The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
pa 609
Rev'10/59
Minutes for November 17, 1960
To:
Members of the Board
From: Office of the Secretary
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. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System on
Thursday, November 17, 1960.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Balderston, Vice Chairman
Szymczak
Mills
Shepardson
King
Mr. Sherman, Secretary
Miss Carmichael, Assistant Secretary
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Solomon, Director, Division of Examinations
Mr. O'Connell, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Rudy, Special Assistant, Legal Division
Mr. Nelson, Assistant Director, Division of
Examinations
Mr. Leavitt, Supervisory Review Examiner,
Division of Examinations
Discount rates.
The establishment without change by the Federal
Reserve Bank of Boston on November 14, 1960, of the rates on discounts and
advances in its existing schedule was approved unanimously, with the understanding that appropriate advice would be sent to that Bank.
Items circulated to the Board.
The following items, which had
been circulated to the Board and copies of which are attached to these
Ininutes under the respective item numbers indicated, were approved
Unanimously:
Item No.
Letter to the Comptroller of the Currency recomending unfavorably with respect to an application
° organize a national bank at Mineola, New York.
1
1 etter to the Comptroller of the Currency recom11;
terlding favorably with respect to an application
° °rganize a national bank at Cedar Falls, Iowa.
2
T
11/17/60
-2Item No.
Letter to the Comptroller of the Currency recommending approval of an application of Central State
Bank, Oklahoma City, Oklahoma, to convert into a
national banking association.
3
Letter to California Bank, Los Angeles, California,
approving the establishment of a branch in Buena
Park.
Exercise of fiduciary powers by Stromsburg Bank
(Item No. 5).
There had been circulated to the Board a memorandum from the Division of
Examinations dated November 8, 1960, with a draft of letter that would
grant permission to Stromsburg Bank, Stromsburg, Nebraska, to act as
executor and administrator of estates.
Governor Shepardson referred to a statement in the memorandum to
the effect that the bank had been operating since November 28, 1958, with
four directors rather than the five required under the provisions of
section 31 of the Banking Act of 1933.
He observed that there was no
14dication whether any cognizance had been taken of this situation, and
Mr. Solomon replied that the Division of Examinations had checked with the
Federal Reserve Bank of Kansas City and learned that Vice President mills
had recently made a trip to Stromsburg Bank in connection with this
Problem.
The bank appeared to be having some problem in securing a fifth
Illenlber of its board, largely because there was difficulty in making
shares
of stock available to such a director.
The bank hoped to be in a
Position to secure a director not later than the annual meeting of its
sha
reholders in January 1961.
,
$0?
11/17/60
_3..
Mr. Solomon suggested that it might be appropriate to add a
Paragraph to the proposed letter, indicating that the Board had noted
that the bank was operating with only four directors but that it was
Understood that this violation would be corrected not later than January
1961.
Governor Balderston then raised a question as to whether the
granting of fiduciary powers should be made conditional on the bank's
securing an additional director, and Mr. Solomon replied in the negative,
stating that the situation with respect to the director did not appear to
affect the operation of the bank's trust department.
In the event the
bank failed to comply with the regulation, the Board would have ample
reason for taking action at a later date.
Replying to a question from Governor Shepardson as to why the
13°ard had not learned of this violation at an earlier date, Mr. Solomon
irldicated that the violation had been covered in examination reports but
in view of the efforts being made by the Kansas City Reserve Bank to
e°rrect the situation the matter had not been brought to the Board's
at
tention.
Unanimous approval was then given to the letter to Stromsburg
13allk granting the requested fiduciary powers.
Item No.
A copy is attached as
5.
Report on competitive factors
Pennsylvania).
(East Greenville and Philadelphia,
A draft of report to the Federal Deposit Insurance Corporation
11/17/60
-4-
on the competitive factors involved in the proposed merger of Perkiomen
National Bank of East Greenville, East Greenville, Pennsylvania, into
44d with Industrial Trust Company, Philadelphia, Pennsylvania, had been
distributed under date of November 9, 1960.
The report concluded as
follows:
It does not appear that this proposal would affect the
competitive banking situation in the Philadelphia area. Insofar as the East Greenville area is concerned, the conversion
of this unit bank to a branch of a larger Philadelphia institution offering more and varied facilities may well tend to
intensify competition.
No objection being indicated, the report was approved unanimously
for
transmittal to the Corporation.
Amended application of Citizens Fidelity Bank and Trust Company.
Mere had been distributed a memorandum from the Division of Examinations
dated November 15, 1960, regarding an amended application of Citizens
l'iclelitY Bank and Trust Company, Louisville, Kentucky, for permission to
4equ1re the assets and assume the deposit liabilities of Bank of Louisville,
L°11isville, Kentucky, which the Division recommended be treated as a new
tl:)1311-oation and processed accordingly.
As pointed out in the memorandum,
August 18, 1960, the Board disapproved the original application of
Citizens
Fidelity Bank and Trust Company.
At the request of the member
bank the Board later reconsidered the matter and on August 24, 1960, the
1344k Ilas advised that the Board would not be warranted in changing the
4cti0n taken
on August 18.
11/17/60
Mr. Solomon commented on the application, noting that there was
4
change in circumstances since the original application was processed.
This was occasioned by the Comptroller of the Currency's approval of a
merger of Lincoln Bank and Trust Company with The First National Bank,
both of Louisville, Kentucky, which became effective November 11, 1960.
While this merger was not completely unanticipated when the Board disapproved
th
eearlier application of Citizens Fidelity, there was at that time no way
Of knowing whether the Comptroller of the Currency would approve the other
Pending
application.
Mr. Solomon then referred to the request of Citizens
Fidelity Bank and Trust Company that its amended application be treated
48 a new application and said that he felt this was a reasonable request.
He noted that the situation was somewhat similar to that in the Eastern
Heights State Bank case, where an amended application of First Bank Stock
Ccrlooration was considered as a new application in view of a change in
circumstances since the original application had been filed.
If the application of Citizens Fidelity Bank and Trust Company
/lere treated as a new application, this would involve obtaining views of
he Comptroller of the Currency, the Federal Deposit Insurance Corporation,
411
the Department of Justice on the competitive situation.
Also, the
belik would be required to publish a notice of its intent to merge.
The matter was being brought to the attention of the Board, Mr.
S°1°Illon said, in order to determine whether it was agreeable to the Board
to treat the amended application as a new one.
11/17/60
-6-
In this connection, Mr. Hackley stated that he agreed with Mr.
Solomon that the amended application could appropriately be considered
as a new application.
Governor Mills said that although he was not prepared to oppose
consideration of the application by Citizens Fidelity, he was puzzled at
the approach taken by the Examinations and Legal Divisions.
He would
rationalize that in a real sense the matter under consideration involved
a
reopening of the original application.
He could not follow the analogy
between this case and the Eastern Heights case.
In the latter case, the
°riginal application to acquire stock of a proposed new bank was denied,
in consequence of which the holding company (First Bank Stock Corporation)
indicated that it would be proceeding to litigation.
Later, First Bank
Stock Corporation decided that it would be preferable to introduce another
application in a new guise, which was that ownership of Eastern Heights
had passed to the Minnesota Mining and Manufacturing Company, and the
holding company
wished to make application to acquire stock of the newly
°rganized bank.
The present case involved an application by a bank which
had applied to reopen consideration of its application in the light of
changed competitive circumstances in the city of Louisville resulting
from the recent bank merger approved by the Comptroller of the Currency.
He was not persuaded that Citizens Fidelity should be permitted to reopen
the case on the grounds that a different competing unit had been established
since the Board's rejection of the earlier application.
Governor Mills
11/17/60
expressed concern lest the reopening of cases give a widespread impression
that the Board was not prepared to stand on its conclusions and that any
aPplicant who pressed a case might get a reversal of judgment.
Mr. Solomon pointed out that, even though the amended application
were treated as a new one, in no way would the Board be precluded from
disaPproving it if the Board should determine that the change in circumstances would not warrant favorable action.
While the Board could refuse
to consider the amended application, he felt such a procedure would be
rather drastic.
If this were done, it would imply that the Board had
reached a conclusion that the circumstances had not changed sufficiently
to warrant its arriving at a different conclusion than had been reached
Thus, since the Board must in some way consider the material
Presented in the amended application, it seemed preferable to treat it
as a new application.
Following reference to some informal discussions with representatives of Citizens Fidelity, Mr. Hackley said that he hoped the Board
11°111d not proceed in a manner that would encourage banks to ask for
ree°4sideration of Board decisions either by way of reopening a specific
Q4se or filing a new or amended application.
However, he did not feel
that the Board as a legal matter could refuse to receive a new appliQ4ti°n, even if there were no change in any of the circumstances of
ati a
PPlication previously denied by the Board. Under the statute,
are free to make application for prior written consent to merge
Or co
nsolidate, either directly or indirectly.
He did not know on what
leg
Frounds the Board could refuse to consider such an application.
11/17/60
-8-
Governor King said that, as he saw it, the question was whether
the present application from Citizens Fidelity would be treated as a
new one, or whether it should be handled as though it asked reconsiderof the Board's earlier decision.
Governor Shepardson said that his impression had been along
the lines indicated, that is, an amended application had been filed
and it was not a matter of Board discretion as to whether it should
be considered, but whether it was to be treated as an amended or a
flew application.
Under all the circumstances, he felt that it would
be appropriate to consider the submission from Citizens Fidelity as
a new application and to observe all the necessary procedures in processing it.
After some further discussion, at Governor Balderston's
sUggestion it was understood that the amended application of Citizens
Fidelity Bank and Trust Company would be treated as a new application
under Public Law 86-463 and processed accordingly.
Mr. Hooff withdrew from the meeting at this point.
Application by The Marine Corporation (Items 6 and 7).
Pur-
suant to Board action on October 19, 1960, there was published in the
Federal Register on October 26 a Notice of Tentative Decision approving
the application by The Marine Corporation, Milwaukee, Wisconsin, for
Ell3Proval of the acquisition of 60 per cent or more of the voting shares
or a proposed new bank to be called Oak Creek Marine National Bank, Oak
425
11/17/60
-9-
Creek, Wisconsin.
A memorandum from the Legal Division dated November 14,
1960, which had been distributed, indicated that the 15-day period provided
in the Notice for the filing of comments or objections regarding the
Proposed action expired at the close of business on November 10, 1960.
No comments or objections were received during that period.
Attached to the memorandum were drafts of an Order approving the
application under the Bank Holding Company Act, a supporting Statement,
and a press release for the Board's consideration.
In commenting on the proposed Order, Mr. Hackley recalled that at
the Board meeting on September 28, 1960, consideration had been given to
the possibility of including in orders approving holding company applications a condition that holding company subsidiary banks could not
sub
sequently change their locations without Board approval.
At that time
It was understood that the matter would be considered at a later date.
Mr.
liackley said that he was inclined in the direction of not including any
stIch condition in bank holding company orders unless it should develop
that the
law was being frustrated or defeated.
Accordingly, he recommended
that the Order on The Marine Corporation application be issued without such
a condition.
He added that this question could be brought before the Board
Ilt ain at some future date for further consideration.
No objection was expressed to the procedure proposed by Mr. Hackley
e rld) after a brief discussion, unanimous approval was given to the Order
'
44a
Statement granting permission to The Marine Corporation to acquire
r
11/17/60
-10-
voting shares of the proposed Oak Creek Marine National Bank.
the Order and Statement are attached as Items
Copies of
6 and 7, respectively.
During the foregoing discussion Mr. Furth, Associate Adviser,
Division of International Finance, entered the room.
Litigation report on Continental Bank case
(Item No.
8). There
had been distributed a memorandum from the Legal Division dated November 16,
1960, transmitting a draft of proposed litigation report that had been
Prepared at the request of the Department of Justice with reference to
the suit against the Board instituted in the United States District
Court for the District of Columbia by The Continental Bank and Trust
C°111ParlY, Salt Lake City, Utah.
It was noted in the memorandum that it
/las customary for the Department of Justice to request such a report from
everY agency or officer of the Government whose interests in particular
litigation were to be represented by the Department.
The proposed report would contain appropriate reference to the
source of pertinent facts and a statement of provisions of statutes and
re
gulation bearing on the issues considered to be raised by the complaint.
Also, the report would identify these issues and suggest possible defenses
thereto.
Final determination as to the form that the response on the
113ard's behalf would take and as to the use of some or all of the defenses
set forth would be made by the Department of Justice, presumably following
Q011sultation with the Board's staff.
11/17/60
-11-
In connection with consideration of the litigation report,
Governor Mills requested a review of the legal background of Continental
Bank's position in bringing this case into the courts rather than seeking
an administrative determination by the Board.
Mr. O'Connell then proceeded to outline the legal background of
the case, indicating that subsequent to issuance of the Board's order on
July 18, 1960, requiring Continental within six months to increase its
capital in an amount not less than $1.5 million by the sale of common
stclek, it was the Legal Division's judgment that several roads were open
to Continental Bank.
It could either challenge the Board's authority in
a coof law as it has done, or it could offer a chsllenge to that
authority in a further administrative proceeding.
The latter process would
involve a wait of six months ending either in (1) compliance by the bank
th the Board's order or, (2) assuming noncompliance, the possibility of
the conduct by the Board of a further hearing to determine whether the
'
l arlk would be required to surrender its stock in the Federal Reserve Bank
Of San
Francisco.
the
Depending on the outcome of such hearing, the bank would
have recourse to the courts for review of the Board's action.
Mr. O'Connell noted that Continental Bank's request for a declaratory
illcIgment asks that the court declare that the Board was without statutory
allthority to require the increase in capital as contained in its July 18
order.
146.8
The Legal Division has taken the position that the July 18 order
not a final order subject to judicial review.
However, Continental
13a
'
llk's position is that the July 18 order is final; that it constitutes
11/17/60
-12-
Part of the injury alleged to have been suffered; and that the bank has
a right to seek a declaration of the Board's lack of authority to require
a capital increase.
Further, the bank alleges that, if the court should
determine that the Board has the authority to require such an increase in
capital, the hearing leading to such determination was conducted in a
manner so as to violate due process of law.
Finally, the bank alleges that
should the Board be found to lack the authority, as alleged, it would then
be unnecessary for Continental to exhaust its administrative remedies in
the form of further administrative hearings.
Governor Mills inquired whether, in the event the court sustained
the Board's position, the matter would revert to the state of the case
at the time of the July 18 order.
As he understood it, this would involve
waiting until the six-month period specified by the Board had elapsed and
then determining whether there had been compliance with that order; if there
was noncompliance, determination would then be made as to whether the
board wished to press the issue to a conclusion pursuant to section 9 of
the Federal Reserve Act.
Mr. O'Connell responded that the case could develop along the lines
inclicated by Governor Mills since it was possible that the court might
fina that the Board has statutory authority to require an increase in
ca.Pital, without making any determination as to the validity of the July 18
l'°1er in terms of its basis in substantial evidence.
Several issues, in
84aition to the one of statutory authority, had been raised by Continental's
4262
11/17/60
-13-
complaint, however.
For instance, the court had been asked to determine
the validity of the administrative hearing that had been conducted and
Whether the order flowing therefrom had basis in substantial evidence of
record.
Nevertheless, the court could make a finding solely on the
question of statutory authority and remand the entire matter for the
conclusion of the administrative process without making a finding on the
Other points raised.
Governor Balderston said he thought that the Board was mainly
concerned with a court ruling to the effect that the Board had statutory
authority to issue its July 18 order.
Accordingly, if the court rules on
this issue and declined to rule on the issue involved in violation of due
process of law in connection with the hearing conducted, he felt that the
B°ard's main point of interest would have been cared for.
Mr. O'Connell commented that, if the court were to rule flatly
that the Board has statutory authority and decline to rule on the substantialevidence issue, the Board's main point of interest would be
satisfied.
However, it was possible that in ruling on the issue of
81-lb stantial evidence the court could, either directly or by weight of
dictum,
simultaneously sustain the Board's statutory authority to require
°4 increase in capital.
In the event of either of such possible rulings,
he felt that the Board's position would be sufficiently sustained.
Governor Balderston then asked whether this short cut of
a°4tinental Bank in going directly to the court might not be helpful to
the Board in connection with the case.
11/17/60
Mr. O'Connell replied that this could be true in the sense that,
bY such a procedure, there could be accomplished one of the things that
the Board sought--a judicial statement of its statutory authority.
There
was, he said, certain validity in the position that the Board should not
urge the filing of a motion to dismiss the case, but rather that it should
Tile an answer, join issues, and have a trial in order that the Board's
jurisdiction could be determined.
He believed that the letter to the
Department of Justice as drafted would present alternative courses of
acti°11.
If the Board wished the matter to go to trial, the question of
illrisdiction of the court could be raised even though it were not challenged
ill the form of a motion to dismiss.
Governor Balderston observed that, in view of the main principles
involved in this case, it could be argued that the Board should disregard
technicalities and get a decision on principles as promptly and economically
as
possible.
To this, Mr. O'Connell responded that the litigation report as
Pr°Posed did not take a position.
that
Rather, it was written on the assumption
such
if a motion to dismiss was considered appropriate, the bases for
41°tion were set forth; but if an answer aimed at joining the issues and
Proceeding to trial was considered appropriate, such was also set forth.
He felt it desirable that the report to the Department of Justice list all
asPects of possible defenses, although some could be urged more strongly
than others.
I 2(;(1
11/17/60
-15-
In this connection Governor Mills inquired whether it would be
in order to ask Mr. O'Connell, when in consultation with the Justice
Department, to indicate a strong preference on the part of the Board to
carry the case to trial and not to seek a motion for dismissal.
Mr.
O'Connell replied that, if such was the Board's view, he could follow such
a procedure.
Mr. Solomon then presented the question whether Governor Mills
w°1-11 1 object to dismissal of Continental's suit, if such a dismissal were
based on the grounds that the Board had ample authority, or whether he
wolald object to such dismissal if it were only on grounds that administrative
remedies had not been exhausted.
Governor Mills said that, as he understood Mr. Solomon, the second
cn the alternatives would contemplate dismissal on technicalities.
The
first would be a dismissal on the grounds that the Board had statutory
allthority that it had assumed in the proceeding and, accordingly, that
there was no reason to litigate further.
In the event of dismissal on
these latter grounds, he understood that would provide a final determination
of the Board's authority, to which he would not object.
Mr. Hackley said that he would assume from the discussion that the
Boa
rd would not object if the Justice Department were to file an answer
°4 the merits rather than a motion to dismiss, if it were made clear that
he Board and the Department of Justice were not waiving any defenses as
to lack of jurisdiction.
His opinion was that the Board should not be
11/17/60
-16-
Placed in a position of conceding that the Board's order of July 18 was
subject to judicial review.
This was a matter of importance on juris-
dictional ground's not only in the Continental case but in other cases, and
in his judgment it would be unfortunate if anything in the record indicated
that the July 18 order was in the nature of a final order.
Mr. O'Connell expressed the view that this question could be
raised at the appropriate time, noting that the Department of Justice could
at any time
on behalf of the Board raise a question of jurisdiction before
the court.
If the court should hold that the bank had not exhausted its
administrative remedies, it was possible the court would state that there
as
aPParent statutory authority for the Board to issue the July 18 order.
He felt that if the court were to find appropriate statutory authority and
then require the bank to exhaust its administrative remedies, the Board's
Inala point would have been sustained.
Governor Mills then expressed the opinion that the case should rest
in Counsel's hands, adding that he did not know whether Mr. O'Connell had
'as Yet reached a decision in his own mind as to the most effective and
exPeditious handling of the case.
Governor Balderston asked that, before Mr. O'Connell commented on
Governor Mills' remark, Mr. Solomon repeat the substance of his earlier
gllestion to Governor Mills as to whether the latter would object to dismissal
or the Continental suit on certain grounds.
11/17/60
-17-
Mr. Solomon said that his question to Governor Mills had been
intended to bring out the point that two questions were involved in the
procedure under discussion: (1) whether to urge that the suit filed by
Continental be dismissed for failure of that bank to exhaust administrative
rerned.ies; or (2) whether to urge that the suit be dismissed on the grounds
that the Board was acting under its statutory authority.
By way of explanation, Mr. O'Connell stated that a motion for
diamissal would say that the bank had failed to state a cause of action
since the Board's statutory right to do what it had done is clear and,
accordingly, the bank had no right under the Declaratory Judgment Act to
seek the declaration.
With reference to Governor Mills' query as to his (Mr. O'Connell's)
Personal judgment as to the best procedure to be followed, Mr. O'Connell
said that his position would be that a judicial statement of the Board's
statutory authority could be obtained on motion, if the court would accept
the Board's theory of law.
Personally, he would not favor waiving a
single defense, since any waiver or omission might later be used in some
against the Board.
He would utilize every legitimate defense.
If a
111°t10n to
dismiss is filed and granted, Mr. O'Connell said he had reason
t° believe that it would not defeat the Board's desire to obtain a ruling
°I1 s
tatutory authority.
Following another question from Governor Mills, Mr. O'Connell
iliclicated that he was impelled in the direction of a dismissal on motion
it should seem feasible.
41
11/17/60
-18-
Mr. Hackley expressed agreement with the position stated by Mr.
O'Connell.
Obviously, the Board would like to have a determination of its
statutory authority as expeditiously as possible.
However, he would question
the advisability of waiving any defense because of the possible effect of
such action on the ultimate decision in this case and also as a precedent
in other cases.
Whatever pleading was filed by the Department of Justice,
Mr. Hackley said, would probably result in a determination in some way or
Other as to the Board's statutory authority.
Governor Shepardson said he would be in favor of Mr. O'Connell's
g°ing ahead with all of the defenses possible.
Governor King said that his position was one of supporting the
ProPosed litigation report and the recommendations made by the Legal Division
in the foregoing discussion, and Governor Szymczak stated that this also
represented his position.
Two changes in language of the proposed litigation report suggested
11)r Governor King having been accepted, unanimous approval was given to the
report for
transmittal to the Department of Justice.
A copy is attached
48 Item No. 8.
Messrs. O'Connell, Rudy, Nelson, and Leavitt then withdrew from the
meeting.
Account for Bank of Morocco
(Item No. 9).
Before this meeting
there had been distributed a memorandum from the Division of International
?148-nce dated November 14, 1960, recommending that the Board approve a
11/17/6o
-19-
draft telegram authorizing the Federal Reserve Bank of New York to open
and maintain an account in the name of the Bank of Morocco.
The opening
of the account had received favorable recommendation from the officers of
the Federal Reserve Bank of New York and was approved by their Board of
Directors on November 10, 1960.
After a comment from Mr. Furth to the effect that the opening of
the account had been requested in order that the New York Reserve Bank
Illight transfer to and credit such account with approximately 300,000 troy
°Unces of fine gold, unanimous approval was given to the telegram to the
Federal Reserve Bank of New York authorizing the Bank to open and maintain
the account.
A copy is attached as Item No.
9.
Accounts for International Development Association
(Item No. 10).
There had been distributed a memorandum from the Division of International
Finance dated November 14, 1960, recommending that the Board authorize the
letter
Fecleral Reserve Bank of New York to open the accounts requested in a
or November 8, 1960, by the International Development Association.
noted in the memorandum that the request conformed to section
International Development Association Act.
4
It was
6 of the
Attached to the memorandum was
draft telegram to the Federal Reserve Bank of New York authorizing it
to °Pen the accounts.
There being no objection, the telegram was approved unanimously in
the form of attached Item No. 10.
Messrs. Fauver and Furth then withdrew from the meeting.
11/17/60
-20-
Federal Reserve Bank delegates to meeting in Argentina
II and 12).
(Items
There had been circulated drafts of letters to the Federal
Reserve Banks of New York and Cleveland inquiring as to the possibility
Of those Banks sending delegates to the Sixth Operational Meeting of the
Center for Latin American Monetary Studies to be held in Buenos Aires,
Argentina, April 3-15, 1961.
The letters would indicate that the Board
would look with favor upon the sending of delegates by the New York and
Cleveland Banks to this meeting.
Mr. Sherman noted that the proposed letters hall been prepared by
Mr. Sammons after informal conversations with officers of the two Reserve
Banks.
The letters to the Federal Reserve Banks of New York and Cleveland
were approved unanimously.
Copies are attached as Items 11 and 12,
respectively.
The meeting then adjourned.
Secretary's Notes: Governor Shepardson approved
on behalf of the Board on November 16, 1960, a
memorandum dated November 7, 1960, from Mr. Hexter,
Assistant General Counsel, recommending that Rufus S.
Hill, Jr., Legal Assistant, be granted a leave of
absence for an anticipated six months' tour of duty
with the military forces beginning November 20, 1960,
with no payment of unearned salary.
Pursuant to recommendations contained in memoranda
from appropriate individuals concerned, Governor
Shepardson today approved on behalf of the Board
the following items relating to the Board's staff:
71(
_21-
11/17/60
_Sq_14_7 increases
effective November 27 1960
Helen L. Hulen, Chief, Publications Services, Division of Administrative Services, from $6,710 to $6,930 per annum.
William R. Smith, Laborer, Division of Administrative Services, from
$3,920 to $4 025 per annum.
Leave without pay
John A. Lovejoy, Assistant Federal Reserve Examiner, Division of
xxaminations, granted leave without pay from December 1 through December
3°) 1960.
-
1,71-\
Secre a,ty
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item
No. 1
11/17/60
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 17, 1960
C_ om
ptroller of the Currency,
Treasury
Department,
Washington 25, D. C.
Attention Mr. H. S. Haggard,
Deputy Comptroller of the Currency.
Dear Mr. Comptroller:
Reference is made to a letter from your office dated
;Y,41'71)
118
lia+
1960, enclosing copies of an application to organize a
'
bank at Mineola, New York, and requesting a recommendation
as -u3xlma.
+-0 whether or not the application should be approved.
A report of investigation of the application made by an
ez,
c 41er for the Federal Reserve Bank of New York indicates that the
:
px 7
taleP°sed capital structure of the bank would be adequate. However,
ap Prospects for earnings are not very favorable and there does not
J.1pr to be sufficient need for another bank at this time. The Board's
81:114ation indicates that the proposed directors of the bank are
s?ssful business and professional men and could no doubt attract a
coric
lderable amount of business to the new bank. However, some
chiervations are expressed with respect to the ability of the proposed
44! executive officer to administer the affairs of the bank satisalst°11-1Y. In the circumstances, the Board of Governors does not feel
A
trieu in recommending approval of the application.
The Board's Division of Examinations will be glad to discuss
4.11Y.c,
dea.'Peots of this case with representatives of your office if you so
Ire
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 2
11/17/60
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 17, 1960
Comptroller of the
Currency,
Treasury Department,
Ith
shington 25, D. C.
Attention Mr. W. M. Taylor,
Deputy Comptroller of the Currency.
Dear Mr. Comptr
oller:
is made to a letter from your office dated
Septemb
er
vuembe
r 8, 1960, enclosing copies of an application to organi
ze
,national bank at Cedar Falls,
Iowa, and requesting a recommenda-14)n as to whether or not the applic
ation should be approved.
Z
A report of investigation of the application prepared by
Federal Reserve Bank of Chicago indicates that the proponents
10e3cPect to provide a minimum capita struct
l
ure of '1.50,000 for the
instead of 1.45,000 as shown in the application. This amount
:)
,?ars somewhat low in relation to the volume of busine
c()
P!
ss which
be reasonably anticipated by the end of three years
of operaFuture earnings prospects appear favorable. Although the
executive officer of the bank has not been chosen, it appears
re7;(6 satisfactory manage
ment will be provided in view of the close
04ationship which is to be established
with The First National Bank,
th: Falls, Iowa. thile the need for another bank may not be urgent,
the e seems to be sufficient potential growth in the area
to support
DienroPosed institution. Accordingly, the Board of Govern
ors recomtor 8 favorable consideration of the application provid
ed arrangements
at.caPital structure of the bank and executive manage
ment are made
18factory to your office
.
the
Clisa
it 1,
The Board's Division of Examinations will be glad to disanY aspects of this case with representatives of
your office
so desire.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
el 2
4 „T ,‘•
BOARD OF GOVERNORS
40044*4
01001,44.
OF THE
FEDERAL RESERVE SYSTEM
Item No. 3
11/17/60
WASHINGTON 25. D. C.
4
4
ADDRESS OFFICIAL CORRESPONDENCE
KS%
4040*
TO THE BOARD
November 17, 1960
Coraptroller of the Currenc
y,
Treasury
Department,
"ashington 25, D.
C.
Attention Mr. C. C. Fleming,
Deputy Comptroller of the Currency.
'
pear Mr. Comptro
ller:
Reference is made to a letter from your office dated
4
84.Atem.er 26, 1960, enclosing copies of an application
of the Central
i;;ate Bank,
Oklahoma City, Oklahoma, to convert into a national bank-.
association and requesting a recommendation as to whether or not
the
e application should be approved.
A field investigation of the application has not been made
othe Federal Reserve Bank
of Kansas City has furnished us with a
b,
vrt on the application based upon your recent examination of the
and other data obtained from the local office of the Federal
-ePosit Insurance Corpora
tion.
The applicant bank originally operated as a Morris Plan
°°r4Pan
etru 4.Y and was converted to a State bank in 1941. The capital
the ?'llre, earnings prospects, and general character of management of
18 441stituti0n are favorably regarded. It is reporte
d that the bank
,
ie11 established and appears to be serving the convenience and needs
coris!area. Accordingly, the Board of Governors recomme
nds favorable
b
eration of the application of the bank to convert into a national
'-ng association.
The Board's Division of Examinations will be glad to discuss
CZ:s
ePects of this case with representatives of your office if you so
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 4
11/17/60
ADORES* orriciAt. CORRESPONDENCE
TO THE *CARO
November 17, 1960
Board of Directors,
California Bank,
Los Angeles, California.
Gentlemen:
Pursuant to your letter submitted through the
Federal Reserve Bank of San Francisco, the Board of
Governors of the Federal Reserve System approves the
establishment of a branch in the vicinity of the
intersection of Grand Avenue and Commonwealth Avenue,
Buena Park, California, by California Bank, provided the
branch is established within six months from the date
of this letter.
The Board understands that plans are now under
consideration whereby the principal shareholder,
Firstamerica Corporation, will provide substantial
additional capital funds for California Bank.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
441:1,
10*4
BOARD OF GOVERNORS
t4
,0
1
1 00fr 4
OF THE
IF
a
a
FEDERAL RESERVE SYSTEM
A*
Item No. 5
11/17/60
WASHINGTON 25, D. C.
4
*4
.0
04)4g,
ADDRESS orriciAL CORRESPONDENCE
TO THE BOARD
t4titat
44
:1444.*
November 18, 1960
Board of Directors,
Stromsburg Bank,
Stromsburg, Nebraska.
Gentlemen:
This refers to your request for permission, under
applicable provisions of your condition of membership numbered 1, to act in certain fiduciary capacities.
Following consideration of the information submitted,
the Board of Governors of the Federal Reserve System grants
Permission to Stromsburg Bank to act as executor and administrator, with the understanding that your bank will not accept
fiduciary appointments of other kinds without first obtaining
the permission of the Board.
It is noted that your bank has been operating with
Only four directors, one less than is required under the provisions of Section 31 of the Banking Act of 1933. In this
connection the Board now understands that this violation will
be corrected no later than the annual meeting of shareholders
of your bank, to be held in January 1961.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
Item No. 6
11/i7/60
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
UPI
In the Matter of the Application of
Ti
MARINE CORPORATION
f°r prior approval of acquisition of
voting shares of Oak Creek Marine
Nati-onal Bank, Oak Creek, Wisconsin
ORDER APPROVING APPLICATION UNDER
BANK HOLDING COMPANY ACT
There having come before the Board of Governors pursuant
to section 3(a)(2) of the Bank Holding Company Act of 1956
(12 USC 18421) and section 4(a)(2) of the Board's Regulation Y
(12 CFR 222
.4(a)(2)), application on behalf of The Marine Corporation,
Milwaukee, Wisconsin, for the Board's prior approval of the
acquisition of 60 per cent or more of the 20,000 voting shares of
Oak Creek Marine National Bank, Oak Creek, Wisconsin; a Notice of
l'entative Decision referring to a Tentative Statement on said
application having been published in the Federal Register on
October 26, 1960 (25 Federal Register 10282); the said Notice
hav
i"g provided interested persons an opportunity, before issuance
1
-2°f the Boardfs final order, to file objections or comments upon
the facts stated and the reasons indicated in the Tentative
Statement; and the time for filing such objections and comments
having expired and no such objections or comments having been
filed;
IT IS HEREBY ORDERED, for the reasons set forth in the
Board's Statement of this date, that the said application be and
hereby is granted, and the acquisition by The Marine Corporation of
60 Per cent or more of the 20,000 voting shares of Oak Creek
Marine National Bank, Oak Creek, Wisconsin, is hereby approved,
Provided that such acquisition is completed within three months
from the date hereof.
Dated at Washington, D. C., this 17th day of Noy;tble:f9 O.
By order of the Board of Governors.
Voting for this action: Governors Balderston, Szymczak,
Mills, Shepardson, and King.
Absent and not voting: Chairman Martin and Governor
Robertson.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(stAL)
Item No. 7
11/i7/60
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY THE MARINE CORPORATION, MILWAUKEE, WISCONSIN,
FOR PRIOR APPROVAL OF ACQUISITION OF VOTING SHARES OF THE
OAK CREEK MARINE NATIONAL BANK, OAK CREEK, WISCONSIN
STATEMENT
The Marine Corporation, Milwaukee, Wisconsin ("Marine"), a
bank holding company, has applied, pursuant to section 3(a)(2)
°I* the Bank Holding Company Act of 1956 ("the Act"), for the
Eleardis prior approval of the acquisition of 60 per cent or more
°I* the 20,000 voting shares of a proposed new bank, to be called
the Oak Creek Marine National Bank, Oak Creek, Wisconsin ("Bank").
Views and recommendations of the Comptroller of the
1cY. - As required by section 3(b) of the Act, the Board
---Z-21„
*e1/1
t°rwarded notice of the application to the office of the Comptroller
q the Currency. The Comptroller responded by recommending approval
0t the transaction.
Statutory factors. - Section 3(c) of the Act requires
the Beard to take into consideration the following five factors:
(1) the financial history and condition of the holding company and
-'44 concerned; (2) their prospects; (3) the character of their
-2-
(Li)
the convenience) needs) and welfare of the
communities and area concerned; and
(5) whether
or not the effect
of the acquisition would be to expand the size or extent of the
bank holding company system involved beyond limits consistent with
adequate and sound banking, the public interest, and the preservationof competition in the field of banking.
Discussion. - Marine now has four subsidiary banks in
Milwaukee County, one in adjacent Waukesha County, and one in the
City of Green Bay. Its principal subsidiary is Marine National
4change Bank) the third largest bank in Milwaukee County.
The city of Oak Creek has a population of about
91300.
Its area of about 29.5 square miles occupies the southeastern
P°1-t10n of Milwaukee County, and is bounded on the north by the
cities of Milwaukee, Cudahy, and South Milwaukee, and on the south
bY the Milwaukee County line. The application includes a
lin
'
omprehensive City Plan" report dated February 51 19591 which
"Iltains a statement that retail trade and service establishments
al'e widely scattered, and a greater central focus, functional
arl'angement, and shopper conveniences need to be developed.
1441'ine points out that the urban development of the area has been
"111Parat1ve1y slow, due primarily to financial and other hindrances
ch have been cleared away in the last two years. The
110_
umPrehensive City Plan" report estimates that the population
°t Oak Creek will be about 19,000 in 1965.
The site of the Bank would be approximately 10-1/2 miles
from downtown Milwaukee, and would be located at the approximate
geographic center of the city of Oak Creek in a shopping center
which is to be constructed on a 60-acre tract.
Other developments
in this newly designated downtown area of Oak Creek include a City
Rail and Administration Building, a high school (on both of which
construction is expected to be started in 1960), and an apartment
Project now under construction or planned for the near future which
will consist of a total of 1,600 apartments.
The plant of the largest
employer in the city is within one-half mile of the proposed bank site.
The financial history and condition, prospects, and manageMent of both Marine and Bank are satisfactory.
A consideration of the factor "convenience, needs, and
Welfare of the communities and area concerned" lends rather strong
suPport for approval of the application. This conclusion is based
113°11 (1) the fact that there is now no bank in the city and that the
two banks nearest the proposed bank site are 3-1/2 miles distant in
8011th Milwaukee; (2) the existing population of the city and the
44tioipated growth thereof; (3) the potential for increased industry;
and (4) the rather extensive municipal and private construction under
1/aY and in the planning stage in the immediate vicinity of the
Pl'oPosod bank site.
An additional judgment required of the Board by section 3(c)
of the Act is whether the effects of the proposed acquisition would be
to
expand the size or extent of Marinets holding company system
4
beyond limits consistent with adequate and sound banking, the public
interest, and the preservation of banking competition.
Marine nsw controls four of the 46 offices of commercial
banks in milwaukee County.
The total deposits of such banks amount to
'41.'661 million, of whicn Marine's banking offices hold :$215 million
or about 13 per cent.
Marine's acquisition of Bank would not appear
to involve an undue concentration of banking resources.
Marine and two other bank holding companies control a large
Proportion of the deposits held by all commercial banks in Milwaukee
County.
However, this is not regarded as a controlling factor in
this case in view of the situation in the primary service area of
8ank and the considerations with respect to "convenience, needs, and
welfare" mentioned above.
It is probable that Bank's business would be derived prin..
ciPally from Oak Creek.
The two existing banks most likely to be
altected by the establishment and operation of Bank would be the two
banks in South Milwaukee.
One of these, South Milwaukee Marine Bank,
i8 a subsidiary of Marine and, according to Marine, holds less than
v0,000 of deposits of individuals, partnerships, and corporations
(IPC) dert-ed from the anticipated primary service area of Bank.
The
Other bank in South Milwaukee, the Home State Bank, is not a subsidiary
any bank holding company, and having no time deposits would not
be
cumpeting with Bank for such deposits. The main comletitor of
Rome State for demand IPC deposits would continue to be South Milwaukee
Marine Bank, and as between those two banks the competitive situation
would not be changed by the proposed acquisition. Accordingly, Bank's
acquisition by Marine would not, in the Board's judgment, have any
material adverse effect upon Home State Bank or other banks.
The Board concludes that the proposed acquisition would not
expand the size or extent of Marine's holding company system beyond
limits consistent with adequate and sound banking, the public
interest, and the preservation of competition in the field of banking.
Conclusion. - The above views were incorporated in the
Tentative Statement issued in connection with the Notice of Tentative
aecieion published in the Federal Register on October 26, 1960
(25 Federal Register 10282), affording interested persons an
cPPortunity to submit comments on, or objections to, the Board's
Proposed action.
No comments or objections were received.
Viewing the relevant facts in the light of the general
PUrPoses of the Act and the factors enumerated in section 3(c),
it le the judgment of the Board that the proposed acquisition
Ilculd be consistent with the statutory objectives and the public
interest and that the application
November 171 1960
should be approved.
BOARD OF GOVERNORS
11 1,,
'
it *
A**
*
0
VO
il,A a
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 8
11/17/60
ADDRESS OFFICIAL CORRESPONDENCE
0
TO THE BOARD
t1:4 Mt&
4'440*
November 17, 1960
The Honorable George Cochran Doub,
Assistant
Attorney General,
Civil Division, Department of Justice,
W ashington 25, D. C.
Attention
Re:
Donald B. M. MacGuiness, Esq.,
Chief, General Litigation Section
The Continental Bank and Trust Company V.
William McChesney Martin, Jr., individually, etc.,
et al. (U.S.D.C.), Civil Action No. 3097-60;
Your Ref: GCD:APV 145-105-15
Dear Mr. Daub:
This is in reply to your letter of September 28, 1960,
dir
eued to the attention of the Board's General Counsel, conta ling
c.
detailed requests for information, copies of documents
recommendations in connection with the above-entitled matter.
It is understood that following conversations between
Le,Andrew P. Vance of your staff and Mr. O'Connell of the Board's
1(el Division, Mr. O'Connell transmitted by messenger on October 6,
al
c"
)°, such materials as he considered pertinent to the cause of
lo ion and responsive, in part, to your request of September 28,
For identification purposes, these materials were given item
trbers to which reference will herein be made. Further, in respect
the Motion for Order Directing Defendants to Certify and Return
/3cord, which accompanied the complaint filed by The Continental
tin and Trust Company (hereinafter "Continental"), it is understood
b'
a oral argument on that motion and the opposition thereto filed
the United States Attorney has been set for January 5, 1961, in
time
United States District Court for the District of Columbia.
Statement of facts. - A statement of the events which prep.01 the institution of the Board's administrative proceeding intfOng Continental is contained in the first seventeen pages of
th em No. 1.0 of the material earlier transmitted to Mr. Vance. In
e same pages will be found a discussion of mixed questions of fact
BOARD
OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran Daub
-2-
iand lau arising during the early stages of the hearing conducted
by
6he Board. Portions of these questions are also discussed at pages
4
through 11 of "Item No. 2". As to the occurrences following the institution of
the Board's hearing and preceding the institution of
suit by Continental, your attention is directed to paragraphs 5
tnrough 10 of the complaint herein. These paragraphs, with the
ception of paragraph 7, accurately reflect such occurrences. The
,
eard's proposed answer to the allegat,Aons of paragraph 7, following
"ereafter, will identify those allegations which are deemed to be
correct.
r
Relevant statutes and regulations. - The Board of Governors
was established by, and its principal operations are conducted pursuant
to, the Federal Reserve Act, Act of Dec. 23, 1913, c. 6, § 9 38 Stat.
)
251; 12 U.S.C. § 221, et seq., as amended. The Board's supervisory
211th0r1ty
over State banks that are members of the Federal Reserve
sterri is derived principally from section 9 of the Federal Reserve
et as amended by Acts of June 21, 1917, 40 Stat. 232; Feb. 25, 1927,
44 Stat.
1229; June 16) 1933, 48 Stat. 164; June 16, 1934) 48 Stat. 921;
23, 19351 49 Stat. 721; Aug. 17, 1950, 64 Stat. 458; July 15,
2, 66 Stat. 633; 12 U.S.C. § 321, et seq., as amended. Paragraph 1
:
4- section 9 of the Federal Reserve Act authorizes the Board to preIdlcrale
conditions of membership for State banks which join the Federal
_eserve System. This authority is subject to the proviso that such
;
:
-°/1ditions shall be pursuant to the terms of
the Federal Reserve Act.
?critinental
voluntarily sought and accepted membership in the System
T1133ect to specific conditions contained in a letter from the Board
.t?d January 25, 1952, two copies of which are enclosed. These conartl°ns) considered by the Board to be a vital part of the Board's case,
also set forth at page 4 of "Item No. 411. Of particular importance
b' Paragraph numbered 2, hereinafter referred to as Condition of Ilem:
1311iP No. 2, relating to the adequacy of Continental's net capital
al
'
4 surplus funds in relation to the character and condition of its
'
Tisl ets and deposit liabilities and other corporate responsibilities.
1,,,e8e conditions of membership were prescribed pursuant to the Fbderal
11";"ve Act and were accepted by Continental through appropriate resotI°n of its Board of Directors, two copies of which are enclosed.
7
g
The Board's position, as it relates to statutory and regulaProvisions involved, is that should Continental fail to comply
cr
the Board's order of July 18, 1960, requiring Continental to inm,!ee its capital, such noncompliance would violate Condition of
'e'uoership No. 2 and, simultaneously, constitute a violation of both
0,icm 9 of the Federal Reserve Act (12 U.S.C. 321, as amended); 38
259, as amended, and section 6(c) of the Board's Regulation H,
A7!.R., pt. 208 § 208.6(c). A copy of that Regulation is enclosed.
'uzig the validity of the aforestated position, it would then be
to,...-
2,A,1
BOARD
OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
cc,,Itor"
t
The Honorable George Cochran Doub
argued that the noncompliance and accompanying violations of
Paragraph 1 of section 9 of the Act and section 6(c) of Regulation H
would set into motion the forfeiture provisions of paragraph 9 of
section 9 of the Act (12 U.S.C. 329).
Inasmuch as the administrative hearing commenced in 1956
was ordered by the Board to be corvilicted in accord with the applicable
requirements of the Administrative .crocedure Act and the Board's Rules
Of Practice for Formal Hearings, the provisions of each are also relevant. A copy of the Board's Rules of Procedue, the Appendix:to which
Contains the Rules of Practice for Formal Hearings, is enclosed. As
.t
to the Administrative Procedure Act, those provisions are relevant
tl:lat relate to judicial review of administrative action and, in parsection 10, which precludes judicial review of agency action
/4.
44joh is by law committed to agency discretion. The significance of
le latter provision is discussed hereafter.
Legal issues involved; possible defenses thereto. - There
set forth below in question form the issues that appear to be
ctLectly raised by Continental's complaint. The merits of each of
ese issues are sufficiently discussed, it is believed, in the material
t l.leviously transmitted to Mr. Vance, so as to obviate a need for present
f
I -scussion. However, as to the issue of the validity of the Board's
"
eegulation H, a few additional thoughts are set forth for your considration. The issues apparently raised are:
a.
(a) Does the Board of Governors of the Federal Reserve System
hav.o
statutory authority to require a State member bank (a bank charred by a State that is a member of the Federal Reserve System) to
4.°m1)31Y with a condition of membership as to adequacy of capital and
_ order such a bank to increase its net capital_ and surplus funds
ough the sale of common stock for cash if, in the Board's judgment,
un.e
bankis capital is inadequate?
j
(b) Is the Board's Regulation H a valid regulation so as to
a charge of violation thereof? It appears from the allega1;:ans of paragraph No. 12 of the First Cause of Action that issue will
t;' joined on this question. It is believed that a judicial determinarje-°11 on this point in Continental's favor appears improbable for the
toas°113 hereafter stated and that, even if rendered, would not appear
th weaken substantially the Board's case. Support for the position
at the Court would sustain the validity of the Regulation is found
0 the decision of the United States Court of Appeals for the Tenth
4, lt in the case of The Continental Bank and Trust Company v.
239 Fed. 2nd 707 (CCA-10, 1957Y; cert. den. 353 U.S. 909 (1957).
sun
)
BOARD
OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
The Honorable George Cochran Doub
The ioodall case arose in the United States District Court for the
District of Utah when Continental filed suit to enjoin the Trial
Examiner from conducting the hearing ordered by the Board in respect
to.Continent
al's capital adequacy. The District Court dismissed the
suit for failure to join the Board as an indispensable party.
On
agPeal to the Court of Appeals, the District Court's judgment was
affirmed, the Court of Appeals holding that the Board had the power
to order
the hearing and that this cuthority hnd been regularly delegated to the Trial Examiner, who, in turn, was acting within the
range of the delegated authority. As a concequence, the Court held
that the Board was an indispensable party to an action to enjoin the
hearinP. In reference to the validity of Regulation H, the opinion
Of the Court contains the following statement:
"The Board promulgated and for many years has maintained
Regulation H relating to conditions of membership of State
banking institutions in the Federal Reserve System ... the
Regulation is in harmony with the objectives and purposes of
the Act. It is reasonably adapted to further the discharge
02 the duties and functions of the Board under the Act. And,
its promulgation and maintenance constitute permitted administrative action under the Act .. ."
Additional language in this opinion lends further support
to-hie position that Regulation H was validly promulgated and would
be sustained by the
Court.
valiA.
Should Continental prevail in its contention as to the in-
-ultY of Regulation H, the Board would still take the position that
failure on the part of Continental to obey the Board's order of
IY 18, 1960, would constitute a violation of paragraph 1 of sec4-0n 9 of the Federal Reserve Act.
J
(c) Assuming that the Board's authority over the capital
ade,
'illaoy of a State member bank is sustained, paragraphs 13 and 14
1 the First Cause of Action
of the complaint raise questions as to
or not Continental was denied due process of law in regard to
the
e e conduct of the Board's hearing resulting in the July 18 order.
As
1.0
.4r-Lier mentioned, the validity of these questions is discussed at
Ilth in the material not,/ in the Department's possession
.
Should it be determined that an answer to the complaint will
be 0.
vio4lled on the Board's behalf, the theories of defense in the preor 1131Y transmitted memoranda would presumably be utilized in the trial
th it case. Consistent with these defenses there is set forth below
cje admissions and denials to the complaint which the Board believes
1-114 be supported by substantial evidence.
ti 2:q1;
BOARD
OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran Doub
-5-
As to the First Cause of Action:
1. On the question of admitting or denying the Court's
jurisdiction, the Board defers to the Department's judgment in this
matter. The third subparagraph is admitted.
2.
The allegations of paragraph 2 are admitted.
3. The allegations of paragraiTh 3 are admitted.
4. The allegations of paragraph 4 are admitted, except as
to the last sentence of the said paragraph, concerning which
defendants
:
„are without knowledge or information sufficient to form a belief as
-v) the truth of the allegations therein.
5.
The allegatAons of paragraph
6.
The allegations of paragraph 6 are admitted.
5
are admitted.
Defendants admit the allegations of paragraph ?with
•7.
exception of the allegations contained in the last sentence of
at paragraph. Defendants deny that the Board's order of September 26,
ti9
,56, denied Continental's motions to dismiss "on the ground that ...
e notice of hearing] fully apprised Continental of the charges
inst it, to-wit: failure to corply with section 9 of the Federal
serve Act and Regulation H of the Board of Governors of the Federal
'leserve System, .. ."
the
4.
p
8. The allegations of paragraph 8 are admitted.
9.
The allegations of paragraph 9 are admitted.
10,
The allegations of paragraph 10 are admitted.
res, U. Paragraph 11 contains conclusions of lau to which no
to "Ilse is required. To the extent that paragraph 11 is considered
contain allegations of fact, those allegations are denied.
12. Paragraph 12 contains conclusions of lau to which no
sP(Dnse is required. To the extent that paragraph 12 is considered
a„. contain allegations of fact, those allegations are denied. Defendants
prer
y
that there has been no assertion that plaintiff has violated any
°Irision of the Board's Regulation H.
Z
13. Answering paragraph 13, defendants admit that the Board's
Nies
adr„ and regulations do not provide for subpoena. Defendants further
'it that following the close of the official hearing record, the
BOARD
OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran Daub
Board made use of reports of examination of Continenta
l; however,
defendants aver that such reports of examination were prepared
following dilly authorized examinations of Continental, such exami
nations having been conducted with the full knowledge
of Continental,
and that a copy of each such repor
t of examination used by the Board
was furnished to Continental. Defendants are
not required to respond
to the conclusions of law conta
ined in paragraph 13. Defendants
denY each and every other allegation contained
in paragraph 13.
14. Paragraph 14 contains conclusions of law to which defendants are not required to respo
nd. To the extent that this paragraph contains allegations of fact, those
allegations are denied.
15. Defendants deny the allegations contained in paragraph 15.
16. Paragraph 16 contains conclusions of law to which defe
ndants are not required to respond. To the extent that
this pararaPh contains allegations of fact, those alleg
ations are denied.
fe17. Paragraph 17 contains conclusions of law to which
dendants are not required to respond. To the extent that
this paraErat)h contains allegations of fact, those alleg
ations are denied.
fe18. Paragraph 18 contains conclusions of law to which
deildants are not required to respond. To the exten
t that this paragl''aPh contains allegations of fact, those allegations are denie
d.
he Second Cause of Action:
1. Defendants respond to paragraph 1 by incorporating herein
the
ca 44: several responses to paragraPhs
1 to 12 of plaintiff's First
1188 of Action.
2. Defendants deny each and every allegation of fact confled in parag
raph 2. Defendants are not required to respond to the
—gAlinents and conclusions of law contained in parag
raph 2.
tain„ 3. Defendants deny each and every allegation of fact con—
in paragraph 3. Defendants are not required to respond to
the
arguments and conclusions of law contained in paragraph 3.
4. Defendants are not required to respond to the conclusions
contained in paragraph 4. To the extent that the said para—Pa contains allegations of fact,
such allegations are denied.
of 1,
BOARD
OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran Doub
-7-
5. Defendants are without knowledge or information sufficient to form a belief as to the truth of plaintiff's assertions of
its beliefs. Defendants are not required to respond to the arguments
and conclusions of law and fact contained in paragraph 5. To the
extent that the said paragraph contains allegations of fact, these
allegations are
denied.
6. Defendants are without knowledge or information sufficient to form a belief as to the truth of the allegations of paragraph 6.
7. Defendants are not required to respond to the arguments
contained in paragraph 7. To the extent that paragraph 7 is considered to contain allegations of fact, defendants admit Continental
iS entitled to have the proceeding instituted by the Board in its
?rder of June 29, 1956, disposed of administratively; that any
aring
that may be held involving the Board's order of July 18,
1960, will involve the same parties. Defendants deny each and every
°ther allegation in paragraph 7.
On the assumption that the Department will give consideration
to the appropriateness of moving to dismiss Continental's complaint
:
here follows a discussion of grounds upon which it is believed that
"II a motion might be based.
First, it could be urged that the Board's order of July 18,
1960,
0, is not judicially reviewable. The Administrative Procedure Act
Pr
that ". . . every final agency action . . . shall be subject
'° Judicial review", 5 U.S.C.A. § 1009(c). (Emphasis supplied) As
Y2t there has been no determination by the Board that Continental has
olated a condition of membership, a Regulation of the Board, or a
°vision of the Federal Reserve Act. The administrative hearing was
;
b dered for the purpose of receiving evidence upon which the Board might
0a8e a determination of the adequacy of the Bank's capital. The July 18
Ier reflects that determination and orders Continental to increase
n vs capital in a stated amount, within a given period. The order goes
n° further. It makes no provision for Board action in the event of
ircompliance. It does not require Continental to surrender its stock
rile the Federal Reserve Bank of San Francisco, and thus give up its
ThrlIhrship in the System. Further administrative action is required.
'
re is no automatic dismissal from the System.
A final order of some
vi
ature must be issued before the injury to which Continental refers,
plZ., compulsory withdrawal of Continental from the System, can take
01..". Even assuming Continental's noncompliance with the July 18
'
or er, section 9 of the Federal Reserve Act does not make forfeiture
membership mandatory. Rather, that section provides "it shall be
2S9
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
eJ 2°P
The Honorable George Cochran Doub -8'within the power of the Board after hearing to require such bank to
surrender its stock • • • and to forfeit all rights and privileges of
membership." On the basis of the foregoing, it appears that
the
Position could be reasonably taken that the Board's order of July 18
does not constitute "final agency action"
susceptible of judicial
review.
An additional "lack of jurisdiction" argument would appear
reasonably to be premised on the provisions of section 10 of the
Administrative Procedure Act. Continental asserts in its complaint that
the remedy invoked is that provided for in ". • • Section 10 of the
• • • Administrative Procedure Act". Section 10, "Judicial Review",
exPressly excepts from the provisions for judicial review
"agency
action [that] is by law committed to agency discretion -". A deteration as to the adequacy or not of a member bank's capital in relation
stated factors, has been committed by Congress to the judgment of
!he
Board. The making of such a determination necessarily requires the
'xercise of discretion by the Board. Further, and necessarily, any
tion taken by the Board premised on a determination as to a bank's
.F.,
4131-tal inadequacy constitutes discretionary action and is not subject
iv Judicial review under section 10 of the Administrative Procedure
rtct. For citation of authorities on the point that, in general, the
2
:tlare of the Board's supervisory functions requires of the Board the
nertise of judgment and discretion, attention is directed to pp. 47-51
.'. the Memorandum of Points and Authorities in support
of the Motion
0° Dlsmis5, filed on the Board's behalf in Old Kent Bank and Trust
ic:1111
) ,,an V. Win. McC. Partin, Jr. et al., ciVII Action MT:7:993-5ga copy of which was furnished your Department
"
j* of J. File: 145-105-8).
v
r
Z
Further, the United States Court of Appeals for the District
c/r Columbia
• has recently decided the case of Federal Home Loan
to
Bank
v. Roue, et al., CADC, No. 15630 (October 20, 1960), inamong otli-ei7issues, the question of the Federal Home Loan
0:"K Board's discretion in approving an application for permission to
'
toganize a Federal savings and loan association. In sustaining the
toat'd's discretion in this regard, the Court used language applicable
li0 1Pervisory actions generally in the field of banking. This language
:
th'141 appear to lend substantial strength to the position herein taken
to4
the Board's action with respect to Continental "is by law committed
'
agency discretion."
An additional point in support of a motion to dismiss would
q1Pear to
be the fact that the asserted basis for the equitable relief
too speculative, too remote and indefinite to justify
interventio
n. Continental seeks a judicial declaration
at the
Board lacks authority to take the action complained of and, in
bdtit is
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran Doub
4291
-9-
suPport of its petition, alleges that if such declaration is not
Made, Continental is in immediate danger of being required to surrender
its Federal Reserve Bank stock and to forfeit its membership in the
Federal Reserve System (see par. 15, First Cause of Action). The fact
is that no such action has been threatened; it is not now certain
what action, if any, the Board will take if Continental fails to
comPlY with the July 18 order. Moreover, forfeiture of membership
is not automatic. Nor is it mandato2y. A forfeiture of membership
order, discretionary with the Board, would have to be preceded by
a hearing. The foregoing circumstances, it is submitted, sustain the
Position that Continental's assertion of immediate likelihood of
Irreparable injury is speculative, remote and contingent to a degree
that precludes the equitable relief sought. As stated in the opinion
of the United States Supreme Court in Eccles et al. v. Peoples Bank
Af--1_1_
,akewood Villaget_California, 333 U.S. 426 (1948), "the Bank's
gln-evance here is too remote and insubstantial, too speculative in
nature, to justify an injunction against the Board of Governors, and
therefore
equally inappropriate for a declaration of rights." (p. 434)
A Judicial declaration of Continental's rights should await identification by it of administrative action taken or reasonablx expected to
Occur and reasonably calculated to produce the injury of which comPlaint is made.
If a motion .to dismiss the complaint is filed, it is the
Bo
A
,sr,,Is
view that, as 'a further ground in support of such motion, it
!aould be urged that Continental has failed to exhaust its administsrative remedies. This point could be consolidated appropriately
with the defense previously discussed dealing with the non-final
nature of the Board's July 18 order. While the doctrine of
?xhaustion of administrative remedies, originally set forth
31in the case of Myers v. Bethlehem Shipbuilding Corporation, 303
S. 41 (1938), has been limited or restricted bysubsequent decisions
°f that Court, Franklin v. Jones Aircraft Corporation, 346 U.S. 868
953); Allen v. Grand Central Aircraft Corporation, 347 U.S. 535
-L91.511), its basic validity continues to be recognized and the rule
7
,)f
PPlied where circumstances warrant such application. In an analysis
t,,the 1424E2 decision, and subsequent decisions on the exhaustion doeDavis, "Administrative Law Treatise" (1958), section 20.03,
.1,'9
:ges 67-74, asserts that a currently workable standard to determine
!i's likelihood of a court's applying the exhaustion doctrine would inthree key factors, to wit: the extent of probable injury should
the0
administrative remedies be exhausted; the degree of apparent clarity
doubt about administrative jurisdiction, and the degree to which specadministrative understanding is involved in the issue of jurisdic'
°n. Assuming the validity of Professor Davis' position, it is submitted
BOARD
OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran DoUb
-10-
that on the facts of the present case the Court could reason
ably
sustain the position that Continental has failed to exhaust its
administrative remedies.
In respect to the "irreparable injury" to which Continental
allees it would be subject should it be required to exhaust
its
administrative remedies, paragraphs
5 rind 6 of the Second Cause of
Action assert that such injury would take the form of "undermining
the confidence of Continental's deposit
ors and other customers in ..
[Continental's]
financial stability and othenrise irreparably injure
Continental", and that further administrative
proceedings will
necessitate Continental's expending substantial sums of
money in
addition to the amounts already expend
ed.
Evidence of the lack of any substantial undermining effect
Continental's depositors of the Board's proceedings, it is sub11,:iltted, is the fact that Continental's total deposits increased
from
4;
1 9)035)087 at June 30, 1956, the day following the issuance of the
Quard's notice of hearing, to 76,162,356 at June 15, 1960.
Significantly, this increase in deposit
s occurred despite the fact that
,1111 ing the period June 30) 1956, to June 15, 1960, Continental
did
:Tt establish any additional banking offices in Salt
Lake City,
ereas in that period its three chief banking competitors
did establsh branch offices in Salt Lake City or enviro
ns.
r
As to Continental's allegations of the expense to which it
.1 .as been and will be subjec
ted, it is submitted that such generalities,
c4ia ing specificity as to dollar amount expended in relation to total
amount involved, will not override the exhaustion requirement.
ther, Continental cannot at this time support its assertion of the
13"-!-Kelihood of future heavy expenditures. As explained earlier, future
2ard action is now unknown. There
is no basis for any accurate estiof the exact nature of future proceedings, if any, nor of the
a:1,
11e to be consumed by any such proceedings.
It follows that any
1.11.`-'-eation of future expenditures is purely speculative.
It is recogIti d, of course, that the relief sought by Continental is discre
tionary
the Court and that the Court's estimate of Contine
ntal's
abilit
y
00 estimate future expenditures, if based on past actual
expenses,
"cl Weigh in Continental's favor on the point of requiring
exhaustion
administrative remedies.
42f
I,t
BOA 0 OF GOVERNORS or THE FEDERAL RESERVE SYSTEM
The Honorable George Cochran Doub
-al-
Following study by your staff of this report and related
materials, the Board's Legal Division will render any further
assistance that you consider necessary in connection with the
Department's representation of the Board's position.
Very truly yours,
(signed) Merritt Sherman
Merritt Sherman,
Secretary.
zaciosures
ev,
1,04
4
Item No. 9
TELEGRAM
ii/i7/60
LEASED WIRE SERVICE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
November 17 1960
COIRS
NEW YORK
Your wire November 10. Board approves the opening and maintenance
Of an account on your books in the name of Banque du Maroc (Bank of
Morocco)
subject to the usual terms and conditions upon which your
13ank maintains accounts for foreign central banks and governments.
It ill understood that you will in due course offer participation
th4
account to the other Federal Reserve Banks.
(Signed) Merritt Sherman
SIMON
Item No. 10
11/17/60
TELEGRAM
LEASED WIRE SERVICE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
November 171 1960
COom
- NEW YORK
In response to your wire of November 10 relating to opening of accounts
t°r International Development Association the Board of Governors
authorizes you to open the accounts referred to in the wire.
(Signed) Merritt Sherman
SEEMAN
BOARD OF GOVERNORS
ott****04
OF THE
4
;
4°4°14
'
t
1
a„
okto,
FEDERAL RESERVE SYSTEM
71em it
• tt
*
WASHINGTON 25. D. C.
):
ts
Item No. 11
11/17/60
ADDRESS OFFICIAL CORRESPON1ENCE
TO THE BOAR°
Stra004V
l 0004
'
November 17, 1960
Mr. Alfred Hayes, President,
Federal Reserve Bank of New York,
33 Liberty Street,
New York 45, New York.
Dear Mr. Hayes:
There is attached a copy of a letter dated October 4,
1960, from the Center for Latin American Monetary Studies
inviting the Federal Reserve System to participate in the
Center's Sixth Operational Meeting to be held in Buenos Aires,
Argentina, April 3-15, 1961. Also enclosed is a copy in
Spanish of the agenda for the meeting, together with the
SYetem's answers to the questionnaire included in the proposed agenda.
The Board understands that informal conversations
have taken place between Mr. Sammons of the Board's staff
and Messrs. Sanford and Crosse of your Bank regarding the
possibility of your sending a delegate to this meeting.
The Board would look with favor upon such action on your
Part and hopes that it will be possible for your Bank to
Participate in this manner.
If you wish to send a delegate, early advice of
his name will be appreciated in order that the Center may
be informed of those who will be coming from the Federal
Reserve System.
Yours very truly,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosures 3
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 12
11/17/60
ADDRESS OfFICIAL CORRESPONDENCE
TO THE BOARD
November 17, 1960
Mr. W. D. Fulton, President,
Federal Reserve Bank of Cleveland,
1/455 East Sixth Street,
Cleveland 1, Ohio.
Dear Mr. Fulton:
There is attached a copy of a letter dated
October 4, 1960, from the Center for Latin American
Monetary Studies inviting the Federal Reserve System to
Participate in the Center's Sixth Operational Meeting to
be held in Buenos Aires, Argentina, April 3-15, 1961.
Also enclosed is a copy in Spanish of the agenda for the
meeting, together with the System's answers to the questionnaire included in the proposed agenda.
The Board understands that informal conversations
have taken place between Mr. Sammons of the Board's staff
and Mr. Thompson of your Bank regarding the possibility of
your sending a delegate to this meeting. The Board would
look with favor upon such action on your part and hopes
that it will be possible for your Bank to participate in
this manner..
If you wish to send a delegate, early advice of
his name will be appreciated in order that the Center may
be informed of those who will be coming from the Federal
Reserve System.
Yours very truly,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
%closures 3
@FedFRASER