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. 609 V. 9/61 Minutes for To: Members of the Board From: Office of the Secretary March 1, 1962 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If you were not present, your initials will indicate only that you have seen the minutes. Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Coy. King Goy. Mitchell Minutes of the Board of Governors of the Federal Reserve System on Thursday, March 1, 1962. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mitchell Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Miss Carmichael, Assistant Secretary Mr. Thomas, Adviser to the Board Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Molony, Assistant to the Board Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Noyes, Director, Division of Research and Statistics Mr. Farrell, Director, Division of Bank Operations Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration , Controller Connell Mr. Adviser, Division of Research and , Holland Mr. ics Statist Mr. Furth, Adviser, Division of International Finance Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Goodman, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Morrison, Economist, Division of Research and Statistics Mr. Veenstra, Technical Assistant, Division of Bank Operations Discount rates. The establishment without change by the Federal of the rates on discounts Reserve Bank of Kansas City on February 28, 1962, or) t -2- 3/1/62 and advances in its existing schedule was approved unanimously, with the understanding that appropriate advice would be sent to that Bank. Items circulated or distributed to the Board. The following items, which had been circulated or distributed 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 Chemical International Finance, Ltd., New York, New York, granting consent to purchase shares of Credit Malakoff Societe Anonyme, (Credima), Paris, France, at a cost of approximately $160,000. Letter to Hunterdon County Trust Company, Califon, New Jersey, approving the establishment of a branch in the village of Oldwick, Tewksbury Township. 2 Letter to United California Bank, Los Angeles, California, approving an extension of time to establish a branch in the vicinity of San Antonio Drive and Long Beach Boulevard, Long Beach. 3 With respect to Item No. 1, involving a request of Chemical International Finance, Ltd., for permission to purchase shares of Credima, Mr. Furth pointed out that Credima was engaged in the business of purchasing retail paper arising from the sale of foreign automobiles in France. It was understood that the company was currently negotiating with Volkswagen to handle a portion of their auto financing requirements and that Volkswagen had indicated an interest if Chemical International made the proposed investment. Mr. FUrth raised the question whether the funds of an Edge Act corporation should appropriately be used for such a 3/1/62 -3- purpose. The amount of the proposed investment was small, and therefore would have little impact in terms of the U. S. balance of payments. However, a recent letter from the Comptroller of the Currency in connection with a proposed investment of Boston Overseas Financial Corporation in the stock of a Netherlands company had raised the question whether this aspect was receiving sufficient attention in the consideration of investments by Edge Act corporations. Mr. Goodman then read a portion of a letter dated February 26, 1962, from the Comptroller of the Currency in which the question relating to this country's balance of payments was raised. Mr. Goodman added that in his own view the investment under consideration by the Board and the investment referred to in the Comptroller's letter were both within the scope of activities contemplated by the Edge Act. On the subject of Edge Act corporations financing imports into the United States, Governor Mills commented that it was difficult to disabuse himself of the thought that such corporations were intended to facilitate not only exports but also imports; in other words, the whole range of foreign trade. If there was any desire to restrict imports, that was not a banking matter. Instead, the problem would be one for consideration by the Federal agency having responsibility in that area. He added that he was struck, however, by the fact that Chemical International had become a borrower, which he did not think was becoming to the character of its ownership. This was a matter I 3/1/62 -4- that he felt should receive close scrutiny in examinations of the corporation. Mr. Goodman then withdrew from the meeting. Report on competitive factors (Pittsfield-North Adams, Massachusetts). There had been distributed a memorandum from the Division of Examinations dated February 21, 1962, regarding the proposed consolidation of North Adams National Bank, North Adams, Massachusetts, and The Agricultural National Bank of Pittsfield, Pittsfield, Massachusetts. Mr. Leavitt commented regarding the proposal, noting that Pittsfield and North Adams were about 21 miles apart and the area between the two banks was mountainous and sparsely settled. According to the report from the Reserve Bank, there was little travel back and forth between the two towns and the competition between the two banks was negligible. In this connection, he suggested a clarifying change in the body of the report. After an additional change in the body of the report and a modification of the conclusion had been suggested by Governor Robertson, the report was approved unanimously for transmittal in a form in which the conclusion read as follows: Competition between the two participant banks is negligible. The resulting bank would hold about 41 per cent of total IPC deposits and about 35 per cent of total loans of commercial banks, and about 14 per cent of deposits and 10 per cent of loans of all banks, commercial and savings, in its primary service area. The effect of the proposed transaction on the remaining commercial banks in Pittsfield and North Adams cannot be accurately gauged, but it is to be noted that they now compete with the largest commercial bank in Berkshire County and large mutual savings banks. 3/1/62 .5.. Program for analysis of banking structure and competition. A memorandum from Messrs. Hackley, Noyes, and Solomon dated February 28, 1962, regarding a proposed program for analysis of banking structure and competition had been distributed. The objective of the program was to develop tools that would aid the Board in its consideration of bank merger and bank holding company applications. The memorandum outlined the prospective benefits that might be obtained from such a program, suggested important problem areas toward which research might be directed, and indicated personnel requirements for a program that might be expected to yield tangible results within a reasonable period. With reference to personnel requirements, it was suggested that the main burden of analytical investigation should be borne by an experienced and specialized group on the Board's staff. Also, it was recommended that a small standing committee of consultants be established to assist in the program. Mr. Noyes, in commenting on the proposal, noted that the program outlined in the memorandum was intended to implement by specific recommendations some of the suggestions made by the panel of consultants who participated in the Seminar on Competition in Banking held at the Board on January 22, 1962. The recommendations were intended to raise the question whether the Board felt that fairly intensive work along the lines suggested would be helpful and constructive. l() 3/1/62 -6Governor Mitchell said he favored the idea, although he realized that dividends should not be expected too quickly. He raised a question as to the responsibilities of the proposed standing committee of consultants. Mr. Holland responded that it was hoped such a committee would be in a position to recommend qualified personnel and to act in an advisory capacity in appraising proposed research projects and reviewing their progress. Mr. Noyes mentioned that the committee might also be helpful in suggesting arrangements for having research work done on a contract basis. It was noted that the frequency of meetings of the committee might be expected to depend on developments. Governor Mills said that, speaking as one member of the Board, he did not feel that he would gain too much from this kind of project, which he noted would involve heavy expenses. His opinion was colored, perhaps, by the fact that the January 22 seminar had been of little value to him. It seemed to him that the views of the consultants were theoretical and biased according to individual attitudes. The whole subject, involving trends to monopoly, was one that had not been reduced to concrete terms. Also, if the proposed program were undertaken, he feared that it might result in further delays in the preparation of staff memoranda regarding bank merger and bank holding company applications. 3/1/62 -7Governor Robertson stated that he did not think the Board could afford to be without a program of this kind. The Board, when passing on applications, should be in the best possible position to understand developments in the area of banking structure and competition. In every major case, he thought that, in addition to the facts and views set forth by the Examinations and Legal Divisions, the Board should have the views of economists with special competence in this field. If no such experts were available at this time, it would be necessary to develop them, but he felt that the longer-run benefits would be significant. Governor Shepardson said that, while he did not find the comments at the seminar particularly helpful, one or two of the suggestions made at that time seemed worth considering; for example, the development of a list of criteria for use in applying to specific cases the general competitive standards set forth in the bank merger and holding company statutes. In general, he agreed with Governor Robertson that there was a need to develop more information in this field, and it would probably require time to develop competent personnel. Governor Shepardson then referred to the portion of the memorandum that outlined staffing requirements for the program and pointed out that there were a number of vacant positions in the Division of Research and Statistics. This raised the question whether new positions should be created for the proposed program or whether additional staff should be assigned to the existing vacancies. i-4"1.1)0 -8- 3/1/62 Governor Balderston remarked that he felt that the Board needed to have more information, especially in three areas: (1) definition of markets; (2) effect of size or scale of operations on unit costs; and (3) determination of what bank customers really want. With respect to the implementation of the program, he believed that some of the Reserve Banks might like to study certain aspects of the problem and that the results were likely to be more dependable than those that might be obtained if studies were contracted for with outside parties. In any event, he thought a program to provide more information in the area of banking structure and competition should be developed, and in such a way as best to assist the Board in making its decisions on applications. Chairman Martin commented on the wide gulf between theory and actual practice and the need to accumulate more information than was currently available in the area of banking competition. He felt that the Board should move ahead with a program, even though the precise nature of it might not be entirely clear at this point. Governor Mills then suggested that, if the Board was inclined to initiate a program, it move ahead in steps, without commitment to accept the entire program as outlined in the staff memorandum. The staff could recommend an initial step and indicate what that step was intended to accomplish. The matter could then be reviewed from time to time and successive steps determined. Mr. Noyes suggested, as a first step, exploring whether the services of Professor David A. Alhadeff of the University of California, 3/1/62 -9- who had participated in the January 22 seminar, could be obtained. If not, other possibilities might be explored and a recommendation made to the Board. Governor Mitchell inquired whether it was contemplated that some of the Board's present staff might be shifted to work on the program with such an individual, and Mr. Noyes responded that it would be hoped to develop a group of persons in this field. However, in view of the existing vacancies in the Division of Research and Statistics, to which Governor Shepardson had referred earlier, the extent to which present staff could be utilized was uncertain. Governor Shepardson expressed the view that the staff should be authorized to move ahead in recruiting personnel. He realized that it would take time to secure or train competent people, but it would seem desirable to obtain rather promptly the services of one man with as much background as possible. This should enable the formulation of a more specific program. There ensued a further discussion as to whether the staff obtained for the new program should be assigned to existing budget vacancies or whether the positions should be considered as new. Mr. Noyes mentioned that, whichever procedure was followed, it would be necessary to recruit in terms of specific requirements. From the standpoint of budget control, Governor Balderston said he did not believe it made too much difference in this case which procedure was followed. The initial objective was -10- 3/1/62 to find a suitable person. The Board was, in essence, approving the employment of such a person. Mr. Noyes noted that there was another step that could be taken at this time; namely, to line up members of the proposed advisory committee of consultants. Chairman Martin then said that, as he understood it, the Board would like the staff to proceed to determine the availability of Professor Alhadeff or some other qualified person, along with members of the advisory committee. Also, the Board would like to be kept informed of developments. Agreement was expressed with the Chairman's statement. Governor Balderston inquired about informing the Reserve Banks of the Board's plans for the new program. It was likely, he thought, that some of the Reserve Banks might be in a position to undertake projects related to the program. For example, some Bank might secure the services of a university professor during the summer months for a special project. After discussion of various kinds of work in this field that it might be particularly appropriate for the Reserve Banks to undertake, general agreement was expressed with the thought that the Presidents of the Reserve Banks should be kept informed regarding the program. The possibility of discussion at the forthcoming Examiners' Conference also was mentioned. -11- 3/1/62 Miss Carmichael and Messrs. Johnson, Connell, Holland, Conkling, Leavitt, Morrison, and Veenstra then withdrew from the meeting and there ensued discussion of a System foreign currency transaction, concerning which documentation has been placed in the files of the Federal Open Market Committee. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Letter to the Federal Reserve Bank of Atlanta (attached Item No. approving the appointment of Richard A. Dill as examiner. 4) Memoranda from the Division of Research and Statistics recommending the following actions relating to the staff of that Division: Salary increase Gail Roberts, Secretary, from $5,170 to $5,490 per annum, effective the March 4, 1962, incident to a transfer to a different position within Division. Acceptance of resignation Esther P. Locke, Secretary, effective at the close of business March 3, 1962. A_ rY BOARD OF GOVERNORS OF THE eAf Gap,441 FEDERAL RESERVE SYSTEM *' (?e • 0, WASHINGTON 25. D. C. Item No. 1 3/1/62 4: ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 1, 1962 Mr. Clinton C. Johnson, President, Chemical International Finance, Ltd., 165 Broadway, New York 151 New Yorke Dear Mr. Johnson: In accordance with the request contained in your letter of February 2, 1962, and on the basis of the information furnished, the Board of Governors grants consent for Chemical International Finance, Ltd. to purchase and hold 32,000 shares of CREDIMA (Credit Malakoff Societe Anonyme), Paris, France, at a cost of approximately US$160,000„ Provided such stock is acquired within one year from the date of this letter. The Board's consent is granted upon condition that Chemical International Finance, Ltd. shall dispose of its holdings of stock in the French corporation, as promptly as practicable, in the event that the French corporation should at any time (1) engage in issuing, underwriting, selling or distributing securities in the United States; (2) engage in the general business of buying or selling goods, wares, merchandise, or commodities in the United States or transact any business in the United States except such as is incidental to its international or foreign business; or (3) otherwise conduct its operations in a manner which, in the judgment of the Board of Governors, causes the continued holding of its stock by Chemical International Finance, Ltd. to be inappropriate under the provisions of Section 25(a) of the Federal Reserve Act or regulations thereunder. Please advise the Board of Governors, through the Federal Reserve Bank of New York, when the acquisition of stock has been made, furnishing (1) copies of the articles of association and by-laws of the French corporation and (2) a list of the officers and directors of the corporation, after the changes in capitalization have been completed. 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 3/1/62 ADDRESS OFFICIAL CORRESPONDENCE TO THE INDARCI March 1, 1962 , Board of Directors, Hunterdon County Trust Company, Califon, New Jersey. Gentlemen: The Board of Governors of the Federal Reserve the establishment of a branch by Hunterdon approves System County Trust Company, Califon, New Jersey, in the vicinity of the intersection of County Routes 517 (Oldwick Road) and 523 (Lamington Road) in the village of Oldwick, Tewksbury Township, Hunterdon County, New Jersey, 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 ,1:c",i,$)0Govi,400 FEDERAL RESERVE SYSTEM ., Lz *46 ...% * 3 3/1/62 WASHINGTON 25. D. C. F ' 4 4 Item No. ADDRESS orriciAL CORRESPONDENCE TO THE BOARD *tP4434. milt,, March 1, 1962 Board of Directors, United California Bank, Los Angeles, California. Gentlemen: The Board of Governors of the Federal Reserve System extends to May 31, 1962, the time within which United California Bank may establish a branch in the vicin— ity of the intersection of San Antonio Drive and Long Beach Boulevard, Long Beach, Los Angeles County, California, under the authorization contained in the Board's letter of March 10, 1961. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 30 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. A Item No. 4 3/1/62 RESS OFFICIAL CORRESPONDENCE TO THE BOARD March 2, 1962 Mr. J. E. Denmark, Vice President, Federal Reserve Bank of Atlanta, Atlanta 3, Georgia. Dear Mr. Denmark: In accordance with the request contained in your letter of February 26, 1962, the Board approves the appointment of Richard A. Dill, at present an assistant examiner, as an examiner for the Federal Reserve Bank of Atlanta, effective March 5, 1962. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary.
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