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Minutes for To: Members of the Board From: Office of the Secretary July 11, 1956. 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. Chin. Martin Gov. Szymczak Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson X 17,r,es 1 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Wednesday, July 12, 1956. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman 21 Balderston, Vice Chairman Szymczak Vardaman 1/ Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Fauver, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Vest, General Counsel Young, Director, Division of Research and Statistics Marget, Director, Division of International Finance Hersey, Chief, Special Studies Section, Division of International Finance Katz, Chief, British Commonwealth, Scandinavia, and Near East Section, Division of International Finance Wood, Chief, European Section, Division of International Finance Mr. Exter, Vice Bank of New Mr. Rouse, Vice Bank of New President, Federal Reserve York President, Federal Reserve York Mr. Exter and. Mr. Marget each presented a report based on observations during his recent trip to Europe. - 1/ Entered meeting at point indicated in minutes. ' 1367 7/11/56 -2During the course of the reports Governor Vardaman joined the meeting. At their conclusion Messrs. Exter and Rouse withdrew from the meeting along with all of the members of the Board's staff except Messrs. Carpenter, Kenyon, and Vest and Messrs. Leonard, Director, Division of Bank Operations, and Sloan, Director, Division of Examinations, entered the room. The following matters, which had been circulated to the members of the Board, were presented for consideration and the action taken in each instance was as stated: Letter to Mr. Hill, Vice President, Federal Reserve Bank of Philadelphia, reading as follows: Reference is made to your letter of June 27, 1956, regarding the request of Fidelity-Philadelphia Trust Company, Philadelphia, Pennsylvania, for approval under the provisions of Section 24A of the Federal Reserve Act of an additional investment in bank premises incident to the removal of the bank's branch from the corner of Third and Chestnut Streets to the corner of Fifth and Chestnut Streets in Philadelphia. After considering the information submitted the Board Governors approves the additional investment of $30,000 of in leasehold improvements by the Fidelity-Philadelphia Trust Company in connection with the relocation of the branch. It appears that the proposed removal of the branch will constitute a mere relocation of an existing branch in the immediate neighborhood without affecting the nature of its business or customers served and, therefore, the approval of the Board is not required. Approved unanimously. 1368 7/11/56 -3- Letter to the Board of Directors, Peoples Bank of Glen Rock, Glen Rock, Pennsylvania, reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of Philadelphia, the Board of Governors of the Federal Reserve System approves the establishment of a branch at the corner of Main and Church Streets, Borough of Jacobus, York County, Pennsylvania, provided (1) formal approval is obtained from the State authorities, (2) common capital is increased to $100,000, and (3) the branch is established within six months of the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of Philadelphia. Letter to the Board of Directors, American Trust Company, San Francisco, California, reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors approves the establishment of a branch by the American Trust Company in a shopping center in the vicinity of 18th and A Streets, Antioch, California, provided the branch is established within one year from the date of this letter and approval of the State authorities is effective as of the date the branch is established. Approved unanimously, for transmittal through the Federal Reserve Bank of San Francisco. Letters to the Comptroller of the Currency, Treasury Department, Washington, D. C., reading as follows: Reference is made to a letter from your office dated May 7, 1956, enclosing photostatic copies of an application to organize a national bank in Cedar Rapids, Iowa, 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 a representative of the Federal Reserve Bank of Chicago indicates generally favorable findings 1369 7/11/56 with respect to the factors usually considered in connection with such proposals. It appears that definite arrangements have not been made with respect to leasing of the quarters to be occupied by the bank and it is assumed that this matter will be resolved to the satisfaction of your office. The Board of Governors recommends the 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. Reference is made to a letter from your office dated May 28, 1956, enclosing photostatic copies of an application to convert the State Guaranty Bond Bank of Center, Texas, into a national banking association and requesting a recommendation as to whether or not the application should be approved. Information submitted by the Federal Reserve Bank of Dallas about the State Guaranty Bond Bank is favorable with respect to the factors which you requested be considered in connection with the bank's proposal to convert to a national banking association. Therefore, 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. Approved unanimously. Consideration was given to a memorandum from Messrs. Leonard and Vest dated July 10, 1956, copies of which had been sent to the members of the Board, regarding a question raised by Mr. Johns, President of the Federal Reserve Bank of St. Louis, in connection with a proposed 7/11/56 -5- extension of the lease of space in the Bank's annex building to the Army Engineers. It appeared that in anticipation of the expira- tion of the current lease on June 301 19561 General Services Administration called for competitive bids for space for the Engineers, and that in view of certain conditions that were imposed no bid was received. General Services Administration then came to the Reserve Bank to negotiate arrangements under which the Engineers would continue as tenants and mutually satisfactory terns were agreed upon, but it developed that the document extending the lease would contain a provision whereby the lessor would agree that the General Accounting Office would have access to and the right to review the lessor's records relating to the lease. This provision was said to be required in the case of negotiated leases by Public Law No. 2451 82nd Congress. In view of the question raised in this connection, the Board's staff looked into the provisions for leasing of space at other Reserve Banks and found only one strictly comparable situation, which involved the lease Of vault space by the Cleveland Bank to the Government. In the case of certain other leases, the Cleveland Bank had stricken a provision for inspection of records by the General Accounting Office, and the Bank reported that no question had been raised. on the basis of competitive bids. However, those leases were 7/12/56 -6In reviewing the matter, Mr. Leonard said that to make an issue of the inclusion of the standard clause might prove embarrassing and make something important out of a mere formality. It was Presi- dent Johns' view, he said, that in all the circumstances the document extending the arrangement for the lease of space for the Army Engineers Should be signed without further discussion. MT. Vest commented that in view of the legal provision requiring inclusion of the standard clause in the case of negotiated leases he did not know how General Services Administration could be prevailed upon to eliminate the clause in the absence of competitive bids. Governor Balderston stated that in a telephone conversation Mr. Johns referred to the existence of a second statute under which the lessee would be prevented from paying for the space in the Reserve Bank building unless a contract was executed. He also said that the Board's views were desired today because a meeting of the St. Louis Board of Directors was scheduled to be held tomorrow. Following a discussion, Mr. Leonard was requested to advise President Johns informally of the Board's view that the requirement for inclusion of the standard provision in the lease agreement need not deter the St. Louis Reserve Bank from signing the document. At this point Messrs. Shay, Assistant General Counsel, and Cherry, Legislative Counsel, entered the room and Mr. Leonard withdrew from the meeting. 1372 7/11/56 -7Pursuant to the understanding at the meeting yesterday, there had been sent to the members of the Board before this meeting copies of a draft of letter for the signature of Chairman Martin to the United States Civil Service Commission, Washington, D. C., (Attention: Mr. Wilson Matthews), reading as follows: The Board of Governors of the Federal Reserve System planning to hold a hearing under section 9 of the Fedis Reserve Act with respect to the question of the adeoral quacy of the capital funds of a State member bank and whether the bank's membership in the Federal Reserve System should be terminated because of failure to increase its capital funds to an adequate amount. The Board, however, does not have on its staff any hearing examiners, because in the past it has only very occasionally had the need for them. In the circumstances, the Board of Governors would like to arrange, in accordance with the provisions of section 11 of the Administrative Procedure Act, for the temporary utilization of the services of a hearing examiner of another agency, preferably one who is qualified by training and experience in connection with hearings involving banking or related subjects. We will appreciate your cooperation in assisting us in making the necessary arrangements for obtaining such a hearing examiner to conduct the hearing above mentioned. In response to a question, Mr. Vest stated that if the letter were sent, the exact procedure to be followed in completing the arrangements for obtaining a hearing examiner would depend on the response received from the Civil Service Commission, and that through this procedure 9,C73 7/11/56 -8- the record would show clearly that the selection of the hearing examiner had not been made by the Board of Governors. Thereupon, the letter was approved unanimously. In accordance with the procedure agreed upon at yesterday's meeting, there had been sent to the members of the Board an alternative draft of letter to the Federal Reserve Bank of Minneapolis which would respond to a request for the Board's views on a form of savings certificate proposed to be issued by Midland National Bank of Minneapolis. The alternative draft would take the position that, assuming that the certificate would be used only for deposits of persons of the classes whose deposits may be classified properly as savings deposits, a deposit evidenced by such a certificate would be eligible for classification as a savings deposit under the May 16, 1955, amendment to section 1(e) of Regulation Q, Payment of Interest on Deposits. After some discussion, agreement was expressed with a suggestion that final action on the matter be deferred until next week when Governor Mills could be present. Mr. Vest stated that although his comments should not be interpreted as representing an objection to the alternative draft, he wished to point out that adoption of the position taken therein would amount to what might be termed a change in the Board's previous position. It 1374 7/11/56 -9- involved, he said, the question whether it would be permissible to have a savings deposit with a fixed maturity, as distinguished from a running maturity subject to not less than 30 days' advance notice Of withdrawal. This was a question which he believed the Board had not passed on to date. He went on to say that the practical effect of holding that deposits made in accordance with this particular instrument might be classified as savings deposits and could carry 2-1/2 per cent interest was that if the Board should be asked whether a deposit with a regular recurring maturity, for example, every 30 days, could be classified as a savings deposit, the Board presumably would have to reply in the affirmative. That would mean that such a deposit could carry 2-1/2 per cent interest notwithstanding that Regulation Q contains a schedule of maximum rates for time deposits. Such a position would seem to imply that for the classes of persons for whom banks may open Savings accounts, the maximum rate of interest payable would in effect always be the maximum rate prescribed for savings deposits. At this point Chairman Martin joined the meeting and Messrs. Sloan and Shay withdrew. Mr. Vest reported receipt of a telephone call yesterday from a staff member of the office of Senator Watkins, of Utah, who wished to discuss the bank merger bills pending in the Senate. As Mr. Vest I 375 7/11/56 -10- understood the status of those bills, the Celler bill had been reported favorably by a subcommittee of the Senate Judiciary Committee but had not yet been acted on by the full Committee. According to the repre- sentative of Senator Watkins' office, that bill probably would be acted on favorably next Monday. The Fulbright-Capehart bill (S. 3911) had been reported by the Banking and Currency Committee, certain amendments proposed by Senator Douglas having been defeated. Those amendments would have provided that the Federal banking agencies must seek the views of the Attorney General with respect to every bank merger, and they would have changed the references in S. 3911 to an "undue" lessening of competition to a "substantial" lessening. In addition, they would have provided that if the Attorney General objected to a proposed merger, the banking agencies could not consent to it. It was reported, Mr. Vest said, that Senator Watkins would like assistance in drafting an amendment to the Celler bill which he wished to present on the floor of the Senate. The amendment would remove from that bill any effect on banks and bank mergers and in lieu thereof would incorporate the language of S. 3911 except for changes to give effect to the first two of the amendments proposed in committee by Senator Douglas. Governor Balderston reported having received a telephone call this morning from Comptroller of the Currency Gidney, who said that the 1376 7/11/56 -11- Comptroller's Office also had been asked for drafting assistance, that he would like to have the Board's views, and that in his opinion the Federal banking agencies should stand on the position expressed in testimony concerning S. 3911 before the Banking and Currency Com,mittee. Mr. Cherry stated that he had talked with a member of the staff of the Banking and Currency Committee who expressed the opinion that it would not be advisable to offer drafting assistance in response to the request that had been received. The staff member pointed out, he said, that ample drafting facilities were available within the organization of the Senate. Following a discussion, during which agreement was expressed with the view that it would not be advisable to be drawn into the drafting of compromise legislation, it was suggested by Chairman Martin that Governor Balderston propose to Mr. Gidney that they arrange an appointment with Senator Watkins to explain the position of the Board and the Comptroller's Office. There was unanimous agreement with this suggestion. Mr. Cherry stated that the House Banking and Currency Committee intended to begin hearings next Monday on Bill S. 256, relating to cumulative voting of stock for the election of directors of national banks, 1377 7/11/56 -12- that the Board would not be called upon to testify, and that he had furnished the Committee a copy of the letter on the bill sent by the Board to the Senate Banking and Currency Committee on February 16, 1955. Mr. Cherry also reported having talked with Mr. William Pincus, Associate General Counsel of the House Committee on Government Operations, regarding the latter's recent visit to the Federal Reserve Bank Of New York to observe Government securities operations. He said it developed that Mr. Pincus was accompanied on the visit by an attorney for the General Accounting Office on loan to the Committee, that both men seemed impressed by the efficiency of the procedures at the Reserve Bank, and that it appeared they were not going to prepare a report covering the visit. He also said that Mr. Pincus would like to make another visit during the time of the forthcoming Treasury refunding operation but doubted whether he could get away at that time. With reference to the reports given by Messrs. Exter and Marget earlier in this meeting, it was suggested that Mr. Exter be asked to furnish copies of his remarks for distribution to the members of the Board. In this connection, Governor Vardaman expressed the view that all members of the Board's staff who traveled abroad on official business should be requested to prepare written reports which could be studied by the members of the Board. The meeting then adjourned. 2 7/11/56 —13Secretary's Note: On July 10, 1956, Governor Balderston approved on behalf of the Board the following letter to Mr. Wiltse, Vice President of the Federal Reserve Bank of New York, which was sent today: In accordance with request contained in your letter of July 2, 1956, the Board approves the appointments of Thomas R. Heffernan and F. Russel Lyons, II, as assistant examiners for the Federal Reserve Bank of New York, Please advise as to the dates upon which the appointments are made effective, and as to salary rates. It is noted that Mr. Heffernan's indebtedness to The First National City Bank of New York, has been reduced to approximately $600 and it is understood that this loan will be refinanced elsewhere as soon as he takes title to his new home. Approval of Mr. Heffernan's appointment is given with the understanding that he will not be authorized to participate in any examination of the national bank until his indebtedness has been eliminated, and with the further understanding that if the loan is transferred to another bank he will not participate in any examination of such bank until his indebtedness to that bank has been liquidated or otherwise eliminated.
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