The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
bO9
9/61
Minutes for
To:
Members of the Board
From:
Office Of the Secretary
May 15, 1963
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
With respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
only that you have seen the minutes.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
Minutes of the Board of Governors of the Federal Reserve
SYstem on Wednesday, May 15, 1963.
The Board met in the Board Room
at 10:00
a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Shepardson
King
Mr. Sherman, Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Noyes, Director, Division of Research
and Statistics
Mr. Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Solomon, Associate Adviser, Division of
Research and Statistics
Mr. Daniels, Assistant Director, Division of
Bank Operations
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Mattras, General Assistant, Office of the
Secretary
Mr. Doyle, Attorney, Legal Division
Mr. Poundstone, Review Examiner, Division of
Examinations
Circulated items.
The following items, copies of which are
4ttached to these minutes under the respective item numbers indicated,
lere aPproved unanimously.
Item No.
tett-er to
Boston Overseas Financial Corporation,
11°8t
°11, Massachusetts amending the Board's
1
tetter of March 20, 1463, granting consent
0° Purchase shares of the Private Development
°Ilporation of the Philippines, Manila, Philippines.
1
5/15/63
-2Item No.
Letter to Irving International Financing
Corporation,
New York, New York, amending the
Board's letter of March 20, 1963, granting consent to purchase shares of the Private Develop1,11,,e_nt
Corporation of the Philippines, Manila,
rniliPpines.
2
Letter to the Federal Reserve Bank of Dallas
ga
1:erd
-oug the classification of member banks
in. the
Eleventh District for the purpose of
electing Class A and Class B directors.
3
Letter to the Federal Reserve Bank of St. Louis
Pr°ving the retention in active service of
Arthur C. Brooks as the Bank's physician
4,or an
additional year.
4
Letter to Bank of Nutley, Nutley, New Jersey,
5
4_
iltliTr°ving the establishment of a branch at
sland Street and Darling Avenue.
letter to
First Bank and Trust Company of
jruth Bend,
South Bend, Indiana, approving
o establishment of a branch in the vicinity
ipt the
intersection of Portage Avenue and
L`ing Street.
6
Idetter to The Peoples Bank and Trust Company,
!
m alld Haven, Michigan, approving the establishof a branch at 1000-1013 Robbins Road.
7
Idter to Wells Fargo Bank, San Francisco,
oi-J-fornia, (1) approving the establishment
of a branch
in the vicinity of the intersection
,,alaroga Avenue and Chanslor Boulevard,
Rave
es.cTrd, and (2) rescinding approval of the
1,/ :!ulishment of a branch in the vicinity of
,Layvetra.
Jackson Street and Ca1aroga Avenue,
8
Messrs. Farrell, Johnson, Daniels, Goodman, Doyle, and Poundtctle then withdrew and Mr. Dembitz, Associate Adviser, Division of
Research and Statistics entered the room.
5/15/63
Report on draft legislation.
There had been distributed a
meMorandum from the Legal Division dated May 14, 1963, regarding a
request from the Bureau of the Budget for the Board's views on a
Preliminary draft bill "To provide for an increase in the maximum
alzount of insurance coverage for bank deposits and savings and loan
accounts, to protect further the safety and liquidity of insured
institutions, to strengthen safeguards against conflicts of interest,
and for other purposes."
draft
Attached to the memorandum were copies of the
bill and a preliminary draft of letter to the Budget Bureau.
It was noted that the Budget Bureau had requested technical
stance from the Board's staff in drafting the proposed bill and
that Mr. Solomon of the Division of Examinations and Mr. Hackley attended
three inter-agency meetings at the Bureau in accordance with the
unde
rstanding at the Board meeting on April 26, 1963.
The draft bill would increase the limit on insurance coverage
for
both
$10,
insured banks and insured savings and loan associations from
to $15,000 per account.
The present provisions of section 19 of the Federal Reserve
Act requiring the Board to limit interest rates payable by member
ba. ht.
on time and savings deposits would be changed to place such
allthc)ritY on a "standby" basis.
Setting of maximum rates would also
Utre an affirmative finding that any interest rate limitation would
be c°nsistent with the Employment Act of 1946 and "required by general
it conditions or to prevent unsound competitive or other practices
57f1
5/15/63
-4-
among member banks that would endanger the safety" of such banks. Such
Standby authority would permit the fixing of maximum rates on a more
flexible basis, including differentiation based on the nature or location
Or the depositor or the member bank.
The Federal Deposit Insurance
CorPoration and the Federal Home Loan Bank Board would be vested with
'lar standby authority to prescribe maximum rates with respect to
insured nonmember banks and insured savings and loan associations,
resPectively, and each of the agencies would be requested to consult
'with the
others in reaching a determination that maximum rates should
be applied.
The proposed bill would also require nonmember insured banks to
18411tain with the Federal Reserve Banks cash reserves on their time and
saw
'4ngs deposits and would make available to nonmember insured banks the
credit facilities of the Reserve Banks.
In addition, the Board would be
411thorized to require both member and nonmember insured banks to maintain
a liquidity
position.
The bill would also require savings and loan associations and
Qther members of the Home Loan Bank System to maintain reserve balances
vith the
Home Loan Banks and would authorize the Federal Home Loan Bank
11°4-rd to set a liquidity requirement.
Other provisions of the bill would strengthen and make applicable
to
all insured banks and members of the Home Loan Bank System certain
131'°v1s1on5 of present law designed to prevent conflicts of interest in
4e4lings by financial institutions with directors, officers, and employees,
.P111/11c examiners, and affiliates of such institutions.
5S1)
5/15/63
Mr. Hackley gave a summary of the draft bill and noted that
it had
been hastily prepared.
the
The Bureau of the Budget had requested
Board's views by May 16, 1963, and Mr. Reeve of the Budget Bureau
had asked
Mr. Hackley to advise him as soon as possible of the Board's
thinking on the matter.
Mr. Hackley then referred to Governor Balderston's recent
testi„,
--°nY on H. R. 5130, a bill providing for an increase in the limit
(54 insurance coverage of bank deposits and savings and loan accounts
lir"n $10,000 to $25,000.
Governor Balderston had indicated that it was
the Board's view that the proposed increase would not be in the public
14terest; that if any increases were appropriate, they should be small
41341 infrequent; and that effective supervision over the institutions
covered was an important prerequisite to insurance protection.
There-
re, the Legal Division felt that the Board might feel warranted in not
'
fc
(41P3sing the draft bill, in principle, since the bill would increase
1481-1rance coverage by $5,000 instead of $15,000 as previously proposed
414d-would provide more effective supervision of the financial
inst
itutions concerned.
Mr. Hackley stated that certain provisions of the bill, such
48 the conflict-of-interest provisions, seemed unobjectionable and
1)11'3/19131Y desirable but that the proposed reserve and liquidity requirewere questionable.
The Legal Division felt that if nonmember banks
.
Ver.
to be subject to reserve requirements only against time and savings
'
-1,,4s
clePos.
and at the same time were given access to Federal Reserve
5/15/63
-6-
discounts and advances, they would have most of the advantages of membershiP in the Federal Reserve System without being subject to the requireMerit of maintaining reserves against demand deposits, a situation that
might result in the withdrawal of many large State member banks from
the System.
It was also noted that the President's Committee on
Financial Institutions was already on record favoring the extension
°f reserve requirements against demand deposits to all commercial
banks.
The Legal Division therefore recommended that, while adhering
to its position that no increase in insurance coverage was necessary,
the B°ard interpose no objection to the increase proposed in the draft
bill in view of the
mall amount involved and the additional provisions
f°1' increasing the effectiveness of supervision of insured institutions,
bIlt that the Board voice objection to the proposed extension of reserve
requirements that would only include the time and savings deposits of
nonmember insured banks. On the latter point, the Board might want to
.
take
"this occasion to urge extension of reserve requirements to demand
as well as time and savings deposits of all insured banks, along with a
revision of present reserve provisions to provide for a graduated reserve
411inst demand deposits as recommended in the report of the President's
C°Malittee on Financial Institutions.
Governor Mills noted that the bill had been hastily improvised
and
expressed the feeling that many of its provisions were inept and
5/15/63
ominous.
-7He felt, therefore, that the Board should oppose it in its
e
ntirety, and in this connection he read the following statement:
I am strongly of the opinion that the Federal Reserve Board
should oppose this bill.
First and foremost, the proposals to increase deposit
insurance ceilings for the Federal Deposit Insurance Corporation
and the Federal Savings and Loan Insurance Corporation should
be kept separate and distinct from the other proposals covered
in the bill, and which are not related to insurance.
With respect to specific proposals in the bill, standby
authority of the Board of Governors and the FDIC to regulate
maximum interest rates on deposits in insured banks and
extension of similar authority to the FHLBB should be opposed.
The intent of such standby authority is to allow commercial banks
and savings and loan associations permission to fix such interest
rates on time and savings deposits as they choose except under
unusual circumstances. The sorry results stemming from the
Board's action in raising the ceiling interest rate to 4 per cent
Should serve as an example of the improvidence of a standby
authority. There should be retention of the present authority
in the Federal Reserve Board to fix continuous ceiling rates
Of interest. The poor commercial bank earning reports for 1962
were largely occasioned by the payment of excessively high
interest rates on time and savings deposits, and in some
instances a deterioration in the quality of commercial bank
assets has been traced to their interest payment practices.
These illustrations are sufficient to indicate the inadvisability
of recommending a standby authority.
The proposal requiring mandatory consultation by the
Federal supervisory agencies regarding interest rate policies
on time and savings deposits should be rejected and any
onsultations held to an informal basis, depending on the
gweet reasonableness" of the agencies to arrive at agreement.
The injection of the Department of Justice as a consultant in
tank merger cases is an illustration why the proposal should be
opposed.
Access by nonmember banks to Federal Reserve Bank discount
facilities should be firmly opposed; to accord such a privilege
Without the obligation of formal membership in the Federal Reserve
SYstem with its consequent disciplinary requirements would
5/15/63
-8-
undermine the authority of the Federal Reserve Board over
its member banks, assuming that they would wish to continue
their membership if they were able to enjoy privileges that
Presently are available only to member banks.
In my opinion, the proposal that reserves against demand
deposits should be computed on a graduated basis has not been
thought out and should be opposed. Now that time deposits
have assumed so large a proportion of the total deposits of
commercial banks, reserve requirement formulas should take
total deposits into important consideration, and not solely
emphasize demand deposits. The total amount of funds that
a commercial bRnk controls is a measure of its financial
and economic importance, and the reason why the larger banks
Should be subject to higher reserve requirements than the
smaller banks be based on their total deposits.
Everything considered, the proposed bill is a hodge podge
with many of the proposals hastily improvised and not thought
out as to their ultimate effects. In particular, the concept
Of the bill is wrong in combining proposals to increase insurance
coverage on commercial bank deposits and savings and loan
associations' shares with a basketful of unrelated financial
matters.
Mr. Hackley stated that the proposed bill was drafted in
4ce°rdance with an outline provided by the Department of the Treasury,
"hough he had made clear to staff attending the drafting sessions
that the terms of the bill did not necessarily reflect the views of
the
Board.
During the extensive discussion that followed, there was a
11"rItY feeling that the bill covered too wide an area and there was
11444imous agreement that the Board should strongly oppose extension of
the Federal Reserve credit facilities to nonmember banks unless such
bank
s were required to maintain with the Federal Reserve Banks reserves
°4 h0th demand and time deposits.
However, the majority of the Board
5/15/63
-9-
expressed a
willingness to accept some increase in insurance coverage
(Preferably $12,500) on bank deposits and savings and loan shares, if
4"°mPanied by additional provisions for increasing the effectiveness
°I supervision of insured institutions.
Governor Shepardson suggested that it might be good procedure
to suPPort a package bill that would include provisions affecting
1544ks as well as other financial institutions, such as extension of
reserve requirements to demand and time deposits of all insured banks.
After further discussion, it was generally felt that it would
he Preferable
not to include in this bill provisions dealing with
nialthiluni rates of interest on deposits in insured banks or with reserves
(" liquidity of such banks, and it was understood that the staff would
revise the draft letter along these lines.
Mr. Hackley was then authorized to prepare a draft letter to
the Bureau of the Budget that would express these views for the
Q°45ideration of the Board at tomorrow's meeting.
Meantime) he could
a4viee Mr. Reeve of the Budget Bureau that the Board had certain
sIlbstantive objections to the proposed bill and that a report would
be slIbmitted promptly.
The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
Items:
413pr Letter to the Federal Reserve Bank of Boston (attached Item No. 9)
ex4417Z! the appointment of Robert Thomas Goodwin as assistant
5/15/63
-10-
, Memoranda from the Division of Personnel Administration recommending
t
ue appointment of the following persons to the staff of that Division,
effective the respective dates of entrance upon duty:
Dorothy Erna Kees as Clerk-Stenographer, with basic
annual salary at the rate of $4,110.
Concetta Nobilio as Clerk-Typist, with basic annual
salary at the rate of $3,820.
581;
BOARD OF GOVERNORS
Item No. 1
5/15/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS
orriciAL
CORRESPONDENCE
TO THE BOARD
May 151 1963
Boston Overseas Financial Corporation,
67 Milk Street,
Boston 6, Massachusetts.
Gentlemen:
This will acknowledge your letter of May 2,
1963, referring to the Board's letter of March 20, 1963,
granting consent to Boston Overseas Financial Corporation
to Purchase and hold approximately 40,000 Class B shares,
Par value P10 each, of Private Development Corporation
of the Philippines, Manila, Philippines, at a cost not to
exceed US$100,000.
In line with your request and on the basis of
the information furnished, the Board's consent of March 20,
1963, is amended by changing the wording in the first paragraph from "a cost not to exceed US$100,000", to "a cost
not to exceed 400,000 Philippine pesos."
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
t110f
,C11
BOARD OF GOVERNORS
Item No. 2
5/15/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 15, 1963
Irving International Financing Corporation,
One Wall Street,
New York 15, New York.
Gentlemen:
This will acknowledge your letter of May 2,
1963, referring to the Board's letter of March 20, 1963,
granting consent to Irving International Financing CorPoration to purchase and hold Class B shares, par value
P10 each, of Private Development Corporation of the
Philippines, Manila, Philippines, at a cost of approximately US$100,000.
In line with your request and on the basis of
the information furnished, the Board's consent of March 20,
1963, is amended by changing the wording in the first paragraph from "a cost of approximately US$100,000" to "a cost
of approximately US$150,000."
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
.tf5t--(71
;
Item No.
3
5/15/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
*
WASHINGTON 25, D. C.
CORRESPONDENCE
ADDRESS OFTICIAL
TO THE BOARD
st
May 15, 1963
• Watrous H. Irons, President,
Pedera1 Reserve Bank of Dallas,
Station lc, ,
Dallas 2, Texas.
Dear Mr. Irons:
1963,
Murff's letter of April 25,
As recommended in Mr.
the
in
the Board has changed the classification of member banks
B
Class
and
purpose of electing Class A
.,I.'eventh District, for the
u1rectors, to the following:
an:
Banks with. Capit,
Group
1
2
3
$2,000,000 and over
but
- $400,000 and over,
$2,000,000
under
Under $400,000
Very truly yours,
(Signed) Merritt Sherman
•
Merritt Sherman,
Secretary.
(34-7
BOARD OF GOVERNORS
Item No. 4
OF THE
FEDERAL RESERVE SYSTEM
5/15/63
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 15, 1963
Mr. Harry A. Shuford, President,
Federal Reserve Bank of St. Louis,
St. Louis 66, Missouri.
Dear Mr. Shuford:
The Board of Governors approves the request made
in your letter of May 3, 1963, that Dr. Arthur C. Brooks be
retained as physician for the Federal Reserve Bank of St.
Louis for an additional year beginning August 1, 1963.
It is noted that the Bank expects to make other
arrangements for an examining physician during the next
Year.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No.
OF THE
FEDERAL RESERVE SYSTEM
5
5/15/63
WASHINGTON 25. D. C.
ADDF7E5S OFFICIAL CORRESPONDENCE
TO THE BOARD
May 15, 1963
Board of Directors,
Bank of Nutley,
Nutley, New Jersey.
Gentlemen:
The Board of Governors of the Federal
a
Reserve System approves the establishment of
Street
nd
Kingsla
of
ction
interse
branch at the
and Darling Avenue, Nutley, Essex County, New
Jersey, by Bank of Nutley, provided the branch
is established within one year from the date of
this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmicnael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension of
the period allowed to establish the branch; and that
if an extension should be requested, the procedure
prescribed in the Board's letter of November 9, 1962
(S-1846), should be followed.)
tQA
Item No.
BOARD OF GOVERNORS
6
5/15/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C,
ADDRESS OFFICIAL COPRILPPONOENcE
To THE ft LIARO
May 15,
1963
Board of Directors,
First Bank and Trust Company
of South Bend,
South Bend, Indiana.
Gentlemen:
The Board of GovLrnors of the Federal
Reserve System approves the establishment by
First Bank and Trust Company of South Bend, of an
in-town branch in the vicinity of the intersection
Of Portage Avenue and King Street, South Bend,
Indiana, provided the branch is established within
one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
BOARD OF GOVERNORS
Item No.
OF THE
7
5/15/63
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 15, 1963
Board of Directors,
The Peoples Bank and Trust Company,
Grand Haven, Michigan.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by The
Peoples Bank and Trust Company of an in-town
branch at 1000-1013 Robbins Road, Grand Haven,
Michigan, provided the branch is established
within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the Board
also had approved a six-month extension of the period
allowed to establish the branch; and that if an
extension should be requested, the procedure prescribed
in the Board's letter of November 9, 1962 (S-1846),
should be followed.)
k,1194.)
BOARD OF GOVERNORS
Item No.
OF THE
8
5/15/63
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 15, 1963
Board of Directors,
Wells Fargo Bank,
San Francisco, California.
G
entlemen:
The Board of Governors of the Federal Reserve
SYstem approves the establishment of a branch by Wells
1.1 go Bank in the vicinity of the intersection of
,,a
‘.c.aalaroga Avenue and Chanslor Boulevard, Hayward,
alifornia, provided the branch is established within
six months from the date of this letter. The approval
2f a branch in the vicinity of West Jackson Street and
alaroga Avenue, Hayward, California, granted by the
board on February 28, 1962, is hereby rescinded.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the Board
4180 had approved a six-month extension of the period
allowed to establish the branch; and that if an extension
'
should be requested, the procedure prescribed in the Board's
letter of November 9, 1962 (S-1846), should be followed.)
BOARD OF GOVERNORS
Item No.
OF THE
FEDERAL RESERVE SYSTEM
9
5/15/63
WASHINGTON 25. O. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
tt 4411
May 15, 1963
Mr,
Luther M. Hoyle, Jr.,
Vice
President,
Pederal Reserve Bank of Boston,
Boston 6,
Massachusetts.
'year Mr,
Boyle:
In accordance with the request contained in Mr. Aubrey's
May
9, 1963, the Board approves the appointment of
ol)
t er of
ie
l!
tati rt Thomas Goodwin as an assistant examiner for the Federal Reserve
of Boston. Please advise the effective date of the appointment.
Very truly yours,
(Signed) Elizabeth L. Carmichae
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER