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Minutes for March 5, 1959
To:
Members of the Board
From:
Office of the Secretary
Attached is a copy of the minutes of the Board of Governors
of the Federal Reserve System on the above date.
It is proposed to place in the record of policy actions
required to be kept under the provisions of Section 10 of the
Federal Reserve Act an entry covering the item in this set of
minutes commencing on the page and dealing with the subject
referred to below:
Page 15
Approval of a discount rate of
3 per cent at the Federal Reserve
Banks of New York, Philadelphia,
Chicago, and Dallas.
Should you have any question with regard to the minutes,
it will be appreciated if you will advise the Secretary's Office.
Otherwise, if you were present at the meeting, please initial in
column A below to indicate that you approve the minutes. If you
were not present, please initial in column B below to indicate
that you have seen the minutes.
Chairman Martin
Governor Szymczak
Governor Mills
Governor Robertson
Governor Balderston
Governor Shepardson
Minutes of the Board of Governors of the Federal Reserve System
on Thursday, March
PRESENT:
5, 1959. The Board met in the Board Room at 10:25 a.m.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman 1/
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Thurston, Assistant to the Board
Riefler, Assistant to the Chairman
Thomas, Economic Adviser to the Board
Hackley, General Counsel
Farrell, Director, Division of Bank
Operations
Molony, Special Assistant to the Board
Noyes, Adviser, Division of Research
and Statistics
Solomon, Assistant General Counsel
Hexter, Assistant General Counsel
Hostrup, Assistant Director, Division
of Examinations
Goodman, Assistant Director, Division
of Examinations
Benner, Assistant Director, Division
of Examinations
Kiley, Assistant Director, Division
of Bank Operations
Hill, Assistant to the Secretary
Thompson, Supervisory Review Examiner,
Division of Examinations
At 10:00 a.m. the members of the Board met with Mr. Julian Baird,
Under Secretary of the Treasury, to discuss certain aspects of the
Treasury-Federal Reserve study of the Government securities market.
Members of the Board's staff present included Messrs. Sherman, Riefler,
Thomas, and Young, Director, Division of Research and Statistics.
At
1/ Withdrew from meeting and reentered at points indicated in minutes.
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3/5/59
10:25 a.m. Messrs. Baird and Young withdrew and the meeting proceeded,
with attendance as indicated at the beginning of these minutes.
Mercantile Trust Company of St. Louis.
In a memorandum dated
March 4, 1959, which had been distributed to the Board, Mr. Hackley
referred to a letter dated February 28, 1959, from Mr. Raymond P. Brandt,
Chief of the Washington Bureau of the St. Louis Post-Dispatch, requesting
Certain information regarding the reacquisition by the Mercantile Trust
Company, St. Louis, Missouri (formerly the Mercantile-Commerce Bank
and Trust Company), of stock of Mercantile-Commerce National Bank in
St. Louis.
It vas noted that the Board and the Federal Reserve Bank
Of St. Louis on a number of occasions had refused to disclose similar
information regarding this matter on the basis that it was unpublished
information under the Board's Rules of Organization.
Prior to the
request from the St. Louis Post-Dispatch, the most recent request for
similar information came last month from a St. Louis attorney representing
the plaintiff in a pending suit against the Mercantile Trust Company,
and the attorney was now seeking such information on behalf of the
Plaintiff by means of a subpoena served on President Johns of the St.
L
(Mia Reserve Bank.
It was understood that the United States Attorney
would join Reserve Bank Counsel today in arguing a motion to quash the
subPoena.
The St. Louis Post-Dispatch had requested answers to the following
questions:
011
3/5/59
-3-
Did Eugene Black, then a member of the Board, notify Mercantile
Trust Co. it would be required to obtain approval from the Federal
Reserve Board in order to reacquire stock of the MercantileCommerce National Bank in St. Louis?
Did Mercantile Trust seek the Federal Reserve Board's approval
for reacquisition of the stock of the Mercantile-Commerce National
Bank?
Did Mercantile Trust violate the law or any regulations of the
Federal Reserve Board in reacquiring the stock of MercantileCommerce National Bank?
If so, was any action taken by the Board as a consequence?
A draft of reply to the newspaper representative, submitted
with Mr. Hackley's memorandum, would decline to answer the questions
on the basis that the circumstances surrounding the litigation involving
Mercantile Trust Company did not justify a departure from the general
rule against disclosure of unpublished information concerning a particular
member bank.
In commenting, Mr. Hackley said that it had seemed desirable
for the reply to the Post-Dispatch to go into more detail than might
otherwise be the case in view of the nature and origin of the request.
To answer specific questions about actions taken in this matter
would,
he noted, require rather extensive treatment of the history and developIllent of the case in order to avoid presenting an erroneous picture.
As indicated in his memorandum, the position taken in the proposed reply
to the Post-Dispatch was in line with the position taken by the Board
on a number of previous occasions.
_14._
3/5/59
The Board then reexamined its position in the light of the
confidentiality of relationships appropriate to the bank supervisory
area, and also from the public relations standpoint.
In view of the
long history of the case, the position consistently taken by the Board
with respect to inquiries concerning it, and the principles applicable
generally to the disclosure of unpublished information, it was the
2
2122212512 that the specific inquiries from the St. Louis Post-Dispatch
Should not be answered.
In this connection it was pointed out that
documents providing answers to the first two questions were in the
Possession of the Mercantile Trust Company and that the president of
that bank had been subpoenaed to produce them.
It vas also pointed
out that the information desired by the Post-Dispatch did not appear
to be necessary
to determination of the pending litigation, since the
court rather than the Board must decide whether a violation of the law
actually occurred.
In the circumstances, it was felt that the Board
Should guard against any action that might tend to interfere with the
judicial process or prejudice the position of either party to the
current litigation.
A number of suggestions were considered as to the form of reply
that would be appropriate, following which the Legal Division was
12.222nasl
to prepare a revised draft of letter for the Board's consider-
ation which would attempt to develop more fully the importance of, and
T.;
3/5/59
-5-
reasons for, nondisclosure of unpublished information pertaining to
the supervision of commercial banks and emphasize the Board's desire
not to interfere with the judicial process.
Chairman Martin withdraw from the meeting during the foregoing
discussion, as did Messrs. Riefler and Thomas.
At the conclusion of
the discussion Mr. Thurston also withdrew.
Consolidated Naval Stores Company (Items 1 and 2). With
reference to the application of Consolidated Naval Stores Company,
Sebring) Florida, for a prior tax certification in order that it might
distribute to its shareholders part of its holdings of stock in a
subsidiary bank and a subsidiary bank holding company on a tax-free
basis, there had been distributed to the Board memoranda from the
Division of Examinations and the Legal Division, dated February 26
and March 2, 1959, respectively, recommending issuance of the requested
ce
rtification.
Following comments by Messrs. Hostrup and Hexter, the issuance
of the certification was approved unanimously by the Board. A copy
Of the certification is attached hereto as Item No. 1 and a copy of
the letter sent to the Commissioner of Internal Revenue concerning the
matter is attached as Item No. 2. Pursuant to the Board's action, a
duplicate original of the certification was sent to Consolidated Naval
Stores Company, with a copy to the Federal Reserve Bank of Atlanta.
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3/5/59
Messrs. Molony and Thompson then withdrew from the meeting.
Verification and destruction of United States currency.
In
March 1957 the Board discussed the question of possible Changes in the
arrangement under which the Reserve Banks destroy unfit United States
paper currency for the Treasury Department and directed its staff to
discuss the matter with the staff of the Treasury.
The Division of
Bank Operations subsequently entered into a series of discussions
with the Treasury and the Reserve Banks to develop estimates of the
cost of a possible "take back" by the Treasury of the verification
and destruction work versus the present cost of the function as performed
at the
Federal Reserve Banks and branches.
In the course of the study
of alternative plans, those receiving the most consideration were Plan A
under which the Treasury would resume the operation in its entirety,
and Plan B, under which the currency would be cancelled and cut at
the Reserve Banks, the lower halves shipped to the Treasury for verification and destruction, and the upper halves retained by the Reserve
Banks for subsequent destruction.
Under Plan B1 the net annual effect
on Federal Reserve and Treasury costs combined would be an increase
Of about
$250,000; under Plan A, the increase would be about $350,000.
Either alternative would provide safeguards not possible under the
present arrangement.
A memorandum from the Division of Bank Operations dated
February 27, 1959, describing Plans A and B and giving cost estimates
A t
3/5/59
-7-
had been distributed to the Board prior to the meeting.
The memorandum
presented for the Board's consideration the following alternatives: (1)
continue the present arrangement but consider the desirability of making
mandatory whatever additional safeguards were needed to reduce the risk
of misappropriation of cancelled currency through collusion at the Reserve
Banks; or (2) address a letter to the Treasury which would (a) state
that the Board was concerned about the risks inherent in the present
arrangement and (b) request the Treasury's views with regard to possible
adoption of Plan B.
After discussion of the present procedure and possible alternatives,
it vas agreed
unanimously, pursuant to the suggestion of Governor Robertson,
that a letter be written to the Treasury expressing concern regarding
the present
arrangement and requesting the Treasury's view on a better
procedure, including either Plan A or Plan B.
In the event the Treasury
vas averse to a change, this suggestion contemplated (1) advising the
Treasury that the Board would insist on whatever safeguards were considered
necessary under the present arrangement, and (2) requesting the Presidents'
Conference to institute a complete study of procedures followed in the
verification and destruction function with a view to prescribing adequate
s
afeguards applicable to all of the Reserve Banks.
While indicating agreement with such a procedure, Governor Mills
eftmented that, with current procedures under review by the Board's
examining staff, the Reserve Bank auditors, and Treasury staff, he felt
3/5/59
-8-
that just about everything within reason was being done by way of safeguard.
The real problem, therefore, was whether to continue or dispense
with the present arrangement.
Other members of the Board indicated that
they would prefer to dispense with the present arrangement but doubted
whether it would be possible.
Messrs. Young, Director, and Williams, Associate Adviser, Division
Of Research and Statistics, joined the meeting during the foregoing
discussion;
at its conclusion Messrs. Farrell, Hexter, and Kiley withdrew
and Messrs. Thomas and Molony returned to the meeting.
Hearings on administered prices.
In accordance with the under-
standing at the meeting on February 25, 1959, a draft of statement to
be made by Mr.
Young before the Senate Subcommittee on Antitrust and
Monopoly on March 10, 1959, in connection with its hearings on administered
prices and inflation had been distributed to the Board.
The initial reaction was favorable, and it was understood that
the draft
would be reviewed by the members of the Board in more detail
Prior to further consideration of the matter.
Secretary's Note: At the afternoon session,
further reference was made to the proposed
statement by Mr. Young. Certain questions
were raised and suggestions made by members
of the Board, particularly Governor Mills. It
was understood that these suggestions would
be considered by Mr. Young in preparing the
final draft of his statement, along with any
further suggestions sent to him by members of
the Board. In this connection, it was understood that Mr. Young's appearance before the
Subcommittee was contingent upon receipt of a
letter of invitation from Chairman Kefauver.
3/5/59
-9The meeting then recessed and reconvened in the Board Room at
2:00 P.m. with all of the members of the Board present.
Renyon, Riefler, Thomas, Hackley, Farrell
Messrs. Sherman,
Molony, Noyes, Benner, Hill,
and Conkling, Assistant Director, Division of Bank Operations, also
were present.
Mr. Young joined the meeting somewhat later.
Check collection time schedule.
Federal Open Market Committee on March
Following the meeting of the
3, 1959, the Board met informally
with the Reserve Bank Presidents with regard to the current proposal
to increase
from two days to three days the period of maximum deferment
under the check collection time schedules of the Federal Rese
e Banks.
No views substantially different from those theretofore expressed were
stated by the Presidents.
Chairman Martin commented that this proposal had been discussed
within the System over a long period of time and also had been discussed
by the Reserve Banks '4th parties outside the System.
Among other things,
it had received
attention in connection with the recent Treasury financing
on the basis of the possible effect of its adoption on bank reserves.
In view of the important problems confronting the System concerning the
Proposal, he was inclined to feel that it would not be desirable to
adopt the proposal at this time.
or
Therefore, without going to the merits
demerits of the proposal, he would suggest that it be laid on the
table
3/5/59
-10Governor Robertson said that he continued to regard the proposal
as sound.
If it were possible to adopt it and offset the effect on
reserves through open market operations prior to the forthcoming Treasury
financing operations, he would consider such a procedure advisable.
However, he did not think that that could be done.
Therefore, he would
be agreeable
to putting the matter over for further consideration sometime in June or July, at which time the outcome of the proposed legislation
on reserve
requirements might be more clear.
If such legislation were
to be
enacted, action on the proposal to increase the period of maximum
deferment
might be timed to absorb reserves released through permitting
vault cash to be included as part of required reserves, although he
felt that any offsetting could be accomplished through open market
operations if
necessary, as far as the change in maximum deferment was
concerned
Chairman Martin then repeated his suggestion that the matter
be laid
on the table, adding that the action
today should not leave
the implication that anyone had committed himself in favor of the
Proposal.
In response to a question, he expressed the view that the
absence of an announced negative decision would not be unduly disturbing
to the banking community provided it was generally understood that there
no likelihood of the maximum deferment being increased in the near
"
14
future.
There was some advantage, he felt, in not giving the impression
that the
Board had closed the door on the possibility.
3/5/59
-11After further discussion, unanimous agreement was expressed with
Chairman Martin's suggestion that the matter be laid on the table, it
being understood that this action was taken without prejudice to reconsideration of the proposal at some future time and without commitment
on the part of any Board member as to what his position might be at
a later date.
It was understood that advice of the decision to lay
the matter on the table would be sent to the Presidents of the Federal
Reserve Banks and to the Federal Advisory Council but that no public
a
nnouncement would be made.
Messrs. Young, Farrell, and Conkling then withdrew and Messrs.
Solomon, Assistant General Counsel, and Brill, Chief, Capital Markets
Section, Division of Research and Statistics, entered the meeting.
Withdrawal-substitution rule. Pursuant to the understanding
at the
meeting on February 13, 1959, there had been distributed to
the Board a memorandum from Mr. Solomon dated February 27, 1959, and
a supplementary memorandum dated March 3, 1959, setting out possible
a
mendments to Regulation T, Extension and Maintenance of Credit by
Brokers, Dealers, and Members of National Securities Exchanges, and
Regulation U, Loans by Banks for the Purpose of Purchasing or Carrying
Stocks Registered on a National Securities Exchange, which would provide
4 "percentage"
withdrawal-substitution rule.
In his February 27
memorandum, Mr.
Solomon also presented a series of amendments intended
to increase the effectiveness of Regulation U.
Because of an inter-
re
lationship, this involved in one instance a proposed amendment to
Regulation
T.
'
3/5/59
-12Following explanatory comments by Mr. Solomon and supplementary
remarks by Mr. Brill with respect to the suggested withdrawal-substitution
rule, Chairman Martin turned to other members of the staff, all of whom
indicated general agreement with the approach outlined in Mr. Solomon's
memorandum.
The Chairman then turned to Governor Szymczak who commented that
the margin
regulations were of a complicated character and tended to
become more complicated as more was written into them.
However, he felt
that the proposed withdrawal-substitution rule represented a step in
the right
direction at this time.
Should it be adopted, the Board would
have to
learn with experience and could modify the rule if necessary.
The Chairman then referred to the question of timing and
indicated
that he would hesitate to take precipitate action.
Instead,
he felt that it would be desirable to provide an opportunity to have
the views
of interested parties. With regard to the general framework
of regulation in the area of stock market credit, he observed that
there were now only two further moves of substance available for the
Board's consideration; namely, action in the withdrawal-substitution
area and an increase in margin requirements to 100 per cent.
In those
circumstances, he suggested that it was desirable to consider the
element of timing carefully in order to obtain the maximum advantage.
-13-
3/5/59
These comments by the Chairman led to a discussion of the
question of publication of the proposed amendments in the Federal
Register, and Mr. Solomon commented that if publication were decided
Upon, the customary practice would provide a period of about 30 days
for receipt of comments. When such comments were received and had
been considered, a period of 30 days was envisaged before making the
proposals effective in the absence of unusual circumstances.
In this
regard) he Observed that an opportunity would be presented in the
Period following publication of any withdrawal-substitution rule
Proposal in the Federal Register for a stripping down of margin
accounts.
The pros and cons of publication in the Federal Register were
then explored at some length.
However, at the outset of the discussion
it was agreed that in any event it would be desirable to proceed immediately to obtain the Views of the Federal Reserve Bank of new York and
the staff of the Securities and Exchange Commission, not only regarding
the withdrawal-substitution rule but also the proposed amendments
designed to increase the effectiveness of Regulation U. It was understood that these views would be solicited on an informal basis by Mr.
Solomon.
Governor Robertson then made a statement in which he expressed
the opinion that the Board should move in a tightening direction on
-14-
3/5/59
both withdrawals and substitutions.
He did not maintain that the
Board should move in that area to a 90 per cent basis, but he felt
it would be desirable to take appropriate initial action so that
eventually the withdrawal-substitution requirements and the margin
requirements might be placed on a parity.
As a first step, he
suggested placing the withdrawal ard substitution rules on a 50 per cent
basis, thus leaving leeway to deal with any problem that might arise.
As to publication of the proposals, he realized that such notice would
Permit stripping of accounts but was not inclined to feel that that
would be serious.
Furthermore, it would be better, he felt, to
solicit views generally than to seek views of only selected parties.
Once the comments following publication in the Federal Register had
been received and considered, he felt that the Board should move
rather promptly to put into effect such amendments to Regulation T
and U as it might decide upon.
At this point Chairman Martin withdrew from the room to
receive a telephone call from President Hayes of the Federal Reserve
Bank of New York.
Discussion continued with respect to questions of timing and
Pliblication of the proposed amendments.
Question also was raised
with regard to the possible effect on the stock market of immediate
adoPtion of tighter withdrawal-substitution rules, and the response
of the staff was in terms that it was extremely difficult to anticiPate the market reaction to any new regulatory development.
-15-
3/5/59
Governor Balderston suggested at this point the possibility
Of drafting a statement concerning the proposals in layman's language,
to the extent possible, in order to aid public understanding of the
Board's Objectives, and this suggestion was favored.
As the discussion progressed, it became clear that the
sentiment of the Board definitely favored publication of the proposed
amendments to Regulation T and U in the Federal Register.
While it
was felt that the period provided for receipt of comments should not
be shortened to such an extent as to give the appearance of being
aztitrary, the view also was expressed that unnecessary delay would
be inadvisable and that a period somewhat shorter than 30 days should
suffice to give all interested parties ample opportunity to make their
views known.
At this point Chairman Martin returned to the meeting.
Discount rates.
There had been received today from the
Federal Reserve Banks of Philadelphia, Chicago, and Dallas telegrams
stating that the directors of those Banks had approved, subject to
the approval of the Board of Governors, a rate of 3 per cent (rather
than 2-1/2 per cent) on discounts for and advances to member banks
under sections 13 and 13a of the Federal Reserve Act along with
aPpropriate subsidiary rates on discounts and advances.
The Chairman reported having received advice by telephone
from President Hayes of the Federal Reserve Bank of New York that the
-16-
3/5/59
directors of that Bank at their meeting this afternoon likewise ban
established a discount rate of 3 per cent, subject to the approval
of the Board of Governors.
Thereupon, the rates established by the Federal Reserve Banks
of New York, Philadelphia, Chicago, and Dallas were approved unanimously,
effective March 6, 1959, with the understanding that a telegram advising
of this action would be sent to all Federal Reserve Banks and branches,
a press statemPint in the usual form would be released at 4:00 p.m. EST
today, and a notice would be published in the Federal Register.
The
rates approved for the respective Banks pursuant to this action were
as follows:
On discounts for and advances to member banks
under sections 13 and 13a: for the Federal Reserve Banks
of New York, Philadelphia, Chicago, and Dallas--3 per cent;
On advances to member banks under section 10(b):
for each of these Banks--3-1/2 per cent;
On advances to individuals, partnerships, and
corporations other than member banks under the last
Paragraph of section 13: for Chicago--4-1/2 per cent.
Other rates in the existing schedules of the four
Banks without change.
Possible amendments to Regulation U.
As heretofore indicated,
Mr. Solomon's memorandum dated February 27, 1959, also had suggested a
number of amendments for the Board's consideration designed to increase
the effectiveness of Regulation U.
After some preliminary discussion
of these items, it was understood that the subject would be considered
further at the meeting of the Board tomorrow.
3/5/59
The meeting then adjourned.
Secretary's Note: Pursuant to recommendations
contained in memoranda from appropriate individuals concerned, Governor Shepardson today
approved on behalf of the Board the following
items affecting the Board's staff:
Salary increase
Walter Henderson, from $3,255 to $3,495 per annum, with a change in
title from Operator, Tabulating Equipment (Trainee), to Operator, Tabulating Equipment, Division of Administrative Services, effective March 8,
1959.
lItice of retirement
1959Robert F. Leonard, Special Adviser to the Board, effective April 1,
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 1
3/5/59
WASHINGTON
CERTIFICATION
System
1. The Board of Governors of the Federal Reserve
has been informed by Consolidated Naval Stores Company, Sebring,
its
Florida ("Consolidated"), that it proposes to distribute to
al Bank of
shareholders 12,000 shares of the stock of Barnett Nation
of the stock
Jacksonville, Jacksonville, Florida, and 12,000 shares
of Barnett National Securities Corporation, a corporation registered
as a bank holding company in accordance with section 5(a) of the
Bank Holding Company Act of 1956 (12 U.S.C. 1844).
ors
2. Consolidated has submitted to the Board of Govern
15,
appraisals of the value of the assets owned by it on May
1955
and December 310 1957, together with statements by Consolidated as
to (a) the correctness and completeness of said appraisals and
(b) changes in the composition and value of Consolidated's assets
after December 31, 1957.
This certification is based in part upon
a certiSaid appraisals and statements, but it does not constitute
fication or finding by the Board as to the correctness of said
appraisals and statements.
3.
Pursuant to the provisions of section 1101(b) and
section 1103(b) of the Internal Revenue Code of
1954,
the Board of
Governors of the Federal Reserve System hereby certifies that:
(a) Consolidated satisfies the requirements of subsec-
tion (b) of section 1103 of the Internal Revenue
Code of 1954 and therefore is a "qualified bank
holding corporation" as defined in that subsection.
(b) The 12,000 shares of Barnett National Bank of
Jacksonville, referred to in "lu above, are all or
part of the property by reason of which Consolidated
controls (within the meaning of section 2(a) of the
Bank Holding Company Act of 1956) said bank;
The 12,000 shares of Barnett National Securities
Corporation, referred to in "1" above, are all or part
of the property by reason of which Consolidated controls (within the meaning of section 2(a) of the Bank
Holding Company Act of 1956) said bank holding company.
(C)
The proposed distribution of the shares of bank stock
and bank holding company stock enumerated hereinabove
is appropriate to effectuate the policies of the Bank
Holding Company Act of 1956.
Executed in Washington, D. C., pursuant to direction of
the Board of Governors of the Federal Reserve System.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(Seal)
Date: March
5$ 1959
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGT011 '25, D. C.
Item No. 2
3/5/59
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
March
5, 1959
Commissioner of Internal Revenue,
Washington 25, D. C.
Dear Sir:
Enclosed is a Certification by the Board of Governors,
pursuant to sections 1101(b) and 1103(b) of the Internal Revenue
Code of 1954, with respect to a proposed distribution by Consolidated
Naval Stores Company, Sebring, Florida, in accordance with the provisions of the Bank Holding Company Act of 1956 (12 U.S.C. 1841,
et seq.). A duplicate original of the Certification is being sent
to Consolidated.
Paragraph "2" of the enclosed document relates to appraisals
of the value of Consolidated's assets. Certifications heretofore
Issued by the Board under the Bank Holding Company Act have not
included a paragraph of this nature, and the following comments may
Clarify the reasons for its inclusion in this case.
Section 1103(b)(2)(C) of the Code calls for certification
by the Board that the particular corporation involved satisfies the
requirements of section 1103(b) for "qualified bank holding corporation" status. One requirement for such status is that the corporation
"is a bank holding company" (section 1103(b)(1)) and another is that
"it would have been a bank holding company on May 15, 1955, if the
Bank Holding Company Act of 1956 had been in effect on such date"
(section 1103(b)(2)(A)).
Section 2(a) of the Bank Holding Company Act, which defines
the term "bank holding company", contains a provision that
"no company shall be a bank holding company if at least
80 per centum of its total assets are composed of holdings in the field of agriculture."
In connection with the Certifications heretofore issued by the Board,
this provision caused no difficulty, because it was clear to the
Board, from its knowledge of the affairs of the holding companies
3tinvolved, that the proviso did not exclude the corporation from the
bank holding company" category. However, Consolidated Naval Stores
IS engaged to a considerable extent in "the field of agriculture", as
defined in section 2(g) of the Act, and, in fact, the legislative
history discloses that this exemption was inserted in the Act for the
express purpose of excluding Consolidated from the scope of the
definition of "bank holding company".
Commissioner of Internal Revenue
-2-
In these circumstances, the Board of Governors considered
it appropriate to request Consolidated to present evidence to
support its contention that it does not come within the so-called
"agricultural exemption" and would not have come within its purview
on May 15, 1955 if the Holding Company Act had been in effect on
that date. As indicated above, the inapplicability of this exemption,
both on May 15, 1955 and at the present time, would have to be
established in order for the Board to certify that Consolidated
satisfies the requirements prescribed by section 1103(b) of the
Code for "qualified bank holding corporation" status.
Consolidated submitted to the Board appraisals by outside
organizations and individuals with respect to the value of its
assets on May 15, 1955 and on December 31, 1957, and more recently
Consolidated submitted an affirmation and supporting schedules to
establish that the value of its holdings in the field of agriculture
continues to be less than 80 per cent of the value of its total assets.
On the basis of the appraisals submitted by Consolidated,
subject to certain adjustments that seemed appropriate, the Board
has reached the conclusion that Consolidated would have been a "bank
holding company" on Hay 15, 1955 and is a bank holding company at
the present time. However, since the Board's Certification in this
respect rests in part upon appraisals by other persons rather than
upon information within the Board's own knowledge, it has been considered advisable to include in the Certification a statement on this
Point. In the opinion of the Board of Governors, reliance on such
appraisals, in the circumstances of this case, is appropriate and is
consonant with the provisions of Part VIII of subchapter 0 of
chapter 1 of the Internal Revenue Code of 1954.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosure
@FedFRASER