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609
9/61
Minutes for
•
To:
Members of the Board
From:
Office of the Secretary
May
3, 1963
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve ,System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
only that you have seen the minutes.
Ohm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
•
Gov. Mitchell
(/ 7-
Minutes of the Board of Governors of the Federal Reserve
System on Friday, May 3, 1963.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Fauver, Assistant to the Board
Mr. Noyes, Director, Division of Research
and Statistics
Mr. Koch, Associate Director, Division of
Research and Statistics
Mr. Holland, Adviser, Division of Research
and Statistics
Mr. Solomon, Associate Adviser, Division of
Research and Statistics
Mr. Furth, Adviser, Division of International
Finance
Mr. Sammons, Adviser, Division of International
Finance
Mr. Katz, Associate Adviser, Division of
International Finance
Mr. Landry, Assistant to the Secretary
Mr. Eckert, Chief, Banking Section, Division
of Research and Statistics
Mr. Yager, Chief, Government Finance Section,
Division of Research and Statistics
Mr. Axilrod, Senior Economist, Division of
Research and Statistics
Mr. Keir, Senior Economist, Division of
Research and Statistics
Miss Dingle, Senior Economist, Division of
Research and Statistics
Mr. Goldstein, Economist, Division of
International Finance
Money market review.
There were distributed tables of Treasury
financing operations in July-December periods in recent years and dealer
holdings of "rights" and "when-issued" securities in recent refundings,
5/3/63
-2-
together with a chart showing purchases of new foreign security issues
by United States investors since 1958 and a summary of recent monetary
developments.
Mt. Keir reported on the Government securities market,
with particular reference to preliminary results of the Treasury's
May 15 refunding, after which Mt. Axilrod discussed changes in bank
Mt. Goldstein then reported on foreign
reserves and bank credit.
exchange developments.
Following these presentations all members of the staff withdrew
except Messrs. Sherman, Kenyon, Noyes, Furth, and Landry, and the following
entered the room:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Hackley, General Counsel
Farrell, Director, Division of Bank Operations
Solomon, Director, Division of Examinations
Johnson, Director, Division of Personnel
Administration
Benner, Assistant Director, Division of
Examinations
Thompson, Assistant Director, Division of
Examinations
Sprecher, Assistant Director, Division of
Personnel Administration
Bakke, Senior Attorney, Legal Division
Young, Senior Attorney, Legal Division
Sanford, Review Examiner, Division of Examinations
Report on H.R. 729.
At the meeting of the Board on April 30, 1963,
it was agreed that Chairman Martin and Governors Mills, Robertson, and
Mitchell would testify, each on a personal basis, on Wednesday, May 8, before
the Subcommittee on Bank Supervision and Insurance of the House Banking and
Currency Committee at hearings on H.R. 5874, a bill to establish a Federal
Banking Commission, and H.R. 729, a bill to establish a Federal Deposit and
Savings Insurance Board.
Mr. Noyes inquired whether the Board wished to
5/3/63
-3-
reply to the request of April 16, 1963, from Congressman Multer, Chairman
of the Subcommittee, for comments on H.R. 729 in such a way as to indicate
the position of the Board as a whole or whether the Board members who were
slated to testify on Wednesday wished to express individual views.
Following discussion, it was understood that a draft letter expressing
the views of the Board as a whole on H.R. 729 would be prepared for consideration by the Board and subsequent transmission to Chairman Multer prior
to may
8.
Mr. Noyes then withdrew from the meeting.
Discount rates.
The establishment without change by the Federal
Reserve Banks of New York, Philadelphia, and San Francisco on May 2, 1963,
of the rates on discounts and advances in their existing schedules was
a2S.2,119.1 unanimously, with the understanding that appropriate advice would
be sent to those Banks.
Circulated or distributed items.
The following items, copies of
Which are attached hereto under the respective item numbers indicated,
were approved:
Item No.
Letter to The National Citizens Bank of Canby, Canby,
Minnesota, granting a determination exempting the
Howard W. Reiter Investment Company, Canby, Minnesota,
from all holding company affiliate requirements except
those contained in section 23A of the Federal Reserve
Act.
1
Letter to Citizens Bank & Trust Company, Campbellsville,
Kentucky, approving the establishment of a branch in the
downtown section of Campbellsville and an investment in
bank premises.
2
R. 1
5/3/63
-4Item No.
Letter to Industrial State Bank of Kalamazoo,
Kalamazoo, Michigan, approving the establishment
of a branch on Sprinkle Road between Kilgore Road
and Interstate Highway 94.
3
Letter to Congressman Patman, Chairman of the House
Banking and Currency Cominittee, reporting on H.R. 4070,
a.bill "To assist in the promotion of economic stabilization by requiring the disclosure of finance charges
in connection with extensions of credit."
14.
With respect to Item No.
3,
Governor Mitchell indicated that he
wished to abstain from voting until he had reviewed the record.
Secretary's Note: The Secretary was
subsequently informed that Governor
Mitchell wished to be recorded as
opposed to the granting of the
application by Industrial State Bank
of Kalamazoo for permission to
establish a branch on Sprinkle Road
between Kilgore Road and Interstate
Highway 94.
