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Minutes for To: Members of the Board From: Office of the Secretary January 14, 1966 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If You were not present, your initials will indicate only that you have seen the minutes. Chm. Martin Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Alb 207 Minutes of the Board of Governors of the Federal Reserve System on Friday, January 14, 1966. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Robertson Shepardson Mitchell Maisel Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Young, Senior Adviser to the Board and Director, Division of International Finance Mr. Holland, Adviser to the Board Mr. Solomon, Adviser to the Board Mr. Molony, Assistant to the Board Mr. Fauver, Assistant to the Board Mr. Solomon, Director, Division of Examinations Mr. Goodman, Assistant Director, Division of Examinations Miss Eaton, General Assistant, Office of the Secretary Mr. Morgan, Staff Assistant, Board Members' Offices Mr. Furth, Consultant Messrs. Brill, Koch, Partee, Axilrod, Eckert, and Keir and Mrs. Peskin of the Division of Research and Statistics Messrs. Sammons, Hersey, Katz, Reynolds, Baker, and Gemmill of the Division of International Finance Money market review. Mrs. Peskin presented a review of develop- ments in the Government securities market, along with comments on the resident's Budget Message. Mr. Katz commented on the foreign exchange markets, on the German money market, and on the Euro-dollar market. Tables were distributed affording perspective on bank reserve utilization, 208 1/14/66 -2- the capital market, and the money market. There was also a table comparing recent fiscal year budgets, as well as a set of charts showing trends in rates having a significance for appraisal of developments in international financial markets. All members of the staff except Messrs. Sherman, Kenyon, Young, Holland, Molony, Fauver, Solomon (Examinations), and Sammons and Miss Eaton then withdrew and the following entered the room: Hackley, General Counsel Johnson, Director, Division of Personnel Administration Hexter, Associate General Counsel Leavitt, Assistant Director, Division of Examinations Smith, Assistant Director, Division of Examinations Sprecher, Assistant Director, Division of Personnel Administration Mr. Forrestal, Senior Attorney, Legal Division Messrs. Egertson and Maguire, Supervisory Review Examiners, Division of Examinations Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. The establishment without change by the f°110wing Federal Reserve Banks on January 13, 1966, of the rates on d iscounts and advances in their existing schedules was approved unanimously, with the understanding that appropriate advice would be sent to the respective Banks: Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, and Dallas. Circulated or distributed items. The following items, copies of 1/h1ch are attached to these minutes under the respective item numbers indicated, were approved unanimously: 209 1/14/66 -3Item No. Letter to Manufacturers Hanover Trust Company, New York, New York, approving the establishment of a branch at 1191 Second Avenue, Borough of Manhattan. 1 Letter to The Dollar Savings Bank Company, Niles, Ohio, approving an extension of time to establish a branch in Lordstown. 2 Letter to People's Trust Company, Dunellen, New Jersey, approving an investment in bank premises. 3 Letter to Williams Savings Bank, Williams, Iowa, waiving the requirement of six months' notice of Withdrawal from membership in the Federal Reserve System. 4 Letter to the Federal Deposit Insurance Corporation regarding the application of First State Bank of Green's Bayou, Houston, Texas, for continuation of dePosit insurance after withdrawal from membership in the Federal Reserve System. 5 Letter to the Federal Deposit Insurance Corporation re garding the application of Bank of Illinois Valley, ave Junction, Oregon, for continuation of deposit insurance after withdrawal from membership in the Federal Reserve System. 6 Letter to Chemical Bank New York Trust Company, New ,Y_c)rk, New York, approving the establishment of uranches in Bellmore and Woodbury. 7 Letter to Federal Reserve Bank of Boston approving c t he Payment of salary to John A. Hayes as Assistant ,,Shier at the rate fixed by the Bank's Board of ui rectors. 8 Regarding Item No. 7, Governor Shepardson had raised a question b°11-t Chemical Bank New York Trust Company's capital position. time At the of approving a branch application by the bank last fall, the Board's 210 1/14/66 -4- letter of September 3, 1965, had called attention to the decline in capital adequacy and urged that consideration be given to the need for strengthening capital structure in light of the bank's growth in recent years. Mr. Leavitt said the Federal Reserve Bank of New York had been talking with Chemical not only about its capital position but also its liquidity position, in connection with borrowings from the Reserve Bank. Re proposed, and it was agreed, that the letter to Chemical should urge the bank to give attention to both its capital and its liquidity position. New York holding company applications. Governor Mitchell raised the question of the desirability of ordering oral presentation on the applications of Charter New York Corporation and BT New York Corporation to become bank holding companies. There were some questions that did not seem to him to be answered fully in the information submitted, including the longer-range intentions of the proponents. Mr. Solomon said the Division of Examinations' analysis indicated that the principal question was one of policy concerning what the Board wanted to do about permitting New York City banks to be the center of h°1ding company systems. He was not sure whether much light could be thrown on that problem through the medium of oral presentation. Chairman Martin then suggested that the Division of Examinations make a review of whether oral presentation would seem desirable, and it I/as agreed that this would be done prior to further Board consideration of the question. 211 1/14/66 -5Report on competitive factors. Unanimous approval was given to the transmittal to the Comptroller of the Currency of a report on the c ompetitive factors involved in the proposed merger of Tr -County National Bank, Fostoria, Ohio, into Hancock-Seneca-Wood National Bank, Fostoria, Ohio. The conclusion read as follows: Consummation of the proposed merger would have no effect on competition. Messrs. Egertson and Maguire then withdrew from the meeting. Export-Import Bank certificates (Item No. 9). In a letter to Chair- man Martin dated January 6, 1966, the Export-Import Bank of Washington had r equested the Board to declare its participation certificates eligible for Purchase by Federal Reserve Banks under section 14(b) of the Federal Reserve Act and, accordingly, eligible as security for advances to member banks under the eighth paragraph of section 13 of the Act. A distributed memo- randum from the Legal Division dated January 12, 1966, pointed out that the Export-Import Bank guaranteed unconditionally the payment of principal and interest in the event that collections on the underlying promissory notes were insufficient. The Bank concluded that the participation cer- tificates were obligations fully guaranteed by the United States as to principal and interest, and accordingly were eligible for purchase by Reserve 'Ranks and as collateral for advances. This argument of the Bank that finan- cial obligations of a Government agency constituted obligations of the United States was based primarily on an opinion of the Attorney General of 212 1/14/66 -6- April 14, 1961, involving a guaranty of the Development Loan Fund. The Presently outstanding participation certificates were not transferable, and in order that Reserve Banks might have the same standing as the original holders of the certificates, provision must be made to allow transfer to the Reserve Banks. However, the Export-Import Bank had indicated its Willingness to incorporate such a provision in forthcoming participation certificate issues. Mr. Hackley said there was a technical question, raised by counsel for the Federal Reserve Bank of New York, as to whether the Par ticipation certificates were legally notes for purposes of section 13. It was the Legal Division's view that they were equivalent to notes, and moreover the Board in Regulation A, Advances and Discounts by Federal Reserve Banks, had taken the position that participations in pools of notes were equivalent to notes. The question whether the certificates were backed by the full faith and credit of the United States had rather far-reaching implications. An affirmative finding would be contrary to views that had been held prior to the Attorney General's opinion. On the other hand, the Attorney General's opinion, and a court finding in 1955 in a suit based on a guaranty by the Reconstruction Finance Cor poration, provided a supportable basis for holding that the particiPation certificates were backed by the full faith and credit of the United States. The Legal Division was recommending an admittedly liberal interpretation of the law but thought it could be supported. 21_3 1/14/66 -7In the ensuing discussion, Governor Maisel commented on the possible implications for open market operations and the relative prices of securities of a Board position that Government agency obligatio ns were in effect the same as U.S. Government obligations. Chairman Martin reported that he had discussed the Export-Import Bank matter with the Secretary and Under Secretary of the Treasury and they both would be agreeable to the Board's taking the recommended position Oil the participation certifica tes. If the Legal Division said it was a sound position legally, he thought the Board probably should adopt it. In reply to a question as to whether the Treasury felt that the same position should be applied generally with respect to comparable obligations of all Government agencies, the Chairman said he had not gone into that. Governor Mitchell said that from a System policy standpoint it seemed to him the argument was clear that this was a desirable step to take. One problem for banks today was in finding assets to secure advances from the Federal Reserve Banks. Governor Robertson agreed, adding that his only question was whether the Board, if it took the recommended position on the ExportImport Bank certificates, should go further and on its own initiative make a similar determination with respect to obligations of other Governagencies. Mr. Forrestal noted that a request from the Small Business Administration was currently under study. Mr. Hackley observed that the Board 214 1/14/66 -8- interpretation would be published in the Federal Register, which might Well lead to additional requests. When asked as to the effect on discount operations, Mr. Holland expressed the view that the proposed interpretation would be desirable. It would make discount window administration easier if a broader range of securities were eligible as collateral. The proposed step would Present no conflict in terms of the current study of the discount mechanism, and it would be consistent with the philosophy underlying discount legislation the Board had recommended. In further discussion, it was agreed that the Board should be furnished with a list of Government agency securities comparable in ch aracteristics to the Export-Import Bank certificates. Unanimous approval then was given to the letter to the ExportImport Bank that had been proposed by the Legal Division, with the understanding that an interpretation based thereon would be published in the Federal Reserve Bulletin and the Federal Register. is A copy of the letter attached to these minutes as Item No. 9. Messrs. Young, Holland, Hexter, Sammons, and Forrestal then Withdrew from the meeting. Amendments to Rules and Regulations of Retirement System (Item -11° \: _ja.• A memorandum from the Division of Personnel Administration dated December 30, 1965, on certain proposed amendments to the Rules and Regulations affecting the Bank Plan of the Retirement System of the 21.5 1/14/66 -9- Federal Reserve Banks, had been distributed to the Board. President Ellis, Chairman of the Board of Trustees of the Retirement System, had advised the Board on December 17, 1965, that the Trustees had, by mail vote, approved several resolutions amending the Rules and Regulations of the Retirement System, effective as of January 1, 1966, and requested the Board of Governors to give prompt consideration to the resolutions. The Division memorandum summarized the resolutions as follows, with the recommendations indicated: Resolution 1: Amendment of Section 3, Subdivision (8) is in accordance with the Board's letter of November 5, 1965, which stated that the Board would reconsider the application of the 80 per cent limitation to the extent that the annuity portion of the retirement allowance be computed at the rate of retirement contributions at the time the employee retires, retroactive to July 1, 1964, should a formal recommendation to this effect be made by the Board of Trustees. It is therefore recommended that the Board approve this proposal. Resolution 2: Amendment of Section 1(16) and Resolution 3: Deletion of Paragraph (b) of Subdivision (4) of Section 5 are proposed to implement reconsideration of the term "additional contributions" mentioned in the Board's letter of November 5, 1965, as it was understood that the Board of Trustees might wish to reconsider the term as defined in the Rules and Regulations. It is recommended that the Board also approve this proposal. A Further Resolution that Section 5, Subdivision (1), Paragraph (a) of the Rules and Regulations of the Retirement System be amended effective January 1, 1966, provides that members of the Federal Reserve Retirement System shall after that date contribute 4 per cent of basic salary in excess of $6,600 on an annual basis. At present, the contribution is 4 per cent in excess of $4,800. It is recommended that this further resolution be approved by the Board. 216 1/14/66 -10- NOTE: The Retirement Committee recommended, and the Board of Trustees did not disagree, "(a) that there be no immediate change in the disability provisions of the Rules and Regulations and (b) that there be no change in the Rules and Regulations as respects the pension formula." However, the Retirement Committee believes that a review of the need for a change in the disability provisions should be made as soon as possible, and this Division concurs. On the other hand, apparently the Committee does not contemplate a review of the pension formula at the time that the disability provisions are reviewed. This Division believes that a review of the pension formula should be made concurrently with the review of the disability provisions. Another Further Resolution concerns authorizing the Chairman or Vice Chairman of the Board of Trustees, with advice of Counsel, to make additional changes deemed desirable to secure a ruling or determination by the Director of Internal Revenue that the Rules and Regulations and the Trust continue to meet the requirements of the Internal Revenue Code. It is recommended that the Board approve this resolution as necessary to the orderly process of amending the Rules and Regulations of the Retirement System. After discussion, the amendments to the Rules and Regulations of the Retirement System, as submitted with President Ellis' letter of December 17, 1965, were approved unanimously, along with the further recommendations of the Division of Personnel Administration. A copy of the letter sent to President Ellis is attached as Item No. 10. Examination of Federal Reserve Bank of New York. Mr. Smith sumrnarized information disclosed through the examination of the Federal Reserve Bank of New York made by the Board's field examining staff as of September 24, 1965, his comments being based on the report of examination and related memoranda that had been circulated to the Board. 27 1/14/66 -11After discussion it was agreed that there were no matters dis- closed by the examination that appeared to warrant action on the part of the Board. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Letter to the Presidents of all Federal Reserve Banks except . 1\lew York (copy attached as Item No. 11) concerning System participation in this year's training course of the Center for Latin American Monetary Studies. Memoranda recommending the following actions relating to the Board's staff: AptalaiaLllat. . Howard L. Smith as Messenger, Division of Administrative Services, ith basic annual salary at the rate of $3,507, effective January 19, 1966. Sal increases, effective January 16, 1966 Name and title Division Basic annual salary To From Office of the Secretary Bernice T. Mann, Secretary Carol M. O'Brien, Secretary Mary H. Wilson, Minutes Clerk $ 7,046 5,865 4,953 $ 7,238 6,278 5,109 6,854 8,241 4,797 7,046 8,961 4,953 International Finance ! earl G. Farrington, Statistical Assistant rred B. Ruckdeschel, Economist OYnthia Y. Young, Clerk 218 1/14/66 Salar increases Name and title -12effective January 16, 1966 (continued) Division Basic annual salary From To Bank Operations Mary M. Durkan, Technical Assistant 0. Lewis McKee, Technical Assistant Edwin G. White, Technical Assistant $12,459 11,355 10,987 $12,827 11,723 11,355 4,149 16,204 4,641 16,712 Examinations Brenda Irene Dobson, Stenographer John T. McClintock, Supervisory Review Examiner Administrative Services Karen A. Brown, Mailing List Clerk-Flexowriter Operator Henry Edmonds, Grounds Maintenance Worker Hampton L. Logan, Window Washer Theodore L. Jones, Operator (Duplicating Devices) 3,814 4,149 4,659 3,806 4,950 4,909 4,160 5,221 Data Processing Mary P. Barlow, Statistical Assistant Bonnie Jo Brooke, Digital Computer Programmer 6,470 5,181 6,662 5,702 fefers . Sandra H. Cook, from the position of Statistical Clerk in the Division of Bank Operations to the position of Clerk in the Division °f International Finance, with no change in basic annual salary at the rate of $4,149, effective upon assuming her new duties. 0. . Barbara Ann Kemp, from the position of Stenographer in the .1v1sion of Personnel Administration to the position of Stenographer in the Division of Research and Statistics, with no change in basic annual salary at the rate of $4,149, effective January 16, 1966. D. . Eleanor J. Pratt, from the position of Research Assistant in the vlsion of Research and Statistics to the position of Economist in tnat Division, with an increase in basic annual salary from $8,241 ° $8,961, effective upon assuming her new duties. j 21 1/14/66 ^ B..9..§.21. 12121L.Laa §iaLs21_23 Robert F. Grieb, Statistical Clerk, Division of Research and Statistics, whose resignation had previously been accepted effective the close of business January 14, 1966. Acce tance of resignations . Susan D. Chapman, Personnel Clerk, Division of Personnel Administratlem, effective at the close of business January 28, 1966. Harry E, Lynn, Draftsman, Division of Data Processing, effective at the close of business January 21, 1966. 220 BOARD OF GOVERNORS Item No. 1 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 14, 1966. Board of Directors, Manufacturers Hanover Trust Company, New York, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Manufacturers Hanover Trust Company, New York, New York, of a branch at 1191 Second Avenue, Borough of Manhattan, New York, New York, provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Karl E. Bakke Karl g. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) t BOARD OF GOVERNORS Item No. 2 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE. TO THE BOARD January 14, 1966. Board of Directors, The Dollar Savings Bank Company, Niles, Ohio. Gentlemen: The Board of Governors of the Federal Reserve System extends to July 13, 1966, the time within which The Dollar Savings Bank Company, Niles, Ohio, may establish a branch at the south side of Carson-Salt Springs Road, Lordstown, Lordstown Township, Trumbull County, Ohio. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. 222 ..... BOARD OF GOVERNORS OF CK;t :• e• Item No. 3 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 14, 1966. Board of Directors, People's Trust Company, Dunellen, New Jersey. Gentlemen: The Board of Governors of the Federal Reserve System approves, under the provisions of Sectio n 24A of the Federal Reserve Act, an additional investment in bank premises by People's Trust Company of not to exceed $86,807 for the purpos e of constructing an addition to present quarters and drivein, walk-up and customer Parking facilities. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. 223 Item No. 4 1/14/66 BOARD OF GOVERNORS OF THE ..•'.0ov Go134... : ... . JIIIIL •• I: . FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 . . ADDRESS OfFICIAL CORRESPONDENCE TO THE BOARD January 14, 1966. Board of Directors, Williams Savings Bank, Williams, Iowa. Gentlemen: The Federal Reserve Bank of Chicago has forwarded to the Board of Governors President A. J. Jensen's letter of January 3, 1966, together with the accompanying resolutions dated January 3, 1966, signifying your intention to withdraw from membership in the Federal Reserve System and requesting waiver of the six months' notice of such withdrawal. The Board of Governors waives the requirement of notice of withdrawal. Upon surrender to the months' six Federal Reserve Bank of Chicago of the Federal Reserve Bank stock issued to your institution, such stock will be canceled and appropriate refund will be made thereon. Under the provisions of Section 208.10(c) of the Board's Regulation H, your institution may accomplish termination of its membership at any time within eight months from the date the notice of intention to withdraw from membership was given. It is requested that the certificate of membership be returned to the Federal Reserve Bank of Chicago. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. womommiimmillimileminw T 224 BOARD OF GOVERNORS Item No. 5 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 14, 1966. The Honorable K. A. Randall, Chairman, Federal Deposit Insurance Corporation, Washington, D. C. 20429 Dear Mr. Randall: Reference is made to your letter of December 27, 1965, .!oncerning the application of First State Bank of Green's Bayou, l!ouston, Texas, for continuanc e of deposit insurance after withdrawal from membership in the Federal Reserve System. There have been no corrective programs urged upon the or agreed to by it, which have not been fully consummated, i and there are no such programs that the Board would advise be corporated as conditions of admitting the bank to membership in 'le Corporation as a nonmember of the Federal Reserve System. baro, j Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. 225 BOARD OF GOVERNORS Item No. 6 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDRESS OFFICIAL CORRESPONDEN CE TO THE BOARD January 14, 1966. Honorable Kenneth A. Randall, Chair man, ederal Deposit Insurance Corporation, Wa shington, D. C. 20429 Dear Mr. Randall: Reference is made to your letter of December 27, 1965, celi°11cerning the application of Bank of Illinois Valley, Cave Junction, reg°n, for continuance of deposit insurance after withdrawal from membership in the Federal Reserve System. There have been no corrective programs urged upon the bant. f, A-, or agreed to by it, which have not been fully consu mmated, and :"ere are no such programs that the Board would advis e be incorporated : 8 conditions of admitting the bank to membership in the Corporation g8 a nonmember of the Federal Reser ve System. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. 226 BOARD OF GOVERNORS Item No. 7 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 17, 1966. Board of Directors, Chemical Bank New York Trust Company, New York, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Chemical Bank New York Trust Company, New York, New York, of branches (1) at 2684 Merrick Road, Bellmore (unincorporated area), Town of Hempstead, Nassau County, New York, and (2) on Jericho Turnpike, 175 feet east of Woodbury Road, Woodbury (unincorporated area), Town of Oyster Bay, Nassau County, New York, provided the branches are established within one year from the date of this letter. In its letter of September 3, 1965, approving the establishment of a branch at 3rd Avenue and East 28th Street, Borough of Manhattan, the Board referred to the need for strengthening the bank's capital structure. The Board understands that since that time Chemical Bank has considered raising from $100,000,000 to $125,000,000 of capital funds by the sale of capital notes or debentures. The Board urges that careful attention be given to both the liquidity and capital positions of Chemical Bank with a view to strengthening either or both in such manner that the total Position of the bank may be maintained in satisfactory condition. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branches; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) 22 BOARD OF GOVERNORS Item No. 8 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 Aociacas OrrICIAL CORRESPONDENCE TO THE BOARD . January 14, 1966. CONFIDENTIAL (FR) Mr. George H. Ellis, President, Federal Reserve Bank of Boston, Boston, Massachusetts 02106. Dear Mr. Ellis: The Board of Governors approves the payment of salary to Mr. John A. Hayes as Assistant Cashier of the Federal Reserve Bank of Boston at the rate of $11,500 per an for the period January 1 through December 310 1966. This is the rate fixed by your Board of Directors as reported in your letter of January 3. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 228 BOARD OF GOVERNORS ...•c)Of Got;i•.. Item No. 9 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 SPONDENCE ADDRESS OFFICIAL CORRE TO THE BOARD January 14, 1966. The Honorable Harold F. Linder, President, Export-Import Bank of Washington, Washington, D. C. 20571 Dear Mr. Linder: January 6, 1966, to This is in reply to your letter of Board declare particithe that Chairman Martin, in which you request rt-Import Bank of Expo in pation certificates representing interests ral Reserve Banks Fede by hase purc Washington loans to be eligible for Act and, accordingly, under section 14(b) of the Federal Reserve to member banks under nces adva eligible as collateral security for the eighth paragraph of section 13 of that Act. -Import Bank sells to It is understood that the Export promissory notes acquired in commercial banks participations in ns pursuant to the provisions connection with its financing operatio C. 635). In previous of the Export-Import Bank Act of 1945 (12 U.S. ates, the principal amount of issues of these participation certific in the case of Series each certificate was payable in fourteen (or, together with interest at the rate twenty) equal semiannual installments S pecified for the particular series. unconditionally the payment Export-Import Bank guarantees certificate in the event of principal and interest as due on each notes are insufficient that collections on the underlying promissory the ___ the certificates in full. It is further understood that to pay ort -Imp rt Expo to , part e or in holder may sell the certificate, in whol has Bank t mpor rt-I Expo Bank after a specified period of time, and that ate. ific cert the of a reciprocal right to purchase all or part ion 13 of the Federal Reserve The eighth paragraph of sect Bank ". . . may Act (12 U.S.C. 347) provides in part that any Reserve ty days to its member banks make advances for periods not exceeding nine s of exO n their promissory notes secured by such notes, drafts, bill or for nt for rediscou change, or bankers' acceptances as are eligible " under the provisions of this Act. Purchase by Federal reserve banks Reserve Act (12 U.S.C. 355) Section 14(b) of the Federal notes, l July 1, 1966, any bonds, Provides in part that ". . . unti ed States Unit the or other obligations which are direct obligations of 229 The Honorable Harold F. Linder -2- s as to principal or which are fully guaranteed by the United State to maturities and interest may be bought and sold without regard United States". the to or from tly either in the open market or direc does not expressly Although the Export-Import Bank Act s for the redempState d Unite the Pledge the "faith" or "credit" of certificates, there is tion of the Export-Import Bank's guaranteed despite the absence of such authority for the proposition that, by a wholly-owned Government d issue statutory language, a guaranty ng on the United States. bindi corporation is an obligation fully v. United States, Thus, in National Cored Forgings Co. a suit based 132 F. Supp. 454 (Ct. Cl. 1955), the court held that n, On a guaranty obligation of the Reconstruction Finance Corporatio ht broug be s.wholly-owned corporation of the United States, could court reasoned that when directly against the United States. The rity, it conthe RFC acted within the scope of its statutory autho and as an agent of the United tracted both in its corporate capacity party could institute his States, and that, therefore, an aggrieved United States. cause of action against either the RFC or the United States, in Similarly, the Attorney General of the opment Loan Fund Devel the aril opinion relating to the obligations of wholly-owned a DLF, ( DLF"), ruled that a guaranty issued by the ng on the United bindi fully Government corporation, was an obligation ssly pledging expre age States despite the absence of statutory langu G. No. 1 of A. Op. (42 s the "faith" or "credit" of the United State April 14, 1961). This opinion states: General issued "A series of opinions of the Attorney a guaranty by that d lishe estab between 1953 and 1959 has a congressional to ant pursu a Government agency contracted purposes is an obligagrant of authority for constitutional s despite the absence tion fully binding on the United State 'faith' or of statutory language expressly pledging its guaranty and despite the credit' to the redemption of the priation might be necessary possibility that a future appro to carry out such redemption." s, the Board has concluded On the basis of these authoritie are that the participation certificates of the kind here involved est inter and s as to principal fullY guaranteed by the United State and Act, ve Reser Federal 14ithin the meaning of section 14(b) of the as and Banks ve Reser are, therefore, eligible for purchase by the security for advances under section 13 of the Act. 230 The Honorable Harold F. Linder -3- The Board notes that previously issued participation certificates were nontransferable, although subscribing banks were authorized to sell sub-participations to other commercial banks, trust and pension funds, and to tax-exempt institutions. In order that the Federal Reserve Banks may possess the same rights of ownership in the certificates as the original participants, the participation certificates, and any sub-participations therein, must be made fully transferable to those Banks. It is the Board's understanding that, hereafter, a provision to this effect will be incorporated in all issues of participation certificates. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 231 BOARD OF GOVERNORS Item No. 10 1/14/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADORES!! orriciAt CORREEPONOENCE TO THE BOARD January 14, 1966. Mr. George H. Ellis, Chairman, Board of Trustees, Retirement System of the Federal Reserve Banks, do Federal Reserve Bank of Boston, Boston, Massachusetts. 02106 Dear Mr. Ellis: The Board of Governors approves the following amendments to the Rules and Regulations of the Retirement System of the Federal Reserve Banks, as approved by the Board of Trustees of the Retirement System and set forth in the attachment to your letter Of December 17, 1965. effective January 1, 1966: 1. Amendment to Subdivision (8) of Section 3. 2. Amendment to Section 1(16). 3. Deletion of paragraph (b) of Subdivision (4) of Section 5, and redesignation of existing paragraph (c) as paragraph (b). In addition, the Board approves the resolutions, as approved by the Board of Trustees and also set forth in your letter of December 17, 1965, to amend paragraph (a) of Subdivision (1) of Section 5, and to authorize the Chairman or Vice Chairman of the Board of Trustees, with the advice of counsel, to make such additional changes (which may be retroactive, if necessary) as may be deemed desirable to secure a determination that the trust continues to qualify under the Internal Revenue Code. It is noted that the Board of Trustees agreed with the Retirement Committee that (a) there be no immediate change in the d isability provisions of the Rules and Regulations and (b) there 232 Mr. George H. Ellis - 2 be no change in the Rules and Regulations with respect to the pension formula. The Board concurs with this approach with the expectation that a review will be made at an appropriate future date to determine whether changes are necessary in the disability provisions and the pension formula. . Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. tO 234' 1 Item No. 11 1/14/66 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS orriciAL CORRESPONDENCE TO THE SOAR() January 14, 1966, Dear Sir: The Center for Economic and Monetary Studies in Latin America (CEMLA) has invited the System to nominate candidates for its annual training course for central bank officials which witl be held in Mexico City from May through September of this AG you know from material sent to you in earlier years, Year. the course is conducted entirely in Spanish and therefore a good knowledge of that language is a prerequisite. For several years, the Board has asked each Reserve Bank for suggestions as to qualified members of its staff who might be "nsidered for this course. In the case of the 1966 course, a qu'llified member of the Board's staff is being actively considered, nd the Federal Reserve Bank of New York haa already advised the aosrd that it wishes to nominate a candidate for this year. This y4°uld fill the two places that have been available for Federal /, Leserve representation, and unless your Bank has a strong candidate °m you particularly wish to have considered for the current "'ar t s course, it is suggested that any additional nomination be c"Iled over until next year. n Very truly yours, ' Merritt Sherman, Secretary. I° THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS, EXCEPT NEW YORK.
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