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Minutes for To: July 13, 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 Vith 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 vIth 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 on Wednesday, July 13, 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. Nelson, Assistant Director, Division of Examinations Mr. Goodman, Assistant Director, Division of Examinations Mrs. Semia, Technical Assistant, Office of the Secretary Mr. Hooff, Assistant Counsel Items circulated to the Board. The following items, which had been circulated to the Board and copies of which are attached to these 141111-1tes under the respective item numbers indicated, were approved Item No. ItZer to the Valley Bank and Trust Company, Springto Massachusetts, approving an extension of time establish a branch at 82 North Elm Street, Westfield. 1 Let p er to The Chase Manhattan Bank, New York City, Etp! 37; °ving the continued operation of its branches at 19E 2 al Street and 43 Exchange Place until December 31, ter vi•Apro—,to the Nassau Trust Company, Glen Cove) New York, : Averl .ng the establishment of a branch at 97 Forest 3 Letter to the Bankers Trust Company, New York City,Park ' l °ving the establishment of a branch at 280-290 e.entle 4 7/13/60 -2Item No. Letter to the First Bank and Trust Company of South Bead, South Bend, Indiana, approving the establishment of a branch in Roseland. 5 Letter to the Commercial State Savings Bank, Greenville, chigan, approving the establishment of a branch at best Second Street, Trufant. 6 1.etter to the County Bank of Santa Cruz, Santa Cruz, .;alifornia, approving the establishment of a branch in Aptos. 7 ,etter to the Federal Deposit Insurance Corporation regardthe application of Home Bank, Compton, California, r continuation of deposit insurance after withdrawal °D1 membership in the Federal Reserve System. 8 L:tter to Bank of America, New York City, transmitting TeP'rts of examination of its Guatemala Branch and c;.Et Torre Agency, both in Guatemala City, Guatemala, as f the close of business April 23, 1960. 9 Proposed national bank at McLean to Virginia. A draft of letter the Comptroller of the Currency had been circulated in regard to an el)lication to organize a national bank at McLean, Virginia. The 15r0Posed letter recommended disapproval of the application on the ground ths.4 here did not appear to be sufficient need for a new bank, in view °t the fact that two branches of other banks were providing banking " Iqces for the immediate area. The Federal Reserve Bank of Richmond recommended disapproval of the application on the same ground. Governor Robertson expressed disagreement with the recommendatiomi for disapproval. He stated that every factor was favorable, and he t hought it was inconsistent to say that there was no need for the 7/13/60 -3- ProPosed institution and at the same time to say, as did the report 04 the application, that the bank could operate profitably. The intended management of the proposed bank was good and he did not believe that the Board would be justified in turning down the organWho were willing to risk their investment. Governor Mills said that he agreed with the view expressed by Governor Robertson. He observed that the Board had sometimes dis- proved branch applications that it considered premature in order t° avoid having a branch pre-et a good location. In the present case he thought the Board would not be justified in recommending dis%31'ov5.1 of an application by a group of responsible people who were 14111ing to risk their investments on the prospect that a growing area '4'ula continue to grow and would comfortably support the proposed inst itution. Mr. Nelson stated that the Vienna Trust Company had a branch 14 McLean and the Fairfax County National Bank was in the process of °Petilng one. It was believed that those two offices could handle the cckiaable business, in addition to which there were offices of three other b anks within four miles of McLean. In spite of the fact that va, .Q estimated that the proposed bank could obtain 4 million in P°sit8 within three years, he felt that there was a lack of need tor , because the present offices could take care of the community. Governor Robertson reviewed various information that had come 41k that indicated that substantial expansion could be expected • '4+,0 7/13/60 -4- in the McLean area during the next few years, especially because of the coming occupation of the Central Intelligence Agency's headnow under construction and the opening of the new airport at nearby Chantilly. He thought there was no basis for denying the °PPortunity to the investors who believed that the expected expansion Presented a good prospect for a bank, especially since approval of thei, application would not hurt any other bank. Mr. Nelson agreed that considerable growth was expected in the McLean area and that in the future there would be room for another bank, but he thought that as of now there was not a real need. As a 1111Itter of fact, he thought that the opening of the new branch of the ?aill'ax County National Bank would cause a slightly over-banked condition in the immediate future. He pointed out that many of the people ho live in the McLean area work in Washington and have banking connections there. Mr. Hooff noted that the proposed letter to the Comptroller of the a urrency would recommend that the application be denied on the .4)It'°1111ds that there was not sufficient need for another bank at this time • He stated that, from the legal standpoint, a "lack of need" t(Ix' a' bank did not constitute a satisfactory basis for denial of an el°Plication when all other factors were favorable. Governor Shepardson said that, with great expansion expected 14 the t erritory, he did not see why the organizers who saw an Oil 26 7/13/60 -5- °PPortunity in that growth should be denied a chance to take advantage °f the situati on under the circumstances that appeared to exist. Governor Balderston stated his belief that an important point that if the proposed bank were established, a wider choice of banking facilities would be available. It was understood that, in accordance with customary practice, the Federal Reserve Bank of Richmond would be notified that the Board ves considering recommending approval of the application, so that the Reserve Bank might have an opportunity to submit such further comments 48 it might desire in support of its unfavorable recommendation. Proposed merger in Reading and Mount Penn, Pennsylvania. The Feaeral Deposit Insurance Corporation had requested a report by the 13eard 04 the competitive factors involved in the proposed merger of Mt. Pena Trust Company , Mount Penn, Pennsylvania, into and with Berks CcAlrity Trust Company, Reading, Pennsylvania. A suggested report had been di stributed to the members of the Board with a memorandum from the 'Division of Examinations dated July 1, 1960. Mr. Nelson stated that Berks County Trust Company, the largest batik in Reading, now has about 35 per cent of the deposits of all banks ill -the county and 22 per cent of the offices. If the merger took place, it vouia have per cent of the deposits and 24 per cent of the offices. 39 Irll'elation to banks in Reading only, its deposit holdings would be 7/13/60 -6- increased approximately from 46 per cent to 51 per cent. There would be a definite lessening of competition because the merger would remove °Ile bank entirely, but there would be competition remaining in the area. The Division of Examinations did not feel that the merger would result in a material trend toward monopoly. Governor Robertson stated that the anticipated results of the 111"ger in the city of Reading were more significant than those in the e°114tY as a whole. He pointed out that the Berks County Trust Company ras1 already correspondent for all of the 13 banks in the county and that With the merger it would hold 51 per cent of the deposits in the eitY. He then suggested certain changes in the wording of the conclusion of the proposed report. Mr. Hackley stated that the bank merger law apparently contemplated that reports on competitive factors would take into account not °1115r banks but also competition with savings and loan associations. He 4°ted that there were five relatively large associations in the area. Mr. Nelson indicated that while savings and loan competition 1148 act by. --ought out in the conclusion, it was mentioned in the body of the report. After a discussion of changes in the wording of the conclusion, the re 1/°rt was approved for transmission to the Federal Deposit Insurance e°1"Pcrati --on. The conclusion in the report as approved read as follows: The proposed merger would obviously diminish competition beeause it would result in the elimination of one competing tin -ancial institution. It would increase the resources of the 7/13/60 -7- largest bank in the area and provide it with another office to enhance its already strong competitive position. Governor Mills cautioned against placing too much reliance on Pereentages of deposits and offices in considering reports on cappetittve factors involved in mergers. He believed that if all the cases the Board had considered were reviewed, a comparison of percentages 444 reveal a number of inconsistencies in decisions. Mr. Rackley commented that in the past the use of percentages 14 Connection with measuring banking concentration had been emphasized 48 being _ nly a screening device or an indication, and that percentages 811°104 not be given conclusive weight. Governor Robertson expressed the view that percentages were n eeded to paint the picture, but of course they should never be used Ete the only basis for a conclusion. Governor Mills inquired about the prospective volume of merger ettses coming before the Board. He indicated that some of them would 1:ll'es'ulliably require attendance by as many Board members as possible, thieh alight be difficult in the coming weeks. He noted that the American tatlk"had recently reported figures on cases that had been decided by he thliee supervisory agencies, among which the Board was notable for its absence. Mr. Nelson reviewed the status and volume of pending cases, and R.„,— '''-LeY observed that when the merger law was passed the Office of 2 OA 7/13/60 -8- the Comptroller of the Currency already had a number of applications Psending, which the Board did not. Visit by Mr. Stoddard and Mr. Alley. that P14- Chairman Martin stated Haward J. Stoddard, President of Michigan National Bank, elld Mr. James B. Alley, attorney for the bank, had visited his office ' 144 12, 1960, to discuss the rates of interest payable on time and savings deposits under the Board's Regulation Q. They had emphasized the Problem of competi tion from savings and loan associations and had 131'°11ght a number of advertisements by such associations, some of which vere Clearly of an undesirable nature. Mr. Stoddard had indicated that during the months since he had first approached the Board about an increase in the maximum interest rate, share accounts in savings 411°' 1°an associations had risen while time deposit s in banks had decreased. lie als° spoke of contentions by banks that savings and loan associations were vriting mortgages up to par and using the proceeds to pay dividends. —48.n Martin was of the view that if the charges were correct, the situat4 -Lon was a bad one. He went on to say that he thought Mr. Stoddard va, Qorrect in saying that people were more rate conscio us now than theY had been a few years ago, and he expressed his own belief that the 1111311Q had a right to some benefit from higher interest rates. Some 01' the ti 13°ints Mr. Stoddard had made were valid, and some concern ed competi- conditions that the Board had no way of relieving. Chairman Martin el" that he had assured his visitors that the Board was continuing its 2605 7/13/60 -9- study of the interest rate problem, and he was reporting their visit for the information of the Board. Absorption of exchange charges. The Board ruled in 1943 that absorption of exchange charges on checks drawn on out-of-town banks constituted payment of interest on deposits in violation of Regulation Q. The Federal Deposit Insurance Corporation took the opposite view, with the result that there was no restriction in its regulations on absorpti°4 of exchange charges by nonmember insured banks. Many of those /58114, therefore, continued to be nonpar banks. In 1944 the Board ruled that if the actual cost of charging back exchange was greater than the amount of the exchange itself, absorptl°4 "would not be considered a payment of interest and thus would not 'violate Regulation Q. In 1945 the Board ruled that absorption of e4ch8nge in any amount up to $2 a month for each customer would be e°4sidered trivial and would be disregarded. At the same time, however, the Board emphasized that, if any bank engaged in the practice of 1180 Iting exchange charges in larger amounts, it would be presumed t44t the law had been violated. Stood Apparently, this ruling was not under- by all banks to qualify the 1944 ruling. Governor Robertson referred to discussion by the Board a few ttl°11tha ago of the practices of banks in Little Rock and elsewhere in l‘cUti -ag checks in such a way as to have exchange charges absorbed. Net, was done by sending checks to (for example) Republic National Bank f; 7/13/60 -10- 0f Dallas, Texas, which in turn sent them on to a nonmember bank in Alexandria, Louisiana, which absorbs the exchange charges in consideration for large deposits of the Republic National. Governor Robertson stated that a serious competitive problem 1/as developing which he thought the Board should deal with promptly 14 order to avoid a rapid increase in the practice of directly or indirectly absorbing exchange charges in violation of Board rulings. The Problem had been accentuated and rendered acute within the last week or two, especially in the Eighth District, but it also involved benks in the Sixth, Eleventh, and Tenth Districts. Governor Robertson l'elt that the Board was soon going to face a situation in which it lgolad either have to make a vigorous effort to curb the practice or ednlit that its rule was unenforceable and take steps to reverse evious positions in order to enable member banks to absorb exchange harges the same as nonmember insured banks - otherwise the member 8'114 which conscientiously endeavor to comply with the Board's regulatic) , L'e would be put in a competitively disadvantageous position vis-a-vis those member banks which disregard the Board's ruling. Mr. Hackley stated that when the Republic National Bank of 1)Etllas had started the practice some months ago, the matter had been erL UP with the Comptroller of the Currency, who found that the bank Vas n °t violating the regulation because it claimed that the expense Of ell arging back the exchange was greater than the amount absorbed. ••• 7/13/60 Governor Robertson reiterated his view that the Board would soon be faced with the necessity of deciding between reversing its positi°a, in fairness to member banks, or finding ways to enforce it. He thouht it would be unfortunate to have to reverse the ruling, because )111.1ch progress had been made in the last ten years in reducing the number °r nonpar banks. He described arrangements he proposed to make looking tau —arc" a meeting to be held at one of the Federal Reserve Banks in 144t0a the Presidents of the Federal Reserve Banks of the four aistricts he mentioned And the Chief National Bank Examiners in those districts would participate. The purpose of the meeting would be to explore ways in which the Board's ruling could be enforced. Chairman Martin remarked that the program suggested by Governor Roberts appeared to be a good one, and, after brief discussion, the toard unanimously approved the holding of a meeting such as Governor Rc'bertson, had outlined. The meeting then adjourned. Secre 4.061 „4..„„ 0.0.. 0 ,*,:tttmA,p Item No. 1 7/13/60 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 13, 1960 Board of Directors, Valley Bank and Trust Company, Springfield, Massachusetts. Gentlemen: Pursuant to your request submitted through the Federal Re3orve Bank of Boston, the Board of Governors of the Federal Reserve System extends until September 1, 1960, the time within which Valley Bank and Trust Company may establish a branch at 82 North Elm Street, Westfield, Massachusetts, under the authorization contained in the Board's letter of July 31, 1959. Very tray yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2609 BOARD OF GOVERNORS Item No. 2 OF THE 7/13/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS orriciAt. CORRESPONDENCE TO THE BOARD July 13, 1960 Board of Directors The Chase Manhattan Bank, New York, New York. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors Of the Federal Reserve System approves the continued Operation by The Chase Manhattan Bank of its branches at 37 Wall Street and 43 Exchange Place, New York, New York, until December 31, 1960. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. Item No. 3 BOARD OF GOVERNORS 7/13/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 13, 1960 Board of Directors, Nassau Trust Company, Glen Cave, New York. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors of the Federal Reserve System approves the establishment of a branch at 97 Forest Avenue, Glen Cove, Nassau County, New York, by the Nassau Trust CQn1loany, Glen Cove, New York, provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS Item No. OF THE * 0 ,0 7/13/60 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. 0 0 0 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD IINSt 4o44* July 13, 1960 Board of Directors, Bankers Trust Company, New York, New York. Gentlemen: Pursuant to your request submitted through the Pederal Reserve Bank of New York, the Board of Governors !PProves the establishment by Bankers Trust Company, New 'ork, New York, of a branch at 280-290 Park Avenue, Borough 01' Manhattan, City of New York, New York. This approval is 0-ven provided the branch is established by October 1, 1962. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. 5 BOARD OF GOVERNORS 7/13/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 13, 1960 Board of Directors, First Bank and Trust Company Of South Bend, South Bend, Indiana. Gentlemen: Pursuant to your request.submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves the establishment of a branch in the vicinity of the intersection of Cleveland Road and Dixie Highway North, Roseland, Indiana, provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 26.1.3 Item No. 6 7/13/60 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE aDARD July 13, 1960 Board of Directors, Commercial State Savings Bank, Greenville, Michigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves the establishment of the branch at 112 W. Second Street, Trufant, Michigan, bY Commercial State Savings Bank, provided the branch is established within six months from the date of this letter. It is understood that the capital structure of the bank will be increased $60l000 through the sale of a dditional common stock. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS Item No. OF THE 7 7/13/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDREIIS orriciAL CORRESPONDENCE TO THE SOARD July 13, 1960 Board of Directors, County Bank of Santa Cruz, Santa Cruz, California. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors of the Federal Reserve System approves the establishment of a branch in the vicinity of the intersection of Sea Cliff Drive and Cabrillo Highway, Aptos, California, by County Bank of Santa Cruz, provided the branch is established within one Year from the date of this letter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. 8 BOARD OF GOVERNORS 0 :,1::404 44, „000 2615 7/13/60 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS '0,4wits "440* orriciAL CORRESPONDENCE TO THE BOARD July 13, 1960 The Honorable Jesse P. Wolcott, Chairman, Federal Deposit Insurance Corporation, Washington 25, D. C. Dear. Mr, Wolcott: Reference is made to your letter of June 28, 1960, concerning the application of Home Bank, Compton, California, for continuance of deposit insurance after withdrawal from the Federal Reserve System. , No corrective programs which the Board believes !hould be incorporated as conditions to the continuance of clePosit insurance have been urged upon or agreed to by the bank Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. Item No. 9 7/13/60 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM * a WASHINGTON 25, D. C. ADDRESS orriciAL CORRESPONDENCE TO THE *WARD 4t Itat 40, '0401,* July 13, 1960 muL Mr. Jesse W. Tapp, Chairman of the Board of Directors, pank of 41 BroadAmerica, Street, New York is, New York. Dear Mr. Tapp: There are enclosed two copies of the report of examina of the Guatemala Branch and La Torre Agency. , Guatemala Cit Guatemala, of Bank of America made as of April 23, 1960, examiners for the Board of Governors of the Federal Reserve uystem. The second copy of the report is for the information files of the officer in charge of the branch. After the report has been presented to your directors Z31 'thAi, to th consideration, please advise the Board of Governors as el e actions taken or contemplated with respect to the assets mf!seitied on page 8 of the report. Any comment you may care to vith regard to the operations of the branch and agency as -441closed by the report will be appreciated. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Mires
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