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FR 609
Rev. 10/59
Minutes for
To:
March 2, 1961
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. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
2•_1_
Minutes of the Board of Governors of the Federal Reserve System
on Thursday, March 2, 1961.
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
King
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Masters, Associate Director, Division of
Examinations
Hexter, Assistant General Counsel
O'Connell, Assistant General Counsel
Furth, Adviser, Division of International
Finance
Sammons, Adviser, Division of International
Finance
Conkling, Assistant Director, Division of
Bank Operations
Potter, Legal Assistant
Thompson, Supervisory Review Examiner,
Division of Examinations
Items circulated to the Board.
The following items, which had
been circulated to the members of the Board and copies of which are attached
to these minutes under the respective item numbers indicated, were approved
unanimously:
Item No.
Letter to Mt. C. L. Hufsmith, Chairman of The
First National Bank, Palestine, Texas, regarding
the question whether monthly account analyses for
the purpose of assessing service charges involve
a payment of interest on deposits.
1
Letter to Valley National Bank, Glendale, California, granting permission to continue to maintain
reserves applicable to banks outside of central
reserve and reserve cities.
2
tiG2
3/2/61
-2Application to organize a national bank at Greeley, Colorado.
There had been circulated to the members of the Board a memorandum from
the Division of Examinations submitting a draft of letter to the Comptroller
of the Currency recommending unfavorably with respect to an application to
organize a national bank at Greeley, Colorado.
In discussion of the matter, Governors Mills and Shepardson cited
information disclosed by the report of investigation of the Federal Reserve
Bank of Kansas City which raised a question as to whether an unfavorable
recommendation was warranted in this instance.
Mr. Masters indicated that
his review of the file had likewise caused him to have some question.
Accordingly, it was understood that Mr. Masters would discuss the
application with the Kansas City Reserve Bank, which had suggested an
unfavorable recommendation, and that the Board would then consider the
matter further.
Application of First Virginia Corporation (Items
3 and 4). On
February 23, 1961, the Board approved, with Governor King abstaining, the
application of The First Virginia Corporation, Arlington, Virginia, for
approval of the acquisition of shares of the Falls Church Bank, Falls
Church, Virginia, and the Legal Division was requested to draft for the
Board's consideration an order and accompanying statement that would carry
this decision into effect.
The requested drafts had now been distributed.
It was also agreed at the February 23 meeting that the Legal
Division and the Division of Examinations would undertake a study of
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certain points that had been raised in connection with the First Virginia
application.
These related to (1) an agreement between the applicant
holding company and the two principal officers of the Falls Church Bank
that had apparently not been disclosed to the other shareholders of the
bank and (2) the fact that the applicant holding company had outstanding
both voting and nonvoting shares.
The understanding was that on the basis
of the staff study the Board would determine whether in future holding
company cases it would give consideration, and if so to what extent, to
factors of this kind, and that in the event of an affirmative determination
by the Board a notice would be issued for the benefit of all holding
companies.
At the meeting on Monday, February 27, it had been agreed,
Pursuant to a suggestion by Governor Robertson, that information would
be sought from First Virginia Corporation as to whether the agreement
between First Virginia and the two principal officers of the Falls Church
Dank had been disclosed to the other shareholders of the bank.
An exchange
Of correspondence with the holding company followed, and copies of a letter
from the holding company dated February 28, 1961, had been distributed to
the Board along with a memorandum from Mr. Hexter.
The memorandum also
covered another question that had been raised in discussion by the Board;
namely, whether there was any legal or practical necessity that the proposed
transaction be consummated by February 28, 1961.
The President of First
Virginia Corporation had advised by telephone that although the holding
company hoped it would be possible to consummate the transaction by that
date, there was no legal or practical necessity.
t it
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-4First Virginia's letter and Mr. Hexter's memorandum brought out
that the two principal officers of the Falls Church Bank had now acquired
options on over 90 per cent of the bank's outstanding shares.
These
options resulted from a solicitation by the two officers in October
1960,
at which time reference was made to the agreement between them and First
Virginia Corporation only to the extent of stating that the holding
company had agreed to purchase not less than
outstanding shares at $275 per share.
4,o8o of the bank's 8,000
First Virginia now stated that it
would be agreeable to disclosing all of the terms of the agreement to the
bank's shareholders if that should be deemed desirable.
It also stated
that a complete copy of the agreement had been filed with the Securities
and Exchange Commission and therefore was a matter of public record.
Mr. Hexter's memorandum brought out that if the Board should
conclude that the failure to make full disclosure reflected unfavorably
on the character of the management of the Falls Church Bank, and perhaps
the management of First Virginia Corporation, the question would arise
whether this unfavorable circumstance, weighed along with other pertinent
considerations, called for denial of the application.
If the Board should
decide that the application nevertheless should be approved, then the
question would arise whether the failure to disclose should be mentioned in
the statement accompanying the Board's order.
It was the recommendation in
the memorandum that the matter be mentioned in the Board's statement
with
an expression of the view that disclosure was called for in such cases.
It was not believed that any advantage that would flow from disclosing
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-5-
to the bank's shareholders, at this stage, all of the terms of the agreement would be sufficient to justify asking the holding company to follow
that course.
In commenting on the matter, Mr. Hexter indicated that Mr. Hackley,
General Counsel, and members of the Division of Examinations had some
question about the recommendation in his memorandum that reference be made
in the Board's statement to the lack of full disclosure.
Mr. Hexter went
On to review the information now available from First Virginia Corporation
and the alternative courses of action open to the Board, following which
he read a draft of language that might be included in the Board's statement
if the Board continued to feel that the application should be approved but
thought it desirable to include in the statement some reference to the
lack of full disclosure of the agreement between the holding company and
the principal officers of the bank proposed to be acquired.
In this connection, Mr. Sherman brought out that the inclusion
of such language in the Board's statement would represent a departure
from the understanding at the February 23 meeting, as restated by Governor
Szymczak at the February 27 meeting; that is, that the application of
First Virginia Corporation was approved, that an order and accompanying
prepared
statement reflecting the favorable decision of the Board should be
by the staff, and that the staff would then proceed to study the weight
that should be given in future cases to the points raised in the First
Virginia Corporation case in order that the Board might determine whether
a general notice on such matters should be issued.
3/2/61
-6Chairman Martin indicated that he found it difficult to persuade
himself that the lack of full disclosure went beyond the point of thoughtlessness or carelessness on the part of the persons concerned, whereas
the inclusion in the Board's statement of language such as Mr. Hexter had
suggested would tend in effect to pass judgment on the actions of such
Persons.
Accordingly, he was inclined to doubt that such language should
be included.
Governor Shepardson referred to the statement in the letter from
First Virginia Corporation that a complete copy of the agreement between
First Virginia and the two bank officers was on file with the Securities
and Exchange Commission, and therefore was technically a matter of public
record. Further, it appeared that there had been news releases indicating
that the two individuals in question were to be continued as officers of
the Falls Church Bank if the bank was acquired by the holding company.
Thus, although the holding company and the officers concerned may have
been careless about not divulging the full details of the agreement, other
shareholders were in effect put on notice by the news releases and could
have raised questions.
Governor Mills said he would accept the order and statement in
the form drafted and submitted to the Board for consideration, with the
understanding that a staff study would then be unaertaken on the basis
that had been suggested at the meeting of February 23, 1961.
He was not
inclined to be as charitable as the Chairman in appraising the actions
807
3/2/61
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of the two officers in question, and he noted that there had been cases
in which damages were assessed against individuals who entered into
agreements of this kind without appropriate disclosure.
He felt, there-
fore, that this was something to guard against in the future.
On the
other hand, he would be concerned if the Board's statement included
language such as suggested by Mr. Hexter because that would tend to cast
aspersions on individuals identified with the management of both the
applicant holding company and the Falls Church Bank.
This might affect
the degree of respect in which the bank was held by the community and
undermine confidence in the bank.
Governor Robertson stated that he would accept the statement as
origin].y drafted.
It seemed to him that it would be difficult to include
in the statement language such as Mr. Hexter had suggested unless the
Board reversed its decision and turned down the application.
Furthermore,
he was not sure that the Board should single out this one particular case
for comment when there may have been similar agreements in other cases
that had not come under the Board's scrutiny.
He would, however, favor
going forward with the staff study that had been mentioned, with a view
to determining whether the Board was going to require full disclosure of
all such agreements in future cases.
If so, he felt that the Board should
put all holding companies on notice.
After further discussion, unanimous approval was given to the
issuance of an order and accompanying statement approving the application
808
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of First Virginia Corporation, the documents to be in the form of the
drafts submitted to the Board prior to this meeting.
It was understood
that the order would reflect the votes cast by the members of the Board
at the meeting on February 23, 1961, at which time Governor King abstained
from participating in this decision.
Copies of the Order and Statement
issued pursuant to this action are attached as Items 3 and
4,
respectively.
Messrs. Thompson and Potter then withdrew from the meeting.
5).
Application of Wells Fargo Bank American Trust Company (Item No.
There had been distributed to the members of the Board copies of a memorandum
from the Division of Examinations dated February 23, 1961, recommending
approval of the application of Wells Fargo Bank American Trust Company, San
Francisco, California, for permission to merge with the Pajaro Valley Bank,
Watsonville, California, and to operate branches at the two offices of the
Pajaro Valley Bank.
The recommendation of the Federal Reserve Bank of
San Francisco was favorable.
In their reports on competitive aspects the
Comptroller of the Currency and the Federal Deposit Insurance Corporation
expressed the view that the effect of the proposed transaction on competition would not be adverse.
The Department of Justice commented that
the merger would unite the third largest bank in California and a local
bank in the city of Watsonville, that it would eliminate some existing
and potential competition between the two banks, and that it would further
increase the concentration of commercial banking in a State with a high
degree of existing concentration, due in substantial measure to past
acquisitions by the applicant.
J9
3/2/61
_9_
The memorandum from the Division of Examinations pointed out
that the applicant bank did not compete to any extent in the service area
of the Pajaro Valley Bank, that it had no branches within 10 miles of
the offices of the Watsonville bank, and that the applicant's share of
bank deposits in the State of California would be increased by less than
1/8 of one per cent to a figure of approximately
9.9 per cent. The
resulting bank would provide the community and the present and potential
customers of the local bank with a stronger institution offering a wider
range of banking services and a larger credit source, which would appear
to be in the public interest.
Governor Robertson said that he regarded this as a close case,
one in which the factors pro and con were not entirely clear.
However,
he could not find significant factors favorable to approval of the application.
The suggestion of naditional service was not impressive to him,
and it did not appear that the present or future management of the local
bank presented any substantial problem.
Essentially, in his judgment,
the matter came down to the fact that a large institution was in the
Process of expansion through mergers, and had already made large strides
in that direction over the past several years.
In this case the applicant
bank wanted to expand further and was willing to accomplish that expansion
at a premium equal to about
6 per cent of the local bank's deposits.
Therefore, he had concluded that he would want to vote against approval
of the application on the basis of the size of the applicant institution,
810
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its history of expansion, and the price it was paying for the stock to
be acquired.
The price to be paid was of course essentially the business
Of the applicant institution; nevertheless, it indicated an expansionistic
attitude on the part of management.
The merger would eliminate a sound
independent bank and its consummation would represent a further move in
the direction of concentration of banking in the State of California,
Which he did not believe was in the public interest.
As he had said, the
case was not black and white, but on balance he would lean on the side
of disapproval.
Mr. Masters said he would agree that the management situation at
the local bank offered no substantial basis for approval.
However, the
Division of Examinations did not regard this application as one of a
particularly borderline character.
Consummation of the transaction would
have virtually no effect on competition, and there would be no reduction
Of banking facilities.
The merger would bring into the Watsonville area
s strong bank which apparently would provide sharper competition with the
local branch of Bank of America National Trust and Savings Association.
Also, although the point
was
not particularly controlling, the local bank
vas said not to be meeting fully the loan demands of the community.
As
to the position of Wells Fargo, it was the third largest bank in California.
However, it had only 10 per cent of the deposits and 7 per cent of the
b'anking offices in the State, and the proposed merger would have virtim:ny
no effect on the existing percentages. In the circumstances, consummation
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of the merger would seem of such minor consequence in relation to the
over-all position of Wells Fargo that the Division felt the application
could be approved.
With reference to the ability of the local bank to meet fully
the credit demands of its community, Governor Robertson suggested that
this appeared to reflect principally a contention on the part of the
applicant bank.
Governor Mills indicated that on balance he felt that approval
of the
application would be a reasonable decision.
He pointed out that
Bank of America now had an office in Watsonville.
Also, as he recalled
the file, other
large banking organizations in California had requested
Permission to establish branches in the area.
If such applications were
approved, the independent bank would be exposed to additional competition
from large institutions.
If the present application to merge were denied,
and unless the Board at some future time should be disposed to approve a
Proposal from one of the other large banking organizations to merge with
the Watsonville bank, the effect would be to force the independent bank
to continue in
competition with much larger institutions and deny it the
Privilege of merging,of its own free will, with the banking institution
of its choice.
Other members of the Board having indicated that they concurred
in the recommendation of the Division of Examinations, the application
of Wells Fargo Bank American Trust Company was approved, Governor Robertson
3/2/61
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dissenting for the reasons he had stated.
A copy of the letter seat to
the applicant bank pursuant to this action is attached as Item No. 5.
Messrs. Thomas and Young, Advisers to the Board, and Noyes,
Director, Division of Research and Statistics, entered the room at this
Point.
Draft bill to amend section 19 of the Federal Reserve Act
(Item No.
6). Pursuant to the understanding at yesterday's meeting of
the Board, there
haa
been distributed copies of a revised draft of letter
to the Bureau of the Budget regarding a draft bill proposed by the Treasury
Department "to amend section 19 of the Federal Reserve Act, as amended,
to remove the authority to limit the rate of interest paid on time and
savings deposits of foreign governments and international institutions".
The draft letter would state that the Board did not object to
enactment of the proposed legislation.
It would go on to point out,
however, that if certain described circumstances, different from those
now prevailing, should develop in the future the complete absence of
authority over deposit interest rates paid by commercial banks in the
United States to foreign central banks and monetary authorities might
have detrimental results.
Accordingly, it would be suggested that the
following
clause be added to the proposed amendment: "except that the
Board of Governors of the Federal Reserve System shall be authorized to
limit the rate of interest on such deposits whenever the Board deems
such action necessary in the light of the general credit situation of the
_
dL
3/2/61
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United States".
The letter would point out that the proposed amendment
referred to "time and savings deposits" of foreign governments, monetary
and financial authorities of foreign governments, or international
financial institutions, and that no such institution would be eligible
under regulations of the Board to maintain a savings deposit with a member
bank.
It would likewise call attention to the fact that the proposed
amendment would not cover foreign deposits with nonmember insured banks,
which are subject to interest rate limitations imposed by the Federal
Deposit Insurance Corporation.
Chairman Martin stated that he had talked with the Secretary of
the Treasury and that there had also been discussion of the matter with
Under Secretary of the Treasury Roosa when the latter was in the Board's
building for luncheon yesterday.
In view of these discussions, Chairman
Martin proposed that the Board simply advise the Budget Bureau that at
the moment it had no objection to the proposed legislation.
He noted that
that was the position arrived at by the majority of the Board after
discussion at the meeting on Tuesday, February 28, at which time it was
understood that the Board's views would be transmitted to the Budget
Bureau informally and that no letter would be written unless, after
further discussion with the Treasury, the Board felt that it could agree
on some letter reflecting a position that was also agreeable to the
TreasUry.
Chairman Martin said he saw no reason for the Board to inject
itself into a position of assuming responsibility for the proposed
814
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legislation or in fact for saying anything unless it was sure that it
was in agreement with the Treasury.
As he understood the discussion on
February 28, with one dissent (Governor Robertson), the Board was in
agreement with the thought of advising the Budget Bureau informally that
it would not object to the draft bill.
The Chairman went on to say that he did not see any reason why
the Board should not continue to discuss the general problem.
For example,
the point had been made by Mr. Thomas that probably the whole matter could
be resolved if the
Board should decide to raise the maximum rate of interest
Payable on time and savings deposits from 3 per cent to 3-1/2 per cent.
However, as Governor Mills had pointed out, that would seem to go contrary
to steps that
the Administration had been taking in other respects,
including the reported discussions of the Secretary of the Treasury with
savings and loan representatives regarding possible reduction of the
dividend rates paid by such associations.
This was something that the
Board ought to bear in mind.
After expressing the view that the discussions by the Board had
been valuable, the
Chairman referred to the negotiable certificates of
deposit that certain New York banks had indicated they were going to
make available to corporations. In this connection, he noted reports
that there was pressure on New York City banks with no branches in London
and Paris to open branches abroad, so as to participate in the business
available in those centers.
If there was such pressure, it would seem
81.3
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that the Board should give serious thought to the matter of increasing
the maximum rate on time deposits, with applicability to domestic as well
as foreign deposits.
Unless the law should be changed, he felt that the
Board had a serious responsibility to try to meet that kind of competitive
Problem.
As he had pointed out, however, there would be the question of
increasing the ceiling rate on time deposits while the Administration
was discussing rates with the savings and loan people, and at a time when
there was perhaps some pressure on the commercial banks to lower the
Prime rate.
Thus, the whole area was controversial.
Chairman Martin stated that he would distribute to the other
members of the Board copies of a memorandum dated February 13, 1961, from
Mr. James Tobin, member of the Council of Economic Advisers, to Under
Secretary of the Treasury Roosa.
been
A copy of Mr. Tobin's memorandum had
transmitted to Chairman Martin under date of March 1, 1961, by
Chairman Heller of the Council of Economic Advisers.
The Tobin memorandum
related in general to the relationships between the level of long-term
Interest rates, monetary policy, and economic recovery.
The Chairman then repeated that, if agreeable to the Board, he
would suggest that Mr. Hexter or Mr. Hackley be requested to call the
Budget Bureau and say that the Board did not object to the draft bill
submitted by the Treasury.
It would also be stated that there were some
Points still under discussion between the Board and the Treasury.
SIG
3/2/61
-16Governor Shepardson said he would agree that it was questionable
whether the Board would want to suggest that it be given authority to
step in at some
point.
He raised the question, however, whether the view
was being conveyed to the Treasury that a significant problem might arise
at some future time, under conditions different than those prevailing
today, in the complete absence of authority over deposit interest rates
Paid by American banks on foreign deposits.
Chairman Martin replied that there had been an opportunity
Yesterday to discuss the problem with Under Secretary Roosa, and that
the General Counsel of the Treasury also was present.
Further, the
Chairman said, he had used the same illustration in talking with the
Secretary of the Treasury.
Accordingly, he felt that the Treasury had
been placed adequately on notice.
Mr. Hexter reported having received a telephone call yesterday
from a member of the Treasury's legal staff who expressed a preference
for leaving the
reference to both time and savings deposits in the draft
bill in order to conform with language used elsewhere in the statute.
Mr- Hexter felt that this was a point of little real substance and instead
involved principally a matter of language.
It appeared that the lack of
reference
in the draft bill to the situation in respect to nonmember
insured banks was an oversight and would be corrected.
Chairman Martin then said that he still came back to what had
been essentially his position all along.
If the Treasury was going to
3/2/61
-17-
ask for legislation of this kind, he would rather not have the Federal
Reserve placed in a position of responsibility for deciding when an
interest rate ceiling on foreign time deposits should be restored.
Governor Shepardson inquired whether there was any indication
that the Treasury would support a complete repeal of the statute requiring
the Board to fix maximum rates on time and savings deposits, as had been
recommended to the President by the committee of which Mr. Allan Sproul
was Chairman.
Chairman Martin replied that, without consulting the other members
of the Board, he
had indicated that he would personally support a recommendation for repeal of the statute.
In making that comment, he had
made it clear that he could not say what the Board's position would be,
and he offered to
take the matter up with the Board.
He understood, however,
that upon further consideration it had been decided not to proceed with
such a recommendation, and therefore the matter had never come to the
Board.
The Chairman went on to say that he would be willing to go along
with the suggestion of Governor Robertson for increasing the maximum rates
on time and savings deposits, as set forth in Governor Robertson's recent
memoranda and discussed by the Board, except for the fact that he felt
this might not meet fully the Board's responsibility as set forth in the
statute.
At least, he believed that the establishment of the proposed
ceiling rates might be so interpreted.
Looking to the future, and assuming
3/2/61
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prosperous conditions, it was his view that possibly the best thing that
could happen as far as the Board was concerned would be a repeal of the
statutory provisions in entirety.
On the other hand, he would be opposed
to removing the
prohibition against payment of interest on demand deposits.
Governor Balderston said he thought the proposed solution with
regard to the reply to the Budget Bureau on the draft bill was a good one.
The Treasury having been made aware of the problems involved, the view
of the Board
might now be transmitted informally by the legal staff along
the lines suggested; that is, that the Board would not object to the
proposed legislation, but there were some matters still being discussed
With the Treasury.
Chairman Martin commented that the person contacting the Budget
Bureau should mention also the lack of reference in the draft bill to
the situation in
respect to nonmember insured banks.
Governor Balderston commented that the various points that had
been discussed
by the Board would be referred to in the Board's minutes,
and that he felt this would make a satisfactory record.
He then turned
to the
question of initiating a recommendation for legislation to amend
the statutory provisions requiring the Board to fix ceiling rates on
time and savings deposits.
It was his feeling that as long as the present
statute was in existence, the Board was not free to raise the ceiling
rates in the manner that Governor Robertson had suggested.
However, he
was concerned that commercial banks were under closer limitations than
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other types of financial institutions competing for savings funds. The
Board, of course, could request a modest change in the statute with a
view to eliminating some of the questions of interpretation with which
it had to deal from time to time
but that would not reach to the heart
Of the problem that the Chairman had touched on today and Governor
Robertson had discussed previously.
The manner in which savings and
loan associations and credit unions had moved ahead in recent years in
the competition for savings funds gave him some concern. The commercial
banks were under maximum supervisory attention, yet the limitations
Imposed. on them had enabled newer forms of financial institutions to
grow faster.
In response to a question by Governor Robertson, Governor
Balderston said that some time ago he had raised with a group of people
the question whether the present legislation, which stemmed from the
difficulties of the early 1930's, was intended to go only to the marginal
units or also to the run-of-the-mine banks.
From this study he came to
the conclusion that the Congress had in mind the over-all situation; a
tairlY large number of banks had sought to achieve deposit growth by
Paying more than they could afford and by making imprudent loans and
investments.
Consequently, he felt that the Board was not free to raise
the maximum
rates so high as to permit the resumption of the same kind
of imprudent practices.
,
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3/2/61
Governor Robertson replied that there had been long periods when
the Board's
ceiling rate was substantially above not only the average
rate paid but also the rate paid by all except a very few banks.
that was not the situation today.
However,
He added that in trying to determine
what the Congress may have hna in mind, one could look only at the language
Of the statute;
the legislative history was not indicative of Congressional
intent.
He doubted whether a lawyer could be found who would say that
an increase in the maximum rates such as he had suggested would be even
on the boundary of going beyond the power of the Board.
As he saw it,
the Board had gotten to the point where it was keeping banks who wished
to do so from competing effectively for time and savings funds, and
questions such as the rate payable on foreign time deposits therefore
were bound to arise.
Further, it was his feeling that a Congressional
committee would wonder why the Board wanted the statute changed when the
present statute gave the Board power to do the very thing that was desired.
If the
statute should be repealed, the Board could do nothing.
Accordingly,
he would
prefer to have the Board raise the ceiling and have authority
available
to lower it if in the Board's judgment that became necessary.
Chairman Martin commented that it was not possible to run away
from the problem and that there was much in what Governor Robertson had
said.
to
He doubted whether the move to issue negotiable time certificates
corporations would have come up if there had been a higher ceiling
rate on time deposits.
The banks would have simplified the Board's
-71
3/2/61
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problem in one sense if they were willing to make the certificates
available to domestic as well as foreign corporations.
They had suffered
a fairly large competitive loss of deposits, he noted, and one could
hardly expect them to stand by and not take notice.
In some way, the
Board must deal with this problem.
At the conclusion of the discussion, it was understood that, as
suggested by Chairman Martin, the Bureau of the Budget would be advised
by
telephone that the Board would not object to enactment of the proposed
legislation to amend section 19 of the Federal Reserve Act that had been
submitted by the Treasury.
It was further understood that the Bureau
would also be advised that some points were still under discussion between
the Board and
the Treasury.
Reference likewise would be made to the fact
that the bill did not cover foreign deposits carried with nonmember
insured banks, which are subject to interest rate limitations imposed by
the Federal Deposit Insurance Corporation; and to the fact that although
the proposed amendment referred to "time and savings deposits" of foreign
Vvernments, monetary
and financial authorities of foreign governments,
or international financial institutions, no such institution would be
eligible under the regulations of the Board to maintain a savings deposit
with a member bank.
Secretary's Note: Later in the day Mr. Hackley
so advised the Budget Bureau by telephone. Subsequently, it was learned that the Treasury felt
it would be helpful if a brief letter confirming
the Board's position could be sent to the Budget
Bureau. Accordingly, the letter of which a copy
is attached as Item No. 6 was sent to the Budget
Bureau on March 3, 1961.
8'2C)
3/2/61
-22Annual Report of the Board for 1960.
Mr. Sherman advised that
the Annual Report of the Board for 1960 would be available from the
Printer by March
9, 1961. Accordingly it was agreed unanimously that,
Pursuant to the requirement in section 10 of the Federal Reserve Act,
the report would be transmitted to the Speaker of the House of Representatives on that date.
It was understood that the report would also
be transmitted to the President of the Senate and that distribution of
the report to other parties would be made in accordance with the customary
Procedures.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
Memoranda from appropriate individuals concerned recommending
increases in the basic annual salaries of the following persons on the
Board's staff, effective March 5, 1961:
Judith M. Golodner, Secretary, Division of Bank
Operations, from *4,675 to $4,995 per annum.
W. J. McClelland, from *13,510 to14,055 per
annum, with a change in title from Administrative Assistant to Assistant to the Director,
Division of Examinations.
Letter to the Federal Reserve Bank of New York (attached Item
No. 7)
approving the appointment of William M. Winans as assistant
examiner.
C
6",
CisC,
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 1
3/2/61
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
March 2, 1961
Mr. C. L. Hufsmith, Chairman,
The First National Bank,
Palestine, Texas.
Dear Mr. Hufsmith:
The Board has carefully considered your letters of
January 27, 1961, addressed to Chairman Martin, with further
reference to the question whether monthly account analyses for
the Purpose of
assessing service charges involve a payment of
interest on deposits.
Your letter suggests that, in its past consideration of
this subject, the Board has not given attention to all aspects of
the typical form of monthly account analysis used by member banks,
1?articu1ar1y
the item of "Earnings Credit" which normally appears
in such analyses as a deduction from the cost of services rendered.
In its first public statement regarding this matter in January 1944
(19)i4 Federal Reserve Bulletin, p. 13), the Board specifically
considered the effect of the item in a member hank's monthly
account analysis that gave effect to the theoretical earning value
Of the
account for the month involved. As there indicated, however,
it was the
Board's conclusion that such an account analysis was
simply an internal arrangement to enable the bank to determine
what, if any, charges should be made by it against its customers
for services performed and that it did not involve any payments by
'Fie bank to depositors so as to result in an indirect payment of
interest on demand deposits in violation of the law or the Board's
Regulation Q.
Although this matter has again been reviewed in the light
of
exhaustive correspondence between you and the Board since 1945,
the views of
the Board continue to be those expressed in its 1944
s
tatement and reiterated in the Board's previous letters to you.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 2
3/2/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 2, 1961
Board of Directors,
Valley National Bank,
Glendale, California.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of San Francisco, the
Board of Governors,
acting under the provisions of Sectio
n 19 of the Federal
Reserve Act, grants permission to the Valley Nation
al Bank to
maintain the same reserves against deposits as are
require
d to
be maintai
ned by banks located outside of central reserve and
reserve cities, effective as of the date it opened
a branch in
the city of
Los Angeles.
Your attention is called to the fact that such permission is subject to revocation by the Board
of Governors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
845
UNITED STATES OF AMERICA
Item NO.
3/2/61
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
----------------In the Matter of the Application of
1
THE FIRST VIRGINIA CORPORATION
for prior approval of acquisition of
voting shares of Falls Church Bank,
Falls Church, Virginia.
11•1.
-------------ORDER APFROVING APPLICILTION UNDER
BANK HOLDING COMPANY ACT
There having come before the Board of Governors pursuant
to section
3(a)(2) of the Bank Holding Company Act of 1956
(12 USC 1842) and
section 4(a)(2) of the Board's Regulation Y
(12 CFR 222
.4(a)(2)), an application on behalf of The First
Virginia
Corporation, Arlington, Virginia, for the Board's prior
approval of the acquisition of 51 per cent or more of the voting
shares of Falls Church Bank, Falls Church, Virginia; a Notice of
Receipt of Application having been published in the Federal
Register on November 29, 1960 (25 Federal Register 12209), which
Provided interosted persons an opportunity to submit comments
and views regarding the proposed acquisition; and the time for
filing such comments and views having expired and no such
comments or views having been filed;
-2IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that the said application be and
hereby is granted, and the acquisition by The First Virginia
Corporation of 51 per cent or more of the voting shares of Falls
Church Bank, Falls Church, Virginia, is hereby approved, provided
that such acquisition is completed within three months from the
date hereof.
Dated at Washington, D. C., this 1
day of March, 1961.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and Governors
Balderston, Szymczak, Mills, Robertson, and Shepardson.
Present and not voting:
Governor King.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
BOARD OF GOVERNORS
Item No.
3/2/61
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY THE FIRST VIRGINIA CORPORATION; ARLINGTON,
VIRGINIA, FOR PRIOR APPROVAL OF ACQUISITION OF SHARES OF
FALLS CHURCH BANK, FALLS CHURCH, VIRGINIA
STATEMENT
The First Virginia Corporation, Arlington, Virginia
("First"), a registered bank holding company, has applied pursuant
to section
3(a)(2) of the Bank Holding Company Act of 1956 ("the
Act"), for the Board's prior approval of the acquisition of 51 per
cent or more of the capital stock of Falls Church Bank, Falls
Church, Virginia ("Bank").
Views and recommendations of the Commissioner of
Banking for the State of Virginia. - As required by section 3(b)
of the Act, the Board forwarded notice of the application to the
Commissioner of Banking for the State of Virginia, who stated
that he had no objection to approval.
Statutory factors. - Section 3(c) of the Act requires
the Board to take into consideration the following five factors:
(1) the financial history and condition of the holding company
and bank concerned; (2) their prospects; (3) the character of
their management; (4) the convenience, needs, and welfare of the
communities and the area concerned; and (5) whether or not the
effect of the acquisition would be to expand-the size or extent
4
of the bank holding company system involved beyond limits consistent with adequate and sound banking, the public interest,
and the preservation of competition in the field of banking.
Discussion. - First presently controls four banks in
the counties of Arlington, Fairfax, Prince Jilliam, and Loudoun,
With a total of eight offices and aggregate deposits of about
060,580,OCO
as of October
3, 1960. Its largest subsidiary bank
is Old Dominion
Bank, Arlington, with four offices and total
deposits of about (,44,650,CC0.
The bank to be acquired has
1
three offices with total deposits of about W.9,0001 000. Its
main office and one branch are located in the independent City
of Falls Church, which lies between Arlington and Fairfax
counties; all of these areas are in the 'lashington, D. C.,
Netropolitan Area.
The other branch is nearby in Arlington County.
Falls Church, with a population of over 10,000, occupies an area
of approximately two square miles.
Arlington and Fairfax counties
together have a population of over 420,000 within an area of
about 430 square miles.
The financial history and condition, prospects, and
management of both First and Bank are presently satisfactory
and would be
expected to continue so.
the
There is evidence that
acquisition would enable First to assure effective manage-
ment succession in Bank and there is some possibility that
the
acquisition would increase the availability of new
-3capital to support expansion of banking activities in connection
With growth in the area.
However, these considerations alone do
not provide compelling reasons for approval of the application.
It appears that the provision of full banking services
at Bank's two branches, as proposed by First, would benefit the
areas served by them.
However, consideration of all aspects of
the convenience, needs, and welfare of the areas concerned discloses no substantial support for approval on this ground,
because it is probable that Bank would continue to serve its
community and area adequately even if not owned by First.
On
the other hand, consideration of this factor discloses nothing
inconsistent with approval.
At present, First controls nearly 17 per cent of the
commercial banking offices and 23.5 per cent of total deposits
Of individuals, partnerships, and corporations ("IPC deposits")
of banks in Falls Church and the 4 counties in which First's
bLinks operate.
The proposed acquisition would cause it to con-
in those counties and the City of Falls Church 23 per cent
Of banking
offices and 30 per cent of IPC deposits.
For the more
immediately affected areas of Arlington and Fairfax counties and
the City of Falls Church, the effect of the acquisition would be
to increase
percentage of banking offices from about
16 per cent to about 26 per cent and its percentage of IPC
deposits from about 25 per cent to about 33 per cent.
830
Bank's primary service area consists of the City of Falls
Church and portions of Arlington and Fairfax counties.
In that area
are four other banking offices, none of which is controlled by First.
However, one of First's banks has been authorized to establish a
branch in Bank's primary servicearea. There are 16 banking offices
(3 of which are in First's system) within a radius of 4 miles of
Bank's offices.
After the acquisition there would remain in Arlington and
Fairfax counties 23 banking offices not controlled by First.
Bank's
Primary service area does not now overlap that of any of First's
sub
sidiaries.
Only two of First's subsidiaries (those in Arlington
and Fairfax
counties) draw IPC deposits of any significance from
Bank's primary service area; at September 30, 1960, the amount in
each case was
less than 5 per cent of the subsidiary's total IPC
deposits, and the aggregate was an amount equal to approximately
15 per cent of Bank's IFC deposits.
Nearly three per cent of Bank's
IPC deposits originated from the primary service areas of the two
subsidiaries, and this amount equaled about one per cent of the
aggregate IPC
deposits of the two subsidiaries.
Accordingly, it appears that the acquisition would
result in the elimination of some competition.
However,
the provision of full banking services at Bank's two
branches would enhance banking competition in the area to
8°me extent and, in the Board's opinion, the acquisition would
831
5.not have a materially adverse effect on the competitive position
of other banks in the area concerned; nor would the control of
Bank by First deprive the public of adequate alternative sources
of banking service.
Consideration of the facts in this case does not indicate
that the proposed acquisition would expand the size of the First
system or the resources within its control beyond limits consistent with adequate and sound banking, the public interest, and the
preservation of competition in the field of banking.
It is the judgment of the Board, based on the relevant
facts considered in the light of the general purposes of the Act
and the factors enumerated in section 3(c) thereof, that the
Proposed acquisition would be consistent with the statutory
objectives and the public interest, and that the application
Should be approved.
BOARD OF GOVERNORS
OF THE
Item No. 5
FEDERAL RESERVE SYS1EM
3/2/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 2, 1961
Board of Directors,
Wells Fargo Bank American
Trust Company,
San Francisco, California.
Gentlemen:
The Board of Governors of the Federal Reserve System,
after consideration of all the factors set forth in section 18(c)
of the Federal Deposit Insurance Act, as amended by the Act of
IlaY 13, 1960, and finding the transaction to be in the public
interest, hereby consents to the merger of Pajaro Valley Bank,
Watsonville, California, with and into Wells Fargo Bank American
Trust Company, San Francisco, California, under the charter and
title of the latter bank. The Board of Governors also approves
the operation of branches by the resulting bank at the following
locations:
326 Main Street, Watsonville
1501 Freedom Boulevard, Watsonville
This approval is given provided (1) the proposed merger
iS effected within six months from the date of this letter and
substantially in accordance with the Agreement for Merger
sPProved by the boards of directors of both banks on December 13,
?.960, and (2) shares of stock acquired from dissenting shareholders are disposed of within six months from date of acquisition.
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. 6
3/2/61
AODRESS OrriCIAL CORRESPONDENCE
TO T.-4E BOARD
March 3, 1961
*. Phillip S. Hughes,
Assiptant Director for
Legislative Reference,
Bureau of the Budget,
Washington 25, D. C.
Dear Mi. Hughes
This is in response to your letter of February 27, 1961,
requesting the views of the Board of Governors with respect to
a draft bill proposed by the Treasury Department wro amend
section 19 of the Federal Reserve Act, as amended, to remove
the authority to limit the rate of interest paid on time and
Savings deposits by foreign governments and international
financial institutions."
The Board of Governors does not object to enactment
Of the proposed legislation.
Very truly yours,
,
lalerritt Sherm
Secretary;-.
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
7
3/2/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 2, 1961
CONFIDENTIAL (FR)
Mr. Howard D. Crosse, Vice President,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Crosse:
In accordance with the request contained in
Your letter of February 23, 1961, the Board approves the
appointment of William M. Winans as an assistant examiner
for the Federal Reserve Bank of New York. Please advise
US of the effective date of the appointment.
It is noted that Mr. Winans is indebted to The
Franklin Trust Company of Paterson, Paterson, New Jersey,
a nonmember bank, and to The Edgewater National Bank,
Edgewater, New Jersey, for home improvement loans in the
amounts of $490 and $4501 respectively, and to The Garden
State National Ban of Teaneck, Teaneck, New Jersey, in
the amount of $7,900 for a mortgage on his home. Accordingly, the Board's approval of the appointment of Mr. Winans
IS given with the understanding that he will not particiPate in any examination of these institutions until his
indebtedness has been liquidated.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER