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Minutes for
To:
Members of the Board
From:
Office of the Secretary
July 15, 1959
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.
Chm. Martin
Gov. Szymczak
Gov, Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
2477
Minutes of the Board of Governors of the Federal Reserve System on
We
dnesday, July
15, 1959.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Shepardson
King
Sherman, Secretary
Kenyon, Assistant Secretary
Hackley, General Counsel
Farrell, Director, Division of Bank Operations
Molony, Special Assistant to the Board
Shay, Legislative Counsel
Nelson, Assistant Director, Division of
Examinations
Mr. Smith, Assistant Director, Division of
Examinations
Mr. Daniels, Assistant Director, Division of Bank
Operations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Items circulated to the Board.
been
The following items, which had
circulated to
the members of the Board and copies of which are
8.ttached to these minutes under the respective item numbers indicated,
were
approved unanimously:
Item No.
utter to
the Federal Reserve Bank of Cleveland regarding
Lill°dified form of resolution to be adopted by directors of
for,
,
e banks designating officers authorized to cast votes
"-4ass A and Class B directors.
Letter +
the Federal Reserve Bank of St. Louis regarding
the ,
Act cL
pPlicability of section 6(a) of the Bank Holding Company
Qom t° a loan servicing arrangement between two holding
"iPanY
subsidiaries.
1
2
In connection with Item No. 1, Mr. Hackley responded to a
14estic3n by saying that the Legal Division would submit to the Board
e
7/15/59
-2-
shortly a revised general statement of procedure to be followed in
connection with the election of Class A and Class B directors of Federal
Reserve Banks and that the change being made by the Federal Reserve Bank
Of
Cleveland would be incorporated therein.
Mr. Hostrup then withdrew from the meeting.
Proposed Chemical Bank-New York Trust merger (Item No. 3).
In
a letter to
Congressman Celler dated June 9, 1959, regarding the proposed
rnerger of
Chemical Corn Exchange Bank and the New York Trust Company, both
Of
New York City,
the Board indicated that when any application in con-
nection with that proposal was received, the Board would advise Mr. Celler
as to its
responsibilities and proposed procedures with respect to the
Illatter.
The Board had now received, through the Federal Reserve Bank of
New
York) an application for approval of the establishment by the continuing
bank /
lunder the name of Chemical Bank New York Trust Company) of branches
t the locations of present offices of the New York Trust Company.
Accordingly,
there had been submitted to the Board, with a memorandum
fr°111 14r. Hackley dated July 13, 1959, a draft of letter to Congressman
°eller indicating, with respect to the application, the extent of the
13c)arcl's Jurisdiction in the matter and the procedures contemplated in
the cons
ideration of it.
After suggestions by GovernonsMills and Balderston for minor
challges -n the
draft had been agreed upon, unanimous approval was given
7/15/59
to a letter
to Congressman Celler in the form attached under Item
At this point Messrs. Riefler, Assistant to the Chairman, and
Noyes,
Adviser, Division of Research and Statistics, joined the meeting.
apital accounts of the Federal Reserve Banks (Item No.
4). As
indicated
at the meeting on July 9, 1959, there had been distributed to
the
members of the Board copies of a memorandum from Mr. Farrell to
Chairman
Martin dated July 10, 1959, with regard to the capital accounts
r the
Federal Reserve Banks ana related matters. This memorandum pointed
°Ilt that on
December 31, 1958, the capital structure of the Reserve Banks
14as as
follows:
$363,098,000
CaPital paid in
Surplus
Other capital accounts:
Reserves for contingencies:
Reserves for registered
mail losses
All other
868)Lao,000
$11,124,000
98,000,000
14 aadition, it
was noted that on the same date the
109,124,000
Reserve Banks were
eal"rYing allowances
for depreciation on bank buildings totaling $60,987,000,
these allowances being shown as a deduction from the gross total of bank
Pr'eraises on the asset side of the balance sheet. Mr. Farrell's memorandum
contained
sections on capital stock of the Reserve Banks paid in by member
a kns
'surplus of the Reserve Banks the history of the franchise tax, the
'ItYlzent of
interest on Federal Reserve notes, beginning in 1947, reserves
for co
Iltingencies,and depreciation allowances. Incorporated also was a
7/15/59
Portion of
of a memorandum from Governor Mills to the Board dated May 5, 1952,
reading as
follows:
”
• • . as a check against improvident practices and as a
ans of reassuring a public that is relatively uninitiated
ln central banking theory, it is highly advisable that the
Federal Reserve Banks should maintain adequate Reserves for
Contingencies against depreciation in the U. S. Government
securities held in the System Open Market Account and that
their operations should be conducted against a background
01 ample capital funds. These assertions are made with the
thought that the public likens the operations of the Federal
Reserve Banks to those of private banks and that, therefore,
ts confidence in the entire banking system is strengthened
by having the
Federal Reserve Banks adhere to reserves and
?aPital accumulation policies consistent to those followed
ln conservative private banking practice.
u• • • As far as the Treasury is concerned, the amount
°I Federal Reserve Bank earnings thus withheld would be
n° inal as compared to the benefit inuring public policy821d, in any event, the Treasury would not be releasing
J.A,s residual claim to earnings thus retained."
At the request of the Chairman, Mr. Farrell offered comments on
the
matters referred to in the memorandum which he prefaced by bringing
°I-It that
there was not complete agreement within the Division of Bank
°Perations or
among the Reserve Bank Presidents regarding various aspects
°r the subject.
After noting that the question as a whole involved psycho-
1°gieal con
siderations, including the impression that the System gave, or
desired to give, to
the public and the Congress, he went on to say that
basically there was
no real difference between the reserves set up by
the Reserve
Banks and the surplus accounts. In his opinion, the reserves
ser
„d as a
target for possible attack by critics of the System, and it
7/15/59
-5-
was hard
to rationalize the need for maintaining the reserves in a
manner that would be convincing to persons outside the System.
Further-
121(3re, Mr. Farrell said, there appeared to be no thoroughly acceptable
Ibrmula to determine the relationship between Federal Reserve Bank
surplus and capital stock accounts, and perhaps there was actually no
logical relationship between them.
All things considered, his feeling
Ifas that a
desirable procedure might be to attempt to determine the
level of surplus that the Reserve Banks should have, and not to maintain
additional reserves.
In the absence of a demonstration of inadequacy, he
felt that
a level of surplus standing at 200 per cent of paid-in capital
nlight be
something that the Federal Reserve Banks could live with satisf4et°ri1Y.
This would mean that the surplus would grow automatically
al°41g with paid-in
capital, which in turn would increase according to
the growth
of the banking community.
Turning to the depreciation allowances, Mr. Farrell said he did
11°t feel that the Reserve
Bank Presidents were quite as interested in
afillering to the theoretical concept of depreciation as they were in the
Possibility of divesting the Reserve Banks of burdensome work.
The
'Division of
Bank Operations, he said, had not moved faster in this area
because there
were several avenues that could be followed with regard
to the handling of depreciation and no general agreement as to which
IllIght be preferable.
It was his view that the question of depreciation
7/15/59
-6-
might be set aside from the problem of surplus and contingency reserves
ana decided
on its awn merits.
After discussion of the rate of current earnings of the Reserve
Banks and the present level of the surplus accounts, Chairman Martin said
it occurred to him that, as a goal, the System would be in a stronger
Pc)siticm if 100 per cent of earnings after expenses and dividends were
Paid over to the Treasury.
This would be understandable to the man in
the Street, whereas the current procedure was susceptible of misunderstanding.
Many persons were inclined to think at first that the 10 per
cent of earnings retained by the Reserve Banks covered payment of the
Banks' expenses, and an explanation often served only to create doubt
as to
whether the current procedure was desirable. Chairman Martin said
he would not
want to give up any of the principles set forth by Governor
Mills in 1952, for he felt that those principles were fundamental to the
System.
SYstem
However, if adequate surplus was available, he believed that the
would be in a stronger position, particularly from the standpoint
Of Public relations, if it were made clear that any earnings over and
1)(11ve expenses and dividends were to be paid over to the Treasury after
sUrPlus had
reached a certain level.
After reference to possible criticisms that might be directed
tovard t
he System
because of the current procedure, Governor Shepardson
said
he
w°uld agree that the Reserve Banks needed adequate reserve funds.
7/15/59
_7-
However, he found it difficult to differentiate clearly between the
coati-agency
reserves and the surplus accounts, for the latter constituted essentinlly a
reserve.
Like Governor Mills, he felt that the
Reserve Banks should have surplus accounts somewhat similar to those
maintained
by banks generally, for that was something understandable
t° the public, but he wondered whether the special reserves could not
be
lDed out and the surplus accounts adjusted from year to year to
such extent
as might be necessary to maintain a surplus equivalent to
200 per cent
of paid-in capital.
In this connection, he noted from Mr.
Farrell's memorandum that
at the end of 1958 surplus for all member banks
averaged
168 per cent of capital, and surplus for central reserve city
member banks
in New York averaged 193 per cent of capital. The procedure
he
siaggested would permit Reserve Bank capital accounts to grow along
With men-1)er banj capital accounts and would eliminate the relatively
reserve items that did not appear to have any great significance.
Governor Mills stated that there were other considerations to
be taken into
account. The premise of Governor Shepardson that, for
this ilurpose,
the Federal Reserve Banks should be likened to private
az
-- suggested following the principle of building up reserves
protection against liabilities.
had
Recently, he noted, the Board
-APressed to
the Congress the opinion that over the years the
Nation
rilight look
forward to a growth in the money supply sufficient
7/15/59
-8-
to foster a stable and growing economy, and the counterpart of a growth
in the money
supply would be an increase in the liabilities of the Federal
Reserve Banks.
Accordingly, it appeared to him that the System should
are against such an eventual ity by a growth in the capital and
sUrPlus accounts of the Federal Reserve Banks.
A change in the point
f view of the
System perhaps would indicate that what it had done in
Past Years was wrong.
Thus, while the System could, of course, return
to the Treasury funds accumulated in the best of its judgment, this
c°141d evoke
criticism on the part of analysts of the System. If changes
were made
in the procedures followed to date, it was his view that they
Shod be
made only reluctantly and unaer pressure, with knowledge given
to
th
public that the action was taken primarily at the request or
dictation of the Con
ss rather than because of a belief on the part
Of the System that the Reserve Banks were overcapitalized in relation
to their
liabilities.
As to depreciation allowances, Governor Mills said it might be
chaqed that there
was no good reason for the Reserve Banks to take
depre
ciation. However, if they stopped taking depreciation on capital
141erestalerit8 in buildings and plant, this might be regarded as equivalent
to 8,_.
that the Reserve Banks were Governmental institutions, a
question that had
always been a controversial issue. In this connection,
he
—=called that in
the past, when the Board went to the Congress to
7/15/59
-9-
request an increase in the limitation on the amount of funds available
for the
construction of Federal Reserve Bank branches, it had been
Pointed out with considerable effect that the cost of such branches did
not represent an expense to the Treasury at the time of construction but
rather was paid out of capital funds accumulated from depreciation
reserves and retained earnings.
At the instance of Governor Shepardson, there ensued discussion
vith respect
to the extent of correlation between the growth of the
Inoney supp,
-Y and the growth of member bank capital, following which
Chairman Martin repeated that he felt that the System should strive
f°11 some formula that was reasonably automatic and readily explainable.
A bri„
--"aue institution, he noted, does not have to explain the disposition
Of it
Reserve
except to its customers and stockholders, but the Federal
System must consider the national interest.
He was not sure
how to a.rrjve
at the proper formula, and he was sympathetic to the
P°14t of view expressed by Governor Mills, but he felt there must be
8131a1
leVel
of
surplus which, having been attained, would permit additional
ear?,4
---Lngs to be
turned over to the Treasury.
At the request
of the Board, Mr. Hackley commented on the history
°t legislative
actions pertaining to the disposition of Federal Reserve
13411k earnings and the recommendation submitted by the Board in 1956 in
e°4nection with the
proposed Financial Institutions Aet. It was noted
7/15/59
-10-
that the procedures currently followed by the System were consistent both
/41-th the spirit of legislation on the subject in the past and with the
Pr°P°sal made in connection with the Financial Institutions Act.
Governor King said it appeared to him that the Board
was
dealing
with a problem that had several major parts. His general approach would
be t, try
to resolve such a problem within accepted accounting practices
and to
depart therefrom only with good reason.
Thus, he would favor
c°4tinuing the current procedures with respect to depreciation, rather
than to have a consistent build-up of capital expenditures on the books
°f the Reserve Banks, and he felt that good accounting practice called
rt)
r the
establishment of reserves for contingencies.
However, in view
(Ilf the fact that surplus accounts had built up to their current size, he
votad be
inclined to favor elimination of the reserves for contingencies,
--ng that this would have a healthy effect in presenting a more
illicierstandthle picture to the man on the street and to the Congress.
As
t° ellzrent
earnings, he felt that it would be desirable to make some
l'ecluction in the
percentage of retention, but he would want to think
11Zth
-- on the matter before consenting to complete elimination of the
retention of
earnings. At the same time, he doubted whether it would
be
-.14.foropriate to provide for maintaining surplus in any exact relation_
81111)t
paid-in capital; along these lines, he had been wondering whether
it
might notbe
desirable to reduce the amount of Federal Reserve Bank
7/15/59
-11-
stock for which member banks are required to subscribe.
He was aware
°f some Congressional reaction to the ownership of stock in the Federal
Reserve Banks by member banks and to their receiving dividends thereon,
s°rne on a nontaxable basis.
It occurred to him that any action in the
direction of
removing that criticism might be helpful from the standpoint
°I' the Congress and the public interest.
Furthermore, while he doubted
that member banks could get a greater return from their funds now invested
14 Reserve Bank stock, he had heard bankers complain about having to hold
st°ck of the
uggesting
Reserve Bank.
In raising this point, he was not necessarily
complete elimination of member bank stockholdings, but he
11°ted that a
reduction would provide some additional funds to the member
13444 With which to
meet the credit needs of the economy and would
constitute to a certain extent an alternative to reductions in reserve
l'equirements. In a sense, he suggested, the member bank's stock might
be c_ .
flsidered as part of its total reserve requirement, and the dividends
l'eceived might be regarded as a return on the entire amount of required
l'eeelivea-
He recognized, of course, that this problem was one to be
8443r0ached
cautiously because of the implications that were involved.
In response to a question by Chairman Martin, Governor King
vel'ified that he
felt the reserves for contingencies now carried by
the Reserve Banks could be turned over to the Treasury.
He would
e°4tinue the
current depreciation procedures and would maintain
7/15/59
-12-
surPlus accounts without a fixed relationship to the amount of paid-in
While he felt that the Federal Reserve Banks should be entitled
c814tal.
to retain
some portion of their earnings, he was inclined to think that
the
current 10 per cent retention could be scaled down somewhat.
As he
saw it) the turning over of the reserves for contingencies and the
sealing down of the 10 per cent retention would not constitute an admission
that what the System had been doing was wrong but rather an indication
that
as in any organization, certain modifications are considered
desirable with the passage of time and in the light of changing conditions.
Governor Shepardson suggested that the question of member bank
stockli"1
-3
w-Luings
in the Federal Reserve Banks was one going beyond that
il1v°1ved in the immediate problem of the disposition of Federal Reserve
earro,
-"gs) a statement with which Governor King agreed. The latter went
on t° say) however, that there were various methods by which the basic
Peder_,
ou- Reserve concept of a marriage of Governmental and commercial
interests
might be preserved, such as the service of bankers on the
boa
of directors of the Reserve Banks and on the Federal Advisory
After further discussion, Governor Mills again stated that he
VOID
ue inclined
to do nothing to change the current procedures except
under
pressure and as a compromise, to which Chairman Martin replied
that the
Bureau of the Budget had he/1 a draft of bill before it for
sQllis time and there
was a question whether such proposed legislation
-13-
7/15/59
M1ght not become active.
Governor Mills then stated that if circum-
stances necessitated, he would be inclined to return to the Treasury
the funds now held as contingency reserves, or perhaps the $80 million
thereof which was transferred from net earnings in 1948 and 1949,
giVing as a reason the fact that the System was divesting itself of
that amount in the public interest, much in the same manner as when
it contributed
Deposit
$139 million to the capital of the Federal
Insurance Corporation and later allowed that amount to remain with
the
Treasury due to the interim build-up of Reserve Bank capital funds.
Governor Szymczak suggested that an essential question was
Whether the
central bank, with power of note issue, should be treated
clifferentlY from other institutions. Also involved was the fact that
the
Federal Reserve System was an institution deriving most of its
arnings from Government securities.
eaPital
Thus, the System did not need
funds to the extent of having to obtain them from the member
' As had been pointed out, one possibility would be that the
13444
capital stock
could be paid back in entirety and relations with the
banks maintained through their representation on the boards of
directors of the
Reserve Banks.
He was inclined to favor some reduction
°r elimination of the contingency reserves and a change in depreciation
14'°cedurea, but not until after thorough discussion with the Reserve
tarat
rresidents, the Treasury, and the Budget Bureau.
7/15/59
Governor King then made the further statement that he was
inclined to abandon time-honored rules and principles only reluctantly.
However, in view of the practical situation, he would rather see the
System
initiate whatever adjustments seemed appropriate than to have
such adjustments forced upon it.
Governor Shepardson commented that the principle involved in
°IniershiP of Reserve Bank stock by member banks involved a serious
Ilestiml.
Since a reduction in the current stock subscription require-
rnent 14Ilmld not be of
at significance from the standpoint of meeting
the Problem that was of concern to the Budget Bureau and the Treasury,
he vould not
like to see the question of a reduction in such requirement
r4ised unless the System was prepared to take up the question of eliminating member bank shareholdings entirely.
However, he felt that
lcieal arguments could be made for a change in the amount of the
allrPlus accounts and reserves now held by the Reserve Banks and that
these matters were
worthy of consideration.
After citing certain
statistics with regard to member bank deposits and capital accounts
over
aPProximately
the last two decades, he pointed out that the growth
or ca.
Pltal accounts appeared at least to have kept pace with the growth
Of de1,0
its percentagewise.
Accordingly, he was disposed to feel that
ace()
unt could
be taken of changes in the money supply by relating the
€1:11'31`rth Of
Reserve Bank capital accounts to that of the capital accounts
°r the
member banks.
7/15/59
-15Chairman Martin inquired whether the Board was sufficiently in
agreement with the thought of transferring to the Treasury the funds
401T held as
contingency reserves to be willing to raise this question
with the Reserve Bank Presidents, and there was no indication to the
co
ntrary.
The Chairman then inquired whether any objection would be seen
to sending copies of Mr. Farrell's memorandum of July 10, 1959, to the
Presidents, with an accompanying letter which would suggest that the
Board would
like to discuss the matter with the Presidents.
The
ace PanYing letter would indicate that the Board was disposed to
question the need of maintaining the reserves for contingencies and
v°uld express the thought that the whole subject of the Reserve Bank
capital accounts
should be kept under review.
On the other hand, the
letter would
not raise specifically the question of depreciation
allowances.
It would, in effect, put the Board in thc position of
suggesting that perhaps the reserves for contingencies could be
elirainated, but it would not comment specifically on any other facets
or the
general problem.
At this point Mr.
Farrell responded to questions by Governor
ilelzi-erst°11 by stating that there should be no substantial mechanical
cliticulties affiliated with a possible decision to hold Reserve Bank
811rIplus accounts at a figure equivalent to 200 per cent of paid-in
e4ilital-
With this explanation, it was Chairman Martin's suggestion
c.
Alf.,
7/15/59
that
attention not be directed to problems of such nature in corresponding
With the
Presidents.
At the conclusion of the discussion, it was agreed that the
procedure outlined by Chairman Martin should be followed. Mr. Farrell
was
requested to prepare for the Chairman's signature a letter to the
Presidents of
the Reserve Banks presenting the problem in the manner
111clicated and transmitting copies of Mr. Farrell's memorandum in subthe form that it had been distributed to the Board.
A copy of the letter sent to the Presidents pursuant to this
action is
attached as Item No. 4. A separate letter was sent to Mr.
Johns, aS
Chairman of the Conference of Presidents.
Messrs. Nelson, Smith, and Daniels then withdrew and Messrs.
Youn
,
,
Q. Director,
Division of Research and Statistics, and Marget,
tit'ector
) IA-vision of International Finance, entered the room.
Maximum rates on time and savings deposits.
Chairman Martin
relp°rted briefly
on a conversation this morning with the Comptroller
°t the
Urrency Which pointed up the growing importance, as a practical
Problem
/ of the question of the current maximum rates of interest payable
°11 time and
savings deposits under Regulation Q, Payment of Interest on
1°eDosits,
Mr. Farrell reported briefly on a discussion yesterday at the
Tres.81,-with respect to the payment of interest on Treasury tax and
108.4 ....
v"" e(punts, at which the view was expressed by certain commercial
i
1.4r„r
-17-
7/15/59
bankers who were present that such a decision would lead directly to the
question of the payment of interest on demand deposits.
Messrs. Hackley and Farrell then withdrew from the meeting.
Testimony on Government securities market study.
There had been
distributed to the Board several drafts, most recently under date of
July 14, 1959, of a statement proposed to be made by the Secretary of
the Treasury in testifying on July 24, 1959, before the Joint Economic
C°mmittee in connection with that Committee's study of employment, growth,
44c1 Price levels.
The Committee had expressed a desire to be informed
concerning the Treasury-Federal Reserve study of the Government securities
Larkety and the testimony therefore was devoted to a progress report on
that study.
Chairman Martin commented that, as indicated by the draft of
testinl°nY, the study of the Government securities market was scheduled
t° be released publicly on July 24.
He (Chairman Martin) was to appear
before the
Committee on July 27 and, according to present plans, he
/f°u.ld
endeavor merely to answer such questions as the Committee might
cilz'eot
to th
or New
to him.
Chairman Martin also commented that he would be accompanied
hearing by Mr. Roosa, Vice President of the Federal Reserve Bank
York, as well as appropriate members of the Board's staff.
During the ensuing discussion, it was noted that both the
Secret
arY of the Treasury and Chairman Martin might be asked questions
-18-
7/15/59
relating to any specific actions contemplated as a result of the study
of the Government securities market, and it was agreed that the Chairman
vould deal with any questions of that nature in such manner as he
considered most appropriate.
the testiIn this connection, Mr. Young commented on the tone of
M°41," proposed to be given by the Secretary.
He pointed out that the
144raft would be subjected to editorial scrutiny at the Treasury, and that
there would be an opportunity to consider the incorporation of any
slIggestions on the part of the members of the Board.
suggestions
Accordingly, it was understood that any comments or
Young.
relating to the draft of testimony would be submitted to Mr.
All of the members of the staff except Messrs. Sherman, Kenyon,
44a Marget then withdrew from the meeting.
In
5).
Technical assistance for Banco de Guatemala (Item No.
4 memorandum dated July 10, 1959, which had been distributed to the
13°41"d/ Mr. Marget recommended that the Board secure the detail of
Adminis1144h E. Holben, of the staff of the International Cooperation
Banco de
-*ation, for a period of one year and then detail Mr. Holben to
Guatemala for a similar period to serve that bank in an advisory capacity.
Cooperation
This arrangement contemplated that the International
Adminis-
be responsible
tlieti°n 'would retain Mr. Holben on its pay roll and would
t°r his travel and any other allowances, all on a reimbursable basis.
7/15/59
-19-
The Board in turn would receive full reimbursement from Banco de
Gtiatemala.
As the memorandum pointed out, the essential reason for
these arrangements was that efforts to locate a suitably qualified
Person within the Federal Reserve System had not been successful and
the International Cooperation Administration was not willing to make
Mr. Holben available to Banco de Guatemala unless he was subject to
the direction of the United States Operations Mission in that country,
°4 arrangement which was not suitable to Banco de Guatemala.
The
laemorandum also noted that an arrangement such as proposed for an
e3cchange of personnel between Government agencies was not unusual.
SlIbmitted with the memorandum was a draft of letter proposed to be
Sent to the International Cooperation Administration with regard to
the arrangements for the services of Mr. Holben.
At the request of the Board, Mr. Marget outlined developments
14 Guatemala that had eventuated in the request for advisory services
44(1 commented on the difficulty experienced in locating a person from
Illthin the System who would be suitably qualified for the assignment
414 could be made available at this time.
'
He noted that the negotiations
l'e8111ting in the current recommendation had been carried on after
aiae, .
8Blon of the problem with Governor Shepardson at an earlier stage
'
44(1 added that
the United States Embassy in Guatemala was in accord with
the Proposed
arrangement.
7/15/59
-20Governor Szymczak expressed doubt as to the advisability of
Proceeding in the manner suggested.
After noting that the arrangement
was quite involved, he said that he would favor extending assistance to
T3anco de Guatemala to the maximum extent possible, or to any other
central bank, if the request could be complied with by use of personnel
Of the
Federal Reserve System.
In this connection, he brought out that
°Ile of the reasons for undertaking such missions related to the benefits
that would be derived by System personnel so assigned, whereas in this
case no such benefit would acme to a staff member who would return to
the Board's service.
If the arrangement now proposed should be agreed
111)°n, it would constitute a precedent and similar requests might be
r°rthcoming that would contemplate even more involved arrangements.
Governor Shepardson then referred to his earlier discussion
the matter with Mr. Marget, and to his understanding that the
Practice of loaning an employee to another agency for an assignment
Of
this nature was not unusual.
As to the mechanical aspects of the
tl'allefer of funds, he said that the office of the Board's Controller
Bam 40 difficulties in the current proposal.
As he understood it, no
allitable person was available from within the Federal Reserve System,
and
Mr. Holben appeared to be adequately qualified.
He had checked
l'ith the International Cooperation Administration regarding Mr. Holben
44°1 regarding the desirability of sending an employee of that agency
t°41 4 mission of the kind contemplated.
The outgrowth of his con-
eations was that it appeared desirable for Mr. Holben to go to
'
llel
-21-
7/15/59
Guatemala under an arrangement whereby he would report directly to
Banco de Guatemala rather than to representatives of International
Cooperation Administration in that country.
Consequently, the project
seemed feasible and within the framework of similar cases.
Governor Mills said that personally he would not favor the
Procedure.
However, if the arrangement were entered into and Mr.
Rolben was to be identified as an employee of the Federal Reserve
SYstem, he felt that a check should be made of Mr. Holben's employment
record and
it should be ascertained that Mr. Holben had satisfactory
security clearance.
In further discussion, Chairman Martin agreed that the procedures
suggested by Governor Mills should be followed.
Proved
Assuming that these checks
satisfactory, he felt that it would be desirable for the System
t° be in the position of rendering any assistance possible to other
central banks and that this should be the overriding consideration in
4j-sing the current proposal.
414
'
If Mr. Holben was a desirable person
for the as
signment and "the cards were completely on the table" as far
e parties to the transaction were concerned, it was his feeling
that
the recommended procedure should be approved.
The fact that red
tabm
14as involved did not appeal to him as a sufficient reason of itself
•
tor pr
eventing Banco de Guatemala from Obtaining needed assistance.
At the conclusion of the discussion, and with the reservations
Of el_
v't.)
rnors Szymczak and Mills noted, the recommendation contained in
-22-
7/15/59
Mr. Marget's memorandum was approved, with the understanding that the
procedures suggested by Governor Mills would be completed before advice
sent to the International Cooperation Administration.
Secretary's Note: The points mentioned by
Governor Mills having been resolved satisfactorily, the letter of which a copy is
attached as Item No. 5, was sent to the
International Cooperation Administration.
The meeting then adjourned.
Secretary's Notes: Attached as Items 6 and 7
are copies of letters sent yesterday to Chairman
Spence of the House Banking and Currency Committee
and to Congressman Patman concerning the transmittal to the Committee of reports on examinations
of the twelve Federal Reserve Banks made during
1958.
Pursuant to recommendations contained in memoranda
from appropriate individuals concerned, Governor
Shepardson approved today on behalf of the Board
the following items affecting the Board's staff:
%o
intment
JoanF. MeLaileyll in,as Library Assistant in the Division of Research
aria St
the
Sties, with basic annual salary at the rate of $3,7551 effective
atistics,
date
entrance upon duty.
Acce,4.
vkance of
resignation
StatiAllee R. Williams, Statistical Clerk, Division of Research and
sties,
effective August 7, 1959.
C
1)
Sec etary
BOARD OF GOVERNORS
ootr4,)**
,44 %OW 4.0k4,
4
OF THE
4,
q:44
Item No. 1
7/15/59
FEDERAL RESERVE SYSTEM
t *
ti
WASHINGTON 25, D. C.
kt
ADDRESS OFFICIAL CORRESPONDENCE
ti
TO THE BOARD
*‘c
tt`tt itit4
r
la°
-4440*
July 15, 1959.
Mr. W. D. Fulton,
President,
Federal Reserve Bank of Cleveland,
Cleveland 1,
Ohio.
bear mi.
FUlton:
This is in response to your letter of June 19, 1959, with
which was enclosed a modified form of resolution to be adopted by
0
114
° 1:ds of directors of member banks in your District designating the
cilloers who are
authorized to cast the vote of the member bank for
488 A and Class B directors of the Federal Reserve Bank.
The resolution as modified would eliminate the provision
for ...I
bankulgnatures of officers authorized to cast the vote of the member
form. The Board
has no objection to the use of such an authorization
since, although the law requires a resolution by the board of
ar'ecotors, it
does not require a space for signatures of officers who
authorized to vote. Also, as you have suggested, a space for
be'ni
ures is unnecessary because certificate envelope signatures may
ratil eeked
against the bank's regular member bank signature files
er than
against signatures on the designation form.
In connection with the above, you may already know that a
direct°, revised procedure for election of Class A and Class B
of Federal Reserve Banks is in the process of preparation.
by y,,?ntemplated
that this draft will include the change suggested
-' 411 Your letter on the form of member bank authorization.
draft of
Very truly yours,
(Signed) 14prritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 2
7/15/59
ADDRESS OFFICIAL coaRtepoNDENce
TO THE
eoARo
July 15, 1959
irs Geo. E, Kroner, Vice President,
tFederal
Reserve Bank of St. Louis,
St. Louis
66, Missouri.
Dear is-.
4,4--
Kroner:
This refers to your letter of September 11, 1958, enclosing
coPy of the
Annual Report for the year ending April 30, 1958, of
versified Trust Fund A of the
Kentucky Trust Company, Louisville,
tontuckY
mr. G ("the Trust Company"). In this connection, your memorandum
herald T. Dunne, Counsel for your Bank, and Mr. Dunne's
reply
;
dva been
4.... noted with respect
to the question whether the Trust Company,
i881,111:a;Lulary of First
National Bank Trustees, Louisville, Kentucky,
foing the Bank Holding
Company Act by servicing mortgage loans
of Firstirst
National Bank of Louisville, which also is a subsidiary
National Bank Trustees.
44
t
t_4.,ste
,„
he Bank
It i$ the
Board's understanding that the Trust Company and
have an
agreement pursuant to which the Trust Company, a
fOX th:I.,makae, processes, and services mortgage loans on real estate
le e - Dank; that
whenever such loans are made, approval of the Bank
ortiv_idenced by the
anctlera designated signature on the loan application of one of the
in said agreement; that when the loan is approved
the 4
:
.
1
.(Te any funds are
advanced, the check of the Bank, payable to
deity -11'uolcY Trust Company, Trustee", in the amount of the loan
is
eolleered to
the Trust Company; that the Trust Company closes, services,
the Bete, and
supervises the loan; that the Trust Company remits to
ni!
i _mrthly the proceeds
eary r
of collections made by it, less necesthe 13,-.,Tcu-Pocket expenses; that, in
consideration of these services,
cent'
;
1 - Pays to the Trust
Company a sum equal to one-half of one per
liabil7.14: annum on the unpaid balances; that the Trust
Company has no
t:ter„,for payment of
principal or interest on said loans; and that
oillrtfilsinsctlegoloniplaz:h loans is the credit of the Bank and not
v.11.4k !Ito Section 6(a)(4) of the Bank Holding
Company Act forbids a
rjdin2!
p ake any loan, discount or extension of credit to a bank
Na
a7mPany of which
it is a subsidiary or to any other subsidiary
uank
hvluing company". The described procedure does not appear
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr, Geo. E.
Kroner
to be inconsistent with the stated purpose
of section 6(a) which, in
:elevant part, is to prevent one subsidiary of a bank holding company
'rom taking undue advantage of the resources of another subsidiary
that is a bank
(S. Rep. No. 1095, 84th Cong., 1st Seas. 15 (1955)).
On the basis of the informatio
n available to the Board, the described
rengement between The First National Bank of Louisville and the
n
,?tucky
Trust Company would appear to be essentially one of conven4-tnce for the servicing
of loans on real estate, and does not involve
the
-tul-Lng of any "loan, discount or extension of credit".
In the Board's opinion, the described procedure is not in
Iriolation of section 6(a) of the Act.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Or:4 !
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
Item No. 3
7/15/59
OFFICE OF THE CHAIRMAN
July 151 1959
The Honorab
le Emanuel Celler, Chairman,
Committee
on the Judiciary,
House of Represe
ntatives,
W
ashington 25, D. C.
near Mr. Chairma
n:
In my letter of June 9, 19591 in response to yours of
june 4, regarding the proposed merger of Chemica Corn Exchang
e
l
Bank
and New York Trust Company, I indicated that,
when
any
application in
connection with that proposal was received by the Board,
pre Board would advise
you as to its responsibilities and proposed
°cedures with respect to this matter.
The Board has now received through the Federal Reserve Bank
fl'tentOf New York
an application for the Board's approval of the establishthe
continuing bank (under the name of Chemical Bank New York
Tr
Nen C°mParly) of branches at the locations of present offices of
inv 4ork Trust
Company. Since it appears that the merger will not
not°1ve any diminution of capital or surplus, the merger itself will
to require the Board's approva
l under section 18(c) of the Federal
.°8it Insurance
Act. It also appears that the proposed transaction
involve a bank stock acquisition subject to section 7 of the
iinDon Act. Accordingly, the Board's
jurisdiction in the matter is
quir ed to that conferred by
section 9 of the Federal Reserve Act relitt= approval for the establishment of branches by
State geit
4
d- isa.L not
banks
As in the case of other branch applications by State member
NeW yl11:11 investigation is being made by the Federal Reserve Bank of
or ti,°ric and its report will
be submitted to the Board. On the basis
"at report and study of the matter by its own staff, the Board
tion
.
C°nsider the financial condition and management of the instituothe
:J-nvolved, the needs and convenience of the banking public,
and
erfeWaetors relevant to the public interest, including the probabl
e
corm, °f the establishment of the proposed branches upon banking
The Honorable Emanuel Celler
-2-
al Reserve Bank
It is the general practice of the Feder
State Banking
York
Of New York to consult informally with the New
involving State
rs
Department in connection with all but routine matte
the action
ion
derat
member banks; and the Board will take into consi
is not
It
sal.
propo
taken by the State authorities on the present
lly
forma
will
contemplated, however, that the Board in this case
ce;
Justi
of
consult with the Antitrust Division of the Department
d
serve
be
would
!lor does the Board believe that any useful purpose
n.
catio
appli
°Y the holding of a public hearing regarding this
Sincerely yours,
d . .,4. ,
N)1
1
Wm. McC. Martin, Jr.
BOARD OF GOVERNORS
,oittift*,}4
44:
091WIL01,
1)10r,
OF THE
Item No. 4
FEDERAL RESERVE SYSTEM
7/15/59
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 17, 1959.
Dear sir:
The Board has recently considered the question of the
capital accounts of the Federal Reserve Banks, particularly with
erence to the size of the surplus and reserves for contingencies.
Enclosed is a memorandum containing background material on the
subject.
Since the policy was adopted in 1947 of transferring exearnings
rigs to the Government, combined surplus accounts of the
Banks have increased from ,414)40 million (235 per cent of
ral paid in) to 868 million (239 per cent of capital paid in).
addon,
8C) million has been added to the a.8 million reserve
r continpencies other than registered mail losses which was set
7
1 sat the end of
19)45, and the reserve for registered mail losses
increased from 6 million to 01 million.
F
The Board believes that it would be desirable at this time
1„.
Da„7view the capital accounts of the Federal Reserve Banks, and
Acularly the continuing need for the reserves for contingencies.
PreninglY, the Board is asking the Chairman of the Conference of
at ;;_"'ents to have this topic placed on the agenda for consideration
sto(
7 next regular meeting of the Conference, which it is underdis, will be held during September, with a view to having a full
pr_ssion of the subject at the joint meeting of the Board and the
e ldents following the close of that Conference.
tO
Yours very truly,
.
1\
kaaaLL
Wm. McC. Martin, Jr.
Erielosure
T° THE PRESIDENTS
OF ALL FEDERAL RESERVE BANKS
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 5
7/15/59
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 15, 1959
D. A. FitzGerald,
Puty Director for Operations,
All
ternational Cooperation Administration,
1Pcz 505, Maiatico Building,
06 C
N. W.,
Wa onnecticut Avenue,
shington 251 D. C.
Dear Dr.
FitzGerald:
The Board of Governors of the Federal Reserve System is
Prep
x'ared to enter upon the following arrangement with respect to the
,,e_rvices of Mr. Ralph E. Holben, of the staff of the International
`1v0Peration Administration:
1. Mr. Holben would be detailed by the International
tion
a
Administration to the staff of the Board of Governors
°
F
:
°
I:( 1
;:c ne Period of one year, and the Board in turn would detail
to the Banco de Guatemala for a similar period to serve
that Bay
16
in an advisory capacity.
2. The International Cooperation Administration would
wolaid rtr. Holhen as an employee on its payroll, and, in addition,
be a,be reaponsible for his travel and such other allowances as may
liota4'reed uPon, all on a reimbursable basis. The Board, in turn,
Otiat re"Ave reimbursement for all such expenses from the Banco de
emala.
. Mr. Holben would be able to return to the International
2
toperati1 lministration upon completion of his detail to the Banco
uu
atemal4 and would meanwhile retain his pension and other rights.
For the duration of his assignment to the Banco de
ipE,rIrislon as Mr. Holten would be entirely independent of 1.C.A. su
o
Govern' being detailed to the Banco de Guatemala by the Board
ors f the
f .A.,and
Federal Reserve System rather than by I.f'
peri_ he responsible solely to the Banco de Guatemala during the
uci '
c e his stay.
If the foregoing
41)Preci
" with your approval, the Board would
ate written
confirmation thereof, including paragraph 4. The
pr. D. A. FitzGerald
- 2-
Bo
you a listing of the
ard uould also appreciate receiving from
/1?imbur5ab1e charges, as well as confirmation that an acceptable
by Miss Hood of your
nillIng technique would be as outlined
the Board by the
anization: namely, quarterly billing of
lxiternational Cooperation Administration, these bills to be paid
Guatemala.
11,Pon receipt by the Board of funds from the Banco de
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 6
FEDERAL RESERVE SYSTEM
7/15/59
WASHINGTON
OFFICE OF THE CHAIRMAN
July 14, 1959
The Honorable Brent Spence,
Chairman,
Banking and Currency Committee,
House of Representatives,
Washington 25, D. C.
Dear Mr. Chairman:
In a telegram dated June 23, 1959, Mr. Patman requested
that copies of the reports of examination of the twelve Federal
Reserve Banks made during 1958 and of the audit report covering
the operations of the Board of Governors of the Federal Reserve
System during 1958 be made available for his use. In my acknowledgment of June 24 I advised Mr. Patman that the reports of examination
of the Res(r ve Banks would be assembled and sent to the House
Committee on Banking and Currency in accordance with past practice,
adding that a copy of the audit report of the Board of Governors
for 1958 already had been furnished to the Committee under date
Of February 26,
1959.
The reports of examination of the twelve Federal
Resrve
Banks made during 1958 will be transmitted today to
the offices of the Committee on Banking and Currency of the
m _use of Representatives. You will recall that my letter of
1,2, 1958 transmitting the reports for 1957 stated that
these were being forwarded to the Committee with the underStanding that they would be made available in confidence only
members of Congress and their staffs. The 1958 reports are
being
transmitted with the same understanding.
The reports of examination contain information with
re
respect to
borrowings by member banks, business organizations,
"d individuals, as well as information relating to loans on
1d b
-Y the Reserve Banks to foreign central banks. Disclosure
of this nature would be contrary to the general
Policy observed by banks of holding in strict confidence
rlicY
ensactions on
'
w
behalf of any of their customers. The Board
F4
The Honorable Brent Spence
-2-
continues to believe that this confidential relationship is
especially necessary with respect to operations of foreign
central banks or matters relating to loans on gold, disclosure
of which might have serious unforeseeable repercussions.
Enclosed for your information is a copy of my letter
Of this date to Mr. Patman.
Sincerely yours,
(Signed) Wm. McC, Martin, Jr.
WM. Me. Martin) Jr.
Enel0Sure
Item No.
7/15/59
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
July 14, 1959
The Honorable Wright Patman,
Use of Representatives,
Washinfrton 25, D. C.
pear Mr. Patman:
The reports of examination of the twelve Federal Reserve
anks about which you asked in your telegram of June 23 are being
sent today to the office of the Committee on Banking and Currency
the House. A copy of my letter of transmittal to Chairman
pence is enclosed for your information.
r
Your subsequent telegram of July 10 also referred to the
,audit report covering the Board of Governors of the Federal Reserve
?stem during the year 1958. As indicated in my acknowledgment of
4 to you, a copy of this report was sent to the Chairman of
1959.anking and Currency Committee of the House on February 26,
We regret the delay that has occurred in making available
the
reports of examination of the Federal Reserve Banks. We also
:trot that the 1958 Annual Report of the Board has not been availthee at an earlier date this year. It is expected, however, that
c _ report will be transmitted before the end of this months and a
utlY will be sent to you as soon as it is available.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
'closure
7
@FedFRASER