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FR 609
Rev. 10/59
Minutes for
To:
May 2, 1960
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
Reserve System
Minutes of the Board of Governors of the Federal
on Monday, May 2, 1960.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 9:30 a.m.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
King
Sherman, Secretary
Thomas, Adviser to the Board
Young, Adviser to the Board
Fauver, Assistant to the Board
Noyes, Director, Division of
Research and Statistics
Mr. Marget, Director, Division of
International Finance
Mr. Garfield, Adviser, Division of
Research and Statistics
Mr. Koch, Adviser, Division of
Research and Statistics
Mr. Robinson, Adviser, Division of
Research and Statistics
Miss Burr, Associate Adviser, Division of
Research and Statistics
Mr. Williams, Associate Adviser, Division
of Research and Statistics
Mr. Furth, Associate Adviser, Division of
International Finance
Mr. Hersey, Associate Adviser, Division of
International Finance
Mr.
Mr.
Mr.
Mr.
Mr.
Messrs. Gehman, Solomon, Eckert, Keir, Kalachek,
Fisher, and Trueblood, and Miss Dingle of the
Division of Research and Statistics
Messrs. Katz, Irvine, Wood, Gemmill, Maroni, and
Anderson of the Division of International
Finance
Economic review.
The staffs of the Divisions of International
of international
Finance and Research and Statistics presented a review
and domestic conditions and developments.
At the conclusion of the staff
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review Mr. Garfield reported on the meeting of the Committee on
Current Business Developments held in Richmond on April 25 and 26.
Following this presentation all of the members of the staff
with the exception of Messrs. Sherman, Thomas, Young, Fauver, Noyes,
and Furth withdrew, and Miss Carmichael, Assistant Secretary, and
Messrs. Shay, Legislative Counsel, Molony, Assistant to the Board,
Hackley, General Counsel, Solomon, Director, Division of Examinations,
Johnson, Director, Division of Personnel Administration, Hexter and
O'Connell, Assistant General Counsel, Hostrup and Nelson, Assistant
Directors, Division of Examinations, and Hooff, Assistant Counsel,
entered the room.
Discount rates.
The establishment without Change by the Federal
Reserve Banks of New York, Cleveland, Richmond, Chicago, St. Louis,
Minneapolis, Kansas City, and Dallas on April 28, 1960, of the rates
on discounts and advances in their existing schedules was approved
unanimously, with the understanding that appropriate advice would be
sent to those Banks.
Items circulated to the Board.
The following items, which had
been circulated to the Board and copies of which are attached to these
minutes under the respective item numbers indicated, were approved
unanimously:
Item No.
Letter to The National Shawmut Bank of Boston,
Boston, Massachusetts, granting an extension
Of time, under section 4(a) of the Bank Holding Company
Act, to retain shares of the Nevada-Massachusetts Company and the Loyal Protective Life Insurance Company.
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-3Item No.
Letter to the Marine Midland Corporation, Buffalo,
New York, granting an extension of time, under
section 4(a) of the Bank Holding Company Act, to
retain indirect control of shares of the Liberty
Building Corporation and Knowlton Brothers, Inc.
2
Letter to the Federal Reserve Bank of St. Louis
approving a salary structure adjustment at the
head office.
3
Mr. Johnson withdrew from the meeting at this point.
United States Court of Appeals decision in the case of Old Kent
Bank and Trust Company v. Martin, et al.
On August 1, 1958, a suit
for declaratory judgment was filed against the Members of the Board
of Governors of the Federal Reserve System by Old Kent Bank and Trust
Company, Grand Rapids, Michigan, in the United States District Court
for the District of Columbia, challenging, among other things, the
statutory authority of the Board to approve or disapprove the operation
Of branches acquired by a State member bank as a result of a merger
and the authority of the Board to consider competitive effects in
passing upon the operation of such branches.
On April 22, 1959, the
District Court granted a motion for summary judgment in favor of the
Board and denied a cross-motion for summary judgment filed by plaintiff.
On April 30, 1959, an order to this effect was signed and filed.
In a memorandum dated April 29, 1960, from the Legal Division,
Which was distributed, it was indicated that the United States Court of
Appeals for the District of Columbia Circuit on April 28, 1960
had
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the
reversed by a two-to-one vote the District Court's judgment in
Board's favor.
The memorandum pointed out that under the Court of
Appeals Rules a party against whom a judgment is rendered may file
a petition for rehearing within 15 days after rendition of judgment.
If the petition is granted, the matter would again be argued before
the 3-judge court that originally decided the case.
Another form of
review of the Court's judgment would be to petition, within 90 days
from date of judgment, the United States Supreme Court for a writ of
the
certiorari whereby, if granted, the Supreme Court would review
if
judgment of the Court of Appeals. A decision as to what action,
any, was to be taken relative to a review of this decision would be
of
made by the United States Solicitor General upon recommendation
the Civil Division, Department of Justice.
Presumably that Division's
recommendation will be made after consultation with the Board's
representatives.
A copy of the majority and dissenting opinions were
attached to the memorandum.
Mr. Hackley referred to the recent judgment in the Old Kent
case and its possible effect on the two cases appearing on the agenda
of today's meeting: (1) Request of the Marine Midland Trust Company
of Southern New York, Elmira, New York, for approval of the establishment of a branch in Windsor incident to its proposed merger with The
of Wachovia
Windsor National Bank, Windsor, New York; (2) Request
the approval
Bank and Trust Company, Winston-Salem, North Carolina, for
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of the establishment of 18 branches incident to its proposed
merger
with Guaranty Bank and Trust Company, Greenville, North Carolina.
He expressed the thought that there might be some question regardin
g
the Board's decisions in the pending cases if they were announced
immediately after the Court of Appeals had issued a judgment to the
effect that the Board of Governors did not have statutory authority
to approve branches acquired by merger.
In view of this, he raised
a question as to the desirability of adding a paragraph referring
to the Old Kent decision in the draft letters that would approve the
applications of the Marine Midland Trust Company of Southern New York
and the Wachovia Bank and Trust Company.
Mr. Connell said that, if desired, the Board could defer
taking any action at this time on the two pending cases.
He indicated,
however, that the Legal Division did not feel this procedure would be
appropriate.
The recent judgment in the Old Kent case would have no
effect until a mandate was issued by the Court, he said, and there was
nothing in the judgment to prevent the Board from acting on the two
pending applications.
In response to a question from Chairman Martin, Mr. Hackley
noted that, if a paragraph concerning the Old Kent decision were included in letters to the Marine Midland Trust Company and Wachovia Bank
and Trust Company, the public and the newspapers might regard it as
giving acquiescence to the Court of Appeals decision.
If such a paragraph
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were not included, particularly in the case of Wachovia Bank and
Trust Company, the public and probably even the Court of Appeals
might regard it as a further indication of what Mr. Gesell, attorney
for the Old Kent Bank and Trust Company, referred to as the Board's
assumption of authority.
On balance, Mr. Hackley felt that the
paragraph could do no harm and it might be desirable to include it.
He said he thought it was a matter of judgment.
In the case of Board
approval of branches the situation was less difficult than in instances
Of disapproval.
Mr. Solomon asked whether, if a paragraph referring to the Old
Kent case decision were included in letters to the Marine Midland Trust
Company and Wachovia Bank and Trust Company, similar paragraphs would
be included in all cases involving mergers until the Old Kent case
was finally decided.
Mr. Hackley replied that he would contemplate including such
a paragraph in all cases.
In that event, he thought it would also be
desirable to send a brief letter to the Federal Reserve Banks informing
them concerning the Board's present policy in handling requests for the
establishment of branches in the case of merging banks.
He suggested
that such a letter might state that any approval or disapproval of
branches would be subject to the understanding that the Board's action
would have no legal effect if the final decision should be that the
Board lacks authority to pass on the establishment of such branches;
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and that, if a member bank should acquire branches through a merger
without receiving Board approval and subsequently the determination
should be in favor of the Board's authority, there would be some
question as to the legality of the bank's action.
Mr. Hexter noted that the situation with respect to applications to operate branches acquired by mergers was likely to continue
for many months before a final decision in the Old Kent case.
He
questioned the advisability of adopting the procedure suggested by
Mr. Hackley for all cases which might arise during that period.
Inclusion of the suggested paragraph might raise doubts as to the
Board's position and authority, and, in his view, any benefit derived
from such a paragraph would be outweighed by the uncertainty it would
Mr. Hexter also referred to Mr. Hackley's argument that failure
create.
to include the paragraph might give the impression that the Board was
disregarding the recent judgment of the United States Court of Appeals.
He felt that the inclusion of an "apologetic" paragraph would point up
the matter more than its omission.
His opinion was that the paragraph
should not be included unless the Board had occasion to disapprove
branches, if used at all.
Mr. O'Connell said that he agreed with the position taken by
Mr. Hackley and would urge consideration of including an explanatory
paragraph concerning the recent judgment.
He felt it was important to
bear in mind that there might be a rehearing of the case.
On the other
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hand, the United States Solicitor General might not favor a rehearing.
Accordingly, the problem being considered might be answered by the
action of the Solicitor General.
Mr. Hackley said that he thought it was probably more important
to include the paragraph in the Wachovia Bank and Trust Company letter
than in later letters since this case was being considered so soon
after the Court decision.
He reiterated that he had considerable feel-
ing that an explanatory letter should be sent to the Reserve Banks,
although he did not think it would be necessary to include the explanatory paragraph in all future cases.
He felt that the Boardts position
would be sufficiently established by that time.
Mr. Solomon thought it might be important to include an
explanatory paragraph in the case of the denial of approval of branches,
but he doubted whether, in the event of approval, there would be any
appreciable reason for including the paragraph.
Governor Balderston raised a question as to the effect of the
pending bank merger legislation on the matter being discussed, and
Mr. Hackley replied that he did not believe the two matters were
strictly related.
If the merger bill did become law, the question
being considered currently would become moot.
If the recent decision
In the Old Kent case were suspended, the Board still could not approve
mergers.
In the event the bank merger bill is passed, the Board
would then have authority to pass on a merger itself and could base
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its decision on the discontinuance of certain branches if it so
desired.
On this point, Mr. OtConnell quoted the following excerpt
from the majority decision in the United States Court of Appeals:
"The Board is not, and does not claim to be, authorized to prevent
the merger of the two banks.
It should follow, in the absence of
clear language to the contrary, that the Board has no authority to
prevent the incident of merger which is involved here."
If the Board
is given authority over mergers, he said, the approval of branches
would be incidental to the authority for approving mergers; having
in mind the language in the recent decision, the Board could also
pass on branches.
Governor Mills said that he agreed completely with Mr. Hexterts
Position.
Until the case is closed he believed that, to use a military
term, the Board would be retreating in disorder from a position held
In accordance with its own best judgment.
He observed that if the
Board were to take any other position at the present time, he would
feel very uneasy about it.
It was his opinion that each of the pending
cases should be discussed completely on its merits and then the
Boardts decision should be reached in the same manner as in other
previous cases.
Governor Robertson said that a decision on each of the pending
cases would represent one link in a chain.
He felt that the Board
should not change its present position in any stage of the chain.
He
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would agree completely with Mr. Hexter that the Board should not
change its position simply because one Court had ruled against the
Boardts authority to pass on branches acquired by merger.
decision might go the other way.
The final
Thus, he would favor holding the
Boardis present view and sending the letters as written originally
to the two banks involved.
If at a later date the Board should deny
approval for the establishment of branches, he would be inclined to
favor including an explanatory paragraph as suggested by Mr. Hackley.
Governor Shepardson and Chairman Martin expressed agreement
with the views set forth by Governor Robertson.
Mr. Hooff withdrew from the meeting at this point.
Following the above discussion, the Board then proceeded to
consider the two pending requests for the establishment of branches
incident to proposed mergers.
Request of Marine Midland Trust Company of Southern New York
to establish a branch incident to merger with The Windsor National
Bank (Item No.
4). There had been distributed under date of April 15,
1960, a memorandum from the Division of Examinations regarding an application from Marine Midland Trust Company of Southern New York, Elmira,
New York, for permission to establish a branch in Windsor, New York,
incident to merger with The Windsor National Bank, Windsor, New York.
Both the Federal Reserve Bank of New York and the Boardts Division
Of Examinations recommended favorable action on the establishment of
551;
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the branch.
A draft of letter to Marine Midland Trust Company that
would approve establishment of the branch was attached to the memorandum.
Mr. Nelson summarized the memorandum from the Division of
Examinations, indicating that the plan of merger provided for the
two banks to merge under the charter and title of Marine Midland
Trust Company of Southern New
Under the plan the Marine Midland
Trust Company would take over The Windsor National Bank, a small bank
in Windsor, with deposits of $1.6 million.
He noted that Windsorgs
Population is about 900, that The Windsor National Bank is the only
bank in the town, and that the nearest other banks are The First-City
National Bank located in Binghamton about 15 wiles vest of Windsor,
and The Farmers National Bank in Deposit, New
east.
about 10 miles
The applicant bank, on the basis of total deposits in Broome
County, ranks third with 21.4 per cent of total deposits and 25 per
cent of the total banking offices.
deposits, it ranks second with
On the basis of commercial bank
31.6 per cent of such deposits and 28
per cent of the total commercial banking offices.
The Trust Companyts
chief competitor in the County, The First-City National Bank, holds
43 per cent of the total commercial deposits and
commercial banking offices.
33 per cent of all
While the applicant is the largest of
the 27 commercial banks in the Seventh Banking District with 20.1 per
cent of all bank deposits and 27 per cent of all commercial deposits
in the district, acquisition of The Windsor National Bank, with its
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nominal .6 per cent of total deposits of Broome County and .2 per
cent of total deposits of the Seventh District, would result in no
material lessening of competition on a local, county, or district
basis.
The Board approved unanimously the establishment of the branch
in Windsor, New York, by Marine Midland Trust Company of Southern New
New York, Elmira, New
in connection with the proposed merger
with The Windsor National Bank, Windsor, Nem-York.
A copy of the
letter to Marine Midland Trust Company is attached as Item No. 4.
Mr. Rudy, Special Assistant, Legal Division, and Miss Hart,
Assistant Counsel, entered the room at this point.
Request of Wachovia Bank and Trust Company to establish branches
incident to merger with Guaranty Bank and Trust Company (Item No. 5).
There had been distributed a memorandum dated April 22, 1960, from the
Division of Examinations concerning a request from Wachovia Bank and
Trust Company, Winston-Salem, North Carolina, for approval of the
continued operation of the main office and 17 branches of Guaranty Bank
and Trust Company, Greenville, North Carolina, as branches of the continuing institution following merger into the applicant bank.
Both
the Federal Reserve Bank of Richmond and the Boardts Division of Examinations recommended approval of the application.
Mr. Nelson summarized the Division of Examinations memorandum,
indicating that Wachovia Bank and Trust Company has deposits of $591 million.
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Guaranty Bank and Trust Company has deposits of $44 million and
Operates 17 branches located in 7 counties.
Wachovia Bank and Trust
Company has no offices in any of the counties in which Guaranty
Bank and Trust Company is located.
The trade area of Guaranty Bank
and Trust Company is comprised of 25 counties in the northeastern
section of the State.
Nine of Guaranty Bank and Trust Company's
18 offices are situated in small communities with estimated populations of 2,500 or less, and they are the only commercial banking
facilities in these communities.
In each of the other communities
served by Guaranty Bank and Trust Company there is strong competition
and only in Greenville, the site of its main office, does that bank
maintain a dominant position with regard to deposits.
Greenville has
a population of about 19,500 and in that city Guaranty Bank and Trust
Company has five offices with deposits of about $17 million.
There is
one other bank in Greenville which operates three offices.
Mr. Nelson indicated that there were several other large branch
banking corporations in the State of North Carolina.
Wachovia Bank
and Trust Company, however, is the largest bank in the State, operating
a main office and 51 branches located in 11 cities and one town,
covering the western) central, and southeastern areas of the State.
Wachovia does not generally serve the northeastern section of the State
and has minor southeastern representation.
While it operates the largest
number of branches in the State, it operates in a considerably lesser
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number of locations.
The competitive situation is intense throughout
the State and Wachovia would appear to have attained and held its
pre-eminence as a result of its banking policies rather than saturation of the State with branch offices.
There was no evidence that
a lessening of competition would result from the proposed merger
and establishment of branches; rather, it was indicated that competition and consequently service to customers would be increased.
Governor Mills said that he wished to commend and agree with
the recommendation of the Division of Examinations.
Acquisition of
the branches would mean that Wachovia would move its area of service
and competition toward the coastal line into an area where there were
two other relatively important and strong branch banking organizations
that would provide competition.
Also, there were several competing
independent banks in that area.
Governor Mills said that in giving
approval for the establishment of the branches it would seem that the
Board should look to the future and the possibility of a trend that
would gradually result in the absorption of independent banks by the
larger corporations.
He noted that, while there was nothing along
this line to consider at the present time, the banking history of the
State
suggested a potential development in this direction.
In response to a query from Governor Balderston as to the
difference between the request of Wachovia and that of Old Kent Bank,
Mr. Solomon stated that the legal issue relating to the authority of
'
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the Board to approve the continuance of branches acquired by mergers
was the same in both cases; otherwise, the situation was quite
different.
In the Old Kent case, the continuation of branches to
be acquired by the merger would result in an overwhelming preponderance of Old Kent banking offices in the area involved.
With respect
to Wachovia, the branches to be acquired were in an area where that
bank did not have any other banking offices.
After the merger was
completed Wachovia would have acquired no more banking offices than
had been operated by the bank it absorbed.
After further discussion, a letter to Wachovia Bank and Trust
Company, approving the continuation of 18 branches incident to its
proposed merger with Guaranty Bank and Trust Company, was approved
unanimously.
A copy of the letter to the bank is attached as Item
140- 5. Governor Robertson requested that the record show that the
action vas taken on the basis of the existing law and without any
regard to the pending bank merger legislation, and there was no indication of disagreement.
Mr. Nelson then withdrew from the meeting.
Proposed amendment to Regulation Y. Pursuant to Board action
on March 2, 1960, there was published in the Federal Register on
March 15 notice of a proposed amendment to Regulation Y which, in effect,
would provide that notice of receipt of each application under section 3
Of the Bank Holding Company Act would be published in the Federal Register;
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that 30 days would be allowed for the submission of views by interested
persons with respect to such applications; and that applications would
be available for inspection with the permission of the Board, the Board
expressly reserving the right to refuse inspection of any part of the
application, disclosure of which, in the Boardts judgment, would not
be in accordance with the public interest.
A memorandum dated April 28, 1960, from the Legal Division,
Which was distributed, along with a revised draft of proposed amendment
to Regulation Y, summarized the comments received on the proposed amendment.
It noted that no objection had been raised to the proposal for
Publication of notice of receipt of holding company applications.
The
principal objection related to the proposed availability of applications
for inspection.
In the light of the comments received, the memorandum
Indicated that the principal questions for Board determination were as
follows:
1.
Should the provision as to inspection of
applications be retained or deleted?
The Legal Division was of the opinion that the provision
for inspection of applications should be retained in
order to enable parties with a legitimate interest to
make comments. However, it was recognized that such
right of inspection could become a precedent for requests
to disclose unpublished information relating to other
types of transactions and this would be a departure
from the traditional practice of maintaining the confis.
dentiality of information regarding particular institution
The contemplated procedure would appear to make it necessary
for the Board, at the time of publication of notice of each
application, to determine what, if any, parts of the application would not be made available for inspection.
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If the right of inspection is retained,
should any provision be added for the
protection of confidential information?
The Association of Registered Bank Holding Companies
suggested that the Board withhold any information that
the applicant might wish to have kept confidential. At
the suggestion of the New York Reserve Bank, the following
sentence had been included in the revised draft of the
proposed amendment to Regulation Y: "In this connection,
the Board will consider a written request by the applicant that a specified part or parts of the application
not be made available for such inspection."
3. Should the applicant be advised of each
request for inspection of the application
and of the Board's decision on such request?
This procedure would afford the applicant some measure of
protection.
4. Should all comments be submitted through the
Federal Reserve Bank?
The Legal Division concurred in a suggestion of the Minneapolis Reserve Bank that the amendment require comments to
be submitted in triplicate so that the Board or the Reserve
Bank could transmit a copy to the applicant. In this
connection, the memorandum indicated that the Board might
wish to consider the adoption of a more flexible position
that would allow withholding from the applicant comments
that the Board found should be withheld in the public
interest.
5. In requesting the views of the State bank
supervisor or the Comptroller of the Currency,
should the Board advise these authorities that
the application is submitted to them in confidence and that, except as provided for in the
Regulation, there should be no disclosure of
the contents of the application?
This suggestion would not affect the language of the
amendment. If inspection of the application should be
permitted, the Minneapolis Reserve Bank proposed that
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-18such a statement be made in order to guard against
disclosure of the contents of an application by the
supervisory authorities in a manner contrary to Regulation Y.
Mr. Hackley summarized the Legal Division memorandum.
He
referred to the provision in the revised draft of the proposed amendment
that comments and views on bank holding company applications should be
submitted in triplicate to the Federal Reserve Bank, which will
transmit one copy to the Board and one copy to the applicant." Along
this line, he suggested that the following be added if the Board should
conclude that it would be preferable to provide for withholding from
the applicant certain comments:
"(except where the Board concludes that, in the public
interest, a part or all of such a communication should
not be transmitted to the applicant)".
He indicated that there was some difference of opinion in the Legal
Division with respect to including the above provision for withholding
certain information from the applicant.
Mr. Hexter indicated that, if the amendment to Regulation Y were
adopted in accordance with the revised draft, the Board would be bound
to turn over to the applicant any comments received.
The Board would
have no discretionary authority for withholding any information from
the applicant.
It was Mr. Hexterts view that a reservation of authority
for the Board to withhold portions or all of a communication regarding
an application should be included, if any indication were given that
comments would be transmitted to the applicant.
5/2/60
-19In this connection, Chairman Martin observed that inclusion
of the following provision, as mentioned by Mr. Hackley, would make
it possible to withhold certain information if desired:
"(except where the Board concludes that, in the
public interest, a part or all of such a communication should not be transmitted to the applicant)".
Governor Robertson was of the opinion that there was no need
for including any provision regarding transmittal to the applicant
Of comments or views received by the Board.
He saw no reason why an
individual should not be in a position to submit his views fully and
felt that the views of parties commenting on holding company applications should be protected in the same way as those of applicants with
respect to confidential information furnished on their applications.
Mr. Molony Observed that he favored publishing in the Federal
Register notice of the receipt of holding company applications for the
approval of the acquisition of bank shares or assets but, from a public
relations viewpoint, he would be troubled if the Board were in a position
Where it would be necessary to determine in each individual case what
information could be released.
He said that there were several banking
publications that could be presumed to have an interest in every holding
company application and he thought it probable that they would wish to
see each application that was filed.
He thought this would be trouble-
some and wondered if the problem might not be solved by changing the
application form so that all information included on it could be made
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available to the general public.
He favored some standard procedure
that could be followed in each case.
Mr. Hackley said that this was a fundamental question and the
problems involved were recognized.
In order for a party adversely
affected by a holding company application to comment intelligently,
Mr. Hackley thought that it would be necessary for that party to
have available some of the information on the application.
He believed
that the holding companies themselves would not object to this procedure, if there was a provision that the Board were in a position to
keep confidential some parts of the application.
A separate section
might be provided on the application in which the applicant could set
forth any information that should not be disclosed.
Chairman Martin noted that if the proposed amendment to Regulation y were changed along the lines suggested, it would probably be
necessary to republish the proposed amendment, and Governor King stated
that he would not object to this procedure.
The latter wondered if it
might not be desirable to have a uniform notice of receipt of holding
company applications with a certain amount of detailed information from
applicants that could be given to anyone.
itself could still remain confidential.
The actual application
Governor King went on to say
that he had been troubled about turning over to anyone some of the
information contained on applications.
He felt that, if interested
Parties could not comment intelligently on applications after having
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general information, it was not the Board's obligation to furnish
them with the additional information they desired.
Governor Mills said that, as he analyzed the situation, the
proposed action was really a confusing effort to abort the more
serious commission of original sin.
The original sin was the Board's
majority decision to publish in the Federal Register the proposed amendment to Regulation Y.
His dissent at that time would still hold and,
if he should not be present when the secondary decision was made by
the Board, he would wish to be recorded as abstaining from voting.
In response to a query from Chairman Martin, Mr. Hackley
expressed the view that there was no reason to take action at this time
on the proposed amendment to Regulation Y since the tentative decision
procedure was working fairly well.
Chairman Martin then suggested that Governor Millst comments be
noted and that the question of the proposed amendment to Regulation Y
be passed over.
No indication of disagreement with Chairman Martin's
suggestion was heard.
Application of The Marine Corporation for approval of acquisiLt1511_21: voting shares
(Items
6 and 7). Pursuant to Board action on
APril 22, 1960, the Legal Division submitted with a covering memorandum
dated April 281 1960, a draft of a Notice of Tentative Decision stating
that the Board proposes to grant The Marine Corporation's application
relating to its proposed acquisition of Peoples Trust & Savings Bank,
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Green Bay, Wisconsin, together with a draft of an accompanying
Tentative Statement, which would be published in the Federal Register
in accordance with the procedure adopted by the Board.
A draft of
a proposed press statement was also attached to the memorandum.
The. Board approved unanimously the Notice of Tentative Decision
and the Tentative Statement, which are attached as Items
6 and 7. The
proposed press statement was also approved.
Application of Regulation U to loans made by a bank acting in a
,trustee capacity (Item No. 8).
meeting on September
Pursuant to discussion at a Board
8, 1959, there was referred to the staff for further
study a question raised by the Federal Reserve Bank of Atlanta as to
whether "purpose" loans made by Trust Company of Georgia in its capacity
as trustee of an employees' savings plan were subject to the provisions
Of Regulation U.
The results of that study were presented by the Legal
Division in a memorandum dated April 28, 1960, which was distributed to
the Board.
The memorandum pointed out that similar policy questions had
come up on previous occasions.
In 1946, the Board published an inter-
pretation (1946 Federal Reserve Bulletin, page 874) holding that loans
made by a bank in its capacity as trustee were subject to the regulation.
In 1956, The Chase Manhattan Bank was trustee of an employee retirement
Plan trust for the American Investment Company when the trustor amended
the trust to require the bank to make loans for the purpose of exercising
employee stock options when directed to do so by the other trustees.
,
5/2/60
-2'-
Chase applied for an interpretation which would permit it to make
the loans on an unregulated basis on the ground that it had no
discretion in making the loans.
After much discussion and reconsider-
ation, the Board reaffirmed its 1946 position.
At that time, however)
when queried by the Board, a majority of the Federal Reserve Banks
were in favor of reversing the 1946 interpretation and. permitting
banks to make such loans in a trustee capacity, at least where the
bank exercised no discretion.
On June
6, 1957, Governor
Balderston
stated before the Subcommittee on Securities of the Senate Banking and
Currency Committee that "the Board has . . . expressed the opinion
that the Regulation (U) applies to a loan made by a bank in its
capacity as trustee."
As noted in the memorandum) the present policy of the Board
is that unregulated loans of banks acting in a trustee capacity for
the Purpose of purchasing or carrying securities registered on a
national securities exchange are covered by Regulation U regardless
Of the presence or absence of discretion in the trustee bank.
ments for and against this position were presented
Argu-
and commented on
in the memorandum.
Reference also was made to a memorandum dated September 2)
1959, prepared by the Legal Division in connection with the request of
the Trust Company of Georgia.
This memorandum concluded that "the
question whether the 1946 interpretation should be modified or withdrawn
5/2/60
(or overruled
Overruled by amendment) is basically a matter of policy for the
Board's determination.
However, after careful reconsideration, it
is believed that the present position of the Board is sound and is
Probably preferable."
The Legal Division concluded in its memorandum
Of April 28, 1960, that the question was a close one, but it continued
to be of the opinion expressed in the September 1959 memorandum.
A
draft of a proposed letter to the Federal Reserve Bank of Atlanta that
would express this view as the Board's position with respect to the
question raised by the Trust Company of Georgia was attached to the
Legal Division memorandum.
Governor Mills stated that, after reviewing the matter in the
light of the Legal Division's memorandum of April 28, 1960, he had
modified the position he had indicated at the meeting on September 8,
1959.
He was now in accord with the recommendation of the Legal Divi-
sion that this type of transaction should be subject to Regulation U
and margin requirements.
He said, however, that he thought the approach
might be somevhat different.
the equivalent
In effect, the Board was talking about
of a nonbank lender.
In looking at this type of trans-
action, a trustee bank was not a bank in the usual sense; it was an
agent for the trustor and as such the bank was in the same position as a
nonbank lender and should be subject to the same requirements.
The Board then approved unanimously the recommendation of the
Legal Division that there be no change in the Board's position that
5/2/60
-25-
Regulation U applies to the activities of a bank when it is acting
in its capacity as trustee.
A copy of the letter sent to the Federal
Reserve Bank of Atlanta under date of May 2, 1960, is attached as
Item No.
8
Mr. Hostrup and Miss Hart then withdrew, and Mr. Wood, Senior
Economist, Capital Markets Section, Division of Research and Statistics,
entered at this point.
Letter to the Bureau of the Budget regarding S. 3282 _(Item No. 9).
There had been distributed a draft of a letter to the Bureau of the Budget with respect to a proposed report by the Federal Home Loan Bank
Board on S. 3282, "to amend section
1933."
5 of the Home Owners Loan Act of
The Federal Home Loan Bank Board proposed that it be authorized
to provide for
the organization, incorporation, and operation of an
international
savings and loan development corporation, with authority
to issue its shares to savings and loan associations, Federal and
state-chartered, and to invest its funds to assist or participate in
the establishment and development of mutual savings and loan associations in underdeveloped countries.
The draft letter indicated that the Board doubted the wisdom
Of the proposed
amendment for several reasons.
Mr. Noyes said that there appeared to be no problem in connection
'with the proposed letter.
Mr. Furth reported that the Federal Home
Loan Bank Board was
aware of the Board's position in this matter and
5/2/60
-26-
that the Foreign Economic Policy Committee had endorsed the proposal
but the National Advisory Council had gone on record as not favoring it.
After a brief discussion, the letter to the Bureau of the
Budget was approved unanimously and is attached as Item No.
9.
Messrs. Furth and Wood then withdrew from the meeting.
Authority of the Federal Reserve Banks to purchase United States
obligations directly from the Treasury.
There had been distributed a
memorandum dated April 27, 1960, which Mr. Mayo, Assistant to the
Secretary, Treasury Department, had sent to Mr. Young regarding a possible bill that was being considered at the Treasury Department for
amending section 14(b) of the Federal Reserve Act to extend the authority
Of Federal Reserve Banks to purchase United States obligations directly
from the Treasury in an amount not to exceed ,$5 billion outstanding at
arlY one time.
The proposal being studied would extend the direct
purchase authority indefinitely rather than for a two-year period and
would provide for an annual accounting by the Treasury Department as
to the use of the authority.
Attached to Mr. Mayo's memorandum were
drafts of a possible bill and an explanatory letter transmitting the
bill to the President of the Senate.
Governor Mills expressed concern as to the language of the
Proposed letter, pointing out that it appeared to stray from what had
been a clear line of thinking that the Board and the Treasury Department
.1
I,
5/2/60
-27-
have looked on the device of direct purchasing as a means for taking
care of a temporary situation, particularly at tax paying dates.
He
thought the wording of the letter, by suggesting that the authority
be extended on a permanent basis, could
be construed to indicate a
lack of concern that there would ever be an abuse of the direct
borrowing privilege.
Mr. Young stated that Mr. Mayo had called him regarding the
memorandum and had emphasized that the proposal did not represent
an approved position of the Treasury.
The matter was under consideration
by the Secretary
and Under Secretary of the Treasury but no decision
had been reached as to what the Treasury would propose to Congress.
Governor Mills felt that there was no necessity to extend the
authority to make direct purchases of Treasury obligations on a
permanent basis.
He thought it was a good idea for Congress to review
the matter
periodically.
After a brief discussion, Chairman Martin said he thought
Governor Mills had made a point that should be taken into account.
He
stated reasons why he believed a request for a two-year extension from
June 30, 1960, of the existing authority
would be appropriate and desirable, and it was understood that he would discuss
the matter with Treasury
Secretary Anderson.
The meeting then adjourned.
.
0"11
I
5/2/6o
-28Secretaryts Note: Pursuant to recommendations
contained in memoranda from appropriate individuals concerned, Governor Shepardson today
approved on behalf of the Board the following
actions affecting the Boardts staff:
1/22211Atment
Norman J. Gharrity as Research Assistant, Division of Research and
Statistics, from about June 1 to about September 15, 1960, with basic
annual salary at the rate of $5,130, effective the day he assumes his
duties.
Salary increases
Name and title
Division
Basic annual salary
To
From
111...111M.
Effective May 2, 1960:
Administrative Services
Wesley B. Collins, Senior Mail Clerk
(change in title from Mail Clerk)
$4,065
$4,230
3,825
3,970
Charles R. Norris, Head, Mail and Messenger Services
4,515
(new position - change in title from Head Messenger)
4,640
James T. Stewart, Mail Clerk
3,825
3,970
6,285
7,030
Esmond C. Langley, Senior Messenger
(change in title from Assistant Head Messenger)
Effective May 29, 1960:
Examinations
William E. Rumbarger, Federal Reserve Examiner
(change in title from Assistant Federal Reserve
examiner)
5/2/60
-29-
Permission to work additional period
Prior to maternity leave
Ann S. Gormus, Clerk-Stenographer, Division of Bank Operations,
to work through May 20, 1960, before beginning maternity leave.
A cceptance of resignation
Earl C. Hald, Senior Economist, Division of Research and Statistics,
effective May 31, 1960.
On April 29, 1960, Governor Robertson, acting
in the absence of Governor Shepardson, approved
on behalf of the Board the following items:
Memorandum dated April 26, 1960, from Mr. Sherman, Secretary of the
Board, recommending an increase in the basic annual salary of Vivienne O.
Goebel from $4,o4o to $4,190, effective May 1, 1960, with a Change in
title from Minutes Clerk to Secretary in the Secretary's Office, and with
a change in status of appointment from temporary to permanent.
Letter to the Federal Reserve Bank of Richmond (attached Item No. 10)
approving the appointment of John M. Beducian as assistant examiner.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 1
5/2/60
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOAR°
May 2, 1960
Mr. A. B. Tyler, Vice President,
The National Shawmut Bank of Boston,
40 Water Street,
Boston, Massachusetts,
Dear Mr. Tyler:
This refers to your Bank's application, pursuant to
section 4(a) of the Bank Holding Company Act of 1956, for an
extension, for one year from May 9, 1960, of the period within
Which it may retain ownership of 12,601 of the 100,000 outstanding voting shares of the Nevada-Massachusetts Company, and
6/970 of the 100,000 outstanding voting Shares of the Loyal
Protective Life Insurance Company.
In accordance with the provisions of section 4(a) of
the Act, the Board has granted the requested extension to and
including May 9, 1961.
Attention is drawn to the fact that, pursuant to
sections 4(a) and 4(c)(5) of the Act, by May 9, 1961, the shares
of Nevada-Massachusetts Company and Loyal Protective Life Insurance Company, owned or controlled, directly or indirectly,
laY The National Shawmut Bank of Boston shall not include more
than five per cent of the outstanding voting shares of each
company, respectively.
It is requested that the Board be advised, through
the Federal Reserve Bank of Boston, when control of the shares
Of each of the aforementioned companies is reduced to the
limitation which will become effective on May 9, 1961.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
1
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 2
5/2/60
WASHINGTON 25. ID. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 2, 1960
Mr. Baldwin Maull, President,
Marine Midland Corporation,
Marine Trust Building,
Buffalo 5, New York
Dear Mr. Maull:
This refers to your Corporationls applications, pursuant
to section 4(a) of the Bank Holding Company Act of 1956, for exten!ions, for one year from May 9, 1960, of the period within which
it may retain indirect control of 5,027 shares of Liberty Building
Corporation, Buffalo, New York, and 2,500 shares of the common
stock of Knowlton Brothers, Inc., Watertown, New York.
In accordance with the provisions of section 4(a) of the
Act, the Board has granted the requested extensions to and including
May 9, 1961.
Attention is drawn to the fact that, pursuant to sections
4(9 and 4(c)(5) of the Act, by May 9, 1961, the shares of Liberty
BUilding Corporation and Knowlton Brothers, Inc., owned or controlled,
directly or indirectly, by your Corporation shall not include more
than five per cent of the outstanding voting shares of each company;
respectively.
It is requested that the Board be advised, through the
Federal Reserve Bank of New York, when control of the shares of
each of the aforementioned companies is reduced to the limitation
Which will become effective on May 9, 1961.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary,
•
)
BOARD OF GOVERNORS
olztts14.,4
OF THE
.*Tov
4
Item No. 3
FEDERAL RESERVE SYSTEM
V-)1.k
(
*'
5/2/6o
WASHINGTON 25, D. C.
ADDRESS orricsAL
CORRESPONDENCE
TO THE BOARD
May 2, 1960
CONFIDENTIAL (FRI
Mr. Delos C. Johns, President,
Federal Reserve Bank of St. Louis,
St. Louis 66, Missouri.
Dear Mr. Johns:
In accordance with the request outlined in your letter of
April 14, 1960, the Board of Governors approves the following minimum
and maximum salaries for the respective grades of the salary structure
applicable to the Head Office of the Federal Reserve Bank of St. Louis,
effective July 1, 1960:
Maximum Salary
Grade
Minimum Salary
1
2
3
$ 2,280
21580
2,700
$ 3,060
3,480
3,700
4
2,880
5
3,180
6
7
3,480
3,800
3,900
4,300
14,700
8
4,200
9
10
11
41600
,51loo
5,700
12
13
14
15
16
6,300
7,100
7,900
8,900
9,900
5,100
5,600
6,200
6,900
7,700
8,500
9,500
10,700
12,000
13,300
The Board approves the payment of salaries to the employees,
ct)ther than officers, within the limits specified for the grades in which
positions of the respective employees are classified. It is assumed
he
th
at all employees whose salaries are below the minimum of their grades
aS a result
of the structure increase will be brought within the appro—
priate range as soon as practicable and not later than October 1, 1960.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Str":1
a it
Mr. Delos C. Johns
The Board notes that, while no explicit provision was made
in the budget to cover increased expenses arising from this change in
salary structure, you anticipate total salaries paid for the year 1960
will not exceed the budget estimate.
It is understood that the present employees' salary structures
at the Little Rock, Louisville, and Memphis Branches will continue to
he applicable to those offices.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 4
FEDERAL RESERVE SYSTEM
5/2/60
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 2, 1960
Board of Directors,
Marine Midland Trust Company
of Southern New York,
Elmira, New York.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of New York, the Board of Governors
approves the establishment of a branch on the east side of
Main Street, 800 feet north of the intersection of Main and
Chapel Streets, Windsor, New York, by the Marine Midland
Trust Company of Southern New York, Elmira, New York, in
connection with the proposed merger with The Windsor
National Bank, Windsor, New York.
This consent is given provided:
a. the merger with The Windsor National Bank,
Windsor, New York, is effected substantially
in accordance with the plan of merger dated
March 16, 1960; and
b.
the branch is established within six months
from the date of this letter.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
I 5141f
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No.
5
5/2/60
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 2, 1960
Board of Directors,
Wachovia Bank and Trust Company,
Winston-Salem, North Carolina.
Gentlemen:
Pursuant to your request submitted through the Federal
Reserve Bank of Richmond and subject to the circumstances described
therein, the Board of Governors of the Federal Reserve System approves the establishment of branches by Wachovia Bank and Trust
Company at the locations listed below, following consummation of
the proposed merger of your bank and Guaranty Bank and Trust Company, Greenville, North Carolina:
200 West Fifth Street, Greenville, North Carolina;
417 South Evans Street, Greenville, North Carolina;
726 Dickinson Avenue, Greenville, North Carolina;
1100 North Greene Street, Greenville, North Carolina;
1610 Dickinson Avenue, Greenville, North Carolina;
Fifth and Main Streets, Aurora, North Carolina;
312 Hain Street, Bayboro, North Carolina;
301 East Main Street, Belhaven, North Carolina;
201 Railroad Street, Bethel, North Carolina;
Front and Liberty Streets, Hamilton, North Carolina;
600 East Main Street, Elizabeth City, North Carolina;
113 South Main Street, Robersonville, North Carolina;
104 Greene Street, Snow Hill, North Carolina;
306 Main Street, Vanceboro, North Carolina;
Railroad and Main Streets, Walstonburg, North Carolina;
103 South Market Street, Washington, North Carolina;
313 Hackney Avenue, Washington, North Carolina; and
122 West Main Street, Williamston, North Carolina.
This approval is given provided:
BOARD OF GOVERNORS OFT HI FEDERAL RESERVE SYSTEM
Shares of stock acquired from dissenting stockholders are disposed of within six months from
the date of acquisition, and
The branches are established within six months
from the date of this letter.
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Item. No. 6
BOARD OF GOVERNORS
5/2/6o
OF THE
FEDERAL RESERVE SYSTEM
NOTICE OF TENTATIVE DECISION ON APPLICATION FOR PRIOR
APPROVAL OF ACQUISITION BY A BANK HOLDING COMPANY
OF VOTING SHARES OF A BANK
Notice is hereby given that, pursuant to section 3(a)
of the Bank Holding Company Act of 1956, The Marine Corporation,
Milwaukee, Wisconsin, a bank holding company, has applied for the
Board's prior approval of the acquisition of 80 per cent or more
of the 5,000 voting shares of Peoples Trust & Savings Bank,
Green Bay, Wisconsin. Information relied upon by the Board in
making its tentative decision is summarized in the Board's
Tentative Statement of this date, which is attached hereto and
made a part hereof, and which is available for inspection at
the Office of the Board's Secretary, at all Federal Reserve Banks,
and at the Office of the Federal Register.
The record in this proceeding to date consists of the
application, the Board's letter to the office of the Commissioner
of Banks for the State of Wisconsin inviting his views and
recommendations on
the application, this Notice of Tentative
Decision
and the facts set forth in the Board's Tentative Statement.
For the reasons set forth in the Tentative Statement, the
Board proposes to grant the application.
1
-2-
Notice is further given that any interested person may,
not later than fifteen (15) days after the publication of this
notice in the Federal Register, file with the Board in writing
any comments upon or objections to the Board's proposed action.
Communications should be addressed to the Secretary, Board of
Governors of the Federal Reserve System, Washington 250 D. C.
Following expiration of the said 15-day period, the
Board's Tentative Decision will be made final by order to that
effect, unless for good cause shown other action is deemed
appropriate by the Board.
Dated at Washington, D. C., this 2nd day of May 1960.
By order of the Board of Governors
signed) Merritt Sherman
(SEAL)
Merritt Sherman,
Secretary.
t.584
Item. No.
BOARD OF GOVERNORS
7
5/2/60
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY THE MARINE CORPORATION, MILWAUKEE, WISCONSIN,
FOR PRIOR APPROVAL &ACQUISITION OF VOTING SHARES OF
PEOPLES TRUST & SAVINGS BANK, GREEN BAY, WISCONSIN
TENTATIVE STATEMENT
The Marine Corporation, Milwaukee, Wisconsin ("Marine"),
a bank holding company, has applied, pursuant to section 3(a)(2)
of the Bank Holding Company Act of 1956 ("the Act"), for the
Board's prior approval of the acquisition of 80 per cent or more
of the 5,000 voting shares of Peoples Trust & Savings Bank,
Green Bay, Wisconsin ("Peoples").
Views and recommendations of the Commissioner of Banks. As required by
section 3(h) of the Act, the Board forwarded notice
of the application to the Commissioner of Banks for the State of
Wisconsin.
The Commissioner of Banks, however, submitted no views
regarding the application.
Statutory factors. - Section 3(c) of the Act requires
the Board to take
into consideration the following five factors:
(1) the financial history and condition of the holding company
and bank concerned; (2) their prospects; (3) the character of
their management; (4) the convenience, needs, and welfare of the
communities
and area concerned; and (5) whether or not the effect
I
-2
of the acquisition would be to expand the size or extent of the
bank holding company system involved beyond limits consistent with
,
adequate and sound banking, the public interest, and the preservation of competition in the field of banking.
Discussion. - Marine, the smallest of the three bank
holding companies in Wisconsin, currently has five subsidiary
banks in or near Milwaukee.
The largest bank of thc group is
Marine National Exchange Bank, located in the business center
of Milwaukee.
Peoples is located in downtown Green Bay and its
Primary service area includes the city of Green Bay, and the
following adjacent towns g
Ashwaubenon, Allouez„ Preble, and
Howard. The area comprises approximately 25 square miles, is
Primarily urban in character, and has an estimated population
of 65,000. Peoples is the second largest of six banks serving
the area and is approximately one-third the size of the largest.
The financial history and condition, prospects, and
management of both Marine and Peoples are satisfactory.
Marine's application offers its services in securing
management succession for Peoples, and proposes to have Peoples
provide several additional banking services, if the application is
granted.
On the basis of available information, it appears that
Peoples is serving the convenience and needs of its area in a satisfactory manner and that acquisition by Marine is not the only solution
86
-3to the problem of management succession.
These considerations
would not therefore have a material effect on the convenience,
needs, and welfare of the community and area concerned, but would
not be inconsistent with approval of the application.
Peoples is located more than 100 miles from Marine's
subsidiary banks and outside of their service area.
There are
five other banks operating in Peoples' primary service area.
With the acquisition of Peoples, Marine would control one of
six banking offices (16.7 per cent) and $14,908,000 (16.1 percent)
of the 02,626,000 total deposits of individuals, partnerships,
and corporations (IPC) as of December 31, 1959, of all banks
operating in that area.
Only Marine's largest subsidiary bank
holds any IPC deposits from the primary service area of Peoples.
These deposits from Peoples' area are only 0.3 per cent of that
subsidiary's deposits and are equal in amount to 2.3 per cent
of the total IPC
deposits of Peoples.
It does not appear that the acquisition proposed
would result in an undue concentration of banking resources or
Produce circumstances which would have an adverse effect on
competition.
A consideration of all the facts in this case
does not indicate that the proposed
acquisition would expand
the size or
extent of banking resources under Marine's control
beyond limits consistent with adequate and sound banking, the
Public interest, and the preservation of competition
in the
field of banking.
Conclusion. - Viewing the relevant facts in the light
Of the general purposes of the Act and the factors enumerated in
section 3(c), it is the judgment of the Board that the proposed
acquisition would be consistent with the statutory objectives and
the public interest and that the application should be approved.
I r1_34.,
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
8
5/2/60
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 2, 1960
Mr. Harold T. Patterson,
Vice President and General Counsel,
Federal Reserve Bank of Atlanta,
Atlanta 3, Georgia.
Dear Mr. Patterson:
This refers to your letter of August 11, 1959, transmitting
a letter from Mr. James M. Sibley, counsel for Trust Company of
Georgia, which requests a ruling on whether that bank's activities
in connection with the administration of an employees' savings plan
are subject to Regulation U.
Under the plan, any regular, full-time employee may participate by authorizing the sponsoring company to deduct a percentage
of his salary and wages and transmit the same to the bank as trustee.
Voluntary contributions by the company are allocated among the participants. A participant may direct that funds held for him be
invested by the trustee in insurance, annuity contracts, Series E
Bonds, or in one or more of three specified securities which are
listed on a stock exchange. Loans to purchase the stocks may be
made to participants from funds of the trust, subject to approval
Of the
administrative committee, which is composed of five participants, and of the trustee. The bank's right to approve is said to
be
restricted to the mechanics of making the loan, the purpose being
to avoid
cumbersome procedures.
Loans are secured by the credit balance of the borrowing
Participants in
the savings fund, including stock, but excluding (in
Practice) insurance and annuity contracts and government securities.
Additional stocks may be, but, in practice, have not been pledged
,e collateral for loans. Loans are not made, under the plan, from
,a
bank funds,
and participants do not borrow from the bank upon assignluent of the participants' accounts in the trust.
Mr. Sibley urges that loans under the plan are not subject
toA R
egulation U because a loan should not be considered as having been
!? e by a bank where the bank acts solely in its capacity of trustee,
'
without exercise of any discretion.
4 r-
Mr. Harold T. Patterson
-2-
The Board reviewed this question upon at least one other
occasion in recent years, and full consideration has again been given
to the matter since receipt of the request from Trust Company of
Georgia. After considering the arguments on both sides, the Board has
reaffirmed its earlier view that, in conformity with the interpretation
Published at page 874 .of the 1946 Federal Reserve Bulletin, Regulation U
aPPlies to the activities of a bank when it is acting in its capacity as
trustee. Although the bank in that case had at best a limited discretion
With respect to loans made by it in its capacity as trustee, the Board concluded that this fact did not affect the application of the regulation to
Uch loans. It is believed that this interpretation controls the situaTaon described in Mr. Sibley's letter, and that loans by Trust Company in
it8 capacity of trustee under the plan would similarly- be regulated loans.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
(Nt gOk-,,00
4.
c
FEDERAL RESERVE SYSTEM
0iS'
Iteni No. 9
5/2/60
WASHINGTON 25, D. C.
4 \•.1
1111P11/
ADDRESS OFFICIAL CORRESPONDENCE
4
TO THE BOARD
241.MVP"
**41?:
—6004***
May 2, 1960.
Mr. Phillip S. Hughes,
Assistant Director for Legislative Reference,
Bureau of the Budget,
Executive Office of the President,
Washington 25, D. C.
Dear Mr. Hughes:
This is in reply to your request of April 25 for the views
Of the Board of Governors on the proposed report by the Federal Home
Loan Bank Board on S. 3282, "To amend section 5 of the Home Owners
Loan Act of
1933."
The Federal Home Loan Bank Board proposes that it be authorized:
provide for the organization, incorporation, and
operation of an international savings and loan development corporation, with authority to issue its shares to
savings and loan associations, Federal and state-chartered,
and to invest its funds to assist or participate in the
establishment and development of mutual savings and loan
associations in underdeveloped countries. Express authority to invest in its shares, to the extent permitted by
rules and regulations of the Board, could be conferred on
Federal savings and loan associations and on savings and
loan associations chartered or organized in the District
of Columbia, and other savings and loan associations could
be permitted to make such investments to the extent of
their legal power subject to such rules and regulations.
Appropriate provisions could be included to authorize the
corporation to borrow and give security and to confer on
the corporation and its obligations a tax status similar
to that of the Federal Home Loan Banks and their obligations.n
The Board of Governors doubts the wisdom of such a course,
for several reasons. First, there are now in operation a number of
ITI-vate, quasi-public,
and Federal organizations and agencies with flexible authority
to extend financial and economic assistance to underdevelPed countries. Operating through entities with broad authority to take
Mr. Phillip S. Hughes
-2-
account of particular situations seems preferable to creating a new corporation with an inflexible objective and mode of operation.
Second, savings and loan associations are generally considered
to operate most effectively when they operate as local thrift and home
financing institutions. Corporate investm.-nt, particularly international
investment, seems remote from their field of competence.
Third, especially if the proposed corporation is given authority to borrow in the capital market, and the corporation and its obligations receive Ha tax status similar to that of the Federal Home Loan
Banks and their obligationsI n the corporation is likely to be regarded
generally as a Federal instrumentality. There is no suggestion, however,
that the operations of the proposed corporation be subject to the coordination of international economic policy that governs Federal and quasipublic international economic operations.
Fourth, creation of such a corporation with power to borrow in
. ancial markets might permit a limited amount of foreign aid to be
rin
financed outside the Federal debt limit. Such gain as this might be
hought to represent would probably not outweigh the disadvantages likely
o accrue from further complication of Treasury debt management problems.
t
Fifth, the tendency of Federally sponsored activities of this
sort to become actual or contingent liabilities of the Treasury should
not be
overlooked.
Sixth, many economic arrangements that work well in highly
developed countries work poorly in underdeveloped areas. There is little
evidence that the savings and loan type of operation can be extended
r
ecessfully to many areas that might legitimately look to the United
States for assistance. The proposed device might, therefore, have a
everely limited usefulness. If it seems important to help in establish3.-ng organizations of the savings and loan type in particular areas, there
is
nothing in existing law that would prevent individuals and organizatlons from providing technical assistance, either privately or through
established channels.
For these reasons, the Board of Governors would not favor the
Proposal under discussion.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
1_592
BOARD OF GOVERNORS
OF THE
, DWQ0lif
,0C14
Item No. 10
5/2/60
FEDERAL RESERVE SYSTEM
l,
to
*
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
V :I
%,4
,'Qett ntsgt,
4i0404.--
April 29, 1960
Mi.. N. L. Armistead, Vice President,
Federal Reserve Bank of Richmond,
Richmond 13, Virginia.
Dear Mr. Armistead:
In accordance with the request contained
in your letter of April 25, 1960, the Board approves
the appointment of John M. Beducian as an assistant
examiner for the Federal Reserve Bank of Richmond,
effective today.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
@FedFRASER