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Minutes for To: Members of the Board From: Office of the Secretary June 10, 1959 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov, Balderston Gov. Shepardson Gov. King /\ )21_442 Minutes of the Board of Governors of the Federal Reserve System on Wednesday, June 10, 1959. PRESENT: Mr. Mt. Mt. Mt. Mt. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Szymczak Robertson Shepardson King Sherman, Secretary Kenyon, Assistant Secretary Riefler, Assistant to the Chairman Hackley, General Counsel Furth, Associate Adviser, Division of International Finance Mr. Hexter, Assistant General Counsel Mr. Hostrup, Assistant Director, Division of Examinations Mr. Benner, Assistant Director, Division of Examinations Mr. Hill, Assistant to the Secretary Miss Hart, Assistant Counsel Mr. Farrell, Legal Assistant Mr. Mr. Mr. Mr. Mr. Items circulated to the Board. The following items, which had been , circulated to the Board and copies of which are attached to these Minutes under the respective item numbers indicated, were approved 141allirrious1y: Item No. %1 tax certification with respect to General BancSt. Louis, Missouri. Letter to the Comptroller of the Currency recommending with respect to an application to organize a rietrablY °nal bank in Wheaton, Maryland. 1 -'8 COrPOratiOn, a ttel‘ to the Federal Reserve Bank of Chicago regarding rIZI " cli st bY F. S. Yantis & Company of Chicago for a on a situation under Regulation T. Letter ' Elyri 4''() The Lorain County Savings & Trust Company, at 11-81 01110, approving the establishment of a branch road and Williams Streets. 2 3 4 I) 44, 6/10/59 -2Amendment to Bretton Woods Agreements Act (Item No. date of June 5 . Under 8, 1959, the Bureau of the Budget requested the Board's vieIls on an enrolled enactment, S. 1094, to amend the Bretton Woods Agreements Act so as to increase the extent of United States particiPation in the International Monetary Fund and the International Bank for -e 1.0 construction and Development. A draft of reply to the Bureau, distributed to the Board with a memorandum from Mr. Young, Assistant C°11nse1l dated June 91 1959, recommended approval of this legislation by the President. The Board had reported favorably to the Bureau of the Budget by letter dated January 23, 1959, on a draft bill amending the Bretton Woods Agreement Act which in all substantial respects was the same as the Present enrolled enactment. The only substantial difference was that the dr aft bill authorized the Treasury to make such payments as necessary to c,, -ArY out certain commitments and the enrolled enactment specified a ma)ci mum dollar amount. Following a brief discussion, unanimous approval was given to the Proposed letter to the Bureau of the Budget, a copy of which is at tar"-Iled hereto as Item No. 5. Messrs. Furth and Farrell then withdrew from the meeting. Stock ac uisition under Bank Holding Company Act. There had been distributed to the Board two memoranda from the Division of Ic4Minati °ns dated May 29, 1959, and a memorandum from the Legal I.) 6/10/59 Division dated June 5, 1959, in connection with a joint application of Citizens and Southern National Bank and Citizens and Southern Holding C°mPanY, both of Savannah, Georgia, for prior approval, pursuant to section 3(a)(2) of the Bank Holding Company Act, of the acquisition °f 12-1/2 Per cent of the 20,000 outstanding shares of American National Ilsnk of Brunswick, Brunswick, Georgia. The joint application was sub- mitted because the outstanding shares of the holding company were trusteed for the benefit of the shareholders of the national bank, which was also a bank holding company. Mr. Hostrup commented on the facts of the case, as presented in the memoranda from the Division of Examinations. It was felt, he said, that although the acquisition of stock of American National would have the effect of extending the sphere of influence of the holding company sYstem, the transaction would not result in an undersirable competitive situation or have an adverse effect on the adequacy or soundness of b"king. The Comptroller of the Currency and the Federal Reserve Bank Of Atlanta recommended approval, and after considering the case in the lieht of the factors enumerated in section 3(c) of the Bank Holding C°mPany Act, the Division of Examinations likewise recommended favorable action. Mr. Hackley remarked that the significant feature of this case /las that all of the factors were almost entirely neutral. Certain ge benefits apparently would accrue to the personnel of American 6/10/59 -4- National Bank, but no definite advantages to the public interest would flow from the transaction. In summary, there was little to say on the favorable side or on the unfavorable side. He then cited certain earlier cases under the Bank Holding Company Act where no substantial benefits from the proposed transaction were to be seen, but where the 33°8 ' ' 1 6- approved the stock acquisition on the ground that it would not be inconsistent with the public interest. In the instant case, while the sphere of influence of the bank holding company system would be extended, American National technically would not become a subsidiary bank of the holding company system, and could not because of the proh ibition in Georgia State law. Therefore, the stock acquisition would not result in the elimination of an independent bank. Mr. Hexter said this brought squarely before the Board a case Ilhere no benefit would be gained by the community through consummation Of the stock acquisition. The question, therefore, was whether to /)erliait an independent bank to be brought within the sphere of influence or the holding company system. In this case, the Board would have to say in essence that a favorable decision rested on its opinion that it be in the public interest for American National to be brought vithin the sphere of influence of the holding company system despite the lack of affirmative factors such as improved service to the ec4millAnity. Mr. Hackley agreed that this case presented a real question of 131111° °Phical approach. The question was whether the Board would be t 6/10/59 Justified in approving an application when there VW no definite evidence of benefits accruing to the public from consummation of the proposed tr ansaction. Personally, he felt that approval would be warranted if the Board were to find that the transaction would not be inconsistent With the public interest. He did not feel that the Board must neces- sarilY deny an application in the absence of evidence of definite positive benefits. Mr. Hostrup concurred in this view, stating that he considered It qu estionable whether there must be an affirmative demonstration of belleftt to the public interest in order to justify approval. As long as there was no indication of damage to the public interest, he questioned whether the Board was required by law to step between a willing purchaser eald) as in this case, a rather anxious seller. Mr. Hackley said that this was the position he had always taken. BesPite the b ackground of the Act and suggestions to make it more severe, the -'"dual statute was phrased so as to give the Board complete discretion t° aPProve or disapprove after considering the factors stated in the law. There was nothing in the Act to suggest that the Board should ciellY an aPplication on the ground that the transaction would not defiilitelY further the public interest. Governors Robertson, King, and Szymczak indicated that they °lila favor approval of the application. Governor Shepardson noted that the case involved philosophical qllestions concerning the intent of the Bank Holding Company Act that 6/10/59 -6- the Board had discussed many times. In essence, these questions involved the action that should be taken on an application when, as in this instance, there was no strong evidence to support either aPProval or disapproval. On the basis of what Mr. Hackley had said, there did not seem to be any reason under the Holding Company Act why the Board should deny an application in such circumstances. Accordingly, he would favor approval of the current application. Governor Balderston said that his philosophical approach was sinlilar to that expressed by Mt. Hackley. However, he was concerned bout the consistency of the Board's position on matters of bank holding c°1111°821Y expansion, both intensive and extensive. In this particular case, the holding company was not in the community at the present time; In act, its nearest office was more than 60 miles away. In the Baystate case, the holding company already was represented in the community, and that factor had entered into his thinking on the matter. While he was 131'ePared to approve the current application in view of the several considerations mentioned, Citizens and Southern was enlarging its aPhere of influence by going into a community where it had not herebeen active. This posed a question, which would extend to future c48e5 , with respect to how far the Board wished to permit a bank holding comPany to extend its operations. After further discussion, during which it was noted, among other thinga, that Citizens and Southern would not be dominant in the Brunswick 6/10/59 -7- area following the stock acquisition and that the acquisition might tend to unite the other shareholders, it was understood that the Legal Division would prepare for the Board's consideration a notice of tentative decision approving the joint application and an appropriate supporting statement. Pan American Bank of Miami (Item No. 6). Governor Robertson reaa to the Board a letter he had received this morning from General Sterli-ng Wood of the Pan American Bank of Miami, Miami, Florida, equesting the Board's permission to release the last two examination ePorts of the bank to Glore, Forgan & Co. for review. 4401 Glore, Forgan South Dade Farms, parent company of Pan American, had been negoti- 4ting for the past several months regarding a public sale of stock of South Dade Farms, and the former considered it necessary to have 111°wleage of the opinion of the supervisory authorities regarding the n,-,, of assets held by the several banks in the group, including Pan. eriCan. Governor Robertson then suggested that the requested permission be granted, with the understanding that the reports would be used only t°r the purpose indicated. Question was raised whether a resolution of the board of ' d irectors of Pan American to release the reports should be required, 4/1a Governor Robertson expressed doubt whether it would be necessary 6/10/59 -8- to go beyond the request of General Wood, particularly since the Board I'las being asked only to interpose no objection to making the reports of examination available to Glare, Forgan for the specific purpose mentioned. While it was agreed that no legal necessity for requiring a resolution of the board of directors existed, there was some opinion to the effect that it 'would be desirable if such a resolution were adopted. In the circum- stances/ it was agreed that the reply to General Wood's letter should Point out that President Sottile might wish to obtain a resolution from the directors approving the release of the reports. The Board then authorized advising General Wood that in the circumstances described in his letter the Board would have no Objection to Permitting Glore, Forgan & Co. to see the March 31, 1958, and November 3, 1958 examination reports, with the understanding that the contents /?ciuld be held in strict confidence. A copy of the letter sent following the meeting to General Wood, with a copy to the Federal Reserve Bank of Atlarrt—, t'd is attached as Item No. 6. Correspondence regarding Regulations T and U. The Secretary l'eferred to certain correspondence from the New York Clearing House Association regarding the amendments to Regulation U which were to heco me effective June 15, 1959, and correspondence from the New York Stock Exchange regarding amendments to Regulation T which were to hee°111e effective the same date. It was stated that suggested replies 6/ 1 0/59 -9- 1i/ere being prepared for the Board's consideration. Accordingly, it 1148 agreed that these items would be considered by the Board on ?rid-1w, June 12. The members of the staff then withdrew and the Board vent into executive session. Leave with pay for Mr. Sammons. The Secretary was informed later by Governor Shepardson that during the executive session the arscl gave consideration to a memorandum dated June 3, 1959, from mr. Marget, Director, Division of International Finance, recommending that Robert L. Sammons, Associate Adviser in that Division, be Permitted to tAkft work at the Graduate School of Public Administration cd* Harvard University during the academic year 1959-60 under the terms of the Board's staff development program. Governor Shepardson 841/Ise& that the Board he/ approved leave with pay for Mr. Sammons or the Purpose mentioned in the memorandum, with the mderstanding that vw. Sammons' position would not be filled during the period of his Eibaence. The meeting then adjourned. Secretary's Note: During the day advice was received from the Federal Reserve Bank of San Francisco that the directors of that Bank had established, subject to the approval of the Board of Governors, a rate of 3-1/2 per cent 447, 6/10/59 -10(rather than 3 per cent) on discounts for and advances to member banks under sections 13 and 13a of the Federal Reserve Act, along with a rate of 4 per cent on advances under section 10(b). Other rates in the Bank's existing schedule were established without change. These rates being within the pattern approved by the Board on May 28, 1959, the San Francisco Bank was advised of their approval, effective June 11, 1959. All Reserve Banks and branches were notified by telegram, a press statement in the usual form was issued at 4:00 p.m. EDT, and arrangements were made for publication of a notice in the Federal Register. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON Item No. 1 6/10/59 CERTIFICATION Pursuant to section 1101(e)(1) of the Internal Revenue Code of 1 954, the Board of Governors of the Federal Reserve 4stem hereby certifies, to the best of its knowledge and belief, that, before the expiration of the period permitted under section 4(a) of the Act, General Bancshares Corporation (formerly General Contract Corporation), St. Louis, Missouri, a registered bank holding company, has disposed of all the property the disposition of which is necessary or appropriate to effectuate section 4 °t the Bank Holding Company Act of 1956. Executed in Washington, D. C., pursuant to direction of the_ "ara of Governors of the Federal Reserve System. (Signed) Merritt Sherman Merritt therm% • Secretary. tlatet June 10, 1959. (Seal) BOARD OF GOVERNORS ,,i14*S1q44, , OF THE 0% 9 .0 Item No. 2 6/10/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 44444 ' June 10, 1959. Comptroller of the Currency, Treasury Department, Washington 25, D. C. Attention Mr. IL M. Taylor, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated March 11, 1959, enclosing copies of an application to organize a national bank at Wheaton, Maryland, and requesting a recommendation as to whether or not the application should be approved. Information contained in a report of investiga!,1°n of the application made by an examiner for the tederal Reserve Bank of Richmond indicates generally favorable findings with respect to the factors usually considered in connection with such proposals. Accordin g--Y, the Board recommends favorable consideration of the application. The Board's Division of Examinations will be glad to discuss any aspects of this case with representof your office if you so desire. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF-THE. Item No. 3 FEDERAL RESERVE SYSTEM 6/10/59 WASHINGTON 25, D. C ADDRESS OFFICIAL CORRESPONDENCE TO rHE SOARD June 10, 1959 Mr 'Paul C. Hodge, Vice President, General Counsel and Secretary, Federal Reserve Bank of Chicago, Chicago 90, Illinois. 'near Mr. Hodge: ilis is in reply to your letter of April 24, 19, enclosing a request 1 ,.1y F. S. Yantis & Co. of Chicago, Illinois, for a ruling by the oard on a situation under Regulation T. F. S. Yantis & Co., a member firm of the Midwest Stock holds a substantial investment in Bunte Bros. Chase Candy VanY, Chicago, Illinois. In order to place operations of the ComPany on a more successful basis, Yantis & Co. has induced ,C.MacMillen, Jr., President of Colonial Trust Company, Ne )rk, and Mr. Richard A. Peterson to become directors of Bunte, wiii" izu the that their services will substantially aid in Proving the Company's prospects. As an element of this inducement, shrl a'ls Proposes to sell to Mr. MacMillen and Mr. Peterson 25,000 st„res each of the 6 per cent Convertible Cumulative Prior Preferred pu;ck, Series A, of Bunte, at a price of $5 per share. Each such amochase is to be financed by a demand note for $125,000, the full yal114.1 1t of the purchase price, given by each buyer and accepted by t. The notes are to be secured by the stock purchased. The a4usactions are to be effected through a Sales Agreement, a Proxy, a C ollateral Note, Exc hange t The Yantis Company contends that "this transaction does not rePr ' ese t n a customer-broker-dealer contract relationship in the trad Of R;ug of securities", and therefore is not subject to the provisions to • gV-ation T. "Customer" is defined in section 2 of Regulation T person "(1) to or for whom a creditor is extending or rriaint ude traric7'ning any credit." This definition is not restricted to brok-ac tions in which the creditor is acting in his capacity as a tho,er °r dealer. Rather, Regulation T would also be applicable in 'e situations in which the creditor has no connection with the t.a. It, Paul C. Hodge -2- .1‘ansaction except as a lender. It is sufficient for the application `!I Re gulation T in the present situation that Yantis, a "creditor" arj4scidefined in the regulation, is extending credit to Mr. MacMillen Peters, "customers" defined in the regulation, for the ) Purchasing securities. (f purZe As presented by Yantis, the facts would seem to indicate T applies to this situation. However, examination tne Sales Agreement, Proxy and Collateral Note, which were '• w,°rw.arded along with the request for a ruling, reveals other factors, ' colich were not urged in the request but which suggest a contrary opliClusion. Taken together, these three documents suggest an th 1" to purchase, rather than an outright sale. Immediately after bi !so-called "sale", the buyer is to return the shares, endorsed in paank, to the seller, and is not to regain them until he makes actual rnent on the note. Meanwhile, the seller is to vote the shares and secreceive dividends on them. The convertibility privileges of the : ho itY may not be exercised by the buyer prior to payment on the at In addition, the buyer is free to cancel the entire transaction rnada e% time prior to demand or within sixty days after demand is "r Payment on the note. tha t 15,_ j In most cases, any one or several of these factors would riot see a pur m to negate the apparent intention of the parties to create Of tl,chase and sale. However, where physical possession and control e„ ari "e securities remain in the seller, and the transaction may be .el'ed atill 4 by the buyer, it is difficult to avoid the conhat the buyer has received at most a purchase option. Re Although the purchase of an option is itself subject to the , atiOn T, there would appear to be no extension of credit in ' 1 esent case in connection with this option. Consideration for the' cn Would be the services rendered by Mr. MacMillen and ...,1sere rcon. In the event that any credit is extended upon the woeic ,,,e of the option, the margin requirements of the regulation wlen be applicable. Under the circumstances as presented, the transactions not result in an extension of credit in violation of Regulation 4' sact:"/cver, if there should be any material change in the relevant the p-0 : ),the matter should be closely re-examined with a view to le applicability of margin requirements. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 4 6/10/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, O. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 10 1959. Board of Directors, The Lorain County Savings & Trust Company, Elyria, Ohio. G entlemen: Pursuant to your request submitted through the Pederal Reserve Bank of Cleveland, the Board of Governors 8 !pproves the establishment of a branch by The Lorain County 47ings &Trust Company, at the northwest corner of Broad and 1411l18ms Streets, Elyria, Ohio, provided the branch is established within one year from the date of this letter 2_1(1 approval of the State authorities is effective as of "ne date the branch is established. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 5 FEDERAL RESERVE SYSTEM 6/10/59 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE ma TO THE BOARD W?* June 10, 1959. r. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Room Executive Office 253' Washington 25, D.Building, C. Attention: Dear Mr. Mrs. Garziglia hUgheS: This is in response to your communication of June 8, 1959, ?eclues Ere+, tlng a report on an enrolled enactment, S. 1094, to amend the ,tdon Woods Agreements Act. Czo.-ern This legislation would authorize the United States to °r of the International Monetary Fund to request and consent -Lncrease of a.375 billion in the United States quota of the *aolisiloauld also authorize the United States Governor of the 1 Bank for Reconstruction and Development to vote for behjease in the capital stock of the Bank and to subscribe on the °f the United States for additional shares of such stock in availatcnt of ,S3.175 billion. In addition, the amount of funds ollt +Is -ke to the .„e, Treasury to make the payments necessary to carry commitments would be increased from4.125 billion to aPprov on. These proposals have already received the tary aa4,- uf the National Advisory Council on International MonenLk Financial Problems. crease ,It is understood that 25 per cent of the proposed -1-r1 the United States quota of the Fund would be paid in , )re ri t%that the remainder would) in effect, be met for the : 1:°4gh 1 the issuance to the Fund of special non-interest-u-tigations the of the United States. It is also 't be , l subscription to the stock of the Bank would, understood in effect, ' alrable except as might become necessary. 1 Mr. hi , p S. Hughes Board tThe he President nds approval of this legislation by Very truly yours, (Signed) Nerritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 6 FEDERAL RESERVE SYSTEM 6/10/59 WASHINGTON 25. D. C. ADDRESS' OFFICIAL CORRESPONDENCE TO THE HOARD June 10, 1959 AIR MAIL General Sterling A. Wood, Assistant to the President, Sottile, 220 10 'an American Bank Building, Florida. Dear General Wood: This will acknowledge receipt of your letter of June 8, to Robertson, requesting permission of the Board 5 Governors for Glore, Forgan & Co. to review the last two exam14ation reports of the Pan American Bank of Mimi. These reports 0 ,examination were made by examiners of the Federal Reserve Bank -L Atlanta on March 31, 1958, and November 3, 19580 1959 Rose,— - As you know, reports of examination made by Federal nanks are the property of the Board of Governors and are to the bank examined for its confidential use. However, the c ircumstances of this case, the Board would have no objecpeZto Mr. James Sottile, Jr., President of the Pan American Bank, "tinE Glom, Forgan & Co. to see the two reports mentioned above woldd, with the understanding that the contents of the reports that be held in strict confidence. It is assumed, of course, 0, such action would be within his authority to act on behalf J. the Bank; and you may wish to obtain a resolution of the board °r directors at its next meeting approving such action. 1.11Shed L Very truly yours, L. Merritt Shermt, Secretary.
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