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N 609 10/59 Minutes for To: January19, 1961 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 iltinutes in the record of policy actions required to °S 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. r 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. T Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King fy. Minutes of the Board of Governors of the Federal Reserve System on ThUrsdaY, January 19, 1961. Mr. Mr. Mr. Mr. Mr. Mr. Mr. PRESENT: The Board met in the Board Room at 10:00 a.m. Martin, Chairman 1/ Balderston, Vice Chairman Szymczak Mills Robertson Shepardson King Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Miss Carmichael, Assistant Secretary Mr. Young, Adviser to the Board Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Farrell, Director, Division of Bank Operations Mr. Solomon, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. Chase, Assistant General Counsel Mr. O'Connell, Assistant General Counsel Mr. Hooff, Assistant General Counsel Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Hostrup, Assistant Director, Division of Examinations Mr. Nelson, Assistant Director, Division of Examinations Miss Hart, Assistant Counsel Mr. Leavitt, Supervisory Review Examiner, Division of Examinations Mr. Lyon, Review Examiner, Division of Examinations APPlication of California Bank to merge with First Western Bank T Rt 0 y San Francisco; application of Firstamerica Corporation to ,„ -'qUire stock of First Western Bank and Trust Company, Los Angeles (z eills1 and 2). There had been distributed to the Board two memoranda Wsithdrew from meeting at point indicated in minutes; attended "sequent session. 221) v19/61 -2- fr°111 the Division of Examinations dated January 5, 1961, and January 12, Wa, relating to: (1) An application by California Bank, Los Angeles, California, for consent to merge with First Western Bank and Trust Company, San Francisco, California, under the charter of California Bank and with the title United California Bank, Los Angeles, California, and for perto operate branches at the locations of 48 °ffices of First Western Bank and Trust Company as well a8 at 5 additional approved locations. The Federal of Reserve Bank of San Francisco and the Boardts Division 3calllinations recommended favorably on the application. (2) An application by Firstamerica Corporation, Angeles, California, for prior approval, pursuant .(3 section 3(a)(2) of the Bank Holding Company Act of 1956, of the acquisition of all of the 1,000,000 shares be issued by First Western Bank and Trust Company, c38 Angeles, California, a new bank. Los The Federal Reserve Bank of San Francisco and the Boardss Division of Xziliainations recommended that an order be issued granting the application. Algo distributed was a memorandum from the Legal Division dated jarillarY 17, 1961, regarding the proposed acquisition by Firstamerica C° Por ti a --on of all shares of the new First Western Bank and Trust Company. In this of Examimemorandum the Legal Division agreed with the Division hations that inasmuch as Firstamerica would be required by the decree in Pe4din of the new First antitrust litigation to terminate its control Western, of the new 'ank and Trust Company within six years, the creation barik and the acquisition of its stock by Firstamerica Corporation should 1/19/61 be reg re -3- arded by the Board as steps in a program that, within a relatively Years, would "bring about a contraction of Firstamericals control of H banks. If so, it was the opinion of the Legal Division that a strong arn.ment could be made that denial of the application would be arbitrary arld would lack substantial support in the record. In commenting on the applications, Mr. Solomon referred to the 1)°4rdss consideration in 1959, under the Bank Holding Company Act, of aPPlication of Firstamerica Corporation to acquire the stock of 411f°rnis Bank. At that time the Board approved the application, vith one dissenting vote. Firstamerica proposed to merge California 4r1:k qth First Western Bank and Trust Company, but on March 30, 1959, the Delosrtment of Justice filed a complaint to the effect that the pro1(18ed- merger would violate certain antitrust provisions of both the alkYtOn and Sherman Acts. The present application to merge the two banks waS the result of advice from the Department of Justice that it 1°111-d clismiss the litigation if a plan worked out by that Department Firstamerica Corporation were effected. The plan contemplated the organization by Firstamerica CorpoIsation - Of a new State nonmember insured bank that would acquire certain a8"ts °f and assume the liability to pay certain deposits made in the California Bank. The new bank would take over 65 banking offices 1101,7 °Aerated by First Western Bank and Trust Company, San Francisco, and • 1/19/61 Operate branches at certain other locations for which permission to establish branches was either pending or approved. Control of the new bellkby Firstamerica Corporation was to be limited to a period of from to 8.4 x years, during which time the Corporation was to promote the de\relopment of the bank. After a two-year period, Firstamerica Corpo- Iltion vas to endeavor to dispose of its interest in the new bank so that the latter would then become an independent banking competitor in the State of California. If Firstamerica Corporation should be unsuccess- 1)141 in divesting itself of the stock or assets of the new bank within six Year's after approval of the merger by appropriate regulatory agencies, the stock of the bank would then be distributed to Firstamerica COtw.*VOrati stockholders. kr. Solomon brought out that California Bank had total deposits "al/Proximately $1.2 billion and First Western deposits of about $1 on, making a total of $2.2 billion. It was contemplated that the (lePc)ait8 'would be divided so that United California Bank would have $1.7 44°11 and the new First Western Bank and Trust Company would have $.5 billion Commenting on the effect of the proposed transactions on the Nitta. , s.ttuation of the banks concerned, Mr. Solomon noted that at present Calif rnia Bank had only about an estimated 73 per cent of its required ) - 1/19/61 _5_ cal4tal, according to the Form for Analyzing Bank Capital, and First West e-Lu Bank and Trust Company about 90 per cent. by If the plan proposed the Justice Department were effected, United California Bank would have about 91 per cent. The capital position of the new First Western 1381k and Trust Company would depend on the amount of stock in the new bal/k acqUired by minority stockholders of the merged banks. If the illiM3rItY stockholders subscribed for the maximum amount of the stock, the °ell bank would have about 90 per cent of its required capital. If there should be no subscription for stock by the minority stockholders, the bank would have about 75 per cent of its required capital. Mr. Solomon observed that the Federal Deposit Insurance Corpotati°11 had approved insurance for the new First Western Bank and Trust e°41414113r, as well as the acquisition of assets by the new bank from the c°118°11aated bank (United California Bank), with the requirement that 1.e'v bank would, within a stated period after its organization, have the' "least $38 million of capital-48 million more than the bank would 111" if hone of the minority stockholders subscribed to stock of the 111rbealk and $2 million more than the bank would have if all of these atoc idlolders subscribed. Mr. Solomon stated that the Division of Examinations was of the °11141°0 that it would be in order for the Board to approve the application or 1,4 4- stamerica to acquire the stock of the new First Western Bank and 1/19/61 -6- Cftloany and to approve the merger of California Bank and the present Firat Western Bank and Trust Company. He suggested that a paragraph be incauded in the letter to California Bank that would make it clear that the "eaPital situation of United California Bank would require continuing ktt ention. Governor Mills said that he could see no objection to adopting the _ c°mmendation of the Division of Examinations that both applications be alpproved. He added that in the longer range the Board would want to Irirstamerica Corporation and the status of its venture. Ete If there wlY Inclination on the part of Firstamerica to retain on its books, "ter disPosal of the new First Western Bank and Trust Company, an illdebteclness representing funds put into that bank, it would be incumbent 011 the Board to look carefully into the proposal. Governor Robertson indicated that, in light of the situation as it ettat d. t°d4,Y, he would favor approving both applications. He added that over the next two to six years both of the new institutions would need ekref sUPervision and exsintnation to see that one of them did not wind tID as 8itiply a shell. However, that was a supervisory matter. G overnors Shepardson, King, and Balderston indicated that they also Vol favor approving the applications, as did Governor Szymczak. On the basis of a question raised by Governor Balderston, a 11881-°n. followed as to the language that might be used in stating 1/19/61 —7_ rea"ns for the Board's approval of the application under the Bank Holding C°InPany Act. Mr. Hackley suggested that, in view of the unique nature of the amd also in view of some urgency, it would seem appropriate (1) to 18811e today the Board's Order covering the application of Firstamerica CorPoration under the Bank Holding Company Act, with an indication that 8. Statement setting forth the reasons for the Order would be issued 11°I.stlY; (2) to send letters today to California Bank and Firstamerica C°I.Poration advising that the Board had approved their applications; atld J) to issue today a press release covering the Board's approval of ht4 aPPlications. Ilse a. be Mr. Hackley added that it would be his thought to 'lnimum number of words in the Statement, a draft of which would resented for the Board's consideration. Governor Balderston indicated that such a procedure would be 'i*eeable to him. He went on to say that the matters before the Board thi morning were the outgrowth of the intervention of the Department Of J.11 StiCe. The arrangements might work out satisfactorily, but on the °the,, 'hand a third State-wide banking organization might create problems 111 the future. Therefore, he felt that the Board should be careful in 8etting forth the reasons for its approval of the application by First- in order Chairman Martin withdrew from the meeting at this point t keen another appointment. V19/61 -8In further discussion, Governor Balderston said he WES not sure that *47° State-wide institutions could compete more effectively with Bank of America National Trust and Savings Association than one State-wide institillUn. The Board had previously approved a proposal that would have led to the formation of one competing State-wide organization, which the Board th011 could provide effective competition. However, the Justice Department therl stepped in, and as a result it was now contemplated the competing State-nstitution would be split in two parts. One of the resulting banks, *tile quite large in the absolute, would be small relative to Bank of Ainerie -a. In suimnary, he was not certain enough about the final outcome in term 8 of the banking situation in California to want to go overboard. The 116erlaness of the arrangement that was now contemplated had yet to be demet strated. Governor Mills commented that in effect the majority of the Boar,4 nad approved the original plan for merger. Of JUstice then interposed Objection. However, the Department Essentially, therefore, the original "fts withdrawn, and a new proposal had been submitted for the Board's eo4.4, ' 41aeration. Accordingly, he separated the two applications and looked t the Present plan as something de novo. What would develop in the Ntur„, - \gas beyond anyone's wisdom to ascertain at this time. After further discussion, the Secretary reported that Chairman a tin had indicated, before leaving the meeting, that he would favor 14/roving both applications. 1/19/61 -9 The Board then approved unanimously the application of California 11114.k for consent to merge with First Western Bank and Trust Company, San 484cisco, under the charter of California Bank and with the title United Calif^ -rnia Bank, Los Angeles, California, and for permission to continue to "Perste 48 present branches of First Western and to operate 5 additional bl'atchea. It was understood that the letter to California Bank would s paragraph with reference to the capital situation of that bank. A copy of the letter sent to California Bank pursuant to this action is attached as Item No. 1. The Board also approved unanimously the issuance today of an Order „ grarltiri -no the application of Firstamerica Corporation to acquire all of the ua'es of stock to be issued by the new First Western Bank and Trust Colv was understood ' A copy of the Order is attached as Item No. 2. It ax7 that a Statement in support of the Order would be prepared for the Board's alderation and released subsequently. During the foregoing discussion Messrs. Thomas, Adviser to the ilt)ardy and Molony, Assistant to the Board, entered the room and at its c°1Usion Messrs. O'Connell Hostrup, and Lyon withdrew. RaPort on competitive factors (Steubenville and Amsterdam, Ohio). "ad been distributed to the Board copies of a draft of report to the C roller of the Currency on the competitive factors involved in a proDosed c°nsolidation of The First National Bank and Trust Company in ,h9 -10- Steu benville, Steubenville, Ohio, and Amsterdam State Banking Company, Ams terdam, Ohio. The report contained the following conclusion: The proposed consolidation would eliminate only a negligible amount of competition as little exists between these two banks, and would probably result in improved services for the Amsterdam area. The combination of a small bank with the largest bank in the county would cause the resulting bank to have about 46.2 per cent of total IPC deposits and 38.9 per cent of commercial banking dominant Qffices in the county. This enhancement of the toward tendency a have Position of the national bank could m°n0Poly. There being no objection, the report was approved unanimously tor tra nsmittal to the Comptroller of the Currency. meeting. Messrs. Nelson and Leavitt then withdrew from the of Banking Act of Ruling on applicability of sections 20 and 32 f, 1933 to whether certain real estate investment companies would be sub- relPtti to 1411.01 two inquiries On January 17, 1961, the Board considered the provisions of sections 20 and 32 of the Banking Act of 1933, relate to affiliations between member banks and companies engaged public sale, or PallY in the issue, flotation, underwriting, interlocking of stocks, bonds, or similar securities, and orates between member banks and companies primarily so engaged. eacl, engage only '4 Instance the company, after its organization, would th the investing in business of financing real estate development or reki , Properties, and not in the type of business described in the statute. 1/19/61 -11- 11131rever, each of the companies, in the process of its organization, would issue its own stock. In one instance, it appeared that the stock would be issued over a period of from 30 to 60 days; in the other instance it was stated that distribution was expected to be completed in not more than a felq day8. On the basis of the facts stated, the Board concluded that the c°111108nies involved would not be subject to sections 20 and 32 of the ilellking Act of 1933, since they would not be principally or primarily aged in the business of issuing or distributing securities and would be for -auing their own stock only for the period ordinarily required e°11Dorate organization. However, if either of the companies should slequently issue additional shares frequently and in substantial (4111ts relative to the size of the company's capital structure, it 1?°11.1d be necessary to reconsider the matter. On the basis of discussion at the January 17 meeting, it was tIlicierstood that the staff would prepare a draft of ruling on the subject that I'mUld also clarify a ruling published in the April 1960 Federal le8erve Bulletin in which the Board took the position that a closed-end ment company which was in process of organization and was actively ellg61ed in issuing and selling its shares L:Yr WES subject to section 32 as as that activity continued. A draft of ruling such as requested at the January 17 meeting was strihutd to the Board with a transmittal memorandum from the Legal 1/19/61 -12- Division dated January 18, 1961. The proposed ruling would state that the AID111 1960 interpretation should be regarded as applicable only where the circumstances were such as to indicate that the issuance of the companyts st°ck was a primary or principal activity of the company. For example, silch circumstances might exist where the initial stock of a company was tivelY issued over a period of time longer than that ordinarily required ttpls corporate organization, or where, subsequent to organization, the c°1111)arlY issued its own stock frequently and in substantial amounts reln'tive to the total amount of shares outstanding. in accordance Governor Mills said he believed the proposed ruling was l'Ith the understanding reached by the Board at its January 17 meeting. 'he felt that its publication would be in order. pc)re There- He then raised a crnestion as to whether it was considered that real estate investment c°41/parlies of the kind discussed would be engaged in a securities business. Mr. Hackley responded that the Board had an several occasions take, 11 the position that ordinarily real estate lending does not involve ci"lihg in securities. However, if a real estate investment company 811°111c1 issue certificates of participation in mortgages, that might be NArded as the issuance of securities. This, however, apparently was riot contempleted in the cases considered on January 17. investment Governor Mills then asked whether, if a real estate trust 81_ hould increase its capital to expand its operations at a later 1/19/61 -13- date, that would not seem to fall in the category of dealing in Eiecl arities. M. Hackley replied that an increase in capital at a later date, With the shares issued over only a short period of time, would aPPear to him to subject a real estate investment company to the 0n5 of the law any more than it would an ordinary business 13115116i c°111"prati0n. A real estate investment company would be considered as de aling in securities, however, if it issued new stock so frequently °r ill such substantial amounts that the issuance of such stock became ell essential activity of the company. Each case, of course, would have to be c onsidered on the basis of its own facts. After further discussion, the proposed ruling, with certain minor chan 6es not affecting the substance, was approved unanimously for publication - -01 the Federal Reserve Bulletin and the Federal Register. A copy 16 attached as Item No. 3. At this point Messrs. Noyes, Director, and Robinson, Adviser, Di , 'list° “ of Research and Statistics, entered the room, and Mr. Chase and Miss Hart withdrew. Maximum interest rates under Regulation O. distributed There had been a memorandum from Governor Robertson dated January 17, 1961 'recommending that Regulation Q, Payment of Interest on Deposits, 1)e ajm ellded in the following respects: v19/61 To increase from 3 per cent to 5 per cent the rate of interest 'which member banks may pay on (a) savings deposits, (b) time deposits having a maturity date of six months or more after the date of deposit or payable upon written notice of six months or more, and (c) any postal savings deposits which c onstitute time deposits; and To increase from 2-1/2 per cent to 4 per cent the interest rate which member banks may pay on (a) any time deposit (except postal savings deposits which constitute time ePosits) having a maturity date of less than six months ' and not less than ninety days after the date of deposit, Or payable upon written notice of less than six months end not less than ninety days; and To increase from 1 per cent to 3 per cent the rate of interest which member banks may pay on (a) any time deposit (except postal savings deposits which constitute time deposits) having a maturity date less than ninety clVe after the date of deposit or payable upon written notice of less than ninety days. , Ree 118 for the proposed changes were spelled out in the memorandum. " had Governor Robertson commented that in the memorandum he PlseBeritecly with a statement of reasons, a proposition that he had Inellti°ned on several occasions over the past few months. Noting the procedure might Ilhenee Of a full Board, he suggested that the best h t° request members of the staff to study the memorandum carefully Itticl to be Of the meeting prepared to discuss any aspect of it at a subsequent Board. as to For example, there might be differences of opinion Iiiiether the Board should prescribe three, or only two, different maximum l'ates of interest on time deposits. As to timing, he felt that the Board 311.°111d act at a time like the present when there was a minimum of pressure. 1/1 9/61 -15- He al80 felt that the adoption of maximum rates such as he had recommended 11311-1d introduce into the banking structure of the country a principle of reedom Of competition under which each bank could exercise its judgment iii the light of conditions in its own area, the competition it must meet, a'n.11 what it could afford to pay. Governor Balderston inquired of Governor Robertson whether he 110111d Prefer to take the actions recommended in his memorandum or to seek a change in the law, to which Governor Robertson replied that he felt that the Board, if it went to the Congress, should be in the position Of 6aYing that it had tried every approach possible under the present law. Mr. Hackley commented that there would be no question in his mind 118 to Congress, he said, did not the Legality of the proposed actions. Prescr41. anY standards as to what the maximum interest rates should be, or as to when or under what conditions the Board should change the maximum The only standard prescribed was that maximum rates should be .1:ablished for different types of deposits. There could, of course, be qUestion regarding compliance with the intent of the law if the rates were set at some high level. of a5 However, the establishment Per cent maximum rate would not, he thought, be subject to that t'llicism if it could be shown that savings and loan associations were 1)"j6 dividends of Ilece8 ry 4 per cent, 4-1/2 per cent, or even more. It was to bear in mind, Mr. Hackley said, that the Federal Deposit V19/61 -16- Insurance Corporation has independent authority with respect to maximum tritere4t , rates payable by nonmember insured banks. Also, national banks allci State member banks would not be able to pay higher rates in many States unless State authorities took action similar to that proposed to betaken by the Board. Governor Robertson then said that before any action was taken by the 13.°ard, he would contemplate meetings with the Federal Deposit Insurance C °113°ration to see whether that Corporation would take similar action. He n°t contemplate meetings with State authorities, however, in view of variations in State statutes. In reply to a question, Mr. Hackley pointed out that in the Banking Act c'r 1933 41e8 there was no requirement that the Board fix different maximum for different types of deposits. However, the Banking Act of 1935 irc)vided, that the Board should prescribe different rates for time and 81111ings deposits having different maturities, different conditions l*ecl/ecting withdrawal or repayment, or different conditions by reason of clifferent locations, or according to the varying discount rates in the several Federal Reserve districts. The Board had always followed the first standard--based on maturities. Referring to the proposed schedule of maximum rates, Mr. Hackley ede question whether a change from 1 to 3 per cent in the maximum l'ate °r1 time deposits having a maturity of less than 90 days might not ,`. 1/19/61 -17- be criticized as being unreasonable, considering the extent of the ixicreaae percentagewise and the fact that such deposits come close to being demand deposits. Governor Robertson replied that he would have no objection if the 111.-4 ---4411111m rate for that category of time deposit were fixed at 2 per Cent, rather than the 3 per cent figure suggested in his memorandum. During further discussion, Mr. Thomas noted that as long as tIlere vas prohibition against the payment of interest on demand c sita, there ciel)) was a question as to how far the Board should go in PerMitting the payment of interest on short-term time deposits, ParticUlarly when there was a wide difference between the reserve req4 irements against demand and time deposits. If 3 per cent were Permitted to be paid on short-term time certificates of deposit, there 14°111c1 their doubt be great enthusiasm on the part of depositors to limit demand deposits to the lowest possible amounts. Also, a 3 per cellt rate of interest on short-term time certificates would make them 8A13resent more attractive than Treasury bills. On the other hand, he 414, he vould like to see some consideration given to the idea of Ilzing banks to issue certificates of deposits with maturities cre 111°''e than one year and not payable before maturity. He would favor 15erMit t-ng the payment of a high rate of interest on such certificates, 1)1 1/19/61 t41:11e would restrict the rate on short-term time deposits, which are 111°re competitivP with money and demand deposits. 141". Thomas also raised the question whether it was entirely safe to "'sume that a proposal such as outlined in Governor Robertsonts memoran-was legally sound and could not be Challenged successfully. Aside from ealY legal question, however, it was his personal view that any such plan 11°111d nullifY the purpose of the law which, as he understood it, was mainly tQP1ace some limitation on the ability of banks to make commitments, Isec*gilizing that unsound commitments made under the pressure of competition get the banks into trouble in the event of a change in the economic situation. In his view, that was the fundamental purpose of the law; allYtillrig that would conflict with that purpose would seem to him, in erre") to nullify the law. azIother Whether there should be any law of this kind question. G overnor Robertson commented that the paragraph of his memorandum that had. been referred to by Mr. Thomas went only to the legality of the Droposal. If there were good reasons--and he thought there might be--for AlEiciin_ a g lower maximum rate on short-term time deposits, he would not °I)lect. A maximum rate of 2 per cent seemed reasonable to him, but if lt 14'8 ' 8 "t reasonable he would not Object to a maximum rate as low as 1 13er* cent. Robinson commented that it could be argued that any maximum "at were within the range of reasonableness would not go completely 1/19/61 -19- beY°Iad the intent of the law. On the other hand, if one accepted the Phil°8°PhY that the purpose of the statute was to provide a control over 'that might be called a central pattern, then it could be argued that a Pr°13°Bal such as set forth in the memorandum would be beyond the intent (It the lav. take One question seemed to be whether the Board would wish to action at this time that would undoubtedly bring protests from 4 rather large percentage of the commercial banks. There followed comments with regard to the manner in which action 1). the Board might be interpreted in the light of current economic and 1144cial conditions, and the discussion concluded with the understanding that +1, 'Lie question of the maximum rates of interest payable on time and Ilga deposits would be considered further at another meeting. " The meeting recessed and, at Chairman Martin's request, reconvened 111 the Board Room at 11:30 a.m. with all members of the Board and Mr. .1elt[an present. APPointments and salaries at Kansas City Reserve Bank (Item No. 4). hailllan Martin said that he had just received a telephone call from Chair431 411 of the Federal Reserve Bank of Kansas City, who stated that he had -44111 out of a meeting of the directors of the Bank at which the directors had, agreed unanimously (a) to appoint, subject to the Board's approval, e°1‘ge H. clay as President of the Federal Reserve Bank of Kansas City the five-year term beginning March 1, 1961, at a salary of $30,000 1/19/61 -20- Per armum; (b) to reappoint Mr. Koppang as First Vice President of the 13a.nk for the five-year term beginning March 1, 1961, at a salary of $27))0o per annum; and (c) to increase the salary of Vice President To to 22,500 per annum effective March 1, 1961. The Chairman went n to aaY the Board that Mr. Hall was anxious to know at once whether 1.4311-1d approve the two appointments and the three salary rates, since the Bank hoped to make an announcement of the appointments immediately. , to a question, Chairman Martin said that Mr. Hall had ' 111 r• eSP°nS cated that the actions taken by the directors went together as a Program, and in order to make a package that the directors believed °110-d he satisfactory, it was important that all of the actions be ' IIPProved on the basis submitted to the Board. directors There followed discussion of the actions taken by the might r t• he Kansas City Bank and of possible alternative actions that h e been taken as well as the advisability of raising with Chairman Real certain questions regarding these actions. During the discussion, salary Governor Mills expressed strong reservations about approving a a First Vice President at a rate in excess of that generally fixed the maximum for the position at other comparable Federal Reserve • " lead to 11111k8 on the grounds that to approve a higher salary would Cr difficult problems for the Board. 1/19/61 -21At the conclusion of the discussion, unanimous approval was given to the actions taken by the directors of the Kansas City Bank as reported Chairman Martin with the understanding that he would advise Chairman liall bY telephone of the Boardts action in order that an immediate e1111°11 cement of the appointments as President and First Vice President nli*t he made. A copy of a letter sent to Chairman Hall under date of januarY 24, 1961, giving formal advice of the Boardts action is attached to the 8 minutes as Item No. 4. The meeting then adjourned. Secretaryts Note: Pursuant to recommendations contained in memoranda from appropriate individuals, Governor Shepardson today approved on behalf of the Board increases in the basic annual salaries of the following persons on the Boardts staff to the amounts indicated, effective January 22, 1961: 8 Maroni, Economist, Division of International Finance, from ! Yv 11,155 to $12,210 per annum. Mary P. Barlow, from $4,84o to $5,160 per annum, with a change in title from Statistical Clerk to Statistical Assistant, Division Of Bank Operations. a Alex J. Harris, Jr., from $6,015 to $6,435 per annum, with to Examiner Reserve change in title from Assistant Federal A ssistant Review Examiner, Division of Examinations. Charles W. Wood, Personnel Assistant, Division of Personnel A dministration, from $6,765 to $7,560 per annum. • C-A Secrpta er)7,n. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 1 1/19/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 191 1961 Board of Directors, California Bank, Los Angeles, California. Ge ntlemen: The Board of Governors of the Federal Reserve System, after consideration of all factors set forth in section 18(c) lOf the Federal Deposit Insurance Act, as amended by the Act of 13, 1960, and finding the transaction to be in the public "uerest, hereby consents to the merger of First Western Bank r,Id Trust Company, San Francisco, California, into and with ki r alifornia Bank, Los Angeles, California, under the charter of e f°rnia Bank and title of United California Bank, Los Angeles, ' JThe Board of Governors also approves the operation ,:J-fornia. vf branches by United California Bank at the following locations: 4110 Main Street 1269 Fourth Avenue 102 West Main Street 901 State Street 110 West Cypress Street 2610 East Main Street 1364 Park Street 1435 Burlingame Avenue B and Main Streets 40986 Fremont Boulevard 176 Main Street 565 Castro Street Fourteenth and Broadway 2040 Franklin Street 2603 Broadway 190 Parker Avenue 405 Montgomery Street Haight and Belvedere Streets 3431 California Street Fairmont Hotel West Portal Avenue and Taloa Street Riverside San Diego San Jacinto Santa Barbara Santa Maria Ventura Alameda Burlingame Hayward Central Irvington Central Los Altos Mountain View Oakland Oakland Redwood City Rodeo San Francisco San Francisco San Francisco San Francisco San Francisco BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Board of Directors -2- 226 South First Street 16.39 East Fourteenth Street 1017 Fourth Street 298 South Murphy 2020 K Street 917 Main Street 1545 allton Street 7S3 East Olive Avenue. 3.1 Fifth Street 200 South ?,25 East School Street Yosemite Avenue )05 West 18th Street ! 25 P Street Charles and Main Streets 13° North Sutter Street 125 North Broadway 1,1141dest Main Street 401 Broadway 936 Third Street &d t and California Streets Fourth Street ;f;tp Fourth Street ; )15 Pine Street 405 J i031 K Street Street 00 Main Street Main Street 12.9 10th Street Ilera and Morro Streets -oRatown Do wntown 7an Ness Avenue & Clay Street San Jose San Leandro Central San Rafeal Sunnyvale Bakersfield Delano Fresno Fresno Gustine Lodi Madera Merced Oakdale San Andreas Stockton Turlock Vissli a Chico Crescent City Dorris Eureka Marysville Redding Sacramento Sacramento Susanville Need Modesto San Luis Obispo San Bernardino South San Francisco San Francisco and et40, , This approval is given provided: (1) the proposed merger of date the from months six within th18 rament of branches are effected application combined the with accordance qated,tter and substantially in dissenting qo kli"(Dveraber 22, 1960, (2) shares of stock acquired from acquisition°1ders are disposed of within six months from date of atrIleta The Board is pleased to note the improvement in the capital Bank) that California 0 of California Bank (continued as United However, transactions. related Ltle 62"1t from the proposed merger and attention close continued ' qit 4's capital position should receive the 4 directors and stockholders and should be further strengthened. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. , ,` Item No. 2 1/19/61 UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNOS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. In the Matter of the Application of FIRSTAMERICA CORPORATION, Los Angeles, California f°r prior approval of acquisition of voting shares °f First Western Bank and Trust Company, Los Angeles, ' t California 4„ 1 ORDER APPROVING APPLICATION UNEER BANK HOLDING COMPANY ACT There having come before the Board of Governors pursuant to section 3(a)(2) of the Bank Holding Company Act of 1956 (12 USC 1843) and section 4(a)(2) of the Board's Regulation Y (12 222.4(a)(2)), an application on behalf of Firstamerica C°rPoration, Los Angeles, California, for the Board's prior approval of the acquisition of up to 100 per cent of the voting 34ares of First Western Bank and Trust Company, Los Angeles, California, a proposed new bank; a Notice of Receipt of Applicati°n having been published in the Federal Register on rteeomber 2, 1960 (25 Federal Register 12382) and on December 21, 196° (25 Federal Register 131)47) which provided interested 8Q48 pox.- an opportunity to submit to the Board comments and views regarding the proposed acquisition; and no such comments or /tiew8 having been submitted; -2- Tr IS HEREBY ORDERED, that said application be and her°bY is granted, and the acquisition by Firstamerica Corporation 'r up to 100 per cent of the voting shares of First Western Bank 411(1 Trust Company, Los Angeles, California, is hereby approved, Provided that such acquisition is completed within three months from 4.1._ Ile date hereof. A Statement of the reasons for this Order will bo published in due course. Dated at Washington, D. C., this 19th day of January, 1961. By order of the Board of Governors. Voting for this action: Chairman Martin, and Governors Balderston, Szymczak, Mills, Robertson, Shepardson, and King.. (Signed) Merritt Sherman Merritt Sherman, Secretary. (sEAL) 244 Item No. 3 1/19/61 Real Estate Investment Com an Not Subject to Section 32 The Board recently considered two inquiries regarding the Tlestion whether proposed real estate investment companies would be subject to the provisions of sections 20 and 32 of the Banking Act Of 1933 (12 U.S.C. sec. 377 and sec. 78). These sections relate to affiliations between member banks and companies engaged principally in the issue, flotation, underwriting, public sale or distribution Of stocks, bonds, or similar securities, and interlocking directorates between member banks and companies primarily so engaged. In both instances the companies, after their organization, would engage only ln the business of financing real estate development or investing in taal estate interests, and not in the type of business described in ' the ctatute. However, each of the companies, in the process of its anization, would issue its own stock. In one instance, it appeared that the stock would be issued over a period of from 30 to 60 days; in the other instance it was stated that the stock would be sold by a. f of underwriters and that distribution was expected to be corned in not more than a few days. On the basis of the facts stated, the Board concluded that the companies involved would not be subject to sections 20 and 32 of the Banking Act of 1933, since they would not be principally or engaged in the business of issuing or distributing secul'ities but would only be issuing their own stock for a period ordinarily /'eqllired for corporate organization. The Board stated, however, that if either of the companies should subsequently issue additional shares -2tree, -211ently and in substantial amounts relative to the size of the ccraPanY's capital structure, it would be necessary for the Board to reconsider the matter. Apart from the legal question, the Board noted that an arrangement of the kind proposed could involve some dangers to an affiliated bank because the relationship might tend to impair the indETendent judgment that should be exercised by the bank in apprais14 its credits and might cause the company to be so identified in the minds of the public with the bank that any financial reverses eliffered. by the company might affect the confidence of the public in the bank. Because of the foregoing conclusion that the companies would rict be subject to sections 20 and 32, it seems advisable to clarify an Illterloretation published by the Board in the 1960 Federal Reserve 141.etin at page 371, in which the Board took the position that a elceed-end investment company which was in process of organization 4401 was actively engaged in issuing and selling its shares was subject to section 32 as long as this activity continued. That inter- Plietation should be regarded as applicable only where the circumstances 41' such as to indicate that the issuance of the company's stock is a PthilarY or principal activity of the company. For example, such 'll°14/1.stance3 might exist where the initial stock of a company is °I "ttvelY issued over a period of time longer than that ordinarily tecillired for corporate organization, or where, subsequent to organiZati On, the company issues its own stock frequently and in substantial 414°1111t5 relative to the total amount of shares outstanding. BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 4 1/19/61 WASHINGTON OFFICE OF THE CHAIRMAN January 24, 1961 29-9ZaTTAL (FR) . .Raymond W. Hall, wlairman of the Board, Pederal Reserve Bank of Kansas City, Xansas City 6, Missouri. bear Mr. Hall: The Board of Governors has approved the appointment of Mr. G eorge H. Clay as President and Mr. Henry 0. Koppang as First el President of the Federal Reserve Bank of Kansas City, each . 1 4,a term of five years beginning March 1, 1961, in accordance :Jo-4h the action taken by the Board of Directors as reported in Yur letter of January 19, 1961. The Board of Governors has also approved the payment of 84lar4_ vic -Les) at the rates indicated below, to the President, First tl„..8 President, and Vice President Tow, for the period March 1 'ough December 31, 1961: Name George H. Clay Henry 0. Koppang Clarence W. Tow . Annual Salary Title President First Vice President Vice President $30,000 27,500 22,500 Sincerely yours, at 14 WM. McC. Martin, Jr.
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