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Minutes for
To:
July 26, 1963
Members of the Board
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 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. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
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Minutes of the Board of Governors of the Federal Reserve
System on Friday, July 26, 1963.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mr. Sherman, Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Fauver, Assistant to the Board
Mrs. Semia, Technical Assistant, Office of the
Secretary
Messrs. Noyes, Koch, Holland, Eckert, Keit.,
and Yager of the Division of Research and
Statistics
Messrs. Furth, Hersey, Sammons, Gemmill, and
Goldstein of the Division of International
Finance
Money market review.
Mr. Keir commented on developments in
Government finance, the Federal Funds market, and the level of net free
eserves, illustrating the information presented by distributing tables
shelwing the structure of Treasury bill yields and the evolution of reserve
ProJeotions during the statement week ending July 24, 1963, and a chart
Showing maturity yields on United States Government securities from May
1960 to July 1963.
Mr. Eckert spoke on bank credit, bank reserves, and
cul*rencY in circulation, furnishing the Board copies of a summary of
illanetarY developments in the five weeks ending July 24, charts on currency
outsi
de banks and per capital holdings of currency and personal consumption
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expenditures, and tables showing net changes in currency in circulation,
by denomination, 1952-1963, and Federal Reserve notes outstanding, by
District.
Mr. Goldstein then discussed foreign exchange markets, Mr.
Rolland commented on prospective open market operations, and Mr. Koch
made observations as to the relationship between discount rates and
credit availability.
All members of the staff except Messrs. Sherman and Fauver and
Mrs. Semia then withdrew and the following entered the room:
Mr. Hackley, General Counsel
Mr. Solomon, Director, Division of Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Hexter, Assistant General Counsel
Mr. Benner, Assistant Director, Division of Examinations
Mr. Leavitt, Assistant Director, Division of Examinations
Mr. Thompson, Assistant Director, Division of Examinations
Miss Hart, Senior Attorney, Legal Division
Mr. Hricko, Senior Attorney, Legal Division
Mr. Egertson, Review Examiner, Division of Examinations
Mr. Rumbarger, Review Examiner, Division of Examinations
Mr. Sanford, Review Examiner, Division of Examinations
Mr. Smith, Review Examiner, Division of Examinations
Mr. Noory, Assistant Review Examiner, Division of
Examinations
Discount rates.
The establishment without change by the Federal
Reserve Banks of New York, Cleveland, Richmond, St. Louis, Minneapolis,
414 Dallas on July 25, 1963, of the rates on discounts and advances in
their existing schedules was approved unanimously, with the understanding
that appropriate advice would be sent to those Banks.
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-3Circulated items.
The following items, copies of which are
attached to these minutes under the respective item numbers indicated,
were approved unanimously:
Item No.
Letter to Mound City Trust Company, St. Louis,
Missouri, waiving the requirement of six months'
notice of withdrawal from membership in the
Federal Reserve System.
1
Letter to The Chase Manhattan Bank, new York,
New York, approving the establishment of a branch
at 486 Neptune Avenue, Brooklyn.
2
Letter to Manufacturers Hanover Trust Company,
New York, New York, approving the establishment
Of a branch at 510 Third Avenue, Borough of
Manhattan.
3
Letter to Union County Trust Company, Elizabeth,
New Jersey, approving the establishment of a
branch at Rahway Avenue and South Street.
14.
Letter to United California Bank, Los Angeles,
California, approving the establishment of a
uranch in Redondo Beach.
5
Letter to the Federal Reserve Bank of New York
-nterposing no objection to the retention of
Robert G. Rouse in active service for the period
1964, and
?et°ber 1, 1963, through September 30,
7:PProving the payment of salary to Mr. Rouse as
ee President and Senior Adviser at the rate
4.1xed by the Bank's Board of Directors for the
Period October 1 through December 31, 1963.
6
Letter to the Federal Reserve Bank of New York
213roving the payment of salary to three officers
1 rates fixed by the Bank's Board of Directors.
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1
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Item No.
Letter to Mercantile Trust Company, St. Louis,
Missouri, reiterating the Board's interest in
learning of steps contemplated in order to bring
the Trust Company's operations into conformity
with the position taken by the Board in its
letter of June 20, 1963.
Applications of Virginia Commonwealth Corporation.
8
There had
been distributed two memoranda dated July 19, 1963, from the Division
of Examinations in connection with applications by Virginia Commonwealth
Corporation, Richmond, Virginia.
In one application, Virginia Common-
wealth sought to acquire shares of Washington Trust and Savings Bank,
Bristol, Virginia, and in the other, to acquire shares of The Peoples
National Bank of Pulaski, Pulaski, Virginia.
In each case, the Federal
Reserve Bank of Richmond and the Division of Examinations recommended
aPProval.
There had also been distributed a memorandum dated July 19, 1963,
trom the Division of Examinations regarding the capital needs of the
subsidiaries of Virginia Commonwealth Corporation, this study having
been made pursuant to the Board's request at the meeting on May 20, 1963.
since the study was started, The Bank of Henrico, Sandston, Virginia, had
erged with The Bank of Virginia, Richmond, Virginia, thereby reducing
the number of Virginia Commonwealth's subsidiaries to four.
Of those
only problem of
Bank of Virginia was the one that presented the
c°11sequence regarding capital needs.
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-5After comments on the capital position of the other three
sUbsidiaries, it was stated in the memorandum that Bank of Virginia
needed close to $3.9 million of additional capital to equal 80 per
cent of requirements according to the Board's analysis form; $4.9
equal 90 per cent; $7
million to equal 85 per cent; $5.9 million to
million to equal
95 per cent; and $8 million to equal 100 per cent.
position
The primary causes of Bank of Virginia's low capital
were relatively low net earnings and a rapid rate of growth in deposits.
It seemed apparent that deposits would continue to grow.
While efforts
to improve earnings were said to be under way, it seemed probable that
4nY improvement in earnings in relation to growth of the bank would be
Slow.
The bank had sought increased earnings at the expense of its
current capital position and liquidity.
Its policy had been to keep
rUlly invested and to make active use of the money market.
It had a
lower-than-average proportion of cash assets and U. S. Government securities and a higher-than-average proportion of loans to total assets.
ial number of days,
4180/ the bank utilized borrowed funds for a substant
and the reports of examination for 1962 and 1963 indicated a trend toward
longer maturities in the investment portfolio.
in keeping its total operating
Bank of Virginia had been successful
earnings at a high level; however, up to the present time it had had little
relation to gross income.
c'uccess in reducing current expenses in
While
4 sizable portion of expenses was represented by interest payments on a
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higher-than-average percentage of time deposits, expenses were also
high in other categories.
One reason indicated for the high expenses
was the maintenance of its branch system.
While real estate assets
were higher than average in proportion to total assets, this proportion
had been reduced over the past five years.
It was also noted that the
bank's occupancy expense, which was also higher than average, declined
in relation to total earnings in 1962; however, it was doubted that this
reduction would have a profound effect on the earnings picture.
Unless Bank of Virginia could find some means of substantially
reducing expenses in relation to total income, it would appear that
Periodic augmentation of capital (in addition to retained earnings) would
be the only available means of maintaining an adequate capital relationship.
The bank at present planned to issue $1.5 million of additional
Capital stock by September 1, 1963, and it was contemplated that Virginia
Commonwealth would acquire its proportionate share, or all, of the additional shares.
Numerous comparisons of the capital and earnings of Bank of
Virginia with the capital and earnings of other banks and groups of
bElnks were set out in the memorandum, as well as comments on dividend
13°11eY and borrowing of Virginia Commonwealth's subsidiaries and analyses
°I' the communities they served.
The conclusion of the Division, as far
48 Bank of Virginia was concerned, was that, although it was probable
that a request for $4 million of additional capital (including the $1.5
Million to be added) would be vigorously opposed by the bank and the
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holding company, the addition of that amount would not be unreasonable.
Capital adequacy according to the Board's analysis form had become
Progressively weaker at each of the last three examinations and, based
On past operations, the bank's earnings were considerably less than
those for the average Fifth District member bank in its size group.
Based on the most recent examination, the additional
Provide only slightly in excess of
$4 million would
80 per cent of the amount called for
by the Board's analysis form.
At the Board's invitation, Mr. Solomon commented in supplementation
of the Division's capital adequacy memorandum.
Despite the serious capital
Problem of Bank of Virginia, he did not believe there was justification
for turning down either of the two current applications by Virginia
Commonwealth; those acquisitions would not worsen the capital situation
Of
Bank of Virginia and would, in fact, slightly strengthen that of the
holding company.
The capital of Bank of Virginia was inadequate by any
test that could be applied; the only question was how much additional
Capital was needed, and there was not too much variation in the findings
°n that point.
The analysis of the Federal Reserve Bank of Richmond was
essentially the same as that of the Division of Examinations.
The prin-
eiPal reason for Bank of Virginia's low capital was its net earnings
Position
compared with other individual banks and groups of banks.
Rea-laced to simplest terms, the bank had a management succession problem
ill reverse.
It was so interested in growth and expansion that it main-
tained a staff of a size always ahead of its current needs.
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Thus, even
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though the bank did not pay higher salaries than other banks, its
personnel expenses, plus heavy rentals in bank premises, ate up an
Undue portion of its quite favorable gross earnings.
This fact had been
to
brought to the attention of the bank's management, who were trying
correct the problem, but without sufficient success thus far.
The bank
very advanced in the use of automation, which might in time serve
to reduce expenses to some extent.
The Division suggested that, if the
two current applications by Virginia Commonwealth were approved by the
Board, the letters notifying the applicant of those decisions not only
Bank
express the Board's dissatisfaction with the capital position of
Of Virginia but also call attention to the bank's earnings and expense
Problem.
its
The Division felt strongly that the bank should add to
capital not just $1.5 million but as least $4 million.
The bank's
take
anagement recognized the capital problem and was prepared to
corrective measures, although it seemed unlikely that they would be
to add as much as $4 million.
Mr. Solomon expressed the view,
however, that the Board should press for that amount.
Virginia Common-
of
wealth expected to borrow in order to purchase the $1.5 million
Mditional capital that Bank of Virginia expected to issue.
Obviously
other means,
It would be better to obtain additional capital through
but it would be better to have the capital, even through borrowing, than
not to have it.
situation that involved
Governor Shepardson observed that a
question
)1"adual capital deterioration and aggressive expansion raised a
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in his mind as to the point at which a line should be drawn on expansion
until the situation improved.
Governor Robertson commented that he thought in terms of the
future; in the light of the amount of capital needed by Bank of Virginia,
it would be more difficult to obtain capital for the other subsidiaries
Of Virginia Commonwealth.
Governor Balderston expressed the view that the capital problem
Ifas more important than the two proposed acquisitions.
He would press
for the introduction of at least $4 million of additional capital, and
he concurred in Mr. Solomon's suggestion that attention be called to the
need for slowing down the building of Bank of Virginia's organization.
Governor Balderston was in favor of saying that Bank of Virginia needed
More capital promptly, without specifying how it should be obtained, and
then referring to the fact that the bank had been preparing for growth
at a rate
that had affected its net operating figures adversely.
He
believed that the latter point Should be stressed because he did not
8ee how interest on borrowed funds could be serviced or satisfactory
dividends paid unless the situation was remedied.
Governor Shepardson stated that he also regarded the capital
IDr°blem as the major consideration.
It seemed to him that with inadequate
capital and low net earnings, it was necessary for the Board to step in
before Bank of Virginia got in trouble.
He was inclined to favor the
4PProach suggested by Governor Balderston, being firm on the requirement
Of capital and some consolidation of activities.
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Following comments by Mr. Thompson, the members of the Board
then expressed their views in regard to the application of Virginia Commonwealth to acquire the majority of the shares of Washington Trust and
Savings Bank, Bristol, Virginia.
Governor Mills stated that he would approve the application on
the grounds cited by the Division of Examinations.
He favored the Divi-
sion's recommendation that, if the Board approved the application, the
letter notifying the holding company of that decision include a stricture
as to the need for increasing the capital of Bank of Virginia, but he
woUld not make that a condition to the decision on the Bristol application.
It would seem that since Bank of Virginia's gross earnings were relatively
good and it was the bank's net return that presented difficulty, the bank's
management could improve the situation by controlling expenses if they
Chose to make that effort, and they should be encouraged to do so.
The
8ristol application involved an area that was already served by several
large banks, as well as two small ones, and the introduction of Virginia
Commonwealth into the area presumably would provide increased competition
with the large banks.
Governor Mills could not be enthusiastic about the
increasing holding company control over banking in Virginia, but the
effect of the proposed Bristol transaction would not expand either the
total holding company operations in Virginia or holdings of Virginia
C°141tionwealth to a point that, in his thinking, would be adverse to the
141blic interest or involve an over-concentration of assets under the
control of Virginia Commonwealth.
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Governor Mills gathered that the management of Virginia Commonwealth was reasonable, had recognized the fact that Bank of Virginia's
capital must be improved, and had steps under way to that end, although
their present plans still would not put the bank's capital in an adequate
Position.
He judged that the two present applications had been presented
Without any previous affirmative action on the part of either the Board
or the Federal Reserve Bank of Richmond to insist that additional capital
be introduced into Bank of Virginia. If that was correct, it seemed to
him that it would be difficult to decline either of the applications at
this time on the grounds of Bank of Virginia's capital inadequacy.
Mr. Solomon commented that the question of capital had been raised
With Bank of Virginia.
Its officers had been told that the $1.5 million
they proposed to add was a desirable step, but that further improvement
Was necessary.
Governor Robertson stated that he would disapprove on the ground
that the major unit of the holding company's system had a serious capital
Problem.
If the holding company were allowed to expand, the implication
Would be that its subsidiaries were adequately capitalized.
Although
they might not have troublesome capital problems today, except for Bank
°I' Virginia, they might have in the future, and the difficulty being expe11-enced by the holding company in obtaining capital for Bank of Virginia
Would make it harder to obtain capital for the other subsidiaries.
Any
capital to be provided Bank of Virginia in addition to the $1.5 million
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that Virginia Commonwealth was borrowing would probably have to come
from larger dividends assessed on the other subsidiaries by the holding
company.
He was in favor of halting the holding company's expansion at
this point until it had brought its situation under control.
Chairman Martin asked if the Board had ever gone so far as to
say that a current application would be approved but that no future
applications would be viewed with favor in the absence of capital
improvement.
Staff responses cited one previous case in which an
admonition along that line had been given.
Chairman Martin then asked
it there was any legal reason why the holding company should not be put
On notice that the Board considered Bank of Virginia's capital inadequate
and expected the situation to be improved promptly.
Mr. Hackley responded that he believed that from a legal standPoint it would be going a little far to say that no further expansion
would be approved unless more capital was obtained, because each case
MUst be judged on its own merits and some future case might involve
circumstances that would point to its approval in the public interest.
could be phrased in such
11811ing comment suggested that the admonition
by Mr. Hackley.
a Ias to make allowance for the point made
be inclined to approve
Governor Shepardson stated that he would
the Bristol application, hoping that an admonition regarding capital
cola(' be given that would be strong enough to be fruitful.
Governor Balderston said that his view was favorable, for the
r.easons set forth by Governor Mills.
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Governor Balderston reiterated
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his recommendation that the Board press for improved efficiency as well
as for more capital.
He noted that neither of the proposed acquisitions
*would injure the capital position of the banks or the holding company.
Chairman Martin stated that he also would vote to approve.
He
felt, however, that a strong admonition on the capital problem should
be given.
The application of Virginia Commonwealth Corporation to acquire
Shares of Washington Trust and Savings Bank, Bristol, Virginia, was thereUPon approved, Governor Robertson dissenting.
Governor Robertson stated,
however, that he would like to reserve the right to withdraw his dissent,
depending upon his view with regard to the terms of the admonition that
vaS to be given the holding company.
It was understood that the Legal Division would draft for the
Board's consideration an order and statement reflecting the decision to
aPProve and that, if Governor Robertson should decide to let his dissent
stand, a statement explaining that dissent would also be prepared.
At the invitation of the Board, Mr. Thompson then summarized
the aPplication of Virginia Commonwealth to acquire shares of The Peoples
National Bank of Pulaski, Pulaski, Virginia, following which the members
°f the Board expressed their views.
Governor Mills stated that he would approve for the reasons given
by the
Division of Examinations and against the background of the broader
discussion of the holding company's situation.
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Governor Robertson stated that he would approve this application
as an exceptional case.
Governors Shepardson and Balderston and Chairman Martin having
also indicated favorable positions, the application was approved unanimously.
It was understood that the Legal Division would draft an appro-
Priate order and statement for the Board's consideration reflecting this
decision, and that Governor Robertson might wish to issue a concurring
statement.
Messrs. Benner, Thompson, Rumbarger, Sanford, Smith, and Noory
then withdrew from the meeting.
Application of Fifth Third Union Trust Company.
There had been
distributed a memorandum dated July 22, 1963, from the Division of Examinations relating to the application of The Fifth Third Union Trust Company,
Cincinnati, Ohio, to purchase the assets and assume the liabilities of
The Citizens Bank of St. Bernard, Saint Bernard, Ohio.
The memorandum
4nalyzed the application, with special reference to the factors cited
ror consideration by the Bank Merger Act, and pointed out similarities
between this application and that of Fifth Third Union Trust Company to
acquire The Norwood-Hyde Park Bank and Trust Company, Norwood, Ohio,
which the Board approved by order dated December 22, 1961.
The Division of Examinations recommended that the present application be approved.
Fifth Third Union Trust Company would gain through
this acquisition about
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per cent of the area's deposits of individuals,
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partnerships, and corporations, increasing its portion to about 27.5
per cent.
However, when considered in conjunction with other factors,
this slight increase did not appear to be of sufficient significance to
warrant denial.
The relatively small Citizens Bank had apparently served
Saint Bernard reasonably well while the community was primarily residential.
However, the area now was experiencing a substantial degree of industrial
expansion.
While Citizens Bank could no doubt prosper for a few more
Years, it did not have the resources to meet the needs of the commercial
and industrial concerns moving into the area.
Consequently, its future
Progress and ability to serve the area were questionable.
The existing
and potential competition that would be eliminated by the transaction
was not believed to be a substantial element in the banking structure
Of Cincinnati. For these reasons, and the fact that a management succession problem would be solved, the Division felt that approval would
be in the public interest.
At the Board's invitation, Mr. Leavitt spoke in supplementation
or the Division's memorandum of July 22.
He noted, among other things,
that the initial overtures for the merger apparently were made by the
°fricers of Citizens Bank, who wished to liquidate their banking interests
"d felt that it would be increasingly difficult for the bank to operate
Profitably.
Therefore they wished to dispose of the bank now.
Important
ill the Division's thinking, and probably the circumstance that tipped
the scales, vas the changing nature of the Saint Bernard area.
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make
1ncreasing industrialization, the businesses in the area might
broader
less and less use of Citizens Bank as they increasingly required
services normally available from larger banks.
, copies of which had
Governor Robertson referred to a letter
to the Attorney
been distributed, that had been written on July 10, 1963,
Federation of Independent
General by a Vice President of the National
Business.
-Citizens Bank merger
The letter referred to the Fifth Third
already been
(which the writer of the letter apparently thought had
consummated) and stated that "the majority of the stockholders opposed
the sale"; also that "businessmen in the St. Bernard area are up in arms
over the fact that local banks would have bid more for available stock
the highest
than was paid by Fifth Third, if the bank had been offered to
bidder."
come from a
Governor Mills observed that the letter did not
ation.
Stockholder of either of the banks involved in the applic
Stock-
to obtain relief.
holders who objected could,if they desired, go to court
He could not regard the letter as being germane to the decision the Board
Illust make regarding the application.
the statement in the letter
Governor Shepardson, referring to
to the
arms because the bank had not
effect that businessmen were up in
asked what banks
been offered to purchasers who would have bid more,
there were that would have bid more.
of several apparent conMr. Solomon replied that that was one
tl'adictions in the letter; the price at which the bank was sold would
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be of no concern to businessmen.
He pointed out further that the reso-
lution for the merger was adopted by more than the required vote of twothirds of the outstanding shares of Citizens Bank.
The members of the Board then expressed their views regarding
the application, beginning with Governor Mills, who stated that he would
concur in the Division's recommendation.
The statutory factors required
for consideration pretty much cancelled themselves out and left a neutral
case, and as a neutral case it would be difficult to upset the expressed
wishes of the parties to the proposal.
As Mr. Leavitt had explained,
the case bore comparison to the Norwood-Hyde Park case.
It was also some-
What similar to an application of United California Bank, Los Angeles,
California, approved by the Board some time ago, where a bank was buried
tn a metropolitan community, was surrounded by the facilities of much
larger banks, and had a management problem.
The Board had approved that
ease as being in conformance with the wishes of the parties to the transaction, and in the light of a situation involving a segment of a much
larger community rather than extension into a distant area.
Governor Robertson stated that he would disapprove on the ground
that he found no positive factors other than the wishes of the parties.
Chl the adverse side, one alternative source of banking services would
be eliminated and Fifth Third Union Trust already had branches in the
Saint Bernard area.
Governor Shepardson stated that he agreed with Governor Mills.
It teemed to
him that the statutory factors were offsetting.
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There was
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not much to be gained, neither would there be much loss of competition.
Many alternative banking services were available in the area.
impressed with the changing nature of the community.
He was
While Citizens
Bank might be reasonably prosperous at this time, its prospects were
not particularly encouraging.
He could see why the management of the
bank might want to sell now while the bank was in good shape rather than
after it had gone through a period of attrition.
He felt that the wishes
Of the owners deserved consideration.
Governor Balderston said that he would approve.
He felt that
the Division had made a valid point as to the changing nature of the
community.
While he disliked to see an independent bank lost to the
community, he did not see why the owners must be made to continue in
business.
Chairman Martin indicated that while it was a close case, he
Vould vote to approve.
The application of Fifth Third Union Trust Company was thereupon
i2kE2y2q, Governor Robertson dissenting.
2
It was understood that the
Legal Division would draft an appropriate order and statement for the
Board's consideration reflecting this decision, and that a dissenting
statement by Governor Robertson also would be prepared.
Mr. Hricko then withdrew from the meeting.
Application of Bankers Trust Company
Items 9 10
and 11).
There
1184 been distributed for the Board's consideration drafts of an order and
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statement reflecting the Board's approval on July 23, 1963, of the
application of Bankers Trust Company, New York, New York, to acquire
the assets and assume the liabilities of The First National Bank of
Farmingdale, Farmingdale, New York.
A dissenting statement by Governor
Robertson had also been distributed.
After discussion, the issuance of the order and statement was
authorized.
2...Land 10
Copies of these documents, as issued, are attached as Items
The dissenting statement by Governor Robertson is attached
as Item No. 11.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
Letter to the Federal Reserve Bank of Boston (attached Item No. 12)
4PProving the appointment of Frank Michael Hillery as examiner.
Memorandum from Mr. Hackley, General Counsel, recommending that the
80ard authorize the holding of a Conference of Federal Reserve Bank
Counsel on October 10 and 11, 1963, the program to include a dinner on
the evening of October 10.
Memoranda from appropriate individuals concerned recommending the
rollawing actions relating to the Board's staff:
1.-i2Afl.tx_Insmaa2
Richard S. Landry, Assistant to the Secretary, Office of the SeorerY, from $9,790 to $11,150 per annum, effective August 4, 1963.
re s
Florence R. Cox, from the position of Secretary in the Division
Research and Statistics to the position of Secretary in the Board
2
1 embers' Offices, with an increase in basic annual salary from $6,225
60 $6,650, effective August 4, 1963.
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Transfers (continued)
Jaclene Therese Masterson, from the position of Stenographer in
the Legal Division to the position of Secretary in the Division of
Research and Statistics, with an increase in basic annual salary
from $4,390 to $4,725, effective August 12, 1963.
Leave without pay
Enid J. Halota, Secretary in the Office of the Secretary, for
the period August 18 through August 30, 1963.
6.22eptance of resignation
Sandra B. Malone, Stenographer, Legal Division, effective August 16,
1963.
et
Secre
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Federal Reserve Bank of St. Louis
Item No. 1
7/26/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 26, 1963
3°ard of Directors,
!
4oUrid City Trust Company,
St,
Louis, Missouri.
Gentlemen
:
The Federal Reserve Bank of St. Louis has forwarded to the Board
G
President Chleboun's letter dated July 1, 1963, together with
overnors
the
14 accompanying resolution, signifying your intention to withdraw from
24bership in the Federal Reserve System and requesting waiver of the six""Jrths, notice of such withdrawal.
Of
The Board of Governors waives the requirement of six-months'
e of withdrawal. Under the provisions of Section 208.10(c) of the
cl's Regulation H, your institution may accomplish termination of its
t,',uership at any time within eight months from the date that notice of
1.,"eci6ent10n to withdraw from membership was given. Upon surrender to the
yo eral Reserve Bank of St. Louis of the Federal Reserve stock issued to
cancelled and appropriate refund will
be institution, such stock will be
made thereon.
the
It is requested that the certificate of membership be returned to
Federal Reserve Bank of St. Louis.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 2
7/26/63
WASHINGTON 25. D. C.
ADORERS orriciAL CORRESPONDENCE
TO THE EIOARO
July 26, 1963
Board of Directors,
The Chase Manhattan Bank,
New York, New York.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by
The Chase Manhattan Bank, New York, New York, of
a branch at 486 Neptune Avenue, Brooklyn, New
York, provided the branch is established within
one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
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.)
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 3
7/26/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 26, 1963
Board of Directors,
Manufacturers Hanover Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment of a
branch at 510 Third Avenue, Borough of Manhattan,
New York, New York, by Manufacturers Hanover
Trust Company, provided the branch is established
within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
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.)
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Federal Reserve Bank of St. Louis
Item No..;444';*,
7/26/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 26, 1963
Board of Directors,
Union County Trust Company,
Elizabeth, New Jersey.
Gentlemen:
al Reserve
The Board of Governors of the Feder
h
at the
a
branc
of
ent
lishm
estab
System approves the
ts
South
Stree
and
e
Avenu
southwest corner of Rahway
ny,
Trust
y
Compa
Count
Union
Elizabeth, New Jersey, by
from
one
n
year
withi
d
lishe
estab
provided the branch is
the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
stated that the Board also
(The letter to the Reserve Bank
of the period allowed to
had approved a six-month extension
extension should be
an
if
establish the branch; and that
the Board's letter
in
ribed
requested, the procedure presc
followed.)
be
d
shoul
of November 9, 1962 (s-1846),
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Federal Reserve Bank of St. Louis
Item No. 5
BOARD OF GOVERNORS
7/26/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 26, 1963
Board of Directors,
United California Bank,
Los Angeles, California.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment of a branch by
United California Bank, Los Angeles, California, in
the vicinity of Palos Verdes Boulevard and Pacific
Coast Highway, Redondo Beach, California, provided
the branch is established within six months from the
date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
stated that the Board
(The letter to the Reserve Bank
extension of the period
also had approved a six-month
and that if an extension
allayed to establish the branch;
procedure prescribed in the
should be requested, the
1962 (5-1846), should be
Board's letter of November 9,
followed.)
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 6
OF THE
7/26/63
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 26, 1963
CONFIDENTIAL (FR)
Mr. Alfred Hayes, President,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Hayes:
In view of the circumstances outlined in your
letter of July 12, 1963, the Board of Governors interposes
no objection to the retention of Mr. Robert G. Rouse in
active service by the Federal Reserve Bank of New York for
the period October 1, 1963 through September 30, 1964.
The Board approves the payment of salary to Mr. Rouse as
Vice President and Senior Adviser at the rate of $37,500
per annum, for the period October 1 through December 31$ 1963.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
24'r
BOARD OF GOVERNORS
Item No.
7
7/26/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
AOORtSS OffIGIAL OORRESPONOIINCIL
TO THIC SOAR°
July 26 1963
CONFIDENTIAL (FR)
Mr. Alfred Hayes, President,
Federal Reserve Bank of New York,
New York 45, New York,
Dear Mr. Hayes:
The Board of Governors approves the payment of salaries to
the following officers of the Federal Reserve Bank of New York for the
Period of July 1 through December 31, 1963, at the rates indicated,
Which are the rates fixed by your Board of Directors as reported in
Your letter of June 28:
Name
William H. Braun, Jr.
Frank W. Schiff
Title
Annual Salary
Assistant Vice President
Assistant Vice President
$21,000
19,000
The Board also approves the payment of salary at the rate
(:)f $15,500 per annum to Bruce K. MacLaurY as an officer to the Bank,
With the title of Manager, effective July 11 through December 31, 1963,
The Board has noted the reference in your letter regarding
the reassignment of Francis H. Schott, Manager, and the forthcoming
extended absence of Robert Lindsay, Senior Economist.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No.
OF THE
8
63
7/26/
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 26, 1963.
Mr. Kenton R. Cravens,
Chairman of the Board,
Mercantile Trust Company,
St. Louis 66, Missouri.
Dear Mr. Cravens:
Thank you for your letter of July 12, enclosing a picture
copy of the affidavit which Mississippi Valley. Company filed with
the Secretary of State of Missouri on or about June 14, 1963, in comPliance with a requirement of the Missouri statutes.
In your letter of June 21, 1963, you stated that Mercantile
Trust Company was accelerating its review of operations in the light
°f the Board's position with respect to the application to this
situation of section 9 of the Federal Reserve Act and section 5155 of
he Revised Statutes, relating to branch operations, discussed in the
;:tard's letter to you dated June 20. You expressed the hope that the
tank would be in a position to advise the Board further, with respect
'3 this matter, before the end of June.
In the circumstances, the Board requests that it be informed
regarding the steps that have been taken in this connection and
e additional steps that are planned, with an indication of the
4PProximate schedule.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary,
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Federal Reserve Bank of St. Louis
2480
Item No. 9
7/26/63
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
BANKERS TRUST COMPANY
for approval of acquisition of assets of
The First National Bank of Farmingdale
.10
ORDER APPROVING ACQUISITION OF BANK'S ASSETS
There has come before the Board of Governors, pursuant to
the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), an application by
Bankers Trust Company, New York, New York, a member bank of the Federal
Reserve System, for the Board's prior approval of its acquisition of
the assets and assumption of the deposit liabilities of The First
National Bank of Farmingdale, Farmingdale, New York, and, as an incident
thereto, Bankers Trust Company has applied, under section 9 of the
Pederal Reserve Act, for the Board's prior approval of the establishment by that bank of a branch at the present location of The First
Wational Bank of Farmingdale.
Notice of the proposed acquisition of
assets and assumption of deposit liabilities, in form approved by the
Board of Governors, has been published pursuant to said Bank Mer3er Act.
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Federal Reserve Bank of St. Louis
2481
-2-
Upon consideration of all relevant material in the light
Of the factors set forth in said Act, including those reports on
competitive factors furnished under the provisions of the Bank
tierger Act of .1960.
IT IS HEREBY ORDERED, for the reasons set forth in the Board's
Statement of this date, that said applications be and hereby are
aPproved, provided that said acquisition of assets and assumption of
deposit liabilities and establishment of a branch shall not be consummated (a) within seven calendar days after the date of this Order,
Or (b) later than three months after said date.
Dated at Washington, D. C., this 26th day of July, 1963.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Mills, and Shepardson.
Voting against this action:
Absent and not voting:
Governor Robertson.
Governors King and Mitchell.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
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Federal Reserve Bank of St. Louis
4(
Item No. 10
7/26/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY BANKERS TRUST COMPANY
FOR APPRO7AL OF ACQUISITION OF ASSETS OF
THE FIRST NATIONAL BANK OF FARMINGDALE
STATE,LFiNT
Bankers Trust Company, New York, New York ("Bankers"), with
deposits of
3,303 million*, has applied, pursuant to the Bank Merger
Act of 1960 (12 U.S.C. 1828(c)), for the Board's prior approval of its
4cquisition of the assets and assumption of the deposit liabilities of
The First National Bank of Farmingdale, Farmingdale, New York ("First
ngdalen), with deposits of $33 million*
. Incident to the appli42tion, Bankers has also applied under section 9 of the Federal Reserve
Act for the Board's prior approval of the establishment of a branch at
the location of the office of First Farmingdale, increasing the number
or Bankers,
presently operating domestic offices from
55 to
56, and
1)1'°111-ding its first office in the suburban area which includes Nassau
CollntY.
Under the law, the Board is required to consider, as to each
cir the banks involved, (1) its financial history and condition, (2) the
4clequacY of its capital structure, (3) its future earnings prospects,
anitP°Bit figures are as of December 28, 1962. Deposit figures for
els8 exclude its London, England branches.
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Federal Reserve Bank of St. Louis
248:i
—2-(4) the general character of its management, (5) whether its corporate
Powers are consistent with the purposes of 12 U.S.C., Ch. 16 (the
Pederal Deposit Insurance Act), (6) the convenience and needs of the
community to be served, and (7) the effect of the transaction on
competition (including any tendency toward monopoly).
The Board may
not approve the transaction unless, after considering all these factors,
it finds the transaction to be in the public interest.
Banking factors. - Both Bankers and First Farmingdale have
satisfactory financial histories.
The financial condition of First
Farmingdale is sound, and its capital structure is adequate. Earnings
have been good. However, deposits have grown at a rate markedly less
than that of its competitors.
During the past ten years, for example,
clePosits of the other banking facility located in Farmingdale proper
have increased two and a half times as much as those of First Farmingdale.
Although
m all of its competitors operate branch facilities, no effort has
been made to expand into branch locations. Lending policies have been
illiaggressive. A potentially serious management situation has developed
4
result of the bank's failure to secure and train a successor to
the president of
the bank, who although vigorous and capable, is now
in his
seventy-eighth year.
At the end of 1962, Bankers was the ninth largest bank in the
'Jed States and the sixth in New York City. With a sound financial
'
10n, favorable earnins prospects, adequate capital structure,
arld c
ompetent management, it would be affected only slightly if at
all
14 th
ese respects by consummation of the proposed acquisition.
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Federal Reserve Bank of St. Louis
24H4
Nothing indicates that the corporate powers of the banks now
are, or after the proposed transaction would be, inconsistent with
12 U.S.C., Ch. 16.
Convenience and needs of the communities. - The proposed
acquisition will have no discernible effect on the convenience and needs
Of New York
City.
First Farmingdale serves an area which includes the incorporated
'village of Farmingdale proper, located in the county of Nassau on the
Ilassau-Suffolk county line, and the surrounding unincorporated areas
Of Bethpage, Old Bethpage, Plainedge, parts of North Massepequa and
Plainview, South Farmingdale, East Farmingdale, and the southern part
Melville.
The population of the area served by the bank has been
increasing rapidly, in line with recent growth in the two counties, and
18 probably well above 65,000. There are some 24 fairly large industrial
e°ncerns in the area, including a plant of the Grumman Aircraft Engineering Corporation in Bethpage, and of the Republic Aviation Corporation
in East Farmingdale.
About 32,600 persons are employed in the area.
A good deal of vacant land properly zoned and suitably located
l'erTlains available for both industrial and residential development, so
that continued growth can be anticipated over a period of some years to
even though Farmingdale proper has been fairly well built up.
Iletall
trade in the area has undergone a drastic transformation from
"111 stores and service shops located along the main streets of the
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
248;3
-4sections.
communities to modern shopping centers located in outlying
There are now three medium-sized shopping centers in the area, and a
fourth is under construction.
The ordinary loan limit of First Farmingdale is $186,000 (ten per
cent of its capital and surplus), a factor which restricts its lending
activities, in effect, to residential mortgages and consumer loansl and
in the business and commercial field, to smaller loans or participations
14 larger ones.
Even in these categories, the activities of the bank
have been limited. It does not offer such services as field warehousing,
fl°or planning, and accounts receivable loans, nor does it attempt to
°l'iginate larger construction loans for participation with its corresDc,ndent banks.
Consumer instalment raper represents only 6.5 per cent
°f its loan portfolio, and its rates appear to be somewhat higher than
those of its local competitors.
It makes no instalment loans on appli-
ances, nor does it purchase automobile dealer paper.
While it has been
Cl'anted trust powers, it does not seek to exercise them.
A full range
°r banking services is available in the area from local offices of six
tanks, ranging in size from the Long Island National Bank, of Hicksville,
l ith deposits of about $74 million, to First National City Bank, of
'
Ilew York, with deposits of about
the
,331 million.
However, approval of
application will replace one of the only two banking offices located
l armingdale proper, which holds 31 per cent of all deposits in banking
'
Offices .11
i the service area,* with an office of a bank equipped to provide
suited to the growth which can be foreseen, both immediately
4
"
in the long run.
The
area from
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Federal Reserve Bank of St. Louis
which First Farmingdale draws 75 per cent of its deposits.
'
g 4(94It)
)
5-
Competition. - Bankers' nearest office to First Farmingdale
is located 19.2 miles to the northwest in the Little Neck section of
Queens County.
Both Grumman Aircraft and Republic Aviation have sub-
stantial loans and deposit accounts with Bankers, but these accounts
are of a size far beyond the range of First Farmingdale, and both firms
maintain payroll accounts with the latter bank.
About 30 customers had
accounts at both banks, and the rather minimal amount of business of
Bankers other than the two accounts mentioned which originates in the
l'armingdale area, as well as of First Farmingdale which originates in
Ne4
York City, appears to be due to commuters who prefer to bank near
their place of business rather than near their homes.
Indeed, very
little real competition, either present or potential, can be said to
°2cist between the two banks.
In the Farmingdale area, the acquisition can be expected to
quicken existing competition. First Farmingdale, while well entrenched,
has been a somewhat passive competitor.
The remaining banks with
°ffices in the service area, the smallest of which is more than twice
48 size, can well withstand the onslaught of more vigorous competiAnd the "service area" concept itself may be misleading in a
settled portion of suburbia of the sort involved here.
The
mo
bility of the typical resident, as well as the fact that similar
84PPing facilities are offered every few miles, tends to place
banking offices in competition with one another over a somewhat wider
l'ange than would be the case in a city or in a sparsely settled
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Federal Reserve Bank of St. Louis
2487
-6-
region.
for
As a result, the substitution of an office of Bankers
boundaries
First Farmingdale may stimulate competition well beyond the
Within which the latter has functioned heretofore.
a
Nor is it believed that the acquisition will give Bankers
commanding position in the community.
While the immediate result will
be to place the new office of Bankers in possession of 31 per cent of
the deposits of offices in the "service area" so-called, those
or
depositors who have remained with First Farmingdale out of loyalty
local pride will now feel free to move their accounts elsewhere.
Moreover, the merger of the two banks will remove statutory "home
additional bank
° fice protection" from Farmingdale proper, so that
branches may be established there.
Summar
l of the
and conclusion. - The effect of approva
Farmingdale area will, if
Proposed transaction on competition in the
ion problem
anything, be encouraging, and a serious management success
Will be averted.
improved.
Services in Farmingdale proper will be
proposed merger would
Accordingly, the Board finds that the
b° in the public interest.
July 26, 1963.
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Federal Reserve Bank of St. Louis
0)1 Q(„!
Item No.
7/26/63
DISSENTING STATEMENT OF GOVERNOR ROBERTSON
I agree that in the present case little or no immediate
competition will be lost as a result of the proposed merger.
Certainly,
if a merger is the proper solution for the management problem of
Pirst Farmingdale (as noted later, I do not think it is), then merger
with a bank, even though a large one, that is not already operating
in the area is much to be preferred to mer3er with one of the larger
banks already competing there.
However, the merger would terminate
the existence of a sound and prosperous $33 million bank.
The number
°f mailer banks in Nassau County has diminished markedly in recent
Years, as more and more are absorbed by the large Long Island banks and
by the great metropolitan institutions of New York City as they extend
their branch systems into the suburban counties.
There is no evidence in the record that substantial advantages
to the public would result from replacing the independent Farmingdale
bank with a branch of a large New York City bank.
There is a steady
tendency for banking in the suburban counties to the north and east of
Ilew York City to fall more and more into the hands of a relatively few
ainnt institutions.
If proposals like that now before the Board continue
t° receive its approval, it is difficult to see any logically defensible
the New York metropolitan
stc"PPing point short of a situation in which
'ee
4
be served almost solely by institutions that measure their
1.eso1rces in billions of dollars.
that direction.
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Federal Reserve Bank of St. Louis
In fact, we are steadily moving in
-2-
In my judgment, the public interest would be better served by
the preservation of a broad range of banks of various sorts and sizes,
each serving needs which it is peculiarly adapted to meet.
In some circumstances it might be prejudicial to a community
if one of its banks were "conservative", "passive", "unaggressive"
(descriptive words used in the majority decision), but in the relevant
area of Nassau County there is an ample number of larger banks, all of
them vigorously progressive, and the $33 million of deposits in
st Farmingdale represents a substantial vote of preference for a
quieter, more old-fashioned type of banking service.
It is neither
essential nor desirable that all banks be forever dashing aggressively
to enter new fields, provide additional services, and increase their
earnings.
The absence of such an attitude is not, by itself, justifica-
ti°n for the approval of a proposal to terminate the independent existence
c)
or
an institution that has sought to walk rather than run in its quest
Some people prefer slower, more conservative progress.
business.
Lastly, as far as management succession is concerned, a
P1:0fitable bank with $33 million of resources should be able to obtain,
and adequately
compensate, new or additional executives, if and when a
need
exists.
Approving an application to merge for this reason puts a
Premium on failure to provide management succession.
Supervisory
authorities should put a premium on the opposite course.
For these reasons, I would deny the application.
JUly
26, 1963.
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Federal Reserve Bank of St. Louis
2(1
BOARD OF GOVERNORS
Item No. 12
7/26/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS arriciAL CORREBPONDENCE
TO THIE BOARD
July 26, 1963
CONFIDENTIAL (FR)
Mr. Luther M. Hoyle, Jr.,
Vice President,
Pederal Reserve Bank of Boston,
Boston 6, Massachusetts.
tear Mr. Hoyle:
In accordance with the request contained in your letter
°f July 18, 1963, the Board approves the appointment of Frank Michael
2illery, at present an assistant examiner, as an examiner for the
rederal Reserve Bank of Boston. Please advise the salary rate and the
effective date of the appointment.
It is noted that Mr. Hillery is indebted to City Bank and
Trust Company, Boston, Massachusetts, a nonmember bank. It is underof course, that he will not participate in any examination of
stt°"'
hat bank until his indebtedness has been liquidated.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
@FedFRASER