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Minutes for
To:
Members of the Board
From:
Office Of the Secretary
July 10, 1963
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
ti/
'421 '
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, July 10, 1963.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Sherman, Secretary
Kenyon, Assistant Secretary
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Daniels, Assistant Director, Division
of Bank Operations
Mr. Kiley, Assistant Director, Division
of Bank Operations
Mr. Benner, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office of
the Secretary
Mr. Hricko, Senior Attorney, Legal Division
Mr. Young, Senior Attorney, Legal Division
Mr. McClelland, Assistant to the Director,
Division of Examinations
Mr. McClintock, Supervisory Review Examiner,
Division of Examinations
Mr. Egertson, Review Examiner, Division of
Examinations
Mr. Sundberg, Review Examiner, Division of
Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
The establishment without change by the
Federal Reserve Bank of Boston on July
Reserve Bank of Philadelphia on July
8, 1963, and by the Federal
9, 1963, of the rates on discounts
221!
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7/10/63
y,
and advances in their existing schedules was approved unanimousl
would be sent to those
with the understanding that appropriate advice
Banks.
Distributed items.
The following items, copies of which are
numbers indicated,
attached to these minutes under the respective item
were approved unanimously:
Item No.
Letter to First Chicago International Finance
Corporation, Chicago, Illinois, granting
permission to purchase stock of Philippines
National Leasing Corporation, Manila, Philippines.
1
Letter to Chairman Robertson of the Senate
Committee on Banking and Currency regarding
procedures for granting charters and approving
branches of national and State banks.
2
Letter to the Bureau of the Budget reporting on a
Treasury draft bill to amend section 5200 of the
Revised Statutes to increase the limit on the
maximum liability of a single borrower to a
national bank.
3
Item No.
3 was approved in a form revised pursuant to the
discussion at the meeting of the Board on July
3, 1963, further
this meeting.
minor changes in wording being agreed upon at
Mr. Young then withdrew from the meeting.
Capital of United California Bank (Item No.
been distributed a memorandum dated July
4). There had
8, 1963, from the Division of
California Bank, Los Angeles,
Examinations regarding the plans of United
structure.
California, for improving its capital
After a study of its
recommend to its directorate
capital situation, the bank proposed to
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7/10/63
on would
an increase of $50 million in capital funds, of which $25 milli
and $25 million through
be obtained through the issuance of common stock
the issuance of capital debentures.
However, after a conference between
Board's staff, at which
representatives of the bank with members of the
to capital would be
the latter expressed the view that a larger addition
issuance of $25
desirable, the bank modified its plan to call for the
debentures.
million in common stock and $35 million in capital
The
capital ratio of
memorandum discussed the recent deterioration in the
effected by the
the bank and the degree of improvement that would be
proposed addition to capital.
Several schedules were attached showing
with other banks.
capital ratios of United California Bank in comparison
not consider issuance of
It was noted that, although the Board did
al, the debentures
debentures the most desirable way of providing capit
only about 13 per
United California proposed to issue would constitute
cent of its total capital.
The Division concluded that the bank's plan
to a position that
would improve its capital structure substantially,
bank's competent managewould be reasonably satisfactory in view of the
ment and satisfactory asset condition.
It was recognized that in view
additional increases in
of the bank's continuing growth, the matter of
to the bank and the
capital funds should be of continuing concern
supervisory authorities.
The bank had indicated that a thorough review
undertaken in about one year.
of its capital position would again be
ve Bank of San Francisco
Vice President Galvin of the Federal Reser
be accepted.
had recommended that the bank's proposal
Attached to the
7/10/63
memorandum was a draft of letter to United California Bank that, after
reviewing the bank's plans, would state that although the Board
continued of the view that capital debentures were not as desirable a
means of capital expansion as common stock, the Board recognized that
capital funds derived from debentures do provide protection for depositors
and that the proposed proportion of debentures to total anticipated
capital structure would be relatively moderate.
At the Board's request Mr. Solomon reviewed the history of the
capital adequacy problem at United California Bank and the development
of the bank's present proposal.
While the Board frowned upon the use
of debentures for capital expansion, there was no authority available
to the Board to prevent the bank from
using them, especially in an
amount that was modest in relation to its total capital structure.
It might be considered that the desirability of having an increase in
capital outweighed the undesirability of obtaining it through issuing
debentures, so long as they did not constitute too great a part of total
capital.
With the proposed capital addition, taking into account
seasonal factors and continued growth, United California would have
capital equal to approximately 80 to 85 per cent of the amount called
for by the analysis form.
That percentage was not ideal, of course,
but it was relatively good in comparison with capital ratios of other
large banks in California.
On balance, it seemed to the Division of
e
Examinations that the Board might accept the bank's plan, but reiterat
res.
its dislike of raising capital through issuance of debentu
tikt)t)Itr)
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Governor Mills commented that, while he was cognizant of the
point that the Board had no sanction to prevent the use of debentures,
it was disappointing that an important bank would not show better
leadership by not choosing that means of raising capital.
The debentures
would have a prior claim on the bank's earnings, which could be a
detriment to the issuance of additional common stock.
His principal
Objection always had been that, since a commercial bank operated on
borrowed money, which is what deposits are, the institution and also
the form of capital it had to protect its deposit liabilities should
be simon-pure; the capital should be derived from common stock.
Since
United California was owned by Western Bancorporation, it would be
important for the Board to have some knowledge as to who would provide
the common stock capital and who would provide the debenture money.
It was known that Western Bancorporation had borrowed a substantial
sum recently, which was to be retired by the sale of First Western
Bank and Trust Company, Los Angeles.
It would be well to know if the
funds for United California's additional capital would come from Western
Bancorporation or from other sources, with the possibility in the latter
event of a dilution of Western Bancorporation's ownership of United
California.
Governor Mills was also apprehensive that if United
California raised capital through issuing debentures, Western Bancorporation
would be prompted to have its other bank subsidiaries also resort to that
device.
0 p
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1••,4t
20
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ed that the debentures
Mr. Solomon responded that it was plann
principally to pension funds.
would be sold on a private placement basis,
debentures but would
Western Bancorporation would not purchase the
pre-emptive rights,
purchase the common stock to the extent of its
and for that purpose it proposed to borrow.
The borrowing was not a
said that Western
desirable feature of the plan, but it might be
of its net worth.
Bancorporation's debt was only a small percentage
red in order to purchase
Most of the debt the holding company had incur
repaid when that bank
First Western Bank and Trust Company had been
was sold.
ng companies
While it would be preferable that bank holdi
have no debt, quite a number of them did.
Since the $25 million that
to purchase the new
Western Bancorporation would borrow in order
t proportion of the
United California common would be only a modes
not believe that there
holding company's net worth, Mr. Solomon did
course, if the
were strong grounds for objection, although, of
ble.
situation worsened it might become objectiona
cult for him to
Governor Robertson stated that it was diffi
believed that the
accept United California's plan; however, he
al was neither black nor
question of issuing debentures to obtain capit
white, but grayish.
raise
Also, national banks now had authority to
he was of the opinion that the
capital through debentures, and therefore
prevent the use of debentures.
Board could not adhere to an effort to
concern over the
Governor Balderston commented that his
bank capital was the leverage
increasing use of debentures to provide
-7-
7/10/63
factor of borrowing to magnify a bank's earnings ratio.
One reason that
banks might be turning to debentures was their difficulty in marketing
common stock; bank stocks did not carry as high a dividend rate as did
stocks of many other types of corporations.
He asked Governor Mills what
had been the trend in returns on bank stocks since the depression of the
early thirties.
Governor Mills replied that it was his impression that returns
on bank stocks had moved more or less steadily upward.
After the
ently
depression banks were doing little lending or investing, and consequ
had only a low volume of earnings from which to pay dividends.
He was
veunder the impression, however, that bank stocks regained their attracti
ness as investments because of safety and security rather than because
of their yields.
Governor Balderston stated that he could find United California's
capital proposal acceptable for two reasons.
The first was the point
mentioned by Governor Robertson - that national banks were now allowed
to raise capital by issuing debentures.
The second was that, with the
s
banking system generally needing more capital, and with bank earning
e
not supporting dividends that were as strong a magnet as other corporat
found.
stocks could offer, alternative sources of capital must be
After further discussion, the letter to United California Bank
was approved unanimously.
A copy is attached as Item No. 4.
Application of Wilmington Trust Company.
There had been
n of
distributed a memorandum dated July 5, 1963, from the Divisio
1
4
)
4)
)
4
el".#
-8-
7/10/63
Examinations in connection with the application of Wilmington Trust
Company, Wilmington, Delaware, to purchase certain of the assets
and assume the deposit liabilities of the Camden (Delaware) branch
incident thereto,
of Baltimore Trust Company, Selbyville, Delaware, and,
to invest an additional
$66,000 in bank premises. The memorandum explored
l reference
the circumstances surrounding the application, with specia
Act.
to the factors cited for consideration by the Bank Merger
It
within
was noted that Wilmington Trust had merged with eight banks
the past 12 years and thereby gained 10 offices and
$39.5 million in
had
However, its proportion of total deposits in the State
deposits.
increased only
.5 per cent, from 40.3 to 40.8 per cent, in the 15-year
period ending June
30, 1962. The transaction presently proposed would
add to Wilmington Trust one office and
.3 per cent of the State's
deposits.
elphia
Representatives of the Federal Reserve Bank of Philad
had offered divergent recommendations.
Examining Officer Ensor and
while Vice President
General Counsel Goodwin recommended approval,
Campbell recommended denial.
All three officers agreed that the substitu-
branch of Baltimore
tion of a branch of Wilmington Trust for the
with better banking facilities
Trust would provide the growing Camden area
services was increasing, and
at a time when the need for such broader
ated was not signifithat the amount of competition that might be elimin
cant.
however
The sole questionable aspect was the increase in size,
222f;
-9-
7/10/63
small it might be, of the largest bank in Delaware.
Vice President
a
Campbell contended that, since the proposed acquisition was not
ton
"rescue operation," the time had come to halt the growth of Wilming
Trust through mergers.
The conclusion of the Division of Examinations
was that, while the case appeared close, on balance the positive
ration
aspects appeared to outweigh the factor of limited additional concent
and thereby supported approval.
At the Board's request, Mr. McClintock summarized the salient
July
points of the application, basing his remarks primarily on the
memorandum from the Division of Examinations.
5
Among other things, he
tion
brought out that, while there appeared to be little, if any, competi
between the Camden office of Baltimore Trust and any of the offices of
Wilmington Trust, there was a potential for competition in that
shment
Wilmington Trust had received the Board's approval of the establi
of a branch in Dover, Delaware, about 4 miles from Camden.
Also,
l
there was an aggressive independent competitor, The First Nationa
st of
Bank of Wyoming, Wyoming, Delaware, about one mile northwe
Camden.
The two factors that the Division of Examinations considered
to support denial were the slight increase in banking concentration
and the elimination of potential competition.
Neither of these
prospects
appeared especially significant, and offsetting them were
for improved management and earnings, the availability of broader
of
banking services, increased competition, and the simple desire
Baltimore Trust to discontinue operations in Camden.
222
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7/10/63
Mr. Shay remarked that, while the Legal Division had originally
reviewed the application without comment, he felt that the matter was a
very close one because of the high degree of banking concentration that
already existed in Delaware.
small and the remaining
State.
Of the 19 banks in the State, 15 were very
4 held 89 per cent of total deposits in the
Wilmington Trust was the largest.
However, it seemed to him
that since the present proposal involved only a branch rather than a
unit bank, and since the branch had not been well managed and Wilmington
Trust would provide improved management, approval of the application
might be reconciled with the slight increase in banking concentration
that would result if the transaction was consummated.
There ensued a discussion of the bearing upon this application
of the Supreme Court's ruling on June 17, 1963, that the proposed merger
of The Philadelphia National Bank and Girard Trust Corn Exchange Bank,
both of Philadelphia, Pennsylvania, would violate the Clayton Antitrust
Act.
Comments were also made on the character of the State of Delaware,
the northern part of which was highly industrialized and the southern part
largely agricultural, although industrialization was increasing there.
It was noted that large banks in the northern part of the State were
reaching into the southern part with branches.
The members of the Board then expressed their views, beginning
with Governor Mills, who stated that he would approve the application
for the reasons cited by the Division of Examinations, which constituted
a balancing of the factors required to be surveyed under the bank merger
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7/10/63
statute.
In his opinion, that balance weighed in favor of approval.
The addition to Wilmington Trust's resources was minimal, and the
transaction would merely replace Baltimore Trust with Wilmington
Trust in the branch location, without changing the complex of banking
services and competition in the area; in fact, the replacement would
assure a better range of banking services.
He considered it important
to recall that Delaware is a small State, with an estimated population
of about 458,000 in 1961, or little more than half the population of
the District of Columbia.
When considering what number of banking
facilities would be appropriate for such a geographical area and
population, a substantial banking concentration within
4
banks appeared
less significant than it would be if a concentration spread over a
much wider area, such as California, were involved.
In Governor Mills'
view, the concentration factor was not decisive in this case.
Governor Robertson stated that he would disapprove.
Wilmington
Trust, the largest bank in the State, had entered into several mergers in
the past ten or twelve years, and it had 40 per cent of the deposits
in the State.
As for the competitive point of view, Wilmington Trust
had already been authorized to go into the area with a new branch in
Dover, and it could provide all the services called for by the convenience
and needs factor.
In addition, The First National Bank of Wyoming could
provide all necessary services.
Thus, from the competitive point of
view and the convenience factor Governor Robertson saw nothing to favor
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7/10/63
the application, but he did see danger in allowing a large bank to become
still larger.
Governor Shepardson remarked that to him this case, though
small, was difficult.
The broadened services that Wilmington Trust
as Governor
would provide in Camden he regarded as justified, although,
part
Robertson had pointed out, they would be provided at least in
by Wilmington Trust's Dover branch.
As Governor Shepardson saw the
picture, a changing situation was involved, in which what had been an
entirely agricultural area, served by a community bank, was becoming
increasingly industrial, with credit needs different from those the
Camden office of Baltimore Trust was prepared to offer.
That would
seem to justify the acquisition, although Governor Shepardson was
bothered by the matter of total dominance and the addition to Wilmington
Trust of even a minimal percentage of the State's banking resources.
The application presented a difficult situation that could be argued
both ways, but in the end, in view of the desire of Baltimore Trust
to get out of Camden, he would be inclined to approve.
Governor Mitchell commented that he did not take any stock
in the service arguments that had been advanced.
He thought the services
were already available in the area, and, if not, they would be when
Wilmington Trust opened its Dover branch.
However, he believed that
the Board must face the fact that Baltimore Trust was not running the
it
Camden office the way it should be, and it seemed improbable that
could be forced to do so.
Therefore, he would approve the application.
7/10/63
-13-
e Court's pronouncements should
He did not believe that the Suprem
ger
in a case like this; if the mer
influence the Board's judgment
es, it
ry to the antitrust statut
contained any circumstances contra
the
ment of Justice to pursue
was the responsibility of the Depart
matter.
t at first glance all of the
Governor Balderston stated tha
sion
on had led him to the conclu
figures relating to the applicati
t
Philadelphia Reserve Bank tha
of Vice President Campbell of the
gers.
Wilmington Trust through mer
it was time to halt the growth of
stances
thinking of some of the circum
However, he then had begun
f
Mitchell and had asked himsel
mentioned by Governors Mills and
he would feel
nt of the Camden community,
whether, if he were a reside
ice
n Trust operate the Camden off
better served to have Wilmingto
ative.
and the answer was in the affirm
rather than Baltimore Trust,
oring
what led him to a position fav
The factor of management was
approval.
t
also would approve, adding tha
Chairman Martin said that he
rd could not force
good point that the Boa
Governor Mitchell had made a
ly in Camden.
Trust to operate effective
the management of Baltimore
pon
gton Trust Company was thereu
The application of Wilmin
t in bank
uested additional investmen
approved, along with the req
d that the
dissenting. It was understoo
premises, Governor Robertson
tion drafts of
e for the Board's considera
Legal Division would prepar
7/10/63
an order and statement reflecting this decision, and that a statement
reflecting Governor Robertson's dissent also would be prepared.
Messrs. Shay, Hricko, Benner, McClelland, Egertson, and
Sundberg then withdrew from the meeting and the following entered
the room:
Mr. Noyes, Director, Division of Research and
Statistics
Mr. Dembitz, Associate Adviser, Division of
Research and Statistics
Mr. Partee, Chief, Capital Markets Section,
Division of Research and Statistics
Mr. Bakke, Senior Attorney, Legal Division
Mr. Potter, Senior Attorney, Legal Division
Inquiry regarding float and Federal Reserve notes.
letter dated March
5, 1963,
In a
Chairman Fascell of the Legal and Monetary
Affairs Subcommittee of the House Committee on Government Operations
requested the Board's current thinking with regard to questions on which
the Board had submitted comments several years ago to the Foreign
Operations and Monetary Affairs Subcommittee.
The questions related
to check float (particularly the question of changing deferment
schedules from a two-day to a three-day maximum to reduce such float),
one central issue of Federal Reserve notes, and local destruction of
Federal Reserve notes.
In an interim reply dated March 19, 1963,
Chairman Martin expressed the hope that the Board would be able to give
its further views on these matters by the first of July.
In the mean-
time, the questions were referred to the Conference of Presidents for
Bank
comments and suggestions, and the views expressed by the Reserve
-15-
7/10/63
the Board and the
Presidents were discussed at a joint meeting of
Presidents on June 18, 1963.
memorandum dated July
There had now been distributed a
3, 1963, from Mr. Farrell, to which were
attached drafts of replies to the three questions.
position that,
The proposed reply in regard to float took the
ding interdistrict
while Federal Reserve Bank deferment schedules regar
desirable to make the
country items should be changed, it would not be
change at this time.
with
That position was believed to be consistent
.
the views expressed by the Conference of Presidents
reply were
During discussion a number of changes in the
suggested.
d upon to
Especially, modifications in language were agree
deferment schedules
avoid committing the Board to the position that
ed.
regarding interdistrict country items should be chang
Comment was
such a position there
made that before the Board committed itself to
especially since the
should be a full-scale study of alternatives,
ology.
area involved was one of rapidly-changing techn
It was noted that
of timing and that any
the proposed reply emphasized the importance
deferment schedules should
change the Board might make in the maximum
atmosphere of monetary policy.
be correlated with the circumstances and
to a three-day maximum
In other words, it implied that a change
such action seemed compatible
deferment would be made only at a time when
policy.
with the prevailing requirements of monetary
-16-
7/10/63
The discussion then turned to the proposed reply regarding
a single issue of Federal Reserve notes.
However, as the proposed
reply indicated, any economic advantage in replacing the 12 separate
issues of Federal Reserve notes with one central issue would result
from the manner in which the notes were retired rather than from the
manner in which they were printed, and therefore the discussion meshed
With that on the proposed reply regarding local destruction of unfit
Federal Reserve notes.
Mr. Farrell commented that the Board's 1960 reply on the
question of a single issue had stated that the Board was inclined
toward the view that it would be undesirable to make any change in
the then present form of Federal Reserve notes unless such a change
were a part of a general program for simplifying the currency structure
of the United States.
It was possible that the recent legislation
providing for withdrawal of silver certificates and issuance of Federal
Reserve notes in $1 and $2 denominations might be regarded as such
a change.
The $1 notes would be, of course, the largest piece volume,
and there was general agreement that it would be completely undesirable
to have to sort them by Bank of issue.
That problem had led to a
proposal that a formula be developed that would show, over a period of
time, the typical pattern of redemptions according to district and
denominations, the Reserve Banks then to reduce their liabilities
in the amounts the formula indicated as typically becoming
r-z
4 e•
,,Iset )
11)11
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7/10/63
had been
unfit, and the notes destroyed at the Bank at which they
sorted as unfit.
Mr. Farrell then described the efforts that were
e, and
being made to develop a formula that would be reasonably accurat
resorted to if
alternatives, all of which would be costly, that could be
A question had been raised as
a workable formula could not be devised.
note liabilito whether a change in the law would be necessary to permit
ties to be determined on a formula basis.
Some doubt had been expressed
the law
in the Division of Bank Operations as to whether a change in
it would
was necessary, but if it was, the Division strongly hoped that
not be so specific as to inhibit flexibility in changing from one
procedure to another as results might dictate.
Mr. Farrell noted that
the Reserve Banks for some time had been estimating some of their
liabilities for Federal Reserve notes.
They did not sort fit notes
according to Bank of issue; their own were a deduction from their
liability, and those of other Banks were carried as an asset.
Also,
ed for
the Government securities assets of the Banks had been allocat
some time without specific legal authority.
le
Mr. Hexter commented that he agreed that it would be desirab
of sorting
to find a procedure that would avoid the wasteful expense
$1 Federal Reserve notes by Bank of issue.
However, the legal problem
s
related to the fact that the regional system created by the Congres
would
in the Federal Reserve Act contemplated that each Reserve Bank
stand on its own feet with respect to its outstanding notes.
It was
that an
his impression that the Treasury Department was in agreement
-18-
7/10/63
amendment would be necessary to have Federal Reserve notes destroyed
in the field.
If such legislation was proposed, it would seem feasible
to expand it to authorize the formula procedure with whatever flexibility
seemed desirable.
He noted that Mr. Bakke had been looking into the
question of the legality of the use of a formula in note redemptions.
Mr. Bakke stated that preliminary research indicated a rather
serious legal impediment to the use of a formula without some change
in the statute, primarily because of the procedures prescribed in the
Federal Reserve Act for the issuance of notes.
When a Reserve Bank
applies to the Federal Reserve Agent for an issuance of Federal Reserve
notes, it is required to tender collateral in the total amount of the
notes requested.
The statute contemplates that that collateral will be
maintained at 100 per cent against notes outstanding.
The statute
allays a draw-down of collateral only upon return of notes or substitution of collateral.
Under allocation by formula, it was conceivable
that a Bank would be credited with destruction of more notes of its
issue than were actually destroyed.
The Bank might draw down the
collateral with the Federal Reserve Agent underlying the supposedly
destroyed notes or it might use that increment of collateral to support
receipt of additional notes from the Agent.
Thus the Bank would have
outstanding more notes than the collateral would support.
At this time,
it seemed to the Legal Division that such a result would be in direct
conflict with the statute, and therefore that the statute would not
permit the use of allocation of redemptions by formula.
223f
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7/10/63
Mr. Hexter added that the Legal Division felt that this
situation was regrettable, but was a concomitant of a regional system.
So far as he could see, there was no advantage to the regional system
in this respect; however, if the Board departed from the terms of the
statute, the Board's critics would have an apparently valid ground
for criticizing it for trying to weave into a single account the
regional issuance of Federal Reserve notes provided by Congress.
Mr. Farrell remarked that there would have to be legislation
to avoid having all the $1 Federal Reserve notes sent to Washington for
destruction.
The Federal Reserve Act required that unfit Federal
Reserve notes be returned to the Comptroller of the Currency, but the
Treasury was adamant against undertaking the task of their destruction,
and was working on legislation to permit their destruction in the field.
In view of that fact, he suggested that the proposed reply to the
question regarding local destruction of Federal Reserve notes be sent
to the Treasury Department for comment before it was transmitted to
Chairman Fascell.
The discussion next turned to the fact that the proposed
reply to the third question took the position that steps should be
taken to arrange for local destruction of $1, $5, and $10 Federal
Reserve notes, whereas the Conference of Presidents had voted that
local destruction be limited, at least at this time, to the $1 notes.
However, during subsequent discussion with the Board, some of the
Presidents had indicated a feeling that local destruction might well
be extended to include the $5 and $10 notes.
0
( )oty
I
ArvIt.et)
7/10/63
-20-
Board had expressed
It was recalled that in its previous reply the
the view that the expense of shipping the notes to Washington was outg
weighed in importance by the potential risks of collusion in removin
tion.
higher denomination notes that were intended for destruc
Response
was made that when the Board took that position, the System had been having
improved
some trouble with the currency destruction procedure, whereas
procedures had now been developed.
However, the risks of collusion
might
appeared greater with respect to the higher denominations, which
ation
Perhaps justify the additional expense of shipping larger denomin
unfit notes to Washington for destruction.
Governor Mills commented that the discussion had gone beyond
the scope of the replies to be made to Chairman Fascell into problems
Of implementing the procedures involved.
The replies represented a
later when
tentative approach, but final decisions could wait until
each program would be considered separately.
After further discussion it was agreed that the Treasury
replies to
Department should be given an opportunity to review the
the questions relating to issuance and destruction of notes before
,
they were transmitted to Chairman Fascell; that the three draft replies
be sent
With the various revisions agreed upon at this meeting, should
to the Federal Reserve Bank Presidents, who should be informed that
but
the Board expected to send the replies to Chairman Fascell shortly
er :to t
t
t
-21-
7/10/63
would appreciate any comments that the Presidents might wish to offer;
and that the Board's staff should work with the staff of the Treasury
Department in developing draft legislation that would provide whatever
authority was necessary to permit local destruction of unfit Federal
Reserve notes and the use of an allocation formula.
Secretary's Note: The proposed replies
to Chairman Fascell were sent to the
Federal Reserve Bank Presidents on
July 12, 1963, and to Secretary of the
Treasury Dillon under date of July 16, 1963.
Mr. Bakke then withdrew from the meeting.
Special study, Securities and Exchange Commission (Item No. 5).
There had been distributed letters dated June 21 and July
3, 1963,
from the Securities and Exchange Commission regarding the chapter on
security credit of the report of the Commission's special study of
the securities markets.
The Board's staff had cooperated in the
preparation of the chapter to the extent of supplying two statistical
appendices, conducting interviews that were reflected in questions and
answers in a third appendix, and reviewing the chapter for technical
accuracy.
The Commission proposed that the chapter, along with several
others, would be published about the middle of July.
This material,
however, would be published as representing the conclusions and recommendations of the staff study group, without purporting to speak for the
Board or the Commission as such.
In anticipation of publishing the
chapter, the Commission suggested that a meeting be arranged between
14'1(
-22-
7/10/63
representatives of the Commission and the Board during the week of
July
8, after the Board had had an opportunity to review the draft
of the chapter.
The Commission recognized that the Board might wish
to make its own publication of at least the material in the two
statistical appendices; the special study, of course, did not mean
to pre-empt the publication by including them in its chapter on
security credit.
It was suggested that the manner of publication,
Including the possibility of simultaneous publication, be discussed
at the meeting to be arranged.
At the Board's request, Mr. Noyes commented on the inquiries
from the Securities and Exchange Commission.
It had seemed to the
Board's staff that the recommendations in the chapter on security
that
credit were appropriate for the special study group to make, and
the
time and trouble might be saved by informing the Commission that
publication procedure it had suggested would be entirely appropriate
and, since the conclusions and recommendations of the study group
would not purport to speak for the Board, there seemed to be no
the study.
necessity for a formal meeting prior to the release of
He
distributed copies of a draft of letter framed in those terms.
Governor Mills commented that the report of the special study
of
on security credit was excellent and reflected the great amount
thought and effort that had gone into it.
However, he had some fear
report of
that upon publication, even though it was described as the
Federal Reserve
a study group, it might be regarded as emanating from the
-23-
7/10/63
Board or as embodying Federal Reserve recommendations.
There was,
y
indeed, a grave need of corrective legislation in the field of securit
d
g
credit, such as better control of unregulated lenders and bringin unliste
stocks into the purview of legislation.
However, when such legislation
to
was sought there was certain to be animosity, especially in regard
regulation of loans on unlisted stocks.
Granted, there was a substantial
were
amount of credit extended on unlisted stocks, but those loans
they
made at the discretion of banks and on their judgment as to whether
had taken sufficient collateral.
To consider every such loan a purpose
of
loan rather than a nonpurpose loan would rob banks of their area
judgment.
There would be just as much reason for imposing regulations
on unsecured loans by banks.
Bringing loans on unlisted securities
serving worthunder regulation would shrink a large area of credit that was
if
while economic purposes and would put banks in the position where,
to beat
they wanted to meet those credit requirements, they would have
on
around the bush, perhaps taking less collateral and lending more
an unsecured basis.
He would be much concerned about the recommendation
the purpose
to regulate loans on unlisted stocks because it could defeat
of the over-all reform when it came to the point of legislation.
He
not be
reiterated the belief that the report of the special study might
regarded as a study report but as a response of the Federal Reserve
al Institujust as the report of the President's Committee on Financi
g of the
tions earlier this year had been taken to have the blessin
organizations in which the members of the Committee served.
7/10/63
It was brought out that the material contributed by the
Board's staff for use in the study included no opinions or recommendations and that several passages in the two letters from the Securities
and Exchange Commission indicated that the manner of publication of
the chapter would make it amply clear that no attempt was being made
to speak for the Board or to encroach upon the area of the Board's
responsibilities in the field of security credit.
After further discussion the letter was approved unanimously
in the form attached as Item No. 5.
Messrs. Noyes, Dembitz, Partee, and Potter then withdrew
from the meeting.
New York gold vault.
The agenda for today's meeting called
for further discussion of the proposal for expansion of the gold
storage facilities of the Federal Reserve Bank of New York, which had
been the subject of a conference between the Board and representatives
of the New York Bank on June 18, 1963.
Mr. Farrell reported that in the interim Vice President Harris
of the New York Bank had made an informal investigation of the adequacy
of the vault facilities of the United States Assay Office in New York
City, one of the alternatives to which consideration had been given.
It appeared that the Assay Office facilities were far inferior to those
at the New York Bank.
The Assay Office vault was one story below ground
and four above, and especially from the point of view of security, the
Assay Office vault appeared so inadequate that it might be dropped from
consideration.
2244.!
-25-
7/10/63
gibles
During discussion comment was made that the intan
gn central
of the New York Bank's function in holding gold for forei
banks were an important consideration.
The inadequacy of security
t to the side of approving
facilities at the Assay Office also lent weigh
the New York Bank's proposal.
However, hesitation was expressed by some
er concentration of gold
Board members as to the advisability of a furth
in New York.
Federal
The feeling was expressed that Fort Knox or other
natives.
Reserve Banks did not offer suitable alter
It was suggested,
further the possibility of
however, that it might be well to investigate
ities at West Point,
using facilities such as the silver storage facil
the vault in New York,
New York; if they were adaptable to supplement
New York vault might
the money proposed to be spent for enlarging the
d would not be at
be better spent, and at the same time the gold store
any great distance from New York.
Further comments indicated a reluctance
enlarging the New York
by these Board members to approve the expense of
of alternatives.
vault without a more thorough exploration
was agreed that Messrs.
At the conclusion of the discussion it
or of Defense Planning) would
Farrell, Solomon, and Harris (Coordinat
ble solutions of the problem
visit New York and West Point to study possi
the Board.
of gold storage and make recommendations to
Loan of services of Mr. Dembitz.
Governor Shepardson reported
for International Development of
receipt of a request from the Agency
ursable detail of Mr. Dembitz,
the Department of State for the reimb
Research and Statistics, for a
Associate Adviser in the Division of
224.)''
7/10/63
-26-
period not to exceed 90 days beginning on or about July
8, 1963. Mr.
Dembitz would accompany a team of advisers to the Agency's mission in
Brazil to investigate private and foreign investments in private
enterprise in Brazil and to make recommendations to the mission regarding policies, procedures, and methods for the mission to contribute
to the new and expanded credit facilities.
The request of the Agency was approved unanimously.
The meeting then adjourned.
Secretary's Notes: On July 9, 1963,
Governor Shepardson approved on behalf of
the Board a memorandum from the Division
of Administrative Services recommending
the appointment of John I. Mitchell as
Operating Engineer's Helper in that Division, on a temporary basis for a period
of about three months, with basic annual
salary at the rate of $4,701, effective
July 10, 1963.
Governor Shepardson today approved on
behalf of the Board a memorandum from
the Division of International Finance
recommending the appointment of Cynthia
Lee Young as Clerk in that Division, with
basic annual salary at the rate of $3,820,
effective the date of entrance upon dut .
Secreta
224
Item No. 1
7/10/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. O. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 10, 1963
First Chicago International Finance Corporation,
38 South Dearborn Street,
Chicago 90, Illinois.
Gentlemen:
In accordance with the request contained in your letter of
May 20, 1963, transmitted through the Federal Reserve Bank of Chicago,
and on the basis of information furnished, the Board of Governors
grants consent for First Chicago International Finance Corporation to
Purchase and hold 30,000 shares, par value P10 each, of Philippines
National Leasing Corporation, Manila, Philippines ("PNLC"), a corporation in process of organization, at a cost of approximately USS75,000,
Provided such stock is acquired within one year from the date of this
letter.
The Board's consent is granted upon condition that First
Chicago International Finance Corporation shall dispose of its holdings
of stock of PNLC, as promptly as practicable, in the event that PNLC
should at any time (1) engage in issuing, underwriting, selling or distributing securities in the United States; (2) engage in the general
business of buying or selling goods, wares, merchandise, or commodities
111 the United States or transact any business in the United States
except such as is incidental to its international or foreign business;
Or (3) otherwise conduct its operations in a manner which, in the judgment of the Board of Governors, causes the continued holding of its
stock by First Chicago International Finance Corporation to be inapproPriate under the provisions of Section 25(a) of the Federal Reserve
Act or regulations thereunder.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Item No. 2
7/10/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
July 12, 1963
Honorable A. Willis Robertson, Chairman,
Committee on Banking and Currency,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
This will acknowledge receipt of a copy of your letter of
May 29, 1963, addressed to Honorable James J. Saxon, Comptroller of
the Currency, regarding procedures for granting charters and approving branches of national and State banks, particularly in relation to
recent experience in the 10th Congressional District of the State of
Virginia. Your letter to Mr. Saxon indicates that you also desire
the views of the Board of Governors in the matter.
The Board has not had occasion to hold any public hearing
With respect to the admission of a proposed newly chartered State
bank to membership in the Federal Reserve System or with respect to
the establishment of a branch of a State member bank. The admission
of a proposed new State bank to membership is always predicated on its
opening for business under a charter granted by State banking authorities. Also, as a matter of policy, the Board does not act on an
application to establish a branch of a State member bank unless and
until the branch is approved by State banking authorities. The Board
does not have information as to the number of States that require
hearings either with respect to bank charters or branches.
Under section 9 of the Federal Reserve Act and the Board's
Regulation H, and Sections 4 and 6 of the Federal Deposit Insurance
Act, the Board in passing on applications for membership of proposed
newly chartered State banks must give consideration to:
1.
2.
3.
4.
5.
6.
The financial history and condition of the bank;
The adequacy of its capital structure;
Its future earnings prospects;
The general character of its management;
The convenience and needs of the community to be
served by the bank; and
Whether or not its corporate powers are consistent with
the purposes of the Federal Deposit Insurance Act.
Honorable A. Willis Robertson
-2-
(Proposed newly chartered State member banks must
have capital and surplus in an amount equal to that
which would be required for the establishment of a
national bank in the place in which located.)
Information regarding these matters generally is developed in part
through a field investigation made by examiners for the Reserve Bank
usually in cooperation with examiners for the State authorities -- and
consideration is given also to the competitive factors involved and
Possible conflicting applications in the area to be served. In connection with the bank's admission to membership, the Board must certify
to the Federal Deposit Insurance Corporation that consideration was
given to the six factors heretofore enumerated.
Under section 9 of the Federal Reserve Act and the Board's
Regulation H, the Board in passing on applications for branches of
State member banks gives consideration to the financial condition,
management, and corporate powers of the applying bank, including such
matters as the location and operation of any existing branches and the
following factors relating to the proposed branch:
1.
2.
3.
4.
5.
6.
Location and estimated population of the community
or area to be served;
Economic character of the community to be served and
need for banking convenience;
Distance from other banking offices;
Competitive situation or tendency toward monopoly;
Reasons for establishment; and
Scope of functions and prospects for successful
operation.
(In establishing branches, State member banks are
subject to the same capital requirements and restrictions as to location as national banks.)
As is the case with proposed newly chartered State member banks, the
foregoing information generally is developed in part through a field investigation made by examiners for the Reserve Bank -- usually in cooperation with State examiners -- and consideration is given to possible conflicting applications in the area to be served.
As regards statistical data, the following reflects the number
of banks and branches in existence in the 10th Congressional District of
Virginia on the dates shown:
-3-
Honorable A. Willis Robertson
Number of Branches
Ins.NM
Nat. SM
Number of Banks
SM Ins.NM
Nat.
8
18
29
32
8
9
8
8
1
1
1
1
5
6
9
9
12-31-56
12-31-61
12-31-62
5-31-63
11
22
22
23
1
3
4
4
were established
Included in the above figures are de novo branches, which
as follows:
National
State Member
8
5
3
2
1
0
1-1-57 to 12-31-61
1962
1-1-63 to 5-31-63
Insured Nonmember
8
6
1
oner of
In a letter dated June 19, 1963, the Deputy Commissi
of
Bank
Reserve
Federal
Banking of the State of Virginia advised the
and
banks
State
for
ions
Richmond that the following number of applicat
d
processe
and
with
filed
were
branches in the 10th Congressional District
below:
shown
by the Corporation Commission during the periods
Number
Bks, Br.
1-1-57 to 12-31-61
1962
1-1-63 to 6-19-63
Totals
Approved
Br.
Bks.
Disapproved
Br.
Bks.
3
1
1
30
2
2
1
1
19
2
2
2
5
34
2
23
2
Withdrawn
Bks. Br.
1
5
_
1
5
6
6
the establishNone of the applications for new charters involved
ip in the
ment of a bank that was simultaneously applying for membersh
of the
branches
for
ions
applicat
5
are
Federal Reserve System. Included
bank in the
Vienna Trust Company, Vienna, Virginia, the only State member
filed in 1961,
10th Congressional District. One of the 5 applications,
it was withdrawn
was set for a hearing by the Corporation Commission,but
Bank of Fairfax
before the hearing because of opposition by The National
Consequently,
and the Potomac Bank & Trust Company, Fairfax, Virginia.
The other
that application was not presented to the Board for action.
2 in 1961, and
4 applications of Vienna Trust Company, 1 filed in 1960,
hearing,
1 in 1962, were approved by the Corporation Commission without
years
the
and they were presented to and approved by the Board during
,
however
s;
busines
in which filed. (All of the 4 branches opened for
2248
Honorable A. Willis Robertson
-4-
1 of the applications involved the head office of Vienna Trust Company, which was moved to another of the approved branches after it
opened.) It is understood that the remaining 34 applications, 5 for
new banks and 29 for branches, relate to insured nonmember institutions.
I trust this information will be helpful.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
cc - Comptroller of the Currency
Federal Deposit Insurance Corporation
224
Item No. 3
BOARD OF GOVERNORS
7/10/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 10, 1963.
Mr. Phillip S. Hughes,
Assistant Director for
Legislative Reference,
Bureau of the Budget,
Washington 25, D. C.
Dear Mr. Hughes:
This is in response to your request of June 14, 1963, for
,t
.he
views of the Board on a bill proposed by the Treasury Department
"To amend section 5200 of the Revised Statutes, as amended (12 U.S.C.
84), to increase the limit on the maximum liability of a single borrower
to a national bank,"
The Board does not recommend the proposed amendment, which
buld permit national banks to make loans to single borrowers of twice
the size now permitted. There has been no basic change in banking
conditions in recent years that would justify such a liberalization of
the law, nor are we aware of any wide-spread inability on the part of
Ilational banks to serve the credit needs of their customers. Since one
of the major causes of bank failures in the past has been difficulties
eXPerienced with large loans, the Board urges that the present limitation be continued.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
225()
BOARD OF GOVERNORS
..."• •.
,00f Col,•
tie •
—
4, •
Item No. 4
7/10/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 10, 1963
Ph". Clifford Tweter, President,
United California Bank,
600 South Spring Street,
Los Angeles 54, California.
Dear Mr. Tweter:
Your letter of June 26, 1963, sets out a plan to increase •
the capital structure of United California Bank. Under the proposed
Plan there would be a total addition to capital funds of $50 million,
consisting of new common stock to be sold for cash in the amount of
425 million and capital debentures to be sold for $25 million. None
Of the debentures would be sold to present stockholders, but Western
Bancorporation, which now holds 84 per cent of the outstanding common
stock of United California Bank, would subscribe for its pro rata part
Of the proposed increase in capital stock and would also purchase any
shares not subscribed for by minority stockholders. The plan for this
capital addition has not as yet been approved by the board of directors
OX stockholders of your bank.
Previously, the Board of Governors had suggested to United
California Bank that consideration should be given to an augmentation
Of capital funds because of a reduction in capital adequacy. Following
a study of the matter referred to in your letter of June 26, the plan
described above was developed as a means of strengthening the capital
Position.
The plan to furnish W) million in new capital presented in
Your letter was discussed by you and representatives of the Board:3
Division of Examinations, including the Director of the Division, Mr.
Frederic Solomon, when you recently visited the Board's offices. At
that time the Board's staff suggested that more capital than the amount
Proposed would be desirable to meet capital needs reflected in the figures under discussion and to provide for needs arising since the dates
Of those figures and in the future. There also was discussion of the
Board's generally unfavorable attitude, stated in its latter of April 1,
1963, toward the use of debentures as a means of providing bank capital.
Subsequently, you discussed further with Mr. Solomon by telePhone the amount of new capital funds to be furnished, and you have now
Concluded that this amount would be increased to $60 million, the additional $10 million however to be supplied through the sale of debentures.
225_
Mr. Clifford Tweter
- 2-
Under the terms of the altered proposal, new common stock would be issued
in the amount of $25 million and debentures would be issued in the amount
of $35 million. Under this arrangement, the total of debentures would be
?quivalent to about 13 per cent of the bank's total capital structure,
including reserves, after the addition of the new capital. You also indicated that you would again thoroughly review the capital position of
the bank within not more than one year, particularly in view of possible
Changes in the situation since the dates of the figures that have formed
the basis for most of the discussions.
Although the Board continues of the view that capital debentures
are not as desirable a means of capital expansion as common stock, the
Board recognizes that capital funds derived from debentures do provide
Protection for depositors and that the proposed proportion of debentures
to total anticipated capital structure would be relatively moderate.
The Board appreciates receiving the information about your
Proposed plans, as well as the careful consideration you have given
this subject. Please advise it when the new capital has been provided.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
,
7)
"
)4,4
4
Item No. 5
BOARD OF GOVERNORS
OF THE
r-CDERAL RESERVE SYSTEM
t
4sti
4
Ni1111_17
7/10/63
WAIANINtitoN
X
OFFICE OF THE CHAIRMAN
'
o''
41L120P'
July 10, 1963.
The Honorable William ti Oary, Chairman,
geturities and Exchange Witimission,
Washington 25, D. C.
bear Bill:
After examining the draft of your Special Study's chapter
on security credit, it seems to me that the procedure suggested in
your letter of June 21 is entirely appropriate.
Since the conclu-
sions and recommendations of the Study group will not purport to
Speak for the Board, I see no necessity for a formal meeting prior
to the release of that Study and the Commission's recommendations
with respect to it.
Our staff has a few further technical sugges-
tions on the draft, which your staff may wish to consider on their
merits.
By and large, it seems to us that the Study is an excellent and informative one, and the Board will certainly wish to give
very serious consideration to its recommendations.
Sincerely yours,
(Signed) Bill
Wm. McC. Martin, Jr.
@FedFRASER