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609 Minutes for To: Members of the Board From: Office of the Secretary July 20, 1966 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, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If you were not present, your initials will indicate only that you have seen the minutes. Chm. Martin Gov. Robertson Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Gov. Brimmer Minutes of a meeting of the available members of the Board of Governors of the Federal Reserve System on Wednesday, July 20, 1966. The meeting was held in the Board Room at 10:00 a.m. PRESENT: Mr. Robertson, Vice Chairman Mr. Shepardson Mr. Maisel Sherman, Secretary Kenyon, Assistant Secretary Bakke, Assistant Secretary Molony, Assistant to the Board Fauver, Assistant to the Board Hackley, General Counsel Solomon, Director, Division of Examinations O'Connell, Assistant General Counsel Shay, Assistant General Counsel Hooff, Assistant General Counsel Sammons, Associate Director, Division of International Finance Mr. Thompson, Assistant Director, Division of Examinations Miss Eaton, General Assistant, Office of the Secretary Mr. McClintock, Supervisory Review Examiner, Division of Examinations Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. The following actions were taken subject to ratification at the next meeting of the Board at which a quorum was present: Approved item. The following item, in form attached to these minutes under the number indicated, was approved unanimously after consideration of background material that had been made available to the Board and clarification of points of information about which members of the Board inquired: Item No. Letter to American Lansing, Michigan, !lent of an in-town 'he bank's capital Bank and Trust Company, approving the establishbranch and commenting on position. 1 7/20/66 -2Acquisition of Edge corporation shares (Items 2 and 3). There had been distributed a memorandum from the Legal Division dated July 18, 1966, concerning a letter of July 7 from Western Bancorporation, Los Angeles, California, in which the question was raised whether banks in s bank holding company system may purchase shares of an Edge corporation s ubsidiary of the holding company. Attached were a draft of letter to Western Bancorporation advising that the transaction would not be prohibited by Federal law and a draft of interpretation to this effect for Publication in the Federal Register and the Federal Reserve Bulletin. Mr. Shay observed that since the recent repeal of section 6 of the Bank Holding Company Act the basic limitations with respect to transactions between affiliates in a holding company group were to be found in section 23A of the Federal Reserve Act. This statute was inapplicable to transactions involving corporations organized under section 25(a) of the Federal Reserve Act (Edge corporations), and also was inapplicable to investments in securities of the kinds and amounts eligible for purchase by national banks under section 5136 of the Revised Statutes. Since section 5136, read in context with section 25(a) of the Federal Reserve Act, authorized national banks to purchase shares of Edge corporations, member State banks had the same privilege, subject to applicable State laws, by virtue of section 9, paragraph 20, of the Federal Reserve Act. Accordingly, Mr. Shay expressed the view that there was no provision of Federal law that would prohibit a transaction of the kind here under consideration. 7/20/66 -3After clarification of certain points covered in Mr. Shay's Presentation, transmittal of the letter and issuance of the interpretation were authorized unanimously, with the understanding that certain editorial changes would be made in the interpretation. Copies are attached as Items 2 and 3, respectively. Request for unpublished information (Item No. 4). There had been distributed a memorandum from the Legal Division dated July 13, 1966, discussing and recommending compliance with a request from the law firm of Schacht, Kerr & Schacht, Rochester, Minnesota, for permission to examine and copy portions of certain documents furnished to the Board in connection with the application of Bancorporation of Minnesota, Inc., to become a bank holding company. (This application had been denied by Board order dated August 2, 1965.) Attached to the memorandum was a draft of letter to the law firm authorizing access to copies of the application and supplemental documents in the possession of the Federal Reserve Bank of Minneapolis. Mr. O'Connell observed that since no hearing had been held on the application there was no transcript. With respect to the other documents referred to in the request, he noted that the application of Ba ncorporation had been submitted prior to October 30, 1965 (the effective date of an amendment to the Board Rules Regarding Information, Submittals, and Requests providing that, unless otherwise directed by the Board, all bank holding company applications received after that ZGOS 7/20/66 -4- date would be available for public inspection). materials were not public documents. Therefore, these However, it seemed quite pos- sible that the matter in connection with which the materials were being sought might result in litigation, and the documents requested Would then be subject to subpoena in any event. In all the circum- stances, he thought it desirable that access to them be allowed. Transmittal of a letter granting permission for access to the d ocuments requested was thereupon authorized; a copy of the letter is attached as Item No. 4. Cease and desist bill. The Vice Chairman referred to a meeting he had attended yesterday at the Treasury with regard to S. 3158, the Financial Institutions Supervisory Act of 1966 (popularly called the cease and desist" bill), the purpose of which was to strengthen enforcement remedies against violations of law or unsafe or unsound practices on the part of financial institutions. The meeting was called to con- Sider a Committee Print dated July 14, 1966, which involved amendment Of S. 3158 to change some of the more controversial provisions. Among Other things, the removal and suspension authority would be limited to actions involving personal dishonesty. Also, the Comptroller of the Currency would have to receive approval of the Federal Reserve Board before acting against a national bank. However, the provisions grant- ing authority to the Home Loan Bank Board and the Federal bank supervisory agencies to require financial institutions to cease and desist 6 9 7/20/66 -5- from violations of law or unsafe or unsound practices had been retained s ubstantially as proposed in the original bill. Governor Robertson said he had pointed out at the meeting that the original bill had been supported by the Board of Governors. He had also expressed the view that a removal and suspension authority limited to actions involving personal dishonesty would hardly be worth fighting for. However, he felt that cease and desist authority, even without a removal and suspension power, would be beneficial. Governor Robertson recalled that the Comptroller of the Currency waS opposed to the whole idea of providing removal and suspension authoron the ground that he was now able through nonstatutory means to effect the removal of bank officers and directors and that the necessity to follow statutory procedures might simply involve delay. He added that the Treasury was opposed to the provision of the Committee Print Whereby the Comptroller of the Currency would have to receive approval of the Federal Reserve Board before acting against a national bank. Governor Robertson said it was his view that the protection of the public Igeighed toward having any removal and suspension procedures spelled out in the statutes rather than to have such actions taken by a single public official on a nonstatutory basis. After reviewing certain other amendments found in the Coiiuiiittee Print, the Vice Chairman said he understood that further consideration Was being given to various aspects of the matter before the Treasury 4'.1;10 7/20/66 -6- decided what position to take in a letter to the Senate Banking and Currency Committee concerning the Committee Print. Secretary's Note: The Vice Chairman was subsequently furnished a copy of a letter dated July 21 from the Treasury to the Chief of Staff of the Senate Banking and Currency Committee. The letter expressed a preference for the provisions of the original bill so far as the removal and suspension authority was concerned. It expressed disagreement with the special treatment accorded to the Comptroller of the Currency, but indicated that otherwise the Committee Print would be acceptable to the Administration. It also stated that the letter reflected the views not only of the Treasury but also the Board of Governors, the Federal Deposit Insurance Corporation, and the Home Loan Bank Board. The meeting then adjourned. Secretary's Notes: Governor Shepardson today approved on behalf of the Board a request from Mary E. Yingling, Cafeteria Helper, Division of Administrative Services, for permission to work for a local store on a part-time basis. Governor Shepardson also approved today on behalf of the Board a request from John C. Chisolm, Cafeteria Laborer, Division of Administrative Services, for permission to engage in part-time custodial work. BOARD OF GOVERNORS Item No. 1 7/20/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 20, 1966 Board of Directors, American Bank and Trust Company, Lansing, Michigan. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by American Bank and Trust Company, Lansing, Michigan, of a branch in the vicinity of the intersection of West Mount Hope Avenue and Boston Boulevard, Lansing, Michigan, provided the branch is established within one year from the date of this letter. The Board is aware of the recent sale by your hank of capital debentures totaling $1,500,000; however, capital continues to be less than satisfactory. In view of the strong growth trend of your bank, the Board urges that serious consideration be given to further increasing capital funds. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) ;4,612 BOARD OF GOVERNORS Item No. 2 7/20/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ACORESS OFFICIAL CORRESPONOENCE TO THE BOARO July 20, 1966 Mr. John L. Cecil, Executive Vice President and Secretary, Western Bancorporation, 600 South Spring Street, Loe Angeles, California. 90014 Dear Mr. Cecil: This is in reply to your letter of July 7, 1966, to Mr. Solomon, Director of the Board's Division of Examinations, concerning whether it is permissible for commercial banking affiliates of Western Bancorporation to acquire and hold the Ilares of Western Bancorporation International, the bank holding company's Edge corporation subsidiary. Enclosed is a copy of an interpretation of the Board concerning the matter that will be published in early issues of the Federal Reserve Bulletin and the Federal Register. You will that the interpretation concerns only acquisitions of shares State member banks. You may wish to consult the Comptroller °f the Currency or the Federal Deposit Insurance Corporation, l 'espectively, with respect to the affiliates of Western Banccrporation that are national banks or nonmember insured banks. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. tnclosure 2613 BOARD OF GOVERNORS OF THE Item No. 3 7/20/66 FEDERAL RESERVE SYSTEN ACQUISITION OF EDGE CORPORATION AFFILIATE BY STATE MEIIBER BANKS OF REGISTERED BANK HOLDING COMPANY The Board has been asked uhether it is permissible for the commercial banking affiliates of a bank holding company registered under the Bank Holding Company Act of 1956, as amended, to acquire and hold the shares of the holding company's Edge corporation subsidiary organized under section 25(a) of the Federal Reserve Act. Section 9 of the Bank Holding Company Act amendments of 1966 (Public Law 89-485, approved July 1, 1966) repealed section 6 of the Bank Holding Company Act of 1956. That rendered obsolete the licsard is interpretation of section 6 that was published in the March 1966 Federal Reserve Bulletin, page 339. Thus, so far as Federal banking law 811A/cable to State member banks is concerned, the answer to the foregoing queetion depends on the provisions of section 23A of the Federal Reserve Act, 48 amended by the 1966 amendments to the Bank Holding Company Act. By its specific terms, the provisions of section 23A do not apply to an affiliate organized tinder, section 25(a) of the Federal Reserve Act. Accordingly, the Board concludes that, e;:cept for such restrictions as may exist under applicable State law, it would be legally permissible by virtue of paragraph 20 of section 9 of the Federal -2. 2614 Reserve Act for any or all of the State member banks that are affiliates of a registered bank holding company to acquire and hold shares of the Edge corporation subsidiary of the bank holding company within the amount limitation in the last sentence of paragraph 12 of section 25(a) of the Pederal Reserve Act. July 20 1966. Item No. 4 7/20/66 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 20, 1966 Schacht, Kerr & Schacht, Attorneys at Law, Suite 300, 100 First Avenue Building, Rochester, Minnesota. 55901 Attention Donald C. Steiner, Esq. Gentlemen: This acknowledges your letter of June 15, 1966, advising that you represent several stockholders of the Olmsted County Bank and Trust Company, Rochester, Minnesota, one of three banks involved in an application filed by Bancorporation of Minnesota, Inc., pursuant to section 3(a) of the Bank Holding Company Act of 1956, which Was denied by the Board on August 2, 1965. You ask to be advised as what part, if any, of the material furnished by Bancorporation Incident to its proposal constitutes a public record that would be available for public examination. In addition to your reference to Bancorporation's application, you inquire as to your access to the Board's Order and Statement reflecting its denial action, and to any existing transcript of hearing on the application. You are advised that section 262.2(0(7) of the Board's Rules of Procedure as presently in force (12 CFR 262.2(0(7)) provides that unless the Board shall otherwise direct, each holding fliPany and merger application received subsequent to October 30, Z65, shall be made available for inspection by the public except 'or portions thereof as to which the Board determines that disclosure would not be in the public interest. As to any bank holding c°mPany application filed prior to October 30, 1965, except as ?therwise determined by the Board, such are available for inspection bY the public only in cases in which a public hearing or public oral ?re sentation of views on the application was ordered by the Board. Bancorporation's application was filed some 18 months prior to utetober 30, 1965, and since no public hearing or public oral presentation on the application was ordered, the application is considered be "unpublished information of the Board" and not available for 130ARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 2616 Schacht, Kerr & Schacht -2- public inspection in the ordinary course of business. Since no Public hearing or oral presentation was held on the application, no transcript of record exists. Section 261.2(d) of the Board's Rules Regarding Information, Submittals, and Requests (12 CFR 261.2(d)) permits the Board to except from the disclosure prohibitions unpublished be in information of the Board where such disclosure is deemed to includrequest, the public interest. Upon consideration of your ing your stated representation of stockholders of the Olmsted County Bank and Trust Company, and pursuant to the above provision of the Board's Rules, the Board has granted your request for permlssion to examine the application of Bancorporation of Minnesota. This authorization contemplates also your access to certain into formation supplied by Bancorporation in the form of supplements responwas information lts original application. Certain of this sive to requests by the Board for further information transmitted through the Federal Reserve Bank of Minneapolis. Since these requests make more meaningful the responses thereto, these letters wxli also be made available for your inspection. A copy of this letter is being furnished the Federal Reserve Bank of Minneapolis. Vice President Roger K. Grobel and Chief Examiner L. G. Gable of the Reserve Bank are familiar with Your request and with the documents that comprise Bancorporation's Upon application and thus are included within this authorization. be will s arrangement Gable, request of either Mr. Grobel or Mr. made for your inspection of this material at the Minneapolis Reserve Bank and, if desired, to have copies thereof made. Pursuant to your further inquiry, the material in question totals about 220 pages, the cost of reproduction of which by the The Board would approximate $20.00, or about 8 cents per page. opportunity the and facilities have also may Minneapolis Reserve Bank to comply with any request for reproduction of documents. For your information, there is enclosed a copy of the Board's August 2, 1965 Order and Statement concerning its denial of Bancorporation's application. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Enclosure
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