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609
'916i
Minutes for
To:
Members of the Board
From:
Office of the Secretary
November 16, 1961
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.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardsod
Gov. King
Gov. Mitchell
V14..24T(3
Minutes of the Board of Governors of the Federal Reserve System on
Thursday, November 16, 1961.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Mills, Acting Chairman
Robertson
Shepardson
King
Mitchell
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Farrell, Director, Division of Bank
Operations
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
O'Connell, Assistant General Counsel
Hooff, Assistant General Counsel
Kiley, Assistant Director, Division of Bank
Operations
Hostrup, Assistant Director, Division of
Examinations
Leavitt, Assistant Director, Division of
Examinations
Spencer, General Assistant, Office of the
Secretary
Potter, Senior. Attorney
Massey, Chief, Reserve Bank Operations
Section, Division of Research and Statistics
Schwartz, Chief, Statistical Operations
Planning, Division of Research and Statistics
Items circulated or distributed to the Board.
The following
items, which had been circulated or distributed to the members of the
Board and copies of which are attached to these minutes under the
resPective item numbers indicated, were approved unanimously:
Item No.
Letter to the Federal Reserve Agent at Philadelphia
"r°ving the appointment of Edward D. Kerns as
lstsistant Federal Reserve Agent and Joseph B.
erman as Alternate Assistant Federal Reserve
Agent.
i
1
11/16/61
-2Item No.
Letter to Dupo State Savings Bank, Dupo, Illinois,
approving an investment in bank premises.
2
Letter to County Bank and Trust Company of Somerset,
Somerset, New Jersey, approving the establishment of
a branch at 432 West Union Avenue, Bound Brook, in
connection with the removal of its principal office
from that address to 695 Hamilton Street, Somerset.
3
Letter to The Sumitomo Bank of California, San
Francisco, California, approving the establishment
Of a branch at North First Street and Ayer Avenue,
San Jose.
4
Letter to Wells Fargo Bank American Trust Company,
San Francisco, California, approving the establishment of a branch in Auburn, either in the vicinity
Of the downtown area or in the vicinity of the
intersection of State Highway 49, FUlweiler
Avenue and Elm Avenue.
5
Letter to Chemical Bank New York Trust Company, New
York, New York, granting a determination exempting
it from all holding company affiliate requirements
except section 23A of the Federal Reserve Act.
6
With respect to Item No. 3, it was noted that County Bank and
bust Company had twice established branches, incident to changing the
location of its head office, without obtaining prior approval.
It was
Utderstood that the Division of Examinations would request the Federal
Reserve Bank of New York to have a representative discuss this matter
with the member bank in order to obtain assurance that appropriate
aPPlication would be made prior to the establishment of any branches in
the future.
3841
11/16/61
-3-
Mr. Hostrup withdrew from the meeting at this point and Mr.
Thomas, Adviser to the Board, entered the room.
Reserve bank budgetary procedure
(Items
7 and 8). There had
been distributed a memorandum from the Division of Bank Operations dated
November
3, 1961, regarding a phase of Reserve Bank budgetary procedure.
As indicated in the memorandum, the Reserve Banks had not been
required to advise the Board specifically with respect to their contemplated purchase or rental of the computers and other expensive
equipment being acquired to process checks and other data at high speed.
Under existing procedure, the Banks had only to make a tentative
Provision for such equipment in their budgets if its acquisition was
anticipated when the budget was prepared, or refer to it in their budget
eXPerience reports as the reason for budget deviation when such equipment
Ifts acquired without budget provision.
In view of the magnitude of
eXPenditures proposed throughout the System for computers and electronic
check-processing equipment, it appeared desirable for the Board to be
1\111Y informed of the kind, purpose, and cost of such equipment, as
as the considerations leading to a Bank's proposal to purchase or
rent it.
Accordingly, the Division of Bank Operations recommended
adoption of a procedure whereby the Reserve Banks would continue to
Make tentative provision in their budgets for all contemplated
ecquisitions of furniture and equipment and, in addition, would be
'
4aked to give the Board full particulars about any proposal to acquire
11/16/61
-4-
any unit or system of office equipment having a purchase price of as much
as $50,000 or a rental cost of as much as
$4,000 per month. A proposed
letter to the Reserve Banks was submitted with the memorandum.
In commenting on the subject, Mr. Farrell noted that the Division
Of Bank Operation's recommendation reflected the view that the Board was
not obtaining sufficient budget information from the Banks to support
expenditures of the amounts contemplated for electronic equipment.
Some
banks were following present budget instructions, and did not volunteer
additional information, while some Banks were volunteering information
not required under the budget instructions. In other cases the Banks
did not have full information available when the budgets were submitted,
and in some instances the Banks appeared to feel that the contemplated
exPenditure was not large enough to warrant comment.
The basic question
Igas whether the Board felt that it should have an opportunity to review
the larger contemplated expenditures for electronic equipment before a
'8.nk committed itself.
In the course of discussion of the matter, Governor Mitchell
exPressed the opinion that a proposal such as the one being recommended
Pointed up an important issue.
Unless the Board wanted to operate each
°f the twelve Reserve Banks, he felt that the maximum amount of responsibilitY should be placed on each Bank and its board of directors.
If a
fliechanism was provided whereby the President of a Bank would come to
/Ilashington and discuss proposed equipment expenditures, there would be
11/16/61
-5-
8n opportunity to shift responsibility from the Bank to the Board.
Therefore, Governor Mitchell said, he was of the opinion that the Board
Should not adopt a policy that might put it in a position of making
determinations that seemed to him properly to fall within the area of
responsibility of the management of the respective Reserve Banks.
Once
the Board had seen a budget that provided an approximate idea of what the
Banks intended to do, it seemed to him that the next step should be a
Post-audit.
A pre-audit procedure, he noted, tends to substitute super-
visory judgment for the judgment of operating personnel.
The Reserve
Bank Presidents had competence, they had the benefit of the advice of
their directors, and they could also have the benefit of consultation
'with their own experts.
Governor Mills indicated that he would support the proposal of
the Division of Bank Operations, which in his opinion was in the direction
of orderly procedure.
More important, he felt that expenditures of the
kind in question fell within the scope of the Board's statutory responsibility for exercising broad supervision over the Federal Reserve Banks.
Governor Robertson cited the benefits that might be derived by
the Reserve Banks from discussion with Board representatives before
entering into commitments for the purchase or rental of expensive
equipment, since the Banks could then give full consideration to any
Possible alternatives that might be suggested and arrive at courses of
4eti0n that appeared likely to provide the most beneficial results.
On
11/16/61
-6-
the question of fixing responsibility, he agreed that the Board should not
follow a procedure that would relieve the Banks of responsibility for
decisions of this kind, and that the Board should not put itself in a
Position of dictating decisions.
However, he doubted that there would be
a reluctance to submit proposals for review on a basis of mutual endeavor
looking toward achievement of the best results.
After further discussion, Governor Mills expressed the opinion that
U1 the vast majority of cases the procedure recommended by the Division of
Bank Operations would constitute in effect a reporting procedure.
In rare
instances, however, the submission of a proposal might bring to light a
factor on which the knowledge at the Board's disposal would be of help to
the Bank concerned in reaching its decision.
Mr. Farrell said that this was the intent of the proposal.
The
thought was to assure the Board that a contemplated expenditure had been
adequately considered by the Reserve Bank concerned.
At the instance of Governor King, there ensued a discussion of the
Placing of responsibility for Reserve Bank building projects.
It was
Gwernor King's view, in substance, that on such matters it would be
aPProPriate to rely to a large extent on the competence of the respective
Reserve Banks and their directors.
In the field of computers, he was
inclined to feel that there was degree of competence within the Board's
clqanization from which the Banks could benefit.
However, it was his
allggestion that the proposed letter to the Reserve Banks be expanded to
11/16/61
-7-
include language making clear the view of the Board that the primary
responsibility for decisions as to the use of electronic equipment rested
With the management of each Bank and that there was no intention of minimising such responsibility.
This, he thought, would tend to avoid creating
an impression that the Board intended to dictate decisions in this area.
It was then agreed that the proposed letter, amended in a manner
such as suggested by Governor King, should be sent to the Reserve Banks.
Governor Mitchell dissented, stating that he was opposed to the contemplated
Procedure and considered it a mistake.
A copy of the letter sent to the Presidents of the Federal Reserve
Banks pursuant to this action is attached as Item No. 7.
The Board then approved a letter to the Federal Reserve Bank of
St. Louis, which had been distributed with a memorandum from the Division
(31" Bank Operations dated November 14, 1961, interposing no objection to
the purchase by the Bank of the IBM 1401 computer system that it had been
renting for the past several months.
Item N
A copy of the letter is attached as
8
Application of United California Bank (Items 9-11).
Pursuant to
the decision reached by the Board at the meeting on November 7, 1961, drafts
°t an order and majority and dissenting statements in the matter of the
aPPlication of United California Bank, Los Angeles, California, to merge
th The First National Bank of La Verne, La Verne, California, had been
ll'ePared by the Legal Division and distributed to the Board.
11/16/61
-8-
There being no objection, the issuance of the order and statements was authorized.
Copies of the documents issued pursuant to this
authorization are attached as Items 9 through U.
Morgan New York State Corporation.
With respect to the public
proceeding scheduled to be held on December 7, 1961, in connection with
the application of Morgan New York State Corporation for prior approval of
action to become a bank holding company, Mr. Fauver stated that certain
inquiries had been received concerning the names of persons who had asked
to appear before the Board.
No objection being indicated, the release of such information was
authorized
In this connection, Mx. O'Connell suggested that the Board authorize
the sending of letters to those persons who had requested to appear indicating,
in essence, that the Board had granted the request but hoped that each presentation might be completed within about 10 minutes.
He noted that the
applicant would present a total of approximately 28 persons.
Adding those
Other pasties who had asked permission to make statements, it appeared that
the proceeding might be completed in two two-hour sessions on December 7
if the time limitation he had mentioned was specified.
In discussion, Governor Robertson expressed the view that this time
limitation should not be specified in the case of any member of the Congress
sought to appear before the Board, and there was general agreement with
this view. With this proviso, the sending of letters along the lines sugRested by Mr. O'Connell was authorized.
384.17
11/16/61
-9-
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board the
following items:
Memorandum from the General Counsel recommending acceptance of the
resignation of Paula G. Hauprich, Secretary in the Legal Division,
effective at the close of business November 24, 1961.
Memorandum from Henry Edmonds, Cafeteria Laborer, Division of
Administrative Services, requesting permission to accept part-time
employment with Allegheny Airlines for evening work.
Letter to the Federal Reserve Bank of Philadelphia (attached Item
No. 12) approving the appointment of Alan Howard Sonnheim as assistant
examiner.
Letter to the Federal Reserve Bank of St. Louis (attached Item No. 13)
aP)roving the appointment of Maurice L. Mueller, James K. Hartley, and
Rarry L. Rea as examiners.
Sedre
v.
381,
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C,
Item No. 1
11/16/61
AOORESII OFFICIAL COAPIESACINOINCIL
TO THIL 'BOARD
November 16, 1961
Mr. Henderson Supplee, Jr.,
Chairman of the Board and
Federal Reserve Agent,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear 10.. *plea:
letter of
In accordance with the request contained in your
ents of
appointm
the
November 2, 1961, the Board of Governors approves
Mr.
of
and
Agent
Mr. Edward D. Kerns as Assistant Federal Reserve
effecJoseph B. Everman as Alternate Assistant Federal Reserve Agent,
are
ents
appointm
tive January 1, 1962. It is understood that these
Frank
J.
Mr.
of
r
occasioned by the retirement at the end of Decembe
Rehfuss, the present Assistant Federal Reserve Agent at your Bank.
these
This approval is given with the understanding that
and
Agent
Reserve
Federal
APpointees will be solely responsible to the
except
duties,
their
of
nce
performa
the Board of Governors for the proper
or a
Agent,
Reserve
Federal
the
of
ty
that, during the absence or disabili
be
will
Agent
Reserve
Federal
t
vacancy in that office, the Assistan
the Alternate Assistant
responsible solely to the Board of Governors and
t Federal
Assistan
the
to
ble
Federal Reserve Agent will be responsi
s.
Reserve Agent and the Board of Governor
as AssistWhen not engaged in the performance of their duties
the
vely,
respecti
Agents,
Reserve
amt and Alternate Assistant Federal
the
and
Agent
Reserve
Federal
the
of
l
4PPointees may, with the approva
tent
be inconsis
President, perform such work for the Bank as will not
Federal Reserve
nt
'Assista
e
Alternat
and
t
Assistan
With their duties as
Agents.
appointees are fully
It will be appreciated if these new
as members of
informed of the importance of their responsibilities
t
3849
Mr. Supplee
the staff of the Federal Reserve Agent and the need for maintenance of
Independence from the operations of the Bank in the discharge of these
responsibilities.
It is assumed that Messrs. Kerns and Everman will execute
the usual Oaths of Office, which will be forwarded to the Board of
Governors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 2
11/16/61
ADDRESS OrrICIAL CORRESPONDENCE
TO THE INDARD
November 16, 1961
Board of Directors,
Alpo State Savings Bank,
Dupo, Illinois.
Gentlemen:
The Board of Governors ot the Federal
.Reserve System approves, under the provisions
of Section 24A of the Federal Reserve Act, an
additional investment in bank premises by Dupo
State Savings Bank, Dupo, Illinois, of $5,421.73.
This approval is in accordance with
purposes stated in your letter dated
the
for
and
October 3, 1961, to the Federal Reserve Bank of
St. Louis.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
00
r6,,
4
OF THE
FEDERAL RESERVE SYSTEM
Item No.
WASHINGTON 25. D. C.
11/16/61
4
3
ADDRCBO OFFICIAL. CORRCOPONDIENCC
TO THE BOARD
40.41,
November 16, 1961
Board of Directors,
County Bank and Trust Company
of Somerset,
Somerset, New Jersey,
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment of a branch by County
Bank and Trust Company of Somerset, Somerset, New Jersey,
at 432 Nest Union Avenue, Bound Brook, New Jersey, in
connection with the removal of its principal office from
that address to its branch office located at 695 Hamilton
Street, Somerset, New Jersey.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
I
4
1
1,*
0%
FEDERAL RESERVE SYSTEM
Item No.
WASHINGTON 25, D. C.
11/16/61
4
42
0
444
444,,
4/:
4
ADDRESS OFFMIAL CORRESPONDENCE
TO THE BOARD
41q
trAIL MA et
-4400*
November 16, 1961
Board of Director
The Sumitomo Bank of California,
San Francisco, California.
Gentlemen:
The Board of Governors of the Federal Reserve System
approves the establishment of a branch in the vicinity of the
intersection of North First Street and Ayer Avenue, San Jose,
Santa Clara County, California, by The Sumitomo Bank of
California, provided the branch is established within one
year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Flizabeth L. Carmichael,
Assistant Secretary,
3853
BOARD OF GOVERNORS
OF THE
Item No. 5
FEDERAL RESERVE SYSTEM
11/16/61
WASHINGTON 25. O. C.
ADDRESS OFFICIAL CORRESPOHOENCE
TO THE HOARD
43s1I."
November 160 1961
Board of Directors
Wells Fargo Bank American
Trust Company,
San Francisco, California.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment of a
branch either in the vicinity of the downtown
area of Auburn, or in the vicinity of the intersection of State Highway 49, Fulweiler and Elm
Avenues, Auburn, Placer County, California, by
Wells Fargo Bank American Trust Company, provided
the branch is established 'within one year from
the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No.
WASHINGTON 25, D. C,
11/16/61
6
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 17, 1961
Mr. Harvey A. Basham, Jr., Vice President,
Chemical Bank New York Trust Company,
30 Broad Street,
New York 15, New York.
Dear Mr. Basham:
This refers to the request, submitted through the Federal
Reserve Bank of New York, for a determination by the Board of
Governors of the Federal Reserve System, as to the status of
Chemical Bank
New York Trust Company as a holding company affiliate.
From information submitted, the Board understands that
Bank New York Trust Company, in the course of its trust
uusiness, has accepted an appointment as co-trustee under a Collat.ral Trust Indenture under which securities, including more than
an
per cent of the shares of capital stock of several banks,
have
,
een pledged to secure the payment of certain bonds of Financial
usneral Corporatio
n; that the Trust Company has no rights or powers
respect to such stock except to execute and deliver waivers of
r„°tioes of stockholders' meetings, powers of attorney, or proxies to
'ons named by- Financial General Corporation, or in the event of
ault of such bonds to vote or give consents with respect to such
of"k as directed by the holders of a majority in principal amount
the bonds then outstanding; that the Trust Company does not own
control directly or indirectly in any other fiduciary capacity
ek of any other bank representing more than 5 per cent of the total
oj
th:ettianding shares of capital stock of such banking institution; and
the Trust Company does not in its own right own, manage or control
41V banking
institution.
Chomical
:
0
ciT
In view of these facts, the Board has determined that
Chemi„
&ire %-al Bank New York Trust Company is not engaged directly or
inetlY as a business in holding the stock of, or managing or control11
4 banks,
b
vitv2
banking associations, savings banks, or trust companies
"lh the meaning of section 2(c) of the Banking Act of 1933; and,
4!
i(
I I'dingly, Chemical Bank New York Trust Company is not deemed to be
t4lcztcd-ing company affiliate except for the purposes of Section 23A of
rederal Reserve Act.
1'1.
OC)00 '
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Harvey A. Basham, Jr.
If, however, the facts should at any time indicate that
Chemical Bank New York Trust Company might be deemed to be so engaged,
this matter should again be submitted to the Board. The Board reserves the right to rescind this determination and make a further
determination of this matter at any time on the basis of the then
existing facts. Particularly, should future acquisitions by the
Trust Company result in its attaining a position whereby the Board
may determine 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.
k)Llye.)
BOARD OF GOVERNORS
S-1816
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 7
11/16/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 16, 1961.
Dear Sir:
The movement of the Federal Reserve Banks toward the
,a_.equisition of computers and electronic check processing equipment
as prompted the Board to re-examine the procedures under which
exPenditures for such equipment are reported to it. While some
earlIcs have voluntarily submitted to the Board rather complete
information regarding their proposals to purchase or rent data
Processing equipment, there is now no stated requirement for such
TIbmissions. Under the present budgetary procedure, expenditures
or this purpose need only be tentatively
provided for in the budget
Or furniture and equipment purchases or rentals if they are anticiated when the budget is prepared or subsequently explained in the
,
Ildget experience report if they were incurred without having been
vrovided for in the budget.
t
In view of the costly nature of electronic equipment, the
ard believes that it should be fully informed, before any firm
.ct°mmitments are made, as to the considerations leading to a decision
,° Purchase or rent such equipment. Experience indicates that the
'
tirlIesent budgetary reporting procedures are not entirely satisfactory
al,,this regard, mainly because the desired information is not availWhen the budget is prepared and the Board therefore does not
4aYs have an opportunity to give the matter appropriate consideration
before the expenditures are made.
t()
Under somewhat similar circumstances, Une Board has stipulated
that .
tlo its approval of budgetary provisions for major repairs and alterabuin
l s to Bank buildings should not be construed as approval of the
zilf cling project and that the Board should be advised specifically of
-41 Projects before they are undertaken.
The Board recognizes that the primary responsibility for
deci •
the slons with respect to the use of electronic equipment rests with
ki,.111anagement of each Reserve Bank, and it has no intention of
"a-mizing this responsibility. The Board feels, however, that a
S-1816
-2-
Procedure generally similar to that followed for building projects would
be desirable in connection with proposals to rent or purchase costly
electronic equipment. Accordingly, it will be appreciated if your Bank
Will hereafter-(1) Continue to make the usual budgetary provision for all
purchases or rentals of furniture and equipment that
can be foreseen when the budget is prepared.
(2) Advise the Board specifically, before making commitments that cannot be withdrawn without penalty to the
Bank, of intentions to acquire any unit or system of
office equipment having a purchase price of as much
as $50,000 or a rental cost of as much as $4,000 per
month. The information in this connection should
indicate the kind and cost of the equipment, the
benefits expected from its acquisition, and the effect
it will have on operating expenses. Such information
might well be a summary of the material presented to
the Bank's board of directors at the time the acquisition was approved.
(3) Observe the foregoing procedures in any case where a
decision has been made to purchase equipment that was
previously acquired on a rental basis.
Very truly yours,
Merritt
Secre
01111E PRESIDENTS OF ALL kEDERAL RESERVE BANKS
3
BOARD OF GOVERNORS
OF THE
Item No. 8
FEDERAL RESERVE SYSTEM
11/16/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 16, 1961.
Mr. D. C. Johns, President,
Federal Reserve Bank of St. Louis,
St. Louis 66, Missouri.
Dear Mr. Johns:
Referring to your letter of November 7, 1961, the Board
has noted without objection your proposal to purchase on January 1,
1962, the IBM 1401 computer system which has been rented by the
Sank since May 1, 1961.
It is understood from your letter and other information
submitted in connection with your informal discussion of the Bankts
1962 budget with the Boardts Budget Committee on August 1 that-(1) The cost of the computer will be $148,269,
after applying $19,166 of the rental costs since
May 1, 1961, against the purchase price of
$167,435.
(2) The economic feasibility of the computer
system has been demonstrated to the Bank's satisfaction on the basis of experience with it since
May 1, and the Bank is also convinced of the
economic feasibility of purchasing the equipment
rather than continuing to rent it.
(3) The purchase of the equipment has been
approved by the Bank's Board of Directors and
is provided for in the 1962 budget.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary
3859
Item No. 9
11/16/61
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FED2RAL RESERVE, SYSTEM
WASIIINGTON, D. C.
theIlatter of the Application of
11111:1ED CALIFORNIA BANK
Prior consent to merge with
4* First Vationvl Bank of La Verne
ORDER DENYING APPLICATION FOR APPROVAL OF MERGER
There has been filed with the Board of Governors, pursuant
to ae
"'Ion 18(c) of the Federal Deposit Insurance Act (12 U.S.C. 1828(c))„
ati aPro'
k--leation for the Board's prior consent to the merger of The First
Nati
°nal Bank or La Verne, La Verne, California, into and with United
Cq
°11-lia rank, Los Angeles, California, under the charter and title
'
,
t
"e latter. Upon consideration of all relevant materials in the
light
°f the factors set forth in said section 18(c), including reports
by
the
\'omptr ller of the Currency, the Federal Deposit Insurance
Co
oorn+4
factors
--"°n, and the Department of Justice on the competitive
°I
'ved in the proposed merger,
3860
-2..
IT IS HEREBY ORDERED, for the reasons set forth in a
8tatement of the Board of this date, that the said application be and
11
Y is denied.
Dated at Washington, D. C., this 16th day of November, 1961.
By order of the Board of Governors.
Voting for this action:
King, and Mitchell.
Governors Mills, Robertson,
Voting against this action:
Governor Shepardson.
Absent and not voting:
Chairmen Martin and
Governor Balderston.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 10
11/16/61
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY UNITED CALIFORNTA BANK
FOR PRIOR CONS= TO MERGE WITH
THE FIRST NATIONAL BANK OF LA VERNE
STATEMENT
United California Bank, Los Angeles, California ("United"),
11°.8 aPplied, pursuant to section 18(c) of the Federal Deposit Insurance
Act/ for the Board's prior approval of the merger of The First National
13'411k of La Verne, La Verne, California ("First National"), into and with
United, under the title and charter of United.
The proposal contemplates
that the present office of First National would be operated as a branch
(1/' the resulting bank.
Under the law, the Board is required to consider (1) the
rilloalcial history and condition of each of the banks involved, (2) the
0
4declua Y of their capital structures,()their future earnings prospects,
(4) the
general character of their management, (5) the convenience and
of the community to be served, (6) whether the resulting bank's
°0rate powers would be consistent with the purposes of the Federal
e'
381.'t Insurance Act, and (7) the effect of the transaction on competiti„
'
11 (including any tendency toward monopoly). The Board may not
11>rove the
transaction unless, after considering all these factors, it
the transaction to be in the public interest.
For convenience, the first four factors and the sixth factor
nl"'e considered together as "banking factors".
keto
rS require
separate consideration.
The fifth and seventh
t ;•
-2Banking factors. - The financial history and condition of both
be'llks are satisfactory.
The capital structure, the future earnings
14"ospects, and the management of United are good, and the same would be
t ale of the resulting bank.
First National's capital structure is reason-
4134 adequate; its earnings record has been good; and, in view of the
growth of the community, its future prospects are satisfactory.
Its management is competent; and, while it has been asserted that the bank
has a
Problem of management succession, it has not been shown to the
13°ard's satisfaction that qualified management cannot be obtained from
thebank's present personnel or from outside sources.
There is no evi-
cierIce that the corporate powers of the resulting bank would in any way be
illQonsistent with the Federal Deposit Insurance Act.
Needs and convenience of community. - First National, with
total. ‘4
A
eposits of about $6.5 million, is the only bank in the town of
1.4
'
erne (population about 6,500), which is situated at the eastern edge
the Los Angeles metropolitan area, about 35 miles from downtown
te8
Angeles.
The bank's primary service area - the area from which it
cll'ives 75 per cent or more of its deposits of individuals, partnerships,
44cle°1100rations ("IPC deposits") - consists of the communities of
t4
\reline: San Dimas, and Claremont and the northern portion of Pomona,
t(tilel' with portions of unincorporated Los Angeles County north of
talleIlle and Claremont. The population of the primary service area is
"krt 271000.
It appears that First National's primary service area is
Ettea
eneing rapid residential growth and that the population of the
e likely to increase substantially in the next two decades.
'4') there is no evidence that the banking needs of the area are
i'")•
-340t now being adequately met, or will not be met in the future, by
banks operating in the area; nor is it clear that First National, as
4
unit bank, will not be able to grow and expand its facilities in a
egree commensurate with the growth of the community.
The relatively
"
Iall "loan limit" of the bank ($40,000) should not be a serious
Obstacle, since it appears that the anticipated growth of the community
18 largely residential and therefore should not result in numerous
demands for large loans.
Such demands as may arise for credit in
eXeess of the bank's lending limit can be met by other banking offices
14 the area or
through participations with banks that are correspondents
First National.
Competition. - The offices of United nearest to First
ktional's office in La Verne are located at Pomona, four miles south,
COVinal
six miles west, and at Ontario, nine miles east.
The
Tirtu
arY service areas of these offices do not overlap the primary
se1"71-ce area of First National.
However, about
4 per cent of First
tie.ti°4alls total deposits are derived from United's total service area;
4114 to this small extent the merger would eliminate some existing
b44k14g competition.
Within First National's primary service area there are three
'zIttees Of Bank of America N.T.& S.A., and two offices of Security
?irat
National Bank of Los Angeles.
In terms of deposits, First
—a is the smallest bank in the area, with 25 per cent of total
ftreo.
dePosits„ as compared with 45 per cent for Bank of America and
-a...
about
30 per cent for Security First.
In terms of loons, however,
laist National ranks first in the area, with about 41.5 per cent of
total loans, as compared with about 39 per cent for Ban!: of America
all4120 per cent for Security First National.
Although the primary service areas of First National and
or
tinited's offices do not overlap, they are contiguous; and it may
reasonably be expected that potentially, if not presently, banks in
tile combined La Verne-Pomona area will compete with each other to some
3C*tellts Within that area, there are now 15 offices of six banks
(exci
-11-u-trig a seasonal office). In addition to First National's office
11/ 14 Verne and United's three offices in Pomona, Bank of America has
814 Offices in the area, Security First has three, and First Western Bank
ilcieitizens National Bank each has one. Within this area, Bank of
ker
tea has about 40 per cent of total deposits, United about 35 per cent,
aaid 8
courity First about 14 per cent. Consummation of the proposed merger
11010,1 .
Increase United's percentage to 42.5 per cent.
As to total loans
- the area, United and Bank of America presently have about 35 per
eq.
each; the merger would increase United's percentage to 43 per cent.
First National is the only remaining unit bank in the
co14411
ed La Verne-Pomona area. Its elimination as a consequende of
th
/311°Posed merger would, in effect, deprive residents of that area of
the
vilPortunity to choose between dealing with a local unit bank and
(lealt
ng with a branch of a large banking organization.
The proposed merger would not significantly increase
Nted's percentage of total deposits of all commercial banks in the
State of California (at present 2 per cent) or in the Los Angeles
Illel
politan area.
However, it would, in the Board's judgment, have
.11341ver30 potential effect upon banking competition, particularly
&ti the La Verne-Pomona area and in the Los Angeles metropolitan area,
111
'
11in the former area, Bank of America, Security First, and United
toE:other hold nearly 90 per cent of total deposits;
they hold about 78 per cent of total deposits.
the merger here proposed could only strengthen the
within the latter
Consummation of
present con-
"ration of banking resources under the control of these three banks,
etlre further impetus to the merger trend in these areas, and thereby
tend to discourage the formation of new unit banks.
Summary and conclusions. - On the basis of the foregoing,
q
Board concludes that, while the proposed merger would presumably
be ,,. me
an
of solving First National's ?roblem of management succession
411ctwould provide a broader range of banking services than those now
111'°Itl(led by First National, it is nevertheless not clear that First
Ilati°nal, as a unit bank, cannot solve its problem of management
cesir-sion and expand its services in a manner commensurate with the
cAlt1-1 of
its community or that the community preeently lacks adequate
b4nkl-11C facilities. The Board further concludes that, by eliminating
only remaining unit bank in the La Verne-Pomona area, the proposed
3866
-6trEMeaction 7:rould have an adverse effect unon potential banking
e(
etition in that area as well as in the larger Los Angeles metroarea
Those adverse competitive effects, in the Boardts
dgmont, outweigh any benefits that might be expected to result from
th merFrer.
For these reasons, the Board is unable to find that the
ili°Posed - merger would be in the public interest.
11°11cmlocr 16, 1961.
apt
Item No. 11
11/16/61
DISSENTING STATDIENT OF CHADIAN MARTILT ATTD COVERHOR SHEPARDSON
We recocnize that United Califoznia Bank and two other large
banking organizations already control a large proportion of the
be
'
llklag resources in the Los Angeles metropolitan area and that their
c°rItInued expansion, if unchecked, might gradually lessen the number
or
local unit banks in that area.
However, we do not regard this
194bility as itself a sufficient ground for disapproving the present
4el'e, r which, in our oninion, would intensify rather than lessen competi044 111 the La Verne-Pomona area and at the same time provide a growing
IUflty
vith expanded banking services.
41)112L'icit1on.
cither 16: 1961
We would approve the
BOARD OF GOVERNORS
OF THE
Item No. 12
11/16/61
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONOEt4CE
TO THE BOARD
November 16, 1961
CONFIDENTIAL all
Hr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear Mr. Campbell:
In accordance with the request contained in your letter of
November 3, 1961, the Board approves the appointment of Alan Howard
Sonnheim as an assistant examiner for the Federal Reserve Bank of
Philadelphia. Please advise the effective date of the appointment.
It is noted that Mr. Sonnheim is indebted to The Philadelphia
National Bank, Philadelphia, Pennsylvania, in the amount of $10,300
for the purchase of a home, and to Fidelity-Philadelphia Trust Company,
Philadelphia, Pennsylvania, a State member bank, in the amount of
$150. Accordingly, the Board's approval of Mr. Sonnheim's appointment
i8 given with the understanding that he will not participate in the
examination of these banks until his indebtedness has been liquidated.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
kI
,
BOARD OF GOVERNORS
„6,440,,cot,ct,6„,;2,
le
4 y
OF THE
FEDERAL RESERVE SYSTEM
• *
11/16/61
WASHINGTON 25, D. C.
11 t
Item No. 13
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
741. Vat **
**:
4404***
November 16, 1961
Mr. George E. Kroner, Vice President,
Federal Reserve Bank of St. Louis,
St. Louis 66, Missouri.
Dear Mr. Kroner:
In accordance with the request contained in your letter of November 3, 1961, the
Board approves the appointment of Maurice L.
Mueller, James K. Hartley, and Harry L. Rea,
at present assistant examiners, as examiners
for the Federal Reserve Bank of St. Louis, effective January 1, 1962.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER