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1
,609
Minutes for
To:
Members of the Board
From:
Office of the Secretary
May
6, 1964.
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.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov, Shepardson
Gov. Mitchell
Gov. Daane
• ";:.,Z
Minutes of the Board of Governors of the Federal Reserve System
on Wednesday, May
PRESENT:
6,
1964.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell 1/
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research and
Statistics
Farrell, Director, Division of Bank
Operations
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
Shay, Assistant General Counsel
Conkling, Assistant Director, Division of
Bank Operations
Leavitt, Assistant Director, Division of
Examinations
Spencer, General Assistant, Office of the
Secretary
Hricko, Senior Attorney, Legal Division
Young, Senior Attorney, Legal Division
Sanders, Attorney, Legal Division
Collier, Chief, Special Assignment Section,
Division of Bank Operations
Egertson, Supervisory Review Examiner,
Division of Examinations
McClintock, Supervisory Review Examiner,
Division of Examinations
Application of San Francisco National Bank (Items 1 and 2).
At
the meeting on April 16, 1964, the Board considered an application by
San Francisco National Bank, San Francisco, California, for permission
to carry the same reserves against deposits as are required to be maintained by nonreserve city banks.
1
The information submitted with the
Withdrew from meeting at point indicated in minutes.
16f.
5/6/64
-2-
application indicated that, on the basis of standards usually applied,
the character of business of the applicant bank would justify granting
the request.
However, the letter from the San Francisco Reserve Bank
recommending approval of the application noted, among other things,
that the bank was making a practice of paying time certificates of
deposit before maturity in violation of Regulation Q, Payment of Interest
Ofl
Deposits.
At the conclusion of discussion on April 16, it was under-
stood that any adverse comments in the most recent examination report
regarding this subject would be brought to the attention of the Board.
Also, it was understood that a letter would be addressed to the Comptroller of the Currency inquiring whether favorable action by the Board
on the request to maintain reduced reserves would in any way conflict
with steps by the Office of the Comptroller to obtain correction of the
recurrent violations of Regulation Q.
There now had been distributed under date of May
4,
1964, a
memorandum from the Division of Bank Operations with further regard to
this matter.
1964,
It pointed out that the report of examination as of January
6,
stated that the recurrent violations of Regulation Q by the national
bank indicated a need for unremitting attention and care to avoid further
infractions.
The memorandum of May
4
went on to note that pursuant to
the understanding at the Board meeting on April 16, a letter had been
sent to the Comptroller of the Currency, and in reply Deputy Comptroller
Watson had advised that approval of the application would in no way conflict
K.4)
5/6/64
-3-
with any measures taken by that Office to obtain correction of matters
detailed in the January
6,
1964, report of examination.
Attached to the memorandum was a draft of letter to the Federal
Reserve Bank of San Francisco that would express concurrence with the
recomendation that San Francisco National Bank be permitted to maintain reduced reserves.
It would also state that the Board believed that,
instead of the usual procedure of forwarding the letter of advice to the
bank by mail, it would be desirable for the Reserve Bank to discuss the
matter with the member bank and point out that if the violations of
Regulation Q were not discontinued, it would be necessary to consider
Whether to classify the time certificates of deposit as demand deposits
and to require higher reserves against them.
After discussion, the letter to San Francisco National Bank
granting its request for permission to maintain reduced reserves was
2a1
.212.1 unanimously.
A copy is attached as Item No. 1.
A copy of the
letter sent to the Federal Reserve Bank of San Francisco is attached as
Item No. 2.
Messrs. Conkling and Collier then withdrew from the meeting.
E,port on competitive factors (St. Marys-Ridgway
Pennsylvania).
There had been distributed a draft of report to the Federal Deposit
Insurance Corporation on the competitive factors involved in the proposed
merger of The Elk County National Bank of Ridgway, Ridgway, Pennsylvania,
into The St. Marys Trust Company, St. Marys, Pennsylvania.
Of the report, as drafted, read as follows:
The conclusion
5/6/64
-4-
The merger of The St. Marys Trust Company and The Elk
County National Bank of Ridgway, affiliated throug common
h
ownership, would eliminate only the nominal amount of competition existing between them. The transaction might have
a slight adverse effect on the remaining
small bank in Ridgway.
During discussion,
Governor Robertson called attention to the
common ownership existing between St. Marys
Trust Company and St. Marys
National Bank.
With Elk County National Bank included, about 67 per cent
of the deposits in the County
were under common control.
It might appro-
priately be brought out, he felt, in the conclu
sion of the report that
the proposed merger
would eliminate forever any potential for competition
that might exist betwee
n the two merging banks.
There followed a general discussion of the problem presented when
banks under common ownership, with
only nominal competition existing between them, sought to merge.
Mr. Leavitt noted that in this case the
affiliation through common ownership of the two merging banks was one
of
long standing, and that in the past the
Board had sometimes drawn a certain
distinction between such a situation and one where recent acquisitions
of
stock by individuals suggested
a paving of the way for a merger.
After further discussion of facts related to the proposed merger,
the report was
approved unanimously for transmittal to the Corporation,
its conclusion being modifi
ed to read as follows:
The merger of The St. Marys Trust Company and The Elk
County National Bank of Ridgway, affiliated through common
ownership of long standing, would eliminate only nominal
competition existing between them at this time, but would
eliminate forever the potential for competition in case the
common ownership should terminate. The transaction might
diminish the competitive capacity of the small bank in Ridgway.
5/6/64
-5Application of City Bank and Trust Company.
There had been
distributed a memorandum from the Division of Examinations dated April
1964,
29,
and supporting papers with respect to the application of City Bank
and Trust Company, Jackson, Michigan, for permission to effect a consolidation with Calhoun State Bank, Homer, Michigan.
The Federal Reserve
Bank of Chicago recommended approval of the application; the Division of
Examinations recommended denial.
In summary comment as to why the Division felt the application
Should be denied, the memorandum stated that the competitive factors
involved in this case were so clearly adverse that substantial benefit
would need to be demonstrated in order to outweigh the unfavorable aspects.
It was not believed that the reasons put forth for approval of the application were of sufficient magnitude to offset the loss of a competitive
small independent bank (Calhoun State Bank) through merger into an
institution that already enjoyed a substantial degree of concentration
with regard to deposits, branches, and geographic location of offices.
At the Board's request, Mr. Leavitt commented on the application,
basing his summary on the information contained in the memorandum of
April 29.
In the course of his remarks, Mr. Leavitt also stated that
Mr. Ned Kilmer, President of City Bank and Trust Company, had visited
him to talk about the proposed merger.
Mr. Kilmer mentioned that in
1958 a director of the Calhoun State Bank indicated to City Bank, to
Its nationally chartered competitor in Jackson, and to the Southern
5/6/64
-6-
Michigan National Bank in Coldwater that it wished to merge.
City Bank
had made an offer, and Mr. Kilmer believed that other offers also had
been made at that time, but Calhoun State Bank decided not to merge.
In
1963, however, Mr. Howard H. Shear, Executive Vice President of Calhoun
State Bank, indicated to the same banks that Calhoun State Bank now
wished to proceed with a merger.
One of the main reasons reportedly
vas the health of Mr. Shear and the inability of Calhoun State Bank to
recruit successor management.
When asked if he knew what attempts had
been made to obtain management, Mr. Kilmer had told Mr. Leavitt that he
did not know.
Mr. Kilmer thought that probably the bank was unable or
unwilling to pay the salary it should pay to attract a competent person.
At the conclusion of Mr. Leavitt's remarks, the views of the
members of the Board were given.
Governor Mills said that he would accept the conclusion of the
Division of Examinations and deny the application.
Governor Robertson indicated that he also favored denial.
Governor Shepardson thought there was always a question, in an
area having a number of relatively small banks, whether the area was particularly well served by preserving all of such banks.
In this particular
case he was inclined toward the view that the banking pattern described by
the Division of Examinations probably justified denying the application, but
there was a problem in situations such as he had mentioned.
Governor Mitchell said that he would approve.
It was his feeling
that the adverse competitive effects of the proposed merger were overdrawn
5/6/64
-7-
by the Division of Examinations.
While he agreed with the evaluation
that there were rather small benefits to be realized in terms of additional
services to the community, he thought such benefits might be somewhat
greater than had been suggested.
Insofar as the competitive situation
was concerned, he did not believe it would be substantially worsened.
This transaction should not be evaluated in terms of an artificial 25mile radius around Jackson; there was not enough said by the Division
of Examinations about the competition of banks in relatively nearby
cities such as Ann Arbor.
Since he could find no good reason to justify
denial, he would approve the application.
Governor Balderston said that he had some doubt about denying
the application, for the reasons suggested by Governors Shepardson and
Mitchell.
On balance, however, he thought that the adverse recommendation
Of the Division of Examinations was one he could support.
Thereupon, the application of City Bank and Trust Company to
consolidate with Calhoun State Bank was denied, Governor Mitchell disSenting.
It was understood that an order and statement reflecting this
decision would be prepared for the Board's consideration and that a
statement
regarding the dissent of Governor Mitchell would also be prepared.
Application of County Trust Company (Items
3 and 4). Pursuant to
the decision at the meeting on April 29, 1964, there had been distributed
drafts of an order
and a statement reflecting the Board's approval of the
application of County Trust Company, Tenafly, New Jersey, to merge with
The First National Bank of Park Ridge, Park Ridge, New Jersey.
1_‘
5/6/64
-8The issuance of the order and statement was authorized.
in the form issued, are attached hereto as Items
Copies,
3 and 4.
Messrs. Hricko, Egertson, and McClintock then withdrew from the
meeting.
Regulation of trading in bank stocks.
There had been distributed
a memorandum
dated May 1, 1964, from the Legal Division with regard to a
bill, S. 1642, that had passed the Senate in July 1963 and was pending in
the House.
The bill would amend the Securities Exchange Act of 1934 to
require public disclosure (through registration and periodic reports) of
information regarding corporations whose securities were actively traded
'Over the counter."
At the present time, the Securities Exchange Act of
1934 required such disclosure only with respect to securities traded on
national securities exchanges, such as the New York Stock Exchange.
The memorandum noted that the Securities and Exchange Commission
now administered the disclosure provisions of the 1934 Act. Under the
Provisions of S. 1642, the jurisdiction of the Securities and Exchange
Commission would be extended to most of the over-the-counter securities
that would become subject
to the Act's disclosure requirements.
However,
bank securities would fall within the jurisdiction of the appropriate
bank supervisory agency, whether traded over the counter or on an exchange.
Over-the-counte
r bank securities would not have to be registered with the
Comptroller of the Currency, the Board of Governors, or the Federal Deposit
Insurance Corporation, as the case might be, until four months after the
5/6/64
-9-
end of the year in which the bill became law, but registration would be
a prerequisite to exchange trading.
Under certain provisions of the
proposed legislation, power would be given to the Board to exempt securities of State member banks from registration requirements where this was
considered "necessary or appropriate in the public interest or for the
protection of investors."
It was in this connection that Mr. G. Keith Funston, President
Of the New York Stock Exchange, had written the Board expressing the
hope that the Board would provide a temporary exemption for banks under
its jurisdiction with respect to the requirement of registration as a
prerecraisite to trading on an exchange.
After studying the question whether the Board should accede to
Mr. Funston's request, the Board's staff believed that it should consult
representatives
of the Securities and Exchange Commission who were familiar
with the general subject of registration as a prerequisite to exchange
trading.
Further, since the jurisdiction of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation would parallel
that of the Board in this area, it seemed advisable to consult those
agencies also, in the hope that the three agencies would make the same
determination in this matter and thereby avoid divergent treatment of
national banks, member State banks, and nonmember insured banks.
It was
therefore
recommended that the staff be authorized to confer as indicated,
after which the staff would present recommendations to the Board.
-? t
5/6/64
-10At the Board's request, Mr. Hexter commented in supplementation of
the information presented in the memorandum of May 1.
He also discussed
What he envisaged in terms of the magnitude and complexity of the responsibilities devolving upon the Board should bill S. 1642 be enacted.
In the discussion that ensued, attention focused primarily on
the difficulties that would appear to be involved in administering the
provisions of S. 1642, particularly with responsibility for bank securities
divided among three bank supervisory agencies.
During this discussion,
Governor Robertson raised the question whether the Board would have an
oPportunity to present testimony before the House Interstate and Foreign
Commerce Committee.
Mr. Cardon responded that the Committee had indicated
that it would be glad to hear a Board representative, but Chairman Martin
had thus far not decided to request such an appearance.
Governor Robertson then raised the question whether it might be
desirable to have prepared for the Board's consideration a draft of letter
to the House Committee that would point out the difficulties and disadvantages seen in the administrative provisions of S. 1642 relating to
hank securities.
There was general agreement with this suggestion, it
being understood that further consideration of the matter would be deferred
until a time when Chairman Martin could be present to express his views.
The staff was then authorized to confer with representatives of
the Securities and Exchange Commission, the Comptroller of the Currency,
and the Federal Deposit Insurance Corporation for the purposes mentioned
in the May 1 memorandum.
5/6/64
-11Messrs. Hexter and Sanders then withdrew from the meeting.
Misuse of certificates of deposit (Items
5
and
6).
There had
been distributed under date of May 1, 1964, a memorandum from Mr. Solomon,
Director, Division of Examinations, to which there was attached a draft
of reply to a letter of March 27, 1964, from Chairman McMurray of the
Federal Home Loan Bank Board.
The incoming letter expressed concern over reports that had been
received on the extent to which savings and loan associations had become
holders of bank certificates of deposit as a part of "somewhat dubious
financial transactions."
The letter went on to describe such transactions,
noting that in one form the savings and loan association purchased the
certificate of deposit and received an additional fee or return from a
Illoney broker or loan broker, as part of an arrangement whereby funds were
furnished the bank to be loaned to a particular borrower.
The amount of
the certificates of deposit purchased could, in a variant of this situation,
be only the
amount required of the borrower as a supposed "compensating
balance."
Another form of questionable transaction seemed to involve a
savings and loan association undertaking a type of inter-system "windowdressing."
An intermediary obtained a substantial bank loan, the proceeds
Of which were placed
in a savings and loan account and the passbook
Presented to the bank as collateral security.
The savings and loan
association then purchased a corresponding amount of certificates of
dePosit from the bank in order to show a strengthened balance sheet
Position.
Again, there were variants to this situation.
-12-
5/6/64
The letter expressed a desire to learn whether information
received by the Board of Governors confirmed such reports or caused it
to share the concern of the Federal Home Loan Bank Board.
If so, that
organization would appreciate advice as to any corrective measures the
Board of Governors might be preparing to take.
The draft of reply would note that the Board and the Reserve
Banks had encountered practices of the kind mentioned and had attempted
to discourage them in State member banks.
The reply would go on to say
that to the present time it had not seemed advisable to undertake the
complexities and expense of scheduling simultaneous examinations of
various banks and savings and loan associations that might be involved
in such arrangements.
As one possible means of dealing with the problem,
consideration might
be given to limiting or excluding the use of certificates
Of deposit as assets that a savings and loan association could use to meet
its liquidity requirements.
Also included with the memorandum of May I was a draft of letter
to the
Federal Reserve Banks that would forward the correspondence between
the Board and the
Federal Home Loan Bank Board and would invite the Banks'
s
uggestions.
In discussion, Mr. Solomon noted that the practices referred to
by the Home Loan Bank Board posed rather coloplex problems.
He went on
to describe, in response to a question by Governor Mitchell, certain
examPles of transactions where savings and loan associations had become
5/6/64
-13-
holders of bank certificates of deposit under arrangements that seemed
to present questions in regard to the soundness of banking practices
and possible violation of the ceiling rate of interest payable on time
deposits.
Governor Mitchell expressed the view that it might be rather
difficult to identify why a particular transaction was questionable from
the banking standpoint.
It seemed to him that the problem related more
directly to the savings and loan associations and their liquidity requirements.
Therefore, he felt that the draft letter to Chairman McMurray
went too far in the direction of indicating concern about such practices
in the context of a banking problem.
During further discussion, Governor Robertson suggested that
Chairman McMurray be informed that the Board was soliciting additional
information from the Reserve Banks and that if any significant information
Should be obtained from the Banks it would be passed along to him.
As
he saw it, there
were two principal questions involved in participation
by member banks in transactions of the kind under discussion.
The first
was whether or not the limitation on the payment of interest on deposits
Was being evaded.
The second was whether banks were making long-term
loans with the short-term funds placed with them by savings and loan
associations, with consequent injurious effects from a liquidity standPoint.
Perhaps the proposed letter to the Federal Reserve Banks should
inquire more specifically on that score.
;
5/6/64
_114_
Mr. Hackley discussed difficulties that might be involved in
Proving Regulation Q violations and expressed the opinion that the
Problem probably related more to the question of sound banking practices.
Governor Mills agreed and went on to suggest certain changes in
the proposed letter to Chairman McMurray.
Governor Balderston inquired whether it was felt that the proposed reply reflected a sufficient note of concern when matched against
the incoming letter, and Governor Mitchell expressed the view that
it
indicated too much concern.
Governor Mitchell withdrew from the meeting at this point.
Governor Shepardson felt that the problem warranted further
exploration through the Federal Reserve Banks, and Governor Robertson
repeated his suggestion that the fact that this was being done be made
known to Chairman McMurray.
At the conclusion of the discussion, the letter to Chairman McMurray
was approved for transmittal in the form attached as Item No.
Mitchellts reservations having been noted.
5,
Governor
A copy of the letter transmitted
to the
Federal Reserve Banks is attached as Item No.
6.
Messrs. Brill and Leavitt withdrew from the meeting at this point.
Nominating committees and rotation of directors.
un
derstanding at the meeting on May
under date of May
5,
4,
Pursuant to the
1964, there had been distributed
1964, a revised draft of letter that would be sent
to the Chairmen of all Federal Reserve Banks relating to the rotation of
5/6/64
-15-
service of Reserve Bank directors and the use by member banks of unofficial
nominating advisory committees.
The revised draft noted that the Board had
for many years adhered generally to a policy of rotation in making appointments of Class C directors and that a similar practice was being followed
by member banks in some Federal Reserve districts in electing Class A
and Class B directors.
The proposed letter would express a view that
the principle of rotation should be extended in its applicability to
Class A and Class B directors and would say that if this objective could
be furthered by the use by member banks of unofficial nominating advisory
committees, the Board saw no objection to cooperation by the Reserve
Banks with such nominating committees in districts in which they had been,
or might be, instituted by the member banks.
At the outset of discussion, Governor Mills indicated that he
was not in favor of sending a letter.
He was of the view, for reasons
previously made known to the Board by memorandum, that the Board would
be injecting itself gratuitously into an area that might be subject to
differences of opinion.
Mr. Hackley noted that the letter in its present form did not
saY very much of substance, which tied into the question whether it
would be desirable to send any letter.
He went on to recall that in
discussion on July 17, 1963, the Board seemed to be concerned primarily
With the propriety of the use of nominating committees and the practices
followed by the Reserve Banks in cooperating with them.
The first draft
5/6/64
-16-
letter prepared for the Board's consideration had been based upon the
July 1963 discussion and was intended to provide guidance to the Reserve
Banks in districts where nominating committees were used.
At the
meeting on April 28, 1964, however, the Board appeared more inclined
to emphasize the question of rotation of service of directors.
draft letter considered at the meeting on May
4
A revised
had indicated that the
Board wanted to encourage the use of nominating committees as a means
of encouraging rotation of directors.
However, at that meeting some in-
dication was given that the use of such committees should not be stressed.
Governor Robertson thought the brevity of the revised draft of
May
5
was appropriate.
The letter hit at two points.
It pointed out
that the principle of rotation of service should be extended in its
aPPlicability to Class A and Class B directors, and it also put the
Board on record with respect to any activities of Reserve Bank officers
that might be construed as influencing the selection of candidates.
As discussion proceeded, the suggestion was made that as an
alternative to sending a letter to the Chairmen, the topic of rotation
Of directors could be placed on the agenda for the next meeting of the
Conference of Chairmen.
It was noted, however, that the Conference would
not meet until near the end of this year.
The prevailing sentiment appeared to favor the sending of a
letter in order to reiterate the Board's encouragement of the practice
Of rotation of
directors and in order to place on record a statement of
5/6/64
-17-
the proper role of Reserve Banks in assisting nominating advisory committees in districts where such committees were utilized by the member
banks.
In the latter connection, it was also suggested that such a
statement would be helpful as a guideline to the Board's examiners.
With these objectives in mind, several suggestions were made by members
Of the Board and staff for changes in the draft letter currently before
the Board in the interest of accuracy and clarification of intent.
It
waS understood that a further draft of letter would be prepared in the
light of these suggestions for consideration at another meeting of the
Board.
Inquiry about shipment of nickels.
Mr. Farrell reported receipt
Of a telephone call yesterday from the office of Senator Cannon of Nevada
requesting information concerning quantities of nickels sent recently
by the Federal Reserve Bank of San Francisco to banks in Las Vegas, Nevada.
He said that such information was available to him through the Reserve
Bank, and no objection was expressed to his furnishing the information to
Senator Cannon's office.
Exchange of letters sent to Chairman Fascell.
Mr. Hackley reported
that Mr. William Moroney, General Counsel of the Federal Deposit Insurance
Corporation, had furnished the Board a copy of a report sent recently to
Chairman Fascell of the Legal and Monetary Affairs Subcommittee of the
House Committee on Government Operations concerning conflicting interpretations of Federal bank supervisory agencies.
The Corporation's report
L4.
Jit-4)temek.
5/6/64
-18-
also covered the subject of increased charges for reports of examination
of national banks.
Mr. Moroney indicated that the Corporation understood
from the Subcommittee that there was no objection on Chairman Fascell's
part to an exchange between the agencies of copies of the reports rendered
to him on these subjects; Mr. Moroney therefore inquired whether copies
Of the Board's reports could be made available to the Corporation.
No objection was indicated to furnishing the Corporation copies
Of the Board's letters to Chairman Fascell of February 13 and April 1,
1964.
Comptroller's rulings.
There had been distributed to the members
of the Board for their information a memorandum from Mr. Hackley dated
May
5,
1964, regarding rulings understood to have made recently by the
Comptroller of the Currency (1) that for purposes of the lending limitations of national banks, undivided profits could be treated as part of
capital stock and surplus fund, (2) that national banks could provide
messenger service, by means of armored car or otherwise, to meet the
requirements of their customers, and (3) that national banks would be
permitted to sell money orders at nonbanking outlets.
These rulings
had not been cleared under the procedure outlined in the Secretary of
the Treasury's letter of March
3,
1964.
Possibly they were actually
issued by the Comptroller prior to the date of that letter, but they
aPParently had become a matter of public knowledge only within the past
rev days.
5/6/64
-19Governor Mills expressed the view that the rulings, particularly
on undivided profits and messenger service, should be given full consideration by the Board, and it was understood that this would be done.
Governor Robertson suggested that if it was clear that these
and other rulings of the Comptroller were being issued without the Board
being kept informed on a current basis, it would seem desirable as a
matter of record to have drafted for the Board's consideration a letter
to the
Comptroller requesting copies of such rulings as issued.
It was
understood that a further check would be made by the staff and that, if
c.
,rcumstances warranted, a letter along the lines suggested by
thei
Governor Robertson would be drafted.
The meeting then adjourned.
Secretary's Notes: On May 5, 1964, Governor
Shepardson approved on behalf of the Board
the following items:
Telegram to the Federal Reserve Bank of Chicago (attached Item No. 7)
authorizing the
Bank to make available to Federal Deposit Insurance
Corporation Examiner Thomas E. Lindsey, who is currently serving as an
agent of a Federal grand jury in the Eastern District of Michigan, the
!Pen and confidential sections of the March 16, 1964, report of examina'
L i°n of Warren Bank, Warren, Michigan, together with related loan slips
and correspondence, subject to the same conditions and understanding as
stated in the Board's letter of March 16, 1964 (approved at the Board
meeting on March 12, 1964).
Letter to the Federal Reserve Bank of Philadelphia (attached Item
approving the appointment of William L. Baker as assistant examiner.
Memoranda from appropriate individuals concerned recommending the
following actions relating to the Board's staff:
16
5/6/64
-20increases, effective May 10
Name and title
1964
Division
Basic annual salary
To
From
Research and Statistics
Irene M. Fender, Statistical Clerk
$3,985
$4,090
Examinations
James R. Smith, Review Examiner
8,970
9,250
5,138
4,160
3,620
5,408
4,389
7,030
7,260
Administrative Services
Wesley B. Collins, Foreman-Operator
Theodore L. Jones, Operator (Mimeograph)
Arthur F. Le Vasseur, Clerk
3,725
Data Processing
Louis S. Zeller, Digital Computer Programmer
Outside activities
Phyllis Ann Carson, Stenographer, Legal Division, to work as a
:Part-time secretary for Prince George's Community College, Suitland,
inaryland.
,
William B. Stryker, Jr., Photographer (Offset), Division of Administrative Services, to work part time for a printing company in Arlington,
V
irginia.
Governor Shepardson today approved on
behalf of the Board the following items:
a
Letter to the Federal Reserve Bank of Boston (attached Item No. 9)
PProving the appointment of Donald G. Porter as assistant examiner.
Letter to the Federal Reserve Bank of New York (attached Item No. 10)
aPPr°ving the appointment of Roger B. Grant as assistant examiner.
Letter to the Federal Reserve Bank of San Francisco (attached Item
li) approving the appointment of Richard C. Kindwall as assistant
examiner.
No.
A_628
5/6/64
-21-
Statistics recommending
Memorandum from the Division of Research and
the appointment on a permanent basis of Stuart H. Altman, Economist in
690 to
that Division, with an increase in basic annual salary from
$9,980, effective May 10, 1964.
BOARD OF GOVERNORS
Item No.
OF THE
1
5/6164
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May
6, 1964
Board of
Director's,
San Francisco
National Bank,
San
Francisco, California.
Ge
ntlemen:
With reference to your request submitted through the Federal
Reserve Bank of San Francisco, the Board of Governors, acting under the
14,!
3 °yisions of Section 19 of the Federal Reserve Act, grants permission
the San Francisco National Bank to maintain the same reserves against
ti
cjposits as are required to be maintained by nonreserve city banks, effecwith the first biweekly reserve computation period beginning after the
date
qate of
this letter.
Your attention is called to the fact that such permission
18 subject to
revocation by the Board of Governors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No. 2
5/6/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL. CCRRESPONDENCE
TO THE BOARD
May 6, 1964.
Mr. Eliot J. Swan, President,
Federal Reserve Bank of San Francisco,
San Francisco, California 94120.
Dear Mr. Swan:
This refers to Mx. Galvin's letters of February 27 and
March 3, 1964, recommending that the San Francisco National Bank,
:an Francisco, California, be permitted to maintain the same reserves
gainst deposits as are required to be maintained by banks in nonreserve cities.
After consideration of the information submitted, the Board
of
Governors concurs in the recommendation of your Bank and, pursuant
t30 the
grants
provisions of Section 19 of the Federal Reserve Act,
Francisco,
ission to the San Francisco National Bank, San
C
__a
elifornia, to maintain the same reserves against deposits as are
ie
f, quired to be maintained by nonreserve city banks, effective with
re first biweekly reserve computation period beginning after the
date of this
letter.
the
In taking this action, the Board noted with some concern
st
certifitime
all
of
majority
atement in Mr. Calvin's letter that a
maturity, and
cates of deposit
paid to date have been paid prior to
of the
provisions
that many of them
the
of
have been paid in violation
believes
Board's
Board
the
circumstances
Regulation Q. Under these
that, instead of
enclosed letter
the usual procedure of forwarding the
for you
desirable
:
4 c aPProval to the subject bank by mail, it would be
during
ij discuss the
and
Bank
matter with the San Francisco National
Q are
Regulation
of
discussion to point out that if the violations
not d
consider
to
iscontinued it will be necessary for your Bank
deposits
whether to
classify the time certificates of deposit as demand
and to
require the higher reserves against them.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosure
Item No. 3
5/6/64
UNITED STATES OF AVERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
-
-
In the Matter of
the Application of
COUNTY TRUST COITPANY
for approval of merger with
The First
National Bank of Park Ridge
•••
---------------
ORDER APPROVING MERGER OF BANNS
There has come before the Board of Governors, pursuant to the
Eank Merger Act of 1960 (12 U.S.C. 1828(c)), an application by County
Trust
Company, Tenafly, New Jersey, a State member bank of the Federal
Reserve System, for the Board's peor approval of the merger of that
bank and The First National Bank of Park Ridge, Park Ridge, New Jersey, under
the charter and title
of the former.
three
As an incident to the merge -, the
Offices of The First National Bank of Park Ridge would become
branches of
County Trust Company.
Notice of the proposed merger, in
*2°r111 approved by the Board, has been published pursuant to said Act.
Upon consideration of all relevant material in the light of
the factors set
forth in said Act, including reports furnished by the
C tiptroller of
the Currency, the Federal Deposit Insurance Corporation,
and the Department of Justice on the competitive factors involved in
the
Proposed merger,
IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that said application be and hereby
is approved, provided that said merger shall not be consummated
(a) within seven calendar days after the date of this Order or
(b) later than three months after said date.
Dated at Washington, D. C., this 6th day of May, 1964.
By order of the Board of Governors.
Voting for this action:
Unanimous, with all members present
(Signed) Me ritt Sherman
Merritt Sherman,
Secretary.
(SEAL)
Item No.
BOARD OF GOVERNORS
4
5/6/64
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY COUNTY TRUST COMPANY
FOR PRIOR APPROVAL OF MERGER WITH
THE FIRST NATIONAL BANK OF PARK RIDGE
STATEMENT
County Trust Company, Tenafly, New Jersey ("County Trust"),
with deposits of
$57.8 million as of September 30, 1963, has applied,
Pursuant to the Bank Merger Art of 1960 (12 U.S.C. 1828(c)), for the
Board's prior approval of the merger of that bank and The First National
Bank of Park Ridge, Park Ridge, New Jersey ("First National"), with deposits of $11.8 million as of the same date, under the charter and title
of County Trust.
The proposal contemplates that the three offices of
First National would be operated as branches of County Trust, increasing
the number
of its operating offices to seven.
County Trust has received
ePProval to
establish two other branches which are not yet operative.
Under the Act, the Board is required to consider, as to each
of the banks
involved, (I) its financial history and condition, (2) the
adequacy of its capital structure, (3) its future earnings prospects,
(4) the general
character of its management, (5) whether its corporate
Powers are consistent with the purposes of 12 U.S.C., Ch. 16 (the Federal
Deposit Insurance Act), (6) the convenience and needs of the community
to be
served, and (7) the effect of the transaction on competition
0;3-1
-2-
(including any tendency toward monopoly).
The Board may not approve
the transaction unless, after considering all these factors, it finds
the transaction to be in the public interest.
Bankimlactors. - Both banks have satisfactory financial
histories.
The asset condition of each is sound, and this would be
true also of the resulting bank.
is
adequate.
desirable
The capital structure of County Trust
1hile the capital of First National is a little below a
level, it is regarded as reasonably satisfactory.
The result-
ing bank would have an adequate capital structure.
The management of each bank is satisfactory.
However,
co
nsummation of the proposal would provide the resulting bank with
depth and strength of management possessed by neither of the particiPating banks individually, and would also provide, partly through
°Pereting economies, a basis for meeting the need for improvement in
the earnings of
the two banks.
There is no indication that the powers of the banks are or
would be inconsistent with the purposes of 12 U.S.C., Ch. 16.
Convenience and needs of the communities. - The service
area* of County Trust lies in the northeastern corner of Bergen
County, which had a population growth of 45 per cent in the decade
ending in 1960.
Effectuation of the proposal would increase the lend-
ing limit of County Trust, the sixth largest bank in the County, from
*
,The area from which a bank obtains 75 per cent or more of its
"Posits of individuals, partnerships, and corporaticils ("IPC deposits").
-3aPProximately $337,000 to,around.$500,0,20.
no
Otherwise there would be
significant effect from the transaction upon banking convenience
and needs in County Trust's present service area, in which there also
are
Situatedthree branches of Peoples Trust Company of Bergen County
and seven
offices of Citizens National Bank of Englewood, respectively,
the largest
and third largest banks in the County.
The service area of First National includes principally
Park Ridge, Montvale, and Woodcliff Lake, in each of which the bank
has an office.
The total population of the area, which exceeds 27,000,
more than doubled over the ten years, 1.950-1.960.
Although primarily
residential, a considerable part of the area around Montvale has been
zoned for light
industry, and development for that purpose has begun.
A substantial
volume of home construction is occurring throughout the
bank's service
area.
First National is restricted in its ability to assist in the
economic development of its service area, particularly by its lending
limit
of
only $62 thousand.
The credit needs of real estate developers,
and other
business and institutional customerslinvolve financing in
e %cess of the
capacity of the bank.
The banking needs of the area would
be better served, not only by the resulting bank's loan limit of about
but also by other services which it would offer and which
are
needed in an area of both residential and industrial expansion (but
Ithich are not offered at First National), such as complete fiduciary
Services,
construction loans, personal and commercial letters of credit,
-4and education loans.
Although a number of these services are presently
available from offices of two other banks in or near the service area
Of First National, effectuation of the transaction would provide in the
area a convenient alternative source of such services.
Competition. - The main offices of the participating banks
are about 11
miles apart and their nearest branches are separated by
aPProximately 7 miles.
In the intervening area are natural barriers
and the offices of other banks, including branches of the largest and
third largest banks in Bergen County.
Because of this, and the few
direct routes connecting the service areas of the participating banks,
there is only minor competition between them.
Consummation of the proposal would not change County Trust's
position as the sixth largest bank in Bergen County.
Competition might
be intensified between County Trust and its principal competitors, the
County Is largest and third largest banks, noted above.
It is not ex-
Pected that the transaction would result in any adverse competitive
effects in County Trust's present service area.
First National's principal competitors are Citizens National
Bank of Englewood, the third largest bank in the County, and Pascack Valley
Nati°nal
Bank and Trust Company, with IPC deposits in December 1S63 of
about $20
million.
Effectuation of the proposal would not change sig-
nificantly the relationship between County Trust and Citizens National
Bank of Englewood.
Although there would probably result an intensifica-
tion of competition in First National's service area, there is no
)
-5indication
that Pascack Valley National Bank and Trust Company or any
Other bank in or on the periphery of the area would be affected adversely.
Because of the large number of Bergen County residents who
conmitite
- to
New York City, the banks in the County compete with New York
City banks, particularly those with offices close by the transport station facilities used by the commuters.
Savings and loan associations
holding withdrawable balances in excess of $317 million compete vigorwith banks in the County for real estate loans and savings accounts.
Summary and conclusion. - The proposal would unite the sixth
largest of Bergen County's 29 commercial banks with one of the County's
relatively
small banks.
the two
banks.
There is no more than minor competition between
County Trust's ranking would not be affected.
Some in-
tensification
of competition may result, although there is no indication
that any
other bank in the service area of the resulting bank would be
adversely
affected.
Pursuant to the proposal, the residents and busi-
nesses in First National's service area would have conveniently availstronger and broader banking facilities more adequate to their
elcpanding needs.
Accordingly, the Board finds the proposed transaction to be
in the public
interest.
MaY 6, 1964.
f
cortf:00,.
• 40 qt),./.,:,,C'c
t,7
VP('*et
BOARD OF GOVERNORS
OP THE
FEDERAL RESERVE SYSTEM
6'
Item No. 5
5/6/64
WASHINGTON
OFFICE OF THE CHAIRMAN
May 6, 1964.
Honorable Joseph P. McMurray,
Chairman,
Federal Home Loan Bank Board,
Washington, D. C. 20552
Dear Joe:
This refers to your letter of March 27, 1964, regarding
reports that savings and loan associations have become holders of
bank certificates of deposit as a part of somewhat dubious financial
t
ransactions.
The Board and the Reserve Banks have encountered practices
of the kind mentioned in your letter and have attempted to discourage
them in State member banks. Mr. Frederic Solomon, Director of the
Board's Diirision of Examinations, has discussed this matter informally
from time to time with Mr. N. L. Armistead, Director, Office of
Examinations and Supervision, of your Board. To the present time, it
has not seemed advisable to undertake the complexities and expense of
scheduling simultaneous examinations of various banks and savings and
loan associations that might be involved in such an arrangement,
although this possibility has been considered.
The Board definitely shares your concern about these developments and would hope to continue close informal cooperation with a view
to taking whatever steps may be suitable to deal with the problem,
including simultaneous examinations when and if they might seem
aPpropriate.
As one possible means of dealing with the problem, you may
wish to consider limiting or excluding the use of certificates of
deposit as assets that a savings and loan association may use to meet
its liquidity requirements. It is understood that under the law
(12 USC 1425a) such assets must consist of "cash and obligations of the
United States," and that use of these certificates to meet these requirements is on the assumption that the certificates qualify as "cash"
rather than as investments. The abuses that have developed would seem
to justify re-examination of the general question of how such certificates should be treated insofar as the liquidity requirements are
concerned.
t'4%.•
Honorable Joseph P. McMurray
-2-
There are, of course, substantial differences between the
liquidity requirements of savings and loan associations and the reserve
requirements of member banks of the Federal Reserve System, including
the fact that a member bank may use only its currency and coin and its
reserve balance at the Reserve Bank to meet the reserve requirements.
However, it may be of interest to mention how amounts due from other
banks are treated in connection with the reserve requirements.
Section 19 of the Federal Reserve Act permits a member bank, in determining deposits subject to reserve requirements, to deduct from the
amount of its gross demand deposits the amount of "balances due from
Other banks..." This Board's Regulation D, Sec. 204.2(b), states that
balances may be thus deducted only if "subject to immediate withdrawal."
the
The Board is sending copies of this correspondence to
Reserve Banks and requesting any further information or views they may
have on the subject. We will keep you informed of further developments.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
640
Item No. 6
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
5/6/64
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May 8, 1964.
Dear Sir:
For your information, there are attached copies of
letters between the Federal Home Loan Bank Board and the
Board of Governors regarding certain questionable practices
in connection with the use of certificates of deposit.
There are also attached copies of advertisements
relating to this subject.
The Board would appreciate receiving at your early
convenience any information you may have regarding the
Prevalence of these or other such practices and any suggestions for dealing with them.
Very truly yours,
AAA
Merritt Sherman,
Secretary.
Enclosures
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
Item No.
AM
TELEGR
WIRE SERVICE
5/6/64
LEASED
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
May 5, 1964.
Ross - Chicago
zed to make
Re your wire May 4, your Bank is authori
sections of
available to Mr. Lindsey open and confidential
r
March 16, 1964 report of examination of Warren Bank, togethe
same
With related loan slips and correspondence, subject to
s letter of
conditions and understanding as stated in Board'
March 16, 1964.
(Signed) Merritt Sherman
Sherman.
7
...•.....
OF Goy .
FR.
Item No.
BOARD OF GOVERNORS
8
5/6/64
OF THE
FEDERAL RESERVE SYSTEM
0
WASHINGTON, D. C. 20551
.-A
ONDENCE
ADDRESS OFFICIAL CORRESP
TO THE BOARD
May 5, 1964
CONFIDENTIAL (.bli)
Mr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
19101
Philadelphia, Pennsylvania.
Dear Mr. Campbell:
In accordance with the request contained in
es the
your letter of April 29, 1963,*the Board approv
er
appointment of William L. Baker as an Assistant Examin
Please
for the Federal Reserve Bank of Philadelphia.
advise the effective date of the appointment.
It is noted that Mr. Baker is indebted to the
,
National Bank and Trust Company of Central Pennsylvania
al
approv
s
Board'
the
York, Pennsylvania. Accordingly,
underof the appointment of Mr. Baker is given with the
ation
examin
any
in
ipate
standing that he will not partic
ated.
liquid
been
has
edness
of that bank until his indebt
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
* Should have rend April 29, 1964.
A 67-3
BOARD OF GOVERNORS
Item No.
9
5/6/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE 80ARD
May
6, 1964
Mr. Luther M. Hoyle, Jr., Vice President,
Federal Reserve Bank of Boston,
Boston, Massachusetts. 02106
Dear Mr. Hoyle:
In accordance with the request contained
in your letter of April 30, 19642 the Board approves
the appointment of Donald G. Porter as an assistant
examiner for the Federal Reserve Bank of Boston.
Please advise the effective date of the appointment.
Very truly yours,
(signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
1_644
Item No. 10
BOARD OF GOVERNORS
5/6/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
May
6, 1964
Mr. Howard D. Crosse, Vice President,
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Crosse:
in
In accordance with the request contained
the
ves
appro
Board
the
your letter of May 1, 1964,
tant examiner
appointment of Roger B. Grant, as an assis
effective
York,
New
of
for the Federal Reserve Bank
May 12, 1964.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
1611.5
Item No. 11
5/6/64
BOARD OF GOVERNORS
OF THE
•
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AOORIESIS orricoAL COOIMPONDIENCC
TO MC 1110ARD
May 6, 1964
CONFIDENTIAL (FR)
Mr. E. H. Galvin, Vice President,
Federal Reserve Bank of San Francisco,
San Francisco, California. 94120
Dear Mr. Galvin:
In accordance with the request contained in
Mr. Cavan's letter of May 1, 1964, the Board approves the
appointment of Richard C. Kindwall as an assistant examiner
for the Federal Reserve Bank of San Francisco. Please
advise the effective date of the appointment.
It is noted that Mr. Kindwall's father IS
President of Albert City Savings Bank, a nonmember bank,
located in Albert City, Iowa, Federal Reserve District
No. 7, but that he will not participate in any examination
of that bank.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
@FedFRASER