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Minutes for January 11, 1956 To: Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the m on Board of Governors of the Federal Reserve Syste the above date. It is not proposed to include a statement of with respect to any of the entries in this set to red minutes in the record of policy actions requi al Feder be maintained pursuant to section 10 of the Reserve Act. d Should you have any question with regar will to the minutes, it will be appreciated if you you advise the Secretary's Office. Otherwise, if colwere present at the meeting, please initial in es. minut umn A below to indicate that you approve the B n colum If you were not present, please initial in es. below to indicate that you have seen the minut Chm. Martin Gov. Szymczak Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson X 114 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Wednesday, January 11, 1956. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mt. Mt. Mt. Mt. Mt. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Shepardson Mr. Carpenter, Secretary Mr. Kenyon, Assistant Secretary Mr. Leonard, Director, Division of Bank Operations Mr. Vest, General Counsel Mr. Johnson, Controller, and Director, Division of Personnel Administration Mr. Hostrup, Assistant Director, Division of Examinations Mr. Hackley, Assistant General Counsel DiviMr. Sprecher, Assistant Director, ration Administ sion of Personnel The following matters, which had been circulated to the members of the Board, were presented for consideration and the action taken in each instance was as indicated: Bethea, Director, DiviMemorandum dated January 3, 1956, from Mr. ent of Patricia appointm sion of Administrative Services, recommending the at the rate of salary M. Dini as Stenographer in that Division, with basic her duties. assumes Y3,415 per annum, effective as of the date she Approved unanimously. Young, Director, DiviMemorandum dated January 5, 1956, from Mr. in the basic increase sion of Research and Statistics, recommending an , from $3,600 Division annual salary of Margaret R. Hauser, Clerk in that to *3,755, effective January 15, 1956. Approved unanimously. 88 1/11/56 -2- Letter to the Board of Directors, The Geneva Savings and Trust Company, Geneva, Ohio, reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of Cleveland, the Board of Governors of the Federal Reserve System approves the establishment of a branch at the northeast corner of Austin Road and U. S. Route No. 20, Geneva, Ohio, by The Geneva Savings and Trust Company, Geneva, Ohio, provided the branch is established within six months of the date of this letter and the approval of the State authorities is in effect as of the date the branch is established. Approved unanimously, for transmittal through the Federal Reserve Bank of Cleveland. Letter to the Board of Directors, Southwest National Bank of El Paso, El Paso, Texas, reading as follows: The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers forwarded through the Federal Reserve Bank of Dallas. From the information presented, the two officers selected to supervise and direct the operations of the proposed trust department lack any previous experience in trust work. While it is noted that you plan to rely heavily on outside legal counsel and on a firm of accountants and tax which consultants in connection with technical problems bilities, responsi y might arise in the discharge of fiduciar ory ausupervis bank it has become increasingly apparent to miniand ration administ thorities that to provide creditable ents appointm y fiduciar mize assumption of inherent risks, als should be under the immediate direction of individu l technica highly specially qualified by experience in this field. the averIt is noted also that your earnings are below nce, conseque retained age for banks of similar size and, as a need the for fill earnings have been somewhat inadequate to loan g expandin volume. additional capital funds prompted by an 89 1/11/56 -3- In all the circumstances, it is believed unwise at this time for you to enter the trust field and assume responsibilities which will enhance the hazard to your capital funds, will possibly present administrative problems of a complicating nature, and will likely add somewhat to operating expenses with a consequent reduction in net earnings and additions to capital funds. Therefore, it is the view of this Board that the requested authority to exercise trust powers should not he granted at this time. Approved unanimously, for transmittal through the Federal Reserve Bank of Dallas, with a letter to the Reserve Bank containing the following paragraph: Of course the Board will be glad to consider a new application from this bank at such future time as its capital account has been adequately strengthened and suitable managerial competence has been provided in connection with proposed fiduciary activities. Letter to Mr. Johns, President, Federal Reserve Bank of St. Louis, reading as follows: In accordance with your letter of November 141 1955, and your telephone conversation with Mr. Johnson of December 27, the Board of Governors approves the following minimum and maximum salaries for the respective grades at the Federal Reserve Bank of St. Louis and the Louisville, Memphis, and Little Rock Branches, effective January 16, 1956: Grade 1 2 3 L. 5 6 7 8 9 10 Head Office and Louisville Branch Maximum Minimum Memphis Minimum Branch Maximum (r) 2,820 2,94o 3,180 3,360 3,600 3,900 4,300 4,700 5,200 5,700 4; 2,100 2,220 2,280 2,400 2,520 2,760 3,000 3,300 3,700 4,100 2,820 2,940 3,120 3,24o 3,420 3,800 Ii-,loo 4,500 5,000 5,500 y 2,100 2,220 2,34o 2,46o 2,700 2,880 3,120 3,48o 3,800 4,20o Little Rock Branch Minimum Maximum 4; 2,100 2,160 2,220 2,280 2,400 2,580 2,820 3,240 3,600 4,100 fl; 2,820 2,880 2,940 3,120 3,24o 3,480 3,800 4,30o 4,800 5,500 90 -4- 1/11/56 Grade 11 12 13 14 15 16 Head Office and Louisville Branch Maximum Minimum Memphis Minimum i Ii, ,'; y (p. 6,400 Branch Maximum Little Rock Branch Minimum Maximum 4,600 4'; 6,2oo 4,600 ei; 6,2oo 5,100 5,700 6,900 7,700 6,600 7,500 8,400 8,900 10,100 11,300 5,300 5,800 7,100 7,800 5,100 5,700 6,900 7,700 6,600 7,500 8,400 8,900 10,100 11,300 6,600 7,500 8,400 8,900 10,100 11,300 is noted that no provision has been made in the 1956 budget to cover the expense of adjustments resulting from the increase in salary structures. It The Board approves the payment of salaries to the employees, other than officers, within the limits specified for the grades in which the positions of the respective employees are classified. It is assumed that all employees whose salaries are below the minimums of their grades as a result of the structure increase will be brought within the appropriate range as soon as practicable and not later than April 1, 1956. Following comments by Mr. Sprecher based on a memorandum dated January 3, 1956, from the Division of Personnel Administration which also had been circulated to the members of the Board, the letter was approved unanimously. Prior to this meeting, copies of the following draft of telegram to Mr. 01 Kane, General Counsel of the Federal Reserve Bank of San Francisco, had been sent to the members of the Board, along with copies of the incoming telegram from Mr. O t Kane and a memorandum dated January 10, 1956, in which Mr. Hackley stated that an attorney in the Office of the Comptroller of the Currency had advised informally that he saw no objection from the point of view of that Office to the furnishing Of the documents referred to in the proposed reply: of copies 1/11/56 -5- Your wire January 9 regarding subpoenas duces tecum served on Vice President Volberg, Assistant Manager Parker of Los Angeles Branch, Chief Examiner Galvin, and Vice President Millard, to deliver copies of certain documents to United States Attorney in connection with criminal proceedings against former Vice President and Cashier of Joshua Monument National Bank, Twentynine Palms, California. Understood that documents requested are copies of letter to national bank regarding delays in furnishing condensed report of reserve condition, report of loans and securities, and reconcilement of reserve account; certain designated cash letters; correspondence, shipping advice, and receipts covering currency shipments to national bank; information respecting bank's bond account; and letters from your Bank to national bank requesting copy of report of condition. Assume your Bank has no objection to producing copies of documents requested. While most of documents do not appear to be of kind for which disclosure requires approval of Board under Rules of Organization of Board, you are advised that to extent that such approval is necessary Board authorizes officers of your Bank above mentioned to furnish information requested and testify in connection therewith. Approved unanimously. Because it did not appear that a quorum of the Board would be available on Friday, January 13, or Monday, January 16, it was suggested that if Federal Reserve Banks advised the Board later this week that their directors had re-established without change the rates of discount and purchase in the Banks' existing schedules, the Secretary be authorized to send telegrams to those Banks on January 13 stating that the Board approved the re-establishment of the existing rates. This suggestion was approved unanimously. Messrs. Johnson and Sprecher then withdrew from the meeting and Mr. Hexter, Assistant General Counsel, entered the room. 92 -6- 1/11/56 At the meeting on December 29, 1955, consideration was given to a draft of letter to the Honorable W. Randolph Burgess, Under Secretary of the Treasury for Monetary Affairs, which had been prepared in response to his request for the Board's comments and suggestions regarding a proposed "Old Series Currency Adjustment Act" which the Treasury was considering submitting to the Congress. There was agreement with the draft of letter, but in view of comments which were made regarding the possibility of public misunderstanding of the proposal it was understood that a memorandum relating to the Board's discussion of this factor would be prepared for enclosure with the letter to Mr. Burgess. Subsequently, such a memorandum was prepared and the file was recirculated to the members of the Board. Governor Mills said that in his opinion the memorandum covered satisfactorily the points which were discussed at the meeting on December 29, 1955. With regard to a question as to whether the memorandum would be likely to receive attention at the appropriate level in the Treasury, the statement was made that, according to Treasury representatives who had discussed the proposal with members of the Board's staff, the proposal would not be submitted to the Congress without serious consideration of all of its aspects at the policy level in the Treasury. Thereupon, unanimous approval was given to the following letter for the Signature of Chairman Martin to Mr. Burgess: 93 1/11/56 -7- Your letter of November 30 stated that the Treasury is exploring the idea of submitting to Congress a proposed "Old Series Currency Adjustment Act" for the purpose of authorizing adjustments in accounts of paper currency of the former large size. You requested the comments and suggestions of the Board of Governors. Our most direct interest, naturally, relates to section L. of the proposed bill, providing that the Federal Reserve Banks shall deposit gold certificates or other lawful money in the Treasury in an amount equal to their outstanding old series Federal Reserve notes (aggregating approximately ;',39 million) when required to do so by the Board with the approval of the Secretary of the Treasury. Needless to say, if a law along these lines is enacted, the Federal Reserve System will cooperate fully with the Treasury Department in effectuating the purposes of the legislation. The proposed adjustment with respect to old series Federal Reserve notes was not contemplated, of course, when section 16 of the Federal Reserve Act was enacted or heretofore amended. Consequently, certain provisions of section 16 relating to redemption fund, reserves, and Federal Reserve Banks' liability with respect to such notes do not precisely fit into the proposed arrangement. To avoid any uncertainty as to these matters, we believe that the bill, if introduced, should amend section 16 in the following respects: 1. The fifth paragraph of section 16 should be amended by inserting after the second sentence a new sentence reading as follows: "The liability of a Federal Reserve Bank with respect to its outstanding Federal Reserve notes shall be reduced by the amount deposited in the Treasury by such Bank pursuant to section 4 of the Old Series Currency Adjustment Act." 2. The seventh paragraph of section 16 should be amended by adding the following at the end of the third sentence: -8- 1/11/56 or against Federal Reserve notes as to which deposits have been made in the Treasury pursuant to section 4 of the Old Series Currency Adjustment Act." Enclosed is a memorandum of some additional points that were mentioned during the Board's consideration of this matter. The following draft of letter to Mr. E. L. Olmstead, Vice President, Southern Holding Corporation, East Pasadena, California, which had been circulated to the members of the Board, was presented for consideration: This refers to the request contained in your letter of December 16, 1955, addressed to the Federal Reserve Bank of San Francisco, for a determination by the Board of Governors of the Federal Reserve System as to the status of Southern Holding Corporation, East Pasadena, California, as a holding company affiliate. From the information supplied, the Board understands that Southern Holding Corporation is engaged in the business of making loans and acting as an intermediary for Southern Commercial and Savings Bank in renting branch quarters and a parking lot for the head office of this bank; that Southern Holding Corporation is a holding company affiliate of Southern Commercial and Savings Bank, Pasadena, California, because it owns 12,499 of the 25,000 outstanding shares of common stock of that bank, which amount owned is more than 50 per cent of the 24,967 shares voted at the last election of directors of the bank; and that Southern Holding Corporation does not, directly or indirectly, own or control any stock of any other banking institution, or manage or control any banking institution other than Southern Commercial and Savings Bank. In view of these facts the Board has determined that Southern Holding Corporation is not engaged, directly or indirectly, as a business in holding the stock of or managing or controlling banks, banking associations, savings banks, or trust companies within the meaning of section 2(c) of the -9- 1/11/56 Banking Act of 1933, as amended; and, accordingly, Southern Holding Corporation is not deemed to be a holding company affiliate except for the purposes of section 23A of the Federal Reserve Act and does not need a voting permit from the Board of Governors in order to vote the bank stock which it awns. If, however, the facts should at any time differ from those set out above to an extent which would indicate that Southern Holding Corporation might be deemed to be so engaged, this matter should again be submitted to the Board. The Board reserves the right to rescind this determination and make a further determination of this matter at any time on the basis of the then existing facts. Approved unanimously, for transmittal through the Federal Reserve Bank of San Francisco. All of the members of the staff except Messrs. Carpenter and Kenyon then withdrew from the meeting. There was a discussion of the suggestion which hai been made that an informal luncheon be given by the Board in honor of Messrs. Young and Earhart, Presidents of the Chicago and San Francisco Reserve Banks, respectively, at the time of the forthcoming meeting of the Presidents' Conference, since it appeared that this probably would be the last time they both would be in Washington for a System meeting prior to their retirement. Question was raised whether appropriate mementos might be presented to Messrs. Young and Earhart in appreciation of their long service with the System and it was agreed to refer the matter to Mr. Thurston, Assistant to the Board, and Mr. Fauver, Assistant Secretary, for study. In this con- nection, there was some discussion of the type of recognition that might -10- 1/11/56 be given to directors of Federal Reserve Banks and branches at the conclusion of their terms of office, and it was understood that this matter likewise would be referred to Messrs. Thurston and Fauver for consideration and recommendation. At the conclusion of the discussion, it was agreed unanimously that an informal luncheon should be given for Messrs. Young and Earhart on Tuesday, January 24, 1956, in the Board's dining rooms and that all of the Reserve Bank Presidents, and others who would be invited to attend the luncheon, should be notified promptly. With reference to the discussion at the meeting on January 4, 1956, regarding reimbursement to the Federal Reserve Banks for expenses incurred in handling postmasters' deposits, Governor Szymczak stated that he met yesterday with members of the Presidents' Conference Committee on Fiscal Agency Operations and reported the views of the Board, with which the members of the Committee agreed. He said that in order to make the System's position a matter of record, the Chairman of the Committee, President Leach, was drafting a letter to the Treasury Department, copies of which he (Governor Szymczak) would send to the other members of the Board for their comments and suggestions. The proposed letter would then be sub- mitted by Mr. Leach at the forthcoming meeting of the Presidents' Conference. A11 of the members of the staff then withdrew and the Board went into executive session. -11- 1/11/56 The Secretary later was informed by the Vice Chairman that during the executive session the Board approved a letter to Er. Dawes, Vice President and Secretary of the Federal Reserve Bank of Chicago, reading as follows: Your request concerning the continued employment of Dr. James E. Fitzgerald, Physician, and of Mr. Jess Eggers, Cafeteria Manager, beyond normal retirement age has been considered by the Board. The Board is reluctant to continue the employment of either of these men past their regular dates of retirement, but if you find it difficult to secure a replacement for the Cafeteria Manager by July 31, it is willing to grant an extension in this case until December 31, 1956. The Board takes a slightly different view of the case of Dr. Fitzgerald. Although hoping that you will find a suitable replacement by July 31, 1956, it recognizes that there is, at the moment, a scarcity of doctors who are both competent and willing to render the part-time service that you require. Consequently, if you find it necessary, it is willing to extend the reappointment of Dr. Fitzgerald for a year, on the basis that, as a part-time employee, he falls in a different category from others in your organization. The meeting then adjourned. Secretary's Note: It having been ascertained, pursuant to the action taken by the Board on January 9, 1956, that Mr. J. Thomas Smith, President, Detroit Harvester Company, Detroit, Michigan, would accept appointment as a director of the Detroit Branch of the Federal Reserve Bank of Chicago if such appointment were tendered, the following telegram was sent to Mr. Smith today: Board of Governors Federal Reserve System has appointed you director Detroit Branch Federal Reserve Bank of Chicago 98 1/11/56 -12- for term ending December 311 1956. Your acceptance by collect telegram woad be appreciated. It is understood you are not director of bank and do not hold public or political office. Should situation change in these respects during your tenure, please advise Chairman Chicago Bank. Please indicate how you wish your name and principal business affiliation to be shown in Board's announcement and publications.
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