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609 10/59 Minutes for To: March 16, 1960. Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Gard of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement vith , respect to any of the entries in this set of !Ilnutes 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 minutes, it will be appreciated if you will advise he Secretary's Office. Otherwise, please initial below. ,f,You were present at the meeting, your initials will flQicate approval of the minutes. If you were not present, J13111 initials will indicate only that you have seen the minutes the I Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King 1021 Minutes of the Board of Governors of the Federal Reserve System on Wednesday, March 16, 1960. PRESENT: M.1". 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 Shepardson King Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Kenyon, Assistant Secretary Thomas, Adviser to the Board Young, Adviser to the Board Shay, Legislative Counsel Molony, Assistant to the Board Fauver, Assistant to the Board Hackley, General Counsel Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Johnson, Director, Division of Personnel Administration Hexter, Assistant General Counsel O'Connell, Assistant General Counsel Conkling, Assistant Director, Division of Bank Operations Daniels, Assistant Director, Division of Bank Operations Hostrup, Assistant Director, Division of Examinations Nelson, Assistant Director, Division of Examinations Thompson, Supervisory Review Examiner, Division of Examinations Items circulated to the Board. The following items, which had beell circulated to the members of the Board and copies of which e.ttaeh ed to these minutes under the respective item numbers indicated, Irere aPProved unanimously: Item No. reEas uo the Presidents of all Federal Reserve Banks etilaing attendance of Reserve Bank officers and -Yees at schools of banking. 1 I 3/16/60 -2Item No. letter to The Florida National Bank at Orlando, urlando, Florida, approving its application for fiduciary Powers. 2 Letter to Senator Randolph (Item No. 3). In accordance with the understanding at the meeting on Friday, March 11, a revised draft cltreray to Senator Randolph with respect to a letter received by him tr°14 State Senator William A. Moreland of West Virginia had been distributed to the members of the Board. Senator Moreland's inquiry related 13/1riciPaily to bank service charges. In response to a question, Mr. Hackley commented that over the Years the Board had distinguished between collection charges and bank "ice charges. Although a collection charge is a type of service charge) the position of the Board had been that there is nothing in the Pecier_ °, 4-1- Reserve Act specifically relating to the regulation of service C4rge8 as such. Therefore, he would be hesitant about suggesting to Serletclr Randolph that the Board was now reviewing the question of remo . —4"atlorl of such charges. There being agreement with the view expressed by Mr. Hackley, 41°118 aPpraval was given to a letter to Senator Randolph in the form °lithe' revised draft distributed prior to this meeting. A copy of the "ter sent pursuant to this action is attached as Item No. 3. Mr. Conkling then withdrew. 'II 3/16/6o -3Request to retain special counsel (Item No. 4). There had been distributed copies of a memorandum from Mr. O'Connell dated March 15, 1960, relating to a request from the Federal Reserve Bank of Atlanta f°r permission to retain outside counsel in an arbitration proceeding in Which the Bank was involved because of a dispute in connection with the addition to the head office bank premises now under construction. The Bank was unable at this time to give an accurate estimate of the fee that would be involved, but expected that it would exceed $2,500. 1.742 anticipated It that a more firm estimate would be available shortly. Mr. O'Connell recommended that the Board approve an expenditure by the Bank for the employment of counsel, subject to submission, for theiloara's prior approval, of the total fee agreed upon by outside e°11n8el and the Bank. There being no disagreement with the recommendation, unanimous 41)rtval was given to the telegram to the Atlanta Reserve Bank of which C°1),Y is attached as Item No. 4. Messrs. Shay, Farrell, and Daniels then withdrew, and Mr. Noyes, biree tor, Division of Research and Statistics, entered the room. APplication of First Bank Stock Corporation. On November 25, 1957, 1 the Department of Commerce of the State of Minnesota approved an 41)1J. cation to establish a bank in the Sun Ray Shopping Center in St. pa 111. On December 30, 1957, First Bank Stock Corporation, Minneapolis, s°ta, applied to the Board for approval of its acquisition of I 024 3/16/6o -4- 7°tinG shares of this bank (to be known as First Eastern Heights State Bank) • Subsequently the Minnesota Department of Commerce, in connection With -an application to establish a savings and loan association in the Balms area, found that there was a reasonable demand in that area for either a savings and loan association or a bank, but not for both, and stEtted that if the bank were not activated on November 25, 1958, the 414plication for the savings and loan association would be approved. St On -, 1958, the Board, with Governors Balderston, Mills, and Vardaman dissenting, denied First Bank Stock's application to acquire shares of First Eastern Heights State Bank. While First Bank Stock filed a petition f°1" review of the Board's decision with the United States Circuit Court (It APPeals for the Eighth Circuit on October 2, 1958, the opening of the bwk could not be delayed. Therefore, Minnesota Mining and Manufacturing Which had established and was further developing a large research eeltey. - adjacent to the bank's site, acquired the stock of the proposed n°14 called Eastern Heights State Bank. A stock purchase agree- et w -as entered into whereby First Bank Stock agreed to acquire the 1)950 RI, --ares of the bank owned by Minnesota Mining and Manufacturing C°InParlY) subject to approval by the Board. A hearing on the application 1.148helcl in April 1959 and on September 16, 1959, the Hearing Officer ilecl a Report and Recommended Decision recommending that the appliction be denied. 1960. Oral argument was held before the Board on January 6, I fist?, 3/16/60 -5There had now been distributed to the Board, under date of ?ebruarY 18, 1960, a recommendation from the Division of Examinations that the application be denied. It was the conclusion of the Division that the financial condition and history of First Bank Stock and Eastern lielats State Bank were satisfactory, along with their prospects and. the heraeter of their management. It was felt that this would also be true if the bank were acquired by First Bank Stock. With respect to the t°11rtli factor required to be considered by section 3(c) of the Bank 11°1414g Company Act, evidence showed that the existing bank was serving its eanimunity and area quite adequately. It was the opinion of the 4vi8ion that advantages which would accrue as a result of transfer of cf141111.1) and control to First Bank Stock would not materially affect the , `-onvenience, needs, and welfare of the community and area concerned. 48 t° the fifth factor, the Division felt that First Bank Stock's high aegre of deposit concentration in the East St. Paul and adjacent area, 441 the competitive effects that would result from consummation of the 151'°13°Bed transaction, were unfavorable factors not outweighed by factors ' Ing approval. On balance, the Division concluded that there was Els reason to approve the instant application than was the case in ?Iret PA,6 Stock's previous application involving establishment of a A memorandum from the Legal Division had been distributed to 13 the °era under date of March 7, 1960. This memorandum noted that as 3/16/60 -6matter the present case should not be regarded as a continuation a. legal °f the previous case, and that the Board's decision in the earlier case T°111d. not control its decision in the present case. ' However, when First Bank Stock's petition in the Court of Appeals for judicial review of the Board's earlier decision was dismissed at the instance of the 813Plic3.nt, it was stipulated that the "record" in that case would be illej-ded in the record relating to the present application in the event I'lr" Bank Stock should seek judicial review of an adverse decision by the Bc)ard. This stipulation seemed to make it quite probable, if not "ain, that denial of the present application would lead to litigation. With ---spect to other aspects of the application, it was noted that there waS evidence that the proposed acquisition would lessen existing 1044ki lig competition and be inconsistent with "preservation of competition" 14 the area concerned. The question of judgment for the Board therefore vas n -c4 simply whether or not the transaction would promote the public Iliteresty but whether its probable adverse effect on competition would be etitweighed by advantages to the community sufficient to justify 643131'°v11. With respect to the convenience and needs of the area concerned, the rIlera°randum pointed out that the issue was whether the community votafa , oe benefited by transfer of ownership of the now existing bank tO pi Bank Stock Corporation. r " As to effects on competition, it was that apparently the proposed acquisition would eliminate competition bet4e„ -1 Eastern Heights and First Bank Stock's two subsidiary banks in 3/16/60 the East St. Paul area and also with First Bank Stock's largest banking stibsidiarY in downtown St. Paul. On the other hand, one of the grounds vhich the Board's previous denial was based was that the establishment f Eastern Heights State Bank probably would have adverse effects on the growth and competitive strength of the nearby Hillcrest State Bank, blIt' despite the establishment of the new bank, Hillcrest had prospered 441 grawn considerably. 48 a As to the relevancy of First Bank Stock's history "n°naggressionistic, nonexpansionistic" organization, the memo- exicluln Pointed out that the statute requires the Board to consider whether EL Particular stock acquisition will expand the size or extent of the holdin -g company system beyond limits consistent with the preservation Of e°14Patition, although in certain previous cases the Board had indicated that some weight might properly be given to the past history of the 11°14114g company concerned. °t e°MPetitiOn Other points covered were whether a lessening must be "substantial" in order to warrant disapproval of 44 IIPPlication and the extent to which weight should be given to competition provided by savings and loan associations, credit unions, and skaal loan companies. As to First Bank Stock's argument that ownership Of 4stera Heights State Bank by a company with no previous banking e)cPerience constituted a reason for permitting the proposed acquisition, the nle111°randum pointed out that if this argument were to prevail, avoidance of the Bank Holding company Act would be possible. A holding Q°/11Dany would need only to arrange for acquisition of control of a bank 3/16/60 -8- by a nonbanking corporation and then cite the "evil" of such control as areason for approval of the holding company's acquisition of the ha2rtk, In summary, it was suggested that the Board's decision must deP5lld. uPon whether in the Board's judgment the lessening of competition l esulting from the proposed acquisition would be outweighed by benefits ' relatinE to the needs or convenience of the community. It seemed likely that aPproval of the application would be upheld by a reviewing court, Particularly in view of the present lack of strong evidence that the tl*aasaction would adversely affect the Hillcrest State Bank. On the Other hand, there seemed to be less support for approval than in the earlier case insofar as there was less evidence that the transaction vottld c ontribute to the needs and convenience of the community. In the °P14ion of the Legal Division, denial of the application would be stzEdned by a reviewing court as being supported by substantial evidence. At the request of the Board, M. Solomon reviewed the history Or the case and stated the conclusions of the Division of Examinations, his e °Illments being based on the memorandum that had been submitted by that Division. Mr. Hackley commented that it seemed fairly certain that the toarial s decision, if adverse, would result in litigation, and that even Et fait °rable decision might lead to litigation because the Hillcrest State ID Auank and others might feel that they were aggrieved persons and ecl to judicial review. In reviewing some of the aspects of the fig)f I 3/16/60 ea'se, -9- as stated in the memorandum from the Legal Division, he pointed °IA that the Hearing Officer and Counsel for the applicant had elected t0 d• ebate the question of the appropriate fundamental approach to the B44k Holding Company Act, but that the question need not be decided in this case because there were both favorable and unfavorable considerations relatiag to the factors of lessening of competition and benefit to the 13111311e * A favorable consideration in the earlier case, namely, the needs Of t• he community, appeared to have been weakened because the bank then 1)r°130sed, to be established was now in existence, and State authorities had e )(Pressed the view that the needs of the community were being served 8.111ately. On the other hand, a principal ground on which the Board tlzrae, aawn the earlier application, namely, the possible adverse effect o44• 11crest State Bank, also had been weakened because Hillcrest had been 4 -`11 competition with the new bank for a period of more than a year ▪ liev ertheless had prospered. However, according to the hearing competition would be affected by the prcposed acquisition because e istin --g competition between Eastern Heights State Bank and certain St bsi '`Llaries of the holding company would be diminished. After Mr. Hackley had commented further on other points covered th.n L"emorandum from the Legal Division, Governor Balderston asked how, if the n(Dard i s decision were made the subject of litigation, a court b e fully apprised of some of the distinctions brought out in the rrietorana ▪ Mr. Hackley replied that these points probably could be '2,11 3/16/60 -10- taken care of adequately in the Board's statement on this case. Even though this was a separate case from the earlier application, it would seem appropriate to point out in the statement the distinctions between the two cases. The Chairman then turned to the members of the Board and Governor Mills, who spoke first, recalled that he was one of the Board members 1411° favored granting the application of First Bank Stock Corporation to establish and own the proposed First Eastern Heights State Bank. His rea's°ne in that instance were based on the fact that the Board should P..col)erlY look at the area in which the applicant was intending to expand 8'114 sh°uld concentrate on the fact that the proposal encompassed a tr°1301itan area, and not penetration of the holding company into a tlew , of the State or the over-all area in which First Bank Stock Corto ration operates. In view of those considerations, he had reached the c04clus1on that the earlier application was tantamount to the kind c3relplaication that would be presented to the Board if a commercial baillt, -"I a State permitting branch banking were to seek permission to esta.bi. J-lsh a branch. Viewed in that light, there were persuasive reasons, 1/1h, —4e °Pinion, to approve the application of First Bank Stock Corpol'a.tLpirl to Olin and operate First Eastern Heights State Bank. The area Qc)4cerned Was an integral part of the trading area of St. Paul, and the 14 question would not have been of a type that would unduly limit Q°41Petition or affect unfavorably the operations of the Hillcrest State 1 03 3/16/60 -11- Bank aad the other independent commercial banks operating in the general area. As he reviewed the material that had been submitted to the Board t this time, the previous record, and the record of the hearing at hich both First Bank Stock and Hillcrest State Bank were represented, his °Pinion had been strengthened beyond his original position. AcQ0 1'cliagly, he would grant the application of First Bank Stock to awn °Perate the now-established Eastern Heights State Bank. to the Contrary positions of the Legal and Examinations Divisions, he was con- \rIlleed in his awn mind that the instant application could not be separated rli ra the original application, for the cogent reason that First Bank Stock k,;orporation on the occasion of denial of the first application, a.reeci not to seek a judicial review of the denial in that case under a vb1P1-11.ation with the Board that a new application, namely, the applieatto operate and own the Eastern Heights State Bank, should be e°4sidered an extension of the original application and not an entirely rtelf aad separate subject. He felt that in equity to First Bank Stock C°1"Poration the Board had a fundamental obligation to observe that BtiDulation, and in doing so to reach a finding as to whether or not therp ' were grounds why First Bank Stock should be prohibited from e.Q(1111ring stock of the Eastern Heights State Bank. In that connection, all op -L the factors that the Board is required to consider under the 131'°Ilisions of the Bank Holding Company Act, up to the fifth factor, were 1)e.S2e1j. as entirely satisfactory. In his judgment, the fifth factor I 0: 3/16/6o -12- also be decided favorably by the Board, in that the operation of Eatzitern Heights State Bank by First Bank Stock Corporation would be cc:insistent with the reasoning he expressed on the original application. Plarthermore, there was the fact that the Eastern Heights State Bank had Proven its worth by developing business in the area, praying itself to be self-sufficient, and in the process of doing so clearly developing the fact that there was a need for a bank in the area. Also, develop- ille/Its subsequent to First Bank Stock's application shaved that the Rillerest State Bank had progressed and had in no way suffered from the eatablishment of the Eastern Heights State Bank. Furthermore, it should be re cognized that Minnesota Mining and Manufacturing Company became the of Eastern Heights State Bank through adventitious circumstances. It /4°111d like to be relieved of the responsibility of operating the 44k and had elected to transfer ownership to First Bank Stock. In stunh , it was his judgment that the application should be decided te.143rablY and that the Board would be open to charges of arbitrary and 411:1111clotis action if it were decided unfavorably. Governor Robertson said he agreed completely with the conclusions rettche ci by the Division of Examinations and the Legal Division. keoria inglY, he would deny the application. Governor Shepardson said that when the original application Qake before the Board he was troubled by the argument then advanced, and eaa0 'Winced in the present case, regarding the nonagressionistic 1033 3/16/6o -13- exPan8i0n of the applicant. However, because of the applicant's dominant P°sition in the area concerned, it seemed to him that the original e'llaication should be denied, and he took that position. At present, t seemed to him that the situation argued more strongly for denial. The needs of the community had been met by the establishment of the new batik and, although the present owners were not particularly interested 14 continuing to operate the bank, there did not appear to be any reason %they could not dispose of the stock to parties other than the aMicant holding company. If the earlier action was justified, and he thought it was, similar action was further justified at this time. Governor King, who was not a member of the Board when the nal application was decided, said that he han tried to view what he nu Olt have done had he participated in the decision and that possibly he 41- have leaned in the direction of approval. He would lean some- Vha 11A+ tt--' 1.14Y on the present application, except that approval of the "-ication would appear to open up a way of circumventing the law, bY having a nonbanking corporation establish a bank and then approval for a holding company to acquire the shares from that Q"P°ration. It would be unfortunate, he felt, if approval in this case \ e 'e taken as ' a precedent and established a pattern. In his own thilliting, that was the only strongly adverse factor, and perhaps it te said that this factor did not carry enough weight. However, NPDrov,„, 4- might cause confusion and mislead persons into thinking that ' 3/16/60 t1118 'was away to circumvent unfavorable Board action. In his view, litigation. of this case perhaps would be desirable in order to provide guidance for the future. Governor Szymczak said that he would deny the application. Governor Balderston pointed out that he was one of the Board niembers who dissented from the decision in 1958 on the original applicEttl°4 of First Bank Stock Corporation. When that case was before the 33(larcio he felt that the critical questions were: (1) whether the conliejlietlae, needs, and welfare of this growing community should go unserved, 4"ing an independent bank of which there was no prospect, and (2) whether 41Pla ' Qval of the acquisition of the shares of the proposed bank would eX13414 the size and extent of First Bank Stock's operations beyond limitati , `418 consistent with adequate and sound banking and the preservation ectiPetition. His awn conclusion had been in the negative on both 8/ and therefore he dissented from the Board's decision. Between thet time and the present, the needs of the community seemed to have been niet 113r the organization of a bank by Minnesota Mining and Manufacturing 171-9EtrlY with the technical assistance of First Bank Stock Corporation. h"efore, the current proposal appeared to him substantially different *eta the.-original proposal, and he found it necessary to change his ksaitioa. He could not argue the case on the needs of the community„ elr tha -ugh the captive relationship of any bank to a manufacturing c°11)orat4 --on is not a desirable one. The new bank was meeting the needs 3/16/60 -15- of the community, and it offered some recognizable competition to Pirst Bank Stock Corporation. Were First Bank Stock permitted to acquire the existing bank, there would clearly be some lessening of competition. Ace°19-ingly, he would vote to deny the current application. Chairman Martin said that he also would vote to deny the appliThe only thing he did not like in the picture was ownership of eatiOn- the existing bank by a manufacturing corporation, but that was not the l'eaproblem at issue. In this connection, Mr. Hackley commented that while no one e°a(1 Predict what might happen, the fact that Minnesota Mining and 14827111tateturing had had no offers to purchase its stock probably was due to the fact that the option of First Bank Stock to acquire the shares 11413 14e11 known. If the Board denied the current application, Minnesota 1414ing and Manufacturing might be able to sell its stock to other krties. Mr. Hackley then referred again to the fact that when the lltigation instituted by First Bank Stock was dismissed, it was with a 81441'11ati0n that in the event there should be judicial review of a 811b8., 'quent adverse decision by the Board on a second application, the N;ora on the first application would become part of the record on the 8ellcle He did not think this was understood as intending that the tw Mications were to be the same case. However, it did mean that it th e Matter should go to court, the record on the first case would 103; 3/16/60 -i6- tee°me part of the record on the second case. He thought that this Igas desirable for it would afford a complete picture of the two cases. Mr. Hackley also commented that this was a case in which careful clrafting of the Board's order and statements would require more than the usual time for preparing such documents. Thereupon, it was agreed, with Governor Mills dissenting, to clenY th-e application of First Bank Stock Corporation to acquire shares or the Eastern Heights State Bank, and the Legal Division was requested r, to, "Pare an order and statement for the Board's consideration. It liae Understood that a dissenting statement also would be drafted. Messrs. Hostrup and Thompson then withdrew from the meeting. APPlication of American Trust Company (Items 5 and 6). There b een circulated to the members of the Board a file relating to the aPPlication of American Trust Company, San Francisco, California, for 13erttli251on to operate the present head office and 13 branches of Wells ' 13a4k) San Francisco, as branches of Wells Fargo Bank American Pec TI'Ust company, 14 a me incident to the proposed merger of the two institutions. morandum dated February 11, blvision of 1960, contained in the file, the Examinations concurred in the favorable recommendation of the peaeral Reserve Bank of San Francisco. There had been distributed to the members of the Board in this e°44eet' n 10-- copies of a letter dated March 7, 1960, from Mr. Robert A. Acting Assistant Attorney General, Antitrust Division, Department or ti -ce, submitting a statement in connection with the application 110Y 1 '"0kit) S 3/16/60 -17- f American Trust Company. The conclusion presented in the statement /6-8 that the proposal to unite the existing offices of Wells Fargo With those of American Trust would have the effect of substantially banking. lessening competition and unreasonably limiting competition in The view was stated that to grant the pending application before the 13(3arcl would be contrary to the public interest and the sound development 8111 Progress of banking in that it was unnecessary to the maintenance c)f 8°und banking structures and, on the contrary, would be destructive Of fair competition in banking. Copies of a draft of reply to the Department of Justice had Ells° been distributed to the Board. The reply would point out that under 151'esent law the proposed merger did not require the Board's approval and that the Board's only jurisdiction in the matter derived from its -"Y to pass upon the establishment of branches by a State member batik. under Accordingly. the Board felt that in this case it could not the merger e3cletillg law properly consider the competitive effects of itself. effects However, the Board had carefully considered the possible °11 com petition of the operation by the merged institution of the branches to be acquired by it, and in doing so had taken into account the Cliffer ng 1 circumstances relating to each of the branches, including the 1(31-On of competing offices of large banks in or near the community 14 Ilhich the branch would be located. The Board had also considered the e:";etit to which the public interest would be served by banking facilities 3/16/60 -18- at the sites of the offices to be acquired by American Trust Company. 011 the basis of all the facts and circumstances, the Board had concluded that the establishment of such branches would not have such adverse effects on banking competition as to warrant disapproval. The Department of Justice had sent a copy of its letter to the 13°"1 of March 7, 1960, to American Trust Company. In recognition thereof, Arne rican Trust Company wrote to the Board under date of March 11, 1960, and -ncorporated i as part of its reply the material contained in its .ketter to the Board on February 24, 1960, consisting of a copy of its letter of February 11, 1960, to the Department of Justice which 14'esented specific information requested by -the Department in connection with the Proposed merger. Copies of the two letters from American itrUst company had also been distributed to the Board. the At the request of the Board, Mr. Solomon dealt briefly with 4 tu re of the application of American Trust Company and the size of the t11° banks concerned. If:411‘d He brought out that in this situation the -- no jurisdiction whatever over the merger itself, its juris4 relating only to the establishment of branches by the surviving 141°11. Careful consideration had been given by the Board's staff the b ranches concerned, not only in the aggregate but also as to each dual situation. While considerations varied somewhat from one „eh b a to another, the Division of Examinations concluded that it would 1)/)roPriate to approve the establishment and operation of each of 1 I' 39 3/16/60 -19- the fourteen branches. The matter was also reviewed in the light of the .._ two letters from American Trust Company dated February 24 and March. 11, 1960, and their enclosures, and it appeared that the considerti°ns urged by the Department of Justice were directed essentially t°17ard. the merger itself rather than to the situation with respect to the branches. Accordingly, analysis of the memorandum from the Justice DePartment had not changed the recommendation of the Division of Examinati°ns that the application of American Trust Company be approved. Mr. Hackley said that the letter to the Justice Department was uAled primarily to make clear the Board's authority for considering the e 0mpetitive effects of the branches, as distinguished from the erfeeta of the merger itself. The letter would point out that the Board had tak —en into consideration not only the local competitive effects (211 the e stablishment of each branch but the situation with regard to aolb ranch in the light of the size of the institution resulting from th erger. In that sense, the merger would be a pertinent consideration. eler, as the letter would bring out, the Board had considered the 31t4Ettion with regard to each branch in the light of the much larger aize of the resulting institution. The Chairman then turned to the members of the Board, and Or Mills stated that he would favor approving the application of 41,1erin 414 Trust Company and also the draft of reply to the letter from ' the ,_ "-nartment of Justice. 3/16/50 Governor Robertson stated that he had given a great deal of c°r1sideration to this matter. If the Board had authority to pass on the Proposed merger, he was inclined to feel that his vote would be in 0P1X:Isition. the At present, the Board had no authority with respect to merge, but bank merger legislation was now under consideration bY the Congress. The Senate had passed a bill, and a House Subcommittee 4941 voted out a different version. It appeared possible, therefore, that there would be legislation shortly that would be applicable to a ce4e of this kind. Accordingly, he had considered carefully whether the )3 oard would be justified in passing on this case in the light of the current legislative situation, but he had finally concluded that the B are. would not be justified in holding up its decision because thexp. -was no way of knowing how long it would be before bank merger legi1A+ 8 ---ion was enacted by the Congress, if, in fact, it was enacted at ail. With respect to the branches, Governor Robertson said that he had also xPerienced difficulty. After going over all of the available infor' nlatio4 with respect to each individual branch, however, he could not find a. basi 8 on which to deny continuation of existing banking facilities in the Pltrticular locations. If the question had been one of establishing new bran ehe8 at points where there were no existing facilities, the situation b e different, but facilities had already been provided for the public 3/16/60 -21- 14 the particular communities, and the question was one of taking the exiSting facilities away. Consequently, he had concluded that the aPPlication of American Trust Company should be approved. He agreed in substance with the position tal<Pn in the proposed letter to the justice Department, but at the proper time he would like to suggest cert ain. changes that he thought would strengthen the letter. Governor Shepardson said he had somewhat the same feeling as e)cPresspii Governor Robertson on the general bank merger situation. Under th e present circumstances, however, it seemed to him, after coneicierillg the information relating to the branches in question, that the aPPlication of American Trust Company should be approved. The other members of the Board also indicated that they would tIlitc/r approving the application. Accordingly, unanimous approval was given to the letter to Americ an Trust Company of which a copy is attached as Item No. tra48,, through the Federal Reserve Bank of San Francisco 5, for Governor Robertson then presented his suggestions with respect to the Proposed letter to the Justice Department. The Legal Division e%Pree sed agreement with certain of these suggestions and offered comments o the --Inaining suggestions that were acceptable to Governor Robertson. Unanimous approval then was given to a letter to the Department or JIzst e 1-e in the form attached as Item No. 6, with the understanding that a Copy would be sent to the Federal Reserve Bank of San Francisco, 40t to American Trust Company. r 3/16/60 -22In view of a comment by Mr. Molony that a member of the press repre senting a San Francisco newspaper had asked to be advised when the Board reached its decision on the application of American Trust C°11113anY) consideration vas given to the procedure to be followed in 1184411ing this request and other possible inquiries. After discussion, it was agreed that the Secretary of the Board VOIL14 get in touch by telephone with the President of the Federal Reserve 33a4k of' San Francisco, advise him of the Board's favorable action on the aPPlication of American Trust Company, and request him to notify the Illelliber bank accordingly. President Mangels would also be apprised °II the inquiry received by Mr. Molony, and the Secretary of the Board 11%.1.?v. state to him that, if American Trust Company had no objection, them , emuer of the press who had inquired, and any others having a le -.1Adte interest who might inquire, would be informed by Mr. Molony later t°0-4Y that the Board had acted favorably on the application. It Vae th --derstood, also, that a copy of the letter to the Department of Jstie would be sent to Mr. Mangels over the leased wire, with the E'llrlee that the letter was not to be released outside the Reserve Bank the trot, -.sence of further instruction. All of the members of the staff except Mr. Johnson then withdrew the meeting. b.:PRI:oval of salary for officer of Richmond Reserve Bank Ute There had been distributed to the members of the Board 3/16/60 -23- es of a memorandum from the Division of Personnel Administration dated-March 15, 1960, recommending favorably with regard to the request or the Federal Reserve Bank of Richmond for approval of the payment r salarY to Benjamin U. Ratchford, who had been appointed Vice President 14 Charee of research, at the annual rate of $22,500 for the period Alagust 1 through December 31, 1960. The Secretary was informed later by Governor Shepardson that the 13°Et-lid- had approved the payment of salary to Mr. Ratchford at the 11/te indicated for the period specified. A copy of the letter sent to the Richmond Reserve Bank pursuant to this action is attached as itern- T_• The meeting then adjourned. Secretary's Notes: Pursuant to the recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board the following items affecting the Board's staff: Gary p• Smith as Legal Assistant in the Legal Division, with basic ah. -.41Aal kties.salary at the rate of $5,985, effective the date he assumes his increases d title effective March 2O, 1960 Division Basic annual salary To From Office of the Secretary 44"rie Ellis Olson, Records Clerk $3,945 $14,0140 3/16/60 -24- SalarY increases effective March 20, 1960 (continued) title Basic annual salary To From Division Bank Operations Doris J. Hodge, Secretary 44tryn A. Jackson, Statistical Clerk $*4,34o 4,34o $4,490 4,490 6,285 6,435 3,245 3,340 Examinations jc)selph B. Dunn, Assistant Federal Reserve Examiner Administrative Services Chall-ie H. Ward, Laborer Divi,eaane A. Chambers, from the position of Clerk-Stenographer in the of Personnel Administration to the position of Stenographer in theT°4 of Le Of Division, with no change in basic annual salary at the rate ' 75. 5) effective March 14, 1960. Acee , t allee of resignation Aprilts=. e A. Dyer, Secretary, Office of the Secretary, effective Governor Shepardson also approved today on behalf of the Board letters to the Federal Reserve Banks of Boston and Cleveland (attached Items 8 and 9) approving the appointments of Donald D. Gerry as assistant examiner and Harry W. Huning as examiner, respectively. Secretary (Of, BOARD OF GOVERNORS 5-1733 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 1 3/16/60 ADDRESS OFFIC!AL CORRESPONDENCL TO THE BOARD March 17, 1960 Dear sir: °f the F This letter relates to attendance of officers and employees with ederal Reserve Banks at schools of banking. In accordance the .,he objectives of the current review of the Loose-Leaf Service, and .1nstructions have been revised to consolidate current references t0 eliminate a requirement of an annual report to the Board on attend ance, which report is no longer considered necessary. the F The Board reaffirms its belief that officers and employees banking ederal Reserve Banks should be encouraged to participate in assojg schools that are sponsored, conducted, or approved by banking ati°ns. tion t, Th refore, there is no objection to granting, in addie as ma,-,_annual vacation, a leave of absence with pay of such duration such Ds necessary to enable them to attend the resident sessions of schools Of Also, the Board is of the opinion that there should be a SYstsm „„ schools71-Lcy regarding the payment of expenses for attendance at these Thereft, hat is as uniform in its application as may be practicable. Payin -re, the Board will interpose no objection to each Reserve Bank Of te ! : on behalf of officers and employees selected to attend, cost eXPen— sp,1)°°ks, all necessary fees, transportation and other travel diP1ori2 to and from the school, gratuities billed by the school, eharge;flees, graduation suit rental, and dormitory and dining hall l'equi;,Uncluding out-of-pocket meal expenses incurred by students sesaine to be at the school one or two days in advance of the regular l'act;1 , 11 ° These provisions are in line with generally prevailing 'l oard-;:e according to information provided by the Reserve Banks. The graPhs uelieves that voluntary contributions for class gifts, photoriot ne 'and other mementos, and gratuities other than those billed are 1 1 hesj earY expenses and, accordingly, should not be reimbursed to nks.-Int. This, too, is in line with prevailing practice at most 'angibi ' leasonable expenditures for class pins, emblems, or other direct e marks of recognition to graduates may be considered as ; '4Y related to the conduct of the Bank's affairs if authorized as Part Of the employee relations program approved by the directors. S-1733 -2- With regard to a thesis written for the purpose of meeting the F'aduation requirements of a banking school, it is not required that a `Y of the thesis be submitted to the Board of Governors. However, the ,..tficer or employee should make it entirely clear in the preface or forethat he assumes full responsibility for the statements included, b,at : anY opinions expressed are his own personal views formulated on the ,:sls of an independent study of the subject, and that the thesis does not ecessarily express or reflect the opinions or policies of the Federal serve Bank or the Board of Governors. r It is assumed that reasonable clerical and other assistance will d, be provided the student by the Reserve Bank in preparing and "P-Llcating the thesis. Concerning reports previously submitted by the Federal Reserve Banks be ng of the total number of officers and employees proposed to Sent to the various banking schools, the Board believes the necessity elj•he report no longer exists, and this requirement is therefore Iranated. This letter supersedes and cancels the Board's letters of APril ol P e ri T ;','"4.1 1939 (S-160, F.R.L.S. #9058) and February 26, 1953 (S-1489, #9092.1). Very truly yours, PRESIDENTS OF ALL FEDERAL RESERVE BANKS BOARD OF GOVERNORS OF THE 4,4•A's1,41.4 "0° '40k,q4 a It**_ , FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. 401 Item No. 2 3/16/60 AOORICOIS OFFICIAL CORRESPONDIENCIE tit0,44110V '400* TO THE HOARD Ya2c.77!.119 0. Board of Directors, The n .4orida National Bank at Orlando, vrlando, Florida. Gentlemen: The Board of Governors of the Federal Reserve System has D.; b"-ven consideration to your application for fiduciary and grants The Florida National Bank at Orlando, Orlando, or°44 .,cia, authority to act, when not in contravention of State of 4-°°a1 law, as trustee, executor, administrator, registrar com!!'"Ics and bonds, guardian of estates; assignee, receiver, ea;74tee of estates of lunatics, or in any other fiduciary razi4acitY in which State banks, trust companies, or other corpons which come into competition with national banks are ex;;itted to act under the laws of the State of Florida. The sectr-se of such rights shall be subject to the provisions of the en 11(k) of the Federal Reserve Act and Regulation F of °ard of Governors of the Federal Reserve System. that; y A formal certificate indicating the fiduciary powers tri du our bank is now authorized to exercise will be forwarded e conrse. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WAS Item No. 3 3/16/60 OFFICE OF THE CHAIRMAN March 16, 1960. The Honorable Jennings Randolph, United States Senate, Washington 25, D. G. Dear Senator Randolph: This is in reply to your letter of March 1 forwarding a 134.etter oreland. Banks render important services to the public, and for this Fe., reason they are subject to Governmental supervision, either v:Iral or State, in order to protect depositors and to protect : r-L°ue aspects of the public interest.. Nevertheless, like other business organizations, banks can hardly be expected to provide uees such as the maintenance of checking account facilities lu5/11t making reasonable charges for those services. Zn Banks look upon potential earnings from loans and °L.ments of demand deposit accounts as being limited by the a ; uctuations in balances resulting from deposits to, and checks dire upon, such accounts. The quantity of these transactions to ,estlY affects a bank's expenses and may out of proportion e Possible income on the loanable balance. It is in this light that banks impose service charges. No : eor 1-141 the amount of such charges reflects analysis of the the service rendered in maintaining the account and the to the bank of the particular account, both of which vary z:aderably among different accounts and among different banks. aftount of the charges also may reflect competitive influences. Section 16 of the Federal Reserve Act, which applies Q0 member banks of the Federal Reserve System, provides that rriev, 441g herein contained shall be construed as prohibiting a 14 ver bank from charging its actual expense incurred in collect4 and remitting funds." It also provides for the fixing by the of Governors of "charges to be collected by the member banks : tr 4" • • . patrons whose checks are cleared through the Federal thierve Bank." While it specifically applies to collection charges, Provision might be considered as relating also to bank service The Honorable Jennings Randolph -2- Charges. However, in view of the express provision that a member ° , 111c may not be prohibited from recovering its actual expense, and slnee these expenses vary among individual banks, among different of the country, and among different items handled, it has not been deemed practicable by the Board to fix a rule of general a pplication. Senator Moreland's letter also requests information to the First National Bank of Morgantown, West Virginia, although he does not indicate what type of information is desired. nl-ace all national banks are under the primary supervision of the :Jczaptroller of the Currency, it may be that you will wish to f?quest information from the Comptroller. It may be noted that the other bank in Morgantown to which Senator Moreland refers is "ut a member of the Federal Reserve System. rela+4 V-Ore nformation furnished in this letter may7:Te hope that the information be helpI to you in replying to Senator Moreland. Sincerely- yours, (Signed) Wm. McC. Martin, Jr. McC. Martin, Jr. -1050 Item No. 4 TELEGR AM 3/16/60 LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON March 16, 1960 Patterson Atlanta Reur el March 14. Authority granted ietiB Atlanta to employ firm of TrOUtman Sams, Schroder & Locker an to represent Bank in arbitration Proceedings, subject to submission for Board's prior approval of total Lee agreed upon. (Signed) Merritt Sherman Sherman 05 BOARD OF GOVERNORS ;,4419 444 0, 40 0i; i 4,4 OF THE Item No. 5 3/16/60 FEDERAL RESERVE SYSTEM ill ' . A W * * 0* 0 WASHINGTON 25. D. C. *Dome orriciAL 4 4 CORRESPONDENCE TO THE BOARD ' ql1::/4ftil March 16, 1960. 1&.rd of Directors, -merican Trust Company, San F rancisco 20, California. Gentlemen : Federal Pursuant to your request submitted through the Reserve Bank of San Francisco and subject to ciri llstances described therein, the Board of Governors of 1.:2e Federal Reserve System approves the establishment of ;4'.anches by Wells Fargo Bank American Trust Company at the 1i-owing locations provided the branches are established thin six months from the date of this letter: 4 4 Montgomery Street, San Francisco, Market Street at Grant Avenue, San Francisco, 301 "G' Street, Antioch, 1026 Sixth Avenue, Belmont, 1935 University Avenue, Palo Alto, 718 Santa Cruz Avenue, Menlo Park, Broadway and Main Street, Redwood City, 1390 Woodside Road, Redwood City, 787 Laurel Street, San Carlos, 205 Kenwood Way, South San Francisco, 1172 "A" Street, Hayward, 31045 Mission Boulevard, Hayward, 2120 El Camino Real, Santa Clara, and 1332 N. Main Street, Walnut Creek, California. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. )0 BOARD OF GOVERNORS ottn40, OF THE 'SO vo ' 44 FEDERAL RESERVE SYSTEM Kt;• WASHINGTON 25. D. C. Item No. 6 3/16/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD ttlit ttV5 March 16, 1960 1 : Robert A. ? Bicks, -.;61-11g Assistant Attorney General, itrUst Division, vartment of Justice, "ashington 25, D. C. Dear Mr. Dicks: This refers to your letter of March 7, 1960, submitting c°Pies p Trust ,c)-L a statement with respect to an application by American jompanY, San Francisco, California, for approval by the Board ofG,' 1/..i_t.,I /Lesrnors of the establishment of certain branches in connection Comp wie proposed merger of Wells Fargo Bank with American Trust trY. The Board has carefully considered the analysis contained appr e DePartment's statement and the view therein expressed that jai of this application "will substantially lessen competition ° will constitute an unreasonable restraint on, commercial br In this case, as in all other cases involving the establishment 11111g:n3ct by State member banks, the Board has considered, among other probable competitive effects of the establishment of the leted. branches. As pointed out in the statement enclosed with your of -t , the authority of the Board to consider the competitive effects the establishment of branches in a case of this kind was upheld by 01(i , i flited States District Court for the District of Columbia in and Trust Company v. Martin (172 F. Supp. 951 (1959)). Of you know, the proposed merger in this case does not, As You law, require the Board's approval. The Board's only Iledler ctien in the matter derives from its authority under the ' State Reserve Act to pass upon the establishment of branches by a keree,,raember bank. Consequently, the extent, if any, to which the itself may eliminate competition is not a factor that the Board 'Nrb; l N-0-°PerlY consider in determining whether or not to approve the 8ed branches. Pre allthori, In this connection, the distinction between the Board's l'3hr:':7 with respect to bank mergers and its authority with respect "41ches was pointed out in a memorandum filed in the above-mentioned BOARD OF GOVERNORS Mr. Robert A. Bicks OF THE FEDERAL RESERVE SYSTEM -2- Old le "ent litigation in opposition to the plaintiff's cross motion for r t ilarY judgment. At page 11 of the memorandum, it was observed that ooe B°ard's authority with respect to branches "enables the Board to acincisitder only the effect of expansion of a State member bank through evei-ional offices; it does not entitle the Board to consider the upon banking cornPetrl Inspre far-reaching effects of a merger itself Of(t on and the public interest." The differing competitive effects to' al a bank merger, and (b) the establishment of branches incidental on %merger, were described as follows in a separate memorandum filed half of the Board in the Old Kent case in reply to a memorandum 811bmitted by the National Association of Supervisors of State Banks: . "A merger itself results in the elimination of an existing bank and the assumption by the surviving bank of the assets and liabilities (including the deposits) c)f the merging bank. Whether or not the surviving bank establishes branches at locations of former offices of the merging bank has no immediate effect on the amount of the assets and liabilities of the surviving bank, although conceivably some deposits acquired from the merging bank maY.be lost if branches are not established at all former °4flees of that bank. The merger itself may have adverse competitive effects by increasing the surviving bank's eportion of deposits and loans of banks in the community. he establishment of branches through the merger may have quite distinct adverse competitive effects by widening the °graphic area of the surviving bank's operations and thus tnhancing its potential ability to obtain new customers, uoth depositors and borrowers. r r "* * * the Board had no power under the law to prevent the merger by which Old Kent acquired about 55 per cent of the al deposits of all banks in the greater Grand Rapids areat .” the vi With these considerations in mind, the Board has considered relati ews expressed in the statement submitted with your letter in here -.°n to the competitive effects of establishment of the branches Ca r1°Posed. However, the Board feels that here, as in the Old Kent t may not, under existing law, properly consider the competitive : Elte;t the ' et of the merger itself. In this connection, it is noted that Detiti atement eriaTid with your letter expresses the view that comIt Ilu-i-9,11 between the two banks here involved is substantial and that 4-1 be eliminated by the proposed merger", and also that the .,t_11Lia: 4rats-ction would "destroy existing competition between two healthy "well as preventing potential competition and growth by them BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr, Robert A. Bicks -3- : 8 seParate competitive entities." Any such consequences would, of "Ilse, flow from the merger rather than the establishment of branches. As indicated in the memorandum in support of defendant's Motion., 14 dismiss the suit in the Old Kent Bank case (page 58), the a case of this kind, considers the application as in effect to -PPlication by the bank resulting from the merger for permission : re 18, .tablish the branches involved; in other words, the size of the pro'k'ing bank has a bearing upon the competitive potential of the theP"ed branches. Accordingly, the Board has carefully considered 111,,,rssible effects on competition of the operation by the merged 130;1:,t1ti0n of the branches to be acquired by it. In doing so the each has taken into account the differing circumstances relating to laa,"'°f the branches, including the location of competing offices of beat banks in or near the community in which the branch would be e' ,11_. The Board has also considered the extent, if any, to which the: Pub would be served by banking facilities at the sites of the - es to be acquired by American Trust Company. On the basis of all the facts and circumstances, the Board ard has 'oncluded have not would branches establishment that of such the a. , auch Qverse Ac,, effects on banking competition as to warrant disapproval. catiori. gly, the Board has approved American Trust Company's appli- Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS eeto4c1;00 OF THE Item No. 7 FEDERAL RESERVE SYSTEM 3/16/60 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE ttk TO THE SOAR° March 16, 1960 9.212121 4 1ELLE11 Mr. Alonzo G. Decker, C hairman, Federal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Mr. Decker: The Board of Governors approves the payment of salary to the following officer of the Federal Reserve Bank of Richmond : .1(3r the period August 1 through December 31, 1960, at the rate icated, which is the rate fixed by your Board of Directors as reported in your letter of March 10, 1960: Annual Salary Title Name Benjamin U. Ratchford Vice President $22,500 Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 8 FEDERAL RESERVE SYSTEM 3/16/60 WASHINGTON 25, D. C. ADDRESS orriciAL CORRESPONDENCE TO THE BOARD March 16, 1960. C"1-111ENJFR 171r, Beniamin F. Groot, Vice President, f_sderal Reserve Bank of Boston, IdoSton 6, Massachusetts. Dear Mr. Groot: In accordance with the request contained in your 10:tIor of March 8, 1960, the Board approves the appointment 114.e_uonald D. Gerry as an assistant examiner for the Federal oerve Bank of Boston. It is noted that Mr. Gerry is indebted to The ngton National Bank, Arlington, Massachusetts, in the of 06,300. Accordingly, the Board's approval is ci ven with the understanding that Mr. Gerry will not parti— te in any examination of The Arlington National Bank 4.1 his indebtedness has been liquidated. am Z 'lent Please advise as to the date on which the appoint— made effective. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS 0 " " 11.4 Vcsoi,44 O, k0.4 14 ,1 1, 4 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 9 3/16/60 ADDRESS OFFICIAL CORRESPONDENCE Vat TO THE BOARD Mr. Paul C. Stetzelberger„ Vice President, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Dear Mr. Stetzelberger: In accordance with the request contained in your letter of March 7, 1960, the Board approves the appointment of Harry W. Huning as an examiner for the Federal Reserve Bank of Cleveland) effective April 1, 1960. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary.
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