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6o9 'ley' 10/59 Minutes for January 17, 1961 To: Members of the Board From: Office of the Secretary 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. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System on Tuesday, January 17, 1961. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman 1/ Balderston, Vice Chairman Szymczak Mills Robertson Shepardson King Sherman, Secretary Kenyon, Assistant Secretary Fauver, Assistant to the Board Hackley, General Counsel Solomon, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. Chase, Assistant General Counsel Mr. Nelson, Assistant Director, Division of Examinations Mr. Rudy, Special Assistant, Legal Division Miss Hart, Assistant Counsel Mr. Leavitt, Supervisory Review Examiner, Division of Examinations Mr. Mr. Mr. Mr. Mr. Items circulated or distributed to the Board. The following items, had been circulated or distributed to the Board and copies of which ll're at were to these minutes under the respective item numbers indicated, aPproved unanimously: Item No. tatt -er to the Federal Reserve Bank of New York f e 4Te6sing the opinion that, on the basis of submitted, the prohibitions of section to c)f the Banking Act of 1933 would not apply ra certain interlocking relationships between ',Inbar banks and Investors Management Company, Elizabeth, New Jersey. "41thdrew from meeting at point indicated in minutes. 1 1/17/60 -2Item No. lc,etter to The Chase Manhattan Bank, New York, ePproving the establishment of a branch -'zast 66th Street and Avenue U, Borough of Br ooklyn. 2 Letter to Fidelity-Philadelphia Trust Company, hil adelphia, Pennsylvania, approving the esta blishment of a branch at Olney Avenue and Pairhill Street and an additional investit bank premises. 3 Idetter to The Harter Bank & Trust Company, nat°n, Ohio, approving the establishment of ''raneh at 230 South Chapel Street, Louisville, Ohio. 14. letter to The Elyria Savings & Trust Company, airla, Ohio, approving the establishment of °ranch at 336 Second Street. 5 ',Letter to Minden Bank & Trust Company, Minden, , isarla, approving the establishment of a 1Z -..44en in Sarepta. 6 11,4etter to State Bank and Trust Company, Paua Arbor, bi Zigan, approving the application for fiduciary 1-"ere submitted on behalf of the national bank flt° *which it is to be converted. 7 Banking Act of 1933 Applicability of section 20 and section 32 of investment organizations (Items 8 and 9). There had been distributed to the members of the Board copies of a memorandum from the 'Leval Division dated January 6, 1961, regarding correspondence from the Peder the al Reserve Banks of Philadelphia and San Francisco which raised of the Banking glle6tiOn of the applicability of section 20 and section 32 At of -L1„ organizations Y33 to relationships between member banks and certain 1/17/61 -3- that would invest their assets in real estate or real estate development and vould raise their capital by a single issue of their shares. Section 20 makes it unlawful for a member bank to be affiliated with an organization It en gaged Principally in the issue, flotation, underwriting, public sale, or dist ribution at wholesale or retail or through syndicate participation of StOC -s, bonds, debentures, notes or other securities". Section 32 makes it Unlawful for an officer, director, or employee of a member bank to be at the zation sale, same time an officer, director, employee, or partner of an organi"primarily engaged in the issue, flotation, underwriting, public or distribution, at wholesale or retail, or through syndicate Participation, of stocks, bonds, or other similar securities". The question presented through the Federal Reserve Bank of San ,-J.sco involved the organization and proposed activities of a company Izown as Union Investment Co., and the relationship thereof to the Union -) a State member bank located in Los Angeles, California. The question Presented through the Federal Reserve Bank of Philadelphia involved the bility of officers and directors of member banks to act as trustees Of a newly authorized real estate investment trust being organized to take advolatage of the provisions of Public Law 86-779, approved September '1960, the principal purpose of which was to permit collective invest14 ne t in real estate assets, through the medium of a real estate investment trust ) without subjecting the income of such trust to Federal income taxes, 1/17/61 -4- thus affording to its shareholders the same benefits as those enjoyed by sto. cholders of investment companies whose assets ordinarily consist of corporate stocks and bonds. The memorandum from the Legal Division commented that it would be difficult to conclude that the real estate activities of the organizations in '1'eati0n would constitute a securities business within the meaning of the aw. Therefore, the principal question was whether the issuance of stock in connection with their organization would alone be sufficient to bring them under sections 20 and 32. The Legal Division was of the opinion that these sections *would not be applicable in the present instances, this e°11clusion being based primarily on the fact that the organizations would raise their capital in a manner comparable to that by which any business rIterprise might raise its capital; that is, by a single initial issue of Shal ' es. Some members of the Legal Division also placed heavy reliance 1113°11 the legislstive history of the statutory provisions, which indicated that congress did not have in mind any organizations except those engaged ill the underwriting and flotation of stocks, bonds, and similar securities. The memorandum pointed out that the conclusion reached by the Legal --vision did not seem to be logically consistent with the conclusion "ated in EL ruling published in the April 1960 issue of the Federal Reserve in that a closed-end investment company in process of organization 811(1 actively engaged in issuing and selling its own shares is in the same 1/17/61 -5- 148ition relative to section 32 as an open-end company. The Legal Division 13ov believed that section 32 should not be regarded as applicable to 8 c0111PanY (whether or not an investment company) merely because it was engaged in making the initial issue of its stock, and that the section hoUld be regarded as applicable only if the issuance of the stock was 111°re or less continuous and in substantial amounts. Nevertheless, even th°Ugh the Board agreed with this conclusion, it might prefer not to reverse the April 1960 ruling, perhaps on the ground that the activities "a closed-end investment company are so close to the securities market that such a company should be regarded as covered by the law while it is rtiairillg an initial offering of its stock in the process of organization. According to previous Board rulings, however, a closed -end investment c°1111panY after its organization is no more a securities company than a niellUfaCtUring company. Moreover, the position taken in the April 1960 1.11114 involved the strained result that a director of a member bank could not se rye as a director of a closed-end investment company until its initial ,tance of stock was completed, but could serve thereafter, and that if the c °mPsnY should later increase its stock the director would have to rev 'FM from the board of the investment company for the temporary period dllring which the new stock was being issued. For these reasons, some niellibera of the staff felt that the logical course would be to reverse the APril 1960 ruling. 1St) 1/17/61 -6Submitted with the memorandum were drafts of letters to the Federal Reserve Banks of Philadelphia and San Francisco reflecting the conclusion of the staff with respect to the non-applicability of sections 20 and 32 in the Particular circumstances concerned. Despite the conclusion stated therein, each of the letters contained language calling attention to possible dangers "the described arrangements that should be borne in mind not only by examiners hut also by the management of banks concerned. In commenting on the matter, Mr. Hackley noted that the organizations in question Would be engaged in making real estate loans and investments and that they would not be engaged in distributing or floating stocks, bonds, Or lar securities. Thus, they would appear to be brought under the Cover s'ge of sections 20 and 32, if at all, only because of the issuance of Stock in connection with their organization, and in both cases the issuance Of at was expected to be completed within a relatively short period. In 1941, and again in 1951, the Board took the position that open-end invest1)111t c°mPenies engaging in frequent issuance of their own stock in substantial "1°11nts relative to their outstanding stock would be covered by section 32 the ground that such issuances of stock were essential to the continuation °r the company. By the same token, closed-end investment companies were not regarded as being subject to section 32. However, as pointed out in the tegal Division/s memorandum, in April 1960 the Board published a ruling in Vhleh it took the position that even a closed-end investment company, while 1/17/61 -7- in process of organization and engaged in the issuance of its own stock, 1/c)uld fall within the provisions of the law. On that basis, Counsel for the Federal Reserve Banks of Philadelphia and San Francisco had expressed the view in the present cases that the proposed reel estate investment Organizations would be covered. Counsel for the member bank in California vitt which one of the proposed organizations was to be affiliated had slibmitted a brief which included the argument that the law was not intended to aPPlY to a company solely because it was issuing its own stock, and that the congrecs had in mind situations where companies were distributing the stock Of other companies. Nevertheless, taken literally, the law would seella to cover the issuance of stock regardless of whether it was stock Of the comPany involved, if such issuance c°41PanYts business. Was a substantial part of the On the other hand, it could be said that when a c°47PenY was in process of organization, Obviously its principal activity l'reUld be the issuance of its own stock. If thereafter it would not be etigaged in a business which would bring it within the law, it would seem rather arbitrary to say that the law applied to the company while it was ill the process of organization. On such a basis, almost any company could Ipe subject to sections 20 and 32 while it was in the process of organization. 41 co ntrast, if a company should Initially issue its stock over a long ilell°c1 of time or if, after organization, it issued its own stock frequently 1" in substantial amounts in relation to its stock outstanding, the Sit1-lation would be different. 1/17/61. -8Mr. Chase, one of those who preferred that the 1960 ruling not be reversed, brought out that all of the members of the legal staff had reached the same conclusion with respect to the two cases now before the Board. However, the lines of reasoning used in reaching that conclusion varied somewhat, and this might affect the result in future cases. He e°118idered it important to bear in mind that sections 20 and 32 were first enacted because the Congress had found that the commingling of ec)n ercial and investment banking was a contributing factor to the " Iculties that resulted in the 1929 crash and the Bank Holiday of 1933- Accordingly, in the Banking Act of 1933 the Congress included a 111)41ber of provisions designed to separate commercial and investment king) among them sections 20 and 32. Rather early in the administratio n of those provisions of the law, the Board decided that they 811°111d be applied not only to situations that the Congress obviously had in but also to relationships between commercial banks and open-end tment companies engaged continuously in the issuance of their own share 8* Until recently, however, the Board did not extend its position t° include closed-end investment companies. In connection with one of the c_ 'ses now before the Board, counsel for the member bank had submitted brief which reviewed the legislative history and concluded that sections 20 32 should not be considered applicable to any organization not in the E3 c11, ities business. This was consistent with the recommendation of the t eJ 'division in these two cases, which was based on the conclusion that 1/17/61 -9- the °rganizations in question were outside the field that the Congress had in mind in enacting sections 20 and 32 of the Banking Act of 1933. As to losed-end investment companies, while the Board had never ruled until 4111 1960 that they were subject to the provisions of the law, on the "her hand the Board had always taken the position that a company might baSUbject thereto if it became actively engaged in the issuance of its shares. On certain occasions the Board had considered whether a COrn , ---ljanY should be placed in the same category as an open-end investment c°111PanY because it was engaged in a new issue of its shares, and the Board had ruled negatively because some special reason for the issue was involved, Slich as a capital gains situation. In other circumstances, however, if a 10Bed-end investment company became actively engaged in issuing its own Bhareay its position might become quite similar to that of an open-end. comps nY. Therefore, Mr. Chase felt that reversal of the 1960 ruling was 144 required. Mr. Hackley pointed out that it WS agreed that a closed-end investment company might become subject to the provisions of the statute if it engaged in issuing its own shares on frequent occasions in substantial a14°1111t80 Unless that happened, however, Mr. Hackley felt that a closed-end e°14/611Y would be no more subject to the provisions of the law than, for ex "1131e, a shoe company. etld c He found it difficult to conclude that a closed- process of corporate °mPanY, while issuing its shares in the normal I 1/17/61 -10would be subject to sections 20 and 32 while a shoe company vould not. Miss Hart commented that this was an area where it take either position. WS easy to On the whole, however, she felt that she would Preter to retain the 1960 ruling, on the basis that a closed-end investCompany was so much involved in the securities business that any time it issued its own stock, except in a specialized situation, it was engaged ii the business of issuing securities. The Congress had seen fit to say that a bank director should not be connected with a company engaged in the iseo, "ahce of securities, whereas it had not seen fit to specify that such a director should not be connected with a company engaged in making or recomrnerlding investments in real estate. Of the As one looked at the underlying purpose legislation, it appeared to be aimed at relationships between banks axba cotpanies actively engaged in issuing securities. Mr. Hackley said that there was no strong feeling on the matter and L that , 'e 41. difficulty was simply in resolving the seeming inconsistency between the Inc_ 'uu ruling and the position taken in the letters proposed to be approved by the Board. rev,„ ' 171e If the two could be reconciled, it might be preferable not to the 1960 ruling. However, it might be difficult for other parties erstand the Board's rationale if the proposed letters were issued and L960 ruling remained outstanding. Mr. Hackley went on to say that affiliations with real estate investtrusts could of course, lead to abuses somewhat similar to those that 1117/61 then -11- ongress had in mind as growing out of the affiliation of member bank directors with securities companies. letters be Therefore, each of the proposed included a caveat that bank examiners and bank management should aware of the possibility of such abuses. riot However, the statute did aPPear to cover that type of relationship. Mr. Hexter pointed out that continuation of the 1960 ruling would aleala that if a member bank director wished to become a director of a new cicIsed-end investment company and made inquiry, the answer presumably 1()Illd be in the negative. However, following the initial issuance of secUrities by the company, he might become a director. It was hard to see how the purpose of the Congress, that is, the separation of commercial ba4king and investment banking, would be served if it were said that a man c°11-14 not become a director initially when it was known that he was going °4 the board of directors later. Moreover, in respect to infrequent 1,sequent issues of securities, the individual would have to leave the 1)48.11 of directors while such an operation was in process, but he could "I'lle quently return to the board of directors. Mr. Solomon said that admittedly there were some potential evils 111 the YPe of relationships envisaged by the cases now before the Board. , ery as Mr. HacklPy had pointed out, it must be recognized that the Btat114. did not appear to be aimed at such relationships. Therefore, it ,h7/61 -12- seemed feasible only to call attention to the potential evils in such manner as to alert bank examiners and bank management to the problem. Governor Mills expressed agreement with the conclusion reached in the memorandum from the Legal Division concerning the cases currently under eQnsideration by the Board. ilot be rc'r the As to the 1960 ruling, he felt that it should reversed at this time, although the matter might properly come up review at a later date. He indicated that he was much concerned about putential evils that could grow out of the enactment of Public Law 86-779/ which he felt opened the door to undesirable types of speculation ill the real estate field. Its provisions offered windfall profits in eiating situations and held out a temptation for others to go into the ri eld. When it came to relationships with commercial banks, he believed that the inclusion of the caveats found in the proposed letters was highly impor, 'ant. Further, he had in mind questions concerning the holding company "liate status of a real estate investment trust under the existing stat Utes and the Boardta position if a bank holding company should desire to o,. 'ganize a subsidiary that would engage in business as a real estate thy estment trust. In such event, the Board presumably would be faced with the question of determining whether the activity would be so closely related to b Bank Holding anking as to deserve exemption under section 4(0(6) of the 4ft,„ --kie-nY Act. riot to prefer In all the circumstances, Governor Mills said, he would reverse the ruling of April 1960 at this time. Also, he felt that 1/17/61 -13- the Board should look with great care to the possibility that holding es:113anY problems could arise from the position proposed to be taken today. Mr. Solomon then described how some degree of compatibility might be f°und between the April 1960 ruling and the position taken in the proPosed letters to the Philadelphia and San Francisco Reserve Banks, depending Or the circumstances surrounding the issuance of shares of a closed-end investment company, particularly the period of time during which it was risaged that the issuance of shares would take place. " er Mr. Hackley suggested, in line with Mr. Solomon's comment, that the °Priate course might be to clarify, rather than reverse, the 1960 ruling, 8° a8 to indicate that it would continue to be applicable in a situation the process of organization of a closed-end company would extend over a Period longer than normally required. ns that Chairman Martin stated that he shared all of the apprehensio had been expressed. His question, however, about retaining the 1960 ruling vhether the Board would be acting ultra vires. In his opinion, the soard should not attempt to correct things that the Congress had not seen tit t° correct by statute, merely because it foresaw the possibility of certain abuses. If the law clearly did not cover a situation such as rer rred to in the 1960 ruling, then it would appear to him that the 1111ing should be changed. Mr. Chase commented that the Board2s 1941 ruling on open-end investcompanies was in effect an extension of the law. Despite certain 11:4'11Zent8 made to the Board at the time, the Board decided to construe the 1/17/61 -14- PrOvis10n5 Of the law as being applicable to such companies. As to the 106ed-end investment company, the principal point was whether it was g0ing to get its shares sold within a relatively brief period. In a case 'bihere that was so, he would not object to changing the 1960 ruling. Mr. Hackley said he had in mind that if the two letters under c°118ideration today should be approved by the Board, the staff could pre1)111"e a new ruling based on those letters for publication in the Federal ilegister and the Federal Reserve Bulletin. The new ruling could also make clear the intent of the 1960 ruling. Governor Robertson stated that he would have no difficulty with the nlendation of the Legal Division concerning the questions presented " l'ecc thro 'gn the Philadelphia and San Francisco Reserve Banks. Further, it was h strong feeling that the position taken in the April 1960 ruling consti- t ted an interpretation of the law going beyond the intent of the statute. Ir ''t outstanding in its present form, the ruling would be inconsistent lith ""e position now recommended by the Legal Division and it would stand ks Undue extension of the language of the statute by an administrative Neri cY. Therefore, it should be clarified. Governors Shepardson, King, and Szymczak having indicated that thei 'views were similar to those expressed by Governor Robertson, the Aroposed letters to the Federal Reserve Banks of Philadelphia and San s .13C° ' 1.P.'re approved, with the understanding that the substance of the -15ielrs expressed therein, along with a clarification of the ruling of April 1960) would be prepared for publication and that the draft would be presented to the Board for review prior to being published. I Copies of the approved ters to the Philadelphia and San Francisco Reserve Banks are attached as Items 8 and 9, respectively. Miss Hart and Mr. Rudy then withdrew from the meeting. Submission of record on bank merger cases. Governor Robertson rted having received a telephone call from the Comptroller of the Curl, eneY, who referred to the statutory requirement that each of the Pede ral bank supervisory agencies include in its annual report a record or -1)Plications under the Bank Merger Act that had been approved by it, alc41g with a statement of the basis for approval in each case and the 811rall arY statement of the Department of Justice regarding its views on the e°n1Petiti --ve aspects of the transaction. the atnual The Comptroller pointed out that reports of the three agencies might not be available for some " and stated reasons why it might be desirable for the three agencies to 'Uomit in advance to the Banking and Currency Committees the record of .4.0 taken under the Bank Merger Act. Governor Robertson indicated that he would be inclined to go along th the that the suggestion of the Comptroller of the Currency, on the assumption same procedure would be followed by each of the three Federal bank N)e rv--clrY agencies. He understood that the Division of Examinations -16have available shortly for the Board's consideration a draft of the Perttnent portion of the Board's Annual Report for 1960. In reply to a question, Governor Robertson said he would not be ItIclited in this instance to weigh too heavily the problem of creating a pre cedent. Chairman Martin expressed the same view, stating that the question f establishing a precedent would not concern him too much in these circumstances. In further comments, he mentioned the desirability of submitting the Board's Annual Report for 1960 as promptly as possible and added that it a Portion of the material to be included in an Annual Report should be relllested by appropriate committees of the Congress on any occasion, he relt that the Board would have no recourse except to comply to the best r its ability. Ensuing discussion reflected an understanding that any material °4 actiots taken on applications under the Bank Merger Act that might be ted to the Banking and Currency Committees in advance of the Annual RePort - 'would be in the same form as the material later to be incorporated t4 the A nnua1 Report. The Division of Examinations was then requested to make available rc)r th e Board's consideration a draft of the material being prepared for the A 411129.1 Report relative to actions taken on applications under the 44 -rger Act, in order that the Board might consider the advance 1117/61 811111-asi0n of such material to the Banking and Currency Committees pursuant to the procedure suggested by the Comptroller of the Currency. All of the members of the staff except Messrs. Sherman, Kenyon, and Pallver then withdrew from the meeting. A 1/21pIllent of director. -11 After discussion of possible appointees ing Whom biographical data had been distributed, it was agreed to Nuest the Chairman of the Federal Reserve Bank of St. Louis to ascertain whether Edward B. LeMaster, President of Edward LeMaster Co., Inc., Memphis, Tennessee, Mem,. would accept appointment, if tendered, as a director of the s Branch for the unexpired portion of the term ending December 31, 1963, with the understanding that the appointment would be made if it were f()11nd that Mr. LeMaster was available. it vas If Mr. LeMaster was not available, agreed that a similar procedure should be followed with respect to F. Rieves, Jr., General Manager of the Kuhn Farms, Marion, Arkansas. Secretaryts Note: It having been ascertained that Mr. LeMaster would accept the appointment if tendered, an appointment telegram was sent to him on January 18, 1961. Should a vacancy occur among the Class C directors of the Federal Reserv_ 'e Bank of St. Louis, the staff was requested to bear in mind that the /3°ard would like to consider William King Self, President of the Riverside Chemin , -84- Company, Marks, Mississippi. bee), Information concerning Mr. Self had - Qtistributed in connection with the vacancy on the Board of Directors theor Memphis Branch. tIg Ak, 1117161 Chairman Martin was called from the meeting before the Board reached 118 decision on the appointment of Mr. LeMaster. Before leaving, however, he stated that he would be agreeable to whatever selection might be made by the Board from among the possible appointees who had been suggested. The meeting then adjourned. Secretaryts Note: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board acceptance of the resignations of the following persons on the Boardts staff, effective the dates indicated: Sondra W. Elrod, Statistical Clerk, Division of Research and Statistics, effective at the close of business January 16, 1961. Jeannette V. Breden, Assistant Manager, Cafeteria, Division of Administrative Services, effective at the close of business January 27, 1961. eitictc**4 44 AO 40/.%4 6* tip BOARD OF GOVERNORS OF THE Item No. 1 1/17/61 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. lt,t1 ADDRESS arrictAL CORRESPONDENCE TO THE SOAR° January 17, 1961 11r. Howard D. Crosse, Vice President, Federal Reserve Bank of New York, New York 45, New York. Dear Mr. Crosse: Receipt is acknowledged of your letter of January 5, 1961 r_ielosing a copy of a letter dated November 28, 1960 from Shearman & Sterling & dright, containin-4 information as to '?Ite changes in the factual situation existing when the Board con. 1dered the application of section 32 of the Banking Act of 1933 to .'(3 interlocking relationships between certain member banks and ' Management Company, Inc., Elizabeth, New Jersey. t In its letter of October 12, 1954 the Board expressed the view that upon the facts then before it the interlocking relationships would not fall within the provisions of the statute. The Boardis decision was based upon the conclusion that Investors vanagement Company, Inc., and Long & Co., should 1D'. regarded as separate and distinct corporate entities. The Board agrees with lYour bank and its counsel that none of the changes reported in the Jietter of November 28, 1960 has been a basic change in the relevant Aaet8 of the situation as considered by the Board in arriving at its klecision in 1954. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS oi.tAtir4,4 OF THE 4'j 10\ IA ; It FEDERAL RESERVE SYSTEM Item No. 2 1/17/61 WASHINGTON 25, D. C. ADDRESS arriciAt. CCIRRESPONDENCE TO THC BOARD January 17, 1961 Board of Directors, The Chase Manhattan Bank, New York, New York. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors of the Federal Reserve System approves the establishment of a branch on the southwest corner of East 66th Street and Avenue U) Borough of Brooklyn, New York, by The Chase Manhattan Bank, New York, New 4ork3 provided the branch is established within one Year from the date of this letter. Very truly yours, (Signed) 'Ilizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.:. BOARD OF GOVERNORS 44; ' 0 14(14ki4 OF THE 01 * 4 e 4 Item No. 3 FEDERAL RESERVE SYSTEM 1} 1/17/61 WASHINGTON 25. D. C. 4 , ;11 11 ADDRESS OFFICIAL CORRESPONDENCE i tz 4tett/ 4444**** TO THE DOARD January 171 1961 Board of Directors, adelity-Philadelphia Trust Company, Philadelphia, Pennsylvania. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Philadelphia, the Board of Governors approves the establishment of a branch by Fidelity-Philadelphia Trust Company, Philadelphia, Pennsylvania, on the southeast corner of Olney Avenue and Fairhill Street, Philadelphia, Pennsylvania, provided the branch is established within one Year from the date of this letter. The Board of Governors also approves, under the provisions of Section 24A of the Federal Reserve Act, an additional investment of not to exceed $103,000 in bank Premises by Fidelity-Philadelphia Trust Company for the Purpose of providing quarters for the above branch. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. C BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C, Item No. 4 1/17/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 17, 1961 Board of Directors, The Harter Bank & Trust Company, Canton, Ohio, Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Cleveland, the Board of Governors aPProves the establishment by The Harter Bank &.• Trust C04Parly of a branch at 230 South Chapel Street, Louisville, °hio, Provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS •OF THE FEDERAL RESERVE SYSTEM Item No. 5 1/17/61 WASHINGTON 25, D. C. AOORESS OFFICIAL CORRESPONOENCL TO THE 130AFIEI January 17, 1961 Board of Directors, The Elyria Savings & Trust Company, Elyria, Ohio. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Cleveland, the Board of Governors aPproves the establishment of a branch at 336 Second Street, ElYria, Ohio, by The Elyria Savings & Trust Company provided the branch is establis hed within six months from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 6 1/17/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE DOARD January 17, 1961 Board of Directors, Minden Bank & Trust Company, Minden, Louisiana. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Dallas, the Board of Governors of the Federal Reserve System approves the establishment by Minden Bank & Trust Company , Minden, Louisiana, of a branch in Sarepta, Louisiana, provided the branch is established within six months from the date of this letter. Very truly yours, (signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. t) BOARD OF GOVERNORS ( tooltoi'voi, OF THE .4 FEDERAL RESERVE SYSTEM Item. 1k). 1/17/61 WASHINGTON 25. D. C. \ eitte.4t ADDRESS OFFICIAL CORRESPONOENCE TO THE BOARD January 17 19-31 0ard State of Directors, Bank and Trust Company, A11111 Altcr, Michigan. Gentlemen: The Board of Governors of the Federal Reserve System has given ciary consideration to the application for permission to exercise fidu0111_ Powers made by State Bank and Trust Company, Ann Arbor, Michigan, ItZhalf of National Bank and Trust Company of Ann Arbor, Ann Arbor, the national bank into which it is to be converted, and P•atits lach national bank authority, effective if and when the proposed cri ' rslon is consummated, to act, when not in contravention of State and 7 3a1 law, as trustee, executor, administrator, registrar of stocks eataunds, guardian of estates, assignee, receiver, committee of banlv :of lunatics, or in any other fiduciary capacity in which State tion', trust companies, or other corporations which come into corpetiStat;”,h national banks are permitted to act under the laws of the °4 Michigan. The exercise of such rights shill be subject to Re 14'ovisions of Section 11(k) of the Federal Reserve Act and aticn F of the Board of Governors of the Federal Reserve System. After the conversion becomes effective and the Comptroller (/t the are Currency authorizes the national bank to commence business, you re Trustpested to have the board of directors of National Bank and tict' cmPany of Ann Arbor adopt a resolution ratifying your applicaqthr°r permission to exercise fiduciary powers, and a certified copy 8 e resolution so adopted should ba forwarded to the Federal Reserve copy! ° Chicago for transmittal to the Board for its records. lenen a 0.4 zuch resolution has been received by the Board, a formal 4140J-cate indicating the fiduciary powers that the national bank is 41zed to exercise will be forwarded. Very truly yours, (Signed) Elizabeth L. Carmich,-J_ Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS oLtV(44.4 OF THE FEDERAL RESERVE SYSTEM 4 WASHINGTON 25, D. C. . 414111./ Itc-A No. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 17, 1961 Mr. Robert N. Hilkert, Irst Vice President, ederai Reserve Bank of Philadelphia, Philadi 1, Pennsylvania, t Dear Mr. Hilkert: Further reference is made to your letter of October 20, 1960 the enclosures relating to the applicability of section 32 of of Banking Act of 1933 to the eligibility of officers and directors member banks to act as trustees of a newly authorized real estate ,livestment trust. The facts as outlined in the correspondence are, briefly, is being organized so as to take advantage of Public Ilhinh -779 approved September 14, 1960, the principal purpose of ns to permit collective investment in real estate assets, thr ; jeeiZgu the medium of a real estate investment trust, without subaft, 'flg the income of that trust to Federal income taxes, thus by: tding Is to its shareholders the same benefits as those enjoyed cons.00 kholders of investment comoanies whose assets ordinarily 1st of corporate stocks and bonds. The initial issue of the shan., offe;s °f the proposed trust will aggregate approximately 1(:) million, stoo-ded to the public by a group of underwriters, and it is underthat it is expected that the distribution would be complete In it hnot more than a few days", although it is indicated that after sella Operated for some period of time, the trust might decide to gidcedditional shares (letter of October 17, 1960, from Drinker come & Reath). The trust may hold unimproved land or rental inwhether residential, commercial, or industrial. The 'flortp„:julk of its income will be derived from rents, interest on Of r 'les, capital gains on the sale of real estate, and other forms a4l estate income. that ,, Law 8re It appears, therefore, that the proposed real estate bendrent trust will not invest its assets in corporate stocks and fialin and will raise its capital by a single issue of stock in a "similar to that in which any other business enterprise might 3 1/1Va 4 Mr. Robert N. Hilkert raise its capital. In the circumstances, the Board is of the opinion that section 20 and section 32 of the Banking Act of 1933 will not be applicable to the trust. Of course, if it should later appear that the t sale of the trust's shares is to continue over a long period of slTe, or that additional shares are to be issued frequently and in ,Ilustantial amounts, relative to the size of the corporation's capital :Lructure, or if there should be any other material change in the as outlined in this letter and in the letters referred to above, it L might be necessary for the Board to reconsider the matter. iflVolveThe Board believes that the proposed arrangement could --Lye some danger to the member banks whose directors would be :Irving as trustees because the trust might be so identified in the su! tl.cpis of the public with the member bank that any financial reverses ered by the trust might affect the confidence of the public in th ' sue banks or might unduly incline the management of the banks toward 21mrting the trust and rescuing it from financial difficulties, ilould they occur. The interlocking relationships might tend to i jffrilPair the independent judgment that should be exercised by a bank ti aPPraieing its credits; and this could raise questions in connec84°n with the credits extended by the banks to the trust. These cone;'cuerations should be borne in mind not only by the examiners who t amine the member banks in the future but also by the management of hose banks. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 9 1/17/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 17, 1961 H. N. Mangels, President, pederal Reserve Bank of San Francisco. 'an Francisco 20, California. Dear Mr, Mangels: On October 19, 1960, Loeb and Loeb, attorneys for Union Bank, a co Los Angeles, California, wrote the Board of Governors enclosing re PY of their letter of June 27, 1960, to Mr. Millard and of his aP of August 10 regarding "the formation and activation of an N4lliate of Union Bank to be known as Union Investment Co." On laroner 18, 1960, Mr. S. B. Burnham, Vice President of the bank, or_ e the Board supplementing the information with respect to the tilization and proposed activities of Union Investment Co. With 111 , 3 letter was submitted a brief prepared by Mr. Westwood and cola Gribbon of the firm of Covington & Burling, Washington, D. C., of 32el for Union Bank. Copies of these papers (except the letters Une 27 and August 10) are enclosed. It is understood that the plan which is being considered is as foil share °Ws. The shareholders of Union Bank will either be given the thlio 8 of Union Investment Co. or will be given a dividend in cash by to tiril Bank and will have the right or option to apply the dividends apite,Purchase of Union Investment Co. shares. The initial paid-in Ther a-I of Union Investment Co. would be slightly in excess of 4100,000. PerV.ter, Union Investment Co. would issue rights to its shareholders capit';ing them to acquire additional shares to provide additional that !-L which might aggregate $6 million. The letter of June 27 says ' nye the trust department of Union Bank "would act as agent for Union Depa, 8L'ent Co. under a contract which would contemplate that the Trust ent would find and negotiate investments along the following nd would receive a fee for this service. Such investments rrLth3 tion be in the nature of loans to provide capital for the acquisiblast °f unimproved real estate, to be used for the construction of intoness buildings or possibly shopping centers. In addition to the age r!st to be paid for the loan, it would be expected that a percentposs?J. the profits would be received by Union Investment Co. It is drialble that capital would be advanced for the acquisition of oil or thing rights and here again in addition to interest some percentage e Profits would be expected. Such investments would normally H. N. Mangels -2- rolot be bankable transactions but would probably originate through tr,. tacts with bank customers and would be in the form of a referral th,'Ile investment company, inasmuch as the bank would feel that g4 investment was speculative or for any other reason not a bankable The letter of November 18 states that it is believed that the e ntire amount of necessary capital will be raised without making aiaof!e alll ring to anyone other than stockholders of Union Investment Co." 4th 6114t, once the necessary Government clearances have been obtained, to rights offering will extend over a period of not more than thirty ( )tY dayseit 6, thesi The letter further states that it is believed that pan million equity capital "will be sufficient to finance the comsal 8 Proposed activities for the foreseeable future, and no further : the 8 of Union Investment Co. stock either to its stockholders or to Public are presently contemplated." The letter of November 18 further states that Union investment Co. does not propose to buy or sell the securities of Other ' pan companies, that the business of the company will be to make thats for capital investment purposes, and that it is contemplated aeli at no time will Union Investment Co. engage in underwriting or V-ng the or securities of any other company, and that its Articles neorporation will restrict it from engaging in any such activity. Since Union Investment Co. and Union Bank initially will rore itpe same stockholders, directors, and officers, and will thereti0 „ 9 affiliated, the principal question presented is whether secsec ' t:.40 or section 32 of the Banking Act of 1933 will be applicable. a co.'," 20 makes it unlawful for a member bank to be affiliated with writ:Poration principally engaged in "the issue, flotation, underPublic sale, or distribution at wholesale or retail or through sepillt:?ate participation of stocks, bonds, debentures, notes, or other clire,tties", and section 32 forbids a member bank to have interlocking in ti;rs, officers, or employees with a corporation primarily engaged j-8 tYPe of business. It appears that Union Investment Co. will engage in the or a".?ss of making loans for and participating in "commercial ventures estatj-°ng-term nature, with primary emphasis upon some phase of real It wilei development, including exploration for natural resources. its not be engaged in the business of investing and reinvesting the is3ets in stocks and bonds. It will raise its capital (after oN,141itial issue to shareholders of Union Bank) by means of a single thir ' t'ng which is expected to extend over a period of "not more than t° sixty days." In the circumstances, the Board is of the 'n that the Union Investment Co. will not be "primarily" engaged r •,‘ Mr. H. N. Mangels -3- the business described in section 32, or "principally" engaged in si business within the meaning of section 20. Of course, if it ti,c4Lud later appear that the sale of the company's shares is to conbflUe over a long period of time, or that additional shares are to issued frequently and in substantial amounts, relative to the size ':,LLithe corporation's capital structure, or if there should be any ner material change in the facts as outlined in this letter and in 0 letters referred to above, it might be necessary for the Board re consider the matter. that j 4 It seems clear that under the facts as outlined above, Union ian .„"raent Co. would be affiliated with the Union Bank within the lin "-ng of section 2(b)(2) of the Banking Act of 1933, and that the i2lrisions of law regarding examination of affiliates and restricting vans to affiliates would be applicable. The Board believes that the proposed arrangement may involve danger to Union Bank because the Union Investment Co. might be so ti;lY identified in the minds of the public with Union Bank that any aIllicial reverses suffered by the company might affect the confidence or t Public in the bank or might unduly incline the management of the 4bank toward supporting the investment company and rescuing it from 8111 ncial difficulties, should they occur. The interlocking relationmigand interests between the Union Bank and Union Investment Co. by a to impair the independent judgment that should be exercised bank in appraising credits; this could raise serious questions 00. ynnection with credits extended by the bank to Union Investment sidecn 'to interests being financed by Union Investment Co. These conone should be borne in mind not only by the examiners that the bank in the future but also by the management of the bank. 8kak -f It will be appreciated if your Bank will advise the Union the Board's views. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 41elosures
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