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Minutes for To: Members of the Board Prom: Office of the Secretary July 27, 4196Q Attached is a copy of the minutes of the Board of Governors Of the Federal Reserve System on the above date. It is proposed to place in the record of policy actions !equired to be kept under the provisions of Section 10 of the Federal Reserve Act an entry covering the item in this set of °Linutes commencing on the page and dealing with the subject referred to below: Page 27 Reduction in margin requirements. Should you have any question with regard to the minutes, vill be appreciated if you will advise the Secretary's Office. 41111ervise, please initial below. If you were present at the : ; eting, your initials will indicate approval of the minutes. If ; were not present, your initials will indicate only that you 4rte seen the minutes. ' Chm. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System ednesday, July 27, 1960. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Roam at 9:30 a.m. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Sherman, Secretary Kenyon, Assistant Secretary Thomas, Adviser to the Board Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Hexter, Assistant General Counsel Koch, Adviser, Division of Research and Statistics DeMbitz, Associate Adviser, Division of Research and Statistics Nelson, Assistant Director, Division of Examinations Landry, Assistant to the Secretary Hooff, Assistant Counsel Collier, Chief, Current Series Section, Division of Bank Operations The establishment without change by the Federal Banks of Boston and Atlanta on July 25, 1960, of the rates on rlift -44ca and advances in their existing schedules was approved unanimously, sd4a understanding that appropriate advice would be sent to those Banks. Items circulated to the Board. The following items, which had been ire ated to the Board and copies of which are attached to these minutes 14 4ne respective item numbers indicated, were approved unanimously: tette to The Detroit Bank and Trust Company, Detroit, ibmerl, approving the establishment of a branch in -'gham, Item No. 1 7/27/60 -2Item No. Letter to the First Bank and Trust Company of South &Id) South Bend, Indiana, approving the establishment Q4 a branch at Lincoln Way East and Twyckenham Drive. 2 1;etter to the Valley Bank and Trust Company, Springfield, .88achusetts, approving the establishment of a seasonal on the grounds of the Eastern States Exposition, est Springfield. 3 7 14,etter to The Andover Bank, Andover, Ohio, approving an ' 41restment in bank premises. Report on competitive factors--Evansville, Indiana. 14. There had been distributed under date of July 15, 1960, a memorandum from the 1111118ion of Examinations submitting a proposed report in reply to a l itlest from the Comptroller of the Currency for a report on the comletitive factors involved in the proposed consolidation of Indiana 11'1141t and Savings Bank, Evansville, Indiana, with Old National Bank in 4E% sville, Evansville, Indiana, under the charter of the latter. The l'etmTt concluded as follows: The proposed transaction would eliminate, as an independent Unit, one bank which has a demonstrated capacity to compete for bUsiness in the area in which it operates, generally more restricted than that of the larger banks in view of branch activity, and subject to legal restrictions imposed as a result °r size and corporate capacity. Following consideration of the matter, the report was approved 11441M°1181y. Report on competitive factors-Washington, Kansas. A memorandum dfat July 22, 1960, from the Division of Examinations had been distributed 7/27/60 -3- "mdtting a proposed report in reply to a request from the Comptroller c't the Currency for a report on the competitive factors involved in the 131.°Po6ed purchase of assets and assumption of liabilities of The Wash- National Bank, Washington, Kansas, by The First National Bank of Washington, Washington, Kansas. The report concluded as follow: The two banks involved in this proposal have been major sources of competition for each other as they were located across the street from each other. This competition has become less keen during the past years as the aging managing officers of the selling bank curtailed their lending activities, and the recent sale of stock resulting in common ownership has eliminated true competition between these banks. The competitive factors in this case, however, are of somewhat less importance than usual as an emergency exists requiring expeditious action. The managing officerr of the selling bank have retired, that bank is, consequently, without leadership, and quick action is warranted to prevent possible rapid deterioration in the selling bankts condition. The proposed action should have little or no effect on competition in Washington County. Following consideration of the matter, the report was approved Classification of reserve cities. There had been distributed copies or a memorandum from Mr. Thomas dated July 25, 1960, pertaining to methods kr getermining the classification of reserve cities. In commenting on the memorandum, Mr. Thomas said that in determining k EA+. °f standards for classification of cities for reserve purposes it be necessary to decide (1) whether the Board desired a standard that It11141 -ring into the reserve city classification a large number of additional 7/27/60 Cities. (2) whether the Board wanted a standard that would eliminate a large number of existing reserve cities, including some fairly important financial centers; (3) whether the Board wished to classify as reserve eit4ea a number of cities containing one or two banks with numerous bl'enches, which, along with the head office, are all essentially country 1)82143 (4) whether the Board believed that there should be included as eserva cities certain cities in which banks hold large interbank balances 1141 lohich, on the basis of other standards, would not be classified as telleMe cities; and (5) whether the Board believed that all existing leral Reserve Bank and branch cities shculd continue to be classified la reserve cities. Mr. Thomas then proceeded to point out the effect of the Use of these various criteria upon different cities. Governor Mills said he continued to regard it as essential that the banks affected by the Board's decisions in this area understand the 1°Eic of any formula developed and the manner in which their positions 14111.1.A '4 be affected. He did not believe that a formula based on demand lel3c)sits only would be understood or would be Appropriate. As he had BtlIted on earlier occasions, it was his view that total deposits should ' eaaared in developing a formula, since they indicate the total tea , -‘4r*ces available for each bank's use, they measure the resources that the 0 QYatem seeks to reach through its credit policies, and they measure the etlosit exposure and the degree of liquidity that must be taken into $ 7/27/6o -5- account. He pointed out that many of the more important banks in sections °I* the country beyond the Eastern Seaboard typically have 40, 50, or 60 Per cent of their deposits in the form of savings and time accounts, which °a Payable in effect on demand. Therefore, he believed it would be 44)rtTriate to find a formula that would recognize total deposits, with a Istiriding line that would bring into the reserve city classification certain Of the more important comnunities with substantial banking institutions. 141th regard to the branch banking systems referred to by Mr. Thomas, he noted that although they are in effect combinations of country banks, the manageOf such a bank has at its disposal a substantial total amount of Net%rces. In discussion of the use of total deposits, Mr. Dembitz commented tilat the tables contained in the staff memoranda on this subject had been ec"Nitructed mainly on the basis of demand deposits to reduce complications, that it would be possible to make adjustments to give weight to total it within any formula that might be favored. Question then was raised as to the arguments in favor of the view that cities in which branches of Federal Reserve Banks are located should be e 0.4tinued as reserve cities, and Mr. Dembitz commented that in his view teserve city might be defined as a financial center; that is, a place -= wholesale banking business is substantial, where deposits are carried tor tegional and national businesses, and where there are large interbank 7h7/6o -6- deposits. It was his understanding such criteria had been among the factors cQnsidered in selecting Federal Reserve Bank and branch cities, and that the availability of Federal Reserve facilities was of some benefit to the barlks in developing a wholesale banking business. in hie Also, it was preferable, opinion, to minimize the extent of changes made in classification °f ettles; it was his thought that there should be shifts only when there " II a clear-cut reason. Governor Robertson observed that the second point related to a gtlaation of expediency. So far as the first point was concerned, he eXPressed some doubt as to whether the services obtained by member banks 14 cities where Federal Reserve branch banks are located are sufficient, 4t, uu amselves, to warrant classification of such cities as reserve cities. After further discussion of these points, Governor Robertson rethat much of the work to date on the whole subject seemed to Itl'1°Ive a preconceived notion of what a reserve city should be. He was IlLcerned that any determination should be based on equity considerations. '4hile he was not sure exactly what formula should be adopted, nevertheless ti"anks of equal size, and comparable in the type of business conducted, shokli d be in the same classification. This of course, involved finding "Itle appropriate dividing line. In this connection, he saw merit in Gove Or Mills' suggestion for the use of total deposits; however, if 4rtitlti d deposits were used to establish a dividing line for cities, total 7/27/60 P8it -7could be taken into account in exempting individual banks from rieserve city requirements. He also believed it would be desirable to try to Maintain approximately the existing situation as to total required reserves ku, their apportionment between classes of banks, that the difficulties in- in adding a number of cities to the reserve city classification should 4c/t be a controlling factor in arriving at a formula, and that further study °t the entire problem was indicated. Governor Balderston said he assumed Governor Mills' proposal to 114e total deposits as a criterion for classification of cities embraced tle use of interbank deposits but not deposit turnover. With respect to °°1tarnor Robertson's reference to the apparent necessity to classify 41)14111 into the reserve city group, he (Governor Balderston) indicated that he Would have no objections to some revisions, but that he would heei 4. 4.vate to go too far. In the discussion that followed, the suggestion was made that t4e Board might want to consider a formula under which any city would be sified as a reserve city if it contained (1) a single bank with 41315 million of demand deposits, or (2) two banks with aggregate deposits t$3Q0 million or interbank deposits of Po million. It was understood that the staff would prepare a memorandum shoving tslle "feet of adoption of a formula along such lines, along with a someIklat --milar formula based on total deposits instead of demand deposits. 7/27/60 Further reference then was made to alternative methods of dealing Irith existing Federal Reserve branch cities that would not meet generally established criteria, and also to the factor of deposit turnover. At the ctttelusion of the discussion it was understood that the Board would conto study the entire problem of classification of cities for reserve 11111'Poses. Mr. Molony, Assistant to the Board, entered the room during the r(*egoing discussion, and Mr. Hooff withdrew from the meeting at this Pc3int. Reserve requirements. Under date of July 26, 1960, there had been clietributed copies of a memorandum from Messrs. Thomas and Dembitz subitlig a report dated July 25, 1960, regarding possible actions to supply " res ryes in the latter half of 1960. Mr. Thomas said that because of timing problems it seemed questionable I/hether any reclassification of banks for reserve purposes could be made lare -hive so as to affect the to P1 supply of reserves to any material eXt ent in the next six months. When completed, reclassification might be e xPected to release reserves an balance unless the Board should decide to r "'se the classification of a substantial number of cities, and such qa4i, sification changes could not be made effective without due notice. announcement might be made at the time of other action on reserve Nix lrexents as to standards of classification of cities for reserve purposes. 