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Minutes for To: Members of the Board From: Office of the Secretary November 18, 1963 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If You were not present, your initials will indicate only that you have seen the minutes. Chin. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov, Shepardson Gov. Mitchell Minutes of the Board of Governors of the Federal Reserve 8Ystem on Monday, November 18, 1963. The Board met in the Board Room 4t10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Mitchell Mr. Sherman, Secretary Mr. Kenyon, Assistant Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Molony, Assistant to the Board Mr. Cardon, Legislative Counsel Mr. Hackley, General Counsel Mr. Noyes, Director, Division of Research and Statistics Mr. Farrell, Director, Division of Bank Operations Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration Mr. Connell, Controller Mr. Hexter, Assistant General Counsel Mr. Shay, Assistant General Counsel Mr. Hooff, Assistant General Counsel Mr. Holland, Adviser, Division of Research and Statistics Mx. Kiley, Assistant Director, Division of Bank Operations Mr. Smith, Assistant Director, Division of Examinations Mrs. Semia, Technical Assistant, Office of the Secretary Mr. Doyle, Attorney, Legal Division Ratification of actions. Actions taken by the available members °r th, - Board at the meeting held on November 15, 1963, as recorded in the 414.11ten - of that meeting, were ratified by unanimous vote. 40 11/18/63 -2- Circulated items. The following items, copies of which are 4tached to these minutes under the respective item numbers indicated, unanimously: Item No. 11,ietter to Muscatine Bank and Trust Company, atatine, Iowa, approving the declaration of m-tvidend in December 1963. 18.4 ter to the Federal Reserve Bank of Dallas : 1Dr°17ing the payment of salary to Tony J. 84vn 1. I -gglo as Assistant Cashier at the rate , d by the Bank's Board of Directors. Definition of savings deposit. orajo it 1 2 In response to a request made by a representative of the Federal Deposit Insurance Corporation, I1M -8 understood that there would be no objection to appropriate members the Board's staff participating with staff members of the Corporation 1/11(1 the, -- Office of the Comptroller of the Currency in an initial meeting sel'tailling to a study announced recently by the Corporation relating to the , ' Ieflnition of a savings deposit. Absorption of exchange charges. With a memorandum dated September 27, the Legal Division submitted to the Board a preliminary revision of 11 ti°n Q, Payment of Interest on Deposits. The memorandum pre'sented te t Y-°dd questions arising within the scope of the regulation; the first Or th ese, whether or not absorption of exchange charges constitutes a payterit n-p 1300.N. interest on demand deposits, was discussed preliminarily by the °r), October 10, 1963. That discussion related principally to the 401_7 11/18/63 -3- Pessibility, suggested by the Legal Division, that the Board might want of • t° consider reversing its position of long standing that absorption exchange charges does constitute a payment of interest and thus falls 'thin the provision of section 19 of the Federal Reserve Act that prohibits the payment of interest on demand deposits "directly or indirectly, h7111nY device whatsoever." The Federal Deposit Insurance Corporation, &n its regulation applicable to nonmember insured banks, had long taken . -, 4 C°11tra, at the Board's October 10 meeting '"J position, and the discussion l'eecgnized the possibility that this problem of divergent rulings by silPervisory agencies conceivably might be removed after changes took 1314ce in the near future in directorships of the Corporation. There had now been distributed a memorandum dated November 8, 1963 n 'from Mr. Hackley, attaching a memorandum of background informatio 131..eareci in March 1962 and sent to members of the Federal Advisory Council In a, 'vance of a meeting of the Council at which absorption of exchange No, was a topic on the agenda. Mr. Hack1ey's memorandum had been 1)14"cl on today's agenda for discussion in preparation for the Board's fli -g With the Federal Advisory Council tomorrow, at which the problem or ab sorption of exchange charges was again, at the Board's request, to be a t°Pic of discussion. At the Board's invitation, Mt. Hackley summarized arguments for 8.111 a gainst reversal of the Board's position, after which there was m'ssion of various aspects of the problem, including the definition 4018 11/18/63 Of interest. It was suggested, among other things, that many member particularly the large ones, probably would not welcome a reversal 0 or the Board's position because they would then be under pressure to abso-, Au exchange charges at considerable expense. At the conclusion of the discussion, it was understood that at the meeting with the Federal Advisory Council the Board's posture would be °Ile of making the Council aware that the exchange absorption problem e°14inued to be a matter of concern, on which the Board would like to licit the current thinking of the members of the Council, and that evel'sal of the Board's position was one possibility. Messrs. Hexter, Hooff, and Smith then withdrew from the meeting. Itpartment store reporting program (Item No. 3). On March 6, 196) J, the Board discussed progress being made toward resolving problems -ng to the System's contemplated disengagement from the department e reporting field, and on April 19, 1963, a letter was sent to ' atcll 11' H. Bennett, President, National Retail Merchants Association, ' eoiroze ntlng on suggestions he had made regarding the program. There had 11°"seet distributed a draft of letter to Mr. Bennett setting out develop/netts subsequent to the Board's previous letter to him. At the Board's invitation, Mr. Sherman commented on the draft lett el". ce -.se The program described in it called for the Federal Reserve to Preparing "national interest" statistics, since the Bureau of the 4019 11/18/63 -5- Censub was now compiling these data and its figures were considered more sPresentative. For the time being the System would be prepared to ecnItinue, on certain conditions, the collection of "local interest" data, that i figures for cities or standard metropolitan areas, for which the Census Bureau was not prepared to compile data at the present time. The clrart letter also discussed the proposal for a national departmental rt and outlined the status of the study of the feasibility of such a repOr4., a subject that had been discussed with trade representatives tairlY recently. If the national departmental report was developed allecessfully, its compilation would be turned over to the Bureau of the Ceneus. It was intended that the letter to Mr. Bennett would be followed UT bY a letter of instruction to the Federal Reserve Banks as to specific teps to be taken, and that an appropriate press release would be issued 4tabout the end of the year describing the changes to be made in the repo . rting program. The letter was thought to be consistent with prior eorr esPondence, and to go a considerable way in stating clearly the princ1P1e that the Census Bureau was the agency that had responsibility for trp,, -"e statistics and that the Federal Reserve Banks, even on the local ClEtta, would continue their work for only a temporary period. It was 11°1)eci that, even though there might be some people in the trade who be disappointed at the discontinuance of some of the material they 11141 had available in the past, the need for the proposed changes in the aal would be evident. 41)20 4/18/63 -6- There ensued a discussion of the extent to which Federal Reserve 111414 would continue to compile local department store figures and the Illtecedures that would be followed in making such a determination. It iles contemplated that within a year the Reserve Banks would discontinue the collection of data for cities for which a statistically significant re143rting sample was not available, with the trade being given advance Oti-- of this intention. Federal Reserve Banks might even discontinue g84er1ng data for other cities in their discretion. that at It was understood the Census Bureau was prepared to compile data for only 5 cities the present time, but that this might be expanded eventually to a 811h8tantial number. Comments were made on the desirability of leaving to 4.1_ Federal Reserve Banks as far as possible the decisions as to eitie. to be dropped. On the other hand, the need to avoid precipitous °yes that might upset relations with the trade also was noted. Several changes in the text of the draft letter to Mr. Bennett suggested and agreed upon, after which the letter was approved 111.14111n1°11s1Y, with the understanding that copies would be sent to the ?I'esidents of the Federal Reserve Banks. A copy of the letter, as sent, 18 ttached as Item No. 3. Mr. Noyes then withdrew from the meeting. Bank service charges (Item No. 4). On November 14, 1963, the oard, considered, but deferred action on, a draft of reply to Chairman ' ' 4 4- of the Legal and Monetary Affairs Subcommittee of the House 021 11/18/63 -7- eftmittee on Government Operations concerning a constituent's questions /13cillt bank service charges. There had now been distributed a revised (48trt of reply to Chairman Fascell. After a discussion during which several changes in the draft letter were suggested, one of which was agreed upon, the letter was 14Q1)-1°14.a01. unanimously in the form attached as Item No. 4. Messrs. Shay and Doyle then withdrew from the meeting. Examination review of Federal Reserve Bank expenses. There had beell distributed a memorandum dated October 22, 1963, from the bivision Or Pt, . -laminations, prepared in light of comments at recent meetings of the toara - regarding the relative infrequency of detailed comments, in reports °r e3tamination, on specific expenditures made by the Reserve Banks. The 111e41(3randum outlined the procedures followed by the field staff in reviewing "re Bank expenses, and discussed the various S-letters through which the, zoard provided guidelines to the Reserve Banks regarding such expenses. It -8 understood by the Division that the Board's interest centered rllY on expenditures that might be described as unusual or non-routine (lie., those not directly and necessarily related to operations, those Presented a question of propriety either per se or in the light or the, Jooard's expressions on the particular subject, or those that 4light be of questionable necessity or extravagant in the light of the relationship of the Reserve Banks to the Government). Such k*.De Ilses usually fell into such classifications as fees, entertainment, 4nd subscriptions, travel, employee welfare, and public relations. 022 11/18/63 -8- The memorandum concluded by stating that, in the event the Board 'wished. to be kept informed more currently and in greater detail on Re8erve Bank expenditures than present procedures provided, it was believed that that purpose could be served on a more regularized and lirlir°r111 basis by requesting the Reserve Banks to submit periodic reports detailing specified types of expenditures. Also, the Board might wish t() ""ve the instructions on the preparation of Reserve Bank budgets 41141ellded to request appropriate descriptive information pertaining to 131.Nected expenditures of the types discussed in the memorandum. At the Board's invitation, Mr. Solomon commented on the memorandum. In s ubstance, the current instructions to the Board's examiners required them to review expenses in detail and report any that they felt should be br-ught to the attention of the Board, the intention being to present to 4., 41e Board only those expenditures that seemed to need attention rather ' than , -Long lists of expenditures that involved little or no question. The etkrlation manual directed examiners to review the Board's guideline 4tters (the S-letters), to read the Reserve Bank's own regulations, to 8t4c/Y. the Bank's budget, and then to review all expenses in the light of that background and to prepare exceptions to any expenses that raised (Iteati°ne, these exceptions then to be reviewed with the Chief Federal lieBerlie Examiner. Ar The aim was to make sure that the expense was not only (1.13 r but had been put into the proper classification. It was hoped that the resent procedure would call attention to any improper expenditures 402;1, 11/18/63 -9.- with reasonable accuracy so that any needed corrections could be effected. Solomon's opinion, revision of the Board's outstanding S-letters 11.4 not needed; they were not absolutely rigid guidelines, but made 13r°vision for the exercise of discretion, flexibility, and judgment. In discussion, Governor Mills stated that he wished the record to Ilev that he was disappointed in the Division of Examinations' memorandum, which he read a proposal that the Division abdicate its function and that the examination of expenses be buried in the budgetary program, 413ecial1y since he regarded the current budget procedures as inadequate. Re c, -nsidered the examining procedures that were followed as white-washing the e xpenditures of the Reserve Banks on the premise, implied in the 1111414°andum, that the examiners disliked to irritate the management of the J°anks by calling to the Board's attention expenditures that might be 8111)Ject to discussion. line Mr. Solomon, in his summary, had mentioned border- cases, and Governor Mills believed that the examiners surely must riria eases of that kind where they were not satisfied with the classifie4tiOn of expenses and the purposes of the expenses. It was the duty of the examiner to bring such an expenditure to the attention of the Vhio, "'was the proper body to pass on the question of propriety. Board, The 14'°eeclures now followed, it seemed to him, involved a dereliction of duty °nthe.. - part of the Division of Examinations in relation to an area of Ner 41 Reserve Bank expenditures that was open to serious criticism on the l e'rt of Congress. He felt that the Federal Reserve Banks were much ' 41)24 11/18/63 -10- Ore closely identified with the Federal Government establishment than tlI r were with the private field of activity, and that the Board's Procedures for their supervision should bear this in mind. Mr. Solomon clarified that it had been intended that any requirerlient that the Board might wish to institute for periodic reporting by the Reserve Banks of certain types of expenditures would supplement rather replace the activities of the field examining staff. than As to exclusion ct items from reports of examination out of apprehension that their 111c1118ion might irritate the Reserve Banks, he had not intended to convey the impression that this was in any sense a factor. If an item was con8idered questionable, reference was made to it in the report. He had °I14 intended to say that if upon review it developed that an item was deternot to be questionable, then it was not included. Further discussion elicited the comment from Mr. Solomon that it haci riot been intended to suggest that items were referred to in examination "'S . only when there was substantial question about their propriety. Items were omitted only if it developed, upon further review by the Nmi ner, that any initial doubts could be satisfactorily resolved. Following this discussion, Chairman Martin commented that there etppe 4red, to have been some element of misunderstanding and that he thought the yik. of Governor Mills and the Division of Examinations probably Closer together than might have at first appeared. Governor Mills Obae rved that he hoped this was so, for his thinking was substantially 11/18/63 -11from the impression he had received concerning the views of the 11)1/rision of Examinations upon reading the memorandum from the Division. Governor Mitchell expressed the view that the procedures being Naowed, as reflected in the memorandum, were appropriate. 111.re Banks were spending in all over The Federal 00 million a year, and in today's cli8cuss10n the Board was focusing on types of expenditures involving only 41*W hundred or a few thousand dollars. Effective supervisory efforts ".11-ed for attention to be directed principally toward the substantial e(3t of the basic functions of the Banks. It seemed to him that, if allYthing, present procedures tended to focus the Board's attention too ch On minutia. He would dislike to see the Board concentrate its l'elriew increasingly on small expense items as contrasted with matters Of greater operating significance. After further discussion, Chairman Martin said again that he did ri°t think the members of the Board and the Division of Examinations were 4et/1411Y too far apart in their views. the The problem was one of discharging —"ma's responsibilities effectively, and he thought Mr. Solomon could be ' ' 5 41.cled by the tenor of today's comments. The Board would not want the e_ 4aminers to do things that would irritate the Reserve Banks needSuch as getting too much into the minutia mentioned by Governor ii while ignoring matters of fundamental importance, but there was the Tlestion of improving the examining procedures in a way that would clevel ' .°1) any matters of questionable propriety for the Board's consideration. 4021; 11/18/63 -12- There followed comments by members of the Board on certain to eqtressions in the Division memorandum that seemed to contribute t Possible misunderstanding, wherefore it was suggested that the documen lties. be rePlaced by a revised memorandum that would correct these difficu a There was agreement with this suggestion, and it was understood that Board. revised memorandum would be made available to the members of the Administration of oath of office. The following resolution was -E1419 11 by unanimous vote: rs It is hereby resolved that the Board of Governo with nce accorda in of the Federal Reserve System, 5 U.S.C. 16a, hereby designates the Chairman of the Board or any other member of the Board as an officer with authority to administer the Oath of Office required to be taken by any new member of the Board. All of the members of the staff except Messrs. Sherman, Young, atiaJohnson then withdrew from the meeting. with academic economists. 4 1.kqlEg ... With reference to previous (Itsc 11..bions concerning a meeting of the Board with a group of academic ecori Governor Mitchell °flaists, arrangements for which were being made by with Professor G. L. Bach, essrs. Young and Noyes in conjunction Yho was to serve as chairman and organizer of the group of economists, Onlrer meeting "°r Mitchell said that plans were now being made to hold the date was indicated. °IljanflarY 30, 1964, and no objection to that In this for the Q°1"/Ileetion, the Board authorized payment of the cost of a dinner e°1-1°1:aist8 to be given on the evening of January 29. Mr. Young then withdrew from the meeting. 41)27 11/18/63 -13- Reserve Bank salaries. October D Governor Balderston recalled that on 1962, the Board wrote to the Chairmen of all Federal Reserve setting forth guidelines for the salaries of Reserve Bank Presidents 1d. FirstVice Presidents. He said that several of the Banks had come in with recommendations for salaries of Presidents and First Vice Presidents eIN tive at the beginning of 1964 and that apparently one or two of the ?44114:8 had overlooked the fact that under the guidelines stated in the "'s letter, a President would be eligible for a salary increase after Ikl 8. three-year interval, or after a two-year interval in the case of a IlelflY appointed President. He raised the question whether it would be 111J- to send a letter to the Chairmen of all of the Banks refreshing them 'on the terms of the original letter. After discussion, however, them. Board decided that no general letter would be necessary and that e4es Should be dealt with individually. Governor Balderston also raised a question as to what the Board's Ik'lleY should be in those cases where a Federal Reserve Bank proposed an ea.se for a President or First Vice President without the time lag 'leeified in the Board's letter of October 5, 1962. In the ensuing Chairman Martin expressed the opinion that the guidelines stated 111 th e Board's letter should be followed, and there was unanimous agreement \lith -A4-1.-S view. The meeting then adjourned. 402 11/18/63 Secretary's Notes: A letter was sent today to The Chase Manhattan Bank, New York, New York, acknowledging receipt of notice of its intent to establish an additional branch in San Juan, Puerto Rico, such branch to be located at the southwest corner of Franklin D. Roosevelt Avenue and Main Street. The requirements contemplated by the Board's action on October 25, 1963, in approving the issuance of a preliminary permit to Provident Tradesmens International Corporation, Philadelphia, Pennsylvania, having been completed, a letter was sent today to that corporation transmitting a final permit to commence business. Pursuant to action taken by the Board on October 23, 1963, it had been ascertained that William McGregor, Vice President, McGregor Land and Livestock Company, Hooper, Washington, would accept appointment if tendered as a director of the Seattle Branch of the Federal Reserve Bank of San Francisco for the two-year term beginning January 1, 1964. An appointment telegram was sent to Mr. McGregor on November 8, 1963. oSIAA, 171//) Secretapr 4029 Item No. 1 BOARD OF GOVERNORS 11/18/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD November 18, 1963. Board of Directors, Muscatine Bank and Trust Company, Muscatine, Iowa. Gentlemen: The Board of Governors has received from the Pederal Reserve Bank of Chicago a copy of a letter dated October 28, 1963, from Mr. F. W. Allen, Chairman of the Board, Muscatine Bank and Trust Company, in which he requests permission for the declaration of a dividend by Iluscatine Bank and Trust Company of $37,500 in December 1_ 963. The Board's permission for the declaration of this ; uividend is required by the provisions of paragraph 6, ection 9 of the Federal Reserve Act and Section 5199(b), united States Revised Statutes. After consideration of the facts, the Board !Pproves the declaration of a dividend of $37,500 to be rclared in December 1963. This letter does not authorize Lhe declaration of any other dividend in 1963 or later. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 03( BOARD OF GOVERNORS Item No. 2 11/18/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD November 18, 1963. CONFIDENTIAL (FR) Mr. Watrous H. Irons, President, Federal Reserve Bank of Dallas, Dallas, Texas 75222. Dear Mr. Irons: The Board of Governors approves the payment of of salary to Mr. Tony J. Salvaggio as an Assistant Cashier 00 $10,0 of rate the at s the Federal Reserve Bank of Dalla Per annum, for the period January 1 through December 31, 1964. by your The salary rate approved is that fixed November 1, of r lette your Board of Directors, as reported in 1963 officers will be Salary proposals for other Dallas ve Banks; Reser other of reviewed simultaneously with those therefore, it will probably be sometime in December, as in the past, before your are advised of Board action. Very truly yours, Merritt Shlan, Secretary. hootttro* (40t4N BOARD OF GOVERNORS OF THE FEDERAI,... RESERVE SYSTEM Item No. 3 11/18/63 WAS OFFICE OF THE CHAIRMAN November 19, 1963. atj, hr, n. Bennett, Pre.ident, 7" - 3nal Retail Merchants Association, sc Zion Cooperative Mercantile Institution, -4-t Lake City, Utah. nr. Bennett: The purpose of this letter is to bring you to date with reaPect to plans for the Federal Reserve department store reports, as theY have been developed since our correspondence last winter and ski rig* to It is expected that a communication will go from the Board "e Federal Reserve Banks within the next few days regarding the tled changes to be made in the reports at the close of the current Year and the Reserve Banks will then proceed to notify respondent store 8 of the changes in both the data to be collected and in the —"qrY reports to be prepared by the Federal Reserve covering dePartment store trade. For convenience, the reports will be discussed in the fon wParagraphs under three categories, namely, the monthly sales and stock 8 report, the weekly sales report, and the departmental report. 11011th 1 Sales and Stocks Total Store Data The Bureau of the Census is now preparing monthly sales tire. tile " kw -- of department store trade for the United States as a whole 131* Census regions. From the present sample such figures also ' I Ills' R. H. Bennett -2- callbe derived for most of the geographic divisions and for a few ' 6e Ars States and a few very large Standard Metropolitan Statistical : s e In view of the availability from Census reports of these tilor FLesentative national interest data, the Federal Reserve will LJflue the collection and tabulation of such department store CS after the close of the current fiscal year (January 31, 1964) Ilave/' In those instances where the Federal Reserve Banks previously Co1]eas coi acted collection agents for the Bureau of the Census, direct ion of reports by the Bureau will be undertaken. The Federal Reserve is now collecting data for, and compiling a 4atio limit nal monthly index of, department store stocks based on the Coil ed group of department stores reporting to the Reserve Banks. Of , Ction of monthly stocks data for a more representative sample ' e"e entire department store trade is to be undertaken by the gur ret„,L11 of the Census (which now collects such data for all other Tile;LL trades) to provide a measure for the nation as a whole. Pilaet_fl°re) the Federal Reserve will cease the collection and coraOn of stocks data after January 31, 1964. The Federal Reserve Banks will, for the time being, contie 448 t° collect and prepare monthly reports of department store This 0f local interest where adequate statistics can be derived. able illeans that reports of department store sales for a considerlimber of individual cities or Standard Metropolitan Statistical that will be compiled by the Federal Reserve Banks to the extent the esta tistically reliable data are not provided by the Bureau of eornpieinsus for such areas. The Federal Reserve does not intend to ' e individual city or area comparisons in any case where the Illeasu Qiatig : es are not believed to be reasonably valid indicators of city or area. --8 in department store trade of the particular artment Store Sales (Total Store Data) The same procedure will be followed for weekly sales reports lartment store trade as are outlined in the foregoing paragraphs tot j 4tixa e monthly sales report: Census will collect reports and derive Stateates of weekly department store sales to provide total United titItie8 measures; the Federal Reserve will, for the time being, condepartment store trade of 4kal ti° compile weekly sales reports of are available. data statistical Ilterest where valid ' Of de tInents1 Sales.--Monthlx With po, kt The Federal Reserve has not yet proceeded sufficiently far re-essibility study of the proposed national departmental and 1962, December 5, on zerred to in my letters to you its f 401f'e e Mr. R. H. Bennett -3- APril 19, 1963, to ascertain that such a report for the United States aa a whole is practicable on a statistically valid basis. Since work necessary for making that determination will require several more months, the national departmental report as envisaged in the letters teferred to can not be definitely established as feasible or not feasible by February 1, 1964, as of which date we had agreed that the present Federal Reserve departmental report containing data for aPProximately 100 depertments would be discontinued. The study of the feasibility of the proposed new report will proceed as rapidly la possible, however, and the Reserve Banks will continue the present ge partmental sales form until we have reached a decision as to the leiR national departmental report, at which time the long form will I;e discontinued. When and if the proposed national departmental is ..gund to be feasible as to statistical coverage, it is expected that )3̀11e responsibility for its preparation will be transferred to the utaau of the Census. With respect to the local department store data, you will recall the statement in my letter of December 5, 1962, that it has been, and still is, the intent of the Federal Reserve to limit its ga thering of trade figures to local area and transition requirements ae census expands into the field. It should be clearly understood that the preparation of local area department store statistics by the Federal Reserve is regarded as temporary and that, except for 4 transition period, the Bureau of the Census is the agency having the responsibility for whatever is needed in the way of a Federal Coy ernment program for retail trade statistics. If cooperation on . the Part of department stores regarded by the Federal Reserve as ertjal to valid local area totals is not readily forthcoming, the Reserve Bank concerned will discontinue reports for the area after - notifying respondent stores of the situation. In any case, P34 lir. H. H. Bennett an -4- Federal Reserve Bank will feel free to discontinue local area trade data, regardless of the technical validity of the figures, after a twelve-month notice period to respondents or other users of the data. As indicated earlier in this letter, the Reserve Banks li shortly be in touch with respondent stores regarding the changes to be made in our department store statistics at the end of this year. In the meantime, if you feel that it would be desirable to do so, there would be no objection on our part to your bringing this letter to the attention of the National Retail Merchants Association's Committee on Department Store Statistics or to a larger segment of the trade. In fact, we feel that such a distribution of this letter ulight be desirable as a means of giving interested members of the trade information regarding the forthcoming changes in the reports. on the It is my understanding that those who have worked store statistics Pr°grem for improving the quality of the department feel generally that the steps being taken as outlined in this letter 11.1i represent a material advance in the quality of data for this area and the elimination of some highly questionable statistics prein the past. It is realized, of course, that the revised lePorts will not provide all of the information that some analysts ' Or some members of the trade will find desirable, but further 4035 Mr, H. H. Bennett 5- development of improved statistics may be anticipated in future years, both on the part of Governmental agencies and through such agencies as the trade may wish to employ in preparing statistics for trade use. incerely yours, Wm. McC. Martin, Jr. 403( BOARD OF GOVERNORS Item No. 4 11/15/63 ln fr FEDERAL RESERVE SYSTEM wAsHINOTON ..;111anl."V OFFICE OF THE CHAIRMAN November 19, 1963. 'Ple Honorable Dante B. Fascell, Chairman, -egal and Monetary Affairs Subcommittee, mmittee on Government Operations, 14°11se of Representatives, as hington, D. C. 20515 e be ar Mr. Chairman: This is in reply to your letter of October 17, 1963, rNtie of m.sting comments on a communication from Mr. Charles L. Kimmel to, 1.ami Beach, Florida, and inquiring what action, if any, the el:d takes in respect of protest fees on unpaid checks and service rges made by member banks. ehAs you know, it is customary for banks to have schedules q N-r. erges for various services, such as the ones referred to in upo lmmel l s letter. The amount of such charges normally depends cost of the services rendered and the benefit to the bank itifine Particular account, as well as upon prevailing competitive uences. It is unfortunate that occasionally some banks make charges to give rise to irritation and complaints on the part of taltec)mers. However, it does not appear that any action could be pzobiem b. Y the Board of Governors that would effectively meet the that Qust aPPear There is a provision of section 16 of the Federal Reserve Act th the "at authorizes the Board to "fix the charges to be collected by thr:e;Ilber banks from its [their] patrons whose checks are cleared lioar gn the Federal Reserve Bank." However, any action taken by the are under this authority would be applicable only to banks that Z14:, 1 111bers of the Federal Reserve System and not to nonmember banks. ellar the case of member banks, any such action would not cover are made with respect to the substantial volume of checks that thelle'Tared through clearing houses and correspondent banks rather rough the Federal Reserve Banks. Moreover, it is by no means 1e ttteQ under the law that the Board's authority would extend to serqlecknarges that are not directly related to the collection of ' 3 such as the monthly service charge and the charge for BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM The Honorable Dante B. Fascell -2- tIling an overdraft check mentioned in Mr. Kimmells letter. CY°test fees, of course, are actually made by notaries rather than ai. the banks themselves, even though the bank may pass such a fee °ag to its depositor. Wholly apart from the limited scope of the Board's authority • thls . cort fleld, it has always been the belief of the Board that any pro 4.°15 with respect Lo bank service and collection charges would ex ile unworkable and give rise to inequities. This is because the (14!nses incurred by banks in serving their customers may vary among coll'erent depositors, different banks, different parts of the 411„IltrY, and different types of transactions. Thus, it would be ei cticable to prescribe any rule of general application 'unless hil, Llags on bank charges were set high enough to accommodate the 1447st-cost banks; but in that event, of course, such a rule might thall tee the lower-cost banks to raise their charges to the extent the prescribed ceilings - and competition - would permit such 'eases. One way around this difficulty would be to "freeze" char_ collt6es as of a given date, following the pattern of wartime price trietith s• However, any such action would not only be limited to blit 7r banks and certain types of charges, as previously indicated, eltpe4"t would lead inevitably in our judgment to the same kinds of rlsea red tape, and inequities that have persuaded people in this Qourp. to rely on competition rather than Governmental action Prices as a normal rule. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr.
@FedFRASER