Application of Trans-Nebraska Co. (Items
5
.. Pursuant to the
and 6)
understanding at the meeting on April 9, 1963, there had been distributed
drafts of an order and statement reflecting the decision of the Board to
deny the application of Trans-Nebraska Co., Lincoln, Nebraska, for permission
to become a bank holding company by acquiring over 50 per cent of the
outstanding common stock of The Martell State Bank, Martell, Nebraska, The
Sioux National Bank of Harrison, Harrison, Nebraska, and Crawford State
Bank, Crawford, Nebraska.
application on April
9,
At the time of the Board's consideration of the
reference was made to passage by the Nebraska
legislature of a bill that would appear to prohibit consummation of the
proposed organization even
though the Board were to grant its approval,
_5_
5/3/63
although it was not then known whether or not the Governor had signed
the bill.
It was the consensus of the Board, however, that the existence of
such legislation was immaterial so far as the Board's deliberations were
concerned, and that the case should be disposed of on its merits.
Accompanying the draft order and statement was a memorandum from
the Legal Division dated May 1, 1963, copies of which had also been
distributed, that, in order to provide guidelines for handling similar
situations that might conceivably arise with respect to future cases,
listed two alternative courses of action available to the Board: (1) the
Board might issue an order calling upon applicant to show cause why the
Board should not regard the application as moot in view of the legislation,
and affording other interested persons, including State authorities, an
opportunity to make representations with respect to the effect of the
legislation; or (2) the Board might deny the application on the basis of
the State statute without reaching the merits of the case.
However, the
Legal Division believed, as stated in its memorandum, that on balance the
course of action adopted by the Board in the instant case was preferable
to either of the alternatives mentioned, in recognition of the requirement
that bank holding companies must comply with all applicable law, including
State law.
Accordingly, should the Board determine on similar occasions
in the future that, from the standpoint of Federal law, there was no
objection to a proposal embodied in a particular holding company application,
the question would then be left to the State for interpretation and application of its own law. (By parity of reasoning the Board should also feel
5/3/63
-6-
free, as in the present instance, to deny an application on its merits
Without regard to State legislation.)
At the request of the Board, Mr. Hackley commented on the Legal
Division's memorandum.
There followed a discussion of the draft statement during the course
of which certain suggestions for modification of the language therein were
made and agreed upon.
The issuance of the order and statement was then
authorized subject to such changes being made.
statement, as issued, are attached as Items
Copies of the order and
5 and 6.
All of the members of the staff except Messrs. Sherman, Kenyon,
Solomon, Johnson, and Sprecher then withdrew from the meeting.
Approval of salary of General Auditor (Item No. /I.
By letter
dated April 18, 1963, the Deputy Chairman of the Federal Reserve Bank
of Philadelphia advised that the Bank's Board of Directors had appointed
G. William Metz, presently Acting General Auditor, to the position of
General Auditor, effective immediately, and had fixed his salary as General
Auditor at the rate of $18 500 per annum, which would represent an increase
01* $5,500 from his present salary.
Approval of the salary rate by the
Board of Governors was requested.
In a memorandum dated May 2, 1963, which had been distributed, the
Division of Personnel Administration recommended that the Board of Directors
be asked to work out a more gradual upward adjustment of salary for Mr.
Metz, commenting this would be in line with the Board's letter of October
1962, concerning compensation of officers of Federal Reserve Banks, which
5,
5/3/63
-7-
stated that "the Board encourages a general policy that would result in
a conservative upward adjustment of individual salaries".
The memorandum
also pointed out that the Board had set a limitation on individual adjustments for the President and First Vice President of Reserve Banks, with a
further restriction as to frequency of adjustments.
It compared the proposed
salary for Mr. Metz with the salaries of certain Vice Presidents of the
Philadelphia Bank having major responsibilities and brought out that the
proposed salary would be higher than the salaries of General Auditors at
seven Reserve Banks.
Reference also was made to indications of problems
that could arise at Reserve Banks if grade and salary levels for auditing
personnel were fixed according to standards differing from the uniform
classification standards applicable to Reserve Bank employees in other
functions.
It was the view of the Division that audit staffs should be
subject to the same classification and salary administration procedures
as other officers and employees of the Reserve Banks.
At the request of the Board, Mr. Johnson commented in some detail
on the Division memorandum and advised, among other things, that the
salary proposed for Mr. Metz had been the subject of telephone conversation
With President Bopp and First Vice President Hilkert, who appeared to feel
that the fixing of such a salary for Mr. Metz at this time might pose a
rather significant problem of officer salary administration at the Philadelphia Bank in view of the relationship between the proposed salary and
the salaries of certain other senior officers, including officers of longer
experience with responsibility for major functions.
5/3/63
-8There ensued a general discussion during which members of the
Board expressed appreciation of the points brought out in the memorandum
from the Division of Personnel Administration.
