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`G 9
Minutes for
To:
Members of the Board
From:
Office of the Secretary
Noveniber 19, 1962.
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. King
Gov. Mitchell
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Minutes of the Board of Governors of the Federal Reserve System
°II Monday, November 19, 1962.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Mitchell
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Fauver, Assistant to the Board
Farrell, Director, Division of Research
and Statistics
Mr. Solomon, Director, Division of Examinations
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mx. Shay, Assistant General Counsel
Mr. Furth, Adviser, Division of International
Finance
Mr. Smith, Assistant Director, Division of
Examinations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mx. Thompson, Assistant Director, Division of
Examinations
Mr. Stephenson, Special Assistant, Division of
Examinations
Mr. Bakke, Senior Attorney, Legal Division
Miss Hart, Senior Attorney, Legal Division
Mr. Entriken, Attorney, Legal Division
Mr. Hill, Attorney, Legal Division
Mr. Achor, Review Examiner, Division of
Examinations
Mr. Lyon, Review Examiner, Division of
Examinations
Mr. Poundstone, Review Examiner, Division of
Examinations
Mr.
Mr.
Mr.
Mr.
Mx.
Report on competitive factors (Columbia-Clover
Ithere
South Carolina).
nad been distributed a draft of report to the Comptroller of the
eitrre
ricY on the competitive factors involved in the proposed merger
or mu
'qe First National Bank of Clover, Clover, South Carolina, into The
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Pirst National Bank of South Carolina of Columbia, Columbia, South
Carolina.
As drafted, the conclusion would have stated that while The
First National Bank of Clover would be confronted with the competitive
caPabilities of a much larger bank, the over-all effect of the merger
°a competition would not be significantly adverse.
In discussion, Governor Robertson expressed doubt as to the
J48tification for the last part of the sentence comprising the conclusion
°I. the report.
He also suggested that reference be made to the trend
toward concentration of banking resources in the State of South Carolina.
Governor King commented that in some cases branches were not
48
Potent local competitors as independent banks and said that he would
be inclined to agree with the conclusion as drafted.
Governor Mills indicated that he shared Governor King's opinion.
Re vent on to make the comment that there appeared to be somewhat
divergent views within the Board with respect to the philosophy that
h°11-141 be expressed in situations involving the merger of a small bank
Into
one of the larger banks in a State such as South Carolina or
tior-t-1,
uarolina.
It seemed obvious, for example, that Governor Robertson
d. adopt
a more severe approach than he (Governor Mills) would
c°481der Justified.
The question was whether an important trend toward
c°4centration was involved that should be frowned upon, and even whether
it
-as serious enough to be identified by the Board in competitive
t4et°r
reports.
Since the Comptroller was now following a practice of
rele
Etsing such reports, Governor Mills pointed out that statements therein
'"-QP, be construed by the public as reflecting a System or a Board position.
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Re considered it important, therefore, that the Board attenpt to reach
an understanding as to what its position should be in matters of this
Governor Robertson indicated that he agreed with the final
comment by Governor Mills.
Reference then was made by Governor Balderston to a paragraph
in the body of the proposed competitive factor report that he considered
suitable for use as the conclusion of the report.
Accordingly, he
811ggested that the paragraph to which he referred be substituted for
the conclusion.
There being agreement with this suggestion, the report on
e°11rPetitive factors was approved for transmittal to the Comptroller
in a form in which the conclusion read as follows:
This proposed merger would not significantly alter First
National's competitive capacity in relation to other large
banks in the State. Potentially, the proposal may increase
competition in Clover and to a lesser degree in York and
IllaY tend to offset any competitive advantage enjoyed by
the larger banks of Charlotte and Gastonia, North Carolina,
to the extent that they solicit business in the Clover area.
Application of Marine Midland Corporation (Items 1-3).
Oct
6ber 30, 1962, the Board, with Governor Mitchell dissenting and
C't3lIer11Or Mills abstaining, denied the application of Marine Midland
C°1'11c)r0.tion, Buffalo, New York, for prior approval of the acquisition
the voting shares of Security National Bank of Long Island, Huntington,
Ile'41.°rk.
There had now been distributed to the Board drafts of a proposed
°I‘cter and statement reflecting the Board's decision.
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In discussion, a minor editorial change in the proposed statement
Ifas agreed upon.
Question also was raised, by Governor King, with regard
t° a sentence in the summary and conclusion of the statement which
exPressed the opinion that the concentration of banking resources and
activities that would result from the proposed acquisition would tend
to be inimical to the preservation of banking competition and inconsistent
lth the public interest.
Governor King indicated that he had some
cic314bt about this expression; he had based his negative vote more on
the so-called banking factors.
He agreed with the expression in the
c°4clusion of the statement that the means of improvement of the
Management of Security National Bank, to the extent that such improvement
Illight be
necessary, were available to Security National as an independent
Mr. O'Connell commented by way of explanation that the inclusion
t the sentence questioned by Governor King contrived to make the
(teelsion rest on a two-pronged statement of findings by the Board.
The
stateMent did not purport to say that the decision rested entirely on
1'14(1111g that the proposed acquisition would be inimical to the preservation of competition and inconsistent with the public interest.
vel'Y it had been observed that when decisions of this kind were
re
view,
ed by a court they were more likely to be sustained if more than
otie r
irlding by the agency or commission was included.
Governor King then repeated that in his view more support for
vkk of the application was to be found in an analysis of the banking
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ractors than the competitive factor.
However, he would not want to
issue a separate concurring opinion.
Accordingly, the issuance of the order and statement was
authorized
subject to nmPndment of the statement to take account
or the editorial change agreed upon at this meeting.
It was understood
that a dissenting statement by Governor Mitchell also would be issued.
Copies of the order, majority statement, and dissenting statement
bY Governor Mitchell in the form in which they were subsequently issued
are
attached as Items 1, 2,and
3.
Application by Brenton Companies, Inc. (Items 4 and 5).
Pursuant
to the decision reached by the Board on November 2, 1962, there had
been distributed drafts of an order and statement reflecting approval
r the applications of Brenton Companies, Inc., Des Moines, Iowa, for
13el.kission to acquire 80 per cent or more of the voting shares of
esh
County National Bank of Grinnell, Grinnell, Iowa; The First
Natl°118-1 Bank of Perry, Perry, Iowa; Brenton State Bank, Dallas Center,
444; and Jefferson State Bank, Jefferson, Iowa.
After a brief discussion the issuance of the order and statement
vaa a
uthorized.
Copies of the documents, as subsequently issued, are
a.ttlItched. as Items
4
and
5.
Messrs. O'Connell, Thompson, Stephenson, Bakke, Entriken, and
14r°11then withdrew from the meeting.
_spplication of Sumitomo Bank (Item No.
6).
On November 5, 1962,
the
-°Qard discussed the application of The Sumitomo Bank of California,
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a Francisco, California, for authority to accept commercial drafts
0r bills of exchange up to an amount not exceeding at any time in the
aggregate 100 per cent (rather than 50 per cent) of its paid-up and
unimPaired capital stock and surplus.
The staff had recommended
ii/r°rming the member bank through the Federal Reserve Bank of San
Pr4neisco that certain of its "acceptances" need not be taken into
accoutt in applying the limitations prescribed by section 13(c) of
the Federal Reserve Act and Regulation C, Acceptance by Member Banks
'Drafts or Bills of Exchange.
°I
This recommendation was based on the
13realise that under the arrangement between the member bank and its
Parent bank in Japan, the former was relieved of liability as acceptor.
At the Board meeting on November 5, however, question was raised whether
tills Premise was justified, and it was understood that additional
1111'°rmation would be obtained.
In light of this additional information, there had now been
cliz
tributed a memorandum from the Legal Division dated November 15, 1962.
It aPPeared that the "excess acceptances" in question were owned by the
Parent bank in Japan although they were held for "collection" in the
el4t°dY of The Sumitomo Bank of California, the acceptor.
It was the
of the Board's staff that where the Japanese bank (through its
•Y'rk agency) undertook a 100 per cent participation of the acceptor's
11.4bilitY on such acceptances, and where Sumitomo Bank of California
tallied and could not lawfully be deprived of custody of those acceptances,
they
need not be taken into account in applying the statutory limitations
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°lithe aggregate amount of the member bank's acceptances or the amount
that it could accept for any one person.
This conclusion was based
the fact that, in the circmstances described, Sumitomo Bank of
California actuRlly did not bear an acceptor's liability with respect
t° such paper.
However, despite the contractual arrangements between
the California bank and its parent bank in Japan, a draft accepted by
the former would become enforceable against it if the draft came into
the
hands of a person who was a "holder in due course" under the applicable
Ilegotiable instruments law.
Therefore, unless there was assurance of
c°11tirtued physical possession, it was felt that the acceptances must be
tlIken into account in applying the limitations on amount described by
Pederal law and regulation.
Submitted with the Legal Division's memorandum was a revised
cirart or letter to the Federal Reserve Bank of San Francisco which would
that the Board was reluctant to grant the increased acceptance
1)ol,/e _
r6 requested, but that acceptances handled in a certain manner were
riot
subject to the statutory limitations.
8tate
In commenting on the matter, Mr. Solomon reviewed the conclusions
ot the staff, as stated in the Legal Division's memorandum.
°11 to
He went
express the view that no serious mistake would be involved in
l'cl4-1ting the request of Sumitomo Bank to accept commercial drafts or
bills of exch
e up to 100 per cent of its capital and surplus. On
th
e other
hand, the bank had not tightened up its internal operations
to tu
ge extent that might be desirable and it had done nothing as yet to
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'
111g. about any accreditation of its bills in the market.
In the
circumstances, the staff recommendation was reflected in the proposed
letter to San Francisco Reserve Bank.
If the Sumitomo Bank got some
cr its acceptances into the market and if a need for additional acceptance
Powers
should then be exhibited, it would seem appropriate to consider
again a higher acceptance ceiling.
Question was raised regarding the language in the proposed
letter
stating that the Board was reluctant to grant the increased
accePtance powers requested, it being suggested that such language was
'
81 8eePtible of different interpretations.
Discussion of this point
reflected a view on the part of some Board members that the member
bank!
s request presented a borderline case for turndown, and that
l'efl'eal would be justified principally on the ground that the member
had not yet established its name in the bill market through the
a'le Of acceptances. It was then suggested that the letter might state
that the Board believed it would not be warranted in granting the increased
4ceePtaxlee powers requested at this time, and there was agreement with
this
suggestion.
Accordingly, unanimous approval was given to a letter to the
Pe
,
--ca-4 Reserve Bank of San Francisco in the form attached as Item No.
6.
Messrs. Hexter, Furth, and Poundstone then withdrew from the
etj
as did Miss Hart.
Akklication of Genesee Merchants Bank & Trust Co. (Items 7 and 6).
had been distributed a memorandum from the Division of Examinations
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dated October 25, 1962, recommending approval of an application by
Genesee Merchants Bank & Trust Co., Flint, Michigan, for permission
to consolidate with Davison State Bank, Davison, Michigan.
There had
also been distributed a memorandum from the Legal Division dated
November 16, 1962, submitting for the Board's consideration drafts of a
PruPosed order and statement that might be issued if the application was
4Proved.
It was noted that the case had been processed under the
10-daY emergency provision of the Bank Merger Act.
The case arose
because of certain irregularities in the operation of Davison State
Iltlak resulting in losses that had caused a serious depletion in the
bank's capital structure.
In commenting on the circumstances involved in this application,
Mrs Leavitt noted that the State Banking Commissioner of Michigan was
exPected to approve the merger tomorrow.
If the Board should approve
the aPPlication, the Commissioner would like to have statements issued
tcMorrow on a simultaneous basis.
The merger application was then approved unanimously.
With
l'egard to the proposed order and statement, Governor Mills suggested
thilt it be reviewed by the staff with the object of avoiding as far as
13°asible comments that might raise a concern in the Davison community
that
could attach to the continuing bank.
Mr. Shay described changes
that might be made along those lines, and certain additional suggestions
made by Governor Robertson with a view to casting the statement in
the
4-1ght of assuring the community of the maintenance of sound banking
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facilities.
Governor Mitchell suggested, on the other hand, that the
revision of language not proceed so far as to obscure the nature of the
developments at the Davison bank that had given rise to the merger
aPPlication and provided the essential reason for Board approval.
He
not want the statement to appear in such form as to leave an
irPression that the Board was not aware of the existence of a serious
si
tuation at the Davison bank.
It being understood that the draft statement would be reviewed
414 revised by the staff in the light of the foregoing comments, the
isstlance of the order and statement was authorized on that basis.
Copies
°I the
order and statement, as subsequently issued, are attached as
Messrs. Shay, Leavitt, Hill, and Achor then withdrew from the
4leetinge
Reports of examination (New York and Richmond).
There had been
etre-1
44-ated to the Board reports of examination and the usual related
'
PaPers with respect to exnminations made of the Federal Reserve Banks
r New York and Richmond by the Board's examining staff as of June
8
allAllgust 13, 1962, respectively.
At the Board's request, Mr. Smith reviewed information developed
11Y. the respective examinations, his comments being based on the material
th4t had been circulated to the Board.
It was agreed that there was no
developed by the examainations that warranted specific action
'4 th
e Part of the Board. However, certain matters were the subject of
conlme
nt or
discussion, as indicated in the following paragraphs.
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Governor Mills inquired whether the difference (over and short)
accounts at the twelve Federal Reserve Banks had shown trends that might
suggest laxity at any of the Banks.
Mr. Smith replied that he had
He
received no indication of concern from the field examining staff.
(1) however, that he would undertake a careful review to make sure
4/4
that no such trend could be detected.
At the instance of Governor King, there was a brief discussion
Of the -,gal Department at the New York Reserve Bank, particularly as
to whether there was any indication of a tendency toward repressing
the independent judgments of members of the legal staff.
Mr. Hackley
said it had always been his opinion that the work of the attorneys at
the New York Bank was of extremely high calibre.
This comment, he added,
41431ied particularly to Assistant General Counsel Clarke.
Governor Balderston referred to a review of the audit function
the New York Reserve Bank that had been made recently by the accounting
1'1111 cA" Haskins & Sells at the request of the Bank's directors.
He
111111ired whether the report of the accounting firm contained any comments
with
regard to the adequacy of procedures followed in auditing the System
°13e4 Market Account.
Mr. Smith replied that he had not as yet seen a
eQvy
or the report by Haskins & Sells.
However, the comments of Price
te14,
- Amuse & Co., made in connection with that firm's review of an
e3c441-4Mtion of the New York Bank by the Board's examining staff, were
14 the direction of suggesting that the audit of the Open Market Account
the Board's staff might be too detailed, particularly when considered
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in conJunction with the internal audit procedures followed by the
Reserve Bank.
Mr. Solomon described briefly some of the procedures
for audit of
Open Market Account transactions that were followed by the
13°ard's staff, both in connection with the annual examinations of the
New York Reserve Bank and in the Board's offices, on a continuing basis,
thr°11gh the use of duplicate records.
there
He agreed with Mr. Smith that
would not appear to be much question as to the thoroughness of
the audit of the Open Market Account; the greater possibility was that
the amount of time and effort devoted to this audit function might be
44esti0ned.
In connection with his comments on the examination of the
111°1111°nd Bank, Mx. Smith discussed the unexplained disappearance of
1100,000 Treasury Certificate of Indebtedness due May 15, 1963, which
%148 de
termined in the course of the examination missing from the collateral
Pledtr—)
--*WA
against the tax and loan account of a nonmember bank.
He also
l'eviewed procedures that had been followed by the Board's examiners,
the R,
,Lchmond
Bank, and the Secret Service in an unsuccessful effort to
etete,-,
'
41ne a presumptive cause for the disappearance of the certificate.
Mr. Sn- th also referred to the maintenance of margin accounts
with t
wo
the
brokerage firms by an employee of the Richmond Bank and reviewed
.
elrcumstances that had led the management of the Reserve Bank to
Pose no objection.
His commPnts led to recollection of a somewhat
situation at the Boston Reserve Bank and the consideration given
to
th
e matter by the Board at its meeting on March 22, 1962, at which time
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it Was understood that there would be drafted a letter to all Federal
Reserve Banks calling attention to the undesirability of speculative
trarii
--4mg in securities by Reserve Bank personnel, although not flatly
Prohibiting the imintenance of margin accounts.
It was agreed that the
8-ft of proposed letter would be circulated to the Board for consideration.
'
42
Proposed merger of New York City banks.
Mr. Solomon reported
receipt of a telephone call from Vice President Crosse of the Federal
Reserve Bank of New York, who referred to reports of a proposed merger
°f the Royal State Bank and the Gotham Bank, both of New York City.
It Ifte understood that the State banking authorities had indicated a
cilsinclination to approve the merger because of dissatisfaction with
tile
Operations of the Royal State Bank, a nonmember insured institution.
licivever, it was also understood that the management of the bank had
btained from the Comptroller of the Currency an assurance that he would
be
-4-4-king to approve the conversion of the institution into a national
bank
) and thereafter to approve a merger with the Gotham Bank. Mr. Crosse
1118e4 a question as to whether the New York Reserve Bank should consider
l'"4eing to issue Federal Reserve Bank stock to the new national bank,
41411180 whether it should consider making an examination to determine
hether the bAnk's national charter was deserving of approval.
Mr. Solomon
111Q.cated that he had expressed to Mr. Crosse some doubt as to whether
,
eithe
- of the possible procedures mentioned by Mr. Crosse would be
V
1111'41wted.
Director appointments.
Mr. Edwin Hyde, President of Miller &
114c)1418, Inc., Richmond, Virginia, and presently Deputy Chairman of the
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Pederal Reserve Bank of Richmond, was designated as Chairman and Federal
Reserve Agent of the Reserve Bank for the year 1963, with compensation
in an amount equal to the fees that would be payable to any other director
the Reserve Bank for equivalent time and attendance to official
b
usiness.
As to the appointment of a Deputy Chairman at the Federal Reserve
13a4k or Cleveland, it was understood that Chairman Martin would discuss
the matter with Chairman Hall of the Cleveland Bank.
Mr. Dolph Simons, Editor and Publisher of the Lawrence Daily
JoUrnal
-World, Lawrence
Kansas, and currently a Class C director of
the Federal Reserve Bank of Kansas City, was appointed Deputy Chairman
the Reserve Bank for the year 1963.
Governor King suggested the desirability, where feasible, of
e°118idert.-A4.6 for appointment as Class C directors persons who had served
"directors of Federal Reserve Bank branches.
Request for competitive factor report.
Mr. Solomon noted receipt
the Board of a letter dated November 15, 1962, from the Chairman of
the Board of Deposit Guaranty Bank & Trust Company, Jackson, Mississippi,
igh° indicated that the bank was giving consideration to applying again
to the Board of Governors for permission to merge with the Rankin County
ilailk) Brandon, Mississippi. (An application by Deposit Guaranty to
ibel'ge with Rankin County Bank was denied by the Board in 1960.) In
this connection, Chairman McMullan inquired about the possibility of
°13tEtiniug a copy of the report on competitive factors that had been
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slItMatted by the Department of Justice with respect to the previous
aPPlication.
It was agreed to furnish a copy of the report, as requested,
if a check with the Department of Justice indicated that the Department
vould have no objection.
Secretary's Note: It having been ascertained
that the Department of Justice would have no
objection, a copy of the report on competitive
factors was furnished to Deposit Guaranty Bank
& Trust Company.
The meeting then anjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
the following items:
Letter to the Federal Reserve Bank of Chicago (attached Item No. 9)
Ilr°ving the appointment of Patrick J. Tracy as assistant examiner.
4
a
,
Memoranda from appropriate individuals concerned recommending the
e)irtment of the following persons to the Board's staff, effective
e respective dates of entrance upon duty:
Cheryl Ann Stanley as Statistical Clerk, Division
of Research and Statistics, with basic annual
salary at the rate of $3,925.
Penny Winters as Statistical Clerk, Division of
Research and Statistics, with basic annual
salary at the rate of $4,250.
Margaret H. Brewster as Clerk, Division of International Finance, with basic annual salary at the
rate of $4,110.
Secret
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Federal Reserve Bank of St. Louis
Item No. I
11/19/62
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RE3ERVE SYSTEM
WASHINGTON, D. C.
...
WO
'
li the Matter of the Application of
MIDLAND CORPORATION,
--Lalo, New York
tor nr-4
or approval of the acquisition!
u0 per cent of the voting shares '
"
4 the 0
to
oeourity National Bank of
g Island, Huntington, New York
r
,:i
f l,
ORDER DENYING APPLICATION
UNDER BANK HOLDING COIAPANY ACT
There has come before the Board of Governors, pursuant to
81.1con 3(a)(2) of the Bank Holding Company Act of 1956 (12 U.S.C.
18142•) and section222.4(a)(2) of Federal Reserve Regulation Y (12 CFR
222 hf
N
'
O
an application on behalf of Marine Midland Corporation,
New York, for the Board's prior approval of the acquisition of
loo
Per cent of the voting shares of the Security National Bank of Long
telarld,
Huntington, New York.
As required by section 3(b) of the said Act, the Board gave
- of receipt of the application to the Comptroller of the Currency,
sol4e,
lting his views and recommendation. Although not received within
_
the
'tiatutory period of thirty days specified in the Act for purposes of
submitted a
1111111ing whether a hearing must be held, the Comptroller
°111111endation, dated June 50 1962, that the application be denied.
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A Uotice of Receipt of Application was also publi
the Federal Register on May 10, 1962 (27 F.R. 4496), which provided
an °PPortunity for submission of comments and views regarding the proPosed a
cquisition.
the Board
Following receipt of comments and views,
e of which was pub("ered a Public oral presentation of views, notic
lished in the Federal Register on August 1, 1962 (27 F.R. 7582).
The
8aid oral presentation was conducted before the Board on September 17,
62
within the
'and all persons who requested an opportunity to appear
and were
Perl°c1 of time specified in the published notice were heard
*L'verl oPportunity to submit further written expressions of views.
e the Board in
Having considered all matters properly befor
this
Proceeding, including the above-mentioned comments and views,
IT IS ORDERED, for the reasons set forth in the Board's
State
rret of this date, that said application be and hereby is denied.
of November, 1962.
Dated at Washington, D. C., this 21st day
BY order of the Board of Governors.
n, and
Voting for this action: Chairman Marti
rdson, and King.
Governors Balderston, Robertson, Shepa
Voting against this action:
Abstaining:
Governor Mitchell.
Governor Mills.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(S4t)
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 2
11/19/62
OF THE
FEDI,RAL RESERVE SYSTEM
APPLICATION BY EARINE MIDLAND CORPORATION, BUFFALO,
NEW YORK, FOR APPROVAL OF ACQUISITI111 OF SNARLS OF
SECURITY NATIONAL BANK OF LONG ISLAND, HUNTINGTON, NEW YORK
STATEMENT
Marine Midland Corporation ("A2plicant"), Buffalo, New York,
4 registered bank holding conpany, has applied, pursuant to section 3(a)(2)
of the Bank Holding Company Act of 1956 ("the Act"), for the Board's
13/1-or approval of the acquisition of 100 per cent of the voting shares
f the Security National Bank of Long Island ("Security"), Huntington,
York.
N°14
At a public oral presentation of views conducted before the
13Oard on September 17, 1962 the Applicant and representatives of
of
certain of Security's stockholders submitted arguments in support
the aPplication, and the Franklin National Bank, one of Security's
e°111Petitors
voiced opposition to the application.
Views and recommendations of supervisory authority. - As
equired by section 3(h) of the Act, the Board gave notice of receipt
Of
the application to the Comptroller of the Currency.
at
_
June
By letter
1962, the Comptroller recommended disapproval of the
4PPlication, citing the reasons given in his letter of January 22, 1962
to 4,
'"e Board recomnending disapproval of the Chase Manhattan-Hempstead
tank
and Chemical Bank-Long Island Trust merger proposals and the Morgan
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
e
-2-
new York
Federal
State Corporation holding company application (see 1962
ReServe Bulletin
544,
while
548, and 567, respectively); namely, that
elltrY of large Hew York banks or holding companies into the counties
cljacent to New York City on a gradual basis may be in the public
iriteliest, incursion on an "en masse" basis would not be.
with
Concurrent with the filing of the subject application
the
Board,
transaction
Applicant also sought approval of the proposed
*era the Hew York State Banking Board, as required by Section 142 of
Article III-A of the New York Banking Law. On July 18, 1962, the State
S/1Perintendent of Banks submitted a report to the State Banking Board
reco.'ending approval of the application, which recommendation was
adcm+
'"scl the same day. In the view of the Superintendent, no adverse
°1181-derati0n5 bearing upon banking competition or the public interest
arid ,
'
°nvenience were embodied in the proposal.
the Board
Statutory factors. - Section 3(c) of the Act requires
to t„
's
I
Into consideration the following five factors: (1) the LinenStory and condition of the holding company and bank concerned;
(2)
"eir prospects; (3) the character of their management; (4) the cone, needs, and welfare of the communities and the area concerned;
arld (5
size
) Whether the effect of the acquisition would be to expand the
(tent of the bank holding company system involved beyond limits
°nets+
,,elat with adequate and sound banking, the public interest, and
the
Preservation of competition in the field of banking.
controls
Financial history and condition. - Applicant now
11 b
flks which, as of December 31, 1961, operated 181 banking offices
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Federal Reserve Bank of St. Louis
111105 communities in the State of New York and had an aggregate of over
billion in total deposits.
These banks, with their total deposits,
are the following: The Marine Trust Company of Western New York, Buffalo,
$784 million;
The Marine Midland Trust Company of New York, New York City,
)77(:
) million; Genesee Valley Union Trust Company, Rochester, $233 million;
Ilarine Midland Trust Company of Central Hew York, Syracuse, $170 million;
Midland Trust Company of Southern New York, Elmira, $146 million;
Midland Trust Company of the Mohawk Valley, Utica, $121 million;
The I,
northern New York Trust Company, Watertown, $79 million; Marine
and National Bank
' —grillfaCturers
of Southeastern New York, Poughkeepsie, $77 million;
National Bank of Troy, $66 million; Chautauqua National
Of Jamestown, $65 million; and Marine Midland Trust Company of
rid County, Nyack, $28 million.
Since approximately 95 per cent of Applicant's assets consist
c't it •
Investments in shares of its subsidiary banks, the financial
-°n of these banks has an intimate bearing on the financial condition
tioarci
of Applicant.
On the basis of all available information, the
egards the financial condition of Applicant's subsidiary banks
4tI(1 Of A
'PPlicant itself to be satisfactory.
Security was organized as a national bank in 1902 and in 1952
expansion program that, through September 1962, has added
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Federal Reserve Bank of St. Louis
-432 banking offices);/ 24 in Suffolk County and 8 in Nassau County,
either through merger or by the establishment of new branches.
As of
Decpm.k
mately $212 mil-- sr 31, 1961, Security had total deposits of approxi
li -2-/
°II
and book capital accounts of $15 million.
The Board regards
ctory, and
8seuritY's present financial condition as reasonably satisfa
its
financial history as satisfactory.
and its
Prospects. - During the period 1958-1961, Applicant
s
subsidiary banks showed consistent growth. In this period the system'
; total
deposits increased from $1.94 billion to $2.54 billion
tot,a
"sets increased from A2.21 billion to $2.87 billion; and total capital
acccmilts increased from $154 million to $205 million. It appears that
c°11tinued growth can be expected as the economies of New York State and
the country grow and, in light of Applicant's past history, the Board is
Of the view that the prospects of Applicant are satisfactory.
headquartered on
Security is the third largest commercial bank
„
Lon
-Leland and the largest headquartered in Suffolk County; as of
September 1962, it operated 33 banking offices, its head office and
41br
anches in Suffolk County and 8 branches in Nassau County, as con-
t'Ited with only a main office in 1951. Security almost doubled its
total deposits and total assets in the period 1957-1961, and, according
1le excludes 1 banking'Tacility" at a military installation in Suffolk
0
0
2/V which is not counted as a branch for statistical purposes.
As
.
of June 30, 1962, total deposits had grown to $221.5 million
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
4383
t t8 1961 Annual Report, expects to increase resources to $400 million
"
"lin five years (compared with a present level of $244 million).
Nassau and Suffolk Counties cover almost all of Long Island,
the balance
being accounted for by Kings and Queens Counties which are
4eated at the extreme western portion and are part of New York City.
114311a6Bau and Suffolk County areas are among the most rapidly growing
aI'ela8 in the nation, both in population and in business activities.
From
195° to 1961, Suffolk County grew from a population of 276,000 to 700,000,
411c1bY 1975 its population is expected to e:xeed 1,450,000. During the
411* Period, the population of Nassau County increased from 642,000 to
1)300,00
,
,
and by 1975 the total is expected to be around 2,210,000.
catlire Of the commercial growth trend in this area is the fact that
4°rrie 2,000 industrial plants with 128,000 employees were located in the
140
counties in question at the end of 1961, as compared with 1)524
Plarlts
employing 100,400 in 1956.
The growth prospects for Suffolk and Nassau Counties inevitably
result
in corresponding demands for the growth of Security and its
c3n/Petitors/ Particularly in the areas of increased capital, increased
4IlIces, and adequate management and personnel. However, although the
toard
rec°gnizes that the rapid expansion of banking facilities and
tierr
lees in Nassau and Suffolk Counties to keep pace with the anticipated
tate
°f growth of population and business in the area may entail certain
Probi
erns relating to adequacy of capital, management, and personnel for
the b
'444 in the area, it does not appear that the only answer, as far
aa s
"IlritY is concerned, is affiliation with Applicant.
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Federal Reserve Bank of St. Louis
1
-6For example, the raising of additional capital might very well
1)0
,
complished by the sale of Security's own stock. In this connection,
it shoui4 be
noted that on October 1, 1962, the market value of Security's
to
:Iras $29.00 per share, more than twice its December 31, 1961 book
of 1.3.75, and during 1961 Security raised :
?1,898,000 from the
r3114 Of 97,371 shares of its stock at 319.50 per share.
There is no
l'Qals°n to believe that the raising of capital in this manner could not be
liel3
"
-ted in the future as the occasion demands.
It is also believed that Security, with resources of
11l1on, and the expectation, by its own statement, of an increase
to
9400 million
within five years, is of sufficient size to carry out a
110,
'.J••-organized
program for acquiring, developing, and training capable
P(*sormel to improve its staff and to meat the area's demands for
a4cilti°11a1 services.
Accordingly, it is the view of the Board that Security's pros—
'r0
satisfactory, whether or not it is affiliated with Applicant.
Character of manc7emen. — In light of the past history of
A1)17)4
cent,and its subsidiarr banks, it is concluded that its management
sati
sfactory.
So far as concerns Security, at the public portion of the oral
1)1
tite --on
before the Board on September 17, 1962 testimony wasoffered
l'cl
tti )
sentatives of minority shareholders of Security, favoring
sod transaction on the ground that Security's management is
aCtOry
and Applicant will remedy this situation. It was alleged
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
,)
•
that
Security had been subject to poor management during the 19501s,
l'esillting in substantial losses to the bank in connection with loans
lacic to Alexander Guterma and associates, and that certain of Security's
dixe
ctors who were in office at the time of the alleged mismanagement
al'ectill incumbent.
Comment was also offered concerning alleged con-
tlicts of
interest arising out of the outside business interests of
c"'ain directors, and it was alleged that many stockholders are
ksRm4.,
'
-Lsfied with Security's management and concerned about their inin the bank's stock.
Assuming that these representations are substantially correct
hatA
Ap plicant
would, through control of Security, take remedial
acti,
the circumstances in this case bearing on the statutory factor
ot w
'
laracter of management could be regarded as weighing, in some
in favor of approval of the application.
In the Board's judg-
Illtit, h
owever, consummation of the proposed transaction is not the only
bY which such management problems as Security may have can be
vea
A bank the size of Security should be able to cope with its
-anagement problems through exercise of determined willingness and,
the
11114eated by one witness at the oral presentation, with Security "off
4lic11on
block" the attraction of such additional competent personnel
,ilay
we needed should be facilitated. Accordingly, although manage-
Nkt
c°nsidorations could be regarded as tending to favor approval in
thiS ca
Se, they are by no means compelling.
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Federal Reserve Bank of St. Louis
-8Convenience, needs, and welfare of the area involved.
The
incipal area with respect to which the statutory factors of convenience,
Pl
'
ileeds, and welfare are to be considered is that served by Security.
As
Plusly noted, Security has 25 banking offices in Suffolk County and
8 in iq
"assau County.
According to the application, very little of
SellritYls business is derived from Kings and Queens Counties, and it
is stated that, because of the "retail" nature of Security's business
all(lbecause this business is confined largely to the Counties in Which its
ball-king offices are located, the appropriate "area" in this case is Suffolk
411(1Nassau Counties.
Applicant's case with respect to convenience, needs, and
Ito ,p,
're rests largely upon the premise that the phenomenal residential
arid
uuslness growth that Suffolk and. Nassau Counties have experienced in
there will
recent Years
will continue, and as such expansion takes place
be
creasing demands for specialized banking services with respect to
trust
matters (both personal and corporate), municipal financing, comkerci
a-t loans, international transactions, accounts receivable and invent°
rY financing, and business and industrial development advice. It
At3
Plicantts position that many of these services are now available
rem Security's larger local competitors, the Franklin
National Bank
3/
411(1 th
e Meadow Brook National Bank, or through large New York City banks—
in
State's
and nueens Counties on Long Island, while included in the
banks
therefore
and
City,
York
hettcln 4-)anking District, are parts of New
Bank) are
tetleartcred in those counties (such as I:eadow Brook National
Statement,
this
of
purposes
for
However,
the'eallY "New York City banks."
Second
the
in
headquartered
banks
"New York City banks" means only
Manhattan),
(i.e.,
York
New
of
Counties
ti41.01.:T District (comprised of the
and Richmond).
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Federal Reserve Bank of St. Louis
_9_
4-ng either in direct competition with banks in the area involved or
"
"cor
respondents
for the smaller local banks, and that consummation
°f the proposed transaction will enable Security to expand the availalpilitY of such services in Suffolk and Ilassau Counties.
Apart from the foregoing types of services which Applicant
8
could be offered by Security following affiliation, the accrual
()r certain collateral benefits are cited as also having a bearing on
the
statutory considerations of convenience, needs, and welfare of the
411E14 concerned; viz., capital adequacy and availability of funds,
costa A
-nu profit controls, and personnel analysis and training. Im'vellients in these areas, it is claimed, will benefit Securityts
Pl'c
ellatomers.
Viewed in perspective, the representations regarding the
bet.
.1_
e
. 8
"
which would accrue to Security and its customers through af-
41ist'
lon with Applicant in terms of expanded services and improved
°Pera+4 n8
do not weigh heavily in favor of approval of the applica"4-(3
tion.
Granted, such expanded services and improved operations would
bed,
--rectly beneficial to Security and,to some extent, advantageous
t° lt8 c
ustomers. However, so far as concerns the statutory question
°f th
e effect of the proposed transaction on the convenience, needs,
41(1
ljelfare of the area concerned, two questions are especially
-ent:
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Federal Reserve Bank of St. Louis
-10-existing banking
(1) Is the public adequately served by
racilities; and (2) can it reasonably be expected that the existing
future banking
banking structure in the area will be able to satisfy
needs?
that Security
So far as concerns trust services, it is noted
dc3se not have a large trust department in relation either to its
Nassau Counties.
cleP0sit 'volume or to the population of Suffolk and
14Tever, the availability of the trust departments of the Franklin
the nearNatic)nal Bank and the lieadow Brook ITational Bank, as well as
the
ness of these counties to New York City and the availability of
particularly in
tiduciarY activities of the large New York City banks -
the
situation.
area of corporate demands - probably accounts for this
•
would represent
Certalnly
the added trust services mentioned by Applicant
a Co
.
potential, in
ulrenience to Security's customers, both present and
811trosil
-44 and
that any actual "needs"
Nassau Counties, but it seems unlikely
ill this area are or will be unserved.
to the other
A similar conclusion is compelled with respect
services)
international
such as municipal financing, commercial loans,
tran
financing. Although
sactions„ and accounts receivable and inventory
services might
'°111ers in Suffolk and Nassau Counties requiring such
ells.t
City
44(l it convenient to have another source available, the New York
bev4s
Franklin
and/or Security's larger Long Island-based competitors,
meet present
- -al Bank and Meadow Brook National Bank, seem able to
deraan
showing of any needs in
cl for such services, and there has been no
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Federal Reserve Bank of St. Louis
C;
'
these areas going unsatisfied. Further, there has been no suggestion that
these same banks will be unable to develop their specialized areas of
"Irice in step with future demand - or, indeed, that Security itself in
the elosence of affiliatjon with Applicant would not be able to develop
services.
131
In this connection, it should be pointed out that Security's
.Pa1 New York City correspondent bank is the Herine Midland Trust
CODITIn
of New York, and therefore Applicant's advice and assistance con-
cery,4
such services may be regarded as being available to Security through
this
conduit even in the absence of the proposed affiliation.
with respect to the matter of business and industrial development
C3 Applicant's own figures showing the present and projected trends
mmercial activity in Suffolk and Nassau Counties demonstrate that the
attrap4.
-.
10n of commercial enterprise, which is stated to be the primary
1-11 of Applicant's Industrial Development Department, is not in the
category so far as that area is concerned.
Finally, with respect to iflIprovements in capital adequacy and availof funds, cost and profit controls, and personnel analysis and
train.
InZ, Which Applicant cites as added factors having a bearing on the
eolnre
tilencel needs, and welfare of the area, it cannot be gainsaid that each
ha
sSo
influence upon the degree to which Security is able to service its
4stom
-ers effectively and economically. However, there has been no showing
tbt
Rn
far as capital requirements are concerned, Security itself cannot
zY them as the occasion demands - indeed, as previously noted, this has
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Federal Reserve Bank of St. Louis
/1, 74-
bee,
'
4- done as recently as 1961. Furthermore, with respect to cost and
difficult
PIlqit controls and personnel analysis and training, it is
tO
believe that a bank the size of Security - with resources of S2)4 million
•ts awn estimate that resources will reach $400 million within five
ears - could not on its own initiative successfully institute such
P avements or expansion as may be needed.
length in describing
In sum, therefore, Applicant goes to great
the be able to offer as a
Proved and additional services Security would
information on the area's need
bSi41-arY, but gives very little specific
t()x,
services
such services. The application does state that some of the
Island-based competitors
a'reYt'T available only through its larger Long
11:1 th ciugh large New York City banks. However, there is little in the
r
alltqic A •
of the types listed are
-+1-an to indicate that banking services
Thus, it
quate or unsatisfactory in Securityls service areas.
statutory factor
4Prlea.
rs that the circumstances attending the fourth
elat
banking public rather than their
e largely to convenience of the
rleeds
little, if any, real
Or welfare. And in this regard, there is
Security does not
"41ce that the public is inconvenienced because
As stated in the
What it might as a subsidiary of Applicant.
hYrp,
Federal Reserve Bulletin 567)/
York State Corporation case (1962
the t
being done needs to be done or is
°ard cannot assume that what is not
1114ter4
.41 to the publicts convenience.
'
11017
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Federal Reserve Bank of St. Louis
—13—
Cn balance, therefore, while the circumstances relative to
the proposed transaction which have a bearing on the convenience, needs,
and welfare of the area involved do not present an adverse picture,
neither are they such as to lend much affirmative weight to the merits
°I' the application.
Effect on adequate and sound banking, the oublic interest,
and comPetition. - The fifth statutory factor that the Board is
directed to consider, in passing upon applications under the Bank
41ding Company Act, is whether the proposal would expand the size or
"tent of the holding company system involved beyond limits consistent
with adequate and sound banking, the public interest, and the
Preservation of competition in the field of banking.
While each of the statutory factors is important and no
airlae one is controlling, in evaluating the weight and significance
f the various considerations which are found to exist with respect
to a given proposal the Board must be ever mindful of the over-all
Pill'Poses of the statute.
Act
reveals that
a
A review of the legislative history of the
principal motive for its enactment was the belief
Of congress that there was need for regulatory control over affiliations
(Ilf banks through the holding company device because, uncontrolled,
allch
and
activity could lead to undue concentration of banking resources
activities as well as restraint or inhibition of competition.
th-ese
reasons, the role assigned to the Board included, in
ticn to the supervisory considerations enumerated in the first
te,h.
-"k factors, the responsibility of insuring that holding company
acr,,,, •
lglsltions
are
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Federal Reserve Bank of St. Louis
permitted only where not inimical to present and
r
-114111)tentiel competition and that proposals involving incipient "undue
c°ncentration" of banking resources and activities are interdicted,
ill the absence of overriding favorable considerations. Accordingly,
the p.
4afth factor assumes a role of primary significance in terms of the
110erdt
s stewardship of the "public interest" under the Bank Holding
e(31VanY Act.
The first point to be considered in relation to this factor
18 the effect of the proposed acquisition in this case upon the size and
Applicantis holding company system.
On the basis of December 31, 1961 data, Applicant, with its
II 811bsidiary banks operating 181 banking offices in the State of New
York
and controlling $2.54 billion of total deposits, ranked as the
seco—
"u largest bank holding company in the United States, the seventh
large u4.
8
banking organization having offices in New York City, and the
tkrt
eenth largest banking organization in the United States. Applicant
c°11trni
subsidiary banks that are headquartered in eight of New York
Ntet,
'
nine banking districts and operate branches in all nine. The
total
deposits of all commercial banks in Hew York State were $49.3 billion
011 o
ecember 30, 1961, of which Applicant's subsidiary banks' $2.54 billion
'ented 5.2 per cent, and as of the same date, Applicant's subsidbanks! 181 offices represented 9.7 Per cent of the 1,863 commer-
b
anking offices in the StateY
oXe Percentages would be somewhat lower if Applicant's aggregate
S
uhlt ''s and
compared with deposits and offices of all
th
offices were
fas contrasted with commercial banks. However, it is believed
, PurPoses of evaluating the subject application comparisons
oor
banks are less relevant than comparisons limited to comer-
banks
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
ts:
headqrartered
As of December 31, 1961, Security (the largest bank
banking
811ff0lk County) had deposits of $212 million and operated 30
"ces, its head office and 21 branches in Suffolk County and
illnassau County.-
8 branches
Security's 22 banking offices accounted for 27.2 per
Nassau
of the 81 commercial banking offices in Suffolk County. In
"
165 corn0011rItY, Security's 8 offices accounted for 4.8 per cent of the
banking offices.
Combining Suffolk and Nassau Counties,
Secur44.
of the 246 corn'V ls 30 banking offices represented 12.2 per cent
a1 banking offices, and its $212 million of deposits represented
8,7
Per cent of the deposits of all commercial banks (including
Brook
"t4mated deposits of the Nassau County branches of Meadow
Iktional Bank).
Security is the second largest bank headquartered in the
headquartered
--A-Nassau County area; the Franklin National Bank,
itillassau County, is the largest, having, as of December 31, 1961,
14'islts of 1822 million and
tIcl
44 banking offices, 38 in Nassau County
6 In Suffolk County. Taking into account the Meadow Brook National
tahlo.
'which is headquartered in Queens County but has 47 of its 57
bt'ari„
'"es in Nassau County, Security is the third largest bank headred on Long Island.
,:i221.5 million,
arldAs Of June 30, 1962, total deposits had increased to
However,
offices.
banking
tirle 8 of September 1962 Security had 33
of
as
are
most recent figures available for Applicant
used for
be
will
P14.1.;uer 31, 1961, Security's status as of that date
--ses of comparison.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-16If this application were to be approved, on the basis of
real‘'-erld 1961 data the aggregate deposits of Applicant's subsidiaries
11°11d increase $212 million to $2.75 billion, and Applicant's banking
°faces would increase to 211. Applicant would continue to be the
le()Ild largest bank holding company in the United States, and when corned with all banking organizations it would rank twelfth in size
illateed of thirteenth. Applicant would hold 5.6 per cent of the deposits
or
commercial banks in New York State, an increase of 0.4 per cent,
411ciwolad control 11.3 per cent of the number of commercial banking
Offic_ 8,
44
an increase of 1.6 per cent. The proposed acquisition would
l'ileAPPlicant subsidiary banks with headquarters in all of Hew York
4atets nine banking districts, and with its Hew York City subsidiary
(the u .
"arine Midland Trust Company of New York) already operating 3 branches
11.1 01
—eens County, Applicant would be represented in three of the four
cs4Int
ies comprising the First Banking District.
The question of whether the proposed acquisition would be
410
-°"istent with adequate and sound banking and the preservation of banking
1-lon must be considered in the context of the pertinent banking
11141'icet
8, involving both geographical and service coverage. In the case
4
there are four facets of competitive impact to be considered:
(1)
c"Petition between Security and Applicant's upstate subsidiaries;
(Z)
°111Petiti0n between Security and Applicant's Hew York City subsidj3
the Marine Midland Trust Company of Hew York; (3) competition
betwo,.
11 Security and other banks; and (4) the effect of the proposed
'
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Federal Reserve Bank of St. Louis
-17accMisition upon Applicant's competitive position in the banking
structure of the State.
subsidiary banks
Security and all ten of Applicant's upstate
are so-called retail banks.
Although Security and Applicant's upstate
deposits
1141diaries do have some common customers in terms of demand
arid commercial borrowings, it appears that such overlap is accounted
upstate subsidiaries do
r(31‘ chicaY by the business which Applicant's
I nation-wide, State-wide, or multi-community concerns which operate
"
illthe Suffolk-Nassau area.
Accordingly, it is believed that little
subsidiaries,
c°raPetition exists between Security and Applicant's upstate
and
present and poteneffect of the proposed acquisition upon such
qal
competition as does exist would probably be insignificant.
Security
Uith respect to the competitive situation between
"APPlicant's New York City subsidiary, the Marine Midland Trust
Pany
seven branches
New York ("MMT"), MMT has its head offices and
County. These
nhattan (New York County) and three branches in Queens
11
offices in
Of
'lees represent 1.7 per cent of the commercial banking
°rk City.
is MMT's Jamaica
The closest approach of MMT to Security
North
°trice (Queens County), approximately 15 miles from Security's
'Ore office (Nassau County).
Applicant, neither Security
According to the data furnished by
tioIs
from the service
“vir derives a significant proportion of its business
orientation
cf the other, and in view of the fact that MMT's present
4 111,
as contrasted with
incipally toward the "wholesale" banking business
ceottr.
that the possible effect
ltY t e "retail" business it does not seem
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-18"he proposed acquisition upon present competition between these
bartb- is
•
cause for concern.
However, it should be borne in mind that the present situLtion
illthis regard is not necessarily indicative of the extent to which
Dqcntial competition could develop between Security and EN. While
Irv/2
to date has expanded into Long Island only to thc extent of its three
bran
chcs in Queens County, it could, like other large banks headquartered
t}-
Second Banking District, establish branch offices in Nassau County,
therte,
LI.Y coming more directly into competition with Security. Thus, it
tiay b
e inferred that consummation of the proposed transaction could prePotential competition between Security and EET, because even though
ed banks may compete with each other to some extent, they cannot
'
'
4 llsidere d to be alternative sources of service in the full sense.
Under the fifth statutory factor, a broader consideration than
t4le el.
IminDtion of present or potential competition between particular
is the effect of the proposed acquisition on the intensity of comDotiti
011 for banking business in the area served by the desired subsidiary.
At this juncture, it would be well to identify the "area" served
clirit -within which the principal comotitive impact of the proposed
.ecil-lisition is to be measured. Up to this point, the discussion has dealt
111th
the Suffolk-Nassau area of Long Island, since Security has banking
ot4
in both counties. For purposes of discussing the matters of conVtlit
ellee, needs, and welfare as well as the broad pattern of competition
11414 "external" banks, this two-county area is an acceptable point of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I
,r1
-19departure. However, when the inquiry relates to the local inpact of
the
Proposed transaction, a more definitive analysis of the appropriate
area is called for.
Applicant has presented its case largely upon the premise that
Security does business in both Suffolk and Nassau Counties, this
county area is the relevant geographic point of reference for assess0. all aspects of the competitive impact of the proposed transaction.
411elrer, there is reason to ouestion this premise.
As noted previously, as of September 1962, Security had 33 bankoff-loos, 25 of which, or 75.8 per cent, were located in Suffolk County.
Ilse, based on June 30, 1962 data, Security had deposits of 3221.5 mil4crl (1,,1
) Q4-f4.4 million of which, or 78.7 per cent, came from that county,
te
rills of its share of deposits of all commercial banking offjees,
itY accounted for 28 per cent of such deposits in Suffolk County,
as on an aggregate two-county basis, Security's 221.5 million of
pc)ei
ts represented only 3.8 per cent of deposits of all commercial bank0
Zfices operated therein. Also, attention is invited to the following
tate
/tient made
at page 2 of Security's Annual Report to Stockholders for
the
Year 1961:
"Suffolk County, the main base of our operations, is
no longer a quiescent frontier. It is an area dynmic
in its growth and unique in its capacity to serve modern
nciustry and its requirements for acreage. Nowhere else
°11 LcnC Island can these urgent requirements be readily met. *
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Federal Reserve Bank of St. Louis
*I!
ii
-20An additional consideration is the fact that Suffolk County is the
°IllY county in the First Banking District in which New York City banks
eannot enter either through establishment of new branches or through
Permanent retention of Suffolk County branches acquired by merger with
Nassau County banks.
This being the case) holding companies enjoy
a Preferred position with regard to the possible incorporation of
Suffolk County banks into a present orrroposed system, since they are
rIot Conf
ined
to banking districts but may legally acquire ownership of
banks throughout the State.
Thus, it is reasonable to conclude that
the most significant impact of the proposed acquisition,in terms of
Present andrrospective effects on competition between Security and
Other banks, muld be felt in Suffolk County rather than in the larger
Nassau-Suffolk
area.
"Concentration" is a major aspect of the problem of determining
the
effect of a holding company's acquisition of a bank upon competition
in the
field of banking in the area affected.
The problem of concen-
tr'ation involves the effect of affiliation on the public's choice of
banki
ng services generally, and appraisal of this effect requires
consideration of at least these questions:
how many true alternatve
8011rees will remain; what will be their respective capacities; and what
Pl
'
eeent or potential change from the existing situation will there be?
Applicant has pointed out that there would be no significant
ell` lge in concentration of banking resources in Security's service
41..ea following the proposed acquisition; that is,the public would have
the
same number of alternative sources of banking service, and the
cilstribution of the area's banking resources among these would remain
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Federal Reserve Bank of St. Louis
-21-
largely unchanged.
This is undoubtedly true. However, a collateral
aspect of concentration that must be considered is the effect that the
Proposed acquisition would have on the relative competitive positions
Of banking institutions in this market and the significance of that
effect.
As noted preViously, as of June 30, 1962, Security had
24
banking offices in Suffolk County/ and had 28 per cent
0,174.4 million) of the total deposits of comercial banks having
".ces there.
The Franklin National Bank (headquartered in Nassau
countY), although several times larger than Security in deposits
(Pr
anklin, $906.5 million; Security, 7221.5 million) is actually
8econdary to Security in terms of offices and deposits in Suffolk
C°1111tY; as of June 30, 1962, Franklin had 6 banking offices in
urfolk Countyli/ which offices had 15.8 per cent (98.1 million) of
the commercial bank deposits in that county. The Bank of Huntington
allcl sank of Babylon, both of which operate exclusively in Suffolk
ColIntr, or even further behind Security, each having but 5 banking
estfices and 7.9 per cent (118.9 million) and 5.3 per cent
(133 n
ec- million), respectivelyl of commercial banking deposits in
that county. Apart from the foregoing, there were 17 other
e°111Theroia1 banks of even smaller size domiciled in Suffolk County
a4 °f
June 30, 1962.
2/81
.11ce increased to 25.
SIllee increased to 8.
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Federal Reserve Bank of St. Louis
-22-
It is true that the structure and allocation of commercial
banking of -rices and deposits within Suffolk County is not an absolute
rlleasllre of the relative competitive position of Security in that county.
1fldeed,it is recognized that the Franklin National Bark does business
in Suffolk County to a greater extent than the volume of deposits in
1t8 branches in that county would indicate, and that the Meadow Brook
National Bank and certain of the large New York City banks have Suffolk
C°1111tY customers even though these banks have no branches there.
Ile\rertheless, it seems reasonable to assume that, particularly in the
al'ea of retail banking, the competitive influence of Security in Suffolk
CO
untY is intimately related to the position which it enjoys in that
c°1111t 7 in terms of offices and the proportion of Suffolk County
COIllmercial banking deposits held by those offices, and the record
terc)re the Board in this case reveals no basis for questioning
the v
alidity of this premise.
The picture that emerges from the foregoing, to the extent
that one can be drawn from figures alone, is not generally one of such
d°1/1inance as to reflect an unhealthy competitive banking situation in
Sliffolk County.
There does emerge, however, the unmistakable fact that
SecuritY is the principal bank in its principal area of competition in
ter
that
of commercial banking offices and deposits in that area, and
the great majority of banks operating there are very much
8111aller.
These two elements conjoined present a situation where,
Part from the questions of immediate elimination of competition
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Federal Reserve Bank of St. Louis
(
-23-
Or significant increases in Security's size, the longer range effects
and the broader aspects of the philosophy of the Bank Holding
C°raPany Act become controlling considerations.
As pointed out by the Board in the Morgan New York State
oration case (1962 Federal Reserve Bulletin 567), the existence of
a significant disparity in the size of bani:s within an area of
e°114.
ition does not necessarily involve an undue competitive advantage
or the
larger banks. In the nature of the American banking system,
tilers is room for both small and large banking organizations to serve
Irari°11s markets well, even where their markets overlap. It is even
inherent in that system that the large are free to increase the
disParity through grawth achieved without affiliation or merger.
the other hand, the partial check that competition imooses on other
nleans of growth is no obstacle to growth by acquisition or merger, and
10,4
64slative
protection has therefore been deemed ar)propriate to guard
against any such transactions which, without offsetting justifications,
1 It tend to unbalance the banking structure in an area to the
"
Prejlidice of haalthy competition, and thus of the Public interest.
Sileh PT'otection is afforded by the Bank Holding Company Act, and it is
the B
oard's responsibility to implement that protection as intended by
e°ngresse
In this case, we have a situation where the proposed
%Alp • .
sida.ary
Security - is the principal bank in Suffolk County in
term
8
of commercial banking offices and deposits. The proposed
trarl
saction would give Security the added benefits of direct affiliation
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Federal Reserve Bank of St. Louis
-24—
With the second largest bank holding company in the United States and
the eighth largest commercial bank in New York City.
This affiliation
certainly- would serve to place Security in a position to compete more
vigorously with Franklin National Bank, both in Suffolk and Nassau
°01Inties. Likewise, it would no doubt enhance Security's competitive
Posture with reference to Meadow Brook National Bank in Nassau County,
and, should Meadow Brook branch into Suffolk County, there as well.
liciwever, for the reasons previously indicated, the most important area
to be considered from the standpoint of competition between Security
and other banks is Suffolk County, and it is a significant fact that
Se"-tY is the principal bank in Suffolk County in terms of commercial
---Lng offices and deposits. While independent banks in an area may
)111etimes benefit in certain ways where one of their number comes under
outside
ownership, in the present case it is probable that in over-all
effect the smaller banks would be left with a longer uphill climb in
allr efforts they might wish to make to catch up with Security, and
ch c
om)etitive disadvantage as these smaller banks now have in
l'elation to Security would be increased.
In this connection, reference to the Board's disposition of
the c
Marl-attan
ust
this
Che
- Hempstead Bank and rlhemic .1 Bank New York
panv - Long Island Trust Canpany merger applications earlier
Year (1962 Federal Reserve Bulletin
',lead. Was
544
and
548) is
pertinent.
the fourth largest bank in rew York City and Long Island
st was the second largest in Nassau County; Chase was the lergest
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Federal Reserve Bank of St. Louis
-25bank in New York City and Hempstead Bank was the fourth largest in
Nassau County.
The Board conauded, in both cases, that although the
Irlergers might increase competition in Nassau County, especially with
Franklin, National Bank and Meadow Brook National Bank, it would
diminish the prospects of the smaller banks in the County, and the
latter effect was considered more significant than the former.
Under particular circumstances, it is true, a lessening
e'r competition
or a step toward concentration may be outweighed by
sPecific advantages which would accrue in the area of strengthened
Or ex7anded banking facilities or services from a proposed acquisition.
In this proposal, however, as the previous discussion has shown, there
i8 not sufficient evidence of the need for such benefits to outweigh
the adverse competitive consequences.
Yet another aspect of "concentration" which the Board must
take into account in discharging its responsibilities under the Bank
ric)iding Company Act is the effect that a proposed acquisition will have
the competitive position of the applicant holding company.
In this case, as previously noted, Applicant presently
c°11trol3 11 banks in New York State which operate 181 banking offices
100ated in each of the State's nine banking districts and had, at the
d
1961, aggregate deposits of :,;2.54 billion. Applicant advertises
its 0.
1 e and State-wide coverage and places much weight on this unique
reatal
_re of its operations. According to Applicant, it can provide
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Federal Reserve Bank of St. Louis
-26—
better services for its customers throughout the State of New York than
ca4 its
compebitors through regular correspondent relationships.
4equisition of Security would further enhance Applicantrs position in the
York
State banking structure, since through such acquisition Applicant
14)1134113e acquiring a "controlled outlet" in Suffolk County, a county in
ch it does not now have offices and in which its present subsidiaries
eaxitiot e
stablish offices. The proposed acquisition would also result
Irla su
bstantial addition to Applicant's over—all size; it would acquire
33
"44Qz1g offices (an increase of 18,2 per cent in its banking offices)
411c1 $221.5 million deposits (an increase of 8.7 per cent). The result of
this 4cqu1sition, which in and of itself is not insignificant, would give
41)11-cant more complete State—wide coverage and banks headquartered in all
the Stators banking districts.
It is manifest from the legisla—
t14e history of the Holding Company Act that one of the principal concerns
or
the Congress was the prevention of undue concentration of banking
resou
rces under single control, and it is the view of the Board that the
ation here proposed would lead to such concentration, taking into
t Security's strategic location and Applicant's present size and
a cPe
of operations.
This is not to say that the economic power in Applicant's
s being or would be abused or improperly exercised. Neverthe—
'
,f
or the reasons previously adduced, the Board concludes that the
'41 cnt,
ra-icn of banking resources and activities and adverse competitive
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Federal Reserve Bank of St. Louis
-27—
which would result from consummation of the proposed
t184saction would be inconsistent with the intent of Congress.
Summary and conclusion. —
The present financial condition of
41311cant is satisfactory and that of Security is reasonably satisfactory,
the
financial history and the prospects of both are satisfactory.
The
charlacter of Applicant's management is satisfactory and, while there are
c4clinistance5 that indicate need for improvement of Security's management,
Itis believed that the means of improvement to the extent that may be
tlece
'
sarY are available to Security as an independent bank. So far as
'Ills the convenience, needs, and welfare of the area involved,
cant'S case rests largely upon the convenience which would accrue
to se
cur#Yls customers through the addition of certain specialized
ces, the availability of Applicant's capital backing for
Q 13a,t1
1°11 as
flooded, and. bettor training of tho brInk's pr5mno1.
Rowe
ell, in view of the existing banking structure in Suffolk and Nassau
e°141ti
-es and the availability to this area of New York City banks for
//kcinl,
Q-zed services, either directly or through correspondent relation111'18,it is not believed that a strong case can be made even for the
bqt
e- serving of the convenience of customers in the area through the
Nosed
transactionp As to the effect of the proposed transaction
1111`11 the
size and extent of ApLaicant's holding company system as it
l'ela:te8
to adequate and sound banking, the public interest, and preserva—
tt°11 Of Competition in the field of banking, the concentration of banking
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Federal Reserve Bank of St. Louis
ri
-28l'esources and activities which :ould result from the proposed
aequisition would be inimical to the preservation of banking
oltpetition and inconsistent with the public interes.,.
This being
the case, it is the view of the Board that the application should be
denied.
ccvember 21, 1962.
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Federal Reserve Bank of St. Louis
„
Item No.
3
11/19/62
DISSENTING STA.TEIENT OF GOVERNOR MITCHELL
problems of
The majority opinion concludes that the management
Securif
of the
though not critical, weigh on the side of aJproval
41)Plicn+a compelling
--1
'
/410n. It observes, however, that such matters are not
cieration because, among other things, "a bank the size of Security
be able
to cope with its own management problems through the
exe,
'
else of determined willingness, .
II• The management-ownership
emerge
eillties at Security have a special character; they do not
*en th-e
explosively
problems of expansion and effectively serving an
Zro•trit
competence.
g community, nor are they a matter of technical banking
'
4 Pite the
them there
fact that progress has been made in dealing with
a'PPear
s to be inherent in the ownership-management pattern intractable
ar4
ets as to policy toward the utilization of banking resources that
ora
ownership
Y be promptly and certainly removed by change in both
tlagement.
Iezs
Approval of the application would do this: it is far
to cope
-er'tain that adequate support for "determined willingness"
141 the
stock
Problems can be mobilized out of the present dispersion of
• ngs.
The
rajority opinion dwells upon the Congressional directive
14size and extent" incorporated as the fifth factor in the Bank Holding
!
\;01Ttp
Y Act. Although the concern of Congress over undue concentration
c)1, b
ing resources permits several interpretations, it seems reasonable
to a
a8111110 that its delegation of regulatory power to this body relates to
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Federal Reserve Bank of St. Louis
-2the e
implications of size, not size per se.
Under such interpre-
tett,
'
11, size is inconsistent with the public interest only if its ramifieati.oll
-u are significantly reduced alternatives for consumers of banking
e
es. The majority, in my opinion, has failed to demonstrate a
Pc3telltiaaly significant reduction of alternatives in any meaningfully
dertn
ed market or set of markets. Without substantive showing of an
crea— .
"In "concentration" in some market or set of markets and a perzttazi
/re assessment of the effect of this concentration, the opinion risks
litril
loretation of hostility to size alone.
The majority has, it seems to me, correctly pointed out the
content of any "extension of services" argument as a factor
Ile* gh*
ln- for approval in this case (cf. Liberty Bank and Trust Company,
293) 294). But in meeting the mandate of the statue, subjective
t
en-8 by the regulatory authority as to what is "needed" or "adequate"
441 a b
anking structure are likely to be narrow and rigid. Such judgments
co.111.1
°8 made more realistic if they took into account the response of
institutions and their customers to market facts. Possibly,
the
best direction would be given to our evolving banking structure if
el1411
the
Ilels of competitive activity were kept open and used to condition
ents by the regulatory body.
In this process the consumer
his needs if he is given a range of choice,and banks operating in
•
(31q0etltive
milieu have every incentive to ascertain and serve these
4
th
Thus a policy of maintaining competition produces as a by-product
ens of measuring "needs" and "adequacy."
'
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Federal Reserve Bank of St. Louis
-3..
The task implied in maintaining competition is not uncomplicated.
Ann„,
"
- 40n joining formerly independent banking units could mean, on the
elle hand, an effort to benefit by a stream of monopoly profits. It
ec41)4171ean, on the other hand, an effort to adapt to changing circumtilee;aleast costly expansion procedure, a cheapest method of changing
()cation in response to movements in deposit densities and changes
the
structure of the demand for credit. Regulation cannot hope to
clieritangle a complex web of motives.
But there are, I believe, ample
:tl'c'llnds for tolerance of bankst own judgment of their interests where
the
e gulatory body cannot find substantial inconsistency with the pubhterest; where it cannot show significantly anticompetitive imPlteat'
1°ns (of. Concurring Statement in Whitney Holding Corporation,
48
13 560,
For these reasons I dissent from the decision of the majority
ill this case.
The record here fails to convince me that substantial
would be foreclosed by joining Security and the Marine group.
varliting
factors also seem to me to argue for granting the applica-
ttOr
io
%Aber 21,
1962.
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Federal Reserve Bank of St. Louis
UNITED STATES OF AMERICA
Item No.
4
11/19/62
BEFORE TIIE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Applications of
1
BRENTON COMPANIES, INC.
t°r permission to acquire stock in
f°11r banks in Iowa.
1
1
.1.
ORDER APPR)VIN1 AP2LICATIONS UNDER
BANK HOLDING COMPANY ACT
There have come before the Board of Governors, pursuant
to section
3(a)(2) of the Lank Holding Company Act of 1956 (12 U.S.C.
1842) and section 4(a)
.
(2) of Regulation Y issued by the Board of
G°17ern0rs (12CFR
222,14(8)(2)),
four applications for the Boardts
1311.0r approval of the acquisition of 80 per cent or more of the
°Ilt
standjng voting shares of Poweshiek County National Bank of
Grinnell, Grinnell, Iowa; The First National Bank of Perry, Perry,
1°14; Brenton State Bank, Dallas Center, Iowa; Jefferson State Bank,
jetferson, Iowa.
As required by section 3(b) of the Act, the Board forwarded
11°.tice of the applications concerning the two national banks to the
C.s-)tl„
e.roller of the Currency and notice of the applications concerning
th
v140 State banks to the Superintendent of Banking for the State of
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Federal Reserve Bank of St. Louis
,
1°14a. In replying to such notice the Comptroller stated that he had
no reason to object to the acquisition of the stock of the national
banks by Applicant.
The Superintendent of Banking responded by
l'ec ommending favorable action on the applications concerning the
State banks.
A notice of the applications was published in the Federal
Ilegister on July 24, 1962 (27 Federal Register 6996), providing for
the filing of comments and views regarding the proposed acquisitions,
The time provided for the filing of such comments and views has
exPired and all such comments and views filed with the Board have
been considered by it.
IT IS HEREBY ORDERED, for the reasons set forth in the
13°a1l e Statement of this date, that said applications be and hereby
alle approved, provided that the acquisitions so approved shall not
be c onsummated (a) within seven calendar days after the date of
thie Order or (b) later than three months after said date.
Dated at Washington, D. C. this 19th day of November, 1962.
By order of the Board of Governors.
Voting for this action: Governors Mills, Robertson,
Shepardson, and Mitchell.
Absent and not voting:
and King.
Chairman Martin, and Governors Balderston
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
(8EAL)
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Federal Reserve Bank of St. Louis
I
Item No.
5
11/19/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY THE BRENTON COMPANIES, INC., DES MOINES,
IOWA, FOR PRIOR AP2ROVAL OF ACQUISITION OF SHARES
OF FOUR BANKS IN THE STATE OF IOWA
STATEMENT
..
The Brenton Companies, Inc., Des Moines, Iowa ("Applicant"),
a bank holding company, has applied,pursuant to section 3(a)(2) of
the Bank Holding Company Act of 1956 ("Act"), for the Board's prior
aPPr°val If the acquisition of 80 per cent or more of the outstanding voting shares of the Poweshiek County National Bank of Grinnell,
41-nrIell, Iowa; The First National Bank of Perry, Perry, Iowa; Brenton
State Bank, Dallas Center, Iowa; Jefferson State Bank, Jefferson, Iowa.
Statutory factors. - Section 3(c) of the Act requires the
toard .n
each instance to take into consideration the following five
factors. (1) the financial history and condition of the holding
e°17IPanY and banks concerned; (2) their prospects; (3) the character
°t their management; (4) the convenience, needs, and welfare of the
c°Ittlunities and areas concerned; and (5) whether or not the effect
or t
he acquisitions would be to expand the size or extent of the bank
hold,
'ng company system involved beyond limits consistent with adequate
arid
sound banking, the public interest, and the preservation of
e°1111etiti0n in the field of banking.
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Federal Reserve Bank of St. Louis
-2-
Discussion. -
The Applicant was organized in 1948 under
the laws of Iowa, for the purpose of managing the Brenton banks
and to hold the bank stocks which had been previously owned by
another Brenton corporation.
A majority of the stock of each of the four subject banks
has been owned since before the passage of the Act by Applicant and/or
bY individual stockholders who are members of the Brenton family,
Ilhich family also owns a majority of the stock of the Applicant.
In addition, Applicant has provided management services for the
banks for many years.
In 1960 the Applicant requested and received
aPProval from the Board to enter into voting trust agreements with a
Nor stockholder of each of the four subject banks, thereby enabling
Applicant to control 25 per cent of the voting shares of each bank
thr°11gh such voting trust agreements.
This action was requested in
°rder to permit Applicant to continue furnishing services to or
Perf°rming services for the four banks, in conformity with section 4(a)
(If the
Act.
The financial history and condition, prospects, and manageof both Applicant and each of the four banks are satisfactory.
Since a majority of the stock of each of the subject banks
and of Applicant is owned by the Brenton family interests, the
PItcP°sed acquisitions by Applicant will result only in transferring
Ct ownership of the banks from the Brenton family interests to
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Federal Reserve Bank of St. Louis
1¶ 1
th
Applicant corporation. There is no evidence that the proposed
aeW-sition will result in any substantial change in the operation
of the
banks involved.
Therefore, it is felt that the transaction
vill have no material effect on the convenience, needs, or welfare
Of the areas serviced by the subject banks. Nor does it appear that
the ac
quisitions proposed will have any significant effect upon
'
-- 4-ug competition or that the acquisitions will expand the size
extent of banking resources under Applicant's control beyond
s consistent with adequate and sound banking, the public
a-nterest,
and the preservation of competition in the field of banking.
the
It is the dudgmcnt of the Board, upon consideration of
facts of the case in the light of statutory factors and the
ellerial Purposes of the Act, that this application should be approved.
er ly
1962.
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Federal Reserve Bank of St. Louis
Item No. 6
11/19/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
November 19, 1962
E. H. Galvin, Vice President,
erra1 Reserve Bank of San Francisco,
&,
--"ancisco 20, California.
1%
/1
1
*. Galvin:
Reference is made to the application dated November 11, 1960
trora
opalr'ala Sumitomo Bank of California, a State member bank, San Francisco,
cham °rnia, for authority to accept commercial drafts or bills of exN.t!to an amount not exceeding at any time, in the aggregate, 100 per
bark"" of the paid-up and unimpaired capital stock and surplus of the
It is noted that the Federal Reserve Bank of San Francisco
en
elvh.r.7 a rating of 2-B-S to the bank on the basis of the report of
h;"ttriation as of
—2-- December 4, 1961. It is understood that
1.11j!gard the management as capable and well experienced, particularly
,
eant7
field of foreign trade, and that the parent bank provides applitth experienced senior officers and has demonstrated its ability
ha
'tlingness to lend assistance when needed. However, the manner
kvoriuling acceptance transactions for the parent bank in Japan is
ite and it appears that the member bank has not seen fit to establish
rathrialne in the bill market through the sale of acceptances, except in
er isolated cases at penalty rates.
1:148 cp4
be
In all the circumstances, the Board believes that it would
Dover
in granting at this time the increased acceptance
this 8 requested. However, such increased powers may not be needed in
ttithc
2.8e, since a large proportion of the paper involved may not con5 outstanding acceptances that are subject to the limitations
"
Dree
ktscribed by the seventh paragraph of section 13 of the Federal Reserve
Fisom the information you have furnished, including the
clocIlme
Its enclosed with your letter of November 7, 1962, the Board
:
&Ater
itomthat the "excess acceptances" in question are owned by The
° Bank, Ltd. (Japan), although they are held for "collection"
Nlere custody of The Sumitomo Bank of California, the acceptor.
the Japanese bank (through its New York Agency) undertakes a
S
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Federal Reserve Bank of St. Louis
1
BOARD
It% E. H.
Galvin
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
-2-
100
ahri Per cent participation of the acceptor's liability on such acceptances,
IZT!!e Sumitomo Bank of California retains, and cannot lawfully be de40,,ve of, custody of those acceptances, they need not be taken into
otTlIt in applying the statutory limitations upon the aggregate amount
member bank's acceptances or the amount that it may accept for
04i ne person. This conclusion is based on the fact that, in the cirbances described, The Sumitomo Bank of California actually does not
an acceptor's liability with respect to such paper.
However, despite the contractual arrangements between The
1111.
1t°1110 Bank
the
of California and the Japanese bank, drafts accepted by
N41014-ormer would become enforceable against it if they came into the
tlep cr a person who as a "holder in due course" under the applicable
14:Vable instruments law. For this reason, a crucial question is
olroll!r the Japanese bank is in a position to require The Sumitomo Bank
:
Ila alifornia to surrender custody of such acceptances. If this could
agsn, The Sumitomo Bank of California could not be certain that its
slichPtanoes would not get intp the hands of persons who could enforce
eitiwaceePtances against it. Accordingly, the arrangements in this
'
40n should include an irrevocable agreement on the part of the
thkpah
4881gae bank that all acceptances as to which the Japanese bank has
itod the acceptor's liability shall remain in the custody of The
:
Or al
Bank of California until maturity. Unless there is assurance
ikto
continued physical possession, the acceptances must be taken
liklinlIcccunt in applying the limitations on amount prescribed by Federal
-44 regulation.
le
It is requested that you inform the member bank of the Board's
the matter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
try'. 1
Item No. 7
11/19/62
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
Illthe
Matter of the Application of
441EEE MERCHANTS BANK 8c TRUST CO.
to:4'.aPProval of consolidation with
'171-804 State Bank
41.
ORDER APPROVING CONSOLIDATION OF BANKS
There has come before the Board of Governors, pursuant to the
8411kMerger Act of 1960 (12 U.S.C. 1828(c)), an application by Genesee
lel‘cliallte Bank & Trust Co., Flint, Michigan, a member bank of the Fed"eeerve System, for the Board's prior approval of the consolidation
that
bank and Davison State Bank, Davison, Michigan, also a member
bitat of
the Federal Reserve System, under the charter and title of the
01'
'
4
As an incident to the consolidation, the three offices of
balri8
°11
State Bank would be operated as branches of the Genesee Merchants
krIk
4rust Co.
Notice of the proposed consolidation, in form approved by the
1:40f
Governors, has been published, and reports on the competitive
e:t°1's involved in the proposed transaction have been furnished by the
1414'°11er of the Currency, the Federal Deposit Insurance Corporation,
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Federal Reserve Bank of St. Louis
-2-
atirl the Department of Justice, pursuant to the provisions of said Act
Scribing ten calendar days as the period within which such notice
1111181' be published and such reports must be furnished when an emergency
eklets requiring expeditious action.
Upon consideration by the Board of all relevant material in
the 1.
lght of the factors set forth in said Act,
zris
HEREBY ORDERED, for the reasons set forth in the Board's
Statement of this date, that said application be and hereby is approved,
Pro."4,
v•Lued that said consolidation shall be consummated not later than
till'ee months after the date of this Order.
Dated at Washington, D. C., this 20th day of November, 1962.
By order of the Board of Governors.
Voting for this action:
Unanimous, with all members present.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
Item No. 8
11/19/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY GENESEE MERCHANTS BANK & TRUST CO.
FOR APPROVAL OF CONSOLIDATION WITH DAVISON STATE BANK
STATEMENT
Genesee Merchants Bank & Trust Co., Flint, Michigan
esee"), with deposits of $150.5 million as of June 30, 1962,
-vPlied, Pursuant to the Bank Merger Act (12 U,S.C. 1328(c)),
the
Board's prior approval of the consolidation of that bank and
4174_
)11 State
Bank, Davison, Michigan ("Davison Bank"), with deposits
or $0
'trilllion as of the same date.
tile eh
The banks would consolidate under
'
41 ter and title of Genesee, which is a member State bank of the
Pectra,
Reserve System.
The three offices of Davison Bank would be
°Ilerat d
e- as branches of Genesee as an incident to the consolidation,
4eing from 21 to 24 the number of offices being operated by
Genesee.
The application for consolidation was made to remedy an
LeY situation arising from certain irregularities in the opera—
.104 or
Davison Bank that resulted in losses depleting the bank's
structure from approximately $1,032,000 to about $330,000. As
14clieat d
e- -01 the Board's Order of approval of this date, action on the
13--kca
1)14
tlon has been expedited.
kk
Under the Act, the Board is required to consider, as to each
Il°1ved, (I) its financial history and condition, (2) the adequacy
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Federal Reserve Bank of St. Louis
-2-
gr it8 capital
structure, (3) its future earnings prospects, (4) the
Eeri
-ral character of its management, (5) whether its corporate powers
are c°4eistent with the purposes of 12 U.S.C., Ch. 16 (the Federal
ber..
Insurance Act), (6) the convenience and needs of the community
to
be served, and (7) the effect of the transaction on competition
(Ito .
4-11dlng any tendency toward monopoly), The Board may not approve
the
'
-ansaction unless, after considering all these factors, it finds
the t
ransaction to be in the public interest.
Banking factors. - The financial history and condition, capital
Ifr%c+
vurs, and earnings prospects of Genesee are satisfactory. The
f444
CI-al history and condition of Davison Bank were regarded as satis4CtOru.
1
-4 Prior
to the irregularities and resultant depletion of the
Qaratts
caPital structure mentioned above. Prospects for continuance by
the b
44k of successful operations have been seriously weakened by these
°Plnents, and the application was submitted as the most practicable
totirs
t° Pursue. The resulting bank would be under the competent mant Of Genesee, and its condition, capital structure, and earnings
Dixier
cts would be satisfactory. There is no evidence that the corporate
of the bans, as institutions having deposit insurance under the
Petterai
N)osit Insurance Act, are or would be inconsistent with that Act.
114 br
nvenivnce and needs of the communities. - The main office and
411chee of Genesee are located in Flint (1960 city population 197,000;
kgro
P°11tan area population 380,000), which s 71 miles northeast of
'etrott.
Genesee's six other branches are in small communities within a
ZIL
radius of Flint.
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Federal Reserve Bank of St. Louis
—3—
Davison, with a 1960 population of 3,800, is situated 10 miles
".Of Flint. In addition to its main office, Davison Bank has a branch
in Be ,
1410Y, which is located about halfway between Flint and Davison, and
811°t119-r branch in Goodrich, which is 8 miles south of Davison and 10 miles
a th
(14—sast of Flint. The population of Davison Bank's service area is
abcyllt 15,000. The offices of Davison Bank are the only banking facilities
lr th
0 three communities which, like Flint, are dependent economically on
the
autmlotive industry. Consummation of the proposed transaction would
aas„
'
s e c ontinuance of banking offices in these three communities and would
N4lald
banking services in the service area to some degree.
Corpetition. - As Davison Bank has been competitive with other
barke
serving the Flint-Davison area, the effect of the proposed consolidam.°
4 °fl competition would probably not be favorable. This consideration,
L
oe
erl 18 outweighed by the need for providing the public with the
'
40c1 services of offices of a sound bank.
Summary and conclusion. - In view of the serious depletion of
it
eaPital accounts, Davison Bank is apt likely to continue to be competit4e,
14cTeover, consummation of the proposal would assure continuance of
tlie°111
banking offices located in the three communities served by
41ria(34 Bark. These considerations clearly offset any adverse effect
Or
the transaction upon banking competition.
Accordingly, the Board finds the proposed consolidation to be
111 the
Pliblic interest.
uer 20
s 1962
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Federal Reserve Bank of St. Louis
Item No.
9
11/19/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE
aciAfen
November 19, 1962.
Mr. Leland Ross, Vice President,
Federal Reserve Bank of Chicago,
Chicago 90, Illinois.
Dear Mr. Ross:
In accordance with the request contained
letter
of November 8, 1962, the Board apin your
proves the appointment of Patrick J. Tracy as an
assistant examiner for the Federal Reserve Bank of
Chicago. Please advise the effective date of the
appointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
@FedFRASER