14 would be very helpful to the Canadian corporation. The second point in Mr. McCloy's letter which raised a question, Mr. Vest said, was the provision that pertained to investing in companies that do business in the United States. Mr. McCloy had suggested a con- dition under which the Canadian corporation would not engage in the general business of buying or selling goods, wares, merchandise, or commodities in the United States and would not transact any business in the United States except such as might be incidental to its international or foreign business. The question here, Mr. Vest said, was the definition of incidental". -11- 12/27/54 Mr. Vest stated that in his opinion this was a policy question rather than a legal question and that he did not see how the Board could undertake at this time to settle questions of fact that might arise later. There followed a discussion of the proposed conditions in the light of Mr. Vest's statement in the course of which questions were raised as to whether it would be feasible to modify Mr. McCloy's Proposal as to permitting the Canadian corporation to carry on business in the United States "incidental" to its foreign business, which was the primary purpose for organizing the corporation, so as to minimize the possibility that the corporation would transact business in the United States in a manner that would be objectionable. During the discussion Governor Szymczak stated that he thought the Board could well accede to Mr. McCloy's proposal with respect to underwriting securities as modified by MT. Vest's suggestion, and none of the members of the Board indicated disagreement with this view. With respect to the question of investing in corporations doing business in the United States, Governor Szymczak noted that the primary Purpose of forming the Canadian corporation was to engage in foreign trade and that some of that trade would unquestionably be with the United States. It was Governor Szymczak's feeling that it would be extremely difficult to define what constituted "incidental" business although he felt goods which might be exported from another country to the United States by a company in which the Canadian corporation might invest could be considered to be incidental to the foreign business of the Canadian corporation. 930 12/27/54 -12- Chairman Martin stated that he had not understood that the memorandum which accompanied the Board's letter of November 24 intended to suggest a condition which would prevent the Canadian corporation doing whatever was necessary to sell products in the United States that were derived abroad and that the whole purpose of forming the Canadian corporation would be defeated if it were to be prevented from transacting any business of that type. Governor Robertson stated reasons why he felt that, since an Edge Act corporation could not engage in buying or selling in the United States, it would not be appropriate to permit the proposed Canadian corporation in Which an Edge Act corporation would have a major interest, at least at the outset, to engage in similar activities. Mr. Vest stated that while the Board had no discretion with respect to permitting an Edge Act corporation to engage in selling or buying in the United States, he felt it was a policy question whether the proPosed Canadian corporation should be prohibited from engaging to any extent in buying or sellinKr, in the United States in connection with its foreign trade activities. Chairman Martin stated that he would not interpret the statute aS indicating the Board had no discretion in the case of the proposed Canadian corporation. The purpose in organizing this corporation, he said, was to embark in the foreign trade field in a way which could be of great benefit. While there were dangers, Chairman Martin was inclined to move forward as carefully as possible and if the proposed corporation engaged 193/ 12/27/54 -13- in activities which seemed objectionable, then to take whatever steps seemed necessary--including the use of moral suasion--to correct the situation. Governor Robertson responded that he was not raising a question in terms of the desirability of the proposed activities or of possible abuse by The Chase Bank or the proposed Canadian corporation. However, he questioned whether the law could be interpreted to permit the proposed Canadian corporation to invest in a company which was buying or selling goods in the United States--to do something which an Edge Act corporation would be prohibited from doing under the law. Governor Robertson went on to say that while he did not feel he could vote to approve the formation of the corporation with a provision such as Mr. McGloy's letter suggested on this point, it was his thought that if the Board was going to approve such a condition it would be preferable not to try to spell out the meaning of "incidental" and not to try to set detailed conditions in this respect. It would be preferable, he said, to it clear that accept a condition such as Mr. McCloy suggested and to make the Board expected to be kept informed by the Canadian corporation of its Operations by furnishing such reports at periodic intervals as might be requested by the Board. If these showed developments that the Board con- any necessary action. sidered to be improper, it should be prepared to take Chairman Martin stated that he felt the Board was dealing with a Pioneering operation and that the manner in which Governor Robertson suggested the Board give its approval to the corporation (even though Governor 12/27/54 -14- Robertson himself could not vote to approve it) offered a reasonable and satisfactory way of permitting The Chase Bank to go ahead with a project which had great potential benefit and which had been under careful study for many months. Thereupon, the Board agreed that a letter should be prepared and sent to Mr. McCloy, through the Federal Reserve Bunk of New York, when in a form satisfactory to Chairman Martin, granting consent to The Chase Bank to purchase stock in the proposed Canadian corporation subject to the conditions contained in Mr. McCloy's letter of December 14, 1954, as modified at this meeting with respect to engaging in the underwriting, sale, or distribution of securities in the United States. On this action, Governor Robertson voted "no" for the reason indicated. Secretary's Note: Pursuant to the foregoing action, the following letter prepared for Chairman Martin's signature was sent to Mr. Sproul, President of the Federal Reserve Bank of New York, for transmittal to Mr. John J. McCloy, Chairman, Board of Directors, The Chase Bank, New York, New York, under date of December 29, 1954: The Board has given further consideration to the investment by The Chase Bank in the proposed Canadian corporation, in the light of your letter of December 14, 1954 and our conversations with Messrs. Rockefeller and Rockhill on December 23, 1954. On the basis of the information supplied by The Chase Bank and subject to the receipt by the Board of a letter from The Chase Bank agreeing that so long as it is the sole stockholder in the proposed Canadian corporation the latter will observe and comply with the conditions set forth in the attachment to this letter, and further agreaing that before the Canadian corporation sells stock to anyone other 1933 -15- 12/27/54 than The Chase Bank, the latter will obtain the same agreement from other prospective stockholders to such conditions, the Board grants its consent to The Chase Bank to purchase stock in the proposed Canadian corporation at any time within one year from the date of this letter in a total amount not exceeding 10 per cent of the capital and surplus of The Chase Bank and to hold such stock while conforming with the attached conditions and with applicable regulations and law. It will be noted that the conditions in the attachment to this letter are the same as those quoted in your letter of December 14, 1954, except that condition 1 has been modified to conform to the understanding in our conversation with Messrs. Rockefeller and Rockhill. At this point all of the members of the staff except Mr. Carpenter Withdrew from the meeting. Governor Balderston reported that Mr. Woodward, Chairman of the Federal Reserve Bank of Richmond, had advised that Mr. Modlin would not be able to accept appointment by the Board as Class C director of that Bank and that Mr. Woodward now recommended that the Board give consideration to the appointment of Dean Wallace Colvard, Dean of Agriculture, North Carolina State College, Raleigh, North Carolina. Following a discussion of the the qualifications of Mr. Colvard, Secretary was requested to send the usual wire to Mr. Woodward asking him to ascertain whether Mr. Colvard would accept, if tendered, appointment by the Board as Class C director of the Federal Reserve Bank of Richmond for the three-year term beginning January 1, 1955, it being understood that if Mr. Colvard would accept the appointment it would be made. Secretary's Note: Pursuant to the foregoing, the following telegram was sent 1934 -16- 12/27/54 to Mr. Colvard on December 30, 1954, it having been ascertained that he would accept the appointment: Board of Governors of the Federal Reserve System has appointed you Class C director Federal Reserve Bank of Richmond for three-year term beginning January 1, 1955. Understand you will terminate any commercial bank affiliation you might have in order to qualify for appointment. Your acceptance by collect telegram will be appreciated. The meeting then recessed and reconvened at 2:30 p.m. with Chairman Martin, Governors Szymczak, Mills, Robertson, and Balderston, and Messrs. Carpenter, Sherman, Riefler, Vest, Marget, Sloan, Solomon, Dembitz, and Goodman present. Chairman Martin stated that Mr. Vest had raised a question with respect to the formation of a foreign finance corporation under section National Bank of the 25(a) of the Federal Reserve Act which The Chase City of New York proposed to organize and for which the Board in its letter to that Bank dated November 30, 1954, agreed to reserve the name "American Overseas Finance Corporation". Mr. Vest stated that the question grew out of a provision which The Chase in the articles of the National Bank contemplated including to provide inProposed foreign finance corporation, which was intended under which it termediate credit for exports from the United States, would issue preferred stock from time to time to manufacturers and others Who might be borrowers from the corporation, which stock was to be redeemable at the option of the holder or of the corporation. Mr. Vest said that while the organization papers for the corporation had not been submitted, he had been informed of the proposed provision and that 1_935 12/27/54 -17- representatives of The Chase National Bank had stated they did not think any legal questions were involved. The law was completely silent on the question of preferred stock, Mr. Vest said, neither authorizing nor prohibiting it. He went on to say that in his opinion the question whether the foreign finance corporation issued preferred stock in the manner proposed was a matter of policy but that certain technical questions had occurred to him which made it appear that it would be difficult for the corporation to operate in the manner contemplated. Mr. Vest's question was whether it would be appropriate and desirable for him to bring these questions to the attention of representatives of The Chase National Bank at this stage so that they might give consideration to them before sUbmitting the organization papers to the Board for consideration. After discussion, it was agreed unanimously that the matter should be left in Mr. Vest's hands, with the understanding that he would explore the questions with representatives of The Chase National Bank. Minutes of actions taken by the Board of Governors of the Federal Reserve System on December 23, 1954, were approved unanimously. The meeting then adjourned. 4Itkaglig Secretary
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