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9/61 Minutes for To: Members of the Board From: Office Of the Secretary January 25, 1963 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve .System on the above date. It is not proposed to include a statement With respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If You were not present, your initials will indicate on1y that you have seen the minutes. Chin. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell - Minutes of the Board of Governors of the Federal Reserve System on Friday, January 25, 1963. The Board met in the Board Room at 10:00 a.m. PRESENT: Mx. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Mills Robertson Shepardson Mitchell 1/ Mr. Sherman, Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Molony, Assistant to the Board Mr. Noyes, Director, Division of Research and Statistics Mr. Solomon, Director, Division of Examinations Mx. Koch, Associate Director, Division of Research and Statistics Mr. Holland, Adviser, Division of Research and Statistics Mr. Solomon, Associate Adviser, Division of Research and Statistics Mr. Hersey, Adviser, Division of International Finance Mr. Landry, Assistant to the Secretary Mr. Yager, Chief, Government Finance Section, Division of Research and Statistics Mr. Reynolds, Chief, Special Studies and Operations Section, Division of International Finance Miss Dingle, Senior Economist, Division of Research and Statistics Mr. Keir, Senior Economist, Division of Research and Statistics Mr. Maroni, Senior Economist, Division of International Finance Mr. Goldstein, Economist, Division of International Finance Money market review. Mr. Keir reported on recent develop- 41ents ln • the Government securities market, following which Miss Dingle - Withdrew from meeting at point indicated in minutes. 1/25/63 -2- commented on the situation with respect to bank reserves, the money slIPPlY, and related matters, referring in the course of her comments to a statistical table distributed before the meeting. Mr. Goldstein then made a statement regarding foreign exchange market developments. At the conclusion of these reports all members of the staff except Messrs. Sherman, Young, Noyes, Landry, and Maroni withdrew and the following entered the room: Messrs. Hackley, General Counsel; Leavitt, Assistant Director, Division of Examinations; and Doyle, Attorney, Legal Division. Loan on gold to Colombia (Item No. 1). Mr. Young referred to the application by Banco de la Republica, Colombia, for a loan on c)id that had been the subject of discussion at the meeting on January 23) 1963, and with respect to which the Board had indicated it would be favorably inclined, provided the loan was authorized by the directors Qt the Federal Reserve Bank of New York. Mr. Young said that a telegram hal- subsequently been received from the Reserve Bank advising that the loan had been authorized by the directors, with a 90-day maturity sPeQified rather than the requested 180 days. After discussion, the granting to Banco de la Republica, Colomof a three-month loan on gold of $30 million was approved unanimously. 4 e°PY of the telegram sent to the Federal Reserve Bank of New York 131111811ant to this action is attached as Item No. 1. 1/25/63 -3Mr. Maroni then withdrew from the meeting. Meeting of staff with representatives of European Coal and Coiit. Mr. Hackley reported that pursuant to the understanding at the meeting on January 10, 1963, Messrs. Ralph Young, liexter) Doyle, Crowley (of the New York Reserve Bank), and he had illet Yesterday with Messrs. Wellenstein and Zimmer of the European Coal and Steel Community, who were accompanied by Mr. Butler of the New York law firm of Cravath, Swaine and Moore. Mr. Hackley stated that the weight of the argument presented at the meeting was that the Cos" and Steel Community was a supranational entity that should be regarded as a foreign government whose time deposits in this country Were exempted by Public Law 87-827 from interest rate limitations Scribed by the Board under section 19 of the Federal Reserve Act. Mrs Hackley noted that Messrs. Wellenstein, Zimmer, and Butler were not e°4tending that the Community was a "monetary and financial authority roreign governments" for the purposes of the requested exemption. With reference to the meeting of the Board scheduled for 11:00 o'clock this morning with the three gentlemen in question at which the latter intended to outline their position and answer questions, Mr. Hackley °13served that the Legal Division would submit at a later date a memoCovering yesterday's meeting that would summarize the principal le86111 arguments involved. He went on to say that a communication had bee4 received from the State Department to the effect that the Department 1/25/63 regarded the Coal and Steel Community as a supranational agency but recognized that the Board might need to take other factors into account in determining whether or not the Community fell within any of the three categories of governments, authorities, or international financial institutions whose time deposits were exempted by Public Law 87-827 rrom interest rate limitation. Mr. Hackley said there was nothing in the legislative history of Public Law 87-827 with respect to what Congress meant by the term "foreign governments" as used in the statute. He Observed that the principal argument against accepting the interpretation Mvanced by the representatives of the Coal and Steel Community was that in the absence of anything to the contrary in the legislative history °r the Act the Board should give the usual meaning to the term "foreign governments". He added that Mr. Wellenstein had requested that, should the Board be inclined toward an adverse ruling on the substantive gl/estion, the Board FIllow the request to be withdrawn. Mr. Hackley cencluded his report with a comment that he anticipated the represent8.tives of the Community desired to present directly to the Board the vie48 Previously presented to the staff and that they would be prepared t° respond to such questions as the members of the Board might ask. Messrs. Young and Noyes withdrew from the meeting at this P°int. Discount rates. The establishment without change by the l'ecieral Reserve Banks of New York, Philadelphia, Cleveland, Richmond, 1/25/63 _5_ 8t. Louis, Minneapolis, Kansas City, and Dallas on January 24, 1963, °f the rates on discounts and advances in their existing schedules Igas 2P2,1121T1 unanimously, with the understanding that appropriate advice would be sent to those Banks. Distributed item. attached The following item, a copy of which is to these minutes as Item No. 2, was approved unanimously: Telegram to the Federal Reserve Agent at Minneapolis authorizing issuance to Bancorporation of Montana (formerly Montana Shares, Incorporated), Great Falls, Montana, of a limited permit to vote its stock of specified banks. Report on competitive factors (Roanoke-Bristol, Virginia). There had been distributed a draft of report to the Comptroller of the Currency regarding the competitive factors involved in the proposed Iliel‘ger of The Dominion National Bank of Bristol, Bristol, Virginia, int° The First National Exchange Bank of Virginia, Roanoke, Virginia. Following a discussion directed toward the language of the eonelllsion, the report was approved unanimously for transmittal to the ComT,-4. 'y'-roller in a form containing the following conclusion: . The Dominion National Bank of Bristol, Bristol, Virginia, and The First National Exchange Bank of Virginia, Roanoke, Virginia, are not in direct competition with each Other as their nearest offices are 110 miles apart. However, competition does exist between the two institutions since the Roanoke Bank, which is the largest bank in the southwestern section of Virginia, solicits business throughout the area and since both banks act as correspondents for several other )anks. It does not appear that the proposed merger will have serious adverse competitive effects on other banks in the resulting institution's service area, but it does 1 1/25/63 -6- represent a trena towards area and State-wide concentration 0f commercial banking resources by way of mergers and bank holding company acquisitions. At 11:00 a.m. Governor Mitchell and Mr. Leavitt left the and the following entered the room: Mr. Hexter, Assistant General Counsel M±. Katz, Associate Adviser, Division of International Finance Mr. Edmond Wellenstein, Secretary-General of the European Coal and Steel Community Mr. Klaus-Peter Zimmer, General Counsel of the European Coal and Steel Community Mr. Samuel C. Butler, of Cravath, Swaine and Moore, New York City Mr. Robert J. Crowley, Assistant Counsel, Federal Reserve Bank of New York Meeting with representatives of European Coal and Steel -"*""It • Mr. Wellenstein presented a prepared statement in which it 148/loted that he and his colleagues were appearing on behalf of the Authority of the European Coal and Steel Community to request that the Board consider the Community to fall within the scope of the term "foreign governments" under the October 15, 1962, amendment to s ection 19 of the Federal Reserve Act with respect to removal of 11Elita-lons on the payment of interest on time deposits. Following rerer ence to two memoranda previously submitted to the Board's staff cllng the nature of the Coal and Steel Community, Mr. Wellenstein /lent 1 to indicate the various respects in which, independent of the 4Le1flber states, the High Authority of the Coal and Steel Community haci n. Ince its inception in 1952 exercised the essential powers of an CIP*411 1/25/63 dePendent nation in the fields of economic, financial, and social With reference to financial activity, Mr. Wellenstein pointed 11°11eY. (4th that the Community had over the last ten years accumulated close to $150 million of deposits in the banking systems of the six member ne:ti°ns and, in addition, a substantial portfolio of investments. In this regard, Mr. Wellenstein indicated the United States as the country In vhich such deposits were maintained in largest amount outside the stnations making up the Community. Although he would not be justified 11144intaining that financial implications of a favorable reception to the C°Mmunity's request to the Board would be enormous, Mr. Wellenstein sa.la nevetheless the Community's deposits in the United States had been kept at a relatively low level due to the lesser rate of return there(3n than was obtainable on similar deposits in the financial markets or other countries. Should a favorable ruling be forthcoming, he said, the rc. 'a-1 u - and Steel Community would be freer in moving its time deposits 1'1,041 ri declared, 411roPean markets to the United States. On the other hand, he the tr. 4AIgh Authority considered the political aspect of the question as the, . '°mlnant consideration in maintaining the position of the Community 48 an °rganization with the status of a national state. In this latter 241.rie ti e--011 Mr. Wellenstein noted that fifteen countries had established tic representation with the Steel and Coal Community, which in t1411 i -or number entered into agreements with several governments in a . '41zhJect areas. 1/25/63 -8At the conclusion of Mr. Wellenstein's statement Gelrernor Balderston asked for questions, starting with Governor Mills) who inquired how the political status of the Coal and Steel Cs3rnillunitY could be compared, legally speaking, to that of the United N4t1(3ns. Mr. Wellenstein replied that this question had arisen in the meeting with the Board's staff yesterday and, as he had pointed out °11 that occasion, the High Authority strongly took the position that, 1111 the United Nations, the Community was not l'4111"Zation• an international He noted that under the form of organization established kr the r' ,,ommunity and the powers granted in its charter there was involved tis4lIsfer to the Community of power to reach decisions in important 1113Ject areas completely independent of the six member governments. G°Itern -or Mills then asked whether or not the Coal and Steel Community 11°111c/ be eligible for admission to the United Nations. Mr. Wellenstein rePlieA , t that he had never considered the question but that the Community 1?az 4 member of various agencies such as the General Agreement on Tarirf 's and Trade and the Economic Council for Europe on a parity with national states. In reply to a question from Governor Robertson as to whether the t 6113ang power of the Community was general or specific, Mr. Wellenstein that the Community's taxing power extended to a certain maximum Deree 46age of the production value of coal and steel produced within the c °mmunity, with the level of tax fixed by the High Authority . .1 1/25/63 -9- trbollomously, but that the form of tax was set by the six member countries acting in unison. He went on to say, in response to a Illther question, that the ceiling of the percentage value tax referred to could not be exceeded unless the majority of the six e°°171ere.t3.ng nations approved and that the cooperating nations imposed awn taxes additionally. Asked by Governor Balderston whether he wished to pose 61.1 "Illeetions, Mr. Hackley replied that it would be helpful if 8°111e-thing could be said about the method by which the Coal and ateel tdommunity enforced its orders. In reply Mx. Butler referred to ' 41)Proval by the High Authority of a temporary system of licensing e°a1 and steel imports imposed by the Belgian Government in 1959 and snl, '"Jsequently, and collateral approval of a subsidy to the coal and tteel . industries in that country, both of which actions the Belgian —.latent could not take independently under the terms of the Coal and Steel C ommunity charter. Noting that the Community had the power to °8e sanctions on countries resisting its decrees, Mr. Butler compared the legal structure of the Community to that of the United States nt with respect to a separation of powers between the executive, leiclative, and judicial branches. In this regard, he indicated that the 1013ean Court of Justice had under the Community agreement sat in (111474tent on certain disputes between the Community and its constituent ti4t1 °118- Mr. Butler cited a 1962 case in which the Netherlands challenged CY-'11 1/25/63 -10- certa1n transportation rulings within the Community. In this instance the Court decided in favor of the Community and its decision was accepted the• six nations involved. Similarly, Mr. Butler said, the European e°11rt of Justice decided in the Community's favor with respect to elimirati °n of coal export cartels in Western Germany. In his opinion, the examples clearly indicated that the various powers of the Community ' /rere eaforceable both against individual business firms and member states. Mr. Zimmer said, in reply to a question from Governor Shepardson 48 to the power of the Community to enforce its rulings and to collect taxee, that it had the right to appoint its own agents to enter the countries e°11cerned for the purpose of determining a production value base for te4cation and to proceed to seizure of property if necessary in satisfaction or ta% claims. He noted that each of the six states was obliged to put its 01— "" Police force at the disposal of the Community for this purpose. With , -egard to the treaty by which the Community was established, he sEt-1.4 the termination date was the year 2002 and the treaty contained 131.°Irisions for its own modification. Governor Shepardson then inquired as to the Community's 1)11/1)ose in maintaining funds in various financial markets, especia3ly the United States. Mr. Wellenstein replied that not only had the ecIr44;41tY enjoyed financial support from the United States from the )11.tt but that several large loans had been raised in the New York c4Pital -- market for the servicing of which deposits had to be maintained 1/25/63 -11- in ile'w York banks. There were, of course, investment aspects to such clePosits, which related to the rate of return in the United States c°111Pared to rates in other money markets. There ensued additional discussion during which it was (1158erved that the organizational structure of the Coal and Steel C°M4aulity was basically the same as that of the European Economic C°11111111-nitY and the European Atomic Energy Community. At the conclusion °t this discussion, Governor Robertson asked if the visitors knew of 411thing in the legislative history of P.L. 87-827 that would suggest the r, ' °a1 and Steel Community was meant to be included within the meaning °t --e term "foreign governments." Mr. Butler made a negative reply, 13°111tillg out, however, that he did not know of anything that served to e3ccitkle the Community from this category. He suspected that Congress +1, '"inking of the "garden variety" of governments in its use of the tel.m, but he believed that there was enough latitude in the term to 1.11Q1txde the Community. He noted that the Internal Revenue Service the Treasur— y Department had stated that for the purposes of taxation the te_ rm "foreign governments" included subdivisions thereof. In elabo114ti°11 elf this point Mr. Butler cited a recent decision of the United S'ite Court Of Appeals for the Second Circuit holding that the Port of lielrl.°rk Authority was a kind of "supra-State" authority set up by interatme -omPact to govern in a limited area regarding specified matters. -4ta eel that the situation was similar with respect to the Coal and Community. 1125/63 -12Mr. Hackley then inquired about the manner in which the ktalority enforced its sanctions against industries or governments within the Community. Mr. Zimmer replied that Article 92 of the 0011111111-tY treaty stipulates that only the European Court of Justice e44 consider proceedings by the Authority and not courts within the rilealber nations; and that, given a decision favorable to the Community, III‘clipertY could be seized without any other court action. be 4 Should there violation of treaty provisions, the High Authority had the power to 11c)ve against a member country by taking the matter to the Court of jilstice• Should the decision of the Court not be executed, the 414"tr1tY could then go before the European Council to apply sanctions, 14liell is currently the most extreme procedure possible under interria'ttonal law. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: 044)1, Letter to the Federal Reserve Bank of Chicago (attached Item No. 3) ng the mc3vi appointment of Roderick L. Housenga and Richard K. Pearson '4ssistant examiners. rola Memoranda from appropriate individuals concerned recommending the cl/sring actions relating to the Board's staff: sea increases, effective February 3 1963 5a4eY B. Kelly, Secretary, Board Members' Offices, from $7,320 to $7,52N Per annum. 1/25/63 ncrease j effective February_l 1963 t,Bar.bara Jones, Special Assistant Federal Reserve Examiner, Division 4amlnations, from $4,110 to $4,250 per annum. S. Zeller, Research Assistant (Data Processing), Division ta Processing, from $5,540 to $5,725 per annum. orm vrence E. Thompson, Professor, Business Administration, Harvard zio llate School of Business Administration, as Consultant in the DiviOf Research and Statistics effective until December 31, 1963, on orary contractual basis, with compensation at the rate of $75 per t;-411.4r each day worked for the Board and, when in travel status, transporexPenses and a per diem allowance to be paid in accordance with the D'uard's travel regulations. 1, \,, , t/k/A. Secretary 4278 Item No. 1 1/25/63 TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON January 25, 1963 SANP°RD - NEW YORK Your wire of January 24. Board approves granting of loan or loans °n gold up to an aggregate total of $30 million by your Bank to the 11411c,c) de la Republica (Colombia) on the following terms and conditions: (a) To be made up to 98 per cent of the value of gold bars set aside in vaults of the Federal Reserve Bank of New York under pledge to that Bank; (b) To mature in three months with option to repay at any time before maturity, both the loans and repayments to be in multiples of $1 million; (c) To bear interest at the discount rate of New York Reserve Bank in effect on the date on which such loan or loans are made; (d) To be requested and made on or before February 26, 1963. understood that the usual participation will be offered to the othe, 'Federal Reserve Banks. i8 (Signed) Merritt Sherman SHERMAN TELEGRAM LEASED WIRE SERVICE SYSTEM BOARD OF GOVERNORS OF THE FEDERAL RESERVE WASHINGTON 79 2.‘4 Item No. 2 1/25/63 January 25, 1963 BEAN -- MINNEAPOLIS KECEA A. B ancorporation of Montana, Great Falls, Montana. B. Liberty County Bank, Chester, Montana. Citizens Bank of Montana, Havre, Montana. Central Bank of Montana, Great Falls, Montana. C. D. None. At any time prior to May 1, 1963, at the annual meetings of shareholders of such banks, or any adjournments thereof, to (1) elect directors, and (2) act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual meetings of such banks. STOp. Please advise Applicant that (a) approval of actions of directors, (b) review and approval of contributions to the profit sharing Plan and to charitable organizations during the past year, and (c) Posing limits on charitable contributions for the current year, are considered matters of routine nature.. Also, remind Applicant that Regulation P requires that P-5 Agreement be filed for each State member bank affiliated with it; if those agreements with respect to Liberty County Bank and Citizens Bank of Montana are not executed within period specified in Regulation P, a reasonable time Will be allowed for the filing thereof. (Signed) Elizabeth L. Carmichael CARMICHAEL Definition of KRCEA: The Board authorizes the issuance of a limited voting permit, under the provisions of section 5144 of the Revised Statutes of the United States, to the holding company affiliate named below after the letter "A", entitling such organization to vote the stock which it owns or controls of the bank(a) named below after the letter "B", subject to the condition(s) stated below after the letter "C". The permit authorized hereunder is limited to the period of time and the purposes stated after the letter "D". Please proceed in accordance with the inutruetiono contained in the Board's letter of March 10, 1947, (6-964). Item No. 3 1/25/63 BOARD OF GOVERNORS OFC01:. OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, O. C. ADDRESS OFFICIAL. CORRESPONDENCE TO THE BOARD January 28, 1963 CaNFIbF2ITIAL P.R. tel Vice President, /1,41and.Ross, Reserve Bank of Chicago, 411°40 90, Illinois. 1) Mrs Ross. In accordance with the requests contained in your letter !Of R January 18, 1963, the Board approves the appointment exaij'eriok L. Housenga and Richard K. Pearson as assistant the f!" for the Federal Reserve Bank of Chicago. Please advise ' 4.1ective dates of the appointments. It is noted that Mr. Pearson's brother is employed by Harri .• bitnitta Trat and Savings Bank, Chicago, 'Illinois, a State member r4ertt Ac appointoordinglY, the Board's approval of Mrs Pearson's participate not will he that understanding with the bytIlY examination of that bank so long as his brother is employed 0 institution. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. g
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