The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for May 17, 1966
To:
Members of the Board
From:
Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is 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
f
Minutes of the Board of Governors of the Federal Reserve
System on Tuesday, May 17, 1966.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Shepardson, Acting Chairman
Mitchell
Maisel
Brimmer
Sherman, Secretary
Kenyon, Assistant Secretary
Holland, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research
and Statistics
Mr. Farrell, Director, Division of Bank Operations
Mr. Solomon, Director, Division of Examinations
Mr. Hexter, Associate General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Koch, Deputy Director, Division of Research
and Statistics
Mr. Partee, Associate Director, Division of
Research and Statistics
Mr. Gramley, Associate Adviser, Division of
Research and Statistics
Mr. Sammons, Associate Director, Division of
International Finance
Mr. Leavitt, Assistant Director, Division of
Examinations
Miss Wolcott, Technical Assistant, Office of
the Secretary
Mr. Via, Senior Attorney, Legal Division
Messrs. Egertson, Maguire, and Poundstone of the
Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Approved items.
The following items were approved unanimously
after consideration of background information that had been made available to the Board.
indicated.
Copies are attached under the respective numbers
5/17/66
-2Item No.
Letter to Chemical Bank New York Trust Company,
New York, New York, approving the establishment
of a branch in the Town of Greenburgh.
1
Letter to Union Trust Company of Maryland,
Baltimore, Maryland, approving the establishment of a branch in Chestertown.
2
Letter to Wells Fargo Bank, San Francisco,
California, granting an extension of time to
establish a branch in San Jose.
3
Letter to Bank of America, New York, New York,
granting consent to purchase additional shares
of Banca d'America e d'Italia, Milan, Italy.
4
Letter to the Federal Reserve Bank of New York
granting an extension of time to issue general
voting permits to (1) BT New York Corporation,
New York, New York, and (2) Charter New York
Corporation, also of New York City.
5
Letter to the Federal Deposit Insurance Corporation regarding the application of Midway Bank
& Trust, Cedar Falls, Iowa, for continuation of
deposit insurance after withdrawal from membership in the Federal Reserve System.
6
Application of Citizens Bank and Trust Company (Items 7-8).
There had been distributed drafts of an order and statement reflecting
the Board's approval on May 9, 1966, of the application of Citizens
Bank and Trust Company, Clare, Michigan, to consolidate with The State
Bank of Coleman, Coleman, Michigan.
After discussion the issuance of the order and statement was
a uthorized.
and 8.
Copies of the documents, as issued, are attached as Items 7
I
5/17/66
14
-3Proposed legislation regarding certificates of deposit.
Pursu-
ant to the understanding at yesterday's meeting, there had been prepared
a revised letter to the Chairman of the House Banking and Currency Committee reporting on 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 time deposits in amounts of less than $15,000.
The letter
expressed a conclusion that the public interest would not be served by
Passage of either bill.
It had been understood at yesterday's meeting that the letter,
in its present form, was authorized for transmittal to the Committee
Chairman.
In light of a subsequent development, however, the letter
had not been sent.
The letter pointed out that H.R. 14026 would prohibit banks
from issuing a class of liabilities distinguished from other types of
bank liabilities on the basis of a legal characteristic, the negotiability of the instrument.
The legal status of time certificates of
deposit as negotiable instruments was one of long standing.
Further-
more, in some sections of the country, certificates of deposit had
traditionally been an important instrument issued by smaller banks to
small savers.
Elimination of this type of deposit would thus adversely
affect not only a large number of smaller banks but also would deny a
traditional investment outlet to many individuals, businesses, and State
I 74
5/17/66
-4-
and local governmental units.
There appeared to be no logical basis
for prohibiting a class of deposits solely on the grounds of negotiability.
The letter further pointed out that H.R. 14422, in prohibiting
insured banks from issuing time deposits in denominations of less than
$15,000, would deny to the small saver the opportunity to earn rates of
interest on bank deposits higher than those on passbook savings deposits
While retaining this opportunity for investors of substantial wealth.
Such discriminatory treatment of small and large savers would appear
indefensible.
The letter noted that both of the bills were directed at the
s olution of problems emerging from the increase in recent years in
institutional competition for time deposit funds.
In recognizing such
Problems, however, the benefit of increased competition among financial
intermediaries, namely, a more efficient functioning of financial markets,
With resultant higher rates on deposit-type savings, should not be overlooked.
The Board recognized that current financial developments war-
ranted careful study, and it was keeping the competitive situation under
continuing surveillance.
However, Congressional action of the kind
e nvisaged by bills H.R. 14026 and H.R. 14422 appeared to be unwise.
In opening today's discussion, Mr. Cardon reported that Governor
Robertson had informed him yesterday afternoon that the Treasury was considering the submission of a proposal that would authorize the Board of
A
5/17/66
-5-
Governors and the Federal Deposit Insurance Corporation to impose lower
rate ceilings on time and savings deposits that were under the maximum
($10,000) amount eligible for deposit insurance.
Mr. Cardon understood
from his conversation that both Governor Robertson and Chairman Martin
were willing to go along with the Treasury's suggestion, and Governor
Robertson had asked that Mr. Cardon determine whether the Board would
favor including such a proposal in its statement to be made at the
hearings before the Banking and Currency Committee.
Mr. Cardon then
distributed copies of the Treasury proposal, which would amend section 19,
Paragraph 14, of the Federal Reserve Act by adding, immediately following
the first sentence thereof, a new second sentence as follows:
"In addi-
tion, the said Board may prescribe for time and savings deposits which
do not exceed in amount the maximum which may be insured by the Federal
Deposit Insurance Corporation an interest rate limit lower than the maximum rate or rates prescribed for other time and savings deposits."
The
Federal Deposit Insurance Act would be similarly amended.
Mr. Hackley then reported a telephone call he had received from
Chairman Martin this morning during which the Chairman indicated that he
and Governor Robertson felt that if anything was to be done, the suggestion proposed by the Treasury perhaps offered the most reasonable approach.
Chairman Martin realized that this would be inconsistent with the statement in the proposed letter to Chairman Patman to the effect that discriminatory treatment against small savers would appear indefensible.
The
I
5/17/66
-6-
Chairman suggested, however, that some rationale possibly could be
developed on the ground that time certificates of less than $10,000
could still be permitted to earn a rate higher than that paid on savings deposits.
During discussion of the proposal a number of questions were
raised, one being whether the higher rate that could be paid on time
deposits over $10,000 would apply to the entire amount of the deposit
or only on that portion in excess of $10,000.
Comments by members of the Board pointed up the fact that the
Proposal was difficult to evaluate on short notice, particularly in
view of the questions of interpretation that were involved.
In general,
the initial reaction of members of the Board was one of some skepticism;
t was not clear that the proposal would be particularly effective as
an instrument for dealing with problems that it was apparently intended
to meet.
Also, while such legislation, if enacted, apparently would be
permissive rather than mandatory, it might be expected that there would
be a presumption of its use, which led to the question whether a failure
to take a position on the proposal at this time would be tantamount to
a commitment to use the authority if it should be provided.
Members of
the Board expressed the view that further information concerning the
background of the proposal and how the language was to be interpreted
would be helpful in forming a firm opinion.
The consensus that emerged was that the Board should not take a
Position of sponsoring the proposal, but that, on the other hand, the
80ard should not at this time actively oppose it.
5/17/66
-7There followed some discussion of alternate approaches to the
mortgage market problem that would appear more effective, including
direct injection of funds into that market.
There was also some dis-
cussion of steps that might be taken by the Board, if thought desirable,
under existing legislative authority.
A predominant strain running through the couunents by members of
the Board was that the Treasury proposal would appear to run counter to
the Board's position against discriminatory treatment of small savers,
a fact not obscured by the linking of the proposal to the deposit insurance theory.
At the end of the discussion it was agreed that Mr. Cardon would
advise the Treasury of a Board consensus against actively supporting the
Treasury proposal but, on the other hand, not taking a stand in opposition.
It was understood that Mr. Cardon also would attempt to obtain
C larification of the manner in which the Treasury interpreted the language of the proposal.
It was brought out during the discussion that consideration now
seemed advisable of certain portions of the letter to the Chairman of
the Banking and Currency Committee, with a view to leaving the position
of the Board somewhat more flexible pending further developments.
There
was general agreement, on this account, that the language of the letter
which referred to a differential treatment of savers based solely on
size of deposit as being indefensible should be softened somewhat.
5/17/66
-8Attention also was given, in this connection, to the distrib-
uted draft of statement to be presented by Vice Chairman Robertson on
behalf of the Board before the Banking and Currency Committee.
Several
suggestions were made regarding the statement, principally to bring it
into harmony with the tone of the Board's letter.
It was understood
that these suggestions would be taken into account, along with any
Others sent directly to Mr. Brill, in preparing a revised version of
the testimony.
It was brought out, among other things, that the statement was
limited essentially to points on which a general Board position had been
achieved, that it could not be foretold what questions might be directed
to individual members of the Board at the hearings, and that if questions
should be asked relating to points on which the Board had not reached
a greement, the members of the Board would make clear that their replies
reflected personal convictions.
Foreign travel.
Governor Shepardson referred to an invitation
dated April 25, 1966, that Chairman Martin had received from the President of the Bank of Guatemala to attend the ceremonies incident to the
inauguration of new headquarters of that bank, to be held May 27-29.
Mr. Sammons, Associate Adviser, and Mr. Nettles, Economist,
Division of International Finance, were authorized to represent the
Hoard at the functions in Guatemala, with the understanding that they
would receive per diem in accordance with the standardized Government
travel regulations.
I `;'‘'',(7',
5/17/66
-9The meeting then recessed and reconvened at 12:15 p.m. with the
following in attendance:
the same members of the Board as earlier and
Messrs. Sherman, Kenyon, Holland, Molony, Cardon, Hackley, and Brill
of the staff.
Proposed legislation regarding certificates of deposit.
Governor
Brimmer reported additional information that he had received from Under
Secretary of the Treasury Barr regarding the Treasury proposal that had
been discussed by the Board at this morning's session.
In summary, it
appeared that Secretary Fowler, acting pursuant to a White House request
against the background of reports being received that a potentially dangerous situation might be developing with regard to savings and loan
associations and the housing industry, had organized a task force including representatives of the Treasury, the Council of Economic Advisers,
and the Budget Bureau to develop an Administration proposal.
The task
force had reportedly considered various alternatives, and the proposal
of which the Board was advised this morning reflected the resulting compromise.
The Treasury was now seeking to obtain the support of the
regulatory agencies, and it had been determined that the Secretary of
the Treasury would take the leadership in submitting the proposal to
the House Banking and Currency Committee.
A question that arose in this
connection was whether, if the Secretary was able to arrange with the
C°111mittee to appear before that body tomorrow, the Board would have any
°bjection to a rescheduling of the appearance of the Board members to
a later date.
5/17/66
-10It was noted that the Board's letter reporting on the two bills
under consideration by the Committee had not yet been sent, and in the
circumstances reported by Governor Briminer there was general agreement
that it would be desirable to withhold transmittal of the letter.
At this point Governor Brimmer left the room to take a telephone
call from Mr. Sternlight of the Treasury.
Upon his return he stated, in
response to a question, that the Treasury had in mind, if the Secretary's
Proposal should be adopted, that the maximum interest rate on savings
deposits would remain at 4 per cent, the maximum rate on certificates
of deposit in denominations up to $10,000 would be fixed at 5 per cent,
and the current maximum rate of 5-1/2 per cent would be continued on
certificates in denominations over $10,000.
In reply to another ques-
tion, Governor Brimmer said that he had not inquired whether it was
intended that the lower maximum rate would be applicable to the first
$10,000 of a deposit in excess of such amount and that this information
was not volunteered.
There followed discussion of the likely competitive effect of
imposing a 5 per cent limit on certificates of smaller denominations
issued by banks.
In this connection reference was made to a package of
actions to be announced by the Home Loan Bank Board this afternoon.
These
actions, mention of which had been made by Governor Maisel at this morning's session, would allow savings and loan associations in California
and Nevada to pay up to 5 per cent on regular passbook savings accounts
r.
5/17/66
r-
-11-
beginning July 1 and would allow all associations previously permitted
to pay up to 5 per cent on certificates of $2,500 or more kept intact
for six months, now to pay such rate on certificates of $1,000 or more.
For the country generally, a rate of up to 4-3/4 per cent would be
allowed on certificates of $1,000 retained for six months (instead of
the current 12 months).
Another part of the package would reduce to
as low as 6 per cent the amount of an association's savings accounts
that must be kept idle in a liquidity reserve.
Members of the Board
and staff expressed the view that these actions probably would not be
Particularly effective in deterring a flow of funds from savings and
loan associations, either to commercial banks or to market instruments.
The Acting Chairman then returned to the question whether the
Board would have any objection to a rescheduling of its appearance
before the Banking and Currency Committee, and it was agreed that there
would be no objection.
On the matter of the Board's position regarding the Treasury
Proposal, Governor Shepardson said it would seem to him that if the
Secretary of the Treasury went before the Committee with an Administration proposal substantially in the form presented to the Board, the
Board's position should be essentially one of neutrality rather than
active opposition.
Governor Shepardson also commented that the Board
would not have to make a commitment at present to use the authority if
it became available.
5/17/66
-12Question then was raised about the identity of the reports
apparently being received by the Administration concerning savings and
loan problems in certain areas and concerning mortgage market conditions.
The view was expressed that it would be desirable for the Board to accumulate as much information as possible by the time of its appearance
before the Banking and Currency Committee.
As a result, it was decided
that information on mortgage market developments in the respective districts should be requested from the Federal Reserve Banks, with initial
capsule reports by the end of this week.
Governor Shepardson said thereafter that he would try to talk
again with Chairman Martin by telephone, and then inform the Treasury
that the Board would be glad to have the Secretary appear in place of
the Board at the hearings on Thursday if the Treasury could arrange this
With the Committee.
He would also advise the Treasury that as of this
time the Board was not prepared to endorse the Treasury proposal, but
would not raise objection.
There ensued further discussion of the matter of implementing
the proposal if it should be passed, and some of the members of the
Board commented that by such time the Board should be in receipt of sufficient additional information to make a better determination on the need
for use of such authority.
Question was raised about the possibility of discussing the pro"sal further with the Treasury, if that seemed desirable, and Governor
Brimmer observed that the basic negotiations appeared already to have
r
5/17/66
-13-
been completed.
Aside from the meeting attended yesterday afternoon
by the Chairman and Vice Chairman of the Board, these negotiations had
not included the Federal Reserve.
Comments also were made on the longer-run implications of the
Passage of such a proposal in terms of the framework within which the
Board exercised its responsibility for the formulation of monetary policy.
The views of members of the Board differed in this regard.
It
appeared to be the prevailing sentiment, however, that such implications might be more significant except for the limited scope of the
Treasury proposal.
Governor Shepardson, in summarizing, noted the differences of
()Pinion revealed by the foregoing discussion.
There seemed clearly to
be general agreement, he added, that the Board should not sponsor the
Proposal.
On the other hand, while doubts might exist regarding the
efficacy of the proposal or its desirability, the Board was not disposed
to oppose it.
Neither, however, was the Board making a commitment on
use of the authority should it become available.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board a
memorandum from the Division of Personnel
Administration recommending acceptance of
the resignation of Ann W. Raybold, Employment Technician in that Division, effective
the close of business June 3, 1966.
Secretar
a;(
BOARD OF GOVERNORS
Item No. 1
5/17/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
ACORES! °maim. CORRESPONDENCE
TO THE SOARS
May 17, 1966
Board of Directors,
Chemical Bank New York
Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Chemical Bank New
York Trust Company, New York, New York, of a branch in
the Masters Discount Center, Saw Mill River Road, Town
of Greenburgh (unincorporated area), Westchester 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.)
1759
BOARD OF GOVERNORS
Item No. 2
5/17/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
A0011(155 OFINCIAL CORAIESPONOICNCIE
TO THIC •OARD
May 17, 1966
Board of Directors,
Union Trust Company of Maryland,
Baltimore, Maryland.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Union Trust Company
of Maryland, Baltimore, Maryland, of a branch in the
Kent Plaza Shopping Center, Chestertown, Maryland, provided the branch is established within one year from
the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
Item No. 3
5/17/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orrsciAL CORRESPONOENCE
TO THE SOAR!)
May 17, 1966
Board of Directors,
Wells Fargo Bank,
San Francisco, California.
Gentlemen:
The Board of Governors of the Federal Reserve
System extends to August 26, 1966, the time within which
Wells Fargo Bank, San Francisco, California, may establish
a branch in the vicinity of the intersection of Camden and
Hillsdale Avenues, San Jose, California.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 4
5/17/66
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 17, 1966.
Bank of America,
41 Broad Street,
New York, New York.
10015
G
entlemen:
As requested in your letter of April 1, 1966, the Board
?f Governors grants consent for your Corporation to increase its
tnvestment in Banca d'America e d'Italia
("BAI"), Milan, Italy, by
Purchase of additional shares to be issued, at a cost of approximately US$150,000, provided such shares are acquired within one
Year from the date of this letter.
The Board also approves the purchase and holding of shares
nf BAI within the terms of the above consent in excess of 15 per
cent of your Corporation's capital and surplus.
The foregoing consent is given with the understanding
that the investment now being approved, combined with other foreign
Ii°ans and investments of your Corporation and Bank of America
o tional Trust and Savings Association, will not cause the total
such loans and investments to exceed the guidelines established
:nder the voluntary foreign credit restraint
effort now in effect
unld that due consideration is being given to the priorities contained
e erein. The Board considers that compliance with the priorities
txPressed in Guideline 4 would require that total nonexport credits
a° d eveloped countries in Continental Western Europe not exceed the
,?nnt
i
of such loans and investments as of the end of 1965, unless
,"" can be done without inhibiting the bank's ability to meet all
a
sonable requests for priority credits within the over-all target.
j
Very truly yours,
(Signed) Karl E. 131(ke
Karl E. Bakke,
Assistant Secretary.
1962
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 5
5/17/66
WASHINGTON, O. C. 20351
ADDRESS OFFICIAL CORRESPONDENCE
TO THE 010ARD
May 17, 1966
Mr. William A. Braun, Jr.,
Assistant Vice President,
Federal Reserve Bank of New York,
New York, New York 10045.
Dear Mr. Braun:
This refers to your requests for an extension of
authorized
time within which you may issue general voting permits,
in the Board's wires of April 18, 1966, to (1) BT New York Corporation,
New York, New York, to June 15, 1966, and (2) Charter New York Corporation, New York, New York, to July 7, 1966.
Please be advised that the requested extensions have been
granted.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 6
5/17/66
WASHINGTON, O. C. 20551
ADORERS OFFICIAL CORRESIPONDENCE
TO THE BOARD
May 17, 1966
The Honorable K. A. Randall, Chairman,
Federal Deposit Insurance Corporation,
Washington, D. C. 20429
Dear Mr. Randall:
Reference is made to your letter of May 5,
1966, concerning the application of Midway Bank & Trust,
Cedar Falls, Iowa, for continuance of deposit insurance
after withdrawal from membership in the Federal Reserve
System.
There have been no corrective programs urged
upon the bank, or agreed to by it, which have not been
fully consummated, and there are no programs that the
Board would advise be incorporated as conditions of
admitting the bank to membership in the Corporation as a
nonmember of the Federal Reserve System.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
1 764
Item No. 7
5/17/66
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
CITIZENS BANK AND TRUST COMPANY
for approval of consolidation with
The State Bank of Coleman
ORDER APPROVING CONSOLIDATION OF BANKS
There has come before the Board of Governors, pursuant to the
Bank Merger Act, as amended (12 U.S.C. 1828(c), Public Law 89-356), an
aPPlication by Citizens Bank and Trust Company, Clare, Michigan, a State
member bank of the Federal Reserve System, for the Board's prior approval
of the consolidation of that bank with The State Bank of Coleman, Coleman,
Ilichigan, under the charter and title of Citizens Bank and Trust Company.
As an incident to the consolidation, the sole office of The State Bank
°f Coleman would become a branch of the resulting bank.
Notice of the
Proposed consolidation, in form approved by the Board, has been published
Pu suant
to said Act.
Upon consideration of all relevant material in the light of
the factors set forth in said Act, including reports furnished by the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
G5
-2-
and the Attorney General on the competitive factors involved in the
Proposed consolidation,
IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that said application be and hereby
is approved, provided that said consolidation shall not be consummated
(a) before the thirtieth calendar day following the date of this Order
or (b) later than three months after said date.
Dated at Washington, D. C., this 17th day of May, 1966.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Robertson, Shepardson, Mitchell, Daane,
Maisel, and Brimmer.
(signed)
Merritt Sherman
Merritt Sherman,
Secretary.
sEAL)
1 766
BOARD OF GOVERNORS
Item No. 8
5/17/66
02 THE
FEDERAL RESERVE SYSTEM
APPLICATION BY CITIZENS BANK AND TRUST COMPANY
FOR APPROVAL OF CONSOLIDATION WITH
THE STATE BANK OF COLEMAN
STATEMENT
Citizens Bank and Trust Company, Clare, Michigan ("Citizens
Bank"), with total deposits of about $13 million, has applied, pursuant to
the Bank Merger Act, as amended (12 U.S.C. 1328(c), Public Law 89-356),
ior the Board's prior approval of the consolidation of that bank with
The State Bank of Coleman, Coleman, Michigan ("Coleman Bank"), which has
tota: deposits of about
mi1lion.1/—
The banks would consolidate
under
the charter and name of Citizens Bank, which is a member of the Federal
Reserve System. As an incident to the transaction, the sole office of
Coleman Bank would become a branch of Citizens Bank, increasing the
number of its offices to three.
Competition. - The head office of Citizens Bank is in Clare,
4 tOWn
with an estimated population of 2,500, which is located in Clare
County about 30 miles north of Lansing.
The bank operates a branch at
Rosebush, a community of approximately 300 persons, which is located
about eight miles south of Clare. Several industrial plants in Clare
Provide employment for a total of about 900 persons, and a number of
Figures are as of December 31, 1965.
-2-
1767
local residents commute to work in iiidland or Mount Pleasant, which are
located, respectively, about 30 milessoutheast and 20 miles south of
Clare.
The area surrounding Clare is primarily agricultural.
The sole office of Coleman Bank is in Coleman, a town with
an estimated population of 1,300, which is located in Midland County
about 10 miles southeast of Clare on the interstate highway that connects
Clare and Midland. Some industrial employment is provided by a plastics
firm in Coleman, but many residents commute to work in Midland, and some
to Clare.
The area surrounding Coleman is primarily agricultural.
The relevant area for the purpose of considering the effect
Of the proposed consolidation on competition consists of the major
Portions of Clare, Isabella, Midland and Gladwin Counties. Within this
area there are 17 offices of 10 banks which compete with Citizens Bank
‘ar Coleman Bank, or both of them.
There is no evidence that any of these
° fices would be adversely affected by the consolidation.
There are no banking offices in the area that separates Citizens
Rank and Coleman Bank. Citizens Bank derives approximately two per cent
2/
°f its deposits and four per cent of its loans from the service area
Coleman Bank, and the latter obtains about six per cent of its deposits
and 10 per cent of its loans from the service area of Citizens Bank. It
appears that competition between the two banks would be somewhat greater
The area from which a bank derives 75 per cent or more of its deposits
1/41K individuals, partnerships and corporations.
-3-
except for the nonaggressiveness of Coleman Bank.
176S
The proposed
transaction would eliminate existing and potential competition between
the participating banks.
In terms of total deposits, Citizens Bank ranks fourth among
the 12 banks that operate offices in the relevant area, and the proposed
consolidation would not alter its rank in this respect.
After consum-
mation of the proposal, Citizens Lank would hold 12.5 per cent of the
deposits and 13 per cent of the loans held by all banking offices in
the relevant area.
Gladwin County Bank, located at Beaverton, competes
with Coleman Bank and is closely associated with Citizens Bank through
common management.
If the deposits of Gladwin County Bank are included,
then, following the consolidation, Citizens Bank would account for
15.7 per cent of the area's total bank deposits.
The first and second
largest banks in the area presently hold, respectively, about 34 per cent
and 15 per cent of such deposits.
The consolidation would foreclose competition between the
Participating banks and result in the elimination of a unit bank from
the relevant market area.
However, in view of the small size of Coleman
13enk and the fact that Citizens Bank would not gain a dominant position
in the relevant market,
but would continue to be subject to effective
"mpetition from a number of other banks, it is concluded that the effect
°f the consolidation for banking competition would not be significantly
adverse.
-4.-
1769
Financial and managerial resources and future prospects. The banking factors, as they relate to Citizens Bank, are satisfactory
and would not be adversely affected by the proposed consolidation.
Coleman Bank has satisfactory financial resources, its prospects are
reasonably satisfactory, but could be improved substantially through
the adoption of more progressive operating policies.
The bank's stock
is closely held, and its chief operating officer plans to retire.
Although feasible alternatives may exist through which the same end
could be achieved, the proposed consolidation would assure the provision
of capable and progressive management for the office presently operated
by Coleman Bank.
Convenience and needs of the communities. - Compared to banks
with which it competes, Coleman Bank has a low ratio of loans to deposits.
There is evidence that, due to the restrictive lending policies of
Coleman Bank, many residents of the area it serves have had to secure
loans elsewhere. Coleman Bank does not offer trust services. While a
variety of banking services are available from competing banks in the
relevant area, a wider range of banking services such as would be
Provided by Citizens Bank would enhance the banking convenience of the
Coleman community.
The banking convenience and needs of the Clare community
yould not be appreciably affected by the consolidation.
-5-
1_770
Summary and conclusion. - In the judgment of the Board, the
proposed consolidation would benefit the convenience of the residents
of the Coleman area by affording them easy access to a more progressively
operated banking office; at the same time, there would be no significantly
adverse consequences for banking competition.
Accordingly, the application is approved.
May 17, 1966.
@FedFRASER