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Minutes for
To:
Members of the Board
From:
Office of the Secretary
February 28, 1966
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. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
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Federal Reserve Bank of St. Louis
711
4 4
Minutes of the Board of Governors of the Federal Reserve System
on Monday, February 28, 1966.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson
Shepardson
Mitchell
Daane
Maisel
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Broida, Assistant Secretary
Young, Senior Adviser to the Board and
Director, Division of International Finance
Holland, Adviser to the Board
Solomon, Adviser to the Board
Molony, Assistant to the Board
Fauver, Assistant to the Board
Morgan, Staff Assistant, Board Members'
Offices
Messrs. Brill, Koch, Partee, Axilrod, Gramley,
Eckert, Ettin, Keir, and Taylor of the
Division of Research and Statistics
Messrs. Sammons, Hersey, Katz, Reynolds, Baker,
Gemmill, Hayes, and Mills of the Division
of International Finance
Money market review.
Mr. Axilrod commented on the Government
securities market, Mr. Ettin reviewed bank credit developments, Mr.
Baker summarized foreign exchange market developments, and Mr. Hayes
commented on British wage and price trends.
Distributed materials in-
cluded tables affording perspective on the money market, the capital
market, and bank reserve utilization, along with charts showing yields
"U.S. Government securities and the trend of industrial wages in the
United Kingdom.
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Federal Reserve Bank of St. Louis
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2/28/66
-2All members of the staff who had been present except Messrs.
Sherman, Kenyon, Broida, Young, Holland, Solomon, Molony, Fauver,
Brill, Sammons, Partee, Axilrod, Eckert, and Ettin then withdrew and
the following entered the room:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Hackley, General Counsel
Farrell, Director, Division of Bank Operations
Solomon, Director, Division of Examinations
Johnson, Director, Division of Personnel Administration
Kakalec, Controller
O'Connell, Assistant General Counsel
Kiley, Assistant Director, Division of Bank Operations
Leavitt, Assistant Director, Division of Examinations
Thompson, Assistant Director, Division of Examinations
Sprecher, Assistant Director, Division of Personnel
Administration
Mr. Lyon, Review Examiner, Division of Examinations
Mr. Hart and Mrs. Burns of the Division of Personnel
Administration
Mr. Waller, Supervisory Accountant, Office of the Controller
Messrs. Veenstra and Vander Noot of the Division of Data
Processing
Waiver of penalty (Item No. 1).
Unanimous approval was given
to a letter to the Federal Reserve Bank of Atlanta (copy attached as
Item
waiving the assessment of a penalty incurred by City
National Bank of Miami Beach, Miami Beach, Florida, because of a deficiency in its required reserves.
Application of Virlinia Commonwealth Cor oration (Items 2 and 3).
There had been distributed a proposed order and statement reflecting
the Board's approval on February 18, 1966, of the application of
Virginia Commonwealth Corporation, Richmond, Virginia, to acquire
Shares of The Bank of Central Virginia, Lynchburg, Virginia.
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Federal Reserve Bank of St. Louis
735
2/28/66
-3The issuance of the order and statement was authorized; copies
of the documents, as issued, are attached as Items 2 and 3.
Revision of weekly reporting member bank series.
There had been
distributed a memorandum from the Division of Research and Statistics
dated February 18, 1966, recommending revision of the weekly reporting
member bank series along lines approved by the Committee on Current
Reporting Series, the System Research Advisory Committee, and the Conference of Presidents of the Federal Reserve Banks.
It was hoped to
institute the new series by midyear if approval was obtained from the
Bureau of the Budget.
The relatively long lead time was required to
inform cooperating banks of the changes and also to make the necessary
(ljustments in editing and data processing procedures.
The proposed
Changes contemplated a broader selection of reporting banks, a more
d etailed breakdown of selected asset and liability items, and revision
Of the method of adjusting for mergers, conversions, and other changes
in coverage.
The discussion of the proposal included responses by the staff
t° several questions of a technical nature raised by members of the
Board
The discussion also included comments by Governor Mitchell on
the amount of time involved in bringing projects to fruition under the
Procedures currently followed whereby such projects were channeled
through various System committees and the organizational structure of
the Presidents' Conference.
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Federal Reserve Bank of St. Louis
He cited the history of the proposal now
7:
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2/28/66
before the Board as illustrative of the delay in bringing projects of
this kind to the stage of accomplishment.
Other members of the Board
expressed themselves similarly, and it was understood that the staff
would be free to relate the essence of these comments to the System
Research Advisory Committee.
The proposed revision of the weekly reporting member bank series
was then approved unanimously, with the understanding that a letter would
be sent to the Bureau of the Budget requesting its approval of the new
series.
Budget performance report.
There had been distributed under
date of February 8, 1966, a report from the Office of the Controller
reviewing performance under the Board's budget for the year 1965.
After discussion, the report was accepted.
It was noted that
although nearly all budget account overexpenditures had been approved
before the end of 1965, several items totaling $16,623 had not been
s ubmitted for approval prior to that time.
Acceptance of the budget
Performance report constituted approval of these remaining overexpenditures.
Annual audit of financial statements (Items 4 and 5).
There
had been distributed by the Board's Secretary under date of February 16,
1966, documents entitled (1) Financial Statements and Accountants'
()Pinion and (2) Report on Scope of Examination of Financial Statements
submitted by the firm of Haskins & Sells in connection with their audit
of the Board's accounts for the year ended December 31, 1965.
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Federal Reserve Bank of St. Louis
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:
fs.
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2/28/66
-5The reports were accepted with the understanding that copies
would be transmitted to the Chairmen of the Senate and House Banking
and Currency Committees.
Copies of the transmittal letters are attached
as Items 4 and 5.
Governor Shepardson noted that Haskins & Sells also had the
assignment in 1965 for review of procedures followed by the Board's
staff in examinations of the Federal Reserve Banks.
He mentioned that
the firm's report on such assignment had not yet been received, and it
was AaEri to await receipt of the report before determining whether
arrangements should be made for a representative of the firm to meet
With the Board.
