The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
116O9
Minutes for July
To:
Members of the Board
From:
Office of the Secretary
9, 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
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Minutes of the Board of Governors of the Federal Reserve
System on Thursday, July
9, 1964.
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
Daane
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Cardon, Legislative Counsel
Hackley, General Counsel
Farrell, Director, Division of Bank
Operations
Solomon, Director, Division of Examinations
Kakalec, Controller
Hexter, Assistant General Counsel
Shay, Assistant General Counsel
Hooff, Assistant General Counsel
Daniels, Assistant Director, Division
of Bank Operations
Bass, Assistant Controller
Young, Senior Attorney, Legal Division
Egertson, Supervisory Review Examiner,
Division of Examinations
White, Review Examiner, Division of
Examinations
The establishment without change by the Federal
Reserve Bank of Boston on July
6,
1964, of the rates on discounts and
advances in its existing schedule was approved unanimously, with the
understanding that appropriate advice would be sent to that Bank.
Circulated or distributed items.
The following items, copies
Of which are attached to these minutes under the respective item numbers
Indicated, were approved unanimously:
44
,t)
7/9 /64
-2Item No.
Letter to The Chase Manhattan Bank, New York, New York,
approving the establishment of a branch at 2771 Nostrand
Avenue, Borough of Brooklyn.
1
Letter to Bourbon-Agricultural Bank & Trust Company,
Paris, Kentucky, approving the establishment of a branch
on Lexington Road near the southwestern corporate limits
Of Paris.
2
Letter to The Bank of Albion, Albion, Michigan, approving
the establishment of a branch between 12754 and 12822 28
Mile Road, Sheridan Township, and stressing the need for
strengthening the bank's capital structure.
3
Letter to Mason State Bank, Mason, Michigan, approving the
establishment of a branch on Cedar Street.
4
Letters to Genesee Merchants Bank & Trust Co., Flint,
Michigan, approving the establishment of branches (1)
near the intersection of Dort Highway and Atherton
Road, and (2) at 807 Welch Boulevard.
5-6
Letter to The Pleasants County Bank, St. Marys, West
Virginia, regarding dividends declared and paid in 1963.
7
Letter to Lincoln National Bank, Philadelphia, PennsYlvanial granting its request for permission to maintain reduced reserves.
8
Letter to Peoples Trust & Savings Bank, Green Bay,
Wisconsin, granting an extension of time to withdraw
from membership in the Federal Reserve System.
9
Building program at New York.
There had been circulated a
Memorandum from the Division of Bank Operations dated June 29, 1964,
regarding the proposed building program at the Federal Reserve Bank of
New York.
The memorandum commented on an attached letter and studies
received from the Reserve Bank in support of the Bank's longer range
Projected space needs.
This information had been requested of the Bank
7/9 /61i.
-3-
pursuant to the understanding at the meeting on April 30, 1964, at
Which time the Board indicated that it would have no Objection to the
Bank's retention of a real estate agent to secure options on either
Of two sites across the street from the present Bank building looking
toward the construction of an addition.
However, certain questions
were raised by members of the Board regarding the Reserve Bank's projected space needs, and it was suggested that additional information
be secured and placed on record.
At the instance of Governor Daane there was a general discussion
of the trend of personnel requirements at Reserve Banks, based on the
New York projection for a rise in the number of employees from the
Present level of 3,700 to a level of 5,500 in 1990.
At the conclusion
of this discussion Governor Daane commented that there appeared to be
no need to pursue this question further at present.
However, if and
When the New York Bank's program reached the stage of proposed actual
construction of additional quarters, a further look might be taken at
this aspect of the matter.
Mr. Farrell observed, in this connection,
that if the total employment at the Bank went only to 4,200 or 41 300,
sPace available in the Bank and its present annex building would be
inadequate.
He also noted that it was estimated that the presently
available space would be adequate to meet the Bank's requirements for
about five years.
7/9/64
-4Governor Balderston commented on reasons why he felt that new
construction usually was preferable to the remodeling of existing
quarters when expansion was necessary, and Mr. Farrell pointed out that
in the case of the New York Bank expansion through alterations to the
Present building would present severe engineering problems.
Such a
possibility therefore had been discarded by the Bank.
It was noted that no action by the Board on the matter of the
New York building program was called for at this particular time.
Assessment to meet estimated Board expenses.
There had been
distributed a memorandum from the Office of the Controller dated July 6,
1964, recommending that an assesoment of .00314 of the total paid-in
capital and surplus of the Federal Reserve Banks as of June 30, 1964,
be levied upon the Banks to meet the estimated expenses of the Board for
the second half of 1964. Such an assessment would produce $4,720,886,
and the expenses of the Board were estimated at approximately $4,715,900.
The recommendation was approved unanimously.
Report on competitive factors (Poughkeepsie-Liberty, New York).
There had been distributed a draft of report to the Comptroller of the
Currency on the competitive factors involved in the proposed merger of
Community National Bank, Liberty, New York, with and into Marine Midland
National Bank of Southeastern New York, Poughkeepsie, New York.
The conclusion of the draft report contained a final sentence
expressing the view that the effect of the proposal on competition
0
4
t
%) 1f'
_5-
7/9/64
would be clearly adverse.
Governor Mills suggested the deletion of
this sentence, which he did not think was justified by the information
contained in the body of the proposed report.
He also expressed concern
that certain recent Board decisions and reports on proposals for expansion of the Marine Midland system might be construed as indicating
that the Board was seeking to freeze the holding company system in its
Present status.
This, he thought, would not be a proper attitude; there
might be circumstances that would justify expansion. In fact, he did
not think that the proposal under consideration today was really out
Of line.
Governor Deane supported Governor Mills' suggestion regarding
the report and went on to note that the last sentence in the conclusion
might be regarded as inconsistent with a statement in the body of the
report that competition in Sullivan County would be substantially
intensified as a result of the proposed merger.
It was then suggested that both of the sentences in question
be deleted, and this was agreed upon.
Governor Robertson, in stating
that he would not object to the two deletions, said he thought the effect
Of the proposed transaction on competition would be adverse, but that
the facts did not warrant concluding that the effect would be clearly
adverse.
Accordingly, the report was approved unanimously for transmittal to the Comptroller in a form in which the conclusion read as
follows:
AS
.•7
4.44)4
7/9/64
-6-
Community National Bank, Liberty, New York, and Marine
Midland National Bank of Southeastern New York, Poughkeepsie,
New York, serve different areas and there is virtually no
competition between them. While the proposal would not significantly alter Marine Midland National Bank's competitive
capabilities in the area in which it currently operates, it
would expand the geographical coverage of the banks in the
Third Banking District controlled by Marine Midland Corporation into another county and would subject the remaining small
banks of the county to the substantially greater competitive
capabilities of a much larger institution.
Report on competitive factors (Boise-Kendrick, Idaho).
There
had been distributed a draft of report to the Comptroller of the Currency
on the competitive factors involved in the proposed purchase of assets
and assumption of liabilities of The Farmers Bank, Kendrick, Idaho, by
First Security Bank of Idaho, N. A., Boise, Idaho.
The conclusion
indicated that the proposed transaction would eliminate little competition between the participants.
It would go on to point out, however,
that there existed a heavy degree of concentration of banking resources
in the State of Idaho, where the two largest banks operated over half
Of all the banking offices and held approximately two-thirds of all
deposits.
Any increase in concentration of banking resources in these
two banks must be considered as seriously adverse to the preservation
of banking competition.
Governor Daane observed that if the concentration of banking
resources in the hands of the two large banks should increase further,
this did not necessarily mean that there would not be keen banking
competition.
In fact, competition might be even more keen than if small
independent banks such as the Farmers Bank of Kendrick were preserved.
7/9/64
-7Governor Balderston commented that this type of question came
Up during a meeting that he and Mr. Solomon had had yesterday with
representatives of Camden (New Jersey) Trust Company regarding its application to merge with a smaller institution in Merchantville that
was recently denied by the Board.
It was one thing, Governor Balderston
suggested, to talk about banking concentration in Idaho; it was another
thing to talk about competition.
A couple of large banks, operating
in a situation of high concentration, might compete keenly.
Governor Mills Observed, however, that analysis of antitrust
literature showed beyond question that competition between giants in a
situation of duopoly or oligopoly typically leads sooner or later to
collusive practices, such as sharing of the market, that are contrary
to the public interest.
When there is a high degree of concentration,
as in banking, the public is foreclosed from the option of seeking
alternative sources of services or products.
Governor Balderston then said that in this particular case he
had thought that perhaps the question of the number of banking options
available to the public might be emphasized.
Governor Daane again inquired whether, in the prevailing circumstances, the preservation of a $3 million bank like Farmers of
Xendrick amounted realistically to the preservation of competition.
Re suggested that the language of the conclusion of the competitive
factor report might be softened somewhat by referring to the concentration
t
7/9/64
-8-
of banking resources, which concentration had serious implications with
respect to the outlook for competition.
Governor Mills, speaking from personal knowledge of the area
concerned, said that the two large banks in question had what amounted
to a throttlehold on banking business in the State of Idaho.
Unless
there were clearly discernible reasons why exceptions should be made,
the Board presumably would want to think twice before encouraging any
aggravation of the present situation.
He felt that the wording of the
conclusion of the competitive factor report was generally appropriate.
In further discussion Governor Daane mentioned that the main
Purpose of his questions had been to raise a philosophical point for
consideration over time.
As to the case now under consideration, he
would go along with a report in whatever form the other members of the
Board might find most appropriate.
Governor Shepardson then suggested that the conclusion of the
report be amended to read as follows:
While the proposed purchase of assets and assumption of
liabilities of The Farmers Bank, Kendrick, Idaho, by First
Security Bank of Idaho, N. A., Boise, Idaho, a subsidiary of
First Security Corporation, Salt Lake City, Utah, a registered
bank holding company, would eliminate little existing competition between participants, it would foreclose all potential
competition between them.
There exists a heavy degree of concentration of banking
resources in Idaho where the two largest banks operate over
half of all banking offices and hold approximately two-thirds
of all deposits held by banks in that State. Any increase in
concentration of banking resources in these two banks must be
considered as seriously adverse to the preservation of banking
competition.
f‘
7/9/64
Cif<10
..9...
There being agreement with this suggestion, the report was
aPproved unanimously in such form for transmittal to the Comptroller.
Application of State and Savings Bank, Monticello, Indiana.
There hail been distributed a memorandum from the Division of Examinations dated July 2, 1964, with regard to the application of State and
Savings Bank, Monticello, Indiana, for consent to merge with The Monon
Bank, Monon, Indiana.
The recommendation of the Federal Reserve Bank
Of Chicago was favorable, but the recommendation contained in the
memorandum from the Division of Examinations was unfavorable.
The
reasons for the unfavorable recommendation were amplified in a supplemental memorandum, also dated July 2, 1964, from Mr. McClintock,
Supervisory Review Examiner.
As described in the memoranda that had been distributed, the
Proposed merger involved two relatively small banks located in an
agricultural area in the north central part of Indiana.
The applicant
bank, located in Monticello, the seat of White County, was the largest
bank in the County.
Directors and officers of this bank, acting as
Individuals, had recently acquired 62 per cent of the stock of the Monon
Bank, which was located in a small community about 14 miles northwest
ct Monticello, for the stated purpose of merging the two banks.
Monticello Bank had deposits of about
deposits of about $2.7 million.
$8
The
million; the other bank had
Both banks were in sound condition
elld had adequate capital, good earnings, and satisfactory management.
4,001-01)
7/9/64
-10-
The Motion Bank was said to have only fair earnings prospects because
Of needed increases in salaries, but evidence indicated that such increases -would not be overly burdensome.
Both banks served the agri-
cultural area between them and, were it not for the common ownership,
competition would probably be regarded as moderate.
The convenience
and needs of the Motion area appeared to be reasonably well served at
Present and, since there was virtually no evidence of a significant
demand for expanded services and the larger loan limit of the applicant
bank, the proposed merger was regarded as offering little positive
benefit in this respect.
With respect to the effect of the proposal on competition, it
vas recognized that there might be differences of opinion as to what
constituted the relevant market area and as to the weight to be given
to the percentage of deposits of the relevant market to be acquired
by the applicant.
The application indicated that only
If so, the applicant held about
offered competition.
4 other banks
33 per cent of
the IPC deposits, and it would increase its share to 44 per cent if
Permitted to merge.
The Chicago Reserve Bank, however, felt that the
relevant market area was larger and would include at least three additional banks.
If these were included, the applicant's present holdings
IPC deposits would be about 21 per cent, and after the merger they
you'd be 28 per cent.
In addition to the concentration of deposits of
the area in the applicant bank, two directors of that bank were active
A.
,
7/9/64
-11-
in the management of the local building and loan association, which
had more than twice the volume of loans of the applicant.
It was regarded as difficult to determine the weight that should
be given to the effects of the proposal on competition, particularly
In view of the size of the banks involved, the nature of the market
area, and the unanimous adverse views of the other two bank supervisory
agencies and the Department of Justice in their reports on competition.
however, even if only moderate weight was given to the effects on competition, the banking factors were not regarded as offering sufficient
offsetting benefits.
There seemed to be little doubt but that the
applicant would significantly improve its competitive advantage over
the smaller banks in the area.
In discussing the application, Mr. Solomon noted that although
relatively small banks were involved the case had difficult aspects.
None of those in the Division of Examinations who had considered the
ease felt that it was crystal clear.
If the Board should be inclined
to turn down the application, it might want to consider offering an
oPportunity for oral presentation.
Mr. Solomon went on to discuss the question that had arisen
concerning the relevant market area in light of the application and
the comments of the Federal Reserve Bank of Chicago.
In any event,
however, he found some lack of realism in talking strongly about the
degree of concentration when such small aggregates were involved as
7/9/64
-12-
in this case.
He also potnted out that residents of nonon presently
had available a local bank and several alternative sources of banking
services in nearby localities.
If the merger should be consummated,
the number of alternatives would of course be reduced by one.
As an
Offset, consummation of the merger would provide a somewhat enlarged
loan limit.
A bank like the Monon Bank, with a loan limit of $15,000,
could hardly provide very effective service to its community; an increase in the loan limit to $50,000 probably would add to the convenience
Of available services in the locality.
As to the remaining banks in
the area, he pointed out that they were now competing with a bank having
$8 million of deposits.
After the merger they would have to compete
With an $11 million bank, but he did not see that this was going to
make a great deal of difference from their standpoint.
In summary, he
did not find nearly as much significance in the concentration figures
in a situation of this kind as in a case that involved a proposed
Merger of large banking institutions.
Mr. Solomon also referred to the existence of the rather large
savings and loan association in Monticello.
Since there were inter-
locking relationships between that association and the absorbing bank,
one might wonder how much competition existed between them, but in a
small town there were probably not too many people who could be called
14Pon to serve a financial institution effectively.
Therefore, there
might be some question as to how much weight should be given to the
interlocking relationships.
7/9/64
-13Another aspect of the proposal was that about
60 per cent of
the shares of the smaller bank were already owned by officers and
directors of the larger bank.
Reportedly, they had learned that the
smaller bank was on the market and were concerned that it might fall
into the hands of absentee ownership, which might not redound to the
best interests of the community.
It was possible, however, that the
greater motivation lay in the thought that the purchasing officers and
directors did not want the smaller bank to come under the ownership
of parties who would afford too much competition.
It was also argued in the application that management at the
smaller bank presented a problem, but Mr. Solomon did not feel that
this factor added a great deal of weight to the argument for approval
Of the application.
Management problems, he pointed out, are rather
common to banks of this sort.
similar problems.
Nearby banks probably had somewhat
It was hard to say that it was impossible for a
$3 million bank to obtain some kind of reasonably competent management.
In conclusion, Mr. Solomon repeated that even though this case
nlight be regarded as relatively unimportant, it seemed close and posed
a rather perplexing question. Some persons in the Division of Examinations were more inclined toward approval or disapproval than others;
he was a little more inclined than some others toward approval.
In
view of the small size of the banks concerned and the fact that the
banks were not in the same community, it might look rather strange, he
7/9/64
-14-
thought, if the Board were to turn down the application largely on the
basis of concentration.
The competitive factor reports, while essen-
tially adverse, were not strongly adverse.
They did not emphasize
competition between the institutions; rather they emphasized concentration.
There followed comments by Mr. Shay dealing with some of the
favorable and adverse aspects of the application in light of the points
that had been developed by Mr. Solomon, after which Mr. Hackley expressed
himself in support of the suggestion that if the Board was disposed to
consider denying the application it might want to offer the applicants
an opportunity for oral argument.
While this was not too important a
case, it was important to the banks involved.
After some further discussion of the question of the relevant
market area and of the question whether the circumstances suggested a
need for oral presentation, Governor Shepardson commented on what he
regarded as a rather important favorable factor.
White County was
l'ePorted to be basically an agricultural county engaged in cash grain
farming and cattle and hog feeding.
Experience showed that the credit
needs of that type of agriculture tended to run into fairly sizable
figures.
It would not appear that a $15,000 loan limit could take care
ef more than a small fraction of the loans required in that type of
farMing.
An enlargement of credit availability would therefore appear
to be of decided advantage to the Monon community.
Even if the Monon
4r1CIPSH
7/9/64
-15-
Bank were to merge with another bank of about the same size, the lending
limit of the resulting bank would hardly begin to meet the apparent
needs for credit in this kind of agricultural area.
Thus, Governor
Shepardson felt that a rather strong case could be made for approval
on the basis of community needs, even though the rather poorly prepared
application might not have developed this point adequately.
Chairman Martin then presented the question whether any members
Of the Board felt that there was need for an oral presentation, and
there were no indications to such effect.
There followed, at the instance of Governor Balderston, a discussion of the weight that should be given to the fact that the two
banks had recently come under common ownership.
Governor Daane inquired, in this connection, whether it appeared
that directors and officers of the Monticello Bank had gone out aggressively to purchase the stock of the Monon Bank or whether they did so
because the Motion Bank was known to be on the market, and Mr. Solomon
replied that apparently the latter circumstance was involved.
Mr.
Rackley suggested that consideration might be given to the fact that
those affiliated with the Monticello Bank did not buy the stock of the
Motion Bank for the purpose of eliminating substantial competition
between the two institutions.
The situation was somewhat different,
therefore, from one in which persons associated with a bank bought up
the stock of a strong competing bank.
4.)(-4.1
7/9/64
-16Chairman Martin then invited the views of the members of the
Board, and Governor Mills stated that he would approve the application.
As regards the purchase of stock of the Monon Bank, he noted that this
was not a factor required by statute to be considered.
He then pre-
sented the following statement:
In accordance with the statutory directive of the Bank
Merger Act of 1960, particular attention must be paid to whether
the effect of the transaction would be adverse to banking competition. However, the statute does not make the competitive
factor the final criterion for a decision, but also requires
consideration of other factors, including the convenience and
needs of the communities to be served. In this case, the
convenience and needs factor should outrank the competitive
factor in deciding the application. Viewed in this precedenceof-factors rating, the application should be approved.
It is recognized that the proposed merger would produce
a bank considerably larger than competing banking institutions
in both trade areas described in the staff memorandum. That
fact does not argue conclusively against approving the application, for various reasons. To begin with, a merged bank
controlling resources of around $11 millions is not a large
institution in any sense of the word, or one out of keeping
with the financial needs of a mixed agricultural and industrial area whose future growth can benefit from the advantages
of a bank sizable enough to largely meet its financial requirements. It is often said that no community can thrive
without commercial banking services and, by the same token,
community growth depends on adequate banking services, both
with respect to the size and management of a bank. Viewed in
this way, the proposed merger could stimulate the growth of
the communities to be served. In this connection, it is
noteworthy that the competing First National Bank of Monticello,
although smaller in size, is operated by capable and alert
management well able to afford a competitive element in the
local banking field. The smaller banks in the trade areas
described largely serve the local needs of their communities
and should not feel any oppressive competitive effect from the
Proposed merger, while at the same time they are in a position
42, kit)
kw*.
7/9/64
-17-
to offer reasonably accessible alternative banking services
throughout the entire competitive area involved.
The character of the proposed merged bank's business indicates a typical country bank's division of loans, as among real
estate loans, loans to farmers, instalment loans, and commercial
and industrial loans. Each of these kinds of loans should be
representative of borrowers requiring the services of a moderate
size bank, especially when taking into account the larger credit
needs incident to expanded agricultural properties and the
rising requirements of local industrial concerns. It is hard
to believe that a bank controlling approximately $11 millions
of deposits would have such dominating competitive characteristics as to exert an adverse effect on the financial climate
that would be contrary to the public interest. Experience has
shown that where a community profits from an adequately sized
commercial bank, though the particular commercial bank in question may be considerably larger than its competitors, the time
will come when community growth will either redound to the
competitive benefit of the smaller banks, or conceivably, the
commercial banking opportunities in the community will attract
investment to an entirely new competitive banking institution.
Approval of the proposed merger, in the light of the reasoning expressed, would not be perverse and contrary to the
public interest, even though there would be an elimination of
a competing banking unit and a sizable percentage of a trade
area's financial resources would fall under the control of a
single commercial bank. The over-all factor under consideration
is not competition per se, but market power. The market power
resulting from the proposed merger would not create a banking
institution of overwhelming dominance but, instead, would
strengthen the financial background of the total trade area
by developing a larger financial institution endowed with
sufficient resources to foster the potentials of the communities served along the lines of growth and prosperity.
All things considered, and particularly the status of
the communities to be served, the application should be approved.
Governor Robertson stated that he would approve the application
clespite some adverse factors.
One of these adverse factors was the degree
-18-
7/9/64
of concentration of deposits in the hands of the resulting bank.
If
a similar percentage of concentration of deposits existed in a case
Where larger institutions were involved, it would in his opinion argue
rather strongly against approval of the application.
Another adverse
factor was that the controlling stock of the Monon Bank had already
been purchased by persons affiliated with the Monticello Bank.
How-
ever, this was a case where the acquisition of stock was not for the
Purpose of aggressive expansion.
It was for the purpose of picking up
a bank that was on the market and was going to be sold to somebody.
Those affiliated with the Monticello Bank apparently felt that they
could take advantage of the situation and also provide better banking
services.
The presentation contained in the application was admittedly
Poor, but as Governor Robertson saw it this was a situation where the
Public needs and convenience could be better met if the proposed merger
were consummated.
There was enough evidence of prospective added con-
venience to the public, especially in view of the size of the community
concerned, to warrant approval.
Governor Shepardson stated that he would approve for the reasons
that he had expressed earlier.
Governor Daane said that despite the adverse factors he felt
that on balance the merger would be in the public interest.
he
would approve.
Therefore,
2392
-19-
7/9/64
Governor Balderston said that the argument presented by Governor
Shepardson had been convincing to him.
He noted also that the loan-
deposit ratio of the Monon Bank was only 35 per cent.
In his opinion
the favorable considerations found in the banking factors outweighed
the adverse elements of the competitive factor.
Therefore, he would
approve the application.
Chairman Martin stated that he also would approve.
Accordingly, the application was approved unanimously, with
the understanding that an order and statement reflecting this decision
would be drafted for the Board's consideration.
Messrs. Egertson and White then withdrew from the meeting.
Report on S. 2937 (Item No. 10).
There had been distributed
a memorandum from the Legal Division dated July 7, 1964, concerning a
request from Chairman Robertson of the Senate Banking and Currency
Committee for a report by the Board on S. 2937, a bill to authorize
checks to be drawn in favor of certain organizations for the credit of
a Person's account, under certain conditions.
The purpose of the bill,
Which had been introduced by Chairman Robertson at the request of the
Department of the Air Force, was to permit Government agencies to draw
Checks in favor of banking organizations for the credit of a person's
account.
The disbursing officer of a Government agency would be able
to draw a single check in favor of a bank for the total amount of comPensation due to employees of the agency who had designated such bank
'
if
2
7/9/64
-20-
as their depository.
The disbursing officer would transmit the check
to the bank and identify the amount to be credited to each employee's
account.
Such a system had been used by the Air Force for some years,
but it was questioned by the U. S. Comptroller General, who sanctioned
continuation of the practice only on condition that authorizing legislation be requested.
The memorandum concluded that the bill would not apply to the
Board.
It was noted that the Board had authority under section 10 of
the Federal Reserve Act to draw checks in the manner generally authorized
by the bill.
A draft of proposed reply to Chairman Robertson, which was
submitted with the memorandum, would refer to the Board's authority
Under section 10 of the Act.
It would go on to state that the Board
'would have no objection to the bill, the purpose of which appeared to
be to promote economy and efficiency in administration of the affairs
clf Government agencies.
Mr. Cardon suggested changes in the reply to eliminate reference
to the Board's authority under the law and to include reference to the
Possible effect of the bill in reducing check-handling costs of the
Pederal Reserve Banks.
Some question was raised by members of the Board as to whether
the saving in check-handling costs at the Reserve Banks as a result of
46.0Ption by Government agencies of the procedures authorized by the bill
7/9/64
-21-
would be likely to be particularly significant.
At the conclusion of
the discussion, however, unanimous approval was given to a letter to
Chairman Robertson in the form attached as Item No. 10.
Secretary's Note: A similar letter was sent
on July 10, 1964, to Chairman Dawson of the
House Committee on Government Operations in
reply to his request for a report on the companion bill H. R. 11911.
Messrs. Kakalec, Bass, and Young then withdrew from the meeting.
Later during the meeting Governor Daane noted that the Board
bad not specifically discussed the question raised in a memorandum from
the Board's Controller dated July
6,
1964, attached to the Legal Divi-
sion's memorandum, concerning whether the Air Force procedure should
be considered for use by the Board.
The Controller had expressed the
view that from the Board's standpoint there would not be a sufficient
advantage to warrant a change in the present procedure of issuing checks
to individual employees.
Governor Daane expressed the view, however,
that a procedure for depositing funds payable to employees at banks
designated by them might be of considerable advantage to such employees.
Bonus for coin deposited in savings account (Item No. 11).
temorandum from the Legal Division dated July
6,
A
1964, which had been
distributed, related that the Federal Reserve Bank of Philadelphia had
been informed that a national bank in Cape May, New Jersey, was adverti
-s-Lng that, due to the coin shortage, it would credit a depositor's
84ving3 account with $1.00 for each 98 cents in coin deposited from
0'01 `E
2
7/9/64
June
-22-
8 through
June 19, 1964.
This credit would be in addition to the
3-1/2 per cent interest paid by the bank on savings deposits.
The
advertisement had been protested by another national bank.
The Legal Division felt that, absent the coin shortage factor,
it would be difficult to escape the conclusion that the bonus should
be regarded as compensation for the use of funds constituting a deposit,
and therefore a payment of interest.
from doubt.
However, the answer was not free
The coin shortage could be considered the primary purpose
of the offer, and the attraction of deposits as incidental.
Attached to the memorandum were drafts of alternative paragraphs
that might be included in a reply to the Philadelphia Reserve Bank.
The
alternative paragraphs took opposite positions on whether the payment
of the bonus represented the payment of interest on deposits.
Subject to a modification of language suggested by Governor
Robertson, the alternative expressing the view that the payment of the
bonus did not constitute a payment of interest was favored by the Board
Accordingly, unanimous approval was given to a letter to the Federal
Reserve Bank of Philadelphia in the form attached as Item No. 11.
It
1./aa felt by the Board that the issuance of a public interpretation
be.sed on the conclusion expressed in the letter would not be warranted,
and similarly that copies of the letter to the Philadelphia Reserve Bank
tleed not be sent to the other Reserve Banks.
•
230(
)
7/9/64
-23Request for competitive factor reports.
Mr. Solomon reported
that when representatives of Camden Trust Company, Camden, New Jersey,
met with him and Governor Balderston yesterday to discuss the Board's
denial by order dated June 26, 1964, of the bank's application to merge
With Merchantville National Bank and Trust Company, Merchantville, New
Jersey, inquiry was made as to whether the trust company could be furnished copies of the competitive factor reports received by the Board
concerning the application.
A request also was male to see a copy of
the Board's report to the Comptroller of the Currency on the competitive
factors involved in the application of First Camden National Bank and
Trust Company, Camden, New Jersey, to merge with Cherry Hill National
Bank, Cherry Hill Township, New Jersey) which application was approved
by the Comptroller.
Compliance with the bank's requests was authorized, subject to
44Y appropriate clearance with the other Government agencies concerned.
The meeting then adjourned.
Secretary's Notes: On July 7, 1964, Governor
Shepardson approved on behalf of the Board the
recommendation contained in a memorandum from
Mr. Daniels, Assistant Director of the Division
of Bank Operations, dated July 6, 1964, that
Daniel E. Lucas of that Division be designated
as principal witness in connection with the
mutilation of facsimile signature plates used
by officers of the Federal Reserve Banks in
signing checks drawn by the Banks as fiscal
agents of the United States and that Dorothy
Werner continue to serve as alternate witness.
7/9/64
On July 8, 1964, Governor Shepardson approved
on behalf of the Board the following items:
Letter to the Federal Reserve Bank of New York (attached Item
No. 12) approving the appointment of eight employees as assistant
examiners.
Memoranda recommending the following actions relating to the
Board's staff:
APPointment
.
William E. Pegram as Messenger, Division of Administrative Services,
wath basic annual salary at the rate of $3,305, effective the date of
entrance upon duty.
Transfers
The following persons from the position of Clerk-Stenographer in
the Division of Personnel Administration to the position of Stenographer
the Division indicated, with no change in their respective salaries
at the rate of $3,880 per annum, effective July 8, 1964:
U1
Jacqueline L. Gilmore
Joyce A. Matile
Bernice Bell
Millicent R. Hudnall
Legal Division
Legal Division
Division of Examinations
Division of Examinations
Governor Shepardson today approved on
behalf of the Board the following items:
Letter to the Federal Reserve Bank of Dallas (attached Item No. 13)
aPProving the designation of four employees as special assistant examiners.
Memoranda recommending the transfer of the following persons from
position of Clerk-Stenographer in the Division of Personnel Administration to the positions indicated, with no change in their respective
salaries at the rate of $3,880 per annum, effective July 9, 1964:
the
Constance J. Cornelia, Stenographer,
Division of Examinations
Colleen Lindsay, Clerk-Stenographer,
Division of Bank Operations
V ,4 C
{
Secret
0398
Item No. 1
7/9/64
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDEN
CE
TO THE BOARD
July
9, 1964
Board of Directors,
The Chase Manhattan Bank,
New York, New York.
Gentlemen:
The Board of Governors of the
Federal
Reserve System approves the
establishment by The
Chase Manhattan Bank, New York,
New York, of a
branch at 2771 Nostrand Avenu
e, Borough of
Brooklyn, Kings County, New York,
provided the
branch is established within
one year from the
date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
2399
BOARD OF GOVERNORS
Item No. 2
7/9/64
...
OF THE
OV(.01,14..,.
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE
BOARD
July 9, 1964
Board of Directors,
Bourbon-Agricultural Bank &
Trust Company,
Paris, Kentucky.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by BourbonAgricultural Bank & Trust Company, Paris, Kentucky, of
a branch on Lexington Road near the southwestern
corporate limits of Paris, Kentucky, provided the branch
is established within one year from the date of this
letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch,
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
2400
Item No.
BOARD OF GOVERNORS
3
7/9/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 9, 1964
Board of Directors,
The Bank of Albion,
Albion, Michigan.
Gentlemen:
The Board of Governors of the Federal Reserve System
approves the establishment by The Bank of Albion, Albion,
Michigan, of a branch between 12754 and 12822 28 Mile Road,
Sheridan Township, Calhoun County, Michigan, provided the branch
is established within six months from the date of this letter.
Mr. Leland Ross, Vice President, Federal Reserve Bank
of Chicago, has forwarded to the Board of Governors a copy of a
letter dated June 8, 1964, from Mr. Charles N. Lentz, President,
The Bank of Albion, in response to Mr. Ross's letter of May 27,
1964, regarding your bank's need for additional capital. While
the capital structure of your bank is not satisfactory, this
branch is being approved in view of the convenience to be
provided for customers and Mr. Lentz's statement that consideration will be given to adopting appropriate measures to augment
the capital funds of the bank if capital ratios do not improve
between now and December 31, 1964, or between now and after
six months of branch operation. The Board wishes to stress
the need for strengthening capital structure of the bank as
rapidly as possible.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
Item No.
BOARD OF GOVERNORS
14.
7/9/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE SOARD
July
9, 1964
Board of Directors,
Mason State Bank,
Mason, Michigan.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Mason State Bank,
Mason, Michigan, of an in-town branch on the west side
of Cedar Street, about one block north of Curtis Street,
provided the branch is established within six months
from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period aflowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846)„ should be followed.)
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
7/9/64
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July
9, 1964.
Board of Directors,
Genesee Merchants Bank & Trust Co.,
Flint, Michigan.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by
Genesee Merchants Bank & Trust Co., Flint, Michigan,
of a branch near the intersection of Dort Highway
and Atherton Road in Flint, Michigan, provided the
branch is established within one year from the date
of this letter.
Very truly yours,
(Signed) Karl E. Bakke
• Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribe in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
BOARD OF GOVERNORS
.....
Item No.
OF THE
fr4,•
6
7/9/64
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 9, 1964
Board of Directors,
Genesee Merchants Bank & Trust Co.
Flint, Michigan.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by
Genesee Merchants Bank & Trust Co., Flint, Michigan,
of a branch at 807 Welch Boulevard in Flint, Michigan,
provided the branch is established within one year
from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (s-1846), should be followed.)
2404
BOARD OF GOVERNORS
Item No.
OF THE
FEDERAL RESERVE SYSTEM
7
7/9/64
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July
9, 1964.
Board of Directors,
The Pleasants County Bank,
St. Marys, West Virginia.
Gentlemen:
The Board of Governors of the Federal Reserve System
has received a copy of a letter from Mr. W. A. Patton, Executive
Vice President of The Pleasants County Bank regarding two dividends
totaling $6,000 which were declared and paid in 1963. The declarations of such dividends were in contravention of the provisions
of paragraph 6, Section 9,of the Federal Reserve Act and section
5199(b), United States Revised Statutes,as you were previously
informed by the Federal Reserve Bank of Richmond.
The statutes contemplate that prior approval by the
Board will be obtained before the declaration of dividends which
would exceed the limitations of section 5199(b), but prior
approval cannot be given for dividends which have already been
declared and paid. After consideration of the facts, however,
the Board does not object to the dividends declared and paid in
1963.
It is noted that net retained earnings for 1962 and 1963
resulted in a minus figure of $16,000 (plus $8,000 in 1962 and
minus $24,000 in 1963). Therefore, net profits for 1964 must
exceed $16,000 before any cash dividend may be paid without the
Prior approval of the Board of Governors.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2(10,3
BOARD OF GOVERNORS
Item No.
OF THE
FEDERAL RESERVE SYSTEM
8
7/9/64
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July
9, 1064.
Board of Directors,
Lincoln National Bank,
Philadelphia, Pennsylvania.
Gentlemen:
With reference to your request submitted through
the Federal Reserve Bank of Philadelphia, the Board of
Governors, acting under the provisions of Section 19 of
the Federal Reserve Act, grants permission to the Lincoln
National Bank to maintain the same reserves against deposits
as are required to be maintained by nonreserve city banks,
effective as of the date it opens for business.
Your attention is called to the fact that such
permission is subject to revocation by the Board of Governors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
4-N4
BOARD OF GOVERNORS
Item No.
OF THE
9
7/9/64
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDIRESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
July
9, 1964.
Board of Directors,
Peoples Trust & Savings Bank,
Green Bay, Wisconsin.
Gentlemen:
The Board of Governors of the Federal Reserve
System extends to August 28, 1964, the time within
which Peoples Trust & Savings Bank, Green Bay, Wisconsin,
may withdraw from membership in the Federal Reserve
System.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
Item No. 10
7/9/64
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN'
July 10, 1964.
The Honorable A. Willis Robertson, Chairman,
Senate Banking and Currency Committee,
U. S. Senate,
20510
Washington, D.C.
Dear Mr. Chairman:
This is in response to your request of June 24, 1964, for
a report on the bill, S. 2937, "To authorize checks to be drawn in
favor of certain organizations for the credit of a person's account,
under certain conditions." It is understood that the bill was
introduced at the request of the Department of the Air Force and that
its purpose is to permit Government agencies to draw a single check
in favor of banking organizations for the credit of the accounts of
Persons who regularly receive Government checks.
The Board recommends favorable consideration of the bill.
It gives promise of promoting economy and efficiency of operations,
at least in the case of the larger Government departments and agencies.
In addition, to the extent that they elect to utilize this authority,
tt will reduce the number of checks presented to the Federal Reserve
links for collection, thereby possibly cutting operating costs of
the Reserve Banks.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
WM. McC, Martin, Jr.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 11
7/9/64
WASHINGTON, D. C. 20551
ADDRESS OVFICIAL CORRESPONDENCE
TO THE BOARD
July 9, 1964.
Mr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania. 19101
Dear Mr. Campbell:
This refers to your letter of June 11, 1964, with respect
to the offer by a national bank of a bonus of 2 cents for each
98 cents in coin deposited in a savings account.
Banks in many areas have been buying coins, because of
the current shortage, and this practice does not appear to be
Prohibited by any provision of Federal law. The offer to buy only
from savings depositors, by crediting a bonus equal to a definite
Percentage of the amount deposited, presents the further question
Whether the bank is, in fact, paying interest at a greater rate
than is permitted by Regulation Q when such depositors will also
receive interest at the maximum rate of 3-1/2 per cent on the
d eposits. However, the Board has concluded that, as long as the
coin shortage continues, and the bonus is of nominal amount, this
offer should be viewed more as a method of acquiring needed coin
than as compensation for the use of funds constituting a deposit,
and therefore is not the payment of interest on a deposit.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 12
7/9/64
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE C30ARD
July 9, 1964.
Mr. Howard D. Crosse, Vice President,
Federal Reserve Bank of New York,
New York, New York.
10045
Dear Mr. Crosse:
In accordance with the request contained in Mr. Bilby's
letter of July 1, 1964, the Board approves the appointment of
the following employees as assistant examiners for the Federal
Reserve Bank of New York:
James C. McKenna
Corbett J. Monica
David W. Parmelee
Robert F. Rose
Bruce D. Brereton
James B. Crawford
Jerome P. Foley
Bruce E. Leinster
Please advise the effective dates of the appointments.
It is noted that Mr. McKenna is indebted to The St.
Lawrence County National Bank, Canton, New York. Accordingly,
the Board's approval of Mr. McKenna's appointment is given with
the understanding that he will not participate in any examination
of that bank until his indebtedness has been liquidated. It is
noted also that Mr. McKenna owns 16 shares of common stock of
The National Bank of Northern New York, Watertown, New York,
which he will sell prior to his employment by your Bank.
Very truly yours,
CAct- (LI
aile ice eict2
Elizabeth L. Carmichael,
Assistant Secretary.
Item No. 13
BOARD OF GOVERNORS
7/9/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO TI-4E (WARD
July 9, 1964.
Mr. Thomas R. Sullivan, Vice President,
Federal Reserve Bank of Dallas,
Dallas, Texas. 75222
Dear Mr. Sullivan:
In accordance with the request contained in
your letter of July 20 19640 the Board approves the
designation of the following employees as special assistant examiners for the Federal Reserve Bank of Dallas
for the purpose of participating in examinations of
Southern Arizona Bank Sc Trust Company, Tucson, Arizona:
James T. Johnson
Frank R. Litton
James 0. Broyles
Richard W. Hampton
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER