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Minutes for May 2Q, 1959. To: Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial In column B below to indicate that you have seen the minutes. A Chin. 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 Wednesday, May 20 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Balderston, Vice Chairman Szymczak Mills Robertson Shepardson King Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Sherman, Secretary Kenyon, Assistant Secretary Farrell, Director, Division of Bank Operations Solomon, Assistant General Counsel Hexter, Assistant General Counsel Hostrup, Assistant Director, Division of Examinations Nelson, Assistant Director, Division of Examinations Goodman, Assistant Director, Division of Examinations Benner, Assistant Director, Division of Examinations Hill, Assistant to the Secretary The establishment without change by the Federal Reserve Banks of Boston and Atlanta on May 18, 1959, 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, with appropriate supporting information, and copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: It 5/20/59 -2Item No. Letter to The First National City Bank of New York, New York City, approving the establishment of a branch in Guayaquil, Ecuador. (For transmittal through the Federal Reserve Bank of New York) 1 Letter to the Catskill National Bank and Trust Company, Catskill, New York, approving its supplemental application for fiduciary powers. (For transmittal through the Federal Reserve Bank of New York) 2 Letter to The County Trust Company, White Plains, New York, approving the relocation of its branch at 333 South Fulton Avenue, Mount Vernon, to South Columbus Avenue and Colonial Place. (For transmittal through the Federal Reserve Bank of New York) 3 Letter to the Millburn-Short Hills Bank, Millburn, New Jersey, granting an extension of time within which to accomplish membership in the System. (For transmittal through the Federal Reserve Bank of New York) 4 Letter to The Dulaney National Bank of Marshall, Marshall, Illinois, approving its application for fiduciary powers. (For transmittal through the Federal Reserve Bank of Chicago) 5 Prior tax certification with respect to The Kemper Investment Company, Kansas City, Missouri. (For transmittal to the Company through the Federal Reserve Bank of Kansas City, and with a duplicate original to the Commissioner of Internal Revenue) 6 Letter to the First National Bank of Jonesboro, Jonesboro, 7 Arkansas, regarding its surrender of the authority to exercise fiduciary powers. (For transmittal through the Federal Reserve Bank of St. Louis) Letter to the Hereford State Bank, Hereford, Texas, waiving GiX months' notice of withdrawal from membership in the Federal Reserve System. (For transmittal through the Federal Reserve Bank of Dallas) 8 9 5/20/59 -3Item No. Letter to the Federal Reserve Bank of Dallas regarding the applicability of section 32 of the Banking Act of 1933 to the service of Mr. Henry E. Dahlberg as a director of the Southern Arizona Bank and Trust Company, Tucson, Arizona. (With a copy to the Federal Reserve Bank of Kansas City in view of a related case that had arisen in that District) 9 Messrs. Nelson, Goodman, and Benner then withdrew from the meeting. Services for member banks (Item No. 10). There had been distributed to the Board a draft of reply to a letter from Mr. Mitchell, Chairman of the Board of the Federal Reserve Bank of Atlanta, dated May 1, 1959, requesting the Board's consideration of a resolution adopted by the Board of Directors of the Federal Reserve Bank of Atlanta which urged the management of the Bank to (1) study the feasibility of an increase in armored car service with a view to serving eventually practically the entire membership of the Sixth Federal Reserve District and (2) investigate the cost of supplying the member banks with wrapped coin and determine whether this service could be furnished without charge or, if necessary, at a nominal cost. This resolution had been initiated by a Special Committee on Member Bank Services composed of directors of the Sixth District, appointed to make a study of possibilities of broadening the services rendered by the Federal Reserve Bank to its member banks. 5/2o/59 Mr. Farrell commented that Mr. Mitchell's letter reflected awareness of the Board s recent request that the Presidents' Conference review the basis for computing the costs of the coin wrapping operation with a view to securing reimbursement of substantially the costs involved for those Banks desiring to provide the service. With respect to armored car service, Mr. Farrell said a case could be made for its extension in view of the poor mail service to many points in the Atlanta District. During the discussion which followed, the suggestion was made that the letter be phrased in such a manner as to point out clearly that supplying member banks with currency and coin without charge was an appropriate and essential function of the Reserve Banks, whereas in the Board's view coin wrapping was not in the same category. In connection with the possible extension of armored car service, attention was called to a tentative strike of armored car drivers in the Pittsburgh area and question was raised as to the advisability of abandoning United States mail service and extending armored car service in view of the possibility of interruptions of service. The suggestion was made that the letter contain no impli- cation that the Board was urging the use of armored cars, particularly since absndonment of the use of registered mail might mean that this service would not be available if a future need for it should arise. 5/20/59 In response to a question as to whether any Reserve Bank had made a study of the desirability of owning and operating its own armored cars as an alternative to contracting with a private company, Mr. Farrell said he was not aware of any study regarding possible use Of Bank-owned trucks except in a Reserve Bank city but that he would look into the matter. With respect to the possibility of a strike in the Pittsburgh area, it was suggested that a similar strike may have occurred elsewhere and that the Pittsburgh Branch might find helpful the experience of the Reserve Bank concerned. It was brought out during this discussion that arrangements reportedly had been made for certain Pittsburgh companies to pick up funds to meet payrolls at the Branch their own trucks if armored car service used by member banks should be affected by a strike. Question was raised whether such a practice was advisable, and it was understood that the Division of Bank OPsrations would discuss the matter with the management of the Pittsburgh Branch. The letter to Mr. Mitchell then was approved unanimously in a form reflecting the suggestions agreed upon at this meeting. A copy of the letter sent pursuant to this action is attached as Item No. 10. Mr. Smith, Assistant Director, Division of Examinations, entered the room during the foregoing discussion. 5/20/59 -6Safekeeping practices of Federal Reserve Banks. In its letter of September 19, 1957, the Board requested the Presidents' Conference to review the entire subject of safekeeping facilities. The Subcommittee on Cash, Leased Wire, and Sundry Operations subsequently submitted a report on the matter, which was accepted by the Presidents' Conference at its February 1958 meeting and was discussed with the Board at that time. On December 8, 1958, the Board addressed a letter to Mr. Erickson, Chairman of the Presidents' Conference, in which it was (1) noted that the acceptance by the Presidents of the Subcommittee report mentioned above represented basically a reaffirmation of decisions reached upon earlier occasions by the Presidents' Conference and the Board, and (2) suggested that a current statement of general policy be agreed upon along lines which were set forth in that letter. When this statement was considered by the Presidents at a special session on January 6, 1959, some of the Presidents suggested that certain changes might be desirable in the light of present circumstances, and it was then agreed that any additions to or deletions from the proposed statement should be submitted to the Committee on Miscellaneous Operations. A modified statement was presented to the Conference On March 23, 1959, incorporating practically all the suggestions submitted by the several Reserve Banks so that in effect it recognized the various safekeeping practices which were currently deemed desirable 5/20/59 by the Reserve Banks. During the joint meeting of the Board and the Presidents on March 24, 1959, the modified statement of general policy vas reviewed and the Presidents were advised that the Board would give consideration to the proposed statement and inform the Conference of its views. Under date of May 13, 1959, there had been distributed to the Board a memorandum from the Division of Bank Operations containing a comparative analysis of the modified statement and the statement Proposed. by the Board. Submitted with the memorandum were alternative draft letters to the Presidents of all Federal Reserve Banks (1) accepting the proposed policy statement and (2) setting forth a brief statement of broad policy. In commenting on the modified statement proposed by the Presidents' Conference, Mr. Farrell said that the policy was less restrictive than might appear to be the case due to the insertion Of various catch-all phrases. Accordingly, he suggested that in lieu of such a detailed statement, the Board might wish to consider a broad general statement which he thought would have the same practical effect as the statement adopted by the Presidents. During the discussion that followed, some opinion was expressed in favor of the issuance of a general statement such as proposed by the Division of Bank Operations, thus leaving a broad scope of administrative discretion to the Banks. A second view was that the policy 5/2o/59 statement should be more detailed and that to leave the interpretation Of a broad policy to the discretion of the individual Banks would result U1 a variation in practices. In time, it was suggested, practices would tend to gravitate to the level of the most liberal Bank. It was also Pointed out that under a broad policy examiners might lack adequate criteria for evaluating safekeeping practices in the Reserve Banks. Question was raised as to the validity of the vault adequacy test for reserve city banks and whether the policy statement should not restrict the holding of securities for reserve city banks to "limited periods." It was pointed out that both the vault adequacy test and the time limitation were originslly included to permit the holding of securities of a reserve city bank temporarily in need of vault space. The suggestion then was me that a letter to the Reserve Banks be drafted which would contain a policy statement to the effect that the Banks would hold securities in safekeeping only when such h°1ding5 contributed to the efficient and economical operations of the Banks or were otherwise in the public interest and were consistent vith the purposes of the System. This general statement would be sUPPlemented by examples of types of holdings that would or would not be consistent with such a policy, with the examples drawn from out standing letters to the Reserve Banks. After further discussion, it was agreed that a letter along sUch lines would be prepared for the Board's consideration. 5/20/59 Messrs. Hexter, Hostrup, and Smith then withdrew from the meeting and Messrs. Thomas, Economic Adviser to the Board, and Shay) Legislative Counsel, entered the room. Letter to Congressman Kilburn (Item No. 11). Governor Balderston related to the Board that a telephone request had been received from the office of Congressman Kilburn of New York for comment regarding a letter dated May 19, 1959, that Congressman Patman addressed to members of the House Committee on Banking and Currency in connection with H.R. 5237, a bill "to amend member bank reserve requirements". In the letter, Mr. Patman stated that the Federal Reserve in effect, was saying that it wanted to transfer about *15 billion of Government bonds to the commercial banks because they needed the profits from them and that he would ask the Committee to conduct further hearings on the bill. Mr. Kilburn wished to make a statement tomorrow at the committee meeting and was desirous of receiving the Board's comments. Mr. Thomas distributed to the members of the Board a draft °f reply to Congressman Kilburn and a memorandum proposed to be enclosed. The memorandum was similar in form to one previously PrePared by members of the staff at the request of Congressman Hiestand of California and dealt with the principal points made by Congressman Patman at the hearings before Subcommittee No. 2 ' legarding H.R. 5237. •;`97 5/20/59 -10Following a discussion, during which a suggestion was made for a change in the draft of letter to Congressman Kilburn, the Board iitTknanT1 unanimously a letter in the form attached as Item No. 11, with the understanding that copies of the letter and memorandum would be sent to Chairman Spence of the House Banking and Currency Committee and Chairman Brown of Subcommittee No. 2, House Bnnking and Currency Committee. The meeting then adjourned. Secretary's Note: Pursuant to the recommendation contained in a memorandum dated May 12, 1959, from Mr. Kelleher, Director, Division of Administrative Services, Governor Shepardson, acting on behalf of the Board, today granted permission to Wilbert L. Stephens, Laborer in that Division, to continue part-time outside employment as a parkin attendant for the Doggett Parking Company. Seretary 4 BOARD OF GOVERNORS OF THE Item No. 1 5/20/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE HOARD May 20, 1959. The First National City Bank of New York, 55 Wall Street, New York, New York. Gentlemen: The Board of Governors of the Federal Reserve System New York, authorizes The First National City Bank of New York, New York, pursuant to the provisions of Section 25 of the Ecuador, Federal Reserve Act, to establish a branch in Guayaquil, and to operate and maintain such branch subject to the probranch visions of such Section, upon condition that, unless the before or on business for opened is actually established and June 1, 1960, all rights granted hereby shall be deemed to have been abandoned and the authority hereby granted shall automatically terminate on such date. Please advise the Board of Governors in writing, through the Federal Reserve Bank of New York, when the branch is estabthe lished and opened for business, furnishing information as to will change no that d understoo is It branch. exact location of the be made in the location of the branch after establishment without the prior approval of the Board of Governors. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. J • • BOARD OF GOVERNORS 44tatt044 Off Cop 400 OF THE 6 Item No. 2 5/20/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD ,Lttse. NI**** May 201 1959. Board of Directors, Catskill National Bank End Trust Company, Catskill, New York. Gentlemen: The Board of Governors of the Federal Reserve SYstem has given consideration to your supplemental apPlication for fiduciary powers, and, in addition to the authority heretofore granted to act as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, and comittee of estates of lunatics, grants you authority to act, when not in contravention of State or local law, in any other fiduciary capacity in which State banks, trust companies, or other corporations which come into competition with national banks are permitted to act under the laws of the State of New York. The exercise of all such powers shall be subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve System. A formal certificate indicating the fiduciary Powers that Catskill National Bank and Trust Company is now authorized to exercise will be forwarded to you in due course. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS et+ 6;ttp, OF THE Item No. 3 FEDERAL RESERVE SYSTEM 5/20/59 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD PASI. May 201 1959. Board of Directors, The County Trust, Company, White Plains, New York. Gentlenen: PusiLant to your request submitted through the Federal Res( rve Bank of New York, the I;oard of Governors of tie Federal Reserve Systela approves tho relocation of the branch presently located at 333 South Fulton Avenue, Nount New York, to a new location in the vicinity of the intersection of South Columbus Avenue and Colonial Place, ount Vernon, Now York. This approval is given provicleC the branch is entablished at the new location within one yonr from the date of thin letter. yernon, Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 4 5/20/59 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS orriciAL CORRESPONDENCE TO THE BOARO 1, V 20, 1959. Board of Directors, Millburn-Short Hills Bank, Millburn, New Jersey. Gentlemen: In accordance with a request submitted through the Federal Reserve Bank of New York, the Board of Governors extends to August 24, 1959, the time within which MillburnShort Hills Bank, Millburn, New Jersey, may accomplish admisslon to membership in the Federal Reserve System, as outlined in the Board's letter of November 25, 1958. 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. 5 5/20/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20, 1959. Board of Directors, The Dulaney National Bank Of Marshall, Marshall, Illinois. Gentlemen: The Board of Governors of the Federal Reserve System has given comie.eration to your application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduci417 capacity in which State banks, trust companies, or other "rPorations which come into competition with national banks are permitted to act under the laws of the State of Illinois, the exercise of all such rights to be subject to the provisions Of Section 11(k) of the Federal Reserve Act and Regulation F of the Board of Governors of the Federal Reserve System. A formal certificate indicating the fiduciary powers that Tho Dulaney National Bank of Marshall is now authorized to exercise will be forwarded to you in due course. Very truly yours, (Signed) KennethA. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WAS Item No. 6 5/20/59 CERTIFICATION 1. The Board of Governors of the Federal Reserve System has been informed by The Kemper Investment Company, Kansas City, Missouri, that it proposes to distribute to its shareholders on a pro rata basis the following shares of bank stock: Number of Shares Name of Bank The City National Bank and Trust Company of Kansas City, Kansas City, Missouri The Citizens National Bank of Emporia, Emporia, Kansas Grand Avenue Bank of Kansas City, Kansas City, Missouri Kemper State Bank, Boonville, Missouri Clay County State Bank, Excelsior Springs, Missouri The First National Bank of Independence, Independence, Missouri The Fourth National Bank in Wichita, Wichita, Kansas 133,360 11 201i 3,334 4,800 5,976 76,722 2. Pursuant to the provisions of section 1101(b) and section 1103(b) of the Internal Revenue Code of 1954, the Board of Governors (3f the Federal Reserve System hereby certifies that: (a) The Kemper Investment Company satisfies the requirements of subsection (b) of section 1103 of the Internal Revenue Code ' ,qualified bank holding corporation, of 1954 and therefore is a ' as defined in that subsection. (b) The shares of bank stock enumerated in 1,1” above, are all or part of the property by reason of which The Kemper Investment the Company controls (within the meaning of section 2(a) of banks. named the 1956) of Bank Holding Company Act enum(c) The proposed distribution of the shares of bank stock policies the e effectuat to te appropria erated hereinabove is of the Bank Holding Company Act of 1956. of the Executed in Washington, D. C., pursuant to direction System. Reserve hoard of Governors of the Federal (Signed) Merritt Sherman Merritt Sherman, Secretary. (3v.:AL) Date: may 20, 1959. BOARD OF GOVERNORS OF THE io FEDERAL RESERVE SYSTEM Item No. 7 5/20/59 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD T " : e, rtistt 'ootto** May 20, 1959. First National Bank of Jonesboro, Jonesboro, Arkansas. Gentlemen: This refers to the resolution adopted on December 16, 1958, bY the board of directors of your bank, signifying its desire to sur Fender the authority to exercise fiduciary powers heretofore granted 03r the Board of Governors of the Federal Reserve System. The Board, understanding that your or otherwise properly relieved in accordance ita duties as fiduciary, has issued a formal that the First National Bank of Jonesboro is exercise any oC the fiduciary powers covered section 11(k) of the Federal Reserve Act, as ioate is enclosed. bank has been discharged with the law of all of certificate to the effect no longer authorized to by the provisions of amended. This certif- In this connection, your attention is called to the fact th + A a., under the provisions of section 11(k) of the Federal Reserve as amended, when such a certificate has been issued by the Board '11- Governors of the Federal Reserve System to a national bank, such 2111k (1) shall no longer be subject to the provisions of section 11(k) vr the regulations of the Board of Governors of the Federal Reserve 5Tutem made pursuant thereto, (2) shall be entitled to have returned i?).t any securities which it may have deposited with the State authorfor the protection of private or court trusts, and (3) shall not sroise thereafter any of the powers granted by the Board pursuant to i"s provisions of section 11(k) without first applying for and obtaine new permit to exercise such powers. j Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 41o1osure BOARD OF GOVERNORS OF THE Item No. 8 FEDERAL RESERVE SYSTEM 5/20/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20 1959. kard of Directors, Rereford State Bank, Rereford, Texas. ClentlftMen: The Federal Reserve Bank of Dallas has forwarded to the kard of Governors your letter of April 24, 1959, and the accom1!!!Ying resolution signifying your intention to withdraw from mem7 8 8hiP in the Feeral Reserve System and requesting waiver of the 44c months' notico of such withdrawal. In a,.;eordance with your request, the Board of Governors f I 4-ves the recjiirement of six months' notice of withdrawal. Upon Da'irvrender to the Federal Reserve Bank of Dallas of the Federal 72erve Bank stock issued to your institution, such stock will be 7 p celed and appropriate refund will be made thereon. Under the fwisions of section 10(c) of the Board's Regulation H, your bank terminate membership in the Federal Reserve System at any time thin eight months after notice of intention to withdraw from m blembership was given. It is requested that the certificate of etabership be returned to the Federal Reserve Bank of Dallas. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE t2f, -,:* ,,,,. t lr . , Item No. 9, FEDERAL RESERVE SYSTEM 5/20/59 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD "00404 May 20, 1959. Mr. L. G. Pondrom, Vice President, Federal Reserve Bank of Dallas, Dallas 2, Texas. Dear Mr. Pondrom: Receipt is acknowledged of your letter of April 2, 1959, and enclosures, relating to the question whether Mr. Henry E. tahlberg may continue to serve as a director of the Southern Arizona Bank and Trust Company, TUcson, Arizona, in view of the Provisions of section 32 of the Banking Act of 1933. As pointed out in your letter and the comprehensive memorandum of counsel which you enclosed, the question has been considered previously, and on the basis of the figures for the Years prior to 1957, the Board concluded that section 32 was not ePPlicable. The year 1956 shoved a rather large volume of seci°11 32 business but was regarded as unusual because it included items which it was thought were not likely to recur. Therefore, although the question appeared to be a very close one, the Board stated that business of the kind described in section 32 need not at that time be regarded as one of the primary activities of J• A. Hogle & Co. However, the information submitted with your letter indicates that the total volume of underwriting and distributing has, contrary to expectations, increased, and the totals have been 19 million for 1956, $8 million for 1957, and over $24 million for 958, the ratio of income from this business to total gross income being 10.62 per cent, 10.06 per cent, and 11.22 per cent, respectively, for these three years. The Supreme Court said in Board of Governors v. Agnew, 329 U.S. 441, "If the underwriting business of a firm is substantial, the .13, 1rm is engaged in the underwriting business in a primary way • The line between substantial and unsubstantial seems to us to be the one indicated by the words 'primarily engaged'." 7 ,.. .„ i Mr. L. G. Pondrom Your counsel points out that the experience of your Bank in section 32 matters has been limited. However, a review of the eases considered by the Board under this statute shows that in cases where the total volume of sectio n 32 business was large ($10 or $15 million and over), the Board has held that the firm 1418.8 "primarily engaged" in such business, even though the income from that source was considerably less than 10 per cent (or in one case even less than 5 per cent) of the total income of the firm. Conslatently with the position taken in these cases, it appears that J. A. Bogle & Co. should be regarde d as primarily engaged in the business described in section 32 and that Mr. Dahlberg may no longer serve as a director of the member bank. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE Item No. 10 5/20/59 FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20, 1959 Mr, Walter M. Mitchell, Chairman of the Board, Federal Reserve Bank of Atlanta, Atlanta 3, Georgia. Dear Mr. Mitchell: This is in reply to your letter of May 1, 1959 enclosing , f .,or the Board's consideration a resolution adopted by the Board of Directors of the Federal Reserve Bank of Atlanta pertaining to 8?rvices rendered by the Reserve Bank to its member banks, partic144arlY the wrapping of coin and the extension of armored car service fl over-the-road shipment of money. It is noted that this resolution :as initiated by a newly appointed Special Committee on Member Bank Services composed of directors of the Sixth District which was appointed to make a study of possibilities of broadening the services rendered by the Federal Reserve Bank to its member banks. The Board agrees with your Committee that the Federal Reserve System should do everything reasonably possible for the member banks, ever, thereby making membership in the System more attractive. Howbecause of the quasi-public nature of the Federal Reserve Banks B d the interest of the Federal Government in their net earnings, the 2ard feels that the free services which are offered to member banks Should be confined as a general practice to those that may be considered as a proper function of a central bank. The resolution adopted by your Directors urges that the '44gement of the Atlanta Bank pursue diligently the feasibility of .!'.,reater increase in the armored car service of the Reserve Bank, :11.th the view of eventually serving practically the entire membership se the Sixth Federal Reserve District. Inasmuch as the Federal Rethrvs Banks are the primary source of supply for currency and coin, the Board has consistently taken the position that delivery service t1 , ne, 1is connection should be furnished all member banks on a basis as tu : r-LY turn)" equal as may be possible. The means by which this service is a matter which has been left largely for the individual serve Banks to decide in the light of the dictates of prudent 7 BOARD Mr. Walter N. OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Litchell tanagement. While the Board recognizes that there are advantages in armored car service, it feels that caution should be used in any program that would rely completely, or to a large degree, on a means of nipment that is more subject to interruption (for example, by strikes) 'Ilan is the United States mail service. Abandonment of the use of !'egistered mail might mean that this service would not be available lf a future need for it should arise. As its second objective, the resolution requests the Reserve Bank management to investigate the cost of supplying wrapped coin to member banks and to determine whether this service can be furnished without charge, or, if believed necessary, at a nominal cost. The resolution further suggests that it would be highly desirable for some IT)ncessions to be made in this respect, particularly to the smaller 2nks. As your letter indicates, the idea of furnishing wrapped coin ithout charge or at nominal cost is contrary to the position taken the Board in its letter of February 3, 1959, asking the Conference Presidents to review the basis for computing the costs of the coinZaPPing operation with a view toward securing reimbursement for subQLantially the costs involved. z There is a substantial difference of opinion as to whether thep pop furnishing of wrapped coin is a proper function of the Federal ,Leeerve Banks. In taking the position that this was a matter that ; 1ght be left to the judgment of the management of the individual m:serve Banks, the Board was partly influenced by the argument that tl,nY small banks cannot afford modern coin-wrapping equipment and that ere are economies inherent in a centralized operation. However, the tr,ard does not believe that these arguments carry persuasive reasons ti'ir furnishing the service at less than cost. The Board feels that ,,e wrapping of coin is essentially a retail type of operation that ;es beyond the function of the Reserve Banks as the primary source ti suPply for currency and coin. For these reasons, the Board conei-rples to believe that, while there may be some justification for r , cting economies through the offering of centralized wrapping a; ellities, it is inappropriate for the Reserve Banks to provide this oe at substantially less than cost. The resolution adopted by the Directors of your Bank also s that the Board consider a suitable upward adjustment in the bt th.,.get of the Atlanta Bank to take care of the proposed extension of th ' : e armored car and coin-wrapping services. It is assumed that, in eo, light of this letter, no steps will be taken to furnish wrapped 4-11 without charge or at a nominal cost. Any excess expenditures IMARD OF C3OVERNOR3 or TliE FEDERAL RESERVE SYSTEM lia r M. Mitchell 1!;ulting from an extension of the armored car service or from adop' 4-on of coin-wrapping service on a cost basis would be matters to be IStilled in the budget experience report submitted after the end of 'le Year. Accordingly, it would appear that no budget adjustment by le Board would be necessary in this connection. t The Board is grateful for the interest your Directors have take . n in these matters and for the opportunity to present its views L° You Very truly yours Merritt S er Secretary. BOARD OF GOVERNORS OF THE Item No. 11 5/20/59 FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE VICE CHAIRMAN May 201 1959. The Honorable Clarence E. Kilburn, House of Representatives, Washington 25, D. C. Dear Mr. Kilburn: In response to your request for comments regarding Congressman Patman's letter of May 19 addressed to Members of House Committee on Banking and Currency, I am enclosing a copy Of a memorandum prepared by members of the Board's staff with respect to Mr. Patman's statement presented at the hearings before Subcommittee No. 2 regarding H.R. 5237. Mr. Patman's comments deal primarily with the use by the Federal Reserve of its powers to vary reserve requirements of member banks and to increase or decrease through open market operations the supply of reserves available to member banks. The System already has such powers, which are inherent in its responsibility to adjust the availability of bank credit and the money supply to the needs of the economy for the maintenance of growth and stability. 1141. 5237 is primarily designed to remove from the present law some structural inequities and difficulties of administration and only incidentally and to a relatively minor extent affects the System's existing authority to influence the over-all availability of reserves to the banking system. In my testimony before Subcommittee No. 21 I indicated clearly the Board's intention to use the additional authority Fantod by the bill in a manner that would not conflict with the uroader aims of monetary policy. Sincerely yours, (Signed) C. Canby Balderston C. Canby Balderston, Vice Chairman.
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