Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, June 28, 1965, Volume 52, Part 6

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Minutes for

To:

Members of the Board

From:

Office of the Secretary

June 28, 1965.

Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
Initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.

Chm. Martin
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel

Minutes of the Board of Governors of the Federal Reserve System
on Monday, June 28, 1965.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

The Board met in the Board Room at 10:00 a.m.

Martin, Chairman
Robertson
Shepardson
Mitchell
Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Noyes, Adviser to the Board
Molony, Assistant to the Board
Hackley, General Counsel
Farrell, Director, Division of Bank Operations
Solomon, Director, Division of Examinations
Kelleher, Director, Division of Administrative
Services
Mr. Shay, Assistant General Counsel
Mr. Koch, Associate Director, Division of Research
and Statistics
Mr. Sammons, Adviser, Division of International
Finance
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Smith, Assistant Director, Division of
Examinations
Mr. Kern, Assistant Director, Division of
Administrative Services
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Dingle, Senior Economist, Division of
Research and Statistics
Mr. Egertson, Supervisory Review Examiner, Division
of Examinations
Mr.
Mx.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Circulated or distributed items.

The following items, copies of

which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to Continental International Finance Corporation,
Chicago, Illinois, approving an amendment to the Corporation's Articles of Association.

1

6/28/65

-2Item No.

Letter to First Chicago International Finance
Corporation, Chicago, Illinois, granting consent
to purchase shares of First Chicago Nominees
Limited, London, England.

2

Letter to the Chairman of the Conference of
Presidents of the Federal Reserve Banks regarding
a proposed study of System purchasing procedures.

3

Report on competitive factors (Roanoke-Pearisburg, Virginia).
A revision of the proposed conclusion having been agreed upon, unanimous approval was given to the transmittal to the Comptroller of the
Currency of a report on the competitive factors involved in the proposed
merger of Bank of Giles County, Pearisburg, Virginia, into The First
National Exchange Bank of Virginia, Roanoke, Virginia.

In the form in

Which approved, the conclusion read as follows:
There is little competition existing between Bank of
Giles County, Pearisburg, and The First National Exchange
Bank of Virginia, Roanoke, and effectuation of the instant
proposal would not significantly alter Roanoke Bank's competitive capacity in the areas in which it currently operates,
nor alter its position in relation to other large banking
organizations in the State. However, it would substantially
alter the competitive situation in the area served by Bank
of Giles County, and expand Roanoke Bank's geographic coverage into an additional county in southwestern Virginia.
Since 1960, Roanoke Bank has absorbed 10 banks in southwestern
Virginia, and consummation of this merger would further this
trend.
Membership of Security Trust Company (Item No. 4).

There had

been distributed a memorandum dated June 23, 1965, from the Division of
Examinations regarding a request that the Board approve a proposed new

6/28/65

-3-

bank for membership in the Federal Reserve System.

In March 1961 First

National Bank and Trust Company and Security Trust Company (a State member bank), both of Lexington, Kentucky, merged under the charter of the
national bank.

The Department of Justice instituted antitrust proceed-

ings, the United States Supreme Court held the merger to be unlawful, and
the U. S. District Court ordered a reversal of the merger so that the
situation would be similar to that previously existing.

Under the plan

of divestiture there would be two banks, one a national bank and the other
a State member bank, with assets and liabilities prorated on a basis comparable to pre-merger conditions.

The firm of Arnold, Fortas & Porter,

Counsel for the merged institution, requested to be infoLmed in writing
that the Board approved the plan, so that it might be submitted to the
Banking Commissioner of Kentucky.
Approval of the plan was not a matter for the Board's decision,
but it appeared that the Board might state that upon application it would
approve Federal Reserve membership for the new Security Trust Company of
Lexington, Kentucky.

The Federal Reserve Bank of Cleveland, which had

analyzed the plan of divestiture and the existing condition of the merged
institution, was of the view that the proposed new State bank would be an
acceptable member of the System.

The Division of Examinations recommended

that the Board inform Arnold, Fortas & Porter that the new Security Trust
Company would be accepted for membership in the Federal Reserve System if
the dissolution of the merged institution was carried out in accordance
With the proposed plan of divestiture.
was attached to the memorandum.

A draft of letter for that purpose

6/28/65

-4After a discussion during which certain changes in wording were

agreed upon, the letter was approved unanimously in the form attached
as Item No. 4.
Messrs. Kelleher, Shay, Goodman, Kern, and Egertson then withdrew
from the meeting.
Member bank borrowing (Item No. 5).

On April 13 and May 28, 1965,

the Board discussed a suggestion that the Federal Reserve Banks be requested
to report at the end of each reserve computation period conspicuous instances of repetitive borrowing by member banks.

