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Minutes for March 16, 1964 To: 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. Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane 866 Minutes of the Board of Governors of the Federal Reserve System on Monday, March 16, 1964. at The Board met in the Board Room 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Daane Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Kenyon, Assistant Secretary Broida, Assistant Secretary Young, Adviser to the Board and Director, Division of International Finance Noyes, Adviser to the Board Fauver, Assistant to the Board Brill, Director, Division of Research and Statistics Solomon, Director, Division of Examinations Johnson, Director, Division of Personnel Administration Hexter, Assistant General Counsel O'Connell, Assistant General Counsel Holland, Associate Director, Division of Research and Statistics Partee, Adviser, Division of Research and Statistics Furth, Adviser, Division of International Finance Hersey, Adviser, Division of International Finance Sammons, Adviser, Division of International Finance Katz, Associate Adviser, Division of International Finance Wood, Associate Adviser, Division of International Finance Kiley, Assistant Director, Division of Bank Operations Smith, Assistant Director, Division of Examinations Thompson, Assistant Director, Division of Examinations 3/16/64 -2Mr. Mattras, General Assistant, Office of the Secretary Mr. Via, Senior Attorney, Legal Division Mr. Donovan, Review Examiner, Division of Examinations Report by Mr. Noyes. Mr. Noyes presented an informal report On the recent meeting of central bank economists held at Basle, Switzerunder the auspices of the Bank for International Settlements. Messrs. Broida, Young, Noyes, Brill, Holland, Partee, Furth, liersey, Sammons, Katz, and Wood then withdrew from the meeting. Distributed item. The following item, a copy of which is at- tached to these minutes as Item No. 1, was approved unanimously: T elegram to the Federal Reserve Agent at Chicago ?althorizing the issuance of a general voting permit -to Brenton Companies, Inc., Des Moines, Iowa, overing its stock of six specified banks located la Iuwa. Check clearing bureaus (Item No. 2). There had been distributed a memorandum from the Division of Bank Operations dated March 11, 1964, ' Iegarding a report by the Federal Reserve Bank of New York on the 1963 °Perations of the Nassau County and Bergen County Check Clearing Bureaus. It was noted that the two bureaus continued to provide an efficient check collection service at a saving to the Reserve Bank. No reason ' 4ae seen that would warrant revoking approval of the arrangement for the Reserve Bank to pay 2/3 of the cost of handling interbank items up t° a Maximum of $9 per 1,000. A draft of letter to the Federal Reserve 'lank of New York in line with the Division's conclusion was attached. 3/16/64 Governor Robertson raised a question as to whether other clearing house associations might request similar assistance from Reserve Banks. Mr. Kiley stated that other inquiries had been received. In the Nassau and Bergen County situations, the New York Reserve Bank justified its subsidy on the cost advantage to the Reserve Bank. A certain portion of the items handled through the two clearing bureaus voUld otherwise come to the Reserve Bank, and the cost of handling 11°111d be greater, for reasons that he explained. Governor Robertson then inquired haw additional requests of the same nature could be differentiated, and Mr. Kiley recalled that in 1955 the Conference of Presidents of the Federal Reserve Banks had 415Proved in principle contributions by Reserve Banks to regional clearing 411rangements in appropriate circumstances, the amount of contribution, it anY, to be tied to the benefits derived by the Reserve Banks. This leflected the general basis for consideration of any such proposals. ' Governor Robertson expressed the view that arrangements of this kind, to merit Reserve Bank support, should provide benefits to the public as well as the Reserve Banks. The Board then approved unanimously the proposed letter. A e°13Y is attached to these minutes as Item No. 2. Application of Baystate Corporation. There had been distributed trternOrandUm from the Division of Examinations dated February 13, 1964, 44(1 other pertinent papers regarding the application of Baystate Corporation, Nti” 3/16/64 -4- Boston, Massachusetts) to acquire up to 100 per cent of the voting shares of Merrimack Valley National Bank) Haverhill, Haverhill, Massachusetts. As stated in a subsequent memorandum, dated March 9, 19641 the Massachusetts Board of Bank Incorporation held a public hearing on the matter on February 13) and on March 6 the Board received a telegram ft'oln the Federal Reserve Bank of Boston advising that the Massachusetts Beard had approved the application. Pending receipt of such advice, 80ard consideration of the application had been deferred) pursuant to the understanding at the meeting on February 13) 1964. Mr. Thompson commented on the application, basing his summary °11 information contained in the February 13 memorandum, and stated leasons why the Division of Examinations, like the Federal Reserve ' 8411k of Boston, recommended favorable action. Governor Mills said that he would approve the application for the reasons cited by the Division. He added that in resolving the "se he felt it was important to bear in mind that the application was °Ile of a holding company and was not a merger case. There was some 13hi1osophical difference, he thought) since holding companies generally °Perated in larger areas, while bank mergers) by and large, involved 814gle transactions in a more localized area. case Turning to the present more specifically, be noted that a homogeneous area was involved) Ilith a heavy concentration of population. He felt, for reasons stated bY the Division of Examinations) that approval would not be inconsistent /11th the Bank Holding Company Act since it would not expand Baystate's 3/16/64 -5- Operations to a point that could be regarded as inconsistent with sound banking or the preservation of competition in the field of banking. In the area where the Haverhill bank was located, and in the larger area in which Baystate Corporation operated, active competition would remain fr°1ra commercial banks, savings banks, and other types of financial institutions. He also thought that some weight might be given to the fact that Baystate had not had a record of moving too aggressively in the direction of expansion. Governor Robertson expressed the opinion that approval could n°t be justified on the basis of management problems in a bank of this SiZe, on the basis that the bank's prospects were poor, or on the basis 31* convenience and needs of the community. ' the application He would, however, approve on the basis of three factors; namely, the linkage be- tween First National Bank of Boston and Baystate was being effectively terminated, the case had been approved by the State Board, and the effect On the competitive situation would not appear to be significantly adverse. When any holding company became the size of Baystate, he was rather reIlletant to see it expand too much further, but he did not believe that the Point had been reached where the present application should be denied on those grounds. Governor Shepardson said that he would approve the application the reasons given by the Division of Examinations. Governor Daane indicated that he had some difficulty in deterhow to define the limit beyond which a holding company should not be ; 3/16/64 allowed -6to expand further. Despite this general question, however, he would approve the present application because there seemed to be no factors that would be demonstrably inconsistent with such action. Chairman Martin and Governor Balderston said that they would aPProve the application for the reasons presented by the Division of txaminations. Thereupon, the application of Baystate Corporation was approved Unanimously, with the understanding that an order and statement reflecting this decision would be prepared for the Board's consideration. Messrs. O'Connell, Thompson, Via, and Donovan then withdrew fl'om the meeting. Examination of Richmond Reserve Bank (Items 3 and 4). The report °f examination of the Federal Reserve Bank of Richmond made by the Board's eXe4lining staff as of November 26, 1963 had been circulated to the Board, 1* *c)11.g with the usual accompanying papers. Also, there had been distributed a.Inenicrandum from the Division of Examinations dated March 6, 1964, sum- Me'rizing the examination and a memorandum dated March 12, 1964, regarding lticlebtedness incurred by five members of the staff of the Reserve Bank to finance purchases of securities. The March 6 memorandum noted that there were three reserve city ba liks whose borrowings from the Richmond Reserve Bank had tended to be e°4tinUous. Riehm The banks involved included The Central National Bank of —"°11d, Richmond, Virginia; State-Planters Bank of Commerce and Trusts, 3/16/64 Richmond, Virginia; and First Union National Bank of North Carolina, Charlotte, North Carolina. The memorandum of March 12 noted that the Board had recently reviewed the subject of outside activities and certain types of financial transactions of Reserve Bank officers and employees, and had sent a letter (S-1907) to all Federal Reserve Banks under date of February 10, 1964. It was suggested that the Board might wish to request the Richmond Etlik to review the five cases of indebtedness to finance the purchase of securities in the light of the views expressed in that letter. A draft Of letter to President Wayne in line with this suggestion was attached to the March 12 memorandum. At the request of the Board, Mr. Smith summarized the informatIon derived from the examination of the Reserve Bank, his comments being based on the report of examination and the memoranda that had been distributed. In a discussion of the continuous borrowing at the discount '414dow by the three member banks mentioned, it was suggested that there be obtained for the record a statement from the Reserve Bank on any 84113-1Y8es that might have been made to account for such borrowing and on the reasons that were construed as constituting justification. There general agreement with this suggestion, and it was understood that 4n appropriate letter would be sent to the Reserve Bank. The Board also approved unanimously the proposed letter to the i4mond Reserve Bank requesting it to review the five cases of indebtedness 873 3/16/64 -8- incurred by members of its staff for the purpose of financing purchases of securities. Copies of the letters sent to the Richmond Reserve Bank are attached to these minutes as Items 3 and L. It was agreed that there were no other matters disclosed by the examination that warranted action by the Board at this time. The meeting then adjourned. ( ,•\ Secretary, L. C74 TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON • Item No. 1 3/16/64 BRIGGS -- CHICAGO KEBJE A. Brenton Companies, Inc., Des Moines, Iowa. B. First National Bank of Davenport, Davenport, Iowa; National Bank of Des Moines, Des Moines, Iowa; Northwest Des Moines National Bank, Des Moines, Iowa; South Des Moines National Bank, Des Moines, Iowa; The Poweshiek County National Bank of Grinnell, Grinnell, Iowa; and The First National Bank of Perry, Perry, Iowa. C. Prior to issuance ,of permit authorized herein, Applicant shall execute and deliver to you, in duplicate, an agreement in form accompanying Board's letter S-964 (F.R.L.S. #7190). (Signed) Karl E. Bakke BA1CKE Oen ----111:142n of KEBJE voting permit, under The Board authorizes the issuance of a general Statutes of the the provisions of section 5144 of the Revised e named below affiliat United States, to the holding company to vote the tion organiza after the letter "A", entitling such below named bank(s) etock which it owns or controls of the of such ders sharehol after the letter "B" at all meetings of the after below stated bank(a), subject to the condition(s) issued be may letter "C". The period within which a permitthirty days from to limited is ation authoriz Pursuant to this time is granted the date of this telegram unless an extension of the instrucby the Board. Pleaso proceed in accordance with 10, 1947, (5-964). tions contained in the Board's letter of March (7‘,0 Item No. 2 BOARD OF GOVERNORS ,.',0oE cot :• S ;0 ' 1 3/16/64 OF THE . FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE SOARD March 17, 1964. Mr. IIhrcus A. Harris, Vice President, Federal Reserve Bank of New York, New York, New York 10045. Dear Mr. Harris: Receipt is acknowledged of your February 19 letter reporting the 1963 operations of the Nassau County and Bergen County check clearing bureaus. The Board notes particularly that the two bureaus continue to provide an efficient check collection service at a saving to the Reserve Bank, with significant benefits to the participating banks and their depositors, and agrees with the officers of your Bank that no change is necessary or desirable at this time in the basic agreements covering this , service. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. BOARD OF GOVERNORS 3 3/16/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 31, 1964. Mr. Edward A. Wayne, President, Federal Reserve Bank of Richmond, Richmond, Virginia. 23213 Dear Mr. Wayne: The report of examination of the Federal Reserve Bank of Richmond as at the close of business November 26, 1963, included (at , 13p. 32-34) certain data regarding the frequent recourse to Reserve Bank credit by three reserve city banks, namely, The Central National Bank of Richmond, Richmond, Virginia; State-Planter Bank of Commerce and Trusts, Richmond, Virginia; and the First Unioft National Bank of North Carolina, Charlotte, North Carolina. The information shown in the report, supplemented by informan contained in the reports (FR 527a) periodically received from your . 31nk, show that The Central National Bank of Richmond was a borrower in i of the 52 weekly reserve computation periods in 1963, and had borrowed , n 37 such periods in 1962; the State-Planters Bank of Commerce and ; .1'Aists borrowed in 48 of the 52 reserve computation periods in 1963, of etch the last 38 periods were consecutive; and the First Union National of North Carolina borrowed in 39 of the weekly reserve computation Pea !riods in 1963, of which as many as 29 were consecutive. The Stateet anter s Bank continued regular use of Federal Reserve credit during ,sne first two months of the current year. On the surface, at least, ;110ch records on the part of member banks of the size of these prI , Ild give rise to a question of appropriateness in the light of the 'nciples set forth in the foreword of Regulation A. tio The Board would appreciate receiving from you any data that may have been developed by your Discount Department's analyses to account for the steady borrowing by the banks mentioned, and particularly any construed as justification of their protracted Use reasons that might be of Reserve Bank credit. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Item No. BOARD OF GOVERNORS 4 3/16/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 1, 1964. . Edward A. Wayne, President, Reserve Bank of Richmond, Ri chmond, Virginia. 23213 Rederai 13ear Mr. Wayne: Board Among the matters that came to the attention of the Richof Bank Reserve a result of the examination of the Federal ness, indebted of as at November 26, 1963, were five cases scribed as for the purpose of purchasing securities, which were July 1963 ,.7"r ted by members of the Reserve Bank's staff at the ness indebted of amounts ...ePorting date. The staff members and the "ported by each were as follows: as Benjamin U. Ratchford, Vice President and Senior Adviser Lloyd B. Gee, Supervisor, Accounting Division, Money Department; also Special Assistant Examiner Penton L. Marsh, Supervisor, City and County Checks, Transit Department Jack H. Wyatt, Senior Bank Relations Representative; also Special Assistant Examiner Chester D. Porter, Jr., Senior Examiner $1,250.00 9,886.00 1,244.20 570.00 3,225.00 situations were It is the Board's understanding that these disc_ Schaeffer, and Examiner Reserve tha,,used with you by Chief Federal were not ions transact ng underlyi You were satisfied that the ' ape As you may purpose. nt investme an for recculative in nature but were to the 1964, 10, February dated letter prealls the Board forwarded a current its g outlinin Banks Reserve idents of all the Federal : vie financial tra"8 Pn the subject of outside activities and certain s. This employee and officers Bank letnsactions of Federal Reserve h: paragrap g followin the , comments ter included, among other ard A. Wayne -2- "4. The Board considers it inappropriate for any officer or employee of a Federal Reserve Bank to engage in speculative dealings (as distinguished from investments), whether on a margin or a cash basis, and Whether in securities, commodities, real estate, exchange, or otherwise. Frequency of trading would be a significant indicator in judging whether dealings were speculative, particularly any transactions that appeared to be for the purpose of taking advantage of short-term price fluctuations, and the use of credit also would be a pertinent consideration." The Board would appreciate having the assurance from you You have reviewed the five cases referred to above, particularly 11Z brokerage accounts maintained by Mr. Gee, in the light of the 148 expressed in the letter of February 10, 1964. that Very truly yours, (signed) Merritt Sherman. Merritt Sherman, Secretary.
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