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609
9/63
Minutes for February
To:
Members of the Board
From:
Office of the Secretary
3, 1964
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
329
Minutes of the Board of Governors of the Federal Reserve
System on Monday, February 3, 1964.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Noyes, Adviser to the Board
Hackley, General Counsel
Brill, Director, Division of
Research and Statistics
Mr. Solomon, Director, Division
of Examinations
Mr. Johnson, Director, Division of
Personnel Administration
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Holland, Associate Director,
Division of Research and Statistics
Mr. Partee, Adviser, Division of
Research and Statistics
Mr. Dembitz, Associate Adviser, Division
of Research and Statistics
Mr. Goodman, Assistant Director,
Division of Examinations
Mr. Leavitt, Assistant Director,
Division of Examinations
Mr. Sprecher, Assistant Director, Division
of Personnel Administration
General Assistant, Office
Spencer,
Mr.
of the Secretary
Miss Hart, Senior Attorney, Legal Division
Mr. Hricko, Senior Attorney, Legal Division
Mr. Young, Senior Attorney, Legal Division
Mr. Doyle, Attorney, Legal Division
Mr. Hunter, Supervisory Review Examiner,
Division of Examinations
Mr. Poundstone, Rrview Examiner, Division
of Examinations
Mr. Harris, Assistant Review Examiner,
Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
2/3/64
-2Discrunt rates.
The establishment without change by the Federal
Reserve Bank of Atlanta on January 31, 1964, of the rates on discounts
and advances in its existing schedule was approved unanimously, with
the understanding that appropriate advice would be sent to that Bank.
Circulated or distributed items.
The following items, copies
of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to the Federal Reserve Bank of New
York agreeing that the service of John F.
Pierce, Chief Examiner, Bank Examinations
Department, as Governor of the Central
Bank of Trinidad should be regarded as
being covered by section 5A of the Rules
and Regulations of the Retirement System,
the resolutions adopted and approved under
such section, and Board letter S-l802 of
August 4, 1961.
1
Letter to Western Bancorporation International
Bank, New York, New York, regarding its proposed
purchase of shares of The Industrial Finance
Corporation of Thailand, Bangkok, Thailand.
2
In regard to Item No. 1, Mr. Sprecher noted, in response to
a question, that there had been several other instances in the past
where the Board had agreed that a certain service was in the public
interest for purposes of the Rules and Regulations of the Retirement
System and resolutions thereunder which provide in effect that any
member whose employment is discontinued upon his entry into service
for a purpose deemed to be in the public interest for not more than
five years will be granted substantially the same retirement allowance
2/3/64
-3-
as he would have been entitled to receive if he had remained in the
employing Bank during the period of such service.
The pertinent
language appeared broad enough to include service with another central
bank such as contemplated in Mr. Pierce's forthcoming assignment.
With respect to Item No. 2, Mr. Goodman stated that it was
possible that requests for permission to invest in The Industrial Finance
Corporation of Thailand might be received from other Edge corporations.
He raised the question whether the Board would have objection to such
requests being processed administratively by the staff, and no objection
was indicated.
Messrs. Johnson and Sprechn. then withdrew from the meeting.
Amendments to Bank Holding Company Act (Items 3 and 4).
At the
meeting of the Board on January 10, 1964, there was discussion of a
memorandum from the Legal Division dated January 9, 1964, that presented
a draft of material suggested for inclusion in the Board's Annual Report
for 1963 regarding recommended amendments to the Bank Holding Company
Act.
During the discussion, consideration was given to the question
whether the Board should reinstate its earlier recommendation (withdrawn
in the 1960 Annual Report) that the Holding Company Act be amended to
cover mergers involving holding company subsidiary banks, and it was
agreed that this question should be held over for determination when
all members of the Boa/d were present.
In further discussion on
January 10, various suggestions were made as to the presentation of
the material in the Annual Report and in correspondence with the Banking
I)32
2/3/64
and. currency Committee Chairmen.
The suggestions resulted in an
understanding that the Legal Division would draft for the Board's
consideration a revision of the material to be included in the Annual
Report, that this material would include--for the Board's determination
as to inclusion or exclusion--a recommendation to reinstate the withdrawn recommendation that the Bank Holding Company Act be amended to
cover mergers involving bank holding company subsiaiary banks, and that
the Legal Division would also draft a letter that might be sent to the
Banking and Currency Committees.
There now had been distributed a memorandum from the Legal
Division dated January 16, 1964, submitting an amended draft of material.
The opinion of the Legal Division with respect to the advisability of reinstating the withdrawn recommendation was discussed in an
appended memorandum in which it was pointed out that in consideration,
under the Bank Merger Act, of a proposed merger involving a holding
company bank, the holding company aspects necessarily were taken into
account along with all other pertinent circumstances.
In the view of
the Legal Division, an argument for Board jurisdiction over these mergers
amounted, under analysis, to a claim that the Board was superior to the
other supervisory agencies in ability to evaluate and protect the public
interest in passing upon a given proposal as to which the relevant
information was equally available to all.
It was considered doubtful
Whether the Board would want to advance such a claim.
For this and
ti
010E)
2/3/64
-5-
other reasons, the Legal Division recommended against reversal of the
Board's action in withdrawing its 1958 recommendation.
At the Board's request Mr. Hexter commented on the matter,
basing his remarks on the information and views presented in the memorandum of January 16.
In discussion, Governor Shepardson stated that it seemed to him
it would be a mistake to reinstate the Board's earlier recommendation.
The Legal Division's memorandum developed arguments that he found
entirely persuasive.
The Board's original recommendation was made
before enactment of the Bank Merger Act, and at that time there was
basis for mvking such a recommendation.
Since the Congress had subse-
quently considered the merger question and had enacted the Bank Merger
Act, he felt the Board would be in an awkward position if it now reinstated
its earlier recommendation.
Governor Robertson stated that he took an opposite view.
In his
Opinion, the Board had taken the right step in the beginning when it
recommended the amendment to the Holding Company Act.
When the Board
reversed its position in 1960, it believed that the Bank Merger Act
would be effective in controlling this type of holding company expansion;
in his view, it had not been.
Therefore, the Board should reinstate the
recommendation that the Bank Holding Company Act be amended which, in
his opinion, was a sound position in the first instance.
Governor Mitchell observed that the Board was generally thought
to have complete control over holding company operations.
However, it
,ot
'34
2/3/64
-6-
was impossible to exert this control under the existing situation.
It
seemed to him that, although the Board could not control holding company expansion via de novo branches, it should attempt to assert control
of expansion via the merger route.
Governor Mills stated that he agreed with the position taken by
Governor Shepardson.
He felt that the recommendation of the Legal
Division was the correct one--the Board should not reverse its position
in withdrawing the earlier recommendation.
If the Board should reinstate
that recommendation, it might be challenged on the basis that it was
reaching out for power, since it would be indirectly saying that it
was the only regulatory agency competent to make a judgment in this
field.
Governor Daane said that he was inclined to go along with the
views that had been expressed by Governors Robertson and Mitchell, despite
the jurisdictional question that would be raised under the Bank Merger
Act.
Lack of Board authority over one form of holding company expansion
left an important loophole and, since the Board was up against a
practical problem of future growth and control of holding companies,
it should seek authority in the area under discussion.
At this point Mr. Hexter noted when a holding company expanded
into a new community through merger, that merger was subject to the Bank
Merger Act, which required that substantially the some considerations be
applied as those found in the Bank Holding Company Act.
However, a bank
11
,0 j
00
0
1
2/3/64
-7-
holding company bank could establish a de novo office without any
comparable criteria coming into play.
Governor Mitchell then spoke of the public policy rationale
underlying the different methods that might be used by holding companies
to expand into a new area.
A holding company could establish a new bank,
which required Board approval, or it could have one of its subsidiaries
establish a de novo office, which did not require Board approval under
the Holding Company Act.
However, the greater freedom of entry into an
area through de novo branching was justified because competition would
be increased.
On the other hand, public policy was in the direction of
Preventing holding companies from taking expansionary steps that had
the effect of restricting competition.
This would include buying out
actual or potential competitors.
Mr. Hackley agreed with Mr. Hexter that holding companies could
expand more easily and substantially through the establishment of de novo
Offices than through merger.
He pointed out, however,that the effect
on competition had always been a factor considered by the staff in
recommending on applications to establish new branches.
He went on to
say that he agreed with Governor Mills that if the Board reinstated the
recommendation that the Bank Holding Company Act be amended to cover
mergers involving holding company subsidiary banks, it might be understood by the Congress and the public that the Board was implying that
the other supervisory agencies were not competent to discharge their
336
2/3/64
-8-
functions under the Bank Merger Act.
Also, the chances of having any
of the proposed amendments to the Holding Company Act approved might be
jeopardized.
Governor Balderston said that he subscribed to the position
recommended by the Legal Division, and Chairman Martin also indicated
that he agreed with the Division's recommendation.
Accordingly, the recommendation of the Legal Division against
reversal of the Board's action in withdrawing the recommendation that
the Holding Company Act be amended to cover mergers involving bank
holding company subsidiary banks was accepted by a majority of the Board.
It was understood, therefore, that the pertinent paragraphs would be
deleted from the draft material on recommended amendments to the Bank
Holding Company Act to be included in the Annual Report.
The remaining
material on recommended amendments to the Act submitted with the memorandum from the Legal Division was approved for inclusion in the Annual
Report.
Discussion then turned to the draft letter to the Chairmen of
the Senate and House Banking and Currency Committees that would urge
legislative action on certain Bank Holding Company Act amendments.
Question was raised whether the sending of such a letter would be advisable, since action at this session seemed unlikely and repeated letters
might be viewed as routine.
However, it was agreed that it would be
de i able to send the letters as an indication of the Board's continued
concern.
337
2/3/64
-9Secretary's Note: Copies of letters sent to
Chairman Robertson and Chairman Patman of the
Banking and Currency Committees under date of
February 71 1964, are attached as Items 3 and
4.
Mr. Holland then withdrew from the meeting.
Loans to executive officers of foreign branches (Items 5 and
6).
At the Board meeting on January 29, 1964, consideration was given to a
Proposed interpretation of section 22(g) of the Federal Reserve Act that
would take the position that foreign branches of State member banks may
make loans to their executive officers to the same extent permissible
for foreign branches of national banks under section 213.4(f) of
Regulation M, Foreign Branches of National Banks.
It was agreed in
discussion that the basis for taking this position should be shifted
from emphasis on section 22(g), as was suggested by the proposed interpretation, to section
9
of the Federal Reserve Act.
It was then under-
stood that the proposed interpretation would be revised in the light
of the discussion and would be brought back to the Board for further
consideration.
Pursuant to this understanding, there now had been distributed
a memorandum dated January 30, 1964, from the Legal Division attached
to which was a revised draft.
Following discussion at today's meeting, the interpretation was
aPproved unanimously, with the understanding that it would be published
in the Federal Register 'Ind the Federal Reserve Bulletin.
the interpretation, as approved, is attached as Item No.
A copy of
5.
A letter
4-0‘3."
2/3/64
-10-
to the Federal Reserve Bank of New York transmitting a copy of the
interpretation and requesting that it be forwarded to the five State
member banks in the Second District having branches abroad was also
approved unanimously, subject to the incorporation of a minor editorial
change.
A copy of that letter is attached as Item No. 6.
Messrs. You/IL; and Poundstone then withdrew from the meeting.
Definition of savings deposit (Item No. 7).
There had been
distributed a memorandum from the Legal Division dvted January 29, 1964,
With respect to a letter dated January 27, 1964, from the Federal Reserve
Bank of New York commenting on a recommendation made in October 1963 by
the New Jersey Bankers Association that the regulations of the Board
and the Federal Deposit Insurance Corporation be amended to permit any
person or organization, including business corporations, to maintain
savings deposits with insured banks up to $50,000.
The Reserve Bank's
letter indicated that it favored this recommendation, but with an amount
limitation of $25,000.
The memorandum went on to note that in the fall of 1963 the
Federal Deposit Insurance Corporation had suggested a series of conferences between members of the staffs of the three Federal bank supervisory
agencies to consider possible changes in the definition of savings
deposits in the light of the recommendation of the New Jersey Bankers
Association.
Such conferences had since become academic in view of the
Comptroller of the Currency's unilateral interpretation that national
banks were not precluded from accepting corporate savings accounts.
2/3/64
-11-
The Legal Division's memorandum stated that it was assumed that these
developments would not preclude the Board from giving further consideration to this matter, as well as other changes that might simplify
Regulation Q and make it more effective.
It was therefore recommended
that the Reserve Bank's letter be acknowledged with an indication that
the Board expected to give the matter consideration in the near future.
A draft of letter was attached to the memorandum.
At the Board's invitation Mr. Hackley commented, basing his
remarks on the information presented in the memorandum of January 29.
In discussion, Governor Mills commented that the Board had
received reactions to the Comptroller of the Currency's interpretation
that expressed vehement distaste for any revision of this sort in the
definition of savings deposits.
He shared this view.
In his opinion,
the Board's original concern that a move in this direction would invite
corporations to have the advantages of interest-bearing deposits on a
demand basis
Was
as sound as when the position was first taken.
A
reversal of Board position in the near future to permit such deposits
by business corporations would, of course, be regarded in financial
circles as complete surrender to the Comptroller's reasoning.
This
was neither here nor there, but it did seem to him that the current
recommendation had come from en area that was not typical of the United
States as a whole.
The proposal came out of the States of New Jersey
and New York, and this was a factor that he thought would have to be
given careful consideration in further study of the matter.
He also
340
2/3/64
-12-
felt that if there was any inclination to move in the direction of
revising Regulation Q (Payment of Interest on Deposits) in this respect,
there should be prior consultation with the Superintendent of Banks of
New York State as a matter of courtesy.
Mr. Hackley stated that he hoped the Board would consider a
change in the definition of savings deposits only in connection with a
general study of other possible amendments to Regulation Q.
Otherwise,
it might look as if the Comptroller of the Currency had forced the Board
into taking this particular action.
In any event, if the Board decided
to amend Regulation Q, the proposed amendment would be published in the
Federal Register for comment, and at that time interested parties would
have an opportunity to comment.
Also, before any proposed amendment
was published, there would be consultation with the Federal Deposit
Insurance Corporation, and the views of the Reserve Banks presumably
would be requested.
In further discussion, focusing primarily on the wording of the
proposed letter to the New York Reserve Bank, certain changes in the
draft were agreed upon with a view to making the language somewhat less
precise.
The letter was then approved unanimously in the form attached
as Item No.
7.
All members of the staff except Messrs. Sherman, Kenyon, and
Spencer then withdrew from the meeting.
Director appointment.
After discussion, it was agreed to
ascertain through the Chairman of the Federal Reserve Bank of Atlanta
I 41
-13-
2/3/64
whether Mays E. Montgomery, General Manager, Dixie Home Feeds Co.,
Athens, Alabama, would accept appointment, if tendered, as a director
of the Birmingham Branch for the unexpired portion of the term ending
December 31, 1966, with the understanding that the appointment would
be made if it were ascertained that Mr. Montgomery would accept.
Secretary's Note: It having been ascertained that
Mr. Montgomery would accept the appointment if
tendered, an appointment telegram was sent to
him on February 5, 1964.
Foreign travel.
Governor Shepardson referred to a letter from
the Bank for International Settlements, Basle, Switzerland, inviting
the Federal Reserve System to send representatives to a meeting of
central bank economists to be held at the Bank on March
7-9, 1964.
Attendance at the meeting by Mr. Noyes, Adviser to the Board,
waz approved unanimously, along with the necessary travel.
It was
understood that the representation from the System would also include
George Garvy, Economic Adviser, Federal Reserve Bank of New York.
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
appointment of the following persons to the
Board's staff, with basic annual salaries at
the rates indicated, effective the respective
dates of entrance upon duty:
Janet P. Flow as Records Clerk, Office of the Secretary, with
salary at the rate of $4,215 per annum.
Cornelia J. Notheral as Economist, Division of Research and
Statistics, with salary at the rate of $4,205 per annum
(half-time basis).
/*\.) ,
Secret4ry
(
342
BOARD OF GOVERNORS
Item No. 1
2/3/64
OF THE
FEDERAL RESERVE SYSTEM
:0
WASHINGTON, D. C. 20551
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
February 3, 1964
Mr. Thomas M. Timlen, Jr., Secretary,
Federal Reserve Bank of New York,
New York, New York 10045.