Rules regarding employee responsibilities and conduct (Item No. 6).
There had been distributed a memorandum from Mr. Hackley dated
February 16, 1966, submitting a revised draft of Board rules regarding
employee responsibilities and conduct.
The revised draft reflected
comments made by the Civil Service Commission as well as changes in
Style suggested by the Office of the Federal Register.
These changes
from the draft considered by the Board at its meeting on December 21,
1965, were relatively minor in nature.
The Civil Service Commission
had advised by letter dated January 21, 1966, that, subject to these
Changes, the Board's rules were approved for submission to the Federal
Register for publication.
Mr. Hackley recommended in his memorandum that the rules now be
tr ansmitted to the Federal Register, to become effective upon the date
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Federal Reserve Bank of St. Louis
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2/28/66
of publication.
The Civil Service Commission regulations provided that
Within 90 days after the effective date, each employee should be furnished a copy of the rules or a comprehensive summary thereof.
Accord-
ing to the consensus reached when the subject was previously considered
by
the Board, employees of the Board would be furnished only a comprehen-
sive summary although the rules themselves would be available upon request.
It was contemplated that the Division of Personnel Administration would
advise all employees that the Board had adopted the rules, that a comprehensive summary would be distributed shortly, and that a counselor and
deputy counselors would be available to advise employees with respect
to any questions.
Mr. Hackley had earlier been designated as the Board's
counselor and the Civil Service Commission had been so advised.
He now
suggested that Mr. Hart, Assistant to the Director, Division of Personnel
Administration, and Mr. Shuter, Attorney, Legal Division, be designated
deputy counselors.
Mr. Hackley also suggested that a copy of the Board's
rules be sent to the Presidents of the Federal Reserve Banks with a
statement to the general effect that Reserve Bank employees should be
governed by rules of conduct at least as stringent as those applicable
to employees of the Board.
In reviewing the matter orally, Mr. Hackley said he would now
suggest that copies of the rules be sent to the Reserve Bank Presidents
merely as a matter of information rather than in any sense requiring the
Reserve Banks to adopt identical rules.
He noted that some provisions
Of the Board's rules would not be applicable for technical reasons.
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Federal Reserve Bank of St. Louis
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2/28/66
Question was raised whether the comprehensive summary being
Prepared for distribution to Board employees should not be sent to the
Reserve Banks along with the rules, and Mr. Johnson commented that,
although the Board's rules would become effective upon publication in
the Federal Register, it probably would not be possible to have the
summary available immediately for distribution.
However, it was proposed
to reproduce and distribute certain questions and answers, based on
material supplied by the Civil Service Commission, that would afford
some concept as to the content of the rules and their interpretation.
There followed comments by Governor Robertson again raising the
question, previously discussed at the December 21 meeting, as to the
desirability of issuing rules containing provisions reading more harshly
and rigidly than the manner in which it was understood they were going
to be interpreted.
Mr. Hackley reviewed the legal background against which the rules
had been promulgated and indicated that he felt the Civil Service Commission would be reluctant to have interpretations incorporated therein.
He expressed the view that there would be little ground legally for
°Pposing the applicability of the pertinent statutory provisions; however,
if the Board so desired, he would discuss further with the staff of the
Commission the possibility of including in the rules, possibly by foot11°te, interpretations of certain provisions such as those relating to
the solicitation of contributions for gifts.
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Federal Reserve Bank of St. Louis
t'Y
2/28/66
-8The consensus was that this additional negotiation need not be
undertaken.
Accordingly, it was agreed that the rules should be trans-
mitted to the Federal Register for publication.
It was understood that
copies of the questions and answers referred to by Mr. Johnson would be
distributed to Board employees along with a comprehensive summary of
the rules, and Messrs. Hart and Shuter were designated as deputy counselors for the purpose of advising employees on questions arising under
the rules.
It was agreed also to send copies of the rules and of the
questions and answers to the Federal Reserve Banks with a letter suggesting that the Banks review their existing regulations in light of the
Board's rules.
A copy of the Board's rules, as transmitted to the
Federal Register, is attached as Item No. 6.
(The rules were published
in the Register on March 5.)
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
the following items:
Letter to the Federal Reserve Bank of Boston (attached Item No. 7)
a pproving the appointment of Dorothy J. Bradley as assistant examiner.
Memorandum from the Division of Research and Statistics dated
February 28, 1966, recommending that an additional economist position
be established in the Government Finance Section.
Memorandum from the Division of Research and Statistics recommending an increase in the basic annual salary of Phyllis H. Lockhart,
S tatistical Clerk in that Division, from $5,577 to $6,036, with a change
ln title to Statistical Assistant, effective February 28, 1966.
Secretary
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Federal Reserve Bank of St. Louis
741
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 1
2/28/66
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 28, 1966
Mr. Monroe Kimbrel,
First Vice President,
Federal Reserve Bank
of Atlanta,
Atlanta, Georgia.
30303
Dear Mr. Kimbrel:
This refers to your letter of February 15, 1966, regarding
the penalty of $1,288.74 incurred by the City National Bank of
Miami Beadh, Miami Beach, Florida, on an average daily deficiency of
$551,739 in its required reserves for the period ended January 19,
1966.
It is noted that (1) the deficiency resulted from the
failure of Western Union to transmit three telegrams to the bank's
New York correspondent requesting it to transfer funds to the bank's
reserve account; (2) these telegrams were placed on a Telefax
machine by the bank, but never delivered, and Western Union has
admitted its responsibility for not dispatching the messages; (3) had
the transfer been made, no deficiency in the reserve account would
have occurred; and (4) the bank has had a good record in maintaining
its required reserves.
In the circumstances, the Board authorizes your Bank to
waive the assessment of the penalty of $1,288.74 for the period
ended January 19, 1966.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
742
Item No. 2
2/28/66
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
14 the Matter of the Application of
VIRGINIA COMMONWEALTH CORPORATION,
RICHMOND, VIRGINIA,
!
°t approval of the acquisition of
;
csting shares of The Bank of Central
vlrginia, Lynchburg, Virginia.
•••
ORDER APPROVING APPLICATION
UNDER BANK HOLDING COMPANY ACT
There has come before the Board of Governors, pursuant to
1 section 3(a)(2) of the Bank Holding Company Act of 1956
(12 U.S.C. 1842(a)(2)) and section 222.4(a)(2) of Federal Reserve
Ilegulation Y (12 CFR 222./:(a)(2)), an application by Virginia
Cerh
onwealth Corporation, Richmond, Virginia, a registered bank holding
eQmPanY, for the Board's prior approval of the acquisition of more than
80
Per cent of the voting shares of The Bank of Central Virginia,
LYnchburg, Virginia, to be converted from State Industrial Loan
Cot.
Poration, Lynchburg, Virginia.
As required by section 3(b) of the Act, notice of receipt of
the
application was given to, and views and recommendation requested of,
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Federal Reserve Bank of St. Louis
743
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the Commissioner of Banking of the Commonwealth of Virginia.
The
COmmissioner recommended approval of the application.
published in the
Notice of receipt of the application was
Register 14179), proFederal Register on November 10, 1965 (30 Federal
comments and
viding an opportunity for interested persons to submit
views with respect to the proposed acquisition.
The time for filing
such comments and views has expired, and all those received have been
considered by the
Board.
forth in the Board's
IT IS HEREBY ORDERED, for the reasons set
Statement of this date, that said application be and hereby is approved,
consummated
Provided that the acquisition so approved shall not be
(a) within seven calendar days after the date of this Order or (b) later
thaa three months after said date.
1966.
Dated at Washington, D. C., this 4th day of March,
By order of the Board of Governors.
and
Voting for this action: Chairman Martin,
Daane, and Maisel.
l,
Mitchel
son,
Shepard
Governors Robertson,
Absent and not voting:
Governor Balderston.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
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Federal Reserve Bank of St. Louis
744
Item No. 3
2/28/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY VIRGINIA COMMONWEALTH CORPORATION, RICHMOND,
VIRGINIA, FOR APPROVAL OF THE ACQUISITION OF VOTING SHARES
OF THE BANK OF CENTRAL VIRGINIA, LYNCHBURG, VIRGINIA
STATEMENT
Virginia Commonwealth Corporation, Richmond, Virginia
(Applicant"), a registered bank holding company, has applied to the
4erd of Governors, pursuant to section 3(a)(2) of the Bank Holding
per cent
CemPeny Act of 1956 ("the Act"), for permission to acquire 80
more of the voting shares of The Bank of Central Virginia, Lynchburg,
Virginia ("Bank"), which, prior to the proposed acquisition of stock,
is to be converted frcm State Industrial Loan Corporation, Lynchburg,
Virginia.
Views and recommendation of supervisory authority.
I'Nuired by section 3(b) of the Act, the Board notified the Commissioner
f Banking of the Commonwealth of Virginia of receipt of the application
arld requested his views and recommendation thereon.
The Commissioner
4"mmended approval of the application.
requires the Board
Statutory factors. - Section 3(c) of the Act
to take into consideration the following five factors: (1) the financial
hi-st
ory and condition of the holding company and the banks concerned;
(2) their prospects; (3) the character of their management; (0 the
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Federal Reserve Bank of St. Louis
745
-2-
convenience, needs, and welfare of the communities and the area
concerned, and (5) whether or not the effect of the proposed acquisition
would be to expand the size or extent of the bank holding company system
involved beyond limits consistent with adequate and sound banking, the
Public interest, and the preservation of competition in the field of
b
anking.
Financial histor
and condition
rospects
and mana ement o
4°Plicant and Bank. - Applicant, organized as a holding company in
becember 1962, has a relatively brief but sound financial history, and
its present condition is considered generally satisfactory.
APPlicant's prospects are considered satisfactory.
Similarly,
Its management,
c°111Posed of experienced and qualified bankers and businessmen, is considered to be well qualified and sound.
Bank, located in Lynchburg, Virginia, was organized in 1942
48 an industrial loan company.
Its activities have been confined to the
acceptance of interest-bearing deposits - evidenced by certificates of
illvestment - and the granting of consumer loans.
In the period from
Year-end 1955 to year-end 1964, Bank's growth has been steady but rela
1/
tiv„
repre1965,
30,
June
at
-.V slow. Its deposits totaled $919,000
senting a growth of but slightly in excess of $650,000 from year-end 1955.
°n the basis of
data reflecting certain aspects of Bank's operations,
4410 s
financial history and present condition are considered to be
8nslewhat less than satisfactory, due principally to the limited scope
17-117-liess otherwise indicated, all
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Federal Reserve Bank of St. Louis
banking data noted are as of this date.
746
_3-
Of Bank's service rendition and the generally high risk nature of its
loan activities.
Bank's prospects, assuming its continued operation as
an industrial loan company, appear to be limited by the fact that it does
not possess the service potential of a full-service bank and is, thus,
not able to meet effectively the competition offered by full-service
commercial banks operating in the same area.
Inasmuch as Applicant states
that Bank will not be converted to a commercial bank if this application
is denied, Bank's prospects as a commercial bank subsidiary of Applicant
aPpear substantially more promising than would otherwise be the case.
With respect to the management of Bank, its chief executive
clficer is 75 years of age and is looking to be relieved of his executive
ealoonsibilities.
Bank has no experienced, second-level management per-
8°nnel capable of taking the place of or relieving Bank's executive
cer.
This management situation has impelled Applicant, in anticipa-
tien of the proposed acquisition of Bank, to place an officer from one of
it8 affiliated banks in Bank.
This officer has been designated Bank's
chief executive officer, pending Board action on this application.
Appli-
cant has made known its intention to return this officer to Applicant's
hank should this application be denied.
Should Applicant's proposal be
cellsummated, Applicant intends to further strengthen Bank's management with
4dditional management personnel from its present subsidiary banks.
Appli-
cant has added to Bank's board of directors one of its experienced officers,
h° is intended to give general policy supervision to Bank.
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Federal Reserve Bank of St. Louis
747
-4-
It is the Board's judgment that the approaching retirement of
Bank's principal executive officer, the lack of experienced second-line
management in Bank, and the unlikelihood that Bank could attract experienced, career-minded management talent if it were to continue as an
industrial loan organization, are factors that indicate less promising
Prospects for Bank.
On the other hand, these prospects would, in the
Board's judgment, be considerably improved under Applicant's proposal.
Bank, as a subsidiary of Applicant, would appear assured of experienced
Present management and a source for capable successor management.
This
assurance constitutes a consideration weighing toward approval of the
sPPlication.
Convenience, needs, and welfare of the communities and area
2/
comprises a major portion of
'..(2112EMS!. - Bank's primary service area
the City of Lynchburg and a small portion of Amherst County, which adjoins
LYnchburg on the north.
Applicant estimates the present population of
its primary service area to be about 72,000.
Lynchburg, with a popula-
tion estimated at nearly 60,000, and its environs are predominantly industrial in character.
Plants in this area employ about 23,000 workers
In the manufacture of a variety of commercial products. Lynchburg is
41so a marketing center for retail and wholesale trade, particularly for
the agricultural commodities coming from three adjoining counties. There
are
Of
the larger central
significant indications that the Lynchburg area, and
Th
-e area from which Applicant estimates 86 per cent of Bank's deposits
.
kndlviduals,
partnerships, and corporations originate.
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Federal Reserve Bank of St. Louis
I4
-5n and economic growth.
Virginia region, will experience continued populatio
operation of Bank,
APplicant states its intention, through acquisition and
to share in and contribute to this growth.
Applicant has enumerated
offered by Bank
several services, not now provided by Bank, that would be
under Applicant's control.
In view of the present limited scope and nature
Of Bank's operation, its operation as a commercial bank subsidiary of
serAPPlicant, offering an additional alternative source of full-banking
the businesses
vice, would, as a matter of greater convenience, benefit
and residents within Bank's service area.
The record in this case gives
40 indication that any major banking need is going unserved within Bank's
Primary service area.
Nor, despite the probable continued economic devel-
4Pment and population growth in the Lynchburg area, is it likely that such
future needs as may arise will not be satisfied, inasmuch as there are
silt banking offices located within three blocks of Bank's site and an
ad
of that site.
ditional 13 banking offices situated within six miles
Houever, in view of the Board's finding that the communities and area
concerned will be better and more conveniently served by Bank's operation
as a subsidiary of Applicant than would be the case if it were to contin
ue under its present form of organization and operation, the likelihood
such benefit lends some slight weight toward approval of the application.
Effect of proposed acquisition on adequate and sound banking,
"2.--ublintere st
--ti
and banking competition. - At June 30, 1965, Appli-
c4nt controlled six banks, operating 44 banking offices with total deposits
$267 million.
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Federal Reserve Bank of St. Louis
Board approval has been given pursuant to the Act for
749
-6APPlicant's acquisition of two additional banks that, combined, have
six offices and total deposits of $11 million.
sitions approved has been consummated.
Neither of the two acqui-
Assuming consummation of those
acquisitions and that of Bank, Applicant's system would be comprised of
aine banks, holding
deposits of $278 million.
Applicant's acquisition of Bank would mark Applicant's initial
entry into the Lynchburg area.
One other bank holding company system,
United Virginia Bancshares, operates therein.
Its subsidiary, First
lational Trust and Savings Bank of Lynchburg, with total deposits of
$44 million, operates five offices, all in Lynchburg,
Based on June 30,
1964 data, Applicant's acquisition of Bank would increase by less than
°Ile per cent, frcm 34.6 to 35.4 per cent, the share of commercial bank
dePosits in Lynchburg controlled by holding companies.
In view of the size of the institutions with which Bank will
ecmpete in the Lynchburg area, its control, under Applicant's ownership,
Of .8 per cent of the commercial bank deposits in that area offers no
basis
for
t
concern with respect to a resulting undue concentration of
b444ing resources.
State-wide, Applicant's acquisition of Bank would not
ehange APplicant's relative position of fourth place among the seven
laqest banking aggregations in the State.
There is no evidence of any significant competition between
tatik
end any of Applicant's subsidiaries, nor is there reason to believe
that
such will develop in the impaediate future.
The three closest of
4131
icant's banking offices are frcm 54 to 61 miles from Lynchburg, and
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Federal Reserve Bank of St. Louis
750
-7nt's banking
several offices of non-affiliated banks separate Applica
offices and Bank.
in the relevant
In adJition to Bank, there are three banks
, five of
Primary service area operating a total of 19 banking offices
d, the
which are branches of First and Merchants National Bank, Richmon
State's largest bank.
recent date for which
At June 30, 1964, the most
branch deposit data are available, the three banks' Lynchburg offices
had deposits ranging from approximately $30 million to $45 million as
.
compared to Bank's total deposits of less than $1 million
three banks offers a complete line of banking services.
Each of the
At the present
ent number
time, Bank's primary service area appears to contain a suffici
(If alternative banking outlets to meet the reasonable requirements of
its businesses and residents.
There will be no reduction in the number
°f such outlets upon consummation of Applicant's proposal; rather, such
banking outlet in the
c°11summation will place an additional commercial
service of the communities involved.
The Board can foresee no adverse
Competitive effect on banks in the Lynchburg area from consummation of
APPlicant's proposal.
contained in the
On the basis of all the relevant facts as
record before the Board, and in the light of the factors set forth in
section 3(c) of the Act, it is the Board's judgment that the proposed
acquisition would be consistent with the public interest and the application should therefore be approved.
March 4, 1966.
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Federal Reserve Bank of St. Louis
k)
BOARD OF GOVERNORS
Item No. 4
2/28/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON,0. C. 20551
OFFICE OF THE CHAIRMAN
February 28, 1966
The Honorable A. Willis Robertson,
Chairman,
Committee on Banking and Currency,
United States Senate,
Washington, D. C.
Dear Mr. Chairman:
In accordance with the practice followed for
of the
the past several years, there are enclosed copies
reports made by the firm of public accountants that
of the
audited the accounts of the Board of Governors
er 31, 1965.
Federal Reserve System for the year ended Decemb
Accountants'
These include (1) Financial Statements and
of Financial
Opinion and (2) Report on Scope of Examination
Statements.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
Enclosures 2
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Federal Reserve Bank of St. Louis
752
BOARD OF GOVERNORS
OF THE
Item No.
2/28/66
5
FEDERAL RESERVE SYSTEM
WASHINGTON,0. C. 20E51
OFFICE OF THE CHAIRMAN
February 28, 1966
The Honorable Wright Patman,
Chairman,
Committee on Banking and Currency,
House of Representatives,
Washington, D. C.
Dear Mr. Chairman:
In accordance with the practice followed for
the
the past several years, there are enclosed copies of
that
nts
reports made by the firm of public accounta
audited the accounts of the Board of Governors of the
1965.
Federal Reserve System for the year ended December 31,
nts'
Accounta
These include (1) Financial Statements and
l
Opinion and (2) Report on Scope of Examination of Financia
Statements.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
Enclosures 2
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Item No. 6
2/28/66
TITLE 12--BANKS AND BANKING
CHAPTER II--FEDERAL RESERVE SYSTEM
SYSTEM
SUBCHAPTER A--BOARD OF GOVERNORS OF THE FEDERAL RESERVE
PART 264—EMPLOYEE RESPONSIBILITIES AND CONDUCT
[Pursuant to and in accordance with sections 201 through
209 of Title 16 of the United States Code, Executive
Order 11222 of May 8, 1965 (30 F.R. 6469), and Title 5,
Chapter I, Part 735 of the Code of Federal Regulations,
Part 264 is added to Title 12 of the Code of Federal
Regulations, reading as follows:]
See..
264.73s-1
Purpose.
264:735-2 Definitions.
264.735-3 Effective date, distribution, and counseling.
264;735_4 Financial statements.
264;735_5 Disciplinary or remedial action.
264735_6 Ethical and other conduct and responsibilities of employees.
264;735_ 7 Ethical and other conduct and responsibilities of special
employees.
264735_ 8
Statements of employment and financial interests.
11222
Auth •
The provisions of Part 264 are issued under E. O.
of °T1
hay 8, 1965, 30 F. R. 6469 3 CFR, 1965 Supp.; 5 CFR 735.104.
"ay
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§ 264.735-1
Purpose.
The maintenance of unusually high standards of honesty, integrity,
iruPartiality, and conduct by employees and special employees of the
noard is essential to assure the proper performance of Board business
fld the maintenance of confidence by citizens in their Government.
The avoidance of misconduct and conflicts of interest on the part of
emPloyees and special employees of the Board through use of informed
hdgment is indispensable to the maintenance of these standards.
To
accord with these concepts, this part prescribes standards of conduct
arid
responsibilities, and governs statements reporting employment
and financial interests of the Board's employees and special employees
°I? the
Board.
5 264
.735-2
Definitions.
For the purposes of this part, including all forms promulgated
for
use herewith, unless the context requires otherwise:
(a) "Board" means Board of Governors of the Federal Reserve
SYstem.
(b) "Employee" means an officer or employee of the Board but
dcles not include a special employee.
(c) "Special Government employee" (herein referred to as special
44)1°Yee)
means an officer or employee of the Board who is retained,
4signated, appointed, or employed to perform, with or without compensat414,
for not to exceed 130 days during any period of 365 consecutive
temporary duties either on a full-time or intermittent basis.
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(d) "conflict or apparent conflict of interest" means a conflict
or the appearance of a conflict between the interests of an employee
or special employee and the performance of his services for the Board.
5 264.735-3 Effective date, distribution, and counseling.
(a) This part and any amendment thereto shall be effective upon
Pu blication in the Federal Register.
(b) The Division of Personnel Administration shall distribute
a CORI')
rehensive summary of this part to every employee and every
sPecial employee within 90 days after the effective date, and to each
t14 employee and special employee at the time of entrance on duty, and
stribute to every
employee and every special employee each calendar
ea.r thereafter a reminder of the basic provisions of this part.
A
CO
PY of this part shall be made available, upon request, to every
erriP1°Yee and special employee by the Division of Personnel Administratio
n, or by the Counselor or any Deputy Counselor.
(e) A Counselor and Deputy Counselors, appointed by the Board,
shall be available for counseling and guidance respecting statutes and
req
t,ulations affecting employee responsibility and conduct, including
pretations of the provisions of this part, and each employee and
Peejal
employee shall be notified of this service by the Division of
Ilersonnel Administration at the time he receives a comprehensive
314.4nary of this
part.
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264,735-4
Financial statements.
264.735-8(a) shall
(a) Each employee required to do so by 5
264.735-8.
complete and file Form FR 264.A in accordance with 5
in
Each special employee shall complete and file Form FR 264.B
accordance with 5 26/:.735-8.
received and
(b) All Forms FR 264.A and FR 264.B shall be
Administration
reviewed by the Director of the Division of Personnel
any
Or his designated representative to determine whether there are
conflicts or apparent conflicts of interest or other violations of
this part, law, or other regulations.
Information obtained from other
sources shall be treated as if it was contained in the forms.
contained
(c) All reports, forms, papers, and the information
shall be confidential, except
therein, filed pursuant to this section
good
the Board or the Civil Service Commission may determine for
cause shown.
§ 264.735-5
Disciplinary or remedial action.
imposed,
In addition to any action that may be taken, or penalty
for violations of this part, as prescribed by law:
other
(a) When conflicts or apparent conflicts of interest or
v.
.101
.
resolved or
atlons or apparent violations of this part cannot be
Adminis"'gained to the satisfaction of the Director of Personnel
through the Counselor.
trati°n, he shall report the matter to the Board
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(b) The employee or special employee concerned shall be given an
°PPortunity to explain such conflicts or apparent conflicts of interest
before and after the matter is reported to the Board.
(c) The Board, after consideration of the matter, and after
an oPportunity for the employee or special employee concerned to
appear, shall decide what steps are to be taken to remedy the situation.
Among other steps, the Board may:
(1) Attempt to remove any conflict of interest by requiring a
Change in duties, disqualification for a particular assignment, or
divestment of the conflicting interest by the employee or special
emPloyee;
(2) Take other corrective action; or
(3) Where corrective actions are inadequate
impose disciplinary
action.
Ilemedial action, whether disciplinary or otherwise, shall be effected
in accordance with any applicable laws, Executive orders, and regulations.
5 264.735-6
Ethical and other conduct and responsibilities of employees.
(a) Gifts, entertainment, favors z and loans. (1) Except as provided
in subparagraph (2) of this paragraph, an employee shall not solicit
accept, directly or indirectly, any gift, gratuity, favor, entertainment
loan, or any other thing of monetary value, from a person
Who:
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(i) Has or is seeking to obtain contractual or other business or
financial relations with the Board;
(ii) Conducts operations or activities that are regulated by
the Board; or
(iii) Has interests that may be substantially affected by the.
Performance or nonperfo-rmance of his official duty.
(2) Subparagraph (1) of this paragraph shall not apply to the
following activities that are necessary to, or compatible with the
duties and responsibilities
of, the Board and its employees:
(i) The acceptance of loans from, or other financial relations
with, banks or other financial institutions, in the ordinary course of
b usiness
of the bank or other financial institution and the employee,
gc3verned by terms no
more favorable than would be available in like
tircumstance to persons who are not employees of the Board, except as
Pr°vided by law or regulation;
(a) Obvious family or personal relationships (such as those
between the parents, children, or spouse of the employee and the
er4Pl0yee) when the circumstances make it clear that it is those relation.PS rather than the business of the persons concerned that are the
til°tivating factors;
UM The acceptance of food, refreshments, or accompanying
entertainment in the ordinary course of a luncheon or dinner meeting
other function or inspection tour where an employee is properly in
attendance.
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(iv) The acceptance of lodging on unusual occasions if an employee
is Properly in attendance and the circumstances thereof are reported
to the Board, or if covered by paragraph (b)(5)(i) of this section;
or
(v) The acceptance of unsolicited advertising or promotional
materials, such as pens, pencils, note pads, calendars, and other items
Of nominal intrinsic
value.
(3) An employee shall avoid any action, whether or not specifically
Prohibited by this 5 264.735-6, which might result in, or create the
appearance of:
(i) Using public office for private gain;
(ii) Giving preferential treatment to any person;
(iii) Impeding Board efficiency or economy;
(iv) Losing complete independence or impartiality;
(v) Making a Board decision outside official channels; or
(vi) Affecting adversely the confidence of the public in the
integrity of the Board and the Government.
(4) An employee shall not solicit contributions from another
eMPloyee for a gift to an employee in a superior official position.
An employee in a superior official position shall not accept a gift
Presented as a contribution from employees receiving less salary than
himself.
An employee shall not make a donation as a gift to an
employee in a superior official position.
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(5) An employee shall not accept a gift, present, decoration,
cr other thing from a foreign government unless authorized by Congress
as
provided by the Constitution and other law.
(b) Outside employment. (1) An employee shall not engage in
outside employment or other outside activity not compatible with the
full and proper discharge of the duties and responsibilities of his
Board employment.
Incompatible activities include but are not limited
t0
(i) Acceptance of a fee, compensation, gift, payment of expense,
cr any other thing of monetary value, in circumstances in which
acceptance may result in, or create the appearance of, (a) conflicts
Of
interest or (b) the use of nonpublic information gained through,
or incidental to, his Board duties, except as provided in this part; or
(ii) Outside employment which tends to impair his mental or
PhYsical capacity to perform his Board duties and responsibilities
iti
an acceptable manner.
(iii) Outside business and teaching employment not approved by
th
Board and reported on Form FR 725.
(2) An employee shall not receive any salary or anything of
tarY value from a private source as compensation for his services
to
the Board.
(3) Employees are encouraged to engage in teaching, lecturing,
Peaking, and
writing relating to the Board's functions and responsi41ities that is not prohibited by law, Executive Order 11222, or this
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-8-
Part.
compensation,
However, an employee shall not, either for or without
obtained
engage in such activities that are dependent on information
aS a result of his Board employment, except when that information has
been made available to the general public or will be made available on
use of
request, or when the Board gives written authorization for the
interest.
nonpublic information on the basis that the use is in the public
In any case, before any employee engages in such activities, he shall
consult his Division Head for the appropriate procedure to obtain
official approval,
(4) An employee shall not engage in outside employment under a
State or local government, except in accordance with this paragraph (b),
and Part 734 of the Civil Service Regulations (5 CFR Part 734).
(5) This paragraph (b) does not preclude an employee from:
(i) Receipt of bona fide reimbursement, unless prohibited by
laws for actual expenses for travel and such other subsistence as is
e°mPatible with this part for which no Government payment or reimbursement
i8 made.
may
However, an employee may not be reimbursed, and payment
116t be made on his behalf, for excessive personal living expenses or
°ther prt,onal benefits;
.2,1rtLcipation in the activities of national or State
Politica,
parties not prohibited by law; or
(iii) Participation in the affairs of, or acceptance of an award
ft3r a meritorious public contribution or achievement given by, a charitable,
/'eligious, professional, social, fraternal, nonprofit educational and
eer eational,
public service, or civic organization.
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(c) Financial interest. (1) An employee shall not:
(i) Have a direct or indirect financial interest that conflicts
substantially, or appears to conflict substantially, with his duties
and responsibilities with the Board;
(ii) Engage in, directly or indirectly, a financial transaction
as a result of, or primarily relying on, information obtained through
his
employment with the Board;
(iii) Engage in speculative dealings (as distinguished from
inv estments), whether on a margin or a cash basis, and whether in
securities,
commodities, real estate, exchange, or otherwise. Frequency
Of trading, the use of credit, and particularly transactions to take
advantage of
short-term price fluctuations, would be significant indications that dealings were speculative; or
(iv) Purchase equity securities of a bank, an affiliate thereof,
or a
Government security dealer; and an employee holding or acquiring
8uch securities shall dispose of them as promptly as is practicable
Without causing undue hardship.
(2) This section does not preclude an employee from having a
financial interest or engaging in financial transactions to the same
elttant as a private citizen not employed by the Board so long as it
i8
nct prohibited by law, Executive Order 11222, applicable regulation,
°I. this part, including indebtedness to banks or other financial institutions
on the same terms and conditions available to the employee
if he was not an employee of the Board.
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(d) Use of Board property.
An employee shall not directly or
indirectly use, or allow the use of, Board property of any kind,
including property leased to the Board, for other than officially
approved activities; an employee has a positive duty to protect
and conserve Board property, including equipment, supplies, and other
Property entrusted or issued to him.
(e) Misuse of information.
For the purpose of furthering a
Private interest, an employee shall not, except as provided in
Paragraph (b)(3) of this section, directly or indirectly use, or allow
the use of, official information obtained through or in connection
With his Board employment which has not been made available to the
general public.
(f) Disclosure of unpublished information.
An employee of
the Board shall not disclose to any person any unpublished information
of the Board obtained in the course of his work except as authorized
by the Board's Rules Regarding Information, Submittals, and Requests
(5 261.2 of this chapter).
(g) Indebtedness.
An employee shall pay each just financial
Obligation in a proper and timely manner, especially one imposed by
law such as Federal, State, or local taxes. For the purpose of this
section, a "just financial obligation" means one acknowledged by the
employee or reduced to judgment by a court, and "in a proper and timely
manner" means in a mar.her which the Board determines does not, under
the ciecumstances, reflect adversely on the Board as his employer. In
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the event of dispute between an employee and an alleged creditor,
this section does not require the Board to determine the validity or
amount of the disputed debt.
(h) Gambling, betting, and lotteries.
An employee shall not
participate, while on Board-owned or leased property or while on duty
for the Board, in any gambling activity including the operating of a
gambling device, in conducting a lottery or pool, in a game for money
or property, or in selling or purchasing a numbers slip or ticket.
(i) General conduct prejudicial to the Government.
An employee
Shall not engage in criminal, infamous, dishonest, immoral, or notoriously
disgraceful conduct, or other conduct prejudicial to the Government or
the Board.
(j) Miscellaneous statutory provisions.
Each employee shall
acquaint himself with each statute that relates to his ethical and
Other conduct while an employee of the Board.
In particular the follow-
ing statutes shall be noted:
(1) House Concurrent Resolution 175, 85th Congress, 2d Session,
72 Stat. B12, the "Code of Ethics for Government Service".
) ChJpter 11 of Title 18, United States Code, relating to
bribery, graft, and conflicts of interest. (In particular,
10 U.S.C. 212 and 213, prohibiting the offer to a bank examiner, or
the acceptanze by a bank examiner, of a gratuity or a loan from
certain banks; $5,000 fine and/or 1 year in prison.)
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iated funds
(3) The prohibition against-lobbyingvith appropr
prison and removal from
(18 U.S.C. 1913)($5G0 fine and/or 1 year in
employment).
and striking (5 U.S.C. 113p,
(4) The prohibitions against disloyalty
and 1 day in prison).
1180($ 1.„000 fine and/or 1 year
ent of a member of a
(5) The prohibition against the employm
Communist organization (50 U.S.C. 734).
disclosure of classified
(6) The prohibitions against (i) the
783)($10,000 fine and/or 10 years
information (18 U.S.C. 793, 50 U.S.C.
in prison); and (ii) the disclosure of confidential information
, and removal from
(18 U.S.C. 1905)($1,000 fine and/or 1 year in prison
employment).
habitual use of intoxicants to
(7) The provision relating to the
for employment in the competitive
excess (5 U.S.C. 60)(ineligibility
service).
(8) The prohibition against the misuse of a Government vehicle
(5 U.S.C. 78c)(suspension from duty or removal from employment).
(9) The prohibition against the misuse of the franking privilege
(10 U.S.C. 1719)($300 fine).
(10) The prohibition against the use of deceit in an examination
or personnel action in connection with Government employment
(5 U.S.C. 637)($1,000 fine and/or 1 year in prison).
(11) The prohibition against fraud or false statements in a
Government matter (18 U.S.C. 1001)($10,000 fine and/or 5 years in
Prison).
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(12) The prohibition against mutilating or destroying a public
record (18 U.S.C. 2071)($2,000 fine and/or 3 years in prison).
(13) The prohibition against counterfeiting and forging
transportation requests (18 U.S.C. 508)($5,000 fine and/or 10 years
in prison).
(14) The prohibitions against (i) embezzlement of Government
money or property (18 U.S.C. 641); (ii) failing to account for public
money (18 U.S.C. 643); and (iii) embezzlement of the money or property
of another person in the possession of an employee by reason of his
employment (18 U.S.C. 654)(fines from $1,000 to $10,000 and/or 1 to
10 years in prison).
(15) The prohibition against unauthorized use of documents relating
to claims from or by the Government (18 U.S.C. 285)($5,000 fine and/or
5 years in prison).
(16) The prohibition against proscribed political activities the Hatch Act (5 U.S.C. 118i)(possible removal from employment) and
18 U.S.C. 602, 603, 607, and 603 (fines of $5,000 and/or 5 years in
Prison).
(17) The prohibition against disclosure of certain information by
a bank examiner (10 U.S.C. 1906)($5,000 fine and/or 1 year in prison).
§ 264.735-7
Ethical and other conduct and responsibilities of
special employees.
(a) Use of Board employment.
A special employee shall not use
his Board employment for a purpose that is, or gives the appearance
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of being, motivated by the desire for private gain for himself or
another person, particularly one with whom he has family, business,
or financial ties.
(b) Use of inside information.
A special employee shall not use
inside information obtained as a result of his Board employment for
private gain for himself or another person either by direct action
on his part or by counsel, recommendation, or suggestion to another
person, particularly one with whom he has family, business, or financial
ties.
For the purpose of this paragraph, "inside information" means
information obtained under Board authority which has not become part
of the body of public information.
However, a special employee may
teach, lecture, or write in a manner not inconsistent with the appropriate provisions of
(c) Coercion.
264.735-6(b) in regard to employees.
A special employee shall not use his Board
employment to coerce, or give the appearance of coercing, a person to
Provide financial benefit to himself or another person, particularly
ties.
clne with whom he has family, business, or financial
(d) Gifts, entertainment, and favors. (1) Except as provided
in subparagraph (2) of this paragraph, a special employee, while so
employed or in connection with his employment, shall not receive or
solicit from a person having business with the Board anything of value
as
for himself or
a gift, gratuity, loan, entertainment, or favor
another person, particularly one with whom he has family, business,
or financial ties.
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-15(2) Subparagraph (1) of this paragraph shall not apply to the
activities referred to in § 264.735-6(a)(2) which are necessary to,
and compatible with the duties and responsibilities of, the Board
and its special employees.
(e) Miscellaneous statutory provisions.
Each special employee
shall acquaint himself with each statute that relates to his ethical
and other conduct while a special employee.
In particular the statutes
listed in § 264.735-6(j) shall be noted.
(f) Other provisions applicable to special employees.
Paragraphs (d),
(f), (g), and (i) of 5 264.735-6 shall be applicable to special employees.
§ 264.735-8
Statements of employment and financial interests.
(a) Employees required tc submit statements.
Except as provided
in paragraph (b) of this section, statements of employment and financial interests on Form FR 264.A shall be filed by each employee who
is a Head, Associate Head, or Assistant Head of a Division or an
Office of the Board (regardless of his specific title), an Adviser,
or Assistant to the Board, the Board's Legislative Counsel, and the
Chief Federal Reserve Examiner.
(b) Employees not required to submit statemenLE.
Neither
Form FR 264.A nor Form FR 264.B is required by this section from a
member of the Board of Governors.
Board members are subject to
separate reporting requirements under section 401 of Executive
Order 11222.
(c) Time and place for submission of employees' statements.
employee required to submit a Form FR 264.A under this part shall
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submit that form to the Director of the Division of Personnel
Administration or his designated representative not later than:
(1) Ninety days after the effective date of this part if employed
on or before the effective date; or
(2) Thirty days after his entrance on duty.
However, this
subparagraph does not require a submission earlier than ninety days
after the effective date of this part.
(d) Supplementary statements.
Changes in, or additions to, the
information contained in an employee's Form FR 264.A shall be
reported in a supplementary statement at the end of the quarter in
which the changes occur.
and December 31.
Quarters end March 31, June 30, September 30,
If there are no changes or additions in a quarter,
a negative report is not required.
However, for the purpose of annual
review, a supplementary statement, negative or otherwise, is required
as cf June 30 each year.
Supplementary reports shall be filed on
Form FR 264,A, indicating the period for which the report is filed in
Part I of the Form.
(e) Interests of employees' relatives.
The interest of a spouse,
minor child, or other member of an employee's immediate household is
considered to be an interest of the employee.
For the purpose of
this section, "member of an employee's immediate household" means those
blood relations who are residents of the employee's household.
(0 Information not known by employees.
If any information
required to be included on a statement of employment and financial
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interests or supplementary statement, including holdings placed in
trust, is not known to the employee but is known to another person,
the employee shall request that other person to submit information
in his behalf.
(g) Information prohibited.
This section does not require an
employee to submit a statement of employment and financial interests
or supplementary statement of any information relating to the employee's
connection with, or interest in, a professional society or a charitable,
religious, social, fraternal, recreational, public service, civic
or
political organization or similar organization not conducted as a
business enterprise.
For the purpose of this section, educational and
other institutions doing research and development or related work
involving grants of money from or contracts with the Board are deemed
"business enterprises" and are required to be included in an employee's
statement of employment and financial interests.
(h) Effect of employees' statements on other requirements.
The
statements of employment and financial interests and supplementary
statements required of employees are in addition to, and not in substitution for, or in derogation of, any similar requirement imposed
by law, order, or regulation.
The submission of a statement or supple-
mentary statement by an employee does not permit him or any other person
to participate in a matter in which his or the other person's participation is prohibited by law, order, or regulation.
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S ecific
rovisions of Board re ulations for s ecial em levees.
(1) Except as provided in subparagraph (2) of this paragraph, each
special employee shall submit on Form FR 264.B a statement of employment and financial interests which reports:
(i) All other employment; and
(ii) The financial interests of the special employee which relate
either directly or indirectly to the duties and responsibilities of
the special employee.
(2) The Board may waive the requirement in subparagraph (1) of
this paragraph for the submission of a statement of employment and
financial interests in the case of a special employee who is not a
consultant or an expert when the agency finds that the duties of the
Position held by that special employee are of a nature and at such a
level of responsibility that the submission of the statement by the
incumbent is not necessary to protect the integrity of the Board and
the Government. For the purpose of this paragraph, "consultant" and
"expert" have the meanings given those terms by Chapter 304 of the
Pederal Personnel Hanual, but do not include a physician, dentist, or
allied medical specialist whose services are procured to provide care
and service to patients.
(3) The statement of employment and financial interests required
to be submitted under this paragraph shall be submitted in accordance
with the provisions of paragraphs (c) and (d) of this § 264.735-8
(however, supplemental information shall be filed on Form FR 264.B).
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The provisions of paragraphs (e), (f), (g) and (h) of this
§ 264.735-8 shall apply to statements of employment and financial
interest of special employees where appropriate.
This Part 264 has been approved by the Civil Service Commission
under date of January 21, 1966.
Dated at Washington, D. C.
this 28th day of February, 1966.
By order of the Board of Governors.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary
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I f
Item No. 7
2/28/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 28, 1966
Mr. Luther M. Hoyle, Jr., Vice President,
Federal Reserve Bank of Boston,
Boston, Massachusetts. 02106
Dear Mr. Hoyle:
In accordance with the request contained
in your letter of February 21, 1966, the Board
approves the appointment of Miss Dorothy J. Bradley
as an assistant examiner for the Federal Reserve
Bank of Boston. Please advise the effective date
of the appointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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