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Minutes for
To:
Members of the Board
From:
Office Of the Secretary
January 16, 1963
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.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
Minutes of the Board of Governors of the Federal Reserve System
on W
ednesday, January 16, 1963.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Candon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Solomon, Director, Division of Examinations
Shay, Assistant General Counsel
Goodman, Assistant Director, Division of
Examinations
Leavitt, Assistant Director, Division of
Examinations
Spencer, General Assistant, Office of the
Secretary
Bakke, Senior Attorney, Legal Division
Potter, Senior Attorney, Legal Division
Gemmill, Economist, Division of International
Finance
Poundstone, Review Examiner, Division of
Examinations
Morgan Guaranty International Banking Corporation (Item No. 1).
Ithere.,
uad been distributed a memorandum from the Division of Examinations
kted.
January 7, 1963, regarding a request by Morgan Guaranty International
kTilt
ing Corporation, New York, New York, for permission to purchase shares
or
t
b*°ankier
scompaEnie, N.V., The Hague, The Netherlands, and for permissi
9.11end its Articles of Association to increase its capital stock. A
,
of reply granting permission in both respects was attached to the
4e111°1"andum.
1/16/63
-2-
At the Board's request, Mr. Goodman commented on this subject.
He Pointed out that the proposal of Morgan Guaranty International to
invest in Bankierscompagnie was novel in that the Dutch company, through
its subsidiary operating banks, would do a general commercial and investMent banking business, including receiving deposits, making loans, creating
acceptances, and selling, distributing and underwriting securities.
Mr.
Goodman observed that this type of operation was not unusual for European
be.nks of the mixed banking type.
However, if the Board should grant its
consent to the proposed investment, it was suggested that a condition be
Prescribed that would preclude Bankierscompagnie and any subsidiary from
engaging in the securities business in the United States or underwriting,
even
on a standby basis, any portion being sold or distributed in the
United States.
The proposed reply had been drafted in a manner reflecting
that position.
Further, the proposed letter would state that neither
nkierscompagnie nor any subsidiary bank or other affiliated company
°1-11c1 be permitted to have a branch, agency, or representative in the
United States.
Following discussion, the letter to Morgan Guaranty International
8anking Corporation was approved unanimously.
A copy is attached as
Messrs. Goodman, Gemmill, and Poundstone then withdrew from the
Itleeting.
Reports on competitive factors. There had been distributed to
the Board drafts of reports to the Comptroller of the Currency on the
1/16/63
-3-
c°11Tetitive factors involved in (1) the proposed consolidation of Security
National Bank of Long Island, Huntington, New York, and The First National
33allk of Southampton, Southampton, New York; (2) the proposed consolidation
Of The National Bank of Liberty, Liberty, New York, and The South Fallsburg
17ational Bank, South Fallsburg, New York; and (3) the proposed merger of
Pirst National Bank of Big Stone Gap, Big Stone Gap, Virginia, into
The First National Bank of Appalachia, Virginia.
The reports were approved unanimously for transmittal to the
e°11113troller, the conclusions therein being stated as follows:
ELIPI.1125ton, New York
Competition between Security National Bank of Long Island
and The First National Bank of Southampton is not substantial.
However, consummation of the proposal would represent another
step in concentrating in three large banks the banking resources
originating in Suffolk County and might have adverse effects on
the two smaller banks located 6 miles east and 6 miles west of
Southampton.
1112911x, New York
The proposed consolidation would eliminate a moderate
degree of competition, with most of such competition centered
in the Woodbourne-South Fallsburg section of Sullivan County,
There the service areas of the two banks overlap.
It does not appear, however, that the proposal would
seriously affect banking competition in Sullivan County where
a number of active competitors would continue to provide convenient alternative banking sources.
alachia, Virginia
A merger of The First National Bank of Big Stone Gap,
Big Stone Gap, Virginia, and The First National Bank of
Appalachia, Appalachia, Virginia, would eliminate the substantial amount of competition between the two banks and
1/16/63
deprive residents of the two communities of one of the two
sources of banking services now reasonably accessible to
them.
Mr. Potter then withdrew from the meeting.
Applicability of Bank Holding Company Act to industrial banks
Item No. 2).
4
At the meeting on January 15, 1963, the Board considered
draft of a proposed interpretation regarding the applicability of the
11411k Holding Company Act to industrial banks, at the conclusion of which
it was understood that the draft would be revised in the light of certain
slIggestions agreed upon.
There had now been distributed a memorandum
*cM1 the Legal Division dated January 15, 1963, to which there was attached
4
revised draft of the proposed interpretation.
The memorandum pointed
°Ilt that the revised draft omitted a paragraph of the earlier draft
l'eleting to consideration of State statutes.
the.
The Legal Division felt
that particular paragraph was not essential to the conclusion and
that conceivably it might be read as implying that State statutes
were
11°°r1Y drafted or that the Board did not wish to take the trouble of
eXamining them.
Following comments by Mr. Hackley, the revised interpretation
e°11eerning the applicability of the Bank Holding Company Act to industrial
.nit
ba
S was approved unanimously.
A copy is attached as Item No. 2.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
the following items:
Memorandum from Mr. Young, Adviser to the Board and Director,
biv
ori sion of International Finance, requesting permission to make a
-day stopover in London, England, on January 24, 1963, following
!
meeting in Paris, France, of Working Party 3 of the Economic Policy
1/16/63
-5-
C2Inmittee of the Organization for Economic Cooperation and Development
Butl.January 22 and 23, 1963, in order to confer with officials of the
'1:tish Treasury and the Bank of England, with reimbursement on an
8.1
et118-1- expense basis, including offical entertainment.
134 Letter to the Interagency Committee on Automatic Data Processing,
N reau of the Budget, advising of the nomination of M. H. Schwartz,
-.rector, Division of Data Processing, as the Board's representative
:
uri the Interagency Committee.
(
('Li/
/.\A_
cret4ary
Item No. 1 •
BOARD OF GOVERNORS
06/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 16, 1963
Xorgan Guaranty International
Banking Corporation,
23 Wall Street,
Ilew York 8, New York.
Gentlemen:
In accordance with the request and on the basis of the
information furnished in your letter of October 31, 1962, transmitted
through the Federal Reserve Bank of New York, and your letter of
December 5, 1962, the Board of Governors grants its consent for Morgan
Guaranty International Banking Corporation (11MGIBCn) to purchase and
12.01d 5,000 ordinary shares, par value 1,000 guilders per share, of
tiankierscompagniel N.V., The Hague, The Netherlands, (ttCompany"), at
a.cost of approximately US$11400,000, provided such stock is acquired
within one year from the date of this letter.
The Board's consent is granted upon condition that MGIBC
shall dispose of its holding of stock of Company, as promptly as
Practicable, in the event that Company should at any time (1) engage
issuing, underwriting, selling or distributing securities in the
united States; (2) engage in the general business of buying or selling
goods, wares, merchandise, or commodities in the United States or
transact any business in the United States except such as is incidental
to its international or foreign business; or (3) otherwise conduct its
°Aerations in a manner which, in the judgment of the Board of Governors,
causes the continued holding of its stock by MGIBC to be inappropriate
Under the provisions of Section 25(a) of the Federal Reserve Act or
regulations thereunder.
Your letter of October 31, 1962 states that Company will,
through its operating affiliates, do a general commercial and investMent banking business including receiving deposits, making loans,
accepting notes, and sellirT„ distributing and underwriting securities
and that in order to capitalize on the reputation and good will of each
name (R. Mees & Zoonen and Hope & Co.) each firm will continue as a
.”Parate accredited private bank under the banking laws of The Netherlands. Your letter of December 5, 1962 states, among other things,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Morgan Guaranty International
Banking Corporation
-2-
that The York Commercial Corporation, New York, one of the subsidiary
companies, is "dormant except for occasional investment in short-term
liquid assets." It is noted, however, that the name of the company is
listed in the 1962-1963 Manhattan Telephone Directory with an indication that it is engaged in "financing.°
In the circumstances, the Board's consent is given with the
additional condition that neither Company nor any subsidiary bank or
Other affiliated company will maintain any branch, agency, office, or
representative in the United States and that Company or any subsidiary
bank or other affiliated company, in issuing, underwriting, selling or
distributing securities abroad, shall not engage or participate in the
underwriting, sale or distribution of securities in the United States
(except the issuance of its own securities), and may not so engage or
Participate directly or indirectly or through an agency or on a commis10n or consignment basis or in any other manner. If a security issue
ls being sold or distributed partly in and partly outside the United
States, Company or any, subsidiary bank or other affiliated company may
not underwrite, even on a standby basis, that portion being sold or
distributed in the United States (no matter by whom it is being so sold
or distributed.)
The Board of Governors also approves the amendment to Article
SEVENTH of the Articles of Association of MGIBC to provide that the
capital stock of the Corporation shall consist of 40,000 shares of common stock of the par value of $100 each.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
TITLE 12 - BANKS AND BANKING
137
Item No. 2
1/16/63
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. Y]
PART 222--BANK HOLDING COMPANIES
§ 222.116
Applicability of the Bank Holding Company Act to Industrial
Banks.
(a) Questions have been presented to the Board of Governors
regarding the applicability of the Bank Holding Company Act of 1956
(12 U.S.C. 1841 et seq.) to the acquisition of the stock of so-called
"industrial banks".
(b) Section 2(c) of the Act (12 U.S.C. 18)41(c)) provides that the
term "bank" means, for purposes of the Act, "any national banking
association or any State bank, savings bank, or trust company * * *."
(c) Industrial banks are State-chartered institutions which engage
ill the furnishing of consumer credit.
Although these institutions
customarily accept from borrowers installment payments on "investment
certificates" (or similar instruments, by whatever name called) the
Proceeds of which, when fully paid, may be used to retire the loan,
they may also issue either installment or paid-up investment certificates unrelated to loan transactions and, in some States, may receive
Savings deposits" evidenced by passbook or otherwise.
(d) Since industrial banks are obviously not national banking
associations, savings banks, or trust companies, the question is whether
they are to be regarded as "State banks" under the Act.
-2(e) It appears that a principal purpose of the Act was the control
Of concentration of commercial banking resources because of their influence on the money and credit system of the country. While not concluthat it
sive, statements in the Committee Reports on the Act indicate
Ifas directed principally at control of "commercial" banks, and statements
made during debates on the bill suggest specifically that "industrial
d as being
banks", as that term is usually understood, were not regarde
engaged in commercial banking. In any event, it is clear that the
within
C°ngress did not intend to include all financial intermediaries
the purview of the Act, as is evidenced by subsequent enactment of other
legislation to regulate holding companies controlling savings and loan
associations.
Therefore, while the legislative history of the Act is
not clear regarding the status of industrial banks thereunder, it seems
reasonable to conclude that the key term "State bank" in the Act was
°IrIP1oyed by the Congress in its restrictive sense as a word of art
limited in applicability to those institutions engaged in operations characteristic of commercial banking) rather than as a "basket"
provision.
Board that,
(f) In light of the foregoing, it is the opinion of the
taking into account the spirit and purpose of the Act, industrial banks
are not within the purview of the term "State bank" as used in the Act,
the institution
-1-1.Q-:122 in a particular case, regardless of the title of
to check or
'the form of the transaction, it accepts deposits subject
Or
otherwise accepts funds from the public that are, in actual practice,
repaid on demand, as are demand or savings deposits held by commercial
banks.
-3(g) Accordingly, the Board concludes that industrial banks and
similar institutions that do not fall within the exception above
stated are not "banks" within the meaning of the Act and control of
such institutions does not cause a corporation to be a "bank holding
companyn. It follows also, of course, that, since such an institution
i8
not a bank for purposes of the Act, its stock may not be acquired
bY a bank holding company, unless the acquisition falls within one of
the exceptions set forth in section 4 of the Act.
(12 U.S.C. 1844)
Dated at Washington D. C., this 16th day of January, 1963.
By order of the Board of Governors.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(sEAL)
@FedFRASER