Full text of Minutes of the Board of Governors of the Federal Reserve System : Meeting Minutes, June 7, 1960, Volume 47, Part 6

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Minutes for

To:

June

7, 1960

Members of the Board

From: Office of the Secretary

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




Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King

(4..-13

Minutes of the Board of Governors of the Federal Reserve System
on Tuesday, June 7, 1960.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

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

Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
King
Mr. Sherman, Secretary
Miss Carmichael, Assistant Secretary
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Farrell, Director, Division of
Bank Operations
Mr. Nelson, Assistant Director, Division
of Examinations

Items circulated to the Board.

The following items, which had

been circulated to the Board and copies of which are attached to these
minutes under the respective item numbers indicated, were approved
Unanimously:
Item No.
Letter to the Comptroller of the Currency recommending
unfavorably with respect to an application to organize
a
national bank in Daytona Beach, Florida.
I„!?tter to the Central National Bank of Rockford, Rockford,
411inoi8, approving its application for fiduciary powers.

2

Latter to the Security State Bank, Mount Ayr, Iowa,
raiVing the requirement of six monthst notice of withqrawal from membership in the Federal Reserve System.

3

Letter to the Federal Deposit Insurance Corporation
::Iegarding the application of County Trust Company of
Yland, Glen Burnie, Maryland, for continuation of
qePosit insurance after withdrawal from membership in
the Federal Reserve System.

4

Letter to the Federal Deposit Insurance Corporation regardthe application of Heights State Bank, Houston, Texas,
continuation of deposit insurance after withdrawal
'1`om membership in the Federal Reserve System.

5

I




2(
-2-

6/V60

With respect to Item No. 5, Mr. Nelson reported that Mr.
Pondran, Vice President, Federal Reserve Bank of Dallas, had advised
by telephone that Heights State Bank had now decided not to withdraw
from membership in the Federal Reserve System.

This decision resulted

from a requirement for investment of $300,000 in new capital which
the Federal Deposit Insurance Corporation planned to impose in
connection with the continuation of deposit insurance after withdrawal
from membership in the System.

Mr. Nelson thought, however, that it

'was appropriate to reply to the letter from the Federal Deposit Insurance
Corporation regarding the application from Heights State Bank for
conttmuation of deposit insurance, and there

Was

concurrence in this view.

Report on S. 1571 and H.R. 7024 (Item No. 6). Pursuant to
discussion at the Board meeting on June

61

there was distributed a

redraft of letter to Senator McClellan, Chairman of the Senate Committee
On Government Operations, reporting on S. 1571, a bill to establish
a Department of Consumers in order to secure within the Federal GovernIllent effective representation of the economic interests of consumers;
to coordinate the administration of consumer services by transferring
to such Department certain functions of the Department of Health,
clUcation, and Welfare, the Department of Labor, and other agencies;
and for other purposes.

After a brief discussion, during which two

Changes in wording were suggested and accepted, the letter to Senator
McClellan was approved and a copy is attached as Item No.

6.

It was

Understood that a similar report would be sent in response to a request




6/7/60

-3-

of Chair

Dawson of the House Committee on Government Operations

regarding an identical bill, H.R. 7024.
Telegram to Reserve Banks regarding coin shortage.

There had

been distributed a proposed telegram to the Presidents of all Reserve
Banks asking for suggestions at the forthcoming Presidents' Conference
as to what, if any, System action might be desirable to improve coin
supply in the future.
Mr. Farrell described reports from several Reserve Banks as
to the shortage of coin.

For example, the Philadelphia Reserve Bank

recently reported that that Bank had on hand less than a day's supply
°f

pennies, nickels, and dimes.

Mr. Farrell noted that this was not

a new situation, adding that following a conversation several weeks
earlier with Mr. Mangels, President of the Federal Reserve Bank of
San Francisco) he had discussed the matter with Mr. Brett, Director of
tlle Mint, who had indicated that nothing could be done about the
Problem until after the beginning of the new fiscal year.
After commenting on some of the suggestions that had been made
for easing the coin shortage, Mr. Farrell expressed the view that the
Presidents
of the Reserve Banks would no doubt like to discuss the
Problem with the Board and that they might have some suggestions for
SYstem action.
Following a discussion, during which Chairman Martin commented
the.

e Treasury Department was still somewhat concerned about the




21
-4-

6/7/60

effect that further releases of vault cash to be counted toward
reserve requirements might have on the supply of coin, unanimous
approval was given to a telegram to the Presidents of all Federal
Reserve Banks stating that the Board would be glad to have suggestions
at the forthcoming Presidents' Conference as to what, if any, System
action might be desirable to improve coin supply in the future.
Application of Hempstead Bank to establish a branch
There had been distributed a memorandum dated June

3, 1960,

(Item No. 7).
from the

Division of Examinations regarding an application of Hempstead Bank,
Hempstead, New York, to establish a branch at 72 East Old Country Road
in the Incorporated Village of Mineola, Nassau County, New York.

The

branch would be approximately two and one-half miles north of the
aPplicant's head office in Hempstead in a heavily populated area with
numerous commercial and industrial enterprises.

From a banking stand-

Point the importance of Mineola was not questioned.

The largest commercial

bank in Nassau County and the only savings bank in the county had applied
for permission to relocate their main offices in Mineola, and the memorandum suggested that it would appear reasonable to permit Hempstead

Bank, a relatively large and aggressive competitor of the banks already
located in the Village, to compete within the same corporate limits.
Attached to the memorandum was a draft letter that would approve the
establishment of the branch.
In response to a comment by Governor Mills that permission to
establish the branch apparently had not yet been granted by the New York




102
6/7/60

-5-

State authorities, Mr. Nelson said that he had learned from the New
York Reserve Bank this morning that it was expected the branch would
be approved by the State Banking Board at its meeting today.

Mr.

Nelson pointed out that under the new State banking law of New York
no branch may be opened in a city or village in which is already
located the principal office of another bank, trust company, or national
banking association.

As indicated at the meeting on May 27, 1960, the

Franklin National Bank of Long Island, Franklin Square, New York, had
received preliminary approval from the Comptroller of the Currency of
a proposal to relocate its principal office in Mineola, which proposal
%las to be submitted to the shareholders of Franklin National on June 9,
1960,

The Hempstead Bank wished to open its proposed branch on June

8

before formal approval was given to the relocation of the Franklin
National Bank head office.
Governor Balderston Observed that when Mr. Clark, Nem- York
State Superintendent of Banks, visited the Board recently, he indicated
that he gave considerable attention to the matter of spacing branches,
and he (Governor Balderston) wondered whether the Reserve Banks had
similar standards for the spacing of banking offices.
Mr. Nelson replied that the Reserve Banks have no precise formula
c:/* the type mentioned by Governor Balderston.

In the case of Hempstead

8ankis application, he noted that offices of Franklin National and Long
Island Trust Company were located seven-tenths and six-tenths miles,




210,
—6—

6/7/60

respectively, from the site of the proposed branch.

However, he said

there had been a number of cases where the Board had given approval
to the establishment of branches across the street from other banks.
The Reserve Banks as well as the Board took into consideration the
additional
question whether there was sufficient business to support an
bank or banking office, as well as competitive factors.
Unanimous approval was then given the letter to Hempstead Bank
nding that
approving the establishment of a branch, with the understa
the letter would not be mailed until word was received that the branch
had been approved by the New York State Banking Board.

Following

was sent
receipt later in the day of advice to that effect, the letter
and a copy is attached as Item No.

7.

Letter from Republican Policy Committee (Item No. 8).

There

had been distributed a letter dated June 2, 1960, from Arthur E. Burgess,
of the
Secretary and Staff Director of the Republican Policy Committee
shUriited States Senate, requesting information regarding the accompli
ments or advances made by the Board during the past seven and one-half
Years.

The letter indicated that this information would be used by

35

Republican Senators.
After Chairman Martin outlined the kind of response he thought

'night be made to this inquiry, there was general discussion of the
type,
Procedure that might be followed in handling a letter of this
Ighich requested information regarding Board actions to be used for




6/7/60
partisan political purposes.

During this discussion the suggestion

was made that the matter might be discussed by Chairman martin with
Senator Bush or Senator Bennett, who are Republican Party members of
the Senate Banking and Currency Committee, with a view to ascertaining
'whether the request of the Committee might be withdrawn, and that in
the meantime a draft of possible reply would be prepared.

There was

general agreement with this proposal.
Secretaryts Note: Under date of June 13,
1960, Chairman Martin sent a letter to
Mr. Burgess in the form of attached Item
No. 8.

Maximum rates of interest under Regulation Q. Governor Robertson
expressed the opinion that, if the Board was going to take any action
changing the maximum rate of interest under Regulation Q, Payment of
Interest on Deposits, such action should be taken in time to be effective
for the interest period beginning July 1, 1960.

Chairman Martin sug-

gested that this topic be placed on the agenda for tomorrowts meeting
and there was concurrence in this suggestion.
Advance refunding of Treasury notes and bonds.
(Noted from a Treasury Department press release of June

Governor Robertson

6, 1960,

relating

t° an offering of 3-3/4 per cent Treasury notes maturing May 15, 1964,
Or 3-7/8 per cent Treasury bonds maturing May 15, 1968, in exchange for
2-1/2 per cent Treasury bonds maturing November 15, 1961, on a par for
Par basis.




As a result of legislation approved September 22, 1959, the

t).

6/7/60

-8-

Treasury Department was for the first time offering holders of a
Specific issue of marketable bonds an option in advance of maturity
to exchange the bonds for either a marketable note or a bond of longer
maturity.

Prior to the legislation this type of advance exchange was

Prohibited because of tax considerations.

Under the new law, the tax

effect of the transaction was deferred until the investor disposed of
the securities accepted in exchange.
Governor Robertson said that Mr. Baird, Under Secretary for
Monetary Affairs, Treasury Department, had called some time ago indicating that, in connection with advance refunding, it was thought it
would be helpful if banks were authorized to carry an exchanged security
at the same book value as the security previously held, thereby
recognizing no gain or loss for income tax purposes. On the basis of
a discussion of this subject with Mr. Hackley and Mr. Masters, Governor
Robertson had advised Mr. Baird that there would appear to be no reason
for not following this procedure.

There had been no further discussion

°f this matter with the Treasury Department, he said, but the June

Pl'ess

release contained the following paragraph:

The Comptroller of the Currency, the Board of Governors
Of the Federal Reserve System, and the Federal Deposit
Insurance Corporation have indicated that they intend to
issue rulings advising banks under their supervision that
they may place the securities received in exchange on their
books at an amount not greater than the amount at which the
securities being tendered by them for exchange are carried
on their books.




6

44*;e* t!)(r,

6/7/60

-9-

To implement this procedure, Governor Robertson said that the Division
Of Examinations proposed to send a letter to the Vice Presidents in
Charge of Examinations at all Federal Reserve Banks referring to the
June

6 Treasury exchange offering and indicating that the Secretary

Of the Treasury had declared that no gain or loss should be recognized
on the exchange for Federal income tax purposes.

It would also state

that State member banks availing themselves of the exchange opportunity
could place the securities received in exchange on their books at an
amount not greater than the amount at which the securities being tendered
by them were carried on their books.

Governor Robertson said that he was

bringing this to the attention of the Board for its information and to
afford an opportunity for suggestions that any of the members of the
Board might have before the letter was dispatched.
No objection was indicated to the procedure outlined by Governor
Robertson.
Application forms for bank mergers and consolidations.

Mr. Masters

reported that a letter dated June 1, 1960, had been received from the
151ePartment of Justice transmitting suggestions as to information bearing
orl the competitive features of bank mergers that might be included in
applications submitted to bank supervisory agencies under Public Law

86-463.

The content of the letter had been discussed yesterday at a meeting
141th representatives of the Federal Deposit Insurance Corporation and
the Comptroller of the Currency, both of which agencies had received




6/7/60

-10-

Similar letters from the Department of Justice.

Some of the suggestions

Of Justice appeared useful, some were questionable, and a number were
unacceptable, Mr. Masters said, and another meeting was being scheduled,
Probably for later this week, with representatives of the Department of
Justice and the three Federal bank supervisory agencies in order to
work out some suitable application form for banks to use in connection
With mergers and consolidations.

In the meantime, Mr. Masters sug-

gested that an acknowledgment be sent to Justice indicating that the
auggestions of that Department were being studied, and it was understood
that this procedure would be followed.

The meeting then adjourned.

Secretaryts Note: Pursuant to recommendations
contained in memoranda from appropriate individuals
concerned, Governor Robertson, acting in the
absence of Governor Shepardson, today approved on
behalf of the Board the appointments of the following persons, effective in each case on the date of
entrance upon duty:
Peggy Richman as Research Assistant in the Division of Research
and Statistics, with basic annual salary at the rate of $40980,
from about June 1 to about September 15, 1960.
Sandra Jean Rider as Clerk-Stenographer in the Division of
Personnel Administration, with basic annual salary at the
rate of $3,755.




BOARD OF GOVERNORS
OF THE

Item No. 1
6/7/60

FEDERAL RESERVE SYSTEM

41 ,

WASHINGTON 25. D. C.
t:qt

AOORE011 OffICIAL CORRESPONDENCE
TO THE BOARD

41.trast

June

7, 1960

Comptroller of the Currency,
Treasury Department,
Washington 25, D. C.
Attention Mr. W. N. Taylor,
Deputy Comptroller of the Currency.
Dear Mr. Comptroller:
Reference is made to a letter from your office dated
'January 19, 1960, enclosing copies of an application to organize
a national bank in the South Peninsula Section of Daytona Beach,
Florida, and requesting a recommendation as to whether or not the
application should be approved.
Information contained in a report of investigation of the
aPPlication made by an examiner for the Federal Reserve Bank of
Atlanta indicates that the proposed capital structure of the bank
would be adequate and that satisfactory arrangements could be made
for management. However, the prospects for profitable operations of
,t_he institution are not very favorable and there does not appear to
sufficient need for the bank at this time. Accordingly, the
ard of Governors does not feel justified in recommending approval
of the
application.
The Board's Division of Examinations will be glad to
dis
.
4 cuss any aspects of this case with representatives of your office
4-4 YOU so
desire.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

41
1
BOARD OF GOVERNORS
,.otitr**44
a '4

OF THE

Item No. 2

FEDERAL RESERVE SYSTEM

-•
:
11

6/7/60

WASHINGTON 25. D. C.

ADDRESS OFFICIAL CORRESPONDENCE

io tit
0?0,41. mots,/
**0

TO THE BOARD

June 7, 1960

Board of Directors,
Central National Bank of
Rockford,
Rockford, Illinois.
Gentlemen:
The Board of Governors of the Federal Reserve System
has given consideration to your application for fiduciary
Powers and grants Central National Bank of Rockford authority
to act, when not in contravention of State or local law, as
trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, committee of estates
Of lunatics, or in any other fiduciary capacity in which State
banks, trust companies, or other corporations which come into
competition with national banks are permitted to act under the
laws of the State of Illinois. 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 formal certificate indicating the fiduciary powers
hat your bank is now authorized to exercise will be forwarded
ln due course.




Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.

BOARD OF GOVERNORS
440tostrp,
441 or0 00p, ,410

I

441440,

OF THE

.,:.
b,.

Item No.

FEDERAL RESERVE SYSTEM

t tr

WASHINGTON 25, D. C.

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

June

7, 1960

Board of Directors,
Security State Bank,
Mount Ayr, Iowa.
Gentlemen:
The Federal Reserve Bank of Chicago has forwarded to
the Board of Governors your letter, together with the accompanying
resolution dated May 18, 1960, signifying your intention to withdraw from membership in the Federal Reserve System and requesting
waiver of the six months' notice of such withdrawal.
In accordance with your request, the Board of Governors
waives the requirement of six months' notice of withdrawal. Upon
surrender to the Federal Reserve Bank of Chicago of the Federal
Reserve Bank stock issued to your institution, such stock will be
canceled and appropriate refund will be made thereon. Under the
provisions of Section 10(c) of the Board's Regulation H, your
institution may accomplish termination of its membership at any
time within eight months of the date the notice of intention to
withdraw from membership was given.
It is requested that the certificate of membership be
returned to the Federal Reserve Bank of Chicago for disposition.




3

6/7/60

Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS
OF THE
4°Iig(tt'24,

Item

FEDERAL RESERVE SYSTEM

If

No. L.

6/7/60

WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE

2-0 4,;it
*it.40444, ,o4r
tiowv,

TO THE BOARD

June 7, 1960

The Honorable Jesse P. Wolcott, Chairman,
Federal Deposit Insurance Corporation,
Washington 25, D. C.
Dear Mr. Wolcott:
Reference is made to your letter of May 26, 1960,
g
concernin the application of County Trust Company of
Maryland, Glen Burnie, Maryland, for continuance of deposit
insurance after withdrawal from membership in the Federal
Reserve System.
No corrective programs that the Board of Governors
believes should be incorporated as conditions to the continuance of deposit insurance have been urged upon or agreed to
by the bank.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.

Item No.

5

6/7/60

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

June 7, 1960

The Honorable Jesse P. Wolcott, Chairman,
Federal Deposit Insurance Corporation,
Washington 25, D. Ca
Dear Mr. Wolcott:
Reference is made to your letter of May 261 1960,
concerning the application of the Heights State Bank, Houston,
Texas, for continuance of deposit insurance after withdrawal
from membership in the Federal Reserve System.
No corrective programs which the Board believes
should be incorporated as conditions to the continuance of
deposit insurance have been urged upon or agreed to by the
bank.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

% 6M0p./

BOARD OF GOVERNORS
OF THE
16'
1'1
/
4

Item No.

FEDERAL RESERVE SYSTEM

6

6/7/60

WASHiNGITON

OFFICE Mr THE CHAIRMAN

.4„4"
:4
4
,44.1 use,

June

7, 1960

The Honorable John L. McClellan,
Chairman,
Committee on Government Operations,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
This is in response to your request for a report on the
bill, S. 1571, "To establish a Department of Consumers in order to
secure within the Federal Government effective representation of
the economic interests of consumers; to coordinate the administration of consumer services by transferring to such Department certain
functions of the Department of Health, Education, and Welfare, the
Department of Labor, and other agencies; and for other purposes."
While the Board is sympathetic with efforts to protect
the economic interests of consumers, it questions whether the proposed separate executive department of Government would be desirable
or effective for this purpose. Existing public agencies should be
guided in their decisions by due consideration of consumers as well
as other interests, all included under the general welfare. To the
extent that any serious problems may exist in the consumer field,
the Board believes that it would be preferable to consider legislation addressed directly to these specific problems rather than to
the creation of a new department whose statutory responsibilities
might be difficult to define.




Sincerely yours,
(Signed) Wm. McC. Martin, J
WM. McC. Martin, Jr.

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON 25, O. C.

Item No. 7

6/7/60

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

0,4 mat
tiott***

June 70 1960

Board of Directors,
Hempstead Bank,
Hempstead, New York.
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 a branch by Hempstead Bank, Hempstead, New York, at
72 East Old Country Road in the Incorporated Village of
Mineola, Nassau County, New York. This approval is given
provided the branch is established within one month from
the date of this letter and the branch is actually opened
and occupied within such time as such action is permissible
under Subdivision 1(b) of Section 105 of the New York State
Banking Law.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.

Cu

BOARD OF GOVERNORS

0
,
4
.
)

OF THE

*V;

FEDERAL RESERVE SYSTEM

Item No.

6/7/60

WASHINGTON

4

OFFICE OF THE CHAIRMAN

June 13, 1960.

Mr. Arthur E. Burgess,
Secretary and Staff Director,
Republican Policy Committee,
United States Senate,
Washington 25, D. C.
Dear Mr. Burgess:
I have discussed your nice letter of June 2 with the
members of the Board and while we are always glad to be
of assistance whenever we can, it seems to us unwise, both
from your point of view and from ours, to attempt to
summarize the activities of the Board on monetary policy
during any specific period of time.
During the time that this Administration has been in
Power our relationships with the Federal Treasury have been
very good, as indeed they were during the year and a half of
the preceding Administration when, as now, I was privileged
to be Chairman. Since the Board is clearly non-political in
it concept, it would be a disservice to relate any achievements, other than the continued maintenance of this non-political
Position, to the past 7 and a half years. It would be more
Proper, historically speaking, to relate them to the entire
Period since the Treasury-Federal Reserve Accord of
March 4, 1951, when the principle of flexible monetary
Policy was reintroduced.
I am confident that you will understand this point of
View and would not wish UB to participate in anything which
would in any way mar the concept under which the Federal
Reserve System was established and, from the beginning of
its history, has been operating.
With all good wishes,




Cordially yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.

8

t