Dear Mr. Timlen:
Reference is made to your letter of January 15,
advising that John F. Pierce, Chief Examiner, Bank Examinations Department, has been requested by the Minister of
Finance of Trinidad to serve as Governor of the central
bank of Trinidad for a period of approximately two years
beginning in mid-February.
The Board of Governors agrees that Mr. Pierce's
service as Governor of the central bank of Trinidad is for
a purpose covered by Section 5A of the Rules and Regulations
of the Retirement System, the Resolutions adopted and approved under such Section, and letter S-1802 of August 4,
1961.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
343
Item No. 2
2/3/64
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 3, 1964.
Western Bancorporation International Bank,
61 Broadway,
New York, New York 10015.
Gentlemen:
Reference is made to your letter of January 9, 1964,
transmitted through the Federal Reserve Bank of New York, requesting specific consent, pursuant to Section 211.8(b) of Regulation K, for permission to purchase and hold up to 5 per cent of
the aggregate ordinary shares outstanding of The Industrial
Finance Corporation of Thailand ("IFCT"), Bangkok, Thailand, at
a cost not to exceed US$70,000.
It is noted from your letter that your Corporation
believes that an ownership interest in IFCT will "bring increased
Opportunities of financing the international trade of private businesses in Thailand through the relationship WBIB will then have.
with the economic activities in Thailand and because the larger
capitalization of IFTC will better enable it to stimulate industrial growth in Thailand, which, in turn, should bring about a
larger volume of international trade." It is further noted that
it is "expected that the expansion of private industrial enterpris
e
in Thailand will enlarge United States trade with that
country. . ."
Accordingly, it would appear that the proposed investment in shares
of IFCT could be made under the general consent provision
s of
Section 211.8(a)(3) and that specific consent of the Board is not
required.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
344
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
3
2/3/64
WASHINGTON
OFFICE OF THE CHAIRMAN
February 71 1964
The Honorable A. Willis Robertson, Chairman,
Committee on Banking and Currency,
United States Senate,
Washington, D. C. 20510
Dear Mr. Chairman:
Experience in the administration of the Bank Holding Company
Act of 1956 has convinced the Board of Governors that the public
interest would be promoted by amendment of that Act in a number of
respects. Some ofithe needed changes would make the statute more
stringent and others would relax some of its provisions. In addition,
certain amendments seem warranted in order to clarify the statute
and to eliminate ambiguities.
In its Report to the Congress dated May 7, 1958 (also
Published in the Federal Reserve Bulletin of July 1958, beginning at
page 776), the Board enumerated 25 matters as to which specific
amendments of the Act and related legislation were recommended. Five
Years' additional experience in administering the statute has con.
firmed the Board's belief that it would be improved, and the public
interest promoted, by the enactment of all of those amendments, with
the exception of one that has become unnecessary because of the enactment of other legislation in 1960.
However, the recommendations contained in the 1958 Report
vary in importance. Some would only delete unnecessary provisions,
or make the meaning of the statute clearer in some respects, or deal
With matters that, although substantive, actually have not given
rise to serious problems. Others, however, relate to (1) significant
shortcomings of the Act that result in a failure fully to achieve the
underlying legislative objectives or (2) requirements that impose
unnecessary administrative burdens or unwarranted restrictions upon
legitimate operations of the American banking system.
With the exception noted above, the Board continues to
recommend enactment of the draft bill (Exhibit A to the 1958 Report)
that incorporates all of the recommendations for changes included
in that Report. It is recognized, however, that a less inclusive
bill may have a greater likelihood of enactment. For this reason,
the Board is submitting to your Committee, and to the House Committee
345
The Honorable A. Willis Robertson
-2-
on Banking and Currency, the enclosed draft bill relating only to
relatively important matters, with the recommendation that such a
bill be introduced and enacted as promptly as the legislative situation will permit.
The draft bill consists of six sections. The first four
Would broaden the definition of "bank holding company" and would
eliminate certain unwarranted exclusions from that definition and
from the definition of "company". The remaining two sections would
repeal prohibitions of specified types of transactions by banks in
holding company systems and would repeal provisions of the Banking
Acts of 1933 and 1935 with respect to "holding company affiliates".
The principal changes that would be effected by each
section of the bill are briefly described in the following paragraphs.
More complete explanations were included in the Board's 1958 Report,
referred to above.
Section 1. The definition of "bank holding company" in
section 2(a) of the Act covers only situations involving two or more
banks. In the Board's judgment, this definition is not adequate to
control the potential evils at which the Act was aimed, in that it
fails to cover one-bank situations. Accordingly, the Board recommends
that references in section 2(a) to "two or more banks" be replaced by
any bank", so that a corporation would become a bank holding company
by acquiring 25 per cent or more of the stock of any bank. 1958 Report,
item 1.
The controls prescribed by the Act ordinarily do not reach
situations in which employee-benefit trusts control banks through
stock ownership. Through this device a bank (or other corporation)
might create the equivalent of a holding company system, free from the
scrutiny and controls prescribed by the Act, by having its employees'
Pension trust or profit-sharing trust purchase the stock of other
banks. The draft bill would bring such arrangements within the scope
Of the Act. 1958 Report, item 3.
Section 2. The Act provides an exemption from the definition
of "bank holding company", and therefore from the restrictions and
requirements of the Act, that is based on registration of a company
under the Investment Company Act of 1940. In the Board's judgment,
this exemption lacks a logical basis and should be repealed in order
to eliminate an unwarranted exclusion of a particular organization from
the limitations and restrictions applicable to bank holding companies
generally. 1958 Report, item 7.
346
Honorable A. Willis Robertson
-3-
Section 3. By specific exemption, the Act does not apply
to a bank holding company "if at least 80 per centum of its total
assets are composed of holdings in the field of agriculture". Like
the registered-investment-company exemption, this exemption lacks any
logical basis and should be repealed. 1958 Report, item 8.
Section 4. The Act does not apply to holding companies
that are "operated exclusively for religious, charitable, or educational purposes". However, the principal dangers aimed at by the
Act (unregulated expansion of holding company ownership of banks;
ownership of banking and nonbanking interests by the same organization) are not obviated by the fact that a holding company is operated
for religious, charitable, or educational purposes. Accordingly,
this exemption should be repealed. 1958 Report, item 9.
Section 5. Section 6 of the Act prohibits intrasystem
investments and extensions of credit by banks in holding company
Systems. This prohibition has impeded certain kinds of legitimate
banking transactions, and in the Board's judgment it is unduly
restrictive and would be unnecessary if other provisions of Federal
banking law were appropriately amended, as provided in the draft bill.
1958 Report, item 23.
Section 6. The Banking Act of 1933 contained provisions
With respect to "holding company affiliates", which term is defined
to include companies owning more than 50 per cent of the stock of one
or more member banks. On the basis of experience in the administration of the Bank Holding Company Act, the Board has concluded that
these provisions of the Banking Act of 1933 are no longer sufficiently
useful to justify their retention. Their elimination would remove
the confusion that results from the existence of two sets of laws that
relate to the same general subject but are based on different definitions of what constitutes a holding company. 1958 Report, item 25.
Sincerely yours,
(Signed) Wm. MCC. Martin, Jr.
Wm. McC. Martin, Jr.
Enclosure
347
A
BILL
To amend the Bank Holding Company Act of 1956,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SEC. 1. (a) The first sentence of subsection (a) of section 2 of
the Bank Holding Company Act of 1956 (70 Stat. 133; 12 U.S.C. 1841) is
amended, by striking the words "each of two or more banks" wherever they
occur and substituting therefor the words "any bane, by striking the
word "a" after the word "or", by inserting the words. "or controlled
directly or indirectly" after the word "held" in clause (3), and by
adding a new clause
(4), so that said sentence will read as follows:
"Bank holding company' means any company (1) which directly
or indirectly owns, controls, or holds with power to vote
25 per centum or more of the voting shares of any bank or of a
company which is or becomes a bank holding company by virtue of
this Act, or (2) which controls in any manner the election of a
majority of the directors of any bank, or (3) for the benefit of
whose shareholders or members 25 per centum or more of the voting
Shares of any bank or bank holding company is held or controlled
directly or indirectly by trustees, or (4) for the benefit of
whose employees (whether exclusively or not) 25 per centum or more
of the voting shares of any bank or bank holding company is held
348
-2-
or controlled directly or indirectly by trustees under an employeebenefit plan; and for the purposes of this Act, any successor to any
such company shall be deemed to be a bank holding company from the
date as of which such predecessor company became a bank holding
company."
(b) Clause (1) of the first sentence of subsection (a) of
section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842) is
amended by inserting the words "bank becoming a bank holding company, or
any other" after the words "in a" ard. by striking the words "under
section 2(a) of this Act" and substituti,pg, therefor the words "with
respect to more than one subsidiary bankn o so that said sentence will
read as follows:
"It shall be unlawful except with the prior approval of the
Board (1) for any action to be taken which results in a bank
becoming a bank holding company, or any other company becoming
a bank holding company with respect to more than one subsidiary
bank; (2) for any bank holding company to acquire direct or
Indirect ownership or control of any voting shares of any bank
if, after such acquisition, such company will directly or
indirectly own or control more than 5 per centum of the voting
shares of such bank; (3) for any bank holding company or subsidiary thereof, other than a bank, to acquire all or substantially
all of the assets of a bank; or (4) for any bank holding company
to merge or consolidate with any other bank holding company."
349
-3(c) Subsection (d) of section 2 of the Act is amended by
changing the period at the end thereof to a semicolon and adding thereafter the following language: "or (4) any bank 25 per centum or more of
whose voting shars
are held or controlled directly or indirectly by
trustees under an employee-benefit plan for the benefit of the employees
(whether exclusively or not) of such bank holding company."
SEC. 2.
The second sentence of subsection (a) of section 2 of the
Act is amended by striking the words "(B) no company shall be a bank
holding company which is registered under the Investment Company Act of
1940, and was so registered prior to May 15, 1955 (or which is affiliated
With any such company in such manner as to constitute an affiliated
company within the meaning of such Act), unless such company (or such
affiliated company), as the case may be, directly owns 25 per centum or
more of the voting shares of each of two or more banks,".
SEC.
3, (a) The second sentence of subsection (a) of section 2 of
the Act is amended by striking the words ", and (E) no company shall be
a bank holding company if at least
80 per centum of its total assets are
composed of holdings in the field of agriculture".
(b) Subsection (g) of section 2 of the Act is repealed.
SEC.
4. Subsection (b) of section 2 of the Act is amended by striking
the words "or (2) any corporation or community cheat, fund) or foundation,
organized and operated exclusively for religious, charitable, or educational purposes, no part of the net earnings of which inures to the benefit
350
of any private shareholder or individual, and no substantial part of the
activities of which is carrying on propaganda, or otherwise attempting
to influence legislation,".
SEC.
5. (a) Section 6 of the Bank Holding Company Act of 1956 is
hereby repealed.
(b) Section 23A of the Federal Reserve Act, as amended
(12 U.S.C. 371c), is amended by adding at the end thereof the following
new paragraphs:
"For the purposes of this sectioft, (1) the terms 'extension
of credit' and 'extensions of credit' shall be deemed to include
(A) any purchase of securities, other assets or obligations under
repurchase agreement, and (B) the discount of promissory notes,
bills of exchange, c.enditional sales contracts, or similar paper,
whether with or without recourse, except that the acquisition of
such paper by a member bank from another bank, without recourse,
shall not be deemed to be a 'discount' by such member bank for such
other bank; and (2) nonintarestebearing deposits to.the,credit of
a bank shall not be deemed to be a loan or advance or extension of
credit to the bank of deposit, nor shall the giving of immediate
credit to a bank upen uncollected items received in the ordinary
course of business ba deemed to be a loan or extension of credit to
the depositing bank.
"For the purposes of this section, the term 'affiliate' shall
include, with respect to any member bank, any bank holding company
t‘1
5$51
of which such member bank is a subsidiary within the meaning of
the Bank Holding Company Act of 1956, as amended, and any other
subsidiary of such company.
"The provisions of this section shall not apply to (1) stock,
bonds, debentures or other obligations of any company of the
kinds described in section 4(c)(1) of the Bank Holding Company
Act of 1956, as amended; (2) stock, bonds, debentures or other
Obligations accepted as security for debts previously contracted,
Provided that such collateral shall not be held for a period of
over two years; or (3) shares which are of the kinds and amounts
eligible for investment by national banks under the provisions
of section 5136 of the Revised Statutes."
(c) Section 18 of the Federal Deposit Insurance Act, as
amended (12 U.S.C. 1828), is further amended by adding at the end thereof
the following new subsection:
"(i) The provisions of section 23A of the Federal Reserve Act,
as amended, relating to loans and other dealings between member
banks and their affiliates, shall be applicable to every nonmember insured bank in the same manner and to the same extent as
if such nonmember insured bank were a member bank; and for this
Purpose any company which would be an affiliate of a nonmember
insured bank, within the meaning of section 2 of the Banking Act
of 1933, as amended, and for the purposes of section 23A of the
352
Federal Reserve Act, if such bank were a member bank shall be
deemed to be an affiliate of such nonmember insured bank."
SEC.
6. (a)
Subsection (b) of section 2 of the Banking Act of 1933,
as amended (12 U.S.C. 221a), is further amended by adding at the end
thereof a new paragraph to read as follows:
"(4) Which
owns or controls, directly or indirectly, either
a majority of the shares of capital stock of a member bank or
more than 50 per eentum of the number of shares voted for the
election of directors of a member bank at the preceding election, or controls in any manner the election of a majority of
the directors of a member bank, or for the benefit of whose
shareholders or members all or substantially all the capital
stock of a member bank is held by trustees."
(b) Subsection (c) of section 2 of the Banking Act of
1933,
as amended (12 U.S.C. 221a), is repealed.
(c) Section 5144 of the Revised Statutes, as amended
(12 U.S.C. 61), is amended to read as follows:
"SEC. 5144.
In all elections of directors, each shareholder
shall have the right to vote the number of shares owned by him
for as many persons as there are directors to be elected, or to
cumulate such shares and give one candidate as many votes as the
number of directors multiplied by the number of his shares shall
equal, or to distribute them on the same principle among as many
,
..7
candidates as he shall think fit; and in deciding all other
questions at meetings of shareholders, each shareholder shall be
entitled to one vote on each share of stock held by him; except
that (1) this shall not be construed as limiting the voting
rights of holders of preferred stock under the terms and provisions
of articles of association, or amendments thereto, adopted pursuant
to the provisions of section 302(a) of the Emergency Banking and
Bank Conservation Act, approved March
9, 1933, as amended; (2) in
the election of directors, shares of its own stock held by a
national bank as sole trustee
whether registered in its own name
as such trustee or in the name of its nominee, shall not be voted
by the registered owner unless under the terms of the trust the
manner in which such shares shall be voted may be determined by a
donor or beneficiary of the trust and. unless such donor or beneficiary of the trust and unless such donor or beneficiary actually
directs how such shares shall be voted; and (3) shares of its own
stock held by a national bank and one or more persons as trustees
may be voted by such other person or persons, as trustees, in the
same manner as if he or they were the sole trustee.
Shareholders
may vote by proxies duly authorized in writing; but no officer,
Clerk, teller, or bookkeeper of such bank shall act as proxy; and
no shareholder whose liability is past due and unpaid shall be
allowed to vote.
Whenever shares of stock cannot be voted by reason
of being held by the bank as sole trustee, such shares shall be
CAIC
-8excluded in determining whether matters voted upon by the
shareholders were adopted by the requisite percentage of
shares."
(d) The second paragraph of section 5211 of the Revised
Statutes (12 U.S.C. 161) is amended by striking out the second sentence
of such paragraph.
(e) The last sentence of the sixteenth paragraph of
section 4 of the Federal Reserve Act, as amended (12 U.S.C. 304)0 is
amended by striking out all of the language therein which follows the
colon and by inserting in lieu thereof the following: "Provided, That
whenever any member banks within the same Federal Reserve district are
subsidiaries of the same bank holding company within the meaning of the
Bank Holding Company Act of 19560 participation in any such nomination
or election by such member banks, including such bank holding company
if it is also a member bank, shall be confined to one of such banks,
Which may be designated for the purpose by such holding company."
(f) The nineteenth paragraph of section 9 of the Federal
Reserve Act (12 U.S.C. 334) is amended by striking out the last sentence
(If such paragraph.
(g) The twenty-second paragraph of section 9 of the Federal
Reserve Act (12 U.S.C. 337) is repealed.
(h) The third paragraph of section 23A of the Federal Reserve
Act (12 U.S.C. 371c) is amended by striking out that part of the first
sentence that reads "Fbr the purpose of this section, the term 'affiliate'
Shall include 1lding company affiliates as well as other affiliates,
and"; and by Changing the word "the" following such language to read
time
i) Paragraph (4) of section 3(c) of the Investment
ComPany Act of 1940 (15 U.S.C. 80a-3) is repealed.
(j) Paragraph (11) of section 202(a) of the Investment
Advisers Act of 1940 (15 U.S.C. 80b-2) is ameflded by striking out the
words "or any holding company affiliate, as defined in the Banking Act
f 1933" and substituting therefor the words "or any bank holding
emnany as defined in the Bank Holding Company Act of 1956."
(k) Section 601 of the Internal Revenue Coda of 1954
(26 U.S.C. 601) is hereby repealed.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
4
2/3/64
WASHINGTON
OFFICE OF THE CHAIRMAN
February 71 1964
The Honorable Wright Patman, Chairman,
Committee on Banking and Currency,
U. S. House of Representatives,
Washington, D. C.
20515
Dear Mr. Chairman:
Experience in the administration of the Bank Holding Company
Act of 1956 has convinced the Board of Governors that the public
interest would be promoted by amendment of that Act in a number of
respects. Some of the needed changes would make the statute more
stringent and others would relax some of its provisions. In addition,
certain amendments seem warranted in order to clarify the statute and
to eliminate ambiguities.
In its Report to the Congress dated May 7,1958 (also
Published in the Federal Reserve Bulletin of July 1958, beginning at
page 776), the Board enumerated 25 matters as to which specific
amendments of the Act and related legislation were recommended. Five
Years' additional experience in administering the statute has con.
firmed the Board's belief that it would be improved, and the public
interest promoted, by the enactment of all of those amendments, with
the exception of one that has become unnecessary because of the enactment of other legislation in 1960.
However, the recommendations contained in the 1958 Report
vary in importance: Some would only delete unnecessary provisions,
Or make the meaning of the statute clearer in some respects, or deal
With matters that, although substantive, actually have not given
rise to serious problems. Others, however, relate to (1) significant
shortcomings of the Act that result in a failure fully to achieve the
underlying legislative objectives or (2) requirements that impose
unnecessary administrative burdens or unwarranted restrictions upon
legitimate operations of the American banking system.
With the exception noted above, the Board continues to
recommend enactment of the draft bill (Exhibit A to the 1958 Report)
that incorporates all of the recommendations for changes included in
that Report. It is recognized, however, that a less inclusive bill
may have a greater likelihood of enactment. For this reason, the
Board is submitting to your Committee, and to the Senate Committee on
The Honorable Wright Patman
-2-
Banking and Currency, the enclosed draft bill relating only to
relatively important matters, with the recommendation that such a
bill be introduced and enacted as promptly as the legislative
situation will permit.
The draft bill consists of six sections. The first four
would broaden the definition of "bank holding company" and would
eliminate certain unwarranted exclusions from that definition and
from the definition of "company". The remaining two sections would
repeal prohibitions of specified types of transactions by banks in
holding company systems and would repeal provisions of the Banking
Acts of 1933 and 1935 with respect to "holding company affiliates".
The principal changes that would be effected by each
section of the bill are briefly described in the following paragraphs.
More complete explanations were included in the Board's 1958 Report,
referred to above.
Section 1. The definition of "bank holding company" in
section 2(a) of the Act covers only situations involving two or more
banks. In the Board's judgment, this definition is not adequate to
control the potential evils at which the Act was aimed, in that it
fails to cover one-bank situations. Accordingly, the Board recommends
that references in section 2(a) to "two or more banks" be replaced
by "any bank", so that a corporation would become a bank holding
company by acquiring 25 per cent or more of the stock of any bank.
1958 Report, item 1.
The controls prescribed by the Act ordinarily do not reach
situations in which employee-benefit trusts control banks through.
stock ownership. Through this device a bank (or other corporation)
might create the equivalent of a holding company system, free from the
scrutiny and controls prescribed by the Act, by having its employees'
pension trust or profit-sharing trust purchase the stock of other
banks. The draft bill would bring such arrangements within the scope
of the Act. 1958 Report, item 3.
Section 2. The Act provides an exemption from the definition
of "bank holding company", and therefore from the restrictions and
requirements of the Act, that is based on registration of a company
under the Investment Company Act of 1940. In the Board's judgment,
this exemption lacks a logical basis and should be repealed in order
to eliminate an unwarranted exclusion of a particular organization from
the limitations and restrictions applicable to bank holding companies
generally. 1958 Report, item 7.
The Honorable Wright Patman
-3-
Section 3. By specific exemption, the Act does not apply
to a bank holding company "if at least 80 per centum of its total
assets are composed of holdings in the field of agriculture". Like
the registered-investment-company exemption, this exemption lacks any
logical basis and should be repealed. 1958 Report, item 8.
Section 4. The Act does not apply to holding companies
that are "operated exclusively for religious, charitable, or educational purposes": However, the principal dangers aimed at by the
Act (unregulated expansion of holding company ownership of banks;
ownership of banking and nonbanking interests by the same organization) are not obviated by the fact that a holding company is operated
for religious, charitable, or educational purposes. Accordingly,
this exemption should be repealed. 1958 Report, item 9.
Section 5. Section 6 of the Act prohibits intrasystem
investments and extensions of credit by banks in holding company
systems. This prohibition has impeded certain kinds of legitimate
banking transactions, and in the Board's judgment it is unduly
restrictive and would be unnecessary if other provisions of Federal
banking law were appropriately amended, as provided in the draft bill.
1958 Report, item 23.
Section 6. The Banking Act of 1933 contained provisions
with respect to "holding company affiliates", which term is defined
to include companies owning more than 50 per cent of the stock of one
or more member banks. On the basis of experience in the administration of the Bank Holding Company Act, the Board has concluded that
these provisions of the Banking Act of 1933 are no longer sufficiently
useful to justify their retention. Their elimination would remove
the confusion that results from the existence of two sets of laws that
relate to the same general subject but are based on different definitions of what constitutes a holding company. 1958 Report, item 25.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
Enclosure
BOARD OF GOVERNORS CF TOE FEDERAL RESERVE SYSTEM
Item No.
5
2/3/64
LOANS TO EXECUTIVE OFFICERS OF FOREIGN BRANCHES
OF NATIONAL AND STATE MEMBER BANKS
Section 22(g) of the Federal Reserve Act (12 U.S.C. 375a)
Provides, with certain exceptions, that "no executive officer of any
member bank shall borrow from or otherwise become indebted to any
member bank of which he is an executive officer, and no member bank
shall make any loan
or
extend credit in any other manner to any of its
own executive officers .
• . •" Pursuant to the authority conferred by
the ninth paragraph of section 25 of the Federal Reserve Act (12 U.S.C.
604a), which was added to that section by the Act of August 15, 1962
(P.14. 87-588), the Board of Governors in § 213.4(f) of Regulation 14 has,
subject to certain conditions, authorized foreign branches of national
banks to make home loans of $20,000 or less to their executive officers.
The question has arisen whether foreign branches of State member banks
would violate section 22(g) by extending credit to their executive
officers to the same extent and subject to the same conditions as foreign
branches of national banks.
executive
A separate but related question is whether
officers of foreign branches of national (and State member)
an1ts may borrow from their respective branches as envisaged by
213.4(0.
It is manifest that in enacting section 22(g) Congress intended
that identical rules regarding loans to executive officers should apply
to both
national and State member banks.
Moreover, the legislative
360
-2-
15, 1962)
history of the ninth paragraph of section 25 (Act of August
Clearly establishes that Congress did not intend thereby to confer upon
member banks. This
national banks any special advantages vis-a-vis State
Congressional intent is further evidenced by the provision regarding
establishment of branches in the third paragraph of section 9 of the
ned shall
Federal Reserve Act (12 U.S.C. 321) that "nothing herein contai
branches
Prevent any State member bank from establishing and operating
sion thereof or
in the United States or any dependency or insular posses
and subject to
in any foreign country, on the same terms and conditions
sh.the same limitations and restrictions as are applicable to the establi
11,1 nt of branches by national banks
. ."
Board of
On the basis of the foregoing considerations, the
Governors is of the opinion that foreign branches of State member banks
would not violate section 22(g) by extending credit to their executive
apply to
°fficers subject to the same restrictions and conditions as
The
foreign branches of national banks under § 213.4(f) of Regulation M.
Board also believes that it would not violate section 22(g) for an
executive officer of a foreign branch of a national or State member bank
to borrow from such branch to the same extent to which the branch may
extend him credit.
February 3, 1964.
(
Item No.
BOARD OF GOVERNORS
.• 90i Got,,E!•.
.• es"
6
2/3/64
OF THE
FEDERAL RESERVE SYSTEM
:0
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
February 3) 1964.
Mr. Alfred Hayes, President,
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Hayes:
In a letter dated December 5, 1963, Mr. Howard D. Crosse,
Vice President of your Bank, transmitted to the Board a letter dated
November 13, 1963, from Davis Polk Wardwell Sunderland & Kiendl, counsel
for Morgan Guaranty Trust Company, raising the question, whether foreign
branches of State member banks may make home loans to their executive
Officers to the same extent permissible for foreign branches of national
banks under §213.4(f) of the Board's Regulation M.
Enclosed are copies of an interpretation being issued by the
Board in this regard, which will be published in the Federal Register
and the Federal Reserve Bulletin. It will, be appreciated if you would
advise counsel for Morgan Guaranty of the Boardts views on this matter
and forward copies of the interpretation to the five State member banks
in your district having branches abroad.
Very truly yours,
(iL,ried) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosures
BOARD OF GOVERNORS
,......
•••,00vG01,,•
4,4,•.
••,,O
Akt •
Item No.
7
2/3/64
OF THE
FEDERAL RESERVE SYSTEM
w.
WASHINGTON 25. D. C.
(")
ADDRESS OFFICIAL CORRESPO
NDENCE
TO THE HOARD
•.;RAI_ REO".•
February 3, 1964.
Mr. William F. Treiber,
First Vice President,
Federal Reserve Bank of New York,
New York, New York 10045.
Dear Mr. Treiber:
This is to thank you for your letter of
January 27,
1964, commenting on a letter date
d October 15, 1963, from the
New Jersey Bankers Association
urging amendments to regulations
of the Board and the Federal
Deposit Insurance Corporation that
would in effect permit any person
or organization, including a
business corporation, to maintain a savi
ngs deposit with an
insured bank, subject to an amount
limitation of $50,000. It
is noted that you would favo
r such amendments, although with
an amount limitation of
$25,000.
For some months the Board has had under cons
ideration
a comprehensive revision
of Regulation Q, including possible
changes in the definition of savings
deposits. Your views will,
of course, be carefully cons
idered by the Board in its continuing attention to this matt
er.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER