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Minutes for To: Members of the Board From: Office of the Secretary January 11, 1965. 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 Minutes of the Board of Governors of the Federal Reserve System on Monday, January 11, 1965. The Board met in the Board Room at 10:00 a.m. PRESENT: Mt. Mt. Mt. Mr. Mt. Mt. Balderston, Vice Chairman Mills 1/ Robertson 2/ Shepardson Mitchell Daane Sherman, Secretary Kenyon, Assistant Secretary Broida, Assistant Secretary Young, Adviser to the Board and Director, Division of International Finance Mr. Noyes, Adviser to the Board Mr. Fauver, Assistant to the Board Mr. Furth, Consultant Mx. Mr. Mr. Mr. Messrs. Brill, Holland, Koch, Garfield, Partee, Solomon, Williams, Axilrod, Eckert, Fisher, Gehman, Gramley, Keir, Osborne, Trueblood, and Wernick of the Division of Research and Statistics Messrs. Hersey, Sammons, Katz, Irvine, Reynolds, Wood, Gekker, Hayes, Maroni, and Mills of the Division of International Finance Economic review. A review of significant domestic and inter- national business and financial developments was presented by the Research and International Finance Divisions, following which there Ifts a general discussion based on these reports. Governor Mills then withdrew from the meeting. All members of the staff who had been present except Messrs. Sherman, Kenyon, Brill., and Sammons also withdrew at this point and the following entered the room: I2/ I Withdrew from meeting at point indicated in minutes. Attended morning session only. 1/11/65 -2Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration Mr. Kakalec, Controller Mr. Shay, Assistant General Counsel Mr. Hooff, Assistant General Counsel Mr. Leavitt, Assistant Director, Division of Examinations Mr. Lyon, Review Examiner, Division of Examinations Mr. Noory, Assistant Review Examiner, Division of Examinations Report on Treasury draft bill (Item No. 1). Unanimous approval was given to a letter to the Bureau of Budget (copy attached as Item No. 1) reporting on a Treasury draft bill "To continue the authority of domestic banks to pay interest on time deposits of foreign governments at rates differing from those applicable to domestic depositors." This draft bill was the subject of a memorandum from Mr. Hackley dated January 8, 1965, that had been distributed. Governor Robertson stated that although he was fundamentally oPposed to this sort of legislation, he could not say that the experience of the past three years had been adverse. The legislation had been accepted better than he had thought it would be, in his ()Pinion because people had overstated the seriousness of the problem that gave rise to it. He would prefer a continuation of the original legislation for another three years, but in the circumstances he would not oppose making a report favorable to the present draft bill, under which the original legislation would be extended on a permanent basis. Governor Mitchell indicated that his views were similar to those of Governor Robertson. z 1/11/65 -3Limited voting permits (Items 2-5). The following items, copies of which are attached hereto under the respective item numbers indicated, were approved unanimously: Item No. Telegram to the Federal Reserve Agent at Atlanta authorizing the issuance to Capital Bancshares, Inc., Miami, Florida, of a limited permit to vote its stock of Capital National Bank of Miami, Miami, Florida. 2 Telegram to the Federal Reserve Agent at San Francisco authorizing the issuance to Navajo Bancorporation, Inc., Phoenix, Arizona, of a limited permit to vote its stock of The First Navajo National Bank, Holbrook, Arizona. 3 Telegram to the Federal Reserve Agent at Chicago authorizing the issuance to C. B. Investment Corporation, Waukegan, Illinois, of a limited permit to vote its stock of Western National Bank of Cicero, Cicero, Illinois. 4 Telegram to the Federal Reserve Agent at Chicago authorizing the issuance to Western Springs Investment Corporation, Waukegan, Illinois, of a limited permit to vote its stock of The First National Bank of Western Springs, Western Springs, Illinois. 5 The Division of Examinations had originally transmitted to the Board a recommendation that there be granted to C. B. Investment Corporation a determination exempting it from all holding company affiliate requirements except for the purposes of section 23A of the Federal Reserve Act. However, in light of certain information obtained following the subsequent receipt of an application by Western Springs 1/11/65 Investment Corporation for a similar determination, the Division flow recommended that limited voting permits be issued in both cases Pending further study by the Division of the circumstances involved. The Board concurred in this recommended approach. Consultant group on price measurement (Item No. 6). The Board approved unanimously the recommendations contained in a memorandum from Mr. Brill dated January 7, 1965 (copy attached as Item concerning establishment of a consultant group to study the Problems of price measurement, particularly in relation to the analytic needs of the Federal Reserve System. The meeting then recessed and reconvened at 2:30 p.m. with the following attendance: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Shepardson Mitchell Daane Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Mr. Holland, Associate Director, Division of Research and Statistics Mr. Leavitt, Assistant Director, Division of Examinations Mr. Smith, Assistant Director, Division of Examinations Mr. Swan, President, Federal Reserve Bank of San Francisco Mr. Merritt, Vice President, Federal Reserve Bank of San Francisco 1/11/65 -5San Francisco National Bank. Messrs. Swan and Merritt reported to the Board in some detail on developments related to San Francisco National Bank, San Francisco, California, particularly insofar as the bank's difficulties had caused it to borrow extensively from the Reserve Bank. Included in their report were comments concerning a possible merger of the member bank with another institution and comments concerning the limitations that were presented in considering additional assistance to the bank through the discount window should a merger not materialize in the near future. There was general agreement that the Reserve Bank had been taking all steps that could reasonably be taken to cope with the situation, and it was understood that the management of the Reserve Bank would continue to follow the matter closely and take whatever actions seemed appropriate In its discretion. The meeting then adjourned. Secretary's Notes: A letter was sent today to International Banking Corporation, New York, New York, acknowledging receipt of advice that The Mercantile Bank of Canada, Montreal, Canada, intended to establish an additional branch in Canada, to be located in Halifax, Nova Scotia. Governor Shepardson today approved on behalf of the Board the following items: Memorandum from Mr. Young dated January 8, 1965, proposing that a small dinner be given for three representatives of the British Treasury and central bank who will be in Washington on January 25-26, 1965, for Informal conversations on financial problems, it being understood that a few mambers of the Board and Treasury staffs would be invited to attend. 107 /11/65 -6- Memorandum from the Division of Administrative Services recommending acceptance of the resignation of Donald R. Poole, Operator Offset Press) in that Division, effective at the close of business January 22, 1965. Sec BOARD OF GOVERNORS Item No. 1 1/11/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDRESS orrictm. CORRESPONDENCE TO THE BOARD January 11, 1965. W. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington, D. C. 20503 Dear Mr. Hughes: This is in response to your Office's Legislative Referral Memorandum of January 7, 1965, requesting the views of the Board of Governors with respect to a draft bill proposed by the Treasury Department "To continue the authority of domestic banks to pay interest on time deposits of foreign governments at rates differing from those applicable to domestic depositors." The Board of Governors would favor the introduction and enactment of the proposed legislation. Very truly yours, (Signed) Merritt Sherman. Merritt Sherman, Secretary. Item No. 2 1/11/65 LEGRAM TE LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON January 11, 1965 TARVER -- ATLANTA KECEA A. Capital Bancshares, Inc., Miami, Florida. B. Capital National Bank of Miami, Miami, Florida. C. None. D. At any time prior to May 1, 1965, at the annual meeting of shareholders of such bank, or any adjournments thereof, to elect directors for the ensuing year and act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such bank. (Signed) Karl E. Bakke BAKKE Definition of KECEA: permit, issuance of a limited voting The Board authorizes the Statutes ed Revis the of section 5144 under the provisions of named iate affil any comp ng the holdi of the United States, to to on t entitling such organizati below after the letter "e named (s) or controls of the bank vote the stock which it owns stated, n(s) itio subject to the cond below after the letter "B", nder hereu rized The permit autho below after the letter "C". after d state ses purpo of time and the ucinstr is limited to the period the with dance accor proceed in 64). the letter "D". Please (S-9 d's letter of March 10, 1947, tions contained in the Boar I Item No. LEGRAM TE LEASED WIRE SERVICE 3 1/11/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON January 110 1965 WHITMAN -- SAN FRANCISCO KECEA. A. Navajo Bancorporation, Inc., Phoenix, Arizona. B. The First Navajo National Bank, Holbrook, Arizona. C. None. D. At any time prior to May 1, 1965, at the annual meeting of, of shareholders of such bank, or any adjournments there to elect directors for the ensuing year and act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such bank. (Signed) Karl E. Bakke BAKKE Definition of KECEAt limited, voting permit, The Board authorizes the issuance of a the Revised Statutes under the provisions of section 51114 of ny affiliate named compa of the United States, to the holding organization to such ling below after the letter "A", entit the ball named of ols contr vote the stock which it owns or tion(s) stated condi the to ct subje below after the letter "B", rized hereunder below after the letter "C". The permit autho ses stated after purpo the and time of d is limited to the perio with the instructhe letter "D". Please proceed in accordance March 10, 1947, (8-964). tions contained in the Board's letter of TELEGRAM Item No. LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 4 1/11/65 January 11, 1965. LUNDING -- CHICAGO KECEA A. C. B. Investment Corporation, Waukegan, Illinois. B. Western National Bank of Cicero, Cicero, Illinois. C. Prior to issuance of limited voting permit authorized herein, Applicant shall execute and deliver to you in duplicate an application for a voting permit(Form P-1)with Exhibits A, C, M, and 0. D. At any time prior to May 1, 1965, at the annual meeting of shareholders of such bank, or any adjournments thereof, (1) to elect directors for the ensuing year and act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such bank; and (2) to reduce the par value of outstanding stock from $20 to $10 per share and to declare a stock dividend, provided that all action taken shall be in accordance with plans satisfactory to the Comptroller of the Currency. (Signed) Karl E. Bakke BA1CKE Definition of KECEA: The Board authorizes the issuance of a limited voting permit, under the provisions of section 5144 of the Revised Statutes of the United States, to the holding company affiliate named below after the letter "A", entitling such organization to vote the stock which it owns or controls of the bank(s) named below after the letter "B.., subject to the condition(s) stated below after the letter "C". The permit authorized hereunder Is limited to the period of time and the purposes stated after the letter "D". Please proceed in accordance with the instructions contained in the Board's letter of March 10, 1947, (S-964). 4.....4 112 GRAM TELE WIRE LEASED Item No. SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 5 1/11/65 January 11, 1965. LUNDING -- CHICAGO KECEA A. Western Springs Investment Corporation, Waukegan, Illinois. B. The First National,Bank of Western Springs, Western Springs, Illinois. C. Prior to issuance of limited voting permit authorized herein, Applicant shall execute and deliver to you in duplicate an application for a voting permit(Form P-1) with Exhibits A, C, M, and 0. D. At any time prior to May 1, 1965, at the annual meeting of shareholders of such bank, or any adjournments thereof, to elect directors for the ensuing year and act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such bank. (Signed) Karl E. Bakke BAIUCE Definition of KECEA: voting permit, The Board authorizes the issuance of a limited Revised Statutes the of 5144 section of under the provisions affiliate named company holding the to of the United States, ion to below after the letter "et entitling such organizat named bank(s) the vote the stock which it owns or controls of state, a condition below after the letter "B", subject to the d hereunder below after the letter "C". The permit authorize stated after purposes the is limited to the period of time and the instrucwith e accordanc in the letter "D". Please proceed 1947, (S-964). 10, March of letter Board's tions contained in the Item No. 6 I 11111MMIIMI 1/11/65 January 7, 1965. To: Board of Governors From: Daniel H. Brill Subject: Establishment of a consultant group on price measurement p of a study to This memorandum recommends Board eponsorshi relation to the analytic explore the problems of price measurement in ems involved are both needs of the FedevAl Reserve System. The probl price stability as an conceptual and statistical. Given reasonable re or measures are most objective of monetary policy, what price measu The consumer price index? relevant for the determination of policy? price index? The The wholesale price index? The industrial commodity ? sensitive industrial materials price index levels play a Undoubtedly, price measures at each of these opments and in the framing role in the understanding of economic devel existing indexes of policy, but it is not at all clear that any of the priate for interpreting measure the concepts that would be most appro policy and for policy developments from the viewpoint of monetary guidance to the monetary authorities. indees are conEven if it were determined that existing practice be measured, ceptually relevant, or the best that can in accuracy. These serious questions have been raised as to their prices around list questions relate to variations of transactions ty change and to prices as well as to the measurement of quali appropriate weights. its group of At the last meeting between the Board and by Professor Kravis of academic consultants, a paper was presented ems and indithe University of Pennsylvania touching on these probl in these areas. Kravis cating the need for extensive further research have reached the and I have continued discussion of the problem and subject would be fruitful at conclusion that a serious attack on the price statistics was this time. Four years ago a report on Government the Budget (generally issued by a consultant group to the Bureau of chairman Professor George known as the "Stigler Committee," after its the National Bureau of Stigler of the University of Chicago and only limited impact, Economic Research), but this report has had on specific user partly because the report lacked sufficient focus nnel to implement needs, partly because of lack of funds and perso the subject of economic various recommendations, and partly because "glamorous" issues in ecomeasurement is not one of the currently the best talent. nomic research and is not attracting enough of ars, versed in Kravis and I feel that a small group of schol but also exing index the conceptual problems of price measurement and behavior, price and collection perienced in the problems of price data Board of Governors -2- .4 _F $3 1 ‘t methods for imcan be assembled to work with our staff in exploring the monetary of needs proving price measures to meet the specific (a) to delineate be would authorities. The objectives of such a group relevant to res measu more sharply the conceptual issues as to price collection data in changes monetary policy, (b) to recommend whatever measures of ate accur and indexing techniques are needed to produce more the causes in rch resea the relevant price concepts, and (c) to stimulate without and n of price change and the measurement of prices, both withi Government. Professor Kravis' It is indeed fortunate that a scholar of such an exploration. He stature is willing to collaborate with us in extensively to the is a recognized expert in the field, contributing ugh the mill" in operating literature on this subject, and has been "thro . Kravis has offered to experience at the Bureau of Labor Statistics already obtained the promise serve as chairman of a study group and has field, Professor of cooperation from another outstanding expert in the sion in the inclu for Dorothy Brady. Other scholars being considered Dr. Lipsey of go, Chica study group are Professors Griliches and Rees of n. Messrs. tutio Insti the National Bureau, and Dr. Dennison of Brookings staff Board ipal princ be the Garfield and Altmann of our Division would t Budge the ask ure not to Participants. It seems best at this junct ially offic e participat Bureau, which sponsored the Stigler report, to us issues with their vario ss discu to d planne is in this study but it concerned with producing People and also with the agencies directly price statistics. that such an ecoIf the Board concurs in the recommendation bly be most expeditious nomic investigation be undertaken, it would proba If this is to appoint Professor Kravis as a consultant to the Division. have a and ars schol done promptly, he can begin assembling the group of ble. s Preliminary meeting as early this year as prove feasi made in the ReNo provision for such a consultant group was ing on discarry been have search Division's budget for 1965. While I not be sure could he s, month cussions with Professor Kravis for several to the e devot to time until year-end that he would have sufficient ion and minat deter this made Project to ensure its success. He has now is prepared to start shortly. ditures At this stage it is difficult to forecast the expen for the group the of ities activ that might be involved. Assuming that expendiem, probl the of n ratio current year would largely involve explo up to ps perha and fees, ltant tures would be mainly for travel, consu ct. subje the of ts aspec ed half a dozen commissioned papers on select exceed would 1965 in es ditur On this basis it is unlikely that expen in recommendations $10,000. If the group's deliberations eventuated Board of Governors 15 recommendations for pilot studies or other larger-scale activities, these the Board for to d referre will, of course, be analysed by the staff and consideration. tment as a conIt is recommended that Professor Kravis' appoin ed. It can approv be day) sultant to the Division (at a fee of $75 per t will cause projec this not be determined this early in the year whether the Reof ts Accoun e overexpenditures in the Fees and Traveling Expens t projec the of al search Division. However, we recommend that approv also include approval of any resultant overexpenditures.
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