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Minutes for January 28, 1965.
To:
Members of the Board
From:
Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Minutes of the Board of Governors of the Federal Reserve
System on Thursday, January 28, 1965.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Mills
Shepardson
Mitchell
Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Noyes, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Kelleher, Director, Division of Administrative
Services
Mr. Kakalec, Controller
Mr. Shay, Assistant General Counsel
Mr. Koch, Associate Director, Division of
Research and Statistics
Mr. Solomon, Adviser, Division of Research and
Statistics
Mr. Dembitz, Associate Adviser, Division of
Research and S7,atistics
Mr. Daniels, Assistant Director, Division of
Bank Operations
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Spencer, General Assistant, Office of the
Secretary
Miss Hart, Senior Attorney, Legal Division
Mr. Young, Senior Attorney, Legal Division
Mr. Forrestal, Attorney, Legal Division
ner,
w
Mx. Egertson, Supervisory Revie Exami
Division of Examinations
Mr. Poundstone, Review Examiner, Division of
Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
-2-
1/28/65
Circulated or distributed items.
The following items, copies
of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to The Annapolis Banking and Trust Company,
Annapolis, Maryland, approving an extension of time
to establish a branch at Ritchie Highway and McKinsey
Road, Anne Arundel County.
1
Letter to United California Bank, Los Angeles, California,
approving an extension of time to establish a branch near
the area bounded by Harrison, Third, Brannan, and Fifth
Streets, San Francisco.
2
Letter to Burns State Bank, Burns, Kansas, waiving the
requirement of six months' notice of withdrawal from
membership in the Federal Reserve System.
3
g
Letter to the Federal Reserve Bank of New York approvin
Reserve
Federal
the appointment of Sydney L. Henning as
Agent's Representative at the Buffalo Branch.
11.
Board
Letter to the Bureau of the Budget stating that the
confor
suggest
to
ion
had no proposals for State legislat
d
s
on
Suggeste
Official
sideration by the Committee of State
nts.
Governme
State
State Legislation of the Council of
5
on a proposed
Letter to the Bureau of the Budget reporting
Act.
bill to amend the Commodity Exchange
6
Mr. Johnson then withdrew from the meeting.
Reserve requirements.
Pursuant to the understanding at the
had been distributed a revised
Board meeting on January 27, 1965, there
draft of proposed language on reserve requirements for inclusion in a
section of the Board's 1964 Annual Report commenting on a legislative
Program.
-3-
1/28/65
a
During discussion, it was agreed that the reference to
e
g to
system of graduated reserve requirements should includ wordin
discount facilities
the effect that access by nonmember banks to the
plated.
of the Federal Reserve Banks also would be contem
This would
President's Committee
be in accord with the recommendation made by the
on Financial Institutions in 1963.
It was also agreed that the phrase
statement that "The
"(or perhaps all insured banks)" included in the
be served, however, if
interests of equity and efficiency would best
) were obligated to
all commercial banks (or perhaps all insured banks
be deleted.
observe the same reserve standards" should not
It had
during the
been included to recognize indirectly the indication
the Federal Deposit
deliberations of the President's Committee that
to require nonmember
Insurance Corporation would support a proposal
insured banks to observe
the same reserve standards as member banks.
upon, the revised
Subject to the change that had been agreed
in the 1964 Annual Report.
draft of language was approved for inclusion
(Research), Dembitz, and
Messrs. Molony, Cardon, Koch, Solomon
Daniels then withdrew from the meeting.
Savings Company (Items 7
Application of Commercial Bank and
2..nsu8).
meeting on January 21, 1965,
Pursuant to the decision at the
an order and statement reflecting
there had been distributed drafts of
cial Bank and
the Board's approval of the application of The Commer
to merge with The New Riegel State
Savings Company, Fostoria, Ohio,
Bank, New Riegel, Ohio.
1/28/65
The issuance of the order and statement was authorized.
Copies
of the documents issued pursuant to this authorization are attached as
Items 7 and 8.
Miss Hart and Mr. Egertson then withdrew from the meeting.
Amendment to agreement with architectural firm (Item No. 9).
There had been circulated a memorandum from Governor Shepardson dated
January 15, 1965, recommending that the Board authorize an amendment
to the agreement with the architectural firm of Harbeson Hough Livingston & Larson of December 7, 1962, that would provide for payment
by the Board of a fee of 9-3/4 per cent for work involving alterations and additions to the Board's existing building.
A copy of the
proposed amendment was attached to the memorandum.
At the presentation of the preliminary plans and estimates
for the proposed annex building at a meeting on September 23, 1964,
the architectural firm was requested by the Board to hold in abeyance
further work on the preliminary plans for the new building.
The firm
was asked instead to study the feasibility of alterations to the
existing Board building to permit the retention of certain facilities
that would otherwise have to be accommodated in the proposed annex.
After study by the firm it was apparent that such alterations would be
extensive; the firm therefore requested an amendment to the existing
agreement so as to cover services for the alterations and additions
to the present building.
The firm proposed a fee of 9-3/4 per cent
-5-
1/28/65
fee was 5-3/4 per cent.
of the construction costs, whereas the basic
standard fee of the American
The higher figure was reported to be the
-type buildings when alterations
Institute of Architects for monumental
pal part of the work.
to an existing building comprised the princi
The
Administrative Services had
memorandum stated that the Division of
ects and the Board's
checked with the American Institute of Archit
the fee to be reasonable.
Consulting Architect; they considered
or Shepardson, the Board
Following recommendation by Govern
agreement of December
approved the proposed amendment to the
7, 1962.
Livingston & Larson transmitting
A copy of a letter to Harbeson Hough
that firm is attached as
copies of the amendment for execution by
Item No.
9.
and Young then withdrew from
Messrs. Noyes, Kelleher, Kakalec,
the meeting.
M (Item No. 10).
Proposed amendment to Regulation
There had
and Examinations Divisions
been distributed a memorandum from the Legal
t from First National City
dated January 22, 1965, discussing a reques
Regulation M, Foreign Branches of
Bank, New York, New York, that
permit overseas branches to pay prefNational Banks, be amended to
deposits of their officers and employees
erential rates of interest on
ies where such a procedure would
if the branches were located in countr
be consistent with local law and practice.
that the Federal Reserve Banks be
The memorandum recommended
bility or appropriateness
given an opportunity to comment on the advisa
334
-6-
1/28/65
of such an amendment.
It was also recommended that similar letters
gn branches,
g
be sent to national and State member banks havin forei
ncy and the
and that the comments of the Comptroller of the Curre
ed.
Federal Deposit Insurance Corporation be invit
sed amendment and
After a discussion of the nature of the propo
d that letters should
the reasons supporting its adoption, it was agree
r of the Currency,
be sent to all Federal Reserve Banks, the Comptrolle
n.
and the Federal Deposit Insurance Corporatio
A copy of the letter
hed as Item No. 10.
transmitted to the Reserve Banks is attac
It was
comments the Board would decide
understood that following receipt of
wed.
on what further procedure should be follo
The meeting then adjourned.
was sent today
Secretary's Note: A letter
ture to the
over Chairman Martin's signa
ements advisBank for International Settl
ve System would
ing that the Federal Reser
, Adviser to
Noyes
Mr.
by
be represented
President
Vice
s,
Holme
Mr.
the Board, and
York,
New
of
Bank
ve
Reser
of the Federal
to
mists
econo
bank
al
centr
at a meeting of
to
,
1965
,
8-10
March
on
be held in Basle
and prospective
review generally the current
tion.
economic situa
BOARD OF GOVERNORS
Item No. 1
1/28/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
AOORES111
orrsciAL
COROICSPONOCNCIE
TO THE BOARD
January 28, 1965.
Board of Directors,
The Annapolis Banking and Trust
Company,
Annapolis, Maryland.
Gentlemen:
The Board of Governors of the Federal Reserve System
extends to May 3, 1965, the time within which The Annapolis
Banking and Trust Company, Annapolis, Maryland, may establish
a branch at the western corner of Ritchie Highway and McKinsey
Road, Anne Arundel County, Maryland.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 2
1/28/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 28, 1965.
Board of Directors,
United California Bank,
Los Angeles, California.
Gentlemen:
The Board of Governors has approved
an extension until February 2, 1966, of the time
within which United California Bank may establish
a branch in the vicinity of the area bounded by
Harrison, Third, Brannan and Fifth Streets, San
this
Francisco, California. The establishment of
.2,
August
dated
letter
branch was authorized in a
1963.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
t
Item No.
BOARD OF GOVERNORS
3
1128/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 281 1965.
Board of Directors,
Burns State Bank,
Burns, Kansas.
Gentlemen:
has forwarded to
The Federal Reserve Bank of Kansas City
dated January 4,
letter
g's
the Board of Governors President Vestrin
ing your
signify
tion,
1965, together with the accompanying resolu
e System
Reserv
l
Federa
the
intention to withdraw from membership in
awal.
such
withdr
of
and requesting waiver of the six-months' notice
requirement of sixThe Board of Governors waives the
provisions of Section 208.10(c)
months' notice of withdrawal. Under the
tion may accomplish terminaof the Board's Regulation H, your institu
eight months from the date
tion of its membership at any time within
membership was given. Upon
the notice of intention to withdraw from
of Kansas City of the Federal
surrender to the Federal Reserve Bank
such stock will be canceled
Reserve stock issued to your institution,
and appropriate refund will be made thereon.
cate of membership be
It is requested that the certifi
of Kansas City.
returned to the Federal Reserve Bank
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
Item No.
4
1/28/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
January 28, 1965.
Mr. Philip D. Reed,
Federal Reserve Agent,
Federal Reserve Bank of New York,
New York, New York. 10045.
Dear Mr. Reed:
contained in Mr. Ringen's
In accordance with the request
of Governors approves the appointletter of January 19, 1965, the Board
Federal Reserve Agent's Representament of Mr. Sydney L. Henning as a
tive at the Buffalo Branch.
the understanding that Mr.
This approval is given with
the Federal Reserve Agent and
to
e
nsibl
Henning will be solely respo
performance of his duties,
proper
the Board of Governors for the
ility of the Federal Reserve
disab
or
except that, during the absence
nsibility will be to the
respo
his
e,
offic
Agent or a vacancy in that
of Governors.
Board
the
and
Assistant Federal Reserve Agent
performance of his duties as Federal
When not engaged in the
Henning may, with the approval of
Mr.
Reserve Agent's Representative,
President in charge of the
Vice
the
the Federal Reserve Agent and
Branch as will not be inconthe
for
work
Buffalo Branch, perform such
Agent'sRepresentative.
ve
Reser
al
Feder
sistent with the duties as
if Mr. Henning is fully informed of
It will be appreciated
s as a member of the staff of the
litie
nsibi
the importance of his respo
maintenance of independence
for
need
Federal Reserve Agent and the
discharge of these responsibilities
the
in
from the operations of the Bank
execute the usual Oath of Office
Please have Mr. Henning
of Governors along with notifiBoard
the
which should be forwarded to
ntment.
appoi
of his
cation of the effective date
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
339
BOARD OF GOVERNORS
.....
•
,•/e.
• ov GoIt
/i9
Item No.
5
1/28/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
04,
TO THE BOARD
January 28, 1965.
Mr. William D. Carey,
Executive Assistant Director,
Bureau of the Budget,
Washington, D. C. 20503
Dear Mr. Carey:
This refers to your letter of January 5, 1965,
inquiring whether the Board has any proposals for State legislation
which it would desire to present through the Bureau of the Budget
for consideration by the Committee of State Officials on Suggested
State Legislation of the Council of State Governments.
There do not appear to be any proposals for State
legislation which the Board would wish to suggest at this time.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No.
BOARD OF GOVERNORS
•eo of GOvi •.
?4,•
o„,•
vs*.
6
1/28/65
OF THE
• • •
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
,•A`v•'
'•...•
January 28, 1965.
Mr. Phillip S. Hughes,
Assistant Director for
Legislative Reference,
Bureau of the Budget,
Washington, D. C. 20503
Dear Mr. Hughes:
This is in response to your request of January 11, 1965,
the Department
for the views of the Board on a draft bill proposed by
to provide
as
so
Act
Exchange
y
Commodit
the
of Agriculture to amend
trading
for
ents
requirem
margin
set
to
y
the Secretary with authorit
is
there
danger
believe
"to
reason
is
in commodities whenever there
or
ions
ted
fluctuat
unwarran
able
unreason
of manipulation, sudden or
or
ion",
e
the
speculat
excessiv
y,
commodit
changes in the price of any
y's
y
the
Secretar
authorit
tighten
like, and generally to improve and
the
s
and
the
exchange
persons
of
to supervise and regulate the conduct
using their facilities.
Incidents which occurred a little over a year ago in the
vegetable oils market have emphasized a need for legislation in this
area. While repetition of similar events might be prevented in the
rules of exchanges themselves, it seems clear that the powers available for regulating commodity trading should include at least
discretionary authority to describe minimum margin requirements.
The draft bill is similar to that on which the Board
reported to the Bureau by letter dated January 20, 1964. It is noted
that a number of technical language changes have been made and that
been
certain suggestions contained in the Board's 1964 report have
ion
legislat
proposed
the
of
es
objectiv
the
endorses
adopted. The Board
ation.
consider
e
favorabl
and recommends its
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No.
7
1/28/65
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
THE COMERCIAL BANK AND SAVINGS COMPANY
for approval of merger with
The New Riegel State Bank
ORDER APPROVING MERGER OF BANKS
There has come before the Board of Governors, pursuant to the
Bank Merger Act of 1960 (12 U.S.C. 1828(c)), an application by
The Commercial Bank and Savings Company, Fostoria, Ohio, a State member
prior approval of the
bank of the Federal Reserve System, for the Board's
Bank, New Riegel, Ohio,
merger of that bank and The New Riegel State
l Bank and Savings Company.
under the charter and title of The Commercia
As an incident to the merger, the sole office of The New Riegel State
bank.
Bank would become a branch of the resulting
Notice of the
has been published
Proposed merger, in form approved by the Board,
Pursuant to said Act.
in the light of
Upon consideration of all relevant material
the factors set forth in said Act, including reports furnished by the
Federal Deposit Insurance Corporation,
Comptroller of the Currency, the
1.2
-2-
and the Department of Justice on the competitive factors involved in
the proposed merger,
IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that said application be and hereby
is approved, provided that said merger shall not be consummated
(a) within seven calendar days after the date of this Order or
(b) later than three months after said date.
Dated at Washington, D. C., this 28th
day of January ,1965.
By order of the Eoard of Governors.
Voting for this action: Chairman Martin, and
Governors Mills, Robertson, Shepardson, Mitchell, and Daane.
Absent and not voting:
Governor Balderston.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
t
(71,
Item No.
8
1/28/65
BOARD OF GOVWORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY THE COMMERCIAL BANK AND SAVINGS COMPANY
FOR APPROVAL OF MERGER WITH
THE NEW RIEGEL STATE BANK
STATEMENT
The Commercial Bank and Savings Company, Fostoria, Ohio
("Commercial"), with total deposits of $11 million, has applied, pursuant
to the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), for the Board's prior
approval of the merger of that bank and The New Riegel State Bank, New
Riegel, Ohio ("State"), which has total deposits of $2 million.!/ The
banks would merge under the charter and title of Commercial, which is a
member of the Federal Reserve System.
As an incident to the merger, the
single office of State would become a branch of the resulting bank,
increasing the number of its offices from three to four.
Under the law, the Board is required to consider, as to each
of the banks involved, (1) its financial history and condition, (2) the
adequacy of its capital structure, (3) its future earnings prospects,
(4) the general character of its management, (5) whether its corporate
powers are consistent with the purposes of 12 U.S.C., Ch. 16 (the Federal
Deposit Insurance Act), (6) the convenience and needs of the community
11
Deposit figures are as of June 30, 1964.
4/1
-2-
to be served, and (7) the effect of the transaction on competition
(including any tendency toward monopoly).
The Board may not approve
the proposed merger unless after considering all of these factors, it
finds the transaction to be in the public interest.
Banking factors. - The financial history and condition of both
banks are satisfactory.
The capital structure of State is adequate and
that of Coasnercial is fairly satisfactory.
Earnings of State have
declined sharply in the last two or three years due to interest expense
arising from a high proportion of time to total deposits, and to a
difficulty in placing loans and thereby developing an adequate return
on earnings assets.
There is no immediate prospect for change in
either of these factors, and earnings prospects of State would not
be regarded as favorable, were it to continue its separate existence.
Earnings prospects of Commercial are good, as would be those of the
resulting bank.
Management of both banks is competent.
The executive officer
Of State is beginning to look forward to retirement.
However, he has
several more years to serve, and the matter of management succession
lends no support to the proposal.
Management of the resulting bank
would be competent.
Neither the corporate powers of the two existing banks, nor
those of the resulting bank, are, or would be, inconsistent with the
Purposes of 12 U.S.C., Ch. 16.
-3-
Convenience and needs of the communities. - The head offices
of Commercial and State are located in Seneca County, in a rich, agricultural section of north central Ohio about 40 miles south of Toledo
and some 30 miles north of Columbus.
Fostoria, where Commercial
has
its head office, is a city with a 16,000 population and has diversified
industry producing, among other things, spark plugs, carbon products,
machine tools, and wire.
New Riegel, ten miles away, is a farming
community of 400 persons.
There is a second city in Seneca County,
Tiffin, with a population of 21,000, which is somewhat closer to New
Riegel, and customers from New Riegel have reasonably easy access in
either center to banks offering an adequate range of services.
However,
it seems clear that the needs and convenience of the smaller community
would be benefited if a branch of a larger bank were located there.
Because of State's low lending limit, the bank has had to decline many
real estate mortgage loan applications.
loans.
It makes no F.H.A. or G.I.
Only within the past two years has the bank been accepting a
limited volume of consumer installment loans.
Loans at State are about
a third of deposits, and a substantial portion of these loans were
Purchased from Commercial.
Competition. - Fostoria, where Commerclal has its head office,
is located on the boundaries of three counties.
Under Ohio law, Commercial
maY branch in any of the three, as may the largest bank in the county,
Commercial's chief rival, Tr -County National Bank, with total deposits
of $25 million as against the $13 million which would be held by the
346
-4-
resulting bank.
in Tiffin, the
Tr -County National has two branches
other city in Seneca County.
in
Three other banks headquartered in Tiff
$13 million, and $10 million,
have total deposits of $20 million,
y,
bank with headquarters in Care
respectively. A small independent
ty,
New Riegel, in Wyandot Coun
a town about ten miles southwest of
and is expected to lose some, but
has total deposits of $4 million
result of the merger.
not substantial, business as a
fourth largest of six
Commercial is, accordingly, the
est of
ty, and would be the third larg
commercial banks in Seneca Coun
of individuals, partnerships,
five, with 16 per cent of the deposits
cousummation of the merger.
and corporations in the county after
The
substantially larger.
first and second in rank would remain
some business from the area
State and Commercial each derive
some common customers.
served by the other, and they have
However,
been relatively mild, due to
competition between the two banks has
ding. Commercial has
a working relationship of over 30 years' stan
gaps
, lending it personnel to fill
advised and assisted the smaller bank
to it
referring deposit accounts
caused by vacations and emergencies,
wish to keep more than the
When requested by borrowers who did not
and selling real estate
insured maximum at Commercial itself,
mortgages to State.
effectuation of the merger of
Summary and conclusion. - While
een two
existing competition betw
Commercial and State would end some
ve or aggressive.
banks, this competition has not been acti
The smaller
j
-5-,
bank is unable, due to its law lending limit, to meet normal needs of
its agricultural community.
Because of the high proportion of time to
demand deposits and its inability to build up its loan and investment
portfolio satisfactorily, State has experienced a severe drop in
earnings.
No change that can reasonably be expected to occur during
the next few years, other than a merger along the lines proposed,
would appear likely to reverse this situation.
As a result of the
merger, New Riegel would benefit by having conveniently available
the local office of a bank able to meet community needs.
Accordingly, the Board finds that the proposed merger would
be in the public interest.
January 28, 1965.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
Item No.
1/28/65
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
0:4C •
*.RAI 11,ES .-•
January 29, 1965.
Mr. William H. Livingston,
Harbeson Hough Livingston & Larson,
Architects Building,
Philadelphia, Pennsylvania. 19103
Dear Mr. Livingston:
This is to advise, in response to your letter
of December 3, 1964, that the Board has approved an
Amendment to our Agreement of December 7, 1962, which
would provide that your basic fee for services involving
alterations and additions to the Board's present building
be increased to 9-3/4 per cent.
There are enclosed four copies of a draft
Amendment in substantially the same form as that submitted
with your letter. If this is satisfactory to your firm,
you can have three copies executed and returned and they
will be executed on behalf of the Board and one executed
copy will be returned to you for your records.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosures
9
Item No. 10
1/28/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
orrociAL
CORRESPONDENCE
TO THE BOARD
January 29, 1965.
Dear Sir:
The Board has been requested recently to amend Regulation M,
Foreign Branches of National Banks, to permit overseas branches of
member banks to pay preferential rates of interest on deposits of their
officers and employees if the branches are located in countries where
it is consistent with local law and practice to do so.
Section 22(e) of the Federal Reserve Act prohibits a member
bank from paying a greater rate of interest on deposits of a director,
officer, attorney, or employee than that paid to other depositors on
similar deposits with the bank. However, paragraph 9 of section 25 of
the Federal Reserve Act provides that regulations issued by the Board,
in addition to regulating powers which a foreign branch may exercise
under other provisions of law, may authorize a foreign branch to exercise such further powers as may be usual in connection with the transaction of the business of banking in the places where such foreiga
branch transacts its business.
It has been brought to the Board's attention that the
inability of an overseas branch to pay higher than usual rates of
interest to members of its staff, in conformity with local law and
custom, tends to place the branch in an undesirable competitive position
with respect to the hiring and development of a top-grade staff. A
recent survey submitted by the member bank requesting the amendment
indicates that, in a majority of the countries in which it maintains
branches, local regulations permit banks to pay preferential rates to
staff members and local banks in each of the countries are following
such a policy. In the remaining countries included in the survey, the
payment of preferential rates is not permitted or it is not the local
practice to do so.
On the basis of the foregoing, the Board is considering
an amendment to Regulation M pursuant to the aforementioned authority
under paragraph 9 of section 25 of the Federal Reserve Act. The amendment might be accomplished by adding the following new paragraph (g)
to section 213.4 of the Regulation:
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"(g) Pay to any officer or employee of the branch
a greater rate of interest on depOsits than that
paid to other depositors on similar deposits with
the branch."
It will be appreciated if you would furnish the Board such
comments as you may have on or before February 15, 1965.
The Board is also inviting at this time the comments of the
Comptroller of the Currency and the Federal Deposit Insurance Corporation.
Very truly yourg,
Merritt Sherman,
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
@FedFRASER