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Minutes for February 26, 1965 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 proposed to place in the record of policy actions required to be kept under the provisions of section 10 of the Federal Reserve Act an entry covering the item in this set of minutes commencing on the page and dealing with the subject referred to below: Page 8 Amendment to Regulation M, Foreign Branches of National Banks. 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. Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Minutes of the Board of Governors of the Federal Reserve System on Friday, February 26, 1965. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Robertson Shepardson Mitchell Daane Sherman, Secretary Kenyon, Assistant Secretary Broida, Assistant Secretary Brill, Director, Division of Research and Statistics Mr. Solomon, Director, Division of Examinations Mr. Holland, Associate Director, Division of Research and Statistics Mr. Koch, Associate Director, Division of Research and Statistics Mr. Partee, Adviser, Division of Research and Statistics Mr. Solomon,Adviser, Division of Research and Statistics Mr. Katz, Adviser, Division of International Finance Mr. Reynolds, Associate Adviser, Division of International Finance Mr. Spencer, General Assistant, Office of the Secretary Mr. Axilrod, Chief, Government Finance Section, Division of Research and Statistics Mr. Eckert, Chief, Banking Section, Division of Research and Statistics Mr. Keir, Chief, Capital Markets Section, Division of Research and Statistics Mr. Ettin, Economist, Division of Research and Statistics Mr. Baker, Economist, Division of International Finance Mr. Furth, Consultant Mr. Mx. Mr. Mr. Money market review. Mr. Axilrod reported on recent develop- ments in the Government securities market, during the course of which -2- 2/26/65 he referred to tables that had been distributed affording perspective on the money market and on bank reserve utilization. Mt. Eckert summarized bank credit developments, following which Mr. Baker reviewed foreign exchange market developments. All members of the staff except Messrs. Sherman, Kenyon, the Solomon (Examinations), Furth, and Spencer then withdrew from meeting and the following entered the room: Mr. Mr. Mr. Mr. Mr. Mr. Hackley, General Counsel Hooff, Assistant General Counsel Goodman, Assistant Director, Division of Examinations Leavitt, Assistant Director, Division of Examinations Forrestal, Attorney, Legal Division Egertson, Supervisory Review Examiner, Division of Examinations Discount rates. The establishment without change by the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas on February 25, 1965, of the rates on discounts and advances in their existing schedules advice was approved unanimously, with the understanding that appropriate would be sent to those Banks. Circulated or distributed items. The following items, copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Letter to Security Trust Company, Rochester, New York, 6 approving the establishment of a branch at 2826-283 . Monroe Avenue, Town of Brighton 1 -3- 2/26/65 Item No. 2 Letter to Citizens Fidelity Bank and Trust Company, Louisville, Kentucky, approving the establishment of a branch in the St. Denis Shopping Center, Jefferson County. Letter to Wells Fargo Bank, San Francisco, California, approving the establishment of a branch in Hollister. Letter to County Bank of Santa Cruz, Santa Cruz, California, approving an extension of time to establish a branch near Front and Cooper Streets. 5 Letter to the Federal Deposit Insurance Corporation regarding the application of Farmers' State Bank, Middletown, Indiana, for continuation of deposit Insurance after withdrawal from membership in the Federal Reserve System. S. Letter to the Bureau of the Budget reporting on bill "To repeal the interest equalization tax." Request to retire preferred stock (Item No. 7). 38, 6 There had dated been distributed a memorandum from the Division of Examinations Merchants Bank February 23, 1965, discussing a request by Farmers and to retire its of Central California, Lodi, California, for permission outstanding preferred stock. shareholders had approved The memorandum stated that the bank's the issuance of $3 million of capital notes in connection with the Proposal to retire the preferred stock. Following retirement of the the notes would preferred stock and issuance of the capital notes, structure. represent about 45 per cent of the bank's total capital Upon inquiry of the Federal Reserve Bank of San Francisco as to Farmers and Merchants Bank's reason for proposing to sell such a large amount 2/26/65 of capital debentures, the Reserve Bank indicated that it understood the member bank wished to provide a cushion for anticipated future growth. The memorandum went on to point out that the Board's Annual Report for 1952 contained a policy record entry regarding the proment posed issuance of capital notes by a State member bank in replace for preferred stock. The Board took the position at that time that it did not look with favor on the increasing tendency of banks to as a turn to capital notes and debentures as against equity capital means of augmenting the protection afforded to depositors. Approval of the request by Farmers and Merchants Bank might seem to conflict With the 1952 statement. However, the Division of Examinations recom- and mended that the request be approved; the capital of Farmers e after Merchants Bank was adequate and would be reasonably adequat funds were retirement of the preferred stock even if no new capital provided. ts Bank After discussion, the request of Farmers and Merchan usly. for permission to retire its preferred stock was approved unanimo 7. A copy of the letter sent to that bank is attached as Item No. of the aforemenQuestion had been raised during consideration necessarily be tioned matter whether approval of the request should ng the Board's 1952 regarded as constituting a policy action reversi debentures by a State Position regarding the use of capital notes and -5- 2/26/65 member bank in lieu of capital stock. It was noted that an action taken in the light of all the circumstances surrounding a specific request might be distinguishable from a definition of general policy. Agreement was indicated with a suggestion that a draft letter to all Reserve Banks dealing on a general basis with the problem raised by Farmers and Merchants Bank's request be prepared. The question whether a policy position should be taken could then be discussed further when the draft letter was before the Board. Application of Commercial State Bank. There had been distributed a memorandum from the Division of Examinations dated February 24, 1965, with regard to an application by Commercial State Bank, Boise, Idaho, a proposed new bank, for membership in the Federal Reserve System. The memorandum pointed out that while the records of the bank would reflect ownership by certain individuals who were residents of the State of Idaho, with the exception of one, at least 52 per cent of the stock actually would be controlled by officers and directors of The Continental Bank and Trust Company, Salt Lake City, Utah. The had been revealed to information as to the true ownership of the bank the Federal Reserve Bank of San Francisco by President K. J. Sullivan Of Continental Bank and Trust Company. Mr. Sullivan indicated that he be known would have preferred that the true ownership of the bank a charter might Publicly; however, the Idaho organizers reportedly felt not have been granted if the true ownership had been revealed to the State authorities. -6- 2/26/65 The Division raised the question whether the Board felt that the true ownership of the bank should be made known officially to the State authorities. It was noted that if the bank was admitted to System membership the report of the Reserve Bank's first examination of the bank would reveal the true ownership, and the State authorities would receive a copy of the report. The memorandum also pointed out that another problem connected with the membership application was the inadequacy of the proposed capital structure. In the opinion of the Division of Examinations the on capital structure of the bank should be increased substantially, the basis of projected deposits, and the Division was not prepared to capital funds recommend favorably on the application unless additional were provided. Representatives of the Federal Deposit Insurance Cor- structure poration also were of the opinion that the proposed capital was not adequate. First, however. the Division of Examinations wished to have the Board's view on admitting the bank to membership when the ing certain State charter had been approved with the organizers withhold pertinent information from State authorities. This question should be considered prior to directing efforts toward obtaining more capital funds. ion At the Board's request, Mr. Leavitt summarized the informat ing the two quesPresented, in the memorandum of February 24, emphasiz tions relating to the membership application that should be considered. -7- 2/26/65 During the discussion that followed, Governor Robertson indicated he did not feel that the information about the true ownership of Commercial State Bank, having come to the Board's attention, should be withheld from the Idaho State banking authorities. More- over, he felt the membership application should be denied on the ground that the proposed bank's capital structure was inadequate. The question of the manner in which the Board should go about informing the State authorities concerning the bank's ownership was then considered. It was recognized, in this connection, that the Idaho banking authorities might already be aware of the ownership situation but had nevertheless elected to grant the organizers of the bank a charter. At the conclusion of this discussion, it was suggested that a letter be sent to the organizers of Commercial State Bank that at the outset would make evident the Board's knowledge of the true ownership and then would go on to advise that the membership application was being denied because of inadequate capital funds, such letter to be transmitted through the Federal Reserve Bank of San Francisco with a copy to the Idaho State banking authorities. It was understood, the staff would however, that before such a letter was transmitted, y of the advise the Federal Reserve Bank of San Francisco informall Board's views. Secretary's Note: The subsequent discussion with the Reserve Bank resulted in a decision by the Division of Examinations to present another memorandum to the Board for consideration. -8- 2/26/65 Amendment to Regulation M (Item No. 8). At the meeting on to January 28, 1965, the Board considered a proposed amendment permit Regulation M, Foreign Branches of National Banks, that would of overseas branches of national banks to pay preferential rates the branches interest on deposits of their officers and employees if consistent were located in countries where such a procedure would be With local law and practice. It was understood at that time that the and the Federal Federal Reserve Banks, the Comptroller of the Currency, comment on the proDeposit Insurance Corporation would be invited to posed amendment. February 23, There now had been distributed a memorandum dated that favorable 1965, from the Legal and Examinations Divisions indicating replies had been received. It was recommended, therefore, that the Board adopt the proposed amendment. unanimously, effective The amendment to Regulation M was approved March 1, 1965. to the A copy of the amendment, in form transmitted Federal Register, is attached as Item No. 8. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: (attached Item Letter to the Federal Reserve Bank of Cleveland as assistant y Marowsk K. Horst of approving the appointment examiner. g to the Memoranda recommending the following actions relatin Board's staff: 2/26/65 Appointment Gloria J. Ogden as Secretary, Office of the Secretary, with basic annual salary at the rate of $5,000, effective the date of entrance upon duty. Salary increase Jane C. Charuhas, Training Technician, Division of Examinations, from $6,060 to $6,45o per annum, effective February 28, 1965. Secreta Item No. 1 2/26/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADORERS OFTICIAL CORNC•PONOIENCIC TO Milt BOARD February 26, Board of Directors, Security Trust Company, Rochester, New York. Gentlemen: The Board of Governors of the Federal m approves the establishment by Syste ve Reser Company, Rochester, New York, of Trust Security 2836 Monroe Avenue, Town of 2826at a branch rated area), Monroe County, corpo (unin Brighton the branch is established ed provid New York, the date of this letter. from within one year Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. ve Bank stated that the (The letter to the Reser onth extension Board also had approved a six-m the branch; lish estab to ed of the period allow d be requested, and that if an extension shoul Board's letter the in ribed the procedure presc should be followed.) of November 9, 1962 (S-1846), 1965. ; Item No. 2 2/26/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ACIDRIES• OFFICIAL CORRILSPONOCNCC TO THC.1110ARD February 26, 1965. Board of Directors, Citizens Fidelity Bank and Trust Company, Louisville, Kentucky. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Citizens Fidelity Bank and Trust Company, Louisville, Kentucky, of a branch in the St. Denis Shopping Center in the vicinity of the intersection of Cane Run Road and Hartlage Avenue, Jefferson County, Kentucky, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. that the he letter to the Reserve Bank stated extension six-month a approved had also ard of the period aJlowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) Vo BOARD OF GOVERNORS Item No. 3 2/26/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 26, 1965. Board of Directors, Wells Fargo Bank, San Francisco, California. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Wells Fargo Bank, wn San Francisco, California, of a branch in the downto , County Benito San ter, area of the city of Hollis California, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. that the (The letter to the Reserve Bank stated ion extens th six-mon a ed Board also had approv ; branch the ish establ to d of the period allowe ted, be reques should ion and that if an extens the procedure prescribed in the Board's letter ed.) of November 9, 1962 (S-1846), should be follow BOARD OF GOVERNORS Item No. 4 2/26/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 26, 1965. Board of Directors, County Bank of Santa Cruz, Santa Cruz, California. Gentlemen: The Board of Governors of the Federal Reserve which System extends to September 16, 1965, the time within esmay rnia, Califo Cruz, Santa Cruz, County Bank of Santa of ction interse the of ty vicini the tablish a branch in Front and Cooper Streets, Santa Cruz, California. In granting this eighth extension of time, the of the Board has taken particular note that construction branch will begin this month. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. BOARD OF GOVERNORS Item No. OF THE 5 2/26/65 FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 26, 1965. The Honorable Joseph W. Barr, Chairman, Federal Deposit Insurance Corporation, Washington, D. C. 20429 Dear Mr. Barr: Reference is made to your letter of February 12, 1965, concerning the application of Farmers' State Bank, Middletown, Indiana, for continuance of deposit insurance after withdrawal from membership in the Federal Reserve System. There have been no corrective programs urged upon the bank, or agreed to by it, which have not been fully consummated, and there are no such programs that the Board would advise be incorporated as conditions of admitting the bank to membership in the Corporation as a nonmember of the Federal Reserve System. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. f<,•;.< Item No. BOARD OF GOVERNORS OF THE •••. •'*********l'eR 6 2/26/65 FEDERAL RESERVE SYSTEM • WASHINGTON, D. C. 20551 , t,•./ • ADDRESS orriciAL CORRESPONDENCE TO THE BOARD •.• • March 1, 1965. Mr. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington, D. C. 20503 Dear Mr. Hughes: 18, Your Legislative Referral Memorandum, dated February repeal "To 38, 1965, requested the views of the Board on the bill S. tax". ation equaliz the interest zation The purpose of the tax imposed by the Interest Equali payof the balance Tax Act, approved September 2, 1964, was to aid 10, ry Februa of ments position of the United States. In his message action of l courses 1965, to the Congress, the President urged severa this country and of n positio s payment tional interna to improve the were his requests to strengthen confidence in the dollar. Among these Act for two Tax zation that the Congress extend the Interest Equali date in the ion years beyond December 31, 1965, the present expirat e to nonbank coverag its law, and that the Act be amended to broaden his message, of time the credits of one to three year-maturities. At ity in author the the President, by Executive Order 11198, exercised applied and Act the Gore Amendment to the Interest Equalization Tax the tax to bank loans with maturities of one year or more. the The Board shares the President's concern about accordand, ts, deterioration in the United States balance of paymen tax. ingly, would oppose repeal of the interest equalization Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. AieI r) 40,411.1.,k Item No. BOARD OF GOVERNORS 7 2/26/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADORESS orriciAL CORRESPONDENCE TO THE BOARD February 26, 1965. Board of Directors, Farmers and Merchants Bank of Central California, Lodi, California. Gentlemen: The Board of Governors of the Federal Reserve System hereby gives its consent, under the provision of Section 9 of the Federal Reserve Act, to the retirement of $1,500,000 outstanding preferred stock of Farmers and Merchants Bank of Central California, Lodi, California. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. TITLE 12--BANKS AND BANKING Item No. 2/26/65 8 CHAPTER II--FEDERAL RESERVE SYSTEM SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. M] PART 213--FOREIGN BRANCHES OF NATIONAL BANKS Interest on Deposits of Officers and Employees 1. Effective March 1, 1965, § 213.4 is amended by adding a new paragraph (g) thereto to read as follows: "(g) Pay to any officer or employee of the branch a greater rate of interest on deposits than that paid to other depositors on similar deposits with the branch." 2a. The purpose of this amendment is to permit overseas branches of national banks to pay higher rates of interest on deposits of their officers and employees than on deposits of other customers where it is usual to do so in connection with the business of banking in the places where the branches are located. This action is expected to enable such branches to compete more effectively in the hiring and retention of qualified staffs. b. There was no notice and public participation with respect to this amendment, nor is the effective date thereof deferred, ns such procedure and delay would be contrary to the public interest and servo no useful purpose. Procedure (12 CFR 262.1(e)).) (See 262.1(e) of the Board's Rules of -2- Dated at Washington, D. C., this 1st day of March, 1965. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (SEAL) (Signed) Merritt Sherman Merritt Sherman, Secretary. • Item No. BOARD OF GOVERNORS 9 2/26/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20551 Aoopitas OFFICIAL CORRESPONDENCE TO THE SIOARD March 1, 1965. Mr. Harry W. Huning, Vice President, Federal Reserve Bank of Cleveland, 44101 Cleveland, Ohio. Dear Mr. Huning: In accordance with the request contained in your letter of February 23, 1965, the Board approves the appointment of Horst K. Marowsky as an assistant examiner for the Federal Reserve Bank of Cleveland. Please advise the effective date of the appointment. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.
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