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Minutes for To: Members of the Board From: Office of the Secretary June 12, 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. A Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov, Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System on Friday, June 12, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Szymczak Robertson Shepardson Sherman, Secretary Kenyon, Assistant Secretary Hackley, General Counsel Farrell, Director, Division of Bank Operations Mr. Hostrup, Assistant Director, Division of Examinations Mr. Benner, Assistant Director, Division of Examinations Mr. Smith, Assistant Director, Division of Examinations Mr. Daniels, Assistant Director, Division of Bank Operations Mr. Hill, Assistant to the Secretary Mr. Hooff, Assistant Counsel Miss Hart, Assistant Counsel Mr. Farrell, Legal Assistant Mr. Mr. Mr. Mr. Discount rates ?ederal Reserve Bank The establishment without change by the of Kansas City on June 10, and by the Federal Reserve Banks of New York, Atlanta, Chicago, St. Louis, and Dallas On June 11, 1959, of the rates on discounts and advances in their existing schedules was approved unanimously, with the understanding that -PPropriate advice would be sent to those Banks. Items circulated to the Board. been The following items, which had eil'eulated to the Board and copies of which are attached to these 1111114+under the respective item numbers indicated, were approved Ilnanixously: 6/12/59 -2Item No. 1,7tter to The Merchants National Bank of Manchester, Manchester, New Hampshire, granting its supplemental a pplication for fiduciary powers. 1 Letter to The Chase Manhattan Bank, New York, New 1Y0rk approving the establishment of a branch at 023 Second Avenue, Brooklyn, New York. 2 Letter to the Manufacturers Trust Company, New York, New York, at 1180 approving the establishment of a branch Third Avenue. 3 Letter to the Security Trust Company of Rochester, Rochester, New York, approving the establishment °I* a branch at 1 East Main Street, Wolcott, New ;York, incident to its merger with The First National Joank of Wolcott. 11- ';Iitter to The Central Tryst Company, Cincinnati, (3) approving the establishment of a branch at 'emPer and Princeton Roads in Springfield Township. 5 Letter to The Richland Trust Company, Mansfield, lio) approving the establishment of a branch at rark Avenue West and Marion Avenue. 6 tter to the Wachovia Bank and Trust Company, ,11,118ton-Salem, North Carolina, granting an extension -- time to establish a branch in High Point. 7 Letter to he Fordyce Bank & Trust Co., Fordyce, kansaet ex , granting its request for permission to ercise certain fiduciary powers. Letter to the Federal Reserve Bank of San Francisco ! al ou ' cling purchase by a bank holding company of its —4 common stock. 8 T I.:ter to the Federal Reserve Bank of Chicago approving a,: Paynent of salaries to the Bank's electricians -" PlUmber at specified rates. 9 10 6 / 12/59 -3Item No. Telegram to the Federal Reserve Bank of Kansas City authorizing the preparation of detailed plans and spe cifications for an addition to and alterations Of the Oklahoma City Branch building. In connection with Item No. 11 11 Mr. Farrell drew to the Board's attention that the architect's plans for the addition to the Oklahoma City Branch building provided for the integration of an existing parking garage into the structure. He commented that the proposal had been reviel4ed by the Board's Consulting Architect, Mr. Witherell, who interPosed no objection. APplication to organize a national bank. The Comptroller of the , (N., tArrenc— had requested the Board's recommendation regarding an aPPlication to organize a national bank in Cheyenne, Wyoming. The Isel)c)rt of investigation subsequently made by an examiner for the Federal Reserve Bank of Kansas City indicated that favorable consideration cola, u be given to the establishment of the proposed bank. However, it had developed that the permanent quarters proposed to be occupied by the ba111, might not be available until as late as January 1962, and the °Pening of the bank in temporary quarters was not believed by the Reser "Bank to be justified. The Division of Examinations concurred the re commendation of the Reserve Bank that the application be hei tn abeYance until quarters for the bank were more readily available. 6/12/59 Because of the favorable aspects of the application, the view lolts expressed by Governor Robertson that it would seem appropriate, on the basis of the available information, to recommend granting the aPPlication if arrangements were made for suitable temporary banking quart rs. There being general acceptance of this view, it was agreed that in accordance with the customary procedure, the matter would be discussed with the Federal Reserve Bank of Kansas City, after which it 1413111d be brought before the Board for further consideration. Messrs. Young, Director, and Brill, Chief, Capital Markets Secti°n, Division of Research and Statistics, entered the room at this 13c)int and Messrs. Farrell (of Bank Operations), Daniels, and Hooff Letter to Congressman_Patman (Item No. 12). In a letter dated 'lune 3, 1959, Congressman Patman requested information with respect to Outstanding shares of Federal Reserve Bank stock issued prior to March 28) 1942. A draft of reply, which had been distributed to the Board, 8118%iersd Mr. Patman's questions on the basis of information obtained fre'm the Reserve Banks, including information as to procedures followed the issuance of Federal Reserve Bank stock certificates. The proposed l'ePIY Pointed out that the question whether dividends on such stock Iler'e taxable was one for determination by the Internal Revenue Service. During a discussion it was noted, with regard to stock issued Prior to March 28, 1942, that the Board had recommended in 1956, in 6/12/59 -5- connection with consideration of the Financial Institutions Act, that the exemption of dividends thereon from taxation be repealed. There 14as agreement that it would be appropriate to include such a comment in the letter to Mr. Patman. After an additional change in the draft also had been agreed uP°11) unanimous approval given to a letter to Mr. Patman in a form ✓eflecting the discussion at this meeting. A copy of the letter sent Pursuant to this action is attached hereto as Item No. 12. Suggested amendment to Regulation U (Item No. 13). The Federal Reserve Bank of New York, under date of June 2, 1959, transmitted to theBoard a letter from the New York Clearing House dated May 27, 1959, ogether with supporting memoranda, in reference to several aspects of the Bo—, oxats amendments to Regulation U which were to become effective julle 15) 1959. The Clearing House, on behalf of certain associated banks ) first requested the Board to reconsider the amendment to section 221 ' 1(e) of the Regulation which narrowed the right of borrowers to 8uhsti+-...uve other collateral for collateral securing a restricted bank loan. The Clearing House also submitted several interpretations of P°14ts arie _ rising under the June 15 amendments, along with a suggested form Of PUrn -"e statement which would be filled in by the borrower and Si bY both the borrower and the lending officer. There had been distributed to the Board a memorandum from Miss rt d Mr. Brill dated June 9, 1959, analyzing and commenting on the 6/12/59 -6- Clearing House proposals. The effect of the proposed amendment to section 221.1(c), it was pointed out, would be to restore an unlimited rIght to substitute collateral of equal value for collateral securing an un dermargined account, and to this extent the proposal would restore the situation existing prior to the adoption of the current amendments t° Regulation U. It was recommended that this proposed change be reiected on the ground that it had been in part rendered superfluous by the Board's interpretation of May 29, 1959, and also that it would tend to Perpetuate conditions which the current amendments were intended t° correct. No objection was found to four of the six interpretations °f various provisions of the amendments to Regulation U; as to these, 'was recommended that the Board merely indicate general approval. however, appeared to contain erroneous or misleading statements, 111)13n which it was thought that the Board might wish to comment. With e6ard to the purpose statement form, it was recommended that the SOar again emphasize that no form filled in by a borrower could be adequate substitute for diligent investigation of the circumstances °f a loan by the lending officer. A draft of reply to the Federal 11"erve Bank of New York along these lines was submitted with the nleItt'ralldins) and a revised draft had been distributed this morning prior to the meeting. In response to a question regarding the May 29 interpretation regarA, ' 41ng the substitution of collateral securing a restricted bank loan, 6/12/59 -7 Miss Hart and Mr. Brill said it was their understanding that the Clearing H°48e was aware of the interpretation prior to the time its letter was forwarded to the Board by the New York Bank, but nevertheless wished to have the matter presented to the Board. As their memorandum indicated, Miss Hart and Mr. Brill felt that the interpretation eliminated the PrinotPal argument in favor of the proposal by explaining that borrowers fr°111 banks and customers of brokers were on equal ground in their abilitY to substitute collateral. However, the Clearing House apparently Idahed to present the full scope of its arguments. After further discussion, unanimous approval was given to the Ilr°Posad letter to the Federal Reserve Bank of New York, a copy of which " /1 1-d be enclosed for transmittal to the Clearing House Association. A e°PY of the letter sent pursuant to this action is attached hereto as Item N Secretary's Note: The fourth paragraph of the second page of the letter, in the form attached, includes a clause added at the end of the paragraph for clarification at the suggestion of the New York Reserve Bank. Suggested amendment to Regulation T (Item No. 14). The Nev. y °I* Stock Exchange, in a letter dated June 9, 1959, urged the 13(3ard, to adopt a clarifying amendment to Regulation T, as that Regulation 11°111(1 become effective June 15, 1959, to eliminate a difference of treatment between the covering of a "short" position in a restricted "c°1-Ult and the close-out of a "long" position. The letter also asked 6/12/59 -8- an interpretation of section 3(g) which would provide an exception tO the effective date of the amendments for customers who had established 1°11g and short positions in the same stock in a restricted margin account Prior to June 15, 1959. There had been distributed to the Board a memorandum from Mr. Brill and Mrs. Ulrey dated June 11, 1959, setting forth illustrations Of the problems involved in equitable treatment of short positions together vith a draft of reply to the Stock Exchange which indicated that the B°ard vas aware of those problems as well as of the technical difficulties tXl arri - at a ving more equitable and operationally- practical solution. The letter went on to say that the Board did not think it advisable to adopt the suggested changes or to issue the requested interpretation. Mr. Brill commented on the difficulties involved in developing a to for treatment of short positions that would be both equitable and Practical from an operating standpoint without at the same time leteating the purpose of the current amendments to Regulation T. He "ed, however, that the matter would continue to be studied. Unanimous approval then was given to the proposed letter to the New y ork Stock Exchange, with the understanding that a copy would be sent t, the Federal Reserve Bank of New York. A copy is attached as Messrs. Brill and Donald Farrell then withdrew from the meeting, 48 did Mies Hart, and Mr. Boothe, Admimistrator, Office of Defense Loans, ered the room. 6/12/59 -9V-loan matter (Item No. 15). With further reference to cor respondence over an extended period with Mr. Eugene B. Crowe of St. Louis, Missouri, concerning the scope of the Board's authority with regard to the V-loan program and the alleged mishandling of a V-loan by the Federal Reserve Bank of St. Louis, there had been distributed to the Board a draft of reply to Mr. Crowe's letter of June 8, 1959, in response to the Board's letter of May 19, 1959, Wherein the Board offered to have a member of its staff meet with Mr. Crowe in St, Lcmia to receive such statements as he might care to make. The cil ' art now before the Board would indicate how the arrangements were to be made for the meeting. Discussion of the matter resulted in agreement that (1) the letter to Mr. Crowe should be in the form attached as Item No. 15, (2) the Board's principal representative should be Mr. Smith, Assistant tire ctor of the Division of Examinations, (3) Mr. Smith should be aceompanied by a member of the Board's legal staff, tentatively Mr. 14alter H. young, and (4) prior to the meeting with Mr. Crowe. the Board's repre sentatives should visit the Federal Reserve Bank of St. Louis and relriev the file on the case, including letters that Mr. Crowe indicated he had placed on record with the Bank. In this connection, Governor Balderston noted that he had talked by telePhone with First Vice President Freutel of the St. Louis Reserve Ikhk before the Board's letter of May 19, 1959, was sent to Mr. Crowe 411(1 that a copy of the letter was sent to the Reserve Bank. 6/12/59 -10Messrs. Boothe, Hostrup, Smith, and Hill then withdrew and Mr. Thomas, Economic Adviser to the Board, entered the room. Hearings before Ways and Means Committee. Chairman Martin, there At the instance of as discussion of an informal character concerning the Progress of the hearings before the House Ways and Means Committee with regard to the Administration proposals to increase the national debt limit, remove the interest rate limitation on Treasury bonds, and increase the interest rates payable on United States savings bonds. Attent ion centered particularly on the testimony given before the Commit tee by Dr. Gerhard Colm and Congressman Henry Reuss which envisaged de claration by the Congress that the proposed removal of the interest ate ceiling on Government bonds would be the basis for action to increase the cost of Treasury borrowing and that the Federal Reserve SYstem, in the course of normal open market operations, should adjust its activities in such a way as to give as much support as possible to the f4 4-"ancing of the Government debt. This implied abandonment of the nbiais Only" policy and more flexible use of the reserve requirement &net ent to adjust the total amount of credit to the prevailing omic s ituation at any time. P°11°w1ng a suggestion by the Chairman to Mr. Hackley that it be a ' dvisable to study the Board's legal position in the event of EICI°P tiOri -'by the Congress of a resolution to the effect indicated by the 6/12/59 -11- te stimony, several suggestions were made as to how the points raised by Messrs. Colm and Reuss might be dealt with most effectively in further appearances by the Chairman before the Ways and Means Committee. One ) c f the suggestions took the form of a draft of possible statement read by Governor Balderston. At the conclusion of the discussion, Messrs. Thomas and Young were requested to accumulate such material as they might consider helpfUl, including data of an historical nature indicating the results of following a course such as suggested by the testimony C)f Messrs. Colm and Reuss. Study of tax and loan accounts. Chairman Martin reported having received information that the Treasury was to undertake, at the request "the Comptroller General, a study of the cost to commercial banks "Performing certain services for the Government, with a view to deternItning the equity of allowing such banks to hold balances in tax alid loan accounts without payment of interest thereon, and that the Treas , ' rY had expressed a desire to have Federal Reserve assistance in this study. Following a brief discussion, it was agreed that Mr. Farrell, Director of the Division of Bank Operations, should be designated to c°"er with the Treasury on this matter, and Governor Robertson was l'ecillested to discuss the subject with Mr. Farrell. The meeting then adjourned. 6/12/59 -12Secretary's Notes: Advice was received yesterday from the Federal Reserve Banks of Cleveland and Richmond that the directors of those Banks had established, subject to the approval of the Board of Governors, a rate of 3-1/2 per cent (rather than 3 per cent) on discounts for and advances to member banks under sections l and 13a of the Federal Reserve Act, along with a rate of 4 per cent on advances under section 10(b). The Cleveland directors also established a rate of 4-1/2 per cent on advances under the last paragraph of section 13 and a range of 4-1/2 per cent to 6 per cent on advances to industrial or commercial businesses under section 13b, including advances made in participation with other financing institutions. Other rates in the Banks' existing schedules were established without change. These rates being within the pattern approved by the Board on May 28, 1959, the Cleveland and Richmond Banks were advised of their approval, effective June 12, 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. Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board increases in the basic annual salaries of the following persons on the Board's staff, effective June 14, 1959: Name and Title Division Basic annual salary From To Legal Division Patricia D. Kevilly, Stenographer Research and Statistics RebA n ' arriet Driver, Statistical Assistant_ Dee Litoff, Clerk-Stenographer n title from Statistical Clerk. $3,755 $3,850 4,790 3,850 4,94o 3,945 6/12/5 9 -13- .....114.11111Lincreases effective June 14, 1959 (cont) 112.Ta_nd Title Division Basic annual salary From To Research and Statistics Mary B. McKee, Clerk-Stenographer uoyce Ann Meyer, Clerk-Stenographer Wilellyn Morelle, Economist Nell T. Postles, Librarian MarY Ann Shuler, Clerk-Stenographer Prances D. Skehan, Statistical Clerk C* tavon Watson, 14 Statistical Assistant: $3,755 4,040 6,735 14,6140 4,040 4,o4o 4,325 $3,850 4,135 6,885 4,790 4,135 4,135 14,1490 4,980 3,850 4,135 5,130 3,945 4,230 14,9140 3,755 5,090 3,850 3,755 4,o4o 3,850 4,135 4,135 4,340 5,240 Bank Operations Charles W. Bryson, Analyst Mary Teresa Johnson, Clerk-Stenographer Barbara J. Wrenn, Statistical Clerk Examinations j°414 E. P. Carney, Assistant Federal Reserve E xaminer Patricia A. Di Ambrosio, Stenographer Personnel Administration Margaret C. Goodall, Clerk-Stenographer Sada Ann Weitzell, Clerk-Stenographer Administrative Services Joall J. r C. Bell, Utility Clerk Chaqrk , Eell, Supervisor, Motor Transport Unit sve 8 z. Evans, Messenger 11 E. Johnson, Inspector-Foreman chard J. Michel, laborer .1/ Change in title from Statistical Clerk. 5,090 3,055 5,730 3,245 3,150 5,880 3,340 6 59 -l4Governor Shepardson also approved today on behalf of the Board a letter to the Federal Reserve Bank of Richmond (attached Item No. 16) approving the appointmentsof Robert L. Cummings and William C. Smith as assistant examiners. On June 11, 1959, Governor Shepardson approved on behalf of the Board a letter to the Federal Reserve Bank of San Francisco (attached Item No. 17) relating to the appointment of William J. Zunkel as assistant examiner, 'which was approved on May 29, 1959. BOARD OF GOVERNORS OF THE Item No. 1 6/12/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959 Board of Directors, The Merchants National Bank of Manchester, Manchester, New Hampshire. uentieno nt The Board of Governors of the Federal Reserve System has Dri pa„rven consideration to your supplemental application re';'LLng fiduciary powers and has added the powers of executor, lnee, and receiver to the record of the specific capacities vij erc?" YOur bank is authorized to exercise. Authority to exgenlse these specific fiduciary powers was contained in the a_reral authority granted the bank on July 9, 7_925, to act "in ip.other fiduciary capacity in which State banks, trust comes, or any other corporations which come into competition to thnational banks are permitted to act" and are in addition 3Pecific powers granted your bank on August 26, 1919, to a cu as trustee and registrar of stocks and bonds. 4 A formal certificate indicating the various fiduciary Powers aut, ,whch i The Merchants National Bank of Manchester is " 1-ze d to exercise will be forwarded to you in due course. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 2 6/12/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959 Board of Directors, The Chase Manhattan Bank, New York, New York. Ge ntlemen: Feder Pursuant to your request submitted through the al Reserve Bank of New York, the Board of Governors ape establishment of a branch at 4023 Second Avenue, NT)klYn, New York, by The Chase Manhattan Bank, New York, tM. !°rk This approval is given provided the branch is esZJash within one year from the date of this letter and theT aPproval of State authorities is effective at the time ranch is established. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 3 FEDERAL RESERVE SYSTEM 6/12/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959 Board of Directors, Manufacturers Trust Company, New York, New York. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors approves the establishment of a branch at 1180 Third Avenue, New York, New York, by Manufactu rers Trust Company, New York, New York. This approval is given provided the branch is established within one year from the date of this letter and formal approval of State authorities is effective at the time the branch is established. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 4 FEDERAL RESERVE SYSTEM 6/12/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959 Board of Directors, Security Trust Company of Rochester, Rochester, New York. Ghentlemen : Pursuant to your request submitted through the Federal Re serve Bank of New York, the Board of Governors ' Dil.„. the Federal Reserve System hereby approves the estabshli , 1 11t of a branch at 1 East Main Street, Wolcott, New York, ,r_Security Trust Company of Rochester, Rochester, New York. "Ils approval is given, provided: ; The merger with The First National Bank of Wolcott, Wolcott, New York, is effected substantially in accordance with the agreement of merger dated March 5, 1959; The branch is established within six months from the date of this letter; Shares of stock acquired from dissenting stockholders are disposed of within six months from the date of acquisition; and Formal approval of State authorities is Obtained. Very truly yours, (Si(ned) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 5 6/12/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959 Board of Directors, The Central Trust Company, Cincinnati 1, Ohio. Ge ntlemen: Pursuant to your request submitted through the Of th -eserve Bank of Cleveland, the Board of Governors a e Federal Reserve System approves the establishment of s,f:anch at the intersection of Kemper and Princeton Roads, T;;Ingfield Township, Hamilton County, Ohio, by The Central °nest ComPany, provided the branch is established within Year from the date of this letter and approval of the men'e authorities is in effect as of the date of the establishthe branch. Federal P Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 000;0*, OF THE '41 sl Item No. 6 FEDERAL RESERVE SYSTEM 6/12/59 WASHINGTON 25. D. C. Mi ; ADDRESS OFFICIAL CORRESPONDENCE ';•11 TO THE BOARD trs June 12, 1959 Board of Directors, The Richland Trust Company, Mansfield, Ohio. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Cleveland, the Board of Governors of the Federal Reserve System approves the establishment by The Richland Trust Company of a branch at the intersection of Park Avenue West and lv.farion Avenue, Mansfield, Ohio, provided the branch ls established athin one year from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 7 FEDERAL RESERVE SYSTEM 6/12/59 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE 0,4L TO THE UOARD -40400- June 121 1959 ! 3°ard 0 f Directors, 4achovia Bank and Trust Company, Wins ton-Salem, North Carolina. Ge ntlemen: Rese Pursuant to your request submitted through the Federal A rve Bank of Richmond, the Board of Governors extends to SePLember 30, 1959, the time within which Wachovia Bank and letstt C°mPany may, under the authority granted in the Board's eor," of January 301 19591 establish a branch on the northeast of North Main and East State Streets, High Point, North "xolina. Very truly yours, ( Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE , 4 \ FEDERAL RESERVE SYSTEM VA 6/12/59 WASHINGTON 25, D. C. g" kiz.t ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959 Board of Directors, Fordyce Bank & Trust Co., Forclyce, Arkansas, Ge 1.0. 8 ntlemen: ablehis refers to your request for permission, under applic ber provisions of your condition of meMbership num?u 1, to accept fiduciary appointments as executor, ulalnistrator, and guardian. Following consideration of the information subC'3 the Board of Governors of the Federal Reserve System nts permission to the Fordyce Bank & Trust Co., Fordyce, vit18111"s, to act as executor, administrator, and guardian ar , the that your bank will not accept fiducipe PPointments of other kinds without first obtaining the ,flussion of the Board. mittel g Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 9 FEDERAL RESERVE SYSTEM 6/12/59 WASHINGTON 25. O. C. ADDRESS OFFICIAL CORRESPONDENCE tr,:kW.0 TO THE BOARD o**** June 121 1959 E. R. Millard, Vice President, Federal Reserve Bank of San Francisco, °.an Francisco 20, California. )ear mr. Millard: This refers to your letter dated January 26, 1959, encl.° mart 3ing a letter dated January 20, 1959, from Union Bond & co gage Company, Port Angeles, Washington, a bank holding comPanY, relating to the question whether the purchase by the nrmlnY of its own common stock would be in violation of the " re°71sions of the Bank Holding Company Act of 1956 or other 14ulations governing bank holding companies. The Company's ell'a.ter indicates that the "only foreseeable" reasons for puroutsing its own common stock are (1) for the purpose of buying tax minority stockholders of the Company and (2) for estate ccramP oknIrpo sto sc eis sc relating to the estates of holders of the Company's The purpose of section 4(a)(1) of the Bank Holding a C anY Act seems clearly to prohibit bank holding companies or i engaging in a nonbanking business through acquiring direct pan direct ownership or control of voting shares of any cornwhich is not a bank. (101 Cong. Rec. 8035 (June 13, 1955)) quisition by a bank holding company of its own stock would ,T.,7m to be contrary to this purpose, since it constitutes an a' 47)-"itY within the holding company itself as a separate corPora or "e enti+ and would not involve acquisition of voting shares oth'elcorporation. r In any event, it is understood that in the present e"e st cable Q°ck of the Comp&ny acquired by itself cannot, under appliing' th tate law, be voted by the Company or counted in calculatthis :Le_ total voting power of all shareholders. On the basis of tion ;4.41de irstanding, the acquisition would not be subject to sej acou,'_tor the Bank Holding Company Act which relates only to e -Lsition of votinF shares. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. E. R. Millard Aside from the applicability of the Bank Holding Compan 44, Y Act, Union Bond & Mortgage Company is, of course, a (4ding company affiliate" under the Banking Act of 1933 and, -th.c ormection with the issuance to it of a general voting pert, the corporation executed an agreement which provides, among other things, that it will maintain a sound financial nildition and that its net capital and surplus funds shall be :!equate in relation to the character and condition of its and to its liabilities and other corporate responsibilities hT. It would be possible, of course, for purchases by the ng strdi company of its own common stock to affect its financial ength and capital structure to an extent that might involve a vi olation of these provisions of its voting permit agreement. etanc,,It would be appreciated if you will transmit the sub.. of this letter to Union Bond & Mortgage Company. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 0VItut4t. '4, OF THE Item No. 10 6/12/59 FEDERAL RESERVE SYSTEM I. .1. WASHINGTON 25. O. C ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD -4471}1;0; June 121 1959 Z.1.4221.21LITIALSJI0 G. T. Tucker, Assistant Cashier, eederal Reserve Bank of Chicago, Chicago 90, Illinois. ile`ar Mr. Tucker: r The Board of Governors approves the payment of salaries ederal Reserve Bank of Chicago to the incumbents of the ae'Ic'ts t shown below at the rates and effective dates indicated Julie oordance with the request contained in your letter of 3) 1959: by the Titlo Head Electrician Electrician Plumber Annual Salary $8,444.80) Effective July 6, 1959 7,600.32) 7,39h.10) Effective June 1, 1959 (retroactive) Very truly yours, Keddell A. Kcn:fon Kenneth A. Kenyon, Assistant Secretary. TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON Item No. 11 6/12/59 June 12, 1959 Leedy--Kansas City Reurlet January 14, Board authorizes preparation of detailed plans and specifications for proposed addition and alterations of Oklahoma City Branch building. Total of 'building proper" costs at Omaha and estimated 'building proper" costs of the Oklahoma City program, 48 noted in your letter, exceeds amount earmarked for the Tenth Bietrict and thus allocation of any amount for "building proper" costs at Denver will probably have to await further legislation. When detailed plans are submitted, Board would aPPreciate being advised, as outlined in its letter of M4Y 6, 1959, of possibilities for providing fallout shelter in this building. (Signed) Merritt Sherman SHERMAN c,W44206k;40 BOARD OF GOVERNORS OF THE Item No. 12 6/12/59 FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN - oti ,*4 June 15, 1959 . The H onorable Wright Patman, House of Representatives, Washington 25, D. C. 1)ear Mr. Patman: This is in further reply to your letter of June 3, 1959, requssting information with respect to outstanding shares of Federal " rve Bank stock issued prior to March 28, 1942. Before answering your questions, it should be noted that the 4_ name'suance of a "new" stock certificate, sometimes under a new ise,3 _,d(3es not indicate that the certificate represents only shares coth:?u subsequent to March 28, 1942. This was recognized by the se-tVsioner of Internal Revenue in his letter to the Board dated be fner 9, 1942, copy enclosed, setting forth the procedure to liticcLowed by the Reserve Banks when issuing new certificates tom illaY include outstanding shares purchased and paid for prior arch 28, 1942. FedeIt should also be noted that the question whether dividends °11 det&m.ral Reserve Bank stock are taxable is, of course, one for ther;?-nation by the Internal Revenue Service. It is assumed, by the°re, that your questions relate only to the procedures followed cert.p.aeserve Banks in the issuance of Federal Reserve Bank stock 14- lea:tee. Following are the answers to your specific questions: a new c on (1) Nhen a State member bank converts into a national bank, ificate is issued. Such certificate contains an endorseout . the reverse side indicating the number of shares still Drinr lihich were purchased and paid for by the State member bank Iritern ° March 28, 1942. Barring any ruling by the Commissioner of the n Revenue with which we are not familiar, it is assumed that 11.a.ren°11a1 bank does not pay taxes on the dividends on outstanding -ssued to the SfaTZ member bank before March 28, 1942. The honorable Uright Pathan -2- (2) Where two national banks merge or consolidate, a new certificate is issued. Such certificate indicates, by endorsement, the total number of shares still outstanding issued to both banks Prior to Farch 26, 1942. Under a merger or consolidation, pursuant to Title 12, U.S.C., Secs. 33 and 34, all rights, franchises, and ?Ilterects of the constituent banks are transferred to and vested ?-11 the resulting bank by operation of law. Therefore, the resulting !Dank becomes the owner of all outstanding shares of Federal Heserve 31k stock issued to either bank before March 281 1942. Again, in the absence of any ruling by the Commissioner of Internal Revenue, t-& 15 assumed that the bank does not pay taxes on dividends received on these pre -1942 shares of stock. (3) Since, as previously indicated, the taxability of dillidends of Federal Reserve Bank stock is a matter for determinati oon by the Internal Revenue Service, the Board has no authority issue any rules or regulations on this subject. However, the ! edures followed in the issuance of Federal Reserve Bank stock pr° cer tifcaes„ as described above, are uniform throughout the System, except t at some Reserve Banks issue two certificates, one of which h from th aes only to pre-1942 stock. The September 9, 1942 letter -ommissioner of Internal Revenue was transmitted to all Federal s 1 , 1 re Banks as an enclosure to the Board's letter of September 22, 3 a copy of which is enclosed. (0.43,28(4) As of March 28, 1942, there were 2,865,660 shares to int 3,000) of Federal Reserve Bank stock outstanding. According were ,ormation recently received from the Federal Reserve Banks, there 4,724 685 (-136,234,250) pre-1942 shares still outstanding. As °f jUne 10, ) 1959, the total of all Federal Reserve Bank stock owned bymember banks was 7,574,100 (078,705,000) shares. divide d lath respect to the general question of taxation of n 3 paid to member banks on Federal Reserve Bank stock, you erav,recall that the Board of Governors, in connection with consid“'n of the proposed "Financial Institutions Act”, recommended an , erolt to remove the tax exemption as to stock issued prior to r, footi 'u, 1942, so as to place dividends on such stock on the same -ng as dividends on stock issued after that date. Z Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. Enclosure, BOARD OF GOVERNORS U4 ' 41 t OF THE N) ,,IA 1 ft FEDERAL RESERVE SYSTEM -A* * WASHINGTON 25, D. C. Item No. 13 6/12/59 a4 4 ADDRESS OFFICIAL CORRESPONDENCE 4'NOVOV TO THE BOARD June 12, 1959. 14r. Robert G. Rouse, Vice President, Federal Reserve Bank of New York, New York 45, New York. Dear Mr. Rouse: The f; lx( t)T the New Board has given careful consideration to the letter York Clearing House, with attached memoranda, enclosed etc!! 3,r?ur letter of June 2, 1959. Because of the imminence of the 111,,n, eFec eseiate of the Board's amendments to Regulation U, with materials are concerned, every effort has been made to 13°fld promptly to the requests embodied therein. The first memorandum, and the most important, contains a request of th that the Board reconsider its amendment to section 221.1(c) by the regulation. In effect, the revision of that section urged eo-Lll e Clearing House would restore an unlimited right to substitute ateral ac of equal value for collateral securing an undermargined e°11nt. the Bo A clarifying interpretation of the amended section made by 1959 hard and transmitted to all Federal Reserve Banks on May 29, Posed as removed the principal argument advanced in favor of the proanlon, revision. There had apparently been some misunderstanding aulop °arilks as to the effect of the amended section based on the the ,eitlon that, while customers of brokers would be permitted under 111a4lendments to Regulation T to substitute collateral in an underaccount by means of a one-day purchase and sale without the 3 Of additional collateral, borrowers from banks would not have hanksaTeyrivilege. The interpretation explains that borrowers from -r4'customers of brokers are on the same footing in this respect. 11O Accordingly, the change proposed by the Clearing House is W3 to anlended a c°nsiderable extent, superfluous. Moreover, while the }it ofsection may present some technical difficulties which in the 'he 130„-,:',,Practical experience may later indicate need for correction, t'eason' does not think it advisable, without more compelling , 1an those advanced, to make changes before the effective -Ile amendment. 1 Mr. Robert G. Rouse -2- In its second memorandum, the Clearing House submits for information of the Board several interpretations of the amended ! 1. ti°n3 of Regulation U. In general, these interpretations seem "Pful and appropriate. Several points should be noted, however, as to two of them. the In its comments on the question whether there are any stockLoans which will not be "purpose" loans, aside from the three ai!-Iustrations given in section 221.3(b)(1), the Clearing House quotes , r°111 a definition of the term "carrying" derived from court decisions L:l_alided down in other areas of law. The Board believes that lending iyieers should not be guided by. definitions of this kind in determin11_11at is, and what is not, a loan for the purpose of "carrying" a et! , Ebreover, each case must be judged on its own merits. section 221.3(q), the Clearing Secondly, in an interpretation under House explains that this new paragraph "would require loans to co_oorrowers that re-lend bank credit for stock market purposes to a , mPlY with the regulation even though the loans are not secured by bg !tock.0 The Board believes that this language might, through eaZitY, Prove misleading, and would suggest substituting wording -,1g the following lines: :Ws I understand that this new paragraph would require loans to any borrower engaged either principally, or as one of the borrower's important activities, in relending bank .credit for stock market purposes, to comply with the reguIt-atlon. Compliance with the regulation means that any loan such a borrower must be secured, and, whether or not the collateral for the loan includes any stock, the loan value signed the collateral must conform to that provided by the Supplement to the regulation for any stock and the good faith loan value prescribed in §221.1(a) for any collateral Other than stocks." The final document attached to your letter is a form of pur110ss borrostatement drafted by the Clearing House, to be filled out by m 7rs from banks. The Board has not, in the past, promulgatedtany statew ) qUeetio2t Of purpose, nor has it formulated specific language for before answered accept." a loan officer would undoubtedly want to have thaeartZ borrower's statement in good faith. There is always a , any form used over a period of time will tend to become in anplication and to reduce the lending officer's awareness ' °fthnica 11"aden1 7 t0 investigate all the circumstances. While the form proIsrouici the information a loan officer need, ihithout doubt supply much of it should be borne in mind that merely obtaining a borrower's State :, is not alone sufficient to discharge the lending officer s Itity tent ° -inquire diligently into these circumstances. Mr. Robert G. Rouse -3- letter, the language relating to Moreover, as you point out in your statements of purpose in section 221.3(a) refers only to fans under sections 221.1 and 221.2. There are certain transactions 4:_e§ul.ated under parts of 221.3 as to which there is no provision for f'llance to any extent on a statement signed by a borrower, and where ' 41e bank must rely entirely on its own diligent inquiry. A copy of this letter is enclosed for transmittal to the New u_ lurk Clearing House Association . " Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 4elc'sure BOARD OF GOVERNORS OF -rHE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 14 6/12/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 12, 1959. 14r1 Frank J, Coyle, Vice President, New York !I. Wall Stock Exchange, Street, "ew York 5, New York. Dear Mr, Coyle: Your letter of June 9 points out certain differences in the Withdra elosi wals permitted on the covering of a short position and on the n8 out of a long position under amended Regulation T. The Board is in :ware of these differences, as well as of the technical difficulties The rrivl.ng at a more equitable and operationally practicable solution. perlipt!idrawal formula suggested in your letter, for example, would larp "shorts" covering a position at a loss to make substantially act': wtthdrawals than would be permitted "longs" closing out a transWittid„ at a comparable loss. Moreover, it apparently would permit awals that under certain conditions could increase the excess ' debit e in the i -R balance n a restricted account, thereby defeating the purpose of , Considering the technical problems involved, the Board does tot t Il co,,,ink it advisable to adopt the changes suggested. The matter will ' ''ltue under close study, however. You are correct in stating that after June 15, 1959, a Ilst°m Poaiti? who purports to sell short a stock in which he holds along 104 n,has the same withdrawal privileges accorded to sellers of any charaqertosltion. Such a transaction, however, no longer has the treated in allsties of a short sale, and under the Regulation is to be betwe., resPects as a long sale. No analogies can be drawn, therefore, tion in such a transaction and a short sale not involving a long post— e same security. to 043tom You also ask for an interpretation of Section 3(g) relative ers who before June 15, 1959, have established long and short to pro°11s in the same stock. The Board does not think it practicable 1:)eoijids to the effective date of the amendments for situations of this kind. Very truly yours, (signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS ft OF THE 51 gOt,A Item No. 15 6/12/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 0 4t v41.0 June 12, 1959 Mr. Eugene B. Crowe, Apartment 8081 1!166 Lindell Boulevard, ot. Louis 82 Missouri. Dear Mr. Crowe: This refers to your letter of June 8, 1959, to Governor Balderston, with further reference to the subject ( 41F_ Previous correspondence regarding the Board's authority 4-11 connection with V-loans. A member in the near future Of May 19, he will convenient time in of the Board's staff and, as indicated in make arrangements to order to discuss the will be in St. Louis the Board's letter meet with you at a entire subject. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 16 6/12/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDHESS OFFICIAL CONItESPONDENCE TO THE: ElOARED June 12, 1959 2211111111ALLITI Mr. N. L. Armistead, Vice President, Federal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Armistead: In accordance with the requests contained in your letters of June 9, 1959, the Board approves the appointment of Robert L. Cummings and William C. Smith as assistant examiners for the Federal Reserve Bank of Richmond, effective today. It is noted that Mr. Smith is indebted to The Merchants and Farmers Bank, Smithfield, Virginia, a.State member bank, in the amount of 078 and The First National Bank of Ashland, Ashland, Virginia, in the amount of105. Accordingly, the Board's approval is given with the understanding that he will not participate in any examinations of the banks to which indebted until his indebtedness has been liquidated. Very truly yours, (Si-±,ned) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 17 6/12/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 11, 1959 E2ETTEHKPLL (FR) Mr. Eliot J. Swan, First Vice President, Federal Reserve Bank of San Francisco, Sall Francisco 20, California. Dear Mr. Swan: Reference is made to your letter of June 5, 19590 vith further reference to your letter of May 22, 1.959, recpesting the approval of the appointment of William J. Zunkel : s an assistant examiner for the Federal Reserve Bank of an Franciseo. It is noted that Mr. Zunkel now reports that on 1 9) Nr 1959, he obtained a loan in the amount of $500 from c) . ;-11-0 Alto County State Bank, Emmetsburg, Iowa, a nonmember _Ilk, maturing May 19, 1960, in order to cover expenses in 'a'usneetion with his trip to Iowa to visit his family and to deslst in defraying living expenses while establishing resifXs in California. It is noted also that Mr. Zunkelts "er is president of the Emmetsburg bank. In the circumstances, it is assumed that, in to the understanding stated in the Board's letter of b,L 29 that he will not participate in any examination of any ico lt or other organization in the Brenton Companies group so be Per g as he is a stockholder in that organization, he will not bar mitted to participate in any examination of the Emmetsburg fath until his indebtedness is liquidated or so long as his er is an officer of that institution. addit40 Very truly yours, izne(1) Kenneth A, Kenyon Kenneth A. Kenyon, Assistant Secretary.
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