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Minutes for To: Members of the Board From: Office of the Secretary July 18, 1957 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. Vardaman Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Minutes of actions taken by the Board of Governors of the Federal Reserve System on Thursday, July 18, 1957. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Martin, Chairman Mr. Balderston, Vice Chairman Mr. Szymczak Mr. Vardaman Mr. Mills Mr. Shepardson Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Masters, Director, Division of Examinations Mr. Williams, Assistant Director, Division of Research and Statistics Mr. Hexter, Assistant General Counsel Mr. Dembitz, Assistant Director, Division of Research and Statistics Mr. Hostrup, Assistant Director, Division of Examinations Mr. Allen, Economist, Division of Research and Statistics II2me circulated to the Board. The following items, which had been circulated to the members of the Board and copies of which 41'e attached to these minutes under the respective item numbers indicated) were approved unanimously: Item No. Lett,, York - ' 424 Manufacturers Trust Company, New York, New ,PProving the establishment of a branch at 1261:7a thr 17 Avenue of the Americas. (For transmittal °ugh the Federal Reserve Bank of New York) tett„ tart, - to the Federal Reserve Bank of Philadelphia exthe time within which The First Pennsylvania eatios and Trust Company, Philadelphia, Pennsylvania, may licho vJaah a branch at City Line Avenue and Presidential -,evard. 1 2 2018 7/18/57 -2Item No. utter to the Federal Reserve Bank of Richmond ad! Ising that the proposal of American Trust Company, rlotte, North Carolina, to establish a branch at 1glas Municipal Airport in temporary quarters would , 1 °14. require action on the part of the Board in view the Board's previous approval of a branch in per'anent quarters at the Airport. 3 1!_etter to the Presidents of all Federal Reserve Banks riejlesting comments regarding the use of the June 6, 757, call date. 4 Ingiliry of First Bank Stock Corporation regiasding provisions Bank Holding Company Act (Item No. 5). In a letter dated 411-1 9, 1957, transmitted through the Federal Reserve Bank of kinlleaPolis, First Bank Stock Corporation of Minneapolis, Minnesota, °Iltlined its interests in the earnings of certain partnerships enin the sale of insurance and described the insurance activities Of a subsidiary company, First Service Corporation. It then inquired whether the Board, in view of the provisions of the Bank Holding Com1340y '", would entertain an application for authority to acquire the Share 8 of a new corporation which might be formed for the purpose of taki„ "K over such insurance activities. In a memorandum dated June 26 10, ' 7, which had been circulated to the members of the Board, Mr. ReXter discussed the inquiry and expressed concurrence in the opinion Of Con,, 881 for the Federal Reserve Bank of Minneapolis that section ' 4( e)(6) can be applicable to shares of a corporation organized after the Passage of the Act. With the memorandum was submitted a draft of letter to the Minneapolis Reserve Bank which would express such an 9 7/18/57 -3- °Pinion. 4't The letter would also indicate that the Board was not passing this time on the question whether the proposed new corporation, and itS activities) would be of such a character that section 4(c)(6) would be aPplicable. When the file was in circulation to the members of the Board, C.°Iternor Shepardson suggested certain substitute language which would trlake it more explicit that the letter should not be construed as illdicating that the Board would, if requested, make a determination 144ciell section 4(0(6) that the new corporation would be "closely rehi the manner contemplated by the Bank Holding Company Act. Agreement having been expressed with the substitute language ested by Governor Shepardson, unanimous approval was given to a letter to the Federal Reserve Bank of Minneapolis in the form attached t°1*ese minutes as Item No. 5. Hostrup then withdrew from the meeting. Legislation proposed by the Department of Agriculture. The Bureau th -e Budget had requested the views of the Board with respect to legis10444 Proposed by the Department of Agriculture which would amend the tazom. 4d--ones Farm Tenant Act and the Act of August 28, 1937, relating to tarn, ownership loans and to soil and water conservation loans, re61)ectively. to pro In general, the proposed legislation apparently was intended vide greater flexibility in the administration of the loan pro€4 and to encourage extension of credit by private lenders. One Dr °4 vould amend section 5200 of the Revised Statutes so as to ) 017 0, 7/18/57 -4- fullize national banks to make loans to an individual borrower in °4 amount up to 25 per cent of the bank's capital and surplus if the 1411 was insured as a farm ownership loan or a water conservation loan. The communication from the Budget Bureau, dated June 27, 1957, requested the Board's views within 30 days. tel However, a subsequent call from the Bureau indicated that the Bureau would appreci- ate having such comments by the end of this week. There had been distributed to the members of the Board copies ta memorandum from Mr. Young, Assistant Counsel, summarizing the 131‘°Posed legislation and submitting a draft of possible letter to the aticig et Bureau. This letter would take the position that, with the e"Ption of the proposed amendment to section 5200 of the Revised Statlite; `he legislation would not affect directly the Board's credit and Incl/etarY responsibilities. It would state, however, that the Board 14)41d have some reservations concerning the desirability of the .u.tment to section 5200. Governor Shepardson stated that he had tried unsuccessfully thia "Iling to reach appropriate persons at the Department of AgrietIlt4re ian effort to clarify the objectives of the legislative pro11°341 and the reasons underlying the proposed amendment to section 5200. Roveire ' r from preliminary review of the matter it appeared to him that the Provisions of the draft bill, except possibly the section 5200 raerldr. were justifiable. 2021 7/18/57 After discussion had brought out the nature and extent of current exceptions to the general 10 per cent loan limitation contallied in section 5200, Governor Shepardson observed that it would aPpear to preclude small country banks from meeting some of the credit needs of their communities. In view of the insurance and other Pr°1riaions of the proposed legislation, it seemed doubtful to him Whether lending operations under such provisions would be particularly ha --rdous to the banks concerned. Governor Vardaman said that he saw no objection to the proPosed increase in the lending limitation, that the principal question seellled to be one of the effect on the liquidity position of the lendbank, and that he felt judgments as to liquidity were primarily wit hin the discretion of bank management. He further suggested that GOver II-mental protective devices such as insurance of deposits and loan 8 served to enable banks to operate more flexibly and that some- what I•ri -ore liberal liquidity standards would appear to be appropriate 1/11cler such conditions. Governor Balderston said that to him the nature of the ance program contemplated by the proposed legislation was not ent ely clear and that it might be well to seek further clarification °r the Pertinent provisions. He referred, for example, to the proNriaion 8 that would govern repurchase of the insured loans by the °I)serlIment, 2022 7/18/57 -6Governor Mills stated that although he had not had an °PPortunity to study the legislative proposal carefully, it appeared t° give rise to certain rather difficult questions. The first of these questions related to the problems which might be created if any sub stantial volume of these loans should be sold to the Government at a time inconvenient to the Treasury. Also, questions had arisen from time to time in various connections as to whether the handling of Ilaranteed transactions by the Treasury directly was to the best adliantage to the country from a fiscal standpoint. A further question l'ited to the advantages held out to the small bank from handling this tYPe of loan, since the proposed legislation would seem to ene°1'1'age the small banking institution to engage in making loans of "sentiallY an inferior quality, with authority to exceed the normal 141a l imitation on the basis that the loans were guaranteed by the Federal Government. In raising these questions, Governor Mills said, he merely wanted to bring out that there might be a number of problems ill'41117ectWh1h merited consideration. At the conclusion of the discussion, Chairman Martin noted that the Boards s reply to the Budget Bureau would not have to be sent 141til toMorrow He therefore suggested that Governor Shepardson be asked to study the proposed legislation in greater detail and make Neorrvaendations to the Board at tomorrow's meeting. There was unanimous agreement with this suggestion. 4023 V13/57 -7Chicago building program SItem No. 6). On January 29, 1957, the Board authorized preparation of detailed plans and specifications tor an over-all program of additions to and alterations of the head csirfice building of the Federal Reserve Bank of Chicago, in accordance .with a program approved by the Bank's Board of Directors. Such plans "(Ispecifications had now been submitted, along with advice of their 41/Pro7al by the directors, and the Bank had requested permission to call for bids. In a memorandum dated July 12, 1957) which had been circulated to +1. ""e members of the Board, the Division of Bank Operations discussed theproposed construction and modernization program, the current cost 4143114tes, and the proposal of the Bank to call for eight separate acts in addition to the general contract, with the general contrAft, -,uorle bid to include a price for supervision and coordination of the other contracts. With the memorandum there was submitted a draft Of tel egram to the Chicago Reserve Bank which would state that the Board interposed no objection to the Bank's calling for bids on the basis °t the Plans and specifications, and in accordance with the procedure rat°, mended by the directors. The telegram would also state that a report of the bids should be submitted to the Board in lace0 , 2 -4ance with the usual practice, along with the recommendations of t hr as to acceptance. 4111111114rli Luring 4140 discussion of the matter Governor Vardaman stated that he had no objection to the building program per se, he wished tor h. elleat -ls previously expressed position that the Board was in error 7/18/57 -8- 14 Permitting the Reserve Bank to go forward with the building program in the absence of an understanding with regard to the establishment of additional branches in the Seventh Federal Reserve District. In this connection Governor Shepardson recalled his conversations earlier this year with President Allen, entered into at the Boardls request, from which it seemed clear that increased operating vc)lume had created a current and prospective need for additional space 14 Chicago regardless of what decision might be reached with respect to the establishment of additional branches. Regarding the branch cillestion) he pointed out that Mr. Allen was now engaged in an objective l'eaPPraisal of the situation and was expected to make a report to the iksara later this year. After further discussion, which related principally to the se°Pe, phases, and cost of the head office building program, approval 11" igiVen to the telegram to the Federal Reserve Bank of Chicago of vhich a cois attached hereto as Item No. 6. 2,22imony 1 before the Senate Finance Committee. Following a rerer ence by Governor Vardaman to the tentative views expressed at the m eeting on July 16, 1957, concerning proposed testimony by Chairman Martin -before the Senate Finance Committee in connection with that tee's hearings on Governmental financial and monetary policies, the ch airman suggested that it would seem advisable to defer further A . -l'atlon of the testimony until such time as it became known more 1r1 'elY when he would be requested to appear before the Committee. 7/18/57 Testimony before the House Banking and Currency Committee. Chairman Martin reported briefly on testimony which he and Governor Robertson gave on Monday of this week concerning the proposed Finanelk' Institutions Act, and on the questions raised with him by members °f the Committee during the past three days concerning various matters 11113rie or less unrelated to the pending legislation. He said that Iteel:/rding to current plans he would return to testify further before the Committee beginning next Thursday, July 25. The meeting then adjourned. Secretary's Note: Following discussion at the meeting on July 16, 1957, concerning the proposed basis of settlement with the National Bureau of Economic Research for excess costs incurred by the Bureau in connection with its contribution to the consumer instalment credit study, the Board referred the matter to Governor Shepardson with power to act after giving consideration to the views expressed by the Board. Governor Shepardson subsequently received from the Legal Division a memorandum dated July 17, 1957, which took the position that payment of an amount determined to represent the reasonable value of the benefits which the Board had received would be legally justified. Accordingly, with the approval of Governor Shepardson, the letter to the National Bureau of Economic Research of which a copy is attached hereto as Item No. 7 was sent on July 17, 1957. 2026 7/18/57 -10- Governor Shepardson approved today on behalf of the Board the following letters, copies of which are attached hereto under the respective item numbers indicated: Item No. etter to the Federal Reserve Bank of New . °rk approving the appointment of four ifled individuals as examiners and e aPPointment of five persons as assistant ex aminers. 8 r utter to the Federal Reserve Bank of Richmond arWing the designation of Freeman Lee Moore, as special assistant examiner. P Abe— Assist cretary 2027 BOARD OF GOVERNORS 44.41404,, Item No. 1 7/18/57 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 18, 1957 Board of Directors, Manufacturers Trust Company, Eifty Five Broad Street, New York 15, New York. Gentlemen: Pursuant to your request submitted through the Fer'eral Reserve Bank of New York, the Board of Governors of the Federal Reserve System approves the tablishment of a branch by the Manufacturers Trust Company, New York, New York, at 1261-79 Avenue of the ' mericas, New York, New York, provided the branch is ! stablished within two years from the date of this letter and the approval of State authorities is in effect at the time it is established. r Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 202, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 2 7/18/57 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 18, 1957 *. E. C. Hill, Vice President, Federal Reserve Bank of Philadelphia, Philadelphia 1, Pennsylvania. Dear Mr. Hill: In view of the circumstances outlined in your letter of July 9, 1957, the Board of Governors extends rtil April 3, 1958, the time within which The First 11,ennsYlvania Banking and Trust Company, Philadelphia, :.ennsylvanial may establish an in-town branch in the iladison House, Presidential Apartments, at the southeast corner of City Line Avenue and Presidential Boulevard, under the authorization contained in its letter of April 3, 1957. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 2029 BOARD OF GOVERNORS OF THE Item No. 3 FEDERAL RESERVE SYSTEM 7/18/57 WASHINGTON 25. D. C. ADDRESS OFFICIA16 CORRESPONOENCE TO THE SOAR° July 18, 1557 !1'. N. L. Armistead, Vice President, 'ederal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Mr. Armistead: Reference is made to your letter of July 2, 1957, rec „ °mmending approval of the request of American Trust Company, arlotte, North Carolina, for permission to establish its r janch at Douglas Municipal Airport in temporary quarters in sLiel Airport Auto Service building until permanent quarters are ri structed. It is understood that the temporary quarters in the Airport Auto Service building are located at the Douglas unicipal Airport approximately 400 feet from the proposed Permanent location. The Board's letter of April 3, 19570 approved the esta,bi4 -Lehment of a branch by American Trust Company at Douglas P81 Airport and since both the temporary and permanent pitgrters to be occupied by the branch are situated on airport be PertY no further action on the part of the Board appears to ,equired. i Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. Item No. 4 BOARD OF GOVERNORS 7/18/57 OF THE FEDERAL RESERVE SYSTEM Z— (On office copies only) WASHINGTON 25, D. C. Ori- MIAL TO CO, .E5PC)NDENCIE THE 13.0Akii JlOy 13, 1957 pear sir: The use of the June 6 call date has received fairly widespread 11ese, "Y. in the press. The Board would appreciate comments from the , "0 Banks regarding its reception and effect in the various districts and States. aa to th Particularly, it would be appreciated if comments were offered depo, 0 extent of window dressing of deposits (particularly interbank both ' its) and borrowings at this call as compared with other recent calls, surprise date and regular date. These comments should include jaiZes for individual banks or summaxy statistics, if they would help trate what took place. would e't theIt st be helpful if your comments include views of users atistics; for exalaple, whether surprise call dates for all ue--7 31 commercial banks result in truer comparisons or whether the inea, , f irregular dates creates serious problems. The reply might also ealfilc comments as to the accuracy of reports of condition when the 3 announced considerably after the call date. depart; Although specific inquiries of member banhn or State banking Ilts are not suggested, any comments that are received from them ' or ot ' l:,esPoct to the surprise element, statistical value, back dating, uer relevant points would be helpful. or A response to this letter is not requested until late August earl Y September, but it was thought desirable to make the inquiry th.. 41-8 time so that the various interested persons and departments in eolitae lerw3 Banks would have the matter in mind, particularly in their s with outsiders. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. To TilE 1.1 'DENTS OF ALL FEDERAL RESERVE BANKS 2031 BOARD OF GOVERNORS tok4. OF THE 14 040 I* 510 A, Item No. FEDERAL RESERVE SYSTEM .0 7/18/57 WASHINGTON 25. D. C. 0 0 0:'t tat '4440 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 18, 1957 114'` R• G. McConnell, Vice President, 14,:al Reserve Bank of Minneapolis, i8 aP°1 2, Minnesota. tear Mr. McConnell: This is in reply to your letter of April 11, with which you a co ed a letter from First Bank Stock Corporation dated April 9 and PY of an opinion of your Bank's Counsel dated April 10. First Bank Stock proposes to organize a new Minnesota corporation batik and to acquire stock therein. The new corporation will not be a Or ' a and consequently First Bank Stock is concerned with the provision hoide icticn 14(a)(1) of the Bank Holding Company Act that prohibits a bank ng company from acquiring ownership "of any voting shares of any copar,, the 'Y which is not a bank". However, First Bank Stock contends that becar°Pceed acquisition will not be subject to the quoted prohibition : e it will come within the exemption provided by section h(c)(6) /11thOr a ;,e8PeCt to shares of corporations "all the activities of which are to be ncial, fiduciary, or insurance natures and which are determined related to banking to the degree prescribed therein. question whether the proposed new corporation, and its ,it15 Th i?s, will be of such character that section 4(c)(6) will be " ,Th al3Plic --Le is not presented to the Board by First Bank Stock's inquiry. 'ne 801., /3ectio— question presented at this time is whether, in any circumstances, Natirl 4(0(6) can be applicable to shares of a corporation that is ue it zed after the passage of the Bank Holding Company Act and may not 14'eacra 4, ctual operation at the time of the hearing and the determination "Wed by that subsection. Cohu. Le The Board of Governors concurs in the opinion of your Bank's section 14(c)(6) is applicable to newly-organized corpora'43 to hat'a will conform to the requirements of that exemption, as well OaX e°rPorations that are already in operation. In other words, the tio4 1. °118iders that for this purpose the first portion of secit gkc)(6) mtkY be interpreted (as suggested by First Bank Stock) as of any company all the activities of which are [or t`r° "area to De] of a financial, fiduciary, or insurance nature. .. .ti 1114 11, G. McConnell - 2- ise, the remaining portion of section 4(c)(6) maybe interpreted 1314ring prospectively as well as to existing corporations. First Bank Stock understands, of course, that it could not acquire atock of the new corporation unless and until the ra-4-1. nave determined, after hearing, that the new corporation ve "Closely related, 'in the manner contemplated by the statute. the 84„Inh a determination was made, the new corporation would not meet Eihkre'aards prescribed by section 4(0(6), and any acquisition of its a by a bank holding company would violate section 4(0(1). It will be appreciated if your Bank will transmit to First 6k Corporation the substance of this letter. It Should be rake 4, -ear that the Board's position relates only to the question PNeer7 Iltot r with respect to interpretation of section 4(0(6); it does -4-a'be to the legality or propriety of other features of the 1144 aro . 1 8hould in no way be construed as indicating that the Board /104.147 : 131,' requested, make a determination that the new corporation , 11014 4 "e "closely related" in the manner contemplated by that section. A 84111,4 4tot in —& also be mentioned that, while general administration of the Itithisted in the Board, its enforcement as a penal statute falls thq Boar Jurisdiction of the Department of Justice, and conceivably &tit interpretation might not be followed by that Department -.01134 have occasion to consider the matter. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 2033 Item No. 6 TELEGRAM LEASED WIRE SERVICE 7/18/57 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 18$ 1957 AI Ch c go Board will interpose no objection to your Bank's calling , wags for addition to, and alterations of, the Reserve Bank e on the basis of final plans and specifications referred in ,, Jour Bank's letter of May 29 1957 and in accordance with he ,, erocedure rec ended by the directors of your Bank as reported wv4r Bank's lettensof June 26 and July 10,1957. In accordance with customary procedure, a summary report 1141.* biA ' 44 a 0 ld be forwarded to Board, together with Ot recommendations Bark as to acceptance* tor bqici (Signed) Merritt She er 2034 BOARD OF GOVERNOR'S OF THE Item No. 7 7118/57 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 17, 1957 William J. Carson, Bureau of Economic Research, Inc., -2a6ititlrial.,,i uson Avenue, New /ark 161 New York. eal" Mr. Carson: lir. for The Board has considered your letter of April 17 to which requests that it reimburse the National Bureau Which a] or part of the deficit which the Bureau incurred in conJ-°n with its contribution to the Consumer Credit Study. y 118 It is the Board's view that it would be appropriate for the,reimburse you in the amount of $3,272.49. This represents 414'1111 amount of the excess over your allowance for supervision the 2'her indirect costs, plus one-half of that allowance. It is 4trtboard's feeling that this equal sharing of the overhead reprean equitable disposition of the matter in the circumstances. th You will find enclosed a voucher which authorizes payment mount specified. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 8 7/18/57 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONOENCE TO THE BOARD 4;,44ow- July 18, 1957 -MITI—__25NTIAL (FR) Mr. A. Phelan Vice President, Pederal Reserve Bank of New York, New York 45, New York. Dear Mr, Phelan: In accordance with the request contained in your letter of July 12 1957, the Board approves the appointment Wllor Echi_ ard F. Odell, Benedict Rafanello, John T. Seguin, and R. Skinner as examiners for the Federal Reserve 01." of New York. The Board also approves the appointment A. .11.1gene C. Kranik, Robert F. Moreschi, Paulin!. Sandberg, fo v°h1-1 Maher, and Frank S. Raphael as assistant examiners r the Federal Reserve Bank of New York. It is noted that Mr. Seguin and Mr. Skinner are indebted to Industrial Bank of Commerce, New York, New York, elel°//member bank, in the amounts of ',11(1)0 and $324, respectively. exa,!1 : ding1Y the Board's approval of their appointments as is given with the understanding that they will not Permit edBa, L to participate in any examinations of Industrial : cyt of Commerce until their loans have been liquidated or """I'lise eliminated. Z the Please advise the Board as to the dates on which aPPointmento are made effective. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary. 2036 BOARD OF GOVERNORS Item No. 9 OF THE 748/57 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFfiCIAL CORRESPONDENCE TO THE BOARD July 18, 1957 Mr, N. L. Armistead, Vice President, Federal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Mr. •krmistead: In accordance with the request contained in your letter of July 12, 1957, the Board approves the designation ?! Freeman Lee Moore, Jr. as a special assistant examiner 1 ,,°r the Federal Reserve Bank of Richmond for the purpose ul participating in the examinations of State member banks o nlY. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Assistant Secretary.
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