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Minutes for June 24, 1966
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 proposed to place in the record of policy actions
required to be kept under the provisions of section 10 of the
Federal Reserve Act entries covering the items in this set of
minutes commencing on the page and dealing with the subjects
referred to below:
Page 22
Amendment to Supplement to Regulation D,
Reserves of Member Banks, relating to
reserve requirements against time deposits.
Page 22
Amendments to Regulation D, Reserves of
Member Banks, and Regulation Q, Payment
of Interest on Deposits, relating to
promissory notes.
Should you have any question with regard to the minutes,
it •
111 be appreciated if you will advise the Secretary's Office.
Otherwise , please initial below. If you were present at the
1lit
,
eetiug, your initials will indicate approval of the minutes. If
u were not present, your initials will indicate only that you
have
seen the minutes.
C
Chairman Martin
Governor Robertson
Governor Shepardson
Governor Mitchell
Governor Daane
Governor Maisel
Governor Brimmer
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Federal Reserve Bank of St. Louis
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Minutes of the Board of Governors of the Federal Reserve
System on Friday, June 24, 1966.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson, Vice Chairman
Mitchell
Maisel
Brimmer
Mr. Sherman, Secretary
Mr. Broida, Assistant Secretary
Mr. Bakke, Assistant Secretary
Mr. Holland, Adviser to the Board
Mr. Molony, Assistant to the Board
Mr. Cardon, Legislative Counsel
Mr. Solomon, Director, Division of Examinations
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Eaton, General Assistant, Office of the
Secretary
Mr. Morgan, Staff Assistant, Board Members'
Offices
Messrs. Brill, Koch, Partee, Williams, Axilrod,
Gramley, Bernard, Eckert, Ettin, Fry, Keir,
Kelty, and Rosenblatt and Mrs. Peskin of
the Division of Research and Statistics
Messrs. Sammons, Katz, Baker, and Nettles of
the Division of International Finance
Money market review.
Mr. Bernard commented on a distrib-
uted table showing financial and monetary indicators and discussed
trends in the Government securities market, after which Messrs.
Ettin
and Keir reported on bank credit developments, special attention
being given to a table relating to shifts in time and savings
4P°sits and savings capital in depositary-type institutions.
°ther distributed material afforded perspective on the money and
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capital markets and on bank reserve utilization.
Mr. Baker then
d iscussed foreign exchange markets.
All members of the staff not concerned with the remaining
topics on the agenda then withdrew from the meeting and the following
entered the room:
Mr. Hackley, General Counsel
Mr. Kakalec, Controller
Mr. Byrne, Director, Division of Data Processing
Mr. Hexter, Associate General Counsel
Messrs. O'Connell and Shay, Assistant General Counsel
Mr. Daniels, Assistant Director, Division of Bank Operations
Mr. Leavitt, Assistant Director, Division of Examinations
Mr. Langham, Assistant Director, Division of Data Processing
Mr. Forrestal, Senior Attorney, Legal Division
Mr. McIntosh, Technical Assistant, Division of Bank Operations
Mr. Egertson, Supervisory Review Examiner, Division of
Examinations
Mr. Veenstra, Chief, Financial Statistics Section, Division of
Data Processing
Discount rates.
The establishment without change by the Federal
Reserve Bank of Boston on June 20, 1966, by the Federal Reserve Bank of
Atlanta on June 21, 1966, and by the Federal Reserve Banks of Philadelphia,
Cleveland, Richmond, St. Louis, Minneapolis, Kansas City, and Dallas on
Tune 23, 1966, of the rates on discounts and advances in their existing
'
schedules was approved unanimously, with the understanding that approPl
'iate advice would be sent to those Banks.
Approved letters.
The following letters were approved unani-
mcjuslY after consideration of background information that had been
illade available to the Board.
th
Copies of the letters are attached under
e respective item numbers indicated.
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-3Item No.
Letter to Pan American Bank of Miami, Miami,
Florida, approving an investment in bank
premises.
1
Letter to Bank of White Sulphur Springs, White
Sulphur Springs, West Virginia, approving
Payment of a dividend.
2
Letter to the Federal Reserve Bank of Chicago
waiving the assessment of a penalty incurred
by Forest
City Bank and Trust Company, Forest
eirY, Iowa, because of a deficiency in its
required reserves.
3
Letter transmitting a report to Chairman Nix of
the Subcommittee on Census and Statistics of the
Rouse Committee on Post Office and Civil Service
111 response to his request for information relating to electronic data processing systems today
as compared with three years ago.
4
Letter to the
f°rms for use
affiliates in
the next call
5
Federal Reserve Banks transmitting
by State member banks and their
submitting condition reports as of
date.
With respect to Item No. 5 Governor Mitchell noted that the
letter stated that the Reserve Banks would not be requested to make
the usual biennial survey of branch deposits at member banks operating
branches outside the head office city, but that instead the Federal
bePosit Insurance Corporation would conduct a summary of deposits survey
48 of June 30.
He asked if there had been assurance that the data from
the ,
k,orporation's survey would be as freely available to the Federal
Reserve as had been the figures from its own surveys.
Mr. Veenstra
ind icated that there had been a firm understanding as to that point,
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at least at staff level.
In continuing comments Mr. Veenstra described
changes that it was understood were being made in the Comptroller of
the Currency's form for reports of condition; principally, the elimination of figures for loan repurchase agreements and, at the urging of
the Bureau of the Mint, the inclusion of a report of half dollars in
vault cash and tellers' cash.
Work measurement program (Item No. 6).
The management consul-
tant firm of Booz, Allen and Hamilton, Inc., had conducted a work
measurement training program in 1965 at the Federal Reserve Bank of
Dallas, and subsequently offered a similar program to the Federal
Reserve Bank of St. Louis, alone or in conjunction with one or more of
the other Federal Reserve Banks.
After discussion on March 30, 1966,
the Board in a letter dated April I requested the views of the other
Reserve Banks regarding their possible participation in such a program.
In a distributed memorandum dated June 8 Mr. Kiley reported on the
responses made by eight of the Reserve Banks.
The Richmond, Kansas
CitY, and San Francisco Banks had agreed to join with the St. Louis
'
lank and individually contract with Booz, Allen and Hamilton to develop
a work measurement program (the Kansas City Bank conditioned its agreeOn participation by a majority of the Reserve Banks, but it was
u4derstood that the Bank might not be adamant on that point).
Five
Reserve Banks had declined to participate, for various reasons.
Final
re plies had not been received from the Boston and Philadelphia Banks.
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At the meeting on June 17 there was discussion of the replies and of
possible courses of action suggested in Mr. Kiley's memorandum.
How-
ever, the matter was held in abeyance.
There had now been distributed a further reply from the
?hiladelphia Reserve Bank expressing firm opposition to participating
in the program.
The suggestion was still under consideration at the
Federal Reserve Bank of Boston.
Also distributed was a memorandum
dated June 22, 1966, from the Division of Bank Operations submitting a
draft of letter to the Federal Reserve Banks that would combine elements
Of an approach earlier suggested by Mr. Kiley with statements clearly
indicating the Board's interest in having participation by the Banks in
such a program at some time in the future if not at present.
Governor Mitchell commented that there might be some validity
to the
points on which the Federal Reserve Bank of Philadelphia based
opposition to joining in the work measurement program that had been
°Iltlined in the Board's earlier aetter.
Although he thought that the
draft letter might be transmitted after some softening changes in language, Governor Mitchell said that he could be easily persuaded to let
the matter of a further letter to the Reserve Banks drop.
He believed
that basically the Board's staff was working in the right direction,
and Perhaps there should be some further expression by the Board in
favor of work measurement programs.
Chairman Martin said that he felt the letter might be changed
in
a manner to make clear that the Board had no intention of questioning
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the decisions of the individual Reserve Banks not to participate in the
Program at this time, but which would nevertheless indicate the Board's
interest in work measurement by transmitting a number of questions that
had been raised regarding the program and comments thereon.
After he
suggested specific language for some of the changes, the other members
of the Board generally concurred in this approach, and it was agreed
that the letter would be revised along the lines suggested by the
Chairman and sent in the form attached as Item No. 6.
New York building program (Item No. 7).
On a number of occasions
the Board had discussed the building program of the Federal Reserve Bank
of New York.
Certain
some of
In October 1964 the Board authorized the Bank to acquire
property that might be used for an additional building to house
the operations of the Bank, and by letter of April 27, 1965, the
130ard authorized the Bank to terminate or substantially shorten tenancies in the buildings recently acquired, or to effect other arrangements
for that purpose, where that could be done advantageously.
However,
the letter stated that it would be appreciated if the Bank would let the
13(3ard know in advance of any proposed arrangement for the termination
Or shortening of a lease if the cost involved would be significantly
4r.ger than the $25,000 limitation that had been requested by the Bank.
A circulated memorandum dated May 13, 1966, from the Division
Of Bank Operations referred to a letter of April 19 from the New York
leserve Bank requesting the Board's agreement to the Bank's proceeding
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now generally to terminate leases in the buildings on the recentlyacquired property, engaging a real estate agent for such purpose, and
engaging an architect to prepare preliminary plans and specifications
for a new building.
The letter also presented the Bank's comments on
the conclusions of a management consultant firm, The Diebold Group,
Inc., after a study of the impact of automation on the Bank's long-term
space requirements.
A copy of the firm's report was attached to the
letter.
At today's meeting Mr. Sherman reported telephone conversations
late yesterday afternoon and this morning in which First Vice President
Treiber of the New York Reserve Bank had said that Mr. Curtiss, the
Bank's real estate agent, had had indications that speculators were
attempting to buy the lease on a small shop located on one of the Bank's
Properties on John Street.
Mr. Curtiss had thought the Bank might be
able to terminate the lease, which had ten years to run, for $80,000
to $100,000, and had indicated that prompt action seemed desirable to
forestall speculative bidding up of that price.
Because the amount
illvolved was substantially greater than the $25,000 referred to in the
Board's letter of April 27, 1965, Mr. Treiber would like to have some
word as
to the Board's attitude in regard to this particular lease; of
less urgency were the questions of general authority to proceed with
lease terminations and of the employment of an architect to develop
Pre liminary plans for a new building.
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Federal Reserve Bank of St. Louis
6/24/66
-8Governor Robertson expressed the view that it had been proper
for the Bank to request permission to negotiate in regard to a termination cost so substantially above the figure mentioned in the Board's
letter of April 1965; however, as to the general principle of lease
termination,
it seemed to him that the Board was already committed and
in effect had granted blanket authority.
At Chairman Martin's request, Mr. Daniels then reviewed events
relating to the New York building program, including the fact that at
the time the Board had granted authority for purchase of the properties
Lt had suggested
that building plans be deferred until the impact of
au tomation on Reserve Bank operations became more clear.
In the spring
°f 1965 when representatives of the Bank met with the Board they indicated that the Bank had employed outside consultants to study the impact
of automation on future space needs.
The highlights of the report by
the consultants, The Diebold Group, Inc., had been set out in the Division's memorandum of May 13.
In essence, the report held that the Bank
14°u1d need much less space in 1990 than the Bank estimated.
According
to the Diebold estimates the Bank would need more space than was available in the present head office building, but not more than was available
111 that building plus the present annex building.
The Bank, however,
felt strongly that the present annex should not be used as permanent
Space
because of its distance from the head office building and because
it
wcts not well adapted for remodeling to house operating functions.
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Also, there would be difficulty in making service facilities available
to employees in the annex.
The Division of Bank Operations had made
no recommendations, feeling that the question whether or not the Bank
should be authorized to engage an architect for design of a new building called for a policy decision.
The Division noted, however, that
the probable impact of automation on space needs was no clearer now
than it had been when the building program was first proposed.
Governor Brimmer expressed the view that a critical point was
that the projection of space needs indicated that, even with the reduction in staff expected to result from automation, the Bank's operations
eculd not be housed entirely in the head office building and therefore
it would not be possible to do away with the annex.
He believed this
involved a policy question, and that it would not be advantageous to
encourage the Bank to go through the exercise of trying to anticipate
the effect of automation.
Since in any event the head office building
‘4°u1d not provide sufficient space, he thought the circumstances pointed
to the need for a new building --possibly to replace the present main
building.
His observations of other Reserve Bank buildings convinced
hia
that it was a mistake to try to add needed space to an old building.
Governor Mitchell stated that he wished to be recorded as
°P13"ing authorizing the Bank at this time to proceed with plans for a
liew building, because he did not think the information developed justified that step.
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Federal Reserve Bank of St. Louis
He did not know whether the Bank could or could not
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fit its operations into the present head office building, but he believed
the Bank had perhaps underestimated the impact of automation.
Moreover,
he was under the impression that there was some overstaffing in the
Bank, particularly in areas that were affected by automation, and he
believed that if these operations were subjected to a thoroughgoing
management review, it might show that, with appropriate reductions in
Personnel, adequate space could be available.
Therefore, he would regard
it as a mistake to authorize proceeding at this time with plans for a
new
building.
In response to an observation by Governor Robertson that the
Present request was for authorizing the preparation of plans rather
than for authorizing construction, Governor Mitchell said that even
authorizing plans implied a commitment.
At the time the Bank had been
authorized to acquire the land (in October 1964), Governor Mitchell had
expressed doubt as to the need for additional space.
He believed that
4equisition of the land was more reasonable than the preparation of
Plans because the latter would be profoundly affected by the advance
of a utomation, and it was still too early to judge how great the effect
14(luld be or what kind of building would be needed a few years hence.
Governor Robertson noted that there was a considerable time
lament involved.
From two to four years might pass before the time
arived for authorizing construction, and within that period the effect
f a utomation would become much clearer than it was now.
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Federal Reserve Bank of St. Louis
Therefore, if
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at that time developments should point to denial of construction authority, what would have been wasted would be only the cost of planning.
' He then asked if any estimates of planning costs were available.
Mr. Daniels responded that while specific figures had not been
developed, it might be expected that planning fees would run to about
6 Per cent of the $15 to $20 million estimated total cost; 50 per cent
of that amount, or about $450,000 to $600,000, would be payable at the
completion of preliminary plans.
It was customary for the Board to
require that Reserve Bank agreements with architects could be cancelled
after preliminary plans were drawn.
In response to a query from Governor Maisel as to when the
New York Bank would reach a peak of personnel under the present outline
of space needs, Mr. Daniels said that no definite figure was available.
The Reserve Bank believed that additional space was needed at the
Present time and more would be needed in the next few years, although
Space needs might decrease in later years as automation progressed.
The Bank recognized that it might have a smaller staff by 1990 than at
Present.
Governor Maisel expressed the view that the time element was a
key
question.
If construction might not begin for several years, the
1/54ger one waited to buy up a lease the less of its term remained to be
bought.
Mr. Sherman commented that it might be helpful to know that
the long
est-term lease on the properties that had been bought by the
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New York Bank under the Board's 1964 authorization ran to 1981, another
expired in 1979, and others in 1978, 1976, 1974, and 1973.
The lease
on the small shop of immediate interest ran for 10 years, to mid-1976.
The Bank wished to get the lease within its control, even though it
might lease again to the same occupant, rather than to have it pass to
S peculators who would then control it to mid-1976.
The Reserve Bank
was not concerned about the short-term leases expiring in the next 2 or
3 years, but would like to control the long-term ones.
Chairman Martin remarked that it was difficult for the Board
to assume the responsibility for detailed decisions on leasing matters
such as this; it was his feeling that such decisions should be left to
the judgment of the officers and directors of the Reserve Banks.
He
would like to give the New York Bank authority to terminate leases such
48
it now requested, and as for Governor Mitchell's adverse view on the
b uilding program as a whole, the larger question could be deferred for
4
few months.
Governor Maisel said that in considering the latter question he
Would
like to have a clearer estimate of the Bank's future space needs,
and recommendations from the Board's staff.
Chairman Martin suggested that it might be useful to ask
representatives of the Bank to discuss the building program with the
8°4rd again, and there followed other suggestions that members of the
8"rd'5 staff go to New York to survey the situation firsthand.
Discus-
of the latter proposal included comments that the Board's staff
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should be allowed ample time for such a survey, and that it ought to
include careful study as to the feasibility or desirability of renovating a building that was now almost 46 years old, as was the New York
head office structure.
The latter question was raised in the context
of doubt as to the desirability of requiring the Reserve Bank to operate
in an environment in
which its peers had far superior quarters.
After further discussion it was understood that (1) the Secretary
would inform the New York Bank that the Board would have no objec-
tion to
its terminating leases at a cost of not more than about $100,000
in each case; (2) the staff would undertake an analysis of space needs
of the New York Bank along the lines suggested at this meeting; and (3)
c(Insideration of New York's request for authority to employ an architect
and prepare preliminary plans would be deferred, probably until the fall
of this year, with the expectation that there would be a joint discussion
by the
Board and representatives of the New York Bank before action was
taken on that request.
Secretary's Note: The Board's views were
made known to the Federal Reserve Bank of
New York in telephone conversations. In
addition, a letter stating the substance
of those views was subsequently sent to
the Bank in the form attached as Item No. 7.
All members of the staff not concerned with the remaining items
On the agenda then withdrew from the meeting.
Emergency credit for savings banks (Item No. 8).
For some days
Preceding today's meeting there had been discussions between the Board's
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staff and the Federal Reserve Bank of New York regarding the possible
need to provide Federal Reserve credit to savings banks if they experienced unduly heavy withdrawals of funds around the time of midyear
dividend payments.
A plan developed by the New York Reserve Bank to
Provide such assistance in the Second Federal Reserve District was
s ubmitted
to the Board with a memorandum dated June 16, 1966, from the
Legal Division, and discussed by the Board on June 17.
The members of
the Board were subsequently furnished copies of a revised plan that had
accompanied a letter of June 22, 1966, from Mr. Treiber, First Vice
l'resident of the Bank.
The plan set forth several alternative proce-
dures through which emergency credit might be granted to assist savings
banks.
However, the New York Bank at this time requested authority in
°ne specific respect, explained in Mr. Treiber's letter as follows:
"The plan contemplates that this Bank would be prepared
to make advances to member banks on the security of Collateral Trust Notes or other collateral of Savings Banks Trust
Company (a nonmember bank which acts as a liquidity agency
for savings banks in this District), the member banks having
advanced credit to the Trust Company on the security of the
same collateral, for disbursal to savings banks (the circumstances under which such advances would be made by this Bank
are explained in Exhibit B to the plan). The permission of
the Board of Governors is required under Section 201.5 of
Regulation A for a Federal Reserve Bank to accept as security
for an advance to a member bank, assets acquired by a member
bank from a nonmember bank (with an exception not here relevant). That Section contemplates that the application for
such permission would come from the member bank which desired
to offer such assets as security for an advance. Since, under
the plan, more than one member bank may make advances to Savings Banks Trust Company on the security of such assets and
in view of the necessity of having the plan ready to go into
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operation no later than June 28, 1966, we request that the
Board grant its permission to this Bank to accept as security for advances to member banks under the plan, assets
acquired by such member banks from, or bearing the signature or endorsement of, Savings Banks Trust Company, and
that the Board treat such request as an application made
in behalf of all member banks making such advances to Savings Banks Trust Company."
The Legal Division's memorandum of June 16 had indicated that
4
request by the Reserve Bank for the necessary permission on behalf
of the several member banks who might participate in the arrangements
would be permissible as fulfilling the requirement of Regulation A
(Advances and Discounts by Federal Reserve Banks) regarding requests
for
permission.
There had also been distributed a memorandum dated June 23,
1966, in which Mr. Partee set forth the views of the Division of Research
and Statistics regarding arrangements for emergency credit in any of the
e.deral Reserve Districts and the possible need for such credit by other
tYPes of institutions in addition to mutual savings banks.
The memo-
randum also explored considerations bearing upon the order of priority
ill use of various alternatives, objectives of the program, credit terms,
. 11(1 implications for monetary policy.
In response to the Board's request for comments, Mr. Partee
St
ted that it might be an academic question whether or not savings
b4lIks would experience withdrawals sufficient to necessitate recourse
t0 emergency credit.
If they raised their rates on term instruments to
5 Per
cent, he surmised that their loss of funds at midyear would not
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be so great as to cause real difficulty.
However, it was a fact that
c ountry-wide they had lost $341 million, or 0.65 per cent of their
d eposits, in April, with losses for some individual institutions apparently running to a considerably larger percentage, and there was a great
deal of fear that payment of the June dividend would be attended by large
withdrawals.
If a difficult situation did arise, it could extend beyond
the New York District; there was a greater number of savings institutions
in the Boston District, although their average size was much smaller;
there were 11 relatively large institutions in the Philadelphia District;
and there were sizable asset totals in savings institutions in the States
of Maryland, Washington, and Minnesota.
Savings flows had been about
4S poor in the Boston and Philadelphia Districts as in New York.
If it developed that mutual savings banks were faced with the
hea—
vY withdrawals that some anticipated, it seemed to the Board's research
staff that there might be four lines of recourse for such institutions.
First
presumably a good many savings banks had a line of credit with
a commercial bank through which they might be able to obtain needed
ash.
The Board's staff did not have information as to the extent to
which savings banks had such lines of credit or the terms and conditions
but it seemed reasonable that savings banks should be encouraged to use
wil'atever credit lines they had available.
The second line of recourse (available, however, only in the
Nevi york
District) was the Savings Banks Trust Company in New York,
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which extended credit privileges to all mutual savings banks
in the
Second District.
It had aggregate unused lines of credit with commer-
cial banks of about $300 million.
However, the usual collateral re-
quired was U.S. Governments or agency issues, of which the Trust
Company
had only about $50 million.
Therefore, if the Trust Company needed to
Utilize the entire $300 million of its credit lines, it would have to
tender the collateral trust notes it held for advances to savings
banks.
But it was understo
od that some large coamtercial banks had indicated
reluctance to take those notes unless assured that
the New York Reserve
Bank would accept them as collateral
for advances under section 10(b)
°f the Federal Reserve Act.
(The rate for such advances, of course,
Would be
the section 10(b) penalty rate of 1/2 of 1 per cent above the
basic discount rate, and the advances would be for the discount window's
usual term of 15 days.)
The borrowing banks would not gain anything
fr°1m this accommodation except the use of a different kind
of collateral
fr°m that ordinarily offered.
Third, if the Savings Banks Trust Company's lines of credit were
ri°t sufficient to meet the need in New York, or if in other Districts
individual savings banks' lines of credit could not cover withdrawal
demands, the next recourse would be called into play, which would be
f°
the Reserve Bank to extend credit indirectly to savings institutions
through
a cooperating member bank or banks as a conduit. There had al-
read
Y been preliminary exploration of this possibility through
an arrange involving one New York City bank.
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Federal Reserve Bank of St. Louis
Under this procedure, the member
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bank would accept collateral trust notes for 30-day extensions of
credit, and, under section 10(b), would pledge the notes with its Reserve
Bank for advances that would be kept separate from the normal operations
of the discount window.
The fourth recourse (the third outside the New York District)
would be direct extension of credit by Federal Reserve Banks to savings
banks
(and, in New York, to Savings Banks Trust) on the collateral of
Government securities under the last paragraph of section 13 of the
Federal
in
Reserve Act.
Mutual savings banks generally had sizable hold-
gs of Governments, although the portfolios of banks outside New York
appeared to be larger than those of banks in New York.
With respect to aiding savings banks other than those in New
York, Mr. Partee stated that of the last two alternatives mentioned,
the staff was inclined to favor direct use of Federal Reserve credit
tinder the last paragraph of section 13 rather than the conduit arrangement using section 10(b) advances to member banks; this was because of
the importance of having the Reserve Bank in a position to control the
Situation
by specifying the rate, insuring that it was the same for
eve
rY borrowing savings bank, and setting repayment teLms and condi-
ti°ns.
There might not be uniformity in these respects if a discounting
°P(=bration were delegated to member banks. This view of the staff, however
) did not connote opposition to the use in New York of the Savings
4 Trust Company, which might serve as a valuable intermediary.
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Federal Reserve Bank of St. Louis
6/24/66
-19Mr. Partee noted also that the plan developed by the New York
Reserve Bank called for Savings Banks Trust Company to liquidate as
Promptly as possible any credit extended through a cooperating member
hank, which in turn could generate pressure on savings banks to liquidate assets to repay the Trust Company.
The staff had some misgivings
that this stipulation might have the effect of putting pressure on savings banks to cut down on their mortgage commitments at a time when there
was already economic distress because of cutbacks in mortgage activity.
The question
as to how much pressure should be exerted toward repayment
of credit really depended upon definition of the Board's objectives.
The terms and availability of credit could vary considerably according
to different objectives.
Several possible objectives had been mentioned
in the research memorandum dated June 23:
these included placing the
SYstem in a position where everything possible was being done to insure
that no significant financial institution was peLmitted to fail during
this unsettled period, at least for lack of liquidity; avoiding disruptive effects of concentrated heavy sales of Government securities in
the
market; and encouraging continued mortgage commitment activity by
as
savings banks of a considerable volume of funds for liquidity
PurPoses.
In response to a question by Governor Brimmer as to whether his
ternarks
indicated an adverse view toward using a member bank in New
l*ork
as a conduit to provide credit to savings banks, Mr. Partee stated
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Federal Reserve Bank of St. Louis
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that he could not take a definite stand on that point, since he did not
know what degree of control the New York Reserve Bank might be able to
exercise through the various steps in the member-bank conduit arrangement.
After the staff had clarified certain points at his request,
Governor Maisel expressed the view that the Board should grant the
s pecific permission requested by the Federal Reserve Bank of New York
for section 10(b) advances to member banks secured by collateral trust
notes of Savings Banks Trust Company, in order that the Trust Company
could make full use of its lines of credit.
If this did not prove ade-
quate, his inclination would be, in view of the staff's reservations as
to the use of the conduit arrangement, to authorize the Reserve Bank to
make direct advances to savings banks under the authority of the last
Paragraph of section 13.
Finally, he would advocate the use of advances
under section 10(b) as a lender of last resort, pursuant to the conduit
arrangement.
He suggested that the staff draw up a program in those
terms
Mr. Partee asked if Governor Maisel meant that, beyond the utilization of Savings Banks Trust Company's $300 million of credit lines,
he
would not favor making use of the credit conduit that had already
been tentatively negotiated with a particular member bank.
Governor
ilalsel replied that he would not do so unless there were strong advanta es; at least, he would not favor setting up additional arrangements
Of
that kind.
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Federal Reserve Bank of St. Louis
22
6/24/66
-21Chairman Martin remarked that it did not appear necessary to
take action today on a System-wide program.
He suggested that a staff
memorandum regarding the policy issues be prepared as a basis for
d iscussion with
the Federal Reserve Bank Presidents when they were in
Washington next week for the meeting
of the Federal Open Market Committee, and after some discussion there was agreement with Chairman
Martin's
suggestion.
Comments then turned again to the specific request of the New
York Reserve Bank for authority to accept as security for advances to
member banks assets they had acquired from a nonmember bank.
A draft
reply that would grant the requeste
d authority was then presented by
Mr. Hexter.
The reply would limit the authority to acceptance from
member banks of collateral acquired from Savings Banks Trust Company.
During the ensuing discussion there was general concurrence in
the desirability of sending such a letter to the New York Bank.
There
was also agreement with a suggestion by Governor Maisel that the
Secretary informally advise the Bank that the current authorization
was intended to be administered only as part of the normal discount
'window operation, and that the policy issues involved in arrangements
100king beyond this limited scope could not be resolved until after
the Board's discussion of
them with the Reserve Bank Presidents.
At the conclusion of the discussion a letter to the Federal
Reserve Bank of New York was approved unanimously in the form attached
as Item No. 8.
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Federal Reserve Bank of St. Louis
22()
6/24/66
-22Amendments to Regulations D and Q (Items 9-11).
The most recent
in a series of discussions of possible actions with respect to Regulation D, Reserves of Member Banks, and Regulation Q, Payment of Interest
on Deposits, was on June 22, 1966, when the Board discussed questions
raised by Governor Robertson in a memorandum of June 20.
The discussion
concluded with agreement that further consideration would be given to
the matter when it was possible to appraise the possible need for action
against the background of findings of a recent survey of time and savings deposit rates and flows, and the announcement of any action could
coincide with the publication of the survey results.
There had now been distributed a memorandum dated June 23, 1966,
from Mr. Brill, submitting a draft of press release reporting the findof the survey.
The memorandum pointed out, among other things,
that the draft did not directly evaluate the impact of recent restrictive
legislative proposals regarding certificates of deposit or Board
actions that had been under consideration; it did highlight the survey
results having the most direct bearing upon those issues.
If the Board
wished to couple release of the survey results with announcement of
specific actions stemming from the survey, the release could be redrafted
accordingly.
There had also been distributed a memorandum dated June 23, 1966,
in which Mr. Hackley outlined four measures that might be taken in an
effort to prevent further escalation of interest rates on so-called
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consumer certificates of deposit and to retard somewhat the issuance of
large denomination negotiable certificates of deposit.
In essence, the
measures would (1) prescribe lower maximum rates of interest on multiple
maturity deposits; (2) increase reserve requirements from 4 per cent to
6 per cent against negotiable certificates of deposit, the higher requirement to be applied either to a bank's time deposits other than savings
deposits to the extent that the combined total of time plus savings
deposits at any bank exceeded $5 million (as Governor Robertson had
suggested) or the higher requirement could be imposed only to the extent
that a bank's time deposits other than savings exceeded $5 million;
(3) amend Regulation Q to provide that emergency payment of a time dePosit before maturity would incur a penalty of forfeiture of all interest
On the amount withdrawn for a period of 3 months, including any interest
that might have been actually paid to the depositor or credited to his
account (at present the forfeiture was interest "accrued and unpaid"
for a period of not less than 3 months on the amount withdrawn); and
(4) amend Regulations Q and D to provide, in effect, that promissory
11°tes shall be treated as deposits for the purposes of the Regulations,
14ith three exceptions--notes representing borrowings from other banks,
instruments evidencing repurchase agreements, and notes having maturities of more than 2 years and subordinated to the claims of other
de positors (this proposal also had been made by Governor Robertson).
Attached to the memorandum were drafts of amendments that would carry
clut the measures described.
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Federal Reserve Bank of St. Louis
2261
6/24/66
-24Initial comments at today's meeting dealt with the content of
the press release regarding the survey, but the discussion veered to
the possibility of action under Regulations D and Q when Governor
Mitchell observed that the draft press statement and the facts disclosed
by the survey lent themselves, in his view, to either
of two positions-to do nothing, or to take a rather mild action.
If an action were to
be taken, he thought the survey data should be released along
with the
action announcement; if no action was to be taken, he believed the survey press statement should be released as soon as possible.
Changes
could be made in the press statement to support either an action or a
decision not to take action.
Other.
He had no strong feeling one way or the
He would somewhat prefer not to take action, but he would not
c)hject to a mild action.
However, he thought he would be opposed to an
action that was not mild.
Chairman Martin suggested that the Board turn to the various
Proposals for action that had been made, particularly that regarding
the treatment of promissory notes.
The general views of the members of
the Board on such proposals were already known from earlier discussions.
Governor Mitchell had expressed dislike of the promissory note proposal,
at least
partly on the ground that the present use of promissory notes
Provided a safety valve for banks.
The Board had discussed many times
the possibility of defining deposits in such a way as to bring promiss°rY notes within the coverage, and it seemed desirable that either
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Federal Reserve Bank of St. Louis
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such a definition be adopted or the proposal definitely discarded.
If
it was desired to put a little more pressure on banks but at the same
time not foreclose their current use of promissory notes, the Board
could raise reserve requirements from 4 per cent to 6 per cent on single
maturity time deposits to which the maximum interest rate of 5.5 per
cent was applicable, and do nothing else.
Governor Mitchell expressed the view that such action might be
somewhat severe, although the effect would depend upon the specific way
the increased reserve requirement would be applied.
There ensued a discussion of the possible terms of application
of a change in reserve requirements, including Governor Robertson's
Su
ggestion of excluding from the increase combined savings and time
dePosits up to $5 million.
There was general agreement that the $5
Tnillion exclusion would have the effect of channeling the increased
reserve requirement toward the large negotiable certificates of deposit
and away from the smaller "consumer-type" certificates.
Comments were
made on the amount of reserves that would be affected by an increase
according to various alternative approaches.
There was general agree-
Met that
a 1 per cent reserve requirement increase at the reserve
computation period around July 20 might be appropriate.
The suggestion
Was made that such an action could be coupled with adoption of a deposit
definition that would encompass promissory notes.
It was also suggested
that another 1 per cent step might be made effective, either in the first
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Federal Reserve Bank of St. Louis
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half of August or in a step of 1/2 of 1 per cent then, followed by a
similar increase at a later date, but predominant opinion among the
members of the Board favored the position advanced by Governor Mitchell
that there be no commitment as to the possibility of action beyond the
1 per cent increase in July, pending observation of developments.
During further discussion, Governor Maisel raised the question
whether the Board might adopt the suggestion in Mr. Hackley's memorandum
that, without prohibiting multiple maturity deposits, the Board might
Prescribe a lower maximum interest rate on all such deposits, such as
5 Per cent for any deposit having an alternative maturity or renewal
°Ption of 90 days or more, and a 4 per cent maximum rate for deposits
'with an alternative maturity or automatic renewal
privilege of less
than 90 days.
In Governor Maisel's view, there were two problems to
he dealt with.
tary
The increased reserve requirement would answer the mone-
policy question of whether the Board was becoming reluctant to deal
with the problems created by issuance of the large certificates of
deposit; it would give the Board some control of the banks that had
attracted from 20 to 30 per cent of their deposits through these volatile
ins truments.
In addition, while the lower maximum rate of 5 per cent
f°r the multiple maturity instruments would have minimal impact, since
it was probable that few banks were paying more than 5 per cent on such
Paper anyway, it might be a deterrent to issuance of such instruments.
Governor Mitchell expressed the view that it would be desirable
to define the various types of deposit in the regulation.
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Federal Reserve Bank of St. Louis
The increase
22( 4
6/24/66
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in reserve requirements was intended to affect large negotiable certificates of deposit and open book accounts, but the other types were not
defined.
(There had been discussion at the meeting on June 22 of pro-
Posals by Governor Mitchell for definition of various deposit instruments.)
The figures emanating from the survey showed that large banks
had had less gain in volume of consumer-type paper than had smaller
banks; yet the proposal for a lower maximum interest rate on multiple
maturity deposits would make that paper less attractive at the very
time that large banks were suffering a diminution of passbook savings
and when savings and loan associations were increasing their dividend
rates consequent to relaxation by the Federal Home Loan Bank Board of
its efforts to regulate dividend rates indirectly.
Governor Mitchell
believed that the differential maximum rate was wrong in approach and
that a much clearer effect would be obtained if savings certificates,
for example, were defined as having a minimum maturity and a minimum
renewal.
Chairman Martin remarked that if market forces were to be
allowed to operate, this was a poor time to be tinkering with interest
rates.
It would be much more appealing to him to limit the action to
reserve requirements, without changing rates.
Governor Brimmer indicated that he could go along with the
Ch airman's proposal, noting that the Board could return to the questioTI
of rates on consumer types of time deposits later.
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Federal Reserve Bank of St. Louis
He felt that
6/24/66
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the most constructive step that the Board could take at this time would
be to prescribe a higher reserve requirement that would operate against
large certificates of deposit.
Governor Maisel expressed the view that if the Board was of a
mind to act on reserve requirements but not on rates, he believed it
would be best at the present time not to pursue the definitional approach
to multiple maturity instruments.
As for reserve requirements, from the
money market aspect he preferred the formula under which the higher
requirement would be applied to a bank's time deposits (other than savings deposits) to the extent that they exceeded $5 million.
He was
Personally in favor of action to prescribe a 5 per cent ceiling rate on
multiple maturity instruments because he believed it would not cost anybody
anything, it would be a good gesture, and it might deter accelera-
tion of the issuance of those instruments.
However, if the other members
of the Board did not agree with that view, he was perfectly willing to
g° along with action on reserve requirements alone.
There followed a discussion of the possibility of action
regarding maximum rates of interest on multiple maturity instruments,
during which the view was again expressed that the Board might wish to
revert to that possibility after a few more weeks had passed.
Chairman Martin referred to a Resolution passed yesterday by
the House Committee on Banking and Currency stating that the Board
"should act within thirty days to put an end to this excessive interest
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Federal Reserve Bank of St. Louis
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rate competition and to forestall the threat of such further competition."
Even in the light of that Resolution, the Board must, of course,
do what it considered the right thing.
Although his own view was that
from the psychological aspect it would be better not to take any action
at this time, he recognized that other members of the Board did not
Share that view and he did not hold out his judgment as final.
Never-
theless, today's discussion reflected a great deal of uncertainty, and
it should be kept in mind that whatever course was taken should seem
reasonable in the light of the survey results that would be published.
Governor Maisel said that, given the general lack of agreement,
he would
settle for the increase of one percentage point in reserve
requirements on time deposits above $5 million, excluding savings
a
ccounts.
Governor Robertson expressed himself in favor of a maximum rate
Of interest of 5 per cent on the consumer types of time deposits, together with the suggested one per cent increase in reserve requirements.
It seemed to him that such actions would constitute a caveat against
further escalation of rates on this type of deposits.
to
He would not
h the large denomination certificates of deposit as far as the
Illximum interest rate of 5-1/2 per cent was concerned.
These actions,
he b .
elaeved, would indicate concern about the escalation in competition
fo
consumer-type deposits, might have a settling influence on interest
..4t.e structures, and might hold the line until the Board could see
14114t, if any, further steps it wished to take.
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Federal Reserve Bank of St. Louis
22;
6/24/66
-30Mr. Hackley commented that if Governor Robertson's suggestion
Of a 5 per cent maximum rate on consumer-type time deposits contemplated
that that rate would apply to such deposits with alternative renewals
of more than 90 days, with a 4 per cent rate on those with renewals of
less than 90 days, it would have a real bite, because many banks were
issuing savings certificates with optional 30-day withdrawals.
If there
were only one rate on all consumer types of deposits, the bite would
not be as great.
Governor Mitchell commented on data from the survey that, in
combination with other figures he had studied, seemed to him to indicate
that to some extent the activity of large banks in large denomination
certificates was defensive--they were channeling funds out of one type
of deposit in the bank into another type at higher cost, rather than
see the funds flow out to other banks.
Although he recognized that the
general slant of staff comments was consistent with not taking any action
at this time, he requested staff views as to the possible merits of
discouraging that kind of activity on the part of large banks.
Mr. Brill replied that the argument that something must be done
13(l'ut large banks might be somewhat obsolete, since recently large banks
had been increasingly under pressure; their interest rates were pushing
against the Regulation Q ceilings and they had not been doing as well
in
garnering funds as smaller banks had.
He believed that if the Board
Ilas inclined to the view that action should be taken to moderate competi-
ti°II
for the consumer types of time deposits, the approach of lowering
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Federal Reserve Bank of St. Louis
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rates on multiple maturity instruments showed perhaps the best promise.
Over all, his preference was to do nothing, and his second choice was
an action that would be largely "cosmetic."
Mr. Holland expressed the view that if reserve requirements
were increased on time deposits in July, the present squeeze on ceiling
rates on large denomination certificates, together with seasonal credit
expansion forces in the fall, might put the Board under pressure to
relax conditions in a few months.
Whether the tightness resulted from
Changes in maximum interest rates or in higher reserve requirements,
the squeeze was building.
However, this was not to say that it might
not be good policy to tighten credit conditions this summer and then
relax them later if that was necessary.
Governor Brimmer advocated action now that would put pressure
On large banks to desist from buying funds to satisfy their borrowers.
Re believed this action might take the form of the increase in reserve
l'equirements on time deposits in July; if in the fall a reverse action
Was
indicated, the Board could respond accordingly.
would not again back away from taking action.
He hoped the Board
He had been entirely in
favor of waiting for the analysis of the survey, but that was now in
hand and he believed it was time for a decision.
If the desirability
°f rate action could not be resolved, he surmised that the Board could
at least agree on the 1 per cent increase in reserve requirements that
had been proposed.
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Federal Reserve Bank of St. Louis
0)014'll
ec,
6/24/66
-32Governor Maisel again emphasized that, apart from monetary
policy considerations, he felt it highly desirable to take action
at
this time from the psychological standpoint, to counter the
impression
that the Board was a captive of the money market banks with respect
to
the problems that had arisen
in the area of large denomination certificates.
Chairman Martin then asked if the members of the Board could
agree on the proposal to bring promissory notes within
the definition
of deposits
.
He noted that this subject had been debated for many
months, and some conclusion should be reached.
Governor Robertson pointed out that if promissory notes were
not brought within the deposit definition, maximum interest rates could
riot be
applied to funds derived from those notes.
When Regulation Q
ceilings were lower and banks
were pushing against them, they had resorted
to issuance of promissory notes in order to escape the reach of the
Regulation in attracting funds.
When the ceilings were raised banks
were less
impelled to use the note device, but now they were again pushagainst the ceilings and this mode of escape easily could
be reactivated.
If the avenue was closed now, a burgeoning of promissory notes
Might be forestalled, but if it was left open,
a lively recourse to
11°tes could be far advanced before remedial action could be taken,
because presumably it would be necessary again to go through the
timee°nsuming process of publishing notice and considering comments received.
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Federal Reserve Bank of St. Louis
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6/24/66
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It seemed to him highly desirable that the promissory
note action
accompany the reserve requirement action.
In response to a question posed by Governor Mitchell, Mr. Hackley
commented that the proposed definition would bring promissory notes within the definition of "deposits" for purposes of Regulations D and Q,
with exceptions provided for borrowings from other banks, repurchase
agreements, and subordinated notes with maturities of 2 years or more.
He indicated also that another exception would be necessary to exclude
Presently outstanding notes.
In response to a question whether republi-
cation of the proposal in the Federal Register for comment would be
required, Mr. Hackley expressed the opinion that this would be unnecessary, since the present proposal was less restrictive than those that
had been published earlier this year.
Continuing comments crystallized a disposition on the part of
the Board to adopt the 1 per cent increase in reserve requirements that
had been discussed, and also the extension of the definition of deposit
to cover promissory notes.
The discussion then turned to procedural matters, especially
the need to consult with the Federal Deposit Insurance Corporation,
With a view to adoption by the Corporation of an amendment to its
interest rate regulation corresponding to the expanded deposit definitio
,.
" in the Board's Regulation Q.
Discussion of the manner of release developed a consensus in
avor of two press statements, one announcing the Board's actions
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Federal Reserve Bank of St. Louis
2271
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relating to Regulations D and Q, and the other containing the findings
of the time and savings deposit survey.
It was understood that the
latter press release would be revised to emphasize the findings that
were basic to the Board's decisions.
It was also understood that a
revised draft of the press release relative to the survey, a draft of
the press release announcing the Board's substantive actions, and
drafts of the amendments to Regulations D and Q incorporating the
technical revisions Mr. Hackley indicated would be necessary would be
available for the Board's consideration on Monday, June 27.
It was
agreed also that the effective date of the promissory note amendments
Would be deferred until September 1, 1966, but that the amendments would
aPPly to all promissory notes issued on or after the date of announcement that remained outstanding on or after the effective date.
At the conclusion of the discussion the Board approved unanimously an amendment to the Supplement to Regulation D that would increase
from 4 per cent to 5 per cent reserve requirements against the amount
°f time deposits (other than savings deposits) in excess of $5 million
at each member bank, effective with the reserve computation periods
beginning July 14, 1966, for reserve city banks, and July 21, 1966, for
all other member banks.
The Board also approved unanimously amendments to Regulations D
11c1 Q that would add a new paragraph bringing promissory notes, with
the exception of three designated types of underlying transactions,
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Federal Reserve Bank of St. Louis
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within the coverage of the definition of deposit.
The latter action
was taken contingent upon the general concurrence of the Federal Deposit
Insurance Corporation.
Secretary's Note: At the meeting on June 27,
1966, the Board authorized the issuance of the
amendments to Regulations D and Q and a press
statement announcing their adoption. The statement and amendments were released later that day,
word having been received that, while the Federal
Deposit Insurance Corporation had no objection to
adoption by the Board of the expanded deposit definition and immediate announcement of that action,
the Corporation was not prepared to take similar
action with respect to its interest rate regulation. The effective date for the promissory note
amendments was set as September 1, 1966, such
amendments to apply to all promissory notes issued
on or after June 27 that remained outstanding on
or after the effective date. Attached as Item No. 9
is a copy of the amendment to the Supplement to
Regulation D relating to the increase in reserve
requirements; attached as Item No. 10 is a copy of
the amendments to Regulations D and Q relating to
promissory notes; and attached as Item No. 11 is
a copy of the related press release. At the meeting on June 27 the Board also approved a press
statement announcing the results of the survey of
time and savings deposits, which statement was
released simultaneously with that regarding the
amendments to Regulations D and Q.
The meeting then adjourned.
Secretary's Note: Acting in the absence of
Governor Shepardson, Governor Robertson today
approved on behalf of the Board the following
items:
from the Division of Research and Statistics dated
Jun Memorandum
e 23, 1966, recommending the reestablishment of a Senior Economist
Po
in the National Income, Labor Force, and Trade Section.
Memoranda recommending the following actions relating to the
Board's
staff:
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Federal Reserve Bank of St. Louis
6/24/66
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Pntnetment
Helen B. Fox as Clerk-Librarian, Division of Personnel Administration, with annual salary at the rate of $2,285 (half-time basis),
effective the date of entrance upon duty.
l'ILitorious salary increases, effective July 3, 1966
Name and title
Division
Basic annual salary
From
To
Office of the Secretary
Loretta D. Beale, Assistant Supervisor,
Subject Files
Joan V. Caulfield, Senior Records Clerk
Eva Louise Jarvis, Minutes Clerk
Bernice T. Mann, Secretary
$ 6,854
$ 7,046
6,378
4,797
7,238
6,549
4,953
7,430
8,241
7,046
20,595
10,987
5,352
7,046
19,415
6,549
8,495
7,238
21,185
11,355
5,523
7,238
20,005
6,720
6,207
6,278
5,894
6,378
6,470
6,086
7,304
7,511
14,250
15,188
14,250
14,685
15,696
14,685
Research and Statistics
Darwin Beck, Economist
Reba C. Driver, Statistical Assistant
James B. Eckert, Chief, Banking Section
Patric H. Hendershott, Economist
Penelope Johnson, Statistical Assistant
Anita E. Perrin, Secretary
Bernard Shull, Senior Economist
MarY B. Wall, Statistical Assistant
International Finance
Ppauline H. Major, Statistical Assistant
eggY H. Reaves, Supervisor, Information Center
Judith S. Scully, Secretary
Bank Operations
boris V. Bubb, Analyst
Examinations
j
,ri311.111 N. Lyon, Review Examiner
Rob°alas A. Sidman, Accountant-Analyst
-ert G. Sundberg, Review Examiner
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Federal Reserve Bank of St. Louis
2274
6/24/66
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Meritorious salary increases
continued
Basic annual salary
From
To
Division
Personnel Adminis
ation
Jeanette E. Devlin, Personnel Records
Technician
$6,854
$7,046
4,201
5,889
5,352
4,149
4,569
4,330
6,045
5,523
4,289
4,709
6,470
6,662
6,662
7,511
4,149
4,289
6,854
7,718
4,289
4,429
Administrative Services
Margaret E. Jenkins, Baker
Esmond C. Langley, Head Messenger
Barbara Pee McClelland, Composition Clerk
William L. McCoy, Guard
John H. McDonald, Guard
Office of the Controller
Jean
Barber, Accounting Clerk
Data Processing
Mar r,
-Y r. Barlow, Statistical Assistant
rma Gavin, Senior
Draftsman
A. Helen Peery, Key Punch Operator
llarY Ann Rose, Clerk-Typist
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Federal Reserve Bank of St. Louis
Item No. 1
6/24/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AOCIRCEIB OFFICIAL COPIRESPONOCNCE
TO THE BOARD
June 24, 1966
Board of Directors,
Pan American Bank of Miami,
Miami, Florida.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves, under the provisions of Section 24A of
the Federal Reserve Act, a direct and indirect investment
in bank premises of not to exceed $2,360,000 by Pan
American Bank of Miami, Miami, Florida, for the purchase
of the Pan American Building. This latter amount includes
approximately $1,140,000 in cash to be provided by the bank
in exchange for stock of PAB Building Corporation and
$1,220,000 to be borrowed by PAB Building Corporation from
sources other than subject bank.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
Item No. 2
6/24/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 24, 1966
Board of Directors,
Bank of White Sulphur Springs,
White Sulphur Springs, West Virginia.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves, under the provisions of paragraph 6 of
Section 9 of the Federal Reserve Act and Section 5199(b)
of United States Revised Statutes, the declaration of a
dividend of $6,000 by Bank of White Sulphur Springs,
White Sulphur Springs, West Virginia, to be paid June 30,
1966. This letter does not authorize any future declaration of dividends that would require the Board's
approval under the foregoing statutes.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
f
BOARD OF GOVERNORS
Item No. 3
6/24/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orriciAL CORRESPONDENCE
TO THE SOAR°
June 24, 1966
Mr. C. E. Bierbauer, Cashier,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
60690
Dear Mr. Bierbauer:
This refers to your letter of June 9, 1966, regarding a
Penalty of $17.45 incurred by the Forest City Bank and Trust Company,
Forest City, Iowa, on an average daily deficiency of $7,000 in
reserves for the computation period ended March 2, 1966.
It is noted that: (1) the deficiency was apparently
caused by an error in totaling several packages of paid Savings
Bonds; (2) since paid Bonds are not verified by the Reserve Bank,
and the Treasury was behind in its processing, the overstated
amount was credited to the member bank on February 4 and not
discovered until reported by the member bank over a month later;
(3) due to the lapse of time your Bank inadvertently omitted making
decrease adjustments on the bank's reserve analysis record; (4)
the errors resulted in a deficiency for only one reserve computation
period and a penalty of $17.45, which your Bank would have waived
under Paragraph E had it not used this authority in June 1964; and
(5) the member bank has a good record of maintaining reserves.
In the circumstances, the Board authorizes your Bank to
Waive assessment of the penalty of $17.45 due for the reserve
computation period ended March 2, 1966.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
2278
.....
Item No. 4
6/24/66
BOARD OF GOVERNORS
OF THE
.•
0
'r41
FEDERAL RESERVE SYSTEM
•
II
UJ,
WASHINGTON, 0. C. 2osSi
ti •
ttes*-'.••
.4•AL
.......
OFFICE OF THE CHAIRMAN
June 27, 1966
The Honorable Robert N. C. Nix,
Chairman,
Subcommittee on Census and Statistics,
Committee on Post Office and Civil Service,
House of Representatives,
20515
Washington, D. C.
Dear Mr. Chairman:
In response to your request of May 18, 1966,
Governors
there is submitted herewith a report by the Board of
of the Federal Reserve System, together with appendix material,
know them
relating to electronic data processing systems as we
today compared with three years ago.
I trust your Subcommittee will find this material
helpful in conducting its study.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
Enclosures.
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Federal Reserve Bank of St. Louis
227!)
Item No. 5
6/24/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
RESt•s-••
••....••
June 27, 1966.
Dear Sir:
The indicated number of copies of the following forms are being
forwarded to your Bank under separate cover for use of State member banks
!nd their affiliates in submitting reports as of the next call date.
4 copy of each form is attached.
Number of
Form FR 105 (Call No. 180), Report of Condition of
State member banks including Schedule B for
reporting U. S. Government and Federal agency
securities by issue.
Form FR 105e (Revised February 1966), Publisher's
copy of report of condition of State member banks.
Form FR 105e-1 (Revised February 1966), Publisher's
copy of report of condition of State member banks.
Form FR 220 (Revised March 1952), Report of affiliate
or holding company affiliate.
Form FR 220a (Revised March 1952), Publisher's copy
of report of affiliate or holding company affiliate.
The forms to be used for this call are similar to those used
for the December 1965 report. Form FR 105 includes the schedules on the
!everse which had been eliminated for the Spring call and a separate
chedule B for reporting the par value of U. S. Government direct and
Paranteed securities and Federal agencies securities not guaranteed,
issue. A minor change has been made in the loan Schedule A to
iminate the item for reporting Commodity Credit Corporation certificates
interest and several memoranda items have also been deleted. The same
k(1/tIm (except for the elimination of the memoranda items) is being printed
1 the Federal Deposit Insurance Corporation for distribution to insured
1
;
°Ilmember State banks.
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Federal Reserve Bank of St. Louis
-2The Comptroller of the Currency will use a form for national
that is substantially similar to that used for the December 1965
;411 date. Changes corresponding to those made in the State member
,
()rms have been made. A new item under assets, immediately preceding
rtne
funds sold item, will include securities purchased under
!
t sale agreements and under liabilities, a new item immediately preceding
cille Federal funds purchased item, will cover securities sold under repurtrase agreements. The last four memoranda items on repurchase/resale
h!nsactions will be replaced with new items to collect information on:
(');) the market value
of the total securities portfolio; (2) on certificates
anddePosits issued and outstanding in denominations of, (a) over $100,000
(b) under $100,000; (3) on the loan/deposit ratio; (4) on the amount
'
ccli one-half dollar coin, (1) included in the bank's total currency and
In figures and, (b) held by the bank as collateral.
banks
The Comptroller will not require national banks to report on
neW issue Schedule B for this call and it again will be necessary
ar the Reserve Banks to collect
this Schedule from national member
ci:Ika. The need for this information for all insured commercial banks
b7scribed in the Board's
letter of December 27, 1965 transmitting
'cember 31 call forms, continues.
the
C
Efforts to eliminate item 2 of Schedule F, "Deposits accumulated
of personal loans" from the condition report were not successrtii
Although the Board of governors of the Federal Reserve System has
ha, cl (31 F.R. 8060, June 8, 1966) that where the agreement between the
4a;K and borrower is such that instalment payments
on loans are irrevocably
aticiiigned to the bank and cannot be reached by the borrower or his creditors
qv payments are not subject to the reserve requirements of Regulation D,
4117,Y are,
nevertheless, deposits under the Federal Deposit Insurance Act
tio
:must, therefore, be included as deposits
in Reports of Condition.
to her, funds which are received by the bank for immediate application
t4it'i?e reduction of an indebtedness to the receiving bank, or under
ttichltion that the receipt thereof immediately reduces or extinguishes
an indebtedness, shall not be reported as deposits even though
ded on separate accounts on the books of the bank.
for
pay
Special instructions for reporting certificates of participation.
the in pools of loans made by Federal agencies should be included with
eredeovering letter for this call. Certificates of interest in Commodity
t Corporation pools of farm production loans will no longer be
bve rted
as "Loans to farmers," and certificates of participation issued
th
14n e Lxport-Import Bank should no longer be reported as "All other
14 1.8." Reporting banks holding these instruments should include them
teedt!rn 4--"Securities of Federal agencies and corporations not guaranappr °Y the United States," on the face of the report, and in the
Pme°Priate item in Schedule B. It might also be useful to mention that
the ral National Mortgage Association certificates of participation and
CCc participations should continue to be included in the same
eY securities item and in the appropriate item in Schedule B.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
"J.
Condition report instructions to national banks will include
instructions similar to the above for reporting holdings of participation
certificates. With respect to reporting on Schedule B, national and
State member banks should be asked to verify: (1) that the individual
U. S. Government and Federal agency security issues held by the bank
are reported at par; (2) that the two "Total par value" items reflect
the total of individual issues shown at par; and (3) that the two
"Total book value" items agree with the corresponding items on the
face of the report of condition for the same date.
The Reserve Banks will not be requested to make the usual
biennial survey of branch deposits at member banks operating branches
outside the head office city. The Federal Deposit Insurance Corporation
11).11 conduct a Summary of Deposits survey as of June 30. It is understood that the Corporation will release data for public use similar to
that published by the Board in the booklet "Bank Deposits by Counties
and Standard Metropolitan Areas" following previous surveys. It is
also understood that the survey data for individual banks and branches
be made available to the System in the form of punched cards or
magnetic tape records. It is assumed that the same policy constraints
°n disclosure of unpublished individual bank and branch deposit information will apply to the forthcoming FDIC survey as have applied to
earlier deposits by counties surveys. It is also understood that an
attempt will be made to collect some branch data from noninsured banks
for statistical purposes.
The FDIC survey proposes to be much broader and more detailed
than previous branch deposits surveys. They will collect a four-way
size of deposits and number of accounts break for nine deposit items
from all branches rather than four deposit items from branches outside
the head office city only. Because of differences in deposits classifications, the FDIC survey data will not be comparable with data previously
collected.
Because the changes in the national bank report form are relatively
Tinor, it will be possible to use existing processing procedures and
1-nstructions with some modifications for the forthcoming June call. It
be necessary to hand edit the two new items on the face of the report
d Provide special keypunch instructions to operators. Editing and
beYPunching of Schedule B for State member and national banks will also
ke &me at the Reserve Banks. These procedures will be covered in a
echnical memorandum to be forwarded by the Board's Division of Data
rrocessing.
V
Very truly your
Merritt Sherman
Secretary.
Enclosures
Digitized10
for FRASER
THE PRESIDENTS OF ALL
http://fraser.stlouisfed.org
RESERVE
Federal "::RAL
Reserve Bank
of St. LouisBANKS
07,
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4
Item No. 6
6/24/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 27, 1966.
bear Sir:
Replies have been received to the Board's letter of April 1,
2
1 66, concerning a proposal by Booz, Allen and Hamilton, Inc., for
Ire development of a work-measurement program. At the present time,
ticbmond, Kansas City, and San Francisco have tentatively indicated
bhat they would join with St. Louis in contracting for this service.
!oston has not yet reached a decision as the proposal is still under
'
nensideration. Excluding Dallas, the remaining six Banks decided
t to participate in the undertaking, at least at this time, partly
vecause such participation would conflict with other projects that
re currently underway. The value of work-measurement as a technique
b r measuring performance was generally recognized by the Reserve
'enks,
I
The Board's interest in the proposed work-measurement progra
F4 m is of a two-fold nature. From a general point of view, informsfrom various sources indicates that more and more large banks,
nsurance companies, and other private concerns with activities at
seaer somewhat comparable to those of the Federal Reserve Banks are
buccessfully using work-measurement programs to combat rising costs
improving employee productivity. The Board believes that similar
t°grams would be equally effective among the Reserve Banks.
i
More specifically, the Board feels that it should have--and
the management of the individual Banks would want to have-b
(3ved procedures for comparing the effectiveness of activities on
ta
'
n an intra- and inter-Bank basis. It believes that effectiveness
votings, which are part of the proposed work-measurement program,
uld be a desirable move towards this objective.
that
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
22
-2-
The Board expected some difference of opinion among the Banks
with respect to the desirability of undertaking on short notice a
work-measurement program of the scope proposed by the consultants. It
is gratified that Richmond, St. Louis, Kansas City, and San Francisco
have indicated an interest in this project and will be pleased to have
those Banks proceed with the execution of appropriate contracts with
Boot, Allen and Hamilton, Inc., for the purpose. It is looking to
the Division of Bank Operations to coordinate the individual Reserve
Bank programs, including Board representation therein where appropriate.
In the case of the Reserve Banks that have indicated they do
not wish to participate, at least at this time, it is not the intention of the Board to question their decision. However, the Board hopes
that as work pressures and other circumstances permit, these Banks
will review their decision and that they may at a later date join in
the work-measurement program. It would expect them to follow the
Progress of the program at the participating Banks and to take this
experience into account when re-examining their position. Enclosed
is a set of questions and comments thereon which may be helpful in
Clarifying any misunderstandings that may exist regarding the workmeasurement proposal.
It is quite possible that other approaches to the problem
of providing a basis for comparing the effectiveness of operations
At various Reserve Banks may also have merit, and the Board would be
happy to receive any comments or suggestions your Bank may care to
Offer in this regard.
Very truly yours,
6-4/1
email,
Merritt
Secretary.
Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
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Federal Reserve Bank of St. Louis
‘,011C:Al
BOARD OF GOVERNORS
Item No. 7
6/24/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
orriciAL
CORRESPONDENCE
TO THE SOAR°
August 12, 1966.
Mr. Harold A. Bilby,
Vice President,
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Bilby:
On June 24, 1966, you and I talked by telephone regarding
a question that had been discussed by Mr. Treiber with me on the
Preceding day as to termination of a certain lease in one of the
buildings recently acquired by the Federal Reserve Bank of New York
Pursuant to the Board's authorization for such purchases in its letter
of October 26, 1964. The Board had subsequently written to your Bank
under date of April 27, 1965, authorizing it, under certain circumstances, to terminate leases in the buildings acquired, and it asked
that if the cost of terminating or substantially shortening any such
lease would be significantly larger than $25,000 the Board be advised
in advance of completion of the agreement.
Following the discussion between Mr. Treiber and myself
on June 23, the Board was apprised at its meeting on June 24 of a
situation in which your Bank wished to proceed promptly with
termination of a lease that might involve a cost of around $80,000
to $100,000. You were advised on the 24th that the Board would have
no objection to your Bank's proceeding to terminate or substantially
Shorten tenancies in the buildings acquired where the costs would not
be substantially larger than $100,000.
As was indicated in our conversation of June 24, the Board
understands that your Bank would not contemplate an aggressive
campaign to terminate leases but that, as stated in the Board's letter
of April 27, 1965, you would proceed whenever such terminations could
be effected advantageously, and you would continue to have in mind
that this authorization would apply only to leases having a relatively
long term to run or which, in your Bank's judgment, might be "bothersome."
Obviously, there would be no need for taking any action with respect
to leases that will expire within the next couple of years.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
HOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
2285
. Harold A. Bilby
This letter is for the purpose of confirmingour telephone
conversation of June 24.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
Item No. 8
6/24/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS per
/AL CORRESPONDENCE
TO THE BOARD
June 24, 1966.
Mr. William F. Treiber,
First Vice President,
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Treiber:
This is in response to your letter of June 22,
in which your Bank, in behalf of all member banks in the
Second Federal Reserve District that make advances to
Savings Banks Trust Company in accordance with your Bank's
"Plan to Assist Savings Banks in Meeting Extraordinary
Withdrawals" (June 22, 1966), requests the Board of
Governors to grant permission, pursuant to section 201.5(b)
of Regulation A, for your Bank to accept as security for
advances to such member banks, under said Plan, assets
acquired by them from said Trust Company.
The Board of Governors hereby grants to such
member banks permission to use assets acquired from
Savings Banks Trust Company in accordance with said Plan
as security for advances from the Federal Reserve Bank
of New York.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
229'71
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
Item No. 9
6/24/66
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Reg. Di
PART 204 - RESERVES OF MEMBER BANKS
Reserve percentages
1.
(If business
Effective as to member banks in reserve cities at the opening
on July 14, 1966, and as to all other member banks at the opening
°f b usiness on
July 21, 1966, § 204.5 [Supplement to Regulation D] is amended
to read
as follows:
§ 204.5
Supplement.
(a) Reserve percentages.
Pursuant to the provisions of
section 19 of the Federal Reserve Act and § 204.2(a) and subject to para11 (b) of this section, the Board of Governors of the Federal Reserve
"
S343tem hereby prescribes the following reserve balances which each member
bank of the Federal Reserve System is required to maintain on deposit with
the F
ederal Reserve bank of
its district:
(1) If not in a reserve city-(i) 4 per cent of .its savings deposits, plus
(ii) 4 per cent of its other time deposits up to $5 million
and 5
Per cent of such deposits in excess of $5 million, plus
(iii) 12 per cent of its net demand deposits.
(2) If in a reserve city (except as to any bank located in such
4 eit
Y which is permitted by the Board of Governors of the Federal Reserve
sYstern) Pursuant to § 204.2(a)(2), to maintain the reserves specified in sub-
Par„
&taPb (1) of this paragraph)-(i) 4 per cent of its savings deposits, plus
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2288
-2-
(ii) 4 per cent of its other time deposits up to $5 million
445 Per cent of such deposits in excess of $5 million, plus
(iii) 16-1/2 per cent of its net demand deposits.
(b) Counting of currency and coin. The amount of a member bank's
tuttencY and coin shall be counted as reserves in determining compliance
Vith the
reserve requirements of paragraph (a) of this section.
2a. This amendment is issued pursuant to the authority granted
to the
Board of Governors by section 19 of the Federal Reserve Act to
change reserve requirements to prevent injurious credit expansion or
c°4tra
-ction (12 U.S.C. 462b). The only change is to increase the reserves
that
must be maintained against time deposits (other than savings deposits)
1.4
611(
"
88
of $5 million from 4 per cent to 5 per cent.
b. Thera was no notice and public participation with respect
tO
"ill
tort
amendment as such procedure would result in delay that would be
"11 to the public interest and serve no useful purpose. (See § 262.1(e)
°E the
Board's Rules of Procedure (12 CFR 262.1(0).) 1/
Dated at Washington, D. C., this 27th day of June, 1966.
By order of the Board of Governors.
(Signed) herritt Sherman
Merritt Sherman,
Secretary.
(sEAL)
.The following correction notice was subsequently sent to the Federal
14111ster: "The document amending if 204.5 [Supplement to Regulation DI publed in the Federal Register of July 2, 1966 (31 F.R. 9103) is corrected
by ,
(e) nging '(See t 262.1(e) of the Board's Rules of Procedure (12 CFR 262.1
dab ')I to read 'The effective dates were deferred for less than the thirty114 Period referred to in section 4(c) of the Administrative Procedure Act
:
use the Board found that the general credit situation and the public
itit
ach, est compelled it to make the action effective no later than the dates
-Pted.1„
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
2289
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE -SYSTEM
Item No. 10
6/24/66
L RESERVE SYSTEL1
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERA
[Reg. D and Reg. Q]
PART 204 - RESERVES OF UMBER BANNS
TS
PART 217 - PAYMENT OF INTEREST ON DEPOSI
Certain promissory notes
§ 217.1 are
1. Effective September 1, 1966, § 204.1 and
amended as follows:
§ 204.1 are
(a) Paragraphs (f), (g), (h), and (i) of
red esignated as paragraphs (g), (h), (i), and (j), respectively.
s:
(b) A new paragraph (f) is inserted as follow
5 204,1 Definitions.
6 217.1 Definitions.
*****
notes.
(f) Deposits as including certain promissory
For the
to include
'Poses of this part, the term "deposits" shall be deemed
r
any promissory note, acknowledgment of advance, due bill, or simila
Instrument that is issued by a member bank principally a3 a means of
Ob taining funds to be used in its banking business, except any such
instrument (1) that is issued to another bank, (2) that evidences an
illd ebtedness arising from a transfer of assets that the bank is
of more
Obligated to repurchase, or (3) that has an original maturity
than two years and states expressly that it is subordinated to the
claims of depositors.
This paragraph shall not, however, affect the
status, for purposes of this part, of any instrument issued before
June 27, 1966.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2-
2290
ity to
This amendment is issued under the Board's author
2a.
the Federal Reserve
Prevent evasions of the purposes of section 19 of
Act (12 U.S.C. 461).
It is designed to bring within the coverage of
instruments of the
Regulations D and Q promissory notes and similar
type
that banks have developed in recent
years as a means
of obtain-
g business.
ing funds for use in the ordinary course of their bankin
b.
t to this
Noties of proposed rule making with respec
January 26, 1966
amendment were published in the Federal Register of
(31 F.R. 1010) and of April 2, 1966 (31 F.R. 5320).
The amendment
was adopted by the Board after consideration of all relevant material,
pursuant to
including responses received from interested persons
those notices.
Dated at Uashington, D. C., this 27th day of June, 1966.
By order of the Board of Governors.
(Signed)
Sherman
Nerritt Sherman,
Secretary.
(sEAL)
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Federal Reserve Bank of St. Louis
itEst.-
•••••
Item No. 11
6/24/66
li'or immediate release.
June 27, 1966.
The Board of Governors of the Federal Reserve System announced
t°daY two actions designed to moderate further growth of bank credit
atd deposits:
an increase in reserve requirements against certificates
8141 other forms of time deposits, and an extension of regulations
regarding reserve requirements and interest on deposits to shorter-term
Promissory notes of banks.
Reserve requirements were increased from 4 per cent to 5 per
eslat against the amount of time deposits (other than savings deposits)
in
excess of $5 million at each member bank.
The increase will become
effective with the reserve computation periods beginning July 14, 1966,
reserve city banks, and July 21, 1966, for all other member banks.
It is estimated that this action will increase required
reserves by more than $400 million--approximately $350 million at
reserve city banks and $70 million at other member banks.
All told,
sbout 950 larger member banks throughout the country--primarily those
iasuing savings certificates and other certificates of deposit (CD's)
14 large volume--are expected to be affected by this increase in
4141rements.
The action should exercise a tempering influence on bank
i"uance of time certificates of deposit. The measure will also serve
to
ePPly a moderate additional measure of restraint upon the expansion
°E banks' loanable funds and thus reinforce the operations of other
illstruments of monetary policy in containing inflationary pressures.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
229
2292
-2-
At the same time, the Board acted to bring shorter-term bank
Promissory notes and similar instruments under the regulations governing
reserve requirements and payment of interest on deposits.
This action
Illould not apply to Federal funds transactions, interbank borrowings,
transfers of assets with agreements to repurchase, or bank notes for
capital purposes that have a maturity of more than two years and are
subordinated to claims of depositors.
The action will become effective
September 1, 1966 and will apply to all promissory notes covered by the
action that are issued on or after June 27, 1966, and are outstanding on
or after the effective date.
Promissory notes and other instruments of
the type covered by the action have come into use only in the last few
Years and the volume outstanding at present is small.
The purpose of
the Board's action is to prevent future use of these instruments as a
eans of circumventing statutory and regulatory requirements applicable
to bank deposits.
Attached are the texts of the amendments to the Supplement to
the Board's Regulation D, Reserves of Member Banks, and to Regulation Q,
Payment of Interest on Deposits, which implement this action.
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Federal Reserve Bank of St. Louis
@FedFRASER