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Minutes for January 2. 199q 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Minutes of the Board of Governors of the Federal Reserve System On Friday, January 23, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston) Vice Chairman Szymczak Mills Robertson Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Marget1 Director, Division of International Finance Mr. Hackley1 General Counsel Mr. Masters, Director) Division of Examinations Mr. Farrell, Director) Division of Bank Operations Mr. Furth, Associate Adviser, Division of International Finance Mr. Solomon) Assistant General Counsel Mr. Chase, Assistant General Counsel Mr. Smith, Assistant Director, Division of Examinations Mr. Kiley, Assistant Director, Division of Bank Operations Mr. Hill, Assistant to the Secretary Discount rates. Unanimous approval was given to telegrams to the Pederal Reserve Banks of New York) Philadelphia, Cleveland, Richmond) Chicago, St. Louis, and Dallas approving the establishment without change by th"e Banks on January 221 1959, of the rates on discounts and advances their existing schedules. Increase in resources of International Monetary Fund and Inter--Bank (Item No. 1). A draft of suggested letter to the Bureau the Budget in response to its request for comment on a proposed bill tted by the Treasury which would authorize United States participation 1/23/59 -2- In enlarging the resources of the International Monetary Fund and the International Bank for Reconstruction and Development had been distributed tO the Board with a memorandum from Mr. Solomon dated January 22, 1959. The letter would state that the Board favored enactment of such legislation. Following a brief discussion, the Board approved unanimously a letter in the form attached hereto as Item No. 1. Messrs. Marget and Furth then withdrew from the meeting. Clayton Act question involving Mr. Kirkman (Item No. 2). 141953, The Boardwalk National Bank, Atlantic City, New Jersey, which e°titerciplated the establishment of a branch in Somers Point, raised with the Federal Reserve Bank of Philadelphia the question whether, if such br' anch Were established, section 8 of the Clayton Act and the Boardts L would be applicable to the further service of Mr. Elwood ?. 1Cirkman as both an officer and director of Boardwalk National and an °fficer and director of The National Bank of Ocean City, Ocean City, llelr Jersey. Under date of March 16, 1953, the then Counsel for the Iledellal Reserve Bank 'wrote a letter to Mr. Kirkman expressing the opinion that Somers Point and Ocean City were not contiguous or adjacent within the eaning of Section 2(d)(5) of Regulation L because they were separated bY „ —.4 al1and and navigable water over a distance of about three miles. 4"°11ing1y, the branch at Somers Point was established. In 1958, it EkIlle to the attention of the Reserve Bank that Ocean City and Somers se-v(v e 1/23/59 -3- actually shared a common boundary for a distance of approximately 4/800 feet, the joint boundary passing through the center line of a ride spanning the ship channel running between the two cities. When the matter was taken up with Mr. Kirkman by the Reserve Bank, he expressed a desire to meet with representatives of the Board to review the circumatsnces of the case, and a meeting with members of the Board was arranged and held. yesterday afternoon. At that meeting Mr. Kirkman emphasized that the branch had been established in Somers Point only after receipt of a written opinion 1'11341 an officer of the Federal Reserve Bank of Philadelphia, and if the opinion had been different the decision of Boardwalk National might have been to establish the branch in a nearby community where the question Of contigut,..._ -cy would not have arisen. With the opinion in hand, however, the -P4ult proceeded to invest money in the construction of branch premises at omers Point and over the years had built up a substantial amount °t business at that location. Mr. Kirkman also stressed that the waterway "P"ating Ocean City and Somers Point vas under the control of the Sta te 131* New Jersey, that the two cities had distinctly different eh l'acteristics, and that there was no significant flow of commerce betve en them. The long history of his association with the banking 88 in Ocean City and the substantial stock ownership of his family ' Th- Aational Bank of Ocean City would, he contended, create a substantial hallshib - if he were to withdraw from active participation in the affairs 1 1/23/59 -4- of the Ocean City bank. For these and other reasons, he expressed the 11°Pe that the Board would not disregard the equities of the matter, esPeoially in view of the fact that the decision appeared to hinge on a technical interpretation as to whether the cities of Ocean City and Somers Point should be regarded as contiguous. In support of his statements, Mr. Kirkman submitted for the Boardts files certain maps and Photographs tending to indicate that in fact the two cities concerned I" separate and distinct communities, connected only by the long bridge spanning marshland and navigable water. At this meeting Mr. Hackley reviewed the facts of the case and cited various rulings of the Board dating back to 1935 which related t() the question of contiguity and adjacency and seemed to have pertinence to consideration of the question raised by Mr. Kirkman. In summarizing tIlese rulings, he brought out not only the similarities between them alld the present case but also distinctions that might be drawn. With l'alPect to the statute, he pointed out that a degree of administrative leeust vas available under which the Board conceivably could amend L to exempt a situation such as was involved in the Kirkman tter. He went on to say, however, that the preparation of a general Elmeri ".went of this character might involve substantial difficulties and '41E1.4 'another possible course would be for the Board to consider whether it viR4, --ed to grant a specific exception with respect to the service of Mr. Ki rkman on the grounds of the equities involved in his case. 01!( () _5_ 1/23/59 Chairman Martin indicated that he would be disposed to interpose ao objection to Mr. Kirkman's continued service with the Atlantic City alld Ocean City banks because of the circumstances of the particular case. It 'would be possible to follow that course in this instance, he felt, " Yet reach a different conclusion in some future case not presenting the same questions of background and equity. Governor Robertson concurred, adding that he felt the Board BlIctad not take a position that would interfere with a ruling of gerieral applicability. f°171111% Accordingly, he would make an exception specifically Kirkman, one that would not constitute a general precedent or, fact, apply to anyone else who subsequently might serve as a director 'officer of the two institutions concerned. c)1 Mr. Hackley expressed agreement with that view. He explained that it had been his intention simply to point out that it might be illeAvisable for the Board to take the position that the cities of Ocean ettY and Somers Point 'were not contiguous. In Mr. Kirkman's case, he telt that there would be justification in interposing no objection. After the other members of the Board had indicated that they like/718e would be favorable to making an exception with regard to the Bellrice of Mr. Kirkman, Governor Mills suggested that in spirit the 13eltinent provisions of the Clayton Act appeared to be aimed at contiguous COranzlri ities of large population comprising essentially a single metropolitan 1/23/59 area. -6- He raised the question whether it would not be legally possible to draws. distinction between that kind of situation and one where the areas concerned were more sparsely populated, with the communities "Parated by a distance of a mile or more. Mr. Hackley responded that he thought it would be possible for the Board to provide additional exceptions in Regulation LI perhaps to the affect that the provisions of the Regulation were not applicable Ithere a certain distance between cities was involved even though the cities technically were contiguous. The law, he pointed out, was not Phrased in terms of specific applicability where cities are contiguous bilt rather in terms of exceptions where cities are not contiguous. Ther 0 e4.0re, it would seem possible to provide further exceptionsby alarm, --44-L8trative regulation if the Board should so desire. After further discussion, it was agreed unanimously to interpose 4° 0biaction, based on the provisions of the Clayton Act, to Mr. Kirkman's e°4tinlling as an officer and director of the banks in Atlantic City and Ocean citY, even with the continued operation by the former bank of 1 t8 Sfters Point branch. A copy of the letter sent to the Federal Reserve 13841k Of Philadelphia pursuant to this action is attached as Item No. 2. Mr. Chase then withdrew from the meeting. Coin-wrapping service. A memorandum dated December 29, 1958, 141114r. Leonard, former Director of the Division of Bank Operations, Preset... 'ing background and current information for use in reaching a 1/23/59 -7- det ermination of position with respect to the furnishing of wrapped c°in by Federal Reserve Banks to member banks, had been distributed to the Board. The memorandum pointed out that this matter was most recently considered by the Conference of Presidents in October 1955, at which time there was a diversity of views. Four Banks wrapping c°in favored continuance; two Banks wrapping coin favored continuance but indicated wil3ingness to cease providing the service if that were general System policy; three Banks wrapping coin favored discontinuance but is— ualicated that they mould continue to wrap coin if others were doing so; ana the three Banks not wrapping coin were opposed to the service. At the joint meeting with the Board on October 4, 1955, the Presidents were advised that the Board would give further study to th C matter, and it was then referred to the Division of Bank Operations Since that time, Atlanta had discontinued the service and two other IlankQ (kivew York and San Francisco) were understood to have aligned themSelves with the group favoring discontinuance of the operation if doh .Le a 8 a matter of System policy. At present, three of the four Banks continuance of the service accounted for approximately two-thirds f the total volume of wrapped coin. From the standpoint of System policy, the memorandum listed 643 te /*native possibilities: (1) discontinuance of furnishing wrapped Coin after due notice to the member banks receiving such service; W.> 1/23/59 -8- (2) permitting each Reserve Bank to follow the policy it felt best stilted for its district, or (3) requiring every Reserve Bank to rtirtlieb wrapped coin to some degree. After citing arguments for and against the service, the memorandum suggested that in view of changes 14 the attitude or practices of some Banks since 1955 and changes in the Membership of the Presidents' Conference, the Board might wish to obtain he views of the Conference as now constituted. If the Board's conclusion h°111d be to continue to leave to each Reserve Bank the decision whether t° furnish wrapped coin, it was suggested that the computation of costs °t the operation be reviewed and placed on a more uniform basis, and that the operation at each BAnk be made essentially self-sustaining. At the Board's request, Mr. Farrell reviewed the current practices or the respective Reserve Banks. He also reported a recent telephone e°4versat1on with President Bryan of the Federal Reserve Bank of Atlanta, 'who Pressed the hope that the Board would not leave the decision to i the d. --cretion of the individual Banks and spoke of considerable pressure bej exerted on the Atlanta Bank to reinstate the service. Governor Szymczak raised the question whether this was not all are a of operations where it would be desirable to establish uniformity Of Ilre. "ice, recognizing that the actual achievement of uniformity might ta•ke 'me period of time. After referring to the pressures exerted aid other difficulties encountered when the practice varied from one district 1/23/59 -9- to another, he commented that the public interest policy of the System seemed to call for performing all of the services that could be considered consistent with such a policy. Mr. Farrell then expressed the view that if uniformity were e°rIsidered desirable the less damaging approach from the standpoint of laftthlic relations might be to have all of the Reserve Banks provide e°in-yrapping service, particularly in view, of the fact that the service had been provided extensively over a period of time in three Federal Reserve districts. In response to an inquiry by Governor Balderston I'egarding charges for the service, he noted that a charge had been ellat°111arY at all Federal Reserve Banks except New York, which provided (1111Y a limited service to smaller member banks. While the type of eervice rendered, the extent of charges made, and the computation of c°8ta had not been uniform, he knew of no Bank other than New York that had taken the position that wrapped coin should be provided on a r iee ' basis. Governor Robertson commented that the effective operation of the pede ral Reserve System called for decentralization of responsibility tO full an extent as possible. 85.14 This appeared to be one area, he 'where decentralization of the decision-making process vas feasible ana °r onsequently an area where in his opinion the boardsof directors the decision as to whether or not respective Banks should make the V14 1/23/59 -10- e0in-wrapping service should be provided. On the other hand, he felt that it was not fair to member banks for one Reserve Bank to provide such a service on a free basis and for others to make a charge. Therefore, he 'would be inclined to ask the Presidents to determine a uniform rate that would be applied by those Reserve Banks whose directors reached the decision that wrapped coin should be furnished. Governor Mills said he did not believe personally that the Reserve Banks should engage in the coin-wrapping function. However, he realized that this was an established practice in a number of districts, for that reason, he said, he would join Governor Robertson in the Iriev that the individual Reserve Banks should make the decisions. Where citstriots were contiguous, he assumed that it would be possible for the Reserve Banks concerned to reach a meeting of the minds. In a further e°1441.elit) he said that he would rather think of the Reserve Banks ter 'ing better service than adding to the list of free services. Chairman Martin inquired at this point regarding the arguments that could be made for uniformity of practice, and Governor Szymczak l'eElDonded that the coin-wrapping question had been a matter of debate for %— ' 4nY years, although the questions raised concerning it were not the same each time the subject came up. There had been marked dirre rences of opinion among the Reserve Banks which the Banks had been able to resolve among themselves. It would appear, he said, 1/23/59 -11- that in some way it should be possible to reach a decision as to whether the service should be provided and, if so, the extent of the charges, if anYy that should be made for it. On the point of appropriate Reserve illatk services, he noted that one of the reasons for the establishment °f the Federal Reserve System was to provide certain services to the IlleMber banks, and one of the principal services that was contemplated had to do with making currency readily available. He had no qualms, he said, regarding the possibility of criticism from various parties, 14cltiding correspondent banks, if it should be the decision to provide the -(4n-wrapping service because, as he had pointed out, this would be a service related to one of the fundamental reasons for which the SYstem was established. There followed discussion concerning the apparent inequity aris4 . J ng from lack of uniformity in wrapped-coin charges as between clitterent Federal Reserve Banks, and also with regard to the difficulties that. 1. -- "ad been encountered in arriving at a uniform basis of cost deteryn4 -"A-Lnation. The discussion touched upon problems that might arise 14 ad, dc/ining districts due to variations in practice and the question Ilhether the furnishing of wrapped coin tended to be economically wasteful *(1111 the standpoint of increasing the flow of coin shipments between 4 Reserve Bank and its member banks. 1/23/59 -12- Governor Balderston then stated that he too had arrived at the conclusion that it would be appropriate to leave to the directors °t each Reserve Bank the decision as to whether they would or would nclt Provide wrapped coin. If the directors of a Bank should resolve that question affirmatively, he agreed with Governor Robertson that it 140111d be desirable to move in the direction of a uniform charge. Further comments by members of the Board indicated a consensus that the charge made should be such as to provide reimbursement for aubstantially the costs involved and that the development of a basis nearly uniform charges should be a matter for determination bY the Presidents Conference. Accordingly, it was decided to advise the Chairman of the Conference of the Board's conclusion that the (lecision as to whether the coin-wrapping service should be provided 17 4n tadividual Reserve Bank should be left to the discretion of the fill'ectors of the Bank concerned; that to the extent individual Banks Inight decide to continue or adopt the practice there should be a uniform 41115reach with respect to the rates charged for that service; and that the 113ard vould like to have the Conference of Presidents review the basis rOr c °ImPuting costs of the operation with a view to placing the charges °4 a more nearly uniform basis which would secure reimbursement for 411bet antia1ly the costs involved. 1/23/59 -13- Examination of the Federal Reserve Bank of Boston. Mr. Smith comalented regarding the examination of the Federal Reserve Bank of lloaton as of October 17, 1958, the report on which had completed circulation to the members of the Board. Among the matters mentioned 17'Y Mr. Smith were the status of the Bank's one outstanding section 13b 441. 1a, the availability of working space, and management factors. At the instance of Governor Mills, there followed comments Ohl the reasons for the extent of unprocessed cash items found on hand a8 of the date of exsmination and on the Reserve Bank's record in the " h ling of transit items, which it was stated had shown improvement cnter the past year or so. Governor Mills then noted that the confidential memorandum 4 the audit function disclosed the practice of attendance by the III'e8ident and First Vice President of the Bank at meetings of the dil'ectors' Audit Committee, which led him to inquire about the desirability t e practice from the point of view of the position of the General 4uditor. This comment by Governor Mills led to a general discussion Ilth rf . -gard to the prevalence of such practice at the respective Federal Reee ' I ve Banks and the relationship of the General Auditor of a Reserve klak tO the President of the Bank and the Board of Directors. Clarification or -11ch relationships was deemed to be of sufficient importance to f 1/23/59 larrant discussion with the Conference of Chairmen of the Federal Reserve Banks and also with the Presidents' Conference. Accordingly, It vas agreed that the subject would be taken up at the next joint 4teeting of the Board and the Presidents. Messrs. Farrell, Smith, and Kiley then withdrew from the Illeeting and Messrs. Thomas, Economic Adviser to the Board, Molony, Special Assistant to the Board, Shay, Legislative Counsel, and Noyes, 441riser, Division of Research and Statistics, entered the room. Letter to Senator Fulbright. "the Pursuant to the understanding meeting on January 51 19591 there had been distributed to the raeMbers of the Board yesterday a draft of letter proposed to be sent t° Chairman Fulbright of the Senate Banking and Currency Committee in l'esDonse to his letter dated December 231 1958, with which he transmitted, '41th a request for comment, a letter from Chairman McClellan of the 8eta. Permanent Subcommittee on Investigations regarding the Subcommittee's ilt'eliminarY inquiry into allegations that there had been leakages of Board policy decisions prior to their public announcement. Following a review of the draft, during which a number of slaRt, -4.esticm5 were made for changes in the interest of preciseness and elN*ftis, it was understood that a revised draft of letter reflecting those changes agreed upon at this meeting would be prepared for the consideration. 4 1/23/59 -15The meeting then adjourned. Secretary's Note: Pursuant to the recommendation contained in a memorandum dated January 23, 1959, from Mx. Noyes, Adviser, Division of Research and Statistics, Governor Balderston, acting in the absence of Governor Shepardson, today approved on behalf of the Board an increase in the basic annual salary of Daviette Clagett Hill, Statistical Clerk in that Division, from $41040 to $4,190, effective January 25) 1959. BOARD OF GOVERNORS Or THE Item No. 1 1/23/59 FEDERAL RESERVE SYSTEM ;Qi 41 ,,),\ %* * ,* Z4 WASHINGTON 25, D. C. b" ADOHESS OFFICIAL CONHESPONOENCE TO THE BOARD January 23, 1959 blr. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington 25, D. C. Dear Vir. Hughes: This refers to your legislative referral memorandum of Jar), 4%rY 21, 1959, regarding the draft bill (submitted by the . ' T -easurY Department) "To amend the Bretton Woods Agreements Act, nd for other purposes." j The bill would authorize the United States Governor of International tionetary Fund to request and consent to an inof $1.375 billion in the United States quota of the Fund. 48.i.ruld also authorize the United States Governor of the Inter°nal Bank for Reconstruction and Development to vote for an bocirease in the capital stock of the Bank and to subscribe on 11f of the United States for additional shares of such stock i441. he amount of *3.175 billion. In addition, the bill would ,,..horize the Treasury to make the payments necessary to carry these commitments. These proposals have already received :!PProval of the National Advisory Council on International mo -e'"arY and Financial Problems. the It is understood that 25 per cent of the proposed infl the United States quota of the Fund would be paid in W'and that the remainder would, in effect, be met for the beesent through the issuance to the Fund of special non-interestObligations of the United States. It is also understood 110Z1'; the subscription to the stock of the Bank would, in effect, he Payable except as might become necessary. The Board favors enactment of the proposed bill. Very truly yours, e, ,. ft, • ; Merritt(Sherman, Secretary. ret. BOARD OF GOVERNORS ,0100tt4,4. OF THE 44 ,4S'0ØI41, j FEDERAL RESERVE SYSTEM t Ai.AAt WASHINGTON 25. D. C. Item No. 2 1/23/59 a ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 28, 1959. Joseph R. Campbell, Jee Presidnt,'cl Resery Bank of Philadelphia, Olil adelphia 1, Pennsylvania. 1)ear Mr. Campbell: Reference is made to your letter of December 30, 1958, Sting a determination by the Board of Governors as to the 8ti mr. lcability of section 8 of the Clayton Act to the service by Elwood F. Kirkman as an officer and director of The Board1/al, ; National Bank, Atlantic City, New Jersey, and an officer and "tor of The National Bank of Ocean City, Ocean City, New Jersey. P1? A reply to your letter was withheld at your request, in t° give Mr. Kirkman an opportunity to discuss the matter with di;'esentatives of the Board, and pursuant to appointment Mr. Kirkman cussed the matter with the members of the Board on January 22, 1959. It appears that Mr. Kirkman had discussed the matter with renr- _ 8e ntatives of the Federal Reserve Bank at various times and that, 1 Re;:v date of March 16, 1953, the then General Counsel for the Federal the rve Bank wrote him a letter reviewing the question and reaching by:nclusion that, since Somers Point and Ocean City are separated the,rshland and navigable water over a distance of about three miles, 2(d'Ullere not contiguous or adjacent within the meaning of section . °f Regulation L, and that, therefore, in his opinion, 1) 111,,j5 r, ilcrlan i s service as President and Director of The Boardwalk 1.;'' Bank, with a branch to be located at Somers Point, and his nerv° vioLa4. -e as a director of The National Bank of Ocean City would not 801,er'de,the Clayton Act. The branch was thereafter established at stNe, oint and is still in operation in quarters especially conto house it. ibderal Reserve Bank of Philadelphia -2- Federal Reserve In 1958 the matter was reexamined by the Bani, and it was discovered that the corporate limits of Ocean City and Somers Point coincide for a length of approximately 4800 feet ingly, under the navigable waters separating the two points. Accord e Reserv the of ent Presid Vice the !rider date of September 9, 1958, l Counse Bank wrote Mr. Kirkman quoting from an opinion of the present ion except for the Bank to the effect that for this reason the above 18 not applicable and Mr. Kirkman's service of the two banks is unlawful. "contiguous" In view of the interpretation of the word contained in the footnote to section 2(d)(5) it appears that the o t. of Counsel for the Bank in 1953 is technically correc was Point uowever H , in view of the fact that the branch at Somers owever, ?stablished in a building constructed for the purpose, and has been Kirkman n operation since 1953 in reliance on the advice given Mr. of the e becaus ! the then Counsel for the Reserve Bank, the Board, prothe on based ion circumstances, will interpose no object r office an as uing of the Clayton Act to Mr. Kirkman's contin and director of both banks. t Very truly yours, A- Merritt Sher Se ore trya n,
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