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Minutes for
To:
Members of the Board
From:
Office of the Secretary
June 29, 1961
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 the entries covering the items in this set of
minutes commencing on the pages and dealing with the subjects
referred to below:
Page
6
Amendments to Regulations T and Ti
defining arbitrage
Page
9
Amendments to Regulations T and U
relating to transfer of margin
accounts
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
e System
Minutes of the Board of Governors of the Federal Reserv
ml Thursday, June 29, 1961.
PRESENT:
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 9:00 a.m.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Solomon, Director, Division of Examinations
Masters, Associate Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Hostrup, Assistant Director, Division of
Examinations
Mr. Benner, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Landry, Assistant to the Secretary
Mr. Thompson, Supervisory Review Examiner,
Division of Examinations
Miss Hart, Assistant Counsel
Mr. Potter, Legal Assistant
Mr.
Mr.
Mr.
Mr.
Mr.
Items circulated or distributed to the Board.
The following
the Board and copies
Items, which had been circulated or distributed to
s
clf which are attached to these minutes under the respective item number
Indicated, were approved unanimously:
Item No.
Letter to Depositors Trust Company, Augusta, Maine,
410Proving the establishment of a branch at 21 Benton
Avenue, Winslow.
1
utter to County Bank and Trust Company of Somerset,
idound Brook, New Jersey, approving the establishment
°11 a branch at 223 East Main Street in connection
th the removal of its head office from that address
'Jo 432 West Union Avenue.
2
n
6/29/61
-2Item No.
Letter to Union Trust Company Baltimore, Maryland,
,!1?Proving the establishment of a branch at Milford
111 Road and Liberty Road, Baltimore County.
'
3
Letter to The First National Bank of Bel Air, Bel
Maryland, approving its application for
'
1duciary powers.
14-
Letter to the Comptroller of the Currency recomencling favorably with respect to an application
'
4) organize a national bank at Elkridge, Maryland.
5
/l ter to Bank of Powhatan, Incorporated, Powhatan,
1l1!ginia, granting permission to merge with Cumber44d County Bank, Cumberland, Virginia, and to
°Perate the present office of the latter as a branch.
6
T
,.!tter to Miami National Bank, Miami, Florida, denying
two applications for fiduciary powers.
7
lietter to the Comptroller of the Currency recommending
avorably with respect to an application to organize
!
1
1 national bank at Slidell, Louisiana, provided satisactorY arrangements are made for executive management.
8
Letter to The Citizens State Bank, Hartford City,
Tadi
_ ana, approving the establishment of a branch at
1,
South Jefferson Street.
9
L
aetter to St. Joseph Valley Bank, Elkhart, Indiana,
;
1 r°ving the establishment of a branch at Nappanee
,t
—ILL West Indiana Streets.
10
Letter to Adrian State Savings Bank, Adrian, Michigan,
°ving the establishment of a branch near the
1!
)
,P1
'
,4k-e
rsection of Greenly and West Maumee Streets.
11
Letter to
Guaranty Bond State Bank, Mount Pleasant,
e4as, approving an investment in bank premises.
12
Tdetter to Greenfield State Bank, Bakersfield,
i!llfornia, approving the establishment of a branch
g the vicinity of the intersection of Oak Street
8.1'a Brundage Lane.
13
'
411 11 Trust Company of Maryland.
6/29/61
-3Item No.
Letter to United California Bank, Los Angeles,
California, approving an extension of time to
establish a branch at 10800 Van Ness Avenue,
San Francisco.
14
Letter to United California Bank, Los Angeles,
Ellifornia, approving the establishment of a branch
11.t Duncan and North Main Streets, Walnut Creek.
15
In connection with Item No. 7, a letter to Miami National Bank,
Miami) Florida, denying its two applications for fiduciary powers,
cillestion was raised whether it would be advisable to inform the Federal
Reserve Bank of Atlanta that the Board was proposing to take such action
144emuch as the Reserve Bank had recommended approval of one of the
843Plications, which was for a specific fiduciary power.
The reply was
tO the
effect that this would not appear necessary because the staff
11401 been in touch with the Reserve Bank on this question and the latter
riePortedly was now satisfied with the staff view on this particular
4131aication.
It appeared that if the Reserve Bank had had the benefit
of certain information subsequently developed, it might have recommended
clifrerently when it transmitted the application.
With respect to Item No. 15, a letter to United California Bank,
Lo.Q A
,ingeles, California, approving the establishment of a branch in
1441nUt Creek, Governor Mills noted that although he would favor approval
14 h18
instance, he was concerned that the application might be a forener of others by the same bank to establish branches to compete with
'`Irices of First Western Bank and Trust Company.
This would seem to go
-4-
6/29/61
counter to the concept underlying the arrangement whereby the present
Pirst Western Bank was formed.
It was indicated in reply that the
Division of Examinations was watching developments in this regard
Closely.
In this instance, although First Western was operating a
branch fairly close to the site of the proposed branch of United
California Bank, there were also in operation in the same general area
branches of Bank of America National Trust and Savings Association,
Crocker-Anglo National Bank, and Wells Fargo Bank American Trust Company.
Fram this it would appear that United California Bank was attempting to
ng
b"4.4tain its position relative to its major competitors by establishi
a branch in a community where it was not now represented.
With respect
to future branch applications by United California Bank in areas where
there were branches of First Western Bank and Trust Company, if the
e°mPetitive situation was similar to that found in the Walnut Creek area
it might again be difficult to say that the thrust of competition was
64rected more towards First Western than any of the other banks operating
in such
areas.
Study of branch banking in California.
In response to a question,
of branch banking
Solomon reported on the current status of the study
14 California that the staff had been requested to undertake at the
at
leeting on March 10, 1961, and to which reference had been made
elieral subsequent meetings.
64a
A quantity of data had now been compiled
Put into tabular form, but there remained the task of summarizing
cl=e) 11)
6/29/61
the data and analyzing the tables.
The available information seemed to
Show that an overbanked situation had not developed in the State during
the past decade so far as the total number of banking offices was
concerned.
However, there was evidence of an increase in the relative
ilzPortance of certain large branch banks, aside from Bank of America,
l'hich appeared to have just about maintained its relative position in
terms of total deposits and banking offices in the State.
The independent
banks had not grown in an absolute sense with respect to number of offices
or volume of deposits, whereas six large branch banking systems in
California, other than Bank of America, had grown more than proportionately.
Governor Robertson expressed the view that it would be advisable,
/then the staff had completed its study, to arrange a joint meeting with
the Comptroller of the Currency, the Federal Deposit Insurance CorpoI lltion, and the California State banking authorities in an effort to
'
lie4ch agreement on a supervisory policy that might be followed in
he•nclling branch applications over the next few years.
In this connection, reference was made to a somewhat similar
stlIclY being conducted by the Federal Reserve Bank of San Francisco and
to another study said to have been undertaken by the California State
bahl,
--clang authorities.
Application of Marine Corporation
(Items 16, 17
and 18).
There
hell been distributed with a transmittal memorandum from the Legal Division
4ted June 27, 1961, a draft of proposed order and statement denying the
,I73 d)
okeeips—.
6/2,/61
-6-
ePPlication of The Marine Corporation, Milwaukee, Wisconsin, to acquire
80 per cent or more of the voting shares of Wisconsin State Bank,
Milwaukee.
Also attached to the memorandum was a dissenting statement
bY Governor Mills, in which it would be stated that Governor King joined.
These documents had been prepared pursuant to the discussion of the
4PPlication at the Board meetings on June 1 and 5, 1961, and in light
'the views expressed at such time.
°I
After discussion, the issuance of the order and statement was
ellProved, it being understood that Governors Mills and King dissented
fl'cvl the decision reflected therein.
Copies of the order, majority state-
end, dissenting statement are attached hereto as Items 16, 17, and 18,
Isespectively.
Messrs. Masters, Hostrup, Benner, Hooff, and Thompson withdrew
r1*(Yal the meeting at this point and Mr. Brill, Associate Adviser, Division
or Research and Statistics, entered the room.
Amendments to Regulations T and U defining arbitrage
On\
(Items 19
In its present form Regulation U, Loans By Banks for the Purpose
or Th._
4- urchasing or Carrying Registered Stocks, exempted from margin
liecillirements loans to members of a national securities exchange for the
1311rPose of financing "bona fide arbitrage transactions," but without
cleritling the term "arbitrage".
Regulation T, Credit by Brokers, Dealers,
411i Members of National Securities Exchanges, contained a similar
eetaPtion for all arbitrage loans and defined arbitrage to include
6/29/61
-7-
a purchase of a security...convertible within a reasonable time into
a second security, together with an offsetting sale...of such second
security."
Following discussion at the meeting on March 25, 1960, the
13ard published in the Federal Register proposed amendments to Regulations
T ana U defining arbitrage transactions.
The proposed amendments would
stthstitute "90 calendar days" for the phrase "a reasonable time" in
Regulation T, and would insert the amended definition in Regulation U.
Under date of March 29, 1961, there had been distributed copies
a memorandum from the Legal Division to which were attached copies
(t the amendments as they would appear if adopted in final form.
This
1/lemorandum summarized the history that gave rise to the proposed amendand discussed the comments that had been received thereon following
1)11b1ication in the Federal Register.
In this discussion it was noted
that the pertinent provisions of the Board's regulations were concerned
/.tith the extension of credit for the purpose of effecting arbitrage
--Isactions, and not primarily with arbitrage as such.
The regulations
recognized that in certain circumstances arbitrage transactions could
44ve a beneficial effect in helping to maintain an orderly market in
securities, it was for this reason that the Board had exempted certain
8.rbitrage transactions from the ordinary margin requirements.
However,
atlY decision as to the scope of the exemption covering arbitrage transctetimls must turn on considerations relating to the desirability of
_
t.rt1,z1-11ar extensions of credit, rather than on the definition of
szbitrage".
The following four questions were then taken up in order:
i-t$N 4 4f,
-3Should any time limit be imposed?
If so, is the 90-day limit too short?
Should a sliding scale of margin requirements, based on
the time during which the credit would remain outstanding,
be adopted?
Should provision be made for granting exceptions in unusual
circumstances?
The discussion of these questions indicated that the 90-day period had
been selected because the normal period to conversion was believed to
be
6o days or less and the added month would seem to allow sufficient
leeway for most unusual situations.
Although several firms that
specialized in arbitrage stated that their experience led them to believe
longer period was necessary, one argument against extending the time
re.s that arbitrage loans might be used to finance so-called "hedge"
Positions.
Neither the New York Reserve Bank nor the Board's staff felt
that a "hedge" transaction was properly financed by exempt arbitrage
In commenting on the matter, Miss Hart referred in the course
her remarks to a suggestion by The First National City Bank of New
t°rk that a provision be added to the amendments permitting extension
of exempted arbitrage credit for a period beyond 90 days where the
seellrities were purchased from a bank or other institutional lender
1411ch in turn had obtained them in connection with a "debt previously
contracted.,,
The New York Reserve Bank had expressed the view that such
4 Provision would be helpful to banks in liquidating holdings of stock
4equired under such circumstances.
The suggestion was apparently designed
r
6/29/61
-9-
to cover the possibility that situations might arise in the future similar
to the Studebaker-Packard Corporation case, where certain preferred stock
vas not convertible into common until after a considerable period and
some of the stock was held by institutional lenders in connection with
debts previously contracted •
It was the view of the Legal Division,
however, that the two factors noted by First National City Bank were not
be
likely to be found together in many instances, and that it would
dirp.
.a.cult to justify including such a specialized exception in a regulation
Ot
general application.
After discussion, the proposed amendments to Regulations T and U
ing
defining "arbitrage" were approved unanimously, with the understand
that the amendments would become effective approximately thirty days
e'rter publication in the Federal Register.
T —
The amendments to Regulations
U were subsequently published in the form indicated in the attached
IteMs 19 and 20, respectively.
Secretary's Note: Pursuant to the action taken
by the Board, the amendments were made effective
August 7, 1961.
Amendments to Regulations T and U regarding transfer of margin
.2.S.29ts
(Items 19 and 20).
Pursuant to discussion at the meeting on
11 18, 1960, the Board published in the Federal Register proposed
'
41
ellierldraents to Regulations T and U concerning the transfer of margin
Ileconnts, these amendments having been suggested in connection with
)
co,
'asideration of an inquiry from an attorney for an estate which included
11,04 -
6/29/61
-10-
tlg0 margin accounts.
Under the terms of the final accounting and the
Probate proceedings for the estate in question, the securities in each
account were to be distributed pro rata to four beneficiaries, each
beneficiary assuming a pro rata share of the debit balances in the
accounts.
The brokers holding the accounts had taken the position that
outstanding interpretations by the Board appeared to forbid splitting
1413 a restricted (undermargined) account.
In a letter dated April 19,
1960, the Board reversed its apparent position and advised the inquirer
that the transfer in question could be made under Regulation T.
At the
aaMe time it was decided to publish proposed amendments to Regulations
T and U in order to close a loophole which might permit undermargined
accounts to be transferred in such a way that investors could voluntarily
enter the market with a margin lower than that required in the current
aUPPlement to those regulations.
For reasons stated in a memorandum from the Legal Division dated
allae 19, 1961, copies of which had been distributed to the Board, it was
liecommended that the Board adopt amendments to Regulations T and U in
reVised form reflecting consideration of certain comments received
r°11°wing publication of the originally proposed amendments in the
l'e(leral Register.
Since the recommended changes would be in the
41rection of relaxation, in comparison with the original proposals,
the Legal Division believed it was not necessary to publish the revised
14'oPosa13 for comment before adoption.
6/29/61
-11After discussion, the recommended amendments to Regulations T
and U relating to transfer of margin accounts were approved unanimously,
with the understanding that the amendments would become effective
aPProximately thirty days after publication in the Federal Register.
The amendments were subsequently published in the form indicated in the
attached Items 19 and 20, respectively.
Secretary's Note: Pursuant to the action
taken by the Board, the amendments were
made effective August 7, 1961.
Request of Montana Shares, Incorporated (Items 21 and 22).
On
November 2, 1960, Montana Shares, Incorporated, Havre, Montana, a
registered bank holding company, filed with the Board a request for a
determination under section 4(c)(6) of the Bank Holding Company Act
that the activities of two proposed subsidiaries, Liberty Corporation
and Montana Agencies, both to be incorporated under the laws of the
State of Montana, would be of a kind that would make inapplicable the
Provisions of section 4(a)(2) of the Act prohibiting the retention by
a bank holding company of any voting shares of a nonbanking organization.
114der date of June 26, 1961, copies had been distributed of
*olm the
a memorandum
Legal Division relating to this request.
As recited in the memorandum, Montana Shares proposed to acquire
111°1'e than 51 per cent of the stock to be issued by Montana Agencies and
t° acquire 811 the stock to be issued by Liberty.
Montana Agencies would
then conduct various insurance activities now carried on by insurance
. /61
6/29
-12-
agencies currently being operated in connection with four of Montana
Shares
six subsidiary banks, and Liberty would awn a one-fourth
Partnership interest in an agency (Liberty Insurance Agency) operated
in connection with a fifth bank.
The agency operated in connection
vith applicant's sixth subsidiary bank was wholly owned by others than
aPPlicant, was not operated on bl3nk premises, and for this reason,
aPParentay, was not included in the application.
A hearing on the request was held in January 1961 at the Federal
Reserve Bsnk of Minneapolis, and on March 24, 1961, the hearing examiner
tiled his report and recommended decision wherein he recommended that
the Board grant the request in entirety.
The view was expressed in the
alelnorandum from the Legal Division that the activities of Liberty
(except for the proposed ownership of
a house for the related bank's
ctricers) pnli the activities of Montana Agencies would meet the tests
established by the Board in previous section
4(c)(6) cases and would
clualifY for favorable determination. The housing activity of Liberty
14sUrance Agency, in which Liberty Corporation would acquire a
°Iie'fourth interest, presented the only unusual feature of the applic4tion.
Following discussion of this question at some length, the
illetaorandum recommended that the Board authorize the issuance of an
°I'cler and statement, along the lines of drafts submitted with the memogranting the determinations requested by Montana Shares,
IllcorPorated, on condition, in the one case, that Liberty Corporation
i 1341taeociate itself from ownership or operation of rental housing.
'
6/29/61
-13After discussion, the issuance of the proposed order and state-
Meat was authorized by unanimous vote.
Copies of the order and statement,
as issued, are attached hereto as Items 21 and 22.
Miss Hart and Mr. Brill then withdrew from the meeting.
Letter from Citizens Commercial & Savings Bank.
With reference
to the action taken by the Board on June 19, 1961, denying the application
ct Citizens Commercial & Savings Bank, Flint, Michigan, to consolidate
with The Old Corunna State Bank, Corunna, Michigan, Mr. Solomon noted
that there had been left with him by representatives of the applicant
barlk
a letter addressed to the Board under date of June 27, 1961, which
in effect indicated that the bank expected to submit additional material
arld to request an opportunity to appear before the Board.
No reply to
the letter was expected, its purpose having been simply to inform the
bank.
8°ard of the procedure contemplated by the applicant
Presidents' Conference.
At the instance of Governor Shepardson,
there was a discussion relating to the status of those items included
Presidents'
oti the agenda of the joint meeting of the Board and the
e°nference on June 20, 1961, which called for further consideration on
the Part of the Board.
A general view was expressed that an effort
h°111d be mnlie to bring before the Board as promptly as possible all
Ileh items discussed at meetings with the Presidents
Conference.
In
thls connection, Mr. Sherman pointed out that in some instances a delay
1.18
to be done
involved by reason of the fact that further work remained
6/29/61
-14-
before the items could be presented to the Board for consideration.
I3Y way of illustration, he noted that one of the items discussed at
the June 20 meeting involved amendments to the uniform paragraphs of
the circulars of the Reserve Banks relating to the collection of noneash items and that the proposed revised wording had not yet been
received by the Board's staff.
With reference to the retail trade statistics program, Mr.
Sherman noted that one of the items reported by the Presidents'
Conference at the joint meeting as a matter of information involved
°4 expression of agreement by a majority of the Presidents with a
Pr°Posal of the Conunittee of Five which envisaged the appointment of
all ad hoc subcommittee to study the feasibility of a new national
ri8Partmental sales series for department stores, including chain stores,
48 a step looking toward improvement in the quality of department
store data.
The four Presidents who voted in the negative were under-
stood to have been apprehensive about the program on the ground that
it were undertaken without a prior understanding concerning a transfer
to the Census Bureau at some point of responsibility for the collection
statistics in this area, the likelihood of the Federal Reserve
e°ntinuing indefinitely in the department store field would be enhanced.
It was contemplated that the ad hoc subcommittee would be selected by
the System Research Advisory Committee, and no action on the part of the
13°41'd was required at this time.
1
6/29/61
-15The discussion with respect to joint meetings of the Board and
the Presidents' Conference, and the disposition of items considered at
8116h meetings, also included comments regarding the possibility of
Ircsrking out revised procedures that would facilitate discussion of the
ltems listed on the agenda for such meetings.
The meeting then adjourned.
Secretary's Notes: Pursuant to recommendations contained in memoranda from appropriate
Individuals concerned, Governor Shepardson
today approved on behalf of the Board the
following actions relating to the Board's staff:
%ointment
0_
Albert A. Portnoy as Supervisor-Inspector, Division of Administrative
rrvices, with basic annual salary at the rate of $4,345, effective the
44te of entrance upon duty.
8418-17 increase with change in title
t
Beatrice Hunter, from $7,425 to $7,820 per annum, with change in
o!tle from Assistant Chief, Records Section, to Chief, Records Section,
rice of the Secretary, effective July 1, 1961.
'
Ileee tance of resignations
Doris J. Hodge, Secretary, Division of Bank Operations, effective
the close of business July 7, 1961.
e
Charles V. Carey, Messenger, Division of Administrative Services,
rfective at the close of business June 27, 1961.
ide business activity
Eleanor Stockwell Frase, Economist, Division of Research and
Etistics, to review manuscript on Federal credit aids to small business
°11 the Commission on Money and Credit on her own time.
st
6/29/61
-16Governor Shepardson today noted on behalf
of the Board that application for retirement had been filed by E. Betz Poeppell
Chief, Records Section, Office of the
Secretary, effective at the close of
business June 30, 1961.
BOARD OF GOVERNORS
OF THE
O W 401'44
FEDERAL RESERVE SYSTEM
:* I
!!
WASHINGTON 25, D. C.
Item No. 1
6/29/61
4
4#
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
A?0
4
:i1.4
*4
;
114. WOW
kit,44*''
June 29, 1961
Board of Directors,
Depositors Trust Company,
Augusta, Maine. Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Boston, the Board of Governors
of the Federal Reserve System approves the establishment
of a branch at 21 Benton Avenue, Winslow, Kennebec County,
Maine, by Depositors Trust Company, provided the branch
is established within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 2
6/29/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 29, 1961
Board of Directors,
County Bank and Trust Company
of Somerset,
Bound Brook, New Jersey.
Gentlemen:
Pursuant to your request Submitted through the
Federal Reserve Bank of New York, the Board of Governors
Of the Federal Reserve System approves the establishment
of an in-town branch by County Bank and Trust Company of
Somerset, Bound Brook, New Jersey, at 223 East Main $treet
in connection with the removal of its head office from that
address to its branch office located at 432 Wrest Union
Avenue, Bound Brook, New Jersey.
Very truly yours,
(signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
*
*
Item No. 3
6/29/61
WASHINGTON 25, O. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 29, 1961
Board of Directors, ,
Union Trust Company,"
Baltimore, Maryland.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Richmond, the Board of Governors
of the Federal Reserve System approves the establishment
by Union Trust Company, Baltimore, Maryland, of a branch
in the shopping center situated on the northwest corner
of the intersection of Milford Mill Road and Liberty
Road, Baltimore County, Maryland, provided the branch is
established within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
* 3hould have rend Union frust Company of Maryland.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
4
6/29/61
WASHINGTON 25, D. C.
ADDRESS
orric;AL
CORRESPONDENCE
TO THE BOARD
June 29, 1961
Board of Directors,
The First National Bank of Bel Air
Bel Air, Maryland.
Gentlemen:
The Board of Governors of the Federal Reserve
System has given consideration to your application for
fiduciary powers and grants The First National Bank of
Bel Air authority to act, when not in contravention of
State or local law, as trustee and registrar of bonds or
other similar obligations of Harford County, Maryland,
Harford County Metropolitan Commission and the Town of
Bel Air, Bel Air, Harford County, Maryland. The exercise
of such rights shall be subject to the provisions of
Section 11(k) of the Federal Reserve Act and Regulation F
of the Board of Governors of the Federal Reserve System.
A certificate covering such authorization is
enclosed.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
Enclosure
1-1.1)1 f
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
5
6/29/61
WASHINGTON 25. D. C.
AODRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 29, 1961
Comptroller of the Currency,
Treasury Department,
Washington 25, D. C.
Attention Mr. W. M. Taylor,
Deputy Comptroller of the Currency.
Dear Mr. Comptroller:
Reference is made to a letter from your office dated
1961, enclosing copies of an application to
10,
February
bank at Elkridge, Maryland, and requesting
national
a
organize
a recommendation as to whether or not the application should
be approved.
A report of investigation of the application made
by an examiner for the Federal Reserve Bank of Richmond indicates generally favorAble findings with respect to each of
the factors usually considered in applications of this nature.
Accordingly, the Board of Governors recommends favorable
consideration of the proposal.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
6
6/29/61
WASHINGTON 25, D. C.
1
04
4
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
unt.,
4iiO4.***
June 292 1961
Board of Directors,
Bank of Powhatan, Incorporated,
Powhatan, Virginia.
Gentlemen:
The Board of Governors of the Federal Reserve System,
after consideration of all factors set forth in section 18(c)
of the Federal Deposit Insurance Act, finds the transaction to
be in the public interest and grants its consent to the merger
of Cumberland County Bank, Cumberland, Virginia, into Bank of
Powhatan, Incorporated, Powhatan, Virginia. The Board of
Governors also approves the operation of a branch by Bank of
Powhatan at the present office of Cumberland County Bank,
Cumberland, Virginia.
This approval is given provided (1) the transaction
is effected substantially in accordance with the "PLAN OF MERGER
of CUMBERLAND COUNTY BANK, Cumberland, Virginia, With and Into
BANK OF POWHATAN, Powhatan, Virginian certified copies of which
were submitted with the application as adopted by the stockholders
of each of constituent banks and the transaction is consummated
within 6 months from the date of this letter, and (2) that shares
of stock acquired from dissenting stockholders are disposed of
Within 6 months from date of acquisition.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
92
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 7
6/29/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 29, 1961
Board of Directors,
Miami. National Bank,
Florida.
Gentlemen:
Two applications for trust powers of the Miami National
Bank have been transmitted to the Board of Governors by the Federal
Reserve Bank of Atlanta. One of these applications is for full trust
Powers and the other for specific authority to act as trustee to
process, sell, and service for the general public trust certificates
representing fractional interests in mortgages insured under the
National Housing Act and the regulations of the Federal Housing
Administration.
Careful consideration has been given to both applications.
Among the matters receiving the close attention of the Board in the
consideration of applications for trust powers are the special factors enumerated in Section 2 of the Board's Regulation F ("Trust
Powers of National Bank"). Included in these is a factor relating
to the general character and ability of the management of the bank.
Ifl this connection, the Board has been informed that during the short
tlife (since 1956) of the Miami National Bank, the ownership of the
bank has changed three times. These changes have brought in their
wake a considerable turnover in management personnel. The Board
understands that a fourth sale of the bank is now in process of
negotiation which, if successfully concluded, could possibly cause
further change in the executive organization of the bank. It is
the Board's view that there should be a stable period of ownership
!
rid management intervening before the bank assumes further serious
responsibilities. Accordingly, the Board denies the application
or full trust powers.
As to the application for the specific fiduciary authority,
the
Board is of the opinion that acting as trustee under a plan prototed by your
bank for the purpose of selling beneficial interests
44 mortgages does not envisage a normal fiduciary undertaking but
rather an investment banking activity performed under trust guise.
this particular
Objectionable features that appear to be implicit in
self-dealing,
include
Board,
Proposed activity, as presented to the
es sold.
certificat
all
of
guarantee
sales to the public, and virtual
an
would
constitute
Such an arrangement, in the Board's opinion,
the
denies
appliBoard
the
unsound banking practice. Accordingly,
cation for specific authority to act as trustee in connection with
the sale to the public of certificates representing fractional
Interests in mortgages.
Very tray yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
11-1,4!041 A
BOARD OF GOVERNORS
OF THE
Item No. 8
FEDERAL RESERVE SYSTEM 6
/29/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 29, 1961
Comptroller of the Currency,
Treasury Department,
Washington 25, D. C.
Attention:
Mr. W. M. Taylor,
Deputy Comptroller of the Currency.
Dear Mr. Comptroller:
Reference is made to a letter received from your office
dated January 24, 1961, enclosing copies of an application to organize a national bank at Slidell, Louisiana, and requesting a
recommendation as to whether or not the application should be approved.
A report of investigation of the application made by an
gificer of the New Orleans Branch of the Federal Reserve Bank of
tianta indicates that the proposed capital structure of'the bank,
its future earnings prospects, and the convenience and needs of
the chief executl?e community to be served are favorable.
proposed board
the
tive officer of the bank has not been selected,
Of
and
businessmen
directors is composed of successful local
banking
experience,
previous
2
1 r. Robert M. Walmsley III, who has had
ofexecutive
qualified
agreed to serve until such time as a
recommends
Governors
of
9cer is employed. Accordingly, the Board
r
,avorable consideration of the application provided arrangements
or executive management of the bank are made which would be satisfactory to your office.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS
Item No.
9
6/29/63.
°maw. COARCIIP0
TO THE 1110AMO
June 29) 1961
Board of Directors,
The Citizens State Bank,
Hartford City, Indiana.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Dank of Chicago, the Board of Governors
of the Federal Reserve System approves the establishment
Of a branch at 117 South Jefferson Street, Hartford City,
Indiana, by The Citizens State Bank, provided the branch
is established within one year from the date of this
letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
DEN CC
$7,%,t13,40,141
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
AOC/RENS
Item No. 10
6/29/61
°maim. CORPIESPONOCNCE
TO THE BOARD
kut***
June 29, 1961
Board of Director
8t. Joseph Valley Bank,
kkhart, Indiana.
Gentlemen:
Pursuant to your request submitted through the Federal
Rese
"lee, rve Bank of Chicago, the Board of Governors of the Federal
aeQere System approves the establishment of a branch at the intersi.etion of Nappanee and West Indiana Streets, Elkhart, Indiana, by
J°8eph Valley Bank, provided the branch is established within
Year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
1
'
Of-;44)
.BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 11
6/29/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 29, 1961
Board of Directors,
Adrian State Savings Bank,
Adrian, Michigan.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Chicago, the Board of Governors
Of the Federal Reserve System approves the establishment
of a branch near the northeast corner of the intersection
of Greenly Street and West Maumee Street, Adrian, Michigan,
by Adrian State Savings Bank, provided the branch is established within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
tr,C).4
r
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 12
6/29/61
WASHINGTON 25, O. C.
