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Minutes for To: January 29, 1959 Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the of the Federal Reserve System on Governors Board of date. above the 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. A Chin. Martin Gov. Szymczak Gov, Mills Gov. Robertson Gov. Balderston Gov. Shepardson Minutes of the Board of Governors of the Federal Reserve System on Thursday, January 29, 1959. The Board met in the Board Room at 10:30 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Masters, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. Hostrup, Assistant Director, Division of Examinations Mr. Nelson, Assistant Director, Division of Examinations Mr. Hill, Assistant to the Secretary Discount rates. Unanimous approval was given to a telegram to the Federal Reserve Bank of San Francisco approving the establishment vithout change by that Bank on January 281 1959, of the rates on discounts and advances in its existing schedule. Items circulated or distributed to the Board. The following iteme, which had been circulated or distributed to the Board and copies r Which are attached to these minutes under the respective item numbers cated, were approved unanimously: Item No. , Lette to The Sylvania Savings Bank Company, Sylvania, OhiA 00,2 alVroving the establishment of a branch in Lucas Y. (For transmittal through the Federal Reserve Ilk of Cleveland) Lett :rpto the Petersburg Savings and American Trust Comof a etersburg, Virginia, approving the establishment Ped in-tawn branch. (For transmittal through the eral Reserve Bank of Richmond) 1 2 1 1/29/59 -2Item No. Letter to the Bank of the Commonwealth, Detroit, Michigan, extending the time within which it may establish a branch at 300-316 W. Fort Street. (For transmittal through the Federal Reserve Bank of Chicago) 3 Letter to the Citizens Commercial & Savings Bank, Flint, Mlchigan, extending the time within which it may establish a‘ branch at 925 South Saginaw Street. (For transmittal tnrough the Federal Reserve Bank of Chicago) tter to the Federal Deposit Insurance Corporation regardthe application of Carroll County Trust Company of rrollton, Missouri, for continuance of deposit insurance fter withdrawal from membership in the Federal Reserve SYstem. 5 Letter to the California Bank, Los Angeles, California, Proving the establishment of a branch in El Segundo. Yor transmittal through the Federal Reserve Bank of San 'I'ancisco) 6 r T eegram to the Federal Reserve Agent at St. Louis author?ng / the issuance of a limited voting permit to Petroleum .:111g, Evansville, Indiana, for the purpose of voting Shares of the Newburgh State Bank, Newburgh, Indiana. -- letter to Senator Fulbright (Item No. 8). 7 Reference was made to the discussion at yesterday's meeting regarding the reply to be sent to Ohai Man FUlbright of the Senate Banking and Currency Committee concerning the letter he had received from Chairman McClellan of the Senate Permanent SlIbc°mmittee on Investigations with regard to an investigation into ged leaks of certain Board decisions prior to public announcement. After discussion of two changes of a technical nature that had bee, "suggested following tentative approval of the reply yesterday, the letter, - -as approved unanimously for transmittal today in the form -3- 1/29/59 attached as Item No. 8, with the understanding that a copy would be sent to each Reserve Bank President for his confidential information Pursuant to the understanding at an informal meeting of the Board and the Presidents following the meeting of the Federal Open Market Committee on January 27, 1959. The meeting then adjourned. >4, Secretary BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, 0. C. Item No. 1 1/29/59 ADDRESS orrtciAL CORRESPONDENCE TO THE BOARD January 29 1959. Board of Directors, The Sylvania Savings Bank Company, Sylvania, Ohio. Gentlemen: the Federal Pursuant to your request submitted through the Federal of Governors Reserve Bank of Cleveland, the Board of Savings Sylvania Reserve System approves the establishment by The interthe of vicinity Bank Company of a drive-in branch in the Township, section of North Reynolds Road and Dorr Street, Adams within established Lucas County, Ohio, provided the branch is the of approval rle months from the date of this letter, and is branch the date "ate authorities is effective as of the established. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 450 BOARD OF GOVERNORS OF THE Item. No. 2 1/29/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 29, 1959. 8oard of Directors, Pe tersburg Savings and American Trust Company, Pe tersburg, Virginia. Gentlemen: Pursuant to your request submitted through the Pee Reserve Bank of Richmond, the Board of Governors ap!!oves the establishment of a branch by the Petersburg Savings i7eld American Trust Company in the Gray Drug Store Shopping Area vitween South Sycamore and Wakefield Streets, Petersburg, ginia, provided the branch is established within one year the date of this letter and approval of the State author13 effective as of the date the branch is established. W Very truly yours, (Signed) KennethA. Kenyon Kenncth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 3 1/29/59 ADDOCBS orriciAL CORREBPONDIENCE TO THE BOARD January 29, 1959. Board of Directors, Bank of the Commonwealth, Detroit, Nichigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors Of the Federal Reserve System extends the time within which Bank of the Commonwealth may establish a branch at 300-316 W. Fort Street, Detroit, Michigan, to August 8, 1959, under the authorization contained in the Board's letter dated September 4, 1958. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS Ott*** OF THE Vt 4:0 4 4 FEDERAL RESERVE SYSTEM „ Item No. 4 1129/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 4 January 29, 1959. Board of Directors, Citizens Commercial & Savings Bank, Flint, Michigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System extends until August 3, Savings 1959, the time within which Citizens Commercial & Street, Saginaw South 925 at branch Bank may establish a Flint, Michigan. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 00.440" OF THE 4440 , 1 hr FEDERAL RESERVE SYSTEM 0 .* WASHINGTON 25. D. C. 0 40 Item No. 5 1/29/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 0 0 January 29, 1959. The Honorable Jesse P. Wolcott, Chairman, Federal Deposit Insurance Corporation, Washington 25, D. C. Dear Mr. Wolcott: Reference is made to your letter of January 19, 1959, concerning the application of Carroll County Trust Company of Carrollton, Missouri, Carrollton, Missouri, for continuance of deposit insurance after withdrawal from membership in the Federal Reserve System. No corrective programs which the Board of Governors believes should be incorporated as conditions to the continuance of deposit insurance have been urged Upon or agreed to by the bank. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 1,4 BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 6 1/29/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 29, 1959. Board of Directors, California Bank, Los Angeles, California. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors approves the establishment of a branch 3-r1 the vicinity of the intersection of Sepulveda Boulevard and Imperial Highway, El Segundo, California. This approval is given provided the branch is established Within one year from the date of this letter and that formal approval of State authorities is effective at the time the branch is established. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON Item No. 7 1/29/59 January 29, 1959. McBRIDE — ST. LOUIS KECEA A. Petroleum King, Inc., Evansville, Indiana. Newburgh State Bank, Newburgh, Indiana. C. None. D. At any time prior to April 1, 1959, at the annual meeting of (1) shareholders of such bank or any adjournments thereof, to elect directors, and act thereat upon such matters of a routine nature as are ordinarily acted upon at the annual stock meetings of such bank; and (2) to increase the capital of such bank, provided that all actions taken in connection therewith shall be satisfactory to the Federal Reserve Bank Of St. Loud-. (Signed) Kenneth A. Kenyon aNY0N De finition of KECEA: 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(s) 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 instructions contained in the Board's letter of March 10, 1947, (s-964)0 elF,U; BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 1/29/59 WAS H I NOON OFFICE OF THE CHAIRMAN January 29, 1959 2.91TTLENTIM, The Honorable J. W. Fulbright, Chairman, Committee on Banking and Currency, United States Senate, Washtngton 25, D. C. Dear Mr. Chairman: This is with further reference to your letter of December 23, 1958, enclosing a letter you received from Senator John L. McClellan, Chairman of the Senate Permanent Subcommittee on Investigations. Senator McClellan's letter stated that his Subcommittee haa conducted a preliminary inquiry with the view to determining the TaSU --1 uY of allegations that there were leakages of decisionsof this Boar.4 /144 prior to public announcement. or the no His letter reviewed the results Subcommittee's inquiry and stated that the "Subcommittee has information concerning any specific leak other than the actions alld reactions of the stock market during the hours immediately.preced4 the announcement of the Board's decision." You requested that we 04141 Yze the statements made in the letter and give a detailed reply. Senator McClellan's letter refers to three kinds of actions bY this Board: (l) changes in discount rates of Federal Reserve Banks, (2) ,1 -"anges in reserve requirements, and (3) changes in !ilarGin requirerite on securities transactions. It seems appropriate, therefore, to ()11 ider the nature of these different kinds of action. 8 The Honorable J. W. Fulbright •-• The Federal Reserve Act, as enacted in 1913 and amended from time to ti,ae thereafter, provides, as you know, for a decentralized system of 12 Federal Reserve Banks and a Board in Washington which, in the words of the Committee Report (p. 16) of the House Banking and Currency Committee on the original Federal Reserve Act, would "overlook and direct the general functions" of the 12 Federal Reserve Banks and , vould see that they "pursue a banking policy which shall be uniform and harmonious for the country as a whole". In accordance with that Purpose, section 14(d) of the Federal Reserve Act, as amended by the Banking Act of 1935, provides that each Federal Reserve Bank shall have power: "(d) To establish from time to time, subject to review and determination of the Board of Governors of the Federal Reserve System, rates of discount to be charged by the Federal reserve bank for each class of paper, which shall be fixed with a view Of accommodating commerce and business; but each such bank shall establish such rates every fourteen days, or oftener if deemed necessary by the Board; . . . . The Attorney General has held (32 Op. A.G. 81) that under this provision the Board may "determine what rates of discount should be charged, from time to time by a Federal reserve bank, and . . l ecNire such rates to be put into effect by such bank." ' At the same time the Attorney General recognized the decentralized nature of the Federal Reserve System, stating: "The scheme of the entire act is to have Federal reserve banks in different parts of the country, so that their operations may be accommodated to the business needs of each section, and to vest final power in the Federal Reserve Board, so as to insure a conduct of business by each bank which will not be detrimental to the carrying out of the entire plan." •-, The Honorable J. W. Pulbright To assure that the operations of the Federal Reserve System Will be "accommodated to the business needs of each section" and also be "uniform and harmonious for the country as a whole", it is essential that both the Board and the Reserve Banks have the benefit at all times of the best economic and business information that can be Obtained. In order that the actions of the System may be more readily' understood, and more promptly and thoroughly effective, it is also essential that the general public be as well informed as possible tb.cu-ding the System and its purposes, and also regarding current economic and business conditions. To aid in public understanding of the operations and objectives of the System, those operations and Objectives are discussed and explained in various publications and statements issued by the System from time to time. These include the Weekly statement, published pursuant to section 11(a) of the Federal Reserve Act, which shows "the condition of each Federal reserve bank" 3.11(1 "full information regarding . . . the amount, nature and maturities or the paper and other investments owned or held by Federal reserve 's." To serve the necessary purposes of economic intelligence, the SYstem Constantly gathers and studies a great amount of statistical and other '4 information, and to the fullest extent practicable it also makes information available to the general public. Since this information forms the basis for System decisions, it is not surprising that there may be "guesses" or "rumors" of System The Honorable J. W. Fulbright action whenever the economic situation itself seems to suggest such action. It is inevitable that financial writers and other persons interested in financial markets may attempt to anticipate possible Board actions, just as they try to "predict" possible actions by the courts, the Congress, the executive departments, and various administrative agencies. Hardly a day passes that one writer or another does suggest that some action by the Board is imminent. " n It is reasonable to expect that such "predictions" will sometimes happen to coincide with System actions. In order to achieve the Federal Reserve Act's dual objectives Qt decentralization and coordination, it is essential that there be trequerxt exchanges of views between the Board in Washington and the 12 Pederal Reserve Banks in the various parts of the country. This is particularly true with respect to the fixing of discount rates, for /44ich the Federal Reserve Banks have important, although not final, statIltorY responsibility. It is also true in substantial measure with res,, .eeot to changes in reserve requirements pursuant to section 19 of the ,... xederal Reserve Act; these changes are the statutory responsibility °I* the Board alone, but they can have important effects on other ellete.rY instruments such as the discount functions of the Reserve tarik3 / and should be suitably coordinated. Changes in margin re%lire ments, which are also the statutory responsibility of the oard alone under section 7 of the Securities Exchange Act of 1934, have comewhat less interaction with the other monetary instruments 4nd -.'411.ce require less exchange of views J.Ionorable J. W. Yulbrijlt As one moans of e;cohanginc views and aiding in necessary coordinaLion, the practice has developed ovar the years of discussing these matters, particularly possible changes in the discount rate, inestablished formally at moctinEs of the Federal Open Market Committee, LY section 12A of the Federal Reserve Act, which meets periodically in , these meetin3s there idsnincton, usually at three-week intervals. At are present the seven members of the Doard, the twelve Presidents of the Federal Reserve Banks, and about twenty-five other trusted officials (If the Board or the Federal Reserve Banks. The Board and the Reserve 4.n:cs have strict rules, described below, against improper use or disclosure of confidential System information. Views regarding economic co nditions and policies are exchanged informally on a broad basis at these meetings, and the Board finds it particularly valuable to obtain such information. The Federal Open Market Committee has legal authority to act only on open market policies; there is clear recognition by of the QIrerYone present that this is the case and that the only purpose brn A to give the discussion is to exchange views, and particularl:/ , . toar Lk tie benefit of current thinking and current developments in the aricus parts of the country. The discussions described in the preceding paragraph aid task of coordinatSubsLarltially in the accomplishment of the Board's l-nr: and Ilarmonizing System policy in the public interest, but the actual Ision '1o.ng process on the three subjects mentioned in Senator ' -an ts letter is separate and apart from those discussions. 0 ban-,- In of discount rates is, in practice, initiated by the Board Or of a Federal Reserve Bank, which is required by section 1/1(d) The Honorable J. W. Fiabright e1' the -6- Federal Reserve Act quoted above to initiate a rate action, either to retain the Bank's existing rate or set a new one, at least every fourteen days. However, it is the Board of Governors in Washington which in law and in fact makes the decision whether to accept, reject, defer, or modify the rate initiated by the Directors of the Reserve Bank. The Board determines not only whether any change will be made and what it will be, but also the especially important Tlestion of the time when any such action will be taken. Even if the 4801Z33ion at a meting of the Federal Open Market Committee reflected a coVilete unanimity of view -- which would, in itself, probably flow 1(I'm economic conditions that would result in similar expectations by "'her analysts of the subject regarding System action -- the final clecisicon, including the exact timing of the action, would be made only 127 the Board itself. Only the members of the Board and the few members cl the Board's staff having duties essential to the implementation of the action would know of this action and its timing before it was made Public. While the Board might discuss the matter of a discount rate change at several different meetings of the Board, the actual i°n is made within minutes or at most within a very few hours °t the Public announcement. not This deferring of the actual decision is a mere formality; it represents a deliberate recanvassing of the situati -an, and no one can be certain whether or when such a decision The Honorable J. W. Fulbright ll be made, or what it will be, until it actually has been made by the Board. Since Senator ilcaellan's letter refers to memorandums from the Board's staff regarding margin requirements, it may be mentioned that from time to time the Board's staff prepares memorandums regarding ecrnditions in the securities markets that would have a bearing on Inargin requirements. These memorandums are largely factual and a part of the essential, continuing process of gathering and analyzing information for the benefit of the Board; they usually do not contain eoommendations for changes in margin requirements. Various aspects t inargin requirements, including the information contained in such ille111°randums, are discussed at Board meetings; but if such a review were listed on the agenda for a meeting, which agenda is usually prepared late In • the day preceding the meeting and is treated in confidence, the , - e would be no indication of whether a discussion of the subject Was t° Point up current information or was a prelude to a change in the not . requirements. In any event a change in the requirements would bo made merely on the basis of such a memorandum, but would be the of conclusions reached by the Board as a part of its continuing -v of all relevant aspects of the matter. As in the case of a ehanor, . In the discount rate or in reserve requirements, the actual deeis. 1°11 on margin requirements is made only by the Board itself, and the 13°ard reassesses the situation from time to time before making the d eclsion. With respect to all three of the. functions, no on can The Honorable J. W. FulbriLht -8- know whether or when a decision will be made, or what it will be, until the Board itself has decided. Only the members of the Board and a very few members of its staff would know of the action or timing elapse between before its announcement, and a minimum of time would the decision and the announcement. The excerpt from Senator hcClellan's letter quoted in the second paragraph of this letter refers to actions and reactions of the stock market during the hours immediately preceding the announcement of the Board's decision. Actions and reactions of securities 4arkets, especially over short periods of time, are highly diverse and can result from many different causes. Due to the wide variety the a rld Lreat volatility of stocks, this is particularly true of ' markets for stocks. We do not know of any instance in which behavior Of the stock market in the hours preceding announcement of a Board cleeision was any more unusual than it might easily have boon in the absence of any such decision. The Board and each Federal Reserve Bank have issued instructions to insure that there be adequate saferuards in the 141blic interest against any possibility of misuse of confidential Reserve information. Use by an officer or an employee of ec41-adntial information for personal profit or for any other improper PulePc43'.1, either directly or indirectly through some other individual, 11°111q result in immediate dismissal or other appropriate disciplinary The Honorable J. W. FUlbright action. The Board's Rules of Organization in section 8(a) forbid all disclosure of any unpublished information of the Board except as proper between System officials for the performance of official duties or as Otherwise authorized by the Board. For many years it has been the Uniform understanding as stated in the enclosed copy of the Board's letter of March 24, 1948, that officers and employees of a Federal Reserve Bank shall refrain from being placed in any position which might embarrass the Reserve Bank in the conduct of any of its operations or result in questions being raised as to the independence of their judgnaent or their objectivity in the discharge of their official reePonsibilities or their ability to perform satisfactorily all of the duties of their positions. Enclosed is a summary of rules or under8te4dings in effect at the Federal Reserve Banks relating to confidential affairs of those Banks. Also enclosed are copies of statements directed to each member of the staff of the Board of Governors at the time of ellaPloYment and annually thereafter regarding the confidential character "the Board's affairs and financial transactions and outside business act ivities. We appreciate the opportunity to comment on this subject :11441 I hope you will let me know if there is any aspect of the matter Q4 14401 you would like to have further information. Sincerely yours, 01111kt4 A Wm. McC. Martin, Jr. kclosures
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