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Minutes for To: February 24, 1960. Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If you were not present, Your initials will indicate only that you have seen the minutes. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston ( Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System (3n Wednesday, February 24, 1960. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Shepardson King Mr. Sherman, Secretary Miss Carmichael, Assistant Secretary Mr. Thomas, Adviser to the Board Mr. Young, Adviser to the Board Mr. Molony, Assistant to the Board Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Noyes, Director, Division of Research and Statistics Mr. Farrell, Director, Division of Bank Operations Mr. Solomon, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. Chase, Assistant General Counsel Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Daniels, Assistant Director, Division of Bank Operations Mr. Nelson, Assistant Director, Division of Examinations Miss Hart, Assistant Counsel, Legal Division Mr. Farrell, Assistant Counsel, Legal Division Discount rates. The establishment without change by the Federal e Bank of Atlanta on February 22, 1960, and the Federal Reserve krat, 141 Boston on February 23, 1960, of the rates on discounts and advances 14 their existing schedules was approved unanimously, with the under- /3teziaing that appropriate advice would be sent to those Banks. 2/24/60 -2Items circulated or distributed to the Board. The following items, which had been circulated or distributed to the Board and copies c't Cu are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Le o tter to The Cleveland Trust Company, Cleveland, approving the establishment of a branch in -e City of Parma. Letter to The Provident Bank, Cincinnati, Ohio, ,rc)v1ng the establishment of a branch at Fifth L I3fP --"4 Broadway. 2 iLetter to the First State Bank of Porter, Porter, th l, ic11e21a) the a, approving the establishment of a branch in of Pines. 3 Le o tter to The Provident Bank, Cincinnati, Ohio, 4r°ving an investment in bank premises. 4 .-cer to the Merchants State Bank, Rhinelander, 4,48cortsin, waiving the requirement of six months' Rii 7ice of withdrawal from membership in the Federal rve System. 5 ter to the Federal Reserve Bank of Minneapolis, FiZP°sing no objection to the proposal of the eCL State Bank of Meriden, Meriden, Minnesota, to ealrge its name to Oakdale State Bank of Owatonna it8 location to Owatonna, Minnesota. Lett to the Federal Reserve Bank of San Francisco 111fring in the view that the proposed relocation by 4., its7 California Bank, Los Angeles, California, of "everly Hills Branch would not require Board 4,4oval . 6 7 Letter to Reserve Banks requesting figures on 1959 debits and (Item No. 8). On February 23 there was distributed a draft 2/24/60 -3- ct letter to the Presidents of all Federal Reserve Banks requesting rigttres within 30 days on bank debits for 1959 and deposits for a thirteen-month period ending December 1959, these figures to be furnished tor each bank or banking office that reported bank debits to Reserve taaks. The proposed letter indicated that these figures would be used Illalsking further studies on deposit turnover at individual banks. Governor Mills said that dispatch of the proposed letter would 14 effect mean a protracted delay in the setting of standards for the el43 sification of cities and banks for reserve purposes under the 1959 legislation. He referred to articles in the February 23 issue of the and the February 24 New York Times which were critical of clelsYs in determining these standards and in eliminating the central l'eSerlore city classification, stating that the Board was also open to clltlaism for delays in taking action on certain applications under the Holding Company Act and perhaps on the proceeding against Continental tank and Trust Company of Salt Lake City, Utah. that After expressing concern business before the Board was dragging, Governor Mills urged that these matters be brought to a prompt conclusion, especially the determi- 44tiOni of standards for classifying cities and banks for reserve purposes. lie said that if the Board were to drift off into a maze of debits and 111(3citY data which the banks did not understand, it would not be 13°s8lhle to reach a conclusion promptly on this subject and that the 130a1N4 1101-ad invite attacks through the Congress. In response to a -4- 2/24/6o cluestion from Chairman Martin, Governor Mills said that he would not favor sending the letter requesting debits figures and that he would Set a, brief time limit within which a proposal for a workable and under- standable standard for classification of cities and banks for reserve Poses would be put into effect. Mr. Farrell stated reasons why some members of the staff felt that it would be desirable to have fairly complete information on the platter of velocity before evaluating standards, rather than to base such sta4dards on size of banks alone. s Governor Shepardson noted that, when the question of standard %111S discussed at a recent meeting of the Board, it had been agreed that Thomas would have a memorandum prepared setting forth various points that might be considered, together with arguments for and against these 13°11.1ts in order that the Board might arrive promptly at a basis for cleterizining classification standards. He had discussed this with Mr. Thorn.. a few days ago and understood the memorandum was in the course Of preParation. Mr. Thomas reported that progress was being made on the memoslid he thought it would be completed in a week or two. As for the „ 4-4.-0Posed letter requesting debits, information was needed as to turnover Eis of deposits at banks in current analyses of the banking structure, to The 'what was going on in the economy, and in many special studies. Taestion of classification of banks for reserve purposes was only V104600i iff.:Pc. 2/24/60 -5- °Ile of the reasons for requesting the data, but he believed they would be useful and perhaps necessary in that study. Mr. Thomas pointed out that the 1959 legislation provided that the Board base its decisions "lorlzing banks to carry reduced reserves on the character of their 14181aess, stating that it would be difficult to find any data for this 1DUrPose that would be more readily available, more acceptable, and more easilY analyzed than the debits. The Board could, of course, assume that size of bank was a complete measure of the character of business, btlt he doubted that this would satisfy the 1959 legislation. For these reasons, he felt it desirable to ask for the debits information, and he 114 sorry the request had not gone out some time ago. Chairman Martin said that, regardless of the point made by G01, erilor Mills which was a good one, he felt that the data requested in the Proposed letter were needed and should be requested. Governor Robertson said that he would second Governor Mills' 1°11111t that the Board should get some action on classification standards. 11°%lever, he thought the request for debits information was in line with the t oard's intent to have various points of view presented in a memo l'EtrIclura such as Mr. Thomas was preparing. He was of the opinion that Mr. Thomas' memorandum had been completed, the Board should then 131‘c)esed to determine the general basis on which cities and banks would be ssified for reserve purposes. There would be no reason to wait t(4' the debits figures before proceeding with that discussion. IVO c- Act 2/24/60 -6Governor Balderston said he shared the views expressed by Governors Mills and Robertson that the Board ought to proceed with the reclassification of banks, even in the absence of the debits data. How- ever) these figures should be obtained for purposes of further study ani refinement. He understood that less than 1,000 of the 6,200 member 1)444 would be asked to supply debits. There would be no classification Problem for most member banks, but it would be important in determining stlIrderds for the 150-250 borderline cases to have a good basis for their classification. Chairman Martin indicated that it was important to secure any needed data as soon as possible and stated that he saw no reason to delasY sending the proposed letter. He reiterated his earlier comment that Governor Mills' point was a good one, that the staff memorandum sh°111(1 be gotten before the Board at the earliest possible moment, and that the Board should proceed with its study of the problem. He expected that criticism of the Board resulting from delays in determining classification standards would multiply from day to day. Governor Shepardson expressed some concern over the size of the 41e41°1"andum, stating that it was his impression that the Board wanted a coliciae memorandum that would set forth possible points for consideration 441 iadicate arguments for and against these points. Mr. Thomas indicated the difficulty of making a concise memocover these points, but he said that it would be as concise as it)8sible and would be accompanied by supporting documents. 2/24/60 The letter requesting Reserve Banks to furnish 1959 debits and deposits data, in accordance with the specifications outlined in an " 41 (411Panying statement, was then approved and a copy is attached to these minutes as Item No. 8. Mr. Nelson withdrew from the meeting at this point. Use of real estate brokers for leasing space in Federal Reserve Ba4k and branch buildings. Under date of January 20, 1960, there had beerl circulated a memorandum from the Division of Bank Operations with e. att ached letter from the Federal Reserve Bank of New York commenting the Board's letter of December 7, 1959, concerning the use of real estate brokers in finding tenants for unused space in new Reserve Bank builclings or additions. The New York Bank apparently was not certain er the Board's December 7 letter intended that the policy of not elliP1°Ying real estate brokers to obtain tenants should apply to existing btlaclings and established relationships as well as to temporarily unused Pace in new buildings or additions. The New York Bank expressed a Drer for continuing to use a real estate broker to obtain tenants tor „ c- portion of its annex building. Attached to the Division of Bank ltionsi memorandum was a draft reply to the New York Bank that would I cete the Board had no objection to the Bank's continuing the practice or u . slng a real estate broker in leasing space, either in the head office „a. allg or in the annex building. that The draft reply would also indicate the Board had no objection to the use of a real estate broker at 2/24/60 -8- the Buffalo Branch if the branch's awn efforts to find a suitable tenant were unsuccessful. Mr. Farrell noted that the New York Bank letter touched on two EtePects not discussed when consideration was given to an inquiry from the Chicago Reserve Bank as to the possibility of using a real estate 131'°ker to rent office space which was expected to become available in Eth°11t a year. In the December discussions concerning the Chicago Reserve Bank' 8 inquiry, no mention was made of existing arrangements of long stanclIng or of the possible collateral benefits to the Reserve Banks by °f brokers. Mr. Farrell said that the reply proposed by the "lon of Bank Operations interposing no objection to the New York tawv S continuing arrangement with a real estate broker appeared logical bIlt hat the Board's guidance as to the proper direction was needed. It tile Board should object to a continuation of the present arrangement 4't the New York Bank, he felt that disturbing problems might arise at the Cincinnati Branch and at the Federal Reserve Bank of Kansas City. . Re 1)0i nted out that the Cincinnati Branch had a building manager who oper eted the building, including the renting of space, and the Reliance ' 111341 --g of the Federal Reserve Bank of Kansas City was completely in the h s of real estate brokers who rented space and collected rents. p rell noted that in the case of the Buffalo Branch, the New York ' 41 Ileel.*I're Bank had indicated that it would plan to use a real estate l'°Iter* °n1Y if the branch's own efforts to locate a tenant failed. 2/24/60 -9Governor Robertson questioned the consistency- between the Proposed letter to the New York Reserve Bank and the December 7, 1959, letter which was sent following the inquiry from the Chicago Bank. After Mr. Farrell had replied, in response to a question from Governor Robertson, that the New York Bank rented about 60,000 square feet in the annex btladdlig, whereas 30,000 square feet were involved in the Chicago Bank, Governor Robertson said that the Board's position should be consistent throughout the System. It should not prohibit the Chicago Bank from 'ving a real estate broker if other Reserve Banks and branches were he 1181-11.g. such agents. With respect to a comment by Mr. Daniels that new --c Was involved at the Chicago Bank, whereas at New York no new space the difference V48 being rented, Governor Robertson said he failed to see betveen old and new space. 11°4na its He thought it would be preferable for the to take the position of suggesting that each Reserve Bank exert wn efforts to lease space and use real estate brokers only when these efforts failed. the Board Mr. Farrell commented that in the case of old space, 14)124 be in the position of telling Banks to break off long-standing new space 'Lugements with real estate brokers, whereas in the case of the Board would be aavising them not to employ brokers. the Governor Mills said that he thought the proposed letter to Reserve Bank was appropriate. thi He understood the Board's ' - 14g to be that, as a general rule, the Reserve Banks were to rent V.4 #‘1 2/24/60 -10- their own space through their own personnel and, if there were extenuating circumstances, the Board would not be adamant in prohibiting use of an agent. Mr. Farrell pointed out that the December 7 letter specified that each situation should be decided on its own merits and that in some 1-11 nces it might be necessary as a last resort to pay real estate con massions. He observed that in the case of the New York Bank the question was not based solely on obtaining tenants but also on the general sel*vices furnished the Bank by the real estate brokers. Chairman Martin 11480f the opinion that the proposed letter reflected the Board's position /.11til respect to use of real estate brokers. Governor Balderston stated that some of the Federal Reserve Banks 6/1 1 bra2lches were located in cities where office space was in excess ella rentals were hard to make. He wondered whether the Board was justi- tied la taking the position which it had with respect to the Chicago He felt the fundamental question was whether the Ilesel've Bank inquiry. 13°6"wou1d wish to leave excess office space unrented. If not, he thought it would be preferable to use customary procedures for taking Car of rentals. He would not be unhappy if the Board should advise the ?ecleral Reserve Banks to use real estate brokers if they found it 64114ultageous to do so. of the thinking Governor Robertson noted this would be a reversal 114Q1, of the December 7 letter. As an alternative, he suggested that the , 41 2/24/60 Proposed letter to New York be changed to indicate clearly that the 13c'ara assumed that the Bank could not satisfactorily rent the property because of circumstances which prevailed and, consequently, the Board l'r°11-14 have no objection to its continuing its present practice of using Et real estate broker. That would be consistent with the position taken with Chicago; otherwise, Governor Robertson felt the Chicago position shollad be reversed. Chairman Martin expressed some doubt as to the desirability of l'eltliring complete uniformity at all Reserve Banks on a matter such as this. He recognized the responsibility of the directors for management 01% the Reserve Banks, and his judgment would be for the Board only to el)ress a preference for renting without agents if this could be done. Re sUggested that the letter be revised in line with Governor Robertson's Slaitoo -co'zsLion and brought back to the Board for further consideration. Governor Szymczak suggested that, since the directors and Presi- dents of the Reserve Banks might have a preference for using real estate brokol, --ey it might be desirable to discuss the subject with the Presidents' Conference. Governor King expressed a preference that the Board not take acti (31A on the matter of real estate agents at Federal Reserve Banks, Statin g reasons why he believed this question might well be left to the it of the directors and officers of the Banks. 2h4/60 -12After some further discussion, it was understood that the letter to the New York Reserve Bank would be revised and considered at a later nieeting of the Board. Messrs. Farrell, Conkling, and Daniels then withdrew from the laleettig. Service of a member bank director as a director of an investment ect4PanY (Item No. 9). There had been distributed a memorandum dated lelprils-17 23, 1960, from Mr. Chase, regarding a telegram from Mr. D. W. lic3eaand, a lawyer in Denver, Colorado, presenting a question whether a clirector of a member bank could serve at the same time as a director of a. Clo sed-end investment company that was in the process of being organized a45- commencing business. In a telegram Mr. Hoagland advised the Board the ' t Centennial Fund, Inc. would be a closed-end investment company which not anticipate issuing any new shares after it had completed the 4e of the 40 million par value contemplated in the plan of organizatiorl , except shares to be issued to existing stockholders in lieu of 'nds or capital gains. The shares would be redeemable but no Prow' - 40a was being made for reissuing shares that had been redeemed. The Legal Division's memorandum pointed out that the Board had 1141T0,, LLY held that a director or officer of an open-end investment °13110 8-11Y WELS prohibited by section 32 of the Banking Act of 1933 from at the same time as a director of a member bank in view of the te.ct -“at an open-end company would be actively interested at all times -13- 2/24/60 in selling shares of stock. Conversely, the Board has held that an °rficer or director of a closed-end investment company would not be Prohibited by section 32 from serving as a member bank director since the closed-end company would not be engaged in the sale of shares of stock. The memorandum stated that the Board had never ruled on the Pl'ecise question raised by Mr. Hoagland, but it was felt that the 81.tuat1on being considered would be the same as with an open-end company sItIce directors and officers of Centennial Fund, Inc. would be actively Interested in finding customers for the shares while it was being (31.8.111-zed, and in that situation it would seem that section 32 would be (11)14cable. A draft of a telegram advising Mr. Hoagland to this effect /les attached to the memorandum. of Mr. Chase said that when the question of the application d, there "4°11 32 to an open-end investment company first was considere been a considerable difference of opinion among members of the staff. 11°11ever, the Board had decided that section 32 would apply to open-end e llxlies but not to closed-end companies. He said that section 32 was ci*ected at the probability or likelihood (to use the words of the ing or dis2411eIlle Court) that a bank director interested in underwrit trib tIting securities might use his influence in the bank to involve it or i ts customers in securities which his security firm was distributing. kt,t;er 32, as well commenting on some of the problems of applying section , 4a 0 d, Mr. Chase 4 the terms of the agreement in the case being considere 4'70*114 2/24/60 8a14 that at this stage dealers would be out soliciting customers to 1311t money into the fund. Shares of stock were being offered to the 131Thl1c through escrow agreements by which securities now owned by altscribers would be exchanged for shares in Centennial Fund, Inc. His e°4clusion was that this new closed-end company was so similar during its °I'ganizational stage to an open-end company that the same ruling should IIPPly in both instances. le to distinguish Mr. Hackley said that it was difficult in princip y the organization of an investment company from that of any other compan bei initivlly organized. By the same logic being advanced in this 44e, it might be held that a member bank director could not be a director Of allY company that was being organized. However, the proposed telegram the stock had to*. Hoagland had been prepared on the basis that, once be., 14. sold, the member bank director would then be eligible to serve as ' clirector of Centennial Fund, Inc. would seem Chairman Martin expressed the opinion that it 1)1'eferable for the Board to take a restrictive position in a case of this type. al public He could not see that there would be any materi loss that from such a position, although the view had been expressed ng estrictive decisions in this area were slowly but steadily starvi '.11 4 companies of management assistance. to the telegram After a brief discussion, approval was given 441Ii5ing Mr. Hoagland that section 32 of the Banking Act of 1933 would 2/24/60 be applicable to the proposed service of a member bank director as a director of Centennial Fund, Inc. A copy of the telegram is attached as Item No. 9. Miss Hart then withdrew from the meeting. Report on S. 2849, prescribing a Federal Code of Administrative F.ractice (Item No. 10). Pursuant to the discussion at the Board meeting oil February 23, 1960, there was distributed a revised draft of a letter t° Senator Eastland of Mississippi, Chairman of the Committee on the jildlciary, on the bill S. 2849, "To prescribe a Federal Code of Administl'atilre Practice to govern administrative proceedings of departments and alleies of the United States, and for other purposes." Mr. Hackley 146-icated that the revised draft incorporated changes suggested on Iletrilarlor 23. ns The proposed letter stated that the specific provisio l'erel*red to in it were given merely as illustrations and that the Board Ilas In agreement with the general objectives of the bill, although there in 1418 e°Ine question as to whether the technical requirements outlined the bill could be uniformly applied with advantage. The letter pointed °14 that the Board assumed that the bill would not be applicable to d. cell'ain functions of the Board but suggested that this be clarifie Governor Mills After a brief discussion of the proposed letter, 141..ted that he preferred the first version of the letter which was cliE3Qussed on February 23, although he had no real criticism of this one. The l'evised draft rather impressed him as a hurried and superficial -16- 2/211/6o review of a very complicated bill, whereas the first draft specifically Pointed out matters of legal substance. any action would Mr. Hackley said that it seemed improbable that governbetaken on the bill in the near future, that many agencies of ment that were much more affected by the bill were submitting reports °n its contents, and that these would be studied carefully by the be prepared. ecmlnlittee staff after which a revised bill would no doubt Re said that the Legal Division was concerned with the particular and 151%°visions of the bill that might have a serious effect on the Board 11841 not intended to omit specific references from the present letter, alth°1-Igh some further language changes seemed desirable. sentence in the Governor Balderston called attention to the general letter which indicated that the Board was in sympathy with its biectives. indicated He noted that after this sentence, the letter was not actually 13°111ts of difference which suggested that the Board in s•greement with the objectives stated. ce was sufficiently Mr. Hackley said he thought that this senten il that it be changed. asistent with the rest of the letter to require additional changes During the discussion which followed, several %rel'e suggested and agreed upon. Unanimous approval was then given to a Item No. 10. letter to Senator Eastland in the form of attached g at this point. Mr. Chase withdrew from the meetin c? " 2/24/60 -17Loans for arbitrage transactions (Items 11 and 12). There haibeen distributed a memorandum dated February 23, 1960, from the Legal-Division concerning two inquiries that had been received, one from. the San Francisco Reserve Bank and one from Mr. John E. Wheeler, 8. Los Angeles broker, as to whether a bank loan for the purpose of lpillichasing Studebaker-Packard convertible preferred stock as part of an. arbitrage transaction was exempt from the General Rule of Regulation U by section 221.2(j). It was understood that the inquiries related to Prospective loans and commitments and that no such loans or commitraelits had yet been entered into. The memorandum pointed out that on February 17, 1960, the Board cleeided to interpose no objection to (1) similar loans already granted (2) performance of commitments for future loans already entered into by Morgan Guaranty Trust Company. However, it was understood that the did not intend generally to open the way for loans for the purpose or zi recting arbitrage transactions in Studebaker-Packard securities section 221.2(j), since the preferred stock could not be exchanged tor e°mmon stock before January 1961, which time did not come within the 480nab1e time" concept that had been applied to arbitrage transactions 4ticler Regulation T. According to the memorandum, two alternatives were 4vail8.b1e to the Board: (1) The Board could decide that it would inter11c4 no objection to the future granting of bank loans for arbitrage tre21 84etions in Studebaker-Packard securities under section 221.2(j), 2/24/60 On -18- the ground that this would be consistent with the Board's recent action in the Morgan Guaranty situation. (2) The Board might adhere to it8 previous interpretation of arbitrage transactions exempted under "don 221.2(j) of Regulation U, as contained in the Questions and rs pamphlet explaining the regulation and issued to member banks 111/1 On June 15, 1959. Or Under this second alternative, loans for the purpose Purchasing a convertible security as part of an arbitrage transaction ight be effected under section 221.2(j) only if such security was Q°111tertible within a "reasonable time"; the time until conversion of the StUdebaker-Packard preferred stock in the present situations was approxiniatelY 10 months which was not a "reasonable time" within the meaning or section 221.2(j); and thus the loans here contemplated could not be 81."11ted without regard to the General Rule of Regulation U. It was the ll10n of the Legal Division that the second alternative was preferable ' °I3I 4111 araft replies advising the San Francisco Reserve Bank and Mr. Wheeler to this effect were attached to the memorandum. The Legal Division's memorandum noted that the present case was essentially different from the Morgan Guaranty situation. The present ea, " did not involve outstanding commitments entered into by a bank, Wher e/I8 in the Morgan Guaranty situation the Board's decision was 1111111enced by the fact that the bank had already entered into loan cotrtrai tments before receiving notice of only possible violation. Also, the Studebaker-Packard preferred stock held as collateral in the 2/2A/60 -19- Mcirgan Guaranty case constituted about 20 per cent of the entire issue 811d, accordingly, there was a danger of possible market disruption in Studeb aker-Packard securities if corrective measures were required by the Board. d were Mr. Hackley stated that the two inquiries being considere c°4cerned with whether banks could in the future grant loans for the transaction. 1314'13c)se of purchasing stocks as a part of an arbitrage As case was 114(lbeen pointed out in the memorandum, the Morgan Guaranty c°11cerned with loan commitments which had already been entered into. had been Chairman Martin inquired whether the two inquiries clisellssed with the San Francisco Reserve Bank, and Mr. Hackley replied Illthe affirmative. no commitGovernor Shepardson asked whether it was clear that that s had yet been made, and Mr. Hackley and Mr. Farrell replied this was the assumption, based on incoming communications and a telephone Bank. c°11versation with Mr. Merritt at the San Francisco Reserve Governor any other 11(Thelitsorl was of the opinion that the Board could not take 1)°sition than that suggested by the Legal Division. paragraph of the Governor Mills questioned whether the second telegl'ani to the San Francisco Bank might be omitted. This paragraph rushed. information concerning the position the Board had taken in the '°rgan Guaranty situation. "4. • 2/24/6o Mr. Farrell said that the Legal Division felt that it was only fair for the San Francisco Bank to be informed of the ruling on the other case, and Mr. Hexter added that in his opinion the second paragraph of the telegram should be retained so that the San Francisco Bank would be ade1 144te Y informed concerning the Morgan Guaranty loans and also because the information would be helpful if there were any actual existing agreements 14/4)1ving the Studebaker-Packard stock on the West Coast. Mr. Hackley also said that he felt it would be preferable for the San Francisco Bank to have information concerning the Board's ruling on the Morgan Guaranty case. It being the consensus that it would be preferable to include the se0011d paragraph of the draft telegram in responding to the San Francisco Reserve Bank, approval was then given to a telegram to that Bank and to the letter to Mr. John E. Wheeler, advising them that the arbitrage trans4cti°11s involving the purchase of Studebaker-Packard preferred stock and not be the sale of Studebaker-Packard when-issued common stock could frected under either Regulations T or U, except in accordance with the 1 margin requirements thereof. " C Copies of the telegram and letter attached as Items 11 and 12. n Al]. of the members of the staff then withdrew with the exceptio Or m "essrs. Sherman, Thomas, Young, and Hackley, and Messrs. Koch, Adviser, Section, Division of Research and e.411Ceir, Chief, Government Finance at„, Sti on Q6lcs, entered the room for the purpose of an informal discussi c ertain matters preparatory to the meeting of the Federal Open Market 41unittee to be held on March 1, 1960. 2/24/60 -21Following this discussion, the meeting adjourned. Secretary's Notes: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board the appointments of the following persons: Margaret C. Goodall as Stenographer, Division of Examinations, With basic annual salary at the rate of 43,850, effective February 29, 1960. Myrtle I. Ellicott as Clerk-Typist, Division of Administrative Services, with basic annual salary at the rate of *3,590, effective February 21, 1960. On February 24, 1960, Governor Shepardson approved on behalf of the Board a letter to the Federal Reserve Bank of Boston confirming arrangements for Richard Ward, a member of the staff of that Bank, to work in the Economic Editing unit of the Board's Division of Research and Statistics for a two-week period beginning March 7. The letter stated that Mr. Ward would continue on the payroll of the Boston Reserve Bank during this period and would be allowed travel expenses by that Bank in accordance with its travel regulations. The letter also indicated that the Board was prepared to reimburse the Boston Bank for both his salary and travel expenses. (›A. t Secretary) 0"211 BOARD OF GOVERNORS OF THE Item No. 1 2/24/60 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE 'WARD February 24, 1960. Board of Directors, The Cleveland Trust Company, Cleveland, Ohio. Gentlemen: Pursuant to your request submitted through the , Federal Reserve Bank of Cleveland, the Board of L'overnors or the Federal Reserve System approves the ! stablishment of a branch in the Pannatown Shopping (113?nter at the southwest corner of Ridge Road and „ldgewood Drive in the City of Parma, Ohio, by The kaeveland Trust Company. This approval is given prothe branch is established within nine months from the date of this letter and formal approval of State authorities is effective at the time the branch is established. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 2 2/24/60 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 24, 1960. Board of Directors, The Provident Bank, Cincinnati, Ohio. G entlemen: Pursuant to your request submitted through the F of ederal Reserve Bank of Cleveland, the Board of Governors of the Federal Reserve System approves the establishment /3 an in-town branch at the southeast corner of Fifth and troadway Streets, by The Provident Bank. This approval is ren provided the branch is established within sixteen ,?nthe from the date of this letter and formal approval of 'Qate authorities is effective at the time the branch is est ablished. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OPOov** OF THE .4 FEDERAL RESERVE SYSTEM Item No. 3 2/24/60 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 24, 1960. Board of Directors, Pirst State Bank of Porter, Porter, Indiana. Ge ttlemen: Fed l Pursuant to your request submitted through the , Reserve Bank of Chicago, the Board of Governors of ' 1342 1 6eraFederal Reserve System approves the establishment of a s'i-allen at the intersection of U.S. Highway 12, and Poplar pZet in the town of Pines, Indiana, by. First State Bank of ti"I'ler, provided that prior to establishment of the branch pprel bankl s capital is increased to $100,000 to conform with vi: 4Tral statutory requirements, and the branch is established six months from the date of this letter. Very truly yours, (Signed) Kerneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. tr. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 4 2/24/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 24, 1960. Board of Directors, The Provident Bank, Cincinnati, Ohio. Gentlemen: Pursuant to your request submitted through .t,he Federal Reserve Bank of Cleveland, the Board of , uovernors of the Federal Reserve System approves, Under the provisions of Section 24A of the Federal Reserve Act, an additional investment of :2410,000 in bank premises by The Provident Bank, Cincinnati, ?}lisp, for the purpose of renovating branch office ouilding at Fourth and Eain Streets, Cincinnati, Ohio. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS ,44 4507/ 40644 OF THE 444 ' 0° FEDERAL RESERVE SYSTEM tr Item No. 5 2/24/60 WASHINGTON 25. D. C. ADDRESS orricIAL CORRESPONDENCE TO THE BOARD February 24, 1960. Board of Directors, Merchants State Bank, Rhi nelander, Wisconsin. Ge ntlemen: The Federal Reserve Bank of Minneapolis has forwarded to the Bo of Governors your letter, together with the accompanying aru ., res Iritiv14ution dated February 3, 1960, signifying your intention to draw from membership in the Federal Reserve System and requestwaiver of the six months' notice of such withdrawal. In accordance with your request, the Board of Governors the requirement of six months' notice of withdrawal. Upon FteTerlder to the Federal Reserve Bank of Minneapolis of the Federal call:rire Bank stock issued to your institution, such stock will be pro'e-Led and appropriate refund will be made thereon. Under the tqll.irs of Section 10(c) of the Board's Regulation H, your 1,7:411-°11 may accomplish termination of its membership at any time trom eight months of the date the notice of intention to withdraw m eirlarship was given. ret„ It is requested that the certificate of membership be d to the Federal Reserve Bank of Minneapolis for disposition. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 744 BOARD OF GOVERNORS tiNA OF THE 414* FEDERAL RESERVE SYSTEM X* Item No. 6 2/24/60 WASHINGTON 25. D. C. ADDRESS orriciAL CORRESPONDENCE i` TO THE BOARD FebruAry 24, 1960. H. G. McConnell, Vice President, ;:cteral Reserve Bank of Minneapolis, -4-4neap01i3 2, Minnesota. 1)ear I. McConnell: Reference is made to your letter of February 4, 1960, egard to the propose] of First State Bank of Meriden, 'a ' c uesota, to change its name to Oakdale State Bank of Owatonna, st,change its location to Owatonna, Minnesota. It is underthe Commissioner of Banks of Minnesota has approved the car ee in name and location provided the bank increases common undivided profits to $75,000, surplus to $35,000, and to`— 315,000. will It appears that the change in location and name bank's the of character general 1418i no material effect upon the no objection t04,11_*ss; and therefore, the Board will interpose 'irie proposal. haw, will It is assumed that Counsel for the Reserve Bank revie_ take w and satisfy himself as to the legality of all steps 4 in changing the name and location of the bank. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 7 FEDERAL RESERVE SYSTEM 2/24/60 WASHINGTON 25, D. C. ADDRESS orriciAL CORRESPONDENCE TO THE BOARD February 24, 1960. B. R. Millard, Vice President sral Reserve Bank of San Francisco, Francisco 20, California. 1)earlir• Millard: Reference is made to your letter of February 4, 1960, tuigei spect to the proposed relocation by California Bank, Los 1148t,s, California, of its Beverly Hills Branch from 9441 arld plre Boulevard to the northwest corner of Wilshire Boulevard Drive in the City of Beverly Hills, California. It is st°0d that the proposed change in location involves a dis' ance of about two blocks. Ilith It would appear ar that the proposed change would ' !mere ,tood relocation of an existing branch in the immediate without aCfecting the nature of its business or the Golz cl• Under the circumstances, formal approval of the : -r -__ • ls unnecessary. constitute neighborcustomers Board of Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 8 2/24/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 24) 1960 bear sir: For use in making further studies of deposit turnover at 1 banks, the Federal Reserve Banks are requested to forward cert , EL11 figures on 1959 debits and deposits, as outlined in the enclosed raerao ih : r allthlz. Similar information was obtained for the period 1954-1957 -sPonse to the Board's letter of August 20, 1957; and tabulations basea clein'` °a 80ftle of these data were forwarded to the Reserve Banks' research 4'8'1.tillents on April 22, 1958. ittliv 4 torm .... If it is convenient for your Bank to send this material in the the °4 Punch cards, this method is preferable; the memorandum sets forth Etpl)re artaagement and coding of the cards if they are used. It will be °Deraie.!'ated if the data are forwarded to the Board's Division of Bank "4°118 within thirty days after the date of this letter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. /14OE —".c.SIDENTS OF ALL FEDERAL RESERVE BANKS. , TELEGRAM BOARD OF GOVERNORS OF THE Item No. 9 2/24/60 FEDERAL RESERVE SYSTEM WASH I NGTON February 24, 1960, W. Hoagland, 018 17th Street, Nnver, Colorado. Your wire, Board is of opinion that section 32 would be applicable to proposed service of director of member bank as director of Centennial Fund, Inc. As you know, Board regards section 32 as applicable to relationship with open-end investment company because it is actively engaged in selling its shares. Board's Published ruling that section 32 did not apply to relationship With closed-end company related to company which had completed its csqanization and sale of its shares. Board believes that closedeld company which is in process of organization and is actively ellCaged in issuing and selling its shares is in same position ' lelative to section 32 as open-end company. (Signed) Merritt Sherman SHERMAN VkA. tn4: 14tss 'Ait% stio. t mATEs GOVERNORS OF THE FEDERAL RESERVE SYSTEM BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 10 2/24/60 WAS OFFICE OF THE CHAIRMAN February 24, 1960. The Honorable James 0. Eastland, Chairman, rftlittee on the Judiciary, Ipited States Senate, -4shingt°n 25, D. C. tear Mr. Chairman: This is in response to your request for a report on the bill s • 2849, "To prescribe a Federal Code of Administrative Practice to • • govern proceedings of departments and agencies of administrative " ' united States, and for other purposes." It is understood that the objective of the bill is to Pl'escrib e rules of practice, similar to the Federal rules of civil proc oee edure, that would apply uniformly in all administrative prohiacii i, nga• The Board of Governors is in sympathy with the desiraRow.'Y of insuring fair and expeditious administrative proceedings. te r, the Board questions whether the numerous detailed and tio:L4-cal requirements with respect to pleadings, parties, deposiill , hearings, and similar matters that may be appropriate in acIltrial proceedings are in all cases suitable or desirable in kay ll atrative proceedings. In some instances, such requirements serve only to prolong administrative proceedings and perhaps aacir the effective performance of an agency's functions, without silehe°mPensating advantages. In any event, the Board believes that appl,a comprehensive set of rules should not be made uniformly the -Leable to agencies of greatly different characteristics without operril"t careful study of the manner in which it might affect the ations of each agency concerned. As you know, the principal functions of the Board of alipe=ra are in the fields of monetary and credit policy and bank 4. With respect to the Board's monetary and credit tons, such as prescribing reserve requirements of member banks lIg margin requirements for securities transactions, it seems elear riot b wiat the procedural requirements prescribed by this bill would ° applicable to the exercise of these functions. that As to the Board's bank supervisory functions, it is assumed thel:,Ich functions likewise are not subject to the requirements of 1, although this is not entirely clear. These supervisory ' The Honorable James 0. Eastland -2- function5 are generally of a licensing nature. They include, among ! hex's, such matters as approval by the Board of applications for ribership in the Federal Reserve System, approval of the estabel atment of branches by State member banks, and passing upon appliActions bY bank holding companies under the Bank Holding Company 1956. Applicability of the procedural requirements of the 014.4- 1,0 licensing functions of this kind might, in the Board's 4- ni°11, seriously impede the efficient discharge of the Board's uatutory functions. T While section 1001 of the bill states that the Code shall tvern Practice in every "proceeding for relief", the term "relief" thsnot defined. The Board recommends that it be made clear that sal re quirements of the bill are not applicable to licensing or de44ication proceedings that are not required by statute to be 't'rglined on the record after a hearing. Provisions of the bill regarding depositions and discovery cies unduly interfere with the work of the various Government agenhedinniess the bill is clarified so as to permit these processes to hem rected against members of an agency's staff rather than the e01 14 of the agency concerned except where the agency head is the 4.5 source of the information sought. Section 606 of the bill authorizes each agency to issue 1.1bPoe ot 4,nas in connection with proceedings subject to the provisions pcx:e Code. The Board recognizes the desirability of the subpoena lx:r with respect to certain types of proceedings. However, even its 48 heretofore suggested, the bill should be clarified to make 4oe11.3,rovisi0n5, including the subpoena authority, inapplicable to ti: 18ing Proceedings, the Board would wish to give further study tillict? question whether, in view of the nature of the Board's L°ne, authority for the use of subpoenas would be desirable in : corihr -etion with other types of proceedings conducted by the Board. Section 1001(b) of the bill provides that all hearings tohoir open to the public. Although the Board seldom has occasion 1/NI:formal hearings, any hearings conducted by the Board normally tNai:e banks. The confidentiality of bank examination reports has (bride'ionally been guarded with the utmost care; and much of the be orrice that would be produced at a hearing held by the Board would vidt1„,a confidential nature, as being related to the affairs of indiOt and corporations. The Board believes that public disclosure e" information would not always be consistent with the public ltrterest The Honorable James O. Eastland The above illustrations indicate certain respects in which Tlirements of the bill might have an adverse impact upon the tiVtic)ns of the Board of Governors. The Board hopes, therefore, () °Will be revised and clarified in the light of further study the re " S prOViSiOnS. Sincerely yours, (Signed) Wm. MCC. Martin, WM. McC. Martin, Jr. Item No. 11 TELEGR AM LEASED WIRE SERVICE 2/24/60 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON February 24, 1960. Merritt - San Francisco Reurtel of February 5, 1960, loans to purchase Studebaker- 4elcard convertible preferred stock against sale of Studebaker-Packard 141et-issued common as part of arbitrage transaction may not be effected °Iltside the provisions of the general margin account under either sectiot 221 .2(j) of Regulation U or section 220.4(d)(2) of Regulation T. l'he time until conversion of preferred stock, presently approximately ' 404ths, Is not a "reasonable time" within the meaning of these 4ctions. Same question was recently presented to Board concerning Cktat,A,,,A -"-Lng loans and agreements of an eastern member bank, which had "Ilentered into without regard to margin requirements of regulation, reliance upon section 221.2(j). In that case Board decided to irlterr, -rose no objection and stated that it did not intend to take adver 8e action with respect to the outstanding loans or future loans / 11 40.1 tn4 -,-Lght be made pursuant to the outstanding agreements, because it aPPea Cl that A such loans and agreements had been entered into in good qi.th and without intent to violate the regulation; and because regulatiorl 48 Presently drawn did not make it entirely clear that such loans 110,114 Iriclate regulation. However, no such outstanding loans or 4ereern ente exist in the situation described in your telegram. (Signed) Merritt Sherman SHERMAN BOARD OF GOVERNORS otilt,} 0444 ' OF THE FEDERAL RESERVE SYSTEM Item No. 12 2/24/60 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 24, 1960. John E. Wheeler, u21 South Spring Street, 143 Angeles 14, California. near Mr. Wheeler: This is in reply to your letter of February 5, 1960, StudebakerNick,'"lng arbitrage transactions in the securities of the of the stock preferred cot convertible Corporation in which the Poration is purchased and the when-issued common stock is sold. Bona fide arbitrage transactions may be effected outside the Gene-1 case". Account under section 220.4(d)(2) of Regulation T; and in the bank loans may be effected outside the General Rule of RegulaN lu under section 221.2(j). However, under section 220.4(d)(2) of alraila on T, such exemption from the general margin account is Vitheaule only in the case of "a purchase of a security which is, or cony restriction other than the payment of money, exchangeable Ilitthertible within a reasonable time into a second security together t. &r offsetting sale of such second security, for the purpose of (Emnhg advantage of a disparity in the prices of the two securities." in ; asis added.) Although this restriction is not explicitly stated ,ion 221.2(j) of Regulation U with respect to bank loans, it IlelZ thereto. ess has been interpreted to apply in a like manner -Packard Prefe,_ Presently, the period of time until Studebaker the B'red stock becomes convertible is approximately 10 months. In time" for the ard's opinion, this period is not a "reasonable : 154rpo ' es of Regulations T and U. For this reason, arbitrage transactions involving the Nrch Stij4stse of Studebaker-Packard preferred stock and the sale of aker-Packard when-issued common stock may not be effected karoi either Regulation T or u except in accordance with the general 11 requirements thereof. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary.
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