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Minutes for

To:

June 14, 1960

Members of the Board

From: Office of the Secretary

Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date. 1/
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.

Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King

1/ Meeting with Presidents of the Federal Reserve Banks




A joint meeting of the Board of Governors of the Federal Reserve
System and the Presidents of the Federal Reserve Banks was held at the
Federal Reserve Building in Washington, D. C., on Tuesday, June 14, 1960,

at 12:15 p.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
King
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary

Messrs. Erickson, Hayes, Bopp, Fulton, Leach, Bryan,
Allen, Johns, Deming, Leedy, Irons, and Mangels,
Presidents of the Federal Reserve Banks of Boston,
New York, Philadelphia, Cleveland, Richmond,
Atlanta, Chicago, St. Louis, Minneapolis, Kansas
City, Dallas, and San Francisco, respectively
Mr. Dunne, Secretary of the Conference of Presidents of the Federal Reserve Banks
Before this meeting the Presidents had submitted a memorandum
listing topics for discussion with the Board.

The topics, the statement

of the Presidents with respect to each, and the discussion at this meeting
were as follows:
1. Reimbursement Rate--Postal Money Orders. On the endorsement
of the Committee on Collections and Accounting, the Conference approved the recommendation of the Subcommittee on
Collections, set out in its letter report dated April 29,
1960, that the Reserve Banks agree to a reimbursement rate of
$2.24 per 1,000 money orders to be handled during fiscal 1961,
and that when such rate is presented to the Post Office
Department the Reserve Banks reserve the right to review and
redetermine it at any time during the fiscal year in the
event of any substantial change in operations or in the
factors on which the rate is based.




6/14/60

-2President Mangels commented briefly on the procedure for estab-

lishing the rate of reimbursement for handling postal money orders, and
there was no further discussion of this topic.
2.

Joint Report, dated May 25, 1960, of the Subcommittees on Collections and of Counsel on Collections. Upon the endorsement
of its Committee on Collections and Accounting, the Conference
accepted and approved the captioned report which, among other
matters covered therein (centralized bookkeeping arrangements,
transit number assignments, and travelers checks), recommended:
(1) Revision of certain uniform paragraphs and adoption of
new uniform paragraphs in the operating circulars of
the Federal Reserve Banks relating to the collection of
noncash items, stemming from the review of a 1959 survey
of the noncash operating practices and procedures of the
Federal Reserve Banks and branches.
(2)

Revision of the uniform check routing symbol paragraph
in the operating circulars relating to the collection
of cash items to include appropriate reference to
magnetic ink encoding.

(3)

That the Federal Reserve Banks continue to handle headache checks as cash items, but that Regulation J and
the check collection operating circulars be revised to
indicate that the Federal Reserve Banks have the
authority to handle headache checks as cash items
subject to prescribed conditions; also that a public
announcement of the changes and their purpose be made.

President Mangels pointed out that the joint report of May 25, 1960,

in effect covered three topics: (1) encouragement by the Reserve Banks of
the use of common machine language by commercial banks; (2) "headache"
Checks; and (3) noncash operating practices and procedures.
As to the first item, it was recommended that the Reserve Banks insert in their check collection operating circulars a new paragraph to
indicate the desired size of checks, as prescribed by the American Bankers




6/14/60

-3-

Association, and the size and style of the magnetic ink characters for
machine reading.
As to the second item, it was recommended that Regulation J, Check
Clearing and Collection, be amended by inserting after the first sentence
of section

6 language that would permit the Reserve Banks to define the

types of checks and other items which can be handled as cash items.

It

was also recommended that there be included in the Reserve Bank operating
circulars a paragraph reserving the right to set different closing hours
and to require separate sorts and cash letters for items which cannot be
handled on electronic machines.
With respect to the third item, President Mangels noted that a
meeting had been held, with all Reserve Banks represented, to discuss
variations in noncash operating practices.

This meeting, the first of its

kind for several years, resulted in clearing up some of the differences
that existed, and it was now recommended that several changes be made in
the wording of the uniform language of the noncash operating circulars.1/
These various recommendations, President Mangels said, were
approved by the Committee on Collections and Accounting and by the Conference of Presidents.

He assumed that the Board would review the pro-

Posals in due course and that the Federal. Reserve Banks would be informed
concerning the recommended changes in their operating circulars.

3.

Verification and Destruction of Currency. Following a review
by Mr. Leach of the work of the ad hoc System Committee on
currency destruction arrangements and upon the recommendation
of the Committee on Fiscal Agency Operations, the Conference

Subsequently, President Mangels suggested adding the words in operating
procedures after the word existed.




6/14/60

-4-

approved for submission to the Treasury and Board of Governors,
respectively (a) the draft, dated May 24, 1960, of proposed
destruction and verification of currency (providing for operational uniformity and use of "destructors") and (b) the proposed letter from the Board of Governors to the Reserve Banks
(providing for observation of cancellation and other matters).
Both documents were attached to Mr. Farrell's letter, dated
June 2, 1960, to the Presidents of the Reserve Banks.
President Leach reviewed briefly the work of the ad hoc Committee
Which had resulted in the drafting of a proposed revised Treasury regulation
relating to the verification and destruction of unfit United States currency.
The ad hoc Committee, he noted, had also drafted a letter proposed to be
sent by the Board to the Presidents of all Federal Reserve Banks if the
Treasury agreed to issue the revised regulation.

The revised procedures,

aPproved unanimously at the meeting of the Conference of Presidents yesterday, would provide, in the opinion of the Committee, a reasonable degree of
safety.

The Committee had reason to believe that the proposal was satis-

factory to the Treasury staff, but the matter had not yet been presented
formally to the Treasury.

If the Board should approve, however, the

Committee would determine whether the Treasury was willing to adopt the
revised regulation.
Chairman Martin said that the Board, as such, had not yet discussed
the current proposal, but that the matter would be taken under consideration.

4. Reimbursement Rates--Verification and Destruction of Currency
and Tax Depositary Receipts. The Conference approved the recommendation of the Committee on Fiscal Agency Operations that the
procedure set forth below be followed for the fiscal year 1961:
The rates to be used by each Reserve Bank will be
fixed by agreement between the Committee on Fiscal
Agency Operations and the Treasury and will approximate




6/14/60

—5—
average System costs for the preceding fiscal year.
If at the end of the year System rates result in
gain or loss to the System, an adjustment will be
made by each Bank on the basis of actual System
costs for the year.

The Committee reported that the aforesaid procedure is
agreeable to the Treasury, although it will be necessary for
the Committee to keep in touch with operating results as the
fiscal year progresses, because it is understood with the
Treasury that the rates will be subject to adjustment in the
light of experience as in the past.
The Committee also reported that agreement has been
reached with the Treasury that our billings for these services covering the month of June 1960 will be adjusted as
necessary to the end that the System be reimbursed for its
costs, without gain or loss, for the fiscal year ending
June 30, 1960.
President Allen pointed out that the procedure approved by the
Conference represented a slight change from the method heretofore followed
in fixing the rates of reimbursement.

It had been customary for the Treas-

ury to provide estimated figures on volume and for the Reserve Banks to
estimate costs, but it developed that neither of the estimates was too
reliable.

Accordingly, the Presidents' Conference authorized the

Committee on Fiscal Agency Operations simply to agree with the Treasury on
a rate of reimbursement that would approximate System costs for the preceding
fiscal year, with the understanding that adjustments might be made later in

the year on the basis of operating results.

Arrangements also were to be

made with the Treasury for adjustments in billings for the month of June
1960 so that the System would be reimbursed for its costs, without gain or
1°ss, for the fiscal year 1960.

If the modified arrangements should work

Well, they probably would be followed each year.




6/14/60

-6-

5. Improvement of Coin Supply. In response to the Boardls telegram of June 7, the Presidents reviewed the widespread coin
shortage and requested the Chairman of the Committee on
Miscellaneous Operations to present the views of the Conference at the joint meeting.
In commenting on this topic, President Fulton said that the shortage
Of coin was a recurring problem which in essence seemed to reflect a budget
Problem of the Bureau of the Mint.

In 1956, a subcommittee of the

Presidents 1 Conference made a study of the subject and learned that budget
examiners, in reviewing the operations of the Mint, had raised questions
about the stock of coin on hand at the mints and the Federal Reserve Banks.
Subsequently, additional coin shortages developed, and the problem had
persisted, being complicated further by the increased use of vending
machines, sales.taxes, and the activities of coin collectors.

The practice

of the Mint, apparently reflecting the position of the budget examiners,
seemed to be to have inventory reduced to minimum levels at the end of each
budget year.

In the circumstances, the Presidents were rather at a loss to

know what aid could be given to the Mint other than to indicate what amounts
Of coin the Reserve Banks would be willing to hold.

In view of expanded

vault facilities, the Reserve Banks could hold a substantial amount of coin
if it was minted.

It was also noted that the Denver Mint had been modern-

ized but the Philadelphia Mint had not, and possibly the Treasury might be
iMportuned to modernize the Philadelphia plant.
After further comments by President Fulton, Governor Robertson
referred to topic 6(i) on the memorandum of the Presidentsi Conference
Which noted that the Conference had requested the Committee on Emergency




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-7-

Operations to study and report on the implications for the emergency cash
Program of the Treasury view, reported by President Fulton, that one-dollar
bills not be used in pre-positioned inventories of cash agent banks.

A

letter had been drafted which, if approved by the Board, would be sent to
the Treasury requesting its views, and Governor Robertson suggested that
the problem of the coin supply might also be the subject of a letter from
the Board to the Treasury.
Chairman Johns noted that several years ago an official of the Mint
had discussed with the Presidents the fluctuations in the demands for coin
and the possibility of a revised inventory policy.

At that time the Reserve

Banks were short of vault space, and it seemed futile to ask the commercial
banks to increase their holdings of coin.

Now the situation was different

because the Reserve Banks had improved their vault facilities and were in a
Position to carry larger inventories.

Accordingly, the Reserve Banks would

be willing to take additional inventories if the Mint could obtain appropriations and produce more coin.
The discussion concluded with comments on the rationing of coin by

the Reserve Banks and on the amount of coin moving out of the United States°
6. Additional Items of Information Arising Out of Current!. Conference Meeting. In addition to the foregoing matters, the
following items of possible interest to the Board were
considered by the Conference. They are reported herein as a
matter of information.
a. Appointments. The Conference ratified the mail votes of
the Presidents (1) reactivating the special Commercial Code
Committee (inactive since 1953) as the Subcommittee of Counsel
on the Commercial Code under the Conference Committee on




6/14/60
Collections and Accounting; and (2) approving Mr. Morgan Rice
of the Federal Reserve Bank of Dallas as the Reserve Bank
representative on the high-staff level committee on the retail trade statistics program.
b. Fixed Assets Accounting. To enable the Committee on
Collections and Accounting to study in more detail the
proposals submitted by the Subcommittee on Accounting and by
Mr. Farrell and other suggestions, the Conference took no
action on the April 29, 1960, report of the Subcommittee on
Accounting other than to accept it as a progress report. The
Conference agreed this topic would be considered at a special
meeting to be held upon receipt of a further report from the
Committee on Collections and Accounting.
c. Loss Sharing Agreement and Regulation D. The Conference
received a report, dated May 11, 1960, from the Subcommittee
of Counsel of the Insurance Committee concluding that (1) the
provision in amended Regulation D whereby money in transit
between member banks and Federal Reserve Banks may be included
in money counted in partial satisfaction of reserve requirements did not change title to such money or any Loss Sharing
Agreement concept as to title to such money, (2) the contract
between a Federal Reserve Bank and its member banks is not a
contract of insurance, but an agreement under which the Federal Reserve Bank assumes the risks of loss in connection with
money shipments between the Federal Reserve Bank and its
member banks, and (3) there is no conflict between the Loss
Sharing Agreement and amended Regulation D.
d. Check Mechanization Program. Mr. Fulton reported that
the program for pilot installations was proceeding on
schedule, and noted that pursuant to the administrative
authority given the Subcommittee on Electronics at the March
1960 meeting of the Conference (a) orders for encoders
enumerated in the March 2, 1960, Subcommittee report have been
allocated among the manufacturers supplying encoders for the
basic installations, (b) no reallocation of encoders among
Reserve Bank offices has yet been made, with only one minor
reallocation in prospect, and (c) the Subcommittee has
received no new request for encoders for use in encoding programs with commercial banks.
e. Retention of Cash Letters. On the endorsement of the
Committee on Miscellaneous Operations, the Conference accepted
and approved the report, dated May 26, 1960, of the Subcommittee on Retention and Disposal of Records reporting on




91
Aged. it

6/14/60

-9-

current and suggested Subcommittee activities and recommending (1) reduction of cash letter and related record retention
to one year and (2) distribution to the Reserve Banks of a
summary of their responses to the Subcommittee questionnaire
of February 5, 1960.
f. Systems and Procedures Developments. Mr. Fulton, as
Chairman of the Committee on Miscellaneous Operations,
presented, and the Conference received, a report, dated May
31, 1960, of the Subcommittee on Systems and Procedures
summarizing developments in the Reserve Banks, which in addition to general material, covered (1) status of plans and
installations involving electronic data processing equipment
and (2) listing of procedures being considered for computer
Processing.
g. Legislation. Upon the recommendation of the Committee
on Legislation, the Conference accepted and approved a report,
dated June 2, 1960, of the Subcommittee on Legislation on the
Douglas finance charge disclosure bill (S. 2755). Messrs.
Leedy, Mangels, and Deming preferred merely to accept the
Subcommittee report, indicating that without implying disapproval they were not prepared at this time to endorse all
of its views and conclusions.
Mr. Hayes also reviewed the summary of pending legislation,
dated June 1960, of the Legal Department, Federal Reserve
Bank of New York.
h. Retail Trade Statistics. Governor Balderston and
Mr. Merritt Sherman reviewed the present status of, and
prospective developments concerning, the retail trade statistics program.
i. Emergency Cash Operations. The Conference requested
the Committee on Emergency Operations to study and report on
the implications for the emergency cash program of the
Treasury position (reported by Mr. Fulton) that one-dollar
bills not be used in pre-positioned inventories of cash
agent banks.
President Johns stated that complete information on these item'
would be found in the minutes of the Presidents' Conference and that the
various reports referred to in the memorandum of topics also would be
available.




—

21 4
6/14/60

-10With respect to item (b), Fixed Assets Accounting, President

Mangels commented briefly on the study that had been made by the Subcommittee on Accounting, as reflected in the report of the Subcommittee
dated April 29, 1960.

He noted that the subject was complex and that the

counterproposal contained in a memorandum
from Mr. Farrell of the Board's
staff dated May 24, 1960, had not been received soon enough
to permit
Comprehensive study.

The Committee on Collections and Accounting felt,

however, that it could take the matter in hand, review the proposals that
had been made, ascertain the views of the Reserve Banks,
and at a
relatively early
date submit to the Presidents, with endorsement, one of
the proposals or some other plan that might find
agreement.

It was not

Planned to wait until the next regular meeting of the Presidents'
Conference to submit a report,
instead it was envisaged that the matter
would be taken
up at a special meeting of the Presidents incident to one
°f the
meetings of the Federal Open Market Committee.

Some sense of

urgency was imparted by the time schedule involved in the preparation of
the Reserve
Bank budgets for 1961, but it was hoped that a procedure could
be mutually agreed
upon before the budgets had to be submitted.
President Hayes said that, although he did not want to overemPhasize the matter, it struck him
as rather odd that when the Subcomillittee on Accounting, of which a member of the Board's staff is an
"s°ciate, had made a study and submitted a report to the Conference,
the
Conference then received a counterproposal which
in effect disagreed with
the
report of the Subcommittee. It was his impression that ordinarily




4)
(4
,

2 f
6/14/60

-11-

such a counterproposal would be referred to the Subcommittee concerned
rather than direct to the Presidents' Conference.

His comment, he added,

waS confined solely to the question of procedure.
There was no discussion of the remaining items under topic 6, it
being noted that reference to item (i)
had been made previously in connection with the discussion of topic 5°
Chairman Martin commented briefly on developments in connection
with the current hearings of a Subcommittee of the House Banking and
Currency Committee concerning H.R. 8516, a bill providing for the retirement of Federal Reserve Bank stock, at which Presidents Allen and Hayes
had already testified and President Mangels was to testify later this
week.
Chairman Martin then stated that he had discussed with the
Secretary and the Under Secretary of the Treasury the proposal for extension of the tax depositary receipt system to provide for the handling
by the Reserve Banks of payments by individuals against estimated taxes.
He

indicated that, although the matter had not been finally resolved, it

might be assumed in the absence of further advice from the Treasury that
the Proposal would be held in abeyance, at least for the time being.
The meeting then adjourned.