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Minutes for
To:
Members of the Board
From:
Office of the Secretary
March 30.4 laa
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. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
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Federal Reserve Bank of St. Louis
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Minutes of the Board of Governors of the Federal Reserve
System on Tuesday, March 30, 1965.
The Board met in the Board Room
at 9:30 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardsan
Mitchell
Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Noyes, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research
and Statistics
Mr. Farrell, Director, Division of Bank
Operations
Mr. Harris, Coordinator of Defense Planning
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Salmons, Adviser, Division of International
Finance
Mr. Daniels, Assistant Director, Division of
Bank Operations
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Smith, Assistant Director, Division of
Examinations
Mr. Thompson, Assistant Director, Division of
Examinations
Mr. Sprecher, Assistant Director, Division of
Personnel Administration
Mr. Spencer, General Assistant, Office of the
Secretary
Miss Hart and Messrs. Via and Sanders, Senior
Attorneys, Legal Division
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
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Federal Reserve Bank of St. Louis
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-2Messrs. Forrestal and Robinson, Attorneys,
Legal Division
Mr. Ring, Technical Assistant, Division of
Bank Operations
Messrs. Egertson and McClintock, Supervisory
Review Examiners, Division of Examinations
Messrs. Goodfellow, Guth, Lyon, and Smith,
Review Examiners, Division of Examinations
Discount rates.
The establishment without change by the
Federal Reserve Banks of Cleveland, Richmond, Chicago, St. Louis,
Kansas City, and Dallas on March 25, 1965, and by the Federal Reserve
Bank of Boston on March 29, 1965, of the rates on discounts and advances
in their existing schedules was approved unanimously, with the understanding that appropriate advice would be sent to those Banks.
Circulated or distributed items.
The following items, copies
of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to Bankers Trust Company, New York, New York,
approving the establishment of a branch in College
Point, Borough of Queens.
1
Letter to Peoples Trust Company of Bergen County,
liackensack, New Jersey, approving the establishment
of a branch in Teaneck,
2
Letter to The Cleveland Trust Company, Cleveland, Ohio,
aPProving the establishment of a branch in Strongsville.
3
1
4
:etter to Chase International Investment Corporation,
"ew York, New York, granting permission to purchase
!hares of (I) a nonregistered investment company to be
flcorporated under the laws of Spain and (2) Peruano°Iliza de Fomento e Inversiones Sociedad Anonima, Lima,
Peru.
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Item No.
Letter to the Federal Reserve Bank of Kansas City
approving the appointment of the following as Federal
Reserve Agent's Representatives: Jay C. Waldroup and
Arpy B. Bowlin at the Oklahoma City Branch, Richard C.
Krieger at the Denver Branch, and Elmer F. Hennes at the
Omaha Branch.
5
Telegram to the Federal Reserve Bank of New York approving renewal of a loan on gold to the Central Bank of the
Philippines.
6
Letter to the Federal Reserve Bank of Dallas regarding
certain violations of the Bank Holding Company Act by
Brazos-Tenth Street Company, Austin, Texas. (The letter,
as transmitted, reflects certain editorial changes in
the distributed draft, as agreed upon at the meeting.)
7
With respect to Item No. 4, the wording of the distributed
draft letter was changed to indicate clearly that the Board was granting consent to the proposed investments by Chase International Investment Corporation with the understanding that its foreign loans and
investments were separate and apart from the foreign loans and investzents of its parent bank for purposes of establishing a base under the
guidelines of the voluntary foreign credit restraint effort, this being
an option afforded by the guidelines.
Messrs. Goodman, Saiwrions, Sprecher, Forrestal, and Goodfellow,
arid Miss Hart then withdrew from the meeting.
Reports on competitive factors.
After discussion, reports on the
Competitive factors involved in the following proposed mergers or sim
ar transactions were approved unanimously for transmittal in a form
in which
the conclusions were stated as follows:
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-4(Reports to the Federal Deposit Insurance Corporation)
Acquisition of assets and assumption of liabilities
of Irvington State Bank, Irvington, New Jersey, by
Yhe Howard Savings Institution, Newark, New Jersey
The proposed acquisition of assets and assumption of liabilities of Irvington State Bank by Howard Savings Institution, Newark,
would eliminate present and potential competition between them, and
would increase the resources held by the largest banking institution
in the relevant area. However, there would remain, readily accessible
to residents of Essex County, a wide variety of alternative sources
for commercial and savings bank services. The diminution of competition, however, would not be significant.
Merger of The First National Bank in Owenton, Owenton,
Kentucky, and Gratz Deposit Bank, Gratz, Kentucky, with
Farmers Bank, Owenton, Ky., Inc., Owenton, Kentucky
Competition and potential competition between Farmers Bank,
Owenton, Ky., Inc., The First National Bank in Owenton, and Gratz
Deposit Bank would be eliminated. However, in view of the small
size of the banks, nature of the service area, and existence of an
alternative source of banking services of approximately the same
size, the overall effect of the proposed transaction on competition
is not considered to be adverse.
(Reports to the Comptroller of the Currency)
Merger of Central National Bank of Washingtonville,
Washingtonville, New York, into County National Bank,
141-th---wn New York
The proposed merger of County National Bank, Middletown, and
Central National Bank of Washingtonville would appear to eliminate
1:1ttle existing competition. While the proposal would result in an
increase in the concentration of banking resources in Orange County,
there would remain a wide variety of alternative sources for banking
services, and the overall effect of the proposed transaction on competiion would not be significantly adverse.
;
1 11rchase of assets and assumption of liabilities of
,?rtY Fort State Bank, Forty Fort, Pennsylvania, by
;iners National Bank of Wilkes-Barre, Wilkes-Barre,
-.1.1a!ylvania
b
Consummation of the proposed purchase of Forty Fort State Bank
Miners National Bank of Wilkes-Barre would eliminate the significant
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amount of competition presently existing between the two institutions
and further the concentration of banking resources in the area's
largest bank. The overall effect of the proposed transaction on competition would be adverse.
Merger of The Farmers Bank, Sunbury, Ohio, into The
First National Bank of Delaware, Delaware, Ohio
While it appears that no significant competition presently
exists between The Farmers Bank, Sunbury, and The First National Bank
of Delaware, consummation of the merger would eliminate all potential
for competition between them.
As a subsidiary of BancOhio Corporation, a registered bank
holding company, The First National Bank of Delaware would, by this
merger, augment the existing preponderant share of deposits of the
holding company in Delaware County. In this connection, it is also
noted that Delaware County is contiguous to, and economically related
to, Franklin County and Columbus, Ohio, one of Ohio's major cities.
BancOhio Corporation holds about 50 per cent of the deposits in
Franklin County. This proposed merger would expand slightly the
deposit aggregate of the holding company in one of Ohio's business
and population concentrations (Columbus, Franklin County, and periPheral area), an area in which the holding company is presently a
Potentially dominant force. On balance, the effect of the transaction
would be adverse.
Mr. Egertson then withdrew from the meeting.
C.I.T. Financial Corporation (Item No. 8).
There had been
distributed a memorandum from the Division of Examinations dated
'
larch 24, 1965, submitting a draft of letter to Counsel for C.I.T.
Financial Corporation, New York, New York, granting a determination
exempting the corporation from all holding company affiliate requiremerits except for the purposes of section 23A of the Federal Reserve Act.
C.I.T. Financial Corporation directly, and through its subsidiaries,
was engaged principally in the instalment finance and insurance
businesses and other related operations.
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C.I.T. did not presently own
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any bank stock, although four of its wholly-owned insurance subsidiaries
held less than one per cent of the outstanding shares in each of 15 banks
and 2 registered bank holding companies.
It proposed to acquire the
majority of outstanding shares of The Meadow Brook National Bank, Jamaica,
New York, and would thereby become a holding company affiliate of that
bank.
The Division's recommendation of approval was made on the basis
of the Board's general policy to make favorable determinations as a normal
matter in all one-bank cases, with the understanding that a determination
would be denied in any extraordinary case in which such action seemed
warranted.
Governor Robertson indicated that he was strongly opposed to
granting the requested determination.
In his opinion, Meadow Brook
National clearly was desired by C.I.T. for use in carrying out its finance
business.
To reason that C.I.T. would not be actively engaged in manag-
jog the affairs of the bank whose stock it proposed to acquire would be
fallacious thinking.
If the determination was granted, C.I.T. would not
be required
to maintain the reserves required by statute to be maintained
by a holding company affiliate, and it would not be subject to examinatio
11.
He failed to see why it should not be obliged to subject itself
to such statutory requirements.
In the general discussion that followed, it was recalled that
in January 1964 the Board granted a section 301 determination to an
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instalment finance company with over 200 wholly-owned subsidiaries throughout the United States and Canada.
Also, the Board had, on an occasion
in the recent past, reviewed in some detail its general policy on onebank cases, with the result that the policy was reaffirmed.
Mr. Hackley noted that the Legal Division had at various times
expressed its reservations with respect to the policy followed by the
Board in granting section 301 determinations.
However, at the meeting
O n January 18, 1965, when consideration was given most recently to the
question of section 301 determinations, the Board had decided to adhere
to the policy of granting favorable determinations in one-bank cases
except in extraordinary circumstances.
Although C.I.T. would be acquir-
ing a comparatively large banking institution, this was clearly a onebank situation.
Denial of the request would, of course, reflect some
change in the Board's policy and general philosophy.
This was another
illustration of the desirability of legislation such as recommended by
the Board to bring one-bank cases within the purview of the Bank Holding
Company Act and eliminate the holding company affiliate provisions of
the law.
Further discussion indicated that the other members of the Board
Sympathetic with the problem referred to by Governor Robertson.
Rowever, they were inclined to feel that the Board should adhere to its
P°1icy relating to one -bank cases, on the ground that the existing law
did not provide for effective action in this area, and that the approPriate approach was through remedial legislation.
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-8Accordingly, the letter to C.I.T. Financial Corporation was
..9_221.2y2LI, Governor Robertson dissenting.
A copy of the letter is
attached as Item No. 8.
Report on S. 1308 (Item No. 9).
A distributed memorandum from
the Legal Division dated March 22, 1965, discussed a request of March 2,
1965, from the Senate Banking and Currency Committee for the Board's
views on S. 1308, a bill that would authorize revised procedures for the
destruction of Federal Reserve notes that were unfit for further circulation.
The bill, introduced at the request of the Treasury Department,
Would delete a requirement of the Federal Reserve Act that unfit notes
be returned to the Comptroller of the Currency for destruction.
It would
authorize the Secretary of the Treasury to prescribe the procedures and
locations for destruction of such notes, and it would authorize the Board
to allocate credit with respect to notes so destroyed among the Reserve
Banks on the basis of a formula, in lieu of an actual sort and count of
the notes.
As originally drafted, the bill would have contained addi-
tional provisions that the Legal Division deemed desirable, but the need
for a revision of the destruction procedures for Federal Reserve notes
critical.
Accordingly, a draft of letter to the Senate Committee
417ging favorable action on the bill was attached to the memorandum.
In a discussion of the proposal, there was agreement with a
suggestion by Governor Daane that the general tenor of the draft letter
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be revised to indicate that while the procedures for destroying Federal
Reserve notes had always been costly, the need for their revision did
not become critical until after the issuance of $1 Federal Reserve notes.
The effect of the change of wording was to avoid the impression, which
it was felt the draft might tend to convey, that an attempt was being
made to force changes in the destruction procedures by waiting until a
large volume of unfit $1 notes had accumulated.
The letter was then approved unanimously for transmittal to
Chairman Robertson in the form attached as Item No. 9.
Reserves against notes of other Reserve Banks.
There had been
distributed a memorandum from the Legal Division dated March 22, 1965,
d iscussing legal aspects of certain suggestions contained in a distributed
memorandum from Mr. Farrell of January 4, 1965, that related to possible
means of eliminating the requirement for maintaining gold reserves against
Federal Reserve notes held by Federal Reserve Banks other than the Bank
of original issue.
At the meeting on January 6, 1965, the Legal Division
had been requested to study these possibilities.
A principal question raised in the March 22 memorandum related
to the interpretation of the phrase "in actual circulation” as used in
the requirement of section 16 of the Federal Reserve Act that "Every
Federal Reserve bank shall maintain reserves in gold certificates of
°eat less than 25 per centum against its Federal Reserve notes in actual
circulation," the question being whether this phrase should be construed
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as eliminating the need for gold reserves against notes held by Federal
Reserve Banks when such notes were not in use as currency.
A related
consideration involved the manner in which the Reserve Banks computed
the amount of notes against which gold reserves must be maintained.
Even if the Board agreed with the conclusion cited in the Legal Division's memorandum that "notes in actual circulation" might appropriately
be regarded as referring only to those notes in the hands of the public,
it might consider that the instructions to the Reserve Banks for computing reserves should continue to include provision for gold reserves
against notes held by Reserve Banks other than the issuing Bank.
Exclu-
sion of such notes from gold reserve requirements would compel each Bank
to ascertain daily the amount of its holdings of notes of each other
Bank, individually.
This would require, in the opinion of the Division,
e daily 100 per cent sort of such notes.
The Division believed, for
reasons discussed in its memorandum, that a formula such as had been
used traditionally by the Reserve Banks to compute the amount of notes
against which reserves must be maintained was not authorized by law and
was inconsistent with its intent.
(According to this practice, if a
Reserve Bank had on hand a mass of notes of various Reserve Banks, it
Made an estimate of the amount of its own notes included in that mass,
and this estimated amount was deducted from its total of notes outstanding prior to computing its required gold reserve.)
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In discussion, members of the legal staff observed that prior
to 1954 each Reserve Bank was required to sort out the notes of other
In July 1954 the
Reserve Banks and return them to the Bank of issue.
Federal Reserve Act was amended to permit recirculation of notes of
Other Reserve Banks.
Subsequently, the Bank of issue had not been
making any sort between its own notes and fit notes of other Reserve
Banks.
Of course, the accumulation of unfit notes by the individual
Banks, prior to destruction, had been substantial.
The issuance of $1
Federal Reserve notes had resulted in a greater accumulation of unfit
notes, and that situation had prompted proposed legislation, discussed
by the Board earlier during this meeting, to permit use of a formula
for redemption credit when a mass of unsorted •notes was destroyed.
Mr. Farrell pointed out that if the Board determined that "notes
in actual circulation" referred only to those notes in the hands of the
Public and excluded notes held by Reserve Banks from gold reserve requirements, it would be physically impossible for each Bank to ascertain daily
the exact amount of its holdings of notes of each other Bank.
examples to illustrate the magnitude of the problem.
He cited
In the circumstances,
the Reserve Banks had been using a formula in computing the amount of their
Own notes on hand.
The Legal Division, recognizing the practical problem,
had suggested that the practice of deducting from a Reserve Bank's note
liabilities, for purpose of computing the gold reserve requirement, the
estimated amount of the Bank's holdings of its own notes be discontinued.
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The suggestions of the Division of Bank Operations had been directed
toward economizing on the required gold reserves by eliminating the
requirement for reserves against notes held within the Federal Reserve
If the Legal Division's suggestion was followed, the gold
Banks.
reserve requirements would be increased rather than reduced.
It was pointed out that the Board was supporting legislation
to revise the procedures for destruction of unfit notes.
Such legisla-
tion would authorize use of a formula to determine the credit that would
be given each Reserve Bank when an unsorted mass of unfit notes was
destroyed.
Conceivably, some question might be raised at hearings on
the proposed legislation as to why it was necessary to authorize by
legislation the use of a formula in connection with the destruction of
Unfit
notes when without legislation the Federal Reserve permitted use
of a formula by the Reserve Banks to determine gold reserve requirements.
The Banks had, of course, used such a formula for many years without
question being raised.
of its use.
This could be construed as implying acceptance
To request that the proposed legislation be revised at this
stage to include authority to use a formula for fit notes seemed injudicious.
In further discussion, it was brought out that a single note
issue would diminish the complications of computing required gold
teserve requirements.
However, that question was beyond the purview
of the immediate discussion.
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Comments by members of the Board indicated general agreement
With the conclusion of the Legal Division that the phrase "notes in
actual circulation" might well be construed as referring only to those
notes held outside the Reserve Banks.
However, it was also felt that
from a practical standpoint the Reserve Banks were warranted in continuing to follow the estimating method that had been used for computing the amount of notes against which reserves must be maintained.
It
was also generally agreed that it would be inappropriate to suggest a
change in the proposed legislation now before Congress so as to include
authorization for use of a formula with respect to fit notes.
Mr. Sanders brought out that the instructions to the Reserve
Banks on computation of required reserves were in need of revision in
view of the recent legislation eliminating the requirement for maintenance of a 25 per cent gold cover against deposits.
These instruc-
tions would be affected by the Board's position on "notes in actual
circulation" because at present notes of a Reserve Bank held by another
Reserve Bank were counted as outstanding for the purpose of the reserve
computation.
The related question involved the estimating procedure.
Mr. Farrell outlined changes that would be required in the estimating procedure if the instructions to the Reserve Banks were revised
tO define "notes in actual circulation" as excluding notes of other
Reserve Banks held by a particular Bank.
In brief, it appeared that
each Reserve Bank not only would have to break down, by estimate, its
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holdings of its own notes and those of other Reserve Banks but also
would have to allocate, by estimate, its holdings of notes of other
Reserve Banks among the several Banks.
Having all of these considerations in mind, Chairman Martin
inquired whether the best alternative might not be to "leave well
enough alone."
After further discussion, there was general concurrence
With this view, despite the feeling that the phrase "notes in actual
circulation" might appropriately be redefined.
It was noted, among
Other things, that in view of the recent change in the law eliminating
the gold reserve requirement against deposits, there was presently no
pressure on the gold cover against Reserve Bank note liabilities.
Messrs. Daniels, Sanders, and Ring then withdrew from the
meeting.
Applications of Shawmut Association.
There had been distributed
a Memorandum from the Division of Examinations dated March 19, 1965,
and supporting papers with respect to the applications of Shawmut Association, Inc., Boston, Massachusetts, for prior approval of (1) the formation of a bank holding company through the acquisition of a majority
of the voting shares of 12 existing banking institutions and (2) the
acquison of 97.5 per cent of the outstanding voting shares of Congress
National Bank of Boston, Boston, Massachusetts, a proposed new bank.
(Congress National would be consolidated with The National Shawmut Bank
Of Boston, Boston, Massachusetts; under the charter of the former and
title of the latter.)
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Federal Reserve Bank of St. Louis
The Division's recommendation was favorable.
)
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At the Board's request, Mr. Thompson summarized the facts of
the case and the reasons underlying the favorable recommendation of the
Division of Examinations, his comments being based on the material that
had been distributed.
The applications were then approved unanimously, with the understanding that an order and statement reflecting this decision would be
Prepared for the Board's consideration.
Messrs. Thompson, Guth, and Lyon then withdrew from the meeting.
Capital notes and debentures.
At the Board meeting on February 26,
1965, consideration was given to a request by a State member bank in
California for permission to retire its outstanding preferred stock, in
Place of which it intended to issue capital notes.
While that request
was approved, question was raised during the discussion whether approval
Should be regarded as constituting a policy action reversing the Board's
1952 position (as stated in its Annual Report for that year) regarding
the use of capital notes and debentures by a State member bank in lieu
of capital stock.
The position stated in 1952 was that the Board did
not look with favor on the increasing tendency to turn to capital notes
and debentures as against equity capital as a means of augmenting the
Protection afforded to depositors.
At the conclusion of the discussion
On February 26, agreement was indicated with a suggestion that a draft
letter be prepared to all Reserve Banks dealing on a general basis with
the question raised by the California State member bank's request.
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A draft of such a letter had now been distributed with a memorandum from the Division of Examinations dated March 15, 1965.
The
letter described four occasions during recent months when the Board had
considered the use of subordinated long-term capital notes or debentures
by State member banks as a means of augmenting capital structure, indicating the Board's views in each instance.
The letter concluded with a
general statement to the effect that the Board continued to be of the
view that equity capital was the most desirable type of capital for banks,
even though the Board had not objected to the sale of long-term subordinated debentures or capital notes in certain of the situations therein
described.
During a general discussion of the proposed letter, members of
the Board expressed varying views.
Governor Robertson felt that it was
not advisable to describe the several cases, since to do so might only
be confusing, and that the letter should merely state a Board position.
Governor Daane, on the other hand, believed that a description of the
cases would provide useful information as to the Board's thinking for
the benefit of the Reserve Banks.
Governor Mitchell also expressed the
view that a letter along the lines suggested afforded about as much
guidance as could realistically be given at this time.
The Board had
Proceeded on a case-by-case basis, out of which eventually might evolve
an over-all position.
He was not sanguine about the chances of agree-
ment on a basic position document at this time.
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Governor Robertson
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expressed the opinion, however, that the Board should not continue to
deal on a piecemeal basis with questions on the use by State member
banks of capital notes and debentures, thereby possibly leading to
inconsistencies.
He suggested asking the staff to draft a statement
of general position for consideration by the Board.
Following additional discussion, it was agreed that the staff
would prepare a study relating to the use of capital notes and debentures that the Board could use as a basis for. further discussion of a
Policy position.
It was understood, in this connection, that the draft
letter submitted with the March 15 memorandum would not be sent to the
Reserve Banks.
Emergency preparedness program.
There had been distributed a
memorandum dated March 26, 1965, from the Office of Defense Planning
and the Division of Examinations discussing the ramifications of the
omission from the national bank examination report form of a uniform
questionnaire on emergency preparedness measures that was adopted by
the three Federal bank supervisory agencies in 1958.
The memorandum noted that by Executive Order issued in 1956
the Board was assigned responsibility, in cooperation with the Department
Of the Treasury, the Comptroller of the Currency, and the Federal Deposit
Insurance Corporation, for encouraging the development of emergency preParedness measures by commercial banks.
The three Federal bank super-
visory agencies had subsequently adopted for use in reports of bank
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examination a uniform questionnaire designed to reveal the nature and
extent of the preparedness actions taken by each bank.
Copies of the
completed questionnaires had been forwarded each month to the Board,
and the answers had been tabulated by the staff as of June 30 of each
year.
In September 1964, however, the Comptroller of the Currency
issued a new instruction manual and report form for national bank examiners that omitted any reference to commercial bank preparedness and
the uniform questionnaire.
Recent reports of examination of national
banks did not contain the questionnaire, and the last copies of completed
questionnaires from the Comptroller were received in the Board's offices
for tabulation during the early part of November 1964.
Staff efforts
to have the use of the questionnaire restored had proved unsuccessful.
In the circumstances, the staff had considered the possibility
of a letter from the Board to the Comptroller requesting that the questionnaire be reinstated.
However, in view of the need for completed
questionnaires in time for the June 30, 1965, tabulation it was felt
that the better course might be to request the assistance of the Secretary of the Treasury.
A proposed letter addressed to the Secretary
was attached to the memorandum.
Before commenting on the matter, Mr. Harris distributed to the
members of the Board copies of a revised letter that had been handed
by Chairman Martin to Secretary Dillon.
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The letter, which covered
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essentially the same ground as the draft distributed with the memorandum, concluded with a statement to the effect that the Board desired
the full cooperation of the Comptroller in support of the President's
emergency assignments and national security objectives and hoped that
the Secretary might be able to resolve the problem described therein.
After comments by Mr. Harris on the situation, the Board agreed
that the letter seemed appropriate in view of the circumstances described.
A copy of the letter has been placed in the Board's files.
Civil Rights Act of 1964.
There had been distributed a memo-
randum from Mr. Hackley dated March 10, 1965, and various appended documents, relating to the question of the applicability of Title VI of the
Civil Rights Act of 1964 to the Federal Reserve Banks.
After a review of the question by Mr. Hackley, during which he
referred to differences of opinion within the Legal Division, agreement
was expressed with a suggestion by Chairman Martin that the matter be
held over for another meeting when time would permit exploring the problem fully.
Inventory of open market portfolio (Item No. 10).
Pursuant to
the understanding at the Board meeting on March 24, 1965, there had
been distributed a revised draft of reply to a letter of March 10, 1965,
in which chairman Patman of the House Banking and Currency Committee
indicated that he was asking the Comptroller General to conduct a camPlete physical inventory of the investment portfolio of the Federal
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Open Market Committee located at the Federal Reserve Bank of New York,
that the investigation would be for the purpose of reporting on the
status, location, and activity within the investment portfolio, and
that, depending on the outcome of the inquiry, an audit of the Federal
Open Market Committee might be in order.
At the conclusion of discussion, the revised draft reply was
approved unanimously for transmittal to Chairman Patman subject to
changes in minor respects in light of suggestions agreed upon at this
meeting.
A copy of the letter, in the form transmitted, is attached
as Item No. 10.
Messrs. Hexter, Shay, Via, Robinson, McClintock, and Smith
(Review Examiner) then withdrew from the meeting and Messrs. Kelleher,
Director, Division of Administrative Services, and Kakalec, Controller,
entered the room.
Study of space in Federal Reserve Building (Item No. 11).
Following comments in supplementation of information presented in his
memorandum of March 26, 1965, that had been distributed to the members
of the Board, Governor Shepardson recommended that the Board authorize
a study by Raymond Loewy/William Snaith, Inc., New York, New York, of
the possibility of rearranging the Board's staff offices with a view
to increasing the efficiency and attractiveness of the quarters while
at the same time creating additional office space to meet current needs.
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Federal Reserve Bank of St. Louis
iT
-21-
3/30/65
It was agreed that a letter should be sent to the firm accepting the proposal contained in its letter of March 23, 1965.
A copy of
the letter sent pursuant to this action is attached as Item No. 11.
All members of the staff then withdrew and the Board went into
executive session.
Questions of procedure.
The Secretary was informed later that
during the executive session the Board gave consideration to a distributed memorandum dated March 11, 1965, in which Governor Mitchell
referred to the drain imposed on the working time of the Board members
by the reading involved in keeping abreast of domestic and international
economic conditions, money and capital market developments, System operations, bank merger proposals, Congressional activities, and miscellaneous
Other developments.
It was his thought that sooner or later the Board
would be forced to take formal systematic steps to organize the various
informational flows so that they could be more readily assimilated, and
that immediate steps should be taken toward finding a solution.
As a start, Governor Mitchell suggested the use of staff assistance in sorting out trivia, repetitive material, and technical developments of doubtful material significance.
Such a program would involve
screening and delegation, and a screening service involved some possible
risk of conscious or unconscious withholding of facts or analysis.
But
Without material risk of exposure in this regard it seemed to him two
things could be done that would release a substantial amount of Board
members' time for more effective use.
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Federal Reserve Bank of St. Louis
-22-
3/30/65
One possibility mentioned by Governor Mitchell was a greater
delegation of administrative decisions when policy guides and precedents
were clear and readily followed.
The second suggested possibility was
a more widespread use of digests and summaries for incoming information.
Governor Mitchell proposed study by a staff committee of the
feasibility, extension, and implementation of these suggestions.
The Secretary was advised that the discussion of Governor
Mitchell's memorandum during the executive session revealed a generally
Sympathetic attitude toward exploring the possibilities suggested for
dealing with the problem to which he referred.
Accordingly, Governor
Shepardson was requested to meet with appropriate members of the staff
for the purpose of considering ways and means of implementing the suggestions, particularly insofar as they dealt with the digesting and
summarization of information that the Board members were called upon
to read and study.
The meeting then adjourned.
Secretary's Notes: On March 25, 1965, Governor
Shepardson approved on behalf of the Board the
following items:
Letter to Professor Edwin L. Stevens, Washington, D. C., confirming
arrangements for him to conduct a 24-hour course in Effective Oral Communication for members of the Board's staff as an activity of the Board's
41ployee Training and Development Program, a fee of $900 to be paid upon
completion of the course.
Memoranda recommending the following actions relating to the Board's
staff:
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Federal Reserve Bank of St. Louis
-23-
3/30/65
Appointment
David C. Redding as Economist, Division of International Finance,
with basic annual salary at the rate of $9,240, effective the date of
entrance upon duty.
Salary increases
Wesley B. Collins, Photographer (Offset), Division of Administrative Services, from $5,616 to $886 per annum, effective March 28, 1965.
Abraham Rose, Operator (Mimeograph), Division of Administrative
Services, from $4,784 to $4,826 per annum, effective March 28, 1965.
On March 26, 1965, Governor Shepardson approved
on behalf of the Board the following items:
Letter to the Federal Reserve Bank of Chicago (attached Item
approving the designation of James M. Rudny as special assistant examiner.
Memoranda recommending the following actions relating to the Board's
staff:
.t5Tpointments
Alfreda Moore Powers as Key Punch Operator, Division of Data
Processing, with basic annual salary at the rate of $4,410, effective
the date of entrance upon duty.
Susan W. Morris as Statistical Assistant, Division of Research
and Statistics, with basic annual salary at the rate of $5,000, effective the date of entrance upon duty.
§1ary increases
effective March 28
1965
Mary L. Scott, Indexing and Reference Assistant, Office of the
Secretary, from $5,495 to $5,875 per annum, with a change in title to
Senior Indexing and Reference Assistant.
Petronella Maria van der Vossen, Stenographer, Office of the
Secretary, from $4,005 to $4,480 per annum.
Helen M. Dunn, Statistical Assistant, Division of Research and
S tatistics, from $5,690 to $6,250 per annum, with a change in title
to Research Assistant.
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Federal Reserve Bank of St. Louis
-24-
3/30/65
Salary increases, effective March 28, 1965 (continued)
Patric H. Hendershott, Economist, Division of Research and Statistics, from $8,650 to $10,250 per annum.
Helen B. Junz, Economist, Division of International Finance, from
$13,335 to $14,660 per annum.
M. Patricia McShane, Assistant Review Examiner, Division of Examinations, from $7,955 to $8,650 per annum.
On March 29, 1965, Governor Shepardson approved
on behalf of the Board the following items:
Memorandum from the Division of Research and Statistics dated
March 1, 1965, recommending that a new position of Editorial Assistant
be established in the Economic Editing Unit of that Division.
Memoranda recommending the following actions relating to the
Board's staff:
Ointment
Barry Edward Huber as Summer Research Assistant, Division of Data
Processing, with basic annual salary at the rate of $5,165, effective
the date of entrance upon duty.
AS.S2ptance
of resignation
Katherine G. Black, Statistical Assistant, Division of Research
and Statistics, effective at the close of business March 27, 1965.
Secretary
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Federal Reserve Bank of St. Louis
Item No. 1
3/30/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
•
KO. •
St
'.....*
March 30, 1965
Board of Directors,
Bankers Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Bankers Trust Company,
New York, New York, of an in-town branch at 132-10-12
14th Avenue, College Point, Borough of Queens, provided
the branch is established within six months from the date
of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-Month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
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Federal Reserve Bank of St. Louis
Item No. 2
3/30/65
BOARD OF GOVERNORS
OF THE
Of Got;•
?•
'
el
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
cd‘-•
March 30, 1965
Board of Directors,
Peoples Trust Company of
Bergen County,
Hackensack, New Jersey.
Gentlemen:
The Board of Governors of the Federal
approves the establishment by
System
Reserve
of Bergen County, HackenCompany
Trust
Peoples
branch (drive-in facila
of
Jersey,
sack, New
the
of
intersection of
corner
ity) at the
Teaneck, New Jersey,
Avenues,
Barr
Palisades and
within six
established
is
branch
provided the
letter.
this
of
date
months from the
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
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Federal Reserve Bank of St. Louis
(J1
Item No. 3
3/30/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE HYSTEM
WASHINGTON, CI. C. 20551
ADDRESS orricIAL CORRESPONDENCE
TO TNE BOARO
March 30, 1965
Board of Directors,
The Cleveland Trust Company,
Cleveland, Ohio.
Gentlemen:
The Board of Governors of the Federal Reserve
nd Trust
System approves the establishment by The Clevela
st
Company, Cleveland, Ohio, of a branch on the southwe
of
City
Drive,
Pierce
and
Road
corner of Pearl
Strongsville, Cuyahoga County, Ohio, provided the branch
of this
is established within six months from the date
letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 4
3/30/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
•
TO THE BOARD
;-'••
0_4(,
*R41.RES-s ••
March 30, 1965.
Chase International Investment Corporation,
I Chase Manhattan Plaza,
New York, New York 10005.
Gentlemen:
In accordance with the request contained in your letter
of January 20, 1965, transmitted through the Federal Reserve Bank
of New York, and on the basis of the information furnished, the
Board of Governors grants consent for Chase International Investment Corporation ("CIIC") to purchase and hold up to 50 per cent
of the shares of a nonregistered investment company ("Company") to
be incorporated under the laws of Spain, with its principal office
in Madrid, at a cost not to exceed Pesetas 50 million (approximately
US$833,334), provided such shares are acquired within three years
from the date of this letter. One of the reasons for granting this
consent is the fact that CIIC had made a bona fide commitment to
its Spanish associates prior to the announcement of the President's
program for voluntary foreign credit restraint.
The Board's consent to the proposed purchase and holding
of shares of Company by CIIC is granted subject to the following
conditions:
1)
That CIIC shall not hold any shares of Company if
Company at any time fails to restrict its activities
to those permissible to a corporation in which a corporation organized under Section 25(a) of the Federal
Reserve Act could, with the consent of the Board of
Governors, purchase and hold stock, or if Company
establishes any branch or agency or takes any action
or undertakes any operation in Spain or elsewhere, in
any manner, which at the time would not be permissible
if Company were a corporation organized under said
Section 25(a);
2) That, when required by the Board of Governors, CIIC
will cause Company (a) to permit examiners selected or
auditors approved by the Board of Governors to examine
Company, and (b) to furnish the Board of Governors with
such reports as it may require from time to time;
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Chase International
Investment Corporation
3)
-2-
That CIIC shall not carry on its books the shares
of Company at a net amount in excess of its proportionate share of the book capital accounts of
Company, after giving effect to the elimination of
all known losses; and
4) That any share acquisitions or dispositions by
Company be reported under Section 211.8(d) of
Regulation K in the same manner as if Company were
a corporation organized under Section 25(a) of the
Federal Reserve Act.
Subject to continuing observation and review, the Board
further notice, the provisions of subparagraph (1)
until
suspends,
of this letter so far as they relate to
paragraph
of the second
by Company in Spain in the currency
granted
loans
restrictions on
of that country.
Upon completion of the proposed acquisition, it is requested that the Board of Governors be furnished, through the Federal Reserve Bank of New York, with a translation of the Articles
of Association and By-Laws of Company.
In accordance with the request contained in your letter
of March 1, 1965, transmitted through the Federal Reserve Bank of
New York, and on the basis of the information available, the Board
of Governors also grants consent for CIIC to purchase and hold 13,368
shares, par value Peruvian Soles 1,000 each, of Peruano-Suiza de
Fomento e Inversiones Sociedad Anonima-PERUINVEST, Lima, Peru, at
a cost not to exceed US$650,000, provided such stock is acquired
within one year from the date of this letter.
The foregoing consents have been given with the understanding that the foreign loans and investments of CIIC, separate
and apart from the foreign loans and investments of its parent bank,
and including the investments now being approved, will not exceed the
guidelines established under the voluntary foreign credit restraint
effort now in effect, or that steps have been established to bring
total claims on foreigners to a level consistent with the guidelines
within a reasonable length of time.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
Item No. 5
3/30/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 30, 1965
Mr. Homer A. Scott,
Federal Reserve Agent,
Federal Reserve Bank of Kansas City,
Kansas City, Oissouri. 64106.
Dear 'kir. jeott:
As requested in your letter of March 11, 1965, the Board of
Governors approves the appointment of Mr. Jay C. Waldroup as Federal
Reserve Agent's Repredentative at the Oklahoma City Branch to succeed
LX'. William II. Evans. The Board also approves the appointment of
additional Federal aesevve Agent's Representatives as follows:
Richard C. Krieger at the Denver Branch, Arpy B. Bewlin at the
Oklahoma City branch, and Earner F. dennes at the Omaha Branch.
This approval is 4ven with the understanding that Messrs.
4aldroup, Krieger, Bowlin, and Aennes will be solely responsible to
the Federal Reserve Agent and the Board of Governors for the proper•
Performance of their duties, except that, during the absence or disability of the Federal Reserve Agent or a vacancy in that office,
their responsibility will be to the Assistant Federal Reserve Agent
and the Board of Governors.
When not engaged in the performance of their duties as
Federal eserve Agent's Representatives, Messrs. Waldroup, Krieger,
Bowlin, and Hennes may, with the approval of the Federal Reserve
Agent and the Vice President in charge of their respective Branches,
Perform such work for the Branches as will not be inconsistent with
their duties as Federal Reserve Agent's Representatives.
It will be appreciated if Messrs. Ualdroup, Krieger, Bowlin,
”d Hennes are fully informed of the importance oi their responsiullities as members of the staff of the Federal deserve Agent and
1. ,1_1e need for maintenance of independence from the operations of the
l34nk in the discharge of these responsibilities.
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Federal Reserve Bank of St. Louis
f
j
Er. Scott - 2
.Please have Messrs. Waldroup„ Krieger, Bawlin, and Hennes
usual Oath of Office which bhould then be forwarded to
the
execute
the Board of Governors along with notification of the effective
dates of their appointments.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
023
Item No. 6
TELEGRAM
3/30/65
LEASED WIRE SERVICE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
March 30, 1965
SANFORD - NEW YORK
Board approves renewal of loan on gold up to a total
of $15 million by the Federal Reserve Bank of New York to the
Central Bank of the Philippines on the terms described in your
wire of March 25.
(Signed) Merritt Sherman
SHERMAN
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Federal Reserve Bank of St. Louis
Item No. 7
3/30/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March 31, 1965.
Mr. Thomas R. Sullivan, Vice President,
Federal Reserve Bank of Dallas,
Station K,
75222
Dallas, Texas.
Dear Sir:
In a letter of October 2, 1964, the Board asked your Bank
to investigate apparent violations of sections 3(a) and 5(a) of the
Bank Holding Company Act of 1956 ("the Act") on the part of BrazosTenth Street Company, Austin, Texas ("Brazos-Tenth" and "the
corporation"). You replied in a letter of November 19, 1964, that
Brazos-Tenth appeared to have violated section 3(a)(1) of the Act
by becoming a bank holding company without prior approval of the
Board when it acquired 32.5 per cent of the voting shares of Moore
State Bank, Llano, Texas ("Moore State"), on August 30, 1963, when
it already owned 81.7 per cent of the voting shares of Citizens
State Bank, Johnson City, Texas ("Citizens State").
You also concluded that Brazos-Tenth had violated
section 5(a) of the Act by failing to register as a bank holding
company and section 3(a)(2) of the Act by acquiring additional
shares of Moore State after becoming a bank holding company, and
that Moore State and Citizens State have violated section 6(a)(4)
of the Act by making loans to Brazos-Tenth after the date on which
they became subsidiaries of the holding company. You concluded on
the basis of your investigation that the violations listed above
were unintentional, due to apparent lack of familiarity with the
provisions of the Act on the part of Brazos-Tenth's officials, and
You stated that Brazos-Tenth has proposed to divest itself of control
of one of the two banks involved.
Accordingly, three questions are before the Board,
(1) whether it finds any objection to the proposal of Brazos-Tenth
regarding divestment of stock unlawfully acquired, (2) whether, in
the light of all the circumstances, the matter should be reported
to the Department of Justice, and (3) whether the corporation should
be required to file a registration statement as a bank holding company.
The aforestated questions are to be considered in the light of the
following facts.
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Federal Reserve Bank of St. Louis
Mr. Thomas R. Sullivan
-2-
Brazos-Tenth takes its name from the address of the
building housing the Texas Broadcasting Corporation (formerly LBJ Co.).
All the stock in the company is owned by Mr. Donald S. Thomas, partner
in the law firm of Clark, Thomas, Harris, Denius & Winters, of Austin,
Texas. In addition to the building just mentioned, the corporation
owns some other real estate, as well as interests in eleven Texas
banks (relatively minor interests in all but the two banks earlier
mentioned) and in two nonbanking Texas corporations, one of which
controls a twelfth bank.
Brazos-Tenth began purchasing bank stocks early in 1961,
when it acquired a controlling interest in Citizens State. Except
for Moore State, its other purchases of such stock were of rather
small blocks, the largest consisting of 11.3 per cent of the stock
of American State Bank in San Antonio (acquired in 1962) and the next
largest of 6.0 per cent of the stock of Citizens National Bank, in
Austin (acquired in 1961). None of its remaining holdings represents
more than 5 per cent of the stock of any one bank. Early in 1964 it
acquired 5 per cent of the stock of First of Groves Corporation, which
owns a controlling interest in Groves State Bank, Groves, Texas. The
second nonbanking corporation in which it owns an interest is Home
Theatres, Inc., 4.1 per cent of whose stock was acquired by BrazosTenth early in 1963.
In addition to the building at Brazos-Tenth, the
corporation's unaudited financial statement as of the close of business
on August 31, 1964, lists property which seems to consist of rental
housing as "Harris Boulevard" and "Interregional". The rental
properties, all together, are carried (after deducting "accumulated
depreciation and investment credit") at approximately $600,000.
Under section 2(a) of the Act, a corporation does not
become a bank holding company until it owns or controls 25 per cent
or more of the voting stock of each of two banks. Thus, Brazos-Tenth
did not become a bank holding company until August 30, 1963, when,
as mentioned above, it acquired 32.5 per cent of the stock of Moore
State. After that date, it acquired additional stock in Moore State
(28 shares on September 27, 1963, 76 shares on February 25, 1964,
and 210 shares on September 5, 1964). Some of the smaller blocks of
bank stock which it owns were also acquired after it became a bank
holding company. It acquired additional stock in Citizens State
after August 30, 1963.
On September 23, 1963 and on April 22, 1964, subsequent
to the date on which Brazos-Tenth became a bank holding company, its
indebtedness to Citizens State that had been outstanding when the
corporation became a bank holding company was increased by $27,500
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Federal Reserve Bank of St. Louis
Mr. Thomas R. Sullivan
-3-
and $18,000 respectively. Further, on August 21, 1964, nearly a
year after it became a bank holding company, Brazos-Tenth borrowed
some $10,500 from Moore State.
Section 3(a) of the Act provides that
"It shall be unlawful except with the prior approval
of the Board (1) for any action to be taken which results
in a company becoming a bank holding company under section 2(a)
of this Act; (2) for any bank holding company to acquire
direct or indirect ownership or control of any voting shares
of any bank if, after such acquisition, such company will
directly or indirectly own or control more than 5 per centum
of the voting shares of such bank . . . [except that] • • .
this prohibition shall not apply to . . . additional shares
acquired by a bank holding company in a bank in which such
bank holding company owned or controlled a majority of
the voting shares prior to such acquisition."
Since Brazos-Tenth did not obtain the prior approval of the
Board for any of its acquisitions, it seems clear that the August 30,
1963, acquisition of Moore State stock, as a result of which the
corporation became a bank holding company, was a violation of this
section, as were the subsequent acquisitions of additional stock in
the same bank. On the other hand, since Brazos-Tenth already owned
a majority of the stock in Citizens State before it became a bank
holding company, its subsequent acquisitions of additional shares
in that bank came under the exception to the prohibition of the statute
and were not violations. As for its purchases of smaller interests in
banks, in both cases where the blocks purchased exceeded 5 per cent
of the particular bank involved, such purchases were made before the
date on which the company became a bank holding company, so that no
violation of law resulted.
The statute requires, in section 5(a) that
. . within one hundred and eighty days after becoming
a bank holding company, . . . each bank holding company
shall register with the Board on forms prescribed by the
Board . . ."
Brazos-Tenth failed to comply with the requirements of section 5(a)
in that it did not register with the Board within one hundred and
eighty days after August 30, 1963.
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Federal Reserve Bank of St. Louis
fc'
Mr. Thomas R. Sullivan
-4-
Section 4(a)(2) of the Act provides that with certain
exceptions, discussed below where relevant,
. . no bank holding company shall . . . after two
years from . . . the date as of which it becomes a
bank holding company . . . retain direct or indirect
ownership or control of any voting shares of any
company which is not a bank or a bank holding company
or engage in any business other than that of banking
or of managing or controlling banks or of furnishing
services to or performing services for any bank of
which it owns or controls 25 per centum or more of
the voting shares."
Brazos-Tenth owns shares in two companies which do not meet the
qualifications of section 4(a)(2). If it remained a bank holding
company, it would be required to divest itself of these shares by
August 30, 1965, if it were not for the fact that they are eligible
for the exception provided by section 4(c)(5). That section provides
that the prohibitions of section 4(a)(2) shall not apply
. . to shares of any company which are held or
acquired by a bank holding company which do not include
more than 5 per centum of the outstanding voting
securities of such company, and do not have a value
greater than 5 per centum of the value of the total
assets of the bank holding company . . ."
The holding company owns only 5 per cent of the stock in
First of Groves Corporation, and 4.1 per cent of the total shares in
Home Theatres (presumably these percentages are of total outstanding
voting shares) and neither interest appears from financial statements
submitted to the Board to amount to as much as 5 per cent of the value
of the total assets of the holding company. On the other hand,
Brazos-Tenth owns three rental properties, the building in which
the Texas Broadcasting Corporation is housed, and two properties
rented as "houses". The Board finds that the corporation's ownership
and use of these properties constitute an engagement by the corporation
in the business of owning and operating rental properties, an activity
not permitted to a bank holding company under the Act. Since no
applicable exception permits the holding company to engage in this
business, Brazos-Tenth would be required to divest itself of these
Properties before August 30, 1965, if it remained a bank holding
company.
Section 6(a)(4) forbids a bank, after the date of
enactment of the Act
". . . to make any loan, discount or extension of credit
to a bank holding company of which it is a subsidiary or
to any other subsidiary of such bank holding company. "
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Federal Reserve Bank of St. Louis
•
Mr. Thomas R. Sntlivan
1,x1c).
-5-
Accordingly, the loans made by Moore State and Citizens State to
Brazos-Tenth, after the date on which it became a bank holding company
and they became its subsidiaries, were violations of that section.
When the violations described above were called to the
attention of officials of Brazos-Tenth, they proposed in a letter of
November 13, 1964, after discussions with representatives of your
Bank, that the corporation sell, in the alternative, the requisite
number of shares of Citizens State Bank stock or Moore State Bank
stock." The corporation states that the stock would be sold to
Mr. Thomas, as an individual, without any tie to the corporation or
its several interests.
The purposes of the Act, broadly speaking, are to assure
regulation of the expansion of bank holding companies in a manner
compatible with the statutory standards of sound banking, community
needs and convenience, and the preservation of competition, and to
prevent retention by a bank holding company of both banking and
prohibited nonbanking interests. Since Brazos-Tenth's proposal, if
carried out, would dissolve the bank holding company, the aforestated
purposes would be accomplished. Accordingly, the Board would enter
no objection to the corporation divesting itself of sufficient shares
in either Citizens State or Moore State so that it would no longer
own or control, directly or indirectly, 25 per cent or more of the
voting shares of more than one bank.
Assuming consummation of the proposed divestment, the
question remains as to whether any useful purpose would be served
in reporting the violations described above to the Department of
Justice. The Board has noted your Bank's conclusion that the
violations herein discussed were inadvertent, due to an apparent
lack of awareness of the relevant provisions of the Act. This
explanation appears to be supported by the fact that the officers of
Brazos-Tenth immediately acknowledged the stock acquisitions and
the loan, and offered at once to correct the resulting violations
by some suitable method.
The Bank Holding Company Act, in section 8, provides for
penalties only in cases where companies or individuals are shown to
have participated willfully in a violation of the Act. Since no
evidence has been found which would support a finding of willful
violation by Brazos-Tenth or its officers, the Board believes that
no useful purpose would be served in reporting the violations to the
Department of Justice. This position is in accord with that reached
by the Board in a number of other similar situations in the past,
Including those noted in letters to your Bank of June 2, 1958, May 31,
1962, and April 17, 1964.
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Federal Reserve Bank of St. Louis
Mr. Thomas R. Sullivan
-6-
In the situations described in these letters as well as
in parallel instances where corporations had, through inadvertent
actions, become "bank holding companies" within the meaning of the
Act, and also, promptly and in good faith, divested themselves of
sufficient banking interests so that they ceased to fall within its
terms, the Board has concluded that no useful purpose, either supervisory or other, would be served by requiring the filing of an
essentially superfluous registration statement. Accordingly, it
sees no need for the filing of such a statement by Brazos-Tenth.
One further point should be mentioned for the information
of the corporation. The corporation states that the proposed
divestment would be accomplished by selling the bank stock in
question to Mr. Thomas, president of the corporation, as an individual,
to the end that the banking and nonbanking interests would remain
under common control. The statute, of course, does not forbid
common control of banking and nonbanking interests by an individual,
and such control does in fact exist in many cases. However, should
Brazos-Tenth's divestment proposal involve another corporation in
the chain of ownership which would also be a "bank holding company"
it were shown that following
Within the meaning of the Act, or
"divestment", 25 per cent or more of the voting shares of each of
two banks were held in trust for the benefit of the shareholders
(whether legal or beneficial) of Brazos-Tenth, the violations which
are the subject of this letter would not have ceased, and all
applicable provisions of the Act would continue to obtain. The
Officials of the corporation will no doubt wish to take these
Points into consideration in framing their course of action.
It will be appreciated if you will transmit to BrazosTenth the substance of the Board's views as herein set forth.
Brazos-Tenth should be directed to advise your Bank of the date
and fact of stock divestment as a result of which it will cease
to be a bank holding company.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
Item No. 8
3/30/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AO
RESS OFFICIAL- CORRESPONDENCE
TO THE BOARD
March 30, 1965
Cravath, Swaine & Moore,
I Chase Manhattan Plaza,
New York, New York. 10005
Dear Sirs:
This refers to the request contained in your letter of
March 3, 1965, submitted through the Federal Reserve Bank of
New York, for a determination by the Board of Governors of the
Federal Reserve System as to the future status of C.I.T. Financial
Corporation as a holding company affiliate.
From the information presented, the Board understands
that C.I.T. Financial Corporation directly, and through its subsidiaries, is engaged principally in the instalment finance and
insurance businesses and other related operations; that it owns
indirectly through four of its wholly owned insurance subsidiaries
less than one per cent of the shares outstanding in each of 15
banks and 2 bank holding companies; that it proposes to acquire
3,000,000 or more of the 3,645,134 shares outstanding of The Meadow
Brook National Bank, Jamaica, New York; and that it will thereby
become a holding company affiliate of that bank.
In view of these facts, the Board has determined that
C.I.T. Financial Corporation will not be engaged, directly or indirectly, as a business in holding the stock of, or managing or
controlling banks, banking associations, savings banks, or trust
companies within the meaning of section 2(c) of the Banking Act of
1933 (12 U.S.C. 221a); and, accordingly, it will not be deemed to
be a holding company affiliate except for the purposes of Section 23A
of the Federal Reserve Act, and will not need a voting permit from
the Board of Governors in order to vote the bank stock which it
will own.
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Federal Reserve Bank of St. Louis
L 131
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Cravath, Swaine & Moore
-2-
If, however, the facts should at any time indicate that
C.I.T. Financial Corporation might be so engaged, this matter
should again be submitted to the Board. The Board reserves the
right to rescind this determination and make further determination
of the matter at any time on the basis of the then existing facts,
including additional acquisitions of bank stocks even though not
constituting control.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
1:32
Item No. 9
3/30/65
BOARD OF GOVERNORS
OF THE
0 g
•
4.,,
•
.0.4
On •
o'o
(.7
•
ti‘
•
FEDERAL RESERVE SYSTEM
WAS
OFFICE OF THE CHAIRMAN
ftes°='•
4X'AL....
••....
March 31, 1965.
an,
The Honorable A. Willis Robertson, Chairm
cy,
Curren
and
g
Committee on Bankin
United States Senate,
Washington, D. C. 20510
Dear Mr. Chairman:
Board's views on
This is in response to your request for the
destruction of
the
S. 1308, a bill to authorize revised procedures for
ation.
r
Federal Reserve Notes that are unfit for furthe circul
required to be
Under the present procedures, unfit Notes are
to be returned to
sorted according to the Bank of original issue and
these procedures
the Comptroller of the Currency for destruction. While
on did not become
have always been costly, the need for their revisi
ce of $1 Federal Reserve Notes
critical until shortly after the issuan
was authorized by P.L. 88-36 of June 4, 1963.
that the
If S. 1308 were enacted, it is contemplated
ibe procedures and controls with
Secretary of the Treasury would prescr
along the same lines
respect to the destruction of Federal Reserve Notes
Federal Reserve Banks
as those he has prescribed for the destruction at
one dollar silver
of other unfit United States currency, including
destruction of Federal Reserve Notes would
certificates. Such regional
present procedures.
effect substantial economies over
be acted upon favorably, by
The Board urges that this bill
promptly as possible.
your Committee and the Congress, as
Sincerely yours,
Wm. McC. Martin, Jr.
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Federal Reserve Bank of St. Louis
Item No. 10
3/30/65
BOARD OF GOVERNORS
OFIHE
FEDERAL RESERVE SYSTEM
WASHINriTON
OFFICE OF THE CHAIRMAN
March 31, 1965.
The Honorable Wright Patman,
and Currency,
Chairman, Committee on Banking
House of Representatives,
Washington, D. C. 20515.
Dear Mr. Chairman:
er of March 10, 1965, in
This is in reply to your lett
the
Comptroller General
ing
"ask
which you stated that you are
the investment portof
y
ntor
inve
to conduct a complete physical
ted at the Federal
e
loca
itte
Comm
et
folio of the Federal Open Mark
n will be for
atio
s
stig
"thi
inve
Reserve Bank of New York"; that
activity
,
and
tion
us,
loca
stat
the
the purpose of reporting on
on the
ng
endi
,
"dep
that
and
o";
within the investment portfoli
et
Mark
Open
ral
the
Fede
of
t
audi
outcome of this inquiry, an
you of
rm
info
we
d
that
este
You requ
Committee may be in order."
ler
trol
Comp
the
f
from
staf
when
"the earliest available time
iry."
inqu
this
e
rtak
unde
General can
Congress that the Federal
In view of the decision by the
t by the Comptroller
to
audi
ect
subj
be
Reserve System should not
justified in making
be
d
not
woul
s
rnor
General, the Board of Gove
opriate to recall the
be
appr
may
It
the arrangements you propose.
the Acting Comptroller
by
,
1952
29,
l
Apri
letter addressed to you on
that it was his "opinion that the General
General in which he stated
unable to undertake an audit of the
Accounting Office would be
the Federal Reserve Banks without
activities of the Board and
Congress." Over a period of many years,
specific authority of the
introduced in Congress to provide
a number of bills have been
the Board, the Federal Open Market
expressly for GAO audit of
Reserve Banks. The Congress did not
Committee, and the Federal
possibly because of considerations
see fit to act on such bills,
this letter.
such as will be mentioned in
ect at hearings before
From testimony on the subj
the Board's views on proposals for
committees of the Congress,
Banks by the comptroller General are
audit of the Federal Reserve
be briefly stated: (1) The Congress
well known to you. They may
Governors to perform these functions
has designated the Board of
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Federal Reserve Bank of St. Louis
The Honorable Wright Patman
-2-
(Section 21, Federal Reserve Act). (2) It would be a waste of
auditing resources because it would duplicate work performed by
the Board. (3) Most importantly, such an audit could broaden out
into a general review by the Comptroller General of monetary policy
formulation and implementation--a review appropriate only with a
formal Congressional mandate. Given its assignment, the System
should be in a position to exercise its judgment as to the policies
best suited to attain the objectives for which it is responsible
in strengthening the nation's economy, so far as these are attainable through monetary policies.
Apart from the broad question, the Board believes there
is no sound reason for any additional inventory or other audit
activities such as suggested in your letter. A physical inventory
of the securities would serve no purpose in view of the physical
and operating controls that now govern their custody, and the
frequent audits and examinations of the System Open Market Account.
The securities are lodged in steel chests, within a compartment
enclosed by steel partitions, within a maximum security vault.
The door to the vault is controlled by electrical time devices; it
bears two separate combination locks; each combination is known
only to designated members of a control group, and a member from
combinaeach of the two separate control groups each must turn his
guard
armed
an
day
the
tion before the door may be opened. During
by
ed
controll
is
and
access
vault,
is stationed at the door of the
the
in
being
key
the
all
times,
at
a day gate which is kept locked
admitted
custody of a member of the vault division. No one is
business
has
he
that
hed
establis
beyond the day gate until it is
instance
each
in
and
vault,
the
that necessitates his entry into
the doors
the entrant must sign his name on a register. Similarly,
the
by
ed
controll
being
locked,
to each compartment are kept
The chests in which the
custodians assigned to the compartment.
nt portfolio are stored
investme
securities comprising the System's
al is being made; they
withdraw
are locked except when a deposit or
representing a separate
each
ans,
may be opened only when two custodi
ve locks. All securities
control group, release their respecti
verified by each of the two
received or delivered are separately
ed instructions.
custodians, acting on properly authoriz
auditing department of the
The program of the internal
verifications annually of the
Reserve Bank requires at least two
Market Account by detailed
securities held for the System Open
certificate, note, and bond
bill,
count and verification of each
holdings so verified with
the
of
Ii the portfolio, and agreement
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Federal Reserve Bank of St. Louis
The Honorable Wright Patman
-3-
the accounting controls. The internal auditing department's
precedures also provide for an appropriate check of each purchase
and sale transaction executed for the account, a verification of
the accounting of interest, discount and premium, and other
procedures necessary to assure that the operations of the account
are conducted in accordance with the instructions of the Federal
Open Market Committee.
In addition to the internal audits the Board of Governors
of the Federal Reserve System, as the Government body designated
for the purpose (F. R. Act, Sec. 21), each year causes its examiners
to make an independent examination of the Federal Reserve Bank of
New York, including a comprehensive audit of the Federal Open
Market Account. The latter audit by the Board's staff also includes
a detailed piece count of the securities in the portfolio, and
other appropriate procedures to assure that the Account is being
operated properly and that the results are properly reflected in
the financial statements of the Bank. The latest such examination
Was made as of May 22, 1964, and a similar examination will be
Bank.
conducted within the current year at a time unknown to the
the
by
es
holdings
securiti
the
of
tion
verifica
The most recent
1965.
5,
y
on
was
Februar
staff
auditing
Bank's internal
As the record amply testifies, information to assist
your Committee can be made available without a special audit such
as you suggest. At your request the Board has provided a great
of the
mass of information ranging widely over the operations
g
includin
ee,
Committ
Market
Open
Federal
the
Reserve Banks and
As
System.
the
in
use
internal
for
d
generate
various materials
for study the reports
examples, you will recall that you have had
years
of examination of the twelve Federal Reserve Banks for the
their
on
1949 through 1962, as well as the examiners' reports
pursuing your intenaudits of the System Open Market Account. In
of your staff
sive inquiry in 1963, you will recall that members
work papers
rs'
were afforded an opportunity to review the examine
nal
additio
and other confidential examination material; that
from the
request
your
at
details on certain accounts were obtained
for
made
ntly
subseque
Reserve Banks and that arrangements were
examine
and
Banks
Reserve
members of your staff to visit several
an interest in seeing;
d
expresse
they
s
the additional document
were afforded an opportunity
also that consultants to your Committee
ion and
g
to visit Reserve Banks for the purpose of obtainin informat
of
System
various aspects
discussing with the Banks' officials
ed.
interest
was
e
Committe
affairs in which your
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The honorable Wright Patman
-4-
Specifically with regard to the functioning of the
Federal Open Market Committee, you will recall that in addition to
the reports of audit of the Account in November 1957 you were
furnished photostatic copies of pages (some 1,700 in total) showing
details of purchase and sale transactions for the System Open Market
Account and transactions under repurchase agreements covering the
period March 4, 1951, to the end of 1956; also, a complete file of
the weekly reports of open market operations for the year 1956 prepared for internal purposes. Information such as the above is in
addition to the data regularly published by the Board in compliance
with statutory requirements. Just to review, the "consolidated
statement of condition of the twelve Federal Reserve Banks" is
published weekly in accordance with Section 11 of the Federal Reserve
Act and includes summary totals by class of the securities held in
the System's investment portfolio and an analysis of maturity distribution. Such data are as of the day immediately preceding publication date. Pursuant to the requirement of Section 10 of the Federal
Reserve Act, the Board's annual report contains a complete record
of policy actions of the Federal Open Market Committee. The annual
report also includes a tabulation of the System's holdings of
Government securities at the year end, by type of issue, maturity
and amount (see pp. 226-28 of the report for 1965).
To summarize, there has been made available to you in
response to your past requests a mass of detailed information on
the operations of the Federal Open Market Committee, and there
continues to be available through the Federal Reserve's regular
reporting procedures current information on the System's investment
Portfolio. If any member of your Committee or any duly designated
member of its staff wishes to visit the Federal Reserve Bank of New
York to see at first hand how the operations of the System Open
Market Account are conducted and recorded, or if he wishes to observe
the provisions in effect for the safe custody of the investment portfolio, the Board will be glad to make the necessary arrangements.
It will be recalled that two members of your staff did in fact make
such a visit to New York in October 1957.
am sure that we can arrange to provide you with any
functions
information your Committee needs in the performance of its
analogous
an
In
audit.
Without getting into the question of a GAO
available to
situation in 1963 the information you wanted was made
would be
s
arrangement
staff of your Committee; perhaps similar
s,
arrangement
making
suitable in this case. To assist the Board in
information
what
it would be helpful to know, at least in outline,
you desire that has not previously been supplied.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. Mc C. Martin, Jr.
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Federal Reserve Bank of St. Louis
Item No. 11
3/30/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
V:
WASHINGTON, D. C. 20551
ADDRESS DrriCIAL CORRESPONDENCE
TO THE BOARD
April 2, 1965.
Raymond Loewy/William Snaith, Inc.,
425 Park Avenue,
New York 22, New York.
Gentlemen:
This will acknowledge your letter of March 23, 1965,
to Governor Shepardson submitting a proposal for analyzing the
Federal Reserve Building, the aim being: (1) to determine whether
a reasonable amount and quality of additional office space can be
created through modern space planning techniques; and (2) if so,
to illustrate the possible character of this space and to prepare
cost estimates for alterations. The analysis would include all
office space (except the executive wing), but not food preparation and service areas.
The first step would be to determine if a reasonable
amount and quality of space can be created. Your presentation
would be in the form of plans and sketches, the fee would be
$15,000, and the work would require one month.
If the first step showed that a reasonable amount of
space could be created and if the Board of Governors wished to
proceed, as your next step you would prepare preliminary designs
to show the appearance of the basic system(s) of office layout.
This work would be in the form of sketches, plans, and renderings,
and you would also prepare estimates of the costs of altering the
interiors. This step would require three months, and the fee
would be $12,500.
If, after the foregoing steps had been completed, the
Board of Governors should decide to proceed with alterations
and wished your firm to prepare final plans, designs, and specifications for these alterations, it is understood that you would
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Federal Reserve Bank of St. Louis
Raymond Loe
/William Snaith, Inc.
submit a proposal for this work and that in such proposal you
would be willing to credit one-half of the fees previously
mentioned against your total fee for the later work.
As to expenses, you would propose to be reimbursed for
all necessary and authorized out-of-pocket expenses for purchases
of photography, blueprints, photostats, typography, models,
laboratory tests, etc at cost plus a 10 per cent handling charge.
Travel, when required and approved, would be charged at actual
cost plus subsistence at $30 per day when an overnight stay is
required; otherwise, at $15 per day.
The Board accepts your proposal as to the first two
steps and authorizes your firm to proceed with the work as
described in your letter and at the fees specified. Your proposals with regard to reimbursement for travel and out-of-pocket
expenses are satisfactory to the Board.
It would be appreciated if you will get in touch with
Governor Shepardson when you are prepared to begin your work in
order that the necessary arrangements may be made.
Very truly yours,
-
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Federal Reserve Bank of St. Louis
Merritt (S-herTlan,
Secretary-.
BOARD OF GOVERNORS
Item No. 12
3/30/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE HOARD
March 26, 1965
Mr. Leland M. Ross, Vice President,
Federal Reserve Bank of Chicago,
Chicago, Illinois.
60690
Dear Mr. Ross:
In accordance with the request contained in
your letter of March 16, 1965, the Board approves the
designation of James M. Rudny as a special assistant
examiner for the Federal Reserve Bank of Chicago.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
@FedFRASER