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Minutes for
To:
Members of the Board
From:
Office Of the Secretary
June 28, 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.
Chin. 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 Friday, June 28, 1963.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Noyes, Director, Division of Research
and Statistics
Adviser, Division of Research
Holland,
Mr.
s
Statistic
and
Associate
Adviser, Division of
Solomon,
Mr.
Research and Statistics
Mr. Furth, Adviser, Division of International
Finance
Adviser, Division of International
Hersey,
Mr.
Finance
Mr. Katz, Associate Adviser, Division of
International Finance
Mr. Mattras, General Assistant, Office of the
Secretary
Chief, Banking Section, Division
Eckert,
Mr.
and Statistics
Research
of
Chief,
Government Finance Section,
Yager,
Mr.
Division of Research and Statistics
Mr. Keir, Senior Economist, Division of Research
and Statistics
Miss Dingle, Senior Economist, Division of
Research and Statistics
Mr. Nettles, Economist, Division of International
Finance
Mr.
Mr.
Mr.
Mr.
Money market review.
There were distributed tables relating to
member bank reserve positions, changes in security yields since mid-May
1963, and monetary developments during the six-week period ending June 26,
1963.
6/28/63
-2-
Mr. Yager reported on recent developments in the Government
securities market, after which Miss Dingle commented on bank reserves,
bank credit, and the money supply.
Mr. Nettles then discussed recent
foreign exchange market developments.
All members of the staff then withdrew except Messrs. Sherman,
Kenyon, Fauver, Noyes, and Mattras and the following entered the room:
Mr. Farrell, Director, Division of Bank Operations
Mr. Solomon, Director, Division of Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Daniels, Assistant Director, Division of Bank
Operations
Mr. Smith, Assistant Director, Division of
Examinations
Miss Hart, Senior Attorney, Legal Division
Mr. McClintock, Supervisory Review Examiner,
Division of Examinations
Discount rates.
The establishment without change by the Federal
Reserve Banks of New York, Cleveland, Richmond, St. Louis, Minneapolis,
and Dallas on June 27, 1963, of the rates on discounts and advances in
their existing schedules was approved unanimously, with the understanding
that appropriate advice would be sent to those Banks.
Circulated or distributed items.
The following items, copies
of which are attached to these minutes under the respective item
numbers indicated, were
apEsE924
unanimously:
6/28/63
-3Item No.
Letter to Riverside Trust Company, Hartford,
Connecticut, approving the establishment of
a branch at 90 Pearl Street, the present
location of the bank's main office, simultaneously with the closing of its trust
department branch at 111 Pearl Street.
1
Letter to The First Trust Company, St. Joseph,
Missouri, (1) granting permission under condition
of membership numbered 1 to engage in a general
commercial banking business, and (2) noting the
bank's plan to move its quarters from 4th and Felix
Streets to 3727 Frederick Boulevard.
2
Letter to the Comptroller of the Currency submitting
the Federal Reserve note printing order for fiscal
year 1964.
3
Letter to the Federal Reserve Bank of Chicago
approving the payment of salaries to the Bank's
plumbers and carpenters at specified rates.
11.
Letter to the Federal Reserve Bank of Chicago
regarding the status of F. H. Prince and Co., Inc.
Chicago, Illinois, as a holding company affiliate.
5
Letter to the Federal Reserve Banks regarding a
Proposed revision of the Investment Securities
Regulation of the Comptroller of the Currency.
6
In connection with Item No. 2, Governor Mills noted that an
unusual situation was involved.
First Trust Company, which shared
quarters with the affiliated First National Bank of St. Joseph and did
not accept deposits, now wished to conduct a commercial banking business
and move to a new location.
This might be regarded as equivalent to a
branch operation, and opposition had been registered by some local bankers.
However, the Reserve Bank and Division of Examinations concluded that the
case for a banking facility in the new location was justified.
-4-
6/28/63
With reference to Item No.
4, it was understood that a memo-
randum would be prepared for the Board's consideration regarding the
possibility of approving by a single Board action, rather than a series
of such actions, the levels of compensation of certain classes of employees
at the Chicago Reserve Bank whose salary was geared to labor contracts
that provided for wage increases in two or more steps over a period of
time.
With reference to Item No.
the
6, it was decided to set July 12 as
final date for the receipt of comments from the Reserve Banks concerning
the proposed revised Investment Securities Regulation and to advise the
Banks that a discussion of the matter could be held on July
9, following
the meeting of the Federal Open Market Committee, if any Bank Presidents
so desired.
It was understood that after receiving the views of the
Banks the Board would consider whether the report to the Comptroller
should take into account any divergent views that might be expressed.
Messrs. Daniels and McClintock withdrew from the meeting at
this point.
Application of Virginia Commonwealth Corporation (Items
7 and 8
Virginia Commonwealth Corporation, Richmond, Virginia, a registered bank
holding company, had filed with the Board a request for a determination
under section
4(c)(6) of the Bank Holding Company Act that the continued
shares of two subsidiaries,
ownership by the Corporation of the voting
Virginia Standard Corporation and State-Wide Insurance Agency, Inc.,
would be permissible.
As required by law, a hearing was held before a
Rearing Examiner, who recommended a favorable decision.
6/28/63
.5.
There had been distributed a draft order and statement, along
with a memorandum from the Legal Division dated June 26, 1963.
The
memorandum concluded that under the standards laid down by the Board
in prior decisions, the application should be approved.
After discussion, the application of Virginia Commonwealth
Corporation was approved unanimously. The issuance of the order and
statement was authorized, with the understanding that the wording of
the statement would be revised somewhat at one point in conformance
with a suggestion made at this meeting.
Copies of the order and state-
ment, as issued, are attached as Items 7 and 8.
Messrs. Hexter and O'Connell then withdrew from the meeting, as
did Miss Hart.
Examination of San Francisco Bank.
There had been circulated to
the Board the report of examination of the Federal Reserve Bank of San
Francisco made by the Board's examining staff as of October 30, 1962,
together with the usual accompanying memoranda.
At the Board's request, Mr. Smith reviewed the more significant
aspects of the information disclosed by the examination of the Bank.
The discussion that followed included reference to the modifications of custody procedures effected by the San Francisco Reserve Bank
subsequent to the disappearance of certain securities from the vault of
the Bank last year.
These modifications, it was noted, had included
steps appearing to bring the Bank's procedures into conformity with the
-6-
6/28/63
recommendations of the special Subcommittee of the House Banking and
Currency Committee that investigated the loss of the securities.
Question was raised, in this connection, whether the procedures
of the other Reserve Banks likewise included steps conforming to the
Subcommittee's recommendations.
It was pointed out that copies of the
Subcommittee report had been distributed to all of the Reserve Banks,
with attention called particularly to the recommendations therein.
The
general view was expressed, however, that it would be desirable to have
the answer to the question a matter of record.
Accordingly, there was
agreement with a suggestion by Mr. Solomon that the Board might send a
letter to the Reserve Banks asking for specific information in this regard.
It was understood that such a letter would be drafted.
A suggestion also was made that the New York Reserve Bank might
be asked to look into the security handling arrangements of the major
New York City commercial banks to ascertain whether they included procedures or precautions that might be worthy of consideration by the
Reserve Banks.
The meeting then adjourned.
Secretary's Note: Pursuant to recommendations
contained in memoranda from the Divisions of
Personnel Administration and Administrative
Services, Governor Shepardson today approved
on behalf of the Board the transfer of chauffeur positions in the latter Division from
the regular salary schedule to the Metropolitan
D. C. Prevailing Rate (Wage Board) Schedule,
with annual salary rates as follows for those
occupying the affected positions effective
July 7, 1963:
6/28/63
Name and title
From
Willard D. Creasey, Chauffeur
Roger M. Painter, Chauffeur (Station Wagon)
Carlton C. Poling, Chauffeur
Lloyd F. White, Chauffeur
R. A. Windsor, Assistant Supervisor,
Motor Transport Unit
$4,295
4,295
4,295
4,400
4 95o
Secretpay
To
$4,7ol
4,295
4,701
4,701
5,158
(4
BOARD OF GOVERNORS
Item No. 1
6/28/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 28, 1963
Board of Directors,
Riverside Trust Company,
Hartford, Connecticut.
Gentlemen:
The Board of Governors of the Federal
by
Reserve System approves the establishment
Riverside Trust Company, Hartford, Connecticut,
of a branch at 90 Pearl Street, Hartford, the
present location of the bank's main office, simultaneously with the closing of its trust department
branch at 111 Pearl Street, Hartford, Connecticut,
r
provided the branch is established by Decembe 31,
1963.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
9,1 10
BOARD OF GOVERNORS
Item No. 2
6/28/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 28, 1963
Board of Directors,
The First Trust Company,
St. Joseph, Missouri.
Gentlemen:
This refers to your request for permission,
under applicable provisions of your condition of membership numbered 1, to engage in a general commercial banking
business.
Following consideration of the information submitted, the Board of Governors of the Federal Reserve
System grants The First Trust Company, St. Joseph, Missouri,
permission to engage in a general commercial banking business.
In this connection it is noted that the bank plans to move
its quarters from 4th and Felix Streets, St. Joseph, Missouri,
to 3727 Frederick Boulevard, St. Joseph, Missouri.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
17,
BOARD OF GOVERNORS
Item No.
3
6/28/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 28, 1963
The Honorable,
The Comptroller of the Currency,
Treasury Department,
Washington 25, D. C.
Sir:
It is respectfully requested that you place an order with
the Bureau of Engraving and Printing for printing 682,792,000 Federal
Series during the fiscal
Reserve notes (single units) of the 1950
and denominations shown
amounts
the
in
1964,
Year ending June 30,
Banks:
Reserve
Federal
below for the various
Denomination
Number of
notes
Dollar
amount
Boston
$5
10
20
50
100
12,960,000
20,080,000
2,880,000
432,000
576,000
$64,800,000
200,800,000
57,600,000
21,600,000
57,600,000
New York
5
10
20
50
100
54,000,000
78,400,000
25,560,000
4,032,000
4,176,000
270,000,000
784,000,000
511,200,000
201,600,000
417,600,000
Philadelphia
5
10
20
50
100
11,520,000
2,520,000
1,440,000
432,000
144,000
57,600,000
25,200,000
28,800,000
21,600,000
14,400,000
Cleveland
5
10
20
50
100
13,680,000
9,360,000
11,880,000
576,000
288,000
68,400,000
93,600,000
237,600,000
28,800,000
28,800,000
The Comptroller
of the Currency
-2-
Denomination
Number of
notes
Dollar
amount
Richmond
$5
10
20
50
100
30,600,000
14,040,000
14,400,000
720,000
864,000
$153,000,000
140,400,000
288,000,000
36,000,000
86,400,000
Atlanta
5
10
20
100
23,680,000
16,200,000
12,960,000
432,000
118,400,000
162,000,000
259,200,000
43,200,000
Chicago
5
10
20
50
100
38,080,000
58,240,000
27,360,000
1,296,000
1,296,000
190,400,000
582,400,000
547,200,000
64,800,000
129,600,000
St. Louis
5
10
20
50
100
14,400,000
7,920,000
3,960,000
144,000
288,000
72,000,000
79,200,000
79,200,000
7,200,000
28,800,000
Minneapolis
5
50
2,880,000
144,000
14,400,000
7,200,000
Kansas City
5
10
20
50
100
7,920,000
5,040,000
4,680,000
144,000
144,000
39,600,000
50,400,000
93,600,000
7,200,000
14,400,000
Dallas
5
10
20
50
100
9,360,000
11,440,000
4,320,000
288,000
288,000 .
46,800,000
114,400,000
86,400,000
14,400,000
28,800,000
San Francisco
5
10
20
50
100
39,960,000
37,720,000
34,200,000
864,000
1,584,000
199,800,000
377,200,000
684,000,000
43,200,000
158,400,000
The Comptroller
of the Currency
_3-
Denomi. nation
Totals
$5
10
20
50
100
Number of
notes
Dollar
amount
259,040,000
260,960,000
143,640,000
9,072,000
10,080,000
$1,295,200,000
2,609,600,000
2,872,800,000
453,600,000
1,008,000,000
682,792,000
$8,239,200,000
00 1/..M.Y•
.
.1.0.,•gaw.II.....
Respectfully,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 4
FEDERAL RESERVE SYSTEM
6/28/63
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
111((
TO THE BOARD
L RE":
••••••••
June 28, 1963
CONFIDr,NTTAL (FR)
Mr. H. J. Newman, Vice President,
Federal Reserve Bank of Chicago,
Chicago 90, Illinois.
Dear Mr. Newman:
As requested in your letter of May 8, 1963, the
approves the payment of salaries by the
Governors
Board of
of Chicago to the incumbents of the
Bank
Reserve
Federal
at the rates indicated, effective
below
positions shown
June 1, 1963:
Title
Plumber
Head Carpenter
Carpenter
Annual Salary
$8,611.20
9,214.40
8,292.96
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
..•'•••.
ie.1,•
•
as
..::::li, ,,,••
' T,FI
-.—
'
1 .7..:
'
:0
01
5
6/28/63
FEDERAL RESERVE SYSTEM
,.
.7 111111 ,.
•I
Item No.
OF THE
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
RES
June 281 1963
AIR /LAIL
Leland M. Ross, Vice President,
Federal Reserve Bank of Chicago,
Chicago 90, Illinois.
Dear Mr. Ross:
This refers to your letter of June 12, 1963, with respect
to whether there has been a change in the status of F. H. Prince and
Co., Inc. as a holding company affiliate and its right to vote the
stock that it owns of The Live Stock National Bank of Chicago,
Chicago, Illinois.
