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Minutes for
To:
Members of the Board
From:
Office of the Secretary
June 20, 1962
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
..th respect to any of the entries in this set of
wi
!al-flutes in the record of policy actions required to
pe 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
4elow. If you were present at the meeting, your
J.flitials will indicate approval of the minutes. If
You were not present, your initials will indicate
°IllY that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
,
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, June 20, 1962.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardson
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Fauver, Assistant to the Board
Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Holland, Adviser, Division of
Research and Statistics
Mr. Koch, Adviser, Division of Research
and Statistics
Mr. Conkling, Assistant Director, Division
of Bank Operations
Mr. Benner, Assistant Director, Division
of Examinations
Mrs. Semia, Technical Assistant, Office
of the Secretary
Mr. Potter, Senior Attorney, Legal Division
Mr. Partee, Chief, Capital Markets Section,
Division of Research and Statistics
Mrs. Ulrey, Economist, Division of Research
and Statistics
Mr. McClintock, Supervisory Review Examiner,
Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Report on competitive factors (Roanoke, Virginia).
There
had. been
distributed a draft of report to the Comptroller of the
elll'I‘erleY on the competitive factors involved in the proposed merger
or The Colonial-American National Bank of Roanoke, Roanoke, Virginia,
14to The First National Exchange Bank of Roanoke.
6/20/62
-2During discussion, Governor Robertson suggested the deletion
of certain language in the conclusion and also in the body of the report
to the effect that the elimination of the second largest bank in Roanoke
4s a competitive unit by merger with the largest bank might improve
the prospects of other banks in the Roanoke area.
In his view, such
a statement could not be substantiated and gave an erroneous impression.
Governor Shepardson commented that in similar situations in
the Past, he thought the Board had accepted the validity of a statement
that When larger banks merged the remaining smaller banks might benefit.
It Was contended, as he recalled, that they could build on the trade
Or People who preferred to deal with smaller banks.
He questioned
hsther the Board would not be changing its position, with resulting
Ine°nsistency, if Governor Robertson's suggestions were adopted.
Mr. Solomon commented that the tendency for smaller banks to
benefit when larger banks in an area merged might be greater when the
eliminated as an independent unit was taken over by an out-of-town
(Irgti
niza.tion.
After further discussion, the report was approved, with the
Thatult
--- suggested, for transmission to the Comptroller of the Currency.
kith ni
-6,4 Governor Shepardson did not dissent from this action, he
l'elterated his reservations from the standpoint of consistency of the
13°8-1'd's position.
The conclusion of the report, as approved, read as follows:
6/20/62
-3-
First National Bank and Colonial-American National
Bank are competitive banks and the proposed merger would
eliminate a substantial degree of competition in and
around Roanoke. It does not appear that it would have
adverse effects on other banks in the area, but it would
effect an important concentration of banking resources in
one institution.
It is concluded that the proposed merger would
result in a substantial reduction of competition and
that such effects would be adverse to the public interest.
Application of United California Bank (Items 1, 2 and 3).
Pursuant to the decision reached by majority vote at the meeting on
June 11, 1962, there had been distributed a draft of order and statetclent reflecting the Board's denial of the application of United Calif°11lia Bank, Los Angeles, California, to merge with The First National
114a. of Vista, Vista, California.
been
A dissenting statement also had
distributed.
After a discussion during which a minor change in the wording
Of the statement insofar as it related to the capital position of United
ee'llfornia Bank was agreed upon, the issuance of the order and statewas authorized subject to such change being made.
Copies of the
°rcler and
statement, as issued, are attached as Items 1 and 2.
A copy
c)t the dissenting statement by Chairman Martin and Governor Shepardson
is at
as Item No.
3.
Messrs. Shay and McClintock then withdrew.
Nonpurpose loans (Item No.
4). At its meeting on June 15,
1962) the Board discussed a telegram sent to Chairman Martin and to all
've Bank Presidents by Nate White, Editor of the American Banker,
99.
6/20/62
-4-
New York, New York.
In the telegram, Mr. White stated that his paper
continued to receive many allegations that the Federal Reserve System
negligent in permitting wholesale evasion of Regulation U (Loans
by
tanks for the Purpose of Purchasing or Carrying Registered Stocks),
leading directly to the use of nonpurpose loans to finance stock market
8Peculation.
Mr. White asked evidence that the Federal Reserve had
been A4,
,A-Li-gent in policing the use of nonpurpose loans, or information
'
613°14 anY plans to prevent future abuse of such loans.
After discussion,
the Board asked all Reserve Bank Presidents by wire to withhold response
to *. White's inquiry pending determination as to an appropriate System
There had been distributed a draft dated June 19, 1962, of
a rePlY to Mr. White.
After discussion, during which certain minor changes in the
art were agreed upon, the letter was approved unanimously subject
'
cil
to th0se changes being made, with the understanding that the Reserve
Presidents would be advised of its content.
A copy of the letter,
a8 sent, is attached as Item No. 4.
Stock market data.
beir,
Mr. Partee referred to a special study
Made by the Securities and Exchange Commission of the stock
418-1'ket break that occurred in the week of May 281 1962.
In this connec-
'") the Commission planned to Obtain information on the incidence
or
.
-J'gln calls by various classes of lenders - brokers, banks, and
6/20/62
-5lenders.
For purposes of the study, the Commission had
cleveloPed a somewhat elaborate questionnaire.
It had been learned
that the Commission was planning to ask the Federal Reserve to carry
Out the part of the study involving margin calls by banks, through
Ibrmal request if necessary.
In response to an inquiry by Governor Robertson as to whether
there
was any reason why the Federal Reserve should not obtain the
inrormation, Mr. Partee responded that there might be some danger of
e°11fusing this study with the Federal Reserve survey of purpose and
11°nPurpose loans that was being gotten under way.
Governor Robertson then asked if the margin calls study could
tic)t he conducted informally by the Federal Reserve Banks, to which the
l'es1)°11se was made that it probably could, although the task confront14 the banks selected for the study would be fairly substantial if a
cillestionnaire such as the one developed by the Commission were used.
Fil/'ther comments indicated that asking Federal Reserve Banks (only
Several of which would be involved) to gather the data in the manner
Ngested might enable the study to be completed quickly enough to
avoid
confusion with the forthcoming broader survey.
Also, the Federal
Resell'e could develop its own questionnaire.
After further discussion, it was agreed to proceed with the
1.1r17
eY of margin calls by banks at the initiative of the Federal Reserve.
Mr. Partee, Mr. Potter, and Mrs. Ulrey then withdrew.
222f)
6/20/62
-6Midyear reports of income and dividends (Item No. 5).
its
At
meeting on April 181 19621 the Board discussed the decision by
the Comptroller of the Currency to discontinue midyear reports by
rletional banks of income and dividends.
The Board requested its
staff to explore the reasons for and against the collection of these
data on a sample basis from member banks, and in a letter dated April
20) 1
962, the Federal Reserve Banks were asked for their views on
that
question.
There had been distributed a memorandum dated June 15, 1962,
rrQm Messrs. Holland and Conkling, to which was attached a summary
de1414
— ig with the uses made of the midyear income and dividends reports
at the Reserve Banks and the Board/ the needs of other Government
agencies, and the responsibility to provide statistics to serve demonstl'ated public needs.
After analysis of that information, the Divisions
of
Research and Statistics and Bank Operations concurred in recommending
that:
No unilateral attempt be made by the Board to obtain
midyear 1962 reports of income and dividends from
member banks.
The Office of Statistical Standards of the Bureau of
the Budget be informed of the present situation.
(A draft of letter for that purpose was attached to
the memorandum.)
If the Office of Statistical Standards should request
resumption of interim reports of income and dividends,
the Board should stand ready, in cooperation with that
CurOffice and the Office of the Comptroller of the
Insurance
Deposit
Federal
the
also
rency, and possibly
Corporation, to carry forward a suitably integrated
6/20/62
-7.program for collection of such data. The content and
coverage of the reports would be determined after
consideration of essential data needs and reporting
feasibility, but the present consensus would suggest a
condensed form of reporting by all member banks.
(4)
Regardless of the present attitude of the Office of
Statistical Standards and the other Federal bank
supervisory agencies, the Board should reconsider
the matter in the spring of 1963 if needs for interim
bank earnings reports from all member banks then
appeared to be urgent.
After a discussion during which Messrs. Conkling and Holland
Colizented on the moderate use made of the midyear income and dividends
4t4
Within the Federal Reserve System, there was general agreement that
the rec
ommendations made in the memorandum should be accepted, and the
letter to
the Office of Statistical Standards of the Bureau of the Budget
vap
.1 unanimously. A copy of the letter is attached as Item No. 5.
10
— 12.4a1
It /14e
understood that copies of the letter would be furnished to the
C(1/1113troller of the Currency, the Federal Deposit Insurance Corporation,
8'4(1
the Presidents of the Federal Reserve Banks, the latter also to
be sent the staff memorandum.
The members of the staff then withdrew and the Board went
Ihto ex
ecutive session.
Assistance to Central Bank of Colombia (Item No.
the eetlng
6).
Following
Governor Shepardson informed the Secretary that during the
execll •
tive session the Board approved the sending of a letter to the Banco
de 1,
°P Republica, Bogota, Colombia, in the form of attached Item No. 6,
"
2222
6/20/62
-8-
TtlIV
-ng in response to a request made by that bank for assistance in
connection with organizational matters, that the Federal Reserve Bank
of Minneapolis was prepared to make available Mr. John A. MacDonald,
Assistant Cashier of that Bank, for a period of approximately three
131°.riths for such an assignment if the Banco de la Republica desired to
gO forward with such an arrangement.
The meeting then adjourned.
Secretary's Notes: Pursuant to recommendations contained in memoranda from
appropriate individuals concerned, Governor Shepardson approved on behalf of
the Board on June 19, 1962, the following actions relating to the Board's
staff:
88-lary increase
rrY B. Riley, Federal Reserve Examiner, Division of Examinations,
*10111 !
P )600 to $8,955 per annum, effective June 24, 1962.
-!iOflor
activities
Pin,„130ris C. Swerling, Senior Economist in the Division of International
peei to continue his affiliation with Stanford University, Stanford,
ce.i7
--c/rnia, until August 31, 1962, the end of the current academic year.
arbara Carole Passell, Secretary in the Division of International
Inj"n", to engage in work as a jewelry saleswoman for Sarah Coventry,
• during evenings and weekends.
Governor Shepardson noted on behalf of
the Board on June 19, 1962, a memorandum
advising that the application for retirement filed by Ruth A. Westergren, Supervisor of the Personnel Records Unit,
Division of Personnel Administration, had
been approved by the Retirement System of
the Federal Reserve Banks, effective
July 14, 1962.
I
Item No. 1
6/20/62
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
ASHINGTON, D. C.
--------------
14 the
Matter of the Application of
47,D C
ALIFORNIA BANK
to
aPProval of merger with
Fir8t National Bank of Vista
ORDER DENYING APPLICATION FOR APPROVAL OF MERGER OF BANKS
There has coma before the Board of Governors, pursuant to
13allic Merger Act of 1960 (12 U.S.C. 1828(c)), an application by
thAtt
California Bank, Los Angeles, California, a member bank of
th,?. p,
'Odor
Reserve System, for the Board's prior approval of the
°e1
'°f The First National Bank of Vista, Vista, California, with
4/1d
rit° United California Bank, under the charter and title of the
latte
Uotice of the proposed merger, in form approved by the Board,
Published pursuant to said Act.
Upon consideration of all relevant materials in the light
th„
-Lactors set forth in said Act, including reports furnished by
o
Insurance
C°r1Ptroller of
the Currency, the Federal Deposit
oi,ation
factors
) and the Department of Justice on the competitive
ved in the proposed merger and the information received at and in
-2totirteet.
lon with the public proceeding which was ordered in this matter
(27
eral Register 4601) pursuant to the Boardts Rules of Procedure
(120
*P.R.
262.2(f)(3)),
IT IS HEREBY ORDERED, for the reasons set forth in the
'14L.V1.1
8
Statement of this date, that the said application be and
Ilel'elbY is .4
denied,
Dated at Washington, D. C., this 20th day of June, 1962.
BY order of the Board of Governors.
Voting for this action: Governors Balderston, Mills,
and Robertson,
Voting against this action: Chairman Martin and
Governor Shepardson.
Absent and not voting: Governors King and Mitchell,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(8
Iteni No. 2
6/20/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYST3M
FOR
APPLICATIO BY MITED CALIFORNIA BANK
An itin
—11110VAL OF CiERGER WIT:i THE FIRST NATIONAL BANK OF VISTA
STATEJIE:1
United California Bank, Los Angeles, California ("United"),
th
dePcisits of about $2,150 million, has applied, pursuant to the
8allk 'Merger Act of 1960 (12 U.S.C. 1628(c)), for the Board's prior
1)1)c)\Tal °f tho merger of that bank and The First National Bank of
'
1 Vista, California ("First Nat anal"), with deposits of about
million.
lq(3414
merge
a/Aci A
Under the Agreement and Plan of nerger the banks
under the charter and title of United.
The application
l'eement contemplate that the two offices of First dational
b
Qc°Ine branches of United, increasing from 139 to 141 the total
ces
operated by that banK.
To assist
the Board in its consideration of the matter, a
131kic
'proceedir
QT tile
Board
the form of an oral presentation before members
pursuant to section 262.2(f)(3) of its Rules of Procedure
ordered and
conducted on the application (27 Federal Register 4601),
Ighich
rep-resentatives of United and First National appeared and
views and
other data in support of the application.
There
° Other appearances or requests to appear at the proceeding.
-2Under the law, the Board is required to consider (1) the
rillarlei
history and condition of each of the banks involved, (2)
the ad
equaoY of its capital structure, (3) its future earnings
PlePeots, (4)
corporate Powers are consistent with the purposes of 12 U.S. Code,
Ch
oh
the general character of its management, (5) whether
(Federal Deposit Insurance Act), (6) the convenience and needs
the c
°Illniunity to be served, and (7) the effect of the transaction
competiti
on (including any tendency toward monopoly), The Board
not approve
the transaction unless, after considering all these
f4t°1''it finds the transaction to be in the public interest.
Banking factors. - The financial history and condition of
both
banks are
satisfactory. The actual or planned capital structure
Qt each bank is
reasonably adequate. Both banks have favorable future
,4,
1 4i4a,s
Prospects. The same should hold true for the resulting bank,
Ilhich
would be under
the satisfactory management of United. Tne manageOf
First National also is satisfactory, although it is urged in
management
ealiber of the proposal that the bank is facing a need for
Personnel which would be met by consummation of the merger.
110,
C111
•'
lt has not been established to the Boardts satisfaction that
management personnel that may be needed cannot be obtained
the bankts
present personnel or from outside sources. There is no
144 at,
the corporate powers of the banks are or would be inN111
'
j ent laith th-- purposes cf 12 U.S.C., Ch. 16.
1301)iii
22T-'enionc
and needs of the communities. - Vista, California
.ti011 about 15)000), is an unincorporated community about 13 miles
-311°1141 of the city of San Diego and 10 miles inland from the coastal
otti,
4 of O
ceanside. First National's primary service area--the area
fO
whichit derives 75 per cent or more of its deposits of individuals,
Pa.
tnerships, and corporations ("IPC deposits")--has a population of
ab rk,.
00, lies
within the northwestern portion of San Diego County,
fl(le:Icls approximately 7-1/2 miles north, 17-1/2 miles northeast,
7111iles so
utheast, 5-1/2 miles south, and 3 miles west of Vista. This
al'ea 1nel:tides no incorporated towns and no major shopping points, other
than Vista.
The economy is chiefly agricultural with several light
illarluracturing
firms operating in the area. Future growth prospects of
Vista area are favorable, and further residential and industrial
cilrelipPzerit is
anticipated,
t,11 norma_With the exception of trust services, First National offers
I complement
of banking services typical of banks of its size.
141e bankts
one branch is also in Vista. The other banking office
1c) ated i,„
First National's primary service area is the Vista branch
tSeeull-tY First National Bank, Los Angeles (total deposits about
bi1 1
l 0n). Between 195)4 and the end of 1961, First National's
cl_posits in
creased ,c'')5 million and deposits of Security First National
l'kt8 Vista
branch (established in 195)4) increased $7 million.
Trust services and credits in excess of First National's
vizta
t of about
$881500 are available to the residents of the
a IIItlib
a. at the Vista branch of Security First National Bank and
el
'of Offices of other banks competing within but located
'311tsid Of
e
First National's primary service area. The offices of
these
other banks, all within a radius of 14 miles of Vista, include
the o
a'rlsbaci, Lscondido, and Oceanside Branches of Security First
at
'
L all; the Lscondido„ Fallbrook„ and Oceanside Branches of
4111,
'of America
N.T. C.r, S.A. (deposits about ',:11,475 million); the
Oceanside Branches of The First National Trust and
Bcnk, Son Diego (deposits about „/258 million); and the Bank
C)f
Fallbrool: (deposits about l.3 million).
The Board is not satisfied that the banking needs of the
are not now
being adequately met, or will not be met in the
by the
banks operating in or serving the area, except possibly
isolated -Instances,
Nor is it clear that First National
as a unit
not be able to grow and exr)and its facilities commensurate
the
future growth and needs of the area.
To meet the growth of
the area
First National has increased its capital from time to time,
elk" the bank
s
branch was established in 1961. The continuance of
as a sound and profitable alternative source of banking
should not be obstructed seriously by its relatively low loan
Cuch demands as maw arise for credit in excess of the bank's
4114illE
l'artici
limit can be met, as indicated above, by other banks or through
pations
banks that are corres2ondonts of First Notional.
Competition. - United (a subsidiary of
estern Bancorporation,
ct bank holding company) is the fourth largest connercial bank
for
"la, holding about
8 per cent of the deposits of all such
)
0 1)
4)()
113'44 in the State.
It is one of three banks operating extensive
systems in California, having offices in half of the State's
58 et
AMties. United's offices nearest to First National are 32 miles
licl'tilwest at San Clemente and in downtown San Diego, 43 miles to the
There appears to be virtually no competition between the two
' Consummation of the merger would have no significant effect
Or United,
u competitive position in the State as a whole, and it would
'4sc United's percentage of IPC deposits in San Diego County from
°Inilla1
11
amount to only about 2 per cent.
In support of the application it is urged that the proposal
'11°111(1 Provide through a branch of United in Vista more effective
e°r111)etition, especially with the Vista branch of Security First National
1141lit' lic)wever, in view of First National's growth record and its preklia.erance cf local loan volume, it appears that First National has
hell able to compete effectively with that branch of Security First
4ti0tal tank.
EVrthermore, aside from First National, the only other unit
115in
San Diego County is the Bank of Fallbrook, Fallbrook, 14 miles
vista.
This bank, established in 1961, is the smallest of
krth of
th"ille banks located outside of but competing in the primary service
First National, holding 1.7 per cent of the deposits and 2.4
eent of
loans of banks in that area. As the only other banking office
l'irSt National
is primary service area. is the Vista branch of Security
?1*It 114ti°nal Bank, consummation of the proposed merger would, in
b' measure,
or the
deprive customers of First National and other residents
area of the opportunity of choosing between a local unit bank
anti a branch
of a large branch banking organization.
If approved, the transaction also would continue or give
IMPettis to
a trend of concentration in the State through mergers of
betkin
g resources in large branch systems, tending adversely to
al
feet
Potential competition in the field of banking.
Suary and conclusion. - While the proposed merger would be
Dlean
s °I' solving such problem of management succession as First
tilanth
may have
and of providing a broader range of banking services
()se flow provided by that bank, it is not clear that First
t¼t
".'
I L) as a unit bank, cannot remedy its problem of management
sllocess.
the
1°11 and expand its services in a manner commensurate with
of its area, or that the area lacks adequate banking facili-
8
140111ci
While the proposed merger might intensify competition, it
eliminate the only unit bank in the Vista community. Thus, it
have
in that
an adverse effect on potential banking competition
)111111114ity
- as well as in the surrounding area.
These considerations
tIgh anY benefits that might be expected to result from the merger.
A000rdiLgly, the Board is unable to find that the proposed
140111d
be in the public interest.
4111e 20, 1962.
Item 1700
3
6/20/62
DISSENTING STATEMENT OF CHAIRMAN MARTIN
AND GOVERNOR SHEPARDSON
In our judgment - and we recognize that in matters of
this 1,4
"nd judgments may reasonably differ - a balancing of the
OW
.
'ueraticns relevant to the statutory factors leads to the conthat this application should be approved.
It is conceded by the majority of the Board that the proposed
keNer
w°uld not significantly lessen banking competition in the area
boricer
fled. It would, of course, eliminate a unit bank and might thereOf
be r
egarded as lending impetus to the trend toward concentration
bank.
14 resources in a few large branch banking systems in the State
Or r,
We would not wish to encourage that trend.
We thjr k
Nevertheless,
that this rather general assumption of a potentially adverse
Otte
et 1113c)h competition is outweighed by what appear to us to be favorable c_
Qnsiderations in the particular circumstances here presented.
The record on this application, including the oral presentation
berore
the Board, indicates that The First National Bank of Vista, while
01
in
stitution) is faced with a real problem of obtaining competent
Q0411,
,
,n
at the senior management level.
Who
The President of the Bank,
1.8 0.s.r
to
er 80, has indicated his intention to retire.
There appears
be
his son, who is now Executive
vlee 4° question as to the ability of
NInage esIdent, to head the Bank.
However, efforts to obtain additional
rrieht Personnel have proved unsuccessful so far, apparently because
i').4:1.4r7t
-24Iperienced officers of larger banks are reluctant to accept employment
th a
smaller bank in view of the limited opportunities for advanceand
the loss of retirement benefits.
The record also indicates that the Vista area in which First
Matto
nal is located is a developing area in which further residential
krldi A
-rwustrial growth can reasonably be anticipated; that, because of
its relatively
low lending limit, First National has been unable on a
111413ex
'of occasions to meet credit needs of its customers; and that,
beets.,
"se it has not been considered profitable to establish a trust
clePartme
-nu, the Bank has not been able to meet a substantial demand
•
-clary services.
At the oral presentation before the Board, the President of
the
l
exPressed his belief that it could no longer grow as an in-
clePenderit
bank. Acquisition of the Bank by United California Bank
11°111c1 n°t appear to affect adversely the competitive position of the
rstilaining
unit bank competing in the Vista area; whereas the trans4ction.
would tend to increase competition, through broader banking
serlrices, with the second largest bank in the State, which has a branch
&ti the area.
For these reasons, we believe that the proposed merger would
be in the
Public interest and should be approved.
jilt* 20) 1962.
BOARD OF GOVERNORS
otzt:trtr*.
act C000 1,4
Item No.
OF THE
6/20/62
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS orriciAL CORRESPONDENCE
TO THE SOAR°
June 20, 1962.
1,,,
Mr. Nate white,
Editor,
-"„erican Banker,
-)4
Stone
Street,
We
"eil York 4, New York.
Dear Mr,
White:
This is in response to telegrams sent by you on June 15 to the
Reser
"
44 of the Board of Governors and to the Presidents of the Federal
syst ve Banks in which you speak of "allegations that the Federal Reserve
:
441 1 is negligent in permitting wholesale evasion of Regulation U
speng
" directly to use of non-purpose loans to finance stock market
tirreillationn and
express your expectation that such charges "will con", Perhaps intensify."
asserti Since willful violations of the character charged in the quoted
be
,
r
°n4 are criminal offenses, and bankers found guilty thereof would
4hable by fines of up to $10,000 and imprisonment for as much as
'
tilor1,13101'14ars, the
allegations you set out are serious ones, and the Board
welcome any substantiation available to you.
qiij
Where a bank makes a loan collateralized by stocks without remargin specified by Regulation U, it is the responsibility
or ca bank to determine that the purpose of the loan is NOT to purchase
rrY a registered stock.
Of the
t he
221.3(
In making that determination, Regulation U stipulates in Section
4) that the bank may rely upon a statement from the prospective
b":Tro
wer ". • . only if such statement
"(1) is signed by the borrower;
"(2) is accepted in good faith and signed by an officer of
the bank as having been so accepted; and
II(3)
if it merely states what is not the purpose of the
loan, is supported by a memorandum or notation of the
lending officer describing the purpose of the loan.
"To accept the statement in good faith, the officer must be
alert to the circumstances surrounding the loan and the
borrower and must have no information which would put a
Prudent man upon inquiry and if investigated with reasonable
diligence would lead to the discovery of the falsity of tithe
statement."
Mr. Nate
White
-2-
Furthermore, these loans are subject to examination, like all
tk_loans, and the examination proceduresof the Federal Reserve Banks,
r
Compt oller of the Currency, the Federal Deposit Insurance
Corporaand State bank supervisory agencies regularly include a
review of
'40ans to
check for compliance with the provisions of Regulation U. The
findin
wire gs of these examiners do not substantiate the allegations in your
Of "wholesale evasion" of the Regulation.
Banks make loans for a wide variety of purposes where securities-incaud.4
a -4-ng corporate stock--are pledged as collateral, but which by law
pur-„ft
exerilPt from margin regulations because they are not "made for the
sect-88 of purchasing or carrying securities registered on national
ottlrities exchanges."
It is only in the case of loans for the purpose
44nhasing or carrying registered securities
that the Board is
i40
, 0-r-tzed by Section 7(d) of the Securities Exchange Act of 1934 to
brok:e upon banks "limitations similar to those imposed upon members,
or dealers by subsection (c) of this section and the rules
regulations thereunder."
From time to time the Board has strengthened substantially the
Provisi
ret nt4°
"of both Regulations T and U. Within the past three years, the
the,
e'
13n requirements on undermargined accounts were made more restrictive;
purpose statements by borrowers from banks under Regulation U
tha„',ther circumscribed; and loans by banks to persons or firms (other
01,4'llj0kers or dealers) engaged in the business of extending stock market
loarm were made subject to the provisions of
Regulation U even if those
are not secured.
It should be noted that whether calls are made for additional
c°11at
gover„erel on any outstanding bank loan secured by stock is a matter
lenceed not by Regulation U but by the discretion and
judgment of the
taricet
zl%b
ank, regardless of whether the loan was obtained for a stock
INirte wransaction
or for some wholly different purpose. "Nonpurpose"
Jett are often made on lower margins than would be required for loans subto
and to that eent
extent they may be more vulnerable to
otal,'°r additional collateral in the event of a shrinkage in the original
46eral value.
.Regulation u,
Very truly yours,
Merritt Sherman,
Secretary.
Item No.
BOARD OF GOVERNORS
440tA0,,
,4',0744400.4
5
6/20/62
OF THE
:r
FEDERAL RESERVE SYSTEM
440\V
A
A*
WASHINGTON 25, D. C.
41t
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
oott***
June 20, 1962.
. David Cohn,
Clearance Officer,
uffiee of
Statistical Standards,
1311reau of the
,_
Budget,
..
:xecuttve Office of the President,
"shington 25, D.
C.
Dear
Mr. Cohn:
In April 1962 the Board was advised that the Office of
the 0_,
mi, umptroller of the Currency had decided to eliminate the
waear
report of income and dividends of national banks beginning
lettethe current year. Attached is a copy of the Comptroller's
i f April 16 to all national banks advising them of this
actiorrf
In the circumstances, the Board decided that it was not
W°rthwh.
alon
11e to collect the comparable reports from State member banks
the!
requested its staff to explore the reasons for and against
Collection of such data from member banks.
The Board is aware that the Federal Advisory Committee on
Barlkin
g has, in communications with your Office and in meetings
with,
011111Pre8e1tative5 of the Federal bank supervisory agencies, recewar;ued the elimination of this midyear report, and it is also
stem. similar feelings in some parts of the Federal Reserve
411
However, the Board is of the opinion that the needs of
age
nciss of Government and of the public at large should be
thie-1/44ered in arriving at a decision concerning continuation of
the 4tatistical series. For example, with respect to bank earnings,
Piabiljlice of Business Economics of the Department of Commerce
Nliiislues a quarterly series on corporate profits in which bank
.” figures are used. If midyear earnings of banks are not
orlly-l:
e ,eds banking, along with trade and services, would be the
E3eness groups for which an earnings series on a quarterly or
'unUal basis is not available.
Mz.David
Cohn
theThe Board would appreciate it if your Office would consider
matter and give it the benefit of your views. The Board stands
IZIY, in cooperation with your Office and the Federal bank super)'(.?rY agencies, to carry forward a suitably integrated program for
pv,'
4eetion of some form of interim bank earnings reports, if such a
leiTam is deemed to be a valuable public service. The frequency,
and coverage of any such reports should be determined after
tiVderation of essential data needs and reporting feasibility;
cl4resent consensus within the System would suggest that any
re:t, nuation
of the series should consist of a condensed form of
1.4rting by all member banks.
letter are being forwarded to the Office
(3e the c Copies of this
omptroller of the Currency and to the Federal Deposit
'arloe Corporation.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
tile10Bure
s 41-11..1
Item No.
BOARD OF GOVERNORS
Oxiltti 4.L1.
4444
6
6/20/62
OF THE
Ot
4 4
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
4
4
ADDRESS OFFICIAL CORRESPONDENCE
14
t'llt2 nit
44440')
TO THE BOARD
June 26, 1962,
AIR MAIL
Mr°
Eduardo Arias Robledo,
General
Manager,
de la
Republica,
--g°6a, Colombia.
ipear Mr. Arias
Robledo:
Bank ot, Mr. Horace L. Sanford, Vice President of the Federal Reserve
regard. New York, has referred to the Board your letter of May 28, 1962,
to B, ing the possibility of providing someone who might be able to go
Mr. ‘ g°ta to consult with your Bank regarding organizati(lial matters.
forw anford has also sent the Board a copy of his letter of June 14 inaArzo ng You that the New York Bank does not at present have anyone
4-Lable for such an
assignment.
other
Your letter has been brought to the attention of some of the
able ,'"oral Reserve banks with the thought that one of them might be
Presir Provide assistance such as you seek. Mr. Frederick L. Deming,
inforTh
`4e,
nt of the Federal Reserve Bank of Minneapolis, has indicated
ProblY that Mr. John A. MacDonald, Assistant Cashier of that Bank,
middi74-LY would be available for such an assignment beginning about the
e of
September.
Minne
Mr. MacDonald has been with the Federal Reserve Bank of
irlo0(31is since 1937 and has served the Bank in various capacities,
the p.'1 g that of Head of the Research Department and, presently, of
arlninP,* Department of the Bank. He has had a broad experience in
both -e,
not fi-cin'rnic and administrative aspects of central banking and, while
Mr. LI uent in the language, has a working knowledge of Spanish.
oltij
Illing feels that he would be able to make a contribution to the
1°11 Of problems related to organization and methods in your Bank.
n, If you are interested in the services of Mr. MacDonald for
crP°se, we shall be glad to take the matter up officially with
se-ard of directors of the Federal Reserve Bank of Minneapolis.
Mr.meme Probable that the Reserve Bank would be willing to make .
aeponaldls services available for as long as three months on a
Mr. Eduardo Arias Robledo
- 2
baste whereby the Reserve Bank would absorb his salary expense and
retirement system contributions, while it would ask your Bank to
Take reimbursement for transportation and other travel expenses
Involved. If you should desire such an arrangement, Mr. MacDonald
would no doubt wish to have his wife accompany him to Bogota.
Should you so desire, the Board will be glad to present
to
mr 4,e Minneapolis Reserve Bank a request for the services of
MacDonald, it being understood that detailed arrangments
'Lareafter would be made by you directly with that Bank.
Sincerely yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER