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Minutes for
To:
Members of the Board
From:
Office of the Secretary
July 19, 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
1/ Gov. Vardaman
Gov. Mills
Gov, Robertson
Gov. Balderston
(c:r4
Gov. Shepardson
2/
In accordance with Governor Shepardsonts memorandum of March 8, 1957, these minutes are not
being sent to Governor Vardaman for initial.
2037
Minutes of actions taken by the Board of Governors of the
l'ederei Reserve System on Friday, July 19, 1957. The Board met in
the Board Room at 10:00 a.m.
PRESENT: Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman 1/
Balderston, Vice Chairman
Szymczak
Mills
Robertson 1/
Shepardson
Mr. Sherman, Assistant Secretary
Mr. Kenyon, Assistant Secretary
Mr. Thomas, Economic Adviser to
the Board
Mr. Masters, Director, Division
of Examinations
Mr. Williams, Assistant Director,
Division of Research and
Statistics
Mr. Hexter, Assistant General Counsel
Items circulated to the Board. The following items, which
hfta
been circulated to the members of the Board and copies of which
al'e attached
to these minutes under the respective item numbers indicated,
were approved unanimously:
Item NO.
Let r
03 American Overseas Finance Corporation,
New York, regarding the liquidation of
c°rPoration. (With a copy to the Federal
-I've Bank of New York)
Lett r
to the Comptroller of the Currency submitting
;:!°1"elple recormnendatlon regarding an application
(1,11'tT,Iganize a national bank at Melbourne, Florida.
C°Plr to the Federal Reserve Bank of Atlanta)
1
that
2
PlItaalaLslaEt There were presented telegrams proposed to be
Sent t
the following Federal Reserve Banks approving the establishment
gaitered meeting at point indicated in minutes.
7/19/57
-2-
vtthout change
by those Banks on the dates indicated of the rates
°f discount and purchase in their existing schedules:
Kansas City
Boston
Minneapolis
New York
Philadelphia
July
July
July
July
July
12
15
16
18
18
The telegrams were approved unanimously.
At this point Chairman Martin and Governor Robertson joined
the meeting. Mr. Young, Assistant Counsel, also entered the room at
this point.
Legislation proposed by the Department of Agriculture (Item
At the meeting of the Board yesterday, preliminary conideration was given to a draft bill proposed by the Department of
4eticu1ttu'e, on which the Board's views had been requested by the
iltil'e4111 of the Budget, which would amend the Bankhead-Jones Farm Tenant
Act aad
the Act of August 28, 1937, relating respectively to farm
1:441ersh1P loans and to soil and water conservation loans. It was
tood at that time that Governor Shepardson would give further
e°4sid
er5.tion to the draft bill and present his views to the Board.
At this meeting there were distributed copies of a revised
clre:p4, of
letter to the Budget Bureau which, after summarizing the
te Of
the proposed amendments, would state that most of the
abile
ndments did not directly affect the Board's credit and supervisory
7/19/57
-3-
l*esPonsibilities and that the Board had no
comments to make with
reSPect to them.
the
The letter would also state, with respect to
amendments bearing more closely on the Board's area of re-
sPonsibility, that the
Board offered no objection to the proposals
illade by the Department of Agriculture.
The final paragraph, however,
/c)111d reiterate the Board's
belief that monetary and credit policy
can be most effective when interest
rates on direct and insured
oph
made by Government agencies are set to reflect
primarily
1513411'ket
chEixige-
conditions and are adjusted flexibly as market conditions
The letter would conclude with the statement that the
Board
14°11341 be
favorably disposed should an additional amendment be offered
looking toward
providing the Secretary of Agriculture greater administl'ative discretion in determining maximum rates on the
loans covered
this legislation.
These statements in the final paragraph were
illgested in the light of the fact that the
proposed amendments would
ke 40 change in the five per cent maximum rate
that may be charged
b
rrowers
t()
on loans of this kind, although they would reduce from
1°
"
cent to one-half of one per cent the
minimum portion of the
14 l'est that
would be retained by the Government for administrative
rslosts
and insurance.
or
Governor Shepardson stated that after discussion with members
h
°ard's staff and clarification of certain points with the
2040
7/19/57
-4-
DePartment of Agriculture, it was his opinion, and that of the staff,
that the Board
could appropriately refrain from interposing objection
to the proposed amendments submitted by the Department of Agriculture.
A111°11g other things, he noted that the programs covered la: the proP°8ea legislation were of relatively modest proportions.
With respect
to the final paragraph of the suggested letter, he said that it was
included so that the Board might give consideration to whether it
desired to use langUage of this kind.
In explanation of the situation,
he 8aid that the Agriculture Department was experiencing difficulty
rj
--44\J-tig these particular lending programs attractive to private
len
-c:rs because of the statutory interest rate ceiling, that the Depart1./as proposing to improve the situation by reducing the portion
Of iaterest retained for insurance and administrative expenses, but
that .,
vuC Department would welcome a suggestion by the Board for greater
acixrd.„,
strative discretion in determining maximum rates on these loans.
14
tact,
he said, the Department took steps to raise the rate about
ti40 yea_ s
r ago, but opposition on the part of the Congress resulted in
the fixing of the present statutory maximum rate. He went on to point
ollt
that at times
in the past, particularly in connection with housing
le'Uslation, the Board had expressed itself to the Congress in favor
*ta
tlexible ceiling rates on loans insured and guaranteed by the Governthe
In
circumstances, it was felt that the Board might wish to
811b5
tantially the same position on this occasion.
-5-
7/19/57
In further comments Governor Shepardson said that the
Portion of interest proposed to be retained by the Department of
Agriculture would not begin to cover administrative expenses of
the Department attributable to servicing the loans in question.
With respect to the proposed amendment to section 5200 of the Revised
Statutes which would increase from 10 to 25 per cent of capital and
81411us the limitation for national banks on loans of this kind: he
exPlained that the 10 per cent limitation was preventing smaller
IlEttional banks from making insured loans under these programs.
lie also said that due to various conditions imposed under the
131'°granis: a small national bank would have only a limited number
or the insured loans in its portfolio.
Mr. Hexter supplemented the last comment by Governor Shepardson
1) 13°14ting out that national banks are limited by law in the volume
l'eal estate loans they may make. To the extent that the banks
elitered into the insured loan programs now under consideration, he
44411 they would be in effect reducing the permissible amount of
other,
k,YPes of real estate loans. Mr. Hexter also stated that it
had been
---, ascertained that the Comptroller of the Currency's advice
t0
the
1
4_
Budget Bureau concerning the current legislative proposals
ilkkcated
that he did not object to them.
Governor Mills expressed the view that to make the statement
Ngested
in the final paragraph of the draft letter would be like
2042
7/19/57
-6-
"74histling in the wind", for it was his opinion that the Congress
alalost certainly would take the position that where the Federal
Gc'vernment insures or guarantees certain loans, discretion as to
the rate
of interest to be charged should be restricted.
With
respect to
the previous statements of the Board mentioned by Governor
ShePardson, it was his recollection that they had been phrased in
terU milder than those proposed to be used in the letter to the
Blaciget Bureau.
omit the
In all the circumstances, he would be inclined to
paragraph in question.
Governor Mills went on to say, however, that on some appro141-ate
occasion the Board might wish to raise a question about the
"tent to which lending outside the budget under Federal guarantees
81/°14-1d be encouraged. He suggested that consideration might well
be 2i
--ven to returning to a system whereunder insured and guaranteed
1044
Programs would be carried on with appropriated funds by the
11Ell'tieu1ar Government agencies concerned, so that it might be
P°8eible to make a better distinction between budgeted and nonbtkciaft+---wa expenditures, contingent liabilities, and commitments. In
the
°gram2 under consideration, he said, difficulties might be
'
151
el'eateA
for the Treasury if a large volume of the insured loans had
to be
PUrchased by the Government at certain times.
After the question of including the final paragraph had been
A at
clebEttesome length in the light of the points raised by Governor
2043
7/19/57
-7-
Shepardson and by Governor Mills, it developed to be the view of the
majority of the Board that an important enough principle was into justify calling attention again to the position that had
been taken by the Board on other occasions.
Accordingly, the pro-
13°sed letter to the Budget Bureau was approved in the form submitted,
't•being understood that Governor Mills would have preferred omission
Of•the final paragraph.
A copy of the approved letter is attached
to these
minutes as Item No. 3.
Mr. Young then withdrew from the meeting.
Eraosal of Hadley Falls Trust Corn any for revision of its
ea
"al structure
(Item No.
4).
On June 4, 1957, the Board advised
the Federal Reserve Bank of Boston of its denial of the request of
le
yPalls Trust Company, Holyoke, Massachusetts, to retire out-
.1)).11ding preferred stock under a program for revision of the bank's
e413ital structure which would result in a net reduction of capital
f411(18 in the amount of $375,000.
or the trust
Subsequently, a representative
company discussed the matter with the Board's Division
°r Exa
minations and an alternative proposal was submitted through
the 8• °ston Reserve Bank which would result in a reduction of capital
1\41cla in the amount of 3275,000 at the present time.
This proposal
s• upported by the Commissioner of Banks for the Commonwealth of
„,
setts, who indicated that he would like to meet with the
2041
7/19/57
-8-
of Governors if the program was not approved.
In the course
of discussion
with the trust company, the Reserve Bank had suggested
another Possible program which contemplated a more modest reductio
n
°f capital at the present time and a more even spacing of the capital
st°ck transactions.
While this suggestion was acceptable to the trust
e°1 N1113r, it was opposed by the Banking Commissioner.
Upon further
ecIllaideration, the Reserve
Bank then made a favorable recommendation
With
the
respect to the alternative proposal that had been submitted by
trust company.
In a memorandum which had been circulated to the members of
the 8cerd, the Division of Examinations reviewed the matter and recom111d.ed, for reasons stated, that action on the alternative plan be
(leterred pending an examination of the trust company,
with the suge8tion that the Reserve Bank be asked to arrange for such an exami4'41011 at an early date. This, it was felt, would enable
the Board
t° aet on the request in a more informed way, since the latest
et'anlillation of the trust company dated back to September 1956.
At the request of the Board, Mr. Masters reviewed the original
41141ternative plans submitted by the trust company, the plan suggested
° the trust
Company by the Federal Reserve Bank of Boston, the history
the
trust company,
and information now available concerning its
Or
Clent
condition and prospects.
He noted, among other things, that
901
7/19/57
in
_9-
submitting the more recent proposal the trust company had sought
a commitment from the Board that, if the plan were approved) applications for certain additional branches which the trust company had
larder
consideration would not be regarded adversely on the basis of
caPital inadequacy.
It was Mr. Masters' view that no such commitment
shculd be made and that any branch applications by the trust company
ilculd be reviewed by the Board, like any other branch applications,
14 the
light of all the pertinent considerations.
Governor Mills) who had indicated when the file was in cir-
ion to the Board that he would favor the recommendation of the
Il°2tcn Reserve Bank that the alternative plan submitted 'by Hadley
Palls
Trust Company be approved) made a statement in support of his
11°81tion in which he said that) although the trust company might
11°t be as amply capitalized as could be desired, its capital structure
at)a
'rentlY could be regarded as reasonably adequate. The management
was
acceptable and the bank, which had experienced severe difficulties
14 th Past,
was reported to be making good progress.
e
He suggested
that delaY in acting on the alternative proposal might be taken to
14(11cate that the Board entertained reservations about the bank's
c
out
•ti-°11, and
the bank's capital did not appear to him to be enough
of „
J-Ine
to warrant further delay.
After noting that application
bY the n.
ialvision of Examinations of the formula currently used for
tent
aPPraisal of bank capital showed in this case a capital
?GI
7/19/57
-10-
clericiency
of approximately Wol000, Governor Mills said that although he recognized the value of such a formula, the Board and
its staff should guard against being too strongly influenced by
an m
echanical guide and should give due consideration to factors
811Ch as the character of the bank's management and the qunlity of
its
assets.
In further comments Governor Mills stated that in a sense
the prc510
lem had now been before the Board for some time. If, in
84ch circumstances, the Board were to deny approval of the current
Probr,
there would be the risk of creating concern about the
8111)ellvisory attitude toward the bank's position, for the trust
c°111a4Y's management and shareholders apparently considered the
1144 r
easonable and it had received the favorable consideration
or the
Federal Reserve Bank of Boston.
Governor Robertson supported the position of the Division
°t
--Q1411nati0ns, saying that in a borderline case he deemed it
bette
r for the Board not to act until it had full information on
to reach
a decision.
If this involved awaiting the results
Of .-
Y14-10ther examination of the applicant bank in such a situation,
he cr.,
Lud
favor deferring action to the extent necessary.
In this
Cue
an
examination had not been made since September 1956 and
440ther
examination would provide clarification as to interim
.1.opments.
Therefore, it would seem unnecessary to deny the
204
7/19/57
-11-
request or to overrule the recommendation of the Reserve Bank.
The
13°ard could merely delay taking action and request the Reserve Bank
to arl'ange another examination of the trust company as soon as
po
ssible.
Following a general discussion of the matter based on the
4/failable factual information and the points of view expressed by
G°vernor Mills and by Governor Robertson, during which Mr. Masters
e°11firmed that all available evidence indicated a continuation of
the bank's favorable progress, it was the opinion of a majority of
the Board that the alternative program submitted by the trust company
sh°1-1141 be accepted. Accordingly, approval was given to a letter to
the
Federal Reserve Bank of Boston in the form attached to these
as Item No. 4, with the understanding that, as stated in
the letter,
this represented no commitment on the part of the Board
141th respect
to the action that might be taken on applications for
a4ditional branches submitted by the trust company.
On this action,
G°\renor Robertson voted "no" for the reasons he had stated.
2.12.11.2E_EI_12.2. Governor Robertson, who had just
returtirl
-' from the Board's relocation site where he had represented
the
°ard during this week's phase of Operation Alert 1957, gave a
Informal report in which he called attention particularly to
the
ene(puraging progress that had been made in reconciling the views
°f the
oard, the Treasury, and other interested agencies with regard
204
7/19/57
to P°11cY questions in the area of preattack planning for postattack
economic and financial rehabilitation.
On behalf of the other members of the Board, Chairman Martin
xpreseed appreciation
to Governor Robertson for his leadership of
Ystem
activities incident to the exercise.
The meeting then adjourned.
Secretary's Notes: Pursuant to recommendations contained in memoranda from
appropriate individuals concerned,
Governor Shepardson approved on behalf
of the Board on July 18, 1957, the following actions regarding the Board's staff:
Le
Vithout
tinieJ°Eln, Darby, Clerk, Division of
Research and Statistics, for such
ing-:,s,maY be necessary (probably until late September 1957) followleave without pay as the Division may approve under current
J.eave regplations.
Acce
`Dance of resignations
!
111, eresa S. Hutchinson, Stenographer,
4 31.,
1957
Division, effective
tteet
. Robinson,
leur4BClerk,
Divis on of Research and Statistics,
iVe
JUly
28, 1957..
tie
erreeti,,anor Staples, Statistical
Clerk, Division of B
ve JulY 13, 1957.
ratio
Pursuant to the recommendation contained
in a memorandum dated July 171 1957, from
Mr. Conkling, Assistant Director, Division
2049
7/19/57
of Bank Operations, Governor Shepardson
today approved on behalf of the Board
the appointment of Claudina V. Kane as
Clerk-Stenographer in that Division,
with basic annual salary at the rate of
$3,8401 effective the date she assumes
her duties.
o.
BOARD OF GOVERNORS
Item No. 1
OF THE
FEDERAL RESERVE SYSTEM
7/19/57
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 19, 1957
14r4 A. H.
Stok, Vice President,
41 11-can Overseas Finance Corporation,
-,), Pine
,1,L)
"
Stre/1Y°
5, New,k
York.
Dear sir:
This
letter of June 25, 1957, advising that
"June 11 1 refers to your
457, substantially all the assets then held by your corPorati
assum-°n were transferred to American Overseas Finance Company, which
&Ile Id substantially all your liabilities. It is noted that as of
:1957, your corporation ceased to do an active business as an
Zjge A3
a
Your letter enclosed a certified copy of the
corporation.
14inutss
"f
which „special meeting of stockholders, held June h, 1957, at
e stockholders unanimously voted the liquidation and closing
of th
e°
corporation and adopted a Plan of Liquidation.
It is further noted that the liquidation of your corporation
remain a few
"tstanA in a large measure completed, except that there
It is
payment.
for
processed
;;7ng
Under -4
liabilities, which are being
°°d that you will advise the Board of Governors when the liquidas been
completed.
hils ha
rnishFor the Board's records, it will be appreciated if you will
P
detailed balance sheet of the corporation as of the "Closing
'date!, a
8
in the Basic Agreement, showing assets and liabilities
el columns under these headings:
paralidefined
Assets at date of transfer
oall
)s
efuzde
2:::t: tr
to merican Overseas Finance Company
Id-a
bilities at date of transfer
;1-abi1ities assumed by American Overseas Finance Company
4-.La
bilities unsatisfied
!lUtir, In connection with your reference to a certificate of dist'urthe
i the matter is under consideration and you will be advised
f'
as soon as practicable.
Very truly yours,
(Signed)
Merritt Sherman
Merritt Sherman,
Assistant Secretary.
205
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 2
7/19/57
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 19, 1957
ComPtroller of the Currency,
PjeasurY Department,
•PiashinGvon 25, D. C.
Attention Mr. W. N. Taylor,
Deputy Comptroller of the Currency.
tear Mr•
Comptroller:
Reference is made to a letter from your office dated
27,
1957 enclosing copies of an application to organize
4
oraite—°nal bank at Melbourne, Florida, and requesting a recay_tuation
tivroved. as to whether or not the application should be
?ebru
flat•
the a
Information contained in a report of investigation of
Of AtP
.Pication made by an examiner for the Federal Reserve Bank
to thj-anta discloses generally favorable findings with respect
r adequacy of the capital structure of the proposed bank,
the s'ilre earnings prospects, and the need for its services in
in
e°1111111-i
di nitY. With respect to the management of the bank, it
eated that the proposed executive officer is a man of
bro
atren,,exPerience except in the lending field, and that some
of thrhening in the board of directors would be desirable. One
tole' directors is interested in land which the
bank proposes
the ase as a site
for a bank building and our informant is of
the °13i-nion that
more reasonable arrangements should be made for
13°a,131%°PertY• After considering the information available, the
vided
Governors
recommends approval of the application proc)ttice'ltrrangements are made for management satisfactory to your
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
C°111Ptroller of the Currency
- 2-
The Board's Division of Examinations will be glad to
discuss any
aspects of this case with representatives of your
°trice if you so desire.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Assistant Secretary.
2052
205
BOARD OF GOVERNORS
,{01110,0
4' NI A 40
OF THE
4'411-"I'44;
-;
FEDERAL RESERVE SYSTEM
Item No. 3
7/19/57
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE EIOARO
July 19, 1957.
Mr.
Phillip S. Hughes,
Acting Assistant Director for
Legislative Reference,
Executive Office of the President,
1,
7 ?all of the
/311r
"43n1ngton 25,Budget,
D. C.
Dear Mr.
Hughquees:
This is in response to your communication of June 27, 1957,
the views of the Board concerng
e
concerning a draft bill proposed by
the 08ting
Farm,
Partment of Agriculture to amend Title I of the Bankhead-Jones
to t lenant Act, and the
Act of August 28, 1937, relating respectively
arm ownership and soil and water conservation loans.
The proposed amendments are apparently intended: (1) to provide
farm greater
flexibility and efficiency in the administration of this
enhahl°
4 _an Program; (2) to improve the functioning of the program by
T in a number of ways the attractiveness of these loans to
rat:'e lenders; and (3) to make it easier for small banks to participegli. the insured loan program by raising the maximum size of loans
capit ''ed to any one borrower from 10 per cent to 25 per cent of
legaia_
l and surplus. The proposed amendments make no change in the
bqt "taximum interest rate (5 per cent) that can be charged borrowers
Gove'educes the minimum portion thereof that will be retained by the
1/2 rriment for
administrative costs and insurance from one per cent to
Per cent.
Most of the proposed amendments do not directly affect the
lloarcit
c
:credit and
supervisory responsibilities, and the Board has no
kobe
ortilne,4
.:
'
1 3 to make with respect to them. On those amendments that bear
"e1 on its area of responsibility, the Board offers no
°Ilie4'
ione Y
to the propoaals offered by the Department of Agriculture.
The Board would like to take this opportunity, however, to
Niter
efteojte its belief
that monetary and credit policy can be most
(i'llter -ye when interest rates on direct and insured loans made by
811
(1 ailment
agencies are set to reflect primarily market conditions
re adiusted flexibly as market conditions change.
Adherence to
20.
Mr. Phillip
S. Hughes
-2-
!
Ilch a policy generally will assure borrowers that no artificial
:arriers will be erected to impede their access to credit; it will
alicourage lenders to participate more actively in such loan programs;
.!!ct it will permit Government agencies to avoid the complexities and
7,'clect administrative burdens that develop when inflexible ceilings
;1! established without close reference to changing credit market con4,
14 . In view of the rapidly changing conditions in credit markets,
re Board would
be favorably disposed should an additional amendment
;
offered looking toward providing the Secretary of Agriculture
tv.aater administrative discretion in determining maximum rates on
""e 10a118
Very truly yours,
(Signed)
Merritt Sherman
Merritt Sherman,
Assistant Secretary.
05
BOARD OF GOVERNORS
40P
a ot"
if
7'sUA
OF THE
FEDERAL RESERVE SYSTEM
Item No. 4
7/19/57
WASHINGTON 25, D. C.
%4 4
ADDRESS OFFICiAL CORRESPONDENCE
TO THE SOAR°
'ootio**
July 22, 1957
/mill
'Earle 0. Latham, First Vice President,
rederal Reserve Bank of Boston,
Boston 6, Massachusetts.
tear Mr.
Latham:
Reference is made to your letter of June 28, 1957, submittin
coni g for consideration, a revised plan of the Hadley Falls Trust
0 Pany,
Holyoke, Massachusetts, to retire 4,000 shares ($400,000)
'
of s outstanding preferred stock. In addition to the retirement
valPreferred stock, the trust company proposed to increase the par
t of the remaining shares of preferred stock on its books from
6,01•1.e
° $100 per share; to sell 2,500 shares of additional common
sto„
tronAat ,1,50 per share, and to increase the par value of common stock
in 030 to 44;40 per share. It is proposed that additional retirernents
°f preferred stock will be made about December 31, 1959, and
ur before
December 31, 1962.
Consideration has been given again to all of the informaanfta
vailable with respect to the condition of the trust company
Istth he various facts cited including your favorable recommendation,
the
result that the Board has approved the retirement of
.uu03 retable
ir
value of preferred stock by the Hadley Falls
inere„C°111PanY, provided its capital structure is simultaneously
retir—eed by the sale of $125,000 common stock. This approval of
enient of
preferred stock should not be interpreted as approval
plarl
arlY future retirements of preferred stock as outlined in the
be c,
sublnitted by the trust company as such proposals 'would have to
llorevrisidered on the basis of facts and circumstances then existing.
corn4
7
ter the Board does not deem it appropriate to make any
requi:lents with respect to the amount of capital which may be
red
in connection with the future establishment of branches.
41.14
e°ntinii The Board feels that management of the trust company should
Poettioe.to exert its active efforts to improve the bank's capital
Very truly yours,
C-)
Merritt She
Assistant Secre ary.
@FedFRASER