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Minutes for To: Members of the Board From: Office of the Secretary June 23 1965 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. Chm. Martin Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Minutes of the Board of Governors of the Federal Reserve System on Wednesday, June 23, 1965. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Robertson Shepardson Daane Sherman, Secretary Kenyon, Assistant Secretary Noyes, Adviser to the Board Molony, Assistant to the Board Solomon, Director, Division of Examinations Hexter, Assistant General Counsel Spencer, General Assistant, Office of the Secretary Mr. Kopp, Summer Law Clerk, Legal Division Mr. Mr. Mr. Mr. Mr. Mr. Mr. Circulated items. The following items, copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. 111,etter to The Chase Manhattan Bank, New York, New l°rk, approving the establishment of a branch at 7I Pennsylvania Avenue, Borough of Brooklyn. ' Rtetter to Central Trust Company, Rochester, N. Y., 1 2 c)Chester, New York, approving the establishment °f a branch in the Irondequoit Shopping Plaza, Town °f Irondequoit. 1Rietter to Old Kent Bank and Trust Company, Grand aaPids, Michigan, approving the establishment of w branch at 72 Monroe Avenue, N.W., coincident tillth the relocation of the bank's main office from at location to One VandenBerg Center. 3 lie,”er to Industrial State Bank of Kalamazoo, ! s lamazoo, Michigan, waiving the requirement of il)c months notice of withdrawal from membership n the Federal Reserve System. 4 6/23/65 -2Payment of excessive interest on deposits (Item No. 5). Pursuant to the understanding at the meeting on June 11, 1965, the Federal Deposit Insurance Corporation had been informed that the Board favored the objective of certain legislation proposed by the Corporation, the principal Purpose of which was to prescribe a penalty for payment of interest on deposits by any insured bank in violation of Federal regulations prescribing maximum rates of interest. The proposed legislation would also state explicitly that "any borrowing," except subordinated borrowing and borrowing from other banks, would be subject to regulations governing the Payment of interest on deposits. A distributed memorandum from the Legal Division dated June 21 advised that the Bureau of the Budget had requested by June 23 the Board's views on the draft bill submitted by the Corporation, which included not only the amendment to section 18(g) of the Federal Deposit Insurance Act that was embodied in the bill the Board had considered but also a new provision that would similarly amend section 19 of the ederal Reserve Act. The first section of the draft bill received from the Budget 8ureau was identical with that previously considered by the Board and therefore it presented the same problems of draftsmanship. A new sec- ti°n 2 (amending the Federal Reserve Act) presented additional difficu lties as it did not seem to fit correctly into section 19 of the Act. It was expected that representatives of the Legal Division would confer 'lith the corporation's staff on the matter before the end of the week, 6/23/65 -3- but in view of the Budget Bureau's request for a response by June 23 it was not practicable to clear up the drafting problems before the Board's reply was sent. There was attached to the memorandum a draft of response to the Budget Bureau that would outline the Board's understanding of the purPoses of the Corporation's proposal and urge enactment of legislation that would accomplish such objectives. The letter would mention the existence of drafting problems but would point out that this did not affect the soundness of the objectives of the draft bill. At the Board's request, Mr. Hexter summarized the information that was presented in the June 21 memorandum. There followed a general discussion that related primarily to the desirability of resolving problems of draftsmanship that might give rise to conflicts of interpretation if the proposed legislation should be enacted in the form submitted by the Federal Deposit Insurance CorPoration. The Board emphasized that such problems should be worked out with the staff of the Corporation as rapidly as feasible so that the necessary changes could be accomplished before a bill was introduced in Congress. It was suggested that a reasonably flexible posture be taken at the drafting discussions. Following further discussion, during which certain editorial hanges suggested by Governor Daane were agreed upon, the letter to the Bureau of the Budget was approved unanimously. A copy of the letter, ill the form transmitted, is attached as Item No. 5. 6/23/65 -4Bank of Dublin. Mr. Solomon reviewed developments leading up to the pending purchase of assets and assumption of liabilities of Bank of Dublin, Incorporated, Dublin, Virginia, a State member bank, by Peoples Bank of Radford, Radford, Virginia, a subsidiary of The First Virginia Corporation, a registered bank holding company. He also reported on the roles played by the various supervisory authorities, a question presented by the position taken by staff of the Federal Deposit Insurance Corporation, and an application for a branch in Dublin filed recently by a national bank in a nearby town. It was understood that a memorandum on this matter would be d istributed to the members of the Board for their information, as suggested by Chairman Martin during a discussion that followed Mr. lomon's review. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board memoranda recommending the following actions relating to the Board's staff: 4.2.21atratilL Edna Jean Chavis as Stenographer, Division of Personnel AdminisF.CLion, with basic annual salary at the rate of $4,480, effective -ge date of entrance upon duty. Aec resignation st Charles G. Stevens, Statistical Clerk, Division of Research and a tistics, effective at the close of business June 26, 1965. Secretary Item No. 1 6/23/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 23, 1965 Board of Directors, The Chase Manhattan Bank, New York, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by The Chase Manhattan Bank, New York, New York, of an in-town branch at 1071 Pennsylvania Avenue, Borough of Brooklyn, New York, New York, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) BOARD OF GOVERNORS Item No. 2 6/23/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDREBB OFFICIAL CORRESPONDENCE TO THE BOARD June 23, 1965 Board of Directors, Central Trust Company, Rochester, N. Y., Rochester, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Central Trust Company, Rochester, N. Y., Rochester, New York, of a branch in the Irondequoit Shopping Plaza at 2133 Hudson Avenue, Town of Irondequoit (unincorporated area), Monroe County, New York, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) Item No. 3 6/23/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDRESS OFFICIAL. CORRESPONDENCE TO THE 'BOARD June 23, 1965 Board of Directors, Old Kent Bank and Trust Company, Grand Rapids, Michigan. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment of a branch by Old Kent Bank and Trust Company, Grand Rapids, Michigan, at 72 Monroe Avenue N. W., Grand Rapids, Michigan, coincident with the relocation of Old Kent Bank and Trust Company's main office from that location to One VandenBerg Center, Grand Rapids, Michigan. The Board has approved this branch provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) Item No. 4 6/23/65 BOARD OF GOVERNORS .c)Of :6 f \ 40 v 4404 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS arriciAL CORREOPONDENCE TO THE EIOARO June 23, 1965 Board of Directors, Industrial State Bank of Kalamazoo, Kalamazoo, Michigan. Gentlemen: The Federal Reserve Bank of Chicago has forwarded to the Board of Governors Executive Vice President Frances F. Hamilton's letter of June 7, 1965, together with the accomPanying resolutions dated May 19, 1965, signifying your intention to withdraw from membership in the Federal Reserve System and requesting waiver of the six months' notice of such Withdrawal, The Board of Governors waives the requirement of six months' notice of withdrawal. Upon surrender to the Federal Reserve Bank of Chicago of the Federal Reserve Bank stock issued to your institution, such stock will be canceled and appropriate refund will be made thereon. Under the provisions of Section 208.10(0 of the Board's Regulation H, your institution may accomplish termination of its membership at any time within eight months from the date the notice of intention to withdraw from membership was given. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary, 47 0 , BOARD OF GOVERNORS Item No. 5 6/23/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 23, 1965 Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of the Budget, Washington, D. C. 20503 Dear Mr. Hughes: This is in response to a communication from your office, dated June 16, 1965, requesting the Board 's views on a draft bill, Presented by the Federal Deposit Insurance Corporation, "To amend the Pederal Deposit Insurance Act and the Federal Reserve Act to provide a Penalty for violations of regulations prescribin g the maximum rates of interest which insured banks may pay on deposits, and for other Purposes." As indicated in the proposed letter of trans mittal from the FDIC to the Speaker of the Hous e of Representatives, the principal Purpose of the draft bill is to prescribe a penalty that will serve !s an effective deter rent to payment of interest on deposits by any i nsured bank in violatio f n of Federal regulations prescribing limits 'II the rates of inter est that banks may pay. Heretofore, achievement of legislative and regulatory c3blectives in this field has been imped ed not only by the absence of , 11 effective penalty, but also by the pract ices of some insured banks accepting funds under the designation of "borrowings" rathe r than ePosits". The Federal banking laws and regulation s are now couched 1111 4. terms of limitations of interest rates on "deposits", and Federal r:nk supervisory agencies have take the position that, under existing n thgulations, those limitations do not control the rates of interest banks may pay on "borrowings". The draft bill is intended to ; 1 1 4e clear that, in most cases in which a bank receives funds in ciraemstances giving rise to a debtor/creditor rela tionship, the transI°n is subject to interest-rate limitations regardless of whether is called a deposit or a borrowing. As the Board understands the proposal, it is not intended scribe an inflexible penalty or to prescribe that in all cirah'tances a "borrowing" must be governed by inter est-rate limitations 'I'll-cable to deposits , but rather to establish general principles to , Hr. Phillip S. Hughes -2- along these lines, leaving the application of those principles and penalties to regulation, either as to classes of situations or in individual cases, by the designated bank supervisory agencies. The Board of Governors favors the enactment of legislation to amend the Federal Deposit Insurance Act and the Federa l Reserve Act along these lines. The integration of these proposals into existin g statutory provisions involves problems of draftsmanship, and the staff of the Board is working with the staff of the FDIC to ascertain whethe r ambiguities and possibl overlap y ping provisions can be eliminated, in the interest of clarity as well as ease of interpretation and administration. However, these problems do not affect the soundness of the FDIC's proposal, as described herein, and the Board of Governors urges enactment of legislation that would accompl ish its objectives. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary.