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Minutes for To: Members of the Board From: Office of the Secretary July 16, 1956 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. Chin. Martin 40 ) Gov. Szymczak Gov. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson x 1393 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Monday, July 16, 1956. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Carpenter, Secretary Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Mr. Molony, Special Assistant to the Board Messrs. Young, Noyes, Williams, Eckert, Gehman, Jones, Miller, Trueblood, Wernick, Wood, and Yager, and Miss Stockwell of the Division of Research and Statistics The representatives of the Research Division presented a summary of business and finan cial developments at the conclusion of which all of the members of the staff except Messrs. Carpenter, Sherman, Kenyon, Riefler, Thomas, and Young withdrew from the meeting and Messrs. Vest, General Counsel, and Horbett, Associate Director, Division of Bank Operations, entered the room. The following matters, which had been circulated to the membe rs Of the Board, were presented for consideration and the action taken in each instance was as stated: Memorandum dated July 9, 1956, from Mr. Johnson, Perso nnel Security Officer, recommendi ng that the positions of Clarke L. Fauver, 1394 7/16/56 -2- Assistant Secretary of the Board, and Zoe Gratsias, Secretary in the Office of the Secretary, be declared sensitive and that full-field investigations be instituted for both individuals. Approved unanimously. Letter to Mr. MacDonald, Chief Examiner, Federal Reserve Bank of Boston, reading as follo ws: Reference is made to your letter of July 6, 1956, transmitting the request of The Waterbury Trust Company, Waterbury, Connecticut, for an extension of time within which to establish a branch on Meadow Street on a part of a property presently used for the railroad station in Waterbury. After consideration of the information submitted the Board of Governors concurs in your recommendation and extends to September 24, 1956, the time within which The Waterbury Trust Company may establish the above branch. Approved unanimously. Telegram to Mr. Millard, Vice President, Federal Reserve Bank of San Francisco, reading as follows: Reference is made to your letter of June 28, 1956, submitting information regarding plan of Security Trust & Savings Bank of San Diego, California, to purchase property on which to relocate its main office; to change the location of its "auto branch" from 525 E Street to 904 5th Avenue, San Diego; and to purchase property for expansion of its El Cajon Valley branch. The Board will interpose no objection to the relocation of the main office of the trust company or to the proposed acquisition of additional properties for bank premises which it is understood has the approval of the State banking authorities. The change in location of the "auto branch" appears to be the mere relocation of an existing branc h in the immediate area witho ut affecting the nature of its business or customers served and, there fore, the approval of the Board is not required. Approved unanimously. 1.395 7/16/56 Letter to Mr. J. R. McEvoy, President, The First Natio nal Bank of Holbrook, Holbrook, Arizo na, reading as follow: This refers to your letter to the Federal Deposit Insurance Corporation of June 291 1956, and its enclosures, concerning the status under Regulation Q of a proposed form of "Certificate of Deposit" to be used for depos its of public moneys under legislation of the State of Arizona, approved April 121 1956. As you were advised by the Corporation under date of July 21 1956, your lette r has been referred to the Board for reply . The proposed form of certificate provides that the deposit evidenced by it would be payable to the order of a named person or his lawful successor "six month s after date) with interest at per cent per annum from date to maturity, but not thereafter. This certificate is also payable before maturity thirty (30) days after written notice to bank, upon presentation and surrender of this certificate, properly endorsed." You will note from the enclosed copy of Regulation Q that "time deposits" are defined to include "time certi ficates of deposits" and "time deposits, open account," which comply with the definitions of those terms in section 1(c) and 1(d) of the regulation, respectively. The maximum permissible rates of interest payable on any "time deposit" are set forth in the Supplement to the regul ation. Your question seems to be whether the proposed form of certificate would be eligible for classification as a "time certificate of deposit." It is permissible under the regulation for a "time deposit" to provide for withdrawal either at the end of a specified maturity or prior to such time after a specified period of written notice. In any such case, the maximum rate cf interest permissibls under the regulation will depend upon which of such withdrawal privileges is elected by the depositor and the rate appli cable under the regulation in the circumstances of the withdrawal privilege so elected. Accordingly, under the regulation, the proposed certificate could provide for the payme nt of interest at a rate j39; 7/16/56 not in excess of 2-1/2 per cent per annum on a withdr awal pursuant to the specified maturity of six months. However, for earlier withdrawal pursuant to advance written notice of thirty days, the proposed certificate could provide for the payment of interest at a rate not in excess of 1 per cent per annum. From the definition of "time certificate of deposit" in Regulation Q, you will note that in order to comply therewith the certificate must provide on its face that it is payable in all cases only upon presentation and surrender of the instrument. While the proposed form of certificate makes such provisions in respect to payment pursuant to advance written notice of thirty days, it does not do so in the case of payment at the specified maturity of six months. Subject to the matter just discussed and also to the above comments concerning permissible maximum rates of interest, the proposed form of certificate would be eligible for classification as a "time certificate of deposi t" under Regulation Q. Should you have any further questions concerning this matter, it is suggested that you might find it more convenient to contact the Federal Reserve Bank of San Francisco, which will be glad to assist you. Approved unanimously, with copies to the Federal Deposit Insurance Corporation and the Federal Reserve Banks of Dallas and San Francisco. There had been circulated to the members of the Board a draft Of letter to the Comptroller of the Currency, Treasury Department, Washington, D. C., recommending favorably on an applic ation to convert the First State Bank, Andrews, Texas, into a national banking association. There being agreement with a suggestion by Governor Mills that I -rt 10.'""v 7/16/56 -5the draft be changed so as to indicate that no "on-the-spot" investigation had been made by the Federal Reserve Bank of Dallas, unanimous approval was given to a letter in the following form: Reference is made to a letter from your office dated May 28, 1956, enclosing photostatic copies of an appli cation to convert the First State Bank, Andrews, Texas, into a national banking association and requesting a recommendation as to whether or not the application should be approved. Information regarding the First State Bank has been supplied by the Federal Reserve Bank of Dallas on the basis of a report of examination made by the Office of the Comptroller of the Currency and files and examination reports of the Federal Deposit Insurance Corporation. This information is generally favorable with respect to the factors usually considered in connection with such proposals except the bank's past financial history. It appea rs that during the first years of operation of the bank, which opened for business in 1945, a large volume of marginal loans was acquired which had to be eliminated by charge-off or sale to one of the stockholders. A change in management last year seems to have brought about an improvement in the bank's loaning policies. Therefore, the Board of Governors recommends approval of the applicatio n. The Division of Examinations will be glad to discuss any aspects of this case with representatives of your office if you so desire. There were presented telegrams proposed to be sent to the following Federal Reserve Banks approving the establishment without change on the dates indic ated of the rates of discount and purchase in their existing schedules: San Francisco New York July 11 July 12 139,4 7/16/56 -6Cleveland Richmond Atlanta Chicago St. Louis Minneapolis Dallas July July July July July July July 12 12 12 12 12 12 12 Approved unanimously. Reference was made to a draft of letter to Senator Lehm an of New copies of which had been sent to the members of the Boar d, Prepared in response to a lett er inquiring whether the Board felt that its administrative discretion to terminate the designation of New York and Chicago as cent ral reserve cities was limited and whether the Board desired action by the Cong ress at this time for the purpose of clarifying whatever ambiguit ies might exist. The draft of reply would cite the pertinent prov isions of the Federal Reserve Act and would state that in the Board's opinion these provisions granted clear legal authority for the Board to recl assify New York and Chicago as reserve cities and thereby terminate their desi gnation as central reserve cities. It would also indicate that such action would involve a number of important considerations and that the Boar d was not prepared at this time to say whether or under what conditions it would be appropriate to make such a change. There had also been sent to the members of the Board copies of a memorandum dated July 5, 1956, from Mr. Solomon, Assistant General 1399 7/16/56 -7- Counsel, discussing the legal aspects of the question prese nted by Senator Lehman. In a discussion of the proposed reply Chairman Martin suggested that it might be expanded to inquire wheth er Senator Lehman had any question regarding the interpretation of the law as set forth in the Board's letter. Governor Mills suggested that the reply also might be reworded to bring out more clearly that the inqui ry regarding the Board's authority to terminate the central reserve city designatio n of New. York and Chicago actually was in the nature of an academic question, at least at the present time, since the Board can correct any inequities which it may find to exist by chang ing the reserve requirements applicable to member banks in those two citie and placing them s at the same level as the requirements applicable to reserve city banks. Mr. Horbett commented that after the draft of reply was prepared, he forwarded to the Secretary's Office certain suggestions for changes in the interest of clarification, one of which might help to meet the point raised by Gover nor Mills. In a further discussion, which pertained to the sentences in the Proposed letter relating to the economic considerations involved in a Possible reduction of the reserve requirements applicable to member banks 1400 7/16/56 -8- in New York and Chicago, certain additional suggestions for modification of the draft were made. In the circumstances, it was understood that a revised draft would be distributed to the members of the Board for consideration at a meeting on Wednesday, July 18. Pursuant to the understanding at the meeting on July 12, 1956, there had been distributed to the members of the Board a draft of letter to Mr. E. Sherman Adams, Deputy Manager of the American Bankers Association, pertaining to the study of member bank reserve requirements made by the Association's Economic Policy Commission. Certain suggestions for minor changes in the draft having been agreed upon, unanimous approval was given to a letter for the signature of Chairman Martin to Mr. Adams reading as follows: Because of absences from Washington, it has not been Possible previously to reply to your inquiry of June 28th with respect to the Board's reactions to the study of member bank reserve requirements made by the Economic Policy Commission of the American Bankers Association. As we previously indicated, the Board appreciates the thought and effort that your group has put into this perplexing problem. The results of your study are a valuable contribution to the search for answers to some of the questions that are of concern to the Board, to the banking community, and also to the economy in general. As to further comments by the Board, we are at present inclined to the view that it would be better if whatever report you may make were presented as the independent product of your study and as an expression of the particular views of your Commission. We see no reason why you should not circulate or publicize the results of your study in any manner you may wish in order that interested groups may have the benefit of it in any further consideration of the problem. 1401 7/16/56 -9- The Board is continuing to study this whole matter and we hope to be in a position within a few months to present a statement of our views. Consideration was given to a memorandum from Mr. Sherman dated July 11, 1956, in which he stated that the members of the Executive Committee of the Conference of Chairmen of the Federal Reserve Banks had indicated that they would favor holding a two-day meeting of the Chairmen's Conference during the week beginning December 3, 1956, with some preference expressed for a meeting on Thursday and Friday, December 6 and 7. The memorandum stated that if plans for a meeting during the first week of December were agreeable to the Board a check would be made with the remaining Reserve Bank Chairmen. Chairman Martin expressed the view that the Board should do everything possible to accommodate its schedule to the wishes of the Chairmen's Conference. He suggested, therefore, that Mr. Sherman be authorized to work out with the Reserve Bank Chairmen plans for a meeting of the Conference during the week of December 3 on whatever dates would be most convenient to the Chairmen. There was unanimous agreement with this suggestion. The meeting then adjourned. 1102 7/16/56 -10Secretary's Note: On July 13, 1956, Governor Balderston approved the following items on behalf of the Board: Memorandum dated July 13, 1956, from Mr. Vest, General Counsel, recommending that the basic annual salary of Eugene C. Harrison, Clerk in the Legal Division, be increased from $3,840 to $3,940 per annum, effective July 15, 1956. Memorandum dated July 13, 1956, from Mr. Marget, Director, Division of International Finance, recommending that the basic annual salary of Nancy J. Smith, Economist in that Division, be increased from $5,065 to $5,440 per annum, effective July 15, 1956. Letter to Mr. Piderit, Manager, Bank Examinations Department, Federal Reserve Bank of New York, reading as follows: In accordance with the request contained in your letter of July 10, 1956, the Board approves the designation of Dean W. Bassett as a special assistant examiner for the Federal Reserve Bank of New York. Governor Balderston today approved on behalf of the Board memoranda from appropriate individuals concerned recommending actions with respect to the Board's staff as follows: 122,2222xpent followinF maternity leave Gladys D. Bosben, Draftsman, Division of Research and Statistics, with basic annual salary at the rate of $3,600, effective July 16, 1956. 912nge in status of am9intment Daisy Ferguson, Cafeteria Helper, Division of Administrative Services, from temporary (two months) to a regular basis, effecti ve upon the expiration of her present appointment. Transfer Madeleine Verdonck, from the position of Clerk-Sten ographer in the Division of Research and Statistics to the position of Clerk- 1 14t 7/16/56 -11- Stenographer in the Division of Personnel Administration, with no change in her present basic salary at the rate of $3,500 per annum, effective the date she assumes her new duties. Acceptance of resignations Name and title Portia R. Agadjanian, Records Clerk Patricia B. Ivie, Secretary Mildred D. Spano, Clerk-Stenographer Division Office of the Secretary Effective date July 27, 1956 Bank Operations July 13, 1956 International Finance July 10, 1956
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