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Minutes for To: Members of the Board From: Office of the Secretary July 27, 1964. 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 vith 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. Mitchell Gov. Daane http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Minutes of the Board of Governors of the Federal Reserve System (111 Monday, July 27, 1964. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mitchell Sherman, Secretary Kenyon, Assistant Secretary Broida, Assistant Secretary Young, Adviser to the Board and Director, Division of International Finance Mr. Noyes, Adviser to the Board Mt. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mrs. Semia, Technical Assistant, Office of the Secretary Mr. Mr. Mr. Mr. Messrs. Brill, Holland, Koch, Partee, Williams, Dembitz„ Altmann, Axilrod, Eckert, Fisher, Gramley, Keir, Taylor, Thompson, Weiner, and Wernick of the Division of Research and Statistics Messrs. Furth, Hersey, Irvine, Wood, Dahl, Gekker, Gemmill, Gomez, Maroni, and Mills of the Division of International Finance Economic review. The Division of International Finance presented Umma rY of international financial conditions, after which the Division search and Statistics commented on domestic business and credit tlevelqraents. All members of the staff then withdrew except Messrs. Sherman, 141Yon. 4 Broida, Young, Noyes, Fauver, Brill, and Hackley, and Mrs. Semial 14 he following entered the room: http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2593 7/27/64 -2Mr. Molony, Assistant to the Board Mr. Cardon, Legislative Counsel Mr. Solomon, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. O'Connell, Assistant General Counsel Mr. Shay, Assistant General Counsel Mr. Leavitt, Assistant Director, Division of Examinations Miss Hart, Senior Attorney, Legal Division Mr. Young, Senior Attorney, Legal Division Mr. Robinson, Attorney, Legal Division Mr. Lyon, Review Examiner, Division of Examinations Mr. Rumbarger, Review Examiner, Division of Examinations Ratification of actions. Actions taken by the available members °t the Board during that part of the meeting on July 24, 1964, when a was not present, as recorded in the minutes of that meeting, 1.1el'e ratified by unanimous vote. Distributed items. The following items, copies of which are ehed to these minutes under the respective item nuinbers indicated, ' tte a roved unanimously: Item No. t 17 er to Chairman Robertson of the Senate Committee 0 hToBlihking and Currency reporting on S. 2883, a bill bra Permit the establishment and operation of certain Mi rich offices by the Michigan National Bank, Lansing, chigan." tett tee,.tO the Federal Reserve Bank of Kansas City lcling the applicability of provisions of the Banking ' 1933, as amended, to the proposed purchase of t4trolling interest in a securities company by a cori7 rOiling stockholder of a member bank. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1 2 7/27/64 -3Item No. Letter to Mr. C. H. Hosler, President, The Fullerton National Bank, Fullerton, Nebraska, regarding the lI Inciliation statement requested by the Federal til!serve of all national banks in connection with reports of condition as of June 30, 1964. (With ; 01q* understanding that the same type of reply would s made to any similar inquiries and that the subl'Ice of the Board's letter would be sent to the qers.1 Reserve Banks for their information.) 3 A memorandum dated July 24, 1964, from the Legal Division, which had been distributed relevant to Item No. 2, explained that one of the tests for applicability of the statute to the proposed relationship was the Taestion whether or not the securities company involved was "princi- Pa 14 engaged," under section 20, or "prima;ily engaged," under section 32, Illthe types of activity described in the statute. It was brought out that in the situation presented the percentage of gross income of the "cl-lxities company derived from section 20 and section 32 business apparet% did not fall below 30 per cent in the years 1960 through 1963, 411a rose as high as 45.4 per cent in 1960. In comments in supplementation of the memorandum, Miss Hart d attention to the fact that she and Mr. Shay (who had jointly 1)rellared the memorandum) believed that the term "principally engaged" 1.4 s ection 20 contemplated such a volume of the types of business cited he statute as to comprise one of the chief enterprises of the zee, "xlties business, even though that volume did not constitute the Nox94. -.Y of the business. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis The securities company involved in the 7/27/64 -4- IIMIediate inquiry, with a volume of section 20 and section 32 business ranging from 30 to 45 per cent of its gross income in recent years, therefore was deemed to be "principally engaged" in such business. No disagreement with the construction mentioned was indicated bYtlembers of the Board. Payment of interest on "borrowed" funds (Items ebruary 17, 4 and 5). On 1964, the Board discussed an inquiry from Wachovia Bank 844Trust Company, Winston-Salem, North Carolina, as to whether it 41 be permissible for a member bank to "borrow" at an agreed rate or i nterest, from correspondent banks and other depositors, by means or from "deposits" to "bills payable," "borrowed money," or °ther similar liability account. A draft reply, prepared on the basis or lleys then expressed, was sent to the Reserve Banks for comment, and 8ull'Inary of the replies from the Reserve Banks was later distributed. At 44 meeting on May 27, 1964, there was further discussion of the at issue, and a revised draft of reply was sent to the Office or t he Comptroller of the Currency, the Federal Deposit Insurance Corpora- tioh ' 4) and the General Counsel of the Treasury Department. Like the earlier art) the proposed reply took the position that transactions of the kind deter ibed in the inquiry from the member bank would not involve a violation or eeetion 19 of the Federal Reserve Act or of Regulation Q, Payment of Illtere on Deposits. It would also point out that whenever a transfer ' - 4e from a deposit account to "bills payable" or similar account, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 25, 7/27/64 -5- the amount transferred must be taken into account in applying statutory Or other limitations on the borrowing bank's power to borrow and the lend: ng bank's power to lend, must be included on reports of condition 4n1 other reports as "borrowed money" by the borrowing bank and as "loans" 1)Y the lending bank, and must be supported by appropriate documentary or (1)ther evidence of indebtedness. There had now been distributed a memorandum dated July 24, 1964, the Legal Division reporting that the Federal Deposit Insurance (;) , 'Po voration concurred in the proposed position. The Comptroller's °rrice saw no reason to take exception to the position, as it was "appliee't)I.e to State non-member (sic) banks." (The Comptroller's Office l'ellerred to the "sale of excess funds," which indicated that such "sales" tr4nsactions would be open to national bank participation without limitation) if cast in the form of Federal funds transactions.) The General 00141 of the Treasury questioned what the ultimate effect of the tra, ' sactions might be on the practical effectiveness of the prohibition or v4Yment of interest on demand deposits, but he raised no question as to he - Proposed response that the contemplated arrangements would not Viol ' 4te existing law or regulation. He offered cooperation if the Board 211Dio "44 feel in the future that the language of existing law or regulation `ke(I to be reappraised. The Legal Division recommended that the proDozea - reply now be dispatched, and that the substance of the reply be lshed as an interpretation in the Federal Register and in the Federal erve Bulletin. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis r-- Or"o rrar0v'1. 7/27/64 -6After discussion, the letter was approved unanimously, with the 14derstanding that its substance would be published as suggested by the Legal Division. A copy of the letter is attached as Item No. 4. A copy °f the interpretation in the form transmitted to the Federal Register is attached as Item No. 5. Applications of Citizens and Southern. There had been distributed 411ftorandum dated July 20, 1964, from the Division of Examinations, with Oilier pertinent papers, relating to the applications of The Citizens and Southern National Bank and Citizens and Southern Holding Company, both t Savannah, Georgia, for approval of the acquisition of additional shares or A' 4 Qurican National Bank of Brunswick, Brunswick, Georgia. The Division l'I niended approval. After summary comments by Mr. Lyon, the staff responded to ler11.1 questions by members of the Board of an informational or c11111-fY1ng nature. The applications were then approved unanimously, it being underat0,4 -Lk that the Legal Division would prepare for the consideration of Board drafts of an order and statement reflecting this decision. u as noted during the discussion of this matter that the Comptroller O the Currency had recommended favorably on the applications by letter 4tea truly 20, 1964, after the memorandum from the Division of Examinations be -en distributed to the Board. It was understood that the Board's oraer would not be issued until after thirty days from July http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 7, 1964, the 7/27/64 -7- elate on which notice of receipt of the applications was published in the Federal Register.) Application of Society Corporation (Items 6, 7, and 8). There had been distributed drafts of an order and statement reflecting the 13°Etrd's action on July 2, 1964, approving the application of Society C°10ration, Cleveland, Ohio to become a bank holding company through s'Nuisition of stock of The Fremont Savings Bank Company, Fremont, Ohio. Als° distributed was a dissenting statement by Governor Robertson. After discussion, the issuance of the order, statement, and dissenting statement was authorized. Copies of the documents, as issued, are attached as Items 6, 7, and 8. The meeting then adjourned. Secretary's Notes: Governor Shepardson today approved on behalf of the Board the following items: No. Letter to the Federal Reserve Bank of Minneapolis (attached Item approving the appointment of Steven J. Johnson as examiner. Letter to Mr. Daniel L. Goldy, National Export Expansion Coordinator, encrtment of Commerce Building, advising of the designation of Glenn M. Ian) Assistant Director, Division of Examinations, to participate 4s; ,I,c,liePresentative of the Board in the work of the interagency working 13 on export financing. Memorandum from the Division of Bank Operations recommending the a4;`)Intment of John T. Madigan as Analyst in that Division, with basic IlD„1141 salary at the rate of $6,380, effective the date of entrance -11 duty, Governor Shepardson also noted today on behalf of the Board memoranda from the http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2599 7127/614. -8Division of Administrative Services advising (1) that Florence Norman Thayer, Relief Cook in that Division, had applied for retirement effective at the close of business July 31, 1964; and (2) that J. Robert Surguy, Clerk (Composition) in that Division, died on July 14, 1964. \ Secreta y http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Item No. 1 BOARD OF GOVERNORS 7/27/64 OF THE FEDERAL RESERVE SYSTEM WAS H I N GTO N OFFICE OF THE CHAIRMAN July 27, 1964 I she Honorable A. Willis Robertson, Chairman, nenkte Banking and Currency Committee, S. Senate, "ashington, D. C. 20510 De kr Mr. Chairman: a. This is in response to your request of June 2, 1964, for report on the bill, S. 2883, "To permit the establishment and (1),peroti0n of certain branch offices by the Michigan National Bank, 1.131-11g, Michigan." This bill would permit Michigan National Bank to "rees tablish and operate" as branches one office in Saginaw and three oqi ,s _ 3 e in Grand Rapids. Prior to December 31, 1940, these offices ger°8en operated as branches of certain banks, which, on that date, . :consolidated with five other banks under the name of Michigan I/at thi-Lonal Bank. It is the Board's understanding that at the time of ()tie& consolidation the Comptroller of the Currency ruled that the four in question could not be operated as branches under the pro: visie s of the McFadden Act (section 5155 of the Revised Statutes). Her Ap e the matter rested until 1956 when the United States Court of a18 for the District of Columbia Circuit upheld a denial by the br 'Ptroller of an application by Michigan National Bank to establish a :eh in Saginaw on the grounds that the Comptroller had no statutory 237 °IlitY to grant the application. Michigan National Bank v. Gidney, v.2d 762. 4T The Board would not recommend favorable consideration of this uill. trev. Under its terms, one bank would be singled out for favored %rizment. The Board believes that a private bill of this kind would d '6itute an undesirable and unwarranted precedent that could be to State and Federal relationships and to bank supervision. it be determined that amendments to Federal laws relating to It111 /1 banking are needed, the Board believes that the proper course t'igh; 138 to enact general legislation which would provide the same 's and privileges to all banks that might be affected. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Item No. 2 BOARD OF GOVERNORS 7/27/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 27, 1964. AIR MAIL 14r. George D. Royer, Jr., Vies President, Psderal Reserve Bank of Kansas City, 1(ansas City, Missouri. 64106 1)ear Mr. Royer: This refers to your letter of July 17, 1964, forwarding a ter of the same date from Mr. Charles E. James, Chairman of the tioarA "of the First National Bank, Liberty, Missouri ("First"), that 1.1ests the Board's views on the question whether Mr. James' proposed evourehase of a majority of the shares of Prescott, Wright, Snider stoPanY, Kansas City, Missouri ("Prescott"), a member of the Midwest c 4 k Exchange, and related transactions, would violate section 32 or 80,. 1011 20 of the Banking Act of 1933, as amended. It is noted that 0, James has only a limited time in which to take advantage of the vPortunity and that you have stated that time is of the essence. Briefly, Mr. James awns 210 shares of the 500 outstanding shar, of stock of First, 200 of these shares being held in a voting tr„ el"st covering shares of the bank. The voting trust controls the bae tion of directors of First because it includes 269-1/2 of the to1111:s shares. Of these, 18-1/2 belong to Mrs. Emogene Janes and 10 C. Gerald James, Mr. James' wife and son, respectively. Thu' James also owns 10 additional shares outside the voting trust. a t83 inside and outside the voting trust, the James' interests own the°41 of 248-1/2 shares, less than a majority of the shares in lily sank. However, the voting trust, which was established on ' 111118,.20, 1960, to continue for ten years, provides that the trustee of'vote all First shares held in the trust as directed by holders s maiority of the shares in the trust, which means that the trtia tee must vote the 269-1/2 shares as directed by Mr. James. There is no provision for termination of the voting trust Prior to May 20, 1970, except with the consent of all the registered http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. George D. Royer, Jr. -2- holders of trust certificates. The trust can be amended at a special meeting which must be called if requested by the trustee or the holders of certificates representing at least 20 per cent of the shares in the trust. Mr. James is the only individual controlling that proportion of shares in the trust. The amendment will be made if approved by a majority of the shares in the trust. Thus, an amendment will pass if Mr. James votes his shares in favor, and will not if he votes his Shares against the proposal. In addition, Mr. James is optionee under a restrictive stock agreement covering all the shares that have been deposited in the trust, and has first call on any shares any other holder of a trust certificate desires to sell, if willing to meet a bona fide offer. Re has, in fact, apparently exercised this option on one occasion to Purchase 10 shares belonging to one of the original depositors in the trust. Although the information supplied by Mr. James is not clear the point, it appears that the purchase of Prescott would be carried ?ut by means of a de facto exchange of 228-1/2 shares of First Presumably including the 200 of Mr. James' shares now in the trust, he 18-1/2 shares of Mrs. James which are now in the trust and her 10 snares outside it) for Prescott shares. At some point, Prescot t is 141°11y-owned subsidiary, referred to below, will "purchase" the First .II.ares, "subject to the voting trust". Your letter states, and ' Ir. James does not negate the statement, that he proposes to continue t° control First through the subsidiary's control of a majority of shares in the voting trust. O In the information submitted by him, Mr. James implicitly ,Oticedes that Prescott and its wholly-owned subsidiary, Selected "alencial Plans, Inc., a dealer in mutual fund shares, must be treated ! 8 °Ile enterprise for purposes of both section 32 and section 20, and n the facts before it, the Board reaches the same conclusion. Cording to the data presented, the dollar volume of mutual fund thares the single enterprise has handled has ranged from 8.7 per cent r° 14.1 per cent of its total dollar volume; of securities sales with 2e8Pect to which Prescott was a member of a selling group, from 0 to Per cent of the total dollar volume; and of underwriting from 0 to f " 6 Per cent of the total dollar volume. Income from sales of mutual , ur.14 shares has ranged from 29.7 per cent to 42 per cent of the enterrallse's total gross income; income from acting as member of a selling fr°uP, from 0 to 1.41 per cent of its total gross income; and income Th°rn underwriting, from 0 to 5.2 per cent of the total gross income. diese figures are for the years 1960 through 1963. In a national patettorY of securities dealers, Prescott lists itself as "underwriters, tticipating distributors, and dealers", as well as brokers. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis : 4 4.0k t.i's Mr. George D. Royer, Jr. -3- Section 32 of the Banking Act of 1933, as amended, provides that "No officer, director, or employee of any corporation or unincorporated association, no partner or employee of any partnership, and no individual, primarily engaged in the issue, flotation, underwriting, public sale, or distribution, at wholesale or retail, or through syndicate participation, of stocks, bonds, or other similar securities, shall serve the same time as an officer, director, or employee of any member bank . . . It seems clear from the information submitted that Prescott (including Wholly-owned subsidiary) is "primarily" engaged in business of the itl•nd described in that section. Mr. James is a director of First. Renee, the section would forbid his serving as a director , officer, or ,,,mPloyee of Prescott. While he states that he does not plan to serve :rescott in any of these capacities, it should be noted that under .L.he circumstances of this case, if he were to carry out his plan to cj'equire control of Prescott and were then to become an active partic±ant in the affairs of Prescott or of its subsidiary or both, it ight be necessary to conclude that he was engaged "as an individual" tirl business of the kind described in section 32, so that he would be °rbidden to serve First at the same time as a director, officer, or employee. T Section 20 of the Banking Act of 1933, as amended, provides that • . . no member bank shall be affiliated in any manner described in section 2(b) hereof with any corporation, association, business trust, or other similar organization engaged principally in the issue, flotation, underwriting, public sale, or distribution at wholesale or retail or through syndicate participation of stockp, bonds, debentures, notes, or other securities . . . ." and section 2(b)(2) of the same Act provides that 'I • . . the term 'affiliate' shall include any corporation, business trust, association, or other similar organization • • . (2) Of which control is held, directly or indirectly, through stock ownership or in any other manner, by the Shareholders of a member bank who own or control either a majority of the shares of such bank or more than 50 per centum of the number of shares voted for the election of directors of such bank at the preceding election . . . ." http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis $? 4..04 Mr. George D. Royer, Jr. t -4- The conclusion seems clear that, under the proposed transictions, Prescott and its wholly-owned subsidiary would both be affiliates" of First within the terms of section 2(b)(2). Prescott 1.4.0uld be controlled directly and the subsidiary would be controlled indirectly by Mr. James. Mr. James also would have to be regarded as the controlling shareholder of First because he would awn approximately 76.98 per cent of Prescott, which owns all of the mutual fund subsidiary, Which, in turn, would own a majority of the shares in the irrevocable "ting trust that includes more than 50 per cent of the shares of st; and all of such shares must be voted by the trustee as directed 15Y holders of a majority of the shares in the trust, as noted above. The remaining question is whether Prescott (including its W.ho lly-owned subsidiary) is "principally" engaged in the activities ! escribed in section 20. In the light of the information before it, 'he Board concludes that Prescott is so engaged. Based on the foregoing, the Board's opinion is that purchase ra". James of a controlling interest in Prescott, under the proposal :4 question, would violate the prohibition of that section. The r!ard's opinion is necessarily based on its understanding of the facts cfore it. If you or Mr. James should conclude that any facts or s teumstances essential to the matter have been omitted or misunderi °c'd, the Board will of course be happy to have the relevant ' Ilformation laid before it. A copy of this letter is enclosed to be transmitted to • James, Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. °84re http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS Item No. 3 OF THE 7/27/64 FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 27, 1964. the O. H. Hosier, President, P ullerton National Bank, 1146110 1' n, Nebraska. Mr• Hosier: to This is in reply to your letter of July 11, 1964 with reference bittlre reconciliation statement (FR OT) that was sent to all national bolus in connection with their reports of condition as of the close of ne88 June 30, 1964. The purpose of this form is to gather information on four ohtcti'in items in the balance sheets of national banks that cannot be The i ned from the Call Report issued by the Comptroller of the Currency. ltite ' nformation called for on the reconciliation statement is the absoIteportn t.inilnum needed to make data obtained from the Comptroller's Call hikrik;' form compatible with figures obtained by the supervisors of tion- ill each of the 50 states, by the Federal Deposit Insurance Corporaand by the Federal Reserve System. 4144 As a matter of fact, the only figure that the majority of 14143national banks will have to provide will be that called for under 3 corporate stocks, a figure easy for any bank to supply. You will appreciate that it is essential to have comparable of condition from time to time for all 13,500 commercial banks the united States for the use of the general public, the Government, tl,per4tie banking system. In addition, many bank managements find the t.'eAort-"ng ratio and balance sheet data obtained from these combined 'hlltiota-8 useful in furthering the progress and efficiency of their institociia ` These various uses can be served only if comparable statistics sc411Y are collected from, or can be derived for, all banks. th"rt tt:t t. Both Form FR OT, which you received, and the procedure adopted t'L'zolbt ining the information necessary to achieve compatibility between ' ti llfo° : 11: 1 troller's Call Report and those of the other supervisors, are in ete 7 .tY with the President's memorandum to which you referred; they iti )C.,11 fact, approved by the Bureau of the Budget, a part of the 'Iltere've Office of the President, as being essential and in the public at ' The filing of the report is mandatory. i http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2606 C. H. Hosler - 2 Representatives of the 50 State supervisors, the FDIC, and the Pederal Reserve were all agreed that the form for the June 30 call should be the same as that used in December fi 1963. Thus, mid-year and end-of-year 84._ures would be comparable and could be used as benchmarks to which more e4-9)lified interim reporting could be linked. If the cooperation of the b°E4Ptroller could have been obtained, no reconciliation form would have en needed. Your reporting burden would have been less and, similarly, s ystem's task of tabulating combined data for all banks in the United etea would have been considerably lightened. J We appreciate your giving us your views and the opportunity to Plain the circumstances that led to the use of this special form. Very truly yours, (signed) Merritt Sherman Merritt Sherman, Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS Item No. 4 7/27/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OF-FACIAL CORRESPONDENCE TO THE BOARD July 27, 1964. Mr. Edward A. Wayne, President, Federal Reserve Bank of Richmond, Richmond, Virginia. 23213 near Mr. Wayne: This refers to an inquiry from the General Counsel of your Bank addressed to the General Counsel of the Board, relating to a question presented by an officer of Wachovia Bank and Trust Company, Wlnston-Salem, North Carolina. The member bank's letter described a Pr ocedure under which a country bank requests its city correspondent dc e "invest for a certain period of time" - overnight or for a few ,aYs or weeks - a specified portion of the country bank's deposit ualance with the city correspondent. The city correspondent itself sagrees to "borrow these funds . . . at the Federal funds rate". The cPecified amount is thereupon transferred, on the books of the city r respondent, from the deposit account to "bills payable", and the 1')et:Intry correspondent is paid interest thereon at the rate that is 1-118 paid currently for Federal funds. The question is whether such transactions violate the ph vision of section 19 of the Federal Reserve Act (12 U.S.C. 371a) Z 1 at "No member bank shall, directly or indirectly, by any device d,a rsoever, pay any interest on any deposit which is payable on ijemand.fl The same prohibition appears in section 217.2(a) of Federal serve Regulation Q. Pro • It is assumed, for these purposes, that the city correspondent is 1_ 4e,'gaily authorized to borrow on the terms agreed upon. It has bover been questioned that a member bank may "purchase" (that is, ofrq°14) so-called Federal funds from other banks, and the "seller" in l'ederal funds may be either a member bank or a nonmember that is froa position to arrange for funds to be transferred to the "purchaser" m a member bank's Federal Reserve deposit account. The Board is unable to find any basis on which to distinguish sim4 , the%ar transactions when the funds to be borrowed are on deposit in ball, Purchasing" bank. If such a distinction were drawn the "selling" ' c could readily have the funds transferred temporarily to its http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 260S BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. Edward A. Wayne -2- account in a third bank and then have the same amount transferred back to the borrowing bank by entries on the books of the Federal Reserve Bank. If the transaction were handled in this way, the second step would take the form of a typical Federal funds transaction. There appears to be no reason, in these circumstances, to insist upon two transactions that would simply cancel each other, in effect. The prohibition of section 19 and Regulation Q relates only to the payment of interest on demand deposits. It does not prohibit the payment of interest on "money borrowed" by member banks, and the System has long recognized the legality and propriety of borrowing in certain circumstances, including the situations enumerated in the third paragraph of this letter. Accordingly, the Board concludes that transactions of the kind described in the letter from the member bank would not involve a violation of section 19 or Regulation Q. It should be made clear to the inquiring bank that whenever a transfer is made from a deposit account to "bills payable" or similar account, the amount transferred must be (1) taken into account in applying statutory or other limitations on the borrowing bank's power tO borrow and the lending bank's power to lend; (2) shown on reports of condition and other reports by the borrowing bank as "borrowed by m°11eY" and by the lending bank as "loans"; and (3) supported appropriate documentary or other evidence of indebtedness. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Item No. 5 7/27/64 TITLE 12 - BANKS AND BANKING CHAPTER II - FEDERAL RESERVE SYSTEM SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. 1[1] PART 217 - PAYMENT OF INTEREST ON DEPOSITS Transfer from Deposit Account to "Borrowed Money" Account and Payment of Interest thereon 21/ -,.137 Transfer from deposit account to "borrowed money" account and payment of interest thereon. (a) The Board of Governors has received an inquiry regarding a Procedure under which a country bank requests its city correspondent to tt4 4alvest for a certain period of time" - overnight or for a few days or Igeeks - a specified portion of the country bank's deposit balance with he city correspondent. The city correspondent itself agrees to "borrow these funds . . . at the Federal funds rate". The specified amount is hereupon transferred, on the books of the city correspondent, from the Posit account to "bills payable", and the country correspo ndent is Paid interest thereon at the rate that is being paid currently for Pederal funds. (b) The question is whether such transactions violate the 1)1.0 vision of section 19 of the Federal Reserve Act (12 U.S.C. 371a) that member bank shall, directly or indirectly, by any device whatsoever, 1)41'411Y interest on any deposit which is payable on demand." The same 1114414biti0n appears in section 217.2(a) of this Part. (c) It is assumed, for these purposes, that the city correspondent is legally authorized to borrow on the terms agreed upon. It has never bee ' questioned that a member bank may "purchase" (that is, borrow) http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 261_0 -2so-called Federal funds from other banks, and the "seller" of Federal funds may be either a member bank or a nonmember that is in a position to arrange for funds to be transferred to the "purchaser" from a member bank's Federal Reserve deposit account. (d) The Board is unable to find any basis on which to distinguish lar transactions when the funds to be borrowed are on deposit in the 4 Purchasing,, bank. could If such a distinction were drawn the "selling" bank readily have the funds transferred temporarily to its account in a third bank and then have the same amount transferred back to the borrowing bank bY entries on the books of the Federal Reserve Bank. If the trans- ecticlla were handled in this way, the second step would take the form Of 4 tYpical Federal funds transaction. (e) There appears to be no reason, in these circumstances, to at Upon two transactions that would simply cancel each other, in e4eet, (f) The prohibition of section 19 and this Part relates only ton, -"e payment of interest on demand deposits. It does not prohibit the Part of interest on "money borrowed" by member banks, and the Sl'atera has long recognized the legality and propriety of borrowing in tertain circumstances, including the situations enumerated in pare- Ph (c) above. Accordingly, the Board concludes that transactions of the 'ind described in the inquiry would not involve a violation of 4eti°n 19 or this Part. (g) Whenever a member State bank makes a transfer from a s‘ account to "bills payable" or similar account, the amount erred must, of course, be (1) taken into account in applying http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis statutory or other limitations on the borrowing bank's power to borrow amd the lending bank's power to lend; (2) shown on reports of condition and other reports by the borrowing bank as "borrowed money" and by the 4114ing bank as "loans"! and (3) supported by appropriate documentary Other evidence of indebtedness. (12 U.S.C. 248(i). Interprets or applies 12 U.S.C. 371a "d 461.) Dated at Washington, D. C, this 27th day of July, 1964: BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM (Signed) Merritt Sherman Merritt Sherman, Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 'Lt' Item No. Li 6 7/27/64 UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. la the Matter of the Application of Sp,IETY °C CORPORATION, eveland, Ohio, Permission to become a bank holding company eY acqng stock of The Fremont Savings Bank °14anY, Fremont, Ohio --------------------------------------------- ORDER APPROVING APPLICATION UNDER BANK HOLDING COMPANY ACT There has come before the Board of Governors, pursuant to seeti "3(a)(1) of the Bank Holding Company Act of 1956 (12 U.S.C. %(a)) and section 222.4(a)(1) of Federal Reserve Regulation Y (12 P'm "41 222.4(a)(1)), an application on behalf of Society Corporation, veland, Ohio, for the Board's approval of action whereby Applicant 19°Uld become a bank holding company through the acquisition of a minito4lec ' 80 per cent of the outstanding common stock and 100 per cent of the Preferred stock of The Fremont Savings Bank Company, Fremont, Ohio. As required by section 3(b) of the Act, the Board notified the Sub__ atendent of Banks for the State of Ohio of the receipt of the applitat '34 and requested his views and recommendation. The Superintendent hlte q'osed no objection to approval of the application. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Notice of receipt 111'4 /401_ -2°f the application was published in the Federal Register on March 7, 1964) which provided an opportunity for submission of comments and views Narding the proposed acquisition. Time for filing such comments and vieWs has expired and all comments and views filed with the Board have 'leen considered by it. IT IS ORDERED, for the reasons set forth in the Board's Statement of this date, that said application be and hereby is approved, hcvided that the acquisition so approved shall not be consummated (a) Within seven calendar days after the date of this Order or (b) later th4t1 three months after said date. Dated at Washington, D. C., this 27th day of July, 1964. By order of the Board of Governors. Voting for this action: Chairman Martin, and Governors Balderston, Mills, Shepardson, and Daane. Voting against this action: Absent and not voting: Governor Robertson. Governor Mitchell. (Signed) Merritt Sherman Merritt Sherman, Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BOARD OF GOVERNORS OF THE Item No. 7 7/27/64 FEDERAL RESERVE SYSTEM APPLICATION BY SOCIETY CORPORATION FOR APPROVAL OF THE ACQUISITION OF SHARES OF THE FREMONT SAVINGS BANK COMPANY STATEMENT Society Corporation ("Applicant"), Cleveland, Ohio, owns all o 1 the shares except directors' qualifying shares of Society National Ilatik of Cleveland ("National"), Cleveland, Cuyahoga County, Ohio. eatit Appli- pursuant to section 3(a)(1) of the Bank Holding Company Act of 1956 ("th e Act") has applied for Board approval to become a bank holding cornY through the acquisition of a minimum of 80 per cent of the outstandi4 common stock and 100 per cent of the preferred stock of The Fremont Savings Bank Company ("Fremont Savings"), Fremont, Ohio. Views and recommendation of supervisory authority. - Pursuant to seet*1-0 11 3(b) of the Act, the Superintendent of Banks for the State of Ohio as asked for his views and recommendation on the Applicant's pro. The Superintendent interposed no objection to the Board's approval c)the application. Though not required by section 3(b) of the Act, notice of the 80 ardt s receipt of the application was given to the Comptroller of the CtIrren cY, who recommended approval of the application. Statutory factors. - Section 3(c) of the Act requires the to take into consideration the following five factors in acting (z1 this application: (1) the financial history and condition of the 1101ding company and the banks concerned, (2) their prospects; (3) the retcr" of their management; (4) the convenience, needs, and welfare the communities and area concerned; and (5) whether the effect http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -2Of the acquisition would be to expand the size or extent of the bank holding company system involved beyond limits consistent with adequate 44d sound banking, the public interest, and the preservation of competition in the field of banking. Financial history, condition, and prospects of Applicant - Applicant was organized in 1958 under the 1148 of Ohio for the purpose of facilitating National's acquisition of Etss ts and the assumption of liabilities of the Society for Savings ill the City of Cleveland. Society for Savings, a mutual savings bank Illi4ed in 1849, carried on business in Cleveland until December 31, (kg' 1958 when it commenced dissolution and its assets were transferred to t. °nal. lett National's organization in 1956 resulted from State legis- (3n, which restricted the business activities of mutual savings banks 0 hi°, but which authorized savings banks to organize and own the caPit 1 stock of a State or national bank, which would have all the s denied to the mutual savings bank by the legislation mentioned. SO c'ietY for Savings organized National and between 1956 and year-end 19s8 (3ciety for Savings and National were operated as separate intit utions, although National was wholly owned by Society for Savin INI4a &uent to National's takeover of Society for Savings, Applicant was or, . Gan &zed by Society for Savings, and there were transferred to ,%pplicant 411 b nt directors' qualifying shares of the common stock of National e IChange for all of Applicant's outstanding stock. In turn, and 1)114)/' to its dissolution, Society for Savings deposited Applicant's z114rs under a voting trust of which the trustees of the Society for Et1". and other individuals designated by the Common Pleas Court of C11 , ga County, Ohio, were designated voting trustees. Presently, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -3- voting shares are held under a voting trust which, unless 4°cluertemninated by vote of the trustees, will continue until December 31, 1968, when Applicant's shares will be exchanged for presently outstand- 41g voting trust certificates representing such common shares. As indi4ted, National is a wholly-owned subsidiary of Applicant, conducting ""eral banking business with its head office and 14 branches (at 14 -end 1963) located in Cuyahoga County. ' National's head office and 6°f its 14 branches are located in the City of Cleveland. At 1/ ember 20, 1963, National had total deposits of $479 million. Fremont Savings, located in the City of Fremont (Sandusky e°144tY), 85 miles west of Cleveland, was originally organized as a say8 bank in 1882, but converted to a State-chartered commercial bank 411934 and has since conducted a general banking business. It operates 46, — au office and drive-in facility in downtown Fremont with total deposits (446.5 million. The financial history and condition of Applicant, National, and ?rem "t Savings are considered satisfactory. In major respects, a judg- -- Applicant's prospects must be premised upon a judgment of the Ns Deets both of its present subsidiary, National, and of the proposed LJSsu . d. tar Y Fremont Savings, While National's net earnings position in 4114t Of telati -°n to its gross earnings and invested capital is somewhat lower thati that of other commercial banks of similar size, due principally to thiartless otherwise indicated, all banking data noted are as of date. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 26" -4- the large portion of its total deposits represented by time and savings accounts, National's past operation and history of growth, particularly in demand deposits, warrants the conclusion that its prospects for Sound and profitable future operations are satisfactory. Fremont Savings has a satisfactory history of growth and service expansion. There is nothing to suggest that its prospects se anything but favorable, whether it continues to operate independently a• s Applicant's subsidiary. However, since Fremont Savings' affiliation With Applicant envisions greater retained earnings by Fremong 4vings, a greater potential for additional capital if needed, and, 4 hereafter discussed, a more assured source of management succes- sixt, it is concluded that such affiliation will cause the prospects c'4e1flont Savings to be somewhat more favorable as a subsidiary of 414'lleant than would otherwise be the case. Character of management. - The policy management personnel •APPlicant and National are essentially the same, since Applicant is t•r)verned by twenty-five trustees, of whom twenty compose the entire dird, 'etorate of National. The management of each is considered satisfactory. The Board finds the management of Fremont Savings to be 4tisfactory and that it would continue so following the proposed iation with National. This affiliation will afford Fremont S vin_ s g access to a source of successor management which at present %ears lacking. While the issue of management succession within Pritiont Savings is not a major consideration in this case, the extent http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis $ If • •C‘1_0 0 -5- to urhich qualified management succession is better assured by the PI:c1Posed affiliation of Fremont Savings with National does lend some ight toward approval of the application. The convenience, needs and welfare of the communities and - The area whose convenience, needs, and welfare ‘4(51141 be most directly affected by this application is that comprising 4e111(3nt Savings' primary service area, namely, the City of Fremont and 4 rflai°r portion of the area included in the Fremont School District. 1114 area has an estimated population of 25,000. Fremont is situated on U. S. routes 20 and 6, four miles 8°4th of the Ohio Turnpike. It is served by two railroads, sixteen til°t r freight carriers, and two interstate bus lines. The city's 41eess to electric power and gas in industrial quantities and an avail4ble industrial labor force have contributed to the expansion of 144118trY and increase in commerce in the Fremont area. A 100-acre 14144strial park and a shopping center have recently been constructed. are thirty industrial concerns in Fremont each of which employs over twenty-five persons. Five of these were established since 1954, 414 nine of the larger industries of the city have expanded their 4Elliees and facilities since that time. There is every indication that the area's industrial and commercial expansion will continue. There are three banks in Fremont, operating six banking (44 ees and each offering essentially the same services. Of the three 81 Fremont Savings is the second largest. While it appears that the latttlit ing needs of the Fremont area are adequately served by these banks, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -6- it is probable that the affiliation of Fremont Savings with Applicant alld National will result in a broader spectrum and somewhat higher (114aity of banking service at Fremont Savings. For example, Fremont Savings has been obliged to engage in loan participations for borrowers hose credit needs were beyond Fremont Savings' ability to supply. Con-' ation of this proposal will enable Fremont Savings to respond more assuredly and more readily to larger borrowers through participations 1144 National than it can now do through participations with non-affiliated e°17 espondent banks. Further, under Applicant's control, Fremont Savings 1411 have access to National's automated equipment, including a developed electronic data processing system, a facility which no bank in Fremont has I In view of the continued commercial and industrial growth foret4at in the Fremont area, Fremont Savings' access to such equipment, 411 /4,,„ i. as to readily available assistance in a variety of specialized barliving services, should result in immediate benefit to Fremont Savings 414 Illtimate benefit to the commercial and industrial concerns in the '44ent area. Effect of proposed acquisition on adequate and sound banking, tibit interest and banking competition. - National's total deposits of 479 million represent 12 per cent of the total deposits of all banks in ellY411°ga County. Fremont Savings' total deposits of $16.5 million are 41eItcess of 33 per cent of the total deposits held by all banks in Fremont, 4" 22 Per cent of the total deposits of all banks in Sandusky County. 3,8 cmbined total deposits of National and Fremont Savings represent " 13 . cent of the total deposits of all banks in the State of Ohio. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -7- There are two registered bank holding companies located in the State of Ohio. BancOhio Corporation, Columbus, the larger, operates 1)1:1110-pally in south-central Ohio. Its banking subsidiary closest to '''temont Savings is located twenty miles south of the City of Fremont. The remainingBancOhio subsidiary banks are at least seventy miles or rciol'e from Cleveland and Cuyahoga County. The other bank holding company in Ohio is Springfield S41ngs Society of Clark County, Springfield, whose subsidiary banks 41e located some 100 miles southwest of both Sandusky and Cuyahoga C(3untiese The subsidiary banks of BancOhio and Springfield Savings Soc.! ' etY, combined, hold 6 per cent of the total deposits of all banks Approval of this application, as a result of which Applicant '&01 become the second largest bank holding company in Ohio, would inease to 10 the percentage of total bank deposits held by subsidiaries bank holding companies. Consummation of this proposal will not, in the Board's judgment, tive APPlicant a dominant position or an undue competitive advantage in arty Of the areas concerned. The three banks in Fremont are of about equal st2 °Ile slightly larger and one slightly smaller than Fremont Savings. 40 s. 18nificant change in existing competition among these banks is likely to °teur. Nor will National's association with Fremont Savings alter °nai l s competitive position in the Cleveland area. In view of the ely separated areas of the State in which the respective holding company shte Ms would be operating, the aforementioned resulting concentration of de . Posxts is not a factor adverse to approval of this application. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis " 14 If;u0 .71- -8- Only minimal competition exists between National and Fremont Savings. Neither has any IPC deposits ("individuals, partnerships, and cor porations") nor commercial and industrial, farm, or consumer loans higinating in the others' primary service area. Further, their respec- " 'ye sizes and the distance separating these institutions foreclose any li elihood that significant competition between them would develop in the future. Accordingly, the Board finds that consummation of Applicant's Ilr°P°sal will be consistent with adequate and sound banking and the heservation of banking competition. In the course of its decision on this application, the Board has ' L ldered averments, conclusions, and arguments raised in a brief filed Wital the Board on behalf of two named and other unnamed owners of voting tt1st certificates issued to former depositors of Society for Savings. The owners (hereinafter "Opposers") have urged that Applicant be compelled to take certain procedural steps hereafter discussed, including full com- P4ence with all applicable securities laws, and that Applicant's proposal the subject of a public hearing in the City of Cleveland. Among the procedural steps that Opposers urged the Board to of Applicant was that Applicant, at its cost, effect personal sern some 64,000 persons (owners of voting trust certificates), intorwric, them of the complete terms of the proposal contained in the Cation. The notice given by the Board regarding receipt and the ti4ttlr_ e of this application fully complied with and satisfied the notice requit'eloents prescribed by law and by the Board's Regulation Y, the latter 4°11141gated pursuant to the Bank Holding Company Act. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis Every reasonable 2622 -9- glIPortunity was provided for formulation by interested parties of their vie ws on this application. That Opposers availed themselves of this °PAortunity is evidenced by the detailed manner in which their bases of 4pesition to the applicatioa were formulated and set forth in their brief 41ed With the Board. In respect to Opposers' request for a trial type public hearing itt the City of Cleveland, including full opportunity for discovery by °PP°ser s, the Board denies Opposers' request for the reason that the °ar d is unable to find that a public hearing would better enable the 13°ad to discharge its statutory responsibilities, or that it would result &tithe production of relevant facts, data, or opinion that would more fully deve, L°P the merits of all positions asserted than they have been developed the record before the Board. Opposers asserted that the Board, before passing on the merits °f APPlicant's proposal, should ascertain that Applicant's "securities Pr°Perly registered and all information required by the [Securities r1(1 t ehange Commission] [be] provided". In any event, Opposers urged that the Board require Applicant "to follow the procedures and make availthe information required ... by the SEC for holding companies and securities". Administration of the Securities Act of 1933 was vested by e°tIrQ ss in the Securities and Exchange Commission. It is not within the . Aleti on of the Board to administer the provisions of that Act nor, ta()te sPecifically, to compel compliance with its registration requirements. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 01‘ Oevo -10- does not suggest, however, that the Board, in the interest of orderly administrative procedure, could not determine, where appropriate, whether %tain laws have been complied with by an applicant. In the present case, there is no evidence that Applicant has failed or will fail to comply with applicable provisions of the Securities Act of 1933 or provisions of State law that may be applicable in similar respects. Should the Board undertake each case pending before it to determine an applicant's compliance with all applicable provisions of Federal and State law, its performance of 441cti0ns required by statute would be critically impaired. While neither the Bank Holding Company Act nor Regulation Y contains any provision reng an applicant to give evidence of compliance with or exemption -"Iregistration or publication requirements imposed by Federal or State law 3 in the present case, the agreement executed by Applicant and Fremont avings contains sufficient representations of intent to comply with all 4D1 ioable Federal and State laws as to make unnecessary Board action of the nature urged by Opposers. Finally, Opposers have requested the Board, in the course of its s ional process, to review the State of Ohio courts' records relating to the Proceedings involving the dissolution of Society for Savings, and 4k courts' approval of the plan of distribution of the Society for Savings' 4ItDlus funds. A reading of the courts' decisions in the above proceedings kalte 8 clear that a major portion of the issues litigated have no bearing on 4k issues raised by the application now before the Board. Implicit in °I)D0 a rs' request of the Board that it review the judicial proceedings http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis -11- incident to the dissolution of Society for Savings, and the distribution fits surplus, is the suggestion that wrongful and undue advantage has beeal taken of Opposers by the managements and directorates of the institutic/ns involved in the proposal before the Board, and that the Board's 4/Pteval of the application would further disadvantage the Opposers. The 4ard is neither required nor warranted in looking behind the decisions of the ohio courts but, rather, must and does accord full faith and credit to tb°se decisions. On this premise, and on the basis of the Board's study °f the record before it, the Board has concluded that the character of the respective managements here involved is satisfactory and consistent th approval of the application, and that no disadvantage to Opposers e°anizable by the Board under the Act will result from such approval. Summary and conclusion. - For the reasons herein given, the 404 ' finds that the financial history and condition, prospects, and char acter of management of Applicant and the banks involved are satisfactory gliti 3 accordingly, consistent with approval of the application. Weighing t014 atd approval of the application is the further finding by the Board that co nsummation of Applicant's proposal will make possible the rendition bYv emont Savings of additional and improved banking services to the ikvei °Ping area it serves, particularly the business sector of that area. As batos the competitive effects of Applicant's proposal, it is the arcit S judgment that the size or extent of Applicant's system as proposed Ituld be consistent with adequate and sound banking, the public interest, the preservation of banking competition. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 0‘1,14.0‘) -12- On the basis of all the relevant facts as contained in the )rd before the Board, and in the light of the factors set forth in seetion 3(c) of the Act it is the Board's judgment that the proposed q isition would be consistent with the public interest and that the 4Plication should therefore be approved. • 141.Y 27, ' 1964. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 11,re, Item No. DISSENTING STATEMENT OF GOVERNOR ROBERTSON 8 7/27/64 The Board's function in detereming whether or not to aPP"ve a proposal under section 3(c) of the Bank Holding Company Act • ) vlewed apart from the preciseness of the statutory language stting that function, is simply to form a reasonably calculated RW0t.ient of what best serves the public interest. It follows that 4erd decisions in such cases will reflect in part the convictions (If ; 'Ls members as to whether the interest of a particular segment of ectzmunity or area will be better served by a banking structure c°41Posed of many competing independent units, or by a structure domed by relatively few organizations operating through multiple t • Multiple-office banking, whether in the form of branch banking, alled "chain banking", or holding company banking, offers in vary- t4ad egrees advantages such as economies in operation, application to the a filiated banks of uniform operational and decisional policies, 4" a relatively broad spectrum of banking services. To the extent that tho -se advantages reach the public, the multiple-office operation can be SQici t° benefit the public. However, real benefit results only where rtai 4Qed exists. In the present case, I am unable to find upon the rttor d before the Board any significant unserved banking needs that r'equire or justify inauguration of Applicant's proposed system. Tht --leged improved convenience in respect to available banking services tthi 4 the Fremont area - the principal basis upon which the Board's 4Dpro val appears to be based - has neither the quality nor quantity of http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis benefit to the community which offsets sufficiently the disadvantages ereat in the proposal so as to justify approval of its consummation. My concept of the philosophy underlying enactment of the Ilallat Holding Company Act is that the public is better and more assuredly ved by a banking system composed of a relatively large number of comlitive institutions than by a system made up of but a few regional or tat i°nal institutions. Obviously, each format:Lon of a bank holding IriPanY, as well as each additional acquisition by an existing holding tilPatlY, reduces the number of remaining competing locally owned institutions. Accordingly, unless the Board can find that consummation Of ' Particular bank holding company proposal offers measurable benefits to he public, it is my view that the Board is not warranted, by its ,7al, in advancing the systematic destruction of the traditional rican banking system. It is to the latter eventuality that my earlier reference to the disadvantages inherent in Applicant's proposal relates. Nothing in th ProPosal evidences either immediate and direct advantage or dis41\`antage to the public. The disadvantage to the public will occur dur- iro,a all(' following the systematic elimination, typified by the Board's tttop, ' On this application, of independent banking units, with the result •t -ar h the residents and businesses of the Fremont area, and eventually of tther areas in the State, will be deprived of the advantages inherent in 1„ Promotional initiative, truly vigorous competition, and calculated -taking. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis _3- 628 The Supreme Court of the United States, in discussing the legislative history of the 1950 amendments to Section 7 of the Clayton Act, identified in Brown Shoa Co. v, United States, 370 U.S. 294 (1962), ec4laressional concern over the continuing trend toward industrial concentration, and the " • • . desire [of Congress] to promote competition t4°1-Igh the protection of viable, small, locally owned businesses." kis at 344. Applying to the field of banking the evident Congressional design in Section 7 to prevent undue concentration, the Supreme Court has said in the more recent case of United States v. Philadelphia National tatik "There is no reason to think that concentration is less into the free play of competition in banking than in other service itIchIstries. On the contrary, it is in all probability more inimical. .. 3t11°Qntration in banking accelerates concentration generally." 374 U.S. 211 '369, 370 (1963). In my opinion, the slight advantages that may result at some tqu to time from creation of the proposed holding company are negligible 41d . Insignificant in the face of the probable resulting detriment to the Public. The Board's approval of this application could not only provide APPlieant with the sine qua non for future State-wide expansion, but could additi°nally provide the impetus to other of the large Cleveland banks to as a protective measure - similar "satellite systems". With the Nsence in the State of two existing bank holding companies, and the " dition of a third, it takes little imagination to foresee eventual do141. nation of the State's banking structure by a handful of bank holding tlies, especially if applications like this one - in which no offsetting 11Qc. "-t to the public is evidenced - are approved by the Board. Hence, t41St VOte to deny the application. 77, http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 2629 BOARD OF GOVERNORS Item No. 9 7/27/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD July 271 1964 CONFIDENTIAL (FR) Mr. R. K. Grobel, Vice President, Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota. 55440 Dear Mr. Grobel: In accordance with the request contained in Mr. Strothman's letter of July 20, 1964, the Board approves the appointment of Steven J. Johnson as an examiner for the Federal Reserve Bank of Minneapolis effective August 10, 1964. It is noted that Mr. Johnson is indebted to First National Bank, Minneapolis, Minnesota, and Metropolitan Airport State Bank, Minneapolis, Minnesota, a nonmember bank. Accordingly, the Board's approval of the appointment of Mr. Johnson is given with the understanding that he will not participate in any examination of either bank to which his indebtedness remains unliquidated. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. http://fraser.stlouisfed.org Federal Reserve Bank of St. Louis