Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, February 4, 1957, Volume 44, Part 1

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Minutes for

To:

Members of the Board

From:

Office of the Secretary

February 4, 1957

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, if you
were present at the meeting, please initial in colUmn A below to indicate that you approve the minutes.
If you were not present, please initial in column B
below to indicate that you have seen the minutes.

Chm. Martin
Gov. Szymezak

Gov. Vardaman
Gov. Mills

G°v• Robertson
Gov. Balderston

Gov. Shepardson




x

2'

Minutes of actions taken by the Board of Governors of the
Pederea

Reserve System on Monday, February 4, 1957.

The Board met in

the Board
Room at 10:00 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Szymczak
Vardaman
Mills
Robertson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Sherman, Assistant Secretary
Kenyon, Assistant Secretary
Fauver, Assistant Secretary
Thurston, Assistant to the Board
Riefler, Assistant to the Chairman
Thomas, Economic Adviser to the Board
Vest, General Counsel
Young, Director, Division of Research
and Statistics
Sloan, Director, Division of Examinations
Hexter, Assistant General Counsel
Shay, Assistant General Counsel
Goodman, Assistant Director, Division of
Examinations
Molony, Special Assistant to the Board
Brill, Chief, Business Finance and Capital
Markets Section, Division of Research and
Statistics

There had been circulated to the members of the Board a draft of
lett„ to
Mr. Kroner, Vice President of the Federal Reserve Bank of
St.
1401lie) re
Ming as follows:
ettacliZur letter of December 19, 1956, and the various
of
exits that accompanied it related to the question
the
1933 .,_41)p1icabi1ity of section 32 of the Banking Act of
Mr. Dabbs Sullivan, Chairman of the Board of the
suiliof Arkansas, Little Rock, Arkansas, and Dabbs
that nn Company, securities dealers. It is understood
cola
. Sullivan was former17 a partner of the securities
---LaY that bears
his name but that proprietary and




2/4/57

2-

managerial control of the firm was assumed by Mr. Sullivan's
son and a college acquaintance of the son at or about the
time the Bank of Arkansas was admitted to membership in JanilarY 1956.
The Board has reviewed the information you have presented and concurs in your view that, on the basis of this
information, section 32 is not applicable. It is assumed,
Of course, that the matter will be carefully watched in fa-tare examinations of the bank.
Approved unanimously.
Mr. Shay then withdrew from the meeting.
Reference was made to a draft of proposed letter to Bank of
Ate
Ilea) New York, New York, which would constitute a response to the
'
4 5

letter of August 220 1956, regarding the report of examination

nulde
Of December

30,

1955, by examiners for the Board of Governors.

111e araP
'ting of the reply had been delayed because of the consideration
bej
g'ven by the Board to the revision of Regulation K, Corporations
11°148 P r
°- eign Banking or Other Foreign Financing Under the Federal Reserve
Att.
When the file was in circulation to the members of the Board,
Q°11ern°11 Balderston
raised a question whether any letter was necessary.
1.171ting °Ut that the comments in the proposed letter were based on an
eltaraitation made
over a year ago and that another examination had been
ecIMMenced as
of December 11, 1956, he asked whether it would not be better
to
4

dige°11tinUe

discussion of the situation on the basis of the old exam-

take up with Bank of America any matters disclosed by the
3c1411ination which required consideration.

He indicated that he would

11°t
to

'eet, however, if it was considered necessary to write the letter
the record.




,";'.•4'14
;

2/4/57
At the request of the Board, Mr. Goodman reviewed the matters
%thich 'would

be covered in the proposed letter and stated reasons for

aleting one
paragraph from the draft if the Board decided to send a
letter
•

He pointed out that the current examination had not yet been

cleted and that some time might elapse before the report of exam111"ion could 1

prepared and analyzed.

In response to a question, how-

'. Goodman said he did not consider it essential that the letter
be t• ransmitted and that the principal purpose would be to complete the

Following a discussion,
during which concurrence was expressed with the point of view
taken by Gcvernor Balderston, it
was agreed unanimously not to send
the proposed letter to Bank of
America, with the understanding
that every effort would be made to
expedite the preparation and analysis of the report covering the
current examination of the Bank.
With a memorandum from Mr. Hexter dated January 31, 1957, there
-een sPnt to the members of the Board copies of a draft of letter to
the
11°11se Committee on the Judiciary, prepared in response to the Com'
request for the Board's views on H.R. 264 and H.R. 2143.
the•

se bills would extend section

Both

7 of the Clayton Act to cover acqui-

qti°118 °f tank assets as well as bank stock and would require, with

bC

eXce,ptions, that proposed acquisitions of such stock or assets

t• he subiect of prior notification to the Attorney General and the




2/4/57

-4-

130a.rd of
Governors.

The proposed reply would maintain the position of

leent statements by the Board on the subject, including the position
taken bi
J Chairman Martin in testimony before the House Judiciary Comrilittee

in May 1956 and by Governor Balderston in testimony before the

Senate Banking
and Currency Committee in June 1956.
Following a discussion of
the draft of letter, during which
certain changes were suggested by
Governors Mills and Robertson in
the interest of clarification of
the Board's position, unanimous
approval was given to a letter for
the signature of Chairman Martin
to The Honorable Emanuel Celler,
Chairman, House Committee on the
Judiciary, in the following form,
with the understanding that a copy
would be sent to the Bureau of the
Budget:
January 22, 1957,
renu-This is in response to your letters of
(
sting the views of the Board of Governors on two bills
• 264 and H.R. 2143) to amend sections 7 and 15 of the
aYton Act. The Federal Reserve is directly concerned with
t
,
"eae bills only to the extent that they apply to banks.
4
Under the present provisions of section 7, a corporation
;8 Prohibited from acquiring the stock of one or more corpos i°ns engaged in commerce where the effect of such acquic)n may be substantially to lessen competition or to tend
of create a monopoly.
As amended by the Celler-Kefauver Act
to 1?50, section 7 contains a similar prohibition with respect
acquisition of assets, but that provision is not applim
e to banks. One purpose of H.R. 264 and H.R. 2143 is to
(._e section 7 applicable to acquisitions of bank assets
'.„:11ether through merger, consolidation, or purchase) as well
:
0 to a
cquisitions of bank stock. In addition, these bills
Etell
require that where the combined capital accounts of "the
noTillring and the acquired corporations" exceed *10 million,
-ce of a proposed acquisition of bank stock or assets would




2A/57
have to be given to the Attorney General and to the Board
of Governors, either 60 days (H.R. 2143) or 90 days (H.R.
264) before acquisition is to take effect.
The Board of Governors is in favor of the basic objective of these bills, which is to achieve more effective
prevention of acquisitions of bank stock and bank assets
that would result in undesirable lessening of competition.
However, the Board questions whether the approach embodied
in these bills constitutes the most desirable method of
achieving that objective.
Apart from the Clayton Act, the Board has other functions under present law that involve consideration of the
competitive aspects of banking and possible tendencies
t°ward monopoly in the banking field. Under the Bank Holding Company Act of 1956, every bank holding company that
13r(dPo8es to acquire additional banks must first obtain the
13
°ardts consent, and in determining whether to give its
?°118ent the Board is required to consider certain factors,
.
Including the effect of the proposed acquisition upon the
Preservation of competition in the field of banking. In
Y cases involving bank stock acquisitions, enactment of
c'e notification provisions of H.R. 264 or H.R. 2143 would
"a single proposed acquisition to be submitted to the
Ball
a°ard of Governors under both section 7 of the Clayton Act
section 3 of the Bank Holding Company Act, which would
'eem to involve unnecessary and burdensome duplication.

Tn

Other provisions of existing law that vest limited
1,1.1ilth°ritY in this general field in the Federal bank superD-8°rY agencies are those of section 18(c) of the Federal
e13(3sit Insurance Act and sections 33, 34a and 34h of Title
,
1,
c of the United States Code. Under section 18(c) the
Governors, and
trPtroller of the Currency, the Board of
tie Federal Deposit Insurance Corporation. n their respecve areas of authority, are required to pass in advance
,
11 ,
some bank absorptions, but only in cases in which the
't7Pital stock or surplus of the resulting bank will be less
r:an the aggregate capital stock or aggregate surplus,
Ite8Pectively, of the banks involved. Section 18(c) also
()lists -n
4
the Federal Deposit Insurance Corporation authority
4,17' mergers, consplidations, or assumptions of liabilities
senV4-ving an insured bank and a noninsured bank. Under
--"'°n6 33, 34a, and 34b of Title 12 of the United States




27
,
2/4/57

-6-

Code, the approval of the Comptroller of the Currency is required with respect to all mergers and consolidations of
national banks or of a State bank and a national bank under
a national bank charter. However, a relatively large proportion of bank absorptions are not covered by these statutes) and consequently the Federal supervisory agencies have
no direct authority in those cases.
As mentioned above, H.R. 264 and H.R. 2143, in addition
tO bringing bank mergers and other asset acquisitions within
Purview of section 7 of the Clayton Act, would require
giving of advance notice (es distinguished from approval)
the Board of Governors and the Attorney General either
(3 Or 90 days prior to consummation of a corporation's acquition of bank stock or bank assets, with specified exceptions.
tthout expressing any view on the advisability of such notication procedure in the case of other corporations, it is
L4'. opinion of the Board that, in the case of banks, advance
,ot
would not be as desirable or as effective es a requireent of advance approval in all cases where a national bank,
mber State bank, or nonmember insured bank absorbs another
.ank, whether by merger, consolidation, or purchase. As
icated in the preceding paragraph, important categories of
p,
11c amalgamations are already subject to a requirement of
,
-c'eral supervisory approval, and the pending legislative
f?Posal that the Board favors, as brought out hereinafter,
'4tends the approval requirement to bank amalgamations generally.

j

r
r

Advance approval would not only provide the requisite
Proteetion of the public interest but would give banks coni:mPlating a merger greater assurance that Lt would not be
Xonsistent with the law. There are obvious difficulties in
11 e1Pting to unscramble the assets and liabilities of constit:
i'nt banks after a merger has occurred, and this is particutrue after considerable time has elapsed. Such diffiHtVies might develop under the advance-notice provisions of
/11 _7 264 and H.R. 2143; they would not exist under an arrange,,'11-L that required all proposed bank absorptions to be passed
,APon in
advance.
As Previously noted, under the present provisions of the
yt Yton Act the Board has authority to enforce that statute
byere applicable to banks. That authority, however, is limited
'
l eason of the statute's present applicability only to




2/4/57

-7-

acquisitions of bank stocks. Under the pending bills the
Board's responsibilities would be extended to all types of
bank merger3; whether carried out under Federal or State
statutes. This would mean that, if either bill was enacted,
Board would be called upon to consider the competitive
°r monopolistic aspects of every bank merger, even though
t had previously been approved by one of the other Federal
Dank supervisory agencies or by the appropriate State authority.
As you are aware, the Senate Committee on Banking and
'
1.111rrencY has under consideration a Committee Print (dated
arluarY 7, 1957) of a bill (the proposed "Financial Insti:
"Itions Act of 1957") to amend and revise the statutes
governing financial institutions and credit. Section 2" of
Title III of that bill, which would supersede section 18(c)
r the present Federal Deposit Insurance Act, would require
he Prior consent of the appropriate Federal supervisory
aathority in
the case of every bank merger, consolidation,
c) acquisition of assets in which the resulting or contin1_1111g bank would be a national bank, a State member bank,
'
1* a nonmember insured bank. Consequently, the only banks
1_1(3t included would be those that are neither Federal Reserve
deposit insurance, and such
athers nor covered by Federal
,
atIlks presently hold only one per cent of the commercial
uank deposits of the country.

Z

Z

In each case section 23 would require the appropriate
aiPervisory agency to consider not only the financial coni:ti°11 of the bank, the adequacy of its capital, the characa;
-1. of its management, and the needs of the community, but
specifically whether the proposed merger might tend
pr4111Y to lessen competition or create a monopoly. The apagency would be required to seek the views of the
otriate
er two Federal banking agencies as to the impact of the
thrger upon competition or monopoly. Moreover, in each case
the. aPPropriate agency would be authorized to request, on
ls Point, the opinion of the Attorney General.
44
,
.Lon,Section 23 of Title III of the proposed Financial Institublai
'
fltet of 1957 would be identical, in this respect, with a
of thke%o
tNnthat passed the Senate during the Second Session
gress.
A

.




2/4/57

-8

Oection 7 cf the Clayton Act, both in its present form
and as it would be amended under the pending bills, prescribes
as its test whether the effect of an acquisition "may ba substantially to lessen competition, or to tend to create a
m°nopoly." In contrast, the proposed new section 23 of the
!ederal Depc sit Insurance Act would require and enable the
Federal supervisory agencies, in passing upon bank mergers,
to base their decisions upon all aspects of the public inter!?t, including not only the usual banking considerations but
"le effect of the merger upon competition.
Banking, more than any other type of business, directly
ects credit rondi_tions and the basic economy of the country.
f a nonbanking business becomes insolvent, its stockholders
and
creditors suffer. If a bark fails, however, the effect
6 felt not only by its stockholders and creditors but also by
I"irlts.depositors, and by businesses and individuals in the com4 111t:' that must have banking facilities in order to carry on
cir activities. For these reasons, banks are governed by
tiptcial statutes and are carefully regulated, examined, and
uPervised
by governmental authorities.

r

ti
While the effect of any significant lessening of competii 011 in the banking field must, of course, be considered, it
m8 also essential in the public interest, in the case of bank
i ergers, to look to the soundness of the particular banks
'flvolved and the adequacy of banking facilities in the community
1.7 cl area. In cases where lessening of competition is not outighed by other factors, the public interest requires that the
ekoallsaction not be approved or carried out. Each case, of
fallr", must be considered in the light of its own particular
eta) with public interest the basic criterion.

j

The Board believes, therefore, that in the field of bankt
e test should be whether a merger would result in undue
lee
n
of competition, taking into consideration the aboveioned "banking factors."
pecif,. For the reasons enumerated, it is believed that general
aell;r111 control of bank mergers would be more beneficially
Or ;Ted by a requirement of advance approval than by expansion
the -t scoPe of section 7 of the Clayton Act, and accordingly
Of -uuard recommends enactment of legislation along the lines
:
c
..ption 23 of Title III of the proposed Financial Institutions
A tS
'1957. However, if your Committee and the Congress concito'Ls adversely to this recommendation and decide instead that




282
2/4/57

—9—

section 7 of the Clayton Act should be amended as contemplated by H.R. 264 or H.R. 2143, the Board of Governors
recommends consideration of the advisability of a transfer
Of enforcement responsibility thereunder with respect
to
!
enks. The principal functions of the Federal Reserve
:_aYstem lie in the field of monetary and credit policy and
"tak supervision. The prosecuting and adjudicatory functions involved in the enforcement of the antitrust laws are
2_11Y indirectly related to the Board's major responsibilities.
leY are of a character quite different from the functions
normally exercised by the Board in passing upon particular
transactions in the bank supervisory field. In short,
enforcement of the antitrust laws and the function of bank
supervision represent different spheres of governmental
o
peration. For these reasons, the Board believes that
enforcement of the Clayton Act with respect to acquisitions
c)
,
f bank stock and bank assets is a responsibility that
snould not be vested in the Board.
With reference to the current proceeding in the matter of The
C141tInental Bank and Trust Company, Salt Lake City, Utah, Mr. Hexter
Dresented for
the Board's consideration a joint motion for continuance
riled by
w -pecial
Counsel to the Board and Counsel for the member bank
askta
g that
the hearing in the proceeding be continued from the time and
(late to
/thich now recessed (10:00 a.m., February 4, 1957) to 10:00 a.m.,

Marcia 4
'1957) in
thereat
ter

Room 2019 of the Federal Reserve Building, or as soon

as Might

suit the convenience of the hearing examiner and the

Pkrtie
°I

on the following grounds:

41b
1. Counsel
for the Continental Bank and Trust Company
'
5
pet,led with the Supreme Court of the United States a
of ttion for Writ of Certiorari to the
United Stated Court
4__'13Pea18 for the Tenth Circuit in the case of The ContiTrust Company of Salt Lake City, Utah, v.
17 J. Woodali. Special counsel to the Board of Governors,
coll
aboration with the Solicitor General of the United




283
2/4/57
-10States, are in process of preparing a brief in opposition
to this Petition for Certiorari,
and it is not expected
that the Supreme Court of the United States will enter its
order with respect to this Petition for Certiorari before
Pebruary
25, 1957, at the earliest.
2. Emery J. Woodall, the Examiner appointed by the
United States Civil Service Commission, with the approval
Of the
Board of Governors, to preside at the taking of the
evidence
in this Membership Proceeding, entered Doctors
licnTital in Washington, D. C., on January 30, 1957, for,
!Nor surgery, and his physicians advise that it will be
P4trch 1st at the earliest before Mr. Woodall will be able
to
resume his full duties.
Following comments by
Mr. Hexter and a brief discussion of the situation, unanimous approval was given to an
Order as follows, with the understanding that copies would be
sent to Special Counsel for the
Board and Counsel for The Continental Bank and Trust Company:

UNITED STATES OF AMERICA
BEPORR mtyr.
J-Lim. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
14 the
Matter of
TRE CO
NTINENTAL BANK AND
e,
TRUST COMPANY
oalt Lake
City, Utah

)

MEMBERSHIP PROCEEDING

ORDER GRANTING JOINT MOTION FOR CONTINUANCE

11Pon consideration of the Joint Motion for Continuance
tiled
coun herein by Special Counsel to the Board of Governors and
ael for The Continental Bank and Trust Company, Salt Lake




284
2/4/57

-11-

City, Utah, it is, by the Board of Governors this 4th
day of
February, 1957,
ORDERED, That the hearing of this proceeding be, and
he same hereby is, continued until the 4th day of March,
1957, at 10:00 A.M., in Room 2019 of the Federal Reserve
Building, Washington, D. C.
By Order of the Board of Governors
(Seal)

(Signed) Merritt Sherman_
Merritt Sherman, Assistant Secretary

Washington,
D. C.
F
ebruary 4, 1957
With regard to the foregoing matter, Governor Vardaman suggested
that it might be advisable for the Legal Division to get in touch with

the ci
vla Service Commission with a view to determining the availability
"allother
hearing examiner in the event Mr. Woodall's health did not
PerMif
" him to continue with the case.
Mr. Vest indicated that appropriate steps would be taken in line
ith n
-overnor Vardaman's suggestion.
Messrs. Hexter and Goodman then withdrew from the meeting and
kr m
%atert, Chief, Banking Section, Division of Research and Statistics,
ehtred the room.
At the
meeting on February 1, 1957, consideration was given to

the

of Mr. Leonard K. Firestone as a member of the City Council
Rills, California, while serving as a director of the Los
to

8

the

Br"Illoh of the Federal Reserve Bank of San Francisco, Pursuant

decision reached at that time, the San Francisco Reserve Bank was




285
2/11/57
-12advised informally that if Mr. Firestone desired to accept appointment
48 a

Loa Angeles Branch director, the Board would consider it preferable

for him
to resign as Councilman as soon as a successor on the Council
"
II been appointed.
Later in the day Mr. Y. Frank Freeman, Deputy Chairman of the
kleral Reserve
Bank of San Francisco, called the Secretary of the Board
°lithe
telephone and suggested that the matter be presented to the Board

4841.14 on the basis that Mr. Firestone be permitted to serve out his pres.et
term on the City Council, expiring April 1 1958. Mr. Freeman stated
that it
'faS the practice to pick the top business and professional men
°f the municiPality to serve on the Council, that these men serve with'ration as a civic duty, that there are no politics involved,
Etild that the
election is a matter of form, there seldom being any oppo8iti°11*

Subsequently, President Mangels and First Vice President Swan

°t the San Francisco Bank verified these facts to the Secretary of the
Boabi
uSr telephone,
and Mr. Mangels expressed hope that the ,Board might
'see 1.4
'
4 t to follow Mr. Freeman's
suggestion.
rtleoae by

The matter
was discussed and, on the basis of the representations
.
mr
Freeman, agreement was expressed with his recommendation.




Accordingly, it was agreed
unanimously to advise the Federal
Reserve Bank of San Francisco informally that in view of the circumstances outlined by Mr. Freeman,
the Board would have no objection
to Mr. Firestone's serving until

2/4/57

-13the expiration of his present
term (April 1, 1958) as a member
of the City Council of Beverly
Hills, California, while serving
at the same time as a director
of the Los Angeles Branch.
Mr. Fauver referred to a letter received by Chairman Martin from

the l'resident of the New York Stock Exchange requesting a meeting of the
13°arcl with Stock Exchange officials for a discussion similar to those
that
had taken
place on the occasion of periodic visits of Stock Exchange
repre
sentatives in
the past. He said it appeared that a meeting on March
15, loc
,
-7>r, at 11:00 a.m. would be agreeable to the members of the Board,
alth°Ugh Governor Vardaman might be out of the city on that
date.
It was agreed unanimously
to advise the New York Stock
Exchange that the Board would
be glad to meet with representatives of the Exchange at 11:00
a.m. on March 15.
Mr. Fauver then withdrew from the meeting.

clratta

At the
meeting on February 1, 1957, consideration was given to

Of (1) a statement and (2) answers to five specific questions for
izee h
,
Chairman Martin in testifying tomorrow before the Congressional
uot4
thelor c°n°mic CommittPe in connection with hearings by that Committee on
esident's Economic Report.
st Plarsuant
to the understanding at that meeting, revised drafts of
atetent and answers, reflecting comments by the members of the Board,
%/ere di
stributed before this meeting.




The revised drafts were discussed at some length and a number
'
cf suggestions were agreed upon in the interest of clarifying the Board's
Position.
At the conclusion of the
discussion, during which Mr.
Thurston reported that he had
received comments from Governors Balderston and Shepardson,
the statement and answers to
questions, in a form which
would take into account the
changes agreed upon at this
meeting, were approved unanimously, subject to final approval by Chairman Martin.
The meeting then adjourned.

Secretary's Note: On February 1, 1957,
Governor Shepardson approved on behalf
of the Board the following letter to
Mr. Stetzelberger, Vice President, Federal Reserve Bank of Cleveland:
1 _, In accordance with the requests contained in your
L
;tersof
January 28, 1957, the Board approves the
arointments
of John M. Connare and Charles D. Hostetler
01 assistant examiners for the Federal Reserve Bank of
th:veland. Please advise as to the dates upon which
aPPointments are made effective.
Na, It is noted that Mr. Hostetler is indebted to The
me'
;i°118.1 City Bank of Cleveland, Cleveland, Ohio, a
monlber bank, in the amount of $760, secured by chattel
Imr
itgags on an automobile, and that the loan will be
Boa. In ten monthly installments. Accordingly, the
mr. d s
approval is given with the understanding that
Rostetler will
not participate in any examinations




288
2/4/57

-15-

of The
National City Bank of Cleveland, Cleveland, Ohio,

until his indebtedness has been liquidated or otherwise
eliminated.




.

Assistant' Se retary