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Minutes for
To:
March 27, 1961
Members of the Board
Prom: 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.
Ir You were present at the meeting, your initials will
indicate approval of the minutes. If you were not present,
Your initials will indicate only that you have seen the
minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System
MciliclaY, March 27, 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
Szymczak
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Thomas, Adviser to the Board
Young, Adviser to the Board and Director,
Division of International Finance
Fauver, Assistant to the Board
Knipe, Consultant to the Chairman
Landry, Assistant to the Secretary
Petersen, Special Assistant, Office of
the Secretary
Messrs. Furth, Katz, Irvine, Wood, Maroni, and
Reynolds of the Division of International
Finance
Messrs. Noyes, Garfield, Holland, Koch, Robinson,
Brill, Dembitz, Williams, Eckert, Gehman,
Solomon, Goldstein, Trueblood, Wernick, and
Wood, and Miss Dingle of the Division of
Research and Statistics
Economic review.
The Divisions of International Finance and
114u,,
--eh
and Statistics presented a review of economic and financial
°I) ents,
8hernia4
following which a11 members of the staff except Messrs.
'4enyon, Thomas, Fauver, Noyes, and Landry withdrew and the
110110
1r11113 entered. the room:
Mr.
Mr.
Mr.
Mr.
Molony, Assistant to the Board
Hackley, General Counsel
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
3/27/61
-2Mr. Hooff, Assistant General Counsel
Mr. Leavitt, Assistant Director, Division
of Examinations
Mr. Young, Assistant Counsel
Mr. Axilrod, Economist, Division of Research
and Statistics
Reortonind2900. There had been distributed under
l`ate of March 24, 1961, a memorandum from the Legal Division relating to
request dated March
C)1' 4
6, 1961, from the House Committee on Ways and Means
report on H. R. 2899 and H. R. 2900, identical bills relating to
te4cat
i°n of savings and loan associations and mutual savings banks.
An
attached memorandum from Mr. Axilrod of the Division of Research and
atatiati
---cs discussed certain problems involved in the proposed legislation,
4 ng the tax position of savings and loan associations and mutual
'
-ts banks as compared with that of commercial banks.
the
NrS
Submitted with
emoranda was a draft of reply to Chairman Mills of the Committee on
and Means.
The proposed report to the Ways and Means Committee would note
that the
amount of tax-free reserves the financial institutions in
(11 ttl.40
-n should be permitted to accumulate appeared to involve a number
or hi.
ghlY technical considerations, such as their loss experience and
the c,
"aracter of their assets, and that the bills also raised the question
/lheth r
e- the amount allowed could best be determined administratively or
bY le
glslation.
The report would state that because the foregoing
3/2q/61
-3-
considerations involved matters about which the Board had no special
41°141edge, and since amendments to the Internal Revenue Code were
1311111ari1y within the competence of the Treasury, the Board had no
c°11mftts to offer with respect to the bills.
Governor Shepardson questioned the advisability of reporting
81121P1Y that the Board had no comment.
If there was a tax inequity, he
l'eit it would be in order to mention that in the letter, although he
Va8
not sure whether an approach to the problem through the tax
ae4uctible bad debt reserves of the financial institutions in question
1148 the most appropriate way of dealing with the problem.
Governor Robertson remarked that he believed the Board should
not
take a hands-off attitude on the question.
He suggested that the
13°Ellicl'13 report to the Committee might appropriately indicate that if it
1.480esirab1e
to have the Treasury make determinations for the commercial
be4lks with respect to the amount of permissible bad debt reserves, it
11°111(1 seem desirable that the Treasury also be given such authority
&tithe case of savings and loan associations and mutual savings banks.
Governor Mills said he was disturbed by the thought that almost
114thIng the Board might say in this regard would leave it open to a
he.l.ge of siding with the commercial banks on a proposal that would
tO the
disadvantage of the savings and loan associations and mutual
3/27/61
-14--
eavings banks.
The memorandum from Mr. Axilrod brought out forcefully
the effect of the existing legislation, but the savings and loan
8.88°-ciations were adamant in their arguments against a change.
CliffieUlt
It was
problem, and he did not know how the Board could say any-
a positive nature without opening itself to charges such as
"
thin
he had mentioned.
Following further discussion, it was agreed that the draft
repo„
Ak. to the House Ways and Means Committee would be revised to
'1Orate language along the lines suggested by Governor Robertson
14°11er that the Board might consider whether it wished to send a
rePI'Y to such effect.
Messrs. Thomas, Molony, Noyes, and Axilrod then withdrew from
themeetinge
Marine Midland Trust Company of Southern New
Item No. 1
Board
krch
There had been distributed to the members of the
"Pies of a memorandum from the Division of Examinations dated
3, 1961, transmitting further comments from the New York Reserve
`
knit Iri+.1,
respect to an application by Marine Midland Trust Company of
ktithe
tql New York, Elmira, New York, for permission to merge with First
Bank and Trust Company of Ithaca, Ithaca, New York.
84 4tif,
-
The
following
comments of the Reserve Bank had been prepared
'\
3/27/61
_5-
641 indication at the meeting on March 8, 1961, that the Board was
111c1
ined to disapprove the application, contrary to the recommendation
or
Reserve Bank.
In its letter of March 21, 1961, transmitting its
l'illther comments on the application, the New York Reserve Bank stated
that it could not add materially to the facts already presented and
e l'ressed the view that essentially the problem involved weighing of
the
'"Lgnificance of those facts in the light of the laws applicable to
bax11"nergers and the System's supervisory responsibility for interpreting
kleh laws.
The accompanying memorandum presented in some detail the
l'eas°11s NNThy the Reserve Bank considered the proposed merger worthy of
aDDrov.,
---..- on the basis of its "understanding of the way in which banks
and against the background of a changing, or developing banking
c°41ete
trticture fl.
Mr. Solomon commented on the additional material submitted by
theu_
York Reserve Bank, noting, as had the Bank, that the facts of
the c
E.se were not in dispute. Instead, it was a question of the
1-11te
memorPretation
of those facts, and in that respect the Bank's
1134Y have pointed up some of the factors involved more effectively
the"4 the
material previously made available to the Board.
Mx*. Solomon said, in reply to a question from Chairman Martin,
that thA
recommended approval of the
Division of Examinations, which had
'
3I 1/6i
-6-
1%.lication in the first instance, continued of that view.
The views of
tlie New York Bank favored approval, so they would hardly have influenced
the 1-14
'
- vlsion of Examinations to change its original position. However,
*Iile the Division was inclined to think that a favorable decision could
be justified in the circumstances of this particular case, it recognized
the /aquments against approval and no one in the Division regarded this
4a a black-and-white
case.
Governor Balderston inquired if the sample of independent banks
it si
X New York State communities referred to in the New York Bank's
rev.,.1.e17
or the application was representative. The sample in question
1)111'PortevA- to
show that independent banks had not to any material degree
e.,11 aa
versely affected by Marine Midland competition in their respective
--441ties and
that, in fact, their growth had exceeded that of the
14141.te
midland subsidiaries in most cases.
In reply, Mr. Leavitt said that the sample was not widely
8entative and that a fuller survey probably would indicate that
111 crtain areas the Marine Midland banks had grown more rapidly than
l'erldent banks in the same communities.
Governor Mills stated that although this was a bank merger case,
&t e1,
8° involved the question whether the transaction, if approved, would
l'8111t
14t
-n the expansion of a bank holding company contrary to the public
st. In his opinion, it would.
Further, looking only at the bank
3/27/61
-7-
aspects of the matter, it was also his belief that approval
If°41c1 be Contrary to the public interest by permitting the expansion
Or the
applicant bank to such a size that it would have a competitive
844Antage over other banking institutions in the Seventh Banking District
qtie State
of New York.
that
It had been asserted that studies indicated
independent banks could thrive in direct competition with offices
ot large banking organizations.
However, he felt this was irrelevant
t0 the statutory responsibilities vested in the Board by the Bank Merger
4111.Bank Holding Company Acts.
It was his opinion, Governor Mills said, that the New York
Re er,,,
8- Y e Bank's additional comments on the application by Marine Midland
Iu,hEtsized
too strongly the factor of convenience.
Those charged with
res1)0
the factor
nsibility under the Federal laws must take into account
or
vtaPetition and the disadvantages worked on the smaller banks if
-v.41.1s.s should be permitted to expand too greatly in size.
In that
ight, he considered it fortunate that the New York memorandum had been
ea."salable, because he felt that future recommendations would have
to -k_
-* studied in the light of the bias that appeared to him to be
retlected in the memorandum.
the
in
Governor Robertson commented that the New York memorandum,
sense of presenting the point of view of the Bank, was a capable job.
1.101,re
lrer, he felt that to a large extent the case of the Bank was disproved
3/27/61
-8-
1"he considerable premiums that large institutions were forced to offer
a.
tempting to acquire smaller banks.
Following further discussion, the application was denied by
11118411110us vote.
A copy of the letter sent to Marine Midland Trust
C°/411447 of Southern New York pursuant to this decision is attached as
Messrs. Fauver, Hooff, and Leavitt withdrew from the meeting at
this point.
-tRaq...21.2L R. 1211, H. R. 2799
and H. R. 2802 (Item No. 2 .
At th,„,
- meeting on March 20, 1961, the Board gave preliminary consideration
to tt
'4441ft of letter to Chairman Harris of the House Committee on Inter-
stet.
and Foreign Commerce reporting on H. R. 1211, H. R. 2799, and H. R.
3(Q
'411 relating to disclosure by corporate officers and others of
eertn4
'g-1.11 Personal financial dealings. In view of certain questions that
1?er
e- rai
--sed at the time, action on the proposal report was deferred.
These questions having been studied further, the proposed letter
et°1111 presented for consideration and, after a brief discussion, was
0:Z.4011
unanimously. A copy is attached as Item No. 2.
Messrs. Hexter and Young (Assistant Counsel) then withdraw from
eting.
.2h_qq.alsIi2Ep...1
'-?*A41
Governor Robertson commented that because of
defal
cations in certain smaller banks, there had been substantial
V27/61
841verse
1S°
-9Publicity.
Consequently, it seemed desirable for the bank super-
agencies to do whatever was possible to offset this publicity, and
8.113"0 urge the commArcial banks to take necessary steps to guard against
such defalcations in the future.
In this connection, Governor Robertson
rePo
rted that the American Bankers Association was preparing to issue a
4)Illet on direct verification and that it was a creditable job.
It had
bee
suggested that the bank supervisory agencies, Federal and State,
help if it could be arranged to insert in the pamphlet a letter of
"L
.
eorzle
ndation signed by the Chairman of the Board of Governors, the Comptroll
er of the Currency, the Chairman of the Federal Deposit Insurance
e°rPo
r ---on, and the Chairman of the National Association of Supervisors
State Banke.
Governor Robertson then read the proposed letter of commendation,
all(11t /gas
eed that it would be appropriate for Chairman Martin to
letter on behalf of the Board.
Governor Robertson also recalled that at the meeting on March 15,
1961) t
he Board had approved a letter to all Federal Reserve Banks
recIlletti
that Reserve Bank examiners, in the course of examinations
Stet
e member banks, discuss with management the availability of the
e%Qe4
el115110Yee dishonesty bond ("umbrella" bond) in cases where such
triktra
gas not carried, and include comment in the examination report.
k the
saMe time, the Board had also authorized the staff to enter into
3/27/61
-10-
48eussion with the other Federal bank supervisory agencies and the
IlEtti°1-41 Association of Supervisors of State Banks regarding the
isallance of a proposed joint statement urging that bank directors
Protect
the interests of depositors and shareholders through maintenance
ra,4
'equate fidelity coverage and through use of adequate audit procedures
44(1 internal controls. However, question had been raised within the
Peri
,
eral
Deposit Insurance Corporation as to whether the better approach
Vow.
,
not be through the examiners of the respective supervisory agencies.
Ill
e circumstances, Governor Robertson felt that it was advisable not
to try
- to push the issuance of the proposed joint statement and instead
to t1,4
'
4-Ilk in terms of possible alternatives.
In a brief discussion that followed, Mr. Solomon reported receipt
before this meeting of a telephone call from the Office of the Comptr 11
t
of the Currency which indicated that the Comptroller was quite
all'able to the proposed joint statement and might discuss the matter
e Chairman of the Federal Deposit Insurance Corporation.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
letter to the Federal Reserve Bank of San Francisco (attached
Richard H. Wyatt as assistant
rier. ) aPproving the appointment of
No.
ex
3/27/61
-11Letter to Mr. Clay, President of the Federal Reserve Bank of
has ,S City, advising that G. Howland Chase, Assistant General Counsel,
as oeen designated as the member of the Board's legal staff to serve
mrsarl associate member of an ad hoc Committee of Counsel appointed by
the .eblaY in his capacity as Chairman of the Committee on Legislation of
'
residents' Conference to undertake appropriate study of the general
questioy, of
application of State unemployment compensation statutes to
the
deral Reserve Banks.
Secretary
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 1
3/27/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 271 1961.
Board of
Directors,
liarine Midland Trust Company
ri? Southern New York,
'''44111-rap New York.
Ge
ntlemen:
Reference is made to your request submitted through the Federal
0e
11r!
s rve Bank of New York for consent under the provisions of section 18(c)
mer'he Federal Deposit Insurance Act, as amended (12 U.S.C. 1828), to
York with First National Bank and Trust Company of Ithaca, Ithaca, New
the'and for approval to operate branches at the present locations of
cffices of the First National Bank and Trust Company of Ithaca.
It apparently is contemplated that the continuing bank would
Hatiwnat increase the range of banking services presently offered by First
thes°flal Bank and Trust Company of Ithaca, but it does not appear that
the e °r other benefits would be of major importance. On the other hand,
resolDr°Posed merger, which would further expand the banking offices and
urees of Marine Midland Trust Company of Southern New York and the
Mari,
peti"e Midland group of banks, would eliminate existing and potential comin ition between the two banks, and would inject into the banking situation
haca a relatively large institution that could materially impair the
l'i
rlearbs-- competitive capacity of the remaining bank in Ithaca and other
Y banks.
the B
Section 18(c) of the Federal Deposit Insurance Act provides that
coilsi,
°
,ard of Governors shall not approve a proposed merger unless, after
'
ering all the factors stated in the section, the Board finds the
the Zaction to be in the public interest. For the reasons stated above,
"rd does not find that the proposed merger would be in the public
ereet3 and accordingly the application is denied.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
.1"
BOARD OF GOVERNORS
OF THE
Item No. 2
3/27/61
FEDERAL RESERVE SYSTEM
,
WASHINGTON
OFFICE OF THE CHAIRMAN
ippp›4
March 27, 1961
he H
onorable Oren Harris, Chairman,
*',,(301Mittee on
Interstate and Foreign Commerce,
united
States House of Representatives,
Washington 25, D. C.
12‘eal" Mr. Chairman:
Receipt is acknowledged of your three letters dated
?el
,
)
11.11
:uary 9, 1961, enclosing
respectively copies of H.R. 12n,
2799, and H.R. 2802, and requesting reports thereon. These
of:Li:8 have similar purposes, in that
they would require disclosure
Qetailed
information by specified individuals, including corurate directors and officers, of certain personal financial
dvE3.„
.114
'
inge.
H.R. 1211 would amend section 16 of the Securities Exchange
Act of
equj 1934, as amended, and would apply to holders of certain
ni4rquY securities. H.R. 2799 would amend section 36 of
the Invest()14,C°mPanY Act of 1940, as amended, and would apply to directors,
H.R.-ers$ agents and employees of registered investment companies.
trolI802 would apply to officers and directors, as well as to constockholders, of any "publicly held corporation".
It appears that none of the bills relate to any matter
Or th "as a direct or material bearing upon the responsibilities
804, e Board of Governors of the Federal Reserve System, and the
d has no comment to offer with respect to them.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
-',11
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
•
WASHINGTON 25, D. C.
Item No. 3
3/27/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 27, 1961
Hr. Eliot J. Swan, President,
Federal Reserve Bank of San Francisco,
San Francisco 20, California.
Dear Mr. Swan:
In accordance with the request contained in your
letter of March 20, 1961, the Board approves the appointment of Richard H. Wyatt as an assistant examiner for the
Federal Reserve Bank of San Francisco. Please advise us
of the effective date of the appointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER