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Minutes for To: May 19, 1961 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. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King •,'"‘f C:14 kit) Minutes of the Board of Governors of the Federal Reserve System 1-1, On , 4iday, May 19, 1961. PRESENT: Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin Chairman Mills Robertson Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Kenyon, Assistant Secretary Shay, Legislative Counsel Molony, Assistant to the Board Fauver, Assistant to the Board Noyes, Director, Division of Research and Statistics Holland, Adviser, Division of Research and Statistics Koch, Adviser, Division of Research and Statistics Landry, Assistant to the Secretary Yager, Economist, Government Finance Section, Division of Research and Statistics Mr. Mitchell, Vice President, Federal Reserve Bank of Chicago Money market review. Mr. Koch reported on bank credit, the money s11111/1Y, and bank liquidity, after which Mr. Yager described current tlevp41 --40Pments in the Government securities market. Following these reports, Mr. Mitchell and all members of the -1:81't with the exception of Messrs. Kenyon, Shay, Fauver, and Landry ew, and the following entered the room: ' 11:thcll Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration Mr. O'Connell, Assistant General Counsel Mr. Hooff, Assistant General Counsel 5/19/61 -2Mr. Masters, Associate Director, Division of Examinations Mr. Benner, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Young, Assistant Counsel Discount rates. ReServe On May The establishment without change by the Federal Banks of New York, Philadelphia, Minneapolis and San Francisco 18, 1961, of the rates on discounts and advances in their existing "Iledules was approved unanimously, with the understanding that appropriate 04ivi-ce would be sent to those Banks. Items circulated to the Board. The following items, which had been eireulated to the Board and copies of which are attached to these minutes the respective item numbers indicated, were approved unanimously: Item No. le.tt er to Bank of Lansing, Lansing, Michigan, a.liting its request for permission to exercise ticl ileiarY powers. 1 t'etter 2 Lette,„ coal;to United California Bank, Los Angeles, °Tilia, approving the establishment of a b be" in the vicinity of Baker Avenue and liar— Bolaevard, Costa Mesa. 3 'tt r 4. tilqZ ,.() the Federal Reserve Bank of Richmond L. the Federal Reserve Bank of Chicago ; ,Q8, 1 °ving the payment of salaries to the Bank's riters and plumbers at certain rates. Qrri-ving the payment of salaries to certain 80ara eers or at the rates fixed by the Bank's Directors. 5/19/61 -3Study of branch banking in California. At the meeting on March 10, 1961, Governor Robertson expressed the view that a need existed for consideration by the bank supervisory agencies concerned, both Federal and atate, of the expansion of branch banking in the State of California and the manner in which the banking structure of that State was developing. 4 a result of discussion of this matter, the staff was requested to 1414er-take a factual study regarding the branch banking situation in California and related issues. In reply to an inquiry by Governor Robertson as to the progress that had been made on the study, Mr. Solomon said preliminary data indicated that although branch banking offices had increased in California since 1950, the increase had been at a substantially lesser rate, proportionately, than the grawth in population, bank deposits, and retail sales. Work was pro- he said, on the collateral question of concentration in the field c)t banking. Mr. Solomon added that the study was being expedited and that liska hoped the final results would be available at an early date. it ' atport on copetitive factors (IRLuistown and Nant)r Glo, Pennsylvania). Ithelle had been distributed a draft of report to the Comptroller of the 01 1„,„ fleY on the competitive factors involved in a proposed merger of Nanty 'ate Bank, Nanty Glo, Pennsylvania, into United States National Bank ilj "Qnnstown, Johnstown, Pennsylvania. The report concluded as follows: 1‘,00 5/19/61 -4- The proposed merger of Nanty Glo State Bank, Nanty Glo, Pennsylvania, into United States National Bank in Johnstown, JOhnstown„ Pennsylvania, should eliminate little competition in either the Johnstown area or the Nanty Glo area. In the Nanty Glo area (including Ebensburg) the merger could stimulate competition, although not to such an extent as to have serious consequences for other banks. Unanimous approval was given to the report for transmission to the e°141troller of the Currency. Report on competitive factors (Bucyrus and Tiro, Ohio). Distribution 444 been made of a proposed report to the Comptroller of the Currency on the e°4 • tative factors involved in the planned merger of The Farmers & Citizens Tiro, Ohio, into The Second National Bank of Bucyrus, Bucyrus, Ohio. The report, which contained the following conclusion, was approved 114(tram °1181Y for transmission to the Comptroller of the Currency: The proposed merger of The Farmers & Citizens Bank, Tiro, 410, into The Second National Bank of Bucyrus would eliminate Y a small amount of competition. While the proposed transon would enhance, slightly, the charter bank's position, it m??8 not appear that banking competition in the area would be 44' 4'cerially affected. nl r the 1 92port on H. R. 3331 (Item No. 5). Distribution had been made under „ v4 April 20, 1961, of a memorandum from Mr. Walter /bung submitting for consideration a draft report to Chairman Spence of the House e°11114ttee on Banking and Currency on H. R. 3331, which would, provide for 41115rov,., 11Y the Federal Deposit Insurance Corporation, rather than by the 13°8 ' ' 10. Or Governors, of branches of member State banks, and by the former as 5/19/61 -5- /ell as by the Comptroller of the Currency, of the establishment of dcMestic branches of national banks. As noted in the memorandum, H. R. 333J-was substantially the same as H. R. 9184, introduced in the 86th C°11gress, on which the Board reported adversely under date of March 31, 1960, to the House Banking and Currency Committee. The proposed report 01/ H.R. 3331 was identical with the report submitted on H.R. 9184. Following indication by the members of the Board of concurrence Ilith the position taken in the report, the proposed letter was approved 1111E41dmously. A copy is attached as Item No. 5. Position of American Bankers Association on H.R. 3331 and 3330. respect to the foregoing item, Governor Robertson noted for the S information that he understood the American Bankers Association 1416'Planning to submit a report on H.R. 3331 which would propose Placing the power of approving State bank branches exclusively in the haria, - of the respective State bank supervisory authorities, though kc)iticling thirty days advance notice to the Federal Deposit Insurance 00170 °ration prior to the granting of such State approval to permit the e°1‘13orati0n to intervene if it saw fit. He had also been informed, Goiter nor Robertson said, that the American Bankers Association would °Ise H.R. 3330, which would, among other things, remove the Comptroller the Currency from the Board of the Federal Deposit Insurance Corporation, thi, connection, he said, the Association would propose that one of the nienthers of the Board of the Corporation be either a State bank supervisor or a 'person selected by State bankers associations. 5/19/61 -6Messrs. Shay, Fauver, and Young then withdrew. Request by United States Attorney re State member bank in , Cal. There had been distributed a memorandum from the Division of Examinations and the Legal Division dated May 17, 1961, mitting a copy of a telegram from Vice President O'Kane of the Federal tIsa Reserve Bank of San Francisco advising of an investigation being conducted by the United States Attorney for the Southern District of California N-ative to a possible violation of law on the part of Farmers and 14Eschant8 Bank of Long Beach, Long Beach, California, a State member ba In connection with this investigation, the Reserve Bank had been • Illested to permit one of its examiners to discuss with representatives the Federal Bureau of Investigation the circumstances surrounding a 1°'5.171 of $210,000 made by the Farmers Bank to one F. M. Riedman in 1959, 411 0 afford, if necessary, access to information appearing in the " 4‘re Bank's examination files related to this loan. It was the reoo n'Thendation of the Division of Examinations and the Legal Division that the Federal Reserve Bank of San Francisco be authorized under section ' r(b) of the Board's Rules of Organization to transmit orally or in writing tp 'e United States Attorney, or his representatives, information relating to the examination of matter under investigation based upon reports of klize authorized to rs and Merchants Bank and related data, but not be kelte ators. the examination reports themselves available to the investig 5/19/63. -7- The information transmitted would be for the use of the Department of Justice in pursuing its investigation and not for disclosure incident to 8.11Y subsequent prosecution or other action. The recommendation envisaged thmt any communication of such information would be made in the presence of, ol" subject to review by, the Reserve Bank's General Counsel. There was attached to the memorandum a draft of a telegram to the Reserve Bank prealong the lines of the foregoing recommendation. At the request of the Chairman, Mr. O'Connell commented on the staff memorandum. Mr. Hackley supplemented Mr. O'Connell's remarks by 14)tillg that the request made of the Reserve Bank by the United States litt leY did not appear to differ in principle from others recently made kr the Department of Justice., with which the Board had complied. Governor Mills stated that he would have the same objection to 4ecedi 1g to the current request that he had raised with regard to the other es4e8 referred to by Mr. Hackley. As he saw it, the relationship between b enk and its customers is one of strictest confidence) similar to that °113tiadj,4 -4-1143 between a doctor and his patient or a lawyer and his client. did h„ believe that it was proper to divulge information breaching that 444ence, except pursuant to subpoena, especially in view of the fact that t he only reason the Federal Reserve was in possession of such 'lltation was by virtue of having examined the bank to appraise the (11411itY of its assets. In his view the Board had distorted its Rules of J.. 5/19/61 -8- arganization by interpreting cooperation with other Government agencies in mBttters of this kind in such a way as to invade the Constitutional rights of the individual, in essence placing him on trial without the prior Privilege of confronting his accuser. Therefore, he would reject the current request. In reply to a question from Chairman Martin, Mr. O'Connell said that . in his judgment the principle involved in this case was no different tr°t4that involved in other requests of the Department of Justice, with the Board had complied, for access to information contained in ePorts of examination of State member banks. In this case, however, as co L ncrasted with certain recent bank merger cases, there was apparent "ce of the commission of a crime, possibly on the part of officers 01' qi rectors of the State member bank. Thus, there was the question er the Board would want to be in the position of withholding 13ertirient information. Mr. Solomon commented that the request in the present case was leEz sweeping than on other occasions, since the Department of Justice °t asking to examine reports of examination of Farmers and Merchants 1?t\rik b ut was merely requesting permission to discuss with representatives or the 1., , - ederal Reserve Bank the matter of a loan made by Farmers and ants, along with access to any information in the Reserve Bank's relating to this particular loan. 5/19/61 Following further discussion, during which it was noted that e°111131iance with the current request would appear to be in line with the 8enera1 practice that the Board had followed in similar cases involving ecx:Teration with the Department of Justice, the telegram to the Federal Reserve Bank of San Francisco, a copy of which is attached as Item No. 6, las Z.P...E.9..y2s1, Governor Mills dissenting. Messrs. O'Connell and Leavitt withdrew from the meeting at this Doint, Panel discussion on common trust funds. Two memoranda from Mr. 114ters dated May 11 and May 18, 1961, regarding a panel discussion on trust funds scheduled to be held in Room 1202 of the Federal Re8er\re Building on Monday, May 22, 1961, at 10:00 a.m. had been (listr -buted. The memoranda indicated that pursuant to the request made the - meeting on November 28, 1960, for a comprehensive study of all I tur -es of the Board's common trust fund regulation, arrangements had bQell c°mPleted for one phase of such study to include a panel discussion or (le veloPments relating to the administration by banks of common trust The panel discussion would not be open to the public or the press, bIlt a transcript of the proceedings would be prepared. It was intended that , 'the discussion serve as a prelude not only to subsequent consideration the Board of specific liberalizing proposals now pending before it, but t° provide necessary background for a later public hearing on a pending 5/19/61 -10- 4Inendment to section 17(a) of Regulation F, Trust Powers of National Banks, the't had been published in the Federal Register for comment. Following remarks by Mr. Masters relative to the panel presentation, it was indicated that the arrangements were agreeable to the Board. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Memorandum from the Division of Personnel Administration recommending the kr acceptance of the resignation of Alma Davits Clift, Secretary in that 4-sion, effective at the close of business May 31, 1961. Memorandum from Shirley R. Sherman, Secretary in the Office of the tetary, requesting permission to do clerical and typing work for GeorgeUniversity on specified dates while on annual leave. Assistant Set;retarri BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Itiem yo. 1 5/19/61 )4 4 ADDRESS OFFICIAL. CORRESPONDENCE TO THE 110ARD May 19, 1961 Board of Directors, Bank of Lansing, Lansing, Michigan. Gentlemen: This refers to your request for permission, Under applicable provisions of your condition of memberhip numbered 1, to exercise fiduciary powers. Fonewing consideration of the information totbmitted, t.h1 Poard of Governors of the Federal Reserve SYsterl grant:n permission to the Bank of Lansing to exereiee the fiduciary powers now or hereafter authorized by Its charter and the laws of the State of Michigan. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Aasistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 2 5/19/61 WASHINGTON 25, D. C. AOCRE•11 OFFICIAL CORRESPONCENCE TO THE •OARCI May 19, 1961 Confidential (FR) Mr. H. J. Newman, Vice President, Federal Reserve Bank of Chicago, Chicago 90, Illinois. Dear Mr. Newmans The Board of Governors approves the payment of salaries by- the Federal Reserve Bank of Chicago to the incumbents of the Positions shown below at the rates indicated, effective June 1, 1961, in accordance with the request contained in your letter of 114 5, 1961. Title Annual Salary' Head Carpenter Carpenter Plumber $8,486.40 7,637.76 7,862.40 Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 4, • BOARD OF GOVERNORS ow** 446/k OF THE % FED ERAL R ESERVE SYSTEM Item No. 3 5/19/61 WASHINGTON 25. D. C. ADORES. orricum., CONRCEPONOCHCC TO THE 11110ANO 14 44* May 19, 1961 Board of Directors, United California 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 establishment of a branch in the vicinity of the intersection of Baker Avenue and Harbor Boulevard, Costa 14esa, Orange County, California, by United California 1311.1t, 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. L. 5/19/61 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 'citIttta May 191 1961 111% Alonzo G. Decker, Jr., c hairman of the Board, '',ecteral Reserve Bank of Richmond, 4i0hmond 13, Virginia-. ,ear Mr. Decker: The Board of Governors approves the payment of salaries following officers of the Federal Reserve Bank of Richmond rat the period June 1 through December 31, 1961, at the salary v,es indicated, fixed by your Board of Directors as advised in 71-11" letter of hay 11, 1961: tO he Annual Salary Title delford 8. Farmer • Victor E. Pregeant, III hop . er P. Schad General Counsel Assistant Vice President and Secretary Assistant General Auditor - $15,000 Very truly yours, (Signed.) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 14,000 10,000 BOARD OF GOVERNORS OF THE Item No. 5 5/19/61 FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE CHAIRMAN May 19, 1961 Tolle Honorable Brent Spence, Chairman, ttse on Banking and Currency, IZ1,!of Representatives, --"-Lngton 25, D. C. 1)ear lir. Chairm an: tor a This is in response to your request of April 151 1961, Ac.t. report on H.R. 3331 "To amend sectio n 9 of the Federal Reserve alle Ile amended, section 18(d) of the Federal Deposit Insurance Act, 8ection 5155 of the Revised Statutes, as amended.“ illerrIbe"The effect of this legislation would be to require State Corn 'banks to secure the approval of the Federa l Deposit Insurance 411-"tion rather than the Board of Governors, as under existing ryt!,,I?r the establishment of branches, and to require national banks ' 4.';',L.V to secure the approval of the Comptroller of the Currency brc:at of the FDIC as well for the establishment of domestic ' As to foreign branches of national banks, the bill might aPproe, rcled as requiring the approval of the FDIC in additi on to the "LL of the Board° the 13 In the absence of any sound reason fer this legislation, t0arci7arcl does not recomm end its favorable consideration. In the bl'a.(48 view the legislation is unnecessary, and consideration of 11111ch happlications should be the function of the Federal agency ! axIths.-`43 .,,. responsibility for examination and supervision of appliwlolla• Interchancie of report s of examination and related data Allbatii.. 81112ervisory agencies, while useful, cannot be an adequate ' 4 8111-11"e for information derived from continuing bank examination sorY contacts with the banks concerned. Sincerely yours, (Signed) Wt. MeC. Martin, Jr. Wm. MoC. Martin, Jr. TELEGRAM LEASED WIRE SERVICE Item No. 6 5/19/61 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON May 19, 1961 O lKane - San Francisco Reurtel May 12 Board authorizes discussion by Examiner Walker or other designated Bank representatives with FBI relative to 1959 loan amd renewals thereof by Farmers and Merchants Bank of Long Beach to P. 10 Riedma4f discussion to include, if necessary, information relevant to above matter derived from your Bank examination files. United States Attorney and FBI should be advised that any information transmitted is for Use by Department of Justice in pursuing investigation and not for dlisclosure incident to any subsequent prosecution or other action,. 81/gest specific reference to section 7(b) of Board's Rules of °I'sgarlization. This authorization contemplates access by the investi- eat°r8 to the substance of reports of examination that relates to the illatter under investigation but does not authorize direct access by theni to the confidential sections of these reports nor possession by then1 of the reports. Suggest you be present ,during conversations by tXner Walker and others with FBI or United States Attorney's rePresentatives and that you approve any written transmissions reEnliting from such conversations. (signed) Kenneth A. Kenyon Kenyon * Should have read F. M. Riedman
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