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6
Minutes for February 28/ 1964
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 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
673
Minutes of the Board of Governors of the Federal Reserve System
on Friday, February 28, 1964.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mx.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Broida, Assistant Secretary
Young, Adviser to the Board and Director,
Division of International Finance
Noyes, Adviser to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research and
Statistics
Solomon, Director, Division of Examinations
Holland, Associate Director, Division of
Research and Statistics
Koch, Associate Director, Division of Research
and Statistics
Partee, Adviser, Division of Research and
Statistics
Furth, Adviser, Division of International
Finance
Sammons, Adviser, Division of International
Finance
Katz, Associate Adviser, Division of International Finance
Spencer, General Assistant, Office of the
Secretary
Morgan, Staff Assistant, Board Members'
Offices
Axilrod, Chief, Government Finance Section,
Division of Research and Statistics
Eckert, Chief Banking Section, Division of
Research and Statistics
Gemmill, Economist, Division of International
Finance
Money market review.
There was distributed a table relating to
monetary developments during the four-week period ended February 26, 1964.
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2/28/64
Mr. Axilrod presented a report on the money market, after which
Mr. Eckert described developments with respect to bank credit, the money
supply, and related matters, and Mr. Katz reported on foreign exchange
market developments.
Mr. Young then reported on meetings that he had recently attended
in Paris, France, of the Economic Policy Committee of the Organization
for Economic Cooperation and Development and of Working Party 3.
Following these reports all members of the staff except Messrs.
Sherman, Kenyon, Young, Noyes, Fauver, Hackley, Brill, Solomon, Morgan,
and Spencer withdrew from the meeting and the following entered the room:
Johnson, Director, Division of Personnel Administration
Hexter, Assistant General Counsel
Shay, Assistant General Counsel
Hooff, Assistant General Counsel
Conkling, Assistant Director, Division of Bank Operations
Goodman, Assistant Director, Division of Examinations
Leavitt, Assistant Director, Division of Examinations
Thompson, Assistant Director, Division of Examinations
Hunter, Supervisory Review Examiner, Division of
Examinations
Mx. Poundstone, Review Examiner, Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mx.
Mr.
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 27, 1964, of the rates on
discounts and advances in their existing schedules was approved unanimously,
With the understanding that appropriate advice 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:
2/28/64
-3Item No.
Letter to Union National Bank in Houston, Houston,
Texas, granting its request for permission to
maintain reduced reserves.
1
Letter to Morgan Guaranty Trust Company of New York
New York, New York, approving the establishment of
a temporary branch at 140 Broadway.
2
Letter to Chase International Investment Corporation,
New York, New York, granting its request for an
extension of time to make further investments in
Arcturus Investment & Development, Ltd., Montreal,
Canada.
3
Letter to the Federal Reserve Bank of Minneapolis
approving the payment of salary to Harold G. McConnell
as Vice President through March 1964.
14.
In a comment in connection with Item No. 3, Governor Mills said
a review of the portfolio of investments of Arcturus Investment & Development, Ltd., raised in his mind a question as to whether the organization
had lived up to expectations.
After noting some of the investments, he
suggested that Arcturus apparently had not been moving ahead aggressively
to use the maximum amount of funds authorized by the Board to be placed
at its disposal.
If this was symptomatic of other investment corporations,
he felt that the situation did not reflect great credit on the operations
(Al American firms in this field.
The tendency seemed to be toward placing
sums of money in investments that were not yielding attractive returns
and were not of such a character as to contribute to the expansion of
American foreign trade.
In reply, Mr. Goodman commented that one or two of the Arcturus
Investments represented the remains of an unfortunate Brazilian venture.
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2/28/64
In general, however, it was his impression that the Chase people were
highly sophisticated in the field of foreign investment.
They looked
over prospective investments carefully and gave the appearance of being
very careful in their activities.
Messrs. Conkling, Goodman, Hunter, and Poundstone then withdrew
from the meeting.
Directors Day program.
There had been distributed under date
of February 26, 1964, a memorandum from Mr. Morgan with regard to the
Proposed program for Directors Day, March 18-19, 1964.
The format for
the program had evolved from discussions by a group composed of Governors
Mills, Shepardson, and Daane, and Messrs. Fauver, Noyes, Brill, Sammons,
and Morgan.
A copy of the tentative program was attached to the memorandum.
In discussion, Governor Robertson questioned the desirability of
including on the Program the topic, "Current Controversial Issues in Bank
Supervision," which he was listed to present.
Perhaps a talk of the
kind given by Mr. Solomon last year relating to the over-all bank supervisory picture might be more appropriate.
Governor Shepardson indicated that since there seemed to be a
good deal of interest and concern with respect to certain conflicting
interpretations of the bank supervisory agencies, the committee, in
Planning the tentative program, had felt that it might be appropriate
to have a talk patterned along the lines of the letter recently sent to
Chairman Fascell of the Legal and Monetary Affairs Subcommittee of the
House Committee on Government Operations.
Cr`vt."1
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2/28/64
Governor Mills commented that he believed there was a real interest
in the issues that had arisen among the bank supervisory agencies.
The
letter to Chairman Fascell had highlighted certain problems that were not
of the System's making but arose out of positions taken by the Comptroller
of the Currency.
The directors should be familiarized with the fact that
the Board was standing on what it regarded as proper interpretations of
the laws it was charged to administer.
After further discussion it was generally felt that if the topic
were deleted the subject nevertheless was likely to be raised at some
Point during the program.
It was agreed, however, that the word "contro-
versial" should be omitted.
It was also agreed that the comments to be made by Mr. Cardon,
by the
Legislative Counsel, on the hearings currently being conducted
ComSubcommittee on Domestic Finance of the House Banking and Currency
mittee should be scheduled to precede the remarks by Chairman Martin
that were to conclude the program.
It was understood that the proposed program, incorporating the
changes suggested during the foregoing discussion, would be acceptable
as a basis for making final arrangements.
Messrs. Brill and Morgan then withdrew from the meeting.
Question raised under section 20 of the Banking Act of
Item No. 5).
1933
There had been distributed to the members of the Board
two memoranda
from the Legal Division dated February 26, 1964, with regard
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2/28/64
to the proposed acquisition by W. R. Grace & Co., New York, New York, a
diversified industrial corporation, of C. J. Devine & Co., a dealer in
Government and municipal securities.
The first of the two memoranda,
Which dealt with legal aspects of the proposed transaction, pointed out
that W. R. Grace & Co. owned 80 per cent of the stock of Grace National
Bank of New York, New York City.
Under the proposed transaction, C. J.
Devine & Co., now a partnership, would be incorporated (Devine Corporation)
and its stock acquired by W. R. Grace & Co.
Thereupon, Grace & Co. would
transfer to Devine Corporation the stock of Grace National Bank.
In the
opinion of the Legal Division, the crucial legal question arising from
this proposal was whether the transaction would be prohibited by section
20 of the Banking Act of 1933, which provides that no member bank may be
"affiliated in any manner described in section 2(h) hereof" with a
corporation engaged principlly in the underwriting of securities.
The
significant portion of section 2(h) defined "affiliate" to include any
corporation "of which control is held, directly or indirectly, through
stock ownership or in any other manner, by the shareholders of a member
bank who awn or control...a majority of the shares of such bank...."
The essence of the question was whether Devine Corporation would
be an "affiliate" of Grace National Bank within the meaning of section 2(b).
If the proposed transaction were consummated, Devine Corporation would be
controlled by W. R. Grace & Co.
The latter would also control a majority
Of the shares of Grace National Bank, since Grace & Co. would own all of
679
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2/28/64
the stock of Devine Corporation, which in turn would own 80 per cent of
the shares of Grace National Bank.
The memorandum stated that the Legal Division had concluded that
the plan submitted to the Board would be prohibited by section 20 of the
Banking Act of
1933. A proposed reply to W. R. Grace & Co. that would
reflect this position was attached.
The second memorandum discussed the substantive merits (policy
aspect) of the proposal, as distinguished from the question whether the
Proposed transaction was legally permissible.
It was pointed out that
the letter from W. R. Grace & Co. had stated that the attitude of the
Board toward the transaction was of prime importance and that if it were
disapproved in principle by the Board, neither Grace nor Devine would
wish to proceed with the transaction.
In view of this statement, the
last two paragraphs of the draft of proposed reply touched upon the policy
aspects of the proposal.
However, if the Board concluded that the trans-
action would be prohibited by section 20, there might be no need to
consider the policy aspects.
At the Board's request, Mr. llexter commented on the matter, his
remarks being based on the information contained in the distributed memoranda.
In an ensuing discussion, Governor Mills stated that he hoped
the legal
aspects of the proposal had not been construed too strictly
and that the ultimate effects of the transaction had been taken sufficiently into account.
While he would not undertake to dispute the legal
680
2/28/64
-8-
findings, it was difficult for him to believe that the proposal was
really contrary to the public interest.
In this connection, he referred
to the views expressed by Vice President Crosse of the New York Reserve
Bank.
Secretary's Note: Vice President Crosse
had taken the position, in a memorandum,
that "it would be sound public policy to
agree to this proposal only with the
understanding that the dealer corporation
would limit its business to that which
the bank itself could do." In other words,
since member banks may deal in United States
obligations and general obligations of
States and political subdivisions, Mr. Crosse
saw no sound objection, in principle, to
banks being affiliated with securities
companies dealing only in the same categories
of securities. However, the Legal Division
pointed out that on several occasions the
Board had refused to permit interlocking
directorates between member banks and
securities companies dealing in State and
municipal obligations as well as U. S.
Government securities. If the Board were
to approve, as a matter of policy, affiliations between member banks and such
companies, it would seem necessary for the
Board also to permit interlocking directorates
by amending Regulation RI Relationships with
Dealers in Securities under Section 32 of
the Banking Act of 1933.
The discussion that followed centered principally on the question
Whether the Board at this juncture should go beyond the legal aspects of
the matter in its reply to W. R. Grace & Co. It was brought out that an
indication that the Board would not find the proposal objectionable from
a policy standpoint might encourage the Grace and Devine interests to
2/28/64
develop some alternative plan in an effort to surround the legal difficulty.
(A contrary indication would, of course, have the opposite effect.)
On
the other hand, it appeared that the Board would then be confronted with
the question of amending Regulation R in respect to interlocking directorates between member banks and securities companies dealing in general
Obligations of States and municipalities as well as U. S. Government
securities, and the Board had refused to do this several times in the
past.
At the conclusion of the discussion, Chairman Martin indicated
that he would not be prepared at this time to amend Regulation R, and
Other members of the Board expressed agreement.
Accordingly, it was
the conclusion of the Board that it would be desirable to reply to W. R.
Grace & Co. on the basis of the legal considerations only.
In other words,
it was agreed that W. R. Grace & Co. should be advised merely that it was
the Board's conclusion that the proposed arrangement would be prohibited
by section 20 of the Banking Act of
1933. Consequently, the draft of
letter to W. R. Grace & Co. was approved unanimously with the understanding
that the last two paragraphs, which touched upon the policy aspects of
the proposed transaction, would be deleted.
A copy of the letter, in
the form
transmitted to W. R. Grace & Co., is attached as Item No. 5.
The meeting then adjourned.
Secretary's Notes: Pursuant to recommendations contained in memoranda from the Division
of Research and Statistics, Governor Shepardson
today approved on behalf of the Board increases
in the basic annual salaries of the following
persons in that Division, effective March 1, 1964:
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2/28/64
-10-
Jill Francis, Statistical Clerk, from $3,985 to $4,215 per annum.
Frank de Leeuw, Economist, from $12,880 to $14,065 per annum.
Attached as Item No. 6 is a copy of a letter
sent today over the signature of Chairman
Martin to the Chairman of the Interdepartmental
Committee on the Status of Women in reply to
a request for a report on opportunities for
women in the Board's organization.
3
68,
Item No. 1
2/28/64
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 281 1964
Board of Directors,
Union National Bank
in Houston,
Houston, Texas.
Gentlemen:
With reference to your 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
the Union - National Bank in Houston to maintain the same reserves against
deposits as are required to be maintained by nonreserve city banks,
effective as of the date it opens for business.
Your attention is called to the fact that such permission
iS subject to revocation
by the Board of Governors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No. 2
2/28/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 28, 1964
Board of Directors,
Morgan Guaranty Trust Company
of New York,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment of a branch at
140 Broadway, New York, New York, by Morgan Guaranty
Trust Company of New York, to operate until such time
as the removal of all departments to 23 Wail Street
is completed, but no later than August 24, 1964.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
685
Item No. 3
BOARD OF GOVERNORS
2/28/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 28, 1964
Chase International Investment Corporation,
One Chase Manhattan Plaza,
New York, New York 10005.
Gentlemen:
Reference is made to your letter of February 7, 1964,
transmitted through the Federal Reserve Bank of New York, referring
to the Board's letter of February 1, 1963 (and previous letters)
Which authorized your Corporation, subject to various conditions,
to make further investment in Arcturus Investment & Development,
Ltd., ("Arcturus"), Montreal, Canada (in form of stock or obligations), up to an amount not to exceed US$7,500,000, The Board's
letter of February 1, 1963 extended to February 1, 1964 the time
Within which such investment might be made.
In accordance with your request and on the basis of the
information furnished, the Board extends to February 1, 1965 the
time within which further investment may be made in Arcturus (in
form of stock or obligations), up to an amount which, with the
existing investment, would not exceed US$7,500,000.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No.
4
2/28/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 28, 1964
CONFIDENTIAL (FR)
Mr. Frederick L. Deming, President,
Federal Reserve Bank of Minneapolis,
Minneapolis, Minnesota. 5544o.
Dear Mr. Deming:
As requested in your letter of February 20, the
Board of Governors approves the payment of salary to Mr.
Harold G. McConnell as Vice President of the Federal Reserve
Bank of Minneapolis through the month of March 1964 in the
amount of $1,875.
It is noted that Mr. McConnell will be working one
month beyond the normal retirement date after his attainment
of age 65 during February.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
GS r
Item No.
BOARD OF GOVERNORS
.•
•
,•
.....
0V Goi• •
- •-- '1'••
,
-
5
2/28/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE HOARD
February 28, 1964.
Mr. Felix E. Larkin,
Executive Vice President,
W. R. Grace & Co.,
7 Hanover Square,
New York 5, New York.
Dear Mr. Larkin:
This is in response to your letter of January 17, 1964,
with respect to a plan involving the incorporation of the business
of C. J. Devine & Co. (now conducted as a partnership) and the
acquisition by W. R. Grace & Co. of all of the stock of the new
corporation. Grace presently owns 80.07 per cent of the stock of
Grace National Bank of New York, and that stock would be transferred
to Grace's new subsidiary.
Your letter requested the "concurrence" of the Board of
Governors of the Federal Reserve System, stating that the attitude
of the Board toward the proposal is of prime importance in view of
the specialization of Devine in the Government securities market.
It also pointed out that Counsel for Grace and Devine have expressed
the opinion that consummation of the plan would not give rise to any
relationship prohibited by law, and their memorandum on the legal
questions was enclosed.
After careful consideration, the Board has concluded that
the proposed arrangement is prohibited by section 20 of the Banking
Act of 1933 (12 U.S.C. 377), which provides that
...no member bank shall be affiliated in any manner
described in section 2(b) hereof with any corporation,
association, business trust, or other similar organization engaged principally in the issue, flotation,
underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of
stocks, bonds, debentures, notes, or other securities...."
A major objective of the Banking Act of 1933, which is
reflected in a number of its provisions, was to prohibit certain relationships between commercial banks and organizations engaged in
investment banking. As stated by the Supreme Court of the United
States, one purpose of Congress was to "abolish" securities affiliates
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Felix E. Larkin
that were under common control with a member bank. Agnew v.
Board of Governors, 329 U.S. 441, 448 (1947). Upon consummation of
the arrangement submitted for the Board's consideration, both
Devine Corporation and Grace National Bank would be controlled by
W. R. Grace & Co. Grace National Bank, of course, is a member bank,
and under the Board's interpretation of section 20 the proposed
Devine Corporation would be engaged principally in the activities
enumerated therein.
The memorandum of your Counsel emphasizes that section 2(b)
of the Banking Act of 1933 (12 U.S.C. 221a), as incorporated into
section 20, applies to situations in which control of a securities
company "is held...by the shareholders of a member bank". That
memorandum points out that Grace itself would not hold the stock of
Grace National Bank and contends that section 2(b), in view of its
language, "is directed only to direct stockholders of the bank and
not to indirect stockholders of the bank".
It is true that the term "shareholder" generally refers to
direct holders of a corporation's stock. In a number of situations,
however, courts have interpreted the term more broadly, where such an
interpretation was necessary to effectuate the purpose of the statute
under consideration. A leading decision is Anderson v. Abbott,
321 U.S. 349 (1944), where the Supreme Court interpreted provisions
of the National Bank Act and the Federal Reserve Act that imposed
double liability on the "shareholders" of an insolvent national bank.
In order to give effect to the Congressional purpose, the Court held
that "shareholders", in that context, included persons who held stock
ma corporation which in turn held the stock of the bank. In the
Opinion of the Board, the reasoning that led to the decision of the
Supreme Court in that case is at least equally applicable to the
present situation.
It cannot be overlooked that, if Grace followed the natural
course of simply acquiring the stock of Devine Corporation, section 20
Clearly would be applicable. Seemingly, the sole purpose of the transfer of the stock of Grace National Bank from Grace to Devine Corporation would be to avoid the impact of that provision of
law.
In view of the Board's conclusion that the proposed transactions are prohibited by section 20, it is not necessary to decide the
other legal questions discussed in your Counsel's memorandum or the
estion whether, apart from issues of legality, the arrangement would
e desirable as
a matter of policy.
r
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
68
"
Item No.
BOARD OF GOVERNORS
2/28/64
OFTHC
FEDERAL RESERVE SYSTEM
WASHINC3TON
OFFICE OF THE CHAIRMAN
February 28, 1964.
The Honorable W. Willard Wirtz,
Chairman, Interdepartmental Committee
on the Status of Women,
Room 1334, Main Labor Building,
Washington, D. C. 20210
Dear Mr. Secretary:
In accordance with your letter of January 27, 1964,
on the status of women, following is the report requested by
February 28, 1964, on the Program for Equal Employment and
Advancement Opportunities for Women at the Federal Reserve
Board.
1. Our plans are to continue making available to
women opportunities for advancement to higher level positions
in the future.
2. Of significance, there have been a number of
advancements of women resulting from greater responsibilities
given them during the past year, with approximately 15 per
cent of the employees in the higher-graded professional positions now being women. For example, in January 1964, two
women economists were reclassified from grades comparable to
GS-13 to GS-14, in which grade there were no women on
December 31, 1963.
3. There is enclosed a count, by grade, as of
December 31, 1963, of all women in the employ of the Board of
Governors in positions comparable to Grade GS-12 and above,
and with the percentage of women in relation to the total
number of employees in each of these grade levels.
You can be assured that the President has firm
support from the Board of Governors in this program.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
Enclosure
6
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