7/27/60 -9- A Board decision was needed as to any other actions to offset reserves released by the granting of permission to count additional vault cash 0r by reductions in central reserve city requirements. Ret One possible off- would be to raise reserve requirement percentages, particularly at eountry banks. Pull release of vault cash, with present percentage reserve requirements, would create a differential between country banks " reserve city banks of 5-1/2 percentage points, making city bank Nuirements 50 per cent above those of country banks. Two other possible (:Iffsets were a revision in the check collection schedule to shift to three--, maximum deferment, possibly reducing average outstanding float by $500 41411thn, or the use of open market sales as a means of absorbing reserves. Mr. Thomas then described three possible plans for releasing rellerves through permission to count more vault cash and through shifts in reServe requirements, noting that all three plans assumed a shift to three- clY maximum deferment on January 15, 1961. The first plan would involve release of vault cash in excess of one per cent at reserve city and elltral reserve city banks and in excess of 3 per cent at country banks 14 StPtember, and subsequent reduction of central reserve city bank Nizirements from 18 to 17 per cent. A second plan would call for release "'fault cash in excess of one per cent at reserve city and central reserve bankS and 3 per cent at country banks in September, subsequent reduction or , e4tral reserve city requirements from 18 to 17-1/2 per cent, release of 7/27/60 -10- retaining vault cash on December 1, 1960, and a simultaneous increase in reserve requirements from 16-1/2 to 17 per cent at reserve city banks and Nt 11 to 13 per cent at country banks. Finally, on January 15, 1961, the Change in maximum deferment could be put into effect along with an increase it reserve requirements from 17 to 17-1/2 per cent at reserve city banks Uld from 13 to 13-1/2 per cent at country banks. A third plan would provide ri)r the same release of vault cash as the two preceding plans, but would re4hace central reserve city reserve requirements from 18 to 17 per cent in Umber, and on December 1, in conjunction with releasing the remaining cash, would increase reserve requirements from 11 to 12-1/2 per cent tc°114try banks. There followed general discussion of the three alternative plans, Illeallding the effect thereof on various classes of banks. During the discussion Chairman Martin noted that the Board Illenibers had not had an opportunity to study fully the memorandum of Messrs. 11104in. -0 and Dembitz. His personal opinion was that the Board should work to announcing, if possible, some package that would cover the brceM problem. At this point, he leaned toward releasing all vault cash this year, with some increase in reserve requirements. So far as *3/4. ,A4 t-trferential in reserve requirements between central reserve cities ' ttm reserve cities was concerned, he was inclined to feel that a small "ersiatial could be allowed to continue, if necessary, until the expiratiot Of the statutory time limit for termination of the central reserve city 7/27/60 -11- classification. With respect to timing of an announcement of whatever 134a might be decided upon by the Board, he th WAS in general agreement with view that an announcement by early September might be appropriate. Messrs. Thomas, Dembitz, and Collier then withdrew from the meeting. Mrs Robinson, Adviser, Division of Research and Statistics, who had joined the meeting during the foregoing discussion, also withdrew at this point. Hooff returned to the meeting and Mr. Potter, Legal Assistant, entered the room. Letter from Budget Bureau regarding retail trade statistics. There 44 been distributed a memorandum dated July 26, 1960, from Messrs. Sherman "Koch with respect to a letter dated June 20, 1960, from Mr. Bowman, 4881stant Director for Statistical Standards, Bureau of the Budget, inquiring 'ether the Federal Reserve System might be willing to provide some financial euPport (presumably up to $125,000 per year) for a program of improved t4t1 trade data that was being considered for inclusion in the 1962 budget 131‘°P°13e1s• One part of the program called for Obtaining monthly GAAFF data tor, 'ale 6o largest metropolitan areas; the Budget Bureau had proposed that th x ederal budget include funds for the first 20 of these areas, and that the 14, csderal Reserve System underwrite the expense of producing figures for the r emaining 40 areas. Under date of July 5, 1960, a letter was sent to q). R. `Berve Bank Presidents seeking their comments on the letter from Mr. em, and replies had now been received. About half of the Reserve Banks 7/27/60 -12- either opposed or were doubtful about underwriting the cost of preparing to/Ably GAAFF data for the 40 metropolitan areas that would not be covered by aPpropriated funds. Some of this opposition reflected doubt as to the Usefulness of such data, some reflected objection in prinicple to supporting a program that perhaps should be covered entirely out of appropriated 1\ulds) and some of it reflected doubt as to the wisdom of making any c°ftlitment in this area until after the results of the study of department Btore statistics being made by the Committee of Five were known. As to the 11°Isk of the Committee of Five, sufficient progress had been made to give that within the next few months a considerable reduction in the '1°1111ze of work being done by the Federal Reserve in preparing department 8t01"e reports might be effected without disruption of relations with the tIllde. At the same time, there was little prospect of complete elimination °11 the Federal Reserve's department store reporting service in the near 1 1 11:111"e, short of a unilateral decision to discontinue the work in this field. In commenting, Mr. Sherman said that members of the staff who had ed Mr. Bowman's proposal in the light of the comments from the Reserve 411k8 felt that, notwithstanding the opposition expressed by perhaps the 41141°11tY of the Banks, the Board might be justified in giving favorable (311S1daraticn to the Bowman request. This would be on the grounds that the Aroer "I contemplated by Mr. Bowman would provide improved retail trade data the next few years; and if this program developed successfully, it 7/27/60 -13- might not only pave the way for improved area data on retail trade but facilitate further curtailment of department store reporting by the Pederal Reserve. Mr. Bowman had indicated that it would be helpful if he could have some indication of the Board's attitude fairly soon, although a final decision would not be needed until about mid-September. Governor Balderston expressed some concern about the reaction of the Presidents to Mr. Bowman's proposal and inquired whether a decision by the Board not to go along with the program would damage any efforts being M4de to relieve the System, at some point, of the costly research involved ill the department store statistics program. Mr. Sherman replied that work on reduction of the System's department t°r'e program could go ahead regardless of whether Mr. Bowman's program was Dllt into effect. On the other hand, failure of the Bowman program might le86en the likelihood of the Federal Reserve being able to move out of the clePar+ --tient store program some time hence, on the basis that another agency vaa Obtaining statistics on an adequate basis. The So far as the comments of p "serve Banks were concerned, it seemed possible that if the Board -4-id return to the Presidents and state that there were some overriding Qptsi derations s— uggesting cooperation with Mr. Bowman's program, at least tuo 0r three of the Presidents whose comments had been classified as nege Imuld probably go along with it; that is, if they saw it as a step tOtJ relieving System work in this area within the next few years. 7/27/60 -14Chairman Martin then suggested the possibility of advising Mr. 11(//14sm that the Board was undecided at this point, and that Mr. Bowman /4111-1d have to go ahead, if he wished, without definite assurance of alstem support until such time as the matter could be studied further. Governor Mills recalled that the original Objective of the ac)vernment was for the Bureau of the Census to collect all retail trade "istics, including the department store statistics, thereby permitting the Federal Reserve System to withdraw from this field. Following db- heil°ns from the trade, the Board held its discussion with department 4t44'e representatives last March. The earlier approach, however, had been that the Bureau of the Census, in taking up this additional work, 414ht ask the System for financial assistance on a trial basis until it °1:41141 arrange to obtain necessary appropriations. If such appropriations 111*e not forthcoming, the System would have been at liberty to withdraw *orn the program. Now the circle had come around a full turn, with Mr. 11°144st requesting subvention frankly and unequivocally. Mr. Koch observed that the consensus of the Reserve Banks was el°4e; two Banks that had been classed as negative had said that it rcIr tactical reasons" it seemed desirable to go ahead they would 41b4ort such a move. Staff support for the proposal was based on the ttai "6 considerations: (1) it would be a good tactical move, in- .4.44g the prospect of withdrawing from collection of statistics in 7/27/60 -15- this area and giving the Department of Commerce an opportunity to prove that it could produce, and (2) better retail trade statistics were needed. Mr. Sherman said his views were about the same as those expressed 1/Mr. Koch. This would be a step toward the improveMent of retail trade data) and in the longer run something of this sort seemed almost essential lt the Federal Reserve was to get out of the department store reporting *" a few years hence. Chairman Martin said that he leaned toward the staff view on this question. While he favored eventual withdrawal from the collection QtdaPartment store statistics, the System would be justified in procautiously. He then again suggested telling Mr. Bowman that tIle Board had not yet reached a decision on supporting his program, 1)14 that the door was not closed. Governor Shepardson expressed agreement with the view that the ehtem — could not hope to get out of the department store work until there °ftie other generally accepted program to provide as a substitute. thell He ired how much of the 'work of the Committee of Five would be inished by the date in September when Mr. Bowman would need to have 4etirtite answer from the System, to which Mr. Sherman replied that it 1441 eXPected a progress report from the Committee would be available in Bt elar, and that the report would point toward a substantial reduction the amount of work involved in the department store program. 7/27/60 -16Governor Shepardson then said he felt that the Board should at least indicate to Mr. Bowman at this time that it was favorably disposed tWards his proposal. He referred to the need to go ahead on a test 141.818 to determine whether the Commerce Department or the Federal Reserve 81101.11d provide this service in the future. Governor Robertson said that if a definite answer had to be given to *. Bowman today, he would vote in the negative. The proposal involved the Use of Federal Reserve funds in lieu of appropriated funds, and while he vould have no hesitancy in approving such a procedure on an interim basis Pending the availability of appropriated funds in order to bridge a gap, it 14" hie understanding that the program of Mr. Bowman involved a continuing Pis°Position. There was only a difference of degree between the current °P0881 and asking the Federal Reserve to provide the funds for the entire 111.°gram. In view of these circumstances and the doubts expressed by a hil ber of the Presidents as to the usefulness of the data for 40 metro15°11-ten areas that the Federal Reserve would support, he would make his deci 8J-°11 on the negative side if a decision was necessary today. However, it PPeared that Mr. Bowman was not entirely sure whether the program would be, 1111311ed, and it would seem unfortunate, in such circumstances, to make ' a. der Rite negative decision today. At the same time, he would not want to 80 far as to tell Mr. Bowman today that the Board was favorably dis-q toward his proposal. s 7/27/60 -17Messrs. Sherman and Koch indicated that the maximum commitment at this time would be for a period of three years, although the latter added that he thought Mr. Bowman might be thinking in terms of fairly continuous Federal Reserve support. Following further discussion, it was understood that Mr. Sherman /rckIld ad-vise Mr. Bowman orally that the Board had not yet reached a decision, bUt that the Board would try to give him a definite answer one way or the other by at least mid-September. Mr. Koch then withdrew from the meeting. bplication of Harris Trust and Savings Bank (Item No. 5). At the ineeting on July 22, 1960, preliminary consideration was given to the appli" J)n of Harris Trust and Savings Bank, Chicago, Illinois, for consent to " lt roPosed merger with the Chicago National Bank, also of Chicago. At that tillte it vas decided to defer action until a larger number of Board members ecilld be present. Chairman Martin opened the discussion with observations about the 41%1 °tat nature of this particular case. Basically, he said, the question of bigt elle or size was involved, along with fundamental questions relating to the Alxrpo Be and intent of the bank merger legislation. So far as this specific EtDDli cation was concerned, there would be a case for turning it down on the Rtout de that Harris Trust was now doing a good job of competing with the two iltrtea4 -banks in the area and did not need additional earnings. On the other it was difficult for him to see how the public interest would be injured t he Merger. 7/27/60 -18Mr. Solomon said that there were persuasive arguments on both aides of the issue. Running counter to Approval were several considerations. IiIrst, by the terms of the proposed merger a bank with about $740 million Of deposits would be absorbing another bank with over $200 million of dePosits; neither bank required fortification to enable it to compete effectively. Second, Harris Trust VAS now third in size among the corn- banks in Chicago, even though a poor third, and the merger would increase the concentration of banking within the three largest banks in that city. Third, since Harris Trust was more of a wholesale than a retail bank and Chicago National was more retail in character, absorption °t the latter into the former would eliminate the competition of the utter in the retail banking field. Fourth, since Illinois does not IlezIktit branch banking, the proposed merger would eliminate one banking "he in the downtown Chicago area. On the other hand, Mr. Solomon e'td, there were several factors arguing in favor of approval of the Pro. -w ooed merger. u. First, the combined bank would have a larger lending Second, there was some indication that management would be litrengthened. Third, the range of services of the merged banks would be bbo adened, and there was some indication that the continuing institution Irvitticl be able to compete more effectively with the two major banks. Also, e'reh though the number of banks in downtown Chicago would be reduced by one, v atantial number of banks would be left in the immediate area. 7/27/60 -19Mr. Nelson expressed the view that the benefits to be derived rl'om the proposed merger probably slightly outweighed the adverse factors. The larger loan limit and the availability of more resources to the resulting bank were favorable factors, and the public would not ' IPPear to be damaged by the elimination of one banking office, since the two banks involved are only a block apart and present customers of the national bank apparently would get as good service from Harris Trust. 480, favorable reports on the competitive factors involved had been received from the Ccmptroller2s Office and the Federal Deposit Insurance C°rPoration. So far as the views of the Justice Department were concerned, ' l elsting to the increase in concentration of banking in the three largest -"i'a in Chicago, Mr. Nelson noted that there were 79 banks in the Chicago ' e llea and 13 banks in the downtown area. With respect to potential com- 13etition between the parties to the merger, he referred to the opinion of the Chicago Reserve Bank that there had been little competition between the two banks. He doubted whether the element of potential competition 48erved too much consideration in this case. Governor Balderston asked for clarification on two aspects of the 131'°Iplena• First, he asked whether it was not the intent of the Act of May 13 '1960, to require that the Board find positive benefits deriving from e. "'ger to outweigh the diminution of competition that would result. °46.1Y, he inquired to what extent the parties to this proposed merger -20- 7/27/60 vould be injured should the Board reach an adverse decision, due to the tact that negotiations were well under way when the bank merger legislation Igall passed. Mr. Hexter replied that the statute enwnerates a number of considerations that the Board must weigh, and concludes with the statement that the Board shall not approve the proposed transaction unless, after ccmsidering all of those factors, it finds the proposal to be in the public iztea-.est. The legislative history indicates that the Board shall look at ell of the enumerated factors, balance the good against the bad, and then tilla that the public will be better off if the particular transaction is c°11summated than if it is not. With reference to Governor Balderston s second question, Mr. Hexter said the fact that expenditures had been undertaken, plans made, or announcemade before the enactment of the bank merger legislation would not rattke any legal difference. After the legislation was enacted, Harris Trust " e its counsel took the position that this merger had taken place already because the shareholders of the banks had voted and approval had been btained from the State authorities. hovever, In the opinion of the Legal Division, this was not a sound legal position. In the event of an adverse (11310n by the Board, it was conceivable that Harris would revert to its ier position that Board approval was not needed because the merger had tttke 11 Place before the bank merger legislation was enacted. However, if 7/27/60 -21- the matter were litigated, it was the view of the Legal Division that the bank would not be successful in its contention. There ensued further discussion concerning the intent of the bank inerger legislation, as indicated by the statute and its legislative history, comparisons were made between this legislation and the Bank Holding " eCtliP arty Act Governor Shepardson then said that his thinking on the Harris Trust earla had undergone a Change since the matter was discussed previously. At that time his position had been similar to that of Governor Robertson. ?°110ving that discussion, however, he had reviewed the file on this case, beginning with that portion of it relating to the fact that merger plans 4941 Progressed considerably before the bank merger legislation was enacted 4 "May. On this point, although the situation was unfortunate, he did tIctt disagree with the legal position expressed by Mr. Hexter. However, he 44 then reflected further on the dominant position of the two largest bitty_ 445 in Chicago and the considerable gap that existed between them and lie`tris Trust, the third largest bank. On such reflection, it seemed to 4114 there might be substance to the Board's line of reasoning in the Callt°rnia Bank-First Western Bank and Trust Company merger, to the effect tliat it 441 vas desirable to build more competition for the dominant bank or in an area. This might be a factor that was in the public interest. 411 ihl the case had been made that the types of business of Harris Trust 7/27/60 -22- and Chicago National were quite distinct. Conceivably, there might be potential competition between them, but at present one is a wholesale bank and the other a retail bank. There had been no substantial move in the direction of competition between the two banks over a long period of time. Accordingly, he had come to the conclusion that, all things con- 8idered, the proposed merger might be regarded as in the public interest therefore approved. that, In this connection, he wished to make it clear although the question of whether the merger was subject to the new ballk merger legislation had caused him initially to review the file, this was not the reason on -which he based his present conclusion. 1118tead, his conclusion was based on his reasoning that the merger might ' l e414111t in a strengthening of competition among the banks in the Chicago 4rea doing a wholesale banking business. Governor Robertson raised the question whether it was appropriate to emPhasize an increase in competition among the wholesale banks in as a reason for approving the proposed merger. The purpose of the consolidation was primarily to enable Harris Trust to get into the retell business, and Harris Trust would still be only half as large as er of the two leading banks in Chicago. Governor Balderston commented that in a recent Reading, Pennsylvania: Cas the Board approved a merger that strengthened the second bank in the Etrett to a point where it appeared that the bank could give more effective 7/27/60 -23- eftPetition to the largest bank in the area. enhezced competition in the Reading area. Thus, the merger probably In the California Bank-First Western case, the Board was motivated by the thought of providing more effective competition for the largest bank in the State, or at least Pl'eventing the gap from getting any larger. In those two cases, it had been his philosophy that it was desirable to have at least two etrioRg banks in each competitive area. In Chicago, however, there were 13.4eadY two major competing banks, and the question was one of the (lesirability of building a third institution to the point where it could einn-vete more effectively with those two banks. The applicant bank was 11111°11g the most profitable of all the banks in the country, a fact which, "Lollgh perhaps irrevelant, indicated that Harris Trust was not suffering. 