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Minutes for To: July 12, 1960 Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, 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. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System ()/1 Tuesday, July 12, 1960. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mr. Sherman, Secretary Mr. Hackley, General Counsel Mr. Farrell, Director, Division of Bank Operations Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration Mr. Hexter, Assistant General Counsel Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Daniels, Assistant Director, Division of Bank Operations Mr. Nelson, Assistant Director, Division of Examinations Mr. Goodman, Assistant Director, Division of Examinations Mr. Landry, Assistant to the Secretary Mr. Hooff, Assistant Counsel Discount rates. The establishment without change by the Federal Re8erve Bank of Minneapolis on July 8, 1960, and the Federal Reserve Of Boston on July 11, 1960, of the rates on discounts and advances 14 their existing schedules was approved unanimously, with the under'Ettlding that appropriate advice would be sent to those Banks. tjit Items circulated to the Board. The following items, which had bee," circulated to the Board and copies of which are attached to these 411114tes under the respective item numbers indicated were approved 111:11011/nously: 7/12/60 -2Item No. Letter to the Federal Reserve Bank of Boston approving continuation of the payment of salary to an employee of the Fiscal Agency Department through September 30, 1960, at a rate below the minimum of the grade in which his Position is classified. 1 Letter to the Granite City Bank, Elberton, Georgia, "Proving its application for membership in the Federal Aeserve System. 2 Letter to the Jeff Davis Bank & Trust Company, Jennings, Ltpuisiana, granting its request for permission to exercise fiduciary powers. 3 Letter to the Federal Reserve Bank of Minneapolis roving the payment of salary to a Vice President, will be assigned to the Helena Branch, at the 44te fixed by the Board of Directors. 4 Letters to the Federal Reserve Banks of New York ara iladelphia regarding reports of condition as of 30, 1960, to be obtained from foreign banking —4 foreign financing corporations. 5 and. 6 Letter to the Presidents of all Federal Reserve Banks : . J ing section 204.3(b) of Regulation D and expressthe view that an average deficiency in reserves :es not occur until the expiration of the last day of b_reserve computation period and that the penalty should related to the discount rate in effect on the first of the calendar month in which the computation period 7 p 4 With respect to Item No. 2, a letter to the Granite City Bank, 81bert0m, Georgia, approving its application for membership in the ecieral Reserve System, Governor Mills noted that there had been some Itlestion about the quality of this bank's management. He inquired 1?hether the board of directors of the bank was fully cognizant of the '5'71 7/12/60 -3- Inatlaigement situation. Mr. Nelson replied in the affirmative, adding that the bank had raised additional capital through a sale of stock last year to correct a capital deficiency problem. Messrs. Johnson, Conkling, and Goodman then withdrew from the meeting. Application of Punta Gorda State Bank to convert into a national bezaing association (Item No. 8). A draft of letter to the Comptroller °f the Currency had been circulated that would recommend favorably with liespect to an application of Punta Gorda State Bank, Punta Gorda, FlorIda) t convert into a national banking association. Governor Mills recalled that in April of 1959 the Board had l'ecommended disapproval of a similar application from this bank. He 4c3ted that the Punta Gorda State Bank was one of a group of banks owned by the McNulty family and that there was some question concerning the e0111Petence of management of the bank. Mr. Nelson replied that the Division of Examinations had recomrile4ded adversely on the January 1959 application because at that time the bank was undercapitalized and the management was of poor quality. flee that time, the bank has taken steps to correct its capital situtl011 and its assets were of good quality. 1:11'0b1ettl still remained. 44 However, the management He referred to the fact that the Federal Reserve of Atlanta had recommended approval of the present application "'ject to approval by the Comptroller's Office of the bank's plans to 7/12/60 rove its capital position and provided the mannegment factor could be worked out on a basis satisfactory to the Comptroller of the Currency. Following further discussion, the letter to the Comptroller of the Currency recommending favorably with respect to the application of Planta Gorda State Bank, Punta Gorda, Florida, to convert into a national baaking association was approved unanimously. A copy of this letter le attached to these minutes as Item No. 8. At this point Mr. Thomas, Adviser to the Board, joined the meeting. Request for hearing re proposed merger of banks in Jackson and -tia* ---urstt_Mississippi (Item No. 9). Under date of July 5, 1960, a tenlorandum from the Legal Division had been circulated submitting a &raft of letter to Watkins & Eager, Jackson, Mississippi, regarding the reqtest of Merchants & Planters Bank of Hazlehurst, Hazlehurst, Mississippi, t°4* a