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'11 609
Minutes for
To:
Members of the Board
From:
Office of the Secretary
November 8, 1965
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. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
CC
Minutes of the Board of Governors of the Federal Reserve
System on Monday, November 8, 1965.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardson
Maisel
Sherman, Secretary
Kenyon, Assistant Secretary
Holland, Adviser to the Board
Molony, Assistant to the Board
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research and
Statistics
Director, Division of Examinations
Solomon,
Mr.
Leavitt, and Smith, Assistant
Goodman,
Messrs.
Directors, Division of Examinations
Messrs. Forrestal and Plotkin, Senior Attorneys,
Legal Division
Mr. Egertson, Supervisory Review Examiner, Division of Examinations
Mr. Poundstone, Review Examiner, Division of
Examinations
Mr. Sidman, Accountant-Analyst, Division of
Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Circulated or distributed items.
The following items, copies
Of which are attached to these minutes under the respective item numbers indicated, were approved unanimously:
Item No.
Ij
rtter to Girard Trust Bank, Philadelphia,
nnsylvania, approving an extension of
olme to establish a branch at 3549 Walnut
'
treet.
Letter to Chase Manhattan Overseas Banking
rPoration, New York, New York, interposing
11° o bjection to Brasilar-Administracao e
t rticipacoes Limitada, Rio de Janeiro,
Drazil, acquiring shares of Banco Lar
"Jrasileiro S.A., Rio de Janeiro.
1
2
11/8/65
-2Item No.
Letter to Farmers State Bank of Buffalo,
Buffalo, Illinois, waiving the requirement
of six months' notice of withdrawal from
membership in the Federal Reserve System.
3
Letter to The First State Bank, Hawkins,
Texas, approving an extension of time within
Which to withdraw from membership in the
Federal Reserve System.
4
Reports on competitive factors.
Unanimous approval was given
to the transmittal to the Comptroller of the Currency of a report on
the competitive factors involved in the proposed consolidation of
United States National Bank in Johnstown, Johnstown, Pennsylvania,
with Cambria County National Bank, Carrolltown, Carrolltown, Pennsylvania.
The conclusion read as follows:
The proposed consolidation of the United States National
Bank in Johnstown with Cambria County National Bank, Carrolltown,
would eliminate some existing and all potential competition
between them. Consummation of the transaction would further
the concentration of banking resources in the now largest bank
Operating in the areas involved in this proposal. The effect
of the consolidation on competition would be adverse.
A report to the Federal Deposit Insurance Corporation on the
eftPetitive factors involved in the proposed merger of Peoples Bank,
Los
Angeles, California, into Manufacturers Bank, also of Los Angeles,
was held over for further consideration by the Board, it being undert°0(1 that in the meantime the Division of Examinations would endeavor
to obtain information on reasons why applications by Manufacturers
Bank for
a branch in Beverly Hills were twice denied by bank supervisory
11/8/65
-3-
authorities.
(The San Francisco Reserve Bank had suggested that the
aPPlicant bank perhaps contemplated using the proposed merger as a
vehicle to gain the same advantage that would have accrued to it
through establishment of the branch.)
Amendment of forms contained in Regulation F.
d istributed
There had been
a memorandum from the Legal Division dated November 3,
1965, advising that the provisions of Regulation F, Securities of
Member State Banks, that appeared to have caused the most uncertainty
were those relating to disclosure of loans made by a bank to its
Officers, directors, principal stockholders, and their associates.
More inquiries had been received with respect to this subject than
anY other with the exception of financial statements.
It was believed
that the problem would become accentuated during the first quarter of
1966 when registrant banks would have to send proxy solicitation statements to their shareholders for the first time, in conformity with the
requirements of Regulation F.
It was recommended that proposed amendments to Item 12 of
Form F-1 (Registration Statement) and Items 7(e) and 7(f) of Form F-5
(Proxy Statement) be published in the Federal Register with an invitation for comments by interested persons, with the objective of adoptg amendments prior to the end of 1965.
The principal effects of the proposed amendments were as follows:
a
11/8/65
-4-
(1) It would be indicated more clearly that a transaction
involving a director of a bank need not be reported where the
only "interlock" was that the director was a director, officer,
and/or less than 10 per cent stockholder of the other party to
the transaction. This would not represent any substantive
change from the present regulation.
(2) Disclosures of loans to corporate insiders, the
principal transactions that must be reported, would become
subject to more definite tests, such as size. A loan that
met all of the conditions of the specific exemptive provisions would not be required to be disclosed; if it did not,
it would prima facie be reportable.
(3) An item of the proxy rules that related in a general
way to disclosure of the indebtedness would be amended in
view of the specific provisions described in (2). In the
future this item would only require disclosure of liability
arising from "insider trading" in violation of section 16
of the Securities Exchange Act of 1934.
In reviewing the proposals, Mr. Plotkin brought out that the
Proposed amendments had been discussed with the staff of the Securities
aild Exchange Commission and the staff of the Federal Deposit Insurance
Cor poration.
The latter had recommended to their principals that
similar amendments to that agency's regulation applicable to nonmember insured banks be published for comment.
tai°
However, it was not cer-
that action by the Board of Directors of the Corporation to
authorize publication of such proposed amendments could be expected
since one director (the Comptroller of the Currency) had abstained
freqn voting on the adoption of the Corporation's original regulation
and a second directorship was vacant.
The Corporation's directors
e understood to have a meeting scheduled for this Wednesday, and
he outcome would not be known until that time.
tk,
11/8/65
-5No reservations were expressed by members of the Board regard-
ing the proposed amendments to Regulation F forms, although a question
was raised about the wording of one of the proposed amendments.
This
matter was referred to the Legal Division for clarification of language.
In view of the situation in regard to the Federal Deposit
Insurance Corporation, a suggestion was made by Governor Robertson
that the Board authorize the publication of the proposed amendments
for comment, with the understanding, however, that if the Board of
Directors of the Corporation did not authorize similar action on the
Cor poration's regulation the publication of the Board's proposed amendments would be withheld and an effort made to work out the problems
ilivolved on an interpretive basis.
It was pointed out that in the
latter event uniformity could be preserved if the Corporation also
issued interpretations.
Governor Robertson's suggestion was adopted unanimously as a
basis of procedure.
Messrs. Goodman, Forrestal, Plotkin, Egertson, Poundstone, and
Sidman then withdrew from the meeting.
17th Street National Bank.
There had been distributed a memo-
randum from the Division of Examinations dated November 1, 1965, inform-
the Board of recent developments related to borrowings by the 17th
Street National Bank of Denver, Colorado, from the Denver Branch, Federal
leserve Bank of Kansas City.
Such borrowings had been practically
11/8/65
-6-
continuous since May 29, 1964.
At the time of the Division's memo-
randum to the Board of June 18, 1965, it had appeared, for reasons
stated therein, that the member bank's affairs might have taken a
turn for the better, but information received from the Kansas City
Reserve Bank in its report of September 30, 1965, on member bank borrowing indicated that the situation had deteriorated.
The member
bank's current indebtedness stood at about $270,000 compared with a
$175,000 indebtedness on June 30, 1965.
Its total loans continued to
be in excess of deposits, its operating statements were showing a
deficit, its loan portfolio was of poor quality, its president was
inexperienced in banking, and its operating staff was unfamiliar with
credit administration.
At each renewal of borrowing, or on the occa-
sion of each request for an increase in the line of credit, it appeared
tO
become increasingly difficult for the bank to find collateral to
cover the advances made.
The Comptroller of the Currency reportedly
was trying to salvage the situation by efforts to interest other
Parties in acquiring the bank.
There had also been distributed copies of a letter dated
November 1, 1965, from the Vice President in charge of the Denver
ranch to
the Regional Comptroller of the Currency in Denver informing
him
of the situation, as a matter of record, and inviting any comments
that would be helpful to the Reserve Bank in acting on such further
requests for credit as might be received from 17th Street National
Bank,
41,
11/8/65
-7After comments on the situation by Mr. Solomon, Governor
Robertson expressed the view that this was a serious case, one that
could easily lead to an incident such as occurred with regard to San
Francisco National Bank, San Francisco, California.
He felt that
the Board should make known its interest by sending a letter to the
Comptroller of the Currency expressing concern about the Denver bank,
not because of the System's position as a lender to the bank but
because of the indications of serious trouble in the bank.
In such
a letter the Board could point out, for example, that the bank's
loans continued to be in excess of deposits and that no examination
of the bank apparently had been made since January of this year.
The
130ard could indicate that it would like to be advised of any corrective
actions of a supervisory nature that the Comptroller intended to take.
Governor Balderston suggested that the essential question was
w hether to
continue financial assistance in a situation of this kind.
In the San Francisco case he had felt previously that the Federal
Reserve should not be responsible for bringing the bank to an early
end.
However, the fact that the System was a preferred lender had
teaulted in eventual injury to depositors; this was the result of
trying to
salvage a bank that apparently could not be salvaged.
In
the Denver case the Federal Reserve already had much of the good collateral that the bank was able to offer.
The longer the System kept
lend ing in
an effort to avoid the closing of the bank, the less the
czrz.(
11/8/65
-8-
depositors might ultimately get out of it.
He was concerned that those
at a high level in the three Federal banking agencies share in the
responsibility.
It was not a pleasant thing to say that the Federal
Reserve would not go any further, thus probably pushing the bank into
liquidation.
The question of closing the institution was, of course,
the immediate responsibility of the Comptroller.
He was fearful, in
summary, of anything that stopped short of action at the top level.
The Board could write letters, but time could elapse without action,
with every week perhaps lessening the chances for ultimate recovery by
the depositors.
Governor Robertson replied that he thought the System would
be justified in continuing its financial assistance provided effective
steps of a corrective nature were being taken inside the bank, such
as refusal to make more loans of poor quality and liquidation of existing loans.
If it could be determined that a salvaging of the bank was
Ilot possible, he would agree with Governor Balderston, but it might
be Possible to salvage the bank by such means as putting in a conservator, preventing further faulty use of depositors' funds, and pursuing a vigorous collection policy on outstanding loans.
Governor Balderston repeated that he would like to go beyond
simPlY putting the Comptroller on notice.
He would like to know from
the Comptroller the answer to the question Governor Robertson had
Pc
'sed.
If the Comptroller advised that he was not going to undertake
q
11/8/65
-9-
corrective action, the fate of the bank's depositors, including future
depositors, would be partly the System's responsibility.
Governor Maisel noted that Federal Reserve advances to the
bank had increased recently, and he inquired about the procedures the
Reserve Bank was following.
Mr. Solomon replied that there was a constant turnover of collateral,
of course, as loans were paid off and new loans were made.
As new collateral came in, it was appraised by a Reserve Bank committee established for this purpose that included directors of the
benver Branch.
This committee reviewed the collateral and judged how
much could properly be advanced against it.
Governor Maisel asked if he understood, then, that the Reserve
Bank was attempting to provide the maximum amount of loans on the
av ailable collateral, and Mr. Solomon said this was right.
In his
°Pinion the bank would have closed already except for the assistance
extended
by the Reserve Bank.
Governor Shepardson asked whether the Reserve Bank could impose
restrictions on the member bank's operations, and Mr. Solomon replied
that thus far the restrictions had been in the form of determining
whether to accept the collateral that was tendered.
In further discussion Mr. Holland outlined steps that had been
taken in similar cases by other Reserve Banks.
He also described the
- 31.
11/8/65
-10-
consensus of Reserve Bank lending officers earlier this year regarding the attitude that should be displayed by a Reserve Bank's discount
window in situations of this kind.
Governor Robertson expressed the view that the System, in its
role as lender of last resort, should not take over the function of
supervision in the case of a national bank.
However, the System should
insist that the supervisor was performing adequately, and it had a right
to be
advised of everything being done to keep the borrowing bank solvent.
Governor Shepardson inquired about the possibility of the
Federal Reserve examining the Denver bank or putting a conservator in
the bank.
On the first question Governor Robertson, although acknowl-
edging that the Federal Reserve had the power to examine, felt that
such a step should be taken only on the basis of information that the
Comptroller was not doing an adequate job of supervision.
As to plac-
ing a conservator in the bank, the System did not have the statutory
Power.
The discussion concluded with an understandin
that a letter
to the Comptroller along the lines suggested by the foregoing discussio
would be prepared for the Board's consideration.
Messrs. Brill, Holland, Leavitt, and Smith then withdrew from
the
meeting.
11/8/65
-11Director appointments.
It was agreed to ascertain whether
Don K. Price, Jr., Dean of the School of Public Administration, Harvard
U niversity, would accept appointment, if tendered, as a Class C director of the Federal Reserve Bank of Boston to replace James McCormack,
who had resigned, with the understanding that if Mr. Price would accept
the appointment would be made.
If Mr. Price was not available, it was
agreed that similar steps should be taken with regard to Stanley F.
Teele, Treasurer of Amherst College.
It was agreed to ascertain whether Kenneth H. Hannan, Executive Vice President of Union Carbide Corporation and currently a Class B
d irector of the Federal Reserve Bank of New York, would accept appointment, if tendered, as a Class C director of the Bank for the three-year
term beginning January 1, 1966, with the understanding that if Mr.
Hannan would accept the appointment would be made, and that he would
be a ppointed Deputy Chairman of the Bank for the year 1966.
Since
Mr. Hannan would have already served six years as a Class B director
by the end of this year, it was understood that the action taken by
the Board constituted an exception to the normal policy of rotation.
The Board also noted certain questions that had come up relating to the eligibility for service as a Class C director of Raymond
Rebsamen, Chairman of the Federal Reserve Bank of St. Louis.
The first question, raised through the Reserve Bank, related
to the fact that Chairman Rebsamen was serving as president of a life
44t,
11/8/65
-12-
insurance company and as a director of an open-end mutual fund.
His
duties with the insurance company reportedly had to do primarily with
policy considerations and not