4 believed the philosophy he had followed in the Reading and the Calito lIlla cases was correct, but the question whether two major competing 1641TAI in an area like Chicago were enough caused him difficulty. Chairman Martin said the discussion at this meeting had not changed the general feeling he had after studying the file on this case. Mr. ilecterts point about the legal situation in relation to the status of the r VELS no doubt correct, but the unusual situation was a factor that 44°111.01 be borne in mind. He would not be terribly unhappy if this appli- °1M*. 'Au vere turned down, but his concept of the public interest was that --0144.d be served here by approval of the merger. Into his thinking he -24- 7/27/60 had brought a lot of factors, one of which was management, which he felt vouLd be improved. His concept of the public interest was that it in- volved a variety of factors, and when he looked at the Chicago area in abroad public interest sense he -would be happier if this merger were oPProved than if it were disapproved. He gathered that that was the thinking of the examining staff. Mr. Hexter commented that if the merger were consummated Harris voUld be about a $1 billion bank, while the two largest banks were about $2.5 billion banks. Chicago also has a number of banks in the $1004400 category; Harris could not compete on a parity with the two IttlIgest banks even after the merger. If it later applied for permission to absorb other smeller banks, the question was whether the Board would Prepared to go along. In his opinion it might be difficult to draw a dtviding line. Chairman Martin replied that he did not think any line could be cttatmu '''• That was where the Board had a real problem of appraising the 131tblic interest and what was involved in any merger plan. Governor Robertson commented that the merger would eliminate one 41tellnative source of credit, while at the same time the record shoved that th Management of each bank was good. One of the banks, Harris Trust, was °I4a of the most profitable banks in the United States. Therefore, this Qtke vould seem to fall in the category of those mergers taking place for 7/27/60 -.25- the purpose of building size. Also, it would give Harris Trust a means Of getting into the retail business at low cost. If this merger should be approved, Governor Robertson said, he could hardly envisage any case that the Board would turn down except cases involving the largest bank LI the area concerned. In his view, the Board would have nothing to stand on if Harris Trust later sought to merge with other banks. Chairman Martin said he appreciated these points. However, there sims some difference between his philosophy and that of Governor Robertson. As the Chairman saw it, this type of bank supervisory operation required the Board to make a judgment on each case. If the facts seemed to warrant, he -.... would have no hesitation in turning down Harris Trust if it came in with 44 sPplication to acquire another $200 million bank. He did not believe it possible to use over-all standards, and in another case the Board could 44W that the trend had gone far enough. He would have to make the same sort °r Judgments as in this case, according to his concept of the broad public 14terest. Governor Robertson said he was thinking of the matter in terms of the testimony given on behalf of the recent bank merger legislation. In thst testimony the view was expressed that there was concern about the 41tger problem in the banking field and about the fact that the Federal 1144k supervisory agencies were without power to deal with a number of tt4etions. It was testified that the bank supervisory agencies were in 7/2T/60 -26- abetter position to determine such matters than the Department of Justice because of their specialized knowledge. However, since the legislation Iola enacted, there had been more mergers than ever before in a like period (If time. In this case, management was good in both banks, and the fact of a larger loan limit would not appear to be a public interest factor in the absence of a showing that the larger limit was essential to the public itterest. Governor Mills said he felt there was some question, from the legislative history of the bank merger legislation, whether a positive finding that :the transaction would be beneficial to the public interest had to be cielreloped. In this connection, he cited as valuable guidance a memorandum Mr. Hackley to the Board dated May 16, 1960, which discussed the factors t() be considered in deciding cases arising under the legislation. His own e°11cept of the public interest was that any action on the part of the two ec)11tracting parties should be approved unless there was clear evidence that e°)Ieummation of the transaction would be contrary to the public interest. There ensued further references to the statute and its legislative Illet°17, following which the Chairman raised the question whether the membel ' a of the Board were prepared to act on the proposed Harris Trust merger. After discussion of the factors involved in possible postponement CI 'a decision, approval was given to a letter to Harris Trust and Savings taw. (attached Item No. 5) granting consent to its merger with the Chicago (Irtal Bank. ' On this action Governors Balderston and Robertson voted "no". 9‘;',147t 7/27/60 -27Application of Bank of Virginia (Item No. 6). There had been circulated among the members of the Board a file relating to the application of The Bank of Virginia, Richmond, Virginia, for permission to Purchase the assets and assume the liabilities of the Chesterfield County Bank, Chester, Virginia, and to establish three branches at the locations of present offices of the latter bank. The recommendations of the Federal Reserve Bank of Richmond and the Division of Examinations 'ere favorable, and the memorandum from the Division set forth the following basis for its recommendation: The proposed transaction would afford the communities involved with the expanded and improved banking facilities common to larger, well operated banks and with competent progressive management. On this basis, approval of the transaction is recommended. . Ports from the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Department of Justice on the competitive factors were included with the file. After discussion, unanimous approval was given to the letter to The 1311111k of Virginia of which a copy is attached as Item No. 6. The members of the staff then withdrew and the Board went into cecutive session. Margin requirements (Items 7, 8, and 9). The Secretary was later 'rifled by the Chairman that during the executive session the Board gave 1)1181-deration to the margin requirements prescribed in the Supplements to 7/27/6o -28- Regulation T, Credit by Brokers, Dealers, and Members of National Securities Exchanges, and Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying Registered Stocks; and that approval was given, with Governors Mills and Robertson voting "no", to a reduction in the margin requirements from 90 per cent to 70 per cent, effective July 28, 1960. Secretary's Note: Pursuant to this action, a press release in the usual form was issued at 4:00 p.m. EDT, the Federal Reserve Banks and branches were informed of the Board's action by telegram, and a notice was published in the Federal Register. Copies of the press release and the amended Supplements to Regulations T and U are attached as Items 7, 8, and 9. Governor Robertson subsequently transmitted to the Secretary the r°110ving statement with regard to his position: Governor Robertson dissented from this action because in his view it was untimely in that it indicated undue emphasis Upon stock market prices rather than credit in that market. Furthermore, he felt that the action, when taken, should be accompanied by repeal of the regulatory provisions that give preferential treatment to existing users of margin accounts as against those who now seek new credit with which to invest or speculate in the stock market. Only a small amount of margin purchases represents transactions requiring the payment of Present initial margins. Most all outstanding stock market credit is in the margin accounts of customers who are free to engage in same-day-purchase-and-sale transactions on much lower margins. The resulting favoritism is alone sufficient to warrant correction. But also important is the fact that, because of the velocity of the stock transactions of existing borrowers, a given dollar amount of stock market credit in their hands results in a far larger credit impact than does an equal dollar amount of credit in the very narrow area of transactions subject to the Present higher margin requirements. Thr. me(,tinw then adjourned. 7/27/60 -29Secretary's Notes: On July 26, 1960, Governor Shepardson approved on behalf of the Board acceptance of the resignations of Elizabeth P. Vanni, Minutes Clerk, Office of the Secretary, effective July 23, 1960, and Donald W. Farrell, Assistant Counsel, Legal Division, effective July 31, 1960. Governor Shepardson today approved on behalf of the Board the following items: Memorandum dated July 26, 1960, from Mr. Koch, Adviser, Division (If Research and Statistics, recommending that M. Elva Morse, Statistical Ar8sistant in that Division, be granted an additional advance of sick leave °r 30 days, effective August 5, 1960. Letter to the Federal Reserve Bank of Richmond (attached Item No. 10) se".rding arranrements for the assignment of Jesse H. Ellsworth of that Bank ! the Board's Division of Examinations for a period of approximately three llonths. Letter to the Federal Reserve Bank of Chicago (attached Item No. 11) ttpi, 4-roving the appointment of Holmes Foster as examiner. Secretary BOARD OF GOVERNORS 4404*tokf'0, '44 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 1 7/27/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD Nit4t RESt 4tioat1.4 July 272 1960 Board of Directors, The Detroit Bank and Trust Company, Detroit, Michigan. Gentlemen: Pursuant to your request submitted through the Bank of Chicago, the Board of Governors Reserve Federal of the Federal Reserve System approves the establishment of a branch at the northeast corner of Woodward and Oakland Avenues, Birmingham, Michigan, by The Detroit Bank and Trust Company, provided the branch is established Within nine months from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item :No. 2 7/27/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 27, 1960 Board of Directors, First Bank and Trust Company of South Bend, South Bend, Indiana. Gentlennn: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves the establishment of a branch at the corner of Lincoln Way East and Twyckehham Drive, South Bend, Indiana, by First Bank and Trust Company of South Bend, proIdded the branch is established vithin one year from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 17: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. ADDRESS orriciAL CORRESPONDENCE TO THE BOARD July 27, 1960 Board of Directors, Valley Bank and Trust Company, Springfield, Massachusetts. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Boston, the Board of Governors of the Federal Reserve System approves the establishment of a branch on the grounds of the Eastern States Exposition, West Springfield, Massachusetts, to be operated between September 17 and September 25, 1960, inclusive. It is understood that the bank wishes to operate an office at this location each succeeding year in which the Eastern States Exposition is open to the public. Consequently, the Board of Governors also approves the establishment and operation of a new branch at this location during the period of each succeeding year that the Eastern States Exposition is open to the public. This approval for each succeeding year is subject to cancellation by the Board of Governors upon reasonable notice to the bank prior to the beginning of such period of any year. 3 7/27/60 WASHINGTON 25, D. C. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 44tittaft*, OF THE 4, e if§ eils Gotv, FEDERAL RESERVE SYSTEM 4 ,Qr a I t 11 a 4. Z ‘ .atr * * * o Item No. 4 7/27/60 WASHINGTON 25, D. C. ADDRESS OFF,CIAL CORRESPONDENCE TO THE BOARD t`1,4 tittl t, July 27, 1960 Board of Directors, The Andover Bank, Andover, Ohio. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Cleveland, the Board of Governors of the Federal Reserve System approves, under the provisions of Section 24A of the Federal Reserve Act, an additional investment of $109,000 in bank premises by The Andover Bank, Andover, Ohio, for the purpose of constructing a new bank building. It is understood that the proceeds from the sale of the old bank building will be applied to reduce the investment in bank premises. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 0,0/04.4. e F , z :( ti 1, 4 4 4 OF THE 0 kpc, 0, FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. 41,1 sq.v. A 0 41 Item No. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 41. VIIVA ti July 27, 1960 Board of Directors, Harris Trust and Savings Bank, Chicago, Illinois* Gentlemen: Pursuant to your application submitted through the Federal Reserve Bank of Chicago and subject to the circumstances described therein, the Board of Governors of the Federal Reserve System, after consideration of all factors set forth in section 18(c) of the Federal Deposit Insurance Act, as amended by the Act of May 13, 1960, and finding the transaction to be in the public interest, hereby consents to the merger of Chicago National Bank, Chicago, Illinois, into Harris Trust and Savings Bank, Chicago, Illinois, provided (1) the transaction is completed within six months from the date of this letter, and (2) shares of stock acquired from dissenting stockholders of the constituent corporations are disposed of within six months from date of acquisition. 5 7/27/60 Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE qzo FEDERAL RESERVE SYSTEM 4.• a4t NOP/ ti ot1,' 4* Item No. 6 7/27/60 WASHINGTON 25, D. C. ADDRESS arriciAL CORRESPONOENCE TO THE BOARD July 271 1960 Board of Directors, The Bank of Virginia, Richmond, Virginia. G entlemen: The Board of Governors of the Federal Reserve System, after , , e m)sideration of all factors set forth in section 18(c) of the Federal 4)ePosit Insurance Act, as amended by the Act of May 13, 1960, and find.. the transaction to be in the public interest, hereby consents to ; igePurchase of assets and assumption of liabilities of Chesterfield v2-1-ItY Bank, Chester, Virginia, by The Bank of Virginia, Richmond, 15.`4.ginia. The Board of Governors also approves the establishment of l'anches by The Bank of Virginia at the following locations of the Present offices of Chesterfield County Bank: Main Office, Chester, Virginia Intersection of Belt Boulevard and Route 360, Chesterfield County, Virginia Intersection of Forest Hill Avenue and Old Westham Road, Chesterfield County, Virginia The approval is given provided (1) the transactions are ertect th ed substantially in accordance with the agreement submitted with aPPlication and consummated within six months from the date of letter, and (2) the securities and fixed assets acquired are not ked upon the books of The Bank of Virginia at amounts in excess of 4 et value and depreciated value for Federal income tax purposes, sPectively. Z Permission by the Board of Governors to operate the facility at the U. S. Army Richmond Quartermaster Depot is not required. The 2Peration of such facility comes under the jurisdiction of the Treasury e Partment. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. F34( Item No. 7 7/27/60 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Statement for the Press For release at 4:00 p.mo: E.D.T. Wednesday. July 27: 1960. The Board of Governors of the Federal Reserve System today amended Regulations T and U: relating respectively to margin requirements of brokers and banks: by reducing margin requirements from 90 per cent to 70 per cent: effective July 28, 1960. The reduced requirements apply to both purchases and short sales. No other change was made in the regulations. •scik. Item No. 8 7/27/60 UiT TO Ir..2,GUTATIO:r T etiou220.30-SUPPLL'21:T ICZUED BY TO LOARD OF COV::::C2S OF T: 7 1 FEEZRAL RES:EVE SYSTE1 LZfective July 23, 1950 (a) r=i1m1 loan value for c.::- 71or,7a accunts. » The maxiamm loan valua of a rec4stored security (other than an cr4clpted security) in a General account, subject to 6 220.3, shall be 30 per cent of its current market value. (b) rarin recTirel for nort sales in cmcral accounts. » The ez,loulat to be included in the adjusted debit balance of a coneral account, pursuant to § 220.3(d)(3), as Largin required for short sales Or securities (other than exeLipted securities) shall be 70 per cent or tho cur.:out tLarket value of each such security.. (c) Ectmtion roclnircnt for rencral accounts. » In the case of 4 Ceteral account which would have an excess of the adjusted debit balance of the account over the maximum loan value of the securities in the account fO11evin3 a withdraual of cash or securities from the 4ecount, the "retention requircziont" of a registered security (other ttea an exempted security), pursuant to § 220.3(b)(2), °ball be 50 Per cent of its current market value. ts4 Item No. 9 7/27/60 SUPPLE:ail' TO ITECUIATION U Section 221.4--SUPPLT:2:11 /0212D BY Ti.E LOARD OF G0VE2EOBS OP TEL FERMI. RESZIVE SYSTEM Effcctive July 23, 1950 (a) 1/127..7.1',":!!,r1 1e7.n value of sthcl:s. - For the purpose of : whether or not rec;lotered S 221.1)the mamirtum loan value of any stock on a mtional securities exchanza)shall be 30 per Cent of its current tartet value)az determined by any ree.tionablo method. (b) rcouiri-,Icat. For the purpose of § 221.1)in the ecloo of a loan vhich ou1d exceed the ti:.-wiraum loan value of the collateral following a vitharaval of collateral)the "retention recraire::lent" of a stock)'whether or tof ristered on a national securities exchance) shall be 50 per cent of its current market value) 0,4 dett--'ruined by any reasonable method. BOARD OF GOVERNORS 40.4tx 14* 4.4 pC1 OF THE CP FEDERAL RESERVE SYSTEM 44 it 4:54 • s't WASHINGTON 25, D. C. * .* 4 Item No. 10 7/27/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD x oti4401. July 27, 1960 Mr. Hugh Leach, President, Federal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Mr, Leach: In accordance with the tentative arrangements made with Vice President Armistead by the Board's Division of Examinations, it is understood that your Bank will make available, for a period Of approximately three months or from August 1 to 19, and August 29 to October 28, the services of Mr. Jesse H. Ellsworth, a Senior Examiner or the Federal Reserve Bank of Richmond. While in Washington, Ellsworth will be assigned to the foreign banking section of the Board's 1?ivision of Examinations, but it is also hoped he will have an opportunity to become generally familiar with the work of the Division as a whole : 811c1 to visit other divisions of the Board. While on assignment in Washington, mi. Ellsworth will be designated as a Federal Reserve Examiner. It is understood that the salary of Mr. Ellsworth will continue to be paid by the Federal Reserve Bank of Richmond for the period during Which he will be assigned here, but that your Bank will be reimbursed by he Board for travel and other official expenses incurred by him, including living accommodations in Washington. Since the arrangement contemPlates that Mr. Ellsworth will return to Richmond on week ends, the agree1 t for reimbursement will cover travel between Washington and Richmond. ' 4 in Period. The Board of Governors appreciates the cooperation of your making the services of Mr. Ellsworth available during this Very truly yours, Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 11 7/27/60 ADDRESS OrrICtAL CORRESPONDENCE TO THE BOARD July 27, 1960 Mr. W. R. Diercks, Vice President, Federal Reserve Bank of Chicago, Chicago 90, Illinois. Dear Mr. Diercks: In accordance with the request contained in your letter of July 15, 1960, the Board approves the appointment of Holmes Foster as an examiner for the Federal Reserve Bank of Chicago. Please advise as.to the effective date of the appointment. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary:
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