The matter was held in

abeyance pending discussion with the Federal Reserve Bank discount officers
at their conference on June 7-8, especially with a view to making it
Clear to them that the request for reports was not intended to call for
a change in discount practices.

The subsequent discussion with the dis-

count officers was summarized for the Board's information in a memorandum
Of June 11, 1965, from Mr. Holland, Associate Director, Division of
Research and Statistics.
In a distributed memorandum of June 23, 1965, Messrs. Solomon
and Holland expressed the view that the most helpful current information
on member bank borrowing would be (1) data on inappropriate or unusual
cases of individual bank borrowing, and (2) information on developing
trends in aggregate bank borrowing behavior.
As to the first of these classifications, although information
°11 the incidence and volume of member bank borrowing from the Reserve Banks

•

6/28/65

-5-

Was available from the reports (FR 527 and FR 527a) received from the
Banks for each reserve computation period, it was felt that these data
needed to be amplified by requesting from the Reserve Banks facts and
comments comparable to those developed in conjunction with examinations
This additional information would include (1) the reasons why certain
banks were borrowers for extended periods; (2) identification of the
borrowings that had problem or other aspects of a special nature; (3)
actions taken or contemplated by the Reserve Banks in respect to situations referred to under (1) or (2); and (4) general information that
might be significant in keeping informed on present and prospective
uses of Reserve Bank credit, such as developing or anticipated trends
in member bank borrowing, changes in the general character of collateral,
and anticipated emergency borrowings.

There had been general agreement

among the discount officers that quarterly reporting would be reasonable
and appropriate, and that the information requested by the Board's examiners
in connection with an examination might be used as a guideline for the
material to be included in the quarterly reports.

Attached to the memo-

randum was a draft of letter that would request the Federal Reserve Banks
to submit the proposed quarterly reports.
As to the second classification of information, namely, developing trends in aggregate bank borrowing behavior, the memorandum proposed

that the Board's staff, drawing upon present Form FR 527 reports made by
the Reserve Banks, prepare tables relating to (1) all member banks (2)
reserve city member banks, and (3) country member banks, summarizing for

6/28/65

-6-

four-week periods statistics as to borrowings and numbers and classes
of banks in debt to the Reserve Banks.

The tables would be supplemented

Periodically by textual commentaries, the scope of which was specified
in the memorandum.

The procedure would be experimental and was recom-

mended for a trial period.

Examples of the tables, containing hypothetical

data, were attached to the memorandum.
After introductory comments by Mr. Solomon, the discussion centered
on the proposed monthly statistical analysis.

Although this would be in

an experimental stage for some time, if it proved sufficiently informative
the thought was that it might eventually supplant the present reports
(L.5.3 and L.5.4) prepared by the Division of Bank Operations from the
Reserve Bank submissions on Form FR 527.
Governor Mitchell observed, however, that the proposed statistical
tables apparently would not serve the same purpose as the listings prepared by Bank Operations from Form FR 527a, which listings contained bank
names and were available promptly and at frequent intervals.

In his

View these listings of continuous borrowers should continue to be available to the members of the Board.
It was indicated that such listings (weekly for reserve city
banks and quarterly for other banks) would be continued.

The reports

Prepared from Form FR 527 also would be continued, at least for the time
being.
It was hoped, however, that much of the basic data for the proPosed monthly statistical analysis could eventually be obtained from the

As
e

6/28/65

-7-

Reserve Banks on punch cards, with computer processing on the Board's
equipment.

If so, the task of processing the data now prepared by Bank

Operations from Form FR 527 would be expected to shift from that Division
to the Division of Data Processing in cooperation with the Division of
Research and Statistics.
During further discussion Governor Mitchell suggested certain
changes, which proved acceptable to the other members of the Board, in
the draft of letter to the Federal Reserve Banks concerning the proposed
quarterly reports.

The letter was thereupon approved unanimously in the

form attached as Item No. 5.

The Board also approved the preparation

of the proposed monthly statistical analysis on an experimental basis.
Foreign travel by Mr. Nettles.

Governor Shepardson stated that

First Vice President Treiber of the Federal Reserve Bank of New York
had requested that Mr. Nettles, Economist in the Board's Division of
International Finance, accompany Mr. Treiber to a meeting in Mexico City
of a working group appointed by the recent meeting of central bank governors at Punta del Este to study proposals for establishing a Latin
American reserve pool.

The meeting, expected to last for approximately

one week, was to be held early in July 1965.
In accordance with Governor

Shepardson's recommendation, the

Board approved Mr. Nettles' travel and authorized payment of his actual
expenses for purposes of the trip.
The meeting then adjourned.

6/28/65

-8Secretary's Note: Governor Shepardson today
approved on behalf of the Board memoranda
recommending the following actions relating
to the Board's staff:

Appointment
Marguerite T. Hudgins as Research Assistant, Division of Research
and Statistics, with basic annual salary at the rate of $6,050, effective the date of entrance upon duty. (It was understood that Miss
Hudgins would work on a half-time basis through August 28, 1965, with
salary at the rate of $3,025 per annum, and that beginning August 29
she would work on a regular full-time basis.)
§.21.a_EY increases, effective July 4, 1965

Division

Name and title

Basic annual salary
From
To

Research and Statistics
$ 9,240
9,830
19,310
10,250
10,960

$ 9,535
10,125
19,880
10,605
11,315

10,605

10,960

7,220

7,465

4,410
Eugene E. Bishop, Guard
5,283
Willard D. Creasey, Chauffeur
Carl S. Hackney, Messenger
3,385
John H. McDonald, Guard
4,140
John I. Mitchell, Laborer3,500
5,283
Carlton C. Poling, Chauffeur
5,660
Aubrey L. Simmons, Sergeant, Guard Force
5,825
Herman Lee Tobler, Sergeant, Guard Force
5,782
R. A. Windsor, Assistant Supervisor, Motor
Transport Unit

4,545
5,554
3,500
4,275
3,615
5,554
5,825

James D. Goetzinger, Economist
A. Jane Moore, Economist
Tynan Smith, Senior Economist
William Paul Smith, Economist
Alfred J. Tella, Economist
International Finance
David G. Hayes, Economist
Bank Operations
Daniel E. Lucas, Analyst
Administrative Services

Secretary

6
5,9
0 0
4

BOARD OF GOVERNORS

Item No.
6/28/65

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

June 28, 1965.

Continental International
Finance Corporation,
231 South LaSalle Street,
Chicago 90, Illinois.
Gentlemen:
Reference is made to your letter dated June 11, 1965,
addressed to Mx. Leland Ross, Vice President of the Federal Reserve
Bank of Chicago, enclosing a copy of a Consent signed under date of
June 14, 1965, on behalf of Continental Illinois National Bank and
Trust Company of Chicago, sole shareholder of your Corporation,
consenting to the amendment of the Articles of Association of your
Corporation to increase the capital stock to $8,000,000 consisting
of 80,000 shares of the par value of $100 each.
In accordance with the request, and pursuant to the provisions of Section 211.3(a) of Regulation K, as revised effective
September 1, 1963, the Board of Governors approves the amendment to
Article SEVENTH of your Articles of Association.
It is noted that your present capital structure will be
increased by the purchase of 30,000 shares at a price of $200 per
Share by Continental Illinois National Bank and Trust Company of
Chicago. Please advise the Board of Governors when the capital
increase has been effected.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS

Item No. 2
6/28/65

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS

OFFICIAL

CORRESPONDENCE

TO THE !WARD

June 28, 1965.

First Chicago International
Finance Corporation,
38 South Dearborn Street,
Chicago 90, Illinois.

In accordance with the request and on the basis of the
information furnished in your letter addressed to Mk. Leland Ross,
Vice President of the Federal Reserve Bank of Chicago, the Board
of Governors grants its consent to the purchase by your Corporation
of 100 shares, par value El each, of First Chicago Nominees Limited,
London, England, at a cost of approximately US$300.
It is understood that the nominee corporation is to be
organized and maintained solely for the purpose of acting as nominee
for the London branch of The First National Bank of Chicago; is to
hold in its name equities purchased on the London market on behalf
of customers of that Bank; and, that all shares of the nominee corporation are to be owned by your Corporation, except one share to
be held upon trust by the Vice President in charge of the London
branch as British law requires at least two registered shareholders.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS

Item No.
6/28/65

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS arrtcrAt. CORRESPONDENCE
TO THE 'BOARD

June 28, 1965
Mr. Karl R. Bopp, Chairman,
Conference of Presidents,
Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania. 19101
Dear Mr. Bopp:
During the discussion by the Board on Directives to the
Staff regarding examination and supervision of the Federal Reserve
Banks, copies of which were forwarded to the Banks under date of
May 26, 1965, reference was made to System purchasing procedures and
the possibility of reducing expenses through arrangements for the
centralized or coordinated purchasing or leasing of equipment, services
or supplies.
The Board believes that it would be worth while for an
appropriate committee of the Conference of Presidents to make a study
and report on this matter. In addition to such other findings and
conclusions as might grow out of the study, the Board would be
particularly interested in-(1) A. summarization of views with respect to the
possibilities, and advantages and disadvantages of
a System-wide program for centralized or coordinated
purchasing.
The extent to which possibilities for such
arrangements are now the subject of attention. by
Conference committees.
The extent to which purchases at the individual
Banks are being made on the basis of competitive bids.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.

*,*-&•11
i

BOARD OF GOVERNORS

Item No. 4
6/28/65

OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

June 28, 1965.
Arnold, Fortas & Porter,
1229 Nineteenth Street, N. W.,
Washington, D. C.
20036
Dear Sirs:
This refers to your letter of June 9, 1965, with respect to
the Proposed Plan of Divestiture of First Security National
Bank and
Trust Company of Lexington, Kentucky. The Board has reviewed
the Plan,
particularly the provisions dealing with the proposed organization
of
a new State bank. On the basis of the Plan as submitted, and
the
Board's favorable findings as to the probable successful operati
ons of
the proposed State bank, the Board will admit the new bank to members
hip
in the Federal Reserve System, if and when the bank receives a
State
charter, provided the organizers accept the usual conditions of member
ship as set forth in section 208.7 of Regulation H, copy of which
is
enclosed.
It is noted that shares of stock of the proposed new State
bank are to be issued to a designated corporate trustee to be held by
it until directed by the District court to be distributed to the proper
shareholders. If the State bank becomes a member of the Federal Reserv
e
System, the corporate trustee will thereby become a holding company
affiliate within the definition of that term as contained in 12 U.S.C.
221a and may not vote such stock without a voting permit from the Board
or a determination by the Board that the corporate trustee is not
engaged as a business in holding the stock of banks. In any event the
corporate trustee must, within 90 days from the date of acquisition of
the stock of the member State bank, file an agreement on the Board's
Form P-5 that such corporation shall be subject to the conditions and
limitations applicable to holding company affiliates of national banks.
A copy of Regulation P, dealing with this subject, is also enclosed for
your information.
Very truly yours,
(Signed) .Merritt Sherman

Enclosures.

Merritt Sherman.,
Secretary.

cc: Asst. Attorney General in Charge
of Antitrust Division, Dept. of Justice.

Item No. 5
6/28/65
S-1961

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRICBB OFFICIAL CORRICEPONDIENCE
TO THE BOARD

June 29, 1965.

Dear Sir:
During the meeting of the Reserve Bank discount officers held
in the Board's building on June 7 and 8, 1965, reference was made to the
Board's directives to its staff (copy forwarded to you with letter dated
May 26, 1965), which included the following statement among the responsibilities listed for the Division of Examiniations:
"Between annual examinations the Division should review,
and bring to the attention of the Board, as appropriate,
information regarding conformance of Reserve Bank lending to
the principles of Regulation A."
As was pointed out to those present at the meeting, the Board
has been relying mainly on the annual examinations of the Reserve Banks
to develop information on member bank borrowing situations of special
interest, but because of the rather long intervals at times occurring
between examination dates, the Board would like to have a supplemental
means of bringing more frequently to its attention information on the
nature of and reasons for cases of repetitive or unusual borrowings of
individual member banks. (The reports (FR 527) submitted by the
Reserve Banks for each reserve computation period do not provide this
explanatory detail.)
The Board does not wish to bring about any general tightening
of discount standards or to encroach upon the Reserve Bank's primary
responsibility in the extension of credit; rather the purpose is to
establish a means of obtaining more timely information concerning
individual borrowing cases of a special nature and to assist in assuring uniform application of Regulation A.
The purpose of this letter is to request that, commencing for
the quarter-year ended June 30, 1965, and continuing for each quarter
thereafter, until further notice, you forward to the Board within ten
days after the end of the quarter a report on the discount function that
would include the following information:

S-1961
-2-

cases of repetitive or
(1) A listing and review of
preceding three months,
unusual borrowings during the
including:
nt to provide proper
(a) Historical data sufficie
listed banks.
the
to
perspective pertaining
of named banks are
(b) Reasons why borrowings
ual, with supporting
unus
frequent, continuous, or
factual detail.
ons taken or contemplated
(c) Any administrative acti
ect of each situation.
by the Reserve Bank in resp
(2)

ds in member bank borrowings.
Current developments or tren

or trends, including possible
(3) Anticipated developments
for credit.
new or emergency requests
(4)

idered pertinent.
Any other information cons

red, as outlined above, should be con.
The information to be cove
to modification after there has been an
Sidered experimental and subject
ulness. It also may be necessary at times
oPportunity to appraise its usef
e or correspondence.
to seek additional information by telephon
from time to time on the subject
Any suggestions you may have
Will be welcome.
Very truly yours,
JAAAA/\ 6

Merritt Sher an,
Secretary.

RESERVE BANKS.
TO THE PRESIDENTS OF ALL FEDERAL