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Minutes of actions taken by the Board of Governors of the Fed— eral Reserve System on Wednesday, January 5, 1955. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Mills Robertson Balderston Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Thurston, Assistant to the Board Mr. Riefler, Assistant to the Chairman Mr. Thomas, Economic Adviser to the Board Mr. Vest, General Counsel Mr. Marget, Director, Division of International Finance The following members of the staff of the Division of Research and Statistics were also present: Mr. Young, Director Mr. Williams, Assistant Director Mr. Noyes, Assistant Director Mr. Koch, Assistant Director Mr. Eckert, Chief, Banking Section, Mr. Gehman, Chief, Business Conditions Section Mr. Jones, Chief, Consumer Credit and Finances Section Mr. Miller, Chief, Government Finance Section Mr. Weiner, Chief, National Income, Moneyflows, and Labor Section Mr. Simpson, Acting Chief, Business Finance and Capital Markets Section Mr. Allen, Economist Mr. Milton Moss, Economist Mr. Wernick, Economist Mr. Wood, Economist Mr. Angney, Assistant Vice President, Federal Reserve Bank of Boston 1/5/55 -2The members of the staff of the Division of Research and Statis- tics presented a review of business and credit developments, at the conclusion of which they withdrew from the meeting. Mr. Angney also with- drew at this point. The following matters, which had been circulated among the members of the Board, were presented for consideration and the action taken in each instance was as indicated: Letter to Mr. Armistead, Vice President, Federal Reserve Bank of Richmond, reading as follows: In accordance with the requests contained in your letters of December 21, 1954, the Board approves the appointments of Douglas T. Hughes as an examiner and of Thomas G. Davis as an assistant examiner for the Federal Reserve Bank of Richmond. If the appointments are not made effective January 1, 1955, as planned, please advise us. Approved unanimously. Letter to the Board of Directors, The Peoples-Liberty Bank and Trust Company, Covington, Kentucky, reading as follows: Pursuant to your request, submitted through the Federal Reserve Bank of Cleveland, the Board of Governors of the Federal Reserve System hereby gives its written consent under the provisions of Section 18(c) of the Federal Deposit Insurance Act to the absorption of The First National Bank of Ludlow, Ludlow, Kentucky, by The Peoples-Liberty Bank and Trust Company, Covington, Kentucky, and approves the establishment by the latter of a branch at the present location of the national bank provided the absorption is carried out substantially in accordance with the agreement between the parties dated November 29, 1954; that fixed assets acquired from the national bank will not be placed on the books of The Peoples-Liberty Bank and Trust Company in excess of present carrying values; and the transaction is effected within six months from the date of this letter. It is understood that The Peoples-Liberty Bank and Trust Company has abandoned its plans for the proposed branch at the corner of the Dixie Highway and Horse Branch 1/5/55 -3- Road, South Fort Mitchell, Kenton County, Kentucky, as ap— proved by the Board of Governors on August 32 1954. Approved unanimously, for transmittal through the Federal Reserve Bank of Cleveland. Letters to Mr. Diercks, Vice President, Federal Reserve Bank of Chicago, reading as follows: Reference is made to your letter of December 232 1954, submitting request of the Genesee County Savings Bank, Flint, Michigan, for an extension of time in which to establish a branch at the southwest corner of North Saginaw- Street and Kurtz Avenue in Beecher Heights, Michigan. In view of the circumstances and your favorable recom— mendation, the Board of Governors extends until February 3, 1955, the time in which the branch may be established. Reference is made to your letter of December 23, 1954, submitting request of the Bank of the Commonwealth) Detroit, Michigan, for an extension of time in which to remove a branch to the corner of Livernois and Santa Maria Avenues, Detroit, Michigan. In view of the circumstances outlined in your letter and your favorable recommendation, the Board of Governors extends until May 2, 1955, the time within which removal of the branch, which was originally approved in the Board's letter of April 6, 1954, may be accomplished. Approved unanimously. Letter to the Board of Directors, The German American Bank, Jasper, Indiana, approving,subject to conditions of membership numbered 1 and 2 contained in the Board's Regulation HI the bank 13 application for membership in the Federal Reserve System and for the appropriate amount of stock in the Federal Reserve Bank of St. Louis. Approved unanimously, together with the folloaing letter to Mr. Johns, President, Federal Reserve Bank of St. Louis: The Board of Governors of the Federal Reserve System approves the application or The German American Bank, Jasper, Indiana, for membership in the Federal Reserve System, subject to the conditions prescribed in the enclosed letter, which you are requested to forward to the board of directors of the institution. Two copies of such letter are also enclosed, one of which is for your files and the other of which you are requested to forward to the Director, Department of Financial Institutions, for the State of Indiana, for his information. It is noted that the trust business of The German American Bank is comprised mainly of appointments as trustee of profit sharing trusts created by local manufacturing corporations; that your examiner was satisfied, at the time of the admission examination, that there were no unsatisfactory features of importance relating to administration of these appointments and that no unusual probable liabilities appear to have accrued. Administrative requirements of appointments of such kinds differ considerably from the more usual fiduciary appointments, are highly technical and frequently complex in nature, and require special and expert knowledge of applicable provisions of the tax laws in addition to careful and expeditious handling of the routine administrative phases involved. The management of this bank apparently is not especially qualified or experienced in the field of trust administration, and it is assumed that it also lacks specialized knowledge or abilities as regards the pension and profit sharing field. It is noted, however, that the "accountant-advisor" who originated these appointments is available to assist the bank in their administration. In the circumstances, therefore, we urge that this bankls trust business be subject to the most careful scrutiny at the time of subsequent examinations, with particular emphasis on the propriety of discharge of its administrative responsibilities under pension or profit sharing trust appointments, in order to minimize the possibility of the development of unsatisfactory or potentially dangerous features. Letter to Mr. Woolley, Vice President, Federal Reserve Bank of Kansas City, reading as follows: Reference is made to your letter of December 22, 1954, submitting the request of the Englewood State Bank, Englewood, Colorado, for approval of an investment of approximately $57,000 in leasehold improvements. This investment would be in addition to the banks:3 present investment of $50,000 in furniture and fixtures and would increase its total investment in fixed assets to $107,000 as compared with basic common capital of $150,000 and total capital structure of $490,800. You and other officers of the Reserve Bank recommend approval of the additional investment subject to the condition that the entire amount be eliminated within a five-year period. The matter is submitted for consideration under a condition originally imposed by the Federal Deposit Insurance Corporation on July 15, 1952, which, together with other earlier commitments made to that Corporation, were formally noted by the Board in approving the banklo application for membership and expected to be complied with following its admission on November 6, 1952. The pertinent condition was specifically related to a change in the location of the banking quarters of theraigleviood State Bank, limited the bank's total investment in fixed assets to not exceeding $50,000 and required the establishment and maintenance of an annual depreciation program of 10 per cent on such investment. Based on information in your letter and related files, it seems apparent that the bank held its total investment in fixed assets to not exceeding $50,000 when the change in banking quarters occurred, that it has from time to time reduced the carrying value of fixed assets, including the original investment plus subsequent acquisitions, to not exceeding $500000 by blanket charge-offs, and that the aggregate depreciation taken on both its original investment and subsequent acquisitions has equalled or exceeded a rate of 10 per cent per annum. Therefore, it is the Board's opinion that the member bank has complied substantially with the terms of its commitment relating to fixed assets and that the only portion thereof which can now be regarded as binding is that which relates to the maintenance of a depreciation program to the extent of 10 per cent of its original investment in fixed assets. In the light of these circumstances, the Board does not believe that it would be warranted in regarding the proposed investment in leasehold improvements as subject to its approval or in imposing a condition with respect to the elimination of the investment within a five-year period. It is assumed, however, that the investment will be depreciated at the maximum rate allowed for Federal Income Tax purposes or at such accelerated rate as you may deem necessary. IG 1/5/55 -6- In advising the member bank of the Board's views in this matter, it is suggested that it may be desirable to bring the provision of Section 24A to the attention of the manage— ment for its guidance in considering future investments in leasehold improvements or other assets representing banking premises. Approved unanimously. Letter to the Board of Directors, Farmers & Merchants Bank of East Long Beach, Long Beach, California, reading as follows: Pursuant to your request submitted through the Fed— eral Reserve Bank of San Francisco, the Board of Governors approves the establishment of a branch by the Farmers & Merchants Bank of East Long Beach in the vicinity of the intersection of Garden Grove Boulevard and Bowen Street in the unincorporated community of Garden Grove, Orange County, California, provided the branch is established within six months from the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of San Francisco. Letter to the Comptroller of the Currency, Treasury Department, Washington, D. C., reading as follows: This refers to the Board's letter of June 22, 1954 requesting that an order be placed with the Bureau of En— graving and Printing for printing 5362688,000 Federal Reserve notes (single units) during the fiscal year ending June 30, 1955. That order was based on multiples of 144,000 notes in order to accommodate the Bureau's procedure of numbering notes in units of 8,000 (18—subject) sheets. The Bureau is now numbering notes of $5, $102 and $20 denominations in units of 20,000 (18—subject) sheets and has suggested that its operations would be facilitated if the printing orders for notes of those denominations were based on multiples of 360,000 notes instead of 144,000. The order, as listed below, has been revised accordingly. It also provides for odd lots resulting from the change in the numbering plan and for odd lots as the result of reaching the 100 millionth note of a particular denomination. 1/5/55 It will be appreciated, therefore, if you will substitute for the order for 536,688,000 notes contained in the letter of June 22, the order for 536,540,000 notes listed below, for the various Federal Reserve Banks, which has been worked out in cooperation with the Bureau of Engraving and Printing. Denomi— nations Number of notes Amount Boston $5 10 20 50 100 lo,848,000 18,564,000 4,892,000 288,000 144l000 454,24ol000 185,64os000 97,840,000 142400s000 14,400l000 New York 5 lo 20 50 100 36,084l000 610328,000 17,176,000 1,7282000 1,152,000 180,420s000 6130280,000 343,520,000 86,400,000 115,200,000 Philadelphia 67,960l000 13,592,000 5 lo 18,880,000 188,800,000 20 1291600s000 6,48ol000 5021,6002000 We s= loo 28,800,000 Cleveland 5 lo 20 50 100 15,24142000 19,436,000 11,644l000 11008,000 288,000 76,2202000 194,360,000 232,880l000 Somos000 28,8000000 5 lo 5o loo 13,828,000 15,2920000 13,072,000 72ol000 432,000 69,140s000 1522920s000 261,40 36,000,000 43,200s000 Atlanta 5 10 20 50 100 15,292,000 160564,000 8,764,000 288,000 288,000 76,460,000 165,640,000 175,280,000 14,4000000 28,800,000 Chicago 5 lo 20 So 100 25,748s000 41,816,000 16,556,000 720,000 864,000 128,7402000 418,160,00o 331,120,000 362000l000 86,400l000 Richmond A8 -8_ 1/5/55 St. Louis Minneapolis Kansas City Dallas San Francisco Totals Grand Total ,. Denomi— nations Number of notes $5 10 10,676,000 10,696,000 $53,380,000 106,960,000 20 50 51624l000 144,000 112,48ol000 71200,000 100 288,000 28,800,000 Amount 5 3,536,000 10 3,4720000 17,680,000 34720,000 20 loo 21304,000 144l000 46,o80,000 14,400l000 5 lo 7,928,000 7,172,000 39,640,000 20 50 100 41888,000 144,000 144,000 142400,000 5 lo 20 50 6,556,000 71044,000 41176l000 288,000 32,780,000 70,440,000 83,520,000 14,400,000 100 288,000 28,800,000 82,820,000 193,360,000 71,720,000 97,760,000 7,200,000 5 16,564,00o 10 19,336,000 20 50 loo 14,380,000 576,000 432,000 5 lo 175,896,000 239,600,000 20 50 100 109,956,000 6,336,000 2,396,000,000 2,199,120,000 316,800,000 4,752,000 4752200,000 536,540l000 $6,266,600,000 287,600,000 28,800,000 43,200,000 879,480,000 Approved unanimously. Letter for the signature of the Chairman to Mr. James F. Kennedy, Manager, Goodbody & Co., 921 Bergin Avenue, Jersey City, New Jersey, reading as follows: I have received your letter of December 21, 1954 with further reference to the question whether section 32 of the 19 1/5/55 —9-- Banking Act of 1933 prohibits your concurrent service as Manager of the Jersey City office of Goodbody & Co., New York, N. Y., and as director of The Trust Company of New Jersey, Jersey City, N. J. As you know, the Federal Reserve Banks and the Board review relationships of this kind from time to time in order to ascertain whether there has been any change in the fac— tual situation which would affect the applicability of the statute, and in accordance with this practice the Federal Reserve Bank of New York in April, 1954 submitted to the Board a detailed report of the pertinent facts relating to your joint service. Briefly, the information was to the effect that the annual dollar volume of the compaRyts business of the kind described in section 32 increased from $2,520,739 in 1950 to $15,494,586 in 1953; that the gross income of the company from this type of business in 1953 was 5.7 per cent of its total gross income; that the number of issues in which the firm participated as underwriter or distributor in 1953 was 217; and that the company had stated that it was planning to set up a separate underwriting and distributing department. In the circumstances the Board concluded that this type of business constituted one of the primary activities of the company and that consequently the statute was applicable. The matter was reconsidered by the Board in September at the request of a limited partner of the company, and the same conclusion was reached. One of the points considered at that time was that the bank in question had never purchased any securities from the company; but the Board noted that the situation considered by the Supreme Court in Board of Governors v. Agnew, 329 U. S. 441 was similar since the Court said Igor has the firm done business with the bank since the fall of 1941", which was the year in which the two respondents in that case became associated with the firm. You point out that the Jersey City office of Goodbody & Co. does relatively very little "underwriting and distributing". The Board was aware of this fact when it reconsidered the case In September. However, the statute applies to a "partner or employee of any partnership * * * primarily engaged", and therefore the applicability of the statute depends on whether the partnership is primarily engaged, rather than on whether a particular branch office is doing more or less distributing than the firm's average. Of course, if at any time there should be any material change in the facts, you should feel free to write to the rit 4,4k i 1/5/55 -10- Federal Reserve Bank of New York or to the Board of Gov,ernors„ and they will be glad to reconsider the matter on the basis of the new circumstances. Approved unanimously, with a copy to Mr. Wiltse, Vice President, Federal Reserve Bank of New York. With reference to the foregoing letter to Mr. Kennedy, Chairman Martin said that he had asked Mr. Vest to prepare as a matter of information a memorandum summarizing the standards applied by the Board in interpreting the applicability of section 32 of the Banking Act of 1933 to situations similar to the one involving Mr. Kennedy. The following requests for travel authorization were presented: Miss Burr, Assistant Director, Division of Research and Statistics. To travel to Norwalk, Connecticut, January 4 and 5, 1955, to consult with Mr. Warren Chappell concerning the format of the Federal Reserve Bulletin. Mr. Lang, Chief Federal Reserve Examiner, Division of Examinations. To travel within the limits of the continental United States, under instructions from the Division of Examinations, to examine Federal Reserve Banks, member banks of the Federal Reserve System, and corporations operating under the provisions of sections 25 and 25(a) of the Federal Reserve Act for all purposes of the Federal Reserve Act and other acts of Congress pertaining to examinations made by, for, and under the direction of the Board of Governors of the Federal Reserve System. Approved unanimously. At this point Messrs. Dembitz, Assistant Director; Tamagna, Chief, Financial Operations and Policy Section; and Whittington, Chief, Far Eastern Section, Division of International Finance, entered the room. Reference was made to a memorandum dated December 31, 1954, from Mr. Solomon, Assistant General Counsel, regarding the request of Bank of America, New York, New York, as submitted in a letter dated December 6, l/5/55 -11- 1954, from Mr. Russell G. Smith, Executive Vice President, for permission to purchase, at an approximate cost of $260,000, capital stock of The Industrial Credit and Investment Corporation of India Limited, a corporation to be organized in and under the laws of India for the purpose of encouraging and stimulating the industrial development of that country. The plans for the organization and operation of the corporation were outlined in a "memorandum of understanding" attached to the letter from Bank of America. Mr. Solomon's memorandum, copies of which had been sent to the members of the Board, stated that the Federal Reserve Bank of New had recommended approval of Bank of America's request, that the Department of State and the Comptroller of the Currency had indicated that they saw no objection to the proposed investment, and that a letter from the Vice President of the International Bank forReconstruction and Development had expressed the hope that the Board would give the request sympathetic consideration. After raising the question whether the Board would wish to consider attaching any conditions to its consent, the memorandum set forth reasons why the present proposal differed from the proposed investment in a Canadian corporation by The Chase Bank, New York, New York, which came before the Board recently, and stated that in the circumstances the staff was inclined to believe that it would be reasonable for the Board to omit conditions of the kind which were considered desirable in the Cass of the Canadian corporation. P,100,40 -12- 1/5/55 Following a discussion, unanimous approval was given to a letter to Mr. Smith reading as follows, for transmittal through the Federal Reserve Bank of New York: This refers to your letter of December 6, 1954 regarding the proposed investment of approximately $260,000 by Bank of America in capital stock of The Industrial Credit and Investment Corporation of India Limited. On the basis of the information supplied in your letter and attached Memorandum of Understanding, the Board grants its consent to Bank of America to purchase within one year from the date of this letter capital stock of The Industrial Credit and Investment Corporation of India Limited at a cost not exceeding approximately $260,000, and to hold such stock while conforming with applicable regulations and law. Messrs. Vest, Marget, Dembitz, Tamagna2 and Whittington then Withdrew from the meeting. Reference was made to a suggestion from the Secretary's Office for a revision in the procedure for preparation and circulation of the Board's minutes which would involve circulating to the members of the Board for initial the original instead of a copy. Mr. Carpenter stated that the proposed procedure would eliminate one copy of the minutes and would result in some saving of time and expense. He noted that pursuant to the Board's program for operations in an emergency, a copy of the minutes is sent to the Federal Reserve Bank of Richmond each week and microfilms are sent annually to the Richmond Bank and the Little Rock Branch of the Federal Reserve Bank of St. Louis, so that sufficient copies of the minutes would be available for working purposes and in the event of an emergency. 23 -13- 1/5/55 Governor Robertson stated that on occasions he had noticed that the minutes did not reach him promptly and he raised for consideration the possibility of arranging to have a copy prepared for each member of the Board. There WAS a discussion of the current and suggested procedures and it was understood that the Secretary would study the matter with a view to further discussion at another meeting of the Board. Pursuant to the informal understanding at a recent meeting of the Board, there had been sent to each member a list of groups scheduled to visit the Board's offices for luncheons and meetings over the ensuing three months. Aside from groups whose visits previously had been approved by the Board, the list included information regarding the proposed visits of representatives of State bankers associations under the usual program arranged by the American Bankers Association and a visit by Officers of the National Association of Bank Auditors and Comptrollers on February 16, 1955, as proposed in a letter from that organization dated December 30, 1954. In a discussion of the memorandum, Governor Robertson noted that arrangements regarding the visits by representatives of the American Industrial Bankers Association (on January 19) and the Consumer Bankers Association (on March 18) did not include luncheons and he suggested that the Board might wish to issue luncheon invitations to these groups inasmuch as it was doing so for other groups. 215/55 -14It was agreed unanimously that luncheon invitations should be extended to the two groups in question. Chairman Martin then suggested that the question of arrangements with respect to the visits of the various groups, including attendance by members of the Board and its staff at the dinners customarily given by the State bankers associations, be referred to Governor Robertson with the request that he make recommendations regarding attendance and other pertinent matters. This suggestion was approved unanimously. Mr. Kenyon withdrew from the meeting at this point. Mr. Thomas reported briefly on developments in the money market and the stock market following the action taken by the Board yesterday to increase margin requirements from 50 per cent to 60 per cent. Mr. Thomas' report was followed by a discussion of System monetary and credit Policy in the light of market developments and the increased levels of economic activity. Chairman Martin stated that he had received a letter under date of December 31, 1.954, from Mr. Earl 0. Shreve, National Director of the . U. S. Savings Bonds Division of the Treasury, in which he stated that it would be most helpful if the Federal Reserve would be host at a luncheon in the Boardts dining rooms in connection with the meeting to be held on February 3 for the purpose of stimulating and maintaining active support -15- 1/5/55 of bankers in the savings bond program. The meeting would be conducted by the Savings Bonds Committee of the American Bankers Association and would be attended by approximately 50 bankers from Delaware, Maryland, and the District of Columbia. Chairman Martin said that the suggestion was in accordance with actions taken previously by Board in connection with meetings of savings bond groups in Washington and that he would recommend that the Board agree to serve as host. The recommendation was approved unanimously. Chairman Martin then referred to the suggestion that a meeting be held some time in February for the directors of Federal Reserve Banks and branches appointed or elected since the previous meeting for new directors held on February 25, 1954. It was stated that there would be in the neighborhood of 55 new directors since the previous meeting who would be invited and in addition there were six directors who were invited to the meeting in February 1954 but were unable to attend. After discussion, it was agreed to ask the views of the Chairmen of the Federal Reserve Banks as to the desirability of a meeting of all new directors, as well as directors who were invited to but were unable to attend the meeting last years to be held in Washington on Thursday, February 24, 1955. Minutes of actions taken by the Board of Governors of the Federal Reserve System on January 41 1955, were approved unanimously. The meeting then adjourned.
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