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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Wednesday, June 15, 1955. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Vardaman Mills Robertson Shepardson Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Mr. Leonard, Director, Division of Bank Operations Mr. Vest, General Counsel Mr. Sloan, Director, Division of Examinations Mr. Johnson, Controller, and Director, Division of Personnel Administration Mr. Sprecher, Assistant Director, Division of Personnel Administration The following matters, which had been circulated to the members c)f the each Board, were presented for consideration and the action taken in instance was as indicated: action Memoranda from appropriate individuals concerned recommending s wIth respect to the Board's staff as follows: Sal increases effective June 19 1955 Nalle aad title Division Basic annual salarx To From Research and Statistics Th ! °dore G. Flechsig, 4c onomist $4,83o $5,060 3,030 31175 Administrative Services Margaret E. Royce, Clerk -Typist 1019 6/15/55 —2— awi Helen L. Sweeney, Clerk, Division of Administrative Services, for a period of six months, effective June 20, 1955. Acce tance of resicnation Mary L. Giddo, Clerk, Division of Research and Statistics, effective ' Tune 18, 1955. Approved unanimously. Telegram to Mr. Latham, Vice President, Federal Reserve Bank of Boston, reading as follows: Reurtel June 7, 1955, Board approves designation of William Joseph Lone rgan as a special assistant examiner for the Federal Reserve Bank of Boston. Approved unanimously. 13°Ston, Letter to Mr. Latham, Vice President, Federal Reserve Bank of reading as follows: Reference is made to your letter of June 1, 1955, sub— mitting the request of the Harvard Trust Company, Cambridge, M_ assachusetts, for approval, under the provisions of Section 24A of the Federal Reserve Act, of an investment in bank Premises in excess of the capital stock of the bank. After considering all available information, the Board of Go vernors concurs in the Reserve Bank's recommendation and ap— proves an additional investment of not to exceed $980,000 in Premises by the Harvard Trust Company. It is noted that the bank plans to reduce the investment 011 a planned and regular basis until such time as the invest— ment is within the limits of Section 24A of the Federal Re— serve Act. Approved unanimously. aa p011 Letter to The Chase Manhattan Bank, New York, New York, reading The Board of Governors of the Federal Reserve System authorizes The Chase Manhattan Bank, New York, New York, 1020 6/15/55 Pursuant to the provisions of Section 25 of the Federal Reserve Act, to establish a branch in Beyrouth, Lebanon, and to operate and maintain such branch subject to the provisions of such section; upon condition that, unless the branch is actually established and opened for business on or before June 1, 1956, all rights granted hereby shall be deemed to have been abandoned, and the authority hereby granted shall automatically terminate on such date. It is understood, of course, that no change will be made in the location of such branch without the prior approval of the Board of Governors. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Annapolis, Letter to The Farmers National Bank of Annapolis, Ilaryland, reading as follows: The Board of Governors of the Federal Reserve System has . given consideration to your supplemental application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of lunatics, estates, assignee, receiver, committee of estates of or in any other fiduciary capacity in which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws ic_f the State of Maryland. The exercise of these powers shall _:15E) subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal ReServe System. The specific authorization granted on April 10, 1 952, to act as registrar of bonds of the City of Annapolis, . naaryland, and the County of Anne Arundel, Maryland, is now contained in the general fiduciary powers herein authorized. A formal certificate indicating the fiduciary powers Which leh The Farmers National Bank of Annapolis is now authorized to exercise will be forwarded to you in due course. Approved unanimously, for transmittal through the Federal Reserve Bank of Richmond. 1021 6/15/55 Letter to Mr. Diercks, Vice President, Federal Reserve Bank of Chicago, reading as follows: Reference is made to your letters of April 28, 1955, tici May 312 1955, relating to the merger (so-called consolidation) of the Sparta State Bank, a member bank, and The Peoples State Bank of Sparta, a nonmember insured bank, both of Sparta, Michigan, under the continuing charter and title of the Sparta State Bank, which was effected May 19, 1955. From the information submitted, it is apparent that approval of the Board of Governors is not required. Approved unanimously. Letter to the Board of Directors, Union Bank of Michigan, Grand RaPidsj Michigan, reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors hereby gives its written consent under the provisions of Section 18(c IN of the Federal Deposit Insurance Act to the merger (So-called "consolidation") of the Union Bank of Michigan, Grand Rapids, Michigan, and The Cedar Springs State Bank, Cedar Springs, Michigan, and approves the establishment by the Union Bank of Michigan of a branch at the present location of The Cedar Springs State Bank, provided (1) the proPosed merger is carried out substantially in accordance with the agreement between the parties dated April 212 1955, k2)formal approval is given by the appropriate State authorities, and (3) the proposed merger as well as the establishment of the branch is effected within six months from the date of this letter. It is understood that investment securities of The Cedar Springs State Bank will be reflected on the books of .16 merged institution at the market value of such securi4-e5 on the date of merger, and that the banking house, fur' nure, and fixtures of The Cedar Springs State Bank will be carried on the books of the continuing institution at lgures not in excess of the depreciated values thereof , L?r Federal income tax purposes, after giving effect to vaillation reserves applied to those assets. 2 Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. 1022 6/15/55 _5_ Telegram to Mr. Millard, Vice President, Federal Reserve Bank of San Francisco, reading as follows: Relet June 6, 1955, Mar Vista Commercial and Savings Bank, (Mar Vista), Los Angeles, California. Provided re— duction of capital by reason of decrease in par value of outstanding stock, and sale of new stock restoring capital to its original amount are simultaneously effected, trans— actions will not be considered a violation of Regulation H or Section 9 of the Federal Reserve Act. Approved unanimously. Before this meeting there had been sent to the members of the Board three alternative drafts of letter to the Honorable Joseph Campbell, Comp— troller General of the United States, which had been prepared in accordance with the draft was a discussion at the meeting held on June 7, 1955. One l'evieion of the draft discussed at the meeting on June 71 and the other and Governor drafts reflected respectively the views of Governor Balderston SzYmozak as expressed at that meeting. Chairman Martin stated that he did not feel any letter should be serit to the Comptroller General until there had been an opportunity to discuss the matter at the meeting of the Federal Open Market Committee (34 June 22, at which the Presidents of all of the Federal Reserve Banks would be present in view of the fact that the proposed letter referred to the statement made in his letter of April 201 1955$ to the Comptroller Gerieral that the Board would consult with the Federal Open Market Committee and the Federal Reserve Banks regarding the request of the Chairman of the Rouse C ommittee on Government Operations that the General Accounting Office Illake an audit of the Board of Governors, the Federal Open Market Committee, ad the Federal Reserve Banks and their branches. It was Chairman Martinis thou ght that the drafts of the proposed letter should be distributed to 1023 6/15/55 all members of the Federal Open Market Committee for discussion at the meeting of that Committee on Wednesday, June 22, 1955. There followed a general discussion of the three draft letters during which the members of the Board who were present indicated that they would prefer the longer draft letter which presented in some detail the reasons why the Board could not lawfully acquiesce in a separate audit of the Board, the Federal Open Market Committee, and the Federal Reserve Banks bY the Comptroller General of the United States in the absence of an exPliess directive from the Congress. During the discussion, Governor Mills asked whether Mr. Vest was fully satisfied that there was sufficient legal f°undation to assure that the Board could take the position that it could not -awfully acquiesce in the separate audit proposed. In response, Mr. Vest made a statement substantially as follows: I do not feel that it is beyond the question of doubt that the Board can not legally comply with the request that the Comptroller General audit the books of the Board of Governors, the Federal Open Market Committee, and the Federal e3erve Banks. Two of the draft letters state that the L'ommittee on Government Operations is without authority to °rder such an audit. I think that is a difficult argument make to a Committee of Congress itself. Also, although !die Committee on Government Operations has no specific authority for auditing expenditures, it has the duty of tudYing the operations of Government activities at all rels with the view of improving the economy and efficiency °I the operations. The principal argument the proposed letter makes is one 71-th which I agree, that the Board funds and Federal Reserve 1,1bank funds are not appropriated moneys and, therefore, are 4 the type of funds with which the Budget and Accounting t is ,2 concerned. Accordingly, under section 10 of the FedReserve Act, there is no jurisdiction on the part of I 1024 the Comptroller General over the funds of the Board. While I believe that is correct, I do not think it is right beyond Peradventure of a doubt. Section 53(b) is a very broad provision which authorizes, without restriction, investigations by the Comptroller General, by order by either house of Congress or a committee of either house having jurisdiction over revenue, appropriations, or expenditures. It may be argued that Section 53(b) is not intended to have any broader application or to go any further than the other provisions of the original Budget and Accounting Act dated June 10, 1921. I think that is a sound position but we should not think of it as not subject to doubt. There is one other point: the Committee on Government Operations of the House of Representatives is one of three committees of the House that has subpoena power. If that Committee would order the production of the records of the Board, I see no legal basis on which such an order could be resisted. After further discussion of the letters, Chairman Martin requested that revisions be prepared in the light of suggestions made at this meet- and that copies be distributed with a view to placing the matter on the agenda for the meeting of the Federal Open Market Committee on June 22, 1955. Mr. Cherry then withdrew from the meeting. There was presented a letter, which had been circulated to the niellibers of the Board prior to this meeting, to Mr. Leedy, President, Fed1'41-Reserve Bank of Kansas City, reading as follows: In view of the circumstances described in your letter °f May 242 1955, the Board of Governors approves the payment a $51 per month from June 1, 1955, to Mr. U. S. Berry as a of uPPlementary retirement allowance during his lifetime. In your letter, reference is made to the efforts of the Personnel Committee of the Conference of Presidents to develop a plan for supplementing retirement allowances and it 6/15/55 —8— is indicated that, in such event, it is contemplated that further action in this connection would be taken in Mr. Berry's behalf. You are aware, of course, that there is no assurance that such a plan, if adopted, would include Persons who retired prior to its adoption. At Chairman Martin's request, Mr. Sprecher explained the reasons IltlY the Kansas City Bank sought approval of its making supplemental pay— ments to Mr. Berry in connection with his retirement. Mr. Sprecher stated that such Payment formerly would have been made under Section 9 of the Re gulations of the Retirement System of the Federal Reserve Banks, under the general authority of the Board's letter dated March 17, 1944, S-741. li"ever, in view of the objection -which had been made by the Internal Revenue Service last year to further use of that section in supplementing individual retirement allowances through the Retirement System, the Kansas CitY Bank now proposed to make the supplemental payments direct to Mr. BerrY WhOa because of illness, found it necessary to retire at this time. Governor Mills then commented on the study being made by a Sub— comzittee on Personnel and a Special Subcommittee of Counsel of the Con— re re 'e of Presidents regarding supplementing retirement allowances in ea`les of involuntary separation from service before age 65, and he reviewed the content of a report submitted by the subcommittees to the Presidents, to be c onsidered at their meeting next week. Following a discussion, the let— ter to Mr. Leedy was approved unani— mously in the form set forth above. 6/15/55 Messrs. Johnson and Sprecher withdrew from the meeting, and Mr. Hexter, Assistant General Counsel, entered the room at this point. There was presented a telegram to Mr. Harris, Federal Reserve Agent, Federal Reserve Bank of Atlanta, authorizing him to issue a limed voting permit, under the provisions of section 5li41l of the Revised Statutes of the United States, to Hamilton National Associates, Inc., Chat tanooga, Tennessee, entitling such organization to vote the stock Itich it owns or controls of The First National Bank of Lenoir City, Leh0 1r City, Tennessee, at any time prior to October 1, 1955, to act upon Proposals (1) to increase the number of directors of such bank from nine O eleven$ and (2) to ratify articles of association of such bank as fur- nished by the Comptroller of the Currency, provided that all actions taken shall be in accordance with plans satisfactory to the Comptroller of the elirreneY• The telegram also stated that the Board understands that the 4PP1icati0n does not cover authority of the applicant to vote the stock for the election of any director of the bank and that this voting permit ci°Ele not grant such authority. At Chairman Martin's request, Mr. Sloan commented on the circumstances relating to the request of Hamilton National Associates, Inc., for a limi ted IADting permit and the position taken by the holding company in earliet r Years that it would not wish to apply for a general voting permit tuuch as it would not wish to agree to comply with the standard conditions Precedent to the issuance of a general voting permit. Mr. Sloan 1027 6/15/55 —10- said that he would recommend that the permit be granted for the follow— ing reasons: (1) the Articles of Association of the subsidiary bank to be adopted are the revised articles now recommended by the Comptroller of the Currency; (2) the permission to vote the shares of the bank owned or controlled by the holding company affiliate for the purpose of increasing the number of directors of the bank (although such increase can be accomplished by a vote of less than a majority of the shares outstanding) does not allow the holding company affiliate to participate in the selection of the directors; (3) the purposes for which the permit would be issued do not appear to be significant with respect to the relationships between the holding company affiliate and its subsidiary bank; (4) it is Vice President Denmark's opinion that the issuance of the permit will be beneficial from a bank relations view— Point; and is believed desirable that holding company affiliates such as Hamilton National Associates subject themselves to the regulation provided by law, and it is Vice President Denmark's belief that the denial of the permit would have the effect of making the management of the holding company affil— iate unwilling to apply for a general voting permit in view of the Board's refusal to issue this limited voting permit. (5) it Governor Robertson stated that ordinarily he would vote against 4 1 -ratted voting permit for a bank which had not applied for a general \r()ting permit and thus subjected itself to supervision under the terms of 4P131icable legislation in the Banking Act of 1933. However, he would vote to aPProve the present request on the grounds that legislation might be al°Pted which would eliminate the need for a limited voting permit such 10Z-i 6/15/55 -11- as was now requested and, also, because the Federal Reserve Bank of Atlanta felt that there had been a favorable change in the attitude of Hamilton National Associates, Inc. which, in the absence of holding company legislation, would result in the holding company requesting a general v°ting permit and thus subjecting itself to supervision of Federal banking allthcrities under existing law. Thereupon, unanimous approval was given to a telegram to Mr. Harris authorizing him to issue a limited voting permit, under the provisions of section 5144 of the Revised Statutes of the United States, to Hamilton National Associates, Inc., Chattanooga, Tennessee, entitling such organization to vote the stock which it owns or controls of The First National Bank of Lenoir City, Lenoir City, Tennessee, at any time prior to October 1, 1955, to act upon proposals (1) to increase the number of directors of such bank from nine to eleven, and (2) to ratify articles of association of such bank as furnished by the Comptroller of the Currency, provided that all actions taken shall be in accordance with plans satisfactory to the Comptroller of the Currency. The telegram also requested Mr. Harris to advise Hamilton National Associates, Inc., that "Board understands that application does not cover authority of applicant to vote stock for the election of any director of the bank and this voting permit does not grant such authority." the Division of Chairman Martin referred to a memorandum from n_ 84ak , JPerations dated June tion 9, 1955 relating to verification and destruc- of unfit Federal Reserve notes. At Chairman Martinis request, Mr. 14"nard commented on the memorandum, stating that at the time the Treasury 1029 6/15/55 -12- requested the Federal Reserve Banks to undertake the verification and destruction of unfit currency in 1953, the request covered not only Treasury currency but also Federal Reserve notes. At that time some of the Presidents of the Federal Reserve Banks felt that if verification and destruction of Treasury currency was to be undertaken by the Federal Reserve Banks, it would also be practicable and appropriate to undertake verification and destruction of Federal Reserve notes. The savings resulting from the action of the Federal Reserve Barks in the undertaking in 1953 at the request of the Treasury were estimated at $6155000 a year. Part of this saving resulted from changes in procedure whereby only a P"tion of one dollar denomination silver certificates are now verified, *lereas previously the Comptroller of the Currency had verified all one dollar silver certificates. Mr. Leonard went on to say that the Comp- troller General of the United States suggested to the Treasury that the rerification and destruction of currency by Federal Reserve Banks be extended to include Federal Reserve notes because of the additional savings that would result. In turn, the Treasury had raised the question with the ?ederal Reserve, estimating that savings would approximate $186,000 a year. During Mr. Leonardfs comments, Mr. Myrick, Assistant Director, Diirlsion of Bank Operations, entered the room. Mr. Leonard went on to say that arguments against extending verificat4 _ 4-un and destruction of currency to Federal Reserve notes were based inlarily on the reasoning that if this were done, the Federal Reserve ' Pl r 1.-LICA) -13Banks Would be destroying notes on which they were also the obligors and issuers. The subject had been discussed at the meeting of the Auditors of the Federal Reserve Banks held on May 11-131 19551 at which time it was the consensus that, notwithstanding the possibility of collusion between employees, adequate internal safeguards could be established and the risk involved might not be a deterrent to the Federal Reserve Banks Iltdertaking the job. Summing up the proposal, Mr. Leonard said that the Positive factors arguing for having the Reserve Banks destroy unfit Federal Reserve notes included the estimate of a saving of $1861000 a year and the statement by the auditors that the operation could be undertaken 'appropriate safeguards. The matter was, however, basically a 1111(181 PelicY question. , During a discussion of the basis on which savings were estimated kr. Leonard commented that one view expressed regarding the proposal that Re8erve Banks verify and destroy unfit Federal Reserve notes was that the Pqential saving of $1862000 might be looked upon as an insurance premium which . properly might be paid for retaining the existing safeguards At the conclusion of the discussion, it was understood that copies of the memorandum the would be furnished to the Presidents of Federal Reserve Banks and that the matter would be discussed at the time the Presidents conwere in Washington next week for their ference. of the Federal Minutes of actions taken by the Board of Governors Reserve System on June 10, 1955, were approved unanimously. The meeting then adjourned.
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