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Minutes for

To:

May 23, 1960

Members of the Board

From: Office of the Secretary

Attached is a copy of the minutes of the
Itoard of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
141-th respect to any of the entries in this set of
minutes in the record of policy actions required to
r maintained pursuant to section 10 of the Federal
serve Act.
Should you have any question with regard to
the
,
minutes, it will be appreciated if you will advise
:e
h Secretary's Office. Otherwise, please initial below.
tr You were present at the meeting, your initials will
44d1cate approval of the minutes. If you were not present,
Y?Ur initials will indicate only that you have seen the
minutes




Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King

ISM
Minutes of the Board of Governors of the Federal Reserve System
on Monday, May 23, 1960.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

The Board met in the Board Room at 10:00 a.m.

Martin, Chairman
Balderston, Vice Chairman
Szymczakl/
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.

Sherman, Secretary
Thomas, Adviser to the Board
Shay, Legislative Counsel
Molony, Assistant to the Board
Fauver, Assistant to the Board
Noyes, Director, Division of Research
and Statistics
Marget, Director, Division of International
Finance
Garfield, Adviser, Division of Research
and Statistics
Koch, Adviser, Division of Research and
Statistics
Robinson, Adviser, Division of Research
and Statistics
Dembitz, Associate Adviser, Division of
Research and Statistics
Williams, Associate Adviser, Division of
Research and Statistics
Furth, Associate Adviser, Division of
International Finance
Hersey, Associate Adviser, Division of
International Finance
Landry, Assistant to the Secretary

Messrs. Eckert, Gehman, Keir, Sigel, Solomon,
Weiner, Tynan Smith, Fisher, and Manookian of
the Division of Research and Statistics
Messrs. Katz, Irvine, Wood, Anderson, Maroni, and
Reynolds of the Division of International Finance
Economic review.

The staffs of the Divisions of International

ee and Research and Statistics presented a review of international
64L clomA„.,

conditions and developments.

Attended morning session only.




51/23/60

-2-Following this presentation all of the members of the staff

withdrew with the exception of Messrs. Sherman, Noyes, and Landry, and
the following entered the room:
Hackley, General Counsel
Farrell, Director, Division of Bank Operations
Solomon, Director, Division of Examinations
Masters, Associate Director, Division of
Examinations
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Kiley, Assistant Director, Division of Bank
Operations
Assistant Director, Division of
Hostrup,
Mr.
Examinations
Mr. Benner, Assistant Director, Division of
Examinations
Miss Hart, Assistant Counsel

Mr.
Mr.
Mr.
Mr.

Discount rates.

The establishment without change by the Federal

"e Bank of Minneapolis on May 20, 1960, of the rates on discounts
841d

---vances in its existing schedule was approved unanimously, with the

Illiclellstanding that appropriate advice would be sent to that Bank.
.T..ems circulated or distributed to the Board.

The following items,

vhich
had been circulated or distributed to the members of the Board and
11j.eR
- °I which are attached to these minutes under the respective item
hIthe
j:8 indicated, were approved unanimously:
Item No.
tette
efoZ4 -0 the Governor of Puerto Rico regarding the
e(414in48hzent of branches of national banks in the
'
-4wealth of Puerto Rico.
Tq.e
Netaz to the Presidents of all Federal Reserve Banks
1k44;414g reports to be submitted on competitive factors
- the recently enacted bank merger legislation.




1

2

5/23/6o
With respect to Item No. 2, which had been distributed in the
t°11 of a draft letter to the Presidents of all Reserve Banks, there was
8.1.

12212I with a suggestion by Mr. Hackley that there be added a reference

to a —

port of the House Banking and Currency Committee in connection

the recently enacted bank merger legislation, and that the communicationbe sent in the form of a telegram.
tele i.ram
TitIì

Mr. Hackley noted that the

was intended to make clear to the Reserve Banks that their comments

resPect to proposed mergers involving banks in their districts be

liflilt d.
to reports on the competitive factors without recommendation for
4°1404, mr. Solomon stated that this telegram would be helpful to the
Reserve

Banks and would result in a saving of time by limiting their
illvestigations of proposed mergers to the competitive aspects alone.
Relationship between First Security Investment Company and
kbre
G. Lanston & Co.

Inc.

There had been distributed memoranda dated

ADril

6
'1960, and April 29, 1960, from the Division of Examinations and
the lje
gal Division, respectively, regarding the relationship between
irst Security
Investment Company and Aubrey G. Lanston & Co., Inc.

These

illekorahA
---,a had been prepared pursuant to the suggestion at the Board meeting
be
eenlber 30, 1959, that it would be helpful if the Board could have a
N'ort
CA
,Saor

on the relationship between First Security Corporation (the predeec)raPanY to First Security Investment Company), Salt Lake City,

th

—41 other financial organizations.

The April 6 memorandum noted

at the "sPin-off" pursuant to the tax provisions of the Bank Holding




5/23/60

-4-

C°141)611Y Act of 1956 from the old corporation to the new corporation which
1148 accomplished on September 15, 1959, caused the old corporation no
1c3ager to be a bank holding company, whereas the new corporation became
81115Ject to regulation by the Board.

With respect to investment by the

141 Corporation in Aubrey G. Lanston & Co., Inc., specialists in U. S.
G°17arnment and Federal agency securities, it was pointed out that during

1951 the old corporation acquired 5,000 shares of common stock and $250,000
118
'
r value of debentures of the Lanston Company. After investigation, the
Board •
ln a letter dated August 7, 1952, advised the San Francisco Reserve
13
that the old corporation's investment in Lanston stock violated
etj

-4

5144(e) of the Revised Statutes and that the old corporation should

eet itself of ownership of such stock as soon as possible. On January
14, 1
953) Mr. George S. Eccles, President of the old corporation, wrote

that "
ve have disposed of this stock (Lanston) having sold it to Mr.
tilhre
G• Lanston prior to the close of 1952."
hY the

Subsequent investigation

b

'leserve Bank in 1959 revealed that the stock sold Lanston prior
to *1,
-4e close of 1952 was sold with an option to repurchase, which option
--4Y terminated in 1957 but was later extended to 1964. General
001148.
el O'Kane of the San Francisco Reserve Bank concluded that the old
si4c)rat

fan

complied with the literal language of the Board's order to

'-owever, it might also be said that holding an option to repurchase
'414

4— ia compliance with the good faith tenor implied in the Board's
or4r,
esPecially in view of the fact that the old corporation failed to




V23/60
arise the Board that it had retained an option to repurchase the stock
ordered divested.
The April 29 memorandum of the Legal Division expressed the view
that by taking an option to purchase the stock the old corporation did
an interest in Lanston in violation of Section 5144(e) of the
Revised Statutes (U.S.C., Title 12, section 61).

However, despite this

c°11e1
"
1-0n, it was the opinion of the Legal Division that there appeared
to be no sanction that the Board could impose for a past violation by a
holai
,
'
4g company affiliate which had ceased to own or control any banks.
14g1Y, in the opinion of the Division there was no basis for legal
n bY the Board.

Furthermore, although the Board was free to bring

t43
LAe attention of the new corporation's directors any of its views
l'e4ting to the conduct of the predecessor corporation, it was believed

that
n°

Useful purpose would be served by such an expression, and it was
ree,
ended therefore that no action be taken.

Governor Robertson said that, contrary to the recommendation of

he Le
gal Division, he was inclined to feel that the Board should say
8°111ethi,
-g to First Security Investment Company about the stock option.
Mr- Hackley replied that it was questionable whether there was
171°14tion of the law in the first place.

He felt that, although the

°f the law was violated, the situation had changed since that
EtQt104.
The "spin-off" of the old corporation's assets to First Security
e°1141"ration
-- in 1959 meant that the Board could only institute proceedings




18f
5/23/60

-6-

48.inst the new corporation, and it was doubtful that such a proceeding
Q011.bibe effective.

However, it would be possible for the Board to

84141
'"8 a letter to the new corporation on this matter as a question of

Mr. Solomon indicated that his views were similar to those expressed
bY Mr. Hackley.
Governor Mills said that he was not sure what would be gained by
ng such a letter to the new corporation so far as the investment by

the 0,
corporation in the Lanston Company was concerned.

However, there

l'enlaitlecl an open area that he would like to have explored. In this
Qelillect1011) he referred to the discussion in the April 6 memorandum of
the,,
'
e.Lationship between the new corporation and its subsidiaries,
eSpec4

llY the First Security Savings & Loan Association of Pocatello,
4.
Idaho
'04- whose five directors three were directors of First Security Bank
I
ark

N. A., making it an affiliate of that bank, and three were
direet r
O- 8 of the new corporation, making the Association an affiliate of
Security Corporation, the new corporation. He said it would be
441'111
to his understanding of the situation if there could be provided
E3( le e
xPlanation of the relationships involved and of the extent to which

thee

relationships would be subject to Board responsibility for &minisrctti°11 of the
Bank Holding Company Act of 1956.
Mr. Hostrup said that according to the latest information available
the „,
ulvision of Examinations, as of December 31, 1958, the First Security
6114k Of

j-dahol N.A., was still operating on behalf of the Savings and




•

5/23/60
Loaa

I

-7-

Association.

It was his impression that this matter would be one

PlillnarilY for the concern of the Comptroller of the Currency, since it
l'ePreeented financial interests of a national bank.
Governor Mills suggested that this question be brought to the
ttention of
the Comptroller's Office.

The relationship between the

ile/g corPoration and First Security Insurance Agency, Inc., was one
Illv°1-1ting interlocking directorates but not to the degree that it was
4legel.
Plret

The sharing of directors and mutuality of understanding between

Security Corporation, the Savings and Loan Association, and First

SeellriltY Bank of Idaho, N.A., however, went beyond the relationship that
illthe past had existed between Bankamerica Company (a securities company)
e(11ra
ns8merica Corporation.

He recalled that after careful review of

therliethod. used by Transamerica to divest itself of stock in Bankamerica,
th"°44rd had decided in 1938 that control, even though through a chain
„
'
llueidiaries of
the Class B sLock in a company which owned Bankamerica,
'tacftInteci to an

"interest" within the meaning of section 5144(e) of the
Revis
ed Statutes and had required Transamerica to divest itself of that
interest.

Mr. Solomon said that there was indeed a similarity between the

to

c4eee but that the present relationship was not contrary to the Bank
Company Act of 1956 as he understood it.
Qorer

Mr. Hostrup commented that the information in the Board's possession
the First Security Savings & Loan Association and the First




1 St
5/23/60

-8-

SecuritY Bank of Idaho, N.A., was taken from a national bank examination
11qX1rt and that the Division of Examinations did not know what the
eotuptroller had done about this relationship.
Governor Mills then suggested that the Comptroller be asked for
his re
flections on this problem and that it be pointed out at the same
time

that there was a dual administration problem involving the Comp-

tl.°11er's responsibility for supervision of national banks as well as
tes1/"s1bility by the Board for administration of the Bank Holding
C°1111)EtnY Act.
In the discussion that followed, Mr. Hexter suggested that it
140t

be advisable to inform First Security Investment Company that the

B
oard

1748 aware of the use of the option device by the old corporation

llith respect to shares of Aubrey G. Lanston & Co., Inc., in order to
r°1'eatal1

4

similar procedure in the future.

Otherwise bank holding

e°141)4nies might make use of this device to establish interests that were

131'ohibited by the Bank Holding Company Act.
Governor Mills raised the question whether the holding of an
c
" onstituted an "interest" by the holder in the company with respect
nose

b e44

shares the option was held, since an option was not a contract,

Se there
was no obligation for the holder of the option to buy.
In this connection, Governor Balderston questioned the effect,

b

the definition of "interest" had on the final tax certification

Y the Board to First Security Corporation on May 9, 1960, per-

nlitt nipt

- it to spin-off to the new corporation the shares of controlled




5/23/60

-9-

banks, the shares of the service company of the bank holding company,
erua certain other assets.

To this, Mr. Hexter replied that the Legal

kvision had considered the question and had concluded that the Board
/1°111c1 not be justified in refusing to issue the tax certification,
"
Pecially in view of the requirements under the Bank Holding Company
42t for divorcing banking and nonbanking activities.
Mr. Hackley observed that neither the Bank Holding Company Act
it"lf or its legislative history threw any light on the definition of
tIletelln "interest" as applied to purchase by the old corporation of an
(1°4411 to buy back its Lanston stock, nor had any cases been decided under
"lcm 5144(e) of the Revised Statutes.

Furthermore, the Board's

Etelati°n P, Holding Company Affiliates - Voting Permits, made no attempt
to
‘`ciirle the term.
So far as could be learned from its files, the Board

144

to consider the meaning of the term "interest" in section
\e)

°1115, once, in 1938. This was in the case involving Transamerica

Cen'er ti
4--on which had been granted a voting permit on the condition that
it city
est itself of stock in Bsnkamerica Company, already alluded to by
Or

mills.

He noted that the relationship, in respect to Lanston

-4441Y, under section 5144(e) of the Revised Statutes was with reference
to
see
urities of any sort" while Section 32 of the Banking Act of 1933,

1141ell Prohibits certain interlocking relationships between personnel of
b'44413
rtt.t.

'
4(1. of companies "primarily engaged,"

speaks of similar activities

17ittx,
v.""

only to "stocks, bonds, or other similar securities" and




it
.
t 41
'
‘1

5/23/60

-10the Board of Governors to make exceptions in "limi ted classes of

Cues

• when in the judgment of the said Board it would not unduly

intillence the investment policies of such member banks or the advice it
gives its customers regarding investments."

Under this language, he said,

the 14,,
'
-ard Permits interlocking relationships in the case of companies
Ilhich deal only in securities of the Federal Government and certain Federal
eneies

He said that it might be desirable for the Board to propose a

Ulibl-g
that the use of an option to purchase stock constitutes indirect

eontroi.
Chairman Martin said that he was impressed by the comment in the
tegea

Division memorandum of April 29 that no Board action was warranted

illthis case.

He thought that it was both poor policy and bad technique

f"he Board to write a letter if it did not plan to do anything about
411 ealeged
violation.

He could see some merit in publishing a ruling based

°144hYP0thetical case as Governor Mills had suggested, but he did not
believe that any reference should be made to the taking of the option by
Security Corporation.

He would not object to exploring the question

rItl'ther, but he did not favor the Board taking a position on it at this
tike.

M. Hackley commented that in the present case, revocation of
140,
ch. Permit of the holding company affiliate was the only penalty
,
he 'uetard
could impose for wrongdoing of this nature, and since the
111(tY VA
-s no longer a holding company affiliate the penalty was not




5/23/60

-11-

8'Plaicable.

He assumed that Governor Mills' idea of the hypothetical

st
atement was intended to forestall the use of the option technique in
All** cases.
A discussion then ensued relating to the manner in which the
Ik)arlimight expect to learn about such option arrangements before the
tact• During this discussion Mr. Solomon suggested the advisability of
the 2toard's asking to examine actual contracts. Mr. Hackley referred
to .0„,
.44= pendency of litigation involving the Mercantile Trust Company of
St. Louis.

He recalled that in 1934 this bank transferred stock of the

tile-Co erce National Bank of St. Louis to certain trustees with
44 oPtion to
repurchase the stock.

Although the Board warned the bank

tlIkt it should
not exercise its option, it did so in June 1951 but
illediately transferred the stock to another corporation.

Since the

13°811a4 taken no action against Mercantile Trust, Mr. Hackley said,
843111d the
Board publish a ruling to the effect that the use of an option
ec4latitutes "indirect control" it might well have an effect on this pending

to

Mr. Solomon observed that interpretation of the use of an option

-NI stock as constituting "indirect control" of the company whose
atock
4e
/las involved under section 5144(e) of the Revised Statutes became
1 841ftile ill the current context of the Bank Holding Company Act concerning
4414tet o
wnership of control.




5/23/60

-12In further discussion, Governor Mills said that as a result of

the P(Ants raised at this meeting, his inclination would be to do nothing
in the way of writing a letter to First Security Investment Company or
PlIblishing a ruling based on a hypothetical case.
Chairman Martin said that this was his general feeling, and
there was
concurrence with this view by all of the members of the Board
except

Governor Robertson who stated that, at the least, he would favor

havi,
'
1g a thorough examination made of all documents relating to a divestment under any
similar circumstances.

In response to a suggestion by Governor Szymczak, it was understood
that tt"e Division of Examinations would also discuss with representatives
or
Office of the Comptroller of the Currency the relationship existing
bet
'" First Security Savings & Loan Association and First Security Bank
of

laaho, N.A.,

as well as the point raised by Governor Robertson.

Messrs. Hexter and Hostrup and Miss Hart then withdrew from the

che,

Letter to all Reserve Bank Presidents regarding 1959 budgets
There had been distributed a draft of letter to all Reserve

oatut
Etki

l'eeidents transmitting a summary of the 1959 budget experience reports

l'estatin_
66 the Board's view that the Board looks upon the Reserve Bank
bildte
t8 48
Cei .

forecasts of costs and operations for the coming year rather than

lings or amounts that can be spent.

The letter would notethat the

134Ntrd,

nc)neern was with the fact that 1959 marked the second successive




5/23/60

-13-

1fl Which all of the Reserve Banks overbudgeted for salaries of
elqloYees.

This situation led the Board to believe that it might be

clesimble to
restate its views with respect to the budget system as just
in
dacatea.
Following discussion, unanimous approval was given to a letter
to the Presidents of all Federal Reserve Banks in the form of attached

alalasEnt_of budget committee of the Board.

Chairman Martin

81141/gested that, with the approach of summer and impending absences of
1113"Imembers, it would be desirable to appoint a committee of the Board
to review with individual Presidents of the Reserve Banks their budgets
tc): 1961/ similar to the procedure followed in making preliminary reviews
o th
-4/8e budgetS for 1959 and 1960. He proposed that Governors Balderston,
1'414
'and King, who served as the committee to review the 1960 budgets,
also
constitute this committee for the 1961 budgets.
There was agreement with Chairman Martin's suggestion.
At this point Mr. Johnson, Director, Division of Personnel
441111dstrati0n, entered the room, and Mr. Kiley withdrew.
Board's health insurance program. There had been distributed a
Illetorm„
-4'4:Ma dated May 19, 1960, from the Division of Personnel Administr iti
-4.°4 With
respect to the Board's health insurance program and the actions
thSt eh
ould be taken in the light of enactment of the Federal Employees
4alth
-enefits Act of 1959, under which a health insurance program for




5/23/60

-114-

all Federal
employees, with the Government sharing the cost, would become
effective beginning with the first pay period after July 1, 1960.

Attached

to the memorandum was an abbreviated comparison of the present Board health
111r9rice coverage and the two Government-wide health insurance plans
°ftered under the
Federal plan.
Mr. Johnson said that the Legal Division was of the opinion that
the new Act was applicable to the Board members and the Board's employees
bUtthat
there was nothing in the Act to prevent the Board from continuing
its Present health insurance program.
thA

The two present insurance carriers

1.)0ard, Blue Cross-Blue Shield and The Prudential Insurance Company

Am
-" lea, had indicated that they would be willing to continue the
dt„
13°51-4- contracts provided a minimum enrollment of at least 75 per cent of

°f

eligible

employees was maintained. He said that the Division of Personnel
41411.—
"-Lstration had the following recommendations to make to the Board on
this question:

1. That the Division of Personnel Administration proceed
diately to distribute to the Board's employees full information
'
legard to the health insurance coverage available under the
th Benefits Act of
1959.
2. That the Division of Personnel Administration then conduct
a
75vritten poll of all employees to determine whether the required
Per cent of the Board's employees would continue their present
°verage.
3. That the Division of Personnel Administration be authorized
to
irisProceed with the registration of employees for the Federal Health
tow4rarIce program, and further that the Board authorize contributions
ti
eri
the
he:st
of this insurance in accordance with the Health

BZt




y,
cif-'4
5/23/60

-15-

4. If the required 75 per cent minimum enrollment requirement in the Board's health insurance program can be maintained,
it was recommended that this program be continued concurrently
with the Government Health Insurance program, with the provision
that the Board change its schedule of contributions toward the
cost of this insurance to conform with the dollar amounts specified by the Government program, including reducing the Board's
contribution for female employees with non-dependent husbands.
Mr. Johnson Observed that recommendation No.

4 provided for

l'eclueing the Board's contribution toward the cost of family coverage for
remn,
---Le employees with non-dependent husbands in conformance with the
Government contribution schedule.

Should this contribution be reduced,

611existing fringe benefit would be decreased, reducing the attractiveness
Of the
Board's plan for this group.

However, if the Board's contribution

not reduced, there would be an inequity between the contribution to
elcl ees who enroll under the Government plan as compared with employees
vho
°Iltillue coverage under the Board plan. Also, the Board would be
1)18.eecl in a position of contributing more toward the cost of insurance
Me
ite OW/1 plan than is authorized under the Government plan. Mr.
4°11118°11 noted further that some of the benefits offered by various Governketit

1318.11s were slightly more liberal than the present Board coverage.

TlieGoverrmient plans provided full coverage for employees who retire after
the
effective date of the Act (July 10, 1960), whereas coverage is reduced
ereblY for retirees under the present Board plan.

Another

eretion might make the Government plans more attractive to some
eta1310y
ees: if an employee declines to enroll for a Government plan, he




5/23/60

-16-

not again have an opportunity to enroll until October 1961 and
hen aPproximately once every three years thereafter.
Among the additional factors brought out was that the Governrlient Plan provides survivorship benefits for dependents of retired and
":" employees, with employer contributions continued, whereas the
toard. S
present coverage does not provide this benefit.

Of

Another advantage

Government plan was the provision for free coverage for an

el411°Yee and his eligible dependents for periods up to one year's leave
or absence without pay.

Under the present Board plan, retirees are

eligibl
-e for slightly reduced basic hospitalization coverage and those
who
retired after November 17, 1957, are eligible for major medical
14s4rance.

If the present Board plan were not continued, major medical

c°11"age would have to be dropped for about 22 retired employees.

About

75 Per cent of present Board retirees are now covered by standard hospitalsi

tcal
insurance, and there is a good chance that coverage could be

%trtinued even though the Board's present plan should be discontinued
l'e'r active employees.
Mr. Johnson then proceeded to summarize in greater detail the
i°48 of the Government plans and to compare benefits and costs
1144er
Qover

-hose plans with the present hospital-surgical and major medical

1:te Provided




under the existing Board contracts.

1

5/23/6o

'0

-17During the discussion that followed, Governor Shepardson inquired

Ilhether, if employee participation in the Board's plan should initially
be 75 per cent and subsequently drop below that figure, the Board's
ec/ritracts with Blue Cross-Blue Shield and Prudential would be cancelled
at once.
Mr. Johnson replied that he did not think this would be the case.
It

11/18 contemplated that contracts would be signed with Blue Cross-Blue

Sllield and Prudential that would run to October 1961 for those employees
1411° desired to remain in that plan, and it was hoped that this could be
4111114ged with no change in present rates.
At Governor Mills' suggestion, it was understood that the Board
14°1Qd meet again at 2:34 p.m. this afternoon to give further consideration
to
the
health insurance program.
Governor Balderston and Mr. Noyes withdrew during the preceding
disc
11881°n) and Messrs. Farrell and Johnson withdrew at its conclusion.
Hearing on BancOhio Corporation application re The Hilliard Bank.
.0t

Coell referred to the informational memorandum distributed to

tIle
°81rd under date of March 10, 1960, relating to the application of
Bencolai
-0 Corporation, Columbus, Ohio, for prior approval of acquisition

01, h
Qr
es

of The Hilliard Bank, Hilliards, Ohio, pursuant to section 3(a)(2)

1, theBallk Holding Company Act of 1956.

He recalled that on February 20,

,:
(3' there Was published in the Federal Register the Board's Notice of
Decision on this application by BancOhio Corporation.




The

4

5/23/60

u p4.4 4

-18-

Notice advised that the Board proposed to deny the application and allowed
111411 March 7, 1960, as a period in which written comments or objections
°tithe proposed action might be submitted.

On April 1, 1960, the Board

18stled a Notice of Order on request for hearing, and on April 15, 1960,
4ed the Notice to provide for holding this hearing at the offices of
6114
"

the aPPlicant on the latter's request. Mr. O'Connell went on to say that
th"°ard's Order of April 1 setting the hearing provided for the
ssion of statements by other parties and gave the opportunity to
testlfY at the hearing to such persons. Pursuant to this provision, the
De
4*";ztraent of Justice had submitted a 2-1/2 page letter to the hearing
eceillirler relative to the anti-trust implications of the application.

As

aresult of the objection of the applicant to the inclusion of this
state
ment in the record, the Legal Division was planning a conference with

the a
11Plicant at the Board's offices this coming Wednesday, May 25, at
10:00
8-111.) in order to resolve the question whether the statement of
JIAEti
ce should be included in the record. The Justice Department had
eted to the Legal Division that it was looking to the latter for
stevi -ment

of the Board's position on this matter.

The Legal Division

Plaaa.

ing to send a notice of this pre-hearing conference to Justice

t(* itS

...aformation.

MI'. O'Connell said that he anticipated the applicant would
Dre

he

erlt the
following arguments in an effort to exclude Justice from the
(1) the Department of Justice is not an interested party;




-

5h3/60

-19-

the statement by Justice purports to be evidence and is objectionable
fow4.'4-./ (3) even if not regarded as evidence, the statement of Justice
too far by expressing an opinion as to whether the application

'
11°N-141, be

approved or denied, thereby exceeding that Department's power

1111"the bank merger law; and

aSt

(4) should Justice be permitted to make

LIAG at this hearing, the writer of the letter should be present

1111.1.4

8011 and be subject to cross-examination.

It was the intention of

the Legal Division Mr. O'Connell said, to comment on each of these
al'ENtlents as follows: (1) with respect to argument No. 1, it could be
Pc)inted out that neither the Board's Order of April 1, 1960, in this case
11°1' the amended Order of April 15, 1960, stipulated that statements would
Ileeeived only from interested parties; (2) with respect to the second
ljated argument of applicant, it could be contended that the state-4

that

Justice was expert testimony and not evidence, it being noted

the D
epartment's letter consisted largely of extracts from the
413Plicah+1
--u 6 statement; (3) it could be contended in commenting on the

th

riot

ar1+4

--4.cipated argument of applicant that the letter from Justice does
Dul.„
--vort to be a recommendation for approval or disapproval of the

1314.1catloa and that it restricts itself to the fifth statutory factor

or the

411k Holding Company Act, namely "the effect of the transaction
4,
r
'-'13etition (including any tendency toward monopoly)." Finally, with
131 Q't t
-0 the expected contention by the applicant that the writer of
ie
tter from Justice should be subject to cross-examination by counsel




5/23/60

-20-

applicant during the hearing, the Legal Division could comment that
this was a judgment to be made by the hearing examiner and that if the
ellolicant produces evidence for the record to refute the basis relied
IkP°11 hY Justice, there would be no objection to statement by applicant
Of these
additional facts.

Mr. O'Connell concluded his statement by

aaYing that
the reason for bringing this matter to the attention of the
B

SI•ri
as

vas

to ascertain whether the approach indicated by the Legal Division

agreeable to the Board.
Governor Mills inquired whether the inclusion in the record of

this case of the letter referred to from the Justice Department would be
rule,
out on the grounds that the record had been closed.
Mr. O'Connell replied that the record had not been closed and
that
hearing scheduled for May 31 in Columbus, Ohio, in this case

laEt
-e 1_12Y2.

He added that the Board would be the ultimate judge of

vhether or not
the application should be approved or denied, based upon
the
record produced at the forthcoming hearing.

Such record appropriately

Include the statement by Justice on the application.
None of the members of the Board indicated an objection to the

Drocea
41e contemplated by the Legal Division in this case, as outlined

by
Mr

O'Connell
The meeting then recessed and reconvened in the Board Room at
411. with the following in attendance:




5/23/60

-21Chairman Martin
Mr. Balderston
Mr. Mills
Mr. Robertson
Mr. Shepardson
Mr. Sherman, Secretary
Mr. Johnson, Director, Division of
Personnel Administration
Board's health insurance program.

revi,

Discussion of the proposed

of the Board's health insurance program as presented in the memo-

1'8'46411 from the Division of Personnel Administration dated May 19, 1960,
lic‘sl'esumed, with Mr. Johnson commenting on the costs and features of
they ,
al'i°us plans available to Board employees under the Government
1:4ic)greall that would become effective the first pay period after July 1,
1960
*As he had indicated at the morning session, the Board's Legal
""prl was of the opinion that the Federal Employees Health Benefits
AQt Islas aPplicable to the Board members and its employees, but there was
11°th1
tig in the Act to prevent the Board from continuing its present health
1411'arlee program if it wished to do so and provided a sufficiently large
15r°1:)°.rtiori of the Board's employees elected to continue the present
ei)yera,ge.

In the discussion that followed, Governor Mills stated that he
,Zether
e- that the Division of Personnel Administration leaned toward
-ttun+ •
-t'ion of the existing Board plan. His own view was that, while
thts 1.1
4
' a matter deserving of careful study, he was inclined to feel
thtlt the
Board's present plan should be superseded as rapidly as possible




5/23/6o
by

-22-

the Government plans available under the new Health Benefits Act.

In 411Y event, Governor Mills said, he felt new employees entering the
13()arcl i s organization should not have the option of entering the existing
Plan even if it were to be continued, and present employees should be
l'ellactantly given the option of continuing the existing plan.
Mr. Johnson stated that the Division of Personnel Administration
1.14s n°t as much in favor of continuing the existing plan as Governor
Mills might have assumed.

He had gotten the impression, however, that

484b8tantial portion of the Board's employees desired to continue the
eting Plan, and it was for this reason that the Division of Personnel
Aclilllistration recommended that a written poll of all employees be
Coridu

eted to determine whether the required 75 per cent of Board employees
v041,,
continue the present program. Mr. Johnson noted that the Government
Mari
8.s made available to Board members and Board employees in any event,
the terms of the Health Benefits Act which the Legal Division had
he
aPPlicable to the Board and its employees, and from the standpoint
or AA —
—414111istration,

In response to a question from Chairman Martin, Mr. Johnson then

rev.,
the
to

the easier procedure would be to have only the one

the procedure contemplated by the recommendations contained in

PE4,.

'unnel Division's memorandum of May 19, including the distribution
BoarA
4 employees of full information regarding the coverage available
'
the
Health Benefits Act and the holding of meetings to explain such




5/23/60

-23-

Overage; the proposal to conduct a written poll of all employees to
determine whether they wished to continue the present coverage, such
Pcal to be completed by June 9; the recommendation of the Division of
Personnel Administration that it be authorized to proceed after June 9
lth the registration of employees for the Federal Health Insurance
181z with the understanding that the Board authorized contributions
'
t(AT

the cost of such insurance in accordance with the Health Benefits
Act
'aad, provided not less than

75 per cent of employees indicated a

clealre to continue the present Board's Health Insurance Program, that
that
Prc)gram also be continued along with the Government program with
the
vrovision that the Board change its schedule of contributions toward

the eest of this insurance to conform with the dollar amounts specified
bY the (-1
-overnment program, including reducing the Board's contribution
r"eniale employees with non-dependent husbands.

the

Mr. Johnson said that

a41°Pti0n of any of the plans available to Board employees under the

GC1Ve

s'ent program would result in an increase in the cost to Board
--es for coverage as compared with the present Board plan for basic

€41c1
144Jor medical coverage.

If the existing plan were continued, he

411tleitAted that a contract would be written at present rates to run from
klY 10 until
October 1961.

No assurance could be given, of course, as

.1'1114t changes
in the existing Board plan might take place after that
4te, Mr.
Johnson also noted that a small number of Board employees
esently

were covered by Group Health and that in those instances the




5/23/60

-24-

13c3ard- also was paying a portion of the cost, its contribution being in
the same dollar amount that would have been made if the employees so
e°1/ered had been participating in the Blue Cross-Blue Shield-Prudential
13r°6M4 under which most Board employees were now covered.

Mr. Johnson

a4Ided that it was implicit in the recommendation of the Division of
ilersonael Administration that the Board would continue to make a contributt°
4 on behalf of those employees who continued Group Health insurance
(Which

was a plan available under the Government program), with the
Board
:
S contribution being adjusted to the same amount that would be pay8131e Wider the Health Benefits Act program. He illustrated the costs by
steti
-kng that under the present Board plan for family coverage, the Board
Inaites
4 contribution of $6.88 a month compared with an employee cost of

$6,s
-7
a MO/1th,

(13111e

or a total of

$13.75. Under the so-called "Service Benefit"

n

-Blue shield plan) of the Government program, the Board's
colAr,
lbution for a family low option coverage would be $6.76 and the
ellaPloYeA
—is Payment $7.45 or a total of $14.21.

Cost for the high option

Y Plan would total $19.37 with the Board's contribution

tha

$6.76 and

et/iPloYee payment $12.61.
tottrci,

Chairman Martin said that he doubted the desirability of the
8 inClicating

it

to employees what plan they should take.

He thought

desirable to give all employees the information that was available
lng the plans, although he realized many of them might not have the
deeire
hal'h

0r tito study them fully, and to have each individual decide for
at if any plan best suited his needs.




5/23/60
Governor Robertson stated that he understood this was the
Prc'eedure contemplated under the recommendations of the Division of
l'ere nnel Administration and that the first step after distribution of
info
rmation on the various plans would be to poll the employees to
deterraine
whether they wanted to continue the present coverage. After
that,
uecision, in the event less than 75 per cent of the staff indicated
thel
be

uesire to continue the present plan, the selection would have to

''.°"le among the Government plans.
Mr. Johnson stated that this was correct, adding that one additional

44tter that would have to be decided by the Board was whether, if the
sent
I3re
Board plan were retained, it should be available to new employees
or via
klether they should have only the option of entering one of the Governkerit
Governor Shepardson commented that this was a decision that need
riot

be

taken until after the June 9 poll of employees.

If the employees

railed to
continue the present plan, that question would be answered
Ili4
h°14 anY action on the part of the Board.
Chairman Martin then noted that at the morning session

he had

1'418". the question whether it was desirable, from the standpoint of good
13el's°114e1 policy, for the Board to decrease its contribution toward the
heezth
insurance
by a few cents a month per employee, as was suggested
&lithe Pe
rsonnel Division's memorandum.




5/23/60
Mr. Johnson commented that the amount that Government agencies
elluld contribute toward the cost of the Government plan was fixed and that
the 8°ard would be bound by that limit for employees electing one of the

G°I'ernment plans. In any event, he would not anticipate difficulty on
this Point, even though there was a fairly substantial reduction in the
13°8
'
'
1i
s t e contribution in the case of female employees with non-dependent
11144)414s who were eligible to enroll for family coverage.

His recommen-

clEttiOrl would be that the Board's contribution in the event the present
Boara
Plan were continued be made to conform to the same amount that it
e°144 contribute toward the cost for employees who entered the Government
) 8inee

otherwise employees using the Board plan would be receiving

4 Oblim
8 --Vaat higher contribution than would those using the Government plan.
Chairman Martin said that this answered his question.
After some further discussion of the Health Insurance program,
sh
epardson stated in response to a question from Chairman Martin
that h
is study of the program had caused him to reach the conclusion
the

steps recommended in the memorandum from the Division of Personnel

441410,4
-uration should be taken; that is, distribution of information,
Polaila
g employees regarding the present plan, registration of employees

licl` the -,

uvernment plan with contributions toward its cost in accordance

/tith th.
Health. Benefits Act and, if the present Board program was desired
hY the
--quired minimum of 75 per cent of the Board's staff, continuation
c4 that
Program concurrently with the Government Health Insurance program




880
5/23/60

-27-

Contribution by the Board to the cost of that plan on the same
dollar basis as that specified for the Government program.
Chairman Martin inquired whether there was disagreement with
G°vernor Shepardson's suggestion, and in the absence of comment, it was
that the Board approved the recommendations as summarized by
Gov.—
-'"or Shepardson and as set forth more completely in the memorandum
111'3°34 the Division of Personnel Administration dated May 19, 1960.

The meeting then adjourned.

Secretary's Note: Governor Shepardson today
approved on behalf of the Board the following
items:
the „,

Memoranda from appropriate individmos concerned recommending
lng actions affecting the Board's staff:

4110.
1r/talents
uttaie

14

Sutton Potter as Legal Assistant, Legal Division, with
allnual salary at the rate of $6,585, effective May 31, 1960.

:
Acitlia 14.111 D. P'Berg as Operator, Tabulating Equipment, Division of
at thes'rative Services, on a temporary basis, with basic annual salary
rate of $3,495, effective the date he assumes his duties.
ary
rease
t Hart Assistant Counsel Legal Division, from $8,810 to
'‘) Per annum, effective May 29: 1960.
tio. 4) Letter to the Federal Reserve Bank of Cleveland (attached Item
special assistant
aPProvina
14er.
- the designation of Charles Beck as




t

Seer

ary

BOARD OF GOVERNORS
OF THE

Item No. 1
5/23/60

FEDERAL RESERVE SYSTEM
WAS

OFFICE OF THE CHAIRMAN

May 23, 1960

4 dear

the

Governor:

I am pleased to acknowledge your letter of May 2 concerning
est
ablishment of branches of national banks in the Commonwealth.

As you are aware, it has been the practice of the Board, in
eonside
for, „
1 ring applications of The First National City Bank of New York
v4
the:
:
- 4131ission to establish new branches in Puerto Rico, to request
to „:1'!Il5 of the Secretary of the Treasury of the Commonwealth prior
weaZnorization of the branches, in all instances since the CommonIlas created in 1952.
I am confident the Board has benefited from the views of the
C41111ti-Alwealt
h banking authorities in consideration of these applications
arkl th
toriaidat it will continue to consult with your banking authorities in
ering similar applications in the future.
As expressed to you at the time of the Federal Reserve mission
IlInted at your request to study certain phases of the banking system
tIn'
Ito Rico, the Board of Governors and the System desire to cooperate
with:
4stevi(
ll till any matter contributing towards closer relationships of the
,,J.th Puerto Rico.
With all good wishes.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.

The 4
Qty, °norable Luis Munoz Lorin,
pr,
of Puerto Rico,
Tir alezo,
'
'sgalri "1144, Puerto
Rico.




m. McC. Martin, Jr.

Item No. 2
5/23/60

TELEGRAM
LEASED WIRE SERVICE

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON

S-1740
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS

May 23, 1960.

As you know, the recently enacted bank merger legislation
plic1/7ed May 13, 1960, requires the Board) before acting on a proposed
Illrger or other absorption, to request a report "on the competitive
facto
rs involved" from the other Federal banking agencies and the
lItt°rney General.
It seems clear from the Act itself and from its legislative
hist0
17

that such report is intended to be limited to the competitive

facto).
-8 and that it is not contemplated that the report would contain
ally re
commendation as to approval or disapproval of the merger. The
Ile
°f the Housc. Banking and Currency Committee makes it clear that
b
anking agencies are expected to express an opinion only with
Pect t
-0 the competitive factors involved. On the floor of the
Senate
'Senator Fulbright stated that the Attorney General would not
be
ePected to "consider or report on the various banking factors inIP°17eci, nor was he expected to make any reconunendation as to the action
the
b.
agencies should take on the basis of consideration of all
th
e factors
involved." Presumably, the same statement applies to
Ports
from the banking agencies.
to tel)

In these circumstances, the Board, in responding to requests

°rts from the Comptroller of the Currency and the Federal Deposit
Corporation, will expect to comment only upon the effect of




the

proposed merger upon competition and will not make any definite

l'ec°Inntendation as to action by those agencies with respect to proposed
1's. For this reason, your Bank, in response to requests from the
"
111
k cil should similarly limit comments with respect to proposed mergers
"" to the jurisdiction of the Comptroller or the

FDIC

to the

ecirriPetitive factors involved, without recommending approval or denial
(It the application.




(Signed) Merritt
Sherman

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM

Item No. 3

5/23/60

WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

May 23, 1960.

Dear sir:

Pederea

The Board's
review of the 1959 Budget Experience Reports of the
concern
noted
t4es
„erve Banks raised, amid much that was gratifying, some
ver-budgeting for salaries of employees. As may be
actual
th '
,
erlelosed s
ary of the reports received from all Banks,
4h',4,er
System basis last year were $3.1 million (about 4 per cent)
hri'
liuget. Standing alone this would not be cause for disturbance.
e.
-is Concern, however, is
P:i ces 12\r
amount
second
the
marked
1959
that
fact
th the
°I`fideld
ear in which all
the Reserve Banks over-budgeted the
to
salaries of employees. This situation has led the Board with
it might be desirable at this time to restate its views
° the
budget system.
The Boa
rd looks upon the Reserve Bank budgets as forecasts of
,rk„ arid
;11its th'Perations for the coming year, rather than as ceilings on
f,'
et can be spent. Such a system does not necessitate the proC bliciz;1
; e°ntingencies that are frequently found in appropriationref3.s
1e' Therefore it is the Board's hope that the annual budgets
Iritc)N aceoi,heZ as fully as possibleactual expectations, and will take
bileglin:' Possible improvements in efficiency, probable difficulties
NinesP°..sitions, and other factors usually responsible for oversalaries.
tc)1.1
•
Nv°,1vect, It
f ls
recognized that, if this kind of tight budgeting is
to time salary costs will be in excess of the amounts
time
(3/11
.
,
1
ri
at
rnicnue budgets. In fact, the Board would expect that in anyone
and
that
under,
were
as
budgets
might be over their
Aki,-4ci,getl— of years actual expenditures of any one Bank might be over
oft
- as
en as they are below it. The Board'sconcept of the
ot*, Aroce,
4ure
ver•-biaW
'
s
assumes the same careful consideration of the reasons
-geting
as for over-expenditures.
/111
„
hope this letter
e emphasize at this point that I sincqrelyinterested
b'
'
onstrued as implying that the Board is more
*karie
:
in
es theel?..se to budget than it is in efficient operations, or that it
'
ecognition due those who have been able to effect savings.

:

4




-2-

t

it
P! contrary, the Board believes that the stern challenge of a tight
a( :6
ie will spur efforts toward savings and will make more meaningful the
"ftert when savings are accomplished under such conditions.
The Board suggests that each year, when the budgets are being
it might be well to convey these views to those persons at your
oft41;1 are responsible for the budget proposals. The enclosed analysis
-,959 Budget Experience Reports may be helpful in this connection.

P4411ed

Sincerely yours,

61p411 ,
Wm. McC. Martin, Jr.

'The




BOARD OF GOVERNORS

.40,10404,,
(Y) Goi:;004,

OF THE

Item No. 4

FEDERAL RESERVE SYSTEM

,
1

5/23/60

t*

WASHINGTON 25. D. C.
AOORESEI

orriciAL

CORN.IESPONOENCIE

TO THE IBOARD

May 23, 1960

Mx G. T. Quast, Chief Examiner,
Pederal Reserve Bank of Cleveland,
Cleveland 1, Ohio.
Dear Mk. Quast:
In accordance with the request contained
in your letter of May 11, 1960, the Board approves
the designation of Charles Beck as a special assistant
examiner for the Federal Reserve Bank of Cleveland
or the purpose of participating in examinations of
panics except The Fifth Third Union Trust Company,
Cincinnati, Ohio.
The authorization heretofore given your
Bank to designate Mk. Beck as a special assistant
examiner is hereby canceled.




Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.