At the time of the March 61 1958, determination by the
Board that F. H. Prince and Co., Inc. was not a holding company affiliate of The Live Stock National Bank of Chicago except for the purposes
of section 23A of the Federal Reserve Act, F. H. Prince and Co., Inc.
owned 6o per cent of the outstanding capital stock of Chicago Stock
Yards Company, and the latter company owned approximately 80 per cent
of the outstanding capital stock of the bank. Information has now been
supplied that on December 21, 1959, Chicago Stock Yards Company was
merged into F. H. Prince and Co., Inc., and as a result of this merger,
the bank's stock is now owned directly by F. H. Prince and Co., Inc.,
rather than indirectly as formerly.
On the basis of this information, it appears that there has
been no substantial change in the factual situation. Consequently, it
Is the Board's opinion that another determination is not necessary and
the 1958 determination by the Board remains in force and effect.
Please advise F. H. Prince and Co., Inc. accordingly.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No.
BOARD OF GOVERNORS
6
6/28/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
July 1, 1963.
Dear Sir:
In the Federal Register of June 21, 1963, the Comptroller of
the Currency published the enclosed proposed revision of the Investment
Securities Regulation, to be promulgated pursuant to paragraph Seventh
of R. S. 5136 (12 U.S.C. 24). The notice stated that consideration
14).11 be given to written comments submitted to the Comptroller by
.fulY 22, 1963.
Under section 9 of the Federal Reserve Act (12 U.S.C. 335),
State member banks are subject to the same limitations and conditions
with respect to investment securities as are applicable to national
banks, Consequently, the provisions of the Investment Securities
Regulation are of concern to the Federal Reserve System in connection
with its supervision of member banks.
In order to assist the Board in preparing a report to the
Comptroller, the Board would appreciate receiving such comments as
Your Bank may have with respect to the proposal not later than Friday,
July 12. In the event it should appear desirable to discuss the
Proposal before completion of the Board's report, an opportunity to
di° so would be afforded on Tuesday, July 9, when the Reserve Bank
Presidents will be in Washington for an Open Market meeting.
Very truly y
Merritt Sh
Secretar
E
nclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
Item No.
7
6/28/63
UNrfED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
VIRGINIA COMMONWEALTH CORPORATION
for a determination pursuant to section 4(c)(6) 1 Docket No. BHC-67
t
Of the Bank Holding Company Act of 1956 with
respect to Virginia Standard Corporation, and '
t
State-Wide Insurance Agency, Inc.
t
ORDER
The Virginia Commonwealth Corporation, Richmond, Virginia, a
registered bank holding company as of May 20, 1963, pursuant to section 222.3(a) and (b) of the Board's Regulation Y (12 CFR § 222.5(a) and
(b)) filed, at a date prior to its registration, a request for a determination by the Board that Virginia Standard Corporation and State-Wide
Insurance Agency, Inc., both Virginia corporations, and their activities,
are of the kind described in section
4(c)(6) of
the Bank Holding Company
Aet of 1956 (12 U.S.C. § 1843(c)(6) and section 222.5(b) of the Board's
ReElaation Y (12 CFR § 222.5(b)), so as to make it unnecessary for the
Prohibitions of section
4
of the Act with respect to acquisition and
retention of shares in nonbanking organizations to apply in order to
earrY out the purposes of the Act.
-2-
A hearing has been held pursuant to section
4(c)(6)
of the
Act and in accordance with sections 222.5(b) and 222.7(a) (12 CFR
§ 222.7(a)) of the Board's Regulation Y; a brief in support of its request has been filed by Virginia Commonwealth Corporation; on March 29,
1963, the Hearing Examiner filed his Report and Recommended Decision
wherein he recommended that the request with respect to Virginia Standard
Corporation and State-Wide Insurance Agency, Inc., be approved, and the
time for filing with the Board exceptions and brief to the recommended
decision of the Hearing Examiner has expired and no exceptions have been
filed.
The Board has given due consideration to all relevant aspects of
the matter, and all such steps have been taken in accordance with the
Board's Rules of Practice for Formal Hearings (12 CFR 263).
Accordingly,
IT IS HEREBY ORDERED, for the reasons set forth in the
accompanying Statement of the Board of this date, that Virginia Standard
Corporation and State-Wide Insurance Agency, Inc., and their activities
are determined to be so closely related to the business of banking or of
managing or controlling banks as to be a proper incident thereto and as
to make it unnecessary for the prohibitions of section
4
of the Bank
Holding Company Act of 1956 to apply in order to carry out the purposes
of that Act, and therefore Applicant's request with respect to Virginia
Standard Corporation and State-Wide Insurance Agency, Inc., shall be,
and hereby is, granted provided that Virginia Standard Corporation shall
be merged into Virginia Commonwealth Corporation not more than sixty
days after the date of this Order; and provided further that State-Wide
-3Insurance Agency, Inc., shall engage only in the insurance business as
described by
and set forth in the Statement accompanying
this Order and in no other activity or activities; and provided further
that this determination shall be subject to revocation by the Board if
the facts upon which it is based should substantially Change in such a
manner as to make the reasons for such determination no longer
applicable,
Dated at Washington, D. C., this 28th day of June, 1963.
By order of the Board of Governors.
Voting for this action: Governors Balderston, Mills,
Robertson, and Shepardson.
Absent and not voting: Chairman Martin, and
Governors King and Mitchell.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
4
Item No.
8
6/28/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY VIRGINIA COMMONWEALTH CORPORATION FOR
A DETERMINATION PURSUANT TO SECTION 4(c)(6)
OF THE BANK HOLDING COMPANY ACT OF 1956
STATEMENT
Background of the case. - Under date of May 16, 1962,
Virginia Commonwealth Corporation (hereafter sometimes called the
"Applicant"), a Virginia corporation with its principal office and
Place of business in Richmond, Virginia, filed with the Board of
Governors of the Federal Reserve System (the "Board") a request for
a determination that the acquisition and retention of voting shares of
two nonbanking corporations, Virginia Standard Corporation ("Standard")
and State-Wide Insurance Agency, Inc. ("State-Wide"), and the proposed
activities of those corporations, would be of such a nature as to be
exempt from the prohibitions of section 4(a) of the Act.
In an Order
dated October 25, 1962, the Board approved Applicant's request for
Prior approval of an exchange of stock which took place on December 21,
1962.
As a result of this exchange, Applicant became a bank holding
company as defined in section 2(a) of the Act.
Section 4(a) of the Act makes it unlawful, subject to certain
exceptions, for a bank holding company (1) to acquire direct or indirect
c4ftlership or control of voting shares of any company that is not a bank,
-2-
or (2) to retain direct or indirect ownership or control of voting
shares of any such company after two years from the date as of which
it becomes a bank holding company.
Standard and State-Wide are non-
banking companies incorporated under the laws of the State of Virginia.
In becoming a bank holding company, Applicant acquired more than 50 per
cent of the outstanding shares of Standard, which held and holds all
the outstanding shares of State-Wide.
Applicant proposes to merge
Standard into itself, after which it would own directly all the voting
Shares of State-Wide.
The Applicant's acquisition and proposed retention of stock
of Standard and State-Wide escapes the prohibitions of the Act only if
Lt falls within one of the exceptions provided by the Act.
Sec-
tion 4(0(6) of the Act excepts shares of a nonbanking company if two
requirements are met: (1) if all the activities of the companies are
of a financial, fiduciary, or insurance nature, and (2) if the Board
determines on the basis of the record made at a hearing, that all
the activities of the companies are so closely related to the business
of banking or of managing or controlling banks as to be a proper incident thereto and as to make it unnecessary for the prohibitions
of section 4 to apply in order to carry out the purposes of the
152
-3-
— Section 222.5(b) of the Board's Regulation Y, issued pursuant to
Act,'
the Act, paraphrases the provisions of the Act, but requires that the
activities of a company must be closely related to the business of banking
or of managing or controlling banks "as conducted by such bank holding
company or its banking subsidiaries".
As required by the Act, a hearing on the Applicant's request
was held at Washington, D. C., on January 15, 1963, before a duly
designated Hearing Examiner.
Following the conclusion of the hearing,
Applicant submitted proposed findings of fact and conclusions of law.
On March 29, 1963, the Hearing Examiner filed with the Board his Report
and Recommended Decision wherein he recommended approval of the
Applicant's request.
1/
The relevant language of the Act is as follows:
"Sec. 4(a) Except as otherwise provided in this Act, no bank holding
company shall "(1) after the date of enactment of this Act acquire direct or indirect ownership or control of any voting shares of any company which
is not a bank, or
"(2) after two years from the date of enactment of this Act . .
retain direct or indirect ownership or control of any voting shares
of any company which is not a bank or a bank holding company . .
********
"(c) The prohibitions of this section shall not apply ********
"(6) to shares of any company all the activities of which are of a
financial, fiduciary, or insurance nature and which the Board after
due notice and hearing, by order has determined to be so closely related to the business of banking or of managing or controlling banks as
to be a proper incident thereto and as to make it unnecessary for the
Prohibitions of this section to apply in order to carry out the purposes
Of this Act. . . ."
-4-
The salient facts with respect to the activities and proposed
merger of Standard into Applicant, and with respect to the insurance
business carried on and to be carried on by State-Wide, are set forth
hereafter in this Statement.
Additional facts with respect to these
activities and this merger are contained in the Hearing Examiner's
Report and Recommended Decision attached hereto; and to the extent not
inconsistent with this Statement, nor specifically rejected herein, the
findings of fact made by the Hearing Examiner are hereby adopted.
In determining whether the pending request should be granted,
the Board has considered solely the facts embraced in the record of the
hearing held in this matter, the arguments presented in Applicant's proPosed findings of fact and conclusions of law, and the Hearing Examiner's
Report and Recommended Decision.
The Board's findings and conclusions
are hereafter set forth.
Factual summary. - The main office of The Bank of Virginia
("Bank"), the principal subsidiary of Applicant's system, is located at
800 East Main Street, Richmond, Virginia.
In 1939 a corporation with
the same name as the present State-Wide was organized for the purpose
of writing credit life insurance and physical damage coverage on automobiles in connection with loans made by Bank.
Until 1953, the business
of the corporation was carried on by officers of Bank, on Bank's premises.
In that year, at the suggestion of representatives of the State Corporation
Commission, the offices of the insurance corporation were set up at
528 East main Street, in Richmond, under separate officers and directors.
t
-5-
On June 29, 1960, the name of the insurance corporation was
Changed to Virginia Standard Corporation, and stock of the corporation
was distributed to the shareholders of Bank on a share-for-share basis
and stapled to the stock of Bank.
As Virginia law permits, however,
Standard continued to do its insurance business under the trade name of
State-Wide Insurance Agency, Inc.
On February 2, 1961, Standard purchased from investors friendly
to Bank 66-2/10 Per cent of the outstanding shares of Bank of Henrico
("Henrico"), a bank which had been organized several years before under
the aegis of The Bank of Virginia.
On January 2
1962, the present
State-Wide was organized as a wholly-owned subsidiary of Standard, and
the insurance business which had been done by Standard was transferred
to the new State-Wide.
Since that time, the activities of Standard have
consisted only in holding approximately two-thirds of the stock of
Henrico, and all of the stock of State-Wide.
Nature of State-Wide's Activities. - The Hearing Examiner found
that for the two-year period 1961-1962, of 7,888 automobile physical
damage insurance policies written by State-Wide, 97.2 per cent of the
Policies, representing 97.9 per cent of gross premiums on this type
of policy, were written in cases where Bank was the lienholder and
loss-payee.
Of the 221 remaining policies, 71 were written as renewal
P°1icies in cases where Bank had been a lienholder but the loan has been
)
-6-
paid off before renewal of the policy, and 150 were written by
sub-agents of State-Wide.
These sub-agents were automobile dealers
who originated a substantial amount of the automobile
financing handled
by Bank, and who were granted the privilege of
writing occasional
policies through State-Wide for customers preferring to pay cash,
or
to finance the purchase of an automobile throug
h another bank, but
Who wished to have the agent arrange for insurance in connec
tion with
the purchase.
Having a related agency furnish automobile insurance on
collateral which secures a bank loan benefits the operations of the
bank
in several ways.
Since insurance of collateral is essential to an auto-
mobile loan, a lender cannot adequately compete for loans of
this kind
unless it can furnish this insurance easily and almost automaticall
y.
Group policies, available through the agency, also afford
coverage in
individual instances in which it might otherwise be difficult to obtain
insurance.
Immediate coverage is available, avoiding a time lag which
is likely to occur when insurance is sought on an individual basis
through independent agents.
cellation of policies.
The bank is protected against mass can-
In addition, the agency facilitates the work
Of the bank by advising on rates, handling claims, and
the like.
All the credit life insurance written through State-Wide is
written on the lives of borrowers from Bank.
The amount of the policy
in effect never
exceeds the then outstanding balance due on the loan.
Some borrowers
assign to the bank policies of insurance which they already
r-
-7hold on their own lives, as collateral for loans, and it is also
possible for a borrower, if eligible, to obtain an individual term
policy from an independent agent, to be used in connection with a loan
from Bank.
Rates on individual policies, however, are considerably
higher than the rates applying to the so-called "group" term policies
available through State-Wide.
Credit life insurance in connection with
a lean benefits both borrower and bank, since, in the event of the
without burdenborrower's death, an outstanding loan will be discharged
ing the borrower's estate, and without creating collection difficulties
for the bank.
Under recent legislation in the State of Virginia, certain
types of credit life insurance may now be written directly by banks.
However, where the policy is for more than five years in duration and
more than $10 thousand in amount, requiring the issuance of an individual
certificate of insurance, the policy must still be written through an
insurance agency.
State-Wide does not hold itself out to the general public as
being in the insurance business, nor does it advertise, or solicit insurance business.
Bank has never required that automobile physical
damage insurance or credit life insurance be written through State-Wide,
and to do so would be illegal in the State of Virginia.
Until the
present time, State-Wide has confined itself to writing insurance of
these two kinds, but it is contemplated that in the future, it may
Ilrite the following additional types of insurance for Applicant and for
its subsidiary banks:
t
f
--8-
(1) public liability, coincident with the automobile physical
damage insurance written by it,
(2) public liability on premises occupied by Applicant and its
subsidiaries,
(3) physical damage and public liability on motor vehicles owned
by Applicant and its subsidiaries,
(4) public liability non-ownership motor vehicle protection for
Applicant and its subsidiaries,
(5) blanket bond or other fidelity coverage on personnel of
Applicant and its subsidiaries,
(6) workmen's compensation and employer's liability for Applicant
and its subsidiaries,
(7) fire and extended coverage and boiler and machinery coverages
on property owned or occupied by Applicant and its subsidiaries,
(8) errors and omissions protection for Applicant and its subsidiaries,
(9) safe deposit liability for Applicant's subsidiary banks,
(10) garage keepers' legal liability coverage on motor vehicles
parked on premises or parking lots owned or operated by
Applicant and its subsidiaries,
(11) registered, certified, and first-class mail and express
protection for Applicant and its subsidiaries, and
(12) group life, major medical, hospitalization, and medicalbenefit coverages offered as fringe benefits by Applicant
and its subsidiaries to their employees.
By making available to Applicant and its subsidiary banks the
types
of
insurance coverage which State-Wide has been writing, as well
as some or all of the additional types listed above, State-Wide will
improve their competitive position and facilitate their operations.
-9-
While no statistical data were introduced in evidence at the
hearing as to the number of banks in Virginia which have bank-related
insurance agencies, testimony was offered tending to prove that the
practice has been widespread for many years
and has existed without
objection from State banking authorities.
Preliminary requirement as to nature of activities. - It
appears that as to State-Wide, the preliminary requirement for exemption
under section 4(c)(6) of the Act will be met--that all the activities
Of the company involved, present and proposed, are and will be of an
insurance nature.
In view of the fact that Standard will be merged into
Applicant, the Board finds it unnecessary to reach the question whether
holding stock in Henrico and in State-Wide is a "financial" activity.
Relation to bankinajausiness. -
In addition to the required
finding as to the nature of the companies' existing or proposed business,
the statute and the Board's Regulation Y also require that their activities must be determined by the Board to be so "closely related" to the
business of banking or of managing or controlling banks, as conducted
by the Applicant or its banking subsidiaries, as to be a "proper
incident" to such business and as to make it unnecessary for the prohibitions of section 4 of the Act to apply in order to carry out the
purposes of the Act.
As required by section 4(c)(6) of the Act, this
determination is to be made by the Board "after due notice and hearing,
and on the basis of the record made at such hearing."
rq
-10
The weight which the Board believes should be given various
factors and circumstances has been discussed in a number of its previous
decisions, and particularly in its Statement in the First Bank Stock
Corporation matter, 1959 F. R. Bull. 917, 930-933.
In the case now
before it, "the degree of direct and functional connection found to
exist . • • " is sufficient, in the Board's judgment, "to warrant the
conclusion that
.. [the] activities [of State-Wide] are so closely
related to the business of subsidiary banks as to be a 'proper incident'
thereto and as to be consistent with the purposes of the Act." 2/
More
than 97 per cent of the insurance written by State-Wide, whether
measured by number of policies or by gross amount of premiums, is written
in connection with loans by Bank.
From the side of Bank, the proportion
is substantial of loans on which insurance, whether credit-life or
automobile physical damage, is required and where that insurance is
written by State-Wide.
Moreover, the record amply demonstrates that
in the areas in which Applicant's banks operate it is very useful, if
not essential, for a bank which wishes to compete in the consumer credit
field to have available the services of a related insurance agency.
The Hearing Examiner has found, as to the instances of
automobile insurance "when there is no innediate connection with a
present loan by a bank", that making such insurance available "is likely
-271959 F.R. Bull. at 931.
-11-
to result in new bank business when later a loan becomes appropriate,
as when a new purchase is made or further credit is requested", and
that for this reason, these instances "seem to be sufficiently closely
related to the bank's business as to justify broadening the insurance
activities of State-Wide Agency" to this extent.
A plausible argument
may perhaps be made to this effect, as to renewal of policies covering
automobiles purchased with loans made by Bank, where the loan has been
paid off and the borrower wishes to continue the same policy.
Renewals
of this kind may tend to maintain a link with the customer and to
encourage him to borrow again from a bank in purchasing his next automobile.
The Board does not find it necessary to pass on the validity of
this argument.
However valid such a conclusion, it has no application
to instances where insurance is written by automobile dealers who place
most of their automobile financing with a bank for customers who borrow
elsewhere than at the bank.
The Board cannot conclude, as did the
Hearing Examiner, that such insurance business is sufficiently closely
related to the business of banking as done by Applicant's subsidiaries
SO as to provide additional weight tending to establish the requisite
Close relationship between bank and insurance agency.
A similar argument
could be used to characterize as "bank-related" almost any insurance
activity which might tend to maintain customer good-will for the bank.
Despite the Board's rejection of the Hearing Examiner's conclusion in this
regard, the proportion of insurance of these two kinds to the total
insurance business of State-Wide has been so small as not to affect the
Board's conclusion on the closeness of the relationship involved.
The Board has in the past made favorable determinations in
regard to bank-related insurance agencies which, as an incidental part
of their business, took care of the direct insurance needs of the banks,
including insurance on bank property, bankers' blanket bonds, and the
1ike.21
It seems evident that such insurance activities, of a more or
less "housekeeping" nature, undertaken on behalf of the subsidiary banks
of a bank holding company, are "related to the business of . . . managing or controlling banks, as conducted by such bank holding company"
Within the meaning of section 222.5(b) of the Board's Regulation Y.
Assuming that the Board makes a favorable determination in
regard to the application before it, the record indicates that the
insurance business of State-Wide will be carried on in connection with
the banking business of the remaining subsidiary banks of Applicant, in
substantially the same manner in which it has been carried on in the
Past in connection with the banking business of The Bank of Virginia.
Accordingly, on the basis of the record, it is believed that the total
relationship, past and projected, supports a favorable determination.
Closeness anr: proprJety of relationship. - On the basis of
the record and particularly the facts heretofore stated, it is the
2/
Natter of the Request of St. Joseph Agency, Inc., 1961 F.R. Bull. 290,
at 296.
-13-
Board's view that the activities of State-Wide will bear a direct and
substantial relationship to the business of the subsidiary banks of
Applicant's system.
For the reasons set forth in the Board's Statement
in the First Bank Stock Corporation matter, cited above, and incorporated
herein, the Board believes that the relationship of State-Wide's activities
to the business of the subsidiary banks of Applicant's system will not
be inconsistent with the purposes of the Act.
Conclusion. - After considering the extent of direct connection
between the present and proposed activities of State-Wide and the
activities of the subsidiary banks of Applicant's system, as described
above, and the fact that bank-related insurance agencies are prevalent
in the State of Virginia, the Board concludes that the activities of
State-Wide are and will be so closely related to the business of banking
as conducted by the subsidiary banks of Virginia Commonwealth Corporation
as to be a proper incident thereto and as to make it unnecessary for the
prohibitions of section 4 of the Act to apply in order to carry out the
purposes of the Act.
Applicant has initiated action to merge Virginia Standard
Corporation into itself, and has described this undertaking in a letter
to the Hearing Examiner dated February 12, 1963, which was made a part
the record in this proceeding.
Since, according to Applicant, this
merger is expected to take place within the period of two years after
December 21, 1962, the date as of which Applicant became a bank holding
company, and as of which the prohibitions of section 4 of the Act became
I
applicable to Applicant, the Board does not find it necessary to pass
on the question whether the activities of Virginia Standard Corporation
are so closely related to the business of banking as conducted by the
subsidiary banks of Virginia Commonwealth Corporation as to be a proper
incident thereto and as to make it unnecessary for the prohibitions of
section 4 of the Act to apply in order to carry out the purposes of the
Act.
Accordingly, it is the Board's judgment that the requested exemption
with respect to State-Wide Insurance Agency, Inc., should be granted on
the condition that Virginia Standard Corporation be merged with Virginia
Commonwealth Corporation within a period of sixty days after the date of
the Board's Order; and upon the further condition that State-Wide Insurance
Agency, Inc. shall engage only in the insurance business which it has
identified and has been described in this Statement.
As indicated in the Board's Order, its approval of this request
is based solely on the facts disclosed by the record; and if the facts
should substantially change in the future in such manner as to make the
reasons for the Board's conclusion no longer applicable, the statutory
exemption resulting from the Board's. present determination would, of course,
cease to obtain.
June 28, 1963.
@FedFRASER