Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, June 24, 1963, Volume 50, Part 6

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Minutes for

To:

Members of the Board

From:

Office of the Secretary

June 24, 1963

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.

Ohm. 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 Monday, June 24, 1963.

The Board met in the Board Room

at 10:00 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
O'Connell. Assistant General Counsel
Mattras, General Assistant, Office
of the Secretary
Mr. McClelland, Assistant to the Director,
Division of Examinations
Mr. McClintock, Supervisory Review Examiner.
Division of Examinations

Mr.
Mr.
Mr.
Mr.
Mr.

Circulated or distributed items.

The following items, copies of

Which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.

Letter to Chemical Bank New York Trust Company,

1

New York, New York, approving (1) the establishMent of a branch at 57-02 99th Street, Corona,
and (2) the establishment of the branch in temporary quarters at 59-05 Junction Boulevard, Corona,
the temporary branch to be closed simultaneously
With the opening of the permanent branch.
Letter to The Connecticut Bank and Trust Company,
Hartford, Connecticut, approving the operation of
a branch at 61 State Street, New London, contingent
UPon approval and consummation of a proposed merger
Of The Union Bank and Trust Company of New London,
New London, Connecticut, with and into The Connecticut
tank and Trust Company.

2

6/24/63

-2Item No.

Letter to the Federal Deposit Insurance
Corporation regarding the annual expense
incurred by the Federal Reserve System in
the discharge of responsibilities deemed
to be related to the examination and
supervision of State member banks.

3

Letter to the Federal Reserve Bank of Dallas
regarding whether a member bank may credit
Interest semiannually on all savings accounts
at a rate of 4 per cent per annum and recompute
and adjust the interest on any part of a
savings deposit that does not remain in the
bank for 12 months.

11.

In connection with Item No. 2, there was a discussion relating
to the application of Federal statutes, including the Bank Merger Act,
to mergers involving nonmember uninsured banks (such as the proposed
merger of The Union Bank and Trust Company of New London into The
Connecticut Bank and Trust Company).

It was understood that the Legal

Division would prepare a memorandum on this matter for the Board's
information.
With reference to Item No.

3, it

was stated that the Federal

Posit Insurance Corporation wanted an approximation of the annual
expenses incurred by the System in its examination and supervision of
State member banks to assist it in projecting a hypothetical aggregate
of noninsurance expenses of the proposed Federal Banking Commission
(the subject of a bill pending in the Congress).

Such information

'would provide a base for estimating refunds to be made by the Commission to each insured bank (other than a national bank) to defray the

6/24/63

.3...

Cost of State bank examination and supervision if such legislation
should be enacted.
In connection with Item No.

4, Governor Mills had suggested when

the file was in circulation that the procedure for crediting of interest
could convey an erroneous impression to depositors and could be conducive
to false advertising.

Mr. O'Connell, after reviewing the facts of the

matter in some detail, agreed that these possibilities existed but expressed
the opinion that the crediting of interest in the manner described would
not technically violate the provisions of Regulation Q.

As indicated in

the draft letter, there should be a full and explicit statement in the
deposit contract.

The draft letter was approved subject to the under-

standing that language would be added calling attention to the importance
Of stating clearly in any advertising the conditions under which interest
would be paid at the rate of

4 per cent. It was also understood that the

Proposed letter would be checked with the Federal Deposit Insurance Corporation before being sent.
The meeting then adjourned.
Secretary's Notes: A letter was sent today
over the signature of Chairman Martin to
Mr. H. K. Newburn, President of Montana State
University, Missoula, Montana, accepting his
resignation from the Board of Directors of the
Helena Branch, Federal Reserve Bank of Minneapolis, effective September 1, 1963, due to a
change of residence out of the Ninth District.
Governor Shepardson today approved on behalf
of the Board the following items:

7 )44
6/24/63

.14...

Letter to the Federal Reserve Bank of Chicago (attached Item No. 5)
approving the designation of Louis N. Buettner as special assistant
examiner.
Letter to the Federal Reserve Bank of Dallas (attached Item No.
approving the appointment of Marvin C. McCoy as examiner.

6)

Memoranda from appropriate individuals concerned recommending the
following actions relating to the Board's staff:
!1Ppointment
Bernadine H. Woods as Clerk-Stenographer, Division of Personnel
Administration, with basic annual salary at the rate of $4,110, effective
the date of entrance upon duty.
127 increases
D. Lee Shafer, from $4,110 to $4,565 per annum, with a change in
title from Clerk-Stenographer to Secretary, Division of International
Finance, effective July 7, 1963.
John S. Hollis, from $3,770 to $3,980 per annum, with a change in
title from Messenger to Messenger (Driver), Division of Administrative
Services, effective June 24, 1963.
Chan:ce in official headquarters
Ranvey Stanford, Assistant Federal Reserve Examiner, Division of
Examinations, from Birmingham, Alabama, to Atlanta, Georgia, effective
Immediately.

1f.

Item No. 1
6/24/63

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25, D, C.
ADDRESS OFFICJAL CORRESPONDENCE
TO THE BOARD

June 24, 1963

Board of Directors,
Chemical Bank New York Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves (I) the establishment of a branch at
57-02 99th Street, Corona, Queens County, New York, by
Chemical Bank New York Trust Company, provided the branch
is established within two years from the date of this
letter; and (2) the establishment of the branch in temporary quarters at 59-05 Junction Boulevard, Corona,
Queens County, New York, provided the temporary branch
is established within six months from the date of this
letter and is closed simultaneously with the opening of
the permanent branch.
Very truly yours,

(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
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 branches; and that if an extension should
be requested for either branch, the procedure prescribed
in the Board's letter of November 9, 1962 (S-1846), should
be followed.)

Item No. 2
6/24/63

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE

TO THE BOARD

June 27, 1963.

Board of Directors,
The Connecticut Bank and Trust Company,
Hartford, Connecticut.
Gentlemen:
The Board of Governors of the Federal
approves the operation of a branch
System
Reserve
t Bank and Trust Company, Hartford,
Connecticu
by The
State Street, New London, Connecticut,
61
at
t,
Connecticu
merger of The Union Bank and
proposed
providing the
New London, Connecticut,
London,
New
of
Trust Company
Trust Company, Hartford,
and
Bank
t
Connecticu
with The
d.
and
consummate
approved
is
Connecticut,
Very truly yours,
(Signed) Elizabeth L. Carmichael

Elizabeth L. Carmichael,
Assistant Secretary.

BOARD OF GOVERNORS

Item No.

3

6/24/63

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

June 241 1963
IIr, William M. Moroney,
:
Assistant to Chairman and Controller,
Pederal Deposit Insurance Corporation,
Washington 25, D. C.
Dear Mr, Moroney:
Mr.
Reference is made to your informal request made through
for
ions,
Examinat
Prederic
of
Solomon, Director of the Board's Division
Reserve
Federal
the
n approximation of the annual expense incurred by
:
Ystem in the discharge of responsibilities deemed to be related to the
2cam1.nation and supervision of State member banks. It is understood
;Ilat this estimate, together with similar estimates relating to insured
for the
tate nonmember banks and national banks, is to be used solely
expenses
ance
noninsur
of
e
Purpose of projecting a hypothetical aggregat
esfor
base
a
provide
to
vtf the proposed Federal Banking Commission
(other
bank
insured
each
to
on
timating refunds to be made by such Commissi
of
cost
the
defray
to
5874,
„han a national bank) under Section 11, H.R.
that,
od
understo
further
is
It
;tate bank examination and supervision.
2r Your purposes, a detailed accounting and allocation of each and every
tl,cPense which may be related to the specific aspects of the bank examina'
lon and supervisory function with which we are to deal is not required
'IT expected.

:

the
In the light of the foregoing, it is our estimate that
e
discharg
the
in
System
Reserve
Federal
the
by
expenses incurred
ion
!if responsibilities directly related to the examination and supervis
.°,.f State member banks and Bank Holding Companies approximate $7,900,000.
;',11 general, this estimate reflects the following: (a) Federal Reserve
the
- actual expenses of the Bank Examinations Departments for
reflect
to
ccia1endar year 1962 without allocation of officers' salaries
buties in other Departments, exclusive of System retirement and other
tions
ilenafits, but with adjustment for Civil Service retirement contribu
exbudgeted
s
Governor
of
Board
nt 6-1/2 per cent per annum, and (b)
calendar
the
for
s
Division
and
ions
other
ense a of the Division of Examinat
'.,!_ar 1963 to reflect the first step in the general pay increase and organ1”tional changes, exclusive of System retirement and other benefits, but
:
c4th adjustment for Civil Service retirement contributions at 6-1/2 per
ent per annum.
a.

Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.

BOARD OF GOVERNORS

Item No. 4

6/24/63

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
L-1 •

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

July 8, 1963

Mr. Triatrous H. Irons, President,
Federal Reserve Bank of Dallas,
ballas 2, Texas.
.Dear Mr. Irons:
This refers to Mr. Boykin's letter of May 1, 1963,
addressed to Mr. Hackley, presentin an inquiry by the president of
a national bank in Louisiana, as to whether a member bank may credit
interest semiannually on all savings accounts at a rate of L. per cent
Per annum and recompute and adjust the interest on any part of a
savings deposit that does not remain in the bank for 12 months.
The Supplement to Regulation Q (section 217.6) provides, in
part, that a member bank may pay interest at a rate not in excess of
4 Per cent per annum "on that portion of any savings deposit that has
rerriained on deposit for not less than 12 months".
Published statements by the Board (1961 Bulletin, page 1404
nd 1962 Bulletin, page 390 imply that interest should be "restricted
a rate of 3-1/2 per cent until the funds have remained on deposit
Or 12 months at which time they become eligible for the so-called
retroactive bonus of 1/2 per cent". However, such statements were made
on the supposition that the normal procedure for crediting interest
1!°111c1 be on the "bonus" basis; and the specific question now presented
"as not heretofore been Considered.
The Board has not objected to the payment semiannually of
accrued interest at 4 per cent on a 12 months' time certificate,
subject to an express understanding that interest will be recomputed
a lower rate, such as 1 per cent, if the funds should be withdrawn
1
the year after 30 days' written notice. As a matter of prin1Ir .ng
:
elPle, there appears to be no sound basis for applying a different
rule in the case of a savings deposit. In both cases, the practice
aPpears to be dictated by considerations of bookkeeping convenience
and not to involve an actual payment of interest at a rate in excess
°f the maximum permitted by Regulation Q.

r

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Mr. Watrous H. Irons

Tsf ,t11

-2-

Accordingly, it is the Board's opinion that interest may be
credited on a savings deposit at a rate not in excess of it per cent
during the first year of the deposit, provided that the deposit
contract expressly states that the amount of interest credited to a
deposit before the first anniversary date thereof is not to be deemed
P
.2
._.Yment of the one-half of 1 per cent interest differential, and that
la6R-ft will be recomputed at a rate not in excess of 3-1/2 per cent
as to any part of the principal withdrawn before 12 months have elapsed.
1•1 order to avoid public misunderstanding of the effect of the bank's
Interest crediting procedures, it is suggested that the bank, in
addition to inserting the above-mentioned express provision in the
deposit contract, be urged to make clear in whatever form of advertis,
1_11g it may undertake that the payment of maximum allowable interest will
.0e made only on savings that have remained on deposit for not less than
12 months.
It should be noted that under the procedure contemplated by
the national bank a savings depositor might encounter an income tax
Problem) since all interest credited during the first year of the
deposit would have to be reported by the bank to the Federal Government,
Whereas the depositor's tax return for the year might not reflect the
full amount of the interest so credited if amounts withdrawn during
he Year bore interest at the recomputed lower rate. Further, as to
..nterest credited at the maximum 4 per cent per annum rate and reported
loY the bank for taxpurposes, but prior to payment recomputed as to any
portion of the deposit withdrawn prior to the anniversary date, the
oank may be required to file with the Internal Revenue Service an
amended Form 1099, Information Return. You may wish to call these
latter considerations to the attention of the inquiring bank.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman)
Secretary.

0

BOARD OF GOVERNORS
Item No.

OF THE

5

6/24/63

FEDERAL RESERVE SYSTEM
WASHINGTON 25. O. C.
ADDRESS

orriciAL

CORRESPONDENCE

TO THE SOAR°

June 24, 1963

AIR
. Leland Ross, Vice President,
'ederal Reserve Bank of Chicago,
Chicago 90, Illinois.

Dear Mr. Ross:
In accordance with the request contained in your letter
Of
t.eQune 18, 1963, the Board approves the designation of Louis N.
41;ua ttner as a special assistant examiner for the Federal Reserve
stnk of Chicago for the purpose of participating in examinations of
ate member banks.
Very truly yours,
(Signed) Elizabeth L. Carmichael

Elizabeth L. Carmichael,
Assistant Secretary.

BOARD OF GOVERNORS
:4* 90Noi",.

Item No.

6

6/24/63

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONOENCE
TO THE BOARD

june 24, 1963

Thomas R. Sullivan, Vice President,
bederal Reserve Bank of Dallas,
allas 2, Texas.
near

Mr. Sullivan:

In accordance with the request
of j,.
14,
licc_une
1963, the Board approves the
ped'Y, at present an assistant examiner,
eral Reserve Bank of Dallas effective

contained in your letter
appointment of Marvin C.
as an examiner for the
July 1, 1963.

Very truly yours,
(Signed) Elizabeth L. Carmichael

Elizabeth L. Carmichael,
Assistant Secretary.