hearing to present evidence in opposition to the proposed merger ot beposit Guaranty Bank & Trust Company of Jackson, and the Bank of ikzlehurst. or the The proposed letter would point out that section 18(c) Federal Deposit Insurance Act, as amended by Public Law 86-463, 64)131*()1red May 13, 1960, does not require hearings, and that the Board not contemplate that ordinarily hearings would be held with respect aPPlications for its consent under the law. The letter would go 4 to state, however, that the Board might decide that special circumIltEulces in a particular case would justify the holding of a hearing. ,t(t• 1.1 7/12/60 _5... Governor Mills raised the question whether the Board wished to place itself in the position of "extending a hand of welcome" for the holding of a hearing in this case, particularly in view of the fact that this would break with established precedent. In the discussion of this and related points that ensued, certain changes in the letter to Watkins & Eager were agreed upon. The letter was then approved in the form of attached Item No. 9. Mr. Hexter then withdrew from the meeting. Letter to the Secretary of the Treasury concerning coin shortages There had been distributed copies of a draft of letter t° the Secretary of the Treasury concerning suggestions made by the ec)nference of Preside nts of the Federal Reserve Banks during its meeting Ittn. the Board on June 14, 1960, as to the need for a long-range program t° avoid recurrences of the present shortages of coin. The letter would State that the Board believed the suggestions made by the Presidents h8.4 considerable merit and that the views of the Secretary in this regard 1c)111(1 be appreciated. During a discussion of the letter, Governor Robertson pointed ot that since 1956, when this same problem was discussed with the ' — 11-17, Reserve Bank vault facilities for the storage of coin had been. enlarged and each Bank now had adequate space for storing coin. Several changes in the letter having been suggested and agreed 11%4, it was then approved in the form of attached Item No. 10. * 7/12/60 -6Meaning of the term "dividend" as used in section 5199(b) of the Revised Statutes (Item No. 11). A memorandum dated July 11, 1960, from Mr. Hooff had been distributed attaching a draft letter to the Federal Reserve Bank of Chicago agreeing with that Bank's conclusion that the purpose of section 5199(b), as amended September 8, 1959, is to prevent the depletion of the capital structure of a bank bY the payment of excessive dividends. In contrast with the opinion e Pressed by Reserve Bank counsel, however, the draft letter would take the position that, since a stock dividend does not result in the distribution of cash or other assets, the term "dividend" in this Statuteshould not be construed as including stock dividends. conse_ cletitlY, the position was taken that the Board's approval of the declaration of a stock dividend by a member bank was not required. Mr. Hooff observed that this subject was discussed with Mr. liglert, Chief Counsel, Comptroller of the Currency, who agreed with the conclusion set forth in the draft letter to the Reserve Bank. Unanimous approval was then given to the letter to the Federal ,rve Bank of Chicago agreeing with its conclusion that the purpose 3 eet40n 5199(b) of the Revised Statutes of the United States, as 1.cled September 8, 1959, is to prevent depletion of the capital .tr*tieture of a bank by the payment of excessive dividends, but indicEiti lig that the Board does not consider the term -dividend" in this tatut e as including stock dividends. It was understood that notice 7/12/60 of this -7ruling would be published in the next issue of the Federal Reserve Bulletin and in the Federal Register. A copy of the letter IS attached as Item No. 11. Mr. O'Connell, Assistant General Counsel, entered the meeting et this point and Messrs. Daniels and Hooff withdrew. Continental Bank and Trust Company (Item No. 12). distributed of a memorandum dated July 11, Copies had been 1960, from Mr. O'Connell attach- ltlig a draft of letter to the attorney for The Continental Bank and Trust Cc4211)8AY, Salt Lake City, Utah. The draft letter would reply to the tta elliama" of said attorney made in his letter of July 6, 1960, that he be t4rIllehed copies of all Board staff and other memoranda submitted to the tow..4 since the record of this case was closed in November 1958. • letter This would state that the attorney's information as to "a group of memo- regarding the legal and (supervisory) matters under this case" having beell Presented to the Board by its Legal and Examinations Divisions was et3rrect but that his information that "the Board has received, since the reert ' 41 in this case was closed, and is now considering, additional memoreJr134% from other outside sources with respect to the issue involved in tilts case" was incorrect. Governor Balderston inquired whether it might not be desirable to °/7illt reference in the proposed letter to legal citations supporting the l 'tion taken by the Board. Mr. O'Connell replied that should such legal citations be °Irlitted it could lead to conjecture by the attorney whether his demand 48 legitimate so far as the material presumably received by the Board 7/12/60 -8- from outside sources was concerned. He went on to say that since the attorney for Continental Bank had used the legal term "demand" in his letter to the Board, the Board would be well advised to answer 14 similar vein. Governor Mills said that it was his feeling the legal citat10I15 should be left in the letter in view of the fact that during the history of this case so many references to legal decisions had been drawn into consideration. He thought it advisable for the Board t° Protect itself against a charge of being arbitrary and capricious 14 this matter. He then raised the question whether the receipt by the Board of reports of examination of Continental Bank might not NIcIse the Board to the charge that these constituted "additional reMoranda from other outside sources" besides the Board's Legal and )(81111nations Divisions. He noted that counsel for Continental Bank 484 repeatedly requested access to examination reports of that bank, IDe`tticularly the confidential memoranda accompanying such reports. Mr. O'Connell replied that the letter to the attorney for a°11t 4nental Bank could be changed to read: "Except for the Usual h44k supervisory reports, including reports of examination of this 1/114k, at no time since the closing of the record in this case has the to its knowledge, received memoranda with respect to this case from anY 'outside sources including but not limited to the legal and exekinetions divisions of the various Federal Reserve banks'; nor has 'l'equest been made of any such outside sources for such memoranda. 449 7/12/6o -9Following further discussion it was agreed that this change be made and that the letter be sent to the attorney for Continental 13821k, with the understanding that the legal citations should be left in the letter. The letter was then approved in the form of attached Item No. 12. Standards for classifying cities for reserve purposes and for 6ranting banks permission to carry lower reserves. Chairman Martin referred to the discussion at the meeting on June 29 of the material 13resented in the staff memorandum dated June 23, 1960, that embodied v6tr1ous facts as to a number of different standards for classifying cities for reserve purposes and for granting permission to banks in l'eserve or central reserve cities to carry lower reserves. He noted the importance of exploring every avenue and idea pertaining to the 111'°151en of reserve requirements in view of the rapid approach of the season when it might be advisable to introduce certain of the oPosed changes. A discussion then followed regarding the possibility of changing the standards for classifying cities for reserve purposes without raising l'eserye requirements for particular banks and of the desirability of Qcniilig to at least a tentative decision regarding the several related 4-ems by early fall of this year. The meeting then adjourned. 2.1I 7/12/60 -10Secretary's Note: Governor Shepardson today approved on behalf of the Board a memorandum from Mr. Kelleher, Director, Division of Administrative Services, recommending the appointment of Loreto J. Clavelli as Supply Clerk in that Division, with basic annual salary at the rate of $3,500, effective the date of entrance upon duty. Secretary Item No. 1 7/12/60 BOARD OF GOVERNORS 010004 _ ,q 0711,44 4% OF THE FEDERAL RESERVE SYSTEM .0 WASHINGTON 25, D. C. AOORICIIII arriciAL CORMICIPPONOCNCII TO THC BOARD 400,0*- July 12, 1960 AL FR C°14P---. 1)1;NT-1--..LI Ur. D. H. Angney, Vice President, Federal Reserve Bank of Boston, Boston 6, Massachusetts. Dear Mr. Angney: In view of the circumstances described in Mr. 'Walker's letter of December 22, 1959, and his recent telephone conversa. tioap the Board of Governors approves the continuation of the RaYment of salary by the Federal Reserve Bank of Boston to :F. Richard T. Burns, Registered Bond Examiner, Fiscal Agency uepartment, through September 30, 1960, at the rate of $4,000 Per annum. It is noted that this rate is $120 below the minimum of Salary Grade 8 in which his job is classified. 4 The Board understands that the Bank expects to work out solution during the extended period. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. 2 7/12/60 BOARD OF GOVERNORS r 44449,, OF THE FEDERAL RESERVE SYSTEM 414 t4 4 0 4 WASHINGTON 25. D. C. ) : 11 o 4 ADDRESS OFFICIAL CORRESPONDENCE : ' '1: i' 11 1M 444*** TO THE BOARD July 12, 1960 kaaxl of Directors, ,G,I:atite City Bank, tlberton, Georgia. Oelkemen: The Board of Governors of the Federal Reserve System approves them, the ;Plication of Granite City Bank, Elberton, Georgia, for stock in herederai Reserve Bank of Atlanta, subject to the numbered conditions after set forth: 1, Such bank at all times shall conduct its business and exercise its powers with due regard to the safety of its depositors, and, except with the permission of the Board of Governors of the Federal Reserve System, such bank shall not cause or permit any change to be made in the general character of its business or in the scope of the corporate powers exercised by it. at the time of admission to membership. 2, The net capital and surplus funds of such bank shall be adequate in relation to the character and condition of its assets and to its deposit liabilities and other corporate responsibilities. tl Lxa In connection with the foregoing conditions of membership, parNE4,1 attention is cplled to the provisions of the Board's Regulation H, ,%qite„,ming membership of State banking institutions in the Federal Reserve gegilfa:Lvith especial reference to Section 7 thereof. A copy of the `Ion is enclosed. 4 4114., It is noted that under its articles of incorporation the bank 'I ot4z,"orized to exercise fiduciary powers, deal in stocks, bonds, and y°,t 44:purities; guarantee payment of mortgages; and guarantee titles ;014ers estate, but at the present time is not exercising any of such t ta Should the bank at any future time desire to broaden the scope r'lleot.'°rPorate activities or exercise any powers not exercised at the ' 41bersh. admission to membership it will be necessary, under condition of 11) nUmbered 1, to obtain permission of the Board of Governors. BOARD Granite City Bank OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM -2 It is noted also that the canital of the bank was increased 1959 through the sale of 500 shares of common stock. however, elationship between total capital accounts and total assets other th' ieall cash and U. S. Goverment obligations remains below average. It ( ,Pected that efforts will be directed toward further strengthening theel) 'ank l s capital structure. . If at any time a change in or amendment to the bank's charter te nta, cott 'e, the bank should advise the Federal Reserve Bank, furnishing whejs of any documents involved, in order that it may be determined t4ieier such change affects in any way the bank's status as a member of 4'ederal Reserve System. Acceptance of the conditions of membership contained in this lettey, 41c1 - should be evidenced by a resolution adopted by the Board of Directors 4 is.Pread upon its minutes, and a certified copy of such resolution should riacielled with the Federal Reserve Bank. Arrangements will thereupon be Nciet° accept Payment for an appropriate amount of Federal Reserve Bank th to accept the deposit of the required reserve balance, and to issue 13ProPriate amount of Federal Reserve Bank stock to the bank. The time within which admission to membership in the Federal Pelr 30 6ve SYstem in the manner described may be accomplished is limited to - s from the date of this letter, unless the bank applies to the Board atIct j the : r tains an extension of time. when the Board is advised that all of Np( j liremeilts have been complied with and that the appropriate amount ,rozva,,e 2'al Reserve Bank stock has been issued to the bank, the Board will to the bank a formal certificate of membership in the Federal -ve System. The Board of Governors sincerely hopes that you will find 41•0114 in the System beneficial and your relations with the Reserve 4tstz ' ' t easant. The officers of the Federal Reserve Bank will be glad to Y°u in establishing your relationships with the Federal Reserve '°rra-o ncl at any time to discuss with representatives of your bank means .1.11C the services of the 3ystem most useful to you. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. BOARD OF GOVERNORS 3 7/12/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, 0. C. Aooptican arriciAL COPINESPONOENCE TO TN( 1110ANIO July 12, 1960 Board of Directors, Jeff Davis Bank & Trust Company, Jennings, Louisiana. Gentlemen: This refers to your request for permission, under applicable provisions of your condition of membership number 1, to exercise fiduciary powers.. Following consideration of the information submitted, the Board of Governors of. the Federal Reserve' System grants permission to the Jeff Davis Bank & Trust Comparw to exercise the fiduciary powers now or hereafter authorized by its charter and the laws of the State of Louisiana. Very truly yours, (Signed) Kenneth ,k. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2583 BOARD OF GOVERNORS Item No. 4 7/12/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS orrtciAL CORRESPONDENCE TO THE BOARD July 121 1960 coNFIDENTIAL (EE1 Ur. Frederick L. Deming, President, Federal Reserve Bank of Minneapolis, Minneapolis 2, Minnesota. Dear Mt. Deming: The Board of Governors approves the payment of salary to the following officer of the Federal Reserve Bank of MinneaP0118, for the period July 1 through December 31, 1960, at the !ate indicated, which is the rate fixed by your Board of Direc' 18 as reported in your letter of June 29, 1960: ' Name Clement A. Van Nice Title Vice President Annual Salary, $13,000 It is understood that Mr. Van Nice will be assigned to the Helena Branch and that Vice President Fossum will transfer to the Head Office. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNiLiRS Item No. 5 OF THE 7/12/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 12, 1960 noward D. Crosse, Vice President, ;:,ezieral Reserve Bank of New York, "ell York 45, New York. Dear Mr• Crosse: Enclosed are copies of letters calling for reports of cola . cation as of June 30, 1960, from the following foreign banking !!c.}foreign financing corporations in the Second District operating ieT the provisions of Section 25 and Section 25(a) of the Federal Re Act: r Bankers Company of New York Chase Manhattan Overseas Corporation International Banking Corporation The Gallatin Company, Inc. Bank of America Bankers International Corporation Bankers International Financing Company, Inc. Chase International Investment Corporation Chemical International Finance, Ltd. The First Bank of Boston (International) Morgan Guaranty International Banking Corporation Morgan Guaranty International Finance Corporation American Overseas Finance Company (In Liquidation) tt You will observe that the letters request that the reports for be submitted in duplicate to the Federal Reserve Bank for mittal to the Board of Governors. h Upon receipt of the reports it will be appreciated if you 4r i.,,,alre a proof made of the footings and obtain the correction of errors in the reports. Please forward the original copy otti7e vious reports to the Board and retain a copy for your files. 111,4 lon A complete review of the reports will be made in the Boardts 0I Examinations, and any correspondence which may be necesto has 4 result thereof will be initiated by the Board with a copy 11 'for your information. Very truly yours, --A Zilqoatire Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 6 7/12/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 12, 1960 11r. Joseph R. Campbell, Vice President, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pennsylvania. Dear lir. Campbell: Enclosed is a copy of a letter dated today, addressed O ,.D • haladelphia International Investment Corporation, calling '°r a report of condition as of June 30, 1960. You will ob!erve that the letter requests that the report called for be °Ilbmitted in duplicate to the Federal Reserve Bank for transMittal to the Board of Governors. Upon receipt of the report it will be appreciated if have a proof made of the footings and obtain the cortieletion of any obvious errors in the report. Please forward f, e original copy of the report to the Board and retain a copy your files. A complete review of the report will be made in the . becu.-u s Division of Examinations, and any correspondence which may vitflecessary as a result thereof will be initiated by the Board h a copy to you for your information. Very truly yours, 1. Kenneth A. Kenyon, Assistant Secretary. Item No. 7 7/12/60 S-1750 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 12, 1960. Dear sir: This letter supersedes the Board's letter of June 23, 1955 ther .7, F.R.L.s. #6124), and applies the same principle set forth eln to all member banks. (s_156 Inquiries were received in May 1955. with respect to reserve banks and recently with respect to country banks regarding an v:ZPretation of section 204.3(b) of Regulation D. The section prodes that penalties for deficient reserves shall be assessed at a rate Per cent above the discount rate in effect on the first day of Illictc'lendar month in which the deficiencies occur. The question is trlit ' oes a deficiency occur in the case of a bank that is deficient 3/1deLreserves during the computation period that begins in one month uus in the subsequent month. eity serves Since under the Regulation deficiencies in member bank re1,teeki are computed on the basis of average daily balances during l ej r or biweekly computation periods, any member bank may adjust its actis,:e balance on the very last day of a computation period by suitable 41a and thus avoid an average deficiency subject to penalty. Accord111k1/. 1 1st is the Board's view that an average deficiency does not occur a.rld that expiration of the last day of a reserve computation period the penalty sholOd be related to the discount rate in effect °11 erl4d- first day of the calendar month in which the computation period For example, a member bank having deficient reserves in the , 1101114 beginning June 30, 1960, and ending July 6 or July 13, 1960, assessed a penalty at a rate of two per cent above the Federal kly le Bank discount rate on 90-day commercial paper in effect on 3 1960. Very truly yours, 0 11) Merritt Secre ?RESIDENTS OF ALL FEDERAL RESERVE BANKS. Item No. 8 BOARD OF GOVERNORS 7/12/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 121 1960 Comptroller of the Currency, Treasury Department, Washington 251 D. C. Attention Mr. W. M. Taylor, Deputy Comptroller of the Currency. ear Mr, Comptroller: Reference is made to a letter from your office dated lState25, 1960, enclosing copies of an application of Punta Gorda as Bank, Punta Gorda, Florida, to convert into a national banking 8°ciation and requesting a recommendation as to whether or not the IPPlioation should be approved. A field investigation of the application has not been made, but the Federal Reserve Bank of Atlanta has furnished us with a report '° the application based upon the most recent examinations of the bank i 0n pe by the Federal Deposit Insurance Corporation. According to the ' °rmation available, this bank was reorganized in January 1934 and has eersted fairly satisfactorily since that time. It is reported that the 0rk plans to increase its capital structure by $100,000 through the sale wl ou dditional capital and in that event the bank's capital structure al„d be fairly adequate. The earnings of the bank have been good bor'inough the net amount retained has been low due to high salaries, ily ises3 and directors' fees. The present ownership and control of the ri,raitution by the McNulty family and the Estate of C. H. McNulty is ran,eIntttely satisfactory. While the management is reported as only Operations and condition of the institution appear satisfactory ail it seems to be meeting the needs of the community. After considering th° information available, it is believed that a favorable recommendatio, ; at would be justified providing arrangements are made for the capital uoture satisfactory to your office. The Board's Division of Examinations will be glad to discuss ktlY a dea, spects of this case with representatives of your office if you so "kre. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 4 BOARD OF GOVERNORS i0bl Cop Item No. 9 OF THE 7/12/60 t itt i . 11,' t , 3 FEDERAL RESERVE SYSTEM ct ki a470.0 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 120 1960 Mr. Thomas H. Watkins, Watkins & Eager, 800 Plaza Building, Jackson, Mississippi. Dear Mr. Watkins: This is in reply to your letter of June 28 with respect to a proposed merger of Deposit Guaranty Bank & Trust Company, Jackson, Mississippi, and Bank of Hazlehurst, Hazlehurst, Mississippi. The Board has also received a letter, dated June 10, from Mr. Newton Ellis, President of Merchants & Planters Bank, of Hazlehurst, which You represent in this matter. The Board has not yet received an aPplication for its consent to such a merger, but upon receipt hereof appropriate consideration will be given to the information and views in your letter and that of Mr. Ellis. You enumerate four reasons Why the merger should not be !PProved by the Board of Governors, and you state that Merchants & ers Bank requests a hearing and an opportunity to present eviQance in opposition to the proposal. As you are aware, section 18(c) of the Federal Deposit In surance Act, as amended by Public Law 86-463, approved May 13, 960, does not require hearings, and the Board of Governors does .1.c)t contemplate that, ordinarily, hearings will be held with respect aPplications for its consent under that law. The reasons presented in your letter for disapproval of the proposed merger are in the nature of conclusions and do not purort to present the factual basis therefor or the reasoning leading T;hereto. The first two of these reasons relate to factors that the !card of Governors, under section 18(c), is required to consider in ection with applications for its consent--namely, "the convenience and needs of the community to be served" and "the effect of the trans. ction on competition". Your statements that the proposed transaction not required by the convenience and needs of the community and ?at the proposed merger will lessen and eventually destroy competiI°n in Hazlehurst and tend to create a banking monopoly in that area Z 208 9 BOARD OF GOVERNORS OP THE FEDERAL RESERVE SYSTEM lir. Thomas H. Natkins are not sufficient to enable the Board to decide whether a hearing is justified. You may wish to supplement your letter with (l) the facts and reasoning underlying your conclusions and (2) as definitely 46 Possible, an indication of what further information you believe might be brought out at a hearing that would not be available to the Board from other sources. In accordance with your request, there is pnclosed a copy 0 the Board's Rules of Organization and Rules of Procedure. Very truly yours, 1 Merritt Sherman, Secretary. Znolosure BOARD OF GOVERNORS Item No. 10 7/12/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN July 121 1960. he Honorable Robert B. Anderson, l'eeretary of the Treasury, 4ashingt0n 25, D. C. Bear Bob: The Conference of Presidents of the Federal Reserve Banks, cilltIng a recent meeting with the Board, urged consideration of the lleed for a long-range program to avoid recurrences of the present e°111 shortages. From conversations with Mint representatives, the ilt'esidents were aware that relief of the existing situation could 11°*t be undertaken until the beginning of the new fiscal year on 1960, and that shortly thereafter the Mint hoped to be able to "eP up production enough to meet current needs. exPreased, The belief was however, that developments in the last three or four years ha e been such as to suggest the need for a comprehensive review of the al"rangements under which coin supplies are furnished the Reserve tikks0 Among the points that have been mentioned in various discus4 oh of coin shortages are that., recent years new construction and additions have increased l'he vault facilities of the Federal Reserve Banks and branches o the point where most offices are now in a position to hold amount of coin that the Hint might be able to place ttro Its-h The 2591 Honorable Robert B. Anderson -2. Fluctuations in the demand for coin seem to follow no set pattern and it is therefore difficult, even under the best of conditions, for the Federal Reserve Banks to predict their requirements. The recent growth in the number of coin collectors and in the activities of coin dealers, and the effect of other new factors.-such as the growth in suburban Shopping centers and in the use of vending machines and sales taxes, and the frequency of changes in the amounts of.such taxes--now make it practically impossible to estimate coin needs accurately. Coin shortages magnify themselves because there is a natural tendency to hoard whatever is scarce. There is some feeling that appeals to turn in surplus coin have, from the broad Point of view, more adverse than beneficial effect, since such actions tend to create a fear that coin released will be difficult to replace. Nearly complete exhaustion of stocks of certain denominations of coins held by the Mint and the Federal Reserve Banks, such as recently occurred, would be likely to cause serious dificulties in the event of a national emergency. For instance, -11? draft of Booklet No. 71 Emergency Currency Distribution, being prepared by the ABA Banking Committee on Ernergency Operations states: "No specific provision has been Made for building up supplies of coin for use during an -,Illergency. It is expected that coin needs can be supplied " - )cally from coin in circulation when an emergency occurs, at least until such time as additional supplies become _ vallable and can be placed in circulation under arrangements established by the United States Mint and the Federal Reserve Banks.n identification on coins of the place and year of mintage, ITie imbalance between the output of the Philadelphia and ,ever Mints, distribution problems, and the activities of S(1111 dealers and collectors have resulted in scarcities, sonle regional and some nationwide, of certain issues. These be aroities in turn have resulted in the issues concerned ,eing quoted at premiums that are fantastically high for QIIPPosedly currently circulating coins. The TN hav L'enver Mint mark and the year of issue on coins seem to had° Outlived whatever legitimate purpose they may have once „„ For instance, it would seem that coin issues could be Zfectively identified for control purposes by adopting a whte series (carried over for several years and changed only 04r appropriate) similar to the procedure used for dating 0 ,renoY issues. Such a procedure would eliminate premiums - current coins. 952 •-• The Honorable Robert B. Anderson -3- In addition to causing much inconvenience and some hardship to the business community, coin shortages and attendant premium values have raised doubts about the integrity of the administration of Federal Reserve responsibilities. Since, With the exception of minimal issues through the Treasury Cash Room, all coin is issued through the Federal Reserve Banks, coin users naturally feel that it is the responsibility of the Reserve Banks to be in a position to supply their needs. Letters from Congress and other sources have strongly Indicated that the public in general finds it difficult to understand why the Federal Reserve Banks cannot comply with requests for new coin, particularly when coin dealers have been able to get such coins by means beyond the ability of the Federal Reserve Banks to control, and are offering them at a substanti al premium. It is the System's hope that some arrangement can be worked °lit for a coin production schedule that will permit the stocking of a reserve supply of coins which could be used to meet unexpected demands SlIch as have developed this spring. able e Storage The System is willing to make avail- for this purpose, and to absorb the cost of rfic'ilitig coin supplies from one Federal Reserve office to another if that necessary. While storage of new coins might create temporary scar- IL.t' ' l es of some issues if the present arrangement of identifying coins Ithe Year and place of mintage were continued, this problem could be by the discontin uance of these identifying characteristics. The System is concerned, as I am sure you are, about the efof coin shortages and hopes that steps of one kind or another can he t4lcen to avoid them, particularly since it is understood that the G°1rel'IlMent receives a net profit on all coins minted. We would appre- te Y°ur views as to the possibilities in this regard. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. 2f3f4: Item No. 11 7/12/60 BOARD OF GOVERNORS 4 004140._ OF THE FEDERAL RESERVE SYSTEM * WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 12, 1960 ,re Hugh J. Helmer, Vice President, Federal Reserve Bank of Chicago, Chicago 90, Illinois* Dear Mr. Helmer: This refers to your letter of June 30, 1960 requesting .,11s Board's opinion as to whether section 5199(b) of the Revised Statutes of the United States, as amended September 8, 1959, re. CoTLIbee the approval of the Board of Governors for the declaration le. 4 stock dividend by a State member bank in an amount which ,,v1.04 exceed the total of net profits for this year combined with s retained net profits of the preceding two years. This statute Made applicable to State member banks by the sixth paragraph of etion 9 of the Federal Reserve Act. r The Board agrees with your conclusion that the purpose tlh.:448 provision is to prevent the depletion of the capital struc. ei7 of a bank by the payment of excessive dividends. Since a assek dividend does not result in the distribution of cash or et, ts, the Board does not consider the term "dividend" in this 41p,stAJte as including stock dividends. Consequently, the Board's Prt/vaa for the declaration of a stock dividend is not required. This position is consistent with the Board's interpretatio), vhi,k- of a similar statute, section 5144(s) of the Revised Statutes, c4.6-. Provides that a holding company affiliate shall, in its applifor a voting permit, "agree that thenceforth it will declare , ads provi ' e only out of actual net earnings." In administering this til 4°n, the Board's form of application (Form P-1) only requires arvu,the applicant agree that it will not directly or indirectly, by : the eviee whatsoever, declare, pay, or set aside any dividend other tuaa a stock dividend, unless and except to the extent that the ac. Ilet earnings o the applicant are sufficient therefor. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretarye . 04,1 Item No. 12 7/12/60 BOARD OF GOVERNORS 0012**4.4 iblt(14 CO4'44 OF THE y `q.i.4 lits `'er'1;" FEDERAL RESERVE SYSTEM 4 .. P* a4 * 0 0 0.0 1111.... WASHINGTON 25, D. C. 4°!tS4te:" tt 444*** ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 12, 1960. MAIL - CERTIFIED ILLTIJIM RECEIPT REQUESTED Peter W. Billings, Esq., IPabian a Clendenin, Co ntinental Bank Building, Salt Lake City 1, Utah. pear Mr. Billings: Reference is made to your letter of July 6, 1960, in c°11nect' co „, lon with the proceedings before the Board involving The acgt,zeonae;. Bank and Trust Company, Salt Lake City, Utah, wherein for Respondent, you demand that "respondent be furnished es of all memoranda pertaining to the issues in this matter subLed to the Board since the closing of the record from its legal 11( examinations divisions and from all other outside sources, intheding but not limited to the legal and examinations divisions of the0-refore. 1 U8 " Federal Reserve banks, together with copies of all requests O Z Your information as to ua group of memoranda regarding the leCal to tieand [supervisory] matters under this caseu having been presented Board by its Legal and Examinations Divisions is correct. Your ca:mation that "the Board has received, since the record in this othe was closed, and is now considering, additional memoranda from is °utside sources with respect to the issue involved in this easel! i4,-"correct. Except for the usual bank supervisory reports, includoe4.1!eP°rt3 of examination of this Bank, at no time since the closing ' nleo e record in this case has the Board, to its knowledge, received ine I3anda II with respect to this case from any "outside sources includVari,ut not limited to the legal and examinations divisions of the 110,-118 Federal Reserve banks"; nor has any request been made of any " °Iitside sources for such memoranda. if As to the memoranda from its Legal Division and Dilsior accurat ri tealdrinations, the Board, with a view to a full and e underp, 11 of theDro record made during the hearing, directed its staff to to eZ° memoranda containing analyses of the entire hearing record, 'er with views as to the Board's statutory responsibilities in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Peter W. Billings) isci• -2- „:elaton to this matter. These were furnished the Board as directed. ue 20ard representative, officer, employee, or agent who, to any deee or in any respect, participated in the preparation for or conLuct of the hearing in this matter, assisted in, contributed to, or lias consulted about the memoranda prepared for the Board's assistance 2.1 revieiring the record in this case. sidThe voluminous record presented to the Board for its coneration reflects the many legal and factual issues that were raised these proceedings. The bulk of material presented by the parin support of their positions indicates this fact. Contrary to apparent position in this regard, the Board here affirms its i,e1 right to avail itself of the services of qualified members of e's staff in familiarizing itself with the material evidence in the bacerd and in arriving at the findings uhereon its conclusions will be „Jed. Furthermore, inasmuch as the memoranda in question are approately a part of the Board's decisional procedure, they are not subor available on demand for the same by. Respondent. The Board Os support for this position in the following language of the United Court of Appeals for the Ninth Circuit in Pierce v. Securities Commission, 239 F.2d 160, 163 (1956): 0 T 'Petitioner further suggests that the Commission relied upon a 'digest' of the record prepared by its staff. In this matter the opinion of the Court in Norris 8: Hirshberg, Inc., v. Securities and Exchange Commission, 1947, 82 U.S. App. 1-13 C. 32, 163 F.2d 689 693, certiorari denied 1948, 333 U.S. u07, 68 S.Ct. 788, 92L.Ed. 1145, is relevant. The Court 1 stated, * * An administrative agency, such as the respondent here, may utilize the services of subordinates to sift and analyze the evidence received by the trial examiner and subsequent use by the agency of a written resume of that sifting and analyzing is a part of its internal decisional process which may not be probed on appeal. 1* * * We are not concerned with the manner in which the Commission gives consideration to the record; it is enough if it certifies that consideration has been given and that its findings arise therefrom * * *.t (Footnote citations omitted.)” These the u eases merely reiterate the principle implicit in the decision of 4U9. t41,ited States Supreme Court in United States v. liorgan, 313 U.S. ' S.Ct. 999 (19)41), that reliance by a Government agency on an BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Pe 1. Billings, Esq. l,/ris of an administrative record prepared by its staff, a copy all orai 15 not furnished the Respondent in the case, does not violate due Process of law. Your Accordingly, the Board denies the demand as contained in letter of July 6, 1960. Very truly yours,. (Signed) Merritt Sherman Merritt Sherman, secretary. eet Bolling R. Powell, Esq. Barron K. Grier, Fe8C1* •
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