The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
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.
@FedFRASER