The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
.t609 * 1O/9 Minutes for November 23, 1959. To: Members of the Board From: Office of the Secretary Attached is a copy of the minutes of the Board of Governors of the Federal Reserve System on the above date. It is not proposed to include a statement With respect to any of the entries in this set of minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If you were not present, Your initials will indicate only that you have seen the minutes. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King 0- ( AT fil);i t, Minutes of the Board of Governors of the Federal Reserve System On Monday, November 23, 1959. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Martin, Chairman Mills Robertson Shepardson King Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Riefler, Assistant to the Chairman Thomas, Economic Adviser to the Board Young, Director, Division of Research and Statistics Noyes, Adviser, Division of Research and Statistics Robinson, Adviser, Division of Research and Statistics Koch, Associate Adviser, Division of Research and Statistics Williams, Associate Adviser, Division of Research and Statistics Dembitz, Research Associate, Division of Research and Statistics Furth, Associate Adviser, Division of International Finance Hersey, Associate Adviser, Division of International Finance Landry, Assistant to the Secretary Messrs. Allen, Brill, Eckert, Fisher, Gehman, Keir, Solomon, Weiner, Wernick, and Miss Dingle of the Division of Research and Statistics Messrs. Dahl, Irvine, Katz, Maroni, Reynolds, and Wood of the Division of International Finance Economic Review. The staffs of the Divisions of International nee and Research and Statistics presented a reviev of internationa l Rnd A_ '``mestic economic conditions and developments . 11/23/59 -2- At the conclusion of this presentation all of the members of the Staff withdrew from the meeting with the exception of Messrs. Sherman, Riefler, Thomas, Young, Noyes, Koch, Dembitz, Landry, and Reynolds. The following entered the room at this point: Molony, Assistant to the Board Fauver, Assistant to the Board Hackley, General Counsel Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Conkling, Assistant Director, Division of Bank Operations Mr. Nelson, Assistant Director, Division of Examinations Mr. Collier, Chief, Current Series Section, Division of Bank Operations Mr. Mr. Mr. Mr. Mr. Mr. Items circulated to the Board. been The following items, which had circulate,d to the members of the Board and copies of which are attached l'ere to these minutes under the respective item numbers indicated, ...avod unanimously: Item No. Letter to Bankers Trust Company, New York City, ls°1ring an extension of time to establish a -" 4 in Kings County. t 3. ; 1 :!ter to the Comptroller of the Currency recommending phZablY with regard to the application of The Bank of rieT Ridge, Park Ridge, Illinois, to convert into a tional banking association. 2 Letter - the Comptroller of the Currency recommending With regard to the application of St. Lucie hat;"Y Bank, Fort Pierce, Florida, to convert into a '44)nal banking association. tetter to the 4 First State Bank, Spearman, Texas, waiving in 418:0( months' notice of withdrawal from membership ''Lle Federal Reserve System. 3 14. 11/23/59 Further consideration of vault cash proposals. The Chairman initiated discussion of the question of the most desirable method of adding vault cash to member bank reserves by asking how much 'would be added to member bank reserves by releasing vault cash in excess of 4 per cent of net demand deposits at country banks and in excess of 2 Per cent of net demand deposits at reserve city and central reserve city banks. Mr. Thomas referred to a memorandum from Mr. Dembitz dated November 20, 1959, which he proceeded to distribute to the meeting and a copy of 'which has been placed in the files. This memorandum 4hoved that approximately $250 million of reserves 'would be released bY this method, which vas referred to as "Step One" of "Plan A" and a variant of an earlier proposal made by Governor Robertson at the Board meeting on October 14, 1959. On a question from Governor 114)bertson as to the basis on vhich "Step One" vas set up, Mr. Thomas e()Initented that the underlying premise of this plan vas that the Board vtalled to end up with a set of reserve requirements that would not iliv°13/a a vide spread between country and reserve city banks and that rurther premise vas that the Board did not wish to add a great deal to Ober bank reserves at this time. With respect to the first premise, Ile indicated that it 'would be possible either to lower percentage reserve req4irements at reserve city banks or to raise percentage reserves at e°144trY banks in order not to have as wide a spread as is represented U/23/59 by the current levels of 16-1/2 per cent for the former group and 11 per cent for the latter. He pointed out that this could be accomplished either by I.eleasing to reserves vault cash above a certain percentage of net demand Posits as would be done by the instant proposal or, alternatively, to release a certain amount of vault cash and raise reserve requirements at the same time to offset a portion of the vault cash released. He continued by saying that as a matter of equity it would be undesirable to release 'vault cash for some banks while raising reserve requirements for others and that banks that had their reserve requirements raised should benefit cm some inclusion of vault cash in reserves. tl ' He noted that "Step One" P°8tponed raising reserve requirements as an offset to release of vault Cash to reserves on the assumption that reserve requirements would be irter'eased over a longer period, such as three years. He concluded by referr4--i-ug to the fact that the total amount of reserves released in all f°14r steps described in the memorandum would be about $2.5 billion, of vilieh $2.1 billion represented vault cash and the remainder a decrease reaerve requirements for reserve city and central reserve city banks. The Chairman then inquired as to how a release of vault cash urld er "Step One" would tie in with current reserve projections, indicating that i+- would be desirable to announce this action on the vault cash rhr°P°Bal immediately following the payment date of December 2, 1959, 141' the $2 billion 320 day October 17, 1960 Treasury bill announced after the close of the market on Thursday, November 19, 1959. Mr. Thomas said 04 11/23/59 -5- that reserve projections indicated a need for about $600 million from now until mid-December, and he concurred in a comment from Governor Robertson that the vault cash release contemplated would be a moderate cIffset to the usual seasonal need for reserves in the banking system and that the increased availability of reserves that would result from eQuilting vault cash could appropriately be made effective December 1 for country banks and December 3 for city banks if it was desired to meet this seasonal need. Governor Mills said that he would be agreeable to adopting 110, One" and forgetting about the remaining steps until the proper tittle. However, he wondered whether "Step One" was not needlessly e°mPlicated. He recalled that Mr. Riefler had raised the question at the Board meeting on November 2, 1959, as to whether supplying the banking system as a whole with reserves this fall through release of vault cash would necessarily supply reserves to the same banks that would be from System Open Market purchases at this time of year, and he 'reillarked that if reserves were released through inclusion of vault cash prior to December 2 or December 3, country banks would have time to place these l'eserves in balances with correspondent banks in reserve cities and eettral reserve cities. He concluded by stating that another reason fo dvancing the date for releasing vault cash to reserves was that , 11/23/59 -6- the current strong demand for Treasury bills made this a preferable method of releasing reserves to the money market compared to open market purchases of bills, which would serve to depress bill rates fUrther. In response to a question from the Chairman concerning the matter of timing the release of vault cash to reserves, Mr. Thomas °I)Berved that if desired the release could be made effective as °f November 26 for city banks but it would be difficult to fix a date for country banks before December 1, since that would comPlicate the reserve computation period for that class of banks. He on to say that the amount of added reserves involved was so small the matter of timing would probably make little difference. With r sPect to Governor Mills* reference to the current level of Treasury bill rates, he noted that these rates would probably rise seasonally anY event. Governor Shepardson commented that although "Step One" was Pl'etbablY not the best way of handling the release of vault cash to Iseiserves, it was still essential to arrive at some policy action on thi 8 question. He said that he was concerned that "both sides of the Pictlareo l'?°tIld should be presented by indicating to the public that there be some increase in reserve requirements eventually unless it ahould turn out that the release was spread out over so long a period or tiMe that other factors could substitute for the administrative 11/23/59 -7- increase in reserve requirements. He then observed that he liked Plan B-1 in Mr. Thomase memorandum of November 13, 1959, involving a fractional release of vault cash to reserves in the amount of about $1.1 billion for all banks and a fractional increase in required reserves for reserve City and country banks within the next sixty days. This would indicate that the System was acting in good faith so far as Congress was concerned and 'would accomplish the purpose of Public Law 86-114. He noted, however, that this perhaps would do more than the rest of the Board would be willing to see done at this time. The Chairman observed that the problem was the amount of added reserves that would have to be offset, and Mr. Thomas commented that 18ing to reserve requirements by 1 per cent would be a sufficient offset the release of reserves contemplated by "Step One" of "Plan A". all banks rev banks Almost would benefit from some release of vault cash to reserves and would suffer increases in reserve requirements. Mr. Thomas added that the inequities would not be as great under this plan as under which would not involve any benefit for many banks. A brief discussion then ensued as to whether the release of Irault cash to reserves -would necessarily help the reserve positions of indilridual banks, during which Governor Robertson remarked that an a(1141.rable feature of "Step One" was that although some banks might not 1)enefit from it, no banks would be hurt by it. Further, this would 15ermit the Board to g0 in any direction it wished on this question later 11/23/59 -8- On. With respect to raising reserve requirements subsequently, Governor Robertson noted that this mould come only as a last step and that although "me banks would be adversely affected by such a move, further developments &Lich as a possible recession might obviate the need to raise reserve requirements later. After noting that if it were his decision alone he mould still not do anything on the vault cash question at this time, the Chairman said he appreciated the advantage of making a gesture on this question because of the political implications and the matter of public relations vith the banking community. If he had the option, he mould wait until "ter January 1, 1960, or perhaps until the fall of 1960 before making move. One" On the other hand, the "gesturds involved in following "Step mould not be costly and he thought that it was the best may of 11°Ilting out of a bad situation; especially since it did not commit the 13°ard With respect to the three successive steps outlined in Mr. Dembitzts rilelliorandum of November 20, 1959. A discussion then followed regarding the impact upon the Treasury 8•4a Congress of implementing "Step One". During this discussion Governor She Pardson remarked that he withdrew his objections to "Step One" on the allsnoption that there mould be no serious repercussions from Congress 411041d "Step One" be followed. The Chairman said that he would undertake to talk to the Treasury Ilith re spect to the best timing for releasing vault cash to reserves under tina P1an and report back to the Board. 11/23/59 _9.... Mr. Thomas then raised the question as to certain details of administration that would need to be worked out if the Board were to go ahead with an actual release of vault cash to reserves, and Mr. Hackley said that he believed the necessary amendments to Regulation D were covered in his memorandum of November 6, 1959. He did note, however, that it would be possible for the Board to avoid a complete revision of the Regulation by using the suggested amendment to Part 204.3(a) of Title 12 of the Code of Federal Regulations which appeared on Page 2 c)f the attachments to his memorandum of November 13, 1959. Following a suggestion from Mr. Molony that it might be desirable to avoid making Thanksgiving Day the effective date of the Boardes action elad a comment from Governor Robertson that Governor Balderston had informed him that he would favor "Step One", the Chairman indicated that this topic 811°111d be placed on the agenda for further consideration at the Board Illeeting on Wednesday, November 25, 1959, by which time the staff should have prepared material regarding the various details that would be necessary to Put "Step One" into effect, should the Board decide to take that action. The meeting then adjourned. Secretary's Note: Pursuant to the recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board increases in the basic annual salaries of the following persons on the Board's staff, effective November 29, 1959: 4042 /59 -10- tilt2tnd title Division Basic annual salary From To Office of the Secretary Constance A. Dyer, Secretary M. Elizabeth Jones, Supervisor, Minutes Unit Alice E. Ray-man, Secretary audelle Rice, Indexing and Reference Assistant $4,790 6,735 14,790 4,790 $4,940 6,885 14,940 4194o 4,940 5,090 2,960 3,055 Legal Eugene C. Harrison, Law Clerk Administrative Services MarYC. Nantell, Cafeteria Helper BOARD OF GOVERNORS kot*O*1:14.4 OF THE totI,Itoi,444 :44 8 4 FEDERAL RESERVE SYSTEM 4. * WASHINGTON 25, D. C. Item No. 3. 11/23/59 AOORESS orriciAL CORRESPONDENCE TO THE BOARD °s 07,111 .Wg:St 11. November 23, , 19590 4 , 1 Board of Directors, Bankers Trust Company, New York 15, New York. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of New York, the Board of Governors extends to February 17, 1960, the time within which Bankers Trust Company maY establish a branch in the Kings Bay Shopping Center on 11°strand Avenue between Avenues Y and Z., Brooklyn, Kings County, New York. Very truly yours, (Signed) Kenneth A:. Kenyon Kenneth A. Kenyon, Assistant Secretary. tiki‘ 4 HOARD OF GOVERNORS otz0140,4 Q0k0, ' rk44 0.4 ti OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 2 11/23/59 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD 4 Eat04‘ ,* 44.40ow November 23, 1959. C omptroller of the Currency, Treasury Department, Washington 25, D. C. Attention Mr. W. M. Taylor, Deputy Comptroller of the Currency. Dear Mr. Comptroller: Reference is made to a letter from your office dated October 12, 1959, regarding the application of The sank of Park Ridge, Park Ridge, Illinois, to convert into f ...national banking association. You request a recommenda610n as to whether or not the application should be approved. A report of investigation of the application made bya n examiner for the Federal Reserve Bank of Chicago disf et"es generally favorable findings with respect to the e:Lnancial history of the bank, its present capital structure, Pings prospects, character of management, and service : r -Ole community. Accordingly, the Board of Governors eeommends approval of the application to convert into a national banking association. The Board's Division of Exaninations will be glad to any aspects of this case with representatives Qf your office if you so desire. Very truly yours, (Signed) Kenneth A, Kenyan Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No, 3 FEDERAL RESERVE SYSTEM 31/23/59 WASHINGTON 25, D. C. AOORIE511 orriciAL OORRIESPONOENCC TO THE •OARO November 23, 19590 Co mptroller of the Currency, Treasury Department, Washington 25, D. C. Attention Mr. W. M. Taylor, Deputy Comptroller of the Currency. near Mr. Comptroller: is made to a letter from your office dated , v Reference 195c Octob-r count, , enclosing copies of an application of St. Lucie aian4, Fort Pierce, Florida, to convert into a national -4'4.1-ng association. A field investigation of this application was .not made by the Federal ba_e Reserve Bank of Atlanta but a report has been furnished co : ecl upon a review of the files of the Federal Deposit Insurance 'Oration and its examination of the bank made as of April 13, 1959. finrmation contained in this report discloses generally satisfactory • th11-1&'s with respect to the factors usually considered in connection 1,Ta : 11,ch Governors recommends *1:)Provai proposals. Accordingly, the Board of of the application of the St. Lucie County Bank to convert a national banking association. The Board's Division of Examinations will be glad to discuss arly as deeir Pects of this case with representatives of your office if you so -e. Very truly yours, (Mined) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS OF THE Item No. 4 FEDERAL RESERVE SYSTEM 11/23/59 WASHINGTON 25, D. C. ADDRESS arricIAL CORRESPONDENCE TO THE BOARD November 23$ 1959 Board of Directors, First State Bank, Spearman, Texas. Gentlemen: The Federal Reserve Bank of Dallas has forwarded to the Board of Governors your letter of November 9, 1959, and the accompanying resolution signifying your intention to withdraw from membership in the Federal Reserve System and requesting waiver of the six months' notice of such w ithdrawal. In accordance with your request, the Board of Go varnors waives the requirement of six months' notice of ._/ithdrawal. Upon surrender to the Federal Reserve Bank of Dallas of the Federal Reserve Bank stock issued to your institution, such stock will be canceled and appropriate refund will be made thereon. Under the provisions of as amended ection 10(c) of the Board's Regulation !ffective September 1, 1952, your institution may accomplish rrmination of membership at any time within eight months 4rom the date the notice of intention to withdraw from Membership was given. Hp It is requested that the certificate of membership be sent to the Federal Reserve Bank of Dallas for disposition. Very truly yours, (Signed) Kexeneth A* Kenyon Kenneth A. Kenyon, Assistant Secretary. 0
@FedFRASER