The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for February 26, 1959.
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 vill 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, Mills
Gov. Robertson
IIIIIIIIIIkik
x
Gov. Balderston
Gov. Shepardson xteein,j
Minutes of the Board of Governors of the Federal Reserve System
on Thursday, February 26, 1959.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Szymczak
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Hackley, General Counsel
Molony, Special Assistant to the Board
Solomon, Assistant General Counsel
Hexter, Assistant General Counsel
Hostrup, Assistant Director, Division of
Examinations
Nelson, Assistant Director, Division of
Examinations
Benner, Assistant Director, Division of
Examinations
Hill, Assistant to the Secretary
Holahan, Supervisory Review Examiner,
Division of Examinations
Labor representation on Board.
Chairman Martin called attention
to an editorial in today's issue of the New York Times regarding a
Proposal of the AFL-CIO Executive Council, meeting currently in San Juan,
PlIerto Rico, that the Federal Reserve Act be amended in various respects,
of labor,
14eltding an amendment to provide for "adequate representation
the consumer
rs."
ann., small business interests on the Board of Governo
the editorial
Following a brief discussion, it was understood that
446, other pertinent material would be distributed to the members of the
Board for their information.
2/26/59
-2Discount rates.
Unanimous approval was given to telegrams to
the Federal Reserve Banks of Minneapolis and San Francisco approving
the establishment without change by those Banks on February 25, 19591
of the rates on discounts and advances in their existing schedules.
Items circulated to the Board.
The following items, which had
been circulated to the Board and copies of which are attached to these
minutes under the respective item numbers indicated, were approved
unanimously:
Item No.
Letter to the Fidelity Union Trust Company, Newark,
1
New Jersey, approving the establishment of a branch
in the port Newark section of Newark. (For transmittal
through the Federal Reserve Bank of New York)
Letter to The Oberlin Savings Bank Company, Oberlin,
Ohio, consenting to its consolidation with The Kipton
Bank Company, Kipton, Ohio, and approving the establishment of a branch in Kipton. (For transmittal through
the Federal Reserve Bank of Cleveland)
2
Letter to the State-Planters Bank of Commerce and Trusts,
3
Richmond, Virginia, approving the establishment of four
branches incident to its proposed merger with The Citizens
National Bank of Petersburg, Petersburg, Virginia. (For
t
ranamittal through the Federal Reserve Bank of Richmond)
Letter to the First National Bank in Olney, Olney, Illinois,
aPProving its application for fiduciary powers. (For transmittal through the Federal Reserve Bank of St. Louis)
Letter to the Northwest National Bank of Dallas, Dallas,
Texas/ granting it permission to maintain the reserves
required for banks located outside of central reserve
aza reserve cities. (For transmittal through the Federal
Reserve Bank of Dallas)
4
2/26/59
-3Item No.
Letter to the Home Bank, Compton, California, approving
the establishment of a branch at a location in Bellflower
different from the location approved by the Board on
August 20, 1958. (For transmittal through the Federal
Reserve Bank of San Francisco)
6
Letter to the Department of Justice replying to a request
for information regarding a suit brought against the
Federal Reserve Bank of San Francisco by The Continental
Bank and Trust Company, Salt Lake City, Utah.
7
Letter to the Federal Reserve Bank of Philadelphia
regarding the applicability of Regulation U to a loan
made by a member bank to a corporate borrower where the
loan was made in technically unsecured form but was later
secured by registered stocks held as side collateral.
8
With respect to the foregoing Item No. 8, Mr. Solomon stated
that he understood the loan had now been paid off and the member bank
had asked that its request for an interpretation be withdrawn.
However,
the Federal Reserve Bank of Philadelphia indicated that it would prefer
to have a letter sent so that the interpretation might be on record.
It was then suggested and agreed that the substance of the interpretation
be sent to all Federal Reserve Banks and published in the Federal Reserve
Bulletin.
Mr. Noyes, Adviser, Division of Research and Statistics, entered
the room at this point.
Reports on bank merger bills.
There had been distributed to the
130ard a memorandum from Mr. Hackley dated February 24, 1959, concerning
requests from Congressional committees for reports on three bank merger
bills:
H.R. 4152 and S. 1004, which were similar and would amend
VO4
2/26/59
section 7 of the Clayton Act to bring acquisitions of bank assets
Within the coverage of that section; and S. 1062, which would amend
section 18(c) of the Federal Deposit Insurance Act so as to require
the consent of the appropriate Federal bank supervisory authority
for every merger or consolidation in which the resulting bank would
be a national, State member, or nonmember insured bank, whether or
not a diminution in capital funds was involved.
Attached to the
memorandum were drafts of letters with respect to each of these
bills.
There had also been distributed a memorandum from Mr.
Hackley dated February 25, 1959, suggesting certain changes in the
draft letters on H.R. 14.152 and S. 1004.
In explanatory comments, Mr. Hackley brought out that the
draft letters were intended to follow the position taken by the
Board in the past on bank merger legislation and that the changes
suggested in his second memorandum were intended to make the reports
on H.R. 4152 and S. 1004 conform even more closely.
After Governor Robertson requested an opportunity to review
them in more detail, the proposed letters, revised to take into
account the changes suggested in Mr. Hackley's second memorandum,
%7ere approved with the understanding that they would not actually
be sent until Governor Robertson had indicated that they were
satisfactory from his standpoint.
2/26/59
-5Notification to Justice Department on bank holding company
applications.
There had been distributed to the Board a memorandum
from Mr. Hackley dated February 24, 1959, concerning an oral request
from Mr. Herbert Maletz, Counsel for the House Judiciary Committee,
for the Board's views in connection with certain aspects of pending
"Prenotification" merger bills.
The Association of Registered Bank
Holding Companies had recommended exemption of bank holding companies
on the grounds that, under the Bank Holding Company Act, they must
apply to the Board for prior approval of acquisitions of bank stock
or assets and furnish the Board more detailed information than required
by the prenotification bills.
Mr. Maletz said he was prepared to
araft such an amendment if assurance were given that notice of every
holding company application would be given by the Board to the
Justice Department.
Technically, as the memorandum pointed out, the
Justice Department was already receiving advance notice of every application prior to the Board's final decision, since a notice of tentative
decision is published in the Federal Register as to every application
°a which a hearing is not held and a notice of hearing is published
ia cases in which a hearing is to be held.
However, no procedure
had been established for direct advice to the Justice Department.
The establishment of such a procedure being regarded as approPriate and desirable, a proposed letter to Judge Victor Hansen,
.
7f3C
-6-
2/26/59
Assistant Attorney General in charge of the Antitrust Division, was
submitted which would state that in view of the Division's responsibilities under the antitrust laws the Board would hereafter send
directly to him copies of any notice of tentative decision or of any
order for a public hearing on a bank holding company application when
Published in the Federal Register.
It was noted that conceivably the
Department of Justice might like to be advised upon the receipt of
every application.
However, in line with the Board's policy of not
announcing the receipt of applications, it was thought preferable not
to volunteer to advise the Department.
In a supplemental memorandum, distributed under date of
February 25, 1959, Mr. Hackley suggested addition of a paragraph to
the proposed letter to Judge Hansen which would clarify that although
the prenotification requirements of pending bills would apply to the
indirect as well as the direct acquisition of stock or assets of a
bank, the Bank Holding Company Act does not require prior Board approval
for the indirect acquisition by a bank holding company of the assets of
a bank in a case where a banking subsidiary of such a company acquires
the assets of another bank through a merger.
After discussion, agreement was expressed with the suggestion
that Mt. Hackley advise Mr. Maletz informally of the letter proposed
to be sent to the Justice Department, obtain his reaction, and then
bring the matter back to the Board for further consideration.
2/26/59
-7Mr. Wernick, Economist, Division of Research and Statistics,
entered the meeting during the foregoing discussion.
Questions of procedure on Morgan-Guaranty merger.
Mr. Hackley's
memorandum of February 24, 1959, also referred to Congressman Celler's
letter dated January 26, 1959, and the Board's reply regarding matters
of procedure in the proposed merger of J. P. Morgan & Co. and Guaranty
Trust Company and stated that, according to Mr. Maletz, Mr. Celler
continued to desire a letter at the appropriate time indicating whether
(1) the Board would notify the Justice Department and ask for its views,
(2) the Board would apply the test of "substantial" lessening of
competition, and (3) the Board will hold a public hearing (in which
event Mr. Celler would want to testify).
While this did not require immediate action, it was understood
that a branch application in connection with the Morgan-Guaranty merger
had been filed with the Federal Reserve Bank of New York.
Accordingly,
Preliminary consideration was given to Mr. Celler's questions.
The
discussion indicated that in the Board's present thinking it would not
be necessary or desirable to hold a public hearing in connection with a
branch application in this case.
As to the question whether the Board
/4°111d notify the Justice Department and ask for its views, certain
tentative suggestions were made with respect to the handling of the
Me'rgan-Guaranty case and possible extension of any procedure followed
14 that case to other similar cases.
However, no decision was reached
4na it was understood that the matter would be given further consideration.
-8-
2/26/59
Messrs. Benner and Holahan then withdrew from the meeting.
Federal Reserve approval for branches of State member banks
Item No. 9
In a letter dated January 20, 1959, Chairman Spence
of the House Committee on Banking and Currency requested a report on
H.R. 1048, a bill "to amend section 9 of the Federal Reserve Act, as
amended," the purpose of which would be to eliminate the requirement
Of Board approval before a State member bank may establish a branch.
In a memorandum dated February 20, 1959, which had been distributed
to the Board, Mr. Hexter outlined the background of this proposal and
submitted a draft of reply to Chairman Spence indicating that the Board
vould not favor the enactment of H.R. 1048.
In reviewing the matter, Mr. Hexter commented that Mr. Shay,
Legislative Counsel, had been informed that the Committee did not
contemplate taking this bill up for consideration.
After agreement
had been expressed with a minor change in the proposed letter mentioned
bY Mr. Hexter, Governor Robertson
suggested that the report could be
strengthened by bringing out more clearly that legislation of this kind
Igould leave branches of one class of State banks (i.e., insured nonmember banks) subject to Federal approval through the Federal Deposit
Insurance Corporation.
Thereupon, the letter was approved unanimously in a form
l ef1ecting Governor Robertson's suggestion, with the understanding
'
thata. copy would be sent to the Bureau of the Budget.
cutteched as Item No. 9.
A copy is
9
-9_
2/26/59
Mr. Hexter then withdrew and Messrs. Connell, Controller,
and Kakalec, Budget and Planning Assistant, Office of the Controller,
entered the room.
Area redevelopment and assistance legislation (Item No. 10).
The Board had been requested by the Senate Banking and Currency Committee
to report on bills S. 722, S. 268, and S. 1064, each of which was
designed to cope with the problem of substantial and persistent levels
of unemployment or underemployment in economicslly depressed areas.
A
Proposed reply prepared by the Division of Research and Statistics had
been distributed to the Board, together with a memorandum dated February
24,
1959, giving background information and summaries of the bills.
In commenting on the matter, Mr. Noyes brought out that the
proposed report would be in line with a letter sent by Chairman Martin
in March 1958 to the Chairman of the Senate Banking and Currency Committee
in response to a request for comments on proposed legislation of a
similar character.
After further discussion of the bills in terms of their scope
and the magnitude of the respective programs, the letter was approved
unaaimously, with the understanding that a copy would be sent to the
Bureau of the Budget.
A copy is attached hereto as Item No. 10.
Messrs. Hostrup, Nelson, and Wernick then withdrew from the
meeting.
2/26/59
-10Report of audit of Board's accounts for 1958. With a letter
dated February 13, 1959, Price Waterhouse & Co. transmitted to the
Board its report of audit of the financial statements of the Board of
Governors for the year ended December 31, 1958 and a report on the
scope of their examination of those financial statements.
Copies
had been sent to the members of the Board along with a memorandum
from Mr. Connell dated February 200 1959, comparing the Board's
balance sheet as of December 31, 1958, and its statement of income
and expenses for 1958 vlth the Price Waterhouse presentations.
After comments by Mr. Connell, question was raised by Governor
Mills regarding the composition of miscellaneous expenditures for 1958,
amounting to $22,940, and the reasons for the increase over 1957.
Accordingly, Mr. Connell was requested to have a breakdown of such
exPenses distributed to the Board.
It was then agreed unanimously to accept the statements
rendered by Price Waterhouse & Co. In accordance with the usual
Procedure, it was understood that copies of the audit report and the
statement on scope of examination would. 'be sent to the Chairmen of
the
ng and Currency Committees of the Congress.
Banki—
Messrs. Connell and Kakalec then withdrew from the meeting.
Additional items circulated to the Board. The following items,
Ikich had been circulated to the Board and copies of which are attached
to these minutes under the respective item numbers indicated, were
.1.t.
t.q. unanimously:
2/26/59
Item No.
Letter to the Federal Reserve Bank of New York
approving the retention in active service of
Mr. Parke R. Elmer.
11
Letter to the Federal Reserve Bank of Atlanta
approving the payment of salary to two officers
at rates fixed by the Board of Directors.
12
The meeting then adjourned.
Secretary's Note: Acting on behalf of the
Board, Governor Shepardson approved yesterday
the recommendation contained in a memorandum
dated February 24, 1959, from Mr. Noyes,
Adviser, Division of Research and Statistics,
that the resignation of Carl T. Ant, Jr.,
Economist in that Division, be accepted
effective February 25, 1959.
Governor Shepardson approved today on behalf
of the Board a letter to the Federal Reserve
Bank of New York (attached Item No. 13)
approving the appointment of Richard E.
Speagle as examiner.
BOARD OF GOVERNORS
OF THE
44 0240**
'
'
4000
Item No. 1
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
'0,4tats%
February 26, 1959.
Board of Directors,
Fidelity Union Trust Company,
Newark, New Jersey,
Gentlemen:
Pursuant to your request submitted through the Federal
Reserve Bank of New York, the Board of Governors approves the
establishment of a branch in the vicinity of the intersection of
Terminal and Tyler Streets in the Port Newark section of Newark,
New Jersey, by Fidelity Union Trust Company, Newark, New Jersey.
This approval is given provided the branch is established within
One year from the date of this letter and that 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
0,
r'Cl 41
OF THE
4
Q.OVf
Item No. 2
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
%A
4410
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
,
***4411.Mtt.
`44ktul.'1'"
February 26, 1959.
Board of Directors,
The Oberlin Savings Bank Company,
Oberlin, Ohio.
Gentlemen:
Pursuant to your request submitted through the Federal
of Cleveland, the Board of Governors hereby gives
Bank
Reserve
its written consent, under the provisions of Section 18(c) of
the Federal Deposit Insurance Act, to the consolidation of The
Oberlin Savings Bank Company and The Kipton Bank Company, Kipton,
Ohio, and approves the establishment of a branch in Kipton,
Ohio, by The Oberlin Savings Bank Company. This approval is
given provided:
(1) the consolidation is effected substantially in accordance
with the Agreement of Consolidation dated January 7, 1959,
copy of which was submitted with your request,
(2) formal approval of the appropriate State authorities is
obtained,
(3) the consolidation and the establishment of the branch
are effected within six months from the date of this
letter, and
(4)
any shares acquired by the bank from dissenting stockholders are sold within six months from the date of
their acquisition.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 3
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 26, 1959.
Board of Directors,
State-Planters Bank of Commerce
and Trusts,
Richmond 14, Virginia.
Gentlemen:
Pursuant to your request submitted through the Federal
Reserve Bank of Richmond, the Board of Governors approves the
establishment of a branch at each of the following locations in
Petersburg, Virginia:
147 North Sycamore Street
1935 South Sycamore Street
1104 West Washington Street
Corner of Monroe and Tabb Streets
by State-Planters Bank of Commerce and Trusts, in connection with
the proposed merger of State-Planters Bank of Commerce and Trusts
and The Citizens National Bank of Petersburg, Petersburg, Virginia.
Thls approval is given provided (a) the merger is effected substantially in accordance with Agreement of Merger dated February 2,
1?59, (b) any stock acquired from dissenting shareholders is
:!llsPosed of within six months from date of acquisition, (c) the
°ranches are established within six months from the date of this
lett(,r, and (d) formal approval of the State authorities is
obtained and is in effect at the time the branches are established.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
lssistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 4
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
tt 4mo°
400440,,°
February 26, 1959.
Board of Directors,
First National Bank in Olney,
Olney, Illinois.
Gentlemen:
The Board of Governors of the Federal Reserve
System has given consideration to your application for
fiduciary powers and grants you authority to act, when
not in contravention of State or local law, as trustee,
executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, committee of
estates of lunatics, or in any other fiduciary capacity
in which State banks, trust companies or other corporations which come into competition with national banks
are permitted to act under th laws of the State of
Illinois, the exercise of all such rights to be subject to the provisions of section 11(k) of the Federal
Reserve Act and Regulation F of the Board of Governors
of the Federal Reserve System.
A formal certificate indicating the fiduciary
powers which the First National Bank in Olney is now
authorized to exercise will be forwarded to you in due
course.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
2/26/59
WASHINGTON 25, D. C.
ADDRESS
orriciAL
CORRESPONDENCE
TO THE BOARD
February 26, 1959.
Mr. F. M. Holt, President,
Northwest National Bank of Dallas,
201 Walnut Hill Village,
P. 0. Box 13407,
Dallas 20, Texas.
Dear Mr. Holt:
Pursuant to your February 2 request submitted through
the Federal Reserve Bank of Dallas, the Board of Governors,
acting under the provisions of Section 19 of the Federal Reserve
Act, grants permission to your bank to maintain the same reserves
against deposits as are required to be maintained by banks
located outside of central reserve and reserve cities, effective
as of the date of its opening for business.
Your attention is called to the fact that such perW-ssion is subject to revocation by the Board of Governors of
the Federal Reserve System.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
5
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
tr
Ugg:
-i
WASHINGTON 25, D. C.
Item. No. 6
2/26/59
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
• /
0
**4#
*41'4 rattr,
Ltioo***
February 26, 1959.
Board of Directors,
Home Bank,
Compton, California.
Gentlemen:
The Board of Governors approves the establishment of
a branch by' Home Bank, Compton, California, on Lakewood Bouleard
approximately one and one-half blocks north of Center Street,
Bellflower, California, instead of at Lakewood Boulevard and
Center Street, Bellflower, California, as approved by the Board
on August 20, 1958. This new location is approved provided the
branch is established by August 20, 1959, and that 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.
FEDERAL RESERVE SYSTEM
7
2/26/59
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 26, 1959.
Honorable George Cochran Doub,
Assistant Attorney General,
Civil Division, Department of Justice,
Washington, D. C.
Attention
Re:
Donald B. MacGuineas, Esq.,
Chief, General Litigation Section.
Walter E. Cosgriff et al. on behalf of himself
and all other stockholders of The Continental
Bank and Trust Company v. Federal Reserve Bank
of San Francisco (USDC D. Utah), Civil Action
#C17-59; D.J. Ref. GCD:APV 145-105-2.
Dear Mr. Doub:
This is in reply to your letter of February 4, 1959,
rected to the attention of the Board's General Counsel, containing
fequests for information, copies of documents, and recommendations
ut this office in connection with the above-entitled proceeding.
follows;
A summary of the facts giving rise to this cause of action
The Continental Bank and Trust Company, Salt Lake City,
Ut
al, a
4
State chartered bank and member of the Federal Reserve System,
.
0
7
) the beneficiary of a trust under which the trustees (officers of
stntinental Bank) hold the stock of a life insurance company in the
13
:e of Texas, with all dividends thereon payable to Continental
t17
.,. for use by it in its business. The trust agreement also provides
if payments of the dividends to Continental Bank should be held
'
eCal, they shall be payable to the shareholders of that bank.
In June 1958, the Federal Reserve Bank of San Francisco rethat Continental Bank divest itself of any interest in the
Yestock on the grounds that such interest involved a
-.Lola described
•
garditlon by the bank of provisions of Federal and State law, reconcs• r!.g the ownership of corporate stock by banks. There followed
co -1
.-aerable correspondence regarding this matter between counsel for
corllitInental Bank and Mr. John A. O'Kane, Vice President and General
nsel of the Federal Reserve Bank of San Francisco.
Honorable George Cochran Doub
-2-
During the exchange of this correspondence, on January 21,
1959, Continental Bank filed suit against the Federal Reserve Bank
asking for a declaratory judgment as to whether the Federal Reserve
Bank was the proper authority to pass upon distribution of income
of the trust; whether the Reserve Bank's opinion as to violation of
law was correct; and whether dividends received by the trustees
Should be paid to the bank or its shareholders.
Mr. O'Connell of the Board's Legal Division has talked with
Mr. O'Kane concerning defense of this suit and has been advised that
Mr. Mane has discussed the matter with the United States Attorney
for the District of Utah, Salt Lake City, Utah. Mr. 01 Kane has
indicated that as a result ,of the latter conversation, it has been
mutually agreed that the legal staff of the Federal Reserve Bank will
Prepare for filing in the United States District Court an appropriate
responsive pleading or motion, together with a supporting memorandum.
Upon oral argument or trial, counsel for the Federal Reserve Bank
will assume principal representation of the defendant. The United
States Attorney, however, has indicated his agreement to assist
counsel for the Federal Reserve Bank in any manner necessary.
Relative to the assistance of the United States Attorney,
it will be appreciated if you will arrange to have the United States
Attorney authorized to enter his appearance in this case. It is
Understood that Mr. O'Connell has conveyed the substance of this proPosed arrangement to Mr. Andrew P. Vance of your division and that
. Vance has indicated his approval of such procedure. Mr. Mane
will be requested to forward to your office, through the United States
Attorney, copies of all pleadings and supporting briefs that are filed
111 this action. Under the circumstances, Mr. Vance has also indicated
that it will be unnecessary at this time to forward to you the extensive data usually provided in a report of this nature. Should such
detailed data later become necessary, it will be promptly made available to you.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
4440
0Of e01/1:1_ 4,10
irs
11-Vf/
*
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 8
2/26/59
ADDRESS OFFICIAL CORRESPONDENCE
a4
TO THE BOARD
'
14441.s'
February 26,
1959.
Mr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Campbell:
In your letter of January 221 1959, you requested an
interpretation of Regulation U as it applies to a loan made by a
member bank to a corporate borrower where the loan was made in
technically unsecured form but is now secured by registered
stocks held as side collateral.
As we understand them, the facts are as follows: The
Provident Tradesmens Bank and Trust Company ("the bank") was
approached by
M. Greenfield on behalf of Variety Stores, Inc.
("the borrower") with the proposal that the bank lend an amount
ultimately fixed at /212001000 for the purchase of a controlling
interest in United Stores Corporation ("United"), a holding company
which controls several chains of variety stores. The borrower
intends to merge United with another chain of variety stores which
it already controls to form the second largest retail chain in the
United States. According to the original understanding, the
purchased stock was to be held by the bank as collateral for the
loan. When actually made, the loan was technically in unsecured
form; but as soon as the stock became available, some weeks later,
it was delivered to the bank and pledged as collateral.
Purchase price of the stock was ::3,6361000. The stock
is registered on a national securities exchange although not
extensively traded. The average of the high and low prices on the
exchange for the preceding year gives a value for the block in
question of 0,2761000, and of prices on the days when the actual
Purchase was made of 0,0271000. Since the maximum loan value on
the date of the loan was 50 per cent of the shares purchased, the
loan exceeded the maximum loan value of the collateral by '382,000
if actual purchase price is used, by $5621000 if average of high and
low prices for the previous year is used, and by 6851000 if the
Price on the exchange on the days of the sale fixes the "current
market value" of the stock.
The bank suggests that the stock could be accorded a value
in excess of the purchase price for two reasons, first, that the
block represents control, and second, that the borrower reports
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Ni. Joseph R. Campbell
-2-
receiving cash offers for the block, one before and two after the
purchase was consummated, at prices ranging from approximately one
to two million dollars in excess of the amount paid.
An interpretation is requested on four points. First,
since the loan was made in technically unsecured form, is it in fact
subject to Regulation U. Second, even though otherwise subject to
its terms, is the loan exempt on the ground that the Regulation is
directed solely toward purchases of stock for speculative or investment purposes, and is not intended to cover purchases made for the
business purpose of acquiring control of a particular enterprise.
Third, assuming that the loan is subject to the Regulation, what
standard should be applied to determine the current market value of
the collateral on the date of the loan. Finally, if the loan
exceeded the maximum loan value of the collateral, what steps should
be taken to correct the situation.
The Board is in general accord with the view of your ccunsel
that the loan is both subject to and in violation of Regulation U.
To take up the points in order, the Board has long held as to the
first, in the closely related "purpose" area, that "the original
Purpose of the loan should not be determined upon a narrow analy:ds"
of the technical circumstances under which the loan was made. Instead,
"the fundamental purpose of the loan should be considered to be controlling". 3-11, June 25, 1937, Digest 0120. Indeed, "the fact
that a loan made on the borrower's signature only, for example,
becomes secured by registered stock shortly after the disbursement
of the loan" affords reasonable grounds for Questioning whether the
bank was entitled to rely upon the borrower's statement as to the
Purpose of the loan. 1953 Bull. 951. Where security is involved,
standards of interpretation should be equally searching. If, as in
the present instance, the original agreement between borrower and bank
Provided that the loan should be secured by registered stock, and
such stock was in fact delivered to the bank as soon as available,
the transaction must be regarded as fundamentally a secured loan.
This view is strengthened by the fact that the regulation applies to
a loan "secured directly or indirectly by any stock" and the further
fact that the bank now appears unwilling to "weaken the position of
the loan" by surrendering the security.
Turning to the second question, the Board agrees that
administration of Regulation U would be self-defeating were it possible
to exempt transactions in registered stock on a scale large enough
to involve control of a company, while less serious and smaller
transactions remained subject to the Regulation. The language of the
Regulation is explicitly inclusive. Moreover, the withdrawal in 1945
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Joseph R. Campbell
-3-
of the original section 2(e) of the Regulation, which exempted "any
loan for the purpose of purchasing a stock from or through a person
who is not a member of a national securities exchange . . ." plainly
implies that transactions of the sort under consideration are now
subject to the general prohibition of section 1.
Since the current market value of registered stocks would
normally be fixed by their selling price on an exchange, the Board
has had little occasion to consider the question whether, and when,
value may be determined by an alternative method. The Supplement to
Regulation U provides that current market value shall be determined
by 'tau reasonable method". Regulation T) which, while not controlling, may throw some light on the problem, provides that current
market value of a security "throughout the day of its purchase or
sale" shall be "total cost or the net proceeds of its sale." The
Board is of the opinion that actual sale price in an arm's length
transaction provides the best evidence of value. Evidence as to
offers should be resorted to only in the absence of an actual sale.
Since the price at which the United stock changed hands was considerably in excess of the nearest per share price on the stock
exchange, it must be assumed that this price reflected intangible
factors including control. At the time of the loan, the value of the
block of United stock was accordingly 0,6361000 and the loan exceeded
the maximum loan value of the collateral by 082,000.
Violations of the Regulation and of the statute may of
course create the occasion for imposing certain civil and criminal
Penalties. The policy of the Board in this regard has been to "obtain
compliance as far as possible by persuasion" and to avoid legal proceedings unless a bank HshowB that it is not amenable to other methods
of correction". S-149, March 16, 1939, Digest #8212. The Board's
interpretation should therefore be brought to the attention of the
bank, and a reasonable opportunity be given to correct the situation,
Whether by requiring additional collateral for the loan, or by
reducing the amount of the loan. If the bank should fail to take
appropriate action within a reasonable time, the matter should again
be brought to the attention of the Board.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
2/26/59
WASHINGTON
OFFICE OF THE CHAIRMAN
February 26, 1959
The Honorable Brent Spence, Chairman,
Committee on Banking and Currency,
House of Representatives,
Washington 25, D. C.
MY dear Mr. Chairman:
This is in response to your letter of January 20, requesting
a report by the Board on H. R. 1048, a bill "To amend section 9 of the
Federal Reserve Act, as amended."
Under section 9 in its present form, the approval of the
Beard of Governors of the Federal Reserve System must be obtained
before a State member bank may establish a branch. The purpose of
• R. 1048 is to eliminate this requirement, so that State banks that
are members of the Federal Reserve System would not have to obtain the
Boardls approval as a prerequisite to the establishment of a branch.
The proposal embodied in H. R. 1048 raises a fundamental
question regarding Federal governmental policy with respect to bank
,
s,11Pervision. One of the enumerated purposes of the Federal Reserve
is "to establish a more effective supervision of banking in the
nited States." Congress consistently has taken the position that
ullis objective can and should be promoted through a substantial measure
e
tr Federal supervision of State banks that elect to become members of
clhe Federal Reserve System and nonmember banks that elect to have
°Posits insured pursuant to the Federal Deposit Insurance Act. The
'
l e quirelLont of Board approval for the establishment of branches of
'
iT'ber State banks is one part of the rcneral system of laws, regula;-Lons, and supervision that applies to State banks that are either
Tembers of the Federal Reserve System or insured by the Federal Deposit
'
nsurance Corporation. That regulatory plan also comprises the
Porovisions of R. S. 5136 (12 U.S.C. 24) and of the Comptroller of the
burrencyfe Regulation governing securities investments of member State
:
t Ilko as well as of national banks; the provisions of section 214A of
Federal Reserve Act imposing limitations on investments in bank
liremises (12 U.S.C. 371d); the provision of section 9 of -the Federal
ceaserve Act reouiring the consent of the Board to a reduction in the
aiptal stock of a member State bank (12 U.S.C. 329); the
,n °l'ity of the Federal Reserve System to supervise and examine
genralDi
'uer State banks (12 U.S.C. 325, 24(a), 483, etc.); and many others.
9
The Honorable Brent Spence
-2-
In most of these matters, if not all, the Federal law,
regulation, or supervision is in addition to that imposed by the
Particular State involved. Consequently, the suggestion that Congress
Should eliminate the requirement for Federal approval of additional
branches of member State banks, on the ground that there is State
control over this matter, necessarily raises the issue of the general
advisability of Federal regulation of member State banks. With
respect to that question, the Board believes that the benefits to the
banking system, and to the economy generally, are more than sufficient
to justify continued adherence to the principle of Federal regulation
and supervision of all member banks. With specific reference to the
establishment of branches, the Board considers this field to be
significant, from the supervisory viewpoint, in two major respects-first, as to the financial condition of the bank in relation to the
Proposed expansion of its operations, and second, as to the maintenance
of an appropriate number of banking offices in the community or area,
assuring adequate competition, if feasible, while avoiding the dangers
of over-banking.
It is also to be noted that H. R. 1048 would eliminate the
requirement of Federal approval for the establishment of branches by
Therefore, its enactment would introduce
State member banks only.
a distinction that would seem difficult to justify, in that State
bariks covered by Federal Deposit Insurance because of membership in
the Federal Reserve System would not be subject to Federal regulation
in this respect, whereas nonmember insured State banks would be.
In this connection, moreover, it is understood that the
:P?cieral Deposit Insurance Corporation considers that its responsiullities as insurer of bank deposits call for the exercise by it of
control over establishment of branches by insured banks in all cases
where such control is not exercised by one of the other Federal bank
Ilpervisory agencies. Consequently, amendment of the Federal Reserve
'ct in accordance with H. R. 1048 might not actually change, except
Perhaps temporarily, the present situation, insofar as it involves the
?4i5te1ce of Federal as well as State control over establishment of
°ranches by State banks that are members of the Federal Reserve System.
For the reasons indicated, the Board of Governors opposes
the enactment of H. R. 1048.
Sincerely yours,
:)
Win. McC. Martin, Jr.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
Item No. 10
2/26/59
OFFICE OF THE CHAIRMAN
February 26, 1959.
The Honorable A. Willis Robertson,
Chairman, Banking and Currency Committee,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
In accordance with requests by your Committee of January
19, 1959, February 2, 1959, and February 16, 1959, the Board of
Governors of the Federal Reserve System is submitting this report
on bills S. 268, S. 722, and S. 1064, with which your Committee is
presently concerned.
Under S. 722 - The Area Redevelopment Act - public and
private organizations in "industrial redevelopment areas" and
rural redevelopment areas" would be eligible for several types of
Federal assistance administered by a new independent agency, "The
Area Redevelopment Administration." Major provisions are: loans
and participations for private projects to the extent of200 million; loans for public facilities to the extent of $100 million,
with a maximum of 65 per cent government participation in any one
Project; grants for public facilities to the extent of *75 million;
technical assistance for redevelopment areas to the extent of
44-1/2 million; special eligibility of municipalities in the areas
for urban renewal assistance; and vocational training and subsistence payments during industrial retraining for certain workers
In these areas.
Under 3. 268 - The Area Redevelopment Act - the Secretary
of Commerce would administer Federal assistance to industrial and
rural redevelopment areas with the assistance of an Area Economic
Redevelopment Administrator. Major provisions are: loans and
Participation for private projects to the extent of 41;150 million,
Provided that loans shall not be extended for the purchase of
machinery and equipment; loans for public facilities to the extent
. 50 million; with a maximum of 50 per cent government participaof ;
tion in any one project; information and technical assistance for
redevelopment areas to the extent of".$3-1/2 million; special
proassistance for businesses in these areas in obtaining Federal
these
es
in
municipaliti
of
eligibility
curement contracts; special
The Honorable A. Willis Robertson
-2-
areas for urban renewal assistance; and vocational training to workers
in these areas.
Under S. 1064 - The Area Assistance Act of 1959 - the Secretary
of Commerce, with the aid of an Area Assistance Administrator, would
Provide Federal technical and financial assistance to areas of substantial and persistent unemployment. 1.,jor provisions are: loans for
industrial projects to the extent of $50 million, with a maximum of 35
Per cent government participation in any one project, provided that loans
shall not be extended for the purchase of machinery and equipment;
technical assistance grants to the extent of $3 million for areas of
substantial and persistent unemployment and other economically
disadvantaged areas; assistance, financial or otherwise, to State vocational education agencies for specified areas; special eligibility of
municipalities in these areas for urban renewal assistance and first
Priority for loans for public facilities.
These bills are directed at an important economic and social
Problem which has persisted in certain communities during much of the
Postwar period. The Board of Governors is in general accord with a
number of the fundamental purposes contained in the bills.
As we understand these measures, they would provide assistance
to areas where substantial and persistent unemployment and underemployment have continued even during periods of high output and generally
low unemployment in the economy as a whole. The bills are not designed
to deal with problems of economic recession, which we believe can best
be handled by appropriate monetary, tax, and expenditure policies. Their
Purpose is to direct economic resources that are unemployed or underemployed into activities that will provide lasting improvement of job
cPPortunities by the establishment or expansion of productive activities
that would otherwise not be undertaken. In the process of assisting
certain areas, the burden of unemployment will thus not be shifted to
Other areas. The maximum amount of State, local, and private cooperalon and participation will be utilized with Federal assistance aimed at
nelPing communities help themselves.
There are many reasons for substantial and persistent unemployIncnt in some communities. Among the factors which may contribute to the
economic decline of particular areas are; important changes in tech1°1°EY, lack of industrial diversification, shifts in consumer demands,
"4-(38s of markets of certain industries to competitive products, shifts in
111ant locations, and changes in occupational skills required to meet the
remedies for
eeds of a dynamic and growing economy. Prescription of
,
is excauses
of
multitude
ar
this
from
developing
situations
articul
The Adminproblems.
e
administrativ
difficult
l'emely complex and raises
designating
in
discretion
some
given
is
3trator or Secretary of ,_ommerce
'
The Honorable A. Willis Robertson
_3-
ed to designate areas
industrial and redevelopment areas; but he is requir
in which stipulated percentages of unemployment have continued for
loans may be made are
Specified periods. The private projects for which
industrial project
described very generally, and appear to include any
s.
Which will permanently improve employment opportunitie
whether
The difficult administrative problem will be to judge
of unemployment
assistance to one area will tend to shift the burden
r difficulty
Anothe
y.
econom
al
nation
the
rather than add to output of
ion which
recess
a
after
ately
immedi
will be to determine during and
and which
oyment
unempl
tent
persis
have
to
areas are likely to continue
as
bills,
The
e.
advanc
ions
will show improvement as economic condit
ated
design
area
any
for
ance
drafted, provide the same access to assist
of
sness
seriou
ve
relati
as distressed, no matter what the cause or the
well
as
ss,
distre
of
unemployment. Some modification of the crieteria
as the establishment of a sliding scale of Federal assistance in relation
be
to degree and duration of unemployment would therefore appear to
called for.
be extended
The highest proportion of Federal assistance should
only to those areas where substantial levels of unemployment have perunemployment
sisted for very long periods of time. In those areas where
prove to be
maY have been induced by the recent recession and may
be more limited
temporary, the proportion of Federal financing should
precedence
and government assistance in the form of loans should take
Over direct grants.
determine the level
The Board has insufficient information to
es of this program.
purpos
the
meet
c:f lending authorization necessary to
ulty of
diffic
the
and
m
110 wever, problems inherent in a new progra
dictate that
on
strati
admini
for
e,ssembling the technical skills required
.
until
tions
propor
Initially such a program should be held to modest
.
gained
been
experience in the administration of the Act has
Sincerely yours,
Wm. McC. Martin, Jr.
BOARD OF GOVERNORS
OF THE
Item No. 11
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
. TO THE BOARD
February 26, 1959.
Confidential (FR)
Mr. Alfred Hayes,
President,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Hayes:
In view of the circumstances set forth in your
letter of February 5, the Board of Governors approves
the retention of Mr. Parke R. Elmer in active service
of the Bank up to attainment of age 70, with the understanding that his salary and salary grade will be
administered in a manner consistent with the Banks
regular salary programs.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 12
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS
orriciAL
CORRESPONDENCE
TO THE BOARD
February 261 1959.
coNFIDDITIAL (LEI
mr. Malcolm Bryan, President,
Federal Reserve Bank of Atlanta,
Atlanta 3, Georgia.
Dear Mr. Bryan:
The Board of Governors approves the payment of salaries to
the following officers of the Federal Reserve Bank of Atlanta for the
Period March 1 through December 31, 1959, at the rates indicated,
wnich are the rates fixed by your Board of Directors, as reported in
Your letter of February 13, 1959:
Name
Theodore Walter
John T. Harris
Annual
Salary
Title
Assistant Vice President
Assistant Cashier and Manager
$10,000
9,000
The Board has noted the change in assignments of Vice
'dents Schuessler and McCorvey.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 13
2/26/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 26, 1959
Mr. R. B. Altse, Vice President,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Wiltse:
In accordance with the request contained in
your letter of February 19, 1959, the Board approves the
appointment of Richard E. Speagle as an examiner for the
Federal Reserve Bank of New York. Please advise as to
the date on which the appointment is made effective.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
@FedFRASER