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Minutes for June 24, 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. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Federal Reserve System Minutes of the Board of Governors of the Wednesday) June 24, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mt. The Board met in the Board Room at 10:00 a.m. Martin, Chairman 1/ Balderston, Vice Chairman Szymczak Mills Robertson Shepardson King Sherman, Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Riefler, Assistant to the Chairman Hackley, General Counsel O'Connell, Assistant General Counsel Hostrup, Assistant Director, Division of Examinations of Mr. Goodman, Assistant Director, Division Examinations of Mr. Benner) Assistant Director, Division ns Examinatio Mr. Davis, Assistant Counsel Miss Hart, Assistant Counsel Mr. Mr. Mr. Mr. Mr. Mr. Mr. Items circulated to the Board. The following items, which had which are been circulated to the members of the Board and copies of rs indicated, littaehed to these minutes under the respective item numbe /lere approved unanimously: Item No. ny, 1;etter to the Bucks County Bank and Trust Compa i_?rkasie, Pennsylvania, granting an extension of :Ime to establish a branch in the Borough of Quaker- 1 utter to the Federal Reserve Bank of St. Louis enstein as earding service by Mr. Philip F. Licht , bank. nal natio director and officer of a 2 1/ --Entered at point indicated in minutes. 6/24/59 -2Policy record for 1953. There had been distributed to the Board copies of a memorandum from Mr. Riefler dated June 23, 1959, slIbmitting a draft of the Federal Open Market Committee policy record fc)r 1958. This draft reflected a number of changes suggested by members of the Committee and staff following distribution of a previous al'aft under date of May 15, 1959, the principal one being the insertion °r an introductory statement substantially in the form distributed to the members of the Committee on May 29. The introductory statement set r°1th the statutory basis for including Open Market Committee and Board 1(33-icY records in the Board's Annual Reports, described the basis on 1441ch the Open Market Committee policy record was prepared, and developed the Point that, although many policy decisions were by unanimous vote, eMPhasis on specific reasons for preferring a particular line of policy 411161t vary from one Committee member to another. There had also been distributed copies of a memorandum from ** Sherman dated June 5, 1959, submitting a draft of record covering 13°11eY actions taken by the Board of Governors during 1958. A second tQeillorandum from Mr. Sherman, distributed under date of June 23, 1959, 8ubmitted, in the light of suggestions by Governor Robertson, a revision °t the statement explaining the action taken on April 17, 1958, reducing l'esel've requirements of member banks and a revision of the statement of G °--rtlor Robertson's reasons for voting against the increase in margin l'equirements which was approved by the Board on October 15, 1958. 6/24/59 -3Consideration was given first to the draft of Federal Open Market Committee policy record, and Mr. Riefler suggested a further change. At the meeting on February 11, 1958, he recalledl the Open Market Committee contemplated free reserves in the area of $200 to 930v million. In late February, however, the volume of free reserves increased, reflecting among other factors a reduction in reserve reVirements by the Board of Governors, and the Committee authorized by t elegram the maintenance of a somewhat higher level of free reserves than contemplated at the February 11 meeting. It had been suggested that a reference to this telegraphic authorization be included in the l1oY record. Mr. Riefler agreed with this suggestion and recommended 1°11 ' incorporating a notation in the entry covering the Committee meeting on 14Etz'oh 4, 1958. Governor Balderston then asked for comment on the proposed introstatement to the policy record, and no member of the Board indicated biaction to inclusion of the statement in the form submitted. Thereupon, subject to the addition mentioned by Mr. Riefler, the Of policy record of the Federal Open Market Committee for 1958 was -=.4P.P4ayzil unanimously for inclusion in the Board's Annual Report. With respect to the draft of Board policy actions, discussion Pecific entries was limited to the explanation of the action taken °11 4Pr11 171 1958 in reducing reserve requirements. As originally stated, the flnal paragraph of the explanatory statement would have indicated 221 it 6/24/59 that this action, consistent with over-all credit policy under existing conditions, was taken in recognition of the prospective need for additional reserves and to relieve pressures that were appearing on the reserve positions of central reserve and, to a somewhat lesser extent, reserve city banks. The statement also was made that country banks/ on the other hand, appeared to be amply supplied with reserves. The suggestion by Governor Robertson contemplated adding a sentence as follows: "Some members felt that the existing situation afforded an °PPortunity to reduce the level of reserve requirements at a time when such action was consistent with credit policy and at the same time fUrther to enlarge the area of flexibility for System action should it become necessary at some future date to institute a policy of credit restraint in the light of changed economic conditions." At Governor Balderston's suggestion, it was agreed that the sentence referring to country banks should be eliminated. Governor Balderston then inquired whether the first sentence °f the Paragraph did not afford an adequate explanation of the action. In response, Governor Robertson said it was his general feeling that the policy record tended to convey the impression that all Board Ille*ers were of exactly the same mind and arrived at a decision for the same reasons. In this particular instance, he had come to the 441e conclusion as the other members of the Board, but for different l'eas°na. It would be unfortunate, he felt, for the record to make it 41)1°.ear as though everyone had simply "followed the leader." r 6/24/59 _5Governor Shepardson commented that he had no particular objection to the entry in the form suggested by Governor Robertson and that he recalled Governor Robertson having so expressed himself at the time. However, he felt there was a question as to how far the policy record 811°111d attempt to go in reflecting various lines of reasoning through Ithich the several members of the Board or the Open Market Committee exrived at a consensus. If such an effort were made, it might almost e necessary to provide a stenographic record of each person's views, Or there were frequently various shades of differences, some quite illarked and others hardly discernible. Governor Robertson conceded that this would represent a difficult Job but added that he thought the ideal way of putting together the 11°11eY record had not yet been found. While the introductory statement 'be' the open Market policy record and the andition he proposed to the 11°4rd policy record did not substantially expand the two records, he felt that they were helpful in providing a better tone because they irldicated that the final determination of policy resulted from independent thinking on the part of the participants. Governor Szymczak questioned the desirability of attempting to deriLie personal views too clearly, his thoughtbeing that this might serlye only to provide fuel for critics of System policy. After referring to the difficulty often experienced in arriving at a consensus, both on tOn,.1 ''414 and open Market Committee matters, because of prevailing shades of -6- 6/24/59 °Pinion, he suggested that in most cases it might serve no useful purpose t° expound on the differences that preceded reaching the decision. Governor Mills stated that his general approach was in accord With Governor Szymczak's reasoning and that he felt the policy record should reflect the final consensus without delineating all differences °I* opinion. In the Open Market policy record, however, he felt strongly that the setting forth of a unpnimous vote on the policy directive °Ilscured the fact that there might not have been complete unanimity of /rievs at the meeting. i8 At Open Market Committee meetings, he noted, it us of customary for the Chairman to use language such as "the consens ion. °Pinion" or " the majority opinion" in summarizing the discuss At the same time, there may have been differences of opinion, perhaps vigorously expressed, and to suggest a unanimity of opinion by recording the vote on the policy directive seemed to him wrong. r Mills. Governor Robertson expressed agreement with Governo customary for At °Pen Market Committee meetings, he commented, it is the members of the Inaiority view to be stated by the Chairman and for the Committee to agree that the Chairman's statement of the majority viel'r is correct. However, in agreeing that the Chairman has correctly Stated the majority position a member is not necessarily indicating that he ation in concurs with the consensus. The question of present the Policy record was another problem, one which he felt deserved further th°Ught in preparing the record in the future. 6/24/59 Governor Balderston said that he agreed somewhat with Governors Mills and Robertson, his view being that most of the proceedings at °Pen Market Committee meetings do not truly lend themselves to the taking of a formal vote and that the members agree principally on whether the Chairman has expressed the consensus of opinion. It Illight be well, he suggested, for the Board to discuss further at another meeting the form that the policy record should take in the future. Governor Shepardson pointed out that the form of the 1958 °Pen Market Committee policy record was not different from the form Of the record for the past several years. However, he was inclined to — Ptsiree with those who had suggested that the principal point of alc-Pression at Open Market meetings was on whether the Chairman had e°1"rect1y stated the dominant view, which did not necessarily mean that all of the participants concurred in it. Therefore, the setting t()lbth of a unanimous vote on the policy directive in the policy record, without any indication that there were degrees of difference, might tell°. to give a misleading impression. As to the suggestion by Governor Robertson with respect to the ell'*Y in the Board policy record, Governor Shepardson recalled that he he4 indicated concurrence in the views expressed by Governor Robertson he meeting on April 17, 1958. He thought it did not make a great of difference whether the proposed final sentence of the explanatory 6/24/59 -8- statement was included or not, the question being simply how far the Board wished to go in reflecting differing points of view. However, this practice might eventually lead to a situation where each person 1410 participated in a decision would want to insert such shades of oPinion as he may have expressed. Governor Shepardson then referred to the understanding of the °Pea Market Committee last year that the policy record would be maintained 011 a current basis and to the fact that this had not been done. He thought it desirable to have Open Market policy record entries prepared ' 1)10/1pt1y so that they might be reviewed while the situation was fresh ill the minds of the Committee members. Also, whenever the Board took PC/licY action, he felt that a policy record entry should be drafted 48 qUiekly as possible and approved on at least a tentative basis. Agreement was expressed that the procedure stated by Governor Shelaardson should be followed. In a further comment on procedure at Open Market Committee Mr. Hackley brought out that at each meeting there is at leaat one policy decision on which a vote should be recorded, namely, the l'enewal or modification of the policy directive to the Federal esexVe Bank of New York. All of the previous discussion, he said, le848 UP to approval or modification of the directive, and that is a 13131101r action of the kind where the law contemplates that a vote be recorded. Following additional remarks which suggested the advisability of " zig further thought to the form of the policy record for 1959 and 6/24/59 -9- future years, the Board reverted to the suggestion of Governor Robertson relating to the Board policy record for 1958. It was agreed to include the suggested additional sentence in the April 17 entry concerning the re duction of reserve requirements, and the proposed Board policy record, with that addition, was approved unanimously for inclusion in the 1958 Annual Report. Annual Report for 1958. The text of the Board's 1958 Annual itel)°rty which had been submitted to the members of the Board in draft, .11t.P.ItE2yed unanimously) with the understanding that the report would be submitted to the Congress and other appropriate distribution made as 8°°r1 as it was available in printed form. Messrs. Thurston and Riefler then withdrew from the meeting. MI% Molony, Special Assistant to the Board, who had entered the room (111114g the foregoing discussion of the Board and Open Market Committee 1)°11eY records, also withdrew at this point. _Pan American Bank of Miami (Item No. 3). In a letter to GO1r. crnor Robertson dated June 19, 1959, General Sterling A. Wood, 448t5tant to the President of South Dade Farms, Inc., Miami, Florida, " l' ed a breakdown in the negotiations with Glore, Forgan & Co. telkting to a proposed stock issue from the proceeds of -which additional 415ital was to have been provided for the Fan American Bank of Miami. Oeher.., Wood also outlined steps taken and contemplated to be taken 114cler the letter of guaranty dated July 24, 1958, in which South Dade agreed to remove at least $1 million of doubtful assets from 6/24/59 -10- Pan American prior to March 311 19591 an additional $500,000 by March 31, 1960/ and a further $5001000 by March 311 19611 unless collected or corrected in such manner that the Federal Reserve examiners removed the loans from the doubtful classification. This report indicated that the Eicttile interests had agreed to donate $250,000 to the capital structure Of Pan American and that all loans classified as loss in the examination made as of May 181 19591 were to be charged off on July 31, 1959. There had been distributed to the members of the Board copies "a proposed reply to General Wood which would call attention to the tcrMs of the original guarantee, point out that its purpose was to restore capital lost through charge-offs, and make clear that no credit tcillard compliance with the guarantee could be permitted simply because classified items were charged off. In commenting, Governor Robertson said that the purpose of the Pr°P°sed reply to General Wood vas to keep the record straight with l'esPect to the obligation of South Dade Farms under its letter dated j414. 24/ 1958. General Wood's attention would be called to the inter- betation of the guarantee contained in a letter from President Bryan Of the Federal Reserve Bank of Atlanta to the eePtelnber 26, 1958. an American Bank dated If the reply to General Wood were sent, Governor 11(5bertson felt that the Board should await further word regarding the °Iltc°1:11e Of the negotiations on the South Dade Farms' stock issue before cleciding, in consultation with the other bank supervisory authorities, 'that Airther corrective steps seemed indicated. 6/24/59 -11Unanimous approval then vas given to the proposed letter to General Wood, a copy of which is attached as Item No. 3 with the under- standing that a copy mould be sent to the Federal Reserve Bank of Atlanta. Messrs. Benner and Goodman then withdrew from the meeting. Section 4(c)(6) cases. Bank Shares, Inc., Otto Bremer Company, First Bank Stock Corporation, and Northwest Bancorporation had requested def. —rminations pursuant to section 4(c)(6) of the Bank Holding Company " 4 'Which would permit the retention of a total of 14 nonbanking °rganizations. Pursuant to the provisions of the Act, hearings were held on these requests, and oral arguments were heard by the Board on MaY 11, 1959. In a memorandum dated June 19, 1959, which had been distributed to the Board, the Legal Division presented (1) a statement of the atm— %Arbil:Ty and regulatory requirements for exemption under section 4(c)(6), (2) a discussion of general principles deemed relevant to a determination clt the questions involved, (3) a discussion of each of the pending cases 14 the light of these general principles, and (4) a summary of the recommendations of the Division. Following a discussion of procedure, during Which Chairman 144rti -n joined the meeting, it developed that all of the members of the 11'441 were prepared to go forward with a determination of the pending ettles. 6/24/59 -12Mr. Hackley then presented, at the Board's request, a statement 'Which he summarized the rather complex issues involved, using as the basis of his remarks the information contained in the memorandum from the Legal Division. There followed questions by members of the Board relating to general principles and their applicability to particular circumstances, after Which the Board addressed itself to the specific caees before it for determination. It was agreed unanimously to grant the requests of Bank Shares, Inc .) for determinations with respect to Chicago-Lake Agency, Inc., 0°111mbia Heights Agency, Inc., Marquette Insurance Agency, Inc., and lkiversity National Agency, Inc. With respect to Columbia Heights Agency, Inc., and University liational Agency, Inc., Governor Robertson stated that there was a qlzestion in his mind whether the percentage of business of either of th"e insurance agencies related to transactions of its associated b*Ulk holding company subsidiary bank was substantial enough to warrant exemption under section 4(c)(6). In the case of Columbia, the 13°1*.tion of premiums related to the transactions of its associated bank 'was °) -Y about 22 per cent, while in the case of University the volume 1444 044 about 16 per cent. As to Marquette Insurance Agency and Chicago-Lake Agency, where the percentages were approximately 62, r espectively, he had no question. 44 and He did not want to record a 4138eut against granting the applications with respect to Columbia and 6/24/59 -13- Ulliversity and he would not want to specify a percentage of business that would constitute a benchmark. At the same time, he feared that the Board, by granting the two requests, might be getting itself into a difficult position for it would have made a determination in a case 1there the related volume amounted to as little as 16 per cent of the total volume of business. He suggested that the Legal Division, in cirafting the statements on these two cases, make it clear that the Percentage of related business to totalvolume was considered in c°mbination with all other factors pertinent to reaching a decision. With respect to the requests of Otto Bremer Company, it was agreed unanimously as follows: 1. To grant the request for a determination with regard to zens Agency, Inc.; 2. To grant the request with regard to Western State Agency, Ines a€en, subject to the condition that the lending activities of that cY be discontinued; 3. To grant the requested determination with regard to est-luar Investment Company, subject to the condition that the real ate agency business of that company be discontinued; 4. To grant the requested determination with regard to 1}rovtIllajrs Exchange Agency & Realty, Inc., subject to the condition rem the nature and volume of that company's real estate transactions aitl as at present; and Nev„ 5. To grant the requested determination with regard to or 1 gland Insurance Agency, on condition that the agency's volume )41:tiding activities not be increased and that its real estate 411eas be discontinued. It was also agreed unanimously to grant the determination recitie ted by First Bank Stock Corporation with respect to First Service cies, Inc., and the determinations requested by Northwest Bancorpol'"40.11 with respect to South Side Insurance Agency and Union Investment Coral)any. -14_ 6/24/59 There remained for consideration the request by First Bank Stock Corporation for a determination with respect to First Bancredit Corporation and the request of Northwest Bancorporation for a determin4tion with respect to Northwestern Mortgage Company. As to First Bancredit Corporation, all of its activities were of a "financial" nature and were wholly related to business of the holding companyls subsidiary banks. However, it was the recommendation Of the Legal Division that the request be denied because the activities °f First Bancredit were thought to violate section 6 of the Bank Roid4 J-rig Company Act and perhaps also because they were inconsistent lith the spirit of section 3(d) of the Act and of branch banking laws. Renee / such activities were deemed not a "proper" incident to banking 4" inconsistent with the purposes of the Bank Holding Company Act. Governor Mills stated that he agreed with the conclusion hut that his reasoning differed somewhat from that expressed in the memoUm. He was not entirely clear as to what extent the recommendation Ilged on the General Contract case and the decision as to what would be deemed a discount, but this appeared to be given considerable weight. Thel„ - was also a question in his mind regarding the importance attached to the ao-called branch banking facet of the application, as compared %I.th the fact that First Bancredit was engaged in activities in no Beh "related to banking. In his view, disapproval of the request for clete, -"II-nation should be based predominantly on the requirement of the 6/24/59 -15- Bank Holding Company Act calling for divestment of a type of activity not directly related to banking and only a lesser importance should be Placed on section 3(d). As he saw it, the continued operation of First kncredit Corporation by the holding company would be in a sense contrary to the spirit of the Act because it would represent engaging in an extension of banking activities. In summary, since the operations °I" First Bancredit Corporation did not in any sense constitute a banking acttvity, he felt that this subsidiary should be disposed of by First 13ank Stock Corporation. When other members of the Board indicated that they concurred in the reasoning of the Legal Division, the suggestion was made that in this case there would appear to be a need for two statements, a statement f the Board and a concurring opinion. Governor Mills then stated that he J0U) like to prepare a concurring opinion, with the assistance of the legal Division. Accordingly, it was agreed unanimously to deny the request of ?irst Bank Stock Corporation for a determination with respect to First 8841 credit Corporation, with the understanding that a statement of the 110aN‘a 'u• and a concurring opinion would be prepared and that the individual 1"lber8 of the Board would indicate which they preferred when the two taliilents were available for review. Consideration then was given to the request of Northwest Banwith respect to Northwestern Mortgage Company. This case -16- 6/24/59 involved a company engaged in property management, mortgage loan brokerage and servicing, and insurance activities, all activities of a financial, ticillciary, or insurance nature. The Legal Division found the property Elanagement and mortgage loan activities to bear a substantial relationship to the business of Northwest Bancorporation's subsidiary banks, principally the The insurance activities Northwestern National Bank of Minneapolis. ' lere inconsequential and could be regarded as incidental to the property Inensgement and mortgage loan activities. Taking all factors together, the legal Division felt that the activities of Northwestern Mortgage COmft -eanY, aside from the smAll insurance function, could properly be determined to be so closely related to the business of the subsidiary 1'1344 as to be a proper incident thereto and as to be consistent with th Purposes of the Bank Holding Company Act. It was further the view °t the Division that, while Northwestern Mortgage Company might properly be '1*clu1red to divest itself of the insurance activities, the Board e°111d, in its discretion, exempt those activities as being merely 1"Ilental to the main business of the company. It was recommended, ther efore, that the request for a determination be granted without any e°11411tion relating to the insurance activities. Governor Mills stated that his view would be more restrictive th that of the Legal Division. Northwestern Mortgage Company, he bliellred, was engaged substantially in business going beyond the handling Or tl ' ensactions for the customers of Northwest Bancorporation's subsidiary 6/24/5 , banks. to -17- It was engaging in activities that would attract persons wishing negotiate loans on large commercial properties and in placing those loans with various purchasers. It was also engaged in urban and farm Property management for clients who were not necessarily the customers Of banks in the holding company system. be Those types of services could Provided by competing nonbanking institutions, so in a real sense it seemed to him that Northwestern Mortgage Company was operating in fields prohibited under the Bank Holding Company Act. Beyond that, raallY of the company's operations, where related to the business of CIAStomers of banks in the holding company system, could be carried °h rough the trust departments of Northwestern National Bank or oth er subsidiary banks, either through trust or agency arrangements, and the same purpose would be accomplished. In substance, the primary l'eas°n for the existence of Northwestern Mortgage Company appeared to 11i,4°. to be to engage in activities beyond the scope of activities handled by the holding company's subsidiary banks and their trust cle P-vLments. To the extent that this was the case, it seemed to him that the company's activities fell within areas of activity prohibited by the terms of the Bank Holding Company Act. Furthermore, the earnings c)r the company appeared to derive largely from activities not handled by a e holding company banks. Accordingly, in the absence of persuasive t'Istullerits on the other side, he would be inclined to deny the request for a section 4(c)(6) determination. -18- 6/24/59 Miss Hart commented that, according to the record, a large Proportion of the property management activities of Northwestern Mortgage C°11IPany appeared to be performed for people who were customers of Northwest Bancorporation subsidiary banks. It was not entirely clear, hcliever, whether this was necessarily so or whether it was merely an accident of operation. Under the present setup, the mortgage company theoretically could draw upon customers who had nothing to do with the holding company banks, but the fact that the mortgage company ettrrently tended to handle mostly customers of the holding company banks would seem to argue in favor of the requested determination. As far as she could determine from the record, the principal reason for maintaining the mortgage company as a separate organization was that tt8 operations could be performed more efficiently on a wholesale basis than by a single bank. On the other hand, one could not judge from the record to what extent competing banks found it necessary to use °Utside agencies. In any event, however, Northwest Bancorporation " h 'made a fairly persuasive case that it could not maintain as trieient an organization within the trust department of the Northesterh National Bank. Apparently, the mortgage company was incorporated at 4 time of poor farming conditions When the national bank deemed Pert management services in that area vital. Since the national bank cow, not provide those services efficiently within the framework of its trust department, the mortgage compr:ry was established and experts emplop.d on a full-time basis. 6/24/59 -19Governor Robertson said he was not persuaded that the reasoning Of the Hearing Examiner, who had listened to all of the facts and arguzents, was wrong. Consequently, he was inclined to feel that the Rearing Examiner's adverse recommendation should be followed. Governor Shepardson stated that he also was inclined to agree 14-th the Hearing Examiner. However, he felt that a close question was involved as far as the property management activities were concerned and that there might be justification for permitting that portion of -themv rigage company's activities to be retained. There followed discussion with regard to the range of property n/anagement services commonly offered through the trust departments of larger commercial banks, after which Governor King commented that dUring oral argument Northwest Bancorporation representatives stressed °4 a reason for maintaining a separate organization the fact that a trtlat department could not operate beyond State boundaries. Thus, it 114 contended that the conducting of operations through Northwestern —168.ge Company was convenient and more economical because the mortgage coft, -vahY could serve a wider area. It continued to be his conclusion, Governor King said, that it linUld be better if the request for a determination with respect to IlOrthveatern Mortgage Company were not granted. If approved, he felt that the pattern thus suggested would be unfortunate inasmuch as it 14'51114 Point to approval of somewhat similar requests in the future. 6/24/59 -20At this point Mr. Hackley recalled that Northwest Bancorporation had argued, with respect to this subsidiary, that the property management "tivities were not merely incidental to the business of banking but //el'e actually inherent in the banking business. On the basis of the Irievs expressed at this meetimg, he suggested that the line of reasoning, 11' it were decided to deny the request, would not dispute the argument that the activities of the mortgage company in the property management tield were closely related to the business of banking as conducted by title holding company and its subsidiary banks. It would be held, hovey ery that those activities were not such as to meet the test of properly incidental to banking for the purposes of section 4 °I' the Bank Holding Company Act. Governor Balderston then stated that, as he saw it, the issue 11" whether a holding company should be permitted to maintain a separate c°1110rate entity to carry on a functional activity for several subsidiary 141414* Any independent bank, he pointed out, apparently would have the 11Rht to create an agency to carry on property management functions if tt did not wish to furnish those services out of its own trust department. 11°Ifever, the Board would be denying a holding company the right to set 41) a Property management organization to serve its subsidiary banks. The question of interstate operations was then brought again 14to discussion, and Governor Shepardson inquired whether serious ()bie c --on could be interposed on that account. If it would be proper, 6/24/59 -21- through one agency, to provide management services to customers of holding c°11c1PanY banks in the State of Minnesota and, through another agency, similar services to customers of holding company banks in South Dakota, then it was not entirely clear to him What evil the Board would be lareguarding against by refusing to permit continuation of the management acttvities rendered by the Northwestern Mortgage Company, an organization e(AUPPed to handle a variety of problems common to the whole area. Governor Mills commented that the real estate loan brokerage lksiness of Northwestern Mortgage Company appeared clearly to constitute a f,-ovve of activity that should be prohibited under the provisions of the Bank Holding Company Act. As to the property management activities, he felt that there might be reasonable doubt. He noted, however, that if the trust department of a bank, in the course of accepting and Managing trusts, goes outside its home State, there are ordinarily 131‘clIrietons of State law requiring the appointment of ancillary trustees. On this point Mr. Hackley said it appeared from the record that, both as to urban and farm properties, the activities of the tgage company were primarily within the local area served by the Nol-pL -`44vestern National Bank. This comment led Governor Mills to raise the question whether, if such were the case, the activities could not be h4naled by the trust department of the national bank. Governor RObe ' 4 80n noted, however, that during the oral argument Northwest 11841e QrPoration contended that it would not be possible to retain a body or e xPerts solely for the purpose of performing management functions for '141.t°rIaers of Northwestern National Bank. 6/24/59 -22Governor Robertson then suggested that the Legal Division be t*quested to prepare alternative opinions on this case for the Board's consideration. Governor Balderston said that his inclination had been to favor diaaPProval of the requested determination. He then inquired of Mr. ReekleY whether the latter felt, on the basis of the record and this disclassion, that the Legal Division would be able to prepare an opinion BUPPorting disapproval that would be consistent with the principles enlinciated in the memorandum of June 19, 1959. In response, Mr. Hackley outlined the type of statement aUPporting denial that he would envisage preparing for the Board's consideration. Such an opinion would rest largely, he said, on the ttke°rY that although the activities of the mortgage company were closely /*elated to the business of baneng as conducted by the holding company end 1t8 subsidiary banks, they fell within the area of activities against 144ich the Bank Holding Company Act was intended to safeguard. Following additional discussion, it was agreed to postpone an easion of Board opinion on the request for a section 4(c)(6) ' "131 te -q-Lnation with respect to Northwestern Mortgage Company until altelliative statements on this case had been prepared by the Legal 4/J1-Rion and were available to the Board for review. It was understood that statements on the other section 4(c)(6) eases considered at this meeting would be drafted by the Legal Division 6/24/59 -23- in accordance with the actions on them which had been indicated by the 130ard. In the case of First Bancredit Corporation, this would include 15°ta a principal statement and a concurring opinion. St. Joseph Agency. Consideration of a request for an interpre- tation under the Bank Holding Company Act with respect to the insurance activities of St. Joseph Agency, Inc., South Bend, Indiana, had I viously been deferred by the Board pending discussion of the acction 4(c)(6) cases considered at this meeting, many of which also involved activities of an insurance nature. Under date of June 19, 1959, there had been distributed to the Board a memorandum from the Leg al Division svmmArizing the St. Joseph Agency case and presenting 4 °Iraft of letter containing views that it was deemed appropriate for t4s Board to state. Mr. Hackley now suggested that it might be advisable to defer consideration of the proposed letter until statements were prepared on the section 4(c)(6) cases considered by the Board today, and there was with this suggestion. Governor Robertson said he would like the record to reflect his agreement with the recommendation of the Leg," --- Division on the St. Joseph Agency case. Mr. Davis and Miss Hart then withdrew from the meeting. Additional items circulated to the Board. The following items, 1411°1 had been circulated to the members of the Board and copies of *itch are attached to these minutes under the respective item numbers triai ceted, were approved unanimously: 6/24/59 -24Item No. Letter to the Federal Reserve Bank of Boston • Proving the payment of salary to George H. 111-81 Vice President and Director of Research, at the rate fixed by the Board of Directors. 4 Letter to the Federal Reserve Bank of Kansas City Proving the payment of salary to William F. rairley, General Auditor, at the rate fixed by the Board of Directors. 5 Letter to the Federal Reserve Bank of Kansas City the payment of salary to W. J. Milburn, rrWing k Assistant Cashier, Oklahoma City Branch, at ‘Ae rate fixed by the Board of Directors. 6 Statement by Congressman Patman. With reference to the state- ••••••.• •flt released by Congressman Patman under date of June 221 1959, eckleerning Federal Reserve Bank expenditures, attention was drawn by 4Wernor Balderston to the fact that a number of Mr. Patman's charges 14volved misinterpretation of information contained in the reports of e)(anlination of the Federal Reserve Banks. • These reports, he pointed followed a pattern designed to provide maximum information for the Board of Governors concerning the operations of the respective Reserve Banks. However) they were now being used for an unanticipated 111111)0 13e) with the result that the Federal Reserve System was being DlacAA in a difficult position, and the situation seemed likely to e°"inue to prevail. During a discussion of this point, Governor Robertson expressed the view that the examination reports should be complete and thorough 44d that the examiners should be placed under no restrictions in reporting 6/24/59 -25- their findings. The matter of furnishing the reports for inspection by Congressman Patman was a separate question. Heretofore, the Board had leaned over backyard to make the reports available to the Banking and CUrrency Committees, and he (Governor Robertson) would not want to adopt a position of refusing a request from those Committees, even recognizing the use to which the reports had been put. This, he felt, was a risk that must be assumed by a public agency. At the first opportunity, 1/c4lever, it would be his inclination to consider the matter of requesting a heartng on the PatmAn criticisms for the purpose of providing a full "Planation to the Congress. Last year the Board compiled an item-by- commentary on Congressman Patmants charges but the "answer never 43Ightllp with the charges." The discussion concluded with a comment by Chairman Martin that a8 a first step the Board should review thoroughly all of the items eriticized by Mr. Patman. The meeting then adjourned. Secretor" 00000,4 BOARD OF GOVERNORS , 4 1i)41 40y,:ao OF THE n I 4., 4, t * * * a FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. 4 4 Item No. 1 6/24/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 24, 1959. Board of Directors, Bucks County Bank and Trust Company, Perkasie, Pennsylvania. Gentlemen : The Board of Governors extends to January 23, 1960, the 4. tame within which Bucks County Bank and Trust Company, Vb. 2as, Pennsylvania, may, under the authority contained a- Ole Board's letter of July 23, 1957, establish a branch in 1,7(8°PPing center to be constructed at the intersection of 4 . ;3' , Broad Street and West End Boulevard (j. S. Route 309), the Borough of Quakertown, Pennsylvania. Very truly yours, Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 2 6/24/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONCIENCE TO THE BOARD June 24, 1959. .112% Geo. E. Kroner, Vice President, rederal Reserve Bank of St. Louis, St. T— .wouis 66, Missouri. tear Mr. Kroner: Reference is made to your letter of June 5, 19591 with ;reeet to a petition filed by the directors of the American ,°11a1 Bank in St. Louis, St. Louis, Missouri, with Mr. C. M. burn,i of the Federal P Supervising Examiner of the St. Louis office tiv°sit Insurance Corporation, seeking the consent of the Corporadrn for Mr. Philip F. Lichtenstein to continue to serve as a :etor and officer of the national bank under Section 19 of thl an;!ederal Deposit Insurance Act. You state that Mr. Dunn has 114 eQ for an expression of your official attitude toward the reeat of the the directors of the American National Bank and that if thern. .°Dard has any views in the matter you will be glad to receive Your letter stated that photostatic copies of resolutions Of fk 1_e directors of the American National Bank in St. Louis, include-17°,,a Petition submitted to the FDIC and a presidential pardon, were -c.Lose d• These documents were not received. Since the matter which you describe does not appear to be direct p: : 1 ectlY within the area of the Board's supervisory duties and reilitjeS it would be inappropriate for the Board to express "-sws on the subject. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS Ottio*,4 4 0cotok,la, ., OF THE FEDERAL RESERVE SYSTEM ,. . ,,,i .a?: WASHINGTON 25, D. C. Item No. 3 6/24/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE EiDARD 't,:ktmer',,i1 '•oo*** June 2h, 1959 iit American Bank of Miami, 30, Florida. Attention: General Sterling A. Wood Gerltlemen: This will acknowledge the receipt of General Wood's letter Of or s'"e 19, 1959, discussing the present status of the refinancing to bnth Dade Farms, Inc., from the proceeds of which 0 million is ;Provided in new capital for the Pan American Bank. It is regret that the negotiations for the sale of stock of South Dade lie,neLs have been interrupted, but it is hoped that the meeting this ' rtei between Mr. Sottile and Glore, Forgan & Company will have boneror n results, especially because of the imperative need of the bank soh,,guditional capital funds of at least $3 million to restore it to capital condition. The purpose of this letter is simply to record the concern 0tthe ots02°ard about the way in which you have construed the obligation J44' 4r1 Dade Farms as contained in the excerpt of the minutes of g1411, , 1958, of the board of directors of the bank respecting the 04 aTr,r?s of South Dade Farms to purchase doubtful assets of the bank tIlilfied dates. This guarantee is contained in the letter dated to 1958, to Mr. Denmark of the Federal Reserve Bank. Subsequent )411k-eel-Pt of that letter, Mr. Malcolm Bryan, President of the Reserve T rroted t to the letter of July 24, giving his interpretation of encloaed. • A copy of Mr. Bryan's letter dated September 26, 1958, t the 8 Specifically, the Board is sure you did not intentionally contend that a charge-off "corrects" a classified item, yet qama%?dule included in your letter reflects reductions of the total plxrpo 'led doubtful by the amount of charge-offs made. Obviously the ,?tts 86 of the guarantee is to restore capital lost through chargecredit on account of such adjustments could be permitted. the ' Il" o L'd bs our view, on the basis of Mr. Bryan's letter, with which qasa d is in agreement, that a substantial amount of the items N1I-J-ed doubtful in the March 31, 1958 report of examination would be subject to the terms of the guarantee. Pan American Bank of Miami -2 Although we are not at this time in a position to verify Your so, alculations, the Board doubts that the current obligation of tk"h Dade Farms would be met by a contribution of $25010001 although vue donation will, of course, be helpful in disposing of the large 44m0 of items classified as losses. In the near future we will communicate with you further in illtrPect to this matter and other aspects of the total problem. wivne meantime, please advise results of present negotiations Tharn Clore, Forgan & Company or other financing arrangements you ye in view, and inform us of the date and amount of the ola_have Char of all loss classifications. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 4°,0sure BOARD OF GOVERNORS OF THE Item No. 146/24159 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD ,;ttittt June 24, 1959. Confidential (FR) Mr. J. A. Erickson, President, Federal Reserve Bank of Boston, Boston 6, Massachusetts. Dear Mr. Ericksont The Board of Governors approves the payment of salary to Mr. George H. Ellis, Vice President and Director of Research, Federal Reserve Bank of Boston, for the Period July 1, 1959, through December 31, 1959, at the rate of $18,500 per annum, which is the rate fixed by Your Board of Directors as reported in your letter of June 2, 1959. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 5 FEDERAL RESERVE SYSTEM 6/24/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 241 1959. ZPIDPNTIPI (FR) j Mr . -' Raymond W. Hall, Chairman of the Board, Federal Reserve Bank of Kansas City, ".nsas City 60 Missouri. Ir. Hall: The Board of Governors approves the payment of salary to Ka Alliam F. Fairley as General Auditor, Federal Reserve Bank of atl/ as City, for the period August 1, 1959 through December 31, 1959, rate of $11,500 per annum, which is the rate fixed by your udrd of Directors as reported in your letter of June 8, 1959. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 6 FEDERAL RESERVE SYSTEM 6/24159 WASHINGTON 25, D. C, ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD June 24, 1959. RaYnlond W. Hall, Chairman of the Board, 4eaeral Reserve Bank of Kansas City, anaas City 6, Missouri. Nar Mr. Hall: The Board of Governors approves the payment of salary to Mr. w. City Branch, ro, J- Milburn, Jr., Assistant Cashier, Oklahoma ofu,,the period July 1, 1959 through December 31, 1959, at the rate 1428)750 per annum, which is the rate fixed by your Board of 4-ectors as reported in your letter of June 8, 1959. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary.
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