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Minutes for June 22, 1959. To: 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Chm. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov, Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System °11 Monday, June 22, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Balderston, Vice Chairman Szymczak Mills Robertson Shepardson King Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Marget, Director, Division of International Finance Mr. Hackley, General Counsel Mr. Farrell, Director, Division of Bank Operations Mr. Furth, Associate Adviser, Division of International Finance Mr. Hexter, Assistant General Counsel Mr. Hostrup, Assistant Director, Division of Examinations Mr. Nelson, Assistant Director, Division of Examinations Mr. Smith, Assistant Director, Division of Examinations Mr. Young, Assistant Counsel 14232D_Int rates. The establishment without change by the Federal 48erve ..m.uk of Minneapolis on June 17, 1959, and by the Federal Reserve 11844 of New York and Philadelphia on June 18, 1959, of the rates on Iants and advances in their existing schedules was approved 11118.11141°1181Y, with the understanding that appropriate advice would be sett to those Banks. been Items circulated to the Board. The following items, which had eiretaated to the members of the Board and copies of which are "t4ehed to these minutes under the respective item numbers indicated, -Z 1 Zalr.a.q. unanimously: 6/22/59 -2Item No. Letter to the American Trust Company, San !faacisco, California, approving the establishn't of an additional branch in Sacramento. 1 Letter to the Pacific State Bank, Hawthorne, California, granting an extension of time in Which to establish a branch at Slauson Avenue and Overhill Drive. 2 lavlication to convert into national bank (Item No. 3). The Conliatroller of the Currency had requested a recommendation with regard to the application of State Bank of Des Moines, Des Moines, Iowa, to e011vert into a national banking association and concurrently establish bl'arloh had, at 4 in Urbandale. A file containing a favorable recommendation been circulated to the Board and was presented for consideration the meeting on June 18, 1959, but action was deferred in view of question raised within the staff as to whether State Bank's parent 11411cliag company would have to apply under the Bank Holding Company Act or Permission to acquire stock of the national bank into which the 04, "ate institution proposed to convert. In a memorandum dated alttle 19, Mr. Hexter, Assistant General Counsel, concluded that the Proposed conversion of State Bank of Des Moines into a national bank /4°Uld not result in an "acquisition" of bank stock by the parent bank 4°1411.4g company pursuant to section 3(a) of the Bank Holding Company Act and, that approval of the Board therefore would not be required. 6/22/59 -3This opinion having been rendered, the proposed conversion was e°flaidered by the Board on the basis originally presented and unanimous !-1221:21T1 was given to the letter to the Comptroller of the Currency of //hiela a copy is attached as Item No. 3. Report on S. 2139. By letter dated June 10, 1959, the Senate C°mmittee on Banking and Currency requested a report on S. 2139, a bill to amend the Small Business Investment Act of 1958. With two excePtions, the bill was identical with an earlier draft bill on which the Board reported to the Bureau of the Budget by letter dated April 30, 1959. In a memorandum distributed to the Board under date of June 171 1959, Mr. Young, Assistant Counsel, noted that the only provision °t the bill that directly concerned the responsibilities of the Board /744 one which would amend section 302(b) of the Small Business Investment Aet to permit a banking subsidiary of a bank holding company to invest the stock of a small business investment company even if such 1111restaaent 'would result in the investment company becoming a subsidiary °t e bainvt --- a parent holding company. The objective would be accomplished the use of language that the Board had suggested in its earlier 14eDort to the Budget Bureau on the similar draft bill. Submitted with kr. y memorandum was a draft of letter to the Senate Banking and -"eY Committee which would state that the Board had no objection to ' 411 an amendment. 6/22/59 Question was raised by Governor Shepardson whether the position taken by the Board in reporting to the Budget Bureau on the draft bill voUl.d not warrant an affirmative statement to the Banking and Currency Committee in support of the proposed amendment to section 302(b) of the Small Business Investment Act. However, after it was recalled that the Board's principal concern in its report to the Budget Bureau had been vith avoiding the danger of ambiguity, Governor Shepardson indicated that he would be satisfied with a statement that the Board had no ob jection to the proposed amendment. Governor Mills commented that if encouragement were given to the clrganization and operation of small business investment companies by sub sidiaries of bank holding companies the door would be opened t°r use of a small business investment company to permit the bank holdi ng company and its subsidiary to engage in activities to which the 1/44°ard otherwise might take exception. That possibility, he suggested, aPPeared to be enhanced by provisions of the bill which would permit the Sal] Business Administration by regulation to determine in what 1114nn. ' r a small business investment company might acquire the securities "an entity that it sought to finance. In other words, the vehicle 118eCi f(3r that financing could be anything permitted by regulations of the , °mail Business Administration. Whereas the original purpose of the s naall Business Investment Act was to encourage the establishment 6/22/59 Of small businesses, he noted that the tax advantages provided by the Itet tended to encourage the establishment of enterprises for reasons nclt necessarily related to size and need. In the longer run, he could foresee occasions arising Where the Board would find a subsidiary of a bank holding company operating a small business investment company as an instrument through which to engage in prohibited areas of operation. then raised the question whether reference to this possible development ahciald not be made in the report on S. 2139. There followed discussion of the proposed amendment during which Mr. Hackley commented that it would mean only that a subsidiary bet4k of a bank holding company could buy stock of an investment company even though the latter thereby became a subsidiary of the parent bank ' '1' 144 company. The subsidiary bank still could not make loans to the small business investment company or do any of the things prohibited by s ection 6 of the Bank Holding Company Act. Governor Mills then was asked by the Chair for his recommendation and, responded to the effect that he was not sure the Board had thought the problem through to a conclusion. He suggested, therefore, that the ,,"' - uTosed report on S. 2139 be remanded to the staff for further With a view to determining whether it would be appropriate t lea , to billies 14 the comment in reporting on the bill that there were potential that might cause the Federal Reserve System to raise objections future. He repeated that the trend at this time appeared to be 6/22/59 -6- t° Convert the small business investment company into an instrument for taX avoidance and to encourage promoters to come into this field. there Thus, had been a drift away from the original purpose of the lass*, which vas definitely to encourage small businesses as such. The issue, there- fore/ was whether the Board's letter reporting on S. 2139 should include 80Me form of caveat, that is, whether it should recognize possibilities that might arise in the future and might involve objections or criticisms °4 the part of the Board. In further comments, Governor Mills noted that a fundamental 151117P°Ele of the Bank Holding Company Act was to require divestment by bank holding company of undertakings not closely related to banking. 111 a sense, the type of permission granted by the proposed amendment in 8 Pir, could eventually run contrary to the purposes of the Bank Holding e°41PanY Act. A bank holding company might be found to be engaging illdilsactlY in activities originally prohibited to it, or even in an itY the divestment of which had previously been required by the 11°ard. Further discussion included reference to the urgency of a report on 8. 2139 in view of the fact that hearings were scheduled to begin today. Accordingly, the proposed report was remanded to the staff tor f4rther review, in the light of the points raised by Governor Mills, Vith the understanding that a revised draft of letter would be subtor the Board's consideration as soon as possible. Messrs. Hostrup, Nelson, and Young then withdrew from the meeting. 6/22/59 -7Renewal of gold loan to Argentina (Item No. 4). In a memorandum distributed to the Board under date of June 15, 1959, Mr. Marget reported that Banco Central de la Republica Argentina had l'equested a thirty-day renewal of the $17 million Federal Reserve gold 1°411 'which would mature on June 23, 1959. Banco Central had arranged 4 1°a4 on gold in the amount of $17 million from a group of United States commercial banks, and the purpose of the request for renewal /748 tO permit final arrangements to be completed. In a telegram dated June 18, the New York Reserve Bank advised that a renewal of the Federal Reserve gold loan had been approved by the Bank's directors, 8/11/Ject to the approval of the Board of Governors. There had now been distributed to the Board a memorandum from Mr. Marget dated June 19 Ilee°mmending approval of the renewal. Following comments by Mr. Marget, agreement was expressed with Ills recommendation and unanimous approval was given to the telegram to the Federal Reserve Bank of New York of which a copy is attached as .1 111.2[2L„Il. Messrs. Marget and Furth then withdrew from the meeting. Pro osed handling of tax remittances by individuals. At the t 8- of Governor Szymczak, Mr. Farrell reported on a proposal by the T l'eatzlurY Department, in letters sent to the Federal Reserve Banks 141aer A "ate of June 11, 1959, that the tax depositary receipt system Aended to include the performance of functions by the Federal 6/22/59 -8- Reserve Banks in connection with the processi ng of payments by iadividuals against their estimated income taxes. After reviewing the operations currently performed by the Reserve Banks relative to the handling of withheld taxes remitted by employers, either direct to the Reserve Banks or through commercial banks, Mr. Farrell summarized his understanding with regard to the functions contemplated by the current proposal and noted that the Treasury had requested a reply each Reserve Bank by June 24, 1959. He then stated that in a telephone conversation last Friday, President Allen of the Federal Reserve Bank of Chicago had expressed concern from the standpoi nt of the volume of work, space, and the amount of correspondence that would he involved and had suggested that the proposal seemed to deserve consideration as a System matter. After further discussion of the matter, Mr. Farrell was l'equested to get in touch with Mr. Leach, Chairman of the Committee Oa ' cal Agency Operations of the Presidents' Conference, and raise 11.th hilm the question whether it would not be desirable to consider the Tre„ -'urY proposal on a System basis. This would contemplate that Mr. T.. -'ach might want to communicate with each of the Federal Reserve Bezlits 141th a view to determining what type of response was made by those -n n-k8 *D5ethat had already replied to the Treasury, and with the riArtl-r "t-' thought that the remaining Banks might wish to advise the 6/22/59 -9- Treasury that the matter was being considered on a System basis. Rowever, Mr. Farrell was to make it clear in talking with Mr. Leach that the Board had not taken a position with respect to the Treasury Proposal. Examination of Federal Reserve Bank of Dallas. The report of eXamination of the Federal Reserve Bank of Dallas as of April 1, 1959, had completed circulation to the Board along with the usual related me moranda. At the Board's request, Mr. Smith summarized a number of matters (liselosed through the examination. Among other things, he noted that 4 Seri "of shortages aggregating $83 had come to the attention of the Reserve Bank during January, February, and March of this year. These 811° ages, occurring in the Cash Department, were discovered in unfit et4lrencY cancelled at the head office and shipped to the San Antonio for destruction. While the Reserve Bank had been unable to ri3c the r esponsibility, certain procedures in connection with the veri 441cation and destruction operations were revised and it was tulderstood that there had been no recurrence of the shortages. It 114S P°inted out that the Board's Division of Bank Operations was now ectliPleting a survey of the procedures followed at all Reserve Banks in eclInection with the verification and destruction function and that etten the results of the survey were available designated representatives 6/22/59 -10- of the Reserve Banks and the Board were to meet with the Treasury DePartment in the light of Treasury-Federal Reserve correspondence relating to various aspects of the verification and destruction o perations. Statement by Mr. Patman on Reserve Bank expenditures. It /ras noted that Congressman Patman hpri handed to the press yesterday, ulader today's date, a lengthy statement criticizing various Federal Reserve Bank expenditures during 1957, apparently on the basis of information gleaned from the reports of examination of the Reserve Banks that had been sent to the House Banking and Currency Committee by the Board. In view of the press articles, there was preliminary discussion Of available information concerning certain of the items criticized by Mr. Patman, and it was stated that the Board's Legislative Counsel vas dbta iniu6 a copy of Mr. Patman's full statement which would be (11113lioated for distribution to the members of the Board. 1r118 The view expressed that a complete story should be obtained from the eciel'al Reserve Banks on each of the items mentioned by Mr. Patman. Pan American Bank of Miami. Governor Robertson reported Ileeeil3t of a letter dated June 19, 1959, from General Sterling Wood Of the ?an American Bank of Miami, Miami, Florida, confirming that Iletiations had been terminated with Glore Forgan & Co. relative to 6/22/59 -11- the proposed underwriting of a sale of stock of South Dade Farms, Inc. PlIrsuant to which additional capital was to have been supplied to the Peal American Bank. This letter, Governor Robertson said, also set forth a counterproposal regarding the outstanding commitment of South Dacle Farms to take over certain criticized assets of the Pan American BezIk • He indicated that the proposal was being reviewed by the sion of Examinations. The meeting then adjourned. Secretary's Notes: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board the appointment of the following persons to the Board's staff: biv4 Thomas L. Hunter, Jr., as Supervisory Review Examiner in the 3.2',21.011 of Examinations, with basic annual salary at the rate of )v75, effective the date of entrance upon duty. Eva G. Statistical Clerk in the Division of Research stetistKennedy . asbasic efre„ ics, with annual salary at the rate of ,',318510, 'Aye the date of entrance upon duty. Governor Shepardson also approved on behalf of the Board on June 19, 1959, the appointment of Dorothy E. Swink as Statistical Clerk in the Division of Research and Statistics, with basic annual salary at the rate of 0,945, effective the date of entrance upon duty. Secretary BOARD OF GOVERNORS OF THE 0* 4** • • 4tIIV4 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 6/22/59 4 4 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 4'"0.A.13,04* June 22, 1959 Board of Directors, American Trust San Francisco, Company, California. Gentlemen; Pursuant to your request submitted through the Ped Reserve Bank of San Francisco, the Board of Governors approves the establishment of a branch in the cramento Redevelopment nt Area Shopping Center (block j k;lided by Fourth, Fifth, N, and 0 Streets) in Sacramento, ca;9-fornia, by American Trust Company, San Francisco, 4a.L1fornia. This approval is given provided the branch :i4s e stablished within one year from the date of this letter and formal approval of the State authorities is erfective at the time the branch is established. r Very truly yours, (Signed.) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 441[1012 OF THE '4' 0 °674°11' 'a II Item No. 2 6/22/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. 0 ,04, ADDRESS OFFICIAL CORRESPONDENCE \t' lk Wint 4 ' 114*T4 TO THE BOARD June 22, 1959 Board of Directors, Pacific State Bank, Hawthorne, California. Gentlemen: The Board of Governors extends to February 2, 1960, the time within which Pacific State Bank, Hawthorne, ',.,11.1ifornial may, under the authority contained in the pardts letter establish a branch .,tri the vicinityof February 2, 1959, of the intersection of Slauson Avenue and /verhill Drive in an unincorporated area of Los Angeles ntY California. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 4440Y__..!9&G;q1, '02o 1 OF THE Item No. 3 FEDERAL RESERVE SYSTEM 6/22/59 I* WASHINGTON 25, D. C. ' 4 0 0 ADDRESS OFFICIAL CORRESPONDENCE 14 4, tittl'IL L#II 44tL44.4 TO THE BOARD June 221 1959 Comptrol]er of the Currency, 7asury Department, 41shington 25 n• n Attention Mr. W. M. Taylor, Deputy Comptroller of the Currency. 1)eell 'Mr. Comptroller: 1959, Reference is made to a letter from your office dated April 28, Iowa x;egarding the application of State Bank of Des Moines, Des Moines, estab'ii° convert into a national banking association and to concurrently "hethersh a ranch in Urbandale. You request a recommendation as to °r not the application should be approved. ns ,.A.It report of the investigation of the application made by an 411clin;: for the Federal Reserve Bank of Chicago discloses favorable 11th respect to the financial history of the bank,management adequacy Eir4 se caPital , structure, earnings prospects, character of l'ecokarvices to the community. Accordingly, the Board of Governors asTs aPPro val of the application to convert into a national bank estsi-a,ti°r1. We know of no objection to the proposal of the bank branch in Urbandale concurrent with its conversion to a Lloria4o1-'s asfi soa ciatiQn :j13r eLspem.The Boardls Division of Examinations will be glad to discuss -`18 of this case with representatives of your office if you so Very truly yours, Kenneth A. Kenyon, Assistant Secretary. TELEGRAM Item No. BOARD OF GOVERNORS 6/22/59 OF THE FEDERAL RESERVE SYSTEM LEASED WIRE SERVICE WASHINGTON June 22, 1959. 841PORD NEW YORK Yciur "ire June 18. Board approves the granting of a renewal the gold loan by your Bank to the Banco Central de la 4PUblica Argentina of $17 million for a period of one month cni the same terms and conditions as apply to the present loan, interest of course to be at the discount rate of your Bank on the date of renewal. It is understood that the usual participation 17111 be offered to the other Federal Reserve Banks. (Signed) Merritt Sherman SHERMAN 4
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