The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for
To:
Members of the Board
From:
Office of the Secretary
may 25, 1956.
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard
to the minutes, it will be appreciated if you will
advise the Secretary's Office. Otherwise, if you
were present at the meeting, please initial in column A below to indicate that you approve the minutes.
If you were not present, please initial in column B
below to indicate that you have seen the minutes.
A
Chin. Martin
Gov. Szymczak
Gov. Vardaman
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
1
Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, May
25, 1956.
The Board met in the
board Room at 10:00
a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Carpenter, Secretary
Kenyon, Assistant Secretary
Vest, General Counsel
Sloan, Director, Division of Examinations
Goodman, Assistant Director, Division of
Examinations
Mr. Howard Sheperd, Chairman of the Board,
The First National City Bank of New York,
and Chairman of the Board, International
Banking Corporation
Mr. Henry Harfield, Attorney
Messrs. Sheperd and Harfield were present at the invitation of
the
10
4-)Oard
to discuss a proposed plan under which The First National
CitY Bank
would transfer to trustees the stock of International Banking
Corp°
ration) a corporation operating under an agreement with the Board
P14-81,,
--41-L to section 25 of the Federal Reserve Act, and International
41g Corporation would sell its banking business to an Edge Act cor'
k/rati°n
which would be organized by the national bank. The invitation
to me
et with the Board was extended following a preliminary discussion
°I* he
Proposed plan at the meeting of the Board on May 2) 1956.
(13
5/25/56
-2In his opening remarks, Mr. Sheperd discussed the current move-
laent of population and businesses to the suburban areas around New York
CitY and indicated
that the purchase of stock of The County Trust CornParty,
a member bank in White Plains, was motivated by a desire to do
141atever was necessary to
protect the position of First National City
llk and its
1313
'
shareholders.
the
He said that when a question was raised by
Board. of Governors regarding the holding of shares in the trust com-
ParlY bY International Banking Corporation further study was given to the
tatter
-NLIA1 the management of the national bank concluded that the best
e°41
'
8e would be to dispose of the stock of International Banking Corporaticya
This decision, he stated, was reached only with considerable re'
41ce because of the long history of International Banking Corporation
vehicle for carrying out foreign operations for First National City
Bk4k.
He went on to
say that under the proposed spin-off plan, it was
1)°3s1b1e that the
national bank might lose control of International Bankihe co
rporation
over a period of time, since there were no strings to the
4
'L
e
arrangement and it was the intention to have a market in the units
QrPEtrticipation
in the trust which would be issued to the national bank's
Shareholders.
Nevertheless, no other feasible method had been discovered
Ilhich would
protect the national bank and its shareholders in the prevail14g situation,
Mr. Sheperd
then stated that a committee had been appointed by
the New York
State
___ Legislature to study the whole question of permitting
5/25/56
-3-
Nelq. York City banks to establish branches in the outlying suburban
areas. He said that if some of these areas, such as Nassau and Westchester
C°11nties, were thrown open, the plan now proposed by First National City
13841k probably would be
discarded.
Chairman Martin stated that the Board was sympathetic to the
l'r°blem, but that it also had to consider the legal aspects of the matter.
Ile then asked Mr. Vest to outline the various points with which the Board
concerned.
Mr. Vest commented that the agreement entered into with the
13°ard- by International Banking Corporation contemplated that it would
9Perate in the
foreign field.
its
Therefore, if the proposed transfer of
-444ing business took place there would appear to be no longer a reator
an agreement of that kind.
Likewise, there would no longer be
Ileed for the Board's approval of the purchase or holding by International
4"11g
Corporation of the stock of any corporation, and that presumably
be a
matter within the jurisdiction of the Comptroller of the CurretleY.
However, for the plan to be carried out, it would be necessary
to 0,_
"%anize an Edge Act corporation, with the Board's approval, to which
,
the r
-reign business of International Banking Corporation could be transte
rreA.
'
4.
It appeared
that the national bank would continue through the
trust
-rran"
6ement to have control of International Banking Corporation, at
5/25/56
-4-
"for the time being, and the Board would have agreed to the orlea
ganization of the Edge Act corporation for the purpose of completing the
Alan.
Mr. Harfield raised a question whether it vas accurate to say
that the national
bank would retain control of International Banking
C°rPoration.
The national bank, of course, would hope that the share-
era would maintain
trustees favorable to the bank, but this would
riot n
ecessarily be the case.
He conceded that at the beginning there
*3111d be a
community of interests and that according to the trust agreetaent International Banking Corporation would fully utilize its powers in
the 1,
-est interests of the
national bank. Nevertheless, he said, any
tahgible benefits of
the spin-off would run directly to the shareholders.
The
-""s of participation in the trust would be transferrable and the
She
holders might sell them at their pleasure.
Vest inquired of Mr. Harfield whether he felt that any questions might
arise under the Bank Holding Company Act of 1956 or under
the holding
company affiliate law. Mr. Harfield responded that he did
riot
think so/ and
that certainly there appeared to be no problem at the
Present time• He
said that if the plan were consummated, International
ile4king Corp
oration would not only dispose of its foreign banking busiliess but
would discontinue all of its banking business as such.
He went
On
t° saY that at
present the corporation holds the stock of only one
5/25/56
-5_
ballk, that he did not think there would be any holding company affilProblem, and that he saw no problem under the Bank Holding Company
Act unless
International Banking Corporation expanded its holdings of
bank
stocks so that it held 25 per cent or more of the stock of two or
Itore banks.
In response to another question, Mr. Harfield said he thought
that
Lumoubtedly the proposed Edge Act corporation would be a "banking
ecsrP(pration" as defined in the proposed revision of the Board's Regulation „.
He added the remark that in setting up the plan it was deemed
aPPronl-q
.
---ate to follow the provisions of the present regulation.
Regarding International Banking Corporation's stock in the Disc°114t
etock
orporation, Mr. Sheperd said he did not contemplate that this
would be held by the spun-off corporation.
Mr. Harfield suggested
that it could be
held by the proposed Edge Act corporation, with the
e°48e4t of the Board, and that probably it could not be held by the national bank.
Regarding the name of the proposed Edge Act corporation ("First
NationAl
City Bank Overseas"), Mr. Vest inquired if thought had been given
to th
e question of whether
the use of that name might conflict with any
150licy
Of the
Federal Government or any provisions of the law.
Mr. Harfield
tided that this
matter had not been discussed in any detail with the
On
-1"roller of
the Currency. He suggested that the authority of the
5/25/56
-6-
Board under section
25(a) of the Federal Reserve Act to approve the name
°f an Edge Act corporation would seem to indicate that it had authority
to
approve the proposed name if it saw fit. It was his view that the
name would be consistent with the spirit of the law, since the corporation would be a national corporation, and also a banking corporation as
defined by
Regulation K. Furthermore, it would be subject to the same
3upervision
as foreign branches of national banks. It seemed to him that
it 'would be
in the interest of full disclosure to give the corporation
such a
name.
Regarding the matter of timing for putting the proposed plan
into effect, Mr. Harfield
stated that there were tax problems that refurther clarification and that certain matters would have to be
CUSSed with the Securities and Exchange Commission. In addition,
there
would be the mechanical problems of consummating the plan.
In response to a further question, Messrs. Sheperd and Harfield
elated that the name of International Banking Corporation probably
11(nild be changed following the spin-off. Mr. Harfield went on to say
that
he did not
think International Banking Corporation would continue
to op
erate its branch at Idlewild Airport.
Asked whether the foreign branches of First National City Bank
Perh
aPe would be
converted to branches of the new Edge Act corporation,
kr
'"ePerd said that
possibly some of the branches would be incorporated
1108
5/25/56
-7-
Under the laws of
the countries where they were located.
He assumed
that in
such an event their stock would be held by the Edge Act caror the Bank of Monrovia.
14°11-14 have advantages
He then outlined how such a procedure
from the tax standpoint.
In response to an in-
he said it would not be contemplated that branches of the national
bank and the
Edge Act corporation would be located in the same place.
Mr. Vest asked Messrs. Sheperd and Harfield whether they considered that the
organization of the Edge Act corporation, with the
tr
sfer of assets from International Banking Corporation to that corporation
Was an integral part of the plan for disposing of the stock of The
C°411tY Trust Company.
In this connection
he also asked whether there was
other method that might be considered which would not involve the
trans
fer of foreign assets of International Banking Corporation to the
kge A
ttet corporation.
Mr. Harfield replied that some thought was given to simply spinning
orf la
ternational
Banking Corporation, perhaps leaving it as a State nonMember bank,
That idea, however, was discarded because it was desired to
keen
the overseas
operations within the national bank's framework and away
fr°M the spun
-off corporation. As to the possibility of spinning off the
'lle're8 of The County Trust Company, Mr. Harfield said that if the whole
1)4'4 /a's to be carried through effectively, it would be necessary to acand hold a
minimum of perhaps
keeP
35 per cent of the bank's shares "to
"
someone from taking it
from under our nose.
1109
5/25/56
-8In a further discussion, Governor Balderston observed that
under the plan First National City would make a capital contribution
to
International Banking Corporation of about $15 million.
He inquired
What step would be contemplated if that amount was not adequate for
the
purposes of the Corporation.
Mr. Sheperd responded that if the
amount was inadequate more stock would be sold.
In conclusion, Mr. Sheperd said that he and his associates would
work as
diligently as they could to explore all of the angles of the
Proposed plan and that they hoped to come to some conclusion as soon as
possible.
Messrs. Sheperd, Harfield, and Goodman then withdrew from the
meeting.
In accordance with the understanding at the meeting on May 17,
1956/ the following draft of letter to Mr. Sprague, Chairman of the Federal Reserve Bank of Boston, had been prepared for Chairman Martin's signature and had been circulated
to the members of the Board:
Needless to say, we regret the situation that has
arisen in the Weymouth branch matter. Apart from a vague
intimation that the Board may have been improperly influenced - which it is unnecessary for us to deny - the main
complaint seems to be that, since representatives of Quincy
Trust Company were permitted to present its contentions
before the Board, Granite Trust Company also should have
been afforded an opportunity to voice its objections.
So far as I know, the Board has never refused anyone
who has had a legitimate interest in a matter before the
Board an opportunity to present his views. You may feel
free to assure the directors of Granite Trust Company - as
5/25/56
-9-
Governor Robertson assured Mr. Martin, its President that in the future, as heretofore, they can be certain of
a hearing on any matter of concern to them if they will
Just let us know that they desire a hearing.
In hindsight it might appear that the proceeding could
have been handled in a manner that would not have resulted
in this unfortunate misunderstanding and irritation. At
this point of time, however, the important thing is to be
sure your board of directors understands that the course of
events in this matter followed the procedure customarily observed over the years, and that the Board made a conscientious effort to obtain the facts and apply its best judgment.
I would hope that in the not too distant future a favorable opportunity may arise when you and I will be able to
sit down together and review this entire matter.
Approved unanimously.
There were presented telegrams proposed to be sent to the following Federal
Reserve Banks approving the establishment without change
by those
Banks on the dates indicated of the rates of discount and purchase in their existing schedules:
Boston
Atlanta
St. Louis
San Francisco
New York
Philadelphia
Cleveland
Richmond
Minneapolis
Dallas
Kansas City
May
May
May
May
May
May
May
May
May
May
May
21
21
21
23
24
24
24
24
24
24
25
Approved unanimously.
The following items, which had been circulated to the members
Of the
Board, were presented for consideration and the action taken in
each instance
was as stated:
5/25/56
-10-
Letter to the Board of Directors, Union Bank of Michigan,
Grand Rapids, Michigan, reading as follows:
Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors approves the establishment of a branch by the Union Bank of
Michigan, in the vicinity of the intersection of Michigan
Street, N.E. and Fuller Avenue, N.E., Grand Rapids, Michigan, provided the branch is established within nine months
from the date of this letter and approval of the State
authorities is effective as of the date the branch is established.
Approved unanimously, for
transmittal through the Federal
Reserve Bank of Chicago.
Letter to The Honorable H. E. Cook, Chairman, Federal Deposit
It
surance Corporation, Washington, D. C., reading as follows:
Reference is made to your letter of May 15, 1956,
concerning the application of the Farmers State Bank of
Madisonville, Texas, Madisonville, Texas, for continuance
of deposit insurance after withdrawal from membership in
the Federal Reserve System.
No corrective programs have been urged
or agreed to by it which, in the opinion of
Governors, it would be considered desirable
ac conditions to the continuance of deposit
upon the bniak
the Board of
to incorporate
insurance.
Approved unanimously, with
a copy to the Federal Reserve
Bank of Dallas.
Letter to The Honorable, The Comptroller of the Currency, Washgton, D. c., reading as
follows:
This refers to Mr. Jennings' letter of May 11, 1956,
stating that your Office granted preliminary approvals on
certain dates in 1953 and 1955 for the organization of each
Of three national banks, with an indication in each case
that the majority stockholder would be a company which is
a bank holding company. Mr. Jennings' letter further states
4
5/25/56
that your Office assumes that it is not necessary to obtain the Board's clearance with respect to these cases
under the provisions of the Bank Holding Company Act of
1956.
As you know, it is unlawful under the Bank Holding Company Act, except with the prior approval of the Board, for
any bank holding company to acquire direct or indirect ownership or control of any voting shares of any bank, with certain exceptions. Accordingly, if stock of any of the three
national banks in question is "acquired", within the meaning of the Act, by a bank holding company after May 9, 1956,
the effective date of the Act, the Board's prior approval
of the transaction would be necessary under the provisions
of the Act; on the other hand, if the stock Was acquired
Prior to the effective date of the Act, the Board's approval
would, of course, not be necessary.
Approved unanimously.
411,1
Telegram to Mr, Fulton, President, Federal Reserve Bank of Clevereading as follows:
Board interposes no objection to completion of the interior of the 9th and 10th floors of the addition to the
Pittsburgh Branch building at a cost of approximately
$93,000, as outlined in your letter of April 20, 1956, provided the work can be done within the original authorization
of approximately $4,525,000 for the entire program as outlined in your letter of July 29, 1955.
Approved unanimously.
The members of the staff then withdrew and the Board went into
e ecutive session.
The Secretary later was informed
by the Vice Chairman that during the
executive session Governor Mills was
asked to be responsible, with the assistance of Messrs. Leonard and Vest of
the Board's staff, for exploring a matter discussed during the executive
5/25/56
-12session. A memorandum on this matter
has been placed in the confidential
files of the Board.
The Secretary also was informed by
the Vice Chairman that during the executive session the Board approved salaries
for Charles Molony, Special Assistant to
the Board, and J. E. Kelleher, Assistant
Director, Division of Administrative
Services, at the rates of $14,250 and
11,250, respectively, effective June 3,
1956.
The meeting then adjourned.
Secretary's Note: Governor Balderston
today approved on behalf of the Board
the following letter to Mr. Diercks, Vice
President, Federal Reserve Bank of Chicago:
In accordance with the request contained in your letter of May 22, 1956, the Board approves the designation of
Donald G. Brownell as a special assistant examiner for the
Federal Reserve Bank of Chicago. Please advise as to the
date upon which the designation is made effective.
It is understood that Mr. Brownell will liquidate his
indebtedness to The Citizens First National Bank of Storm
Lake, Storm Lake, Iowa, prior to his employment by the Federal Reserve Bank of Chicago.
@FedFRASER