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6°9 10/59 Minutes for To: May 20, 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 07076 Minutes of the Board of Governors of the Federal Reserve System on Friday, May 20, 1960. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Szymczak, Acting Chairman Mills Robertson Shepardson King Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Sherman, Secretary Young, Adviser to the Board Shay, Legislative Counsel Hackley, General Counsel Noyes, Director, Division of Research and Statistics Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Hexter, Assistant General Counsel Furth, Associate Adviser, Division of International Finance Nelson, Assistant Director, Division of Examinations Goodman, Assistant Director, Division of Examinations Landry, Assistant to the Secretary Fisher, Economist, Division of Research and Statistics The establishment without change by the Federal Rese— 've Banks of New York, Philadelphia, and San Francisco on May 19, 1960, the rates on discounts and advances in their existing schedules was 8.1)131ted unanimously, with the understanding that appropriate advice would be seat to those Banks. circulated to the Board. The following items, which had been lated to the Board and copies of which are attached to these minutes ttrIcier the respective item numbers indicated, were approved unanimously: Item No. tter stIle to Wachovia Bank and Trust Company, Winstonor North Carolina, approving the establishment - °ranch at 1008-A Kings Drive, Charlotte. 1 5/20/60 -2Item No. Letter to the City Bank and Trust Company, Jackson, ' r lenigan, approving the establishment of a branch in Parma. Letter to the Comptroller of the Currency recommending WiraVOrably with respect to an application to organize 4 national bank at Fort Lauderdale, Florida. Letter to the Presidents of all Federal Reserve Banks N41ementing the Board's letter of March 14, 1960, regarding discussions with V-loan guaranteeing agencies their plans for the decentralization of authority to certifY loans in an emergency. Letter to the Federal Reserve Bank of Richmond approving ! he Payment of salary to an officer at the Charlotte ' ranch at the rate fixed by the Board of Directors. Letter to Bank of the Commonwealth, Detroit, Michigan 4 5 (Item No. 6). There had been circulated a letter to Bank of the Commonwealth, Detroit, Michigan, that would approve the establishment of a branch in Nankin Town- shiP. An accompanying memorandum from the Division of Examinations dated Apra 25, 1960, indicated that State approval had been received for this 1:)1311Cation and that approval had been recommended by the Chicago Reserve tatinlr However, the Office of the Comptroller of the Currency had called ettelltion to pending applications of Manufacturers National Bank of Detroit Naf. -lanai Bank of Detroit for branches in Nankin Township, at sites 2-3h, . miles and four miles, respectively, from the proposed branch of tEitnit °I the Commonwealth. The application of Manufacturers National Bank had ot been acted on and the National Bank of Detroit application was 5/20/50 -3- being held in abeyance awaiting the outcome of litigation wherein certain local banks were attempting to stop the Comptroller from approving the aPPlication of Manufacturers National Bank for a branch in another unineorPorated area, Clinton Township. The Michigan statute was said to imply that no branch should be established by an outside bank in a city or 17.1 '1-Llage in which a State or national bank or branch thereof was operating. APParently question had arisen as to whether this prohibition would apply to an unincorporated area such as Nankin Township. The Comptroller's °ffice seemed to be concerned about the possibility that, should the Boar d approve the establishment of the branch for Bank of the Commonwealth 14 Nankin Township, it might preclude Manufacturers National Bank and Ilati°nal Bank of Detroit from establishing their proposed branches in that same unincorporated area. Governor Robertson commented that there appeared to be no basis for holding up the instant application as suggested by the Comptroller's Office. He noted that there was room for competition in the area involved, 4a. should the Comptroller see fit to approve the applications of Manutactur srs National and National Bank of Detroit for branches in Nankin Tow„ this would be all to the good. Mr. Nelson said that he had talked with Deputy Comptroller Taylor Oiler th he telephone this morning, that the situation had been clarified, ' 611(1 t hat the Comptroller's Office now wished to announce its approval of the PPlications of Manufacturers National and National Bank of Detroit • 5/20/60 -4- for branches in Nankin Township at the same time that action became known (14 the branch application by Bank of the Commonwealth. Unanimous approval was then given to the letter to Bank of the Commonwealth, Detroit, Michigan, approving the establishment of a branch ill Nankin Township, with the understanding that Mr. Nelson would inform the Comptroller's Office of the Board's action. A copy of the letter to Baak of the Commonwealth is attached as Item No. 6. Letter to Bank of America, New York City (Item No. 7). There had been circulated a draft letter to Bank of America, New York City, that would grant consent to the establishment by Banca d'America e d'Italia or a branch in Catania, Italy, and agencies in Bologna) Genoa, Milan, ac)It'a) Saaremo, Trieste, and Turin. This letter was accompanied by a ille/113randum from the Division of Examinations dated May 11) 1960, indicating that neither the Department of State nor the New York Reserve Bank had °bjection to approval of the request and that the Division recommended al51311°val unless the Board preferred to obtain certain information beforehand. This information would relate to (1) the manner in which Bank of Ica is carrying out its supervision of Banea d'America e d'Italia; (2) h'-,17 the proposed branch and agencies would fit into the plans of Bank Of Am erica to operate Banca d'America e d'Italia as a separate permanent --1-0n; and (3) the volume and nature of business the proposed offices 1401.1141 be expected to develop. If the Board did not wish to request such 111Torm..4. ' -- 40n in advance of granting its consent to the establishment of I ,i;•!,3 5/20/60 -5- the branch and agencies involved, it was proposed that Bank of America be requested to supply certain additional information beyond that already received from Mr. Pierotti of Bank of America National Trust and Savings Association in a letter dated August 2, 1956. Governor Mills said that he concurred with the recommendation of the Division of Examinations as to granting the request by Bank of America, and he felt the request for the naditional information referred to was in °rder• However, he was concerned that the Board was "groping in the dark" regarding the operations of Banca d'America e d'Italia, and that it would be difficult to understand that operation until the results of an examitlaticn of the Italian bank were available to the Board. He referred to the discussion that the members of the Board had with Mr. Beise, President 01 both Bank of America National Trust and Savings Association, San Prealcisco, and Bank of America, New York, on January 29, 1960, regarding Q"al adequacy of the parent institution vis-a-vis its total commitments in the domestic and international spheres. That discussion, he said, icated that Mr. Beise apparently had misunderstood the Board's approval °r the acquisition in 1957 by Bank of America of Banca d'America e d'Italia, 84:1 that he was proceeding today on the basis of the situation that existed the end of 1956 which, in Governor Mills' judgment, differed materially th he present situation. Since that time, Bank of America N.T.&S.A. bac ' e cl'erienced i substantial growth in deposits, loans, and risk assets, vhile its capital had not increased in relation to these risk assets or Jr) 5/20/60 -6- in relation to the growth in activities abroad. It was Governor Mills' reeling that it would be difficult to apprise Mr. Beise of the Board's Position regarding the Bank of America organization until he or another executive officer of that bank visited the Board's offices for further discussion of the subject. Governor Robertson said that he had much the same feeling that Governor Mills had expressed. He would go along with the proposal for getting the additional information from Bank of America, although he .401,11(a somewhat prefer to delay approval of the instant application until 811ch information had been received. He was entirely willing to approve the branch and the seven agencies, but before doing so his preference v°1134 be to get Bank of America to indicate whether it planned to orient the operations of the Italian bank to international business and to curtail its operations otherwise, or whether it planned to branch out in Italy. Governor Shepardson said that he was somewhat surprised to learn tram the May 11 memorandum that not all of the questions posed by the 1(38^I'd in its letter of July 27, 1956, to Mr. Pierotti of Bank of America -cu- Trust and Savings Association, had been answered. He went on to a aY that the instant application seemed to depart from the concaption the 'D*ard had at the time it approved the acquisition of Banca d'America e He could see merit in Governor Robertson's suggestion, Provid. ed Bank of America N.T.M.A. had been approached previously for Ettlal,/ I's to those of its questions not responded to. On the other hand, 5/2o/60 -7- should there not have been such a follow-up to the July 27, 1956, letter, he thought it would be preferable to send a letter to Bank of America such as the draft attached to the memorandum of May 11. Governor Robertson commented that Mr. Beise had indicated on January 29 that he was not aware of any plan to curtail the offices or °Perations of the Italian bank. The merit of his (Governor Robertson's) euggestion would be to force on Mr. Beise's attention the statements made bY his awn staff concerning the relationship between Bank of America and 1/813ta d'America e d'Italia. Mr. Goodman observed that probably Mr. Beise thought that he had disPosed of the Board's questions during his January 29 meeting with the Bosza. Governor Shepardson then said that, if that were the case, his il lnation would be to send a letter approving the present application 441. at the same t MP to request the information as outlined in the May 11 nlenloranduin. Governor King said he could see no objection to asking for the Ittorft-4.. "'"aon prior to approving the application and he believed this could -- be d °Ile in an inoffensive way. He saw no point in antagonizing Bank of 411"lea, however, and he would be entirely willing to send a letter saying th"he Board approved the branch and agencies and which also asked for he ad ditional information. 5/2o/60 -8In response to a request by Governor Robertson for Mr. Solomon's Views as to the better procedure, the latter said he doubted there was nalch basis for choosing. It would seem a little more orderly in the usual case to ask for needed information in advance of approving an aPplication. Governor Mills said that since there appeared to be no real (1°111:1t among the Board members present that the instant application should be approved, he would prefer to give that approval without delay and thus avcidPossible needless irritation. He went on to comment on other illetszces in which complaints had been made regarding delays in processing 41)1J-cations before the Board, and he stressed the importance of avoiding auch delays unless there was some real reason why the Board was unable complete its consideration of the matter. That did not appear to be case in the present application. There followed a discussion of the point raised by Governor Mills Iiegarding the time taken in processing applications, at the conclusion c't which unanimous approval was given to a letter to Bank of America, Ile York, granting the Board's consent to the establishment by Banca a, rica e d'Italia of a branch in Catania, Italy, and designated agencies 414 ' lequesting certain information. It was understood that a copy of the lettel', 'which is attached as Item No. 7, would be sent to Bank of America 1411'*&S.A. 5/20/60 At this point, Messrs. Furth, Goodman, and Nelson withdrew, and Messrs. O'Connell, Assistant General Counsel, and Rudy, Special Assistant, legal Division, entered the meeting. Letter to the Budget Bureau reporting on H. R. 12153 (Item No. 8 A &tart of letter dated May 181 19601 to the Budget Bureau reporting on Rs 116 12153, the proposed "Home Financing Act of 1960", introduced by C°11gressman. Rains, had been distributed. After comments by Mr. Noyes regarding the draft and several prorevisions in the language, unanimous approval was given to a letter 14 the form of attached Item No. 8. Messrs. Young, Shay, Noyes, and Fisher then withdrew from the fl eeting Interpretation of section 4(a)(2) of the Bank Holding Company Act Itera No. 9). A memorPmium dated May 16, 1960, from the Legal Division 484been distributed concerning a request by The Marine Corporation, Millotlakee, Wisconsin, a bank holding company, for an interpretation of sect i°r1 4(a)(2) of the Bank Holding Company Act of 1956. Marine proposed to 3:tter into an agreement with a Wisconsin insurance agency whose owner8111: 'P 4111a control are completely independent of Marine. Under the agreement, the j,48urance agency would place an employee in each of Marine's subsidiary 14016. --411 These employees would sell all lines of insurance except life (Other than credit-life) to customers of the banks and to the banks themBeive 3 ' Marine's request was for an interpretation as to whether the 5/20/60 -10was permissible under the Bank Holding Company Act. to the Attached Legal Division's memorandum were alternative draft letters to the C4icago Reserve Bank regarding this request. Both drafts noted that the Board heretofore had taken the position that the providing of insurance by a holding company to subsidiary banks does not come within the 11 servicing" exemption of section 4.(a)(2), and, accordingly, if the proposed atgreement caused Marine to be "engaged in any business" within the meaning (If that section, the arrangement would not be permissible. One draft went or t0 express the view that the proposed agreement would not cause Marine t0 be "engaged in any business" within the meaning of section 4(a)(2), and thlie 'would not be prohibited; while the other took the opposite position. Mr. Hackley stated that, in his opinion, this was an important raa.tter for decision and that it deserved full discussion. Section 4(a)(2) Or the Bank Holding Company Act provides that, with certain exceptions, b 11° Eualt holding company shall "engage in any business other than that of 14141041g or of managing or controlling banks or of furnishing services to or De rforming services for any bank of which it owns or controls 25 13" esntua or more of the voting shares." In this case, Marine proposed to e„ 'ter into a contract with an insurance agency whose ownership and e°atrml -4- were completely independent of Marine; the agency would pay its W41 ext,-enses and retain a portion of the commissions on policies written by it 8 -mPloyees in the banks; and the balance of the commissions would be 15 41a t0 Marine except those covering insurance for the banks. 5/20/60 -11Mt. Rackley went on to say that there was agreement in the Legal Division that this could not be regarded as providing a service to or for the subsidiary banks of the holding company of the type that would be Permitted under section 4(a)(2) and 4(c)(1). Thus, the crucial question presented to the Board was whether the proposed contract would "'use Marine to be "engaged in any business" within the meaning of v., a secti 2), and if this was answered in the affirmative, the arrangeon)k k tileatvould be prohibited by the statute. There was a difference of opinion in the Legal Division with l'esPeet to this question, Mr. Hackley said, with the majority feeling that ths contract would not cause Marine to be engaged in a "business" and that, thel ' efore, the transaction would not be prohibited. ' 1148 to the contrary. The minority view However, the majority position was not strongly held, and in his opinion good reasons could be advanced from the legal standPoint to support an interpretation either to permit or deny Marine's entering into the proposed arrangement. Mr. Rudy then commented on the matter, summarizing the arguments ti3r the minority view that the proposed activity be considered as engaging in ' e btleiness contrary to the Bank Holding Company Act as follows: (1) the 1114"us references to "activities" in the legislative history of the Ik11°Iding Company Act furnish support for the view that Congress : 4tell'aed the phrase "engage in any business" in section 4(a)(2) to be 4:°4°11140118 with "engage in any activity"; (2) such an interpretation of 5/20/60 -12- engage in any business" would be convenient from an administrative standpoint, since a contrary construction of the phrase would require a ilpard determination in each case of this sort as to whether a particular 4ctivity fell within the meaning of the phrase; (3) Marine would derive a Profit from these insurance activities; and (4) the proposed activity by Marine should not be considered as a single transaction of entering lilt° a contract with an insurance agency, since the contract would provide tor a continuing activity in the furnishing of insurance service to subsidiarY banks. On the other hand, Mr. Rudy said, the arguments for the Illajority view were: (1) when Congress used the term "engage in any businesS)" it adopted the usual meaning of the term which contemplates ilic're than a single transaction or isolated act; and (2) the Bank Holding C(3111 anY Act is a penal statute and as such a narrow construction should be given to the term "engage in any business" in order to avoid punishment Of Pers°ns subject to the Act unless they violated provisions clearly 141thin its prohibitions. Mr. Hackley said that an additional argument for the minority 13051tion was that, should the Board sanction the proposed arrangement, slach a ruling might encourage evasions of the prohibitions of section 4 Of the Act when they would result in income to the holding company. Mr. Hexter suggested that the basic objective of the prohibitions ill sect' Ion 4(a)(2) of the Act against a bank holding company engaging in iy business other than that of banking or of managing or controlling 5/20/60 -.13- or of furnishing services to or performing services for any bank which it owns or controls 25 per centum or more of the voting shares" waS to some extent to prevent a holding company from a diffusion of its interests into other fields. Ilas More importantly, hovever, this prohibition intended to prevent a conflict of interests whereby some business nlight be denied access to credit from the holding company system, or 1411erebY through ownership by the holding company some business might be uncitaY benefited through its access to credit. He thought the danger was 811 t that under the arrangement proposed by Marine there would be any 11°4t1on of this objective of the law. To the extent there was such it existed in any event since the subsidiary banks of the holding Qom, -vanY could no doubt engage in the insurance activity individually. Mr. O'Connell said that his reservations about adopting the view that a holding company was precluded from entering into a contract such as that proposed by Marine on the ground that this constituted "engaging 14 a., uusiness," related to the added difficulty that such a ruling would cats ia determining what sorts of activities a holding company could 141/1\111Y engage in. For example, would it follow that a contract between the holding company and a trash collection company would cause the holding c°111Parly to be "engaged in the business" of collecting trash? Mr. Solomon remarked that the question of possible evasion of the la_ did not seem serious in this particular situation since, if the 1.arY banks were to provide the insurance service themselves, the 5/20/60 activity probably would be permissible under section 4(c)(6) of the Act. However, when the Board grants approval of such an arrangement under section 4(c)(6), it passes judgment on the appropriateness of the activity, whereas in the instant case the question was not the appropriateness of the aCtiVity but rather the form of the arrangement. The so-called staff oaJority view was a simple legal interpretation, not contemplating the use of judgment as to the appropriateness of the specific activity. If that 1)°81t1on were adopted, would it also permit an arrangement under which "-lel funds were being sold at a desk in the subsidiary bank? Mr. Solomon d'cnkted that the Board would wish to permit a holding company to enter an arrangement for an activity that might not be desirable and that not seem to be contemplated under the Bank Holding Company Act. Governor Mills said that Mr. Solomon had touched on an aspect of the Problem that concerned him. itself As he saw it, the Board should not limit to a strictly legalistic determination. Instead, it should proceed to Brule of reason and, in combination with legal analysis, reach a He agreed with the minority position as expressed in the draft lette r that would prohibit the holding company from entering into the procontractual arrangement. Since the Board had already set up a line lielts°fling with respect to the appropriateness and method whereby holding colko, ' 41lee and their subsidiary banks may engage in the insurance business, the a ecision on the request for interpretation under section 4(a)(2) should corre sPond to the rulings already made to the effect that, where a holding -1833 5/20/60 -15- c°mPany seeks to enter the insurance business for the benefit of its subsidiaries and where national and State banking laws condone such activities, the Board -would sanction that type of activity through a subsidiary. He went on to say that, in considering cases of this type 14 the past, the Board had made an investigation to satisfy itself that the bulk of the insurance business was being done for the subsidiary banks' customers, rather than for the general public. Should the Board approve ell arrangement of the type proposed by Marine, it would be difficult for the Board to ascertain the amount of business done for the banks' customers, Etrid it might be approving an insurance business to be conducted on the ' t srlit premises for other than the bank customers and outside the direct °1 of the bank. Q°11t1 ' Marin t e thro He agreed with Mr. Solomon that the extension of activities in this direction under the proposed arrangement might w the doors open to other bank holding company activities in borderline kreas that would present the Board with difficult decisions. Governor said he found it difficult to see how the proposed arrangement would eve Marine from its responsibility for the conduct of its insurance gerlts) thus exposing subsidiary banks to liabilities that were less likely to be incurred if the insurance business were conducted by the wholly-owned 41bsi3.iaries of Marine. Governor Robertson said that he strongly favored the position that vc31-11A Indicate that the proposed arrangement would cause Marine to be etIon. -151e11 in a business that was not permissible under the Bank Holding 5/23/60 -16- C°14PIRAY Act. The other view, which would conclude that the arrangement vould not cause the holding company to be engaged in a prohibited business, 'Prould open the door to a wide variety of activities that, in Governor Robertson's judgment, were not contemplated under the statute. Governor King said. that he had no difficulty in interpreting the Proposed arrangement as causing Marine to be engaged in the business of 151*°vIaing insurance. As he saw it, Marine proposed to enter into a contract with the insurance agency for the purpose of making a profit, not to provide a service to the subsidiary banks. He was satisfied that the Proposed arrangement should be denied. Mr. Hackley suggested, with respect to the point that had been rEisell bY Mr. O'Connell, that if the Board concluded that the proposed e°11tract was prohibited by the statute, the letter conveying this view berevorded to avoid indicating that engaging in any activity necessarily Illeent that a holding company would be engaging in the business, but that Illthe case of this particular contract the Board took the view that the 11°16411g company would be engaging in the business. Unanimous approval was then given to a letter to the Federal Ilesel*Ite Bank of Chicago expressing the view that the proposed transaction ' 441.11e was within the prohibitions of the Bank Holding Company Act, IA 1, -etag understood that the draft letter would be reworded in such a way 48 loiot to place the Board on record as stating that any kind of activity 5/20/6o -17- of this nature would necessarily be regarded as a violation of the Act. A eoPY of the letter is attached as Item No. 9. The meeting then adjourned. Secretary's Note: On the dates indicated, Governor Shepardson approved on behalf of the Board the following items: the Memorandum from Mr. Sherman, Secretary of the Board, recommending ia 4.aPPointment of Nancy H. McCaslin as Indexing and Reference Assistant Office of the Secretary, with basic annual salary at the rate of 40, effective the date she assumes her duties. " ren Memorandum from Miss Hart, Assistant Counsel, Legal Division, : e lesting permission to engage, on occasional evenings and weekends, in ! Ii_liting work with a local law firm on tax aspects of matters handled 'fle firm, with compensation on an hourly basis. Memoranda from appropriate individuals concerned recommending --usfers of the following persons on the Board's staff: trn_ or t1,Jane C. Charuhas, from the position of Records Clerk in the Office "e Secretary to the position of Utility Clerk in the Division of l8trative Services, with an increase in her basic annual salary iii3 O -11,.‘ 41 93)945 to $4,04o, effective May 29, 1960. ot,Patricia L. Gannon, from the position of Secretary in the Division k L4ternational Finance to the position of Secretary in the Division of 1,1 11istrative Services, with no change in her basic annual salary at the e (3f $4,790, effective May 23, 1960. ttpl)z, Letter to the Federal Reserve Bank of Boston (attached Item No. 10) 'lng the appointment of Whitfield Painter, Jr., as assistant examiner. • 407 p AIN Sec BOARD OF GOVERNORS olittlt 4 " 4 O W 40ie 4 -,---- OF THE Item No. 1 5/20/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS orriciAL CORRESPONDENCE ,4kat 6 TO THE BOARD May 20, 1960 Board of Directors, Nachovia Bank and Trust Company, Ninston-Salem, North Carolina. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Richmond, the Board of Governors of the Federal Reserve System approves the establishment of a branch by Wachovia Bank and Trust ?: 1 111Par0r, Winston-Salem, North Carolina, at 1008-A Drive, Charlotte, North Carolina, provided the uranch is established within six months from the date Qr this letter. Very tray yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 2 5/20/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. * ghtt I 0 0 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20, 1960 Board of Directors, City Bank and Trust Company, Jackson, Michigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors Of the Federal Reserve System approves the establishment a branch at 125 W. Main Street, Parma, Michigan, by CltY Bank and Trust Company, provided 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. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 3 5/20/60 ADDRESS OfFICIAL CORRESPONDENCE TO THE BOARD May 20, 1960 Comptroller of the Currency, Treasury Department, Wash!ngton 251 D. C. Attention Mr. W. M. Taylor, Deputy Comptroller of the Currency. I)ear Mr. Comptroller: Feb'Reference is made to a letter from your office dated 1, 1960, submitting copies of an application to organize :enational bank in Fort Lauderdale, Florida, and requesting a commendation as to whether or not the application should be 413Praved. A report of investigation of the application made by an exAm4_ --“Ler for the Federal Reserve Bank of Atlanta indicates that the „ ;°Posed capital structure of the bank may be somewhat low. How-er, the proponents indicated that additional capital would be i r°/tided if required by your office. The prospects for profitable ! tions of the bank were reasonably favorable. According to the .4t4tIcrmation available, there is some question as to the ability of al,e Proposed management to operate the bank satisfactorily and it 0V-rs that the area is presently being satisfactorily served by in Fort Lauderdale and its environs. Accordingly, the soar cf Governors does not feel justified in recommending approval uhe application. The Board's Division of Examinations will be glad to discuss adZrects of this case with representatives of your office if you so Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE tO Ovp•A' FEDERAL RESERVE SYSTEM Item No. L. 5/20/60 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20, 1960. This letter supplements the Board's letter of March 14, 1960, Nardi ng , 4 101, discussions with V-loan guaranteeing agencies on their plans 'ne decentralization of authority to certify loans in an emergency. Confer All guaranteeing agencies agree with the position of the ILIoa,ence of Presidents that Federal Reserve Banks should not issue ing " guarantees in an emergency without reference to the guaranteeagencies. As to the need and status of planning for decentralization of alath oritY, the following is reported: 1. 2. For a limited war situation such as the Korean conflict, none of the agencies contemplate advance decentralization of authority. If such need should arise, it is felt that delegations could be made expeditiously. For a general war situation with a nuclear attack on the United States: a. The Department of Defense believes that decentralization of authority will be necessary. The contract financing offices of the military departments will be moved to relocation sites where there would be continuity of performance of V-loan functions. b. The Atomic Energy Commission has already established designated positions which constitute an authorized succession of command in the event of a disaster. It has also provided for a complete decentralization of authority including authority to certify V-loan guarantees to the managers of all Atomic Energy Commission Operations Offices and those in line of succession to those Offices. An immediate need for V-loan financing is considered probable. -2C. The Department of Agriculture has emergency plans which provide for the decentralization of authority including authority to certify V-loan guarantees to its regional representatives at the OCDM Regional Headquarters and to the officers in charge at the Departmentls State and County offices. An immediate need for V-loan financing is anticipated. d, The Department of Interior expects to decentralize authority for certification of V-loan guarantees only in the event the postattack situation requires it. An immediate need is not anticipated. e. The Department of Commerce tentatively plans to delegate certifying authority preattack to its Regional Emergency Planning Coordinators with authority in such officials to redelegate postattack to Production Coordinators. An immediate need for V-loan financing is anticipated. f. General Services Administration feels that decentralization of authority may be necessary but it is not yet prepared to say what its plans for decentralization may be. g. National Aeronautics & Space Administration has not participated in the discussions but has been kept informed of them. It is concluded that the Banks should anticipate: le The preattack decentralization of authority by Atomic Energy Commission, the Department of Agriculture, and the Department of Commerce. 2. The postattack decentralization of authority by the three military Departments and General Services Administration as circumstances require. 3. The postattack decentralization of authority by the Department of Interior if a situation not now contemplated should make this desirable. 4 All have expressed a preference, with the excep., rl (3f thp n agencies which ,,epartment of the Army, have indicated that they would prefer tcele toe0CD ate authority at the regional level to their representatives at the laegional Offices or, as in the case of Atomic Energy Commission, 464nager5 of its Operations Offices. The Department of the Army —3 ITIater aes s to assign a representative with certifying authority to Federal , ervo Banks while neither the Navy nor Air Force has expressed a zjreference. The guaranteeing agencies have agreed to keep the Board of further developments in their plans. This information will ed , ,ss 'bevi 4-elkred to the Banks when it is received. It is suggested that the Banks may wish to consider what do lientary or other evidence they would require to verify the extent : orcil 11141.t:hority and identity of individuals or of incumbents of designated Nr 1°ns having certification authority. The Board will advise the incoanteeing agencies of such requirements so that they may be rPorated in the agencies' plans. Very truly Merritt Secre PRESIDENTS OF ALL FEDERAL RESERVE BANKS BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 5 5/20/60 WASHINGTON 25, D. C. ADDRESS orrictAL CORRESPONDENCE TO THE BOARD May 20, 1960 CONFIDENTIAL (FR) Mr. Alonzo G. Decker, Chairman of the Board, Federal Reserve Bank of Richmond, Richmond 13, Virginia. Dear Mr. Decker: The Board of Governors approves the payment of salary to the following officer of the Federal Reserve Bank Of Richmond, assigned to the Charlotte Branch, for the period .June 1 through December 31, 1960, at the rate indicated, which ls the rate fixed by your Board of Directors as reported in Your letter of May 12, 1960: Name Robert R. Fentress Title Assistant Cashier Annual Salary $12,000 Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 1.843 BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 6 5/20/60 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONOENCE TO THE 00ARD May 20, 1960 Board of Directors, Bank of the Commonwealth, Detroit, Michigan. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves the establishment of a branch at 29450 W. Warren Avenue, Nankin Township, Wayne County, Michigan, by Bank of the Commonwealth, provided the branch is established 'within nine months from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 7 5/20/60 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20, 1960 Tom B. CouGhran, ,L4ecutive Vice President, flic of America, 8road Nelr York Street, 15, New York. Dear Coughran: 4PrilIn response to the request contained in your letter of 12, 1960, transmitted through the Federal Reserve Bank of New co B) the Board of Governors grants its consent to the establishment 1 ‹ , alica d'America e d'Italia, hilan, Italy, of a branch in Catania, Y and seven agencies to be located in the following cities: 1. Bologna 2. Genoa 3. Milan 4. Rome - S. sanremo - 6. Trieste 7. Turin Zona Arienti-Castiglione-Rialto Sampierdarena Piazza hissori/Piazza Diaz Piazza Bologna (Piazza Pontida and vicinity) Sanremo Flower Ehrket Via Belpoggio-corner Via Grumula Via di Nanni theThis consent is granted subject to the conditions contained Plzrohm 13°ard'5 letter of September 12, 1957, granting consent to the "se of shares of Banca d'America e d'Italia. Unless the branch and agencies are actually established and ror business on or before June 1, 1961, all rights granted hereby ue deemed to have been abandoned and the authority hereby granted automatically terminate on that date. °Peried Ped Please advise the Board of Governors in writing, through the ta.bg Reserve Bank of New York, when the branch and agencies are e.%aelb;shed and opened for business, furnishing information as to their -Locations. The locations may not be changed after establishment it the prior approval of the Board of Governors. 101 arld . In the Board's letter of July 27, 1956, addressed to hr. rlerotti, Assistant to the President, Bank of America NT&SA, Tom B. Coughran -2- il ll reSponSe to his letter of July 23, 1956, requesting on behalf of 4allk of America approval in principle of the purchase of LAI, certain Ilformation was requested. In his reply of August 2, 1956, Er. Pierotti ' corillented regarding two of the questions, as follows: 115. What would be the nature of Dank of America's su ervision of BAI? Would investment and credit operations of BAI be supervised in same manner as branches of Bank of America? Would the controller of Bank of America periodically e::amine the head office and branches of BM "It is intended to implement, within the corporate structure °f BAI, substantially the same investment and credit policies as are applicable to the branches of Bank of Alrarical as far as Practicable and consistent with Italian laws and regulations. It is further contemplated to develop appropriate methods to supervise investment and credit operations in accordance with sUch policies. The same would apply to periodic examinations of the head office and branches of BAI by the controller of bank of America. "6. Would Bank of America plan to operate BAI as a separate institution permanently, or ultimately to establish Bank of America's own branches in the Italian cities now Served by -I3A1? "Bank of America would plan to operate BAI as a separate institution permanently. However, it is conceivable that the IllArter of offices of BAI would be reduced so as to concentrate IT1siness in the major branches which also handle most of the 2nk t 3 international business, as this type of business is the 'taior consideration for the contemplated acquisition. "In this connection, it may be of interest to you that .r ,e Titian head office and the five principal branches at toja, Ulan, Naples, Rome, and Turin represent about 75 of al deposits which is an indication of their relative imporuarlee.i, 110111 Yolkx, With respect to question 5, it would be appreciated if you vise the Board as to the extent you have been able to carry out Pectations and the current practices followed. arl ,cAirre„., With regard to question 6, what consideration is being given 01.411.,""-LY to reducing the number of offices of BAI and concentrating in the major branches "which also handle most of the bank's !°1' onal business, as this type business is the major consideration ir;.et contemplated acquisition."? How do the eight new offices proposed ()Your over-all program for BAI? 18,11 'Tom B. Coughran It would also be appreciated if you would advise the Board brzothe volume and nature of business the proposed agencies and the '"ch in Catania maybe expected to develop. 4184. Very truly yours (Signed) Merritt Sherman Merritt Sherman, Secretary. IRI'.4fT BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 8 5/20/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 20, 1960. itr As : 4Phillip S. Hughes, 3tant Director for gislative Reference of the Budget, ington 25, D.C. Dear Mr. Hughes: The Bureau of the Budget has asked for the Board's views on li.R. 4-2153the proposed "Home Financing Act of 1960.11 This 61-paged ciraft 111 Fecte b. contains five titles: FHA insurance programs, expansion of rnarkr4.al National Mortgage Association support operations, secondary for conventional mortgages, FHA insurance for site preparation and uevelopirent, and department of housing and urban affairs. FRA r In view of the numerous changes in provisions concerning 80ar laurance programs authorized in the Housing Act of 1959, the the,c1 believes that it would be preferable to observe the effect of "ie rlasures before determining whether additional legislation, such onePT°Posed in Title I of H.R. 12153, might be needed. To cite only canTie, minimum statutory downpayment requirements on homes with See.e; 41.8n• (b) FHA-insured mortgages were reduced not only in 1959 bat ,„1, 1958 and 1957. The reductions authorized in the Housing Act of iO4-1 Of R'e,Y Were administratively implemented only last month. Title I prea'n• 12153, however, would go still further by eliminating the 413,e5nt 3 per cent statutory minimum downpayment on homes valued at horne.,'° or less, and by sharply cutting downpayments on higher priced be r'• Thus the statutory minimum downpayment on a $14,000 home would hozneechl, ced to $50 from the present level of $455, and on a $20,000 iteiat". -t, 'would be reduced to $650 from the present level of $1,1455. ori the : e 4 Provisions would extend the present 30-year maximum maturity , trice;:e ?HA-insured mortgages generally to 35 years and to 40 years . r-toala :vain cases, and would further increase the maximum permissible Ole' B In°1111t on a 1-family house to $25,000 from the present $22,500. Parti°41'd feels strongly that these proposed changes are unwarranted, , 4vine,,IllarlY at a time when measures are needed to stimulate more atrather than additional bwrowing in a sector where credit growth 4''"eacklr been spectacular. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM lir, Hughes Title II of H.R. 12153 would expand FNMA operations in an :tfort to "help assure the even and adequate flow of mortgage credit Governrcent-insured and guaranteed loans so vital to a healthy and 83qoanding home construction and real estate industry." Under its cee°11darY market operations, FNMA would be authorized to make 90 per cent AI, one-year loans against Federally underwritten mortgages as ateral and at interest rates "consistent with general loan vo°,4doies established from time to time. by the Association's board a4. directors...it The aggregate amount of such loans outstanding at one time could not exceed 10 per cent of FNMA's total secondary e;I'mt borrowing authority, which would be increased to 15 times its surplus, reserves, and undistributed earnings from the present of 10 times. Certain other provisions of Title II, however, would tend strict the range of FNMA's discretionary operations by requiring "lith few exceptions, to buy any mortgage offered to it under its rY market program; by reducing the maximum capital contribution ' oha °Y mortgage sellers and by limiting certain other fees and speArPs; and by requiring FNMA to buy mortgages at par under its ' 1111 assistance functions. Still other provisions would call for ot sPeoified increase in FNMA's special assistance commitment and kril : tins 4Se authority, and for new special assistance authority, of an Pe cified amount, to acquire FHA-insured loans on nursing homes. to If the aim of Title II is to "help assure the even and Etcleclnate flow of mortgage credit" on Federally underwritten loans, the ioarluoard believes that removal of interest rate ceilings on these to 1,8 Would be a preferable aoproach. Moreover, it seems difficult eeetnoile certain provisions of Title II which seek to expand prec °Perations with others, mentioned in the first sentence of the tng paragraph, which restrict the freedom of discretion desierdi aule to maintaining a basic secondary mortgage market facility. te°rPoTitle III of H.R. 12153 would create the Home Mortgage 4, ation under the directionof the Feder al Home Loan Bank Board. -ocorr tor tts_s'ng to the wording of the draft bill, "The Board shall provide share"e issuance of nonvoting capital stock of the Corporation in to tb,3• °.f $100 par value each. Upon the call of the Board, from time 41 :n 2.1-"e) the Federal Home Loan Banks shall subscribe to such stock addition Lic the a ggregate amount not exceeding $100 Banks, each Loan , eanital stock to be issued to the Federal Home ernber, to participate eligible a Federal Home Loan Bank shall, be 41 th : 914, - a ctivities of the Corporation, and each such participant shall t ehase an amount of the capital stock of the Corporation equivalent ° tlin 74. Percent of the face amount of home mortgages which it may ' 0 the Corporation..." BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. Hughes .3— Although the language of thedraft bill is somewhat ambiguous, it D aPpears that the intention is to grant tax exempt status to the aome n Mortgage Corporation and its obligations while preserving the nexemPtion prcrrisions of the Public Debt Act of 19141 applicable to j the United States or any agency or instrumentality thereof, except c 6 agencies and instrumentalities enumerated in the Act and the 2?Voration. If so, the Home Mortgage Corporation would have the iority to issue tax-exempt oblii,ations in amounts not exceeding obn l,times the sum of its capital, surplus, and reserves. These chartered savings ar gations would be legal investments for Federally to "buy or authorized sei'iloan associations. The Corporation would be issued mortgages 6 and otherwise deal in its discretion with hone property residential anY member of a Federal Home Loan Bank on contai lien fling not more than four family units, and secured by a first " °n enth. property..." Zr The Board is particularly concerned by the provisions of Title the III which would apparently permit a substantial increase in arky tetanding amount of tax-exempt obligations. The exemption of ' as te rge volume of rew obligations, as the bill contemplates, "both inhe° Principal and interest, from all taxation (except estate, ritance, and gift taxes) now or hereafter imposed by the United state -i any Territory, dependency, or possession thereof, or by uY ccu.nty, municipality, or local taxing authority," would anY c0 St2 ate, cate fiscal and debt management problems. Apart from the problems of debt management and fiscal policy 4ad th Pret,,2 Complex issues related to the propriety of tax exemption of that'red classes of fixed interest obligations, the Board questions the should add to the substantial subsidies ;44-reach, Federal Government De "v Present in the field of home financing by extending any special aoces a to a central mortgage facility of this kind, which would be aible solely to members of a Federal Home Loan Bank. Peder , Moreover, the Board believes that the creation of another othe a-L secondary mortgage facility, authorized to "buy or sell and Nis e deal" in both Federally underwritten and conventional Pertntge loans, might needlessly duplicate certain functions presently ad by the Federal National Mortgage Association. In addition, to sell'141 Problems might arise in the event the Corporation attempted or otherwise dispose of its holdings of conventional loans based on opetke Federally underwritten mortgages, are not e subject to Federally specified minimum property standards . 41ki a of course, not backed by any Federal insurance or guaranty -e Providing for their ultimate liquidity. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. Hughes Title IV of H.R. 12153 would set up a new program of FHA mortgage insurance on develapment loans Lar "the installations and improvements necessary to conver t raw land in an urban or suburban community into building sites suitable for the construction thereo f of atructures desigred primarily for residential use... " The Board !ontinues to believe that the Federal Government should not assume ,!11! responsibility for underwriting possible losses on operations of ' 1118 nature which generally involve a much greate r element of risk ands on occasion, much larger profits, than are relate d to the financing completed residential developments. In the limited time available, the Board has not had an cPPortunity to examin e all the detailed provisions of the draft bill 2 8 1 it may be that after further study the Board may wish to make furthe uonntent r Sincerely yours, (Signed) Merritt Sherman Merritt Sharman, Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 9 5/20/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE EIOARD May 20, 1960 , 11, i1". Carl E. Allen, President, ''sderal Reserve Bank of Chicago, Ch 90, Illinois. tlea.r Mr. Allen: submit,— This refers to Mr. Paul C. Hodge's letter of March 22, 1960, for 'ang a request of The Marine Corporation, a bank holding company, Act all interpretation of section 4(a)(2) of the Bank Holding Company °.1 1956. The Board has given consideration to the facts as presented 113rec el for The Marine Corporation in his letter of to March 18, 1960, to e„ Hedge. The following are the material facts. Marine proposes olite::.4er into an agreement with a Wlsconsin insurance agency whose agre ' shiP and control are completely independent of Marine. Under the liarin enlent the insurance agency would place an employee in each of 11184rel e subsidiary banks. These employees would sell all lines of ballksanee except life, other than credit life, to customers of the Petisec,alld to the banks themselves. The agency will pay its own exand, in addition, retain a portion of the commissions on C01144 es written by its employees in the banks. The balance of the the ; 0 ',Zic:/ .1s will be paid to Marine except those covering insurance for corrIpa Section 4(a)(2) of the Act provides that no bank holding shall "engage in any business" other than that of banking or Pstrol,,, aging or controlling banks or of furnishing services to or 1 1.1esCLL , ng services for its subsidiary banks. Consequently, the first iiL' tvre,;°r1 to be determined here is whether the proposed agreement ,.s/iga : 11, 11arine and the insurance agency would cause Marine to be eZe ' ih any business" within the meaning of the statute. Although efeUtion of that agreement by Marine would constitute a single 1.ch ;,would nevertheless result in a continuing arrangement under thes Irance would be provided by employees of the insurance agency Pl'emises of subsidiary banks for customers of such banks and Or nian'Y i BOARD Mr. Carl E. Allen OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM -2- for the banks themselves and under which Marine would regularly reeetve a portion of the commissions covering insurance written for !Ilstomers of the banks. It is the view of the Board that such an Qtrrangement would cause Marine to be "engaged" in the "business" of Pr°v1ding insurance for its subsidiary banks and their customers. The arrangement would obviously not cause Marine to be eni a ing the business of banking or of managing or controlling .t;'s• Moreover, consistent with the position heretofore taken by L2e Board that furnishing of insurance may not be regarded as the talviding of "services" within the meaning of the Act (1956 Federal Rev. erve Bulletin page 1280), the Board is of the view that the %reement would not cause Marine to be engaged in the business of 4.14— • . b 'lashing services to or performing services for" its subsidiary Within the meaning of section 4(a)(2) of the Act. For the reasons indicated, it is the Board's conclusion bus4 the proposed agreement would cause Marine to be engaged in a f, ' Th ness not permissible under the law and that therefore it would ' 4. within the prohibitions of section 4(a)(2) of the Act. It will be appreciated if you will transmit the substance o'r thi ow_ e letter to Mr. Richard H. Norris, III, counsel for The Marine , porltion. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 10 5/20/60 AOORCIIIS arriciAL CORRESPONDENCE TO THE SOAR° May 20, 1960 Hr. William R. King, Assistant Vice President, Federal Reserve Bank of Boston, Boston 6, Massachusetts. Dear Mr. King: In accordance with the request contained in your letter of May 16, 1960, the Board approves the appointment of Whitfield Painter, Jr., as an assistant examiner for the Federal Reserve Bank of Boston. Please advise as to the date on which the appointment is made effective. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary.
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