ADDRESS
orriciAL
CORRESPONDENCE
TO THE BOARD
June 29, 1961
Board of Directors,
Guaranty Bond State Bank,
Mount Pleasant, Texas.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Dallas, the Board of Governors of
the Federal Reserve System approves, under the provisions
of Section 24A of the Federal Reserve Act, an additional
investment by Guaranty Bond State Bank, Mount Pleasant,
Texas, of $180,000 in bank premises for the purposes of
additions and improvements to banking quarters.
It is noted that $45,000 of the anticipated
expenditure is for additions to furniture and fixtures'.
Approval of the Board of Governors is not required in relation to this expenditure..
It is understood that the carrying value of bank
premises, on completion of the remodeling and construction
program, will be reduced by charge off to $150,000 and,
further, that depreciation will be taken at a rate equal to
not less than the amount allowable under Federal Income Tax
Regulations.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
f
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 13
6/29/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
154
June 29, 1961
Board of Directors,
Greenfield State Bank,
Bakersfield, California.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of San Francisco, the Board of
Governors of the Federal Reserve System approves the establishment of a branch in the vicinity of the intersection of Oak Street and Brundage Lane, Bakersfield,
California, by Greenfield State Bank, provided the branch
is established within one year.
It is noted that the selection of a manager for
the branch is subject to prior approval by the Superintendent of Banks for the State of California and that experienced
Supervisory loan personnel will be employed at the head
office of the bank.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 111.
FEDERAL RESERVE SYSTEM
6/29/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 291 1961
Board of Directors;
United California Bank,
Los Angeles, California.
Gentlemen:
The Board of Governors of the Federal Reserve System
United
extends until January 19, 1962, the time within which
a
establish
may
,
California
California Bank, Los Angeles,
,
California
Francisco,
branch at 10800 Van Ness Avenue, San
letter
Board's
the
in
under the authorization contained
of January 19, 1961.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
11).f)
A5.,v,ainv
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 15
6/29/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
June 291 1961
Board of Directors,
United California Bank,
Los Angeles, California.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of San Francisco, the Board of
Governors of the Federal Reserve System approves the
establishment of a branch at the northeast corner of
Duncan and North Main Streets, Walnut Creek, Contra Costa
County, California, by United California Bank, provided
the branch is established within one year from the date
of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
s•
1",r7ffy;_
UNITED STATES OF AMERICA
Item No. 16
6/29/61
BEFOAE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
vW.;HINGTON, D. C.
In the Matter of the Application of
TRT] MARINE CORPORATION
for pcior approval of acnuisition of
votin shay-es of Tlisconsin State Bank,
tTisconsin.
ORDER DENYING APPLICATION UUMR
BA"K HoLrim COMPANY ACT
There havini, come before the Boa,x1 of Governors pursuant to
s
ection 3(a)(2) of the Bank Holding Company Act of 1956 (12 USC 1842)
section 4(a)(2) of the Board's Regulation Y (i2 CFR 222i4(a)(2)),
°11 aPplication by The Marine Corporation for the Board's prior approval
Of thc: acquisition of 80 per cent or more of the 22,500 outstanding
IrOtinc, shares of 'Asconsin State Bank, Milwaukee, lisconsin; a Notice
of Receipt of Application having been published on August 17, 1960
(25 Federal Register 7898), affording interested persons an opportunity to submit comments and views regarding the proposed acnuisitien;
11c1 a Statement in Opposition to the approval of this application
Ilving; been filed by the United States Department of Justice and
c°nsidered by the Board;
iak.'
sag.e.
IT IS HEREBY ORDERED, for tha reasons set forth in the
Boal'dIs Statement of this date, that the said aoplication be and
hQreby is denied.
Dated at Washington, D. C., this 29th day of June 1961.
By order of the Board of Governors,
Voting for this action: Chairman Martin, and Governors
Bllderston, Robertson,arid Shepardson,
Voting against this notion:
Governors Eills and King.
(Signed) Merritt Sherman
Merritt Sherman,
Selretary.
Aw-
BOARD OF GOVERNORS
Item No. 17
6/29/61
OF TEE
FEDERAL RESERVE SMEM
WISCONSIN,
APPLICATION BY TEE MARINE CORPORATION, MILWAUKEE,
OF
SEAMS
FOR PRIOR APPROVAL OF ACQUISITION OF
IN
WISCONS
WISCONSIN STATE BANK, MILWAUKEE,
STATFYUT
e"),
The Marine Corporation, Milwaukee, Wisconsin ("Marin
a bank holding company, has applied, pursuant to section 3(a)(2)
of the Bank Holding Company Act of 1956 ("the Act"), for the
more
Board's prior approval of the acquisition of 80 per cent or
of the capital stock of Wisconsin State Bark, Milwaukee,
Ilisconsin ("Bank").
Views and recommendations of the Commissioner of Banks
!2the State of Wicconsin. -
Having received from the Board
totice of the application, pursuant to section 3(b) of the Act, the
Commissioner of Banks for the State of Wisconsin stated that he had
110 objection to approval.
s
Statutory factors. - Section 3(c) of the Act require
the Board to take into consideration the following five factors:
(1) the financial history and condition of the holding company and
lank concerned; (2) their prospects; (3) the character of their
taatagement; (4) the convenience, needs, and welfare of the communities
al1d. area concerned; and (5) whether or not the effect of the proposed
of the bank
acquisition would be to expand the size or extent
consistent with
holding company system involved beyond limitc
and the preservaadequate and sound banking, the public interest,
tion of competition in the field of banking.
Discussion. -
Marine has six subsidiary banks and has
of another, a proreceived the Board's approval to acquire stock
Posed new bank.
At 1>cember 311 1960, the total depsits of the
n
six banks were about $255 million, of which about $196 millio
ne
vas held, by Marine NaUonal Exchange Bank, Milwaukee ("Mari
State.
National"), the third largest bank in the
Bank, with toal
1960, is located
dePosits of about $37 million at December 31,
about two miles southwest of Milwaukee's principal financial
district, where Marine National is located.
and
The financial history and condition, the prospects,
the management of both Marine and Bank appear to be satisfactory.
no substantial
With respect to these factors, the Board finds
erounds for either approval or disapproval of the application.
The
Board has considered the statements of :flarine as to the changing
Character of the area Bank serves, including the population trends
and increasing industrialization, but notes that, while these
,
changes have already been taking place to sore extent Bank has
Markedly grown, and it does not appear to the Board that Bank's
Drospects as an independent bank are unfavorable.
There is also
40 suggestion that Bank's management will not continue to be
competent if Bank remains independent.
Accordingly, the advantages
-3as to personnel which Applicant asserts would flow from the holding
MilEany connection do not appear to the Board to weigh significantly
for approval.
With regard to the convenience) needs, and welfare of the
communities and area concerned, Marine describes several ways in
which it might provide advice and assistance to Bank, with emphasis
°a improved service to large corporate customers, both existing and
anticipated.
While there generally are ways in which a bank may
imProve its service to an area, Marine does not establish that there
are present or anticipated needs that cannot be adequately met, or
a lack of desired conveniences that cannot be supplied, without
13ank ts acquisition by Marine.
As for the changing character of Bank's
service area, it appears that its population has been declining for
some years
and some industrialization of the area has already taken
PlaCe.
Increases of 55 and 1)8 per cent in Bank's total deposits and
loans, respectively, in the five years ended
December 31, 1960)
would indicate that Bank, the largest unit bank in its primary service
area, has met and can continue to meet changing conditions successfully.
Nine other banking offices either are located within the
Drilzary service area or serve it to a material extent.
Bank itself
e.pears to have been progressing in physical facilities and banking
8s1"vices, including the development of an installment loan department.
/41111e it does not appear that the acquisition would have any adverse
e'l:fect on the convenience, needs or welfare of the areas involved,
4sither is the Board able to find, in its consideration of this factor,
44Y significant affirmative ground for approval of the application.
The remaining considerations are whether the proposed
acquisition would expand the holdiug company's systew "beyond
limits consistent with adequate and souad banking, the public interest, and the preservation of competition in the field of banking."
Based on December 31, 1960 figures, the acquisition
would increase Earine's percentage of control of total deposits of
per cent.
eommercial banks in Milwaukee County from 13 per cent to 15
These figures by themselves do not indicate that the acquisition
expand the Marine system beyond the limits described in the
statute.
However, Bank, at the same date, had
46 per cent of the
total deposits and 57 per cent of the total loans of independent
banks in its primary service area, so that the expansion of the
Marine system by the acquisition of Bank would reduce significantly
the strength of independent banking in tLat area.
As it is, the
independent banks located in Bank's primary service area would
in
aPPear to be in corrpetition with the throe 1:1rgest bmks
I lisconsin, since, according to Applic,nt, all three of those
'
80rv0 that area to c material oxti.)nt.
All throe are holding corn-
Puny banks, and one has a branch located in the area; another is
Mar
Is largest subsidiary.
Another holding company subsidiary
bank also is located in the area.
e
The throe holding companies operating in Milwauke
controlled about 75 per cent of total commercial bank deposits in the
County at Decombor 31, 1960.
Of this amount Marine controlled
13 Per cent as against 41 per cent for First Wisconsin
Bankshares
Corporation, the largest of the three.
The acquisition would shift
More than 8 per cent of the total deposits of all independent banks
in the County to Marine.
After the acquisition) fil:c of tile seven
largest banks in the County (Bank being the seventh largest) would
be under holding compnny control.
While the acquisition would put
Marino nearer in size to the two larger holding companies, any beneficial effects on competition which might result in that respect
aPPear to be more than offset by the adverse effects in Bank's
Primary service area.
The acquisition would give Marine control, through Bank,
°f total deposits ecual to 85 per cent of those held by all the
'
l emaining independent banks in Bank's primary service area, and
'lank is approximately twice as large as the next largest independent
tank in such arca.
(The above percentage does not take into account
the amount of such deposits drawn from the area by Marine National,
Ilhich is located outside Bank's primary service area, since the
arrIcAlrit of such deposits drawn from the area by independent banks
100ated
outside is not ascertainable.)
Applicant has submitted information showing that at
tecember 31, 1959, independent banks held 30 per cent of the deposits
q individuals, partnerships, and corporations ("IPC deposits") of
CoMmercial bnnks in Milwaukee County, while ten years earlier
ihdePendent banks, excluding those which were acquired by holding
c°14Panie5 within the ten-year Period, held only 24 per cent of such
dePosits.
These figures may tend to show that the growth of holding
Company banking in the area did not inhibit the grouth of those banks
Which remained independent.
It is also significant, however, that
at December 31, 1949, there were in Milwaukee County 27 independent
banks with
54
ner cent o^ commercial bank IPC deposits as against
46 Der cent in one holdin7 company bank, while ten years later there
were only 22 independeht banks with 30 p3r cent of such deposits as
against 70 per cent in eight banks of three holding comoanies.
The
net result e these changes in the County was some decrease in the
dominance of the one holding copany that was operating in 1949, but
the fact remains that the aggregate deposit strength of independent
banks and the number of true alternative sources of banking service
was reduced.
In the City, during the same period, the percentage of
commercial bank IPC deposits held by independent banks dropned from
50 Per cent to 22 per cent.
The effect of the proposed acquisition on existing and
Pctential competition between banks remains to be discussed specifically.
Since Bank is decisively tkle largest independent bank located
ill its primary service area, the question arises whether the acquiaition would unduly increase such competitive advantage as Bank may
ha,ve
over the other independents.
A second question is whether the
bl
'inging of Bank into the Marine system would eliminate any actual
or Potential competition between Bank and Narinets nresent subsidiaries.
Not only is Beni( the largest independent bank in its primary
aerviee area, but also it has experienced the highest rate of growth
°I
'such banks over the five years ended December 31, 1960 -
55
per cent
4,2%
_7..
iu total deposits and 108 per cent in total loans.
Bank's primary
service area does not include the downtown financial area, where
llil,,Jaukee's largest banks are located. :
1 11-1ile Applicant appears to
consider Bank in the market for large corporate accounts and proposes
to improve its competitive position for such business, it nevertheless
appears that Bank has been a strong competitor principally with the
slriqler banks in its own area rather -Lilian with the downtown institutions (except with their branches in and around Bank's arca)
Even
if the operation of Bank under Marine ownership might help make Bank
a stronc,er competitor for larger corporate accounts it would be
e
xPected that Bank would also remain in competition with the smaller
banks in its cyzn arec.
Consequently, the acquisition would tend to
increase further the existing and already increasing, competitive
dis
advantago of such banks in relation to Bank, and it does not
appear that this effect would be fully offset by an increase in the
ccrfloetition which Bank may be in n position to give the larger banks.
Marine states that Marine National, its largest bank, is
the only subsidiary of Marine that serves Bank's primlry service area
to any material extent, the other subsidiaries being more than five
r4iles from Bank.
The primary service area of Bank lies wholly within
Marine National 's Primary
C°11ntY.
SeiViCC
area, which covers all of Milwaukee
Marine indicates that less than two per cent of Bank's IPC
cl('Posits originate outside Marine National's primary service area.
C°117ersely, Marine states that about 12 per cent of Marine National's
IPc
enosits originate within Bank's primary service area.
Marine
_8-
claims that of this amount only about 1.8 per cent of Marine National's
IPC deposits is truly competitive because the balance represents accounts
Of borrowers whose needs are in excess of the lending limit of
Bank and
accounts of shareholders and directors of Marine Nation0„
In view of
Bank's marked growth during a period in which the trend to industrialization of the area has already been noted, the larger corporate accounts
carnot be ruled out as a
subject of at least potential competition
between the two banks. Even accepting Marine's claim, the amount of
Marine National's IPC deposits conceded to be competitive is equal to
about 9 per cent
of Bank's IPC deposits. In addition, the bulk of Bank's
Own IPC deposits must be regarded as subject to competition from Marine
liationall whose primary service area encompasses Bank's.
However
analyzed, competition between Bank and Marine National cannot be said
to be insubstantial, and the acquisition would terminate the independ"ce of a competitor for a significant amount of banking business.
The Board has considered the leading position of First
Wisconsin Bankshares Corporation in the Milwaukee area but is unable
to conclude that the increase of the size of the Marine system relative
to First Wisconsin Bankshares, as well as to Bank Stock Corporation
(the second largest holding company in the area), by the particular
acqUisition proposed in this case would be of such material benefit
to the competitive situation in the relevant areas as to offset ather
c°fleiderations noted.
For the foregoing reasons, the Board is of the opinion
that the proposed acquisition would expand the holding company system
13rcind limits consistent with the public interest and the preservation of
f
1. c.„1
".1e4.-elt T-s
-9c ompetition in the field of banking, with respect both to banking
concentration and to the competitive situation between specific
banks in the areas concerned.
Further, it appoars that Bank can
continue to thrive independently regardless of prospective changes
la the area, and considerations which might offset the anticompetitive effects noted are lacking.
of
Having considered the relevant facts in the light
enumerated in
the general purposes of the Act and the factors
section 3(c), it is the judgment of the Board that the proposed
acquisition would not be consistent with the statutory objectives
and the public interest and that the application should be denied,
June 29, 1961.
DISSENTING STATEMENT OF GOVERNOR MILLS)
IN WHICH GOVERNOR KING "JOINS.
Item No. 18
6/29/61
The decisive considerations in this case are those related
t° the fifth statutory factor required by the Bank Holding Company Act
t° be considered by the Board, that is, uhether the effect of the
Proposed acquisition would be consistent with the public interest
and preservation of competition in the field of banking.
In analyz-
ing these considerations, attention should not be limited to the narrow
al'ea of competition between the Wisconsin State Bank and nearby local
'
IldePendent b nks) but should be focused upon aver-all banking
e°R1Petition in the market areas comprising the City of Milwaukee
414 Milwaukee County.
It is an accomplished fact that commercial banking in the
itY and County
of Milwaukee is largely in the hands of three bank
11°3-ding companies, of which First Wisconsin Bankshares is by far the
14qest and Marine Corporation is the smallest.
ba
Because of branch
ing limitations in the State of Wisconsin, the predominant market
po
-sition of First Wisconsin Bankohares would be permanently assured
it
Ioansion on the part of the smaller holding company groups is
1111r easonably restrained.
In the light of the historical situation, it is my
g-,ent that approval of the present application would tend to
l'cme rather than harm the total ccmpetitive banking structure
the City of Milwaukee and in Milwaukee County. /It would servo
2240
as a wholesome correction of the present unbalanced competitive
situation. I am not convinced that suell approval would expose the
smaller independent banks in the area to undue competitive disadvnt,
.ges, since the reported rate of grcwth of those banks
indicates that they have enjoyed an adequate competitive viability.
For these reasons, I would approve the present application.
Item No. 19
6/29/61
TITLE 12 - BANKS AND BANKING
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(Reg. T)
PART 220 - CREDIT BY BROKERS, DEALERS AND ME1'BER8
OF NATIONAL SECURITIES EXCHANGES
Special Arbitrage Accounts; Transfer of Accounts
1. Effective August 71 19611 paragraph (d)(3) of
g
220.3)
Paragraph (d) of g 220.4, and paragraph (d) of § 220,A are amended
to read as follows:
8 220,3 General accounts.
(d) Adjusted debit balance.
*
(3) the current market value of any securities (other than
tinissued securities) sold short in the account plus, for each such
security (other than an exempted security), such amount as the Board
shall prescribe from time to time in fi 220.8 as the margin required
tor
such short sales, except that such amount so prescribed in § 220.P
4sed not be included when there are held in the account securities
e°tehangeable or convertible within 90 calendar days, without restriction
"her than the payment of money, into such securities sold short;
220.4 Special accounts.
-2(d) Special arbitrage account. In a special arbitrage account,
a member of a
national securities exchange may effect and finance for
any customer bona fide arbitrage transactions in securities.
For the
Purposes of this paragraph, the term uarbitrage" means (1) a purchase
or sale of a security in one market together with an offsetting sale
OX purchase of the same security in a different market at as nearly
the same time as practicable, for the purpose of taking advantage of
a difference in prices in the two markets, or (2) a purchase of a
security which is, without restriction other than the payment of
111°11eY, exchangeable or convertible within 90 calendar days following
the date of its purchase into a second security together with an
°ffsetting sale at or about the same time of such second security,
or the purpose of taking advantage of a disparity in the prices of
the two securities.
O 220.6
Certain technical details.
(d) Transfer of accounts--(1) In the event of the transfer of a
general account from one creditor to another, such account may be
treated for the purposes of this part as if it .had been maintained by
the transferee from the date of its origin: Provided, That the transaccepts in good faith a signed statement of the transferor that
4° cash or securities need be deposited in the account in connection
Ilith any transaction that has been effected in the account or, in case
he finds that it is not practicable to obtain such a statement from
the transferor, accepts in good faith such a signed statement from
the
customer.
-3—
(2) In the event of the transfer of a general account from
one customer to another, or to others, as a bona fide incident to
a transaction that is not undertaken for the purpose of avoiding
the requirements of this part, each transferee account may be
treated by the creditor for the purposes of this part as if it had
been maintained for the transferee from the date of its origin:
Provf.ded, that the creditor accepts in good faith and keeps with
the transferee account a signed statement of the transferor
describing the circumstances giving rise to the transfer.
2a.
The purpose of the amendment to g 220.4 is to clarify the
Board's position as to the situations in which credit may be extended
under paragraph (d) of
g
220.4 outside the margin restrictions of
g 220.3 General accounts, and to provide more explicit standards for
the use of these sections in arbitrage situations. A confOrming
Change is being made to paragraph (d)(3) of 0 220.3.
The purpose of
the amendment to paragraph (d) of 5 220.6 relating to the transfer of
general accounts between customers, is to eliminate possible ambiguities
atd to make clearer what situations are covered and what situations are
tot covered by that provision.
b.
of
The amendments set forth herein were the subject of notices
proposed rule making published in the Federal Register (25 F.R.
2737 and 3556), and were adopted by the Board after consideration of
4.11 relevant views and arguments received from interested persons.
-4(Secs. 3) 7, 8) 17, 23; 48 Stat. 882, 886, 888, 897, 901,
as amended; 15 U.S.C. 78c, 78g, 78h, 78q, 78w.)
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(SEAL)
(Signed) Merritt Sherman
Merritt- herman„ ----Secretary.
Certified to be a true copy of the original.
(Signed) Merritt Sherman
Merritt Sherman)
Secretary.
TITLE 12 - BANKS AND BANKING
Item No. 20
6/29/61
CHAPTER II - FEDERAL RESERVE SYSTEM
SUBCHAPTER A
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
5ege
PART 221 - LOANS BY BANKS FOR THE PURPOSE OF
•
PURCHASING OR CARRYING REGISTERED STOCKS
Loans to Finance Arbitrage Transactions;
Transfer of Loans Between Borrowers
1. Effective August 70 1961, paragraph (j) of a 221.2 and
Paragraph (e) of 0 221.3 are amended to read as follows:
a 221.2 Exceptions to general rule.
(j) Any loan to a member of a national securities exchange for
the purpose of financing his or his customerst bona fide arbitrage
transactions in securities. For the purposes of this paragraph, the
term "arbitrage" means (1) a purchase or sale of a security in one
market together with an offsetting sale or purchase of the same
security in a different market at as nearly the same time as practicable, for the purpose of taking advantage of a difference in prices
in the two markets, or (2) a purchase of a security which is, without
restriction other than the payment of money, exchangeable or convertible within 90 calendar days following the date of its purchase
into a second security together with an offsetting sale at or about
the same time of such second security, for the purpose of taking
advantage of a disparity in the prices of the two securities;
'
0 221.3 Miscellaneous provisions.
*
(e) A bank, without following the requirements of this part as
to the making of a loan, may
(i) accept the transfer of a loan from another bank, or
(ii) permit the transfer of a loan from one borrower to
another, or to others, as a bona fide incident to a transAction that is not undertaken for the purpose of avoiding
the requirements of this part, provided that a statement
signed by the transferor, describing the circumstances
giving rise to the transfer, is accepted in good faith by an
officer of the bank and is kept uith each transferee loan
account;
provided the loan is not increased and the collateral for the loan is
not changed; and, after such transfer, a bank may permit such withdrawals and substitutions of collateral as the bank might have permitted if it had been the original maker of the loan or had originally
made the loan to the new borrower.
2a. The purpose of the amendment to g 2212 is to clarify the
Boards position as to the situations in vhich credit may be extended
under paragraph (j) of g
221,2 outside the margin restrictions of
g 221.1 General rule, and to provide more explicit standards for the
use of these sections in arbitrage situations. The purpose of the
amendment to paragraph (e) of § 221.3) relatjng to the transfer of
loans between borrowers, is to eliminate ambiguities and to make
Clearer what situations are, and what situations are not, covered by
that provision3
e
-3b. The amendments set forth herein were the subject of
notices of proposed rule making published in the Federal Register
(25 F.R. 2737 and 3557), and were adopted by the Board after consideration of all relevant views and arguments received from
interested persons.
(Sec. 23, 48 Stat, 901; 15 U.S.C. 78w. Interprets or applies
secs. 2, 3, 7, 17, 48 Stat. 861, 882, 886, as amended; 15 U.S.C.
78b, 78c, 78g, 78w0)
BOARD OF GOVERNORS OF TFE FrE,DERAL REStRVE SYSTEM
(sEAL)
(Signed) Merritt Sherman
Merritt Sherman,
secretary.
Certified to be a true copy of the original.
SZAL)
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
7
Item No. 21
6/29/61
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDifVL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Request of
MONTANA SH.ARES, INCORPORATED
Havre, Montana,
I Pursuant to Section 4(o) of the
Bank Holding Company Act of 1956,
t for Determination Regarding the
Activities of Montana 1\gencies
and Liberty Corporation
60
DOCKET NO. BHC
Montana Agencies
DOCKET NO. BHC - 61
Liberty Corporation
ORDER
Montana Shares, Incorporated, Havre, Montana, a bank holding
c°r11PanY within the meaning of section 2(a) of the Bank Holding Company
4 of 1956 (12 U.S.C. section 1843), has filed a request for a
"
letermination by the Board of Governors of the Federal Reserve System
that the corporations known as Montana Agencies and Liberty Corporation
411d their activities are of the kind described in section 4(c)(6) of
Act and section 2225(b) of the Boardts Regulation Y (12 CFR
222 et, „
.k15)), so as to make it unnecessary for the prohibitions of
ection 4 of the Act with respect to acquisition and retention of
1141'es in nonbanking orcanizations to apply in order to carry out
the purposes of the Act.
A hearing having been held pursuant to section 4(c)(6)
in the Act and in accordance with sections 222.5(b) and 222.7(a)
of the
Board's Regulation Y (12 CFR 222.5(b) and 222.7(a)); a brief
in support of its request having been filed by Montana Shares,
Incorporated; the hearing having been reopened by the Hearing
Examiner pursunnt to stipulation between counsel for the Board
and counsel for Montana Shares, Incorporated, for the purpose of
l'eceiving a supplemental affidavit by Mr. Charles W. Ruble, President
cf Montana Shares Incorporated; the Hearing Exrminer having filed
On March 24, 1961, his Report and Recommended Decision wherein he
l ecommended that the request with respect to Montana Agencies and
'
Liberty Corporation be approved; the time for filing with the Board
ex.ceptions and brief to the recommended decision of the Hearing
Examiner having expired and no exceptions having been filed; the
board having given due consideration to all relevant aspects of the
Matter; and all such steps having been taken in accordance with the
Board's Rules of Practice for Formal Hearings (12 CFR 263);
in the
IT IS HEREBY ORDERED, for the reasons set forth
accompanying Statement of the Board of this date, that
ies are
1. Montana Agencies and its proposed activit
determined to be so closely related to the business of banking or
f managing or controlling banks as to be a proper incident thereto
and as to make it unnecessary for the prohibitions of section
4 of
-3the Bank Holding Colupany Act of 1956 to apply in order to carry out
the purposes of that Act, and, therefore, Applicantls request with
hereby is, granted; and
respect to Montana Agencies shall be) and
2. Liberty Corporation and its proposed insurance activities
ng
are determined to be so closely related to the business of banki
a proper incident thereto
or of managing or controlling banks as to be
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
with
the Purposes of that Act) and, therefore, Ipplicantis request
respect to Liberty Corporation shall be, and hereby is) granted,
Liberty Corporation
P-122aLded that prior to acquisition of shares in
ration will own
t/Y* APplicant, the partnership in which Liberty Corpo
of ownership
a 25 per cent interest shall have divested itself
°f the dwelling described in the Boardts accompanying Statement of
cipate in any
this date, so that Liberty Corporation shall not parti
business after such
°etivity other than the general insurance
4cquisition, and
mination shall be subject
PROVIDED FURTHER, that this deter
they are based
to revocation by the Board if the facts upon which
make the reasons
should substantially change in such a manner as to
f°r such determinations no, longer applicable.
Dated at Washington, D. C., this 29th day of June, 1961.
By order of the Board of Governors.
Voting for this action: Governors Balderston, Mills,
Robertson, and Shepardson.
Absent and not voting:
Chairman Martin and Governor King.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(8,
-
Item No. 22
6/29/61
UNITED STATES OF AMERICA
FEDERAL RESERVE SYSTEM
BEFORE THE BOARD OF GOVERNORS OF THE
WASHINGTON, D. C.
In the Matter of the Request of
MONTANA SHARES, INCORPORATED,
Havre, Montana,
Pursuant to Section 4(c) of the
Bank Holding Company Act of 1956,
for Determination Regarding the
Activities of Montana Agencies
and Liberty Corporation
DOCKET NO. BHC - 6o
Montana Agencies
DOCKET NO. BHC - 61
Liberty Corporation
STATEV3NT
Background of the case. -
Montana Shares, Incorporated
cant"), a Montana corporation
(hereafter sometimes called the "Appli
business in Havre, Montana,
with its principal office and place of
section 2(a) of the Bank
and a bank holding company as defined in
, has filed with the Board
Holding Company Act of 1956 (the "Act")
(the "Board") a request
of Governors of the Federal Reserve System
and retention of shares of
for determinations that the acquisition
Montana Agencies ("Agencies")
stock in two nonbanking subsidiaries,
the proposed activities
and Liberty Corporation ("Liberty"), and
as to be exempt from
of the subsidiaries, will be of such a nature
the prohibitions of section
4(a) of the Act.
-2-
Section
4(a) of the Act makes it unlawful, subject to
certain exceptions, for a bank holding company (1) to acquire
direct or indirect ownership or control of voting shares of any
company that is not a bank, or (2) to retain direct or indirect
ownership or control of voting shares of any such company after
two years from date of enactment (May 9, 1956) of the Act.
Agencies and Liberty are nonbanking companies.
Agencies was in-
corporated under the laws of the State of Montana on March
6, 1959,
and Liberty was incorporated under the laws of the same State on
November 10, 1960.
Applicant proposes to acquire directly and
retain 7,058 of the 17,814 shares of Agencies which are to be issued,
and to acquire from two named individuals
4,6co additional shares,
making a total of more than 51 per cent of the initially issued
shares in Agencies. Applicant proposes to acquire and retain
2)657 of the 50,000 authorized shares in Liberty. The record does
not state definitely, but indicates that no more than 2,657 shares
in Liberty will initially be issued.
Applicant's proposed acquisition of stock of Agencies and
Liberty escapes the prohibitions of the Act only if it falls within
One of the exceptions to such prohibiticns provided by the Act.
Section 4(c)(6) of the Act excepts shares of a nonbanking company
If two requirements are met: (1) If all the activities of the
company are of a financial, fiduciary, or insurance nature, and (2)
if the Board determines, after hearing, that all the activities of
the company are so closely related to the business of banking
or of
-3managing 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 Act.1/ Section 222.5(b) of the Board's Regulation Y, issued pursuant to 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".
I7-The rele-;ant laniizage 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 in 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, and on the basis of the
to be so
record made at such hearing, by crder has determined
g or
closely related to the business of banking or of'managin
-and
AS to
thereto
incident
proper
a
controlling banks as.to be
this
to
of
section
ns
prohibitio
make it unnecessary for the
1..
ePply in order to carry out the purposes of this Act;
As required by the Act, a hearing on the Applicant's
request was held at Minneapolio, Minnesota, on January 24 and 25,
1961, before a duly designs,ted Hearing Examiner.
Following the
conclusion of the hearing, Applicant submitted proposed findings
of fact and conclusions of law.
Subsequently, pursuant to a stipu-
lation entered into March 8, 1961, between counsel for the Board
and counsel for Applicant, the Hearing Examiner reopened the hearing
for the purpose of receiving additional evidence relating to the
ownership by the insurance agency in which Applicant proposes that
Liberty shall acquire a partnership interest of a dwelling which
is being rented to a managing officer of the agency and its related
bank.
On March 24, 1961, the Hearing Examiner filed with the RDard
his Report and Recommended Decision wherein he recommended approval
of the Applicant's request.
The salient facts with respect to the insurance business
to be carried on by Agencies and Liberty are set forth hereafter
In this Statement.
Additional facts with respect to its activities
are contained in the Hearing Examiner's Report and Recommended
Decision attached hereto; and to the extent not inconsistent with
this Statement, the findings of fact made by the Hearing Examiner
are hereby adopted.
In determining whether or not the pending request should
be granted, the Board has considered solely the facts embraced in
the record of the hearing held in this matter. In addition, however,
the Board has considered arguments presented in the 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. - Applicant is a bank holding company
organized under the laws of the State of Montana, with its
Principal offices at Havre, Montana.
Applicant owns shares in
six subsidiary banks, all located in Montana, in connection with
each of which an insurance agency is operated. Five of the agencies
are involved in the applications now before
the Board..?./ Some
Pertinent facts about the five may conveniently be summarized in
the following table:
Rate arid
.110,aatt—on— of
Name of
Agency
ted Bank
Percent of Stock
Percent of
Related bank
in
owned
Date Agency Agency
Owned
by Applicant
Applicant
was Founded by
?arrners-Merchant
s
411k
(Rudyard)
Farmers-Merchants
Agency
1955
55.47
55.47
PrINt State
Bank
°\Chi
C. Chnook)
inook
First Insurance
Agency
1938
68.67
46.44
Liberty Insurance
Agency
1947
25.00
25.00
Northern Insurance
Agency
1953
50.71
5c).67
Silver Bow Agency
1953
None
70.29
t-mglAbeltlr
County
J tlit
(Chester)
,therri
13ank
11,ate
Montana
SPrIdy)
kiLsrl,er's N
ational
of Butte
te)
plioation has been filed in respect to the sixth, operated in
c__.?nnection with Citizens' Bank of Montana, which is owned by two officers
°I APplicnnt and another person and is not operated on the premises of
its related
bank.
Each agency is operated on the promises cf the related
bank in substantially the follcwing manner. The agency has no
office or equipment of its own, but reimburses the bank for the
use of office facilities.
No advertising for the agency is carried
in the bank, except for a sign advertising hail insurance during
the hail season in the first four listed above. (Silver Bow is
located in an area which does not produce small grain.)
The manager
of the bank acts as the insurance agent, and receives a salary from
the agency for his services, except in the case of one agency during
1959, when the net profit from agency operations did not warrant
Paying a salary.
The agencies handle fire, auto, inland marine, public
liability, bonds, polio, travel, and boiler insurance.
Hail insur-
ance provides a substantial portion of the business of the first
four agencies.
Takinz the five aencies as a whole, nonbanking
customers of the agencies account for only 10.83 per cent of total
Premiums in the Year 1959.
Customers of the related banks who
maintain deposits accounted for 34.84 per cent of premiums in that
Year, borrowers from the related banks who maintained deposits
accounted for 48.40 per cent, and borrowers from the related banks
vho did not maintain deposits accounted for 5.93 per cent.
An
actual count of policies showed that 44 per cent of the total
number secured related bank loans.
Applicant has worked out an agreement with the individual
Partners who own part or all of the four agencies other than Liberty,
under which shares in Agencies will be exchanged, if the Board
-7approves the application, for their partnership interests.
It is
Proposed that Agencies will continue to conduct a substantially
similar insurance business, with possible expansion to furnish
credit group life, health and accident insurance, group life
insurance, bankers
blanket bond, and related types of insurance
to Applicant's subsidiary banks.
Applicant has a minority share interest in Liberty County
Bank, and in Liberty Insurance Agency. It was unable to obtain the
consent of the other partners in that agency to exchange their
Partnership interests for stock in a corporation.
For this reason,
Applicant has organized Liberty Corporation, to which it proposes
to transfer its 25 per cent partnership interest in the agency in
exchange for all the stock in the corporation.
The character of
the business done by the agency, and the extent of its connection
With the related bank, would continue without substantial change,
except for possible expansion similar to that described above for
Agencies.
The Hearing Examiner found that although Montana law
forbids banks to operate insurance agencies directly, in 1960,
83 of the 121 banks in the State of Montana had connected insurance
agents or agencies.
Since 30 of the 121 were holding company banks,
at least 53 of the 91
agents or agencies.
nonholding company banks must have such
"The practice of maintaining such a connected
insurance agency is therefore established in both holding company
and non-holding company banks."
There is no evidence that the
State Superintendent of Banks objects to this practice.
The Liberty Insurance Agency also owns and operates a
house, title to which is held by a trustee fcr the p-rtncrs in the
agency.
The Hearing Examiner found that the dwelling was purchased
in 1949 to provide living quarters for the managing officer of both
the agency and the related bank.
There was then, and has been since
that time, a shortage of adequate rental housing in Chester, Montana,
the town where the bank is located.
Nor, apparently, is the town
likely to grow in the future in such a wPy as to alleviate the
shortage.
Since Chester is a small town, opportunities for resale
of dwellings are limited, and for this reason, bank officers have
not been, and are unlikely to be, willing to purchase their own
homes. The dwelling is a modest one, a two-story frame building
Purchased for 17,0001 since improved by the expenditure of about
$1,280. It is rented for '50 per month, and according to the Hearing
Examiner, "it is contemplated in the future that rent will be maintained only at a level to equal expenditures."
The Hearing Examiner also found that there have been
similar difficulties in providing housing for managers of Applicant's
banks, and their related agencies, in Rudyard, Chinook and Big Sandy.
Butte has a population in excess of twenty-seven thousand people,
and adequate rental housing has been available there.
However,
although an individual bank director and stockholder in one case,
and the president of Applicant in another, have felt obliged individually to assist in providing housing in Rudyard and in Chinook,
the Hearing Examiner did not find that the agencies or the Applicant
have any interest, beneficial or otherwise, in housing aside from
the property in Chester which has been described above.
The Hearing Examiner concluded that under the law of
dwelling, even though
Montana, "the bank itself may not own" such a
such prohibition may make it difficult to obtain a managing officer.
The Hearing Examiner's finding "that any competing nonholding
manner" has refercompany bank can readily own a dwelling in this
ence to the Applicant's statement in its brief in support of its
that "any competing
proposed findings of fact and conclusions of law
non-holding company bank can readily own a dwelling in this corporate
of the
form of ownership. All that is necessary is that the owners
bank become the owners of the stock in the corporation."
Preliminary requirement as to nature of activities:
Agencies and Liberty, aside
insurance.- Since all the activities of
from owning and managing the house described above, will be confined
to selling insurance, it is clear that the preliminary requirement
for exemption under section 4(c)(6) of the Act will be met as to
it not for the housing
Agencies, and would be met as to Liberty were
activity.
That is to say, all the activities of both corporations
When so limited, will, or would, be of a "financial, fiduciary, or
insurance nature."
Accordingly, the insurance activity will be
considered first, and the housing activity treated separately.
-10.4
Relation to banking business: insurance.- The statute and
•
Pm.+mo.••••=ftMa
the Board's Regulation Y require that, after passing the preliminary
test, the company's activities must be determined by the Board to be
"so closely related" to the business of banking or of managing or
ccntrolling banks, as conducted by the Applicant and 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. This determination is to be made on the basis of al] the relevant facts and circumstances disclosed at a hearing held in the case.
The weight which the Board believes should be given these
facts and circumstances was discussed at length in its Statement
in the First Bank Stock Corporation matter, 1959 Federal Reserve
Bulletin 917, 930-933.
In its Statement in the matter of Northwest
Bancorporation, 1959 Federal Reserve Bulletin 963, the Board
held that the activities of seven insurance agencies which were owned
by a single subsidiary of the Applicant must be considered "in the
aggregate" to determine whether there was the requisite relationship
between those activities and the business of banking as conducted by
the Applicant and its subsidiary banks (p. 971), viewed in the light
of the foregoing Statements by the Board, and other statements on the
same subject, it is the Board's judgment that considering the insurance
activities of the agencies to be owned and conducted by Liberty and
by Agencies, the direct connection between the two proposed subsidiaries
and the activities of the related banks, in the light of the physical,
personnel and historical connection between banks and agencies, will
be sufficiently great to satisfy the statutory requirement as to close
relationship.
The degree to which common customers make use of
facilities offered by both is a cumulative factor entitled to
be considered, and area practice in Montana is a substantial factor
whose weight, in the opinion of the Board, has not been diminished by
the enactment of the Bank Holding Company Act.
Closeness and propriety of relationship. - On the basis of
the record and particularly the facts heretofore stated, it is the
Board's view that the activities of Agencies and Liberty will bear
a direct and substantial relationship to the business of the related
subsidiary banks.
For the reasons set forth in the Board's Statement
in the First Bank Stock Corporation matter, cited above, the Board
believes that the relation of the insurance activities of Agencies
and of Liberty to the business of Applicant's respective subsidiary
banks, will not be inconsistent with the purposes of the Act.
Housing Activity. - The housing activity of the agency in
which Liberty proposes to acquire a one-fourth interest presents a
novel question under section 4(c)(6) of the Act.
Under the Board's
holding in its Statement in the matter of Otto Bremer Company, 1959
Federal Reserve Bulletin 892 at 895, to the effect that the making of
loans by an insurance agency could not be disregarded, even though
"interest income on such loans in the year and a half preceding the
hearing on this application totaled $164", the housing activity
-12-
cannot be dismissed as de minimis
Accordingly, the question remains as
to whether the activity is such as to preclude the granting of an
exemption to which Liberty appears otherwise to be entitled
The Board does not accept the Hearing Examiner's finding
that ownership of the house cannot be "classed as a business activity"
on the ground that the house does not represent an investment for
profit.
Moreover, section 4(c)(6) does not speak of all the
buliness activities of the subsidiary concerned, it requires that
all the activities be of the appropriate nature.
Kor can weight
be accorded to Applicant's argument that ownership of the house is
as essential to the proper operation of the agency as would be
ownership of a desk or a typewriter.
Reasoning of this kind, if
adopted by the Board, could be used to justify an absurdly elastic
range of property ownership by subsidiaries of bank holding companies.
The question cannot be dismissed on either theory.
The record supports, in one sense, the Hearing Examiner's
finding that the housing activity is closely related to the insurance
and banking business conducted by Liberty County Bank and Liberty
Insurance Agency, in that the house has been, and apparently will
continue to be, occupied by bank personnel during their 'period of
employment.
But the close connection contemplated by the statute,
and by section 222.5(b) of Regulation Y, would appear rather to be
cqle based on common business transactions.
It would seem to stretch
the language of the statute and of the regulation beyond reason to
hold that it covers the furnishing of a purely private facility
to personnel of the related bank.
-13However, even putting to one side the difficulty as to close
relationship, the Board is unable to hold that the activity is a
proper one under the statutory language. As the Board held in the
matter of the anplication of Transamerica Corporation,
1957
Federal
Reserve Bulletin 1014 at page 1016,
and subject
.. . Congress was of the view that, in general
systems
company
to only limited excentions, bank holding
should be restricted to banking activities and should not engage
in other types of business for the reason that common control
of banks and nonbanking organizations could give rise to
evils of several kinds."
The record describes several instances of the difficulty personnel
of banks and agencies in isolated communities in the area have
experienced in finding adequate housing. Accordingly, one such
evil might well be the competitive advantage which holding company
es if holding
ban'ts would gain over other banks in such localiti
company funds were made available to purchase and maintain rental
and their
housing to be occupied by managers of subsidiary banks
ent banks,
related insurance agencies while, in the case of independ
the necessary funds to provide equivalcnt facilitieshnd to be found
on an ad hoc basis by individual shareholders in the banks.
Another factor strongly suggesting that the housing activity
is not a "proper incident" of banking under section 4(c)(6) is that
the State law rorbids a bank to own such a house directly.
argues that a
Applicant
nonholding company bank may own a house "in this manner",
but then explains that this means only that individual stockholders
in the bank may own stock in a corporation which owns such a house,
or may own undivided shares in such a house.
Individual stockholders
-114in a bank holding compa,ly may similarly own such stock or such
undivided shares.
A bank holding companyi-hoTleVer, is not. on .the
same footing as an individual stockholder, in this respect.
There
are many things which an individual stockholder of a bank (or of a
bank holding company) may de, but which a bank holding company is
forbidden by the statute to do.
For example, the statute does not
forbid "chain banking", and individual stockholders in a bank or
bank holding company may acquire stock in as many banks as they
please.
But a bank holding company may not acquire voting shares in
a bank without the Board's approval.
It appears from the record that a bank is also forbidden
by
Nontana law to act as an insurance agent, or to own an insurance
agency directly,
The Board has held, however, that the fact that a
bank conducts an insurance businecis does not require a finding of
lack of "proper incident" wLere, as in ITontanal there is shoun to
be a widesnread area practice of oneratin7 insurance agencies in
connection with banks, and the practice is acquiesced in by supervisory authorities.
In the matter of operating rental housing for
bank personnel, there is no evidence in ne record before the Board
of such an area nractice.
Indeed, the extended discussion of the
difficulties which have been encountered in nyioviding housing, on
an ad hoc basis, in connection with several of Applicant's subsidiary
banks, indicates that no such area practice exists.
t's request that
There remains to be considered Applican
ion which would own the
it be permitted to form a Montana corporat
theory that ownership of shares
dwelling as its sole asset, on the
the prohibition of
in such a corporation would be exempt from
provides that
section 4 under section 4(c)(1), which
shall not apply "(c) The prohibitions in this section
by a bank. holding
(1) to shares owned or acquired
in holding or
company in any company engaged solely
substantially by
operating properties used wholly or
a bank holding
any bank with respect to which it is
for such future
company in its operations or acquired
a safe deposit
use or engaged solely in conducting
cf furnishing
business, or solely in the business
for such holding
services to or performing services
which it is a bank
company and banks with respect to
assets acquired
ing
idat
liqu
holding company, or in
such tank;".
from such bank holding company and
might be supposed at first
Two of the clauses in this subsection
corporation engaged in the
glance to be relevant to shares in a
"any company engaged solely in
activity proposed by Applicant: (1)
wholly or substantially by
holding or operating properties used
ations or acquired for
• . ." any banking subsidiary "in its oper
and (2) "engaged solely
such future use" (underscoring supplied),
•
ices to or performing
. . in the business of furnishing serv
.
services for . . ." banking subsidiaries
sufficient to show that
Inspection of the first clause is
it does not apply.
The ordinary significance of "properties used
include properties such as a parking
• . . in its operations" would
bank files, and the like.
lot for customers of a bank, storage for
It hardly could be stretched to encompassing private housing for
bank employees.
-16The Board has had several occasions to internret the
phrases "furnishing services to or performing services for" under
section
4
of the Act, for example at 1958 Federal Reserve Bulletin
431; 12 CFR 222.104.
It remains the Boards views that Congress
intended to limit such services to the types of activities generally
comparable to those mentioned in the early bil3, Jncluding auditing,
appraising, and investment counseling, and in the exhrpt from the
Committee Report on the later bill, such as advertising, public
relations, developing new business, organization, o2erations,
Preparing tax returns, personnel, and similar activities.
The most
nearly applicable of these, "personnel", refers evidently to such
activities as are customarily carried on by the personnel division
of a business organization, rather than to providing housing for
personnel.
Accordingly, the Board does not believe that the activities
of the proposed corporation fall within the exemption provided by
section 4(c)(1).
Conclusion. - After carefully considering all the
Circumstances - historical, physical and personnel relationship,
the o'xtent of direct connection between the proposed insurance
activities Of Liberty and Agencies and the activities of the related
ellbsidiary banks, the degree to which common customers will be
enjoyed by both, and the sanction given by long-established practice
in Montana to the operation of bank-connected insurance agencies the Board
has determined that the Activities of Montana Agencies,
1)dr:if
and the activities of Liberty Corporation other than the ownership
and operation of rental housing, will be so closely related to the
business of banking as conducted by the respective banking subsidiaries of Applicant 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; but that
for the reasons already stated, the proposed participation by
Liberty in the housing activity of Liberty Insurance Agency does not
satisfy the exemption requirements of section 4(0(6) and that, if
entered into, this activity would make necessary the application of
the prohibitions of section
4
to Liberty as a whole.
For this
reason, the exemption of Liberty will be conditioned upon Liberty
Insurance Agency disengaging itself before acquisition by Applicant
of shares in Liberty from all connection with the ownership and/or
Operation of rental housing, and desisting from such activity so
long as Applicant is subject to the provisions of the Bank Holding
Company Act.
Accordingly, for the reasons, and upon the condition
herein set forth, it is the Board's judgment that the requested
exemptions with respect to Montana Agencies and Liberty Corporation
Should be granted; and IT IS SO ORDERTM.
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
9
as to make the reasons for the Board's conclu.sion no longer applicable,
the statutory exemption resulting from the Board's present determination would, of course
June 29, 1961
cease to obtain.
@FedFRASER