The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for
To:
Members of the Board
From:
Office of the Secretary
November 16, 1966
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. Robertson
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
Gov. Brimmer
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, November 16, 1966.
The Board met in the
Board Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson, Vice Chairman
Shepardson
Mitchell
Brimmer
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Hexter, Associate General Counsel
O'Connell, Assistant General Counsel
Hooff, Assistant General Counsel
Leavitt, Assistant Director, Division of
Examinations
Mr. Thompson, Assistant Director, Division of
Examinations
Miss Wolcott, Technical Assistant, Office of
the Secretary
Messrs. Robinson, Sanders, and Smith of the
Legal Division
Mr. Grimwood of the Division of International
Finance
Messrs. Burton, Egertson, Lyon, and Poundstone,
and Miss Greene of the Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Approved items.
The following items were approved unanimously
after consideration of background information that had been made available to the Board.
Copies are attached under the respective numbers
indicated.
Item No.
Letter to United California Bank, Los Angeles,
California, approving the establishment of a
branch in Brawley.
1
11/16/66
-2Item No.
Letter to Wachovia Bank and Trust Company,
Winston-Salem, North Carolina, granting an
extension of time to establish a branch in
Kinston.
2
Letter to Chase Manhattan Overseas Banking
Corporation, New York, New York, granting
Permission to purchase additional shares of
The Chase Manhattan Trust Corporation Limited,
Nassau, Bahamas, and for the latter to issue
and have outstanding subordinated debt securities not in excess of a specified amount.
3
Letter to the Federal Reserve Bank of Chicago
regarding a letter from the California Superintendent of Banks to Citizens Bank & Trust
Company, Park Ridge, Illinois, ordering that
bank to refrain from soliciting deposits in
California.
4
Letter to Schoolfield Bank & Trust Company,
Danville, Virginia, approving the establishment
of a branch in Danville and commenting on the
bank's capital position.
5
The consensus that emerged with respect to Item No. 4 was that
this did not appear to be a matter in which the Federal Reserve System
should get actively involved.
However, it was suggested that the
Chicago Reserve Bank might appropriately ascertain the views of the
Illinois Department of Financial Institutions, of Citizens Bank & Trust
Company, and of General Counsel of the Federal Reserve Bank of San
Francisco with respect to the charges of the California Superintendent
of Banks.
It was also thought desirable that the Reserve Bank be asked
to keep the Board advised of any developments in the matter.
11/16/66
-3-
In connection with Item No. 5, Mr. Leavitt reported that the
Federal Reserve Bank of Richmond recommended approval of the branch
application.
Vice President Nosker had previously requested that the
application be held in abeyance temporarily in light of a report that
Other banks in Danville were proposing to bring suit to prevent the
establishment of the branch by Schoolfield Bank & Trust Company.
How-
ever, no such suit had been filed, and in any event it was the Reserve
Bank's recommendation, following review of the matter, that favorable
action be taken.
Report on competitive factors.
A report to the Federal Deposit
Insurance Corporation on the competitive factors involved in the proPosed merger of The Hughesville Savings Bank, Incorporated, Hughesville,
Maryland, and The Southern Maryland National Bank of La Plata, La Plata,
Maryland, was approved unanimously for transmittal to the Corporation.
The conclusion read as follows:
Consummation of the proposed merger of The Hughesville
Savings Bank, Incorporated, Hughesville, Maryland, and The
Southern Maryland National Bank of La Plata, La Plata,
Maryland, would eliminate a moderate amount of existing competition and potential competition between the two institutions. However, the overall competitive effect would not be
significantly adverse.
Application of Society Corporation.
There had been distributed
drafts of an order and a statement reflecting the Board's approval on
October 25, 1966, of the application of Society Corporation, Cleveland,
to acquire 80 per cent or more of the outstanding voting shares
of The First National Bank of Ashland, Ashland, Ohio.
11/16/66
-4-
Mr. O'Connell reported that Society Corporation had now requested
that the Board delay action on this application pending submission of
an amendment that would request permission to acquire from 5 to 100 per
cent of the outstanding stock of First National Bank of Ashland, rather
than 80 per cent or more, such shares to be acquired for stock or cash
rather than through exchange of stock.
Accordingly, it was agreed to withhold the issuance of the order
and statement.
It was the view of the Board that an amended application
of the type described by Mr. O'Connell would have to be considered on
its merits.
Applications of Otto Bremer Foundation and Otto Bremer Company
11.
illTal_6:
There had been distributed drafts of an order and a state-
ment reflecting the Board's approval on October 25, 1966, of applications
on behalf of Otto Bremer Foundation and Otto Bremer Company, both bank
holding companies located in St. Paul, Minnesota, to acquire an additional so per cent of the voting shares of The Citizens State Bank,
Rugby, North Dakota.
A dissenting statement by Governor Mitchell had
also been distributed.
The issuance of the order, statement, and dissenting statement
'as
l
authorized.
Copies of the order and statement, as issued, are
attached as Items 6 and 7.
A copy of Governor Mitchell's dissenting
statement is attached as Item No. 8.
Bank advertising for deposits.
At the meeting on September 2,
1966, consideration was given to a proposal by the Securities and Exchange
.
11/16/66
)
Aso.
-5-
Commission that a public statement be issued directed against misleading advertising practices by banks.
A draft statement submitted by the
Commission had been revised by the staff for Board consideration.
The
Board concluded that any such statement should be in the form of a
general policy document rather than a regulatory action, and that it
Should be sponsored by the Federal Home Loan Bank Board along with the
Federal bank supervisory authorities, so as to have applicability to
the practices of savings and loan associations as well as banks.
Accord-
ingly, a further revised draft of statement was sent to the Comptroller
of the Currency, the Federal Deposit Insurance Corporation, the Federal
Home Loan Bank Board, the Securities and Exchange Commission, and the
Secretary of the Treasury for comment.
Following receipt of comments and interagency meetings at staff
level, only one of which was attended by representatives of the Comptroller of the Currency, the matter was given further consideration by
the Board on October 25, 1966.
It appeared that fundamental objections
On the part of the then Comptroller of the Currency made infeasible any
further participation in the discussion by that Office.
However, it was
felt that the effectiveness of such a statement would be impaired with0ut participation of all Federal bank supervisory agencies, and it was
agreed that an effort should be made to gain the support of the incoming
C°mptroller.
It was suggested that in the meantime the staff could
Prepare additional material relating, among other things, to the question of insurance comparability.
11/16/66
-6-
There had now been distributed a memorandum from the Legal Division dated November 9, 1966, commenting on several of the questions
raised by the Board with respect to the previously revised draft statement, and on an additional revision suggested by the Home Loan Bank
Board, as set forth in a letter from Chairman Horne dated November 1,
1966.
Attached to the memorandum was a paper prepared by staff of the
Federal Deposit Insurance Corporation on the differences between Federal
deposit insurance and Federal insurance covering share accounts in savings and loan associations.
In commenting on the distributed material Mr. Sanders noted that
it was the conclusion of the Home Loan Bank Board that it would be
simpler, as well as more effective, either to express the rate ceiling
in terms of permissible use of quarterly compounding or to confine the
advertising of interest to simple annual rates.
However, Chairman Horne
indicated that if the suggested change was not acceptable to the Federal
Reserve Board and the Federal Deposit Insurance Corporation, his Board
'would not insist on it.
Mr. Sanders observed that the Legal Division
anticipated numerous difficulties in administering the proposed statement and would not favor making the statement more stringent.
Governor Robertson stated that in his view it would be appropriate
"Iv to bring the proposed statement before the Coordinating Committee on
Bank Regulation for consideration.
He felt that the seventh item therein
("No statement should be made which implies that insurance coverage for
11/16/66
deposits or accounts by one Federal agency is preferable to or safer
than that provided by another Federal agency") might be deleted and
that the agencies should come to an understanding with respect to the
use of the term "bond."
It should also be made clear that the state-
ment was not in essence a regulation, but rather an urging upon banks
and savings and loans, as a matter of public policy, to adhere to advertising practices that were not misleading.
During the ensuing discussion the point was made that since the
Proposal for issuance of a statement had originated with the Securities
and Exchange Commission, that Commission should have a role in its
further consideration.
Governor Brimmer expressed a reluctance to see item (7) deleted
from the statement, or for that matter two other items about which questions had been raised.
He leaned strongly toward the view understood
to be held by the Securities and Exchange Commission:
that certain
Practices were misleading (not merely confusing) and that a firm statement directed against such practices should be issued.
After further discussion, it was understood that the question
of issuing a statement would be taken up with the Coordinating Committee
On Bank Regulation by Governor Robertson, and that appropriate steps
Would be taken, through the Chairman of the Securities and Exchange
Commission, to keep that agency abreast of developments.
Michigan National Bank matter.
Mr. O'Connell informed the
Board that certain Detroit banks had now filed suit in the U.S. District
11/16/66
-8-
Court in Michigan to obtain an injunction against the proposed acquisition of Michigan Bank, National Association, Detroit, by Michigan
National Bank, Lansing.
The latter bank was the only defendant named
in the suit, which appeared to be in the nature of a delaying action.
Whitney Holding Corporation matter.
Mr. O'Connell reported that
the Louisiana State Supreme Court had refused to review the decision of
the lower courts that the Louisiana anti-bank holding company statute
was constitutional and was applicable to the proposal of Whitney Holding
Corporation to form a bank holding company.
was reconsideration of that proposal.
(Pending before the Board
The Board originally approved
the application by order dated May 3, 1962, but the matter was remanded
to the Board by the U.S. Court of Appeals for the Fifth Circuit following a decision by the U.S. Supreme Court in a related case involving
action by the Comptroller of the Currency in authorizing the opening
for business of a new bank to be operated as part of Whitney's holding
company plan.)
Counsel for Whitney had now advised Mr. O'Connell infor-
mally that Whitney would withdraw its application and asked that the
Board consider the matter closed.
Members of the staff not concerned with the following topic
Withdrew from the meeting at this point and Mr. Morgan, Staff Assistant,
Board Members' Offices, entered the room.
Director appointments.
It was agreed to ascertain through the
Chairman of the Federal Reserve Bank of Richmond whether Robert W.
Lawson, Jr., of Charleston, West Virginia, a senior partner in the law
11/16/66
-9-
firm of Steptoe & Johnson, would accept appointment, if tendered, as a
Class C director of that Bank for the three-year term beginning January 1,
1967, with the understanding that if he would accept the appointment
would be made.
Secretary's note: It having been
ascertained that Mr. Lawson would
accept the appointment if tendered,
an appointment wire was sent to him
on November 17, 1966.
It was also agreed to appoint Wilson H. Elkins, President of
the University of Maryland, College Park, Maryland, as Deputy Chairman
of the Federal Reserve Bank of Richmond for the year 1967.
The meeting then adjourned.
Secretary's Notes: On November 15, 1966,
Governor Shepardson approved on behalf of
the Board the following items:
Letter to the Federal Reserve Bank of Philadelphia (copy attached
as Item No. 9) approving the appointment of Charles V. Austin as assistaut examiner.
Memorandum from the Legal Division recommending the appointment of
Margaret M. Bethea as Stenographer in that Division, with annual salary
at the rate of $3,185 (5-hour day), effective the date of entrance upon
duty.
A letter was sent today to First National
City Bank, New York, New York, acknowledging receipt of notice of its intent to
establish an additional branch in Japan,
to be located in the Akasaka Section of
Tokyo. The letter noted that the expenditures required to establish the branch
would be provided from available funds in
Japan.
4Z)1;
11/16/66
-10A letter was sent today to Bank of America
National Trust and Savings Association, San
Francisco, California, acknowledging receipt
of notice of its intent to establish an additional branch in Hong Kong, to be located in
the Tsimshatsui district of Kowloon. The
letter noted that no remittance of capital
from the United States would be required to
establish the branch.
Item No. 1
11/16/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AOORCIPS QTICtAL CORRESPONOZNICt
TO The 'BOARD
November 16, 1966
Board of Directors,
United California Bank,
Los Angeles, California.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by United California
Bank, Los Angeles, California, of a branch in the vicinity
of the intersection of Main Street and Rio Vista Avenue,
Brawley, California, provided the branch is established
within one year from the date of this letter.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
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.)
Item No. 2
11/16/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 16, 1966
Board of Directors,
Wachovia Bank and Trust Company,
Winston-Salem, North Carolina.
Gentlemen:
The Board of Governors of the Federal
Reserve System extends to November 25, 1967,
the time within which Wachovia Bank and Trust
Company, Winston-Salem, North Carolina, may
establish a branch at the intersection of
Heritage Street and Plaza Boulevard, Kinston,
North Carolina.
Very truly yours,
(Signed) Karl E. Bakke
Karl H. Bakke,
Assistant Secretary.
11084!)!)
Item No. 3
11/16/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 16, 1966.
Chase Manhattan Overseas Banking Corporation,
1 Chase Manhattan Plaza,
New York, New York, 10015
Gentlemen:
As requested in your letter of October 5, 1966, the Board
of Governors grants consent for your Corporation to increase its
investment in The Chase Manhattan Trust Corporation Limited ("CMTCL"),
Nassau, Bahamas, through purchase of additional shares of CMTCL at a
total cost which, together with the cost of subordinated debt securities of CMTCL to be issued to your Corporation or The Chase Manhattan
Bank (National Association), will not exceed US$4,510,000, provided
such increase is effected within one year from the date of this letter.
The Board also grants consent to CMTCL to issue and have
outstanding subordinated debt securities in an amount which, together
with the additional investment in shares of CMTCL by your Corporation,
will not exceed US$4,510,000.
The foregoing consent is given with the understanding that
the investment now being approved, combined with other foreign loans
and investments of your Corporation, The Chase Manhattan Bank (National
Association), and Chase International Investment Corporation will not
cause the total of such loans and investments to exceed the guidelines
established under the voluntary foreign credit restraint effort now
in effect and that due consideration is being given to the priorities
contained therein.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
260
Item No. 4
11/16/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS CIFfIC1AL CORRESPONDENCE
TO THE BOARD
November 16, 1966
Mr. Paul C. Hodge, Vice President,
General Counsel & Secretary,
Federal Reserve Bank of Chicago,
Chicago, Illinois. 60690
Dear Mr. Hodge:
This refers to your letter of October 31, 1966,
enclosing a copy of a letter dated October 24, 1966, from
John A. O'Kane, California Superintendent of Banks, to
President Scanlon, containing a copy of Mr. O'Kane's letter
to Citizens Bank & Trust Company, Park Ridge, Illinois, ordering
that bank to refrain from soliciting deposits in California.
Mr. O'Kane has requested Mr. Scanlon's cooperation in putting an
end to this practice and has expressed appreciation for any
assistance that might be provided.
It is suggested that Mr. Scanlon may with to respond
to Mr. O'Kane simply by stating that the Chicago Reserve Bank will
consider any action that might appropriately be taken. In addition
to acknowledging Mr. O'Kane's letter you may wish to ascertain the
views of the Illinois Department of Financial Institutions, of
Citizens Bank & Trust Company, and of the General Counsel to the
Federal Reserve Bank of San Francisco with respect to Mr. O'Kane's
charges. We would appreciate being kept advised as to any developments in this matter.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
Item No. 5
11/16/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 205$1
ADDRESS OFFICIAL CORRICISPONOIENCE
TO THE BOARD
November 16, 1966
Board of Directors,
Schoolfield Bank & Trust Company,
Danville, Virginia.
Gentlemen:
The Board of Governors of the Federal Reserve
ield Bank &
System approves the establishment by Schoolf
at the
Trust Company, Danville, Virginia, of a branch
le,
Danvil
northeast corner of Patton and Ridge Streets,
one
within
Virginia, provided the branch is established
year from the date of this letter.
position
It is noted that your bank's capital
establishment of
is somewhat less than satisfactory, and
. The
this branch will further aggravate this problem
to all
Board urges that careful consideration be given
re,
means of strengthening your bank's capital structu
of
growth
including the sale of new stock, so that the
your bank will be on a sound basis.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
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.)
1262
Item No. 6
11/16/66
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
•••
Imo
In the Matter of the Applications of
BREMER FOUNDATION and
'ITO BREMER COMPANY
f
Iick aPproval of the acquisition of additional
!
R ting stock of The Citizens State Bank,
"gbY, North Dakota.
ORDER APPROVING APPLICATIONS UNDER
BANK HOLDING COMPANY ACT
There have come before the Beard of Governors, pursuant to
section 3(a) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a),
48 amended by Public Law 89-485), and section 222.4(a) of Federal Reserve
ilealgation Y (12 CFR 222.4(a)), applications on behalf of Otto Bremer
1otI
ion and Otto Bremer Company, both bank holding ccmpanies located
14 St. Paul, Minnesota, for the Board's approval of the acquisition,
dire
ctlY or indirectly, of an additional 50 per cent of the voting shares
ha Citizens State Bank, Rugby, North Dakota, a subsidiary bank of
441ioants.
As required by section 3(b) of the Act, the Board notified the
State
Examiner for North Dakota of receipt of the applications and
12f;:3
-2-
requested his views and recommendation.
The Acting State Examiner
reccmended approval of the applications.
the
Notice of receipt of the applications was published in
Federal Register on September 30, 1966 (31 Federal Register 12814), which
the
Provided an opportunity for submission of comments and views regarding
P"Posed acquisition.
Time for filing such comments and views has expired
and all those filed with the Board have been considered by it.
IT IS HEREBY ORDERED, for the reasons set forth in the Board's
Statement of this date, that said applications be and hereby are approved,
13rovided that the acquisition so approved shall not be consummated
Order
(4) before the thirtieth calendar day following the date of this
(b) later than three months after said date.
Dated at Washington, D. C., this 16th day of November, 1966.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Robertson, Shepardson, Maisel, and Brimmer.
Voting against this action:
Absent and not voting:
Governor Mitchell.
Governor Deane.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
cStAL)
1264
Item No. 7
11/16/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATIONS BY OTTO BREMER FOUNDATION
AND OTTO BREMER COMPANY
OF ACQUISITION OF SHARES OF
APPROVAL
FOR
THE CITIZENS STATE BANK
STATEMENT
Otto Bremer Foundation ("Foundation") and Otto Bremer Ccmpany
(4C°mPany"), both of St. Paul, Minnesota, have filed with the Board, puramended
suant to
section 3(a) of the Bank Holding Company Act of 1956, as
(tithe Act"), applications for approval of the acquisition, directly or
ind
irectly, of an additional 50 per cent of the voting shares of The Citizens
Stete Bank, Rugby, North Dakota ("Bank"), a subsidiary bank, 49 per cent
°f the
stock of which is presently owned or controlled by Foundation and
Ccr4PanY (hereafter referred to collectively as "Applicants").
wned
Oily _o
owned
subsidiary of Foundation.
Company is
Company registered as a bank hold-
company under the Act's original provisions, and Foundation became a
'
b44k holding company for purposes of the Act as a result of the 1966 amend-
etits
(If
Applicants own, directly and indirectly, over 25 per cent
1/
I.L
of
'"e stock of 32 banks with deposits at December 31, 1965,
thereto.
2112 million; and they own less than 25 per cent of the stock of eight
4114lional banks.
The subsidiary banks are located in Minnesota, North
134143ta, and Wisconsin.
date.
ji Unless otherwise indicated, all banking data noted are as of this
-2-
Bank operates a single office in Rugby, North Dakota, and has
dePosits of about $4 million.
Company has owned 46 per cent of the out-
st
anding voting shares of Bank since prior to enactment of the Act, and
NIndation owns an additional 3 per cent of Bank's shares.
Company pro-
Pc)ses to acquire for cash an additional 50 per cent of Bank's voting
hares - 25 per cent is to be purchased from Bank's president, and 25 per
eert from a trust.
Although Bank is presently a subsidiary of Applicants,
ilerd approval of the proposed acquisition of additional shares is required
Illider section 3(a) of the Act since Applicants do not own or control a
'
aJority of the voting shares" of Bank.
The operations of Applicants' banking subsidiaries, measured in
tel1/8 of total deposits, are principally conducted in the State of Minnesota,
44c1 have been so conducted since prior to enactment of the Act.
Sec-
4°11 3(d) of the Act prohibits Board approval of any application which would
it a bank holding company to acquire, directly or indirectly, any voting
s114re5
of "any additional bank located outside of the State in which the
°Par Li0n5
4
of such bank holding company's banking subsidiaries were prine4allY conducted on • .. the date on which such company became a bank
holding company".
The term "additional bank" is interpreted by the Board
earl a bank other than a subsidiary bank. Therefore, since Bank is
41.te
adY a subsidiary of Applicants, the subject applications may be approved
40V4_1
ed such approval is authorized by and consistent with other provisions
"the Act.
'1266
-3_
Views and recommendation of supervisory authority. - As required
by section 3(b) of the Act, notice of receipt of the application was given
to, and
views and recommendation requested of, the State Examiner for North
Dakota,
The Acting State Examiner responded recommending approval of the
a
Pplication.
Statutory considerations. - The Act prohibits Board approval of
40.1r proposed acquisition which would result in a monopoly, or further any
combination, conspiracy, or attempt to monopolize the business of banking
in any relevant area.
Nor may approval be given where the Board finds that
he effect of a proposal may be substantially to lessen competition, or in
ay
other manner be in restraint of trade, unless such anticompetitive
effects are clearly outweighed by the probable effect of the transaction in
Ile
"ing the convenience and needs of the area to be served.
The Board is
4180 required to consider the financial and managerial resources and future
h"Pects of the bank holding company and banks concerned, and the convenience and needs of the communities to be served.
Competitive effects of proposed acquisition. - Only nine of
441i-cants
32 subsidiary banks are located in North Dakota.
The nine sub-
4tdiaries, including Bank, hold deposits of about $70 million, representing
7 n.
r cent of the total deposits of all banks in the State.
'
hold
Applicants'
Itig company system is the third largest banking organization in North
'Dakota.
The two largest banking organizations in the State are bank hold-
companies headquartered in Minnesota.
Combined, the three largest bank-
crganizations control about 33 per cent of the deposits in North Dakota.
4267
-4-
There are seven banks located in Bank's primary service area,
Ithich consists of the corporate limits of the town of Rugby and the
2/
surrounding agricultural area within a radius of approximately 35 miles.
4eneof the seven banks is a subsidiary of a bank holding company.
Bank
is the third largest of the seven, and holds about 18 per cent of their
41"gregate
total deposits.
There are 12 other banks located outside the
IIII'marY service area which are believed to compete therein to some extent.
/c of these banks are also subsidiaries of Applicants, and their total
dePosits combined with those of Bank represent about 21 per cent of the aggreaate total deposits of the 19 banks.
Four of the other ccmpeting banks
4cated outside the primary service area are subsidiaries of the two
14411eap01is-based bank holding companies.
The seven holding company sub-
aries in the area hold about 66 per cent of the aggregate total deposits
Of the 19
banks.
There is one other bank located in the town of Rugby - Merchants
444 of Rugby, which has deposits of $6 million, representing about 59 per
C"t of the total deposits held by the two.
Merchants Bank has been in
°Peration for many years and its rate of deposit growth over the past 10
l'eats exceeded slightly the deposit growth of Bank.
Since Bank is already a subsidiary of Applicants, the proposed
aeluisition of additional shares of its stock will have no measurable effect
°4 b
anking concentration either under Applicants' system or under all holding
441 -e area from which all of Bank's deposits of individuals, partnerships,
corporations ("IPC deposits") originate.
-5-
orripany systems in any relevant area.
Further, the fact that Bank is
already a subsidiary of Applicants precludes the likelihood of any present
°I. Potential competition between or among Applicants' three local
banks
being eliminated or foreclosed by this proposal.
For the same reason,
there is, in the Board's judgment, little
likelihood that the acquisition
°f additional shares of
Bank by Applicants would have any significant effect
Qn the
competitive force or position of other banks located or competing in
4tIkts primary service area.
Applicants assert that Bank will more effec-
tively serve the banking needs of its area following their acquisition of
kaj011ty control.
While there is reason to question the logic of this asser-
q°11, if such occurrence should take place it
is not likely to alter the
t°111Petitive situation presently existing in the area.
Applicants presently have no monopoly on the banking business in
arly
relevant area, nor does Applicants' proposed
acquisition offer evidence
a tendency to monopolize such business. Since Bank is already
a subNia
rY of Applicants, the proposal will not result in any substantial
Qen.
ing of competition, and will in no other manner be in restraint of trade.
Financial and managerial resources and future prospects. /Iirldation,
owner of all of the outstanding shares of Company, is a charitable
4114dation organized under the laws of Minnesota.
It annually disperses its
41come to
charitable, religious, and educational organizations in Minnesota,
th b
akota, and Wisconsin. The financial condition of Applicants and
their
Dett
3
411d
subsidiary banks appears to be generally satisfactory, and their prosaPpear favorable.
N3erienced.
Applicants' managements are considered to be capable
,1 4,4'41
-6-
The financial condition of Bank is considered satisfactory,
although, on the basis of a relatively low ratio of loans to deposits, it
appears that Bank's management has not vigorously sought new or increased
loan business.
Bank's prospects, viewed in light of Applicants' proposal
to furnish it with young and aggressive management, appear favorable.
Bank is currently faced with a management succession problem.
Ihe cashier recently resigned and the executive vice president, who is
I'eaching normal retirement age, is, according to Applicant, contemplating
etirement by the end of the year. The president, who is owner of 25 per
cellt of Bank's stock, is 77 years old and upon consummation of this proposal
ill retire from active operating management.
Bank has no other officers.
It is contemplated that a vice president of one of Applicants' other North
I/akota subsidiaries will become president and chief executive officer of
1144k upon consummation of the proposed stock acquisition.
While Applicants'
h°Posed management implementation is a favorable consideration, its weight
la rendered less significant in view of Applicants' present 49 per cent
ititerest in Bank.
Such ownership, in the Board's judgment, presently enables
4Plicant5 to furnish Bank with adequate management succession, and maintain
114141` in sound financial condition, without the alleged benefit of majority
stc'elt ownership.
The "banking factors" are, in the Board's opinion, consistent
Illth approval of the application.
Convenience and needs of the area concerned. - Rugby, a town of
4b°111t 3,000 people in the north central part of North Dakota, is in the
.12'N)
-7center of a 4,000 square mile agricultural area which is considered to
be Bank's primary service area.
The population of that area, estimated at
25,Q00 persons, has reportedly been somewhat static during the past 10 years
4 to the change in agricultural economy from smaller to larger farms.
"
The economic outlook for the area, including its future growth prospects,
appears to be good in light of a reservoir project which will provide water
fOZ irrigation to a great portion of the service area and will permit farms
to increase their yield and productivity.
Although Bank has had satisfactory deposit growth and earnings,
APP1icants assert that it has not adequately met the credit needs of the
e°1111aunity and area it serves.
An apparent lack of aggressiveness on the
Part of Bank's management is evidenced to some extent by the fact that its
1°ans represent only about 28 per cent of total deposits (with over half
°f those being Government insured), while the loans for the seven banks
4cated in the service area in the aggregate amount to about 40 per cent
Of their total deposits.
out
Although Bank may become somewhat more aggressive in seeking
into Bank of
417 and increased business following Applicants' introduction
the Board's
Yoling and experienced chief executive officer, this result, in
144gment, could probably be accomplished by Applicants with their present
49 Per cent control.
As before stated, this facet of Applicants' proposal,
hile consistent with approval of the application, provides little affirmative support therefor.
-8-
One aspect of the operations of Applicants' banks, having direct
bearing on the convenience and needs of their customers, is of concern to
the Board.
Eleven of Applicants' 32 subsidiary banks, including Bank, are
nonpar banks", i.e., they charge exchange fees for checks forwarded to
them for payment.
Although nonpar clearance of checks is permitted under
the laws of the States where Applicants' 11 nonpar banks operate, nonpar
clearance
is, in the Board's judgment, incompatible with good banking prac-
tice and the public interest.
This view has prompted the Board to recommend
to Congress enactment of legislation that would require all insured banks
to
Pay at "par" all cheeks drawn upon them (see Fifty-Second Annual Report
f the Board of Governors of the Federal Reserve System (1965) at page 240).
4 indicated, the Board
does not view favorably this aspect of Applicants'
tern operations.
However, since Bank is presently a nonpar bank with re-
spect to its payment of checks, approval of this proposal will not introor further facilitate the criticized practice so as to warrant denial
(4 the application.
In summary, because of Applicants' apparent working control of
114h,
considerations relating to the convenience and needs of the area
4rved by it
are considered to provide only slight, if any, support for
41111r°val of the applications.
Summary and conclusions. - In light of the factors set forth in
the b
4°ank Holding Company Act, and on the basis of the record before it,
th
tloard concludes that the acquisition of additional shares of Bank by
.9-
APPlicants will not have any significant adverse competitive consequences,
and that considerations relating to the financial and managerial resources
and prospects of Applicants and Bank, and to the convenience and needs of
the area to be served, are consistent with approval of the applications.
Ile.cordingly, it is the Board's judgment that the applications should be
approved.
No
vember 16, 1966.
Item No. 8
11/16/66
DISSENTING STATEMENT OF GOVERNOR MITCHELL
This is a case where, in my opinion, the public interest is
being subordinated to the corporate convenience of the Otto Bremer
Foundation and the Otto Bremer Company.
The Foundation owns the Company
11(1 together they own 49 per cent of the shares of The Citizens State Bank,
Rugby, North Dakota.
The Bremer Foundation and Company are located in
'Paul, Minnesota.
St
Consummation of the proposal would increase to
99
Per cent the holding companies' ownership of their North Dakota
sub
sidiary.
There is no significant anticompetitive effect involved in this
ease. It
seems to me that the majority sustains its position, in part,
" 4
finding that the convenience and needs of the people in the Rugby
at"' will be better served as a result of the Bremer interest controlling
99 instead of 49 per cent of the Rugby bank's stock.
It is hard to believe that having owned 49 per cent of the stock
top.
'over 10 years the Bremer interests did not, at least by acquiescence,
balp,
a considerable influence on the policies of the Rugby bank in that
Pell°d. If they had been desirous of improving or expanding banking serVice
in Rugby they surely could have accomplished both goals long ago.
14 f
'
j act,
the Bremer Ccmpany and Foundation seem simply to have been imper-
41t-,
QI investors with little direct concern for the convenience and needs of
the i
ndividuals and businesses in the vicinity of Rugby.
-2-
Bremer Foundation and Company own 25 per cent or more of the
stock of 32 banks in Minnesota and North Dakota.
eluding the bank at Rugby, are nonpar banks.
Eleven of these, in-
The Board of Governors has
often expressed the view that nonpar banking is anachronistic and in"
111Patible with modern commercial and financial practices.
1965 Annual Report contains this statement:
The Board's
"In the Board's opinion,
1144ar today's highly developed system of check collections there is no
seund reason for any bank to pay less than the face amount of checks drawn
upon, i
(emphasis added), even though that practice provides a source of
'
levenue to the drawee bank."
Although nonpar banking is permitted in the
eas served by Applicants' 11 nonpar banks, it hardly seems consistent
fclr the Board of Governors to expect the management of a holding company
Ilith 11 nonpar banks to be dedicated to improving banking service to the
ilugbY public.
the
Nor, in my opinion, does the record before us show that
Bremer banks are noted for progressive managements or service policies
"
Pacially responsive to public demand.
Approval by the Board of this application is not only unlikely
to improve banking in Rugby, it is an implicit endorsement of banking
D°1icies that the Board has officially and publicly condemned.
4ovetaber 16, 1966.
BOARD OF GOVERNORS
Item No. 9
11/16/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 15, 1966
Mr. Joseph R. Campbell, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia, Pennsylvania. 19101
Dear Mr. Campbell:
In accordance with the request contained in
Mr. Case's letter of November 9, 1966, the Board approves
the appointment of Charles V. Austin as an assistant
examiner for the Federal Reserve Bank of Philadelphia.
Please advise the effective date of the appointment and
forward a photograph . of Mr. Austin.
The authorization heretofore given your bank
to designate Mr. Austin as a special assistant examiner
is hereby canceled.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER