The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
E49 Minutes for To: Members of the Board From: Office of the Secretary May 20, 1963 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 (3111Y that you have seen the minutes. Chin. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell Minutes of the Board of Governors of the Federal Reserve System on Monday, May 20, 1963. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mitchell Mr. Sherman, Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Mr. O'Connell, Assistant General Counsel Mr. Shay, Assistant General Counsel Mr. Leavitt, Assistant Director, Division of Examinations Mr. Mattras, General Assistant, Office of the Secretary Mr. Hricko, Senior Attorney, Legal Division Mr. Doyle, Attorney, Legal Division Mr. Sanford, Review Examiner, Division of Examinations Circulated item. The following item, a copy of which is ttached to these minutes as Item No. 1, was approved unanimously: iletter to Central Trust Company Rochester, N. Y., L ebester, New York, approving the establishment mn a branch in the terminal building of Rochester -11roe County Airport. 4 Application of Bank of Virginia. There had been distributed a ttle14()randurri from the Division of Examinations dated May 15, 1963, along of Other pertinent papers, relating to the application of The Bank with The Farmers Bank of 141'8141A) Richmond, Virginia, to merge Dinwiddie, Virginia. ei3Provai. The Division of Examinations recommended f' 5/20/63 -2Mr. Leavitt summarized the application, basing his comments es sentially on the information contained in the memorandum. He noted the low capital position of Bank of Virginia and stated that this situation was expected to improve somewhat by September 1, 1963, through the Planned sale of $1,500,000 of additional capital stock of the bank to its parent holding company, Virginia Commonwealth Corporation. Virginia Commonwealth had already received a loan commitment from First National City Bank, New York, New York, to finance the purchase cif sUch shares. Although the capital position of Bank of Virginia 11°111d remain low even after the sale of the additional stock, the 8Xamination5 Division felt that denial of the merger on this ground 111d not be justified, particularly in view of the positive factors 84eh as the prospect for solution of the management succession problem or the Dinwiddie bank and the broader range of banking services that '4041d be provided in the Dinwiddie area. Mr. Leavitt expressed the reeling, however, that some comment with respect to the low capital P°sition of Bank of Virginia should be included in the transmittal letter to that bank if the merger were approved. Governor Mitchell stated that he regarded the capital position °r 8allk of Virginia to be unsatisfactory and that he did not look with r"or at the manner in which the parent company, Virginia Commonwealth , puration, proposed to raise money for the purchase of the additional 41tP1.tal stock which Bank of Virginia proposed to issue. As a general Pl'°Position, he felt that a loan arrangement for the purchase of stock 5/20/63 -3- 4-1.(mag lines agreed upon between Virginia Commonwealth and First National CitY Bank of New York could cause complications, particularly if it coatained a callable feature, and he suggested that perhaps the Board should discourage such a practice. Mr. Solomon noted that the loan to Virginia Commonwealth did 11(3t include a callable feature and expressed the opinion that the depositors of Bank of Virginia were fully protected under the arrangement. 141%. Solomon said that the low capital position of Bank of Virginia should be corrected, but he would not regard the bank as poorly managed. Governor Mills stated that he had the impression that the nianagement of Bank of Virginia was well regarded by the Federal Reserve 11414k of Richmond. He felt that the capital position problem of Bank °r Virginia could be approached as suggested by the Examinations 14v1s1on and, in view of the good over-all financial position of Virginia ec)flu°10nwealth, he did not believe the Board should draw a line at this 13°14t with regard to the manner in which the parent company had chosen to inject additional capital into Bank of Virginia. Governor Mills 4c/ted that the Board had authority to control the activities of the Parent holding company and could prevent any future action which might be inconsistent with sound principles. On the facts of the present 48e, however, he would approve the application. Governor Robertson stated that he would approve the application 14 view of the small size of the Dinwiddie bank, but that he regarded this 11(3rderline case. He questioned the method of financing chosen by 5/20/63 -4- Virginia Commonwealth to inject new capital into Bank of Virginia, but he did not feel this warranted rejecting the application. He suggested that the Division of Examinations make a separate study of the capital reqUirements of all banks in the Virginia Commonwealth group and of the 4bilitY of the holding company to provide needed capital. He also felt that the Board should insist on a capital position adequate in relation to Bank of Virginia's responsibilities. Governor Robertson added that failure to correct the capital position of Bank of Virginia should be a consideration in any future requests for expansion by Virginia Commonv ealth. Governor Shepardson said that he would approve the application as recommended by the Examinations Division, based on the feeling that the Dinwiddie bank might not be meeting adequately the increasing credit ileeds of the surrounding agricultural area. Governor Mitchell stated that he would approve the application Illth the record showing the reservations he had expressed on the capital 4clequacY problem of Bank of Virginia. Governor Balderston and Chairman Martin also indicated that they 11°111d approve the application. The Chairman agreed that a study along the lines suggested by Governor Robertson would be useful. Mr. Shay raised the question whether the Board might wish to indicate in the transmittal letter to the applicant bank that approval Of low the application should not be regarded as approval of the bank's e4Pital structure. such He noted that there was precedent for including 4 Paragraph in the letter approving the merger. 5/20/63 -5After further discussion, the application of The Bank of Virginia was approved unanimously, with the understanding that an ( "er and statement reflecting this decision would be prepared for tile Board's consideration and that the transmittal letter to that bank 1101434 indicate that the Board felt that further strengthening of the 814)1i-cant's capital position was needed. It was also understood that the Division of Exeminations would make an analysis of the capital requirements of all banks in the Virginia Commonwealth group and the 4bIlitY of the holding company to provide needed capital. Mr. Hricko then withdrew and the following entered the room: Mr. Molony, Assistant to the Board Mr. Goodman, Assistant Director, Division of Examinations Policy record entries: Federal Open Market Committee. With a lberWrandum dated April 5, 1963, which had been distributed, Mr. Young, 48 Secretary of the Federal Open Market Committee, submitted a revised (111rt of the record of policy actions of the Committee covering the ittee meetings held on January 8 and 29 and February 12, 1963. This l'ec°11 had been prepared for inclusion in the Annual Report of the totty.,4 of Governors pursuant to the requirement of section 10 of the esie113.-1 Reserve Act. The memorandum noted that in preparing the revised drat t) consideration had been given to comments received from the members or the Federal Open Market Committee, from the Reserve Bank Presidents 11°'t currently serving on the Committee, and from members of the Committee st4tt following distribution of preliminary drafts of the policy record 5/20/63 entries. -6The resulting changes were indicated in the revised draft and were almost entirely of a minor editorial nature with no question of ortance being raised in connection with the content of any of the entries. revised Mr. Young noted that it had not been customary to submit arafts of the Open Market policy record to the Reserve Bank Presidents tOr additional comments but if the Board approved these entries, it thight wish to transmit copies to the Reserve Bank Presidents for their illi ation with a note that the entries had been approved for inclusion 14 the Annual Report. Mr. Young requested the Board's guidance on the 1)rocecitu-e to be followed on this matter for the remainder of the year. Governor Mitchell stated that he had no particular suggestions that ling these entries but that, as a general proposition, he felt lieg " the entries for the policy record should be processed as promptly as P°138ible and that, once suggestions for changes in the preliminary cirart entries had been made and given appropriate consideration, revised 411tfte should be circulated promptly to the Board and, if approved, l'egkrded as final except for editorial corrections. Governor Mitchell er4lhas1zed the view that it was particularly desirable to avoid aftert he changes that could reflect data or views not available to the ecqurnittee at the time the decisions were made. Mr. Sherman stated that, in preparing the policy record elltries for the Committee, the staff constantly attempted to reflect 4°44 what occurred at the meeting and to include only data presented at 5/20/63 that time, even if later developments produced changes in the facts. He agreed that a close schedule helped avoid changes after the fact, but he noted that some delay was unavoidable since it was necessary to check all proposed changes against the minute record to determine accuracy, In reply to a question, Mr. Sherman said that Open Market P°11cY record entries were mailed out under a confidential cover and that standard procedures would provide that such entries were available °11-1Y to authorized persons until their publication in the Annual Report. There arose a discussion with respect to the entry for the meeting on January 8, 1963, after which the Board agreed to a minor change of wording in the first paragraph, along with an editorial correct. with respect to the number of foreign central banks involved ir r eciprocal currency agreements as of that date. The entries for the record of policy actions of the Federal 013en Market Committee for January 8 and 29 and February 12, 1963, were then aPproved for inclusion in the Annual Report of the Board of Gc)vernors for 1963, subject to the understanding that the Committee staff ould. make the changes agreed upon at this meeting. It was also understood that the staff was authorized to follow the procedure outlined by Young in submitting policy record entries to the Board for final 4PProval during the remainder of the year. Farmers and Merchants Bank of Long Beach ,(Item No. 2). -4411ell informed the Board that subpoenas had been served on Vice President E. H. Galvin and Examiner George Walker of the San 5/2o/63 -8- Francisco Reserve Bank requiring their appearance before a Federal grand illrY in Los Angeles on May 22, 1963. Mr. Galvin had been ordered to have in his possession at the time of his appearance the Reserve Bank's reports of examination of Farmers and Merchants Bank of Long Beach, Long Beach, California, for the period January 1, 1957, to date, along 'With all correspondence, memoranda, notes, and intra-office correspondence in the files of the Reserve Bank regarding Farmers and Merchants Bank for the same period. Mr. O'Connell expressed the belief that the United States Att°raeY was interested in material relating to possible illegal bEtnking transactions between Farmers and Merchants Bank and two individuals, Mr. Fred M. Riedman and Mr. Alexander T. Chohon. In this connection, he noted that on May 19, 1961, the Board authorized the Saa Francisco Bank to permit Examiner Walker to discuss with l'ePresentatives of the Federal Bureau of Investigation circumstances rounding a loan msde by Farmers and Merchants Bank to Mr. Riedman in 1959 and, if necessary, to afford access to information appearing in the examination files relating to that loan. However, the Board cilci not authorize the Bank to make the examination reports themselves 4vailable to the investigators. In the present situation, Mr. O'Connell expressed the opinion that the subpoena, as issued, covered too broad an access to the esalination reports and he suggested that the United States Attorney in LOB 'ingeles be requested to narrow the scope of the subpoena to show 5/20/63 -9- exactly what information the Justice Department wanted. If this could 11°t be arranged, Mr. O'Connell suggested that Messrs. Galvin and Walker be authorized to appear before the grand jury with the requested dccUments, as directed by the subpoena, but that Mr. Galvin should be advised to refuse to turn over the complete files, citing the Board's Rules of Procedure. This would then require a ruling by the Court as to which material should be regarded as relevant to the investigation. Mr' O'Connell expressed the opinion that it would be wholly appropriate fOr the Board to authorize specific information in the files to be rilade available in a criminal case involving a member bank. Governor Mills expressed the feeling that the Board should not Pr°vide information in a criminal proceeding unless compelled to do so IDY' the Court. To provide such information would be particularly unfair here a prosecutor seeks to bring in a bill of indictment and the ties involved do not have an opportunity to present a defense. ' 1113.1 Mr. O'Connell stated that a grand jury could act on prima tetcle evidence, but the defendants would have ample opportunity to refute it if and when the matter came to trial. Governor Mills then added that he considered the examination l'el3c)rts as being confidential between the bank and its customers and that he would dissent from any action that would make them available Ilith°11t a Court order. that the After further discussion, during which it was noted 110a1.44 had cooperated in providing information to the Justice Department in ) 0- 5/20/63 -10- Other cases, the Board agreed, with Governor Mills dissenting, to the c°11rse of action recommended by Mr. O'Connell. Secretary's Note: Following the meeting, Mr. O'Connell was informed that Assistant United States Attorney Murphy of Los Angeles, in charge of this matter, had agreed to have issued a more specific subpoena in line with what the Board would regard as appropriate and a telegram outlining the Board's further instructions on how to respond to both subpoenas was sent to the San Francisco Bank on May 21, 1963, in the form attached to these minutes as Item No. 2. Messrs. O'Connell and Sanford then withdrew and the following entered the room: Mr. Cardon, Legislative Counsel Mr. Furth, Adviser, Division of International Finance Regulation K. There had been distributed copies of letters Iteceived from Government agencies, Edge Act corporations, and Reserve 84114 (except New York) in response to the Notice of Proposed Rule 144king that was published in the Federal Register with regard to a 131i°130 sed revision of Regulation K, Corporations Doing Foreign Banking °I' Other Foreign Financing under the Federal Reserve Act. Governor Mitchell suggested that the Board consider in the future the merits of certain suggestions in the letters that appeared t0 be constructive. He felt that the Board might be able to accept a revision. €°°c1" 111411Y of these suggestions regarding the proposed Accordingly, it \gas his thought that if the Board could consider and pass upon a few 1)431c suggestions, a new draft revision could then be prepared, after eh the draft and interested parties could be asked again to review 14vited to present their views. 5/20/63 -11It was understood that further consideration would be given to Governor Mitchell's suggestion at a later meeting. Foreign travel. Mr. Young informed the Board that the Agency 10r International Development and the Department of the Treasury had 4PProached the Federal Reserve Bank of New York on May 17, 1963, with a l'equest for the services of one of the Bank's men for consultation with the National Bank of the Congo, Republic of the Congo, which was seeking technical assistance to initiate a multiple currency system. Meat was expected to last about a week. The assign- Because of the urgency of the request/ the New York Bank assigned Peter P. Lang, Adviser at the Bank, to travel to the Republic of the Congo on the requested assignment IltlIcAlt obtaining the approval of the Board, and Mr. Lang was scheduled to leave within a day or two. Chairman Martin noted that a practice of informing the Board °4 a matter of this kind after a decision had in effect been reached 114s not desirable. In this instance, he felt that the Board might illterpose no objection to making Mr. Lang's services available to the AgelleY for International Development for the period requested, but that he (Chairman Martin) should discuss with President Hayes of the 4ew York Bank the procedure to be followed in submitting such requests to the Board, in accordance with outstanding instructions. €1€CI ne,LA with this suggestion. The meeting then adjourned. There was -12Secretary's Notes: Governor Shepardson today approved on behalf of the Board the following items: a Letter to the Federal Reserve Bank of St. Louis (attached Item No. 3) PProving the appointment of William F. Denton as assistant examiner. roll Memoranda from appropriate individuals concerned recommending the wing actions relating to the Board's staff: APPointment vi James D. Goetzinger as Economist, Division of Research and Statistics, th basic annual salary at the rate of $8,045, effective the date of ritrance upon duty. 11.!IEL!naKaeLs effective May 26, 1963 1*,,larY William Wahle, Records Clerk, Office of the Secretary, from $4 , )..)k) to $4,390 per annum. +), Jac)ene T. Masterson, Stenographer, Legal Division, from $4,250 to 3940 per annum. CYnthia B. Bowlin, Draftsman, Division of Research and Statistics, " ).al $4,110 to $4,250 per annum. , Charles W. Bryson, Economist, Division of Research and Statistics, lrom 110,900 to $7,125 per annum. Richard C. Pickering, Economist, Division of Research and Statistics, ' l4°111 $11,150 to $11,515 per annum. tr__ Harriet D. Berger, Secretary, Division of International Finance, k411 $5,375 to $5,545 per annum. Technical Assistant, Division of Bank JaMes A. A McIntosh,) r .. wpe,,„ 'c.Lions, from $8,575 to $8,840 per annum. A Mary Crawford, Head Cook, Division of Administrative Services, to $5,090 per annum. Tr MYron B Jonsberg Jr., from the position of Research Assistant ' 14 the 71 -ivision of Research and Statistics to the position of Analyst basic annual 8111 "e Division of Bank Operations, with no change in A'arY at the rate of $5,035, effective the date of assuming his new `qlties. 5120/63 -13Pursuant to the recommendation contained in a memorandum from the Division of Personnel Administration dated May 17, 1963, Governor Shepardson also approved today on behalf of the Board the designation of Bankers Multiple Line Insurance Company as the insuring company for the Board's accident insurance program, as recommended by Marsh and McLennan, Inc., the Board's insurance broker for this program. (The accident insurance program was approved by the Board on April 26, 1963.) BOARD OF GOVERNORS Item No. 1 5/20/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO TNE BOARD May 20, 1963 Board of Directors, Central Trust Company Rochester, N.Y., Rochester, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment of a branch in the terminal building of the Rochester Monroe County Airport, 1200 Brooks Avenue, City of Rochester, Monroe County, New York, by Central Trust Company Rochester, N.Y., provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an .- xtension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) rv..74 Item No. 2 TELEGRAM LEASED WIRE SERVICE 5/20/63 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON May 21, 1963. , Scott - San Francisco Reference to your telegram to the Board of May 17, 1963, to your letter to the Board of the same date, and to your telephone conversation of May 20 with O'Connell of the Board's legal staff, relating to the subject of subpoenas served on Vice President E. H. Galvin and EXaminer George Walker of San Francisco Reserve Bank requiring their aPPearance before a Federal grand jury in Los Angeles on May 22, 1963. Your telegram and copies of the subpoenas enclosed in your letter advise that Galvin or authorized representative has been ordered to have in his possession at the time of his appearance before the grand Jury the following documents: (a) San Francisco Reserve Bank's reports of examination of Farmers & Merchants Bank of Long Beach, California, for the period January 1, 1957 to date; (b) Copies of all correspondence in the files of the San Francisco Reserve Bank exchanged between that Bank and Farmers & Merchants Bank of Long Beach for the period January 1, 1957 to date; (c) Copies of memoranda, notes, and intra-office correspondence in the files of the San Francisco Reserve Bank regarding Farmers & Merchants Bank of Long Beach for the period January 21, 1957 to date. ,r: TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON Your telegram and letter advise also tnat WalLer is required terely to appear without further reauirepent of docuhentary production. In subsequent t ) Board's conversation with O'Connell of Board's staff, receipt of referenced telegram and letter, you advised that as result An,eles, of conversatiC)r with Assistant U. S. Attorney kurpny, Los presentation of identified as being in charge of or connected with this matter to Federal grand ,;ury, U. S. Attorney will cause to be issued iu:mediately a new, sore specific subpoena wherein Galvin or authorized representative will be required to appear at the above-stated time and place and produce only (1) those portions 0f the reports of examination identified in (a) above relating to the March 1959 loan by Farmers & Merchants Bank of Long Beach t') ii'red R. Riedwan, and to transactions occurring between Farmers & Merchants Bank or Lon Beach and its officials, and Mr. Alexander W. Chohon; (2) those portions of the correspondence identified in (b) above relating to the 'cotters set forth in (1) ii-loediately above; and ( ) the nerLoranda or notes contained in the files of the San Francisco Reserve Bank purporting to reflect staff of Oral conversations or meetings held between members of the San Francisco Reserve Bank and directors or officials o" Farmers P, Merchants Bank of Long Beach relating to the matters set forth in (1) immediately above. It is underst-od that the subpoena directed to Examiner ialker will remain unedanged. In connection with ir..pendent subPoenu;; you request the Doard'S instructions as to the re.:pon_e to he * Should have read Fred M. Riedman. TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON -3made to these subpoenas. In connection with appearances before grand jury on May 22, Of Galvin and/or Walker and/or other person or persons appropriately designated by Reserve Bank, Board authorizes production upon specific demand of only those portions of the San Francisco Reserve Bink's reports of examination, copies of correspondence, memoranda, and notes that are determined by Galvin, you, and/or other appropriate officials or employees of the Reserve Bank to relate specifically to the matters aet forth in (1), (2), and (3) above. Board authorizes oral testimony on the same matters and within the same restrictions as are herein aUthorized in respect to production of documents. As to authorization herein relating to disclosures from the reports of examination, such authorization relates to both open and confidential portion of reports Of examination. Suggest that if time permits, extracts be made of r ate.cials, production of which is herein authorized, and that only such extracts, properly authenticated or identified, be produced before the grand jury. Under no circumstances does authorization herein contemplate Production or disclosure in any form, written or oral, of any other Portion of reports of examination, copies of Correspondence, memoranda, °r notes in the possession of San Francisco Federal Reserve Bank. Any efforts to obtain such information should be resisted on the authority and under citation of section 261.5(a) and (b) of the Board's Rules TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON -4Regarding Information, Jubmittals, and Requests. It is understood that you or William Cooper will accompany Galvin and/or Walker to Los Angeles. Please keep the Bard advised of developments. (Signed) Merritt Sherman Sherman BOARD OF GOVERNORS Item No. 3 OF THE FEDERAL RESERVE SYSTEM 5/20/63 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD May 21, 1963 AIR MAIL 221I.ILIERITIAL.21 1/ 0. Wyrick, Vice President, 'edsral Reserve Bank of St. Louis, 8t. LOUis 66, Missouri. 1)ear Mr. Wyrick: your letter of In accoidance with the request contained in May 1, F. Denton William of "42 1963, the Board approves the appointment as . Louis, St. of Bank 11ft assistant examiner for the Federal Reserve : ec LEective June 10, 1963. Executive Vice It is noted that Mr. Denton's father is nonmember bank. Aca , cord-Lusnt of Planters Bank, Sikeston, Missouri ent is given appointm 144„ingly, the Board's approval of Mr. Denton's examination any in ate particip 0';Ln the understanding that he will not of that. director or officer an that bank so long as his father is 'nstitution. Very truly yours, (Signed.) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.
@FedFRASER