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Minutes for
To:
Members of the Board
From:
Office Of the Secretary
July 31 1963
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve .System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Att.
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.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
2 SG
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, July
3, 1963.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
Shay, Assistant General Counsel
Goodman, Assistant Director, Division of
Examinations
Young, Senior Attorney, Legal Division
Doyle, Attorney, Legal Division
McClintock, Supervisory Review Examiner,
Division of Examinations
Poundstone, Review Examiner, Division of
Examinations
Circulated or distributed items.
The following items, copies
of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to Holstein State Bank, Holstein, Iowa,
approving the establishment of a branch in
Cushing.
1
Letter to Bank of Idaho, Boise, Idaho, approving
the establishment of a branch in Lewiston.
2
Letter to Manufacturers Hanover International
Banking Corporation, New York, New York,
granting permission to purchase stock of
Commercial Export Credit Company Limited,
London, England.
3
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-2Report on competitive factors (Poughkeepsie-Beacon, New York).
There had been distributed to the Board a draft of report to the
Comptroller of the Currency on the competitive factors involved in the
proposed consolidation of Matteawan National Bank, Beacon, New York,
With The Farmers and Manufacturers National Bank of Poughkeepsie,
New York, under the charter of the latter and with the title of FarmersMatteawan National Bank.
The report, in which the conclusion read as follows, was
approved unanimously for transmittal to the Comptroller:
The proposed consolidation of Matteawan National Bank
and The Farmers and Manufacturers National Bank of Poughkeepsie
would not eliminate a substantial amount of existing competition
but it would preclude the possibility of potential competition
which might be expected to develop upon the establishment of
the authorized branches by the merging banks. Combining the
two smallest commercial banks in an area dominated by a substantially larger bank should increase competition.
Mr. McClintock then withdrew from the meeting.
Regulation K and Regulation M.
Pursuant to the understanding
at the meeting on June 26, 1963, there had been distributed to the
Boarl revised drafts of a proposed revision of Regulation K, entitled
Corporations Engaged in Foreign Banking and Financing under the Federal
Reserve Act, and a proposed revision of Regulation M, entitled Foreign
Branches of National Banks.
These revised drafts, which were distributed with a memorandum
from the Legal Division and the Division of Examinations dated July 1,
1963, incorporated changes agreed upon during the discussion of the
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proposed regulations at the Board meeting on June 26.
The memorandum
commented on some of the principal changes and on certain matters
that the Board might want to consider further.
It was proposed that
the revised drafts be transmitted for comment to the Federal Reserve
Banks and to supervised institutions and others from whom comments had
been received concerning earlier drafts of the proposed revised
regulations, such comments to be received not later than July 15, 1963,
after which the proposed regulations would be considered further by the
Board with a view to final adoption.
In discussion of the revised drafts, Governor Mills commented
that the subject had been worn threadbare and that he felt the two
regulations in their present draft form might be exposed to comments
by the interested parties.
He saw no purpose in going back over the
serious defects and deficiencies that he found in both of them.
There-
fore, he would withhold further comments until the proposed regulations
were before the Board for final consideration.
Governor Robertson indicated that he would favor sending out
the redrafts in their present form to interested parties for comment,
With a view to further consideration in the light of such comments
as might be received.
Governor Shepardson agreed with such a procedure but raised
Question with respect to certain wording in the statement of national
Purpose in Regulation K, his point being that the language to which
he referred should either constitute a positive restriction or else
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be omitted.
Alternative wording was suggested to meet the point
mentioned by Governor Shepardson, and there was general agreement that
such language should be incorporated in the revised regulation when it
was distributed for comment.
Governor Shepardson also called attention
to certain language in the portion of Regulation K relative to reporting
requirements that he felt was in need of clarification, and it was
understood that this point would be borne in mind with a view to making
appropriate changes before Regulation K was issued in final form.
Governor King noted that he had previously given Governor
Mitchell his principal thoughts on the matter (as reported by Governor
Mitchell at the Board meeting on June 26, 1963).
Governor King added
that he felt the current drafts represented substantial improvement over
Previous drafts and that he would favor sending them out for comments.
Governor Balderston referred to a suggestion in the memorandum
of July 1, 1963, that the Board might want to consider whether the
amount of guarantees that a nonbanking Edge corporation could incur
for any one person should be limited to 10 per cent of capital and
surplus, in view of the fact that such a corporation could make loans
to any one person up to 50 per cent of capital and surplus.
The
question raised by Governor Balderston was whether there was a case
for altering the pertinent provisions of the revised draft of Regulation K
at this time or whether it would be preferable to consider the point
further after comments had been received from interested parties.
This
comment likewise extended to the provisions regarding guarantees in the
proposed Regulation M.
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In discussion of the point raised by Governor Balderston,
Mr. Shay commented that the provisions of Regulation M would be
applicable to national banks, which were familiar with the limitations
of section 5200 of the Revised Statutes and therefore should not find
the Regulation M provisions--which were tied into section 5200--too
complex.
Mr. Hexter commented that the field of guarantees had been
regarded generally as more hazardous for banks than the field of loans.
Without using their awn funds, banks could guarantee obligations of
others.
country.
Guarantees had been prohibited for banks operating in this
Therefore, even a rather strenuous limitation in the proposed
regulations was in itself a pioneering step.
Governor Mills agreed with the reasoning of Mr. Hexter, noting
that guarantees represented contingent liabilities that could develop
a considerable risk exposure.
Also, permitting guarantees could project
a definite and serious outflow of funds from this country.
thing was true with respect to acceptances.
The same
If national banks and
Edge corporations were to be permitted to guarantee and accept in any
areas, that should be within definite limitations.
Mr. Goodman commented that when he first read the redraft of
these provisions of the proposed regulations, he had reservations.
Upon
further study, however, he became more satisfied; as had been pointed
out, something of a new venture was involved.
The provisions might be
quite restrictive in some instances, but if so the matter could always
be brought back to the Board and some relaxation could be effected if
deemed warranted.
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After further discussion, Chairman Martin suggested that the
proposed regulations, in form incorporating the change in the draft
of Regulation K agreed upon at this meeting, be distributed to the
supervised institutions, the Federal Reserve Banks, and other
interested parties in order to obtain their reaction.
Mr. Fauver noted that the fact that this procedure was being
followed was likely to come to the attention of members of the press.
He inquired whether it would be the disposition of the Board to
authorize making copies available to the press upon request, or possibly
to issue a press statement.
In discussion of this point, Governor Mills expressed the view
that while there might be reason, upon inquiry, to make a copy
available informally, it seemed doubtful whether a press release would
be appropriate at this stage.
Mr. Shay recalled that it had been contemplated that at this
juncture the revised drafts of the two regulations, in such form as
the Board might decide upon, would be sent out to the respective
supervised institutions, the Reserve Banks, and parties from whom comments
had been received when the original proposed revisions were published
in the Federal Register.
In the case of Regulation K, this procedure
would be in the nature of an alternative to meeting the requests that had
been received from some parties for an opportunity for discussion with
the Board.
The revised draft would give these parties something to look
at that would reflect consideration by the Board of the views previously
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submitted by them.
As to Regulation M, representatives of the affected
supervised institutions had already met with members of the Board and
the Board's staff, and at this point there was an element of urgency
in moving along to the issuance of a regulation.
If there should be
press inquiries, copies of the revised drafts of regulations might be
handed to the inquirers, but the issuance of a press release might give
the current step more importance than it deserved.
Of course, at such
time as regulations were finally adopted, they would be published in
the Federal Register and made the subject of a press release.
Accordingly, it was agreed that redrafts of the proposed
the
revisions of Regulation K and Regulation M, in form reflecting
supervised
discussion at this meeting, would be sent to the affected
comments
institutions, the Federal Reserve Banks, and others from whom
had been received on the drafts previously published in the Federal
the respective redrafts
Register, with the request that any comments on
be submitted to reach the Board by July 15, 1963.
It was understood
that no press release would be issued in this connection, but that
or other inquirers
copies might be made available to members of the press
upon specific request.
Messrs. Shay, Goodman, Doyle, and Poundstone then withdrew
from the meeting.
Draft bill to amend section 5200.
The Bureau of the Budget
the
had requested the views of the Board on a draft bill proposed by
Statutes, as
Treasury Department "To amend section 5200 of the Revised
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amended (12 U. S. C.
84), to increase the limit on the maximum liability
of a single borrower to a national bank."
Under existing law the total
obligations to any national bank by any single borrower could at no
time exceed 10 per cent of the amount of the paid-in and unimpaired capital
stock of such bank and 10 per cent of its unimpaired surplus funds.
law, however, included 13 exceptions to this restriction.
The
The proposed
bill would raise the 10 per cent limit on loans to a single borrower to
20 per cent, and in addition make certain technical changes in the 13
exceptions in order to conform to the proposed increase in the basic
lending limit.
A memorandum from the Legal Division dated July 2, 1963, which
had been distributed, discussed the proposal and submitted a draft of
reply to the Budget Bureau that would state in essence that although
the extent of the proposed increase over the existing statutory limitation might be open to some question, the Board would interpose no
objection.
It would be noted, however, that following the adoption
of such an amendment many State-chartered banks would find themselves
operating under stricter limitations in this regard than national banks.
Further, there might be some doubt whether the proposed amendment would
be the most effective way to strengthen the position of small banks,
particularly in their dealings with their correspondents.
If it were
desired that any liberalizing amendment to section 5200 be directed
primarily to the smaller banks, this could be accomplished by an
amendment that would prescribe a 20 per cent lending limit on the
2194
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first $1 million of capital and surplus, without changing the existing
10 per cent limit above that figure.
The effect of such a limitation
would be to increase the ability of smaller banks to serve exceptional
community needs and free them, to this extent, from dependence on
the services of correspondent banks.
This would be accomplished without
increasing the risk of undue concentration of lending resources of
larger banks in loans to relatively few borrowers.
Governor Mills expressed the view that the approach taken in
the proposed letter was wrong.
It was necessary, he said, to go back
in history and consider the passage of the National Bank Act, which was
intended to correct abuses in banking that then existed, in particular
Wildcat banking.
Since the passage of the Act, the Comptrollers of the
Currency had made an example of good banking practices that extended
beyond the national banking system to the State banks.
The proposal
now under consideration would represent a yielding to the protestations
of less conservative bankers who desired more liberal loaning provisions.
He felt sure it would be borne out by the record that bank failures
had been importantly influenced by problems of over-loaning, and
that those problems had very often been attributable to an accumulation
of large loans.
In other words, the banks had had their main difficulties
with large loans and not smaller loans, which provided diversification
and a spreading of risks.
He had been conscious of the fact, in many
of the reports that came through, particularly with respect to branch
applications, that when there had been some adverse comment regarding the
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position of the bank concerned it had frequently focused on the
concentration of large lines and the exposure involved in those
large lines, which unfortunately in many instances had been extended
to weak credit risks.
Endorsement or support of the proposed bill
would amount to encouraging the sort of developments that the current
statutory limitations were designed to prevent.
The Federal Reserve
System, through the Board, should in present circumstances stand solidly
and unswervingly for sound banking, which would require a reversal
of the position taken in the proposed letter to the Budget Bureau.
Governor Robertson expressed the view that the letter should
make clear that the Board knew of no widespread inability on the part
of national banks to meet the needs of their customers.
He added that
many national banks voluntarily followed lower loan limitations than
provided by statute.
The letter also should point out that the current
proposal would be likely to lead to a reduction of lending standards
and a weakening of the banking system of the country.
If a problem
existed, it was among the smaller institutions, and the Board might want
to include a suggestion along the lines set forth in the final paragraph
of the draft letter.
He was not sure on that point, but it would be
preferable to doubling the limit on loans to single borrowers for all
of the national banks in the country.
Governor Shepardson indicated that his views were much the same
as those already expressed.
As to the possible suggestion with respect
to enlarging the lending limit for smaller banks, he felt that there was
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some question about the ability of the management of many of the smaller
banks to handle loans twice as large as could currently be extended.
Governor King said his feelings were much the same as those
expressed by Governor Mills.
He doubted whether the smaller banks
should be given much additional leeway for larger loans to single
borrowers, and therefore he would not include any suggestion along
those lines in the report to the Budget Bureau.
Further, he felt that
enactment of the current proposal would be likely to lead to increases
in lending limitations contained in the statutes of the respective
States.
If the proposal were to increase the lending limit from 10
per cent to, say, 12 per cent, that might not be too dangerous, but
he would not be prepared to go as far as the current proposal.
He
would favor a letter to the Budget Bureau stating that the Board
opposed the proposal, without making alternative suggestions.
The
Treasury could always submit a revised draft bill if it so desired.
Governor Balderston agreed that the Board should register its
opposition to the Treasury proposal.
However, while he concurred
philosophically with all that had been said, he had some hesitancy
about seeing the Federal Reserve charged with continual opposition to
change.
Therefore, if a proposal could be made that would not endanger
the smaller banks, he would rather like to see it put forward.
This
would indicate that the Federal Reserve had ideas, even though it rightly
resisted some of the liberalizations that were proposed.
In summary, he
would make the first part of the letter one of strong opposition, but he
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would be inclined to put forward the suggestion contained in the last
paragraph of the draft letter.
After further discussion, Chairman Martin inquired if it would
not be appropriate just to oppose the present draft bill without going
further.
So far as a general principle was involved, it would seem to
apply to the smaller banks as well as the larger ones.
Governor Robertson indicated that he agreed with the Chairman in
terms of the principle involved.
His only thought had been that if there
was an existing problem, it was in the area of the ability of the smaller
banks to meet the credit needs of some of their customers.
He would not
argue strongly against a letter simply opposing the proposed bill.
It was then understood that a revised draft of letter along
such lines would be prepared for the Board's consideration.
The meeting then adjourned.
Secretary's Notes: Attached as Item No. 4
is a copy of a letter sent today to Chairman
Patman of the House Banking and Currency
Committee with further reference to the discussion at the Board meeting on June 25, 1963,
and the Board's letter to Chairman Patman
dated July 1, 19631 relating to applications
filed during 1961 with the Board of Governors
under the Bank Merger Act.
Pursuant to recommendations contained in
memoranda from appropriate individuals concerned, Governor Shepardson today approved
on behalf of the Board the following actions
relating to the Board's staff:
4
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Appointment
Glenn L. Hogle as Personnel Technician, Division of Personnel
Administration, with basic annual salary at the rate of $5,375, effective
the date of entrance upon duty.
Salary increases, effective July
7, 1963
Division of Administrative Services
Name and title
Basic annual salary
To
From
William F. Becker, Captain, Guard Force
Eugene E. Bishop, Guard
James R. Carnahan, Guard
Lloyd G. Luna, Guard
John H. McDonald, Guard
C. A. Noell, Guard
John M. Pope, Guard
Hiram J. Roush, Guard
Aubrey L. Simmons, Sergeant, Guard Force
David Sullivan, Guard
Herman Lee Tobler, Sergeant, Guard Force
Hubert G. Weems, Guard
Esmond C. Langley, Head Messenger
Frank A. Dean, Sr., Assistant Head Messenger
$5,545
3,875
4,58o
3,980
3,560
4,400
4,4040
4,505
4,810
4,610
4,950
3,665
4,705
3,455
Li
Secreta
$5,910
4,135
4,950
4,240
3,820
4,705
4,705
4,83o
5,205
4,83o
5,365
3,925
4,950
3,665
2199
Item No. 1
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BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, 0. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 31 1963
Board of Directors,
Holstein State Bank,
Holstein, Iowa.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by
Holstein State Bank, Holstein, Iowa of a branch
at Cushing, Iowa, provided the branch is established within six months from the date of this
letter.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
month extension
Board also had approved a six-,
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 90 1962 (s-1846)0 should be followed.)
BOARD OF GOVERNORS
Item No. 2
OF THE
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FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO TNE BOARD
July 3, 1963:
Board of Directors,
Bank of Idaho,
Boise, Idaho.
Gentlemen:
The Board of Governors of.the Federal
Reserve System approves the establishment of a
branch by Bank of Idaho, Boise, Idaho, in the
downtown business district of Lewiston, Idaho,
provided the branch is established within six
months from the date of this letter.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested, the
procedure prescribed in the Board's letter of
November 91 1962 (S-1846), should be followed.)
2201_
BOARD OF GOVERNORS
.....
',00FG01/4!•.
...sL
'
,2
Item No.
OF THE
FEDERAL RESERVE SYSTEM
•
•
•
3
7/3/63
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
(-)
.• „
••
••
••.•••
• • RE.S'
July
3, 1963
Manufacturers Hanover International Banking
Corporation,
44 Wail Street,
New York 15, New York.
Gentlemen:
In accordance with the request contained in your application
of May 22, 1963, transmitted through the Federal Reserve Bank of New York,
and on the basis of the information furnished, the Board of Governors
grants consent for Manufacturers Hanover International Banking Corporation
("MHIBC") to purchase and hold 84,000 ordinary shares, par value U each,
of Commercial Export Credit Company Limited ("CECCL"), London, England, at
a cost of approximately US$235,200 (equivalent), provided such stock is
acquired within one year from the date of this letter.
The Boardts consent is granted upon condition that MHIBC shall
dispose of its holding of stock of CECCL, as promptly as practicable, in
the event that CECCL should at any time (1) engage in issuing, underwriting,
selling or distributing securities in the United States; (2) engage in the
general business of buying or selling goods, wares, merchandise, or commodities in the United States or transact any business in the United States
except such as is incidental to its international or foreign business; or
(3) otherwise conduct its operations in a manner which, in the judgment of
the Board of Governors, causes the continued holdin of its stock by CECCL
to be inappropriate under the provisions of Section 25(a) of the Federal
Reserve Act or regulations thereunder.
The Board also grants its approval under Section 25(a) of the
Federal Reserve Act and § 211.9(d)(2) of Regulation K to the purchase and
holding of such shares.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
224)2
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
7/3/63
WASHINGTON
OFFICE OF THE CHAIRMAN
July 3, 1963
The Honorable Wright Patman,
Chairman,
Committee on Banking and Currency,
House of Representatives,
Washington 25, D. C.
Dear Mr. Chairman:
As you requested in your letter of July 2,
with the
copies of all applications filed during 1961
1960
of
Act
r
Board of Governors under the Bank Merge
.
staff
ttee
have been delivered today to your Commi
Because many of these applications are too
and bevoluminous to reproduce at reasonable cost,
al
Feder
the
cause the Comptroller of the Currency,
ney
Attor
Deposit Insurance Corporation, and the
al Reserve
General, as well as the appropriate Feder
staff the
your
to
Bank, have copies, we have delivered
y, it
dingl
Accor
.
only copies in the Board's files
copies
these
n
retur
would
would be appreciated if you
se.
purpo
your
d
serve
to the Board when they have
Sincerely yours,
Wm. McC. Martin, Jr.
\
4
@FedFRASER