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Minutes for To: Members of the Board From: Office Of the Secretary February 28.1_ 1963 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. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell Minutes of the Board of Governors of the Federal Reserve System on Thursday, February 28, 1963. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mitchell Sherman, Secretary Kenyon, Assistant Secretary Molony, Assistant to the Board Cardon, Legislative Counsel Assistant to the Board Fauver, Mr. General Counsel Hack1ey, Mr. Division of Research Director, Noyes, Mr. Statistics and Mr. Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Mr. Administration Mr. Connell, Controller Mr. Schwartz, Director, Division of Data Processing Mr. O'Connell, Assistant General Counsel Mr. Shay, Assistant General Counsel Mr. Koch, Associate Director, Division of Research and Statistics Adviser, Division of Research and Brill, Mr. Statistics Mr. Garfield, Adviser, Division of Research and Statistics Williams, Adviser, Division of Research M. and Statistics Mr. Sammons, Adviser, Division of International Finance Mr. Katz, Associate Adviser, Division of International Finance Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Kiley, Assistant Director, Division of Bank Operations Mr. Mr. Mr. Mr. -2- 2/28/63 Mr. Goodman, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Landry, Assistant to the Secretary Mr. Kakalec, Assistant to the Controller Mr. Reynolds, Chief, Special Studies and Operations Section, Division of International Finance Mr. Swerling, Senior Economist, Division of International Finance Chief, Flow of Funds and Savings Taylor, Mr. Section, Division of Research and Statistics Mr. Weiner, Chief, National Income, Labor Force, and Trade Section, Division of Research and Statistics Review Examiner, Division of Lyon, Mr. Examinations Mr. Poundstone, Review Examiner, Division of Examinations Mr. Hull, Economist, Division of Research and Statistics Spellman, Economist, Division of Data Mr. Processing Mr. Steinberg, Economist, Division of Data Processing Flow of funds presentation. With the aid of charts, Messrs. Noyes, Brill, Taylor, and Weiner presented a staff projection of possible economic and financial developments through the first half of 1964 on the basis of certain hypothetical assumptions. Following a discussion based on this presentation all members of the staff except Messrs. Sherman, Kenyon, Molony, Fauver, Hackley, Kiley, Farrell, Solomon, Connell, O'Connell, Shay, Goodman, Leavitt, Landry, Kakalec, and Poundstone withdrew. Circulated or distributed items. The following items, copies numbers indicated, were of which are attached under the respective item approved unanimously: 2/28/63 -3Item No. Letter to First National City Bank, New York, New York, approving an extension of time to establish a branch in Geneva, Switzerland. 1 Letter to the Federal Deposit Insurance Corporation regarding the application of Wayne County Bank and Trust Company, Honesdale, Pennsylvania, for continuation of deposit insurance after withdrawal from membership in the Federal Reserve System. 2 Letter to the Federal Deposit Insurance Corporation regarding the application of The Peoples Banking Company, McComb, Ohio, for continuation of deposit insurance after withdrawal from membership in the Federal Reserve System. 3 Letter to Merchants and Farmers Bank, Portsmouth, Virginia, approving an investment in bank premises. Letter to Farmers Loan and Trust Company, Tipton, Indiana, approving an investment in bank premises. 5 Letter to The National Bank of Commerce of Seattle, Seattle, Washington, granting Permission to organize a corporation under section 25(a) of the Federal Reserve Act to he known as "Commerce International Banking Corporation," to be located at 1100 Second Avenue, Seattle, Washington, and transmitting a preliminary permit. 6 Messrs. Shay, Goodman, and Poundstone then withdrew from the meeting. Report on competitive factors (White Plains-Bronxville, New York). Copies had been distributed of a draft of report to the Federal Deposit Insurance Corporation regarding the competitive factors involved in a proposed merger of The County Trust Company, White Plains, New York, and The Gramatan Safe Deposit Corporation, Bronxville, New York. 2/28/63 After discussion the report was approved unanimously for transmission to the Corporation, the conclusion reading as follows: A merger of The Gramatan Safe Deposit Corporation, Bronxville, New York, and The County Trust Company, White Plains, New York, will have no effect on competition. Budget Performance Report for 1962. Under date of February 14, 1963, there had been distributed to the members of the Board a document prepared by the Office of the Controller reviewing the performance under the Board's budget for the calendar year 1962. The 1962 budget was $6,975,000 and expenses totaled $6,878,000, resulting in a net underexpenditure of $97,000. Expenses for Personal Services were less than budgeted by $70,000, due primarily to vacant positions. Expenses for Nonpersonal Services were under the budget by $27,000, due principally to the fact that expenditures for traveling expenses, repairs and alterations, and postage and expressage were lower than budgeted. The budget document contained an itemization of overexpenditures in certain account classifications in various Divisions totaling approximately $130,000. While all major overexpenditures had been approved by the Board prior to the end of 1962, several overexpenditures, totaling $8,700, had not been submitted for approval prior to December 31. In the opinion of the Controller these were reasonably Budget unavoidable, and it was recommended that acceptance of the of the remaining overPerformance Report be considered as approval expenditures. -5- 2/28/63 In commenting on the budget document, Mr. Connell referred, among other things, to the 63 job vacancies at year end, of which 19 were stenographic-recruit and summer positions normally vacant at the end of the year and 14 were accounted for by other special circumstances. At the conclusion of Mr. Connell's comments the overexpenditures in certain account classifications of various Divisions totaling $8,700 that had not previously been submitted to the Board were approved unanimously. There ensued a general discussion of the Budget Performance Report during which Governor Mitchell expressed concern about the job vacancy rate, noting that some professional positions apparently were not filled for extended periods. This suggested to him either that the jobs were not required or that ineffective recruiting practices were being used. Governor Shepardson replied that the largest number of professional vacancies was in the Division of Research and Statistics. Recent discussions with officers of that Division had produced a suggestion for a somewhat different approach, he said. Although a number of applications had been received from economists who looked promising, their qualifications were not exactly suitable to the requirements of existing vacancies. In view of this fact, the proposal had been made that it might be desirable to move toward the idea of a pool of economist positions within the Division. With the passage of time, as the new economists gained experience, they could be absorbed into specialized vacancies that might develop within the Division. s'2f I —6— 2/28/63 The other members of the Board indicated that the suggested procedure appeared to have merit. Governor Mills said his review of the Budget Performance left with him the impression that, despite adherence to the over-all budget figure in 1962, there had been deviations within the budget total with respect to expenditures by different Divisions and with respect to particular activities. Only the fact of a sizable number of unfilled positions, coupled with withdrawals and retirements, had prevented the budget from being exceeded. It was a matter of concern to him, he said, that over the past two or three years there had been various expenditures not originally contemplated, thus departing from the concept of a strict budgetary discipline. In reply Governor Shepardson noted the difficulty of trying to avoid certain kinds of budgetary deviations. In this respect he cited the chain banking survey undertaken at Congressman Patman's request, which had resulted in expenses not contemplated when the budget was prepared. As another example he noted the Board's decision to help defray the cost of a third quarterly survey of consumer buying intentions by the Bureau of the Census, amounting to over $32,000 whereas the budget provided for the cost of only two quarterly surveys. His own feeling as to the nature of the Board's budget was that it constituted a projection of expenditures that should be as exact and realistic as n possible, but with the realization that perfectio could not be expected when the budget period extended some 15 months in the future. Given the -7- 2/28/63 , uncertainties inherent in a projection involving such a long time period it was inevitable that situations would arise to which it would be necessary to make adjustment. It might be argued, Governor Shepardson said, that use by the Board of a six-month budget span, like the current procedure of the Reserve Banks, would be more advantageous, although personally he was doubtful whether there would be substantial benefits. On the other hand, it could be said that the Board was doing as projects that about as well as might reasonably be expected, so long ion for s had not been budgeted were brought regularly to the Board' attent advance approval, as had been done. s Governor Balderston said that he thought the budgetary proces a guide had served its purpose well in 1962, if the budget was viewed as pments. to routine operations of the Board in contrast to unanticipated develo year were Taking everything into account, actual expenditures during the been some within a percentage point of the budget, although there had plus and minus deviations within the over-all figure. s budget Governor Mitchell noted that he had examined the Board' was well constructed. for 1963 at some length and that in his opinion it Balderston and Shepardson He agreed with the view expressed by Governors rather than as setting that the budget should be regarded as a guide ceilings that could not be changed, in the light of developments, in the Board's judgment. observed There followed further discussion during which it was ures the various Divisions had not that under the Board's budgetary proced itures. diverted unused budget amounts to unauthorized expend -8- 2/28/63 The meeting then adjourned. Secretary's Note: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board the following actions relating to the Board's staff: Salary increases, effective March 3, 1963 Division Name and title Basic annual salary To From Research and Statistics Robert B. Bretzfelder, Economist Edward A. Manookian, Economist Gail E. Mullin, Economist $ 9,475 10,735 9,790 9,790 11,515 11,150 11,150 11,515 3,338 3,450 International Finance James K. Nettles, Economist Data Processing Daviette Hill Stansbury, Research Assistant (Data Processing) (half-time basis) Outside activity David S. Staiger, Economist, Division of Research and Statistics, to serve as an unpaid consultant to the Deputy Assistant Secretary of Defense for Systems Analysis for the next sixty days to assist in training his (Mr. Staiger's) replacement at the Department of Defense, such work to be performed during evening hours and weekends. Item No. 1 2/28/63 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 28, 1963 First National City Bank, 399 Park Avenue, New York 22, New York. Gentlemen: In view of the request contained in your letter of February 1, 1963, transmitted through the Federal Reserve Bank of New York, and on the basis of the information furnished, the Board of Governors extends to April 1, 1964, the time within which your Bank may establish a branch in the City of Geneva, Switzerland, as authorized by the Board's letter of April 11, 1962. Please advise the Board of Governors, in writing, through the Federal Reserve Bank of New York, when the branch is opened for business, furnishing information as to the exact location of the branch. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. Item No. 2 2/28/63 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 28, 1963 Honorable Erle Cocke, Sr., Chairman, Federal Deposit Insurance Corporation, Washington 25, D. C. Dear Mr. Cocke: Reference is made to your letter of February 12, 1963, concerning the application of Wayne County Bank and Trust Company, Honesdale, Pennsylvania, for continuance of deposit insurance after withdrawal from membership in the Federal Reserve System. During the last examination of subject bank by representatives of the Federal Reserve Bank of Philadelphia, the following nonconformity with section 18(a) of the Federal Deposit Insurance Act was noted: prescribed official signs were not displayed at each window where insured deposits are received. Management indicated that corrective steps would be taken. No other corrective programs which the Board of Governors believes should be incorporated as conditions to the continuance of deposit insurance have been urged upon or agreed to by the bank. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. Item No. 3 2/28/63 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, O. C. ••• • ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD ' ' 44 • • AL RE.S • '• • •• •• February 28, 1963 Honorable Erie Cocke, Sr., Chairman, Federal Deposit Insurance Corporation, Washington 25, D. C. Dear Mr. Cocke: Reference is made to your letter of February 12, 1963, concerning the application of The Peoples Banking Company, McComb, Ohio, for continuance of deposit insurance after withdrawal from membership in the Federal Reserve System. No corrective programs which the Board of Governors believes should be incorporated as conditions to the continuance of deposit insurance have been urged upon or agreed to by the bank. However, for the past several examinations, this bank has been encouraged to formulate plans that would improve its capital position. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. Item No. 4 BOARD OF GOVERNORS 2/28/63 OF THE FEDERAL. RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 28, 1963 Board of Directors, Merchants and Farmers Bank, Portsmouth, Virginia. Gentlemen: The Board of Governors of the Federal Reserve System approves, under the provisions of Section 24A of the Federal Reserve Act, an investment of $301,872 in bank premises by Merchants and Farmers Bank, Portsmouth, Virginia, for the purpose of purchasing land and constructing a new building for the Alexander's Corner Branch. The amount approved is based on the bank's statement as of December 281 19621 and represents a $100,000 investment (cost of land) in its affiliate which was organized to hold title to the branch property, a $2,500 loan to the affiliate and an amount not to exceed $199,372 for the purpose of constructing branch quarters. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. Item No. 5 BOARD OF GOVERNORS 2/28/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 28, 1963 Board of Directors, Farmers Loan and Trust Company, Tipton, Indiana. Gentlemen: The Board of Governors of the Federal Reserve under the provisions of Section 24A approves, System of the Federal Reserve Act, an investment in bank premises by Farmers Loan and Trust Company, of not to 'exceed $25,000 for the purpose of acquiring and improving property for use as a parking lot. This amount includes the indebtedness of the bank's affiliate which now owns the parking lot. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS Item No. 6 OF THE 2/28/63 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD February 28, 1963 Mr. Clarence L. Hulford, Vice President, The National Bank of Commerce of Seattle, P. 0. Box 3966, Seattle 24, Washington. Dear Mr. Hulford: The Board of Governors has approved the Articles of Association and the Organization Certificate, dated January 10, 1963, of Commerce International Banking Corporation, and there is enclosed a preliminary permit authorizing that Corporation to exercise such of the powers conferred by Section 25(a) of the Federal Reserve Act as are incidental and preliminary to its organization. As you are aware, the Corporation may not exercise any of the other powers conferred by Section 25(a) until it has received a final permit from the Board authorizing it generally to commence business. The steps which must be taken prior to issuance of a final permit are enumerated in Section 211.3(c) of the Boardls Regulation K. The Board of Governors authorizes Commerce International Banking Corporation, pursuant to the provisions of Section 25(a) of the Federal Reserve Act and the Boards Regulation K and upon receipt of a final permit to commence business, to establish a branch in Hong Kong, Colony of Hong Kong) and to operate and maintain such branch subject to the provisions of such section and regulation. Unless the branch is actually established and Opened for business within one year from the date of the final permit to commence business, the authority to establish such branch will automatically terminate on that date. Please advise the Board of Governors in writing, through the Federal Reserve Bank of San Francisco, when the branch is established and Opened for business, furnishing information as to the exact location of the branch. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. Enclosure t3 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON February 26, 1963 Preliminary Permit IT IS HEREBY CERTIFIED that the Board of Governors of the Federal Reserve System, pursuant to authority vested d, in it by Section 25(a) of the Federal Reserve Act, as amende Organizahas this day approved the Articles of Association and INTERNAtion Certificate, dated January 10, 1963, of COMMERCE of GovernTIONAL BANKING CORPORATION duly filed with said Board ATION is ors, and that COMMERCE INTERNATIONAL BANKING CORPOR upon it by authorized to exercise such of the powers conferred its said Section 25(a) as are incidental and preliminary to ors of organization pending the issuance by the Board of Govern commence the Federal Reserve System of a final permit generally to said Section 25(a) business in accordance with the provisions of the and the rules and regulations of the Board of Governors of Federal Reserve System issued pursuant thereto. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM By (signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. (SEAL)
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