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609
Minutes for
To:
Members of the Board
From:
Office of the Secretary
May 16, 1966
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
\\
Chm. Martin
Gov. Robertson
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
Gov. Brimmer
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Federal Reserve Bank of St. Louis
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Minutes of the Board of Governors of the Federal Reserve
System on Monday, May 16, 1966.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson, Vice Chairman
Shepardson
Mitchell
Maisel
Brimmer
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Holland, Adviser to the Board
Mr. Molony, Assistant to the Board
Mr. Cardon, Legislative Counsel
Mr. Fauver, Assistant to the Board
Mr. Solomon, Director, Division of Examinations
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Eaton, General Assistant, Office of the
Secretary
Messrs. Brill, Koch, Partee, Axilrod, Gramley,
Bernard, Eckert, Ettin, Fry, Keir, and Kelty,
and Mrs. Peskin of the Division of Research
and Statistics
Messrs. Sammons, Hersey, Katz, Reynolds, Baker,
and Gemmill of the Division of International
Finance
Money market review.
Mr. Axilrod commented on the Government
securities market and on bank credit trends, along with the projection
of bank reserve aggregates shown in a distributed table on bank reserve
Utilization.
Mr. Baker then discussed developments in foreign exchange
Markets and summarized recent figures on the U.S. balance of payments.
Members of the staff not concerned with the remaining items on
the agenda then withdrew and the following entered the room:
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Federal Reserve Bank of St. Louis
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-2Mr. Farrell, Director, Division of Bank Operations
Mr. Hexter, Associate General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Langham, Assistant Director, Division of Data Processing
Mrs. Heller and Mr. Sanders, Senior Attorneys, Legal Division
Messrs. Egertson, Supervisory Review Examiner, and Rumbarger,
Review Examiner, Division of Examinations
Mr. Veenstra, Chief, Financial Statistics Section, Division
of Data Processing
Bank supervisory matters.
The following letters were approved
unanimously after consideration of background information that had been
made available to the Board.
Copies are attached under the item numbers
indicated.
Item No.
Letter to Nassau Trust Company, Glen Cove, New
York, approving the establishment of a branch in
Greenvale.
1
Letter to Matinecock Bank, Locust Valley, New
York, approving the establishment of a branch
ln Bayville.
2
Letter to Farmers and Merchants Trust Company
of Chambersburg, Chambersburg, Pennsylvania,
waiving the requirement of six months' notice
of withdrawal from membership in the Federal
Reserve System.
3
With respect to Item No. 3, in response to an inquiry from
Governor Robertson, Mr. Solomon recalled that at one time the Board had
been averse to waiving the requirement of six months' notice of withdrawal from System membership.
In recent years, however, it had been
the practice to waive the requirement almost automatically.
In present
circumstances, it seemed to him that reluctance to waive the requirement
might only intensify the problem of withdrawals from membership.
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-3Governor Briliver spoke of making some studies of the membership
problem and said he hoped that these studies would provide a basis for
a thorough review by the Board in the near future.
He assented to a
request that he take account of the six-month notice question in connection with his studies.
Statistics on negotiable certificates.
There had been distrib-
uted a memorandum dated May 12, 1966, from the Division of Research and
Statistics recommending a revision of the current negotiable certificate
of deposit maturity survey and continuation, at least until the end of
September, of the current ad hoc survey of interest rates on such certificates.
The circumstances underlying the need for more frequent and
more comprehensive data were set out in the memorandum, as well as the
Specific changes contemplated.
After discussion the recouunendations were approved unanimously.
In light of a possibility that it might be necessary to have the related
Systems planning and computer programming done outside the Board on a
contract basis, the Board also approved any resulting budget overexpenditure.
Application of Denver U.S. Bancorporation (Items 4-6).
There
had been distributed drafts of an order and statement reflecting approval
by the Board on April 26, 1966, of the application of Denver U.S. BancorPoration, Inc., Denver, Colorado, to acquire shares of The Mercantile
Bank and Trust Company, Boulder, Colorado.
A dissenting statement by
Governor Robertson also had been distributed.
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-4The issuance of the order and statement was authorized.
Copies
of the documents, as issued, are attached as Items 4 and 5, and a copy
of the dissenting statement is attached as Item No. 6.
Mrs. Heller and Messrs. Langham, Egertson, Rumbarger, and
Veenstra then withdrew from the meeting.
Float (Item No. 7).
In a letter of March 24, 1966, Chairman
Dawson of the House Committee on Government Operations referred to
recommendations in a report by the Committee entitled "Federal Reserve
System--Check Clearance Float" and requested that the Board report to
the Committee any actions taken or proposed to implement the recommendations.
The recommendations were that the Board:
(1)
Establish quantity and time goals for float elimination
through technological developments, and, if such developments did not meet expectations, consider the advisability
of adopting a plan for immediate charges and credits on
checks or for time schedules that would approximate actual
collection times.
(2)
Develop records that would indicate the proportionate use
member banks made of float as reserves so that, if efforts
to reduce float fell short of expectations, a study could
be made to determine whether charges should be assessed
against banks in proportion to the benefits they derived
from float.
(3) Coordinate the System's ADP equipment planning and acquisitions with the rest of the Government, as contemplated by
Public Law 89-306.
The Committee's recommendations had been discussed at a joint
meeting of the Board and the Presidents of the Federal Reserve Banks on
May 10, 1966, along with policy implications of the Federal Reserve's
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responsibility to expedite and extend the settlement mechanism and areas
in which procedural improvements were being sought.
Suggestions were
made as to the approach to be taken in replying to Chairman Dawson.
A draft of reply to Chairman Dawson had now been distributed
advising that the System had under way several studies directed, on a
long-term basis, toward minimizing float and improving the payments
mechanism; that some of the studies should yield results within a year
or so, while others dealt with possible changes that would take longer
to put into effect.
The proposed reply would then mention several actions
that already had been taken as part of the studies, and would express the
c onsensus of the recent joint discussion between the Board and the Reserve
Bank Presidents to the effect that further decisions with respect to possible steps to reduce float should proceed only after the development of
information from the undertakings mentioned.
At today's meeting Governor Mitchell referred further to the
avenues being explored in an effort to reduce float.
It seemed to him
a dvisable, pending the availability of better information as to the
results that might be accomplished, to defer a comprehensive reply to
Chairman Dawson.
It had been the consensus of the Presidents, he thought,
that a more specific response might be possible sometime later this year,
a lthough there were differences of opinion among the Presidents as to
the
degree of improvement that might be expected.
It was Governor
Mitchell's view that with firm leadership by the Board a great deal could
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be accomplished within the course of a year or so.
He suggested that
at some point, perhaps in June, and after consultation with the Presidents, the Board might issue a press release describing the program of
the Federal Reserve System for improving the check collection machinery.
The commercial banking system would be interested in such a report and
might be stimulated to search for ways of assisting the program.
Mr. Cardon raised a question as to whether such a press release
would contain any significant information not given in the reply to
Chairman Dawson now under consideration; if it did, the Board might be
Placed in an unfortunate light.
Governor Brinner expressed the view that the reply to Chairman
Dawson could be improved by including, at the minimum, an indication of
the beginning date of the forthcoming System float survey and the date
When it was anticipated that results would be available.
Governor Mitchell agreed that the beginning date for the survey
could be specified, along with some of the changes in Reserve Bank operating procedures currently being evaluated.
He suggested editorial
Changes to that end. He counseled, however, against attempting to be
t°0 precise at this stage about how much could be accomplished in terms
of float reduction, and within what periods of time.
Governor Shepardson pointed out that whereas the Committee's
third recommendation spoke of coordinating the System's ADP equipment
Planning and acquisition with the rest of the Government, the proposed
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reply to Chairman Dawson would state that the Board had cooperated
With other Government agencies in this respect and would continue this
practice.
Staff comments indicated that although for a number of years
the Board had cooperated with the Bureau of the Budget, General Services
Administration, and other agencies in various studies concerning the use
of data processing equipment, these endeavors had not crossed the point
Where the Board would be obligated to share its equipment with other
agencies through outside control of assignment and use.
Nor did the
cooperation contemplate that the Board would relinquish the right to
make its own decisions on equipment acquisition.
Mr. Farrell reverted to the proposed press statement and indicated that the intention was to include in it certain information, of
types he described, that would not be in the letter to Chairman Dawson,
Whereupon Chairman Martin remarked that the point raised earlier by Mr.
Cardon was well taken.
If the press release was to contain information
not included in the present letter, Chairman Dawson should be given
that information before the press statement was issued.
After further discussion the letter to Chairman Dawson was
aPProved unanimously in the form attached as Item No. 7.
Proposed legislation regarding certificates of deposit.
In a
letter of April 27, 1966, Chairman Patman of the House Committee on
Banking and Currency requested the views of the Board in regard to
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H.R. 14026, a bill to prohibit insured banks from issuing negotiable
certificates of deposit and other similar negotiable instruments, and
H.R. 14422, a bill to prohibit insured banks from issuing certificates
in denominations of less than $15,000.
The members of the Board also
had been requested, in another letter, to testify during hearings on
H.R. 14026 and related proposals.
A draft of report had been distributed, along with a staff paper
reviewing the developing role of time deposits at commercial banks.
A
number of suggestions having been received, a revised draft reply dated
May 15 was distributed.
(Both drafts expressed the conclusion that the
Public interest would not be served by passage of either bill.)
Mr. Brill commented on the development of the alternative draft
reply, which was narrower in scope and related more specifically to the
two pending bills.
He noted that a draft of possible statement for
Presentation at the hearings also had been prepared, coordinated with
the proposed letter.
He mentioned also that it had not been intended
that the staff background paper would necessarily be transmitted to the
C
ommittee.
Governor Robertson raised the question whether both a letter
report on the bills and testimony at the coming hearings seemed necessary
In the following exchange of comments it was suggested, among
Other things, that a letter might be prepared and presented at the hearings, but a decision as to the manner of response was held in abeyance
Pending discussion of the substantive issues.
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-9Governor Shepardson commented that although he thought the pro-
posed letter was appropriate as far as it went, it should be noted that
the pending legislation had been proposed because members of Congress
were concerned about what they regarded as a potentially dangerous
Shifting of funds.
It was possible, when the findings of the current
survey of interest rates paid on time deposits were available, that the
Board might find disturbing elements in the situation.
Therefore, it
might be well to consider whether the Board should firmly oppose the
two bills without suggesting alternative remedial measures to cope with
any serious problem that might develop.
Governor Robertson stated that he believed the response should
be confined essentially to two issues, namely, whether or not the issuance of negotiable certificates of deposit should be prohibited simply
because of the feature of negotiability and whether or not there was
any basis to justify discrimination between large and small savers.
On
the first issue he believed all of the Board members certainly would
stand together.
The second issue was more delicate.
The letter could
then go on to refer to the survey now in progress to develop current
information regarding banking practices and to place the Board in a
better position to determine whether any action was needed.
He believed
it would be proper to say that while the Board did not favor the pending
bills and believed that its powers under existing law were adequate, if
any legislation was called for it should be in the direction of increasing
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the flexibility of the Board's powers so as to permit prescribing different maximum permissible rates of interest on any basis deemed appropriate by the Board.
Governor Brimmer commented that, since such a host of issues
was involved, he thought it would be helpful to have further discussion
in executive session.
He believed that the transmittal of any report
ought to be postponed until it was possible to achieve a better meeting
of the minds on the general approach that the Board should take.
It was understood that Governor Brimmer's procedural suggestion
would be followed.
Mr. Brill brought up a related question, namely, that there
appeared to be limitations on the use that could be made of information
regarding certificate of deposit rates that had been gathered by the
Federal Reserve Bank of New York because of commitments made in requesting the data.
Discussion disclosed a consensus that it would be desirable for
the Board to be able to use such information as freely as possible.
It
was understood that the staff would be in touch with the New York Reserve
Rank with a view to seeking an understanding that would permit the widest
Possible latitude in the use of the data.
Messrs. Axilrod, Eckert, and Ettin then withdrew from the
!fleeting.
Compounding of interest.
Pursuant to the procedure agreed upon
atthe meeting on March 30, 1966, the Board requested the views of the
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Comptroller of the Currency and the Federal Deposit Insurance Corporation regarding a proposed amendment to the Supplement to Regulation Q,
Payment of Interest on Deposits, that would permit member banks to
Pay interest at the maximum permissible rate compounded on any basis
a member bank might desire to adopt, and would require member banks to
state the basis of compounding in every advertisement, announcement,
solicitation, and agreement relating to the rate of interest paid.
No
response to the Board's request had been received from the Comptroller
of the Currency, and it had been ascertained that none would be forthcoming.
The Federal Deposit Insurance Corporation had questioned the
advisability of the amendment, at least in the present circumstances.
Governor Robertson referred to the earlier discussion of this
matter at the meeting on May 11 and stated that the principal purpose
of bringing the matter up at this time was to determine whether the
Board agreed that this item should be discussed with directors of the
Corporation, and there was agreement that such a procedure would be
aPpropriate.
Regulations Q and D (definition of deposit).
On a number of
Occasions, most recently on March 29, 1966, the Board had discussed
Proposals to adopt a definition of "deposit" for purposes of Regulation Q (Payment of Interest on Deposits) and Regulation D (Reserves of
Member Banks) that would bring within the scope of that term promissory
notes and other forms of indebtedness of member banks, with certain
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exceptions.
Two successive versions of the proposed definition were
Published for comment, and there had now been distributed a memorandum
dated May 10, 1966, in which the Legal Division summarized the comments
received in response to the second publication, analyzed the suggested
modifications of the Board's revised proposal, and made recommendations
With respect thereto on the assumption that the Board wished to adhere
to the general approach of its proposal.
The memorandum also commented
On the "specific" promissory note approach suggested by the New York
Clearing House.
The memorandum noted, among other things, that the definition
Provided an exemption for indebtedness arising from a transfer of direct
Obligations of the United States that a bank was obligated to repurchase.
Several parties had suggested expansion of the exemption to cover repurchase agreements on Federal agency obligations (others suggested even
further expansion).
The Legal Division, for reasons stated, recommended
against such an expansion.
As to other suggested revisions of the definition, the Legal
bivision recommended that the exemption for Federal funds transactions
be expanded to cover all one-day loans in such funds that arose out of
a sale of securities on the same day; that the Board not exclude longer
term unsubordinated promissory notes from the definition of deposits;
that the requirement for subordination to the claims of general creditors
be eliminated; that the footnote relating to the meaning of "indebtedness"
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be changed to exclude from consideration as an indebtedness for purposes
of the definition of "deposit" an obligation to deliver foreign exchange
sold and a liability such as arises from a foreign exchange swap transaction; and that there be eliminated the requirement under which, for
an indebtedness to be covered by the exemption for interbank indebtedness,
it must not be reflected on books or reports of the creditor as a bank
balance.
The memorandum noted that both the Federal Deposit Insurance
Corporation and the New York Clearing House had pointed out that the
major purpose of the 1960 amendments to the Federal Deposit Insurance
Act was to provide a simpler method of determining assessments for
deposit insurance.
Adoption by the Board of its proposed definition
Would reinstate the necessity for verifying "deposits" on a dual basis.
The Clearing House had suggested a "specific" definition of
Promissory notes as deposits, and had revised it somewhat after a meeting between Clearing House representatives and the Board.
An alternative
"specific" approach suggested by Mr. Hackley had also been circulated to
the Board.
The May 10 memorandum from the Legal Division expressed the
view that only a comprehensive definition, as modified in accordance
With recommendations in the memorandum, resolved each of the known problems, and it was as capable of appropriate interpretation as the alternatives in the event unforeseen problems should arise.
Accordingly, it
Was recommended that the Board adhere to the comprehensive approach.
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-14Attached was a draft of definition consistent with the conclu-
sions of the memorandum.
The Legal Division recommended that the Board
use this definition as a basis for consultation with the Federal Deposit
Insurance Corporation.
At the beginning of today's discussion Governor Maisel remarked
that before consulting with the Federal Deposit Insurance Corporation
it would be well for the Board to arrive at a policy position.
Governor Mitchell then commented that what had begun as a relatively clean-cut proposal had become so complicated that he thought it
would involve the Board in many technical problems.
If it was necessary
to take action today, he would be inclined to discard the proposal; failing that, he would prefer the Clearing House approach.
Governor Shepardson agreed that many problems were raised and
said he was not sure to what extent the current proposal would meet
them.
If the Board was going to move ahead with the comprehensive
aNproach, the Legal Division's recommendations seemed appropriate.
How-
ever, administrative complications seemed likely, and he always had been
avers e to regulations that were difficult to interpret and enforce.
Mr. Hexter observed that the Board initially had undertaken to
explore the matter because of a tendency of banks to move to new mechanisms for obtaining funds in ways that were out of reach of the present
regulations.
Withdrawal from this effort would seem to indicate that
the Board had no objection.
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Payment of interest on demand deposits would, of course, give rise to
questions of interpretation.
If the Board did not adopt a definition
of the kind in question, those difficulties could be avoided, to be
sure, but at the cost of not dealing with the problem that had already
arisen.
Governor Maisel said his feeling from the start had been that
the loophole was limited and could be dealt with if the promissory
notes were defined as borrowing instruments, because then they would
be covered by the statutory limitation on a bank's borrowings in relation to its capital.
It seemed to him that the Comptroller of the Cur-
rency, in his letter of comment of February 23, 1966, had given some
indication of willingness to adopt such a position; if so, a solution
Of the problem might be available.
The staff expressed doubt that the Comptroller's comments were
to be so interpreted.
However, Governor Maisel suggested that the
letter might be given further study.
Governor Mitchell stated that he also would prefer to treat
Promissory notes as borrowings, because then the device would be selflimiting.
As a second choice, he would take the approach suggested by
the New York Clearing House and deal with evasions if and when they
developed.
Governor Brimmer said that he likewise favored the narrower
aPProach.
In his review of background material, including the minutes
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of a meeting of the Board with the Presidents of the Federal Reserve
Banks on January 11, 1966, he had detected what seemed to be a rather
general feeling on the part of the Presidents that the focus should be
rather narrowly on promissory notes, with a definition somewhat like
that suggested by the New York Clearing House.
If it was possible to
get agreement by the Comptroller of the Currency to treat such funds as
borrowings, he would support such an approach; if not, he would favor
limiting the deposit definition.
Governor Robertson said that he was discouraged.
This was a
Problem on which the Board had worked for months, and now that the time
to act appeared to have arrived, there seemed to be a disposition to back
down.
It was his firm view that there had been no change whatsoever in
the Comptroller's attitude.
He believed it was absolutely wrong to con-
done the practice of buying money for short periods, outside the scope
of the Board's regulations, merely by changing the name of the instrument; it had been recognized from the beginning that the practice constituted a violation of the prohibition against payment of interest on demand
d eposits.
The staff had done an excellent job in adapting the proposed
d efinition to meet as many of the complaints as possible, and had produced
formula that should be palatable.
It seemed to him, therefore, that the
Only proper way to move was forward, by adopting the definition.
If diffi-
culties developed, corrective action could be taken, but adoption of the
d efinition would not create problems of the magnitude of those created by
r efusing to act.
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-17Governor Brimmer noted that it was still proposed to cover
Within the definition repurchase agreements involving Federal agency
securities.
It seemed to him that casting the net so widely tended to
invite evasions.
Governor Robertson replied that a concession had been made in
exempting repurchase agreements on direct Government obligations, the
use of which was already woven into the fabric of the Government securities market.
But widening the exemption to include repurchase agree-
ments on agency securities would merely set the stage for use of this
evasive device.
The inclusion of the latter within the definition would
not be disruptive of established market practices.
Altogether, in view
of the extended discussions that had occurred, and in view of the revisions of the proposed definition that had been recommended to meet objections, he believed that abandonment of the project now would be most
unfortunate.
Governor Maisel commented that while Governor Robertson and
Others believed that a repurchase agreement created a deposit, he had
never thought that this was a proper concept.
Accordingly, he did not
agree that the exemption provided for repurchase agreements in connecti°n with sales of Government securities represented an exception, nor
would he regard as an exception the addition of exemptions for repurchase agreements on agency securities or on municipals.
As for the argument that the Board would be in a poor posture
if it abandoned the proposal, Governor Maisel said he had expressed
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misgivings about publishing the proposal in the Federal Register for
comment but had been assured that the purpose of publication was to send
Up a trial balloon and that it carried no commitment for final action.
Mr. Hexter observed that publication of a proposal for comment
indicated an intent, recognizing that the comments received might lead
to withdrawal of the proposal.
Governor Maisel replied that it seemed to him the comments
received in this instance indicated that it would be proper to withdraw
the proposed definition of deposit.
Governor Robertson then asked if Governor Maisel's objection to
the definition in its present form was based primarily on the lack of
an exemption for repurchase agreements covering agency securities.
Governor Maisel replied in the negative, indicating that his
objections were more broadly based.
Governor Robertson next asked Governor Brimmer the same question, and the latter also responded in the negative.
He did not like
to see the Board pursue a policy of disrupting broad market practices
that were reasonably well established.
Nor was he happy with the assump-
tion, which he thought was implicit in the memorandum, that market participants could be expected to change their practices without difficulty.
The Board had set out to deal with the issuance of promissory notes by
banks as a
means of attracting funds.
It seemed to him that in the
course of the discussions the issue had escalated, largely on the basis
of legal
points.
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-19Mr. Hexter observed that the matter of basic concern was to
enforce the law.
The prohibition in the law against payment of inter-
est on demand deposits was strongly worded.
Congress had said that no
member bank should, directly or indirectly, by any device whatsoever,
Pay any interest on any deposit that was payable on demand, and had
gone on to say that the Board should define the term "deposit" in order
to prevent evasions.
Governor Brimmer reiterated the view that the Board should only
adopt language specifically directed toward promissory notes; if banks
should then turn to different forms of instruments to accomplish the
same purpose, appropriate attention could be given to such a development.
Governor Shepardson remarked that when promissory notes were
first issued they had not seemed to constitute a problem of significant
magnitude, and the Board had adopted a "wait and see" attitude.
Now,
however, the practice had developed into a significant evasion.
It
seemed to him the staff had made a persuasive argument that repurchase
agreements, for example, could provide an alternativ
e avenue for evasion.
before
He thought it was always better to foreclose such a possibility
the practice became established.
He did not believe that one
avoided trouble by leaving loopholes and then trying to close them
later.
Governor Mitchell expressed the view that by defining deposits
brc
'adlY the Board would be marking off a larger area than necessary to
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deal with the original problem, and thus might be precluding the development of new practices that would be helpful to the market.
He thought
markets developed better when there was a little elbowroom, with corrective actions taken only as needed.
Chairman Martin then observed that the Board seemed sufficiently
divided that it would be best not to push forward on this matter at the
Present time.
He agreed with Governor Robertson that the Board's posture
was not good.
Discussion with the Federal Deposit Insurance Corporation
might possibly result in some mutually agreeable position, but at this
stage it did not appear feasible for the Board to try to take any formal
step.
Accordingly, the matter was tabled.
Exchange of information with Regional Comptrollers (Item No. 8).
The Board had had several discussions, most recently on March 17, 1966,
r egarding exchange of information between Regional Comptrollers of the
Currency and the Federal Reserve Banks, and there had been an exchange
of correspondence with the Comptroller on that subject.
In a letter of March 3, 1966, the Comptroller stated that "in
the event our Regional Comptrollers should obtain any information which,
in their judgment, would be of interest to the Federal Reserve System,
they will relay such information to the appropriate Federal Reserve Bank.
We assume, of course, that your various Federal Reserve Banks will be
instructed to reciprocate by similarly informing our Regional Comptrollers
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concerning all State Member Banks."
At the March 17 meeting the Board
considered a draft of reply to the Comptroller.
A revised draft had
now been distributed.
Mr. Solomon recalled that the Board, at the conclusion of the
March 17 discussion, had decided to ask the Federal Reserve Banks to
try to work out guidelines with the Regional Comptrollers for exchange
of information.
However, it appeared probable that such efforts would
be unavailing, as they had been in the past, in the absence of support
from Washington.
The present draft of reply to the Comptroller was for
the purpose of making a record that would give the Reserve Banks as firm
a ground as possible for negotiating with the Regional Comptrollers.
There being agreement with suggestions for revised language at
one point in the letter for the purpose of clarification, the letter
wss approved unanimously in the form attached as Item No. 8.
Messrs. O'Connell, Sammons, and Sanders then withdrew from the
meeting and Miss Hart, Senior Attorney, and Mr. Shuter, Attorney, of the
Legal Division entered the roam.
Margin regulations.
On May 9, 1966, during a discussion of stock
market credit, the Board expressed itself in favor of moving forward
With regulation of "purpose" credit (loans for the purpose of purchasing,
carrying, or trading in securities) by lenders who were not covered by
the existing regulations relating to stock market credit (Regulations T
and U).
The Board also expressed a desire to give early consideration
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Federal Reserve Bank of St. Louis
-22-
5/16/66
to proposals that would close previously -discussed loopholes in Regulations T and U, and a memorandum dated May 13, 1966, from the Division
of Research and Statistics suggesting measures for that purpose had now
been distributed.
In February 1965, pursuant to action by the Board on January 26,
a preliminary draft of Regulation X, applicable to "purpose" lenders
not subject to Regulations T and U, had been sent to the Federal Reserve
Banks, the Securities and Exchange Commission, and the Commissioner of
Internal Revenue for comment.
There had now been distributed a memo-
randum dated May 12, 1966, from the Legal Division summarizing the comments received, attaching a second draft of regulation revised in the
light of those comments, and discussing problems that seemed likely to
be encountered.
The memorandum pointed out also that the Board's authority to
issue such a regulation might be challenged.
The Board had authority
under section 7(d) of the Securities Exchange Act of 1934 to regulate
Purpose loans by persons other than brokers and dealers "to prevent the
excessive use of credit for the purchasing or carrying of or trading in
securities in circumvention of the other provisions of this section."
(In 1963 the Securities and Exchange Commission had recommended that
the Board exercise this authority.)
The draft regulation attempted to
cover this area in as broad a way as seemed practical, by subjecting to
margin requirements every purpose loan made in the ordinary course of
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Federal Reserve Bank of St. Louis
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-23-
the lender's business that was secured to any extent by a registered
security, unless specifically exempted by the Act.
In an attempt to
meet a problem that had caused concern to the New York Reserve Bank,
the draft also forbade "lenders" to make unsecured loans to brokers or
dealers.
A very broad definition had been given to what was in the
"ordinary course" of a person's business.
It had been argued in the
Past that those words limited the Board's authority to regulate loans
by persons engaged in the business of lending or even to loans by persons engaged in the business of purpose lending.
However, so-called
factors," who entered the purpose-lending field principally when margins
and market activity were high, had argued that they were not subject to
a Provision of Regulation U that applied to persons engaged "principally,
or as one of the person's important activities" in purpose lending.
More-
over, loans had been made on an unsecured basis to brokers and dealers
by corporations with temporarily idle funds and by tax-exempt organizations, foreign banks, and others.
The Legal Division believed that a
legally supportable argument could be made that all these loans were in
the ordinary course of the lender's business.
The Legal Division's memorandum also discussed questions relating
to the degree of restriction the Board might wish to impose.
In general,
the draft attempted to achieve a reasonable balance with Regulations T
and U on the premise that persons similarly situated should receive equal
treatment.
However, it was not always possible to do this.
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Federal Reserve Bank of St. Louis
One important
5/16/66
-24-
difference between Regulations X and U was that loans would not be
covered by the former unless the collateral included some registered
security, whereas Regulation U covered purpose loans secured by any
stock, including unregistered stock.
Provisions permitting transfers of loans and permitting special
subscription accounts were included in the first draft of Regulation X
in accordance with the principle of putting lenders, so far as possible,
on an equal basis with banks and broker-dealers.
However, the New York
Reserve Bank had strongly suggested deleting those sections on the ground
that they would be difficult or impossible to administer.
The draft would explicitly permit same-day substitutions to be
made in respect to collateral held by lenders.
This privilege existed
under Regulation T by virtue of the technical rules governing the "general account," and under Regulation U by interpretation.
Inclusion in
Regulation X of the proposed language relating to this point would avoid
the necessity for a similar interpretation.
If the Board wished to with-
hold the same-day substitution privilege under Regulation X, explicit
language to that effect should probably be included in the regulation.
The memorandum stated that if the Board decided to publish a
draft of Regulation X for comment, the staff would appreciate guidance
as to whether the draft should include a same-day substitution privilege,
Permit transfers of regulated loans, and include a provision for the
e xercise of rights comparable to that included in Regulations T and U
(s pecial subscription account).
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Federal Reserve Bank of St. Louis
I
5/16/66
-25During introductory comments Miss Hart noted that the major
question on which the staff would like to know the Board's views was
the degree of restrictiveness desired:
were the lenders to be treated
on the same basis as banks and broker-dealers, or were they, through
a really restrictive approach, to be induced to stop making purpose
loans?
If they did not stop, it was possible that much greater loop-
holes would develop under Regulation X than had developed under Regulations T and U, and therefore she advocated the restrictive approach.
Chairman Martin expressed a preference for a restrictive approach,
but the possibility of court tests gave him pause.
The regulation as
drafted seemed to him generally appropriate, but he suggested that members of the Board's staff visit New York to discuss the matter in detail
With staff of the New York Reserve Bank and perhaps also with knowledgeable parties outside the Bank.
On the question of challenge of the Board's authority, it was
Observed that there could be no guarantee that a court test would not
be sought; the lenders to whom Regulation X would apply might seek an
injunction.
Neither was it possible to predict what attitude a court
might take, but it was the legal staff's opinion that the proposed
regulation did not exceed the Board's powers.
Chairman Martin reiterated the view that before the draft regulation was published for comment it would be desirable to consult with
People who were close to the market's operations.
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Federal Reserve Bank of St. Louis
1707
5/16/66
-26Mention was made of the difficulty in identifying lenders who
would be subject to the regulation, and it was noted that upon publication in the Federal Register there would be an opportunity for all
interested parties to submit comments.
However, as in the case of the
Promissory note matter, questions might be raised if the Board published
a notice of proposed rule making and then failed to take action.
In response to a suggestion by Governor Robertson that consultations with the New York Reserve Bank, but not with others, precede publication for comment, there was a discussion of the extent to which the
Present draft of regulation reflected the views of that Bank, and of
further revisions that might be made in the direction of recommendations
of the Bank's legal staff.
Mr. Partee referred to the three provisions specially mentioned
in the Legal Division's memorandum, omission of which from Regulation X
would make it more restrictive than Regulations T and U.
It seemed to
him that there might be fairly general acceptance of an approach in
which the Board would regulate factors and other lenders on the same
terms as banks and brokers, but he wondered if it would be regarded as
reasonable to regulate them more strictly.
Miss Hart mentioned the exceptions taken by the New York Reserve
Bank to inclusion of those privileges, and Chairman Martin remarked that
this illustrated the importance of arriving at a complete agreement with
the
New York Reserve Bank--in fact, with all of the Reserve Banks--if
Possible.
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Federal Reserve Bank of St. Louis
5/16/66
-27During further discussion of procedures it was brought out that
although the desirability of consultation with presently unregulated
lenders about a measure inimical to their interests might be debatable,
there were other elements of the financial community, such as the New
York Stock Exchange, whose views might be helpful.
At the conclusion of the discussion it was understood that the
staff would proceed with consultations with the New York Reserve Bank
and with other parties to the extent deemed advisable, following which
the question of the draft regulation would be resubmitted to the Board.
The discussion then turned to the memorandum in which the Division of Research and Statistics suggested means of closing loopholes in
Regulations T and U.
The first question related to loans to purchase or carry listed
convertible bonds.
Under Regulation T such loans by brokers were subject
to the same margin requirements as stocks, but commercial bank loans for
the same purpose fell outside Regulation U and carried only the maintenance margins of 20 to 30 per cent required by the banks themselves.
The
m emorand um described three alternative ways in which the treatment of
such loans might be made more nearly parallel under both regulations.
Members of the Board expressed a preference for the alternative
favored by the staff that would amend Regulation U by making margin
requirements on bank loans to purchase or carry listed convertible bonds
the same as those on stocks.
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Federal Reserve Bank of St. Louis
09
5/16/66
-28The memorandum also described reasons why it was considered
desirable to reduce the liberality of the subscription account privilege
In both regulations, and listed three possible alternative actions for
that purpose.
Discussion of this point disclosed some sentiment in favor of
the alternative of limiting the subscription account privilege to stockholders of record at the time a rights offering was announced.
(However,
it was brought out that such a provision had been in effect in the past,
and had been abandoned because it appeared to be adverse to the flotation of equity securities.)
No views were expressed by members of the Board at this stage
ia regard to the other points in the memorandum, relating to extension
of margin regulation to over-the-counter markets and modification of the
same -day substitution privilege.
All members of the staff except Messrs. Sherman, Kenyon, Holland,
and Brill then withdrew from the meeting.
Proposed legislation regarding certificates of deposit.
Discus-
81on
continued of the position to be taken with respect to the bills
relating to certificates of deposit that were now pending before the
H°use Banking and Currency Committee.
Governor Mitchell suggested that the Board's spokesman say, in
essence, that at the present time the Board did not have any recommendations for changes in the law, that the Board did not think any action
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Federal Reserve Bank of St. Louis
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was indicated at this time, that the matter was under continuing study,
however, and that if at some future time the Board saw a need for legislation or for action to be taken under existing legislation, appropriate
steps would be taken.
Within that framework, he suggested, the Board
could discuss with the Committee the various issues involved; this was
a minimum framework for exploration of any differences of opinion.
Governor Maisel said that he thought there were several fundamental questions.
One was whether the Board was concerned about the
intensity of competition between banks and other financial institutions
at this point.
A related question was whether the Board saw a need for
a dditional legislation and, if such legislation was provided, whether
the Board
would be prepared to take action under it.
Another question
was whether certain markets should be insulated, in one form or another,
from the impact of general monetary policy.
If so, a further question
waswhether legislation should be sought in this regard.
Governor Robertson commented that the Secretary of the Treasury
had called a meeting of the interagency Coordinating Committee on Bank
Regulation for Thursday afternoon.
He supposed that the purpose might
be to raise the question of what should be done to make it possible for
the Federal Reserve to come to the assistance of the Home Loan Bank
SYstem
in the event of need.
As to the Banking and Currency Committee
heakings, he would not be disposed to take a position that there was
need for any particular action at this particular time.
Even if indi-
vidual members felt there was a need to take action, the Committee was
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Federal Reserve Bank of St. Louis
5/16/66
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not the proper forum for expression of such views.
Instead, the posi-
tion should be that the Board was watching the situation carefully,
that it was making a survey, that it should be able to deal with any
emerging problems under existing statutory authority, but that, if
necessary, it would recommend additional legislation.
Beyond that, he
would want to avoid expressing any views until the Board had hammered
out its own policy.
Chairman Martin expressed agreement with the view that differences
should be minimized when appearing before the Banking and Currency Committee and suggested that as much as possible should be done in advance
to arrive at a Board position on the various issues.
He agreed with a
comment by Governor Shepardson that the approach outlined by Governor
Robertson seemed generally appropriate.
There followed a brief discussion of the possibilities for action
under existing legislation, after which attention was directed to the
draft of proposed letter on the two pending bills and a number of suggestions were made by members of the Board.
It appeared from the suggestions
that the letter would have to be couched in rather general terms, since
there
were differences of opinion on specific issues.
Governor Maisel then turned to the problem that might be posed
for commercial banks around midyear in rolling over the substantial
volume of maturing negotiable certificates.
He suggested that work be
done by the staff to appraise the dimensions of the problem, in which
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Federal Reserve Bank of St. Louis
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connection he observed that this would be a subject appropriate for
consideration by the Open Market Committee at its next meeting.
Governor Maisel referred next to the Coordinating Committee
meeting Thursday afternoon and inquired when the Board had in mind a
discussion of the issue that Governor Robertson had indicated was likely
to be raised.
He brought out that the problem, in its broader dimen-
sions, involved the marketing of Federal agency debt instruments, thus
raising the question whether the Federal Reserve had any responsibility
for a more efficient market in such issues.
He referred to the possi-
bility of a disorderly market if the various agencies needed substantial
amounts of cash, the possibility of assisting the agencies through providing a better market for their issues in some manner, and the question
whether the agency issues should be selling at rate levels much above
those for
U.S. Government obligations.
He saw a need for the Board to
reach basic policy decisions on these matters.
After some discussion of these points, Chairman Martin commented
that they were quite appropriate for consideration but that they implied
reconstituting the entire market structure.
In reply to a question by Governor Robertson, Mr. Holland reviewed
Preliminary staff thinking on the matter of amending the Treasury's direct
borrowing authority from the Federal Reserve to provide funds with which
to assist the Home Loan Bank System, and he described a type of amendment
that
seemed to the staff preferable to other possibilities.
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Federal Reserve Bank of St. Louis
5/16/66
-32Governor Brimmer commented that he felt this was the sort of
thing to be kept in reserve and that he doubted whether the Board
Should take any position publicly at this point.
Chairman Martin expressed the view that the Board should take
its lead from the Treasury.
If the Board were to express any position,
it might well be misinterpreted.
If the Treasury advocated some measure,
the Board would of course have to indicate whether it agreed or not.
Chairman Martin then said that there appeared to be no need, in
view of the discussion today and the suggestions made by members of the
Board, to bring back to the Board another draft of the letter to Chairman
Patman regarding the two pending bills.
Accordingly, it was understood
that the letter was authorized for transmittal in a form reflecting the
various suggestions that had been agreed upon.
It was also understood
that the statement to be presented to the Committee by the Vice Chairman,
"behalf of the Board, would be redrafted to harmonize with the revised
form of letter.
Foreign travel.
The Board authorized Ruth Logue, Economist in
the Division of International Finance, to visit the Netherlands Bank
and the National Bank of Belgium for consultation in connection with the
current study of the discount mechanism, with the understanding that Miss
Logue
would make these visits in the course of a forthcoming personal trip
t0 Europe, that the total duration of her official travel would be about
five days, that the Board would pay the additional transportation cost
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Federal Reserve Bank of St. Louis
e
1
‘,1
5/16/66
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involved in the visits, and that she would receive per diem in accordance with the Standardized Government Travel Regulations while on
Official business.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
the following items:
Letter to the Civil Service Commission advising that the Board
had designated Merritt Sherman, Secretary of the Board, to serve as
Equal Employment Opportunity Officer.
Memorandum from the Division of Administrative Services dated
May 12, 1966, recommending that an order be placed with Westinghouse
Corporation for certain repair work on the C Street elevators in the
Federal Reserve Building at a cost of $5,880 and requesting authorization for any resulting budget overexpenditure.
Memorandum (copy attached as Item No. 9) from the Division of
Examinations and the Office of the Controller dated May 11, 1966,
relating to reimbursement of travel expenses incurred by Reserve Bank
employees borrowed to assist the Board's examining staff.
Memorandum from Mr. Holland, Adviser to the Board, dated May 13,
1966, recommending, in connection with the current study of the discount
Techanism, that Bernard Shull be designated as Director of Research
I ojects; that Priscilla Ormsby be designated to succeed Mr. Shull as
j
secretary of the Secretariat; that appropriate provisions be made, as
needed,
to borrow personnel from the Reserve Banks on a rotating basis;
and that full-time secretarial assistance be provided for Mr. Shull
o
through the establishment,
if necessary, of an additional secretarial
clerk_
typist position at Grade FR-5 in the Division of Research and
st
atistics.
Memoranda recommending the following actions relating to the
Board's staff:
IAP-aalatTLat.
Rowena A. L. Lipscomb as Statistical Clerk, Division of Research
and S
tatistics, with basic annual salary at the rate of $4,641, effective the date of entrance upon duty.
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Federal Reserve Bank of St. Louis
S
5/16/66
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Sa1ary increase
William R. Howell, Supply Clerk, Division of Administrative
Services, from $3,507 to $3,814 per annum, effective May 22, 1966.
Secret
r?'
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 1
5/16/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 16, 1966
Board of Directors,
Nassau Trust Company,
Glen Cove, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Nassau Trust Company,
Glen Cove, New York, of a branch on the north side of
Northern Boulevard approximately 120 feet west of the
intersection of Glen Cove Road and Northern Boulevard,
Greenvale (unincorporated area), Town of North Hempstead,
Nassau County, New York, provided the branch is established within one year from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
' ,,,,,,,,,,
Item No. 2
5/16/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
orricom. CORRESPONDENCE
TO THE BOARD
May 16, 1966
Board of Directors,
Matinecock Bank,
Locust Valley, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Matinecock Bank,
Locust Valley, New York, of a branch at the southwest
corner of Perry and Bayville Avenues, Bayville, New.
York, provided the branch is established within six
months from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
ItrINT)S
5/16/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 16, 1966
Board of Directors,
Farmers and Merchants Trust
Company of Chambersburg,
Chambersburg, Pennsylvania.
Gentlemen:
forwarded
The Federal Reserve Bank of Philadelphia has
by
signed
1966,
6,
May
to the Board of Governors a letter dated
nying
accompa
the
President J. Glenn Benedict, together with
w from membership
resolution, signifying your intention to withdra
of the six
waiver
in the Federal Reserve System and requesting
months' notice of such withdrawal.
ment of six
The Board of Governors waives the require
of Section 208.10(c)
ons
months' notice of withdrawal. Under the provisi
ish
accompl
may
of the Board's Regulation H, your institution
from
months
eight
termination of its membership at any time within
was
hip
members
from
w
the date that notice of intention to withdra
of
lphia
Philade
of
Bank
glven. Upon surrender to the Federal Reserve
will
stock
such
tion,
institu
the Federal Reserve stock issued to your
be canceled and appropriate refund will be made thereon.
membership be
It is requested that the certificate of
lphia.
returned to the Federal Reserve Bank of Philade
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
Item No. 4
5/16/66
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application
of
°214VER U. S. BANCORPORATION, INC.,
Denver, Colorado,
DOCKET NO.
BHC-73
4)1. aPproval of the acquisition of voting
!hares of The Mercantile Bank and Trust
41raPany, Boulder, Colorado,
ORDER APPROVING APPLICATION UNDER
BANK HOLDING COMPANY ACT
There has come before the Board of Governors, pursuant to
section 3(a)(2) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a)(2))
and section 222.4(a)(2) of Federal Reserve Regulation Y (12 CFR 222.4(a)(2)),
an application by Denver U. S. Bancorporation, Inc., Denver, Colorado, a
l'egistered bank holding company, for the Board's prior approval of the
aegtlisition of 50 per cent or more of the outstanding voting shares of
The Lie
rcantile Bank and Trust Company, Boulder, Colorado.
In accordance with section 3(h) of the Act, the Board gave
141qtten notice to the State Bank Commissioner of Colorado of receipt of
the
aPPlication and requested his views and recommendation thereon. The
Comh,.
'
roller of the Currency and the Antitrust Division of the Department
Of j
ustice were notified of receipt of the application.
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Federal Reserve Bank of St. Louis
None of the
1_720
-2-
application in
aforementioned governmental authorities disapproved the
n.
Writing within 30 days of notice of the applicatio
At a later date,
of himself and the
11°I'le'er, the State Bank Commissioner, on behalf
Colorado State Banking Board, opposed the application.
The no:Ace of
of
the filing of the application, published in the Federal Register
statement that
141Y 22, 1965 (30 Federal Register 9189), included a
could be filed
eczments and views regarding the proposed acquisition
With the Board within 30 days thereafter.
By letter dated August 17,
Denver commented
1965, the president of The First Notional Bank of
adversely on the proposal.
Central
By letter dated August 18, 1965, The
Board an
Eenk and Trust Company, Denver, Colorado, submitted to the
y to participate
°PPosition to the proposal and requested an opportunit
in a hearing on the matter.
etion of
On September 9, 1965, at the discr
222.7(a) of
the Board and in accordance with the provisions of section
ed a public
the Board's Regulation Y (12 CFR 222.7(a)), the Board order
Order was published in
hearing in connection with the application. Said
al Register 11837).
the Federal Register on September 16, 1965 (30 Feder
4 Public hearing was held in Denver, Colorado, on October 19-22, 1965,
before a duly selected Hearing Examiner.
Appearances at the hearing were
al Bank and Trust
Made on behalf of Applicant as proponent, The Centr
Bank Commissioner as
C°rIlPeny and the Colorado State Bauking Board and
versary capacity.
4Ponents, and counsel for the Board of Governors in a nonad
and
4ter the hearing, proposed findings of fact, conclusions of law,
bets
sary parties.
were submitted by the aforesaid adver
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Federal Reserve Bank of St. Louis
On March 4, 1966,
1721
-3-
the Hearing Examiner filed with the Board a Report and Recommended
ecision, recommending approval of the application.
The opposing bank
filed exceptions to the Hearing Examiner's Report and Recommended Decision,
tc8ether with a supporting brief and a request for oral argument before
the Board.
Applicant responded with a brief in opposition to the opposing
bank's exceptions and request for oral argument.
The Colorado State
Eanking Board and Commissioner filed no exceptions but requested that
their abstention be construed, not as agreement with the Hearing Examiner's
"Inclusions, but rather as a reliance upon the record itself.
All of the
aforementioned documents were received as part of the record and have been
considered by the Board.
IT IS HEREBY ORDERED, for the reasons set forth in the Board's
Statement of this date, that the request for oral argument be and hereby
4
denied; and that said application for acquisition be and hereby is
411Proved, provided that the acquisition so approved 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 16th day of May, 1966.
By order of the Board of Governors.
Voting for this action:
Daane, and Maisel.
Governors Shepardson, Mitchell,
Voting against this action:
Absent and not voting:
Governor Robertson.
Chairman Martin and Governor Brimmer.
(Signed) Merritt Sherman
(SEAL)
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Federal Reserve Bank of St. Louis
Merritt Sherman,
Secretary.
1722
Item No. 5
5/16/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY DENVER U. S. BANCORPORATION, INC., DENVER, COLORADO,
FOR APPROVAL OF ACQUISITION OF VOTING SHARES OF THE MERCANTILE
BANK AND TRUST COMPANY, BOULDER, COLORADO
STATEMENT
Denver U. S. Bancorporation, Inc., Denver, Colorado
("APPlicant"), a registered bank holding company, has filed with
the Board, pursuant to section 3(a)(2) of the Bank Holding Company
Aet of 1956 ("the Act"), an application for approval of the acquisiti°11 of 50 per cent or more of the outstanding voting shares of The
Iletcantile Bank and Trust Company, Boulder, Colorado ("Mercantile").
:Views and recommendation of supervisory authority. - As
teluired by section 3(b) of the Act, notice of receipt of the applicati0
4 was given to, and views and recommendation requested of, the
C°1°rado State Bank Commissioner.
Notice of receipt of the application
transmitted in writing to the Comptroller of the Currency and to
the United States Department of Justice, and was published in the
?ederal Register on July 22, 1965 (30 Federal Register 9189).
None
() the aforementioned governmental authorities disapproved the applieatiOn in writing within 30 days of notice of the application.
Sub-
8eltient1Y, however, the State Bank Commissioner, on behalf of himself
44d the State
Banking Board, opposed the application on the grounds
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Federal Reserve Bank of St. Louis
fAN
-2-
ty
/Ifi
that the formation and extension of bank holding company systems are
devices aimed at circumvention of the State's anti-branch banking
Policy.
As observed by the Hearing Examiner, the argument presented
by the
State banking authorities in opposition to the proposal is
sub stantially the same argument that was made to, and rejected by,
the Board in the proceedings that resulted in the formation of
APPlicant (49 Federal Reserve Bulletin 1518) and those involving the
application of First Colorado Bankshares, Inc., to acquire Security
National Bank, Denver (49 Federal Reserve Bulletin 1646, 1651).
The
Board is of the view that, for the reasons stated in its earlier states relative to this argument, proposed holding company formations,
°Perations, and acquisitions are not to be subjected to statutory
ltmitations that may
be imposed on branch banking.
For the same reasons,
he Board is unable to accept the rationale urged by the Colorado State
barlking authorities in this case.
Public hearing. - Following expiration of the period allowed
14
the
published notice for receipt of comments on Applicant's pro-
P"al, the Board ordered a public hearing to be conducted in Denver
be
ra a Hearing E:taminer selected for the purpose by the United States
Civil Service Commission.
This hearing was not required by law, but
14a8 ordered by the
Board pursuant to the provisions of section 222.7(a)
°f the Board's
Regulation Y (12 CFR 222.7(a)), upon the Board's finding
that
such hearing would be in the public interest.
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Federal Reserve Bank of St. Louis
1_724
Participants in the hearing were the Applicant as proponent;
!he Central Bank and Trust Company, Denver, Colorado ("Central"), and
the State Bank Commissioner on behalf of himself and the State Banking
Board as opponents; and counsel for the Board of Governors in a nonadversary capacity.
The adversary parties presented evidence, and all
Parties were afforded full opportunity for cross-examination of persons
aPPearing as witnesses.
Subsequent to the hearing, the parties were
a
fforded the opportunity to file, and the adversary parties did file,
Proposed findings of fact, conclusions of law, and supporting briefs.
On March 4, 1966, the Report and Recommended Decision of
the Hearing Examiner was filed with the Board wherein he recommended
that the application be approved.
Exceptions to the Hearing Examiner's
Port and Recommended Decision, wi':11 brief and a request ft, r oral
aqument before the Board, were filed by Central.
Applicant filed a
,
'''ncling brief and an opposition to oral argument.
Request for oral argument. - As evidenced by the foregoing
Ilronology of occurrences with respect to this application, ample
°PPortunity
for comments was afforded to all interested persons,
extensive public hearing was held at which a number of witnesses
testified and were cross-examined over a period of several days, a
tt'anscr.'.pt of nearly seven hundred pages provides a record of the
hearing, and counsel for the adversary parties have submitted full
and written arguments. In the light of these facts and upon
rev"
.
ew of the entire record, it is concluded that the request by
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Federal Reserve Bank of St. Louis
1725
-4-
Central for oral argument before the Board should be denied on the
grounds that (a) the parties have had ample opportunity to present
their views, (b) there has been no showing that the Board would be
better informed as a result of oral argument, and (c) such argument
would further delay decision on the application herein.
Accordingly,
the Board deems it appropriate that the matter be decided at this time
On the basis of the record now before it.
Statutory factors. - Section 3(c) of the Act requires the
hoard to
take into consideration the following five factors in acting
°n this application: (1) the financial history and condition of the
h°1ding company and the banks concerned; (2) their prospects; (3) the
h aracter of their management; (4) the convenience,needs, and welfare
Of
the communities and the area concerned; and (5) whether or not the
leet of the proposed acquisition would be to expand the size or ex-
tetit of the bank holding company system involved beyond limits consistent
With
adequate and sound banking, the public interest, and the preserva-
ti
"of competition in the field of banking.
Yinancial history and condition, and prospects of Applicant
"
4 banks concerned. - Applicant became a bank holding company on
eb
--arY 5, 1964.
Its holding company system is composed of four
banks with approximately $380 million in total deposits at December 31,
, 2/
t9647.Denver United States National Bank ("Denver U. S. National"),
At .7 --esa otherwise indicated, all banking data are as of this date.
-une 30, 1965, total deposits of the system were $394 million.
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Federal Reserve Bank of St. Louis
-53/
with deposits of approximately $349 million,is located in Denver; two
of the banks in the system, Arapahoe Bank, Littleton (furmerly
Arapahoe County Dank), and First Dank of Aurora, with deposits of
approximately $6 million and $9 million, respectively, are located in
suburban communities near Denver. Weld County Bank, located in Greeley,
Colorado, about 60 miles north of Denver, was acquired by Applicant in
Jul
1965.
It has deposits of approximately $16 million.
The Hearing Examiner found "that the financial history and
condition and prospects of Applicant and all of its presently controlled subsidiary banks are satisfactory."
The record supports and
the Board concurs in these findings.
14ercantile
'
with approximately $15 million of deposits,
is located in Boulder, Colorado, approximately 30 miles northwest of
kliver, and was organized over 60 years ago.
The evidence presented
shws that ilercantile has experienced a substantial growth in
de"sits and income, particularly during the period from 1955-1964.
8etveen year-end 1955 and 1964, its deposits increased from about
S5 million to almost $15 million; and between 1960 and 19642 the
inctease was from almost $9 million to nearly $15 million, or 67 per
terlts
The Board concurs in the Hearing Examiner's finding that
kzantlle's financial history and current condition
-•
are satisfactory.
jule 30, 1965, its deposits were $364 million.
As of year-end 1965, its deposits exceeded $17 million.
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Federal Reserve Bank of St. Louis
aki0
-6The data of record show that the area served by Mercantile
has
experienced a steady economic development, and its prospects for
continued
and substantial economic growth appear favorable.
It is
reasonable to expect additional growth in Mercantile's deposits and,
‘4ith such
growth, a need for additional capital.
While the record
re E1.ects previous successful endeavors by Mercantile in marketing
Its
shares, the conclusion appears reasonable that affiliation with
APPlicant would afford an easier, more assured method for meeting
Iletcantijet s future capital requirements, a fact that, in the Board's
judgm
--ent, enhances Mercantile's prospects and offers some slight
Igeight in favor of approval of the application.
Management. - Applicant's directors are considered persons
ol leadership in the regional economy.
Its executive officers,
441411 from among the executives of Denver U. S. National, have
Pt(Nrided satisfactory management for the holding company and its
leadi
-ng subsidiary. Applicant's other three subsidiary banks are
also
considered to be capably managed.
Mercantile's directors are regarded as experienced and
esPable.
Its president and executive vice-president have provided
he bank with successful management.
The record shows, however, that
the President, who is in his 70's, has entered into an agreement with
the bank
providing for his retirement as president and for succession
5/
() the executive vice-president to the position of president.
While
"48 succession would provide Mercantile with a capable and competent
e former executive vice-president is now president of Mercantile.
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Federal Reserve Bank of St. Louis
1728
-7-
Chief executive, Applicant states that the remainder of the staff is
relatively young and inexperienced in the banking business, and there
is
no employee on Mercantile's staff considered experienced or capable
enough to assume the duties of executive vice-president.
It appears
that, during the seven or eight years prior to the application herein,
three vice-presidents resigned for the purpose of assuming the presidencies of three other Colorado financial institutions and another vicePtesident chose early retirement.
Applicant claims that the proposed
4ffi1iation would make available to Mercantile, through the holding
"tilPanY system, a program for recruitment and training, for promotion
tilrcw.ghout the system's banks, and for pension plan coverage and other
fringe benefits, a program which could facilitate for Mercantile the
4cluialtion, training, and retention of capable management as needed.
li°*we'"r, in the light of the favorable prospects for the City of
1144/14er, its closeness to the City of Denver, and the past experience
Of ki
,lereantile in attracting
capable executive management, the Board
i8
Of the opinion that Applicant's proposal is not the only solution
to Metcantile's management succession problem.
Thus, the assurance
°ffered by
Applicant's proposal for an immediate and apparently certain
ssalution to Mercantile's management succession problem affords but
little weight toward approval of the application.
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Federal Reserve Bank of St. Louis
I
-8-
;4•1 ),.!
10
Convenience, needs, and welfare of the communities and the
area concerned. - The proposed affiliation may be expected to have
little, if any, effect on the convenience, needs, and welfare of the
°°rnrsunities and the area served by Applicant's present subsidiaries.
Rather, the principal effect would be in the area served by Mercantile,
°f which the City of Boulder is considered to be the primary service
6/
area.-Between 1950 and 1965, the City of Boulder experienced a
substantial population growth - 20,000 to an estimated 48,000 - as
1.1°.1 as a significant economic expansion.
The University of Colorado,
located in Boulder, apparently has grown rapidly in recent years and
i8 changing from a predominantly undergraduate institution to one
Oriented toward graduate studies, particularly in the areas of physical
science and engineering.
The record reflects that the City and County
Of Boulder have acquired, in recent years, numerous industrial plants
em131°Ying several thousand people, specializing mainly in research and
development in the fields of atomic energy, aerospace, electronics, and,
to a lesser degree, manufacturing.
gt.owth in this area.
It is reasonable to expect continued
At the end of 1959, there were three commercial
Mercantile
134rIke in Boulder, and in 1965 there were six, among which
ranks third in deposits.
The banking needs of the communities and the
area concerned appear to be served adequately.
rThe area from which it is estimated that Mercantile received 76 per
eerlt of its total individual, partnership, and corporation (IPC) deposits.
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Federal Reserve Bank of St. Louis
-9-
Applicant urges, in favor of approval, that it can and is
ready to assist Mercantile with respect to audit and accounting procedures, future building programs, bond portfolio management, trust
services, marketing operations, and real estate loan activity.
The
Board is satisfied that Applicant's rendition of assistance with respect
to the said services would prove beneficial, not only to Mercantile
but also, in certain respects, to the residents and businesses in its
Primary service area, by virtue of an improvement in the scope and
nature of banking services available to them.
While the prospects of
APPlicant's assistance in these respects are consistent with and weigh
t
Waco. approval, the affirmative weight to be accorded them is somewhat
lessened by the absence in the record of evidence indicating that any of
the area's major banking needs are presently unserved, or if such
nnaerved need should arise, that it could not be met adequately either
through Mercantile's own efforts or with the assistance of its corresPondent banks.
Accordingly, with respect to the convenience, needs,
and welfare of the communities and area concerned, it is the probability
Of
greater speed and certainty with which assistance would be provided
Mercantile through the proposed affiliation that offers some weight
tWard approval of the application.
Effect of proposed acquisition on adequate and sound
'
l 2111q4:4) the public interest, and banking competition. The
Hearing Examiner found, and the record supports his finding,
that the aggregate deposits of $380 million held by Applicant's four
banks would, by the addition of Mercantile to Applicant's system, be
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Federal Reserve Bank of St. Louis
4
t),1
-10-
increased to $395 million, an increase from 14.1 to 14.7 per cent in
APPlicant's control of the deposits of all insured banks in Colorado.
APPlicant and the other two registered bank holding companies with
subsidiary banks in Colorado currently control 21.6 per cent of the
Posits of all insured banks in the State.
Applicant's acquisition
°f Mercantile would increase this concentration to 22.2 per cent.
7/
In the Denver Standard Metropolitan Statistical Area,
Applicant's
control would be increased from 20 per cent to 21 per cent.
In
13°414er County, the affiliation would give Applicant control of
4PPr
oximately 9 per cent of the offices of the 11 insured banks and
14 Per cent of the deposits of those banks.
In the City of Boulder,
Applicant would acquire 16.7 per cent of the offices of insured banks
atid 20 per cent of the deposits of those banks.
Mercantile would be
he °Illy bank holding company subsidiary in Boulder.
At the time of the Board's approval in November 1963 of
APPlieant's formation, the Board concluded that, while a sizable
P°1*tion of the total deposits and loans of all banks in the State of
C°1orado was concentrated in a relatively few banks, the largest five
(3f vhich
were in Denver and included Applicant's largest subsidiary
ver U.
S. National), it did not appear to the Board that any single
bank.
lng institution was dominant in the Denver area or in the State as
a 1,411
(4e.
At that time, as now, Denver U. S. National was the second
and'
- 8 includes the Counties of Adams, Arapahoe, Boulder, Denver,
or ilefferson. Applicant presently has no subsidiary in Adams, Boulder,
efferson Counties.
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Federal Reserve Bank of St. Louis
1 732
largest bank in Denver and in the State.
Applicant's rank as second
in control of bank deposits in both areas would continue after the
Proposed acquisition.
The Board concurs in the Hearing Examiner's
conclusion that the increase in the concentration of banking resources
that would result from consummation of the proposal herein does not
represent a consideration adverse to approval of the application.
Considering next the extent to which Applicant's ownership
Of
stock of Mercantile would eliminate existing competition or fore-
Close future competition between Mercantile and Applicant's subsidiaries,
the Board agrees with the Hearing Examiner that these considerations
Present no bar to approval of the application.
The record shows that
Mercantile, located 30 miles from Denver US. National, is not in comPetition with it, and that Denver U,S. National does not solicit deposits
Or loans in Boulder.
All the bankers who testified agreed that no
44ver bank solicits business in Boulder.
About $2.5 million of Denver
National's deposits, amounting to less than one per cent of all
its deposits, appear to have originated in Boulder.
They represented
alMost entirely correspondent bank deposits from two Boulder correspondents
About $478,000 of Denver U.S. National's loans, or .3 per
cent of its total loans, were shown as originating in Boulder.
Vittually all arose through participation with Boulder banks.
Mercantile is located approximately 33, 40, and 56 miles
4°T11 Applicant's three subsidiaries other than Denver U.S. National.
these three relatively small institutions serve primarily their imMediate vicinities.
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Federal Reserve Bank of St. Louis
The Hearing Examiner's finding that none of
-12-
I 11
t_ t,
APplicant's subsidiary banks competes in Mercantile's primary service
area is supported in the record and is adopted by the Board.
The
record shows also that Mercantile does not compete, to any significant
degree, in the primary service areas of any of Applicant's subsidiaries.
Applicant asserts and the evidence shows that the six Boulder
banks compete vigorously with each other.
Mercantile (with nearly
$15 million of deposits) ranks third in size of the Boulder banks.
First National Bank in Boulder, the largest bank in the city (with
Over $30 million of deposits), together with its affiliate, the
Arapahoe National Bank of Boulder (deposits of approximately $3 million)
controls over 45 per cent of all commercial bank deposits in Boulder.
National State Bank of Boulder (deposits of nearly $22 million) controls about 30 per cent, and Mercantile about 20 per cent of the
total deposits.
to
The remaining five per cent are controlled by the
smallest banks in Boulder (deposits of approximately $1.5 million
and $2 million, respectively).
The acquisition herein proposed would
net diminish the number of offices servicing Boulder.
In addition,
the evidence shows that there are offices of four savings and loan
institutions in Boulder, three of which each have total savings in
eXcess of the total deposits of any of the banks there.
One of these
institutions, with its head office in Denver, has savings funds exeeeding $114 million.
In Boulder County, there are five additional
b4nks, three of which have deposits of $2.5 million or less.
None
°f the five banks derives more than a minimal amount of business
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Federal Reserve Bank of St. Louis
1734
from Boulder, Nercantile's primary service area.
It is reasonable
to conclude from the record, as has the Hearing Examiner, that the
Proposed acquisition would not significantly diminish existing competition in Boulder or any of the areas involved, nor preclude
P°tential competition there.
Rather, it appears that the businesses
and resiC;ents in Boulder will be the beneficiaries of more vigorous
competition to be offered to the two larger banks in the area.
In opposition to the proposal herein, Central further argues
that the subject acquisition, coupled with other acquisitions to date
by Applicant, will restrict competition in correspondent banking.
the proposal herein may result, as Central argues, in its loss
Of Mercantile as a correspondent bank (with a $1 million account) to
the gain of Denver U.S. National, Applicant points out that the
affiliation may result, on the other hand, in Denver U.S. National
1"ing as much or more of its correspondent bank business to the gain
Of
Central or other Denver correspondents.
It appears that the correspondent banking business of
Colorado is concentrated in Denver.
The five largest banks in the
State, all located in Denver, account for 88 per cent of the deposits
made by
banks.
First National Bank of Denver ranks first with approximately
31 Per cent of the total of correspondent bank deposits, amounting to
411°ut 11 per cent of its total deposits.
Central ranks second with
Out 22
per cent of the total of such correspondent bank deposits,
alllounting to 20 per cent of its total deposits; and Denver U.S.
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Federal Reserve Bank of St. Louis
-14-
National ranks third with about 17 per cent of such deposits, amounting
to 7 per cent of its total deposits.
It is evident that the shifting
of Mercantile's relatively small account would not have a significant
effect on the correspondent bank business in the relevant markets,
Or cause the position of Applicant's subsidiaries with respect to
competition for correspondent accounts to be enhanced in any significant measure at the expense of their competitors.
Nor, in view of
the relative ease of access to a number of alternative Denver bank
correspondents that will continue to be available to the businesses and
residents of Boulder, would Mercantile's affiliation with Denver U.S.
N ational represent an undue deprivation of access to correspondent
bank services.
In the light of the foregoing considerations and all the
facts in the record, the Board concludes that consummation of the
subject proposal would not increase Applicant's size or extent beyond
limits consistent with adequate and sound banking, the public interest,
and the preservation of competition in the field of banking.
The possibility that Applicant, in the future, may seek
approval of additional acquisitions as part of a plan for "continuing
-Fansion through the holding company device" - as suggested by the
(IPP°sing bank in its exceptions to the Hearing Examiner's Report and
4ec°111mended Decision - is not considered to be a significant factor
4dVerse to the proposal herein.
The Board consistently has taken the
Pceition that each application must be considered on the pertinent
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Federal Reserve Bank of St. Louis
-15-
facts presented, and a decision by the Board in a given matter does
not constitute any commitment on future applications.
To the extent that the findings and conclusions of the
Rearing Examiner are consistent with those contained herein, they
are adopted.
Opposing bank's exceptions to the Hearing Examiner's
Report and Recommended Decision have been fully considered, and the
Board's findings and conclusions reflect the Board's judgment of the
terits of those exceptions.
On the basis of all the relevant facts contained in the
record before the Board, and in the light of the factors set forth
in section 3(c) of the Act, it is the Board's judgment that the proPosed acquisition would be consistent with the public interest and
that the application should therefore be approved.
IlaY 16, 1966.
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Federal Reserve Bank of St. Louis
1737
Item No. 6
5/16/66
DISSENTING STATEMENT OF GOVERNOR ROBERTSON
I have voted to deny this application essentially for
the reasons set forth in my statement of dissent from the Board's
action approving Applicant's formation in November 1963.
At that
tillta I expressed the opinion that the Congress, in enacting the
1/4nk Holding Company Act, never intended that the statute be used
48 a vehicle for altering the banking structure of a State over
the expressed objection of that State, particularly where there was
rl° sa tisfactory showing that any benefit would likely inure to the
Pliblic from a proposed holding company formation.
Similarly, in the present case, the evidence of record
eleerlY establishes that the major banking needs of the Boulder area
ate now being served and that no cognizable public benefit will re-
from consummation of this proposal. On the contrary, it seems
elear to me that the further concentration of the banking resources
ill
the State under Applicant's control that will follow upon its
4111isition of The Mercantile Bank and Trust Company represents a
eitcumatence inimical to the public and directly contrary to the
elteesed policy of the State of Colorado favoring independent unit
banks.
The record in this case reflects the pride that the community
ctiotilder has in its status as an independent, growing community. In
ray 0
Pinion, the continued economic independence of Boulder becomes less
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Federal Reserve Bank of St. Louis
-2certain by the very real possibility that Applicant's ownership of
the Rercantile
Bank will result in a draining off of that bank's
dePosits, now presumably remaining in and primarily serving the
Boulder area, to serve the regional requirements of Denver U. S.
Iltional Bank. Mile access to these Boulder funds will afford
little competitive advantage to Denver U. S. National, removal of
Such funds from Boulder could have a significantly adverse effect on
the medium and small size business credit needs that Applicant asserts
Ilould be served by this
proposal.
Finally, Applicant's acquisition of ilercantile will further
the
existing concentration of banking resources in a few large Denver
bank
s and will constitute, as at the time of Applicant's formation, an
°Pen invitation to increase that concentration.
The State's expressed
cl1Positi0n to such a resulting banking structure, when combined with
the other adverse features of this proposal, leaves, in my judgment,
4° al
ternative to denial of the application.
Ilay 15, 1966.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 7
5/16/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
OFFICE OF THE CHAIRMAN
May 16, 1966.
The Honorable William L. Dawson,
Chairman, Committee on Government Operations,
House of Representatives,
Washington, D. C. 20515.
Dear Mr. Chairman:
This is in response to your letter of March 24, 1966,
concerning the Twenty-Second Report by the Committee on Government Operations, entitled "Federal Reserve System--Check Clearance
Float." Your letter noted that this report contains three
recommendations, and requested any comments the Board might care
to make in regard to these recommendations and in particular in
regard to any action which has been taken or proposed to
implement them.
The subject report recommends in substance that the Board:
(1) Establish quantity and time goals for float elimination
through technological developments, and, if such
developments do not meet expectations, consider the
advisability of adopting a plan for immediate charges
and credits on checks or for time schedules which
approximate actual collection times.
(2) Develop records that would indicate the proportionate
use member banks make of float as reserves so that,
if efforts to reduce float fall short of expectations,
a study can be made to determine whether charges should
be assessed against banks in proportion to the benefits
they derive from float.
(3) Coordinate the System's ADP equipment planning and
acquisitions with the rest of the Government, as
contemplated by Public Law 89-306.
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Federal Reserve Bank of St. Louis
The Honorable William L. Dawson
-2-
-I 710
Prior to the receipt of your letter of March 24, 1966,
the System had started several studies, which on a long-term basis,
are directed toward minimizing float and improving the payments
mechanism. Some should yield results within a year or so, while
Others deal with possible changes that would take longer to put
into effect.
The following actions have already been taken as part
of these studies:
(1)
Procedures are now under way for a new and much more
elaborate float survey at each of the 36 Federal Reserve
offices. The purpose is to identify and quantify the
components of total float for each day during the month
of September. This is the earliest possible survey date
in light of the magnitude of the job and the float
characteristics to be studied.
(2)
Plans are being developed to determine the possible
areas throughout the country in which regional clearing
facilities might be expanded or established, along with
the cost and benefits of such undertakings. This is a
longer range undertaking for which it is now impracticable to set a time table.
(3)
Several suggestions for changes in Reserve Bank
operating procedures to reduce float are now being
evaluated. Some of these--such as increased use of
trucks for deliveries of checks, and arrangements for
automatic payments therefor--are being adopted on a
limited scale but will be pushed more vigorously.
Other possibilities--such as special handling for
items not encoded--hold future promise.
The Board recently discussed your letter of March 24,
9663 with the Presidents of the various Federal Reserve Banks.
!
4t was the consensus of this discussion that further decisions
with respect to possible steps to reduce float should proceed
after the development of information from the undertakings
mentioned above.
The Board has cooperated with other Government Agencies
matters concerning equipment planning and acquisitions, and
will continue this practice.
on
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
Item No. 8
5/16/66
OFFICE OF THE CHAIRMAN
May 16, 1966
The Honorable James J. Saxon,
Comptroller of the Currency,
Treasury Department,
Washington, D. C.
20220
Dear Jim:
This is with further regard to the exchange of information
regarding National banks.
I can assure you that the Federal Reserve Banks will continue the practice, which they have followed for many years, of
fully and promptly advising the Regional Comptrollers of the Currency
(and their predecessors, the District Chief National Bank Examiners)
of any information coming to the Reserve Bank regarding a State
member bank that might affect a National Bank. One example of this
is a kiting operation involving both a State member bank and a
National bank. Another example is the fact that a State member bank
under common ownership or control with a National bank is receiving
more than usual supervisory attention.
In addition to needing to be advised of information regarding a National bank which might affect a State member bank, the
System has responsibility for administering the Federal Reserve discount
function in the public interest as to all member banks, both State and
National, and the System is under the following directive in the
Federal Reserve Act:
II...Each Federal reserve bank shall keep itself informed
of the general character and amount of the loans and investments of its member banks with a view to ascertaining
whether undue use is being made of bank credit for the
speculative carrying of or trading in securities, real
estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions;
and, in determining whether to grant or refuse advances,
rediscounts or other credit accommodations, the Federal
reserve bank shall give consideration to such information."
These responsibilities make it essential that the System
have full current information regarding National banks, particularly
the name of, and any developments with respect to, any National bank
receiving more than usual supervisory attention.
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Federal Reserve Bank of St. Louis
1742
The Honorable James J. Saxon
- 2
I understand that this subject is being considered by the
Subcommittee (Problem Banks) of the Coordinating Committee on Bank
Regulation, and I earnestly hope that further implementing arrangements can be promptly worked out to assure that the System will
obtain necessary information. In the meantime, I am sending the
Reserve Banks copies of this letter and your letter of March 3, 1966,
for their guidance, as I have also sent them copies of our earlier
correspondence on the subject.
Sincerely yours,
(Signed) Wm. lAcC. Martin, Jr.
Wm, McC. Martin,
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Federal Reserve Bank of St. Louis
1 4.
'
SOAR() OF GOVERNORS
•r 1141C
Item No. 9
5/16/66
FEDERAL RESERVE SYSTEM
°ffice Correspondence
Board of Governors
D ivision of
Examinations
0 fic
Date
May 11, 1966.
Reimbursement of travel expenses
incurred by Reserve Bank employees
borrowed to assist Board's examining
staff.
Subject:
Prompted in part by a question raised by one of the
Banks regarding the adequacy of the per diem paid in lieu of
Subsistence to
Reserve Bank employees borrowed by the Division of
txaminations to assist in examinations of Federal Reserve
Banks other
than their own, views cn the subject were exchanged between Examinations
and the Controller's Office. In the discussion, a suggestion
was made
that the travel expenses of employees loaned by a Reserve Bank be paid by
the employer Reserve Rank on the same basis as would have been allowed to
tihe employees
if they were traveling on bank business, rather than accordtng to the Board's travel regulations as heretofore. Also, to simplify
Reserve
processing of claims for reimbursement, it was suggested that each
the
ravel voucher and overtime claim eubmitted by a Reserve Bank employee be
audited and paid by the employing Reserve Bank, and that such Bank in turn
submit a claim to the Board that would supply
essential information but
without supporting documents.
The proposal that such an arrangement be substituted for that
currently in effect was forwarded on April 29 to all Federal Reserve Banks
!
xcePt the Federal Reserve Bank of San Francisco (from which personnel is
" t normally borrowed because of its distant location) with a request for
their views.
Replies have been received from ten of the eleven Banks, all of
1411(3m expressed concurrence with the proposal. Accordingly, approval of thc
ardis requested for the proposed arrangement
as outlined above and
'rcribed in the enclosure accompanying the attached proposed letter to the
serve Banks affirming the arrangement previously
suggested to them.
Attachment.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1744
EXPENSES REIMBURSABLE TO A FEDERAL RESERVE BANK IN CONNECTION WITH
SERVICES OF ITS EMPLOYEES IN ASSISTING THE BOARD'S EXAMINING STAFF
IN EXAMINATIONS OF OTHER FEDERAL RESERVE BANKS
(1) Travel Expenses
Transportation and subsistence expenses paid to
the designated employees by the employer Federal Reserve
Bank in accordance with such Bank's current rules and
regulations applicable to such employees, for travel on bank
business.
(2) Overtime
The actual amount of overtime compensation, if any,
applicable to the specific examination and paid by the Reserve
Bank in accordance with its prevailing policy for overtime
payments.
Note: It is requested that the claim forwarded by a Federal Reserve
Bank to the Board of Governors for reimbursement of expenses
incurred by the Bank's employees assisting in an examination
of another Federal Reserve Bank (1) identify the Reserve Bank
participated
examined and (2) list the names of the employees who
in the examination, showing for each (a) the dates his services
were used; (b) the amount of overtime paid, if any; and (c) the
and
amount of his travel expenses distributed among transportation
Other major subclassifications, (i.e., subsistence, hotels, etc.)
normally reported under the Bank's internal procedures.
Copies
Of expense vouchers or other supporting documents need not be
submitted.
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Federal Reserve Bank of St. Louis
@FedFRASER