The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for
To:
Members of the Board
From:
Office of the Secretary
May 12, 1965
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 minute
Chm. Martin
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Goy. Maisel
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, May 12, 1965.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardson
Daane
Maisel
Sherman, Secretary
Kenyon, Assistant Secretary
Noyes, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Hackley, General Counsel
Solomon, Director, Division of Examinations
Kelleher, Director, Division of Administrative
Services
Mr. Kakalec, Controller
Mr. O'Connell, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Holland, Associate Director, Division of
Research and Statistics
Mr. Sammons, Adviser, Division of International
Finance
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Hart and Mr. Via, Senior Attorneys, Legal
Division
Messrs. Forrestal and Shuter, Attorneys, Legal
Division
Mr. Smith, Senior Economist, Division of Research
and Statistics
Messrs. Egertson and McClintock, Supervisory Review
Examiners, Division of Examinations
Mr. Goodfellow, Review Examiner, Division of
Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-2Discount rates.
The establishment without change by the Federal
Reserve Bank of Boston on May 10, 1965, of the rates on discounts and
advances in its existing schedule was approved unanimously, with the
understanding that appropriate advice would be sent to that Bank.
Application of Marine Midland International (Item No. 1).
There
had been distributed a memorandum dated May 6, 1965, in which the Division
of Examinations recommended approval of the application of Marine Midland
International Corporation, New York, New York, for permission to purchase
Shares of Financiera Espanola de Inversiones, Madrid, Spain, at a cost
of approximately $500,000.
A draft of letter that would grant the
requested permission was attached to the memorandum.
After a discussion during which Governor Robertson remarked
that although it would be preferable in present circumstances for Edge
Act corporations to use their funds in less-developed countries he
Would not vote adversely in this instance, the application was approved
unanimously.
A copy of the letter informing Marine Midland International
of this decision is attached as Item No. 1.
Application of United California Bank (Items 2, 3, and 4).
There
had been distributed a draft of order and statement reflecting approval
by the Board on April 22, 1965, of the application of United California
Bank, Los Angeles, California, to merge with Bank of Ceres, Ceres, California.
A dissenting statement by Governor Robertson also had been
distributed.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/ 1 2/65
-3Question was raised about accounting for all members of the
Board in the record of votes contained in the order, inasmuch as Governor
Maisel was now a member but had not yet taken office when the decision
was reached on April 22.
There was agreement that the order should state
that Governor Maisel did not participate in this action.
The issuance of the order and statement was then authorized.
Copies of the documents, as issued, are attached as Items 2 and 3.
Copy
A
of Governor Robertson's dissenting statement is attached as Item
No. 4.
Messrs. Sammons, Goodman, Via, Egertson, and Goodfellow then
Withdrew from the meeting.
Report on S. 1336 (Item No. 5).
There had been distributed a
memorandum dated May 10, 1965, from the Legal Division, attaching a
draft of reply to a request from Chairman Eastland of the Senate Committee on the Judiciary for a report on S. 1336, a bill to amend the
Administrative Procedure Act.
The reply, consisting of a letter and
attached report, would express agreement with the underlying philosophy
reflected in the provisions of S. 1336, but would describe several
respects in which specific provisions were found to be objectionable,
With an explanation of the basis for such objections.
Although the
report represented a self-contained analysis of S. 1336, the letter to
Chairman Eastland would refer to three previous occasions on which the
Board had submitted reports on proposed amendments to the Administrative
Procedure Act.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
•
5/12/65
-4The principal question raised during discussion related to the
Provisions of the proposed amendments regarding ratemaking actions by
Federal agencies, which, for the Board, would involve such matters as
the establishment of discount rates, the setting of stock margin requirements, and the establishment of maximum rates of interest payable on
time and savings deposits by member banks.
The proposed amendments
would delete specific mention of ratemaking activities from the definition of "rule."
Although it appeared that the definition could still
be read reasonably as including ratemaking actions, there was indication of Congressional intent that such actions would be decided under
adjudicative procedures; if so, it was suggested that this be made
Clear in the law.
Under the proposed amendments, only those cases of adjudication
that were "required by the Constitution or by statute to be determined
On the record after opportunity for an agency hearing" were subject to
the notice, pleading, and related requirements of section 5(a).
As the
Board interpreted section 5, all other cases of adjudication, including
the Board's ratemaking actions, were permitted by section 5(b) to be
conducted by the agency itself pursuant to procedures provided for by
agency rule.
Thus, the Board's ratemaking functions could be conducted
under such procedures as were determined by the Board to meet best its
statutory responsibilities and to serve the public interest.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
40,
r
5/12/65
-5The draft report would state that if, contrary to the Board's
interpretation of section 5, particularly subsection (b) thereof, the
Board's rate actions would be subjected either to the procedural
requirements of section 5(a) or to a hearing officer-evidential type
Procedure under section 5(b), the Board would strongly urge either:
(a) retention of the Administrative Procedure Act's classification
of agency rate actions as rulemaking functions, or (b) that the Board's
actions in respect to the establishment of discount rates, rates of
interest payable by member banks on time and savings deposits, and
margin requirements be exempted from the requirements of section 5.
Governor Daane raised the question whether it might be preferable to omit this material, on the ground that bringing up the question
might result in rejection of the Board's interpretation without adoption of the alternative provisions recommended in the report.
Mr. O'Connell responded that otherwise the Board would not be
On record as opposing application of the requirements of section 5(a)
to the Board's ratemaking functions.
In previous reports on similar
Proposed legislation the Board had strongly opposed such requirements,
and the Legal Division felt that the Board would be in the strongest
Position if it continued to express opposition.
Further discussion resulted in agreement to retain the language
of the draft report in regard to ratemaking functions and adjudications,
and also in agreement on an editorial change suggested elsewhere in
the report.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-6Unanimous approval was then given to a letter to Chairman
Eastland in the form attached as Item No. 5.
It was understood that
copies of the letter and report would be sent to all Federal Reserve
Banks and that the staff would comply with the request of the American
Bankers Association for a copy of the report.
Payment of interest on demand deposits (Item No. 6).
There
had been distributed a memorandum dated May 10, 1965, from the Legal
Division regarding a request from the Federal Reserve Bank of Boston
for a ruling on the question whether the rebate of a portion of the
interest on a loan by a national bank in consideration of the borrower's maintaining a minimum checking account balance with the bank
would constitute a payment of interest on a demand deposit in violation
of section 19 of the Federal Reserve Act and Regulation Q, Payment of
Interest on Deposits.
Under the plan, interest was computed at the time the loan was
Made and the amount of the interest was added to the face of the note.
At the same time, 1/2 of 1 per cent a year of the initial loan, excluding
interest, was used to draw a cashier's check on the bank payable to
the order of the borrower and/or the bank.
The check was retained by
the bank and, when the loan was paid in full, was turned over to the
b orrower if he had maintained a demand deposit account with the bank
for an average monthly balance of $100 and if he had paid the loan
instalments as they became due.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
The memorandum stated the opinion of the Legal Division that
the plan involved payment of interest on a demand deposit.
Material
cited in support of that opinion included a 1954 Board ruling to the
effect that a repayment of interest in return for the borrower's
maintaining a demand deposit with the bank constituted a payment of
interest on the demand deposit.
A draft of letter to the Federal
Reserve Bank of Boston reflecting the Legal Division's opinion was
attached to the memorandum.
After comments by Mr. Forrestal, Governor Robertson remarked
that while he agreed with the soundness of the position proposed to
be taken, he found some difficulty in reconciling it with accepted
banking practice in regard to compensating balances.
There ensued a
discussion in which Mr. Forrestal acknowledged that the question was
Close.
However, the dividing line seemed to be an actual payment or
rebate by a bank conditioned upon maintenance of a deposit, which was
deemed a prohibited payment of interest.
On the other hand, if a bank,
in view of the maintenance of a certain deposit balance, refrained
from making a charge it otherwise would have made, this had not been
considered to constitute a payment of interest.
Similarly, a loan
granted at a favorable rate of interest in consideration of the size
of the borrower's account had not been regarded as constituting a
Payment of interest; moreover, in such a case the rate of interest was
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-8-
specified in the note and could not be changed as to that note even if
the borrower withdrew his account.
Chairman Martin commented that it would be difficult to rule
In this case that a payment of interest was not involved, particularly
in view of earlier Board interpretations, and there was general agreement with this comment.
Further discussion resulted in revision of the draft letter to
request that the Federal Reserve Bank of Boston convey the Board's view
to a Boston national bank that was already using the plan in question
as well as to another that had raised the question because it was contemplating using the plan.
It was understood that the substance of the
letter would be sent to the other Federal Reserve Banks for their guidance and, since the ruling was applicable to national banks, it was also
understood that a copy of the letter would be sent to the Comptroller
of the Currency.
The letter was then approved unanimously in the form attached
as Item No. 6.
Messrs. liooff, Forrestal, and McClintock then withdrew from
the meeting.
Regulation T question (Item No. 7).
Pursuant to action by the
Board on July 24, 1963, there had been published in the Federal Register on
August 20, 1963, for comment, a proposed amendment to section 220.4(c)(3)
of Regulation T, Credit by Brokers, Dealers, and Members of National
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-9-
Securities Exchanges, that would adapt payment provisions of the Regulation to the mechanics of a refunding by permitting payment (in a
special cash account) of the purchase price of the new security to be
deferred until the proceeds of redemption of the old security were
available to the purchaser.
The announcement of proposed rule making
in the Federal Register stated that the amendment would supersede a
ruling of the Board contained in the last four paragraphs of an interpretation published in the November 1940 Federal Reserve Bulletin, which
ruling would be withdrawn upon the effective date of the amendment.
The
Legal Division recommended withdrawal of that portion of the ruling on
the ground that it was unnecessarily broad; it allowed a customer to
deposit a called security as payment for any other security without any
limitation on the time that might elapse between purchase of the new
security and redemption of the old.
The Legal Division's memorandum of April 6, 1965, which was
distributed preceding the adoption by the Board on April 19, 1965, of
the amendment to Regulation T, effective May 15, 1965, was accompanied
by a summary and analysis of comments received in response to the invitation in the Federal Register.
After discussing the merits of comments
by the New York Stock Exchange and others regarding the prospective
withdrawal of the last four paragraphs of the 1940 interpretation, the
1)ivision reiterated its recommendation for withdrawal, and the Board's
actio n contemplated that this would be done.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-10There had now been distributed a memorandum dated May 7, 1965,
from the Legal Division regarding a request by the New York Stock
Exchange that the Board consider reinstating the withdrawn portion of
the 1940 ruling.
The memorandum noted that the April 29, 1965, letter
in which Mr. Funston, President of the Exchange, made the request
repeated objections that were reported in the Legal Division's memorandum of April 6 and considered by the Board at the time the amendment
to the Regulation was adopted.
The Division recommended that the Board
reaffirm its position, and a draft of letter to Mr. Funston to that effect
was attached to the memorandum.
Mr. Shuter commented in explanation of the Legal Division's
recommendation and, after a discussion of the basis for the New York
Stock Exchange's request and agreement on deletion of the last sentence
of the draft, the letter was approved unanimously in the form attached
as Item No. 7.
Mr. Shuter then withdrew from the meeting.
Interlocking directorates (Item No. 8).
There had been dis-
tributed a memorandum dated May 7, 1965, from the Legal Division regardiag a question raised by the Federal Reserve Bank of Kansas City as to
the permissibility under the Clayton Act of interlocking directorates
between an industrial bank in Colorado and a member bank.
situations were involved:
Two particular
one concerned the service of Mr. H. L. Sturgeon
as President of Rocky Ford National Bank, Rocky Ford, Colorado, and as a
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/ 12/65
-11-
director and Cashier of First Industrial Bank of Rocky Ford; the other
concerned the service of Mr. W. E. Shelton as a director of the same
two institutions.
Section 8 of the Clayton Act forbade private bankers
and directors, officers, or employees of member banks to serve at the
same time as directors, officers, or employees of any other banking
organization under the National Bank Act or under the laws of any State.
The Board had authority (exercised through Regulation L, Interlocking
Bank Directorates under the Clayton Act) to permit persons to serve in
One nonconforming interlocking relationship, although it had done so
otly where clearly in accordance with the spirit of the statute, and
the Clayton Act exempted from its prohibition mutual savings banks and
six other specific types of situations.
The question would be a routine one, the memorandum continued,
Clearly covered by outstanding Board interpretations of section 8
according to which the prohibition in the statute would apply to the
s ituations of Messrs. Sturgeon and Shelton, were it not for two special
C ircumstances.
The first was that the background correspondence included
a letter to Mr. Sturgeon from the Regional Comptroller of the Currency
holding that the interlocking service was permitted under the sixth
Paragraph of section 8 of the Clayton Act on the ground that the two
institutions were not engaged in the same class or classes of business.
The Legal Division's view was that not only was the sixth paragraph of
section 8 inapplicable in the present case but that there were in fact
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-12-
at least two classes of business common to the two institutions.
The
second special circumstance was that Vice President Royer of the Federal
Reserve Bank of Kansas City, who had submitted the question, apparently
assumed that a 1963 ruling by the Board that as a general rule industrial
banks are not "banks" for purposes of section 2(c) of the Bank Holding
Company Act also applied under section 8 of the Clayton Act.
Although
he was mistaken in that assumption, his conclusion, based on a part of
the interpretation that held that an industrial bank was nonetheless a
bank if it accepted certain types of deposits, was that the interlocking
d irectorships in question were prohibited by the statute.
The Legal
Division likewise found the relationships prohibited (though on different
grounds), and this view was in accord with previous Board decisions in
regard to interlocking directorships under section 8 of the Clayton Act.
A draft of letter to Vice President Royer was attached to the
memorandum.
The Legal Division recommended that, if the Board adopted
the proposed position, the substance of the letter be sent to the other
Reserve Banks for their information regarding the somewhat different
treatment of industrial banks under the Clayton Act and under the Bank
Holding Company Act.
Miss Hart made summary comments, after which Governor Maisel
r eferred to a statement in the draft letter that section 8 did not
forbid interlocking service between a bank and a Federal savings and
loan association for the reason that the statute applies only to banks,
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/1 2/65
-13-
banking associations, savings banks, or trust companies "organized under
the National Bank Act or organized under the laws of any State or of the
District of Columbia."
He asked if this was intended to indicate that
any institution that did not include the word "bank" in its title was
not covered, such as "thrift associations" or "savings associations" in
California.
Staff comments brought out that some banking statutes specified
that they did or did not apply to certain types of institutions, such
as Federally-chartered savings and loan associations.
Because of dif-
ferences among statutes, the Board had not found it feasible to adopt
a definition of "bank" for uniform application.
Instead, in the absence
of specific statutory guidance, it had judged particular institutions
on. a case-by-case basis according to their functions.
The determination
Whether or not a given institution was a "bank" did not depend upon its
name; a primary consideration was whether or not its operations showed
the essential characteristics of accepting deposits, even though some
Other term for them might be used.
After further discussion during which there was agreement upon
a change in language designed to avoid an impression such as Governor
Ilaisel had mentioned, the letter to Vice President Royer was approved
Unanimously in the form attached as Item No. 8, it being understood
that the substance of the letter would be furnished to the other Federal
Reserve Banks.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-14Section 32 question (Item No. 9).
There had been distributed
a memorandum dated May 3, 1965, from the Legal Division regarding an
Inquiry from the Federal Reserve Bank of San Francisco as to whether
the securities firm of Wheeler, Munger & Co., Los Angeles, California,
was primarily engaged in activities described in section 32 of the
Banking Act of 1933.
If the firm was so engaged, the prohibitions of
the Act forbade a limited partner in the firm from serving as an employee
of United California Bank, Los Angeles, a State member bank.
The firm
described the bulk of its business as "investing for its own account."
However, it had a seat on the Los Angeles branch of the San Francisco
Stock Exchange and acted as specialist and odd-lot dealer on the floor
of the exchange.
It also did enough business as an ordinary dealer so
that if this activity alone were considered the case would be a borderline one under section 32.
Hence the question resolved itself into
Whether in the circumstances of this case, investing for the firm's
014711 account should also be taken into consideration, in which event
the firm would clearly be "primarily engaged."
There was set out in the memorandum an analysis of the securities
firm's business and the relevance of positions taken previously by the
Board as to situations that were similar to some degree.
On the basis
Of that analysis the Legal Division concluded that, since section 32 of
the Banking Act of 1933 was designed to prevent situations from arising
Which a bank director, officer, or employee could influence the bank
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-15-
or its customers to invest in securities in which his firm had an interest,regardless of whether he, as an individual, was likely to do so, it
was believed that if a firm was doing any significant amount of ordinary
dealing or underwriting, a determination whether the firm was "primarily
engaged" in section 32 activities should take into consideration investments for the firm's own account.
The line between dealing for one's
OWn account and dealing with customers was highly subjective, and although
a particular firm or individual might be scrupulous in separating the two,
the opportunity necessarily existed for the kind of abuse at which the
statute was directed.
Therefore, the Division recommended that the Board
answer the inquiry affirmatively, along the lines of a draft letter to
the Federal Reserve Bank of San Francisco that was attached to the memorandum.
The Division recommended also that the substance of the letter
be sent to the other Reserve Banks for their guidance, since there had
been some confusion from time to time about the application of section 32
to activities of a dealer.
After discussion, the letter was approved unanimously, with the
understanding that the substance of the letter would be sent to the
Other Federal Reserve Banks.
No
A copy of the letter is attached as Item
9
Miss Hart then withdrew from the meeting.
Court decisions regarding bank mergers (Item No. 10).
With a
memorandum dated April 30, 1965, from the Legal Division there had been
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
40-k 41.
•I"Y.,7
5/12/65
-16-
distributed a draft of reply to a letter in which Chairman Fascell of
the Legal and Monetary Affairs Subcommittee of the House Committee on
Government Operations expressed concern about "the grave problems which
can arise in bank merger cases, where the stamp of approval has been
affixed by a banking agency, only to have it destroyed at some future
time through the efforts of another agency of the Government, the Antitrust Division."
Chairman Fascell asked whether such situations could
be avoided under existing law, and for views and suggestions for dealing
administratively with the problem.
Mr. Shay observed that the essence of the proposed reply was
that such problems could not be avoided through administrative measures
under present law.
Although the agency having jurisdiction had to ask
the other Federal banking authorities and the Department of Justice for
reports on competitive factors, the Bank Merger Act made it clear that
such factors represented only one aspect of an application and that in
some situations other considerations should be given greater weight.
Responsibility for evaluation of all aspects of a proposal rested with
the agency having jurisdiction, and the Legal Division considered that
any procedure under which the several agencies would confer prior to a
decision in order to resolve their differences as to the over-all effect
of a merger proposal would involve an abuse of administrative discretion.
There ensued a general discussion of the considerations taken
into account by the courts in antitrust cases.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
In recent banking cases
5/12/65
-17-
there had been indications that the competitive factors involved in a
merger had been almost the sole consideration, with little or no weight
being given to banking factors.
However, in other merger cases the
courts had recognized the failing company doctrine, and a view was
expressed that even though a court found that a bank merger violated
the antitrust law under which suit was brought, it would be within the
discretion of the court to make a further finding that the financial
condition of one or both institutions warranted consideration.
There
was agreement that it would appear safest to resort to a factual comment
that in recent bank merger decisions the courts had given little if any
weight to the banking factors.
Suggestions then were made for various other revisions in the
approach and emphasis of the draft letter, especially in the interest
°I compatibility with the Board's letter of April 27, 1965, to Chairman
Robertson of the Senate Committee on Banking and Currency reporting on
S. 1698, a bill that would exempt bank mergers from the Federal antitrust laws.
At the conclusion of the discussion, unanimous approval was
given to a reply that would take these suggestions into account.
A
e°PY of the reply in the form in which it was subsequently transmitted
to Chairman Fascell is attached as Item No. 10.
Monograph on banking markets.
In a distributed memorandum of
14aY 3, 1965, Mr. Brill, Director, Division of Research and Statistics,
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-18-
recommended that the Board publish the monograph, "Banking Market
Structure and Performance in Metropolitan Areas," by Theodore G.
Flechsig.
The monograph would be published with a foreword indicating
that the analysis and conclusions were the sole responsibility of Mr.
Flechsig and not of the Board or of the Federal Deposit Insurance
Corporation (Mr. Flechsig, formerly of the Board's staff, was now a
member of the Corporation's staff).
The recommendation contemplated
the printing of 3,000 copies of the monograph in the Board's shop at
an estimated out-of-pocket expense of $680, for which provision had
been made in the 1965 budget.
The intended initial distribution was
described in the memorandum, followed by a recommendation that copies
be made available to the public without charge and that the monograph
be announced in the Federal Reserve Bulletin and included in the list
of Board publications.
Mr. Brill also recommended that the monograph, "Bank Mergers
6, The Regulatory Agencies -- Application of the Bank Merger Act of
1960," by George R. Hall and Charles F. Phillips, Jr., be added to the
list of publications in the Bulletin.
When this monograph was published
in August 1964, certain considerations suggested avoiding undue publicity,
but those reasons no longer seemed compelling.
After comments by Mr. Holland, Governor Maisel remarked that
in his experience it was generally preferable to list a charge for
Publications even though they might be made available rather freely
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-19-
to parties having a well-defined interest in them.
He inquired about
Board policy in this regard.
During the discussion that followed it was brought out that the
Board had set the prices and terms for distribution of its publications
individually, but had not adopted an over-all price policy.
In general,
if a publication contained subject matter of wide general interest to
the public it was normally distributed free of charge.
If it was of
a technical nature and of more limited interest, a charge was usually
made for it, at least to the general public.
The suggestion was made
that the staff be requested to develop recommendations for a general
Pricing policy for the Board's publications.
At the conclusion of the discussion the recommendations in Mr.
Brill's memorandum were approved unanimously, except that the matter
of price of the Flechsig monograph was held in abeyance pending consideration by the Board of recommendations to be developed by the staff
for a general pricing policy on publications.
The meeting then adjourned.
Secretary's Notes: On May 11, 1965, Governor
Shepardson approved on behalf of the Board a
memorandum from Mr. Sherman dated May 10, 1965,
recommending that a small luncheon be arranged
at the Cosmos Club on May 12 for two officials
of the Bank for International Settlements who
would be visiting the Board's offices, with
payment by the Board of the cost.
Governor Shepardson today approved on behalf
of the Board the following items:
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5/12/65
-20-
Memorandum from Mr. Young, Adviser to the Board and Director,
Division of International Finance, dated May 11, 1965, recommending
that a small dinner be arranged at the International Club for representatives of the Bank of England and the U.K. Treasury who were to be in
Washington beginning Monday, May 17, for discussion of the international
Payments system, with payment by the Board of the cost of the dinner.
Memorandum from the Division of Research and Statistics dated May 3,
1965, requesting that an economist position vacancy in the Business
Conditions Section of that Division be filled temporarily by an appointment from about June 15 to September 15, 1965.
Letter to the Federal Reserve Bank of New York (attached Item No. 11)
approving the appointment of Franklin T. Love as assistant examiner.
Letter to the Federal Reserve Bank of Kansas City (attached Item
No. 12) approving the appointment of Philip Edgar Schmidt as assistant
examiner.
Memoranda recommending the following actions relating to the Board's
staff:
AaRaiaLTDIL
Edward S. Green as Cafeteria Laborer, Division of Administrative
Services, with basic annual salary at the rate of $3,385, effective the
date of entrance upon duty.
Transfers
.
Katherine M. Bulow, from the position of Clerk-Stenographer in the
Division of International Finance to the position of Secretary in the
Division of Research and Statistics, with an increase in basic annual
salary from $4,780 to $5,165, effective upon assuming her new duties.
Adeline R. Tweed, from the position of Budget and Planning Assistant
in the Office of the Controller to the position of General Assistant in
the Division of Data Processing, with an increase in basic annual salary
from $6,450 to $7,220, effective May 23, 1965.
Secretary
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Item No. 1
5/12/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 12, 1965.
Marine Midland International
Corporation,
120 Broadway,
New York, New York. 10005
Gentlemen:
In accordance with the request in your letter of April 21,
1965, transmitted through the Federal Reserve Bank of New York, and
on the basis of information furnished, the Board of Governors grants
consent to your Corporation's purchase and holding of approximately
21,500 shares, par value pesetas 1,000 each, of Financiera Espanola
de Inversiones ("FEI"), Madrid, Spain (in formation), at a cost of
approximately US$500,000, provided such stock is acquired within
one year from the date of this letter.
The Board also approves the purchase and holding of shares
of FEI within the terms of the above consent in excess of 10 per cent
of your Corporation's capital and surplus.
The foregoing consent is given with the understanding that
the foreign loans and investments of your Corporation, including the
investment now being approved, will not exceed the guidelines established under the voluntary foreign credit restraint effort now in
effect and that due consideration is being given to the priorities
contained therein.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1545
Item No. 2
5/12/65
UNITED STATES OF AMERICA
RESERVE SYSTEM
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL
WASHINGTON, D. C.
Itl the Matter of the Application of
IMITED CALIFORNIA BANK
approval of merger with
/3ank of Ceres
ORDER APPROVING MERGER OF BANKS
pursuant to the
There has come before the Board of Governors,
sank Merger Act of 1960 (12 U.S 0C
1828(c)), an application by United
State member bank of the
Clif°rnia Bank, Los Angeles, California, a
of the merger of
ederal Reserve System, for the Board's prior approval
charter and
that bank and Bank of Ceres, Ceres, California, under the
title of United California Bank.
As an incident to the merger, the sole
offie,
of the resulting bank.
-'e of Bank of Ceres would become a branch
been
10tice of the proposed merger, in form approved by the Board, has
Published pursuant to said Act.
the light of
Upon consideration of all relevant material in
the factors set forth in said Act, including reports furnished by the
corn
e Corporation,
Ptroller of the Currency, the Federal Deposit Insuranc
in the
4Ild the Attorney General on the competitive factors involved
11°P°sed merger,
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2IT IS HEREBY ORDERED, for the reasons set forth in the
toard's Statement of this date, that said application be and hereby
is aPproved, provided that said merger shall not be consummated
(a) within seven calendar days after the date of this Order or
(b) later than three months after said date.
Dated at Washington, D. C., this 12th day of Nay, 1965.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Shepardson, and Mitchell.
Voting against this action:
Absent and not voting:
Governor Robertson.
Governor Daane.
Governor Maisel did not participate in this action.
(signed)
Merritt Sherman
Merritt Sherman,
Secretary.
(StAL)
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
_5117
Item No. 3
5/12/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTELI
APPLICATION OF UNITED CALIFORNIA RANK
FOR APPROVAL OF MERGER WITH
BANK OF CERES
STATEMENT
United California Bank, Los Angeles, California ("United"),
/41-th total deposits of $2.7 billion, has applied, pursuant to the Bank
Ilerger Act of 1960 (12 U.S.C. 1 823(c)), for the Board's prior approval
thQ merger of that bank and the Bank of Ceres, Ceres, California
1/
("Ceres
The banks
Bank"), which has total deposits of $3.6 million.—
14341d merge under the charter and name of United, uhich is a State
Itiernber bank of the Federal Reserve System and the only banking subsidiary
California of Western Bancorporation, a registered bank holding
(111113anY.
As an incident to the merger, the sole office of Ceres Bank
1.4)tild become a branch of United, increasing the number of its offices
'11111 178 to 179.
Under the law, the Board is required to consider, as to each
th C
banks involved, (1) its financial history and condition, (2) the
decillacY of its capital structure, (3) its future earnings prospects,
(4) the
general character of its management, (5) whether its corporate
P°14ets are consistent with the purposes of 12 U.S.C., Ch. 16 (the Federal
bell°sit Insurance Act), (6) the convenience and needs of the community
t0 be served, and (7) the effect of the transaction on competition
deposit figures cited throughout are as of June 30, 1934.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
[3.18
-2-
(including any tendency toward monopoly).
The Board may not approve the
transaction unless, after considering all of these factors, it fines the
transaction to be in the public interest.
Banking factors. - The financial histories of United and Ceres
Bank are satisfactory, and each bank has a satisfactory asset condition
and a reasonably adequate capital structure.
The earnings record and
future earnings prospects of United are satisfactory.
While the earnings
°f Ceres Bank have been adequate, they are well short of the reasonable
earnings potential of the bank.
The relatively low earnings of Ceres
its
Bank appear to be the result of the investment and loan policies of
ultraconservative management.
For example, the bank invests exclusively
in short-term U. S. Government obligations.
The management of United is
"mPetent and progressive, as would be the management of the resulting
bank, which would also have a satisfactory financial condition, a
reasonably adequate capital structure, and favorable future earnings
pr
ospects.
of
The corporate powers of the two banks are not, and those
the r
esulting bank would not be, inconsistent with the purpose of
12 U.S.C., Ch. 16.
Convenience and needs of the communities. - Ceres has a
P°Pulation of approximately 4,500 and is located in Stanislaus County,
Clifornia, about 120 miles east of San Francisco.
is
The economy of Ceres
based chiefly on agricultural activities, but it is growing as a
tesid
ential community.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
s
Ceres Bank makes available only very limited services relative
to the banking needs of the Ceres area.
The loan volume of Ceres Bank
as a percentage of its total deposits is very low as compared to other
banks in the area, and about one-third of these loans are participations
Purchased from banks outside the community.
The bank does not make FHA
Or VA.
loans, interim real estate loans, or a number of other types of
Ina
"- including the installment variety - ordinarily available through
e°Tmercial banks. These and other services not provided by Ceres Bank
are
available at other relatively nearby banking offices, including the
Cer
es branch of the seventh largest bank in California located one block
ftom Ceres
Bank.
However, the proposed merger would have the advantage
°f Providing for the Ceres community an alternative source of relatively
fIlla
banking services.
The proposed merger would have no appreciable effect on the
banking needs and convenience of the communities in which United presently
114 banking
offices.
-2/
of Ceres Bank may be approxi21[122L515121.1. - The service area
rn4'telY defined as the area contained within a radius of about three to
Attie
railes
banking
of Ceres, and includes the town of Hughson where the only
office is a branch of a large Oakland headquartered bank.
Althoug_
h
offices
they are not within the service area of Ceres Bank, banking
located in the towns of flodesto (population about 43,000) and
1111(3ek(Population about 9,000) which are situated, respectively, about
4ve miles
north and eight miles south of Ceres, derive some business
t.(114 the
Ceres community. Although seven banks operate 12 banking offices
area from which
1-Posits
a bank obtains 75 per cent or more of its
Of individuals, partnerships, and corporations.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1550
-4Modesto, only five downtown offices - one each of United and the
State Is first, third, fourth, and seventh largest commercial banks in
tevrm of total deposits - are situated where they can reasonably be
expected to attract business from the Ceres area.
The five banking
°fficas in Turlock are branches of four of these same banks, one of
them being United.
With the acquisition of Ceres Bank, United would own three of
13 banking offices operated by six banks in the relevant area as described
in the preceding paragraph, and its holdings of total deposits in this
area would increase from about 8.8 per cent to 11.5 per cent.
its ranking of fifth in this respect would remain unchanged.
However,
United is
the fifth largest bank in California with about 8.2 per cent of the total
"sits of all the State's commercial banks, and its share would be
increased by about .01 per cent with the acquisition of Ceres Bank.
There
is no indication that any other bank in the relevant area would
be adversely
L affected by the proposed merger.
the
The merger would eliminate
limited amount of competition that exists between the proponent banks,
and f
oreclose also such potential for competition as there may be.
How-
ever, United would be a much more effective competitor for the two offices
of the
large banks that now operate in the service area of Ceres Bank.
Summary and conclusion. - Although the merger would foreclose
the limited existing and potential competition between the proponent
bah%
and increase slightly the resources of the State's fifth largest
benL .
"L‘, it does not appear that the transaction would have a significantly
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i 551
-5-
adverse effect on banking competition.
Indeed, the replacement of the
fleggressive Ceres Bank by an office of United would enhance banking
"
e°111Petition in the local market area, at the same time, United would
serve as an alternative source of full banking services, all of which
1413111d redound to the net benefit of the community concerned.
Accordingly, the Board finds that the proposed merger would
be in the public interest.
14aY 12,
1965.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Item No. 4
5/12/65
DISSENTING STATEMENT OF GOVERNOR ROBERTSON
The Board, by its approval of this application, gives
sanction to a transaction with consequences that, in my judgment,
fail precisely within the realm of that which the Bank Merger Act
q 1960 was designed to prevent.
As a basis for approval, the majority accords great weight
to its finding that the merger would result in an alternative source
Of 1411 banking services for the Ceres community. The record shows,
howet,
ver, as the majority acknowledges, that the seventh largest bank
in California (a billion dollar institution) operates an office one
block
from Ceres Bank, and that there are eleven more competing banking
fices - ten of them owned by five of the State's seven largest banks situated
in nearby toms, some five to eight miles distant.
The facts
here Obviously would not support a finding that the banking needs and
"venxence of the community are not being adequately served, and the
Ellajorr,.
"-V makes no such finding. To attach any significance whatsoever
to tu
"e convenience and needs factor on a record such as the one in
this
case is, I submit, merely to offer a placebo for the violence
that
,
through this and like cases, is being done to banking competition
etld to
the public interest.
United, the fifth largest bank in California, and the first,
third
) fourth, and seventh largest banks together account for nearly
ne
r cent of the total deposits of all the State's commercial banks.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1553
-2-
These same five banks, with 11 of the 13 banking offices in the area
treated by the majority as the relevant geographical market, hold
nearly 94 per cent of the total deposits held by the seven commercial
banks operating offices there.
Under these circumstances even a
alight increase in the concentration of banking resources through the
a
1
equisition of sound banks is clearly prohibitive. /—
Yet the majority,
Alle conceding that the merger would foreclose competition between
the proponent banks, concludes that the elimination of the last
emaining independent bank in the relevant geographical market - with
he five large banks then owning all but one of the banking offices
and holding nearly 97 per cent of the total deposits - would actually
enhance banking competition.
In this connection, the majority points
tcl the Ceres Bank's
lack of aggressiveness.
It cannot be gainsaid,
41/ever, that the bank has been aggressive enough to survive comfortably,
and it
apparently has been a reasonably effective competitor since
United is willing to pay a pretty premium for its purchase.
tinda
More
mentally, the majority fails to comprehend that by its willingness
to approve mergers under the circumstances of this case, it effectively
1/es the need for banks such as Ceres Bank to adopt progressive
11°1iies or, when a sale is contemplated, to seek out a buyer - other
then s dominant firm in the industry - who may be willing to adopt
such Policies.
51
ee the
discussion on this point in my Dissenting Statement at
Pederal Reserve Bulletin 98 (1965).
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-3-
The Board's reasoning in this case would permit the eight
largest banks in California, which now hold about 88 per cent of the
total commercial bank deposits in the State, to acquire the banks
holding the remaining 12 per cent, thus resulting in a complete
14°P°15r. The general application of the Board's reasoning in this
eaSe would seal the doom of the Bank Merger Act.
I would deny the application.
1141Y 12, 1965•
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r:
Item No. 5
5/12/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE
OTHL
CHAIRMAN
May 12, 1965
The Honorable James 0. Eastland, Chairman,
Committee on the Judiciary,
United States Senate,
Washington, D. C. 20510
Dear Mr. Chairman:
This is in response to your letter received by the Board
On March 25, 1965, requesting a report on S. 1336, a bill "To amend
the Administrative Procedure Act, and for other purposes."
It is the Board's opinion that S. 1336, viewed in its
entirety, contains guidelines for administrative agency procedures
reasonably calculated to further the public interest or policy
underlying the many and varied laws administered by agencies of the
Government, while according the individuals dealing with these
agencies maximum recognition of the rights secured to them under law.
At the same time, the Board finds several of the specific provisions
of S. 1336 objectionable, either as they affect the Board in particular or in their probable effect on all agencies generally.
The substance of certain of the comments that follow has
been transmitted previously to the Committee on the Judiciary or to
that Committee's Subcommittee on Administrative Practice and Procedure
inal response to requests for views on proposed legislation relating
.0 agency practices and procedures. By letter to you of July 11,
4 63, the Board reported on S. 1666, a bill that would have amended
2
'he public information provisions of the Administrative Procedure Act,
11 November 6, 1963, the Board responded to your request for views on
u. 1663, the provisions of which in several respects paralleled those
°f S. 1336, The Board's detailed comments on S. 1663 were set forth
°II analysis forms provided by the Committee and were forwarded as
!uolosures to the Board's November 6 letter of comment. Subsequently,
1,Y letter of July 1, 1964, the Board submitted to Senator Edward V. Long,
)
,
ohairman of the Subcommittee on Administrative Practice and Procedure
`'
the Committee on the Judiciary, views and comments on a new compara_ive print of S. 1663. In many respects the revised form of S. 1663
rre closely paralleled the language of certain of the provisions of
!I 1336 than did the original version of S. 1663. Accordingly, some
ur the Board's comments regarding S. 1663, as revised, are herein
restated.
2
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable James 0. Eastland
-2-
In view of the similarity that certain of the provisions
Of S.
1336 bear to some of the provisions of one or more of the
three earlier bills mentioned, the Board believes that the Committee
IllaY find helpful, in respect to its deliberations on S. 1336, the
views and comments contained in the Board's letters of July 11, 1963,
* November
1, 1963, and July 1, 1964. At the same time, it is the
Board's belief that the enclosed comments on S. 1336 represent a
self-contained analysis of the bill's provisions, in respect to their
effect on the Board's functions and related procedures, and on certain aspects of Government agency procedures in general.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
E4Closure
* Should have read November 6, 1963.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i.557
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Report on S. 1336
See
- Definitions
The most significant change made by Sec. 2 of S. 1336 is the
'
lemoval from the definition of "rule", as that term is defined in the
Administrative Procedure Act (hereinafter "the APA"), of "the approval
err Prescription for the future of rates, ... ."
Despite the deletion
of the language relating to ratemaking actions, the definition of "rule"
as "the whole or any part of any agency statement of general applicability
alld future effect designed to implement, interpret, or prescribe law or
Pqicy
actions.
can still be read reasonably as including agency ratemaking
The reasonableness of this conclusion is further strengthened
bY the fact that the deleted language is not carried over to Sec. 2(d)
Ilhere
"Order" and "Adjudication" are defined.
However, remarks of Senator Dirksen, a co-sponsor of S. 1336,
illade at the time the bill was introduced, indicate Congressional intent
that under S. 1336 agency rate actions "would be decided under the adjudicative procedures [Sec.
53 of the agency". (Cong. Rec., March 4, 1965,
114
3982) If agency rate actions are to be considered "adjudications"
114der S. 1336, this should be made clear by transfer to Sec. 2(d) of the
sPeoic
dC language relating to that function.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2As applied generally to all agencies, the proposal to place
ratemaking functions under the agencies' adjudication procedures appears
to have
merit.
In most agencies there exists a pressing need to assure
agency members of maximum time to consider and act upon matters of
policy.
Logically, this can be done best by relieving agency members
Of as many decisional functions as possible u
As applied to the Board's
ratemaking actions, however, it would be undesirable to have responsibility
for the initial decision elsewhere than in the agency itself.
The Board's
actions in the field of ratemaking are intrinsically policy-making function„.
They involve the establishment of discount rates (the rates to be
charged on loans and discounts by the Federal Reserve Banks to member banks
f the Federal Reserve System), the setting of stock margin requirements
(the amount of credit which may be extended to a customer by brokers,
dealers, or
members of a national securities exchange, or by banks for the
Purchase
and carrying of registered securities), and the establishment of
rilax4
"----=Zum rates of interest payable on time and savings deposits by member
banks.
The decisional processes underlying the Board's actions in
establishing discount rates, rates of interest on time and savings deposits,
44d margin requirements preclude the treatment of these functions as mere
fact-finding actions to be subjected to the same procedural and decisional
Processes as are applicable to the fixing of freight, passenger, or utility
rates
• In this respect, the Board notes that only those cases of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
adjudication which are "required by the Constitution or by statute to
be determined on the record after opportunity for an agency hearing" are
subject to the notice, pleadings, pre-hearing conferences, hearing procedures, separation of functions, and emergency action provisions of
Sec. 5(a).
As the Board interprets Sec. 5, all other cases of adjudica-
ti°n, including the Board's ratemaking actions, are permitted by Sec. 5(b)
to be
by
provided for
conducted by the agency itself pursuant to procedures
agency rule.
Thus, the Board's ratemaking functions could be conducted
under such procedures as are determined by the Board to best meet its
statutory
responsibilities and to serve the public interest.
If, contrary to the Board's expressed interpretation of Sec. 5,
Particularly of subsection (b) thereof, the Board's rate actions would be
811bjected either to the procedural requirements of Sec. 5(a) or to a
ilea ing officer - evidential type procedure under Sec. 5(b), the Board
'is3uld strongly urge either:
(a) retention of the APA's classification of agency rate actions
as rulemaking functions and,as now provided, an exception for such
actions from the notice and public procedure requirements "in any
situation in which the agency for good cause finds that notice and
Public procedure thereon are impracticable, unnecessary, or contrary
to the public interest"; or
(b) that the Board's actions in respect to the establishment
of (1) rates of interest on discounts and advances by Federal Reserve
Banks; (2) rates of interest to be paid by member banks of the
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-4-
Federal Reserve System on time and savings deposits, and
(3) margin requirements be exempted from the requirements of Sec. 5.
Either alternative would permit the Board to apply its expert knowledge
and experience in these highly complicated areas of national economic
DelioY, unimpeded by procedural requirements which, if applied, could
ilVeril the Board's ability to formulate and implement policy in credit
and monetary matters and impede its ability to respond promptly and with
the required flexibility to the day-to-day dictates of national economic
policy.
See. 3 - Public Information
Sec. 3 of S. 1336 would make substantial and far-reaching changes
in the "public information" provisions of Sec. 3 of the APA. In introducing the bill, Senator Dirksen stated that Sec. 3 of S. 1336 "changes
the availability of Government information from a question of agency
disetetion to a requirement that the information be made available unless
It fall
within certain exempted categories." (Cong. Rec., March 4, 1965,
P. 3983)
The Board views favorably the purpose underlying the provisions
Of
-cc. 3 of S. 1336.
Uhen access to information to which the public
is
titled is foreclosed by agency action based upon existing provisions
Of law,
remedial legislation appears warranted.
Despite this general
aeec
"with the purpose of Sec. 3, the Board finds several of its proisio
os to be unduly severe in the requirements imposed on the agencies,
444 to require
disclosure of agency records to an extent and in a manner
ille°4sistent with the public interest.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
_5-
Sec. 3(e) of the bill contains eight specific exemptions
from the provisions of Sec. 3.
These would take the place of (1) the
two general exceptions to the APA's public information requirements
relating to "any functions of the United States requiring secrecy in
the public interest" and "any matter relating solely to the internal
management of an agency"; and (2) the specific exception to the "opinions
and orders" and "public records" requirements of matters held confidential for good cause found.
Viewed in the light of the Board's
Continuing functions in the areas of credit and monetary policy, and
bank Supervision and regulation, the eight exemptions from the requirements of Sec. 3 are considered by the Board to offer reasonable assurance
against unwarranted disclosures.
However, a literal construction of these
ItertiPtions leads to the belief that there would remain exposed to indisel'iminate public demand certain crit4 a1 records of the Board, disclosure
°flihich could impair the Board's effectiveness both as an instrument of
national economic policy and as a regulatory body.
Accordingly, while
being favorably disposed to the form and content of the eight exemptions
in Sec. 3( ) of the bill, the Board urges retention of the exceptions from
Pliblication now found in the preamble and in subsections (b) and (e) of
S
,
• 3 of the APA.
Sec. 3(b) of the bill, dealing with the requirements for
1.ability
for public inspection and copying of agency final opinions,
order •
- in the adjudication of cases, statements of policy and interprcadopted by the agency, etc., deletes an existing provision of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-6-
the APA whereby an agency may withhold from public access all final
°Pinions or orders in the adjudication of cases for good cause found,
when not cited as precedents.
S. 1336 does provide that an agency may
4e1ete identifying details to the extent required to prevent a clearly
unwarranted invasion of personal privacy.
The Board is opposed to the removal from the law of the
Pt°vision authorizing an agency to withhold from public availability
Pinions, orders, or statements of policy "required for good cause to
be
ueld confidential and not cited as precedents". Further, the excepprovided in S. 1336 regarding deletion of identifying details is
ri°t, in the Board's opinion, an adequate alternative to the present
nead
isclosure authority.
Inasmuch as the bill recognizes that there can
be eases in which there would occur a "clearly unwarranted invasion of
Petaonal privacy", the Board believes that a far more workable and
equitable basis for nondisclosure is that provided in the present
See
'3(b) of the AFA.
Sec. 3(b) of the bill would also require that every agency
tilaintain and make available for public inspection and copying a current
irlde
Providing identifying information for the public as to any matter
/41lich is
issued, adopted, or promulgated and which is required by subsection
(b) to be made available or published. The Board urges that the
4%4
temont for a current index be made subject to the same exception
'
as
has been urged in respect to the publication of opinions and orders,
4.Y, that there be excluded from the current index requirements
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.4 .563
"identifying information" that the agency for good cause shall hold
confidential and not cited as precedents.
The Board is opposed to the provisions in Sec. 3(c) of the
bill that would require every agency to "make all its records promptly
available to any person".
[Underscoring supplied.] Presently, the APA
requires that matters of official record shall be made available "to
Pers°ns properly and directly concerned".
This provision, if combined
with the judicial enforcement provision in Sec. 3(c) of the bill, would,
in the Board's judgment, assure an equitable balancing of the need of
Pederal agencies to determine themselves what records and information
a Particular person should or need have, with the public's right to such
rds and information.
The words "any person" become the more objection-
able because of their presence in the subsequent provisions of the bill
permitting court action to obtain a court order requiring production of
agency records.
The foregoing comments combining references to the phrase "any
Ders°11" and the provisions affording court assistance when an agency has
rongfullv withheld records and information should not be construed as
4a17d °PPosition to the court enforcement provisions per se.
On the con-
trary, the
Board is in sympathy with the need for a form of judicial
Q110rcement, and is generally in accord with the means to this end proposed
in See. 3(c) of the bill.
Dersotv,
However, the Board does oppose giving "any
whether or not properly and directly concerned, access to all
ericY records not specifically exempted and, upon mere allegation of
imPr
°Per withholding, permitting "any person" to bring suit to obtain an
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
)'''
order requiring production.
Admittedly, the bill would require that
issuance of such court order be premised upon a finding that the record
demanded but not produced was improperly withheld.
The requirement of
such finding is viewed as a relatively minimal deterrent both as to unIlarranted demands for disclosure and as to the number of baseless complaints
that could be filed seeking judicial relief.
In respect to such complaints, the bill places upon the agency
the burden of sustaining its action in withholding records or informatieII trola "any person".
As a result, in any case where the records sought
cl° 4°t fall within one of the eight exemptions contained in Sec. 3(e), in
attempting to have sustained its administrative action, the agency would
be A
uenied the opportunity of showing that the person demanding production
(1
the records is not properly and directly concerned with the matter re-
I-ected in such records.
the
Such opportunity is available presently under
APA
In sum, the Board finds equitable and reasonable the placement
P°11 the agency of the burden of sustaining its action in withholding
rilatters of record. That burden becomes unreasonable, however, by inclusi
On in Sec. 3(c) of the provision requiring that every agency make
its r
ecords available to "any person'. The Board submits that the
Con,
essional intent inherent in the proposed language of Sec. 3(c) would
be e
quallY realized by language that would combine the provisions of
See. 1
j
of the APA with the court enforcement provisions of the bill, the
1
'ttet aPPropriately adjusted to the language of Sec. 3 of the APA.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.1%
Rulemakina
In respect to the changes that Sec. 4 of S. 1336 would make
in existing law relating to rulemaking procedures, the Board is opposed
tO
these changes in the following two respects.
Sec. 4(a) of the APA excludes from the "notice of proposed
Nlemaking" requirements "persons .
named and either personally
served or [who] otherwise have actual notice thereof in accordance with
S. 1336 would make the notice requirements applicable even as to
Ilets°ns personally served or who have actual notice of proposed rulemaking.
The Board
opposes the deletion of the exclusion now applicable to
ilerSons
served or who have actual notice, and believes that elimination
this exception would place upon the agencies an unnecessary and
burdensome procedure.
Sec. 4(c)(2) of S. 1336 would make applicable the requirements
Of
•
7 ("Hearings") where rules are required "by the Constitution
r by statute to be made on the record after opportunity for an agency
beating".
Sec. 4(b) of the APA makes applicable the provisions of
I 7 ("Hearings") and Sec. 8 ("Decisions") only to rules required by
'
'
P141.4Lte to be made on the record after hearing.
The Board opposes the coverage within Sec. 7 requirements
() rules
required by the Constitution to be made on the records, etc.
ty thi
s change, in addition to following express statutory requirements
()t.
h„—artngs that presumably are premised upon Constitutional guarantees,
etencii„
would be obliged to reckon with innumerable aspects of due
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.1_566
-10-
Process of law in determining whether the requirements of Sec. 7 must
be followed.
Administrative agencies would be faced with the perplexing
dilemma of determining whether a rulemaking hearing is "required" or not.
In general, agencies of the Government function within the framework
Of Congressionally delegated authority.
as
In delegating authority, it is
that the Congress will determine the circumstances under and
the extent to which the public interest require adherence to the standards
Of Sec. 7 in the decision-making process.
in reSPect
tion-
This is particularly true
to agency rulemaking, essentially a quasi-legislative func-
The Board urges deletion of the reference to Constitutionally
tequired rulemaking hearings.
Adjudication
The Board incorporates by reference its earlier comments
t'elating to the proposed classification of agency rate actions as Sec. 5
adjud
ications".
Sec. 5(a) provides that all of its provisions shall be
aPPlicable
in those cases of adjudication which are required by the
nstitution or
statute to be determined on the record after an
°P13°1:tunitY for agency hearing.
For the reasons earlier stated in
l'esPect to the Board's opposition to similar language of applicability
tesPect to rulemaking functions, the Board opposes making all the
151.°visions of Sec. 5 applicable to cases of adjudication which are
edb
As
the Constitution to be determined on the record after hearing.
ceted, the Board believes that the requirements of due process
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11-
law in respect either to functions involving rulemaking or adjudication can be assured by appropriate Congressional action at the time
agencies' statutes are enacted.
To place upon administrative agencies
the burden of case-by-case determination as to whether a particular
adjudication is required "by the Constitution" to be determined on the
tecord after opportunity for an agency hearing could give rise to administrative delays and judicial appeal proceedings that would be clearly
contrary to
the principles of expeditious administrative resolution at
Which S. 1336 is apparently aimed.
The Board favors the changes in existing hearing procedures
that would be effected by enactment of Sec. 5(a)(3) and (5).
Provisions
&or prene
aring conference that could be utilized in the discretion
Of the agency or the presiding officer should significantly expedite
adzimIstrative proceedings, enable greater simplification of complex
issues, and better advise both the agencies and other participating
P4tties regarding the probable course of the adjudicative proceedings.
Similarly, the provision for modified hearing procedures that fall
Without the requirements of Sec. 7 appears likely to serve the interests
Of both
the agencies utilizing such abridged procedures and the parties
sa to
whom they are made applicable.
The Board believes, however, that
the beneficial results intended by utilization of abridged hearing
Procedures could be substantially thwarted by the fact that such pro-
es would be utilized only "by consent of the parties". Preferable,
it
believed, would be use of such abridged hearing procedures "as
the
48entY in its discretion may designate by rule or order".
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i.568
-12-
Finally, the Board notes with approval the inclusion in
Sec. 5(a)(7) of a provision not presently contained in the APA whereby
"lergency action, found by an agency to be necessary for the preservatic% of the public health or safety, or as otherwise provided by law,
TriaY be taken without the notice or other procedures required by Sec. 5(a).
Ancillary Matters
Sec. 6 of S. 1336 would expand the provisions of the APA
regarding 'Ancillary Matters" so as (1) to make more specific the
sions regarding appearances of attorneys and other representatives
Pic
°f Parties before agencies; (2) to provide for the issuance of subUpon request to any party to an adjudication unless otherwise
r°vid d b
statute
and for the issuance of subpenas to any party to
proceeding upon request, upon a showing of general relev4rIce and reasonable scope of the evidence sought, and as authorized
b
sZ's
'
(3) to make available deposition and discovery procedures to
the same extent and in the same manner as in civil proceedings in the
district courts of the United States except to the extent an agency
dee
als such conformity impracticable and otherwise provides for depositions
alld d iscovery by published rule; (4) to permit an agency to consolidate
t'elated proceedings or to order joint hearings on common or related
i334 S in different proceedings; and (5) to issue declaratory orders
44d to dispose of motions for summary decisions, motions to dismiss,
to
tionsfor decisions on the pleadings.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
While the Board favors many of the additions that S. 1336 would
nlake in the 'Ancillary Matters" provisions of the APA, the Board is
(1)Posed to certain of the provisions contained in S. 1336.
These are the
P °visions, or portions thereof, dealing with the issuance of subpenas
(Sec. 6(e)),
depositions and discovery (Sec. 6(h))2 and declaratory
°Ners (Sec. 6(k))
.
The Board opposes the language of Sec. 6(e) that would
tequire every agency to provide by rule for the issuance of subpenas
uPen request to any party to an adjudication unless otherwise provided
tatute.
Proceedings conducted by the Board or a duly designated
re
Presentative thereof usually relate to the Board's function as a
tegulatory and supervisory agency.
In the course of such proceedings,
the Board is required to have access to and make use of facts and
fttl
alloial data of an extremely sensitive and confidential nature in
("er properly to discharge its statutory function.
The Board does
rl°t believe that parties to such proceedings should be permitted to
demand
access to such information and data through subpenas unless
ly
authorized by law to do so.
To permit such access could have
uslY adverse economic and personal consequences on the banking
°qan
izations involved, their representatives, and their customers.
For e_
xample, disclosure of a bank's resources and amounts of income,
its 1°ss experience on consumer loans, the amount of and changes in
1741"tion reserve accounts, its investment and loan portfolio structure,
411'1 related financial information could do irreparable damage to the
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-14-
disclosing bank's financial position.
Similarly, compulsory disclosure
through subpena of bank officers' salaries, the names of borrowers, the
arlIcunts and terms of their loans, and the deposit balances of customers
c°uld prove highly prejudicial and irreparably damaging to the individuals or institutions involved.
The Board does not believe that
Provision in
Sec. 6 for the quashing or modification of any subpena
f°r lack of general relevance or reasonable scope is sufficient
Narantett
against indiscriminate or unwarranted disclosure to make
4'cePtable the proposed subpena provisions relating to adjudicationse
For the foregoing reasons, the Board strongly urges that
the
Provisions for issuance of subpenas relating to adjudications be
triade identical with the provisions for the issuance of subpenas in
l'qemaking proceedings, namely, that agency subpenas authorized by law
shall be
issued to any party to an adjudication upon request upon a
showina
of general relevance and reasonable scope of the evidence sought.
Sec, 6(h) would add a provision to existing law making available
deic ,
losl
tions and discovery to the same extent and in the same manner as
the
same are available in civil proceedings in district courts of the
Utlited
States except to the extent an agency deems such conformity
itzPra
cticable and otherwise provides for depositions and discovery by
P4blished rule•
teaaons
expressed in its opposition to the proposed provision in
See. 6(e)
Nit
In essence, the Board opposes this change for the same
regarding subpenas in cases of adjudication.
It is not believed
parties to proceedings before the Board should be permitted to probe
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-15-
through deposition and discovery procedures the highly confidential
details of another's business transactions, particularly in view of
he unique public interest considerations involved in the field of banking.
Nor are the Board's objections to the depositions and discovery
Procedures
overcome by the presence in Sec. 6(h) of a provision that an
aencY might depart from such procedures where the same are found to be
Practicable" and the agency otherwise provides for depositions and
discovery by published rule.
To permit deviation from the prescribed
Procedures only if adherence thereto can be shown to be "impracticable",
hat is, burdensome or difficult in implementation, misses completely
the substantive objections that the Board has to the proposed provisions
l'elating to depositions and discovery procedures.
Accordingly, it is recommended that if the depositions and
41.80
-13verY provisions are to remain in S. 1336, following the last word
tn Sec.
6(h) as now proposed there be inserted the following language
Or where the use of such process by a party would, in the judgment
Of the agency, be contrary to the public interest, in which case the
4geheY shall by published rule set forth the particular circumstances
"der which resort to such process shall be allowed."
Finally, in respect to the provisions of Sec. 6(k) directing
that an agency shall act upon requests for declaratory orders, the
44rd believes desirable the insertion of specific language clarifying
l'that aPpears to be the intent of Congress to make the issuance of a
de
1
ratory order a discretionary act upon the part of an agency.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
572
-16-
This could be effected by insertion at line 6 of the present provision,
immediately following the word "authorized", the phrase "in its sole
discretion,".
-7
Sec
•"... • /
- Hearings
in
Viewed in the context of the changes urged herein
respect to certain of the proposed provisions in Secs. 2, 4, 5, and 6
Of S. 1336, the Bcard does not oppose the proposed provisions of
Sec. 7.
DePisions
the
The Board views as generally unobjectionable most of
changes in existing law relating to the decision functions of administrative agencies that would be made by Sec.8 of S. 1336.
The
Sec. 8 of S, 1336,
hoard does oppose certain of the provisions of
its major objections being as follows.
agency
Sec. 8 of the APA provides that in cases in which an
its
has not presided at the reception of evidence at a hearing, the
the alternative,
ilesiding officer shall initially decide the case or, in
the agency shall require (in specific cases or by general rule) the
"tire record to be certified to it for initial decision.
Sec. 8(a)
of S. 1336 would do away with the initial decision procedure by providing that in all adjudications subject to Sec. 5(a) the presiding
foficer
appeal
shall make the decision and, in the absence of either an
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-17-
to the agency or review by the agency within time provided by statute
or by rule, the presiding officer's decision shall become the decision
of the agency.
At the present time the Board follows the practice in an
djudicatory proceeding of requiring the record of such proceeding to
be certified to it for initial decision, following issuance by the preding officer at the hearing of his recommended decision.
Such a
Procedure, provided for by Sec. 8(a) of the APA, allows the Board to
teview the facts de navo, to appraise the presiding officer's evaluation
of those facts, and either to affirm the presiding officer's recommended
decision or alter or reverse the sane in the light of the applicable
statuto_
cy standards.
The Board strongly desires the preservation of its present
Sion-making procedures whereby an initial decision issued by
4
Presiding officer is reviewed by the Board prior to its becoming
4
final Board decision.
Although there are few occasions upon which
the Board conducts adjudications requiring application of the provisions
of sec.
Ueh
ir
7, when such occasions do arise the nature and the subject of
Proceedings are sufficiently technical and sensitive as to require,
the Board's judgment, a final decision to be made in the first in-
star,
-ce by the Board itself.
Adjudicatory proceedings that would be
Qotichleted by the Board might involve termination of a bank's membership
trt
the Federal Reserve System, removal of officers or directors of a
b4r11
for unsafe or unsound banking practices or violations of law,
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-18a
usPension of a bank's access to the credit facilities of the Federal
Reserve System, termination of a bank's authority to extend credit to
finance
iatel3
securities transactions, revocation of a holding company affil-
votiug permit, or issuance of a cease and desist order under the
laYton Act.
As to many of the aforementioned types of adjudicative
Pr°ceed ings, there are minimal statutory guidelines or criteria pursuant
to which a final decision is to be reached.
Because of the infrequency
most
Qf such proceedings there has not been established, with respect to
°f these matters, any larv body of decisional precedent upon which a
sub
ordinate officer could rely for guidance.
The applicable statutes
It'ant the Board broad discretion, and the issues involved go substantial,
4.Y beyond the mere application of facts to statutory criteria.
Such
In
circumstances, the Board believes that to place in a subordinate
ffi
eer the final decision in cases of adjudication, with very limited
cl)Pcrtunity for agency review under Sec. 8(c)(4), could be prejudicial
bowl_
to the respondents in such cases and to the Board's effectiveness
48 a statutorily constituted regulatory and supervisory body.
Accordingly, the Board favors retention of the provisions
Of Sec. 8(a) of the APA pursuant to which a presiding officer makes a
Inlmended decision, upon review of which the agency issues the initial
decision4
In recpect to the provisions of Sec. 8(c) of S. 1336 calling
the establishment by each agency of one or more appeal boards, the
11°E11.(1 favors the functional purposes to be served by such establishments.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
fI
-19-
in
However, the following ccmments are offered for consideration
respect to certain of the provisions relating to the establishment of
tilese appeal boards.
The Board recommends that ultimate authority to grant oral
argument during the proceedings before an appeal board be placed in the
d iscretion of the agency.
Sec. 8(c)(2) would grant oral argument in
any case upon request of a party.
Provision is made in Sec. 8(b) for
the opportunity, in the discretion of the presiding officer, for oral
argument in support of proposed findings and conclusions.
Presumably,
the instances would be infrequent where oral argument thus requested
would be
denied.
To accord parties an absolute right of oral argument
bore an appeal board would, in the Board's judgment, introduce an
element of delay in the total administrative process that would not be
compensated for by any significant benefit to the party or to the
agency involved.
The rights of parties appearing before an agency
sPPeal board would not appear to be prejudiced in any manner by giving
to that appeal board a discretionary judgment in respect to granting
°ral argument.
The provision in Sec. 8(c)(2) whereby a private party could
a"id consideration and determination by the appeal board of exceptions
to a
Presiding officer's decision or rulings appears to render nearly
useless the functions intended to be performed by the appeal board.
er the proposed provision a private party may avoid consideration
by th
ion
e appeal board merely by filing an application for a determinat
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
f
5'7G
-20-
Of exceptions by an agency - a procedure identical to that where an
48sncY has not established an appeal board.
It is believed that agency
determination of exceptions raised by a party should be limited to those
cases where the agency has not established an appeal board.
Regarding the grounds upon which an agency may order a
Particular case brought before it for review, Sec. 8(c)(4) limits
Such grounds to (1) decisions or actions that may be contrary to law
Or agency policy; (2) to cases as to which the agency wishes to recona l-der its policy; or (3) to cases as to which a novel question of policy
has
been presented.
The Board would be unopposed to these provisions
111-11Z if its recommendations relating to retention of the APA's recomrrlertded decision procedures are adopted.
If S. 1336 were to provide that
may
44 agency may by rule designate a case in which the agency itself
I/lake the initial decision following a recommended decision by a presiding o
would
fficer, the appeal and review procedures proposed in S. 1536
4°t be objectionable since the agency would have control over the class
Of
to
cases as to which it would delegate initial decision authority
the Presiding officer. Absent retention of the recommended decision
eature of the APA, the Board strongly recommends that S. 1336 contain
Pr°vision giving an agency the authority to consider de novo any
"involved in a case appealed to or reviewed by the agency after
etitrY of the decision of the presiding officer or after the action of
44appeal board.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i577
-21Sec
• 9 - Sanctions and Powers
The Board favors the provision of Sec. 9 that would impose
on every agency, in respect to any proceeding required to be conducted
Pursuant to S. 1336 or otherwise required by law, a duty to set and
c(3a1P1ete such proceedings "with reasonable dispatch".
tfltt
Such require-
is at present specifically applicable only to licensing pro-
ceadings
conducted pursuant to Secs. 7 and 8 of the APA.
Sec. 9(b) provides that any publicity issued by an agency
°r off4.,.cer, employee, or member thereof, that is found by a court to
have
been issued to discredit or disparage a person under investigation
a Party to an agency proceeding, may be held to be a prejudicial
Ill'ejudging of the issues in controversy and to constitute a basis for
)1.1x.t
action in setting aside any agency action against such person or
Party.
In the Board's judgment, the inclusion in S. 1336 of the
°sed language relating to agency publicity offers a greater
"
Po e
k tItial for misunderstanding and confusion than for any remedial
be,
"etlt that might be derived therefrom.
Should it be deemed necessary to provide specifically for
the right of a reviewing court to set aside adverse agency action which
i4 ShOwn
to_ have been preceded by a prejudicial prejudgment of the
484es in controversy, such a provision could be added as a seventh
Ite0r37 of agency actions which, as required by Sec. 9(e)(B), a re\qewing court shall "hold unlawful and set aside".
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
e
-22-
Sec. 10 - Judicial Review
The judicial review provisions of the APA are expressly
inapplicable insofar as (1) statutes preclude iudicial review or
(2) .9114pcy action is by law committed_12_11gasy_Ailsatim. Thus,
tl/n distinct criteria are now provided by which a determination can
be made as to whether a particular agency action is subject to judicial
review. If a statute precludes or can be interpreted as intended to
Preclude judicial review of particular agency action, such action is
eltclepted from the judicial review provisions of the APA.
Similarly,
here the statutory provisions under which an agency purports to act
either expressly or by implication commit a particular action to
agencY discretion, such action is not subject to judicial review.
Sec. 10 of S. 1336 would exclude from judicial review, as
does the APA, agency actions as to which "statutes preclude judicial
l'evie4". However, S. 1336 would narrow the existing APA provision
e8arding agency discretion by making the exception with respect
the eto
applicable only where "judicial review of agency discretion
is
Precluded by law". In the Board's view, there is neither need nor
fication for the change proposed in respect to acts committed to
gencY discretion. The Board believes the existing provisions of law
to
be unambiguous and to meet fully the apparent Congressional intent
tt
urmulating the judicial review provisions of the APA.
'
On the other
ham
'the proposed language in S. 1336 relating to judicial review of
disc
retionary agency actions can be said to be redundant in that the
umatances covered by the exception appear to be included in and
'
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
i"•49
)
-23-
covered by the first exception of Sec. 10 relating to situations
where "statutes preclude judicial review".
It appears to the Board
that agency discretion that is "precluded by law from judicial review"
4tet, even under a very narrow construction, be construed as action
Precluded from judicial review by statute, either specifically or by
reasoned deduction from the statutory context.
470
Thus, rather than the
separate and distinct circumstances under present law that give
rise to exception from judicial review, S. 1336 would provide but a
single circumstance under which agency action would be excepted from
judicial review, namely, where judicial review is precluded by statute.
Even assuming, arguendo, that the Board's interpretation
f the preamblri to Sec. 10 of S. 1336 is unduly restrictive, the
ll ard would oppose the proposed language more broadly interpreted.
'
114der existing law, a single determination is required under each of
he two exceptions from judicial review of agency action.
Judicial
evie4 is precluded (1) if so provided by statute, or (2) if agency
4eti°n is by law committed to agency discretion.
Pursuant to the pro-
cIns of S. 1336, a determination of whether a discretionary agency
"is judicially reviewable would, in turn, require two distinct
4eti
dete
by
flIllnations.
First, is the agency action in question expressly or
4
4.1:Ilication committed to agency discretion?
Second, if so committed,
4 Judicial
review of such discretionary action expressly or by impli'-'11 precluded by law? The Board is unable to ascertain either a need
or .
Justification for the change proposed in the existing provisions of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
580
-24Even assuming the need for a change in the APA's provisions, the
Board views Sec. 10(2) of S. 1336 as lacking in a clear, functional
W.de for determining agency actions that are to be excepted from the
411's judicial review provisions.
The Board finds a far more objectionable feature of the
Judicial review provisions of Sec. 10(2) to be that actions of the
llosrd in the areas of credit regulation and monetary policy, includi4g those earlier discussed relating to ratemaking, would be made
Ject to these judicial review provisions.
Such Board actions,
c°1414itted by law to the Board's discretion, are now excluded from
cial review pursuant to provisions of the APA.
The change proposed would subject the Board's judgment and
action
in money market and credit requirement matters to affirmation,
41(lification, or rejection by a court upon allegation by any person
tliat he is adversely affected by such action, notwithstanding its
°tra applicability to the public at large. It is the Board's
"
belt
e4. that irreparable and substantial harm to the economy of the
440
could result were the Board deprived of final authority to
take those
actions in the areas of credit regulation and monetary
t4)licY that are considered necessary in the public interest.
Inas-
11eill as enactment into law of proposed Sec. 10(2) of S. 1336 could
about the harm described, the Board strongly urges rejection of
the
Ptoposed provision and retention of the exemptions from judicial
elite
II now provided by the preamble to Sec. 10 of the APA.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Board is opposed to the change proposed by Sec. 10(a)
of the bill in regard to persons entitled to judicial review of agency
act•
"n. At present, the APA gives a right of review to "any person
"Iering legal wrong because of any agency action, or adversely
ffected or aggrieved by such action within the meaning of any relevant
statute".
Under S. 1336, the test would be merely whether a person
18 adversely affected by agency action.
The finite concept of legal
141.°11t and statutory definition of "adversely affected or aggrieved"
14°1114 be discarded in favor of an abstract test having no perceivable
Thus, should the Board deny an application by a member bank
for
Permission to establish a branch facility, under the proposed pro-
Vis104 providing for judicial review, any resident of the town in which
the Proposed branch would have been located could assert that he was
adv-"ely affected in fact" by the Board's denial action, and thus
"titled to judicial review of that action.
Regarding the potential for innumerable, unwarranted petitions
fcl. judicial review, Sec. 9 of the Bank Holding Company Act of 1956
eesslY provides that
)ard
any party aggrieved by an order of the
• . may obtain review of such order in .. . [a] United
.8ttes Court of
Appeals . .
."
Under Sec. 10(a) of the APA, the
aggrieved" person in such cases would be a party to the proceedtlas
since this is the only person who can be "aggrieved. . . within
the
meaning of
.. [the] relevant statute".
Pursuant to the proposed
44141dment under discussion, apparently not only a party to a proceeding
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
5S2
k
-26-
under the Bank Holding Company Act could seek review of the Board's
attic:11
but any other person, such as a customer of a bank involved
°r of a competitor, another bank holding company competing in the
same area, or any one of a host of other persons who might assert
themselves to be "adversely affected in fact", directly or indirectly,
ellbstantially or remotely, by the Board's action.
The Board views the
PrcTosed change in the review provisions of the APA as potentially
Ptoductive of circumstances that could harmfully impede the orderly
4nd e%peditious disposition of administrative matters.
Accordingly,
the Board strongly recommends that the standards now contained in
Set. 10(a)
of the APA regarding standing to seek judicial review be
ed.
The Board also urges retention of the language in Sec. 10(b)
Pro
vwing that that form of proceeding for judicial review "shall be
411Y special statutory review proceeding . • . in any court specified
by
statute."
•41.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
C
Item No. 6
5/12/65
BOARD OF GOVERNORS
OF THE
towtov'.,
4.010
FEDERAL RESERVE SYSTEM
a
ks
a
o
,..7
4;,4406
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 12, 1965.
Mr. Lee J. Aubrey,
Assistant
Vice President,
Federal Reserve Bank of Boston,
Boston, Massachusetts. 02106
bear Mr. Aubrey:
This is in reply to your letter of April 12, 1965, in
'which you requested the views of the Board with respect to a com,
3ensating balance automobile loan plan being offered by Commonwealth
"ational Bank, Boston, Massachusetts. .
1
It is understood that automobile installment loan customers
the bank are charged interest computed at the rate of $4.50 per
St"
Ils
initial loan balance per year, which is added to the face of
_ue note. At the time the loan is made a cashier's
check is drawn
:
11 the bank equal to 1/2 of 17 per year of the initial
loan which is
tade Payable to the order of the borrower and/or the bank and retained by the bank. When the loan is paid in full, this check is
fled over to the borrower provided that he maintains a demand
durned
de
account with the bank for an average monthly balance of $100,
Pays the loan installments as they become due. If the borrower
a:zntains a demand balance of $1,000 or more the rebate is computed
'
e;
. twice the above rate, or 1% per year of the actual loan. In
-Ither case, the checking account is subject
to the same service
arge made on all deposits.
4
Section 19 of the Federal Reserve Act and section 217.2(a)
gulation Q provide that no member bank shall, directly or in!
whiel
tlY, by any device whatsoever, pay any interest on any deposit
pa,.." is payable on demand. Section 217.2(a) also provides that any
ent to or for the account of any depositor as compensation for
the
use of funds constituting a deposit shall be considered interest.
D—
(
1
Based on the foregoing facts, it is the Board's view that
the _
a __rebate
plan being offered by Commonwealth National Bank involves
ulrect payment to a depositor as compensation for the use of funds
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD
Mr. Lee J. Aubrey
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
-2-
in a demand deposit. Accordingly, the rebate here involved
constitutes a payment of interest on a demand deposit in violation
of section 19 of the Federal Reserve Act and Regulation Q.
It is requested that you inform the Commonwealth National
1?ank, and The First National Bank of Boston, which we understand
ts considering use of a similar plan, of the Board's decision.
As the compensating balance plan here in question is
offered by a national bank subject to the supervision of the
°ffice of the Comptroller of the Currency, a copy of this letter
is being forwarded to that office for appropriate action.
bei-ng
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4..
BOARD OF GOVERNORS
Item No. 7
5/12/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 12, 1965.
Mr. G. Keith Funston, President,
New York Stock Exchange,
Eleven Wall Street,
New York 5, New York.
Dear Mx. Funston:
This is in reference to your letter of April 29, 1965,
requesting that the Board of Governors reinstate the part of
l'ublished Interpretation 1 6040 that was withdrawn by Board action
0o, April 19, 1965. The Board of Governors considered the points
You raised prior to the withdrawal of the Interpretation. However,
Your interest and comments are appreciated.
As you know, the recent amendment to section 220.4(c)(3)
extension of credit for a purchase of a security
limited
a
. ". 11°ws
"sued to replace one that is outstanding by the owner of the old
security. Prior to the amendment, a similar purchase could be effected
without cash payment only by depositing the called or maturing security
!
ith a creditor within seven days of purchasing the new one. The
uePosit procedure is no longer necessary for this purpose.
Upon reconsideration, the Board has reaffirmed its decision
withdraw the relevant portion of 1 6040 because the deposit procedure
!
llowed an extension of credit, with no set time restriction, for
reinvestment inazi security. The principal purpose of this exception
!
0 the rules that ordinarily govern Special Cash Accounts is to allow
4
1111
. investor to continue the same investment without the hardship of
i:vancing new funds; the amendment allows this without permitting the
„Jection into the securities market of credit not related to that
vo
jective.
to
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
'
I :34'50.
Item No. 8
5/12/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 12, 1965.
lit. George D. Royer, Jr., Vice President,
liederal Reserve Bank of Kansas City,
1(ansas City, Missouri.
64106
ear Mr. Royer:
This refers to copies of your letter of March 10, 1965, to
L. Sturgeon, President, Rocky Ford National Bank, Rocky Ford,
✓
a-olora
do ("Bank"), of Mr. Sturgeon's reply of March 15, 1965, and of
ileletter to Mr. Sturgeon dated February 24, 1965, from Mx. J. R. Thomas,
ofgional Comptroller of the Currency, Twelfth National Bank Region, all
wh which you submitted to the Board in connection with the question
:her section 8 of the Clayton Act ("section 8") forbids the inter10
Service of Mr. Sturgeon as president of Bank and director and
er of the First Industrial Bank of Rocky Ford ("Industrial").
•
E. Shelton, a director of Bank, is also serving as director of
uustr
ial and the same question arises in his case.
Mr. Sturgeon makes two arguments supporting his contention that
the ....
fac,1"terlocking service is permissible, (1) that he relied upon the
that interlocking service existed for many years between Bank and
the
the &3ckY Ford Federal Savings and Loan Association, and the business of
• 4atter resembles that of Industrial, and (2) that Industrial is not
eXged in the same "class or classes of business" as Bank, hence the
Of ;..,Pti°n provided in the sixth paragraph of section 8, and 212.2(d)(6)
L, "Interlocking Directorates Under the Clayton Act", permits
rin
-"lng service between Industrial and Bank.
8erVicAs to the first argument, section 8 does not forbid interlocking
raan e between a bank and a Federal savings and loan association for the
as :°n that the statute applies only to institutions which can be described
444 "bank, banking association, savings bank, or trust company organized
i the National Bank Act or organized under the laws of any State or
Of j
not („e District of Columbia." Federal savings and loan associations are
stat-rganized under any of these, but rather, under a specific Federal
assoute - For this reason, as footnote 3 to Regulation L points out, such
ofj_ iations are excepted from the prohibitions of section 8 "irrespective
of he '°' they are 'banks' or 'banking associations' within the meaning
Lne
statute."
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
11r. George D. Royer, Jr.
-2-
By way of background in reference to the second argument, as
icu know, the question whether a particular financial institution is a
!lank" arises under a number of the statutes which the Board is required
:0 administer. The determination can be a close one, turning on consid,ration of many aspects, both as to the legal powers of the institution,
;11(1 the business actually done by it. In its interpretation published
i t 1963 Federal Reserve Bulletin 165, the Board stated that ". . . taking
account the spirit and purpose of the (Bank Holding Company) Act
; t 1956), industrial banks are not within the purview of the term
_State bank' . . ." unless the circumstances of the particular case
!Adicate otherwise. In arriving at that conclusion, the Board was
fluenced by legislative history indicating that the Bank Holding
)
,
1111/s0Y
Act " . . . was directed principally at control of 'commercial'
b,
11-111 2 and . . . that 'industrial banks', as that term is usually
nderstood, were not regarded as being engaged in commercial banking."
T
r
The Board has on many occasions held industrial banks to be
"bani,
1,,--8" for purposes of section 8 of the Clayton Act. During the period
znre the 1935 amendments when the Board had authority to grant permits
tor interlocking service, but only to grant such permits with respect
(lailanking institutions, the Board concluded that Morris Plan banks
tb 'eh are similar to industrial banks) were "banks" for purposes of
11;s statute. Since those amendments, the Board on frequent occasions
ses "ncluded that industrial banks were "banks" within the meaning of
t!:°n 8. In a letter of August 2, 1940, for example, addressed to
th
:
ta-Ikansas City Reserve Bank, the Board said that the First Industrial
Ilk of Denver, Denver, Colorado, was a "bank" for this purpose.
The Board's interpretation of October 19, 1939 (F.R.L.S.
•772
ill 4 S-189-a), that a particular Morris Plan company was not a bank,
insustrates the criteria relied on to determine whether an individual
strritution is a "bank" for purposes of section 8. Among the factors
kadessed were that the statutes under which the company was organized
Iltr
!it unlawful for it to call itself a "bank", "savings bank" or
(41,78t company".
The company sold fully paid investment certificates
but distinguished from certificates issued in connection with a loan),
alth°41Y in denominations of fifty dollars or multiples thereof, and
Nie°ugh it redeemed such certificates on demand, apparently restricted
41,TPti0ns requiring, for example, except in emergency, that the
.kficate be presented at the office of the company and physically
the !_d over to it. Moreover, the actual number of redemptions, and
baiaLotai1 dollar amount involved, was very small in relation to the
of the business done by the company, nor did the company
4
4, "
• maintain any form of so-called checking account service . .
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
*. George D. Royer, Jr.
-3-
In reaching its decision in that case, the Board believed
it to be a rather unusual one. By contrast, the Board's letter of
January 8, 1940 (F.R.L.S. # 7725, S-198), described a more usual type
°f institution, organized under a State statute providing for the
rganization of industrial loan corporations, which it considered to
:
e a "bank" within the meaning of section 8. This institution was
u
:
thorized to receive deposits, and did in fact have savings accounts
u-stating of deposits received under rules that were substantially
'le same as those used by commercial banks receiving savings deposits.
2
If, as seems probable, Industrial resembles the institutions
•
de
escribed
in the Board's letters of August 2, 1940 and January 8, 1940,
.11ell it would similarly be a "bank" for purposes of section 8, and
4.nterlocking service between Bank and Industrial would fall within the
Prohibitions of that section, unless otherwise excepted, as you pointed
in your letter to Mr. Sturgeon of March 10, 1965. This conclusion,
r course, would necessarily rest, in part at least, on Industrial's
'
ceiving deposits which were substantially similar to savings deposits
b ceived by commercial banks. For this reason, the exception provided
4 Paragraph (6) of section 8 and by section 212.2(d)(6) of Regulation L
inuld not be applicable, since both Bank and Industrial would be engaged
in the second class of business listed in reference to the exception
de footnotes 9 and 14 to the regulation, i.e., "receiving savings
1i!!8it3". It should be noted also that the seventh class of business
in the same footnotes is "making 'personal' loans of the
Char
_acter usually made by Morris Plan or Industrial banks". It is
1 slimed that Bank
'
and Industrial both make loans of this character.
4
It would be appreciated if you would review the situation
the light of this letter and advise W. Sturgeon accordingly.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
.......
GOI,••
4..y%
Item No. 9
5/12/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
May 12, 1965.
Mr. W. L. Cooper, Assistant General Counsel,
Federal Reserve Bank of San Francisco,
San Francisco, California.
94120
Dear Mr. Cooper:
This refers to your letter of March 12, 1965, to Mr. Hackley,
with enclosures, as well
as to your correspondence and discussions with
Mr. Hackley over the preceding months,
in connection with a request by
he securities
firm of Wheeler, Munger & Co., Los Angeles, California
'
Wheeler"), for an interpretation by the Board as to whether the firm
18 primarily engaged in activities
described in section 32 of the Banking
Act of 1933 ("the Act"). If Wheeler is so engaged, then
the prohibitions
:f the Act
forbid a limited partner in the firm to serve as employee
f United California Bank, Los Angeles, Calif
ornia, a member bank.
Wheeler describes the bulk of its business, producing rough
60
ly
Per cent of its income, as "investing for its
own account". However,
it
has.a seat on the Los Angeles branch of the San
Francisco exchange,
_nd acts as specialist and odd-lot dealer on
the
floor
of the exchange,
;1111 activity
respo
nsibl
e
for
some
30
per
cent
of
its
volum
e and profits.
The
firm's "off-post trading", apart from the investment accou
nt, gives
rise to
about 5 per cent of its total volume and 10 per cent of its
p°fits.
th
Gross volume has risen from $4 to $10 million over the past
years, but underwriting has accounted for no more than one-h
Of
alf
One per cent of that amount.
As you know, section 32 provides that
"No officer, director, or employee of any corporation
or unincorporated association, no partner
or employee of
any partnership, and no individual, primarily engaged in
the
issue, flotation, underwriting, public sale,
distr
or
ibuti
on,
at wholesale
or retail, or through syndicate participation,
of stocks, bonds, or other simila secur
r
ities, shall serve
the same time [sic]
as an officer, director, or employee of
any member bank . . • ."
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1
Mr. W. L. Cooper
-2-
In interpreting this language, the Board has consistently held that
underwriting, acting as a dealer, or generally speaking, selling or
distributing securities
as a principal, is covered by the section,
while acting as broker or agent is not.
In one type of situation, however, although a firm has been
engaged in selling securities as principal, on its own behalf, the Board
has held that section 32 did not apply. In these cases, the firm alleged
that it bought and sold securities purely for investment purposes. Typically,
these cases have involved personal holding companies or small family investment companies. Securities have been purchased only for members of a
restricted family group, and have been held for relatively long periods
°f time. The question before the Board is whether a similar exception
can apply in the case of the investment account of a professional dealer.
In order to answer this question, it is necessary to analyze,
in the
light of applicable principles under the statute, the three main
'YPes of activity in which Wheeler has been engaged, (1) acting as
sPecialist and odd-lot dealer, (2) off-post trading
as an ordinary dealer,
lid (3) investing for its own account. On several occasions, the Board
!
as held
that, to the extent the trading of a specialist or odd-lot dealer
limited to that required for him to perform his function on the floor
k.'t
. the exchange, he is acting essentially in an agency capacity. In a
'setter of September 13, 1934, the Board held that the business of a
scialist was not of the kind described in the (unamended) section on
"e understanding that
j
• .
in acting as specialists on the New York Curb
Exchange, it is necessary for the firm to buy and sell
Odd lots and . . . in order to protect its position after
such transactions have been made, the firm sells or buys
Shares in lots of 100 or multiples thereof in order to
reduce its position in the stock in question to the
smallest amount possible by this method. It appears
therefore that, in connection with these transactions, the
firm is neither trading in the stock in question nor
taking a position in it except to the extent made necessary
by the fact that it deals in odd lots and cannot complete
the transactions by purchases and sales on the floor of
the exchange except to the nearest 100 share amount."
While
def
subsequent amendments to section 32 to some extent changed the
ion of the kinds of securities business that would be covered
the
section,
the amendments were designed, so far as is relevant to
the
Ac Present question, to embody existing interpretations of the Board.
al;e°rdingly, to the extent that Wheeler's business is described by the
de°11e letter of the Board, it should not be considered to be of a kind
scribed in section 32.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Mr. W. L. Cooper
-3-
Turning to the firm's off-post trading, the Board is inclined
to agree with your view that this is sufficie
nt to make the case a
borderline one under the statute. In the circumstances, the Board might
Prefer to postpone making a determination until figures for 1965 could
be reviewed, particularly in the light
of the recent increase in total
Volume, if it were not for the third category, the firm's own investment
account.
While this question has not been squarely presented to it
in the past, the Board is of the opinion that when a firm
is doing any
significant amount of business as a dealer or underwriter, then investments
for the firm's own account should be taken into conside
ration in determining whether the firm is "primarily engaged" in the activities described
in section 32. The division into dealing for one's own account, and
dealing with customers, is a highly subjective one, and although a
Particular firm or individual may be quite scrupulous in separating
the two, the opportunity necessar
ily exists for the kind of abuse at
Which the statute is directed. The Act is designed to
prevent situations
from arising in which a bank director, officer, or employee could
influence
the bank or its customers to invest in securiti
es in which his firm has
an interest, regardless of whether he, as an individual, is likely
to do
In the present case, when these activities are added to the firm's
°ff-post trading", the firm clearly falls within the statutory
definition.
For the reasons just discussed, the Board concludes that
Wheeler must be considered to be primarily engaged in activiti
es described
section 32, and that the prohibitions of the section forbid a limited
Partner in that firm to serve as employee of a member bank. It would be
Ppreciated if you would communicate the substance of this letter to
W
heeler.
Very truly yours,
(
,1 /Merritt Sh4rma
Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 10
5/12/65
WASH IN GTON
OFFICE OF THE VICE CHAIRMAN
May 14, 1965
l& Honorable Dante B. Fascell, Chairman,
4*qtaa and Monetary Affairs Subcommittee
the Committee on Government Operations,
LOU
,_e of Representatives,
-suington, D.
C. 20515
baa
nr. Chairman:
This is in reply to your letter of April 5, 1965, and its
bist° ure, in which you referred to the decision of the Federal
rict Court on March 10, 1965, that the merger of Manufacturers
Company and The Hanover Bank, which had been approved by the
hoard
peg1.4 under the Bank Merger Act in September 1961, violated the
graeral antitrust laws. You stated that you are "concerned with the
ot lie problems which can arise in bank merger cases, where the stamp
4411Proval has been affixed by a banking agency, only to have it
of,J°Yed at some future time through the efforts of another. agency
"a Government, the Antitrust Division".
Your letter asked whether such situations could be avoided
timer
trilti existing law, and for views and suggestions for dealing adminisvelY with the problem.
biank
The Board's Rules of Procedure deal specifically with those
to h me gers required by the Bank Merger Act of 1960 (12 U.S.C. 1828(c))
/
1
14eave the prior approval of the Board. Since November 1, 1961, these
4048 have barred consummation of any merger, except in special situa°Near) until seven days have elapsed after public release of the Board's
refer aPproving the transaction. (12 CFR 262.2(f)(5)) For convenient
not,
etleas a copy of the Board's Rules of Procedure is enclosed. Although
r equired by any statute, this provision of the Rules was adopted
to'
the prospects of having to unscramble a merger that, subse%le:
pede lice
to its approval, was made the subject of litigatio under the
n
81)
441 antitrust laws. The Department of Justice, of course, is assured
Tlirptic advance notice of pending merger applications under the rent in the Act for advisory reports on competitive factors
from
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable Dante B. Fascell
-2-
the Attorney General. This requirement in the Act, in turn, assures
to the appropriate Federal bank supervisory agency the benefit of
the background and experience of the Department with respect to
competition and antitrust matters.
The Board gives very careful consideration to the advisory
reports of the Attorney General, as well as to those of the other two
Federal banking agencies, in determining whether to approve or disapprove
4 Particular transaction. As indicated in the enclosure with the
Board's letter of May 1, 1963, to you, the Antitrust Division occasionally asks for more information with respect to particular merger
aPP1ications, and this information is obtained and supplied. In some
eases where the Board has received additional information regarding
°4 aPplication aftek transmittal of requests for competitive factors
advisory reports, the Board has requested a further expression of
1.:lews from the other banking agencies and the Attorney General in the
.
1ight of such additional information. Furthermore, as experience has
aeveloped under the Act over the years, there has been informal disussion between the staff of the Board and the staff of the Attorney
me_fleral where the Antitrust Division has had serious question under
e antitrust laws regarding a particular proposal and the desirability
'
If such discussion has been indicated.
The merger of Manufacturers Trust Company and The Hanover
- which was a matter covered in the enclosure with the Board's
Jjtter of May 1, 1963, mentioned above - is the only one approved by
he Board under the Bank Merger Act that has been the subject of liti:
. tion under the antitrust laws. In its letter to you of April 17,
:
8 643 the Board stated that, to its knowledgd, there had been no
'
t tuation with respect to any merger application processed by the
since the landmark decision in June 1963 in the Philadelphia
'gtional Bank case (374 U. S. 321) that had indicated a need for any
474ge in the Board's procedures relative to the functions of the
orney General and the courts under the antitrust laws. This is
'
ruealso as of now.
Bahl,
7
However, while the seven-day provision in the Board's Rules
other procedures of the kinds mentioned may render unlikely antior-'L litigation to upset a merger previously approved by the Board
he task of unscrambling the merger, they cannot effectively preclude
stich
Na Possibilities. The Philadelphia National Bank case, the First
tional
Bank and Trust Company of Lexingt9n case in April 1964
(376 TT
S. 665), and the Manufacturers-Hanover decision of last March
or
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
The Honorable Dante B. Fascell
-3-
emphasize that court proceedings to enforce the antitrust laws as
to bank mergers are not barred by the prior approval of the mergers
by the appropriate Federal bank supervisory agencies under the Bank
Merger Act, and there appears to be no Federal statute of limitation
On actions to enforce the antitrust laws.
There can be no doubt that recent court decisions involving
bank mergers have applied the antitrust laws in circumstances in which
the Congress understood they would not apply when it passed the Bank
Merger Act of 1960, as indicated to you in the Board's letter of
April 17, 1964. It is clear from the legislative history of the Bank
Merger Act that the Congress understood that there would be situations in which "approval of the merger would be in the public interest,
even though this would result in a substantial lessening of competition." (S. Rpt. No. 186, April 17, 1959, pp. 19-24; H. Rpt. No. 1416,
March 23, 1960, pp. 10-13) That legislative history makes it
abundantly clear also that the Congress did not believe the public
interest would be served best if the legality of bank mergers were
to be tested by competitive or antitrust factors alone, to the exclusion of banking factors, including offsetting benefits to the
Public.
Recent court decisions applying antitrust laws to bank
mergers have underscored the difference in approach in the antitrust
field, where the effect on competition is given virtually controlling
Thus, there is a conflict between the job of the Federal
Denking agencies under the Bank Merger Act and the function of the
Attorney
General and the courts under the antitrust statutes. Under
the Bank Merger Act the Board must consider both banking factors and
,13131petitive factors in acting upon bank merger applications. The
noard knows of no administrative steps tLat can be taken appropriately.
under existing law that would effectively bar actions pursuant to the
!
ntitrust laws to upset bank mergers previously approved by one of
'he Federal bank supervisory agencies under the Bank Merger Act.
Although your letter made no reference to possible
le 4
g...elative measures to correct the situation that seems .to have
Prompted your inquiry, the Board nevertheless has taken the liberty
ut enclosing a copy of its report to the Senate Committee on Banking
1414nd Currency oft the bill, S. 1698, which would amend the Bank
erger Act to exempt bank mergers from the Federal antitrust laws.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r-cr:
The Honorable Dante B. Fascell
You will note that the Board's report on S. 1698 urges
enactment of such legislation. The Board's report also mentions the
possibility of some other approach to the problem should the Congress
be unable to agree on the approach proposed in S. 1698. As the
report points out, one such possibility would be to amend the Bank
Merger Act to allow a specified time necessary for the filing of
an antitrust action in court to prevent consummation of an approved
transaction, after which, in the absence of such an action, the
merger could be consummated and would be exempt from the antitrust
laws.
Sincerely yours,
(Signed) G. Canby Balderston
C. Canby Balderston,
Vice Chairman.
Enclosures.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Item No. 11
5/12/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 13, 1965
Hr. Howard D. Crosse, Vice President
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Crosse:
In accordance with the request contained in
Your letter of May 7, 1965, the Board approves the
appointment of Franklin T. Love as an assistant examiner
for the Federal Reserve Bank of New York. Please advise
the effective date of the appointment.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Item No. 12
5/12/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 13, 1965
Mr. George D. Royer, Jr., Vice President,
Federal Reserve Bank of Kansas City,
64106
Kansas City, Missouri.
Dear Mr. Royer:
In accordance with the request contained in
Your letter of May 6, 1965, the Board approves the appointment of Philip Edgar Schmidt as an assistant examiner for
the Federal Reserve Bank of Kansas City. Please advise
the salary rate and the effective date of the appointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
@FedFRASER