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Minutes for To: Members of the Board From: Office of the Secretary March 9, 1964 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If you were not present, your initials will indicate only that you have seen the minutes. Chm. Martin (; Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane 756 Minutes of the Board of Governors of the Federal Reserve System on Monday, March 9, 1964. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mitchell Daane Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Kenyon, Assistant Secretary Cardon, Legislative Counsel Fauver, Assistant to the Board Johnson, Director, Division of Personnel Administration Hexter, Assistant General Counsel Conkling, Assistant Director, Division of Bank Operations Daniels, Assistant Director, Division of Bank Operations Leavitt, Assistant Director, Division of Examinations Sprecher, Assistant Director, Division of Personnel Administration Mattras, General Assistant, Office of the Secretary Veenstra, Chief, Call Report Section, Division of Bank Operations Solodow, Analyst, Division of Bank Operations Circulated or distributed items. The following items, copies °f which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Letter to Fair Lawn-Radburn Trust Company, Fair L wn, New Jersey, approving the establishment of a branch at 14-03 Saddle River Road, rather than at 21-17 Saddle River Road, as approved by the Board on August 16, 1963. 1 f 3/9/64 -2Item No. Letter to Union Bank, Los Angeles, California, approving the establishment of a branch in Fullerton. 2 Letter to Wells Fargo Bank, San Francisco, California, approving the establishment of a branch in Rancho Cordova. 3 Letter to United California Bank, Los Angeles, California, approving an extension of time to establish a branch in an unincorporated area adjacent to and west of the city of Santa Barbara. 4 Letter to Metropolitan National Bank, Kansas City, Missouri, granting its request for permission to maintain reduced reserves. 5 Letter to the Federal Reserve Bank of Richmond authorizing waiver of a penalty incurred by Shenandoah County Bank and Trust Company, Woodstock, Virginia, because of a deficiency in its required reserves 6 Letter to the Presidents of all Federal Reserve Banks regarding the schedule for showing the motto "In God We Trust" on all paper currency. 7 Letter to Merchants Trust & Savings Bank, Kenner, Louisiana, granting a further extension of time in which to withdraw from membership in the Federal Reserve System. 8 Window dressing (Items 9 and 10). There had been distributed a memorandum from the Division of Bank Operations dated February 1964, 28, regarding the results of System efforts to eliminate the practice clf window dressing. There had also been distributed draft letters that might be sent to the Mid-Continent Banker, St. Louis, Missouri, and to Chairman Fascell of the Legal and Monetary Affairs Subcommittee of the 3/9/64 -3- House Committee on Government Operations. (A similar letter would be sent to Chairman Dawson of the House Committee on Government Operations.) The memorandum noted that the program reflected the request in the Board's letter of November 21, 1963, to all Reserve Banks that the Banks, in cooperation with representatives of the Federal Deposit Insurance Corporation, take certain steps to attempt to dissuade bankers from engaging in the practice of window dressing. Reports had now been received from all Reserve Banks except one (Atlanta) describing letters Yritten, meetings held, and banker reactions. Comments were almost entirely favorable to the program, and encouraging expectations of a reduction in bank-initiated window dressing were expressed. Bankers in most districts noted, however, that temporary transactions initiated by customers for the purpose of improving their own statements and natural phenomena, such as the accumulation of local tax receipts or of deposits for expected dividend pay-outs and an unavoidable slowdown in the processing of cash items before the New Year holiday, were contributory reasons to year-end results in condition statements. Studies by the Division of Bank Operations of changes in accounts most subject to window dressing at the end of 1962 and 1963 indicated that the program was generally successful. There remained sarric question as to what extent the apparent improvement in 1963 was cille to the elimination of window dressing by banks or other factors. Definitive answers could not be determined statistically. However, 759 -4- 3/9/64 continuing watchfulness on the part of the Reserve Banks might help to keep the practice of window dressing under control. After discussion, the Board approved unanimously letters to Chairman Fascell (with a similar letter to Chairman Dawson) and to the Mid-Continent Banker. Copies of the letters sent pursuant to this under- standing are attached to these minutes as Items 9 and 10. Messrs. Conkling, Daniels, Veenstra, and Solodow then withdrew from the meeting. Retirement System of the Reserve Banks. Mr. Sherman noted that on January 281 1964, the Conference of Presidents of the Federal Reserve Banks approved certain changes in benefits under the Bank Plan of the Retirement System of the Federal Reserve Banks that were recommended by the Subcommittee on Personnel. Thus, the matter was now before the Board, and an analytical memorandum was being prepared by the Division °I1 Personnel Administration. If the changes should be approved by the Board and other required steps were accomplished within the Reserve Banks and the Retirement System, an effective date would be fixed, Possibly July 1, 1964. Governor Mills stated that the memorandum to be prepared on this Matter should be comprehensive since the proposed changes in benefits 4ere far-reaching. ' The memorandum should give an adequate comparison °I' Bank Plan benefits with those provided under the Civil Service Retirement System. It was easy to fall into the pattern of relating Bank Plan benefits to those available under programs in effect in certain 3/9/64 -5- segments of private industry, selecting the particular programs that offered more generous benefits than the present and proposed benefits under the Bank Plan and overlooking the fact that the programs of other commercial and industrial concerns were not so generous. Some of the more generous private industry programs reflected, among other things, the pressures of collective bargaining. Whether that was a pattern that should be approved by the Board for inclusion in the Bank Plan, he did not know; it was up to the Board to scrutinize the matter to determine whether the proposed package of benefits was more than would be consistent and appropriate for an agency of the Federal Government to approve. Chairman Martin noted that Mr. Byron Johnson had been engaged as a consultant to the House Banking and Currency Committee to study the Board and Bank Plans of the Federal Reserve Retirement System. There followed comments by staff members on conversations with Mr. Johnson and the information that had been conveyed to him. Question was raised, in this connection, as to how the proposed changes in the Bank Plan should be handled, and there was agreement with a statement by Chairman Martin that the usual practice of full disclosure would be in order, the staff to make it clear, of course, that the current proposals were under study ella the Board had not committed itself with respect to them. Salaries of retirees. It was noted that Chairman Patman of the Rouse Banking and Currency Committee had requested by letter dated f'• -6- 3/9/64 March 2, 1_964, information on cases under the Federal Reserve Retirement System where benefits were being paid at rates of $1o,000 per annum or more. After discussion, it was agreed that the response should be cast in terms of providing, for the applicable cases, the title of the Position occupied at date of retirement, salary rate at the time of separation from active service, and annual retirement benefits currently being paid. The meeting then adjourned. Secretary's Note: Pursuant to the recommendation contained in a memorandum from Governors Balderston and Robertson, Governor Shepardson today approved on behalf of the Board the transfer of William Edward Hardy from the position of Messenger, Division of Administrative Services, to the position of Messenger in the Board Members' Offices, with an increase in basic annual salary from $4,295 to $4,565, effective the date of assuming his new duties. 1, , Secretary BOARD OF GOVERNORS Item No. 1 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 9, 1964 Board of Directors, Fair Lawn-Radburn Trust Company, Fair Lawn, New Jersey. Gentlemen: On August 16, 1963, the Board of Governors of the Federal Reserve System approved the establishment of an in-town branch at 21-17 Saddle River Road by Fair Lawn-Radburn Trust Company, Fair Lawn, New Jersey. Your letter of December 6, 1963 indicates that you now wish to establish this branch at 14-03 Saddle River Road. The Board does not object to establishment of the branch at the new location provided the branch is established Within one year 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 lloard also had approved a six-month extension or the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter c) f November 9 1962 (S-1846), should be followed.) tot , BOARD OF GOVERNORS Item No. 2 OF THE 3/9/64 FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 91 1964 Board of Directors, Union Bank, Los Angeles, California. Gentlemen: The Boaid of Governors of the Federal Reserve System approves the establishment of a branch by Union Bank, Los Angeles, California, in the vicinity of the intersection of Orangethorpe Avenue and Harbor Boulevard, Fullerton, Orange County, California, Provided the branch is established within one year from the date of this letter. It is understood that the branch will not be opened until permanent quarters are available. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the 13card 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 °T November 9, 1962 (S-1846), should be followed.) BOARD OF GOVERNORS Item No. 3 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 9, 1964 Board of Directors, Wells Fargo Bank, San Francisco, California. Gentlemen; The Board of Governors of the Federal Reserve System approves the establishment of a branch by Wells Fhrgo Bank, San Francisco, California, in the vicinity of the northeast comer of the intersection of Coloma Road and U. S. Highway 50 in the unincorporated town of Rancho Cordova, Sacramento County, California, provided the branch is established within one year 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.) Item No. BOARD OF GOVERNORS 4 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 9, 1964 Board of Directors, United California Bank, Los Angeles, California. Gentlemen: tThe Board of Governors of the Federal Reserve System extends to December 22, 19b4, the time within which United California Bank, Loa Angeles, California, may establish a branch on State Street between La Cumbre Road and San Roque Road in an unincorporated area adjacent to and west of the city of Santa Barbara, California. Very truly yours (Signed) Karl E. Bakke Karl E. Bakk Assistant Secretary. BOARD OF GOVERNORS Item No. 5 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 9, 1964 Board of Directors, Metropolitan National Bank, . Kansas City, Missouri. Gentlemen: With reference to your request submitted through the Federal Reserve Bank of Kansas City, the Board of Governors, acting under the )r0visions of Section 19 of the Federal Reserve Act, grants permission 1,0 the Metropolitan National Bank to maintain the same reserves against rposits as are required to be maintained by nonreserve city banks, ef4ective with the first biweekly reserve computation period beginning after the date of this letter. 1 Your attention is called to the fact that such permission is subject to revocation by the Board of Governors. Very truly yours (Signed) Merritt Sherman Merritt Sherman, Secretary. •••,,,c k) e Item No. BOARD OF GOVERNORS 6 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE March BOARD 9, 1964 Mr. Aubrey N. Heflin, First Vice President, Federal Reserve Bank of Richmond, Richmond, Virginia. 23213 Dear Mr. Heflin: This refers to your letter of February 24, 1964, regarding a Penalty of $135.77 incurred by the Shenandoah County Bank and Trust CMPany, Woodstock, Virginia, on an average daily deficiency in reserves of $64,357 for the biweekly computation period ended February 5, 1964. It is noted that (1) the deficiency resulted from an oversight by the member bank; (2) the deficiency could have been discovered sooner had the member bank been computing its reserve requirement on a daily basis, a practice that has since been adopted; and (3) your Bank's records indicate that the member bank previously had a perfect record for Maintenance of required reserves. In the circumstances, the Board authorizes your Bank to 'waive the assessment of the penalty of $135.77 for the period ended FebruarY 5) 1964. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. iGS BOARD OF GOVERNORS Item No. OF THE 7 3/9/64 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADORCOS OFFICIAL COMOZSPONOIINCII TO THIL 1110ANO March 9, 1964. Dear Sir: You may have seen some reference in the press to the sched ule for Showing the motto "In God We Trust" on all paper currency. The Bureau of Engraving and Printing's tentative sched ule for the conversion was contained in the Appendix of the Congressional Record for January 20, 1964 (pages A191.192). The design of the 1963 Series Federal Reserve note inclu des the motto "In God We Trust" on the back. The first print ing of these notes in de nomination s higher than $1 will be in April, when some $10 notes three of Reserve Banks will be delivered to the Federal Reserve vault. During fiscal Year 1965, some notes of the remaining denominations will be delivered in 1963 Series form. Not all Reserve Banks will have the new 1963 Series notes Printed in all denominations in fisca l year 1965, but all Banks will have some denominations printed during the year. Complete conversion of the $50 and $100 notes to the new desig n is expected in fiscal year 1966, and complete conversion of the $5's , $10's, and $20's in fiscal year 1969. It is the Board's feeling that no interruption of norma l procedures in the handling of 1963 Series Federal Reserve notes of the $5 through $100 de nominations should be made. New notes would continue to be shipped from the Federal Reserve vault on a first-in-first-out basis. At the Reserve !enks and Branches, the 1963 Series notes would be issued by the Federal eserve Agents, and paid into circ ulation, in the normal course of operah i°118. No public announcement would be made by the Board or by any of the " serve Banks when the first 1963 Series notes are released. It is recognized, of course, that there nevertheless will be requests for low numbered tes of the new series, and it is sugge sted that such requests might be ,,ccilned with an explanation that the new notes are being shipped from sw eshington and paid out in the regular course of business and that no Pecial consideration is being given to the numbers on the notes. Z r 11(3a If your Bank sees any objection to such a plan, pleas e let the rd know the reasons why some other procedure is recomnended. -2- at A copy of this letter is being sent to the Federal Reserve Agent your Bank for his information. Very truly yours, 41 ,/ Merritt She 4 ' Secretary, 1° TO PRESIDENTS OF ALL FEDERAL RESERVE BANKS Item No. BOARD OF GOVERNORS 8 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD March 9, 1964. Board of Directors, Merchants Trust & Savings Bank, Kenner, Louisiana. Gentlemen: The Board of Governors of the Federal Reserve System extends to June 6, 1964, the time within which the Merchants Trust & Savings Bank, Kenner, Louisiana, may withdraw from membership in the Federal Reserve System. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. 771_ Item No. BOARD OF GOVERNORS 3/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINC3TON OFFICE OF THE CHAIRMAN April 1, 1964. The Honorable Dante B. Fascell, Chairman, Legal and Monetary Affairs Subcommittee, Committee on Government Operations, House of Representatives, Washington, D. C. 20515 Dear Mr. Chairman: This is in further reference to your letter of November 27, 1963 and supplements my letter of December 4 regarding window dressing in year-end bank condition reports. In the Board's letter to all Federal Reserve Bank Presidents dated November 21, a copy of which was furnished to you earlier, the Board asked that joint Federal Reserve BankFederal Deposit Insurance Corporation efforts be made to eliminate the practice of window dressing. A program of moral suasion was undertaken and responses have been received from the Presidents of the Reserve Banks describing their activities and banker reactions thereto. Comments of the Presidents and of individual bankers were almost entirely favorable to the program, and they expressed expectations of reductions in bank-initiated window dressing. Bankers in most districts also noted that some short-term changes in year-end bank statements reflect both (a) temporary transactions initiated by customers for the purpose of improving their own statements and (b) natural phenomena, such as the accumulation of local tax receipts, the accumulation of deposits for expected dividend payouts, and an unavoidable seasonal slowdown in the processing of cash items before the New Year holiday. Comparative studies of year-end reports of condition, using aggregate figures showing short-term changes in those accounts most subject to window dressing at the end of 1962 and of 1963, indicate that this program was quite successful. This opinion is generally substantiated by Reserve Bank analyses of 9 The Honorable Dante B. Fascell -2- individual bank reports of deposits for reserve purposes. Needless to say, there remain some questions as to the extent to which the apparent improvement in 1963 resulted from the elimination of window dressing by banks or by their customers, and how much resulted from other factors. Definitive answers to these questions cannot be shown statistically. A continuing watchfulness on the part of the Federal Reserve Banks is expected to assist in keeping the objectionable practice of window dressing under cctntrol. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, (Similar letter sent to Chairman Dawson of the House Committee on Government operations.) Item No. BOARD OF GOVERNORS .P0f GOI. ri • 10 3/9/64 OF THE FEDERAL RESERVE SYSTF; WASHINGTON, D. C. 20551 ADDRESS OFFICIAL- CORRESPONDENCE TO THE BOARD April 8, 1964. Miss Rosemary McKelvey, Associate Editor, Mid-Continent Banker, 406 Olive Street, St. Louis 2, Missouri. Dear Miss McKelvey: On January 8, 1964, you wrote to the Federal Reserve Banks inquiring about the results of their discussions during the latter Part of 1963 with member banks on the subject of "window dressing" in Year-end statements of condition. Several of the Banks forwarded your inquiry to the Board, and by letter of January 14 the Board advised You that it was then too early to make a meaningful evaluation of the Program and that comment on results would be premature. It was also stated, however, that any information developed by the System for release would be forwarded to you. The program of discussions undertaken by the Reserve Banks With member banks in their Districts in an effort to treat with the has Problem of year-end "window dressing" on a basis of moral suasion the that is Banks nOW been reviewed, and the consensus of the Reserve view This . productive discussions were well-received and should prove aggreappears to be borne out by the results of comparative studies of accounts those in gate short-term changes at the end of 1962 and 1963 most subject to window dressing, which suggest that the program has helped reduce the extent of the practice. bankers, In the course of their discussions with commercial suggestns fluctuatio the Reserve Banks found that the reported account of province the ing "window dressing" were a matter not entirely within ng to contributi the banks to control. Among the phenomena cited as at year-end marked fluctuation in the account structure of the banks purpose of the were temporary transactions initiated by customers for account year-end improving their own statements, as well as natural deposits and receipts activity arising out of accumulation of local tax proin for expected dividend pay-outs, and an unavoidable slow-down cessing of cash items before the New Year holiday. 774 Miss McKelvey -2- It may be concluded that this program of moral suasion has had a degree of positive success in controlling window dressing to the extent the circumstances suggestive of such practice are within the power of the member banks themselves to control. It is equally apparent, however, that to some indeterminate extent the fluctuations in published data relative to their year-end account structure reflect circumstances and conditions that are not, properly speaking, Window dressing at all, and therefore the subject will require further analysis and evaluation. It is hoped that these comments will be of some assistance to you. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary.
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