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Minutes for February 11. ,Iq57 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Chin. Martin Gov. Szymczak Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. ghepardson 317 Minutes of actions taken by the Board of Governors of the Federal Reaerve ROOra System on Monday, February 11, 1957. The Board met in the Board at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Szymezak Vardaman Mills Robertson Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thomas, Economic Adviser to the Board Leonard, Director, Division of Bank Operations Vest, General Counsel Sloan, Director, Division of Examinations Hackley, Associate General Counsel Shay, Assistant General Counsel Goodman, Assistant Director, Division of Examinations The following matters, which had been circulated to the members Of the Board, were presented for consideration and the action taken in each instance was as stated: Letter to Mr. Mange1s, President, Federal Reserve Bank of San ?rah -418c0, reading as follows: u The Board of Governors approves the appointments of ;essrs, Wakefield Baker, E. S. Dulin, Keith G. Fisken, J. A. ig", and Walter A. Starr as members of the Industrial visorY Committee for the Twelfth Federal Reserve District ; t ,serve for terms of one year each beginning March 1, 1957, i accordance with the action taken by the Board of Directors " reported in your letter of January 23, 1957. Z Approved unanimously. 318 2/11/57 -2- Letter to the Board of Directors, Rapides Bank & Trust Company A lexandria Alexandria, Louisiana reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of Atlanta, the Board of Governors of the Federal Reserve System approves the establishment of branch by Rapides Bank & Trust Company in Alexandria, Alexan°Ills., Louisiana, at or about 725 Main Street in the city of Pineville, Louisiana, provided the branch is established within six months from the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of Atlanta. Letter to Mr. Diercks, Vice President, Federal Reserve Bank of e'-go, reading as follows: The Board of Governors of the Federal Reserve System considered the recommendation of the Board of Directors °f Your Bank contained in your letter of January 30, 1957, ; 11d, pursuant to the provisions of Section 19 of the Federal rZserve Act, grants permission to Gateway National Bank of :"icago, Chicago, Illinois, to maintain the same reserves 7:Ta1n8t deposits as are required to be maintained by banks .Jr1-10cated in reserve cities, effective as of the date of comeneement of business by the subject bank. has Please advise the bank of the Board's action in this fact that such permission to revocation by the Board of Governors of the Eederal Reserve System. calling attention to the Tatter, subject Approved unanimously, with a copy to the Comptroller of the Currency. rveLetter to Mr. Hodge, Vice President and General Counsel, Federal 4JaLlt of Chicago, reading as follows: This is in further reference to your letter of October 16 u ) 1956, and its enclosures, concerning whether the proposed te °f a so-called "Check-and-Save Plan" by the Commercial v_ate Savings Bank, Greenville, Michigan, a State member bank, fkciUld result in any indirect payments of interest on deposits the purposes of Regulation Q. You presented the matter ''tz the request of the member bank. e 319 2/11/57 -3- The plan appears to contemplate that the bank would waive its usual service charge on each of the first 15 checks per month drawn by any customer who, in addition to his checking deposit, maintained with the bank a minimum balance of $400 in a savings deposit; and that funds with which to establish the necessary savings deposit would be available through a loan by the bank payable in monthly installments and made at a discount rate which apparently would be lower than the rate which would usually prevail in other circumstances. With respect to any such loan, it appears also that the savings deposit would be assigned as security therefor, but that, in the event of the customer's death, any balance remaining due on the loan at that time would be covered bY insurance on his life procured and paid for by the bank, 3c that the savings deposit would be released to the customer's estate. The plan would seem to be available to all customers Of the bank eligible under the regulation to have savings deposits While the matter has not been submitted on the basis of facts developed in the course of an examination of the bank, :the questions raised by the bank's proposal would appear to be governed by the principles involved in positions heretofore taken by the Board. Thus, the Board uniformly has held It:hat the use of account analyses by banks to determine whether rmand depositors should be charged for various banking services connection with such deposits, including the payment of cheeks drawn thereon, does not involve any payment to a customer the giving of any credit which would increase the amount of "ls deposit balance and, accordingly, that the use of such lelYses does not constitute a payment of interest. (F.R.L.S. 7u238) The fact that, in determining whether to refrain from "king the usual service charge for payment of checks in the Present case, the bank would take into account the customer's vings deposit balance, would not remove the situation from "le principle of the above interpretations. 2! t n The same basic principle is applicable also with respect to the apparently special discount rate on loans under the an; and, in this connection, attention is invited to the rard's recent letter to all Federal Reserve Banks of January " 1957 (S-1617) which involved, among other things, a some"e•_,_ v2 similar question. With respect to the insurance which would be procured and Paid for by the bank on the lives of borrowers under the plan, #4,403° 2/11/57 _14 _ it seems clear that such insurance would be chiefly for the bank's own protection, so that the situation would differ materially from those involved in the Board's interpretations or January 6, 1955, 5-1556 (F.R.L.S. #6243) and of April 19, 1956, S-1590 ( ,F.R.L.S. #6393), for example. Accordingly, the Board is of the opinion that the bank's use of the plan in question would not involve any practice villch need be regarded as constituting any indirect payment of interest for the purposes of Regulation Q. Cases such as these, of course, necessarily depend on th(= particular facts and circumstances involved, and the views expressed herein are based on the Board's understanding of the information enclosed with your letter. Therefore, if in actual practice there should be any material deviations from the facts as summarized above, the matter would be subject to review in the light of any such development. Approved unanimously, with a copy to the Federal Reserve Bank of Cleveland and with the understanding that edited copies would be sent to the Presidents of all Federal Reserve Banks. taucto Letter to Mr. Pondrom, Vice President, Federal Reserve Bank of / reading as follows: „ This refers to your letter to Mr. Sloan of January 14, :jr, transmitting the registration statement filed pursuant Lubbock,he Bank Holding Company Act of 1956 by Cornell Oil Company, , s1 ,,O Texas, together with a copy of a letter from the firm `11 Robertson, Jackson, Payne, Lancaster & Walker, attorneys for Cornell Oil Company, dated December 27, 1956, requesting an4,°Pinion of the Board as to the present status of Cornell 0'4. Company as a bank holding company. 1 It is noted from Cornell Oil Company's registration statement that, as of may 9, 1956, that Company owned more than 25 Per cent of the stock of the First State Bank, Celina, Texas, n more than 25 per cent of the Muleshoe State Bank, Muleshoe, Texas, all but that on December 17, 1956, Cornell Oil Company sold Of its stockholdings in the First State Bank, Celina, Texas, to the Texhoma Trust. It is understood that the Texhoma Trust 2/11/57 -5- is an irrevocable trust created by Anson L. Clark in 1954; that the beneficiaries of this trust are his two children, Anson L. Clark, Jr., and Nancy C. McGee; and that the present trustees of the trust are Anson L. Clark, T. Dwight Williams, and Robert H. Middleton. In the circumstances, it is understood that Cornell Oil c °mPanY flow owns in excess of 25 per cent of the voting shares of only one bank, the Muleshoe State Bank, Muleshoe, Texas; !-nd that it does not own, control, or hold with power to vote Per cent or more of the voting shares of any other bank or °f any bank holding company, or control in any manner the election of a majority of the directors of any other bank; anct that trustees do not hold 25 per cent or more of the voting ,l/s.res of any bank for the benefit of the shareholders of 'ernell Oil Company. On the basis of the facts above stated, it is the Board's ?lnion that neither Cornell Oil Company not the Texhoma rust is a bank holding company as that term is defined in section 2(a) of the Bank Holding Company Act. It will be sPPreciated if you will inform Cornell Oil Company to that effect. It should be mentioned, of course, that, although adnlinistration of the Act is vested in the Board, its enforcent as a criminal statute falls within the jurisdiction of ! ue.Department of Justice, and conceivably the Board's interprebatlon might not be followed by that Department if it should "aye occasion to consider the matter. T Z Approved unanimously. cha Letter to Mr. John J. McCloy, Chairman of the Board of Directors, se Bank, New York, New York, reading as follows: There is enclosed a copy of the report of examination the Home Office of The Chase Bank, New York, New York, made of of December 10, 1956, by examiners for the Board of Governors b- the Federal Reserve System. The figures for the foreign : a anches shown in the combined statement of condition (as well 911, the figures for Arcturus Investment & Development, Ltd., Chase Manhattan Executor and Trustee Corporation Limited, n„U' union Provinciale Immobiliere) were supplied by the Home catio% may be noted from the Summary of Examiner's Classifion page 11 of the report, the examiner has classified 322 2/11/57 -6- the depreciation in stock of Arcturus Investment & Development, Ltd. in the amount of $87,784.09 as LOSS. portion of the General Reserve for Investments of 004,748.52 was applied in arriving at this figure.) It 18 requested that the estimated loss be charged off, reserved against, or otherwise eliminated, and the Board Of Governors advised when this has been done. Approved unanimously, with a copy to the Federal Reserve Bank and with the underof New standing that certain aspects of the matter would be discussed further in executive session, in accordance with a request by Governor Vardaman. Mr. Shay then withdrew from the meeting and Mr. Solomon, Assistant General counsel, entered the room. Governor Robertson referred to the discussion of the defense Plarining Program at the joint meeting of the Board and the Presidents of the Pederal Reserve Banks on January 29, 1957, and to the approval given by the Presidents at that time to the report of, the Special Committee on kerv.„ Operations dated January 28, 1957. He suggested that the Board accept the report of the Special Committee as a basis of defense planning. Pursuant to Governor Robertson's recommendation, unanimous approval was given to the following letter to the Presidents of all Federal Reserve Banks: The Board of Governors accepts as a basis of defense 131 "fling the report of the Special Committee on Emergency k!per Jointations approved by the Conference of Presidents at the meeting with the Board on January 291 1957. 32.3 2/11/57 -7Messrs. Thomas and Leonard then withdrew from the meeting and 141'. 1461°nY, Special Assistant to the Board, entered the room. At the meeting on February 7, 1957, consideration was given to Procedures to be followed in connection with the forthcoming hearings to requests by General Contract Corporation, St. Louis, Missouri, 1.14:1 Transamerica Corporation, San Francisco, California, for determiliati°11s pursuant to section 4(0(6) of the Bank Holding Company Act. It 1.113 understood at that meeting that the Legal Division would get in touch with the respective holding companies to inquire whether they would have 411Y 6Nection to the hearings in these matters being public. Prior to this meeting there had been sent to the members of the BoarA ' copies of a memorandum from Mr. Vest, dated February 3, reporting the views expressed by the applicants. C°1"Poration preferred a closed hearing 188/le °f the matter. It developed that Transamerica but was not disposed to make an On the other hand, General Contract Corporation 'stated at some length reasons why it felt that the hearing on its applicalaon should be private. In commenting on the matter, Mr. Vest said that he thought the 8041.,1 had legal authority to order either public or private hearings, with the qnde rstanding that if the Board desired to make the hearings public, appro Prlate orders would have to be issued. He than expressed the personal that in view of the objections to a public hearing stated by the ante, the Board should have some good reason if it wished to make 321 2/11/57 -8the he one public. He also said that whatever course was decided upon case probably should be followed in both cases for otherwise there light be charges of discrimination. In response to a question by Governor Balderston as to whether the B oard could order such a hearing made public during the progress of the 11,,, ,aring, Mr. Vest said that he thought it would be possible for the /30ardt Counsel to wait until some special question came up during the hearig and then ask for a public hearing if that seemed desirable in the 1)11b1ie interest. In such circumstances, the matter would be one for the deeisio, " of the hearing examiner in the first instance, subject to appeal to the Bcard. While it might be possible for the Board to enter an order 1?Wtilv, 5. ale hearing public during the course of the hearing, he felt that allY' such action probably should be worked out with the hearing examiner. With respect to the reasons stated by General Contract Corporation Do a private hearing on its applications, Mr. Hackley suggested that th ere appeared to have been some misunderstanding on the part of the C°113crati-°11, for the argument was made that no parties other than the and the applicant should be permitted to participate. cItt that He pointed a Private hearing would not preclude testimony from interested Darties 1410 might express a desire to testify. Gov ernor Vardaman suggested that there might be some inconsistency htve en the Boardts action in ordering a public hearing on the applicatio 113 of The First National City Bank of New York and others to form a 325 2/11/57 -9- ballk holding company and a decision to hold private hearings in the two f°17t1lcoming cases. In the First National City case, he said, it appeared to have been the view of some of the members of the Board that a liberal Position should be taken on requests by other parties to intervene in the Pr"eding. He then said that during the forthcoming hearings, if they 'Jere public, something might develop which would cause certain parties to Petitthn the hearing officer for admission to the proceeding. If the heari , "gS were private, such action on the part of interested parties would "course be precluded. Governor Vardaman went on to say that in principle he 14as inclined to favor public hearings, and that he had wished to bring °tut at he considered to be an element of possible inconsistency. Governor Mills referred to the statement which he made at the ineeti g on FebruarY 7, that there would appear to be a distinction between hearings on matters under the Bank Holding Company Act that had broad P4blic interest and matters that concerned principally the internal affairs or "4.1.ministration of a bank holding company group. Since both of the r°rthc„4 .--J-ng cases could be classified in the latter category, he was into feel that the hearings should be private in the interest of the Partie„ - concerned and that private hearings in these cases would not be in Nrwav 4 adverse to the general public interest. With respect to Governor Vardaman's comments, Governor Balderston 4qUirsd w hether, if the hearing in the General Contract Corporation matter 11.48 Sta t„ as a public hearing, it would then be possible to close the hear4_a ' fl for receipt of privileged material. 2/11/57 Mr. Vest responded that it would be possible to have evidence r a confidential character submItted on a sealed basis and exclude the PlIblic from the hearing room for such purpose. This would become sealed testi-111°11Y and would not appear in the public record. However, he said, he vould have some question about starting a public hearing and then order44-lig the hearing to be private because he felt that such action might tend 4. put the Board on the defensive. In a further discussion on this point, Mr. Hackley commented that the e,_ "tces in question bore a resemblance to section 301 determinations Urlder the holding company affiliate law in that they simply called for a Cleterft-L4- - uation by the Board as to the nature of the activities of the 1101dini„ company concerned and its subsidiaries. For that reason it could be argued that there was little need for a public hearing, since the only Partie, having a legitimate interest might be institutions competing with the Vh.4. 411--" -"IiarY companies. If such parties had a legitimate interest in the, -vroceeding, they would be at liberty to request the Board for perto testify or even to intervene. With respect to the points brought out by Mr. Hackley„ Governor hepardson said that the Board's determination, whatever it might be, would have an effect on the nature of competition and that therefore it might be whether these cases were more "within the family" than other ,_ VPes of cases under the Bank Holding Company Act. Governor Robertson stated that he saw quite a bit of difference 1/(Itli-ee 4 a case involving expansion of a bank holding company and a request 01 0111-',' 2/11/57 -11- ibr determination such as was involved in the forthcoming cases, because 4 Be of proposed expansion would involve matters of public concern such 48 the need for banking facilities. On the other hand, a request for determination under section 4(c)(6) would involve a decision whether a heLling company may continue to conduct business within the framework of it4 current relationships. In this case competition would still exist alici the only question was whether the competition would be furnished by a Metber Of a holding company group or whether there must be a transfer of °IlliershiP• Since this would involve the necessity for looking at internal l'ecords Of the institutions concerned, it raised a question of the right or 0ther parties to examine such records. In such circumstances, he felt that the matter of public or private hearings must be considered carefully bY the Board. Although in principle he was in favor of public hearings, he telt that the forthcoming cases were ones having characteristics such that they should be private. In other words, he saw no reason why the toard Should deviate from its rules of procedure, particularly in view of the (43Positi0n expressed by the holding companies concerned to a public hearing. Governor Szymczak said that he agreed with the statements made by v ernn ''1**4 Mills and Robertson, and that he felt the forthcoming hearings be private because of the nature of the matters involved and the e xpressed by the respective holding companies. However, there ktght be other cases where a public hearing would be justified. He commerited that if the Board should order these hearings to be public, it 329 2/11/57 -12- Il0u1d be almost committed to make public all hearings under the Bank H°1ding Company Act. Governor Vardaman added to his previous comments by saying that he did not think the Board should be governed by the view of the applicants in a matter of this kind and that he had some doubt as to the advisability of even requesting their opinions. He felt that the Board's decision should be made on the basis of the public interest, and person414 he would prefer that the Board order all hearings to be public, with the u nderstandi teE+-imony that the hearing examiner would be cautious and seal which might involve the internal affairs of the applicants. vent on to say, however, that he would go along with whatever decision reached in the cases under consideration, his general position having been made clear. Governor Shepardson said that while he thought there was some Illerit op the general argument for open hearings, it appeared to him that it 14 ould be best to proceed in these cases according to the Board's rules "Pro cedure, which provide that hearings will be private except upon retitle et of the parties concerned or where the Board determines that an °Pen h. . 'aring should be held because of circumstances peculiar to a 13alticUlar case. At the conclusion of the discussion, it was agreed unanimously that the hearings on the applications of General Contract Corporation and Transamerica Corporation should go forward as private hearings, with the understanding that this did 329 2/11/57 -13not constitute a precedent which would preclude the Board from ordering a public hearing in connection with any application under the Bank Holding Company Act where it appeared to the Board, from the circumstances involved, that such action would be appropriate. Governor Balderston reported that the Investment Bankers Asso 4 ,.,-Lation had inquired whether its Executive Committee might come to the Feder sl Reserve Building at 2:30 p.m. on Tuesday, February 26, for an eco431riic Presentation by the Board's staff and a discussion with the Board. Pdid that according to the Division of Research and Statistics it would be eussible to accommodate this request without undue difficulty because the Division would be working on the visual-auditory presentation to be for the Federal Open Market Committee in March. The request was discussed on the basis of the desirability of c°1nPlyi --ng with it, the necessity for members of the Board to attend the econo-, 'lc presentation, and the burden that would be imposed on the staff. At the conclusion of the discussion, it was agreed that Governor Balderston would discuss the matter with Mr. Young, Director, Division of Research and Statistics, and that, while the response to the Investment Bankers Association would be favorable insofar as the visit was concerned, the nature of the program to be offered would be predicated upon the extent to which the preparation of the 330 2/11/57 -14visual-auditory presentation would fit in with the subsequent presentation for the Federal Open Market Committee. During the foregoing discussion reference was made to the current series of visits to Washington by officers of State bankers associations 1414er the auspices of the American Bankers Association. that c: It was noted the number of State groups participating in the program was ining from year to year and the suggestion yes made that the matter be discussed with the American Bankers Association on the basis of whether ar° Plan could be worked out to combine the visits of several groups. Agreement was expressed with this suggestion. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board a memorandum from the Division of Personnel Administration dated February 6, 1957, recommending that those employees who could be spared be excused without charge to annual leave for not to exceed one hour on February 19, 1957, in order to participate in a program to be given in the auditorium of the Department of the Interior at 2:30 p.m. in observance of Brotherhood Week.
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