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Minutes for July 15, 1966
To:
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 proposed to place in the record of policy actions required
to be kept under the provisions of section 10 of the Federal Reserve
Act entries dealing with the subjects referred to below:
Page 1
Disapproval of discount rates established
by certain Federal Reserve Banks.
Page 10
Amendments to Regulation Q, Payment of
Interest on Deposits, and the Supplement
thereto.
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
seen the minutes.
initials will indicate only th el-55a- a
Chairman Martin
Governor Robertson
Governor Shepardson
Governor Mitchell
Governor Daane
Governor Maisel
Governor Brimmer
2;32
Minutes of the Board of Governors of the Federal Reserve
System on Friday, July 15, 1966.
The Board met in the Board Room
at 9:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Robertson, Vice Chairman
Shepardson 1/
Daane
Maisel
Brimmer
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Solomon, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Koch, Deputy Director, Division of Research
and Statistics
Discount rates (Item No. 1).
Telegrams had been received from
the Federal Reserve Banks of New York, Cleveland, Chicago, and St. Louis
advising that the directors of those Banks, at meetings yesterday, had
established a rate of 5 per cent on discounts and advances to member
banks under sections 13 and 13(a) of the Federal Reserve Act, subject
to review and determination by the Board of Governors.
The directors
of those Banks had also established a rate of 5-1/2 per cent on advances
to member banks under section 10(b).
The New York and Cleveland Banks
had established a rate of 6-1/2 per cent on advances to individuals,
Partnerships, and corporations, other than member banks, under the last
Paragraph of section 13, while the Chicago and St. Louis Banks had established a rate of 6 per cent.
11 Withdrew from meeting at point indicated in minutes.
04 4530
7/15/66
-2Telegrams also had been received advising that the directors of
the Federal Reserve Banks of Richmond, Atlanta, Minneapolis, and Dallas
had established without change the rates on discounts and advances in
their existing schedules.
Governor Shepardson stated that in the light of the discussion
at yesterday's Board meeting, including all of the points brought out
at that time, he would not favor approving a discount rate increase of
1/2 per cent.
He felt that any increase should be in a larger amount.
However, in the absence of any information beyond that available at
Yesterday's meeting, he concluded that the Board should not approve a
discount rate increase at this time.
He said this on the assumption
that the Board was going to move to lower the maximum rate payable by
member banks on multiple maturity time deposits and that it was going
to propose to the Congress legislation giving broader authority to the
Board, the Federal Deposit Insurance Corporation, and the Home Loan Bank
Board to govern the rate practices of banks and savings and loan associations.
He also assumed, in that connection,that the Board would
issue a press statement along the lines of the draft that had been
distributed.
Governor Shepardson raised the question whether it would be
aPpropriate to add to the proposed announcement a paragraph stating in
essence that in light of the moves described therein and other considerations, the Board had decided not to increase the discount rate at
2531
7/15/66
-3-
this time.
There might even be included a statement that, while dis-
count rate increases had been received from several Reserve Banks, the
Board had decided not to approve them.
With four Banks having estab-
lished a 5 per cent rate, he thought it inevitable that sooner or later
there was going to be some leak.
Accordingly, it might be better for
the Board to make an announcement.
Governor Daane said he had mixed feelings.
Other things being
equal, he thought a discount rate increase would be the right action to
take.
He had studied the market aspects of the matter and, contrary to
Treasury opinion, believed it would be helpful to the market and to the
Treasury to increase the discount rate.
Such action would give the mar-
ket a basis whereby it could accept Treasury financing at a suitable
price.
In the absence of such action, he believed the Treasury might
find itself in difficulty.
A knowledgeable market observer had told
him recently that for the first time in his (the observer's) experience
in the Government securities market, he did not have in mind a program
for the Treasury in advance of a refunding.
In that kind of situation,
Governor Daane said, he felt that a discount rate increase would be a
stabilizing market factor; it should help to clear the air and it would
keep the discount rate meaningful in relation to market rates.
He
could not follow the logic of the argument that the System could continue to push on the monetary brake through open market operations, or
by other means, without doing anything about a rate that was significant
in the market.
532
7/15/66
-4On the international side, Governor Daane commented that it
would be helpful to maintain a posture of concern about the balance of
payments.
In short, he would favor a discount rate increase on all
economic grounds.
His reluctance to push for an increase stemmed from
the fact that such action appeared to risk a disruption of Governmental
relationships just as undesirable as the break last December.
Even
though he felt it would be in the best interests of the Administration
if this move were made, he did not think the net gain from a rate
increase would be sufficient to risk such a disruption.
A rate increase,
he noted, still should be possible in mid-August between the dates of
Treasury financings.
Accordingly, while he would favor a discount rate
increase in principle, he would be inclined to go along with the other
members of the Board in disapproving such action at this time.
Governor Daane added that he would not want to say anything
about the discount rate in the press release.
While there was a chance
of leaks, he did not believe it would help the market to make an announcement.
Instead, such an announcement might simply create more uncertainty.
Governor Maisel said he thought the Board must make up its mind
about its objectives and goals.
If the main goal was to fight inflation,
this must be done through a coordinated program.
The Board, in his
opinion, had been slow in trying to do this and finding the best way.
An increase in the discount rate at this time would defeat the total
objective, although it might help one or two of the sub-objectives.
Therefore, he would be opposed to approving a discount rate increase.
7/15/66
-5Governor Brimmer noted that since he had spoken at some length
Yesterday on the question of a discount rate change at this time, he
Would not repeat his reasoning in detail.
Ordinarily he would support
an increase in the rate of the magnitude now proposed.
However, in view
of the recent increase in the British Bank rate and in light of the
Other moves that the Board anticipated making, including the request
for broadened legislative authority to moderate rate competition, he
would favor not approving a discount rate increase at this point.
At
the same time, he wanted to make it clear that he did not feel this
foreclosed the issue far into the future.
The Board would have to face
the question of a rate change in the relatively near future in order to
bring the discount rate more in line with market rates.
If the measures
he hoped the Board would announce today were taken with regard to time
deposit rates, the atmosphere might calm down a bit, and it would be
more advantageous to deal with the discount rate under such conditions.
Governor Brimmer said he would not like to see the Board simply
reject the proposals for a rate increase and tell the Reserve Banks
nothing.
Instead, he would like the Board to tell the Banks that it
was not acting on a rate change at this particular time.
He would not
tell them that the Board would not act in the near future or, on the
Other hand, that it would take action.
Board could not approve at this time.
He would simply say that the
This would leave the way open
for the Board to discuss with the management of the Banks the question
of the timing and size of a rate change, and a collision with the
7/15/66
-6-
Administration might be avoided.
Since this was a marginal case, and
the avoidance of a collision with the Administration or with the Reserve
Banks would be useful, he would not be in favor of making a public
announcement that the Board had rejected proposed rate increases.
The
making of such an announcement might simply excite the market further
and set up expectations that the Board would in fact get back to this
at some early date.
He would advise the Reserve Banks of reasons for
the Board's position, but not the general public.
Asked whether he favored disapproving the four Reserve Bank
actions or simply holding them over without action, Governor Brimmer
said he was hoping that they might just be laid over.
Mr. Sherman observed that the Board could, if it wished, advise
the Reserve Banks, either formally or informally, that it was not prePared to act at this time on the rate increase, which would mean that
the existing rates on discounts and advances would automatically remain
in effect.
Governor Daane indicated that he would be prepared to go along
with such a procedure if it appeared to be a reasonable option.
Governor Shepardson then noted that there was rather widespread
expectation that something would be done today.
If the Board simply
held the rate proposals in abeyance and made no announcement, the uncertainty would continue.
If the Board took action to disapprove the
Proposed rates and made a statement to such effect, this would indicate
7/15/66
-7-
that the Board was going to try other approaches.
Such an announcement
would not commit the Board regarding what action it might or might not
take in the future, but it would indicate that the Board was holding a
discount rate move in abeyance until it reviewed other developments.
In further discussion, Governor Brimmer said he had understood
that a failure to act would in effect kill the rate proposal without
formally rejecting it.
If this was not the case, he would favor taking
formal action to reject the proposed rate increase.
Governor Maisel said he would like to have various options
explored in greater detail and considered more fully by the Board.
He
thought there would be more latitude to do this if the Board took the
Positive step of rejecting the current rate proposals.
be to clear the air and dispel rumors.
The effect would
Any further rumors would at least
start with the fact that the current rate proposals had been rejected.
On whether to include this in the Board's press statement, he was inclined
to think that this ought to be done but he did not feel strongly on the
matter.
If others had strong feelings to the contrary, he would be will-
ing to go along.
However, he did feel strongly that the Board ought to
take action and notify the four Banks concerned that the Board was not
10-11ing to approve a rate increase at this time.
The Vice Chairman expressed the view that delay on the part of
the Board would simply create more uncertainty in the minds of the Reserve
sank directors, particularly in view of the issues that were involved.
7/15/66
-8-
President Hayes, he said, had called on the telephone yesterday and
stated that his directors wanted him to report that their action was
motivated by the absence of an affirmative fiscal policy on the part
of the Government.
No mention was made of any motivation such as undue
difficulty in the operation of the discount window.
The Vice Chairman believed that the Board should act on the
Proposed rates and state specifically in a letter to the Reserve Banks
that it had taken this action.
Such a letter could cite the close
Proximity to the British Bank rate action and a desire not to have that
move offset by action here.
The letter could also state that although
the discount rate was out of touch with market interest rates, this was
neither hampering monetary restraint nor causing insurmountable difficulties in the operation of the discount window; and that consequently,
in the Board's view, there was not a sufficient case for changing the
discount rate at this time.
Governor Daane stated that if unanimous action seemed desirable,
he would be willing to join in a disapproval of the rate increase.
How-
ever, his vote would not rest on the British Bank rate action or on an
argument that adjustment to market rates was not needed.
He would have
Only one real reason for disapproval, namely, that the gain from a rate
change at this time was not worth the price in terms of the effect on
relationships within the Government.
Governor Brimmer pointed out that he had set forth at yesterday's
meeting a number of grounds that he considered valid for an action
7/15/66
-9-
disapproving a rate change at this time, if the view of the Board was
against a procedure whereby the Board would simply fail to take any
action on the proposed rates.
In his comments yesterday, he had referred
not only to the British Bank rate increase but to a variety of other
reasons why he would like to see the Board wait before approving a discount rate change.
A vote then was taken on whether to approve the rates on discounts and advances established by the directors of the New York,
Cleveland, Chicago, and St. Louis Banks, and such rates were disapproved
by unanimous vote.
The effect of this action was that the rates in the
existing schedules of those Banks automatically continued in effect.
Unanimous approval was given to the establishment without change
by the Federal Reserve Banks of Richmond, Atlanta, Minneapolis, and
Dallas on July 14, 1966, of the rates on discounts and advances in their
existing schedules, with the understanding that appropriate advice would
be sent to those Banks.
The Vice Chairman then turned to the question of what, if anything, should be said to the four Reserve Banks that had established a
5 per cent discount rate.
It was his feeling that the directors would
react better if they had some idea of the reasons for which the Board
members had reached the conclusion to disapprove.
If these reasons
could be enumerated, with indication that for one or more of them the
individual Board members considered a rate increase unwise at this time,
he felt that this would be helpful.
2:338
7/15/66
-10It was noted, in this connection, that the reasons for the action
Presumably would be reported fully in the policy record of the Board's
Annual Report, and it was understood that a draft of policy record entry
would be prepared for the Board's consideration.
Governor Daane then said he agreed that it would make sense to
relay to the directors some explanation of the Board's decision.
He
hoped that the explanation would be relatively brief, however, because
the differences in the reasoning of the individual Board members would
appear to make the composition of such a letter rather difficult.
He
repeated that on economic grounds he felt the case for positive action
was clear and conclusive.
It was then agreed that a letter to the Presidents of the four
Reserve Banks enumerating reasons why Board members had concluded
against approving a discount rate increase at this time would be drafted
and that it would be sent after clearance with members of the Board.
(This letter would supplement telegraphic advice of the Board's action.)
It was understood that copies of the letter would be sent to the Presidents of the other Federal Reserve Banks for their information.
A copy of the letter subsequently sent pursuant to this understanding is attached as Item No. 1.
Interest rates on time deposits (Items 2-4).
Consideration
then was given to the proposed action to amend Regulation Q, Payment of
Interest on Deposits, and the Supplement thereto, for the purpose of
;4irelt.1
7/15/66
-11-
lowering the maximum rates payable by member banks henceforth on time
deposits with multiple maturities.
Revised copies of the proposed
amendments, prepared by the Legal Division, had been distributed under
date of July 14, 1966.
At this meeting there were distributed copies of a draft of
letter to the Chairmen of the Congressional Banking and Currency Committees advising of the multiple maturity time deposit action and submitting draft legislation that would broaden existing authority to regulate
interest rates payable by insured banks on time and savings deposits
and extend parallel authority to the Federal Home Loan Bank Board with
respect to dividend rates payable by savings and loan associations.
There had been distributed, under date of July 14, a draft of
Press statement announcing the action with respect to multiple maturity
time deposits and also the fact that broader authority to govern the
rate practices of banks and savings and loan associations was being
requested.
The Vice Chairman summarized conversations that he had had with
the Chairman of the Federal Deposit Insurance Corporation and the Chairman of the Home Loan Bank Board yesterday regarding the proposed action
and the proposed legislation.
The Vice Chairman also summarized the
reactions of these gentlemen and indicated that there would appear to
be no objection, if the Board so desired, to indicating that the proposed
le islation was being submitted after consultation with them.
It
7/15/66
-12-
appeared possible, the Vice Chairman thought, that the proposed legislation would eventually be supported by the Treasury and the Council of
Economic Advisers.
Mr. Hackley then discussed certain proposed further changes in
the draft amendments to Regulation Q and the Supplement thereto.
After
he had explained the purpose of these further changes, they were agreed
to by the Board.
Question arose as to when the Regulation Q amendments should be
made effective, it being pointed out that the amendments should be in
the hands of member banks by the effective date but that an effective
date too far removed would allow banks to take some advantage of the
situation.
After discussion, there was agreement with a suggestion by
the Vice Chairman that the amendments be made effective July 20, 1966.
Mr. Hackley noted that the press release, as drafted, stated
that the Board was considering a further change in Regulation Q to
strengthen the penalty for payment of time deposits before maturity in
order to make more certain that such deposits would not, like savings
deposits, in effect be paid on demand.
be eliminated from the press release.
He suggested that this language
It could then be determined
Whether the Federal Deposit Insurance Corporation would go along with
Publishing in the Federal Register for comment a similar notice of rule
making applicable to nonmember insured banks.
this suggestion.
There was agreement with
2541
7/15/66
-13Mr. Hackley then stated that he understood the directors of the
Federal Deposit Insurance Corporation were meeting this morning.
He
left the room to report to representatives of the Corporation the revised
text of the amendments to Regulation Q and the Supplement thereto.
The proposed amendments to Regulation Q and the Supplement
thereto with respect to the maximum rates payable on multiple maturity
time deposits were then approved unanimously, effective July 20, 1966.
(A copy of the amendments, in form subsequently published in the Federal
Register, is attached as Item No. 2.)
It was agreed unanimously that there should be published in the
Federal Register for comment a proposed amendment to Regulation Q to
s trengthen the penalty for payment of time deposits before maturity.
It was also agreed unanimously that there should be published
in the Federal Register proposed amendments to Regulation Q and Regulation D, Reserves of Member Banks, relating to the definition of savings deposits, as discussed at the meeting on July 14, 1966.
It was understood that the publication of the proposed amendments referred to in the foregoing two paragraphs would be deferred to
Permit the Federal Deposit Insurance Corporation an opportunity to
determine whether it wished to publish for comment similar amendments
to its regulations relating to nonmember insured banks.
The Board then turned more specifically to consideration of the
Proposed press statement, which it was understood would be modified to
2542
7/15/66
-14-
the extent necessary to conform to the final version of the Regulation Q
action with respect to multiple maturity time deposits.
Governor Shepardson said he would agree that the press statement should not contain any comment about what the Board might or might
not do in the future.
However, he again raised the question whether
there would not be some advantage in making reference in the press
release to the Board's action with respect to the discount rate.
Governor Daane expressed the judgment that it would be unwise
to say anything in the press release.
If this were done, questions
might be raised regarding the reasons for the Board's action, and the
announcement might tend to excite the market rather than being helpful.
Governor Robertson agreed, saying that if the Board announced
it was not taking action to approve a higher discount rate the question
would come up as to when the Board might take such action.
His thought
Would be to follow the Board's general practice of letting its actions
Speak for themselves.
Also, the mere fact that no discount rate action
was announced would be some indication to more sophisticated observers
of a Board attitude.
Governor Brimmer indicated that he would have a strong view
against making reference to the discount rate action.
Further on the press release, Governor Daane said he did not
think the Board ought to overdramatize its action on multiple maturity
time deposits.
He thought it unwise to play this up too strongly as a
AZ! 43
7/15/66
-15-
credit policy action; the announcement effect might be exaggerated.
Banks would still have certain adjustment options available, and loopholes might be found in the amendments.
Therefore, indication that
this was a significant reinforcement of the System's credit restraint
Program seemed to him to throw the matter out of perspective.
After some discussion of this point, Mr. Solomon suggested
alternative language for the third paragraph of the proposed press statement, and Governor Daane's reaction to the revision was favorable.
Other
members of the Board also expressed agreement with it, although they had
not all shared Governor Daane's concern about the original drafting.
There followed several additional suggestions for changes of a
technical nature in the press statement.
Consideration then turned to the draft of letter to the Chairmen
of the congressional Banking and Currency Committees.
Interrelationships
between the letter and the press statement were noted, and it was understood that conforming changes in the respective documents would be made.
Mr. Molony, who had been called from the room, returned at this
Point and stated that a staff representative of the Federal Deposit
Insurance Corporation had inquired by telephone whether the Board would
be inclined toward a procedure whereby a joint Board-Corporation press
release would be issued on multiple maturity time deposits and the two
agencies would send joint letters to the Congressional Committee
Chairmen on the proposed legislation.
This possibility was considered, but
2544
-16-
7/15/66
it was pointed out among other things that delay might ensue in working
out the mechanics of such a procedure.
It was understood that Mr.
Molony would suggest to the Corporation's representative who had inquired
that a coordinated approach would seem preferable to a joint approach.
It was agreed, after further discussion, to drop from the draft
letter to the Congressional Committee Chairmen a paragraph referring to
consultation with various Government officials.
Unanimous approval then was given to a letter to the Chairman
of the Senate Banking and Currency Committee in the form attached as
Item No. 3.
The letter sent to the Chairman of the House Banking and
Currency Committee was similar in form.
Unanimous approval also was given to a form of press release,
it being understood that the release would be issued shortly after the
aforementioned letters had been transmitted to the Chairmen of the Congressional Committees.
A copy of the press release in the form in
Which it was subsequently issued is attached as Item No. 4.
Secretary's Note: The Vice Chairman
later informed the Secretary that he
had talked with the Chairman of the
Federal Deposit Insurance Corporation
subsequent to this meeting and that
the latter expressed a preference for
not issuing a joint press statement
or sending joint letters to the Congressional Committee Chairmen.
Governor Shepardson withdrew from the meeting at this point to
begin an out-of-town trip and the following members of the staff entered
the room:
2545
7/15/66
-17Messrs. Broida and Bakke, Assistant Secretaries
Mr. Solomon, Director, Division of Examinations
Mr. Shay, Assistant General Counsel
Miss Hart and Mr. Smith of the Legal Division
Mr. Furth, Consultant
Messrs. Partee, Axilrod, Eckert, Fry, Keir, and Kelty, and
Mrs. Peskin of the Division of Research and Statistics
Messrs. Sammons, Hersey, Baker, Gekker, Gemmill, and Hayes,
and Mrs. Junz of the Division of International Finance
Money market review.
There were distributed tables affording
Perspective on the money market, capital markets, and bank reserve
U tilization; also on net savings flows at California State-chartered
savings and loan associations for the recent period.
Mr. Kelty reported on the money market, following which Mr. Fry
d iscussed projections of bank reserve utilization and Mr. Keir presented
information on flows into and out of savings and loan institutions along
with bond market developments.
Mr. Gemmill then reviewed developments
in the foreign exchange market.
Following the foregoing reports, all members of the staff except
Messrs. Sherman, Kenyon, Bakke, Hackley, Solomon (Examinations), Shay,
and Smith, and Miss Hart withdrew from the meeting.
Messrs. Hexter,
Associate General Counsel, and Hooff, Assistant General Counsel, entered
the room.
Approved items.
The following items, copies of which are
a ttached under the respective numbers indicated, were approved unanimously following consideration of background information that had been
Made available to the Board:
.
4.. 46
7/15/66
-18Item No.
Letter to Continental International Finance
Corporation, Chicago, Illinois, granting
permission to purchase additional shares of
Union Industrial Bancaria, Barcelona, Spain.
5
Letter to Congressman Charles E. Bennett
enclosing, pursuant to his request, draft
legislation for further amendment of the
Bank Holding Company Act of 1956.
6
Letter to Chairman Robertson of the Senate
Banking and Currency Committee regarding the
voting of banks' own stock held in their
trust departments.
7
In connection with Items 6 and 7, certain editorial changes
were adopted in the draft letters presented for Board consideration
Prior to their approval.
(The draft of Item No. 7 had been prepared
in light of discussion at the Board meeting on July 1, 1966.)
Request for unpublished information.
Pursuant to Board action
°n July 6, 1966, there was transmitted to Michigan Bank, National Association, Detroit, Michigan, a copy of a letter to the Federal Reserve
Bank of Chicago ruling that Livonia, Michigan, was "adjacent" to Detroit,
Michigan; that the services of Mr. Stanford C. Stoddard and Mr. Frank R.
Welsher as officers and directors of Michigan Bank and as directors of
Livonia National Bank, Livonia, Michigan, were, therefore, forbidden
under section 8 of the Clayton Act, as implemented by the Board's Regulation L (Interlocking Bank Directorates under the Clayton Act); and
that the interlocking services should be promptly terminated.
2547
7/15/66
-19In that letter, dated July 7, reference was made to a Board
letter of August 19, 1953, ruling that Detroit and Livonia were "adjacent" for purposes of section 8 of the Clayton Act, and to a communication of April 13, 1966, from the Chicago Reserve Bank, transmitting to
the Board a letter of April 11 with accompanying Memorandum of Counsel
from the Detroit Branch, concerning the interlocking relationship here
in question.
Messrs. Stoddard and Welsher had been advised by the Comptroller
of the Currency, in a letter of March 3, 1966, that the interlocking
services in question were not forbidden by the Clayton Act.
Because
of these conflicting advices, they planned to meet with the Comptroller
early next week to discuss the matter, and Mr. Stoddard had requested
copies of the Board's August 19, 1953, letter and the Chicago Reserve
Rank's April 13, 1966, letter, with enclosures, to review in preparation
for the conference.
Mr. Shay noted that since these materials were "unpublished
information of the Board," under section 261.2 of the Board's Rules
l egarding Information, Submittals, and Requests they could be furnished
°Illy if authorized by the Board.
Governor Robertson expressed reservation about complying with
the request, in view of the fact that compliance might be regarded as
setting a precedent for granting access to internal documents and staff
memoranda in various areas of the Board's responsibilities.
;e 48
7/15/66
-20Mr. Shay observed, in reply, that the Board's letter of July 7
had referred to the materials Mr. Stoddard was seeking and, indeed, had
quoted a portion of the Memorandum of Counsel from the Detroit Branch.
Governor Maisel said that, in keeping with the spirit of recent
"freedom-of-information" legislation (Public Law 89-487), he would be
inclined to accede to the request, since the material in question had
Provided basic information underlying the Board's ruling.
Governor Robertson noted that while he was not concerned about
releasing factual information, he did have reservations about the desirability of regarding documents containing expressions of staff opinion
or recommendations as being available for public scrutiny.
Governor Brimmer brought out that the Memorandum of Counsel
from the Detroit Branch did include certain expressions of opinion and,
since the substance of the Memorandum had been set forth in the Board's
July 7 letter, he regarded the remaining contents as extraneous to the
basic issue.
Governor Robertson then solicited staff views on the question,
and Mr. Hexter observed that while valid arguments could be made in
support of a decision either to release internal work product to or
Withhold it from the public, he would be inclined to favor making the
material sought in this particular instance available to Mr. Stoddard.
Governor Daane concurred in this point of view.
Governor Brimmer commented that there was always the risk that
if internal working documents were made public the information would be
41/19
7/15/66
-21-
misquoted or misused.
Furthermore, he did not subscribe to the view
that the recently enacted "freedom-of-information" bill was justification for general compliance with requests for unpublished information;
that law would not come into effect for another year and the applicability of its provisions remained unsettled.
If the other members of
the Board felt these particular documents should be released, he would
go along, but the decision should rest upon an evaluation of the ad hoc
situation.
He suggested that in the future care be exercised not to
quote unnecessarily from internal documents, and other members of the
Board agreed.
Release of the documents requested by Mr. Stoddard was thereupon
authorized, with the understanding that the point made by Governor Brimmer
would be borne in mind in preparing correspondence in the future.
The meeting then adjourned.
Secretary's Note: Acting in the absence of
Governor Shepardson, Governor Robertson today
approved on behalf of the Board memoranda
recommending the following actions relating
to the Board's staff:
2221-11.trItaLE
Leslie M. Alperstein as Economist, Division of Research and Statistics, with basic annual salary at the rate of $9,879, effective the
date of entrance upon duty.
Joseph S. Zeisel as Senior Economist, Division of Research and
S tatistics, with basic annual salary at the rate of $20,005, effective
the date of entrance upon duty.
2550
7/15/66
-22-
_§.212Ily increases, effective July 17, 1966
Name and title
Division
Basic annual salary
From
To
Office of the Secretary
Mary Anne Lostaunau, Secretary
$ 5,894
$ 6,086
16,204
17,645
14,680
5,702
7,479
12,510
14,250
9,879
11,723
10,987
15,188
5,894
7,733
12,945
15,188
10,619
12,510
11,355
7,733
7,987
13,380
13,380
13,815
13,815
4,849
3,626
3,626
4,160
5,200
4,989
3,745
3,745
4,368
5,470
5,894
6,476
Research and Statistics
Frank de Leeuw, Senior Economist
(change in title from Economist)
Edward C. Ettin, Economist
Marylee H. Hair, General Assistant
George J. Konomos, Economist
Paul F. McGouldrick, Economist
J. Cortland G. Peret, Economist
Janice Peskin, Economist
Alfred J. Tella, Economist
Erling T. Thoresen, Economist
Examinations
Edward W. Healey, Assistant Federal Reserve
Examiner
Jerry B. Riley, Senior Federal Reserve Examiner
Louis William Zidek, Senior Federal Reserve
Examiner
Administrative Services
Garland R. Gaines, Mail Clerk
Mildred C. Harris, Charwoman
Betty Howard, Charwoman
Hampton L. Logan, Window Washer
William D. Ward, General Mechanic
Office of the Controller
Prederick C. McGrady, Budget and Planning Assistant
7/15/66
-23-
Transfers
Cheryl
Statistics,
the Capital
the rate of
Dobbins, Statistical Clerk, Division of Research and
from budget position No. 18 to budget position No. 15 in
Markets Section, with no change in basic annual salary at
$4,289, effective July 17, 1966.
Gena Gander, from the position of Employee Relations Technician
in the Division of Personnel Administration to the position of Employment Technician in that Division, with no change in basic annual salary
at the rate of $7,718, effective July 17, 1966.
Joseph H. Hoyle, from the position of Supervisor, Payroll and
Disbursing, Office of the Controller, to the position of Employee
Relations Technician, Division of Personnel Administration, with an
increase in basic annual salary from $8,132 to $8,693, effective
July 17, 1966.
Paul C. Kainen, Summer Assistant, Division of Research and Statistics,
effective the close of business July 22, 1966.
H. F. Sprecher, Jr., Assistant
Administration, effective the close
than the close of business July 15,
July 23, 1966 (rather than July 16,
Director, Division of Personnel
of business July 22, 1966 (rather
1966), with retirement effective
1966).
2552
BOARD OF GOVERNORS
Item No. 1
7/15/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDREBB OFFICIAL CORRESPONDENCE
TO MC BOARD
July 16, 1966.
CO
NFIDENTIAL (FR)
(Letter to Presidents of the Federal Reserve Banks of New York, Cleveland,
Chicago, and St. Louis; copies snet to eight other Reserve Bank Presidents.)
This supplements the Board's telegram of July 15, 1966,
in which your Bank was advised that the Board had not approved the
rates on discounts and advances established by your Board of Directors
On Thursday, July 14. This action by the Board of Governors means,
of course, that the rates in your Bank's existing schedule automatically
cont
inue in effect.
In considering the rates fixed by your Board of Directors,
the
Board of Governors was not unmindful of the arguments favoring a
discount
rate increase, including the fact that the current discount
rate has
fallen substantially out of alignment with market rates and
that
_
an increase might tend to remove uncertainties affecting the
markets. For a variety of reasons, however, the Board concluded that
:
1 balance these arguments were not sufficiently compelling to warrant
d iscount rate increase at this particular time and that it would be
'
better to preserve flexibility, especially in light of international
uncertainties.
The several arguments against a rate increase were not
necessarily accorded equal weight by each of the members of the Board.
C'n the domestic side, however, there was some question
whether a discount
c
rate increase of 1/2 of 1 per cent would be sufficient to calm
isting uncertainties, and therefore to provide a genuine stabilizing
influence or
whether such an increase might simply promote speculasi..°11 concerning the possibility of additional action being taken.
anilarlY, in view of the many crosscurrents prevailing in financial
0';' credit markets, it appeared possible that the announcement effect
a discount rate change could be overemphasized and that such action
:lght be misconstrued, with ramifications extending beyond the intended
"
pa of the action.
2
There was also some feeling that the increase in the British
Bank rate earlier this week, designed to strengthen the position of the
15-K., should not be weakened by offsetting action here.
It was also noted that, even though the present discount
rate was out of touch with market interest rates, this apparently
was not hampering monetary restraint significantly or causing unsurmountable difficulties in the administration of the discount window.
As you have been advised, the Board yesterday announced
Changes in Regulation Q to lower the maximum rate that member banks
may pay on time deposits with multiple maturities, and the Board has
also sent to the Congress, with a recommendation for prompt consideration, legislative proposals to broaden regulatory powers over rate
Practices of banks and savings and loan associations.
The foregoing were among the considerations leading the
Board to conclude on balance that action approving a discount rate
inorease would not be warranted at this particular time, and the
.Board wanted you and your directors to be informed.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
24, 54
TITLE 12 - BANKS AND BANKING
Item No. 2
7/15/66
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. Q]
PART 217 - PAYMENT OF INTEREST ON DEPOSITS
Maximum Rates of Interest
1,
Effective July 20, 1966, § 217.1 is amended by inserting a
E7
paragraph (g) as follows:
(g) tlitLiple maturity time deposit. - The term "multiple maturity
time deposit" means any time deposit (1) that is payable at the deposis option on more than one date, whether on a specified date or at
he exPiration of a specified time after the date of deposit (e.g., a
sit payable at the option of the depositor either three months or
de
"
months after the date of deposit), (2) that is payable after written
"tice of withdrawal, or (3) with respect to which the underlying instru°lent or
contract or any informal understanding or agreement provides for
aqtomatic renewal at maturity.
2.
Effective July 20, 1966, § 217.6 (Supplement to Regulation Q)
is amended to read as follows:
5 217.6
Maximum rates of interest payable on time and savings deposits
banks.
2.2_E„Dit_c_r
1
Pursuant to the provisions of section 19 of the Federal Reserve
Aetnd § 217.3, the Board of Governors of the Federal Reserve System
1/
hereb
Y prescribes the following maximum rates
of interest payable by
Rese e maximum rates of interest payable by member banks of the Federal
optat
ive System on time and savings deposits as prescribed herein are not
benk cable to any deposit which is payable only at an office of a member
of
Located outside of the States of the United States and the District
k;olumbia.
2355
member banks of the Federal Reserve System on time and savings
deposits:
(a) Time deposits. - (1) No member bank shall pay interest
accruing at a rate in excess of 5-1/2 per cent per annum, compounded
2/
qu
arterly,— regardless of the basis upon which such interest may be
computed, on any time deposit, subject, however, to the provisions of
sub paragraphs (2) and (3) of this paragraph.
(2) No member bank shall pay interest accruing at a rate in
2/
regardless of
excess of 5 per cent per annum, compounded quarterly,
the basis upon which such interest may be computed, on any multiple
maturity
time deposit received on or after July 20, 1966, which is payable only 90 days or more after the date of deposit or 90 days or more
after the last preceding date on which it might have been paid.
(3) No member bank shall pay interest accruing at a rate in
2/
excess of 4 per cent per annum, compounded quarterly,
regardless of
the basis upon which such interest may be computed, on any multiple
maturity time deposit received on or after July 20, 1966, which is payable
leas than 90 days after the date of deposit or less than 90 days after the
last preceding date on which it might have been paid,
(b) Savings deposits. - No member bank shall pay interest
accruing at a rate in excess of 4 per cent per annum, compounded quarterly,
te gardless of the basis upon which such interest may be computed, on any
savings deposit.
This limitation is not to be interpreted as preventing the compounding
!f interest at other than quarterly intervals, provided that the aggregate
:mount of such interest so compounded does not exceed the aggregate amount
uf interest at the rate above prescribed when compounded quarterly.
2556
-3-
3a.
The purpose of these amendments is to decrease the rate
of interest that member banks are permitted to pay on time deposits with
alternative maturities or with provision for automatic renewal at maturity, defined as "multiple maturity time deposits".
Formerly, member banks
were permitted to pay interest up to 5-1/2 per cent per annum on any time
Posit, irrespective of maturity. (A time deposit does not include a
dePosit contract that provides for payment in less than 30 days (§ 217.1).)
law, for multiple maturity time deposits with respect to which the deposi'
t(It is permitted to withdraw his funds only after periods of 90 days or
rn°re, the maximum permissible rate is 5 per cent.
For those such deposits
with respect to which the depositor is permitted to withdraw his funds
after periods of less than 90 days, the maximum permissible rate is
4 Per
cent.
b.
The requirements of section 4 of the Administrative Procedure
Act with respect to notice, public participation, and deferred effective
late were not followed in connection with these amendments because the
hoard found that the general credit situation and the public interest
"
raPelled it to make the action effective no later than the date adopted.
(12 U.S.C. 248(i), 371b, and 461.)
Dated at Uashington, D. C. this 15th day of July, 1966.
By order of the Board of Governors.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
0‘4.34.3
BOARD OF GOVERNORS
OF THE
Item No. 3
7/15/66
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE VICE CHAIRMAN
July 15, 1966.
The Honorable A. Willis Robertson,
Chairman, Committee on Banking
and Currency,
United States Senate,
Washington, D. C. 20510
Dear Mr. Chairman:
On behalf of the Board of Governors, I am submitting
a draft of legislation broadening existing authority to regulate
interest rates payable by insured banks on time and savings
deposits, and extending parallel authority to the Federal Home
Loan Bank Board with respect to rates payable by savings and
loan associations.
I am also enclosing a copy of a statement that will
be released shortly, announcing action by the Board of Governors
to amend Regulation Q so as to lower the ceiling on rates payable
by member banks on certain kinds of "consumer-type" certificates
of deposit. You will notice that a 5 per cent ceiling will apply
to "multiple maturity" deposits of 90 days or more, and that
a 4 per cent ceiling is imposed for "multiple maturity" deposits
of less than 90 days. The purpose of this amendment is to help
forestall excessive interest rate competition among financial
institutions in conditions, such as those now existing, when
monetary policy is aimed at curbing the rate of expansion of bank
credit.
Separate ceilings are imposed on "multiple maturity"
deposits in an effort to differentiate between money market CD's
and consumer-type deposits. Obviously, the "multiple maturity"
concept is not ideally suited for this purpose, but it is, in
our judgment, the best alternative available under existing law.
It may be that the only effective means for accomplishing the
purposes we seek in the current situation is to differentiate
on the basis of amount of deposit, even though, as you know the
Board has reservations about such an approach except as a temporary
expedient. Accordingly, we hope that your Committee will give
prompt consideration to broadening the existing law as proposed
in the enclosed draft.
2558
The Honorable A. Willis Robertson
-2-
At the same time, we doubt the efficacy of attempting
to prevent a rate war by limiting rates payable only by banks.
The draft legislation therefore includes authority for imposition of rate ceilings by the Federal Home Loan Bank Board.
Under the proposal, ceilings for both banks and savings and
loan associations would not be mandatory, but could be imposed
or placed on a stand-by basis by the appropriate agency, after
consultation with the others, in the light of existing conditions.
Sincerely yours,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosures
2559
Draft of Bill for Regulation of
Interest and Dividend Rates on DepositA
and Share Accounts
A BILL
To provide for the more flexible regulation of maximum
rates of interest or dividends payable by banks and
certain other financial institutions on deposits or
share accounts, and for other purposes.
Be it enacted by the Senate and House of Representatives of
111Q11111.u_States of America in, Congress assembled, That the first
1146110a of the thirteenth paragraph of section 19 of the Federal Reserve
A4 (12 U.S.C. 371b) is amended to read as follows:
"The Board of
Q°vernors of the Federal Reserve System may from time to time, after
448ulting with the Board of Directors of the Federal Deposit Insurance
e°40ration and the Federal Home Loan Bank Board, limit by regulation
the rates of interest which may be paid by member banks on time and
8414ags deposits
Provided, That any regulation prescribed by the
r - 0,
11°11d
g Governors with respect to the payment of deposits and interest
tl*e0a by member banks in effect prior to the effective date of this
Act
shall continue in effect unless and until the Board of Governors,
44"
consultation with the other agencies above named, shall modify
4 t5scind such regulation.
The Board may prescribe different rate
"Itions for different classes of deposits, for deposits of different
41°114ta or with different maturities or subject to different conditions
424rding withdrawal or repayment, according to the nature or location
Of
member banks or their depositors, or according to such other reasonable
* a8 the Board may deem desirable in the public interest."
-2-
SEC. 2.
2560
The second and third sentences of section 18(g) of
the Federal Deposit Insurance Act (12 U.S.C. 1828(g)) are amended to
read _ a
a follows: "The Board of Directors may from time to time, after
c°11sulting with the Board of Governors of the Federal Reserve System
4111i the Federal Home Loan Bank Board, limit by regulation the rates of
4/4rest or dividends that may be paid by insured nonmember banks
(imtluding insured mutual savings banks) on time and savings deposits:
4"ided, That any regulation prescribed by the Board of Directors with
48Peet to the payment of deposits and interest thereon by member banks
effect prior to the effective date of this Act shall continue in
tfect unless and until the Board of Directors, after consultation
144111 the other agencies above named, shall modify or rescind such
48Mlation.
The Board of Directors may prescribe different rate limita-
5 for different classes of deposits, for deposits of different
"
4
43°Unts or with different maturities or subject to different conditions
NArding withdrawal or repayment, according to the nature or location
°I insured nonmember banks or their depositors
or according to such
tiler reasonable bases as the Board of Directors may deem desirable in
the Public interest."
SEC. 3.
elf ter
The Federal Home Loan Bank Act is amended by adding
section 5A thereof (12 U.S.C. 1425a) the following new section:
"Sec. 5B.
The Board may from time to time, after consulting
1411h the Board of Governors of the Federal Reserve System and the Board
f Directors of the Federal Deposit Insurance Corporation, limit by
4a 1lation the rates of interest or dividends on deposits, shares, or
vit
hdrawable accounts that may be paid by members, other than those the
deposits of which are insured in accordance with the provisions of the
Fedp
-ral Deposit Insurance Act, and by institutions which are insured
institutions as defined in section 401(a) of the National Housing Act:
l'rovided, That any regulation prescribed by the Board with respect to
the Payment of deposits and interest thereon by member banks in effect
Pri°r to the effective date of this Act shall continue in effect unless
snd until the Board, after consultation with the other agencies above
Ilnised, shall modify or rescind such regulation.
The Board may prescribe
different rate limitations for different classes of deposits, shares,
ntvd thdrawable accounts, for deposits, shares, or withdrawable accounts
different amounts or with different mattrities or subject to differeat
conditions regarding withdrawal or repayment, according to the
4tute or location of such members or institutions or their depositors,
sheteholders, or withdrawable accountholders, or according to such
°ther reasonable bases as the Board may deem desirable in the public
illterest.”
/14Y 13,
1966.
Item No. 4
7/15/66
Por immediate release.
July 15, 1966.
The Board of Governors of the Federal Reserve System today
lowered the maximum rate that the System's member banks may pay
henceforth on those time
deposits that have multiple maturities.
At the same time, the Board asked Congress for broader
authority—for itself, the Federal Deposit Insurance Corporation, and
the Federal Home Loan Bank Board--than is now available to govern the
rate practices of banks and savings and loan associations.
The purpose of both steps is to help forestall excessive
interest rate competition among financial institutions in conditions,
such as those now existing, when monetary policy is aimed at curbing
the rate of expansion of bank credit.
The action taken under present legislative authority
Prescribes, effective July 20, 1966, a maximum rate of 5 per cent on
stew
multiple maturity deposits of 90 days or more, and 4 per cent
for those of less than 90 days.
Outstanding multiple maturity
dePosits will not be affected by the lower maximum rates.
Previously, member banks were authorized to pay as high
a
1/2 per cent on multiple maturity time deposits.
The term
4
multiple maturity time deposit" is defined in the Board's Regulation
as:
"any time deposit (1) that is payable at the depositor's option
2562
2563
-2-
Omore than one date, whether on a specified date or at the
expiration of a specified time after the date of deposit (e.g., a
deposit payable at the option of the depositor either three months
°r six months after the date of deposit), (2) that is payable after
written notice of withdrawal, or (3) with respect to which the
underlying instrument or contract or any informal understanding or
agreement provides for automatic renewal at maturity."
No change was made in the ceilings respecting time deposits
having a single maturity (now set at 5-1/2 per cent) or passbook
savings accounts (now set at 4 per cent).
Prompt consideration of the legislative proposals to
b roaden the rate regulatory powers of the three supervisory agencies
wsa asked by the Board in letters to the Chairmen of the Senate and
House Banking and Currency Committees.
These proposals would empower the three supervisory agencies
t° Prescribe different rate limitations for different classes of
accounts, for accounts of different amounts or with different
Illaturities or subject to different conditions regarding withdrawal
°r repayment, according to the nature or location of the institutions
or the account holders or on any other reasonable basis.
-3-
2564
In the letters to the Congressional Committee Chairmen, the
Reserve Board pointed out that its action today under its present
Powers would cover only "consumer type" certificates of deposits
("CD'e) in member banks.
"Separate ceilings are imposed on 'multiple maturity'
Posits in an effort to differentiate between money market CD's
and consumer-type deposits," the Board said.
"Obviously, the
multiple maturity' concept is not ideally suited for this purpose,
but it is, in our judgment, the best alternative available under
existing law.
accomplishing
It may be that the only effective means for
the purposes we seek in the current situation is to differentiate on
the basis of amount of deposit, even though, as you know, the Board
has reservations about such an approach except as a temporary expedient.
Accordingly, we hope that your Committee will give prompt consideration
to broadening the existing law as proposed in the enclosed draft.
"At the same time, we doubt the efficacy of attempting to
Prevent a rate war by limiting rates payable only by banks.
The
draft legislation therefore includes authority for imposition of rate
ceilings by the Federal Home Loan Bank Board.
Under the proposal,
ceilings for both banks and savings and loan associations would not
be mandatory, but could be imposed or placed on a stand-by basis by
the appropriate agency, after consultation with the others, in the
light of existing conditions."
Attached is the text of the amendements to Regulation Q,
Payment of Interest on Deposits, implementing the Board's action.
2565
Item No. 5
7/15/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 15, 1966.
Continental International Finance Corporation,
231 South LaSalle Street,
Chicago 90, Illinois.
Gentlemen:
In accordance with your request of June 30, 1966, the
Board of Governors grants consent for your Corporation to purchase
and hold an additional 1,867 ordinary shares, par value Pesetas 500
each, of Union Industrial Bancaria, Barcelona, Spain, at a cost of
approximately US$16,000, plus Interest Equalization Tax of approximately $2,400, provided such stock is acquired within one year
from the date of this letter.
The foregoing consent is given with the understanding
that the investment now being approved, combined with other foreign
loans and investments of your Corporation, Continental Bank International, and Continental Illinois National Bank and Trust Company
of Chicago, will not cause the total of such loans and investments to
exceed the guidelines established under the voluntary foreign credit
restraint effort now in effect and that due consideration is being
given to the priorities contained therein. The Board considers
that compliance with the priorities expressed in Guideline 4 would
require that total nonexport credits to developed countries in
Continental Western Europe not exceed the amount of such loans and
investments as of the end of 1965, unless this can be done without
inhibiting the bank's ability to meet all reasonable requests for
Priority credits within the over-all target.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2566
BOARD OF GOVERNORS
OF THE
Item No. 6
7/15/66
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE VICE CHAIRMAN
July 15, 1966
The Honorable Charles E. Bennett,
House of Representatives,
Washington, D. C. 20515
Dear Mr. Bennett:
In the absence of Chairman Martin, there has
been referred to me for reply your letter of June 22, 1966,
in which you requested the Board's assistance in drafting
legislation for introduction by you that would effect
certain further amendments to the Bank Holding Company
Act of 1956 (as amended by Public Law 89-485). Enclosed
is a draft of a bill that would (1) substitute a one-bank
definition of "bank holding company" for the present twobank definition, and (2) repeal the partial exemption of
bank holding companies which are labor, agricultural, or
horticultural organizations and which are exempt from ,
taxation under Section 501 of the Internal Revenue Code
of 1954.
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosure
A BILL
2567
To amend the Bank Holding Company Act of 1956, and for other purposes.
ntatives of
Be it enacted by the Senate and House of Represe
(a)
the United States of America in Congress assembled, That subsection
U.S.C. 1841(a),
of section 2 of the Bank Holding Company Act of 1956 (12
as amended by Public Law 89-485) is amended by striking the words "each
ng in lieu
of two or more banks" wherever such words appear and inserti
thereof the words "any bank".
section 3 of
SEC. 2. The first sentence of subsection (a) of
amended by
the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a), as
Public Law 89-485), is amended to read as follows:
approval of the
"It shall be unlawful, except with the prior
any bank to become a
Board, (1) for any action to be taken that causes
bank holding
bank holding company or any other company to become a
bank; (2) for any
company with respect to more than one subsidiary
subsidiary of a bank
action to be taken that causes a bank to become a
to acquire direct or
holding company; (3) for any bank holding company
shares of any bank if, after
indirect ownership or control of any voting
indirectly own or
such acquisition, such company will directly or
shares of such bank;
control more than 5 per centum of the voting
, other than a
(4) for any bank holding company or subsidiary thereof
the assets of a bank; or
bank, to acquire all or substantially all of
or consolidate with any other
(5) for any bank holding company to merge
bank holding company."
-2-
SEC. 3.
2568
The first sentence of subsection (c) of section 4
of the Bank Holding Company Act of 1956 (12 U.S.C. 1843(c), as amended
by Public Law 89-485) is amended by striking the words "shall not apply
to any bank holding company which is a labor, agricultural, or horti501
cultural organization and which is exempt from taxation under section
of the Internal Revenue Code of 1954, and such prohibition shall not,
with respect to any other bank holding company" and inserting in lieu
thereof the words "shall not, with respect to any bank holding company".
2569
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 7
7/15/66
WASHINGTON
.
t ,,
4
.
. ., ,. .e•,
4.1
OFFICE OF THE VICE CHAIRMAN
..,:
IP:
July 15, 1966
The Honorable A. Willis Robertson, Chairman,
Committee on Banking and Currency,
United States Senate,
Washington, D. C. 20510
Dear Chairman Robertson:
This refers to your letter of June 13, 1966, to
Chairman Martin with respect to the voting by a State member bank
of trust holdings of the bank's own stock. The answers to your
Specific questions are:
(1) The Federal Reserve System considers this practice
undesirable and has tried by persuasion to encourage State
member banks to eliminate, as far as possible, the voting of
such stock except by direction or instructions from others;
(2) The Board has in the past not regarded this
situation as needing regulations or legislation to place
restrictions on State member banks similar to those applicable
to national banks under section 61 of Title 12 of the United
States Code; and
(3) The Board does not have statutory authority at the
present time to control this practice by regulation.
In the absence of Federal law, the Board has been guided
Principally by State statutes in supervising the exercise of trust
Powers by State member banks. Where the States permit banks to vote
trust holdings of their own stock, Federal Reserve examiners discuss
With the management the potential conflict of interest and possible
liability aspects involved.
The Board is not averse to legislation along this line
that would extend the applicability of present statutes but, if
such is introduced, the Board believes that it should be made
The Honorable A. Willis Robertson
-2-
applicable to all commercial banks and should except stock that is
held in a fiduciary capacity on the date the law becomes effective.
With respect to any such possible legislation, it is assumed that
the Congress would wish to give serious consideration to the question
of encroachment of Federal law upon the exercise of trust powers
Which may be viewed as primarily a matter of concern to the respective
States.
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
@FedFRASER