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Minutes for To: June 17, 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. 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 Minutes of the Board of Governors of the Federal Reserve System oa Friday, June 17, 1960. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Mills Robertson Mr. Sherman, Secretary Mr. Hackley, General Counsel Mr. Marget, Director, Division of International Finance Mr. Farrell, Director, Division of Bank Operations Mr. Masters, Associate Director, Division of Examinations Mr. Robinson, Adviser, Division of Research and Statistics Mr. Dembitz, Associate Adviser, Division of Research and Statistics Mr. Furth, Associate Adviser, Division of International Finance Mr. Nelson, Assistant Director, Division of Examinations Mrs. Semia, Technical Assistant, Office of the Secretary Assistant Counsel Hooff, Mr. Counsel Assistant Hart, Miss Assistant Legal Potter, Mr. Mr. Collier, Chief, Current Series Section, Division of Bank Operations Transmission of report of examination. The Board ratified Chairman Martin's action in sending a letter on June 16, 1960, to Chairman 8Peace of the House Banking and Currency Committee transmitting a copy °I' the report of examination of the Federal Reserve Bank of San Francisco 111a4le during 1959. A copy of the letter of transmittal is attached as Item No. 1. Call for condition reports. It was reported that advice had been lec'eived yesterday from the Office of the Comptroller of the Currency that ' 6/17/60 -2- the Comptroller would make a call on all national banks on June 21, 1960, for reports of condition as of the close of business June 15, 1960; and that in accordance with the usual practice a telegram had been sent to the Federal Reserve Banks indicating that a similar call should be made Upon State member banks. The action taken in sending the telegram to the Reserve Banks vas ratified by unanimous vote. Discount rates. The establishment without change by the Federal Reserve Banks of New York, Philadelphia, and San Francisco on June 16, 1960, of the rates on discounts and advances in their existing schedules .714-s approved unanimously, with the understanding that appropriate advice ' l7°uld be sent to those Banks. Items circulated to the Board. The following items, which had been circulated to the Board and copies of which are attached to these IllinlAtes under the respective item numbers indicated, were approved Unanimously: Item No. utter to the Chemical Bank New York Trust 2 ,?,111PanY, New York City, approving an extension time to establish a branch at 110 Maiden Lane. Ii?tter to the State Bank of Plainfield, PlainNew Jersey, approving an extension of time accomplish membership in the Federal Reserve 3 °Ystem. Letter to the Peoples Bank of Cuba, Cuba, Missouri, -PProving an investment in bank premises. L. 6/17/60 -3Item No. Letter to the Federal Deposit Insurance Corporation regarding the application of Security State Bank, Mount Ayr, Iowa, for continuation of deposit insurance after withdrawal from membership in the Federal Reserve SYstem. 5 Applications for organizing a national bank in Austin, Texas (Items 6 and 7). Two draft letters to the Comptroller of the Currency had been circulated concerning applications to organize a national bank in Austin, Texas. One letter recommended favorable consideration of the s-PPlication filed by Mr. Jake Jacobsen and associates, and the other letter recommended unfavorable consideration of the application filed by Mr. Ned McDaniel and associates. Mr. Nelson stated that these two applications were filed at about the same time last September by two groups wanting to establish a national bank in the northeast section of Austin about 4-1/2 miles from the business section. The bank that the Capital Plaza group, headed by Mr. Jacobsen, 1311°Posed to establish would be located in a shopping center. The 51st Street group, headed by Mr. McDaniel, proposed to establish a bank about three blocks from the Capital Plaza site. There was apparently room in the area for only one bank, which it was estimated would reach a deposit vcallme of about $3 million by the end of the third year of operation. both groups were generally acceptable as organizers Mr. Nelson said, but the Division of ExRminations favored the recommendation of Vice President /:)°11°Irom of the Dallas Reserve Bank that the application by Mr. Jacobsen's 22f0 6/17/60 group be given preference. That group appeared to have greater financial strength, the proposed management was believed to be a little more exPerienced, and their proposed site in rented quarters in a shopping center seemed preferable to the 51st Street group's plans to build banking quarters, investing about 50 per cent of their capital in the construction. more business. It was felt that the Capital Plaza group could generate Also, the 51st Street group would have to borrow and would be heavily indebted. The Board thereupon approved the two letters to the Comptroller Of the Currency in the form attached hereto as Items 6 and 7. Violations of definition of "carrying" under Regulation U (Item A draft of letter to the Federal Reserve Bank of Philadelphia haft been circulated regarding the treatment in examination reports of 413Parent violations of Section 221.3(b)(1) of Regulation U involving the definition of "carrying" in effect from June 15, 1959, to March 8, 1960. The Federal Reserve Bank of Philadelphia had asked, assuming that the 1°ans in question represented a violation under the definition of carrying 14 effect at the time they were made, if the loans should be so reflected 14 the examination report as of January 4, 1960, in view of the revocation °I' the definition on March 8, 1960. The proposed letter to the Philadelphia 134ak expressed the view that that question must be answered in the 41Tirmative. The Reserve Bank also had asked, in view of the statement 14 the Board's telegram of March 7, 1960, that "...the Board is concerned ,22f;I -5vith evasive extensions of bank credit for the purpose of carrying registered stocks and expects banks to be alert in detecting and preventing attempts to circumvent the basic purposes of this part.", if the case could still be considered a violation of the "carrying" restriction even though the definition as set forth effective June 15, 1959, had been rescinded. The proposed letter to the Reserve Bank indicated that the amendment to the Regulation had been effective March 8, 1960, and was not retroactive to the time when the definition of carrying had been Therefore, the status of a bank's conduct that constituted a adopted. violation of the definition while it was in effect was not changed by the amendment. The letter also pointed out that the Board places responsibility on banks to bear in mind and seek to effectuate the purpose Of the Regulation, and this it seemed that the bank in question had not done After a brief discussion, the letter to the Federal Reserve Bank Of Philadelphia was apuoved in the form attached hereto as Item No. 8, with the understanding that a copy would be sent to each of the other Reserve Banks for information. Miss Hart then left the meeting. Application for continuance of permission to maintain reduced reserves (Item No. 9). A memorandum from the Division of Bank Operations dated June 15, 1960, had been distributed, recommending favorable action on an application from City National Bank of Beverly Hills, Beverly Hills, -6- 6/17/60 California, for continuance of permission to maintain reduced reserves after establishing an additional branch within the corporate limits of Los Angeles, a reserve city. A draft of letter to the applicant bank granting the permission was attached to the memorandum, and also tables analyzing the various classes of banks that had been authorized to carry reduced reserves. The memorandum pointed out that this was the third such request from the bank within two years, each request arising from the opening of an additional branch that would be located within the city limits of Los Angeles, but on the outskirts. The bank's total assets as °f May 9, 1960, were $83 million, with demand deposits of $58 million. The Division's favorable recommendation was based on the fact that, because of the sprawling city limits of Los Angeles and the location of the applicant bank and its branches, the bank could not be considered a serious competitor to the reserve city banks in Los Angeles, that the recent growth of the bank had been internal rather than from mergers, alad the three branches in Los Angeles were all established de novo, and that total demand deposits of the applicant bank were $33 million before the first permission was granted. The only alternative would be to rescind the permission heretofore granted. Only one of the banks that had been authorized to maintain reserves applicable to country banks-'irst Camden National Bank and Trust Company, Caiden, New Jersey—had gross dem -and deposits ($87 million) greater than those of City National Bank Of Beverly Hills. Only one other bank so authorized--Lafayette National riank in Brooklyn--exceeded the $43 million limit the Board had been using # 6 4 2 t 6/17/60 -7- tentatively for demand deposits of banks granted the country bank reserve privilege. Mr. Collier commented that before the law was changed last year there would not have been any question about granting the country bank Privilege to the applicant bank, because its branches are located in the outlying areas of Los Angeles and do not compete with the larger Los Angeles banks. However, since the change in the law and the use of the rule of thumb of $43 million of demand deposits, the Division of Bank Operations thought it appropriate to bring this case to the Board's attention because of the size to which the applicant bank had grown. Governor Mills observed that the statistics submitted with the memorandum pointed up the difficulty of arriving at classifications, because there were a number of banks with demand deposits within the $43 million cutoff but with total deposits substantially above $43 million. Re expressed the thought that banks themselves were going to question why clemand deposits rather than total deposits should be the criterion, since total deposits represent a bank's liabilities to the public and are the basis for determining reserve requirements. Although the use of the million rule was a good, practical answer, he did not believe it 11°111d eliminate all the questions that would be posed in the future. Governor Robertson thought that the letter should emphasize that the Board was granting the country classification only on a temporary basis because, when criteria for classification were developed, it might 6/17/60 -8- be found that the bank should be placed in the reserve city classification. It would be unfortunate to change the bank's classification in, say, three months, without having warned the bank that the matter was under study and that the authority given was not necessarily a permanent one. Governor Robertson also expressed doubt that it could be said that the aPPlicant bank was not competing with other banks in Los Angeles merely because its offices were on the outskirts of the city. He believed that this bank, an aggressive institution, was in fact competing with downtown banks and would get business from downtown if it could. Governor Robertson expressed agreement with Governor Mills' Observation that location was not the only consideration. A bank in an outlying area Presumably could have total deposits of $150 million and still have c°1411aybank status, whereas a bank downtown with deposits of $50 million /c)111(1 have a reserve city status. Moreover, an aggressive bank would 'et business from wherever it could get it, regardless of the location Of the bank's offices. Governor Robertson then inquired what progress had been made in developing standards for granting permission to carry reduced reserves 44(1 for classification of reserve cities. He felt it would be amiss for the, 0.oard to go beyond the case under consideration without raising the cillestion. that he believed the banks themselves expected to have raised-rielllelY, what are the criteria governing such authorizations? 6/17/60 -9Messrs. Thomas, Adviser to the Board, Young, Adviser to the Board, and Noyes, Director, Division of Research and Statistics, entered the room during Governor Robertson's statement. Mr. Thomas stated that a draft of memorandum concerning criteria for classification of reserve cities and standards for authorizing banks t° carry reduced reserves had been reviewed by the staff yesterday, was nOW being put in final form, and would be distributed to the Board in the near future. The letter to City National Bank of Beverly Hills continuing Permission to maintain reduced reserves was then approved unanimously, with the understanding that it would be changed to indicate that the Board was now studying the classification of banks and that the authority to carry reduced reserves might be rescinded. A copy of the letter is attached Item No. 9. Messrs. Farrell and Collier then withdraw from the meeting. Restrictions on United States dollar operations by the Bank for Illternational Settlements (Item No. 101.._ A memorandum dated June 16, 1960, from Mr. Marget had been distributed regarding payment of interest 13Y the Bank for International Settlements on time deposits denominated in lirlited States currency. had been requested Some years ago the Bank for International Settleby the Federal Reserve Bank of New York to °I)serve the maximum rates on time deposits specified in the Board's Regulation Q. In 1951, the Bank for International Settlements in a letter 226r 6/17/60 -10- t0 Mr. Knoke then Vice President of the Federal Reserve Bank of New York, had stated that it would take good care that the rates of interest it paid on time deposits would not exceed the maximum rates fixed in Regulation Q. It was understood that when Mr. Guindey, General Manager of the Bank for International Settlements, visited the United States in October 1959, he orally asked Mr. Hayes that the Bank be relieved of any °bligation to abide by the provisions of Regulation Q. Attached to Mr. Marget's memorandum was a memorandum dated June 15) 1960, from Mr. Coombs, Vice President of the New York Bank, to Mr. HaYes, stating that the reasons that prompted the Federal Reserve in 1951 to ask the Bank for International Settlements to abide by the Provisions of Regulation Q no longer prevailed, primarily because of the development of dollar deposit business by European commercial banks and bY European branches of United States commercial banks, both of which ere exempt from the ceilings set by Regulation Q. Mr. Coombs, therefore, Posed to send a letter to the Bank for International Settlements that 'q°1114 state that "we are withdrawing our request that the Bank for Inter- national Settlements comply with the ceilings on time deposit rates atIPUlated by the Board of Governors of the Federal Reserve System under Regillation Q." Mr. Marget recommended that the Board interpose no Objection to the action proposed by the New York Bank, if that action 1'418 consistent with whatever plans the Board might have with respect to Regulation Q. 6/17/60 Governor Robertson stated that he did not know the history of the arrangement, but it seemed strange to him that a request had ever been made to the Bank for International Settlements to observe the restrictions of Regulation Q. However, assuming that the request was made and that it had Board concurrence as Mr. Coombs indicated, it seemed to him that the last paragraph of section 14 of the Federal Reserve Act clearly indicated that this was a System matter and not a Reserve Bank Matter. He felt this was a worth while opportunity for the Board to exercise the authority given it under the statute. He believed that there was no basis for insisting that the Bank for International Settlements comply with Regulation Q, but release from the obligation should be granted in a letter from the Chairman of the Board of Governors to the 44k for International Settlements. At Mr. Marget's request, Mr. Furth commented on discussions between the Board and the New York Bank on this matter. Mr. Furth stated that the root of the problem probably lay in the statutes of the Bank fc)r International Settlements under which the Bank recognized the New Thrk Reserve Bank as the central bank in the United States. He then reviewed those provisions, as follows: "Art. 20. "The operations of the Bank shall be in conformity with the monetary policy of the central banks of the countries concerned. "Before any financial operation is carried out by or on behalf of the Bank on a given market or in a given currency the Board shall afford to the central bank or central banks directly concerned an opportunity to dissent. ...." 6/17/60 -12- "Art. 58. For the purposes of these statutes:- "(1) Central bank means the bank in any country to which has been entrusted the duty of regulating the volume of currency and credit in that country; or, where a banking system has been so entrusted, the bank forming part of such system which is situated and operating in the principal financial market of that country. "(2) The Governor of a central bank means the person who subject to the control of his Board or other competent authority has the direction of the policy and administration of the Bank." Under the provision last quoted it was clear that, although the Bank for International Settlements dealt with the Federal Reserve Bank of New York, the latter's actions were subject to approval of the Board of Governors, which was the "competent Board or authority. Mr. Marget stated that the present proposal of the New York Bank haa been communicated to the Board by a telephone ell Mr. Marget's iallmediate reaction was that this was a matter that should be called to the Board's attention because, regardless of what organization the statutes (If the Bank for International Settlements recognized as the central bank 14 the United States, the Board's jurisdiction took precedence. Governor Robertson commented that the statutes might control the Bank lor International Settlements but they could not control the System The Bank for International Settlements might designate the New York Bank 44 the institution with which it would deal, but the central bank in the thlited States is the Federal Reserve System and not any individual Federal Resee Bank. Therefore, the System as such should be speaking on the 6/17/60 -13- Matter under consideration rather than any unit of the System the Bank for International Settlements had selected. He asked if the arrangement Made in 1951 was approved by the Board, to which Mr. Furth responded in the negative. Mr. Hackley said that he had been seriously troubled by the fact that apparently the 1951 action had not been concurred in by the Board. Ile was also troubled because the proposed letter used the word "we", nleaning the Federal Reserve Bank of New York, whereas section 14(g) of the Federal Reserve Act clearly gave the Board supervision over all r elations and transactions with any foreign bank whatever, all of which seemed to have been ignored in this case. He had no questions concerning the substance of the matter, but was concerned only because the Board's Jurisdiction with respect to foreign relationships was being disregarded. Mr. Thomas asked if there was any record of the 1951 arrangement beillE discussed within the staff group that was used for liaison with the Nel/ York Bank on foreign transactions at that time. Mr. Marget said that he could recall nothing and that nothing had been located in the minutes of those meetings to show that the subject 1413's discussed by that group at any time. The extensive correspondence bet Ileen the New York Bank and the Bank for International Settlements 4ee°mPlishing the 1951 arrangement had merely been transmitted to the by Mr. Knoke as a fait accompli for the Board's information. 6/17/60 Mr. Robinson expressed the view that asking the Bank for International Settlements to conform to Regulation Q was a dubious decision even in 1951, because then, as now, the foreign branches of United States banks were allowed to accept dollar deposits. There had been no real change in the situation except that allowable interest rates were now an effective factor. After further discussion of ways in which the response to the New York Bank might make it clear that the request from the Bank for International Settlements involved a matter requiring Board approval, a letter to Mr. Hayes in the form attached hereto as Item No. 10 was --S2Z12!. el unanimously. Messrs. Thomas, Young, Noyes, Marget, Robinson, Dembitz, and Purtb then left the meeting. Reports on proposed mergers or consolidations. The following l'ePcnts, with the summaries and conclusions indicated, which had been circulated or distributed to the Board, were approved unanimously: Report to the Comptroller of the Currency on the proposed consolidation of The Monmouth County National Bank, Red Bank, Red Bank, New Jersey, and The Atlantic Highlands National Bank, Atlantic Highlands, New Jersey. Summary and Conclusions: The proposed merger will permit The Monmouth County National Bank to acquire only an additional 3.5 per cent of total commercial banking deposits in the general area now served by 12 other banks. It is reported that most of these other banks are sufficiently large and aggressive to compete effectively with the continuing bank. The number of banking offices currently available to the public will not be reduced and, while the merging banks presently compete to some extent, it appears that any lessening of competition as a result of the merger will not be material. • * 3,* t• e 6/17/60 -15- Report to the Comptroller of the Currency on the proposed merger of First Union National Bank of North Carolina, Charlotte, North Carolina, with The First National Bank of Kings Mountain, Kings Mountain, North Carolina, under the charter of the former. Summary and Conclusions: The two banks involved in the proposed merger do not presently appear competitive. There would be no decrease in number of banking offices nor vould the merger confer on the major bank (First Union) any monopolistic advantage other than the single monopoly previously existing in Kings Mountain for First. Alternate banking services would continue to be available from nearby sources. Report to the Comptroller of the Currency on the proposed merger of The First National Bank of Greenport, Greenport, New York, into Valley Stream National Bank and Trust Company, Valley Stream, New York. Summary and Conclusions: The proposed merger will not lessen the number of banking offices but it may result in a minor change in the competitive situation in Greenport. Proposed consolidation of banks in Baltimore, Maryland. A memo- dated June 8, 1960, from the Division of Examinations had been distributed in connection with the proposed consolidation of FidelityBaltimore National Bank and the Maryland Trust Company, both of Baltimore, MazYland• Attached to the memorandum was a proposed report to the C°mPtroller of the Currency on the competitive factors involved in the e°11so1idati0n. The report found that although the proposed consolidation w(luld result in the reduction of one competing financial institution, there would not appear to be any significant lessening of banking services anY tendency toward monopoly because other financial institutions 41013 ared capable of furnishing good competition. Governor Robertson said he had suggested a revision in the report to • Indicate that the consolidation, which would combine two really large • 6/17/60 -16- banks, obviously would diminish competition although it would not create a tendency toward monopoly because of the other large banking institution that would continue to afford competition. After a brief discussion of Changes in wording, the revised report was approved unanimously for transmission to the Comptroller of the Currency. The conclusions of the "%Tort as approved read as follows: The proposed consolidation would obviously diminish competition because it would result in the reduction of one competing financial institution and the formation of the largest bank in Maryland. However, there would not appear to be any significant tendency toward monopoly because other existing financial institutions are capable of furnishing good competition and provide a Wide choice of banking sources. Proposed merger of banks in Woodburn and Fort Wayne, Indiana. A memorandum dated June 9, 1960, from the Division of Examinations had been distributed in connection with the proposed merger of Woodburn State 13arlk: Woodburn, Indiana, with and into Fort Wayne National Bank, Fort WaYne, Indiana. The summary and conclusion of the report read as follows: The proposed merger will combine a small country bank with the second largest bank in Allen County. The continuing bank would have less than one-third of total offices, loans, and deposits in the county, and the proposed merger would not enable it to obtain a dominant position among Allen County financial institutions. Fort Wayne National Bank would remain the second largest bank in the county and the proposed merger would not Significantly affect existing or potential competition. Mr. Hackley pointed out that special circumstances in this 1)4rticular case indicated that the proposed merger might result in keener ' l ather than diminished competition. It was his view that the new bank 6/17/60 -17- zerger law contemplated that the Board would report on the effect a Proposed merger might be expected to have on competition, in either direction, as contrasted with the narrower question as to whether competition might be lessened. He suggested that in future reports the Board might wish to bring out the fact that increased competition might be expected, where that was the case. Agreement was expressed with Mr. Hackley's suggestion. The report was then approved unanimously for transmission to the CoMptroller of the Currency. Proposed merger of banks in West Terre Haute and Terre Haute, Indiana. A memorandum dated June 15, 1960, from the Division of Exami- 44tions had been distributed in connection with the proposed merger of The State Bank of West Terre Haute, West Terre Haute, Indiana, into the Terre Haute First National Bank, Terre Haute, Indiana. The report Indicated that the merger would reduce competition to some extent in West Terre Haute and would appear to tend toward monopoly in the trade Governor Mills expressed the view that in these reports the 13°141.rd should not try to foretell future developments in the particular ecIMmunities but should confine its appraisal to the statistical and °Ipservable effect the merger would have on the competitive position of the banksconcerned as of the date the merger was completed. He thought that the conclusion that competition would be reduced to some extent 6/17/60 -18- and there would be a tendency toward monopoly was a matter of judgment, and he believed that the Board's judgment in this regard VW not any better than that of any one else. Noting that in the Fort Wayne case Previously considered Mr. Hackley had indicated that keener competition might be expected, Governor Mills said that he thought that the Board Ifts not in a position to make such predictions. Chairman Martin recalled Mr. Hexter's statement at the meeting on June 15 that an srmlysis of effects on competition must of necessity take into consideration potential competition in the future. His feeling /las that the position indicated by. Mr. Hexter then was valid. Governor Mills replied that he did not read that as the Board's ' lesPonsibility under the law; his reading of the law was that reports sUbmitted by the Board to other agencies were to be confined to the eotTetitive factors as the Board saw them, although he agreed this was debatable. It seemed to him preferable not to try to read the future. Re suggested that it would be desirable to have a complete analysis of the legislative history to get the full sense of the committee reports 14 the House and Senate. Governor Robertson replied that he thought the committee reports hal been analyzed carefully and that nowhere was there an indication that ' lePorts on competitive factors should contain only facts and not opinions. Me Judgments of the several supervisory agencies were to be dbtained so th4t there would be some degree of uniformity among the agencies in a41114uistering the statute. 6/17/60 -19Mr. Hackley stated that the Legal Division understood that the reports called for a judgment as to the effect of a merger not only on existing but also on future competition, an understanding that he said the Department of Justice shared. In regard to the Terre Haute case under consideration, Mr. Hackley expressed a preference for omitting the statement that there would be a tendency toward monopoly because there vere a number of savings and loan associations in the community. The legislative history of the law on mergers indicated that reports on eoMPetitive factors should consider not only the commercial bank situation but also competition from other institutions. After agreement on changes in wording, the report was approved Unanimously for transmission to the Comptroller of the Currency. The conclusion of the report as approved read as follows: The proposed merger will combine the smallest area bank with the largest bank, and will not reduce the number of banking offices inasmuch as the office of The State Bank of West Terre Haute will be continued as a branch. The Terre Haute First National Bank Will have 5 of the 10 commercial banking offices and 52.5 per cent Of commercial and savings deposits in Terre Haute and West Terre Haute. It would have about 38 per cent of commercial and savings and loan resources. This proposal would reduce competition to some extent in West Terre Haute and might tend toward monopoly in the trade area. Proposed consolidation of banks in Greensboro and Charlotte, 1°Ibth Carolina. A memorandum dated June 8, 1960, from the Division of 4aminations had been circulated in connection with the proposed consoliclati°n of Security National Bank of Greensboro, Greensboro, North Carolina, dr) 6/17/60 -20- and American Commercial Bank, Charlotte, North Carolina, under the charter of the former. The report found that in general the proposal would not appear to have a significant effect on the competitive situation. Governor Robertson stated that this proposed consolidation involved two large banks operating in all sections of the State, and he did not believe that it would be accurate to say that they do not compete with each other. He felt that the conclusion in the report should be based on the State-wide operations of the banks rather than 011. the situation in individual communities, and he then suggested certain Changes in wording of the conclusion. After further discussion and agreeraent on changes in wording, the report was approved unanimously for transmission to the Comptroller of the Currency. The conclusion of the report as approved read as follows: The proposed consolidation would combine the second and fourth largest banks that presently operate in different sections of the State. The continuing bank would remain second in size and its competitive position with other banks in the State would not be changed materially. Likewise, there would not appear to be any material change in the competitive situation now existing in the seven counties in which the bank will operate except in Wake County where both banks have branches in Raleigh. However, the elimination of one of these two banks in Raleigh will not create a situation in which there is not active bank competition in the city of Raleigh. The meeting then adjourned. Secretary's Note: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Robertson, in the absence of Governor Shepardson, today approved on behalf of the Board the following items affecting the Board's staff: 6/17/60 ARRalntment Jeanette Somlyo as Clerk-Stenographer in the Division of Personnel Administration, with basic annual salary at the rate of $3,6851 effective the date of entrance upon duty. 8alarY increase ,, Annie I. Cotten, Secretary, Board Members' Offices, f q40,520 per annum, effective June 26, 1960. Secretary 60370 to 228 e.otkisytvi, 0 0 0 0 BOARD OF GOVERNORS OF THE tf' Item No. 1 6/17/60 FEDERAL RESERVE SYSTEM WASHINGTON 44: 4 4 OFFICE OF THE CHAIRMAN VLSO,,ft* 00*** June 16, 1960 The Honorable Brent Spence, Chairman, Committee on Banking and Currency, House of Representatives, Washington 25, D. C. Dear Mr. Chairman: Pursuant to a request contained in a letter of this date from Mr. Pathan, a copy of which is enclosed, the report of examination of the Federal Reserve Bank of San Francisco made during the Year 1959 is being sent today to the offices of the Committee on Banking and Currency of the House of Representatives. For reasons stated on past occasions when such reports have been supplied to your Committee, the report of examination of the Federal Reserve Bank of San Francisco made during the year 1959 is being forwarded to the Committee with the understanding that it will be made available in Confidence only to members of Congress and their staffs. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. Enclosures BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 2 6/17/60 ^COMM OPTIMAL, CIORMEMPONOCHOE TO THE ECIAND June 17, 1960 Board of Directors, Chemical Bank New York Trust Company, New York, New York. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors Of the Federal Reserve System extends to Decembe r 26, 1960, the time within which Chemical Bank New York Trust Company, New York, New York, may establish a branch at. 110 Maiden Lane, NEW York, New York. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2280 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 6/17/60 WASHINGTON 25. D. C. A00111[11111 orrsatAL 0011litESPONOENCC TO TUC •0A1110 June 17, 1960 Organization Committee, State Bank of Plainfield, Plainfield New Jersey. Gentlemen: In accordance with your request submitted through the Federal Reserve Bank of New York, the Board of Governors of the Federal Reserve System extends to December 28, 1960, the time within which State Bank of Plainfield, Plainfield, New Jersey, may accomplish admission to member ship in the Federal Reserve System, as outlined in the Board's letter of June 26, 1959. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 3 1 BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS art-1cm%. CORRESPONDENCE TO THE BOARD June 17, 1960 Board of Directors, Peoples Bank of Cuba, Cuba, Missouri. Gentlemen: The Board of Governors of the Federal Reserve System approves, under the provisions of Section 24A of the Federal Reserve Act, an additional investment in bank premises in the amount of 35,614.86 by the Peoples Bank Of Cuba, Cuba, Missouri. It is understood that such additional investment represents capitalization of funds already expended in connection with the purchase of the Property on which the new bank building is situated. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. KenyOn, Assistant Secre tary. 4 6/17/60 BOARD OF GOVERNORS OF THE Item No. 5 FEDERAL RESERVE SYSTEM 6/17/60 WASHINGTON 25. O. C. ADORES. OFFICIAL CORAC•PON TO THC IBOARO June 17, 1960 The Honorable Jesse P. Wolcott, Chairman, Federal Deposit Insurance Corporation, Washington 25, D. C. Dear Mr, Wolcott: Reference is made to your letter of June 2, 19600 concerning the application of Security State Bank, Mount Ayr, Iowa, for continuance of deposit insurance after withdrawal from membership in the Federal Reserve System. No corrective programs which the Board believes should be incorporated as conditions to the continuance of deposit insurance have been urged upon or agreed to by the bank. Very truly yours, (signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. CNC( 22H BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 6 6/17/60 WASHINGTON 25, D. C. AOORENIS OrrICIAL 00111/111CIPONOENOE TO THE /CARO June 17, 1960 Comptroller of the Currency, Treasury Department, washington 25, D. C. Dear Mr. Comptroller: Reference is made to Mr. Jennings' letter of September 14, 1959, enclosing copies of an application signed by Mr. Jake Jacobsen end associates to organize a national bank at Austin, Texas, and requesting a recommendation as to whether or not the application should be approved. Information contained in a report of investigation of the Plication made by an examiner for the Federal Reserve Bank of Dallas ,,210ses 13 that the proponents plan to provide a capital structure of ii,sk,,u,000 for the bank instead of $400,000 shown in the application. vuts capital structure would be adequate on the basis of the anticipated 4°-"Ime of business to be acquired. The prospects for profitable operaare favorable, chnracter of management is satisfactory, and it Ppears that a bank in the proposed area has prospects for successful °Aerations within a reasonable period of time. It is noted that another : 13Plioat1on is pending for the establishment of a national bank in the tne general area and that the two applications were filed about the same b:n. According to the information available, there is need for only one ' t 144K in the area at this time and inasmuch as the information in respect t2 some of the factors is somewhat more favorable in this application, tue Board of Governors recommends favorable consideration of the proposal ° establish a national bank signed by Mr. Jake Jacobsen and associates. 2 The Board's Division of Examinations will be glad to discuss any 48 Pects of this case with representatives of 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. FEDERAL RESERVE SYSTEM 7 6/17/60 WASHINGTON 25. D. C. ADORERS OFFICIAL CORRESPONDENCE TO THE INCIARD June 171 1960 CrTtomPtroller of the Currency, zreasury Department, Washington 252 D. C. Attention Mr. G. W. Garwood, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated October 15, 1959, enclosing copies of an application to organize a l ational bank at Austin, Texas, signed by Mr. Ned McDaniel and -880ciates and requesting a recommendation as to whether or not the aPPlication should be approved. Information contained in a report of investigation of the made by an examiner for the Federal Reserve Bank of Dallas indi c.,.,caues generally favorable findings with respect to the proposed or•tal structure, future earnings prospects, and proposed management : t the bank. According to the information available, another applica11'°n for the organization of a national bank in the same general area ! t 8 filed about the same time. Inasmuch as there appears to be need 'Only one banking institution in the area at the present time and 804 Zle of the factors are somewhat less favorable in this proposal, the coar'd of Governors does not feel justified in recommending favorable 48ideration of the application filed by Mr. Ned McDaniel and associates. application The Board's Division of Examinations will be glad to discuss krkY deetZects of this case with representatives of your office if you 80 Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE 040**,1.4, e 40y49 1 i IT(/' v st EM FEDERAL RESERVE SYST Item NO. 8 6/17/60 WASHINGTON 25, D. C. CNOC CORRCIIIPONO ADDRESS orriciAL TO THC BOARD t *6 41 " last 64104*** June 17, 1960 e President, Mr. Joseph R. Campbell, Vic elphia, lad Phi Federal Reserve Bank of . nia Philadelphia 1, Pennsylva Dear Mr. Campbell: which you ter of March 22, 1960, in This refers to your let in cases epparently that should be followed icy pol the ing ard reg e tion of "carrying" inquir tion U, under the defini ula Reg of ion lat vio ing ter outlines involv Merch 8, 1960. Your let to 9, 195 15, e Jun m fro bank, the effective loans by a State member the facts involved in a series of S. Paul Ferraris. , Pennsylvania, to Mr. wyn Ber of k, Ban e Lin n er registered on Mai Upp e secured by securities wer ns loa the of l era tement was obtained. Although sev only one "purpose" sta ge, han exc s tie uri sec however, that al a nation bank, told the examiner, the of ent sid pre e vic , hes his business Itir. Hug ed were being used in eiv rec er row bor the ds maged by fire and la11 the fun the Conestoga Inn (da to ns tio era alt for ch seemed inPaoli Inn, and nce company)." Facts whi tificates ura ins the m fro ry ove awaiting rec l of the cer clusion were that severa some Pensistent with this con e borne dates after hav loans seem to the for l iew era rev lat ed col ail det t a deposited as had taken place, and tha dit cre s for s er' ion row ens bor ext of the Previous t showed that several of the borrower's deposit accoun ck. sto d purchase registere checks were being used to ts, the first are raised by these fac Two preliminary questions the use of the lcan, and the second to the of e pos pur the to by the bank were re1atinc first, if funds loaned the to As . ent tem se sta securities, then 'purpo to purchase registered y, ctl ire ind or ly ect respect to those used, dir " would be superfluous in ing rry "ca to es on sti in accordance with anY que nct initially margined if ns, loa the and s, n U, would clearly securitie .r.;upplEment to Aezulatio the er und ts men uir req t curren of the regulation. have been made in violation ing the use of the liminary question, involv As to the second pre nt in the regulation of course, no requireme is, re the , ent tem sta borrower in connection Purpose h a statement from the suc ain obt ll sha k ban that a better practice for a n. To be sure, it is loa d ure sec cksto ry h wit eve requirements of sectement which meets the sta e pos pur a ain bank to obt to suppose that a where there is any reascn es cas all in a) .3( n tio 221 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. Joseph R. Campbell -2- loan may be a purpose loan. But if a bank does not obtain such a statement, the lending officer must be in a position ;,,o satisfy a bank examiner by some Other means as to what was the purpose of the loan. Mr. Hughes' cral remarks to the examiner would not appear to be adequate in this connection, particularly in view of the facts disclosed by the detailed review of the borrower's deposit account. Turning to the two questions raised in your letter, you ask Assuming the subject case represents a violation under the definition °f 'carrying' effective June 15, 1959, should it be so reflected in the examination report as of January L, 1960, in view of the revocation as of March 8, 19601," It is believed that the answer to this question must be in the affirmative. (1 kJ-) You also ask "(2) The Board's telegram of March 7, 1960, in part, states ... the Board is concerned with evasive extensions of bank credit Or the purpose of carrying registered stocks and eypects banks to be alert ln detecting and preventing attempts to circumvent the basic purposes of this part.' In view of this could the case still be considered a violation Of the Icarryinp-' restriction even though the express definition as set forth effective June 15, 1959 has been rescinded?" So far as your question refers to extensions of credit which took 121ace before March 8, 1960, the answer would seem to derive from the fact .flat the Board did not return to the old section 221.3(b)(1) as of June 15, 593 but made the amendment effective March 8, 1960. Accordini, if a lank engaged in conduct which violated that language, at a time when the ,!nguage was in effect, then the status of such conduct is not changed by 'ne amendment. The Board does not, of course, pass on the question whether . 11°11 violations would be subject to criminal prosecution if referred to the -,:ePartment of Justice. Moreover, in assessing the conduct of a bank, the „,!asons which led the Board to amend the section, including the difficulty interpreting the language which obtained from June 15, 1959, to March should be taken into consideration. e 8, 96° , Turning to extensions of credit which may have taken place after Mar n eu 0, 1960, when the Board restored the definition of "carrying" which ; Tr in effect before June 15, 1959, a different question is presented. t;"ile Regulation U attempts to define the precise legal limits within which aahks must operate, the Board has always expected banks also to bear in mind tnd se.gi-To effectuate the purpose of the regulation. Had the Board not -!lieved that it could rely upon banks to act in good faith in accordance ' ivs h the spirit as well as the letter of the regulation, it would have °tied, as it has the power to do, a stricter body of rules. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Hr. Joseph R. Campbell -3- If the course of conduct on the part of the member bank described in your letter continued after March 81 1960, and proved, on analysis, to amount to loans for "carrying" within the meaning of the provisions effective from June 15, 1959, to March 8, 1960, and yet did not fall within the carrying" section as it now stands, then certainly the bank could not be eaid to be violating that section of the regulation since the later date. Rowever, it seems probable in this case that the bank may have permitted it8 facilities to be used in such a way as to constitute extensions of credit for the purpose of purchasing registered stock in violation of both the letter and the spirit of the regulation. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 9 6/17/60 WASHINGTON 25, D. C. ADDRESS orriciAL CORRESPONDENCE TO THE BOARD June 17, 1960. Board of Directors, City National Bank of Beverly Hills, Beverly Hills, California. Gentlemen: Pursuant to your request submitted through the Fed— eral Reserve Bank of San Francisco, the Board of Governors, acting under the provisions of Section 19 of the Federal Reserve Act, grants permission to the City National Bank of Beverly Hills to continue to maintain the same reserves against deposits as are required to be maintained by banks located outside of central reserve and reserve cities, upon the opening of its additional branch in the city of Los Angeles. Your attention is called to the fact that such per— mission is subject to revocation by the Board of Governors. For your further information, the Board is now actively studying the problem of classifying banks for reserve purposes under the legislation enacted July 28, 1959, Public Law 86-114. As you know, this law includes a provision under which the Board may authorize banks to maintain reduced reserve balances on such basis as the Board may deem reasonable and appropriate in view of the character of business transacted by the member bank. The current study may possibly result in changes in some of the outstanding authorizations given by the Board for carrying reduced reserves. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 10 6/17/60 FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN June 17, 1960. Mr. Alfred Hayes, President, Federal Reserve Bank of New York, New York 45, New York. Dear Al: A memorandum from Vice President Coombs to you dated June 15, 1960, which was transmitted informally to the Board's Division of International Finance, has been brought to the attention of the Board. This memorandum proposes the withdrawal of any objections the Federal Reserve may have to payment by the Bank for International Settlements of interest rates on dollar time deposits in excess of the ceilings imposed under the Board's Regulation Q. It is assumed that the transmittal of this memorandum is to be considered as your Bank's request for the Board's permission for the sending of a letter to the Bank for International Settlements withdrawing the previously expressed objection. The Board has considered the proposal made in Mr. Coombs' memorandum and approves the sending by you, on behalf Of your Bank and the Federal Reserve System, of a letter in the form of the one enclosed. Sincerely yours, Wm. McC. Martin, Jr. Enclosure ? -1 94.ft :1401.•1 ‘ g S • &LAI 0 DRAFT Mr. Guillaume Guindey, General Manager, Bank for International Settlements, Centralbahnstrasse 7, Basle, Switzerland. Dear Mr. GuindeP We wish to inform you that the Board of Governors of the Federal Reserve System has approved the withdrawal until further notice of previous objection to the payment of interest by the Bank for International Settlements on dollar time deposits at rates in excess of the ceilings prescribed by the Board's Regulation Q. With very best regards, Sincerely, Alfred Hayes, President. 6/17/60
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