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49
'9/63
Minutes for
To:
Members of the Board
From:
Office of the Secretary
November
7, 1963
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Minutes of the Board of Governors of the Federal Reserve System
On Thursday, November 7, 1963.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of Examinations
Mr. Shay, Assistant General Counsel
Mr. Daniels, Assistant Director, Division
of Bank Operations
Mr. Leavitt, Assistant Director, Division
of Examinations
Mr. Mattras, General Assistant, Office of
the Secretary
Miss Hart, Senior Attorney, Legal Division
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Discount rates.
The establishment without change by the
Pederal Reserve Bank of Richmond on November 6, 1963, of the rates
On discounts and advances in its existing schedule was approved
unanimously, with the understanding that appropriate advice would
be sent to that Bank.
Circulated or distributed items.
The following items, copies
Of which are attached to these minutes under the respective item numbers indicated, were approved unanimously:
1Z
11/7/63
-2Item No.
Letter to Nassau Trust Company, Glen Cove,
New York, approving the establishment of a
branch at 198A Glen Cave Avenue.
1
Letter to the Federal Reserve Bank of Boston
expressing the opinion that section 32 of the
Banking Act of 1933 would forbid service by
Howard Whitmore, Jr., Vice President of
John P. Chase, Inc., as a director of the
Newton National. Bank, Newton, Massachusetts.
2
In connection with Item No. 2, Governor Balderston stated that
there had been a number of cases in this general area where he had felt
that a piercing of the corporate veil might have been appropriate.
He
inquired whether the rules of the Securities and Exchange Commission
in connection with regulated investment companies might not be helpful in studying this type of problem in the future.
Miss Hart
expressed the opinion that, since the rules of the Commission were
directed primarily at protecting shareholders, they could not be
relied on exclusively in section 32 cases.
In some instances, how-
ever, a more detailed investigation of the facts could indicate
Close relationships, and such information might be helpful to the
8"rd.
Mr. Shay stated that the staff had reviewed this matter
several years ago and had reached the same conclusion as expressed
by Miss Hart.
Messrs. Shay and Leavitt and Miss Hart then withdrew from
the meeting.
11/7/63
-3Federal Reserve notes (Items 3 and 4).
At the meeting on
November 6, 1963, the Board approved a letter to the Federal Reserve
Banks regarding the distribution of low-numbered $1 Federal Reserve
notes with the understanding that the letter, when sent, would
transmit for comment a draft of press release (that the Board have
available at a later meeting) concerning the issuance of the $1 notes.
Pursuant to that understanding, there had been distributed a draft
Press release on this subject prepared by the Board's staff and
cleared by the Department of the Treasury.
After discussion, during which certain tentative suggestions
were made for possible changes in the draft statement, it was agreed
that the draft press release, in its present form, would go out to
the Reserve Banks with the letter approved on November 6 to obtain
anY comments the Banks might wish to offer prior to further consideration of the matter by the Board.
Copies of the letter and
the draft press release are attached to these minutes as Items 3
Correspondent banking survey.
Mr. Solomon reported that he
had been advised by the Federal Deposit Insurance Corporation that
there had been less than a full response to the questionnaire sent
°ut recently by the House Banking and Currency Committee in connection with correspondent banking practices.
It was understood that
11/7/63
-4-
the Corporation was planning to go forward with steps to
encourage
replies from banks that had not responded, including State member
and national banks as well as nonmember insured banks.
Reserve Bank expenditures.
Governor Balderston reported tele-
Phone conversations he had had with Chairman Patman of the House Banking
and Currency Committee with regard to information requested by the
Committee concerning Reserve Bank expenditures in various categories.
Governor Balderston stated that after having had an informal check
made with Reserve Banks, he had advised Chairman Patman that the
information requested was being worked on vigorously and would be
84Plied as soon as possible, although the scope of the work involved
required a considerable expenditure of time.
The meeting then adjourned.
Secretary's Note: Pursuant to the recommendation contained in a memorandum from the
Division of Administrative Services, Governor
Shepardson today approved on behalf of the
Board an increase in the basic annual salary
of Lee W. Joyner from $3,455 to $3,665, with
a change in title from Messenger to Mail
Clerk-Messenger in that Division, effective
November 10, 1963.
,
Secretary
3880
Item No. 1
11/7/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 7, 1963.
Board of Directors,
Nassau Trust Company,
Glen Cove, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Nassau Trust Company,
Glen Cove, New York, of a branch at 198A Glen Cove Avenue,
Glen Cove, Nassau County, New York, provided the branch is
established within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (s-1846), should be followed.)
BOARD OF GOVERNORS
Item No. 2
11/7/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 7, 1963.
M. Laurence H. Stone,
Secretary and Assistant
General Counsel,
Federal Reserve Bank of Boston,
Boston, Massachusetts. 02106
Dear Mr. Stone:
This refers to correspondence you have had with
Mr. Hackley and Mr. Shay, of the Board's Legal Division, in regard
,t) the question whether the interlocking service of Mr. Howard
!
w hitmore, Jr., as vice president of John P. Chase, Inc. ("Manager")
as a director of the Newton National Bank, Newton, Massachusetts,
"
41
,
18 prohibited by section 32 of the Banking Act of 1933 and the Board's
Regulation R.
Section 32, as you know, forbids any officer, director, or
ernPloyee of any corporation "primarily engaged in the issue, flotation,
Itutlid erwriting, public sale, or distribution, at wholesale or retail, or
rough syndicate participation, of stocks, bonds, or other similar
O▪ ecuritie5 . . ." to serve at the same time as an officer, director,
(/r employee of a member bank.
Manager has, for the past five years at least, served a
?umber of different open-end or mutual funds, as well as individuals,
11institutions, and other clients, as an investment advisor and manager.
,!wever, it appears that Manager has a close relationship with two of
mutual funds which it serves, Shareholder's Trust of Boston
l'Shareholders"), and The Chase Fund of Boston ("Chase Fund"). A
°11Y-owned subsidiary of Manager, Chase Distributors Corporation
bistributors"), serves as distributor for the two mutual funds and
rs no other function. In addition, Mr. John P. Chase, himself, who
141181 chairman and treasurer of Manager, as well as Mr. William J. Kirk,
:
c 1.8 president, assistant treasurer, and a director of Manager, are
ofc/
,..kicers and directors of Distributors and trustees of both funds.
; appears also that a director of Manager is president and director
01
Distributors, while the clerk of Manager is also clerk of Distributors.
narr, Distributors, and both funds are listed at the same address in
e -oston telephone directory.
n
Z
Mr. Laurence H. Stone
-2-
While the greater part of the total annual income of
Manager during the past five years (ranging roughly from $335,000
to $897,000) has derived from "individuals, institutions, and other
clients", it appears that a substantial portion has been attributable
to the involvement with Shareholders and with Chase Fund. During
each of the last four years, that portion has exceeded a third of
the total income of Manager, and in 1962 it reached nearly 40 per cent.
The Board has consistently held that an open-end or mutual
fund is engaged in the activities described in section 32, so long as
it is issuing its securities for sale, since it is apparent that the
more or less continued process of redemption of the stock issued by
such a company would restrict and contract its activities if it did
not continue to issue the stock. A fortiori, a corporation which is
engaged in underwriting or selling open-end shares, is so engaged.
In connection with incorporated manager-advisors to openend or mutual funds, the Board has expressed the view in a number of
cases that where the corporation served a number of different clients,
and the corporate structure was not interlocked with that of mutual
rund and underwriter in such a way that it could be regarded as being
controlled by or substantially one with them, it should not be held
be "primarily engaged" in section 32 activities. On the other
and, where a manager-advisor was created for the sole purpose of
!erving a particular fund, and its activities were limited to that
function,
the Board has regarded the group as a single entity for
Purposes of section 32.
In the present case, the selling organization is a whollyawned subsidiary of the advisor-manager, hence subject to the parent's
csrltrol. Stock of the subsidiary will be voted according to decisions
by the
parent's board of directors, and presumably will be voted for
board of directors of the subsidiary which is responsive to policy
laid down by the parent. Financial interests of the parent are
Ob viously best served by an agressive selling policy, and, in fact,
both,
the share and the absolute amount of the parent's income provided
Y the two funds
have shown a steady increase over recent years. The
act that dividends from Distributors have represented a relatively'
small
n
proportion of the income of Manager, and that there were, indeed,
dividends in 1961 or 1962, does not support a contrary argument, in
View
of the steady increase in total income of Manager from the funds
arid
Distributors taken as a whole.
I
7
Mr. Laurence H. Stone
-3-
In view of all these facts, the Board has concluded that
the separate corporate entities of Manager and Distributors should
be disregarded and Distributors viewed as essentially a selling arm
of Manager. As a result of this conclusion, section 32 would forbid
Mr. Whitmore's interlocking service as an officer of Manager and a
director of the Newton National Bank.
It should be noted that the Board's staff has been informed
that Mr. Whitmore has a securities salesman's license, and has sold a
!elf hundred shares of Shareholders and of The Chase Fund to members of
-11 family and to at least one other person. However, in view of the
)r.egoing conclusion of the Board, it is unnecessary for it to pass on
"Le question whether this activity would make Mr. Whitmore "primarily
°gaged" as an individual in section 32 activities.
V
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
3884:
Item No. 3
BOARD OF GOVERNORS
11/7/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE 1110ARD
November 8, 1963.
Dear Sir:
conReplies to the Board's telegram of October 21, 1963,
was
there
that
indicated
cerning the new $1 Federal Reserve notes
!0 d
feeling
isagreement among the Reserve Banks with the Board's
that it would be undesirable to release any very low numbered notes
10 individuals, regardless of their position, and that a uniform
Ystem policy in this regard would be desirable. There were, however,
4pieral somewhat differing ideas with respect to the suggestion that
"le low numbered notes be exchanged among the Banks for exhibit purPoses.
:
While most Banks expressed an interest in setting up an
one Bank stated a preference for an arrangement under which
notes beginning with Number 1 would be paid out, with the first
notes being sorted at random into the fit currency payments.
I:ks Bank felt that such .a procedure, properly controlled and spread
lt period of several days, would provide an indiscriminate dis11,Ziti
ion of the low numbered notes in a way that their final destioation
would be unknown. Another Bank suggested that, if possible,
n use be made of numbers up to 1,000 in the printing of the new
notes.
C
There were several ideas as to how the low numbered notes
taight be exchanged among the various Banks, and as to what might be
do,
the remaining low numbered notes. Some of the replies
Were
Confined to the distribution of the first 13 notes, while others
confined
h
.2-eggested that some Banks might want to have enough notes to put to1her several exhibits, including some for Branch purposes. As an
8..1ustration of the complexity of possible arrangements, two of the
uglgested distribution plans are enclosed.
r
Various suggestions were also received with regard to the
di
strib ution of low numbered notes not used for exhibit purposes.
The
be ee suggestions included, for example, a proposal that unused num-.
r8 UP to 4,000 be kept until January 1, 1965, and then mixed in
885
:3
-20 be
with fit payments, and another proposal that numbers up to 1,00
mutilated and destroyed.
the light of the replies to
After review4 ng this matter in
the best
its October 21, 1963, telegram, the Board believes that
r which-unde
interests of the System would be served by a program
(1)
(2)
the first
Each Reserve Bank would hold unopened
notes until
$1
new
package (Non. 1 - 4,000) of its
the notes
how
to
there can be System agreement as
g the Banks
d
amon
in this package should be excbange
and otherwise disposed of.
ange and other
The question of arrangements for exch
s would be referred
disposition of the first 4,000 note
recommendations,
to an appropriate System comwittee for
ect to the followand such recommendations would be subj
ing limitations.
ch would put any of the
(3) No Federal Reserve Bank or Bran
ctly into circulation
new $1 Federal Reserve notes dire
ugh a member bank-- ,
before January 1, 1964, except thro
ic windows or for
e.g., none would be used at its publ
a procedure
Such
s.
oyee
payrolls for its own empl
rve office
Rese
ral
Fede
each
would contemplate that
ificates for its
would continue to use $1 silver cert
own purposes during this period.
with premium
(4) No low numbered notes or any other notes
to any direcd be made available at any time
value woul
Board or of any Fedtor, officer, or employee of the
eral Reserve Bank or Branch.
(5)
Bank would be forwarded
One low numbered note from each
, under an arrangement
to the Board for exhibit purposes
of notes all bearing
which would give the Board a set
the same number.
the silver situation will rePresent indications are that
rve notes around the end of
some payments of the $1 Federal Rese
than $50
°vember. It is contemplated that an initial supply of more
and
s
Bank
ous
I-lion of the neq notes will be furnished the vari
at
ijanches, and that all offices will begin the use of these notes
to
r
orde
In
d.
by the Boar
11e uhme time and at such date as advised
,
e
rabl
desi
seem
d
woul
l.nimize hoarding by collectors and dealers, it
to
and
,
ible
poss
as
Put the new notes into circulation as rapidly
l the initial supply
c
44Ifine payments exclusively to these notes unti
will permit an
',.13 exhausted.
It is hoped that such an arrangement
and nonmember
er
memb
quitable distribution of the new notes to all
banks.
V
T
r
which
Enclosed is a draft of a proposed press release on
the Board would appreciate your comments as soon as possible.
Very truly yours
4-
1
%AAA
Merritt SheAlan,
Secretary.
Enclosures
TOUR? SIDENTS OP ALL FEDERAL RESERVE BANKS
A
Item No.
4
11/7/63
:3887
November 7, 1963.
PROPOSZT PRECS 77147ASTI:-- 730,1E4S'av STAFF DRArq
System and
The Board of Governors of the Federal Reserve
the Treasury Department announced today that more than 50 million
new $1 Federal Reserve notes are going into circulation.
Issuance
of the new $1 notes, authorized by Congress last June, has already
begun at all 12 Federal Reserve Banks and their 24 Branches to commercial banks in every part of the country. This will make more
silver available for coinage purposes and help to meet the increaned
demand for currency in connection with pre -Christmas business.
The new $1 Federal Reserve notes closely resemble the
Present'41 silver certificates. The back of the new notes and the
Portrait of George Washington on the face will be exactly the same
ss the silver certificates. The main difference will be the addi, identifyti°n of a symbol, appearing to the left of the portrait
the issuing Federal Reserve Bank and the wording on the face
of the bill.
The notes bear the signatures of the Secretary of
the Treasury and the TreasuLer of the United States, as do Federal
Reserve notes of other denominations.
The new notes will read (above the portrait):
"The United
States Of
The legend,
America" and (below the portrait) "One Dollar."
-8
appearNote Is Legal Tender For All Debts, Public and Private,"
ing on the silver certificates will also appear on the new Federal
Reserve notes.
As the new Federal Reserve notes are not backed by
. ti
)
it II C
-2es That
Silver, they will not contain tbe language: "This Certifi
America"
There Is On Deposit In The Treasury Of The United States Of
The Bearer
(above the portrait) and "One Dollar In Silver Payable To
On Demand" (below the portrait).
ution, the entire
To facilitate the widest possible distrib
through normal
initial supply of the new notes is being distributed
million notes will
commercial banking channels, none of the first 50
be available to the public at any of the Federal Reserve Banks or
4snches.
No more $1 silver certificates will be printed.
Existing
wear
stocks will be put into circulation, and as these certificates
out they will be replaced by the $1 Federal Reserve notes.
This change
will permit the silver previously pledged against these certificates
to be used for coinage purposes.
circulating curFederal Reserve notes have been our basic
(more than $30 bilrency for many years, comprising over 85 per cent
circulation today.
lion) of the face amount of all currency in
They
are backed 100 per cent by collateral in the form of gold, U. S. Government securities, or short-term paper discounted or purchased by the
Federal Reserve Banks.
face value
A gold reserve of 25 per cent of the
of all Federal Reserve notes in circulation is also required by law,
and this may be used as part of the full collateral requirement.
@FedFRASER