The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
295 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, February 231 1954. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Mills Robertson Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Thurston, Assistant to the Board Mr. Vest, General Counsel Mr. Allen, Director, Division of Personnel Administration Mr. Chase, Assistant General Counsel Chairman Martin referred to tne comment he made at the time he appeared before the Joint Committee on the Economic Report on February 3, 1954, when, in response to a statement by Representative Patman, he volunteered the opinion that the Federal Reserve Bank of visit that Bank. New York would be glad to have Representative Patman York Bank, had noted He stated that Mr. Sproul, President of the New ative Patman inviting this comment and had written a letter to Represent there was a meeting of him to visit the Bank, preferably on a day when the board of directors. Chairman Martin read the letter and added the e comment that it had been written entirely on Mr. Sproulls initiativ in response to although he (Chairman Martin) had informed Mr. Sproul his question that he had no objection to such a letter. Before this meeting there had been sent to the members of the Board a draft of letter to Mr. Brawner, Chairman of the Federal Reserve 296 -2- 2/23/54 Bank of San Francisco, prepared in response to his letter of February 17, 19,and Mr. Earhartis letter of February 9, 1954, respecting the question of participation by Bank of America National Trust and Savings Association in the election of directors of the Federal Reserve Bank of San Francisco. The draft letter took the position that Bank of America National Trust and Savings Association be advised that, on the basis of its assurance that it is not affiliated with Transamerica Corporation, neither the San Francisco Bank nor the Board of Governors would object to participation by Bank of America in the election of Federal Reserve Bank directors. The letter also stated that such a disposition of the matter did not constitute a determination as to the actual relationships between the two institutions and would not prevent such a determination from being made at any time on the basis of a full and complete inquiry and without regard to such disposition, if that should seem appropriate at some other time or in some other connection. Governor Wils questioned the desirability of including in the letter the latter statement indicating that the actual relationships between the two institutions had not been determined and that the proposed letter mould not prevent such a determination at a future time. His reason for questioning this statement, he said, was that in his judgment there was nothing of a positive character to indicate that an affiliation now existed between Transamerica Corporation and Bank of America N.T. & S.A., and that if the Board was not going to object to participation 2/23/54 by the bank in the election of directors it would be preferable to refrain from including any statement in the proposed letter to Mr. Brawner which, when transmitted to Bank of America, might indicate a grudging acceptance of such participation. Governor Robertson stated that while he did not think it important to indicate that the Board reserved the right to make a determination at a future time in this matter, he did feel it desirable to indicate to the bank that the Board had not made a full scale investigation which had determined in a positive manner that there was not an affiliation between Transamerica Corporation and Bank of America. g the stateIt was his view, rather, that the Board was simply acceptin ment by the Bank of America that there was not an affiliation and was raising no objection to participation in the election. During a discussion of suggested changes in the letter, Chairman Martin mentioned that Mr. Brawner would be in Washington on Thursday, February 25, and he suggested that in line with Mr. Brawner's suggestion in his letter of February 17, the matter be discussed with him at the time. This suggestion was approved unanimously. Before this meeting there had been circulated among the members with respect to the of the Board a memorandum dated February 3, 1954, employee security program of the Board of Governors in which it was 298 2/23/54 recommended that 66 positions be designated by the Board as 'sensitive", which would mean that full field investigations would have to be conducted for each individual occupying one of these positions at a total cost to the Board of approximately $15,000. d the security At Chairman Martin's request, Mr. Allen reviewe on security matters program and the reasons why the staff group working to designate the had come to the conclusion that it mould be desirable 66 positions as sensitive. He noted that of these positions, 42 were in in all of the remainthe Division of International Finance and 24 were there was some difing positions of the Board. Mr. Allen stated that whether as many ference of opinion within the staff group concerning Finance (total of poas 42 positions in the Division of International sitions in that Division was 45) need be designated as sensitive. He classified by other also said, however, that considerable material n of International FiGovernment agencies was received in the Divisio discussions with representatives nance over a period of time, and after of such material might of the Division as to whether the distribution the expressed desire of be limited to fewer persons, it was felt that ted as sensitive should that Division to have all 42 positions designa involved was that members be transmitted to the Board. A further point field investigation could not of the Division who were not given a full security matters were discussed. Mr. participate in conferences at which Allen added the comment that on the basis of information obtained it 2/23/54 appeared that several other Government agencies were following a procedure similar to that requested by the Division of International Finance and he mentioned specifically the Department of State, in which all positions have been classified as sensitive, and the Office of International Finance of the Treasury Department, in which all positions have been considered to be sensitive. There followed a general discussion of the security program and its applicability to the Board of Governors and of the recommendation included in the memorandum regarding proposed sensitive positions. At the conclusion of the discussion, the recommendation Contained in the memorandum was approved unanimously, it being understood that no provision had been made in the 1954 budget for such an expenditure. Messrs. Thurston, Vest, and Allen withdrew from the meeting at this point and Mr. Hackley, Assistant General Counsel, entered the room. Governor Robertson stated that a question had been raised informally with Mr. Hackley by the Federal Deposit Insurance Corporation regarding whether a payment of interest resulted where a bank mails a savings deposit passbook to a prospective depositor showing an initial credit of $1 with a statement that this amount would be in the nature of a present if an account of at least $10 is opened within a certain time by the depositor. He want on to say that he considered the -6- 2/23/54 practice undesirable but that it was extremely difficult to distinguish between the credit of $1 for opening a new savings account and the giving of a mallet, mechanical pencil, or other item of nominal value which, under earlier rulings of both the Federal Deposit Insurance Corporation and the Board of Governors, was not looked upon as a payment of interest. At Governor Robertson's request, Mr. Hackley reviewed the question presented along the lines of a memorandum which he had prepared under date of February 232 1954. Mr. Hackley stated that the practice of giving such a credit of $1 apparently had been adopted by the East River Savings Bank of New York, a nonmember mutual savings bank. No question had been raised as to that bank because the interest regulations of the Federal Deposit Insurance Corporation do not apply to insured mutual savings banks. However, a nonmember insured commercial bank had raised the question with the Federal Deposit Insurance Corporation and Mr. Oppegard, an attorney for that agency, had discussed the question with Mr. Hackley by telephone. Mr. Hackley went on to say that a similar question had been raised informally by Mr. O'Kane, General Counsel for the Federal Reserve Bank of San Francisco, on February 162 1954, regarding a State member bank in Utah, and that on February 18 Mr. O'Kane indicated over the telephone that he was inclined to feel that such a credit would represent a payment of interest and had in mind attempting to discourage the proposed 301 -7- 2/23/54 practice on the part of the member bank in Utah. There followed a discussion of this matter during which it appeared to be the consensus that the practice of crediting an amount for the opening of a new savings deposit was objectionable. The view was expressed, however, that it was difficult to draw a line between such a credit and giving of items of nominal value, which had been held to be an advertising cost. It was stated that the legal question was a close one and that a question of policy might also be involved. It was also stated that if the Board were to consider such a credit to be a payment of interest and thus a violation of Regulation Q, Payment of Interest on Deposits, that mould place member banks to some extent at a competitive disadvantage with nonmember banks if the Federal Deposit Insurance Corporation were, as was now contemplated, to indicate that it would not construe such a credit to be a payment of interest. During the discussion of the legislative history of the prohibition against payment of interest on demand deposits and the authority for limiting the payment of interest on time deposits, Chairman Martin expressed the view that if the practice was clearly objectionable it would seem appropriate for the Board to oppose its spread, especially since the Legal Division felt it was a close question as to whether such a credit would in fact represent a payment of interest. With respect to the question raised by the member bank in Utah, Mr. Hackley stated that he was not sure whether the question would come 302 2/23/54 to the Board and Chairman Martin suggested that if the question did arise it would be appropriate and desirable for the Board to indicate that it did not approve the practice even though it was not passing upon the legal aspects of the question whether it represented a pay— ment of interest. It was agreed unanimously that Mr. Hackley should talk with Mr. Oppegard and inform him that the Board had discussed the matter and had indicated a feeling that the practice should be discouraged but had taken no position as to whether a credit of the type proposed would violate Regulation with Q, this being a question which, in line decided be the Board's general policy, would only if it should be presented in a specific case with information as to all the circum— stances of the particular case. It was under— stood that Mr. Hackley also would communicate with the Federal Reserve Bank of San Francisco and inform that Bank of these views. The meeting then adjourned. During the day the following addi— tional actions were taken by the Board with all of the members except Governor Vardaman present: Minutes of actions taken by the Board of Governors of the Fed— eral Reserve System on February 18, 1954, were approved unanimously. Minutes of actions taken by the Board of Governors of the Fed— eral Reserve System on February 19, 1954, were approved and the actions recorded therein were ratified unanimously. Telegram to Mr. Stetzelberger, Vice President, Federal Reserve Bank of Cleveland, reading as follows: Reurlet February 18, 1954, Board approves designa— tion of Clarence L. Martin as a special assistant examiner 303 2/23/94 -9- for the Federal Reserve Bank of Cleveland. Board also approves designation of Leo G. Hafford and R. H. Pollock as special assistant examiners for the specific purpose of rendering assistance in the examination of The Cleveland Trust Company. Approved unanimously.
@FedFRASER