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Minutes for To: Members of the Board From: Office of the Secretary May 18, 1961 Attached is a copy of the minutes of the Board of Governors Of the Federal Reserve System on the above date. It is proposed to place in the record of policy actions required to be kept under the provisions of Section 10 of the Federal Reserve Act an entry covering the item in this set of 411nutes commencing on the page and dealing with the subject referred to below: Page 4 Amendment to Regulation F Should you have any question with regard to the minutes, 12t will be appreciated if you will advise the Secretary's Office. utherwise, please initial below. If you were present at the fleeting, your initials will indicate approval of the minutes. If u were not present, your initials will indicate only that you lore seen the minutes. r Chm. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Minutes of the Board of Governors of the Federal Reserve System on Thursday, May 18, 1961. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Mills Robertson Shepardson King Mr. Kenyon, Assistant Secretary Miss Carmichael, Assistant Secretary Mr. Shay, Legislative Counsel Mr. Fauver, Assistant to the Board Mr. Beckley, General Counsel Mr. Noyes, Director, Division of Research and Statistics Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration Mr. Connell, Controller Mr. Hooff, Assistant General Counsel Mr. Brill, Associate Adviser, Division of Research and Statistics Mr. Daniels, Assistant Director, Division of Bank Operations Mr. Masters, Associate Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Items circulated to the Board. The following items, which had be 4 circulated to the Board and copies of which are attached to these ' Intrultes under the respective item numbers indicated, were approved 44allimously: Item No. tett 4 er to the Federal Reserve Bank of St. Louis , VYIng the waiver of a penalty incurred by or t°11 National Bank, Fulton, Missouri, because 4 deficiency in its required reserves. ; 1 014 4— on.rif ' 5/18/61 -2Item No. Letter to Metropolitan State Bank, Chicago, Illinois, approving an investment in bank Premises. 2 Letter to the Comptroller of the Currency recommending unfavorably with respect to an aPPlication to organize a national bank at Walnut Grove, Missouri. 3 Letter to the Comptroller of the Currency recommending unfavorably with respect to an ePPlication to organize a national bank at Aur°17a, Colorado. 14. Letter to Union Bank, Los Angeles, California, tilProving the establishment of a branch in the nity of Colorado Boulevard and Lake Street, raeadena. 5 :ettier to Chase Manhattan Overseas Corporation, , , 11e14 York City, consenting to the establishment a branch in Durban, Union of South Africa, "1 r The Chase Manhattan Bank (South Africa) 44imited. 1 6 Letter to the Federal Reserve Bank of Chicago 40ti 2 1 4g without objection action by the directors or; that Bank authorizing two officers to make a ' 111) abroad. 7 Inquiry regarding a savings account plan. There had been circu- leted to the members of the Board a draft of reply to the Federal Reserve Of Chicago in response to an inquiry regarding a so-called "Variable SEtlringe Account Plan" to be offered by Exchange National Bank of Chicago, Chicago, Illinois, which would combine (1) savings, (2) investments in Ilitittlea funds, and (3) insurance. The reply would indicate that from 5/18/61 -3- the standpoint of the maintenance of savings accounts the only unusual feature of the plan appeared to be the prohibition against partial withdrawals, which was somewhat counterbalanced by the privilege of borrowing against the account as security. Therefore, assuming that all requirements of Regulation Q, Payment of Interest on Deposits, had been met, there would seem to be no reason why a depositor could not °en a savings account as a part of the plan. The letter would suggest, however, that Exchange National Bank turn to the Comptroller of the C4rrency for advice on other aspects of the plan, particularly whether national bank may act as agent for a customer by investing a certain cull°1-ult monthly in mutual funds and purchasing term insurance under a 13°11cY issued by an independent company. In discussion of the proposed plan, members of the legal staff not as as far as Regulation Q was concerned, the use of a savings deposit Part of the arrangement did not appear to present any significant ill'°blem. Other aspects of the plan would seem to be within the purview t the Comptroller of the Currency, rather than the Board, since a Illiti°nal bank was involved. The suggestion then was mane that the Board defer action on the illatter until the staff could discuss the plan with the Office of the e°11113tro1ler of the Currency, and there was agreement with this suggestion. Report on competitive factors vani.„ (Thompsontown--Mifflin, Pennsyl- A draft of report to the Comptroller of the Currency on the 5/18/61 -4- competitive factors involved in the proposed consolidation of The Parmers National Bank of Thompsontown, Thompsontown, Pennsylvania, and The Peoples National Bank of Mifflin, Mifflin, Pennsylvania, had been distributed under date of May 12, 1961. The report concluded as follows: The bank resulting from the proposed merger of The Farmers National Bank of Thompsontown and The Peoples National Bank of Mifflin would be the largest in the area; however, it would not have an undesirable competitive advantage. The proposed merger Should have no adverse effect on competition. There being no objection, the report was approved unanimously for tIltasinittal to the Comptroller. Mr. Leavitt then withdrew and Mr. Molony, Assistant to the Board, eat ered the room. Amendment of Regulation F (Item No. 8). Pursuant to Board Eletion on April 20, 1961, a letter was sent to the Comptroller of the rerloY asking for comments on a draft of amendment to section 12 of elll ' ation F, Trust Powers of National Banks, which would have the effect rmitting national banks to "earmark" trust securities for vault ellat°14' purposes as an alternative to the physical separation of such is trities, one trust from another, as heretofore deemed to be required by the provisions of section 12. In a letter dated April 28, 1961, the Office of the Comptroller eX.1)1'*ssed general agreement with the proposed amendment but suggested that the language thereof be revised in two respects. 5/18/61 In a memorandum dated May 9, 1961, from Mr. Masters, which had been circulated to the members of the Board, it was indicated that the Board's staff was inclined to agree with one of the Comptroller's suggestions but believed it would be preferable, for reasons stated, ric4 to make the other suggested change. There was attached to the May 9 memorandum a revised draft of the proposed amendment to section 12 of Regulation F. Following comments by Mr. Masters, the amendment to Regulation F 1.1E18 aPproved unanimously in the form submitted with the May 9 memorandum, effective May 18, 1961, with the understanding that a notice in the form attached as Item No. 8 would be published in the Federal Register. Messrs. Hooff and Masters then withdrew and Mr. O'Connell, Assistant General Counsel, entered the room. Report on S. 1688 (Item No. 9). There had been circulated to the members of the Board under date of May 9, 1961, with a covering ille/31°1"andurn from the Legal Division, a draft of letter to Chairman MQelellan of the Senate Committee on Government Operations, replying to equest for the Board's views on S. 1688, a bill "To establish a bep, -,- Lment of Consumers in order to secure within the Federal Government "reetive representation of the economic interests of consumers; to dillate the administration of consumer services by transferring to Lich Department certain functions of the Department of Health, Education, ttici Welfare, the Department of Labor, and other agencies; and for other 1311r1,, z."0ses." e': If01Z 47,1 5/18/61 -6It was noted in the memorandum that this bill was the same as 7024 and S. 1571, on each of which the Board had reported on Jtille 7, 1960. Submitted with the memorandum was a proposed report on S. 1688 which was identical with the 1960 reports. The proposed reply l'iould indicate that the Board believed it would be preferable to consider legislation addressed directly to problems connected with efforts to Protect the economic interests of consumers rather than to the creation a new department whose statutory responsibilities might be difficult to define. During a general discussion of the bill, questions were raised 8.4C1 commented upon concerning the value of establishing a Department of C°11sumers and the functions that such a Department might be expected to 13erfc)rm. It was noted that the proposed legislation involved an area 8°14ewhat beyond the ordinary scope of the Board's functions. In the Ire umstances, a suggestion was made that it might be preferable not to e)(br ess views on the bill unless the Senate Committee should actively rellew its request for such views. However, Mr. Shay noted that in e°411ection with the similar legislation proposed in 1960 there had been sPecific request for a report. He believed that this might also be the case with respect to S. 1688. Accordingly, the proposed letter concerning S. 1688 was approved 44 . 443-Piously. A copy is attached as Item No. 9. 5/18/61 _7.. Report on draft bill to provide credit insurance (Item No. 10). There had been distributed to the members of the Board a draft of letter to the Bureau of the Budget replying to a request for the Board's views °4 a draft bill proposed by the Department of Commerce "To provide g°1rernment industrial modernization credit insurance, and thereby make credit facilities more readily available for the modernization of the nEttion's industrial economy, stimulate increased productivity and growth the domestic and foreign commerce of the United States, and for other in P4rPoses." The proposed reply would state that the Board would not tEtvor adoption of the proposed program in its present form, for reasons Set forth in the letter. After discussion, unanimous approval was given to the proposed letter, subject to minor editorial changes. A copy of the letter, as seat, is attached as Item No. 10. Messrs. Shay, Noyes, and Brill then withdrew from the meeting. Permanent assignment of hearing examiner. Pursuant to Board 41ct3.orl on march 23, 1961, the Civil Service Commission was asked to rawte a survey of the need for appointment of a hearing examiner to the --" s staff. at Governors Robertson and King dissented, for reasons stated “e time, from the decision to request the survey. In a memorandum dated May 17, 1961, from the Division of Personnel --nistration, which had been distributed to the members of the Board, -8- 5/18/61 it was reported that the Civil Service Commission had now certified an aPProved classification for a hearing examiner position in the Board's organization. Therefore, it was recommended in the memorandum that the Board approve the establishment of a position of Hearing Examiner-General (Series and Grade GS-935-15), that the position be assigned to the B°13-ri Members' Offices, and that the Division of Personnel Administration, with the advice of the Legal Division, recruit to fill this position. According to provisions of Title 5 of the United States Code, the appointment, assignment, removal, and compensation of hearing examiners 18 under the jurisdiction of the Civil Service Commission. Any hearing eXaminer appointed by the Board would be given the same rights and Privileges as are made available to other hearing examiners in Governagencies having such positions. With regard to Federal Employees' group Life Insurance, employee health benefits, and annual and sick leave) the position would carry with it the same substantive rights 8°1 privileges as if the incumbent were being hired in an agency under Civil Service. This would include the right of continuing in active l'*vice to age 70. The rate of compensation for the position of hearing elcalliner at the Board would be prescribed by the Civil Service Commission, hich had determined the position to be in Grade GS-15. In the event, h A -ver, that salaries of hearing examiners as a group were raised by le@elation, the hearing examiner position at the Board, if established, ' ilc)Uld be placed in the equivalent salary range. This would be an 4 5/18/61 -9- exception to the Board's salary administration procedure, under which salaries in the range of Civil Service Grades GS-161 GS-17, or GS-18 are used for members of the official staff; and if the hearing examiner Position should be set above GS-15 in the future, this would not be c°nsidered an indication that the Board was utilizing the higher grade ranges for other than the official staff. In discussion of the matter, Governor Robertson reaffirmed the //tells he had expressed at the March 23 meeting, including the comment that there did not appear to him to be a full-time need for the services °t a hearing examiner and that, on the other hand, it might still be necessary to borrow examiners on some occasions. the However, having asked Civil Service Commission to make the survey, and the Commission 118"/ring certified an approved classification, it appeared that there might be little alternative at this point. Governor Shepardson noted that the conclusion reached by the 41111 Service Commission appeared to have been based on the information Irnished in the Board's letter of March 30, 1961, along with the record cl the extent of borrowing of hearing examiners by the Board in the Past. Mr. Johnson added that the Commission had apparently based its decision regarding grade classification on its knowledge of the nature °t the hearings held by the Board. yk) .4 or It 1 ) 0' -10- 5/18/61 Governor Mills then raised certain questions, for clarification, c04cerning the extent of control the Board would exercise over a hearing examiner assigned to its staff and the problems that might arise administratively due to the special status of hearing examiners as a group. In discussing these and other similar questions, Mr. Hackley l'ecalled that some months ago the Board had asked the Legal Division to exPlore whether it would be desirable for the Board to have its own hearing examiner. This study resulted in a memorandum dated March 8, 1961, reviewing the pros and cons of the matter. at Then, after discussion the March 23 meeting, the Civil Service Commission was requested to 1118Lke a survey as to the need for a permanent hearing examiner. At that ttrfle it had been thought that, if the Commission should reach a negative ciriclusion, the Board would be in a better position to continue to borrow examiners from other agencies as needed. On the other hand, it Ilas recognized that if the Commission should determine that there was a liee(1 for a full-time examiner on the Board's staff and the Board did not 411thorize such an appointment, it might be somewhat more difficult to c°ntinue to borrow examiners. Except for that qualification, however, the request for a survey was not regarded as binding the Board so far as rinal decision was concerned. Instead, the matter was to be considered tIllither by the Board in the light of the response of the Civil Service eol4Mission. •^1 -11- 5/18/61 After further discussion along this line, Chairman Martin asked for clarification as to whether hearing examiners were precluded from Undertaking other assignments, and Mr. O'Connell replied that they were not. The principal occupation of a hearing examiner was, of course, to conduct hearings. However, to the extent consistent with that function, the hearing examiner could be expected to perform such other appropriate as might be assigned to him by the Board. Mr. Hackley pointed out that a hearing examiner, if appointed, ehoUld not be associated with the Legal Division. ehould be responsible directly to the Board. Rather, the examiner In reply to a question, 141's Hackley gave several examples of kinds of assignments that it /42'ula seem appropriate for the Board to make to a hearing examiner on JAB staff. After additional comments had been made on various aspects of the Matter, Governor Shepardson referred to the services of Charles W. Schneider, Hearing Examiner at the National Labor Relations Board, who (311 several occasions had been loaned to the Board to conduct hearings. e rernor Shepardson went on to say that from informal conversations held " 117 Members of the Board's staff with representatives of the National 'Relations Board and with Mr. Schneider, there appeared to be a 141:3°1 k/setbility that Mr. Schneider might be available as Hearing Examiner tr BUch a position should be established at the Board. In the course of discussion concerning this possibility, Governor kills commented that he had been favorably impressed by the work of t -12- 5/18/61 Mr. Schneider, and that he thought it would be desirable to pursue the question of Mr. Schneider's availability. If he should not be available, Governor Mills suggested that the Board consider the matter again before Other contacts were made. Governor Robertson expressed a similar view with respect to Mr. Schneider, adding that his objection went to the question of establishing a hearing examiner position at the Board at the present time. In his °Pinion the procedure was unwise. Governor King said he also felt that the Board could afford to 414' establishing such a position, particularly in view of some of the c°131Plications that appeared to be involved in a decision of that kind *°111 an administrative standpoint. Like others who had spoken, he was tevorably inclined toward Mr. Schneider as an individual, and his eservations went to the establishment of the position. After further discussion, the establishment of a position of llng Examiner-General (Series and Grade GS-935-15) was approved, ' Ree Governors Robertson and King dissenting. It was understood that steps *)/1341 be taken to determine the availability of Mr. Schneider to fill this position, which would be assigned to the Board Members' Offices, 441 that arrangements for securing his services would be subject to 413131‘ova1 by Governor Shepardson. It was further understood that if Mr. Sch,„ —4sider should not be available, the matter would be considered further 13/'' the Board. The establishment of the position also constituted approval • -13- 5/18/61 Of any budget overexpenditure that might be occasioned by an appointment raade pursuant to the action. Applications involving bank mergers and bank holding companies. At the instance of Governor Mills, there was a brief discussion of pending bani holding company and bank merger applications, following which it was that the staff would submit a report on the current status of such tatters for the Board's information. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Memorandum from Louis S. Zeller, Computer Programmer, Division Or R n esearch and Statistics, requesting permission to serve as an instructor data processing at the Department of Agriculture Graduate School for 4e summer and fall semesters. ' the Memoranda from appropriate individuals concerned recommending following actions relating to the Board's staff: %ointments ba.. Betty Jane Abbott as Records Clerk, Office of the Secretary, with 11 41e annual salary at the rate of $4,1451 effective the date of entrance , 44)4 duty. Office of the Secretary, with haw MarY William Wahle as Records Clerk, annual salary at the rate of $4,04o, effective the date of entrance vyn duty. Loretta Brockway as Statistical Clerk, Division of Research and the rate of $4,145, effective thnstics, with basic annusl salary at -,kate of entrance upon duty. at ) 5/18/61 Azz2laIlTat.1 (continued) Barbara Carole Passel]. as Clerk-Stenographer in the Division of Personnel Administration, with basic annual salary at the rate of $4,040, effective the date of entrance upon duty. crease John E. Reynolds, Economist, Division of International Finance, from 2)730 to $13,730 per annum, effective May 28, 1961. 4, -&?-9.2Zance of resignation Marcia L. Mehl, Clerk-Stenographer, Division of Research and Statistics, tzrective at the close of business June 9, 1961. Assistant Secret BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 1 5/18/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 18, 1961 Joseph C. Wotawa, Vice President, .uederal Reserve Bank of St. Louis, 11 '0. Box 442, St. Louis 66, Missouri. Dear M. Wotawa: This refers to your letter of May 3, 1961, regarding a a47tna1ty of $5.64 incurred by the Fulton National Bank, Fulton, si4-sseuri, on a deficiency of $41,202.10 in its required reserves ],96 the biweekly reserve computation period ending December 28, IrJ15 . which was inadvertently waived by your Bank under the proof Paragraph C of the instruction in the Board's letter —4 ' 123 (F.R.L.S. 6120). It is noted that this penalty was waived by your Bank. the provisions of Paragraph C of the Board's instructions 0 64 31Igh the amount of the deficiency was in excess of 2 per cent t he member bank's required reserves; that the waiver was deby the Board's examiners during the course of their regular 19'6inati0n of your Bank as of the close of business on April 17, and that the subject bank has no previous record of reserve In order that there may be no question in the future as Dentlue action taken; the Board ratifies the waiving of the $5.64 41tY by your Bank. Very truly yours, (signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 2 5/18/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 18, 1961 Board of Directors, Metropolitan State Bank, Chicago, Illinois. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves an additional investment in bank premises of $16,000 by Metropolitan State Bank. The investment of $16,000 is represented by loans made to the bank's affiliate, Bank Parking Inc. for the acquisition of a parking lot. Very truly yours, (signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 1 t,) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 5/18/61 WASHINGTON 25. D. C. 3 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 18, 1961 Comptroller of the Currency, Treasury Department, Washington 25, D. C. Attention: Mr. G. W. Garwood, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated August 26, enclosing copies of an application to organize a national bank at Walnut Grove, Missouri, and requesting a recommendation as to whether or not the application should be approved. A report of investigation of the application made by an examiner for the Federal Reserve Bank of St. Louis indicates that capital structure would be adequate; however, future earnings prospects are poor, management is unsatisfactory, and there does not appear to be sufficient need to justify establishment of a bank in Walnut Grove at this time. In the circumstances, the Board of Governors does not feel justified in recommending favorable consideration of the application. Very: truly yours, (Signed) Elizabeth L. Carmichael 'Elizabeth L. Carmichael, Assistant Secretary. # BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item NO. 4 5/18/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 18, 1961 Comptroller of the Currency, Treasury Department, Washington 25, D. C. Attention Mr. C. C. Fleming, . Deputy Comptroller of the Currency Dear Mr. Comptroller: Reference is made to a letter from your office dated March 7, 19612 enclosing copies of an application to organize a national bank at Aurora, Colorado, and requesting a recommendation as to whether or not the application should be approved. A report of investigation of the application made by an examiner for the Federal Reserve Bank of Kansas City indicates that capital structure of the bank would be adequate and management fair. There appears to be little need for the proposed bank, and ...uture earnings prospects of.the bank are regarded as poor. There le some question hether the area in which the proposed bank is to be located will be zoned for commercial use and even if it is the Shopping center in which the bank is to be located could not be completed before late 1962. An application for a bank at this location appears premature. In the circumstances, the Board of Governors does not feel justified in recommending favorable conelderation of the application at this time. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 5 5/18/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 18, 1961 Board of Directors, Union Bank, Los Angeles, California. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors of the Federal Reserve System approves the est'blishment of a branch in the vicinity of the intersection of Colorado Boulevard and Lake Street, Pasadena, California, by Union Bank, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 6 5/18/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 18, 1961 Chase Manhattan Overseas Corporation, Eighteen Pine Street, New York 2.51 New York. G entlemen: In accordance with your request and on the basis of the -ormation furnished in your letter of April 12, 1961, trans'Ltted through the Federal Reserve Bank of New York, the Board c)f Governors grants its consent to the establishment of a branch Of The Chase Manhattan Bank (South Africa) Limited at Norwich ,?Ilse, Smith Street, Durban, Union of South Africa. The local on of the branch may not be changed, after establishment, J:thout the prior approval of the Board of Governors. Unless the branch is actually established and opened business on or before May I, 1962, all rights granted hereby Will be deemed to have been abandoned and the authority hereby glianted will automatically terminate on that date. for Please advise the Board of Governors, through the Fed., ural Reserve Bank of New York, when the branch is opened for ulAsiness. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE e tP w_g619,,,, ..-ti* 04* '44' ,* 44* 4 0 4 AKA 4 FEDERAL RESERVE SYSTEM Item No. WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 181 1961 Mr. Carl E. Aliens President, Federal Reserve Bank of Chicago, Chicago 90, Illinois. Dear Mr. Allen: In reply to your letter of May 11, 1961, the Board of Governors has noted without objection the action taken by the Board of Directors of your Bank in authorizing First Vice President Scanlon and Vice President Mitchell to make a trip to Europe later this year for the purpose of visiting foreign central banks in that area. It is noted that a trip of approximately four weeks IS envisaged. . 7 5/18/61 Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. TITLE 12 - BANKS AND BANKING Item No. CHAPTER II - FEDERAL RESERVE SYSTEM 5/18/61 SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [Reg. Fl PART 206 - TRUST POWERS OF NATIONAL BANKS Custody of Trust Securities and InvesLments 1. Effective May 18, 1961, 5 206.12 is amended to read as follows: § 206.12 Custody of Trust Securities and Investments. (a) The securities and investments of each trust shall be kept seParate from the properties of the bank and shall be placed in the 3(4.11t custody of two or more officers or employees of the bank clesignated for that purpose by the board of directors of the bank; and all such officers and employees shall be adequately bonded. • (b) The securities and investments of each trust ghall be either (1) Kept separate from those of all other trusts,111/ or (2) Earmarked in a manner that adequately identifies the trust to Ilhich the particular security belongs. In such case, the records or the trust department of the bank shall contain a full description, Ille1114ing bond and certificate numbers, of the securities so held. 2, (a) The purpose of this amendment is to permit a national to earmark trust securities and investments for vault custody 1)141)o ses as an alternate method of identifying the securities of ate trusts, pursuant to the requirements of this section. l'h/ Rs, --oePt as provided in 0 206.10(c) and 5 206.17. 8 •1 -2(b) The notice, public participation, and deferred effective date described in section 4 of the Administrative Procedure Act are not followed in connecti on with this amendment for the reasons and good cause found as stated in § 262.2(e) of the Board's rules of Procedure (Part 262), and especially because in conn ection with this amendment such procedures are unnecessary as they would serve no useful purpose. (Sec. 11, 38 Stat. 262; 12 U.S.C. 2)48. Interpret or apply secs. 2-14, 24 Stat. 18, 19, sec. 1, 40 Stat. 1043/ as amended; sec. 1, 44 Stat. 1225, as amended, sec. 11, 38 Stat. 261, as amended, 53 Stat. 68, as amended; 12 U.S.C. 30-3 3, 34, 248, 26 U.S.C. 584) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYST EM (SEAL) (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. Certified td be a true copy of the original. (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary, 04.!tkv , 4 0 tO' BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 5/18/61 WASHINGTON OFFICE OF THE CHAIRMAN May 19, 1961 The Honorable John L. McClellan, Ch airman) ter°Taraittee on Government Operations, nitea , . States Senate, '-Asnliagton 25, D. C. Mr. Chairman: This is in response to your request for a report on the bila 3 lail40 • 1688 "To establish a Department of Consumers in order to secure illt„-n the Federal Government effective representation of the economic of consumers; to coordinate the administration of consumer serlPsts by transferring to such Department certain functions of the ,z1':rtment of Health, Education, and Welfare, the Department of Labor, Q other agencies; and for other purposes." the , While the Board is sympathetic with efforts to protect po,'conomic interests of consumers, it questions whether the proQJ) aseParate executive department of Government would be desirable (111:6'1.-Lective for this. purpose. Existing public agencies should be kl ,Z in their decisions by due consideration of consumers as well ext' e ller interests, all included under the general welfare. To the the r; , , t that any serious problems may exist in the consumer field, tierl'°ard believes that it would be preferable to consider legislathe cl.d dressed directly to these specific problems rather than to ii. h.et.l'eatien of a new department whose statutory responsibilities be difficult to define. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. 9 1 BOARD OF GOVERNORS 4 OF THE V/ 4 lIta FEDERAL RESERVE SYSTEM * WASHINGTON 25, D. C. 2} * Item No. 10 5/18/61 ADDRESS CiFFICIAL CORRESPONDENCE TO THE BOARD -4440* May 18, 1961. Mr. Phillip S. Hughes, Assistant Director for Legislative Reference, Bureau of Budget, Washington 25, D. C. Dear Mr. Hughes: This is in response to your request of May 15 for the views °f the Board on the draft bill "To provide government industrial clernization credit insurance, and thereby make credit facilities readily available for the modernization of the nation's ustrial economy, stimulate increased productivity and growth in domestic and foreign commerce of the United States, and for Lner purposes." r It is difficult to see the need for such legislation in the absence of evidence suggesting that equipment outlays. of industrial 1°11corns are significantly restricted by the lack of availability of srg-term credit, or that adoption of a credit insurance program would s,gnificantly augment the supply of such credit. No documentation of 0;ch needs accompanied the draft bill submitted to the Board. Morewould appear to duplicate other Government Pro' the proposed program of business expansion that are financing aZgrams to facilitate the eadY in operation. Act,There already exists, under the Small Business Investment a Government-sponsored program for providing long-term financing to ra anall businesses. As you know, this program has been expanding 4 , 13idlY over the past year or so, with nearly 250 investment companies cli-!nsed at present. While many of them are still too young to have is2'Jursed more than a small proportion of their funds, their potential 111c.ling and investing capacity is substantial. The draft bill does not 4, t)1,'21cate the size of business it is designed to assist but, since it 8117i - des only an upper limit on the size of total insurable loans to p.Z,°rIe borrower, the program it proposes might duplicate in large Act': the one already in operation under the Small Business Investment 6 Mr. Phillip S. Hughes -2- It is not clear from available evidence that any program is needed to encourage financial institutions to provide additional equipment financing to industrial concerns of larger size than can be accommodated under present Small Business Administration standards. You will recall that in 1959 the Board conducted a survey of the financing experience of manufacturing companies. The results of that survey indicated that relatively few medium-size companies reported unsuccessful efforts to obtain long-term credit, even though lack of success was defined very broadly to include dissatisfaction with the interest rate or any other terms of the loan. Eighteen per cent of all medium-size manufacturers reported a need for long-term credit. Less than 3 per cent were dissatisfied with their efforts to obtain such funds, and an additional 3 per cent made no effort because they felt that any efforts would be unsuccessful. The Board is not aware of more recent data that would indicate that the situation has changed materially. If the need for an extensive program of credit insurance On equipment financing loans can be demonstrated, the Board would favor integrating the proposed program into the present SBA programs, since that agency has not only the experience but also an operational and administrative framework for providing funds to business concerns. If it can be demonstrated that the proposed program is not °n1Y needed but should be operated and administered apart from other existing programs, the present draft bill does not seem entirely satisfactory. Few of the provisions are sufficiently specific with l'espect to the terms and conditions under which equipment loans will be insurable. One provision that is specific, that limiting the maturity of loans to 7 years and 32 days, raises a serious question as to whether the program would prove of substantial benefit to many ,-ndustrial concerns. The useful life of depreciable equipment used °Y. manufacturers appears on the average to be considerably longer °Ian this, judging from the depreciable life spans for equipment as recognized under Internal 'Revenue Service standards., It seems doubtwhether many loans of so short a maturity would be made to finance telatively long-lived assets, For all the above reasons, the Board would not favor adoption ) c f the proposed program in its present form. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary.
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