At the same time they
noted the circumstances involved in the selection of Mr. Metz for the
Position of General Auditor and the active interest shown by the Bank's
Board of Directors, including the Audit Committee, in taking steps designed
to assure the effective conduct of the audit function at the Bank.
It was
further noted that the position of General Auditor had been adjusted by
the directors from Group B to Group A of the officer salary groupings and
that the proposed salary for Mr. Metz was within the limits of Salary Group A.
In these circumstances it was the consensus that the Board of Governors should
avoid injecting itself into the picture in a way that might seem to question
the judgment of the Board of Directors.
However, in view of Mr. Johnson's
comment concerning his telephone conversation with President Bopp and First
Vice President Hilkert, the view was expressed that it would be appropriate
to get in touch with Mr. Bopp to determine whether he felt that the problem
of salary alignment at the Philadelphia Bank was serious enough to warrant
his taking the matter up with the Board of Directors.
Bopp
Unless President
indicated that he would like to take such a step, it was agreed that
the proposed salary for Mr. Metz should be approved by the Board of Governors.
Accordingly, it was understood that Vice Chairman Balderston would
discuss the matter with President Bopp and that, unless Mr. Bopp indicated
that he would like to take up with the directors the question of salary
relationships within the Bank presented by the proposed salary for Mr. Metz,
5/3/63
-9-
the Board of Directors of the Philadelphia Bank would be advised by letter
that the Board of Governors approved the salary rate that had been fixed
for Mr. Metz as General Auditor.
Secretary's Note: On May 6, 1963 Governor
Balderston informed the Secretary that he
had discussed the matter with President Bopp
and that, on the basis of their conversation,
it would be in order to advise the Board of
Directors by letter that the payment of salary
to Mr. Metz as General Auditor at the annual
rate of $18,500 for the period May 3, 1963,
through December 31, 1963, had been approved
by the Board of Governors. A copy of the
letter sent to the Federal Reserve Bank of
Philadelphia pursuant to this advice from
Governor Balderston is attached as Item No. 7.
The meeting then adjourned.
Secretary's Note: Pursuant to recommendations
contained in memoranda from appropriate individuals concerned, Governor Shepardson today
approved on behalf of the Board the following
actions relating to the Board's staff:
Appointments, effective dates
of entrance upon duty
Jared J. Enzler as Research Assistant (Summer), Division of Research
and Statistics, with basic annual salary at the rate of $5,540.
Irving Louis Gedanken as Statistician, Division of Research and
Statistics, with basic annual salary at the rate of $12,975.
l
Victoria Chick as Research Assistant (Summer), Division of Internationa
$5,540.
of
rate
the
Finance, with basic annual salary at
Arthur F. LeVasseur as Clerk, Division of Administrative Services, with
basic annual salary at the rate of $3,560.
Raymond R. Sine as Guard, Division of Administrative Services, with
basic annual salary at the rate of $3,560.
5/3/63
-10-
Acceptance of resignation
Bette L. Robinson, Statistical Clerk, Division of Research and
Statistics, effective at the close of business May 311 1963.
v_,
Secre
51
Item No. I
5/3/63
BOARD OF GOVERNORS
OF THE
•
FEDERAL RESERVE SYSTEM
'
•
L, •
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
4
'
1'3*•
't11.RESO".'
'
* •. • ••*
TO INC BOARD
May
3, 1963.
Mr. H. W. Reiter, President,
The National
Citizens Bank of Canby,
Canby, Minnesota.
Dear Mr. Reiter:
This refers to your request, submitted through the Federal
Reserve Bank of Minneapolis, for determination
by the Board of
Governors of the Federal Reserve System as to the status of Howard
W.
Reiter Investment Company as
a holding company affiliate.
From information submitted, the Board understands that the
Present activities of Howard W. Reiter Investm
ent Company are chiefly
investment and insurance business; that the Company is a holding
company affiliate by reason
of the fact that it owns 239 of the 500
outstand
ing shares of stock of The National Citizens Bank of Canby,
Canby, Minnesota, which amount owned
is more than 50 per cent of the
!number of shares voted at
last
electio
the
n of the directors of that
bank; that
the Company also owns 5 shares of the 500 outstanding
shares of capital stock
of Security State Bank of Howard Lake, Howard
Lake, Minnesota;
and that the Company does not, directly or indirectly,
°wn or control the stock of, or manage or control
, any other banking
i
nstitution.
In view of these facts, the Board has determined that
Howard W. Reiter Investment Company
is not engaged, directly or indirectly, as a business in holding the stock of, or managing
or
controlling,
banks, banking associations, savings banks, or trust
companies
within the meaning of section 2(c) of the Banking Act of
1933 (12 U.S.C. 221a);
and, accordingly, the Company is not deemed to
be a holding company affilia
te except for the purposes of section 23A
Of the
Federal Reserve Act, and does not need a voting permit from
the Board of
Governors in order to vote the bank stock which it owns.
If, however, the facts should at any time indicate that
Howard W. Reiter Investm
ent Company might be deemed to be so engaged,
_ 4°.is matter should again be submitt
ed to the Board. The Board reserves
zhe right
to rescind this determination and make further determination
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. H. W. Reiter
Of this matter at any time on the basis of the then existing facts.
Particularly, should future acquisitions by or Activities of the
Company result in its attaining a position whereby the Board may deem
desirable a determination that the Company is engaged as'a business
in the holding of bank stock, or the managing or controlling of banks,
the determination herein granted may be rescinded.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 2
BOARD OF GOVERNORS
5/3/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
•
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
•
.4LRESt-s.•'
May
3, 1963
Board of Directors,
Citizens Bank & Trust Company,
Campbellsville, Kentucky.
Gentlemen:
The Board of Governors of the Federal Reserve System
approves the establishment of a branch by Citizens Bank & Trust
Company in the downtown section of Campbellsville, Kentucky, provided the branch is established within one year from the date of
this letter. The Board also approves, under the provisions of
Section 2i4A of the Federal Reserve Act, an investment of $85,000
in bank premises for the purpose of purchasing land, constructing
the drive-in facility, and surfacing the parking area for the new
branch.
It is understood that to conform with the requirements
of Federal statutes, capital stock at the bank will be increased
from $50,000 to $100,000 by declaration of a 100 per cent stock
dividend prior to the establishment of the branch.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the Board also had approved
a six-month extension of the period allowed to establish the branch; and
that if an extension should be requested the procedure prescribed in the
Board's letter of November 9, 1962 (5-1 6), should be followed.)
Item No.
BOARD OF GOVERNORS
3
5/3/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May
3, 1963
Board of Directors,
Industrial State Bank of Kalamazoo,
Kalamazoo, Michigan.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the c.stablishment by Industrial State
Bank of Kalamazoo, 1%alamazoo, Michigan, of an in-town
branch on Sprinkle Road between Kilgore Road and Interstate Highway 94, provided the branch is established
Within six months from the date of this letter.
Very truly your,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
( The letter to the Reserve Bank stated that the
Board also had approved a six-month extension of
the period allowed to establish the branch; and
that if an extension should be requested, the
procedure prescribed in the Board's letter of
November 9, 1962 (S-1846), should be followed.)
oct!(r (..ece r‘
t3'
.
Item No. 4
5/3/63
BOARD OF GOVERNORS
OF THE
, )
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE CHAIRMAN
May
3, 1963
The Honorable Wright Patman,
Chairman,
Committee on Banking and Currency,
House of Representatives,
Washington 25, D. C.
Dear Mr. Chairman:
This is in reply to your request of April 4, 1963, for a report
on HO, 4070, a bill "To assist in the promotion of economic stabilization
133.r requiring the disclosure of finance charges in connection with extensions of credit."
The bill would require any person engaged in the extension of
credit to furnish to each person to whom credit is extended, prior to the
c onsummation of the transaction, a written statement setting forth, to
the extent applicable and in accordance with rules and regulations to be
prescribed by the Board of Governors of the Federal Reserve System, among
other items, (1) the finance charge in dollars and cents, and (2) the
Percentage that the finance charge bears to the total amount to be financed
expressed as a simple annual rate on the average outstanding unpaid balance
Of the obligation.
The Board is in full accord with the purpose of requiring eredit ors to disclose their finance charges. There is no doubt that the more
:
information borrowers and credit purchasers have about the prices they are
Paying for credit, the more efficiently they can choose among the alternatives available to them. The Board expressed the same view in its earlier
reports on S. 2755 and S. 1740, similar bills introduced in 1960 and 1961,
respectively°
As also stated in its earlier reports, the Board believes that
administration of such legislation would not constitute an appropriate
activity for the Federal Reserve System. The regulation of trade disclosure practices would be foreign to the Board's present responsibilities
which are principally in the field of regulating money and credit through
the
system to meet the varying needs of the economy.
bill, the
In connection with the trade practices aspect of the
message
protection
consumer
in
his
following statement made by the President
t0 the Congress of March 15, 1962, may be noted: "Inasmuch as the specific
SYSTEM
130,N10 OF GOVERNORS OF THE FEDERAL RESERVE
The Honorable Wright Pathan
credit practices which such a bill would be designed to correct are
Closely related to and often combined with other types of misleading
trade practices which the Federal Trade Commission is already regulating,
I recommend that enforcement of the new authority be assigned to the
Commission."
Accordingly, as stated in its earlier reports, the Board
endorses the objective of requiring creditors to disclose their finance
Charges, but believes that it would be inappropriate for the Board to
administer such a bill0
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
WM. McC. Martin, Jr.
Item No.
5
5/3/63
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
----------------In the Matter of the Application of
TRANS-NEBRASKA
CO.,
Lincoln, Nebraska
DOCKET NO. BHC-66
for permission to become a bank holding
Company
-----------------
ORDER DENYING APPLICATION
UNDER BANK HOLDING COMPANY ACT
There has come before the Board of Governors, pursuant to
section 3(a)(1) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842)
and section 222.4(a)(1) of Federal Reserve Regulation Y (12 CFR 222.4(a)(1)),
an application on behalf of Trans-Nebraska Co., Lincoln, Nebraska,
for permission to become a bank holding company by acquiring over 50 per
cent of the outstanding common stock of The Martell State Bank, Martell,
Nebraska, The Sioux National Bank of Harrison, Harrison, Nebraska, and
Crawford State Bank, Crawford, Nebraska.
As required by section 3(b) of the said Act, the Board gave
notice of receipt of the application to the Comptroller of the Currency
and to the
Director of Banking of the State of Nebraska, soliciting
.2-
their views.
dated July 3,
The Comptroller submitted a recommendation,
1969, that the application be approved.
The State Director of Banking
also recommeneed, by letter of June 11, 1962, that the application be
informed the
approved; however, by letter of September 26, 1962, he
Board that a poll of bankers in the State by the Nebraska Bankers
holding companies
Association indicated substantial opposition to bank
and that, had he known this at the time of his letter of June 11,
he would not have recommended approval of the application.
published in the
Notice of receipt of the application was
Federal Register on May 18, 1962 (27 F. R c 4748), affording opportunity for submission of comments and views regarding the proposed
transaction.
the Board purThereafter, a public hearing, ordered by
suant to section 222.7(a) of the Board's Regulation Y (12 CFR 222.7(a)),
was held before a duly selected Hearing Examiner; proposed findings
and the
offact and conclusions of law were submitted by the parties;
Hearing Examiner filed a Report and Recommonded Decision wherein
denial of the application was recommended.
Applicant submitted ex-
ceptions, with supporting brief, to the said Report and Recommended
Decision, and Protestants filed a reply to the exceptions.
before the Board in
Raving considered all matters properly
this proceeding,
forth in the
IT IS EEREBY ORDERED, for the reasons set
Board's Statement of this date, that the said application be and
hereby is denied,
Dated at Washington, D. C., this 6th day of May, 1963.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Mills, Robertson, Shepardson,
and Mitchell.
Absent and not voting:
Governor King.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
lfi0
BOARD OF GOVERNORS
Item No.
6
5/3/63
OF THE
FEDERAL RESERVE SYSTEM
NEBRASKA,
APPLICATION OF TRANS-NEBRASKA CO., LINCOLN,
FOR PERMISSION TO BECOME A BANK HOLDING COMPANY BY ACQUIRING
OF
MORE THAN 50 PER CENT CF THE OUTSTANDING COMMON STOCK
THE MARTELL STATE BANK, MARTELL, NEBRASKA,
THE SIOUX NATIONAL BANK OF HARRISON, HARRISON, NEBRASKA,
AND CRAWFORD STATE BANK, CRAWFORD, NEBRASKA
STATEMENT
, filed
Trans-Nebraska Co. ("Applicant"), Lincoln, Nebraska
an a pplication, pursuant to section 3(a)(1) of the Bank Holding Company
Act of 1956 ("the Act"), for permission to become a bank holding
coulpanY by acquiring more than 50 per cent of the outstanding common
stock of The Martell State Bank, Martell, Nebraska, The Sioux National
Bank of Harrison, Harrison, Nebraska, and Crawford State Bank, Crawford,
Nebraska.
ion and
Background. - Following the filing of the applicat
Pursuant to requirement of the Act, views on the application were
re quested of the Comptroller of the Currency and the Director of Banking
for the State of Nebraska.
also
Notice of receipt of the application was
and was
transmitted to the United States Department of Justice
Published in the Federal Register on May 18, 1962 (27 F.R. 4748).
By
-2-
letter dated July 3, 1962, the Comptroller recommended that the application be approved.
The State Director of Banking, by letter of June 11,
1962, also recommended approval, however, on September 26, 1962, he
advised the Board that the results of a poll of bankers in the State
by the
Nebraska Bankers Association indicated substantial opposition to
bank holding companies, and stated that "Had I had this information before me at the time that I was
considering the . . . application, I would, of course, not
have recommended that your Board act favorably upon the
application, as I feel that this is a problem for the bankers
to decide and not for the Director of Banking."
A number of requests were received by the Board from bankers
in Nebraska for a public hearing on the application, and because of the
interest manifested in the proposal the Board concluded that, although
not required by law, the public interest would be served by scheduling
such a proceeding.
The hearing, notice of which was published in the
Federal Register of August 17, 1962 (27 F.R. 8233), was held in Omaha,
Nebraska,
on October 2-5, 1962, before Hearing Examiner David London,
who was selected for such purpose by the United States Civil Service
Ccumission pursuant to section 11 of the Administrative Procedure Act
lc
\-4 U.S.C.
1010).
By ruling of the Hearing Examiner, five of the banks
("Protestants") that had expressed opposition to Applicant's proposal
were admitted and participated as parties.
Applicant and Protestants
Presented evidence and had opportunity for examination and cross"amination of persons appearing as witnesses.
In addition, the
Secretary of the Nebraska Bankers Association was given leave to testify
as an independent witness.
-3ies were afforded the opportunity
Subsequent to the hearing, part
ons of law,
to file, and did file, proposed findings of fact and conclusi
With supporting briefs.
rt and Recommended
On January 8, 1963, the Repo
with the Board, wherein it
Decision of the Hearing Examiner was filed
Exceptions to the said
was recommended that the application be denied.
ther with
Report and Recommended Decision were filed by Applicant, toge
itted by
a supporting brief, and a reply to these exceptions was subm
P
rotestants.
rd made at the hearing,
On the basis of the factual reco
and the pleadings described
including the Hearing Examiner's report
record, the Board has
above presenting argument based upon the hearing
reached the decision hereinafter indicated.
of the Act requires the Board
Statutory factors. - Section 3(c)
ors: ,(1) the finanto take into consideration the following five fact
company and banks concerned;
cial history and condition of the holding
management; (4) the con(2) their prospects; (2) the character of their
the area concerned;
venience, needs, and welfare of the communities and
expand the size
and (5) whether the effect of the acquisition would be to
involved beyond limits
Or extent of the bank holding company system
interest, and the
consistent with adequate and sound banking, the public
field of banking.
Preservation of competition in the
consideration of the facts of
Discussion. - Before turning to
factors enumerated above, a
this case as they relate to the statutory
brief introductory statement is in order.
-4-
All three banks involved in the pending proposal are small
rural institutions; as of June 30, 1962, total deposits of The Martell
State Bank ("Martell"), The Sioux National Bank of Harrison ("Sioux
N ational"),
and the Crawford S'-ate Bank ("Crawford") were $1.2 million,
$1.6 million, and $1.7 million, respectixrely.
The principal organizer
Of the proposed holding company presently owns about 92 per cent,
89 per cent, and 90 per cent, respectively, of the stock of these banks.
He purchased the shares of Martell in 1959; the shares of Crawford and
Sioux National were purchased in December 1961 and January 1962, respectively, with the filing of the subject application in mind. The purchase
Pride of the latter tuo banks (approximately $485 thousand) was borrowed
from the First National Bank & Trust Company of Lincoln, Nebraska,which now
holds the principal organizer's stock in all three proposed subsidiary
banks as
collateral, together with the subscription agreements of the
Other organizers to purchase shares of the holding company.
The organizational plan set forth in the application contemPlates that the holding company would acquire all of the principal
organizer's stock (except his director's qualifying shares) in the three
banks involved; the shares of Martell in exchange for holding company
Stock, and the shares of Crawford and Sioux National by purchase at a
Price equal to the outstanding indebtedness applicable to the shares to
be acquired, plus accrued interest with respect thereto.
In order to
finance the purchase aspect of the transaction, it is proposed to use,
in addition to the $142,500 subscription commitments of the other
°rganizers, the proceeds of a public offering of holding company stock.
-5-
With these comments as a point of departure, it is now
appropriate to discuss the statutory factors which the Board must
c
onsider.
of
In this connection, the Report and Recommended Decision
the Rearing Examiner, appended hereto as Appendix A, embodies a cogent
discussion of the proposed transaction within the framework of the
statutory factors, and his analysis and findings, except as hereinafter modified or ampl4 fied, arc hereby adopted as those of the Board.
Financial histor
and condition. - Since Applicant is a
Proposed new corporate structure, the formal organization of which
has been held in abeyance pending the Board's decision on the instant
application
it has no financial history.
The holding company's
tory,
financial condition following organization would be satisfac
forth in
assuming effectuation of the organizational plan as set
the
application.
Examiner
So far as concerns the banks involved, the Hearing
found their financial history and condition to be satisfactory.
The
Board concurs.
subsidiary banks,
Prospects. - With respect to the proposed
the
Rearing Examiner found as follows:
of
"The record . . . establishes that the future prospects
ly
the three banks involved are, by and large, intimate
are
related to the economy of the regions in which they
, while by
located. The economies of Crawford and Harrison
no means dynamic, appear to be stable, and the economy of the
Capital, gives inMartell area, being located near the State
Accordingly,
dications of growth, albeit not aggressive.
that the future
lt is concluded, and Protestants concede,
ble,
Prospects of the three banks involved are not unfavora
become
to
and this would be txue whether or not they were
system."
affiliated with the proposed holding company
The
Board concurs.
1
-6-
The Hearing Examiner found, and the Board concurs, that
since Applicant's assets would consist principally of the stock of
the three proposed subsidiary banks, its prospects, from the standPoint of profitable operations, may reasonably be regarded as paralleling those of the banks in question and, therefore, also may be adjudged
as not
unfavorable.
of the
The Board notes, however, that the growth prospects
more
three proposed subsidiary banks, and hence their potential for
Profitable operations in the future, are limited because of the
located.
economies of the geographical areas in which they are
This
in the
fact is recognized by Applicant both in the application and
testimony of its witnesses at the public hearing.
Accordingly, it
would appear that Applicant's prospects for enhancing the profitlargely upon the
abilitY of its operations would be contingent
addition of additional banks to the holding company system.
In this
regard, however, the Board also notes that on March 12, 1963, the
Governor of the State of Nebraska signed into law a bill which,
completely apart from the question of its effect on Applicant's
Proposed organization, would in any event appear to prohibit
further acquisition of banks by holding companies in the State.
The Board is of the opinion that this development would further
limit Applicant's prospects.
1 16C,
-7-
Apart from the matter of profitable operations, the
Hearing Examiner implied concern over the capital structure of the
Proposed holding company by reporting that, in his view, the
underwriting features of the proposal were uncertain and stating
that "I am unable to find, or report to the Board, with any degree
of certainty, the manner or means by which Applicant proposes to
lift the lien which First National [First National Bank & Trust
Co., Lincoln, Nebraska] presently holds on the stock of all three
of the proposed subsidiary banks, and to acquire title thereto."
Certainly a substantial unliquidated indebtedness from the outset
could unduly burden and adversely affect the prospects of Applicant
and, Possibly, those of the banks involved.
However, the Board
does not
regard the absence of an anticipatory firm underwriting
commitment as necessarily calling for an adverse finding with
respect to the statutory factor of "prospects"; were other considerations in this case favorable to a decision approving the
application, the approval could be made contingent upon Applicant's
r ctlipt of the requisite funds through sale of its shares, or
obtaining a firm underwriting commitment for such funds, within a
stipulated period of time:11
Management. - The Hearing Examiner expressed reservations
concerning the adequacy of management and direction of the proposed
bank holding company, predicated upon (1) the opinion that the
ee, for example, In the Matter of Montana Sharesx Incorporated,
762 Federal Reserve Bulletin 1285 (Oct).
'
C)`;'
'1 I
-8Principal organizer, who wouJd be principal executive officer, has not
had sufficient banking experience, (2) the fact that the proposed board
of directors would be composed largely of men without banking experience,
and those few directors who have had such experience are "semiretired",
and (3) the management and direction of the holding company would be provided by directors and officers who (with one exception) reside, and are
O therwise engaged, in Lincoln, Nebraska, approximately 450 miles away
from two of the three proposed subsidiary banks.
pertaining
However, upon review and analysis of all the facts
to the statutory factor of "management", the Board is of the opinion
that the management and direction of the proposed holding company would
be sa tisfactory.
Princi_pa 1
Notwithstanding the limited banking experience of the
during the
organizer, the successful operations of Martell
f°ur years since he acquired control of that bank suggest that he has
developed a sufficient degree of competence in dealing with the problems
f running banks the size of those here involved to discharge his duties
"Principal
in a
executive officer of the proposed holding company
satisfactory manner.
Of
directors
By the same token, three of the proposed
the holding company have had varying degrees of banking experience,
and the board as a whole would consist of men of apparent maturity,
Judgment, and stature.
Accordingly, the Board is of the opinion that
.
the.
J probably could give effective direction to the affairs of the
Proposed holding company.
Finally, although not necessarily approving
-9of an arrangement whereby the principal management and direction of a
holding company would be handled by key personnel who are actively
Pursuing careers in fields other than banking and who reside a substantial distance from the majority of the proposed subsidiary banks,
it is not believed that in this case these considerations would require
d isapproval, taking into account the size and number of the banks
involved.
subsidiary banks
The Hearing Examiner found that the proposed
are now being "well managed", and the Board, on the basis of the evidence of record, concurs.
It may be stated that this conclusion con-
cerning the satisfactory character of management in the proposed
subsidiary banks reinforces the Board's conclusions above with respect
to the marginal significance in this case of such limitations as may
exist in the considerations of experience, availability, or proximity
Of the principal officers and directors of the proposed holding company.
Convenience, needs, and welfare. - The Hearing Examiner
c
oncluded that con"Consideration of the entire record compels the
company
clusion that establishment of the proposed holding
the
upon
effect
favorable
ntly
significa
would not have a
areas
or
es
communiti
the
of
welfare
convenience, needs, or
concerned."
The Board concurs.
sound bankin,
Effect of proposed acquisition on adequate and
found
ublio interest, and banking competition. - The Hearing Examiner
that, so far as the size or extent of the proposed holding company
-10system is concerned, its formation would not be inconsistent with
adequate and sound banking, the public interest, and the preservation
Of competition in the field of banking.
The Hearing Examiner went
On to
state, however, that the
• • . it is manifest from the legislative history of
the
throughout
runs
Act that the thread of public interest
I
and
considered,
various statutory criteria which must be
of
compatibility
have serious reservations regarding the
my findings regarding the management and ca-pital structure
of the proposed holding company with the public interest."
iFootnote omitted]
The Board does not share the Hearing Examiner's reservations regarding
the management of the proposed holding company nor his concern about
the lack
of an anticipatory firm underwriting commitment insofar as
concerns the company's program for financing its acquisition of the
Crawford and Sioux National banks.
However, as pointed out by the
Hearing Examiner, the legislative history of the Act shows a pervading
concern on the part of the Congress that the "public interest" be given
a prominent position in the Board's evaluation of applications under
the Act, and the Board is of the opinion that there are features of
the proposed method
of financing which would be contrary to the public
interest.
To date, all proposals for the formation of a holding
company presented to the Board under the Bank Holding Company Act
have involved the exchange of holding company stock for shares of the
Pr oposed subsidiary banks, and the Board's consideration of the "public
interest"
has included an evaluation of the equity of the terms of the
exchange. Here, for the first time in a proposal to form a bank holding
company, there is also involved the public marketing of holding company
1
-11stock, and in the judgment of the Board it would be remiss in its
statutory
duty were it not to apply the same critical analysis to the
interests of
potential purchasers of this stock.
:
Applicant's proposed organizational plan is as follows
The
Principal organizer would transfer to Applicant 450 shares (90 per cent)
of Martell in exchange for common stock of Applicant; the other organizers would pay in total subscription commitments of $142,500 for shares
of Applicant's stock; Applicant would borrow approximately $352,500
which, together with funds obtained from the subscription commitments
per cent of
mentioned above, would be used for the most part to purchase 84
the o
cent of the outstanding
utstanding shares of Sioux National and 88 per
shares of Crawford from the principal organizer at the price he paid for
such stock plus accrued interest; Applicant would then make a public
realize $400,000,
°ffcring of its common stock from which it expects to
thereby permitting retirement of the indebtedness incurred with respect
tO
the purchase of the Sioux National and Crawford stock.
a bank
It is the Board's view that the investments of
hold
in financial statein6 company in subsidiaries should be carried
ments issued to shareholders and the public at no more than the company's
interest in the net assets of its subsidiaries.
On that basis, after
of holding
acquisition of the proposed subsidiaries but before the sale
company stock to the public, the net asset value of Applicant's shares
2/
held by the organizers would be approximately $120,000,— whereas
after sale of Applicant's shares to the public, the equity of the
2/
30, 1962.
Based on the net asset values of the banks as of June
1471
-12-
°rganizers would be about $233,000, an increase of $113,000, while that
of the public investors would he approximately $287,000, a decrease of
$153,000 from the $440,000 purchase price of the shares (the $40,000
decrease
difference between the increase in the organizers' equity and the
in the public investors' equity is accounted for by the difference
between the cost of the shares to the public and the net proceeds of
the sale of such shares to be realized by Applicant).
to
The Board recognizes, of course, that certain additions
net asset value are reasonable and proper in determining purchase and
exChange values of controlling interests in banks.
In arriving at the
Purchase price of the shares of Crawford and Sioux National and in
co mputing the exchange value of shares of Martell, adjustments were
made to give effect to items not included in capital accounts (among
which were reserves and accrued interest on loans and securities, apPreciation or depreciation on securities, and appreciation on buildings
and
of capital
furniture and fixtures), and a premium of 20 per cent
ccounts plus adjustments was added in each case.
However, even allow-
for reasonable adjustments in computing the value of Applicant's
this stock
st°ck, the "adjusted" equity which the public would have in
14c)uld still be substantially less than its cost.
Thus, even under the
ing
m°st favorable view the public investors will hold stock represent
amount they have
tangible underlying value considerably less than the
invested.
able were the
This latter circumstance might not be objection
expansion,
hol
"Ing company to have dynamic prospects for growth and
tl
-13-
either through growth of the subsidiary banks or through possible
acquisition of additional banks, since such prospects might reasonably
be expected to present a favorable climate for enhanced earning potential and capital appreciation of the public's investment in the holding
company stock.
However, such is not the case here.
The proposed
subsidiary banks are all small and their growth pattern has been slow
and sporadic, with the possibility of a more favorable trend in the
future conceded by Applicant to be quite limited.
Furthermore, in all
likelihood legislation recently enacted by the State of Nebraska would
Prevent further expansion of Applicant's system through acquisition of
additional banks (if, indeed, it would permit Applicant to consummate
even its initial plans).
for
Accordingly, the Board is faced with a situation where,
would
all Practical purposes, the holding company involved apparently
be frozen in its present posture with the chances of any significant
enhancement of earnings on, or capital appreciation of, its stock
speculative at hest.
This being the case, the Eoard does not feel
that the proposal embodied in the application would be in the public
interest in terms of what the public investors could expect to receive,
either initially or in the future, in return for their investment.
It should be emphasized that the Board is not questioning
the integrity, character, or good faith of the organizers of the
Proposed holding company.
However, for the reasons stated it is
e
l4.
believed that consummation of the proposed arrangement would be
adverse to the interests of the potential investors, and consequently adverse to the public interest.
Accordingly, under the circumstances presented in this
case, it is the judgment of the Board that the application should
be denied.
May 6, 1963.
1474
BOARD OF GOVERNORS
Item No.
5/3/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 6, 1963.
CONFIDENTIAL (F.R.)
Mr. David.C. Bevan, Deputy Chairman,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Bevan:
The Board of Governors approves payment of salary
to Mr. G. William Metz as General Auditor of the Federal
the
Reserve Bank of Philadelphia, effective May 3, 1963, at
directors
the
by
fixed
rate
the
rate of $18,500 per annum,
of your Bank as reported in your letter of April 18, 1963.
Very truly yours,
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER