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Minutes for To: Members of the Board From: June 4, 1959 Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you. will advise the Secretary's Office. Otherwise, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Ohm. Martin Gov. Szymczak Gov, Mills Goy. Robertson Gov. Balderston Gov. Shepardson Gov. King x #12.011.4 Minutes of the Board of Governors of the Federal Reserve System 011 Thursday, June PRESENT: 4, 1959. The Board met in the Board Room at 10:00 a.m. Mt. Mt. Mt. Mt. Mt. Martin, Chairman 1/ Balderston, Vice Chairman Szymczak Robertson King Sherman, Secretary Kenyon, Assistant Secretary Riefler, Assistant to the Chairman Hackley, General Counsel Masters, Director, Division of Examinations Molony, Special Assistant to the Board Nelson, Assistant Director, Division of Examinations Mr. Powell, Special Counsel to the Board Mr. Mr. Mr. Mr. Mr. Mr. Mr. Services of Mr. Holahan (Item No. 1). Made Pursuant to arrangements as the result of discussion at yesterday's meeting, Mr. Powell was present for the purpose of amplifying his letter to the Board dated may 26, 1959, in which he stated that it would be helpful to as Special Counsel to the Board in the matter of The Continental Bank and Trust Company, Salt Lake City, Utah, if arrangements could be made whereby J. Frank Holahan, after the effective date of his resignation from the employ of the Board, could be available for such technical advice and assistance as might be needed from time to time in the Trust completion of the proceeding involving The Continental Bank and Company and in any court proceedings that might follow the final order of the Board. 1/ Entered meeting at point indicated in minutes. 6/4/59 -2Mr. Powell explained that arrangements such as he had suggested in his letter would be of convenience and assistance to him) although not indispensable. He pointed out that although he had received much assistance from various members of the Board's staff during the course of the current proceeding, Mr. Holahan had worked with him from the beginning on all features of the case. Therefore, it would be helpful, as various briefs were written or e-rguillents prepared, if Mr. Holahan could be available for consultation. The case would not involve, of course, any further testimony or the preparation of further exhibits as evidence, and he did not envisage that any searching of the record of the case by Mr. Holahan 'would be required. Rather, he envisaged that on occasions when he hai drafted some argument or motion that involved facts, he would Provide S. copy to Mr. Holahan and request the latter's views. He did not foresee that it would be necessary for Mr. Holahan to leave his Place of residence; any discussion probably could be accomplished by tel 4-elolione or, if necessary, Mr. Powell could pay a visit to Mr. 14°1ahan. Mr. Powell pointed out that after the case was formally euhmitted to the Board of Governors, a period of several months Prob ably would ensue before the Board made its decision. Then, dePendiug upon the nature of the decision, another period might elea 3se during which Continental would be given an opportunity to / /59 6 4 -3- 1 c°111 31Y with whatever the Board might require. After the case was submitted to the Board, he did not foresee that it would be necessary t° call upon Mr. Holahan unless and until the case was taken to court by Continental, but if the case did go to court there would ensue a Period of brief-writing during which it would be helpful to have the benefit of consultation with Mr. Holahan. In any event, Mr. Holahan's services would be used on a sporadic basis and not continuously. In fUrther comments, Mr. Powell outlined the period of time that might elapse if the case were taken to court and appealed before a final decision was handed down. In response to a question by Governor Robertson, Mr. Powell indicated that Mr. Holahan's services would not require him to go beyond the record of the case except possibly to the extent that certain published material, by stipulation, had been incorporated in the record by reference. Accordingly, it would not be necessary for Nr. Holahan to have recourse to the Board's files. The discussion then turned to the matter of compensation and it was pointed out that consultants retained by the Board generally Were paid a ; maximum rate of 1 50 per day for each day served. Mr. P°well recalled that the payment of compensation to certain expert Witnesses in the Continental proceeding was at a higher rate; according to his r ecollection, it had been customary for those persons to add the 6/ 4/59 -4- number of hours devoted to the case over a period of time and then make a division in order to determine the number of days or fractions thereof for which they requested compensation. In response to a question by Governor Balderston, Mr. Powell said he would not feel free to enter into an arrangement with Mr. H°1-ahan without the approval of the Board. If it seemed preferable for the arrangement to be between him and Mr. Holahan rather than between the Board and Mr. Holahan, he would be glad to endeavor to work out an arrangement within such framework as the Board might Prescribe . Governor Balderston then stated that he would not consider it appropriate for the Board to retain Mr. Holahan directly. Governor Robertson indicated that if there was any feeling in that respect he lIcluld go along with the idea of an arrangement between Mr. Powell and Mr. Holahan within a general framework outlined by the Board. At this point Chairman Martin joined the meeting, and the discussion that had taken place was reviewed for his benefit. Governor Robertson then inquired of Mr. Powell whether it be agreeable to him if the Board should authorize him to make an arrangement with Mr. Holahan for purposes such as he had mentioned, With the understanding that compensation to Mr. Holahan would not exceed the rate ordinarily paid by the Board to outside consultants. Mr. Powell indicated that such an arrangement and stipulation 4°uia be agreeable to him. He did not contemplate that the total 64 / /59 -5- amount of compensation paid to Mr. Holahan would be large because he did not envisage calling upon Mr. Holahan to any great extent, perhaps not more than 25 or 30 hours in the course of a year. In response to a further question from Governor Robertson, Mr. Powell said that he did not see how any question could be raised regardi ng the propriety of such an arrangement with Mr. Holahan. He noted that Continent al had not raised any question about the propriety of the Board's retaining expert witnesses from the bnnIcing and academic fields. Chairman Martin then indicated to Mr. Powell that the Board would consider the matter further and that he would be advised. Before withdrawing from the meeting, Mr. Powell commented that Counsel for The Continental Bank and Trust Company had filed with the 8 °ara a motion to disqualif y Governor Robertson as a member of the E°4rd in reviewing the Report and Recommended Decision of the Trial IlcalIliner or from otherwise participating in the decision on the section n Proceeding, on the basis of his allegedly being prejudiced and having Personal animosity toward the Continental Bank's President, 14r. C°81griff. Mr. Powell stated that he was preparing a memorandum brief in opposition to the motion which he would file within the next few de,Ye as part of the record of the proceeding. He requested, 64 / /59 -6- therefore, that the Board withhold action on the motion until the memorandum brief in opposition to it could be filed. Mr. Powell then withdrew and Mr. Shay, Legislative Counsel, entered the room. There followed discussion of the request made by Mr. Powell With respect to the services of Mr. Holahan during which Governor Balderston stated that Mr. Powell's explanation had served to answer IllanY of the questions that were on his mind when the matter was considered yesterday. In view of the explanation by Mr. Powell concerning the manner in which he envisaged utilizing the services Of Mr. Holaban, Governor Balderston said that he would be agreeable to All arr angement between Mr. Powell and Mr. Holahan of the kinn that had been suggested. Other members of the Board concurred in this point of view. lic4rever, it was thought advisable that the letter to Mr. Powell authorizing such an arrangement with Mr. Holahan make clear that couVensation should not be at a rate in excess of $50 per eighthour daY and also that payments made to Mr. Holahan would be reimbursed to Mr. Powell in addition to the retainer agreed upon between the Board and Mr. Powell with respect to the latter's services as Special Counsel. 6/4/59 -7Thereupon, it was agreed to authorize Mr. Powell to enter into an arrangement with Mr. Holahan subject to the conditions stated above. Governor King did not participate in this decision. A copy of the letter subsequently sent to Mr. Powell is attached as Item No. 1. Items circulated to the Board. The following items, which ilad been circulated to the Board and copies of which are attached hereto under the respective item numbers indicated, were approved un animously: Item No. Letter to the Naumkeag Trust Company, Salem, Ma ssachusetts, granting an extension of time within which to establish a branch in Salem. Letter to the Comptroller of the Currency re commending favorably with respect to an el o 2 3 Plication to organize a national bank at Orlando, Florida. Letter to the Comptroller of the Currency re commend—ng favorably. with regard to an , I lalcation to organize a national bank in Petersburg, Florida. 4 !T Messrs. Masters and Nelson then withdrew from the meeting. .1 12Rort on H.R. 2790 H.R. 5732 and H.R. 6323 (Item No. Pursuant to the understanding at yesterday's meeting, there had been distributed to the Board a revised draft of letter to the Chairman of the 11°11se Banking and Currency Committee in response to his request for a rePort on H.R. 2790, H.R. 5732, and H.R. 6323, b Ils which would increase 6/4/59 -8- the number of members of the Board of Governors, abolish the Federal Open Market Committee, and transfer to the Board the functions of that Committee. Two of the bills also contained other provisions. There ensued a discussion of the revised draft pnd several suggestions were made regarding the phrasing of comments on the bills. At the conclusion of the discussion, agreement was reached on certain Changes, The draft was then referred back to the staff for editing, 'with the understanding that the letter would then be transmitted over the signature of Chairman Martin. A copy of the letter sent later in the day to the Chairman Of the House Banking and Currency Committee pursuant to this action is attached as Item No. 5. The meeting then adjourned. Secretary's Notes: During the day advice was received that the directors of the Federal Reserve Banks of Philadelphia and Kansas City had established, subject to the approval of the Board of Governors, a rate of 3-1/2 per cent (rather than 3 per cent) on discounts for and advances to member banks under sections 13 and 13a of the Federal Reserve Act, along with a rate of L. per cent on advances under section 10(b). Other rates in the Banks' existing schedules were established without change, except that the Philadelphia Bank fixed a rate of 4-1/2 per cent on advances under the last paragraph of section 13. These rates being within the pattern approved by the Board on May 28, 1959, the Banks were advised 6/4/59 -9of approval of the rates, effective June 5, A press release in the usual form was issued at 4:00 p.m. EDT, telegraphic advice was sent to all Reserve Banks and branches, and arrangements were made for publication of a notice in the Federal Register. 1959. Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Robertson, in the absence of Governor Shepardson, today approved on behalf of the Board the following items affecting the Board's staff: AP.2 1 .9.1. 2EL w , MarilYn A. Gatlin as Clerk in the Division of International Finance, : annual sal t11 01 :ic 1. : at the rate of *3,755, effective the date of upon duty. Date ... . uf begng maternity leave X .„.n Patricia C. Fitzmaurice, Senior Clerk in the Division of International ance, to work for an additional week before beginning maternity leave June 15) 1959. Yta apr.a.Mason, Stat stical Clerk in the Division of Research and istics, from %Ante 5 through July 31, 1959. Secretary BOARD OF GOVERNORS , 61g0k2,4 'q0 4 1 4.3 ** OF THE Item No. 1 FEDERAL RESERVE SYSTEM .7.41 6/4/59 WASHINGTON 25. D. C. A.; ADDRESS OFFICIAL CORRESPONDENCE TO THE EIOARD Ve,1 : 0° 01tI June 4, 1959 Mr. Bolling R. Powell, Jr., Powell, Dorsey, Blum & White, 1741 K Street, N. W., Washington 6, D. C. Dear Mr. Powell: This refers to your letter of May 26, 1959, in which ::u suggest the desirability of an arrangement by which the 5:) _ hnical advice and assistance of Mr. J. Frank Holahan can continuep to be available to you during the remaining phases of the .ontinental Bank and Trust Company proceeding. As indicated in your letter, Mr. Holahan has resigned Position with the Board effective June 12, 1959, and there: 41 , . will be employed as a vice president by the National Bank westchester, White Plains, New York. his 4 , In recognition of Mr. Holahan's close contact•with the subject der., proceeding and the special knowledge and experience he has col-,ved L therefrom, it is understandable that a continuation of the anc1J-aborative relationship between you, as Board's Special Counsel, you l'tirn. Holahan would be desirable. Therefore, the Board authorizes this - make arrangements with Mr. Holahan which will be conducive to additPurPose. Compensation to Mr. Holahan for such services, in "," to necessary travel expense which will be paid by the Board, sholia ' day, not exceed $50 per diem, computed on the basis of aa8-hour ticn and such compensation will be reimbursed by the Board in addito the retainer heretofore agreed to. The Board's staff, of course, will continue, as it has in the ,„last, to cooperate with you fully in furnishing any factual Illfor on and technical counsel which you may require in connectier., 141th further developments in this case. Very truly yours, _ ' Merritt Oermall, Secretary: BOARD OF GOVERNORS Item No. 2 6/4/59 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRIESP TO THE BOARD June h., 1959 Board of Directors, Nalunkeag Trust Company, Salem, Massachusetts. Gentlemen t Pursuant to your request submitted through the Federal Reserve Bank of Boston, the Board of Governors mxtends to March 15, 1960, the time wi.thin which Naumkeag e rust Company may establish a branch in an area bounded DerbY Square and Central Street, Salem, Massachusetts, originally approved in letter of the Board of Governors dated September 15, 1958. t Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. Niattuce BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 6/4/59 WASHINGTON 25, D C ACHDRESS OFFICIAL CORF1ESPONOENCE TO THE BOAR() June 4, 1959 eci,Ttroller of the GurrencY, Tteuzui-y Depart in€:nt) 1.1ash1ncton 25, IL C. Attention Mr. UL M. Taylor, Deputy Comptroller of the Currency. Mr. Comptroller: 195 e4t oZ s made to a letter froui your office dated October 14, ren i g Stat of an application to organize a national bank on ing a gb14V 50, west of the city limits of Orlando, Florida, and requestratomniendation as to whether or not the application should be approved. A report of investigation of the application made by an examiner f(3r thn daCro, 'ederal Reserve Bank of Atlanta indicates that the organizers have Bteaci e1IIr°vide a minimum capital structure for the bank of $600,000 int° . 000 41 ar ' ,000 shown in the application. This revised capital structure 3f ' r nt]i :to be adequate. This report discloses generally favorable finding 'A teritii:Pact to the earnings prospects of the bank and management, although arrangements have not been made for the chief executive officer. _ ! r 11-le '1110 ere is sone question as to need for the bank at the present time, 4, cogrowth in the area is anticipated and the institution will provide Qovizernonvellient facilittris for local residents. Accordingly, the Board of sati , a : 1!Idelraj reconmends favorable consideration of the application with the s2 ' ‘„ 1 ' 4etoi -` ing that arrangements will be made for executive management , your 10 office. ' e8Pect8 he Board's Division of Examinations will be glad to discuss any .k this case with representatives of your office if you so desire. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 3 BOARD OF GOVERNORS OF THE Item No. 4 6/4/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL. CORRESPONDENCE TO THE HOARD June 4, 1959 Comptroller of the Currency, Treasury Department, Washington 253 D. C. Attention Mr. L. A. Jennings, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated Februal, , -Y 3, 1959, enclosing copies of an application to organize ,.-c'ulonal bank in St. Petersburg, Florida, signed by I. Fred H. een and Associates, and requesting a recommendation as to "mether or not the application should be approved. Information contained in a report of investigation of the of A ,Pplication made by an examiner for the Federal Reserve Bank to ttlanta indicates generally favorable findings with respect the proposed capital structure of the bank, its earnings ;:,;11,1),cts, the character of management, and the need for a bank re_ Ills expanding area. Accordingly, the Board of Governors b_Q?mmends approval of the application to organize a national . c414 in St. Petersburg, Florida. dip The Board's Division of Examinations will be glad to __ any aspects of this case with representatives of your 4.ce if you so desire. Very truly yours, (signed.) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. fi r. .,9k.).1 901y 7 r• 1 :3 BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 6/4/59 WASHINGTON •:10`4,. 14. 4 ,AO:sC :2 : ‘ 41.1 • 1 OFFICE OF THE CHAIRMAN June 5, 1959 The Honorable Brent Spence, Chairman, Committee on Banking and Currency, House of Representatives, Washington 25, D. C. Dear Mr. Chairman: This is in response to your letter of May 11, 1959, re questing reports on H. R. 2790, H. R. 5732, and H. R. 6323, each which Go\rernorwould increase the number of members of the Board of s and abolish the Federal Open Market Committee and transfer to the Board the functions of that Committee. seven to H. R. 2790 would increase the number of Board members from 140_, s twelve while H. R. 5732 and H. R. 6323, identical bills, increase the number of Board members to sixteen, four of whom, ecretaries of Labor, Commerce, and Agriculture, and the 2'11 strator of the Small Business Administration, would serve officio. The present Board and Committee structure is the product Ruch c adopted after long considera, f! , , and onstructive thought and was , debate on the part of the Congress. It should not be izusal.ntally changed without extensive hearings to permit compreexPression of opinion by informed and competent persons and fil offi (311sideration of the views of members of the Congress and becacials of the Federal Reserve System. This is especially so 8igntil.se the questions raised by the bills are of such far-reaching ' zati,fl eance to the economy. In our judgment, the System's organic 'nal structure should be changed only if such hearings and study is veloP an unquestionably better organization. (4 With respect to the proposal contained in H. R. 5732 and H. R. 6 Board ,323, to provide for four ex officio members on the Board, the cumbe believes that such membership would tend to make the Board a inde rs°me body, might interfere with the exercise by the Board of adz ej nclent judgment in determining credit policies, and would place occu .2;onal burdens on government officials who are already fully pri313 r-Led with other duties for which they are primarily responsible. , carsf ° 1936 two Ox officio members served on the Board but after arli " xamination of the question during consideration of the e ' Act of 1935, ex officio membership was terminated. c ng 5 The Honorable Brent Spence -2- While the Board would see no substantial objection to the provisions contained in H. R. 5732 and H. R. 6323 that would make : 131 sons actively engaged in "any busine ss or professional occupation 'ner than bankin g" eligible for election as Class B directors of zsielderal Reserve Banks, the Board questions whether the exception 0,ould be limited only to the occupation of banking. Traditionally, Class B st directors have been regarded as representing the borrowing _gment of the public as distinguished from the lending segment repsented by Class A directors. Consequently, if this amendment is 1010t ed, it : would seem desirable to change the words "other than clng" to read "other than one involving the exercise of banking ur other major lending activities." i7 Both H. R. 5732 and H. R. 6323 would require the President, ia a PPointing members to the Board, to have due regard to a fair :iresentation of "labor, small business, and consumer interests". Of ,Board believes it essential that Board members be representative :hs interest of the nation as a whole, irrespective of their prereusus affiliati ons. If any amendment is made to the law in this repre ect, it would be preferable to eliminate all references to 2 sentation of particular interests in the selection of Board Members 4 Sincerely yours, (Signed) Wm. MeC. Martin, Jr. WM. McC. Martin, Jr.
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