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Minutes for To: January 30, 198 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. Chm. Martin Gov. Szymczak Gov. Vardaman 1/ Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson x.eMo 1/ In accordance with Governor Shepardson's memorandum of March 8, 1957, these minutes are not being sent to Governor Vardaman for initial. 321 Minutes of the Board of Governors of the Federal Reserve System on Thursday, January 30, 1958. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Szymczak Mills Robertson Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Kenyon, Assistant Secretary Fauver, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Young, Director, Division of Research and Statistics Marget, Director, Division of International Finance Hackley, General Counsel Masters, Director, Division of Examinations Furth, Associate Adviser, Division of International Finance Solomon, Assistant General Counsel Reynolds, Economist, Division of International Finance Items circulated to the Board. The following items, which had been circulated to the members of the Board and copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Letter to The First Bank of Boston (International), New York, New York, regarding the report of examination of that corporation made as of August 23, 1957. (With copies to the Federal Reserve Banks of Boston and New York) 1 Letter to Farmers State Bank, Hart, Texas, denying its application for membership in the Federal Reserve System. (For transmittal through the Federal Reserve Bank of Dallas) 2 -2- 1/30/58 Request from United States Embassy in London (Item No. 3). Pursuant to the understanding at the meeting yesterday, there had been distributed to the members of the Board a revised draft of reply to a communication from the United States Ambassador in London requesting certain information with respect to permissible outside interests of members of the Board of Governors and directors of the Federal Reserve Banks. Several suggestions were made for minor changes in the content of the proposed reply and rearrangement of the material, following which unanimous approval was given to a reply of which the text is attached as Item No. 3, for transmittal through the Department of State. Bankers' acceptances (Item No. 4). On January 14, 1958, the Board approved an increase from $100 million to $150 million in the maximum amount of bankers' acceptances which the Federal Reserve Bank of New York may purchase with its guarantee of payment and hold at any one time for the account of foreign central banks, including the Bank for International Settlements. In a memorandum distributed to the members of the Board on January 28, 19580 Mr. Marget reported information from the New York Bank which indicated that the $150 million limit might be reached within two weeks. This anticipation was based on the continued yield advantage of 90-day acceptances over Treasury bills and standing orders to invest for certain foreign correspondents when their deposit balances reach a predetermined level. -3- 1/3o/58 In this connection, there had also been distributed to the members of the Board copies of a memorandum dated January 240 1958, which had been handed to Chairman Martin by President Hayes of the New York Reserve Bank. This memorandum indicated that holdings of bankers' acceptances were up to $123 million, that further authorizations were in hand under automatic investment programs, and that special orders might be received at any time. It also discussed difficulties encountered by the Reserve Bank in executing an order which was received just prior to the Board's action on January 14, 1958. In the circumstances, question again was raised as to whether the Board would be agreeable to removing the quantitative limitation on the acceptance business. It was suggested that information provided by the Reserve Bank to the Board's Division of International Finance and available there on a daily basis might serve as an acceptable substitute for a maximum dollar authorization. In a discussion of the matter, Governor Robertson, who had expressed certain reservations at the meeting on January 14 concerning the advisability of removing the dollar limitation, particularly because It then appeared that the $150 million authorization would be sufficient to provide leeway for operating purposes for some time, stated that he had no strong feeling about the matter and would not object to acceding to the Reserve Bank's suggestion, on the understanding that a limitation could be imposed again at any time if circumstances should make such action desirable. -4- 1/30/58 Thereupon, unanimous approval was given to the elimination of the quantitative limitation, effective immediately, with the understanding that the Division of International Finance, acting on the basis of information received from the New York Reserve Bank, would continue to report regularly to the Board concerning significant developments in the acceptance market. A copy of the letter sent to President Hayes pursuant to this action is attached hereto as Item No. 4. Application to organize national bank in Odessa, Texas (Item No. 5). At the meeting on January 21, 1958, it was decided to request further information from the Federal Reserve Bank of Dallas in support of its unfavorable recommendation concerning an application to organize a national bank at Odessa, Texas. Following receipt of this additional information, the file on the matter was recirculated to the members of the Board with a memorandum from the Division of Examinations dated January 27 in which the Division reaffirmed its original view that disapproval of the application should be recommended to the Comptroller of the Currency. The supporting data received from the Dallas Reserve Bank indicated that the Bank's unfavorable conclusion with respect to this admittedly borderline application was predicated largely on the fact that the extraordinary recent growth of the Odessa area was due mainly to oil development and production, which was now being materially affected by the production allowance set by the Texas Railroad Commission. The Reserve Bank also considered that the city was adequately served by its three existing banks and stated that the proponents themselves had 325 1/30/58 -5- conceded that the application was probably premature. In addition, the Reserve Bank noted that one of the existing banks had been in operation less than two years and suggested that it should be allowed to become better established. Governor Robertson, who had previously expressed doubt whether an adverse recommendation could be properly supported, said that he continued to feel there was not sufficient reason for recommending unfavorably and that he thought it would be unwise to make such a recommendation. Governor Shepardson indicated that he was inclined to share the views of Governor Robertson, With reference to the possible instability of the area, he pointed out that it was supported by the gas as well as the oil industry and that a number of industrial firms had come into the area. In traveling through the territory, he had observed that it was growing rapidly and that ranch land along the highway was being offered for sale at industrial site prices. While it was possible, as the Dallas Bank suggested, that firms which had moved into the area might transfer out of it, these firms, including representatives of the petro-chemical industry, had made rather extensive investments. With regard to the suggestion that the application might be premature, he mentioned that the newest of the existing banks, which began operations in 1956, had already reached $9 million in deposits, with loans of about *4 million. In general, he was inclined to be optimistic about the area -6- 1/3058 and he would, therefore, support a favorable recommendation in this case even though ordinarily he did not like to overrule a Federal Reserve Bank which was closer to the scene than the Board. Chairman Martin said that he had no strong conviction about this particular case but that generally speaking he considered this a rather bad time to be chartering any new banks. In this instance, like any other, he felt that due consideration should be given to the recommendations of the Reserve Bank and the Division of Examinations. However, as he had said, he did not feel strongly one way or the other. The other members of the Board indicated that they found merit in Governor Robertson's point of view, and it was noted that this merely involved submitting a recommendation for the benefit of the supervisory agency which would make the final decision. Accordingly, unanimous approval was given to a letter to the Comptroller of the Currency in the form attached as Item No. 5, with a copy to the Federal Reserve Bank of Dallas. In this connection, Governor Robertson said that the Division of Examinations WAS to be complimented in submitting recommendations to the Board reflecting its own best judgment despite factors which might make it appear that a different decision was a possibility. The other members of the Board indicated that they shared Governor Robertson's views in this respect. CIA -7- 1/30/58 Applications of First Bank Stock Corporation for section 4(c)(6) determinations. Governor Robertson reported a conversation which he had : President of First in his office yesterday with Mr. Joseph H. Colman Bank Stock Corporation, who suggested that the Board consider deferring its decision on the applications of General Contract Corporation for determinations with respect to certain subsidiaries pursuant to section 4(c)(6) of the Bank Holding Company Act until after it had received the report and recommended decision of the Hearing Examiner, Mr. Arthur Leff, concerning the applications of First Bank Stock Corporation with respect to First Bancredit Corporation and another subsidiary. He said Mr. Colman indicated in making this suggestion that he was relaying a : and this statement by Mr. view which had been expressed by Mr. Leff Colman was confirmed by Messrs. Masters and Hostrup: who also had participated in the conversation. Governor Robertson said he told Mr. Colman that the Board would get in touch with Mr. Leff and that he (Mr. Colman) would be advised if it were decided to defer the decision on the General Contract case. :at Governor Robertson's request, he Mr. Solomon stated that later called Mr. Leff, who appeared somewhat surprised and said that this would not be his recommendation or preference. If anything: it would be Mr. Leff's preference that the Board decide the General Contract case before he submitted his report and recommended decision on the First Bank Stock matter. : It therefore appeared: Mr. Solomon went on to say that there had been some misunderstanding, possibly arising out of 328 -8- 1/30/58 pre-hearing conferences in the First Bank Stock case at which the representatives of the applicant might have expressed certain views which Mr. Leff had suggested submitting to the Board if deemed desirable. In a subsequent comment, Mr. Hackley expressed the opinion that nothing would be gained by holding up the General Contract decision until the report and recommended decision on the First Bank Stock matter came before the Board. The Board, he said, might even be subject to criticism for following such a procedure since the decision on the General Contract case must be based on the record of the hearing in that case. Furthermore, the arguments of First Bank Stock concerning the principal legal question involved appeared to have already been made in the form of the legal brief which was filed in connection with the General Contract case. Mr. Solomon said that he agreed completely with Mr. Hackley. Governor Robertson then turned to another facet of the matter to which Mr. Colman had called attention, that is, that if the word "discount" were construed for the purpose of section 6(a)(4) of the Bank Holding Company Act to include purchases and sales of paper with or without recourse between subsidiary banks in a bank holding company system, this might seriously impair the operations of First Bank Stock Corporation, particularly if the decision were interpreted to include transactions in Government bonds. While Governor Robertson did not favor holding up the decision in the General Contract case, he suggested that, in view of the apprehension expressed by Mr. Colman, the statement -9- 1/30/58 supporting the majority decision should be worded very carefully due to the broad implications of that decision. In his opinion, Mr. Colman's point with respect to interbank transactions in Government bonds was not well taken but be felt that it should be borne in mind in drafting the General Contract statement and order. Governor Robertson then suggested notifying Mr. Colman that the Board had considered the facts involved in the First Bancredit application but had concluded that it would not be necessary to postpone a decision in the General Contract case pending completion of the First Bancredit proceeding. In view of certain comments by Mr. Hackley, Governor Robertson agreed that it might be preferable to defer sending such a letter to Mr. Colman until the decision in the General Contract case was announced. Accordingly, it was understood that this procedure would be followed. In this connection, Mr. Hackley reported that Mt. Colman had discussed with him and Mr. Solomon certain legal aspects of the First Bank Stock situation, at which time Mr. Colman indicated that the "discount" question was of such importance to First Bank Stock Corporation as to require considering an appeal to the courts in the event of an adverse determination. Governor Robertson commented that personally he would consider such a procedure desirable, for the issue involved was not "black and white" and it appeared that sooner or later there would have to be a Judicial determination. 330 -10- 1/30/58 Governor Robertson went on to say that Mr. Colman envisaged the need for requesting an extension of time beyond the specified 15 days for First Bank Stock Corporation to file exceptions if the Hearing Examiner's report and recommended decision should be adverse to the current applications. In response to a question by Chairman Martin, Mr. Hackley said that the statements of reasons for the majority and minority votes in the General Contract case had now been prepared in preliminary form and that it was hoped to submit draft statements to the Board for consideration early next week. The meeting then adjourned. Secretary's Note: Pursuant to the recommendation contained in a memorandum dated January 28, 1958, from Mr. Young, Director, Division of Research and Statistics, Governor Shepardson today approved on behalf of the Board the reappointment of Mrs. Gertrude Weiss as a Consultant, effective as of January 1, 1958, and until December 31, 1958. A copy of the memorandum is attached as Item No. 6. Governor Shepardson also approved today on behalf of the Board a letter to the Federal Reserve Bank of Richmond approving the designation of 13 persons as special assistant examiners. A co. of the letter is attached hereto as ItelaLAISP °F. 40 AIW.... 1 41111PP. cretary BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 1 1/3058 ADDRESS OFFICIAL CORRESPONDENCE TO THE SOARD January 30, 1958 Mr. L. D. Brace, President, The First Bank of Boston (International), Two Wall Street, Nlw York 5, New York. Dear Mr. Brace: This will acknowledge your letter of January 15, 1958, advising that the report of examination of First of Boston International Corporation as of August 23, 1957, was presented to the Directors of The First Bank of Boston (International), the successor corporation, for consideration. Your letter of December 30, 1957, advised that you were taking steps to have your clients close those deposit accounts referred to in the examiner's comments which appear not to conform to Regulation K. Your comments have been noted regarding the examinerls suggestion that you maintain a dollar or unit control of items held in safekeeping, and, on the basis of the information furnished, no objection is interposed to your present control procedure. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 2 1/30/58 ADDRESS OFFICIAL CORRESPONDENCE TO TI-4E acIARo January 30, 1958 Board of Directors, Farmers State Bank, Hart, Texas. Gentlemen: This refers to the application of your bank for membership in the Federal Reserve System, which was transmitted to the Board of Governors by the Federal Reserve Bank of Dallas. The Board has given careful consideration to all aspects of this application and the information which was submitted in connection with it. Among the factors whiCh the Board is required to consider under the provisions of Section 4(b) of the Federal Deposit Insurance Act in determining whether a non-insured State bank shall be admitted to membership are the future earnings prospects of the applicant and the convenience and needs of the community to be served by the bank. The existence of banking facilities in the city of Hart would doubtless contribute to the convenience of that community. Nevertheless, in view of the volume and nature of the business that the bank may be expected to develop, it appears to the Board that there are not sufficient favorable prospects of profitable operation. In the circumstances and on the basis of the facts submitted, the Board does not feel that the future earnings prospects of the bank and the convenience and needs of the community are such as to justify approval of the application of the Farmers State Bank for membership in the Federal Reserve System. Should you care to submit an application in the future when these matters are resolved favorably, the Board, of course, will be glad to roconsider the matter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Item No. 3 1/30/58 To: American Embassy, London From: Carpenter, Secretary, Federal Reserve Board Your 4391 Your cable 27th. As Embassy has already indicated, Federal Reserve Act provides information on organization Federal Reserve System. Re specific questions: Federal Reserve Board members (Sec. 10, par. 1) devote entire time to business of Board, and (par. 4) no Board member shall be an official or director of any bank, banking institution or trust company, or hold stock in any such institution. Section 4, pars. 10-19, on qualifications of Reserve Bank directors and methods of selection, provides that Class A directors shall be representative of the stockholding banks, Class B directors shall be actively engaged in commerce, agriculture or industry. Class C directors are appointed from various walks of life. None of nine directors at each Reserve Bank serves full time; all have outside interests; they are not salaried but are paid fees and travel for attendance at meetings. This is regarded as public service. American Embassy, London 2 Class B directors cannot be officers or directors of commercial banks; Class C directors cannot be officers, directors or stockholders of commercial banks; all directors may be officers or hold securities of other private concerns. Policy regarding reserve requirements, Section 19, and margin requirements under Securities Exchange Act, are sole responsibility Federal Reserve Board; open market policies, Section 12A, are determined by Open Market Committee comprised of Board and five Reserve Bank presidents; Reserve Bank directors do not participate in determination of above policies. Reserve Bank directors initiate discount rates applicable at each Federal Reserve Bank, subject (Section 14, par. 5) to review and determination by Federal Reserve Board. Published rules of Board prohibit any person from disclosing or permitting disclosure of unpublished information of Board to any person not entitled thereto in the performance of his official duties, except with specific authorization of Board. It is clearly understood that all directors will observe the rules against unauthorized disclosure that apply to officers and employees of Federal Reserve Banks. 335 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 4 00/58 WASHINGTON 25. 0. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 30, 1958 Mr. Alfred Hayes, President, Federal Reserve Bank of New York, New York 45, New York. Dear Mr. Hayes: Following further consideration of the matter, particularly in the light of the memorandum dated January 24, 1958, which you handed to Chairman Martin, the Board has removed, effective immediately, the quantitative limitation on the amount of bankers' acceptances that may be purchased with the guarantee of the Federal Reserve Bank of New York and held at any one time for the account of foreign central banks, including the Bank for International Settlements. This action was taken with the understanding that a quantitative limitation may be imposed again at any time if the circumstances should make this desirable. In this connection it is understood that information on current transactions will continue to be furnished by the Reserve Bank to the Board's Division of International Finance on a daily basis. Very t u4.:k2Yo S. . Ca ienter, Secretary. 338 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 5 1/30/58 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENC.E TO THE BOARD January 30, 1958 Comptroller of the Currency, Treasury Department, Washington 25, D. C. Attention Mr. G. W. Garwood, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated November 71 1957, enclosing copies of an application to organize a national bank at Odessa, Texas, and requesting a recommendation as to whether or not the application should be approved. Information contained in a report of investigation of the application made by an examiner for the Federal Reserve Bank of Dallas indicates that the proposed capital structure of the bank would be adequate, earnings prospects fair, and management satisfactory. While it is reported that some question exists as to the need for another bank in Odessa at this time, the present development of the area and the potentialities for further growth would seem to justify favorable consideration of the proposal. Accordingly, the Board of Governors recommends approval of the application. The Board's Division of Examinations will be glad to discuss any aspects of this case with representatives of your office if you so desire. ) Very truly/rue S. R. Carpenter, Secretary. BOARD Or CiLIVCRUORS Item No. 6 OF T,IL. FEDERAL RESERVE SYSTEM C:oriTi,3ondlence of Coverners, 44 , 1 a1Ph A. Yon 2 1/30/58 Date Jaru:try Subject: 1,1 71.q' ")_;nintalir.nt Gertrude Weiss as a Qmyraltant It is recommended that hrs. Gertrude Weiss, formerly Chief, liaasehold iconomics , esearch Branch, Department of Agriculture, be ranpointed as a Consultant, effective as of January 10 1953 and until December 31, 1958 for continuance of her work in connection with evaluation of the Consumer Finances Surveys on a temporary contractual basis with colonensation at the rate of ,50 ner day for each day worked for the Board either in Washington or outside the city, and, in accordance with the Board's travel rer:ulations, a oer diem in lieu of subsistence expenses in the amount of v12 for time spent in a travel status in connection with her assicnments, and t ansportLtion. For purposes of travel, la's. Weiss' headquarters would be her home. )ected that Lrs. Weiss would work about 72 consultant It is ex, days and until about hay 3, 1958. Lrs. Weiss' previous appointment expired December 31, 1957. It was intended to recommend the renewal or her appointment prior to tianuary 1, 1958 but renewal action was overlooked. , 1 Cy 111 .,.. BOARD OF GOVERNORS OF THE Item No. 7 FEDERAL RESERVE SYSTEM 1/30/58 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD January 300 1958 Mr. F. L. Armistead, Vice President, Federal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Mr. Armistead: In accordance with the request contained in your letter of January 28, 1958, the Board approves the designation of the following named individuals as special assistant examiners for the Federal Reserve Bank of Richmond for the purpose of participating in examinations of State member banks only: Harold T. Lipscomb James E. Edwards Edward D. Andre Gary M. Heathcote Donald J. Kovalic Charles A. Beckhardt, Jr. Jerome E. Jones Robin E. Snyder Robert L. Thomas Jack C. Starnes The Board also approves the designation of the following as special assistant examiners for the Federal Reserve Bank of Richmond for the purpose of participating in examinations of State member banks except the bank listed immediately above their names: The Bank of Virginia, Richmond, Virginia Robert R. Beasley State-Planters Bank of Commerce and Trusts, Richmond, Virginia Kenneth L. Tiller, Jr. Wachovia Bank and Trust Company, Winston-Salem, North Carolina Gene I. King Appropriate notations have been made in our record of the names to be deleted from the list of special assistant examiners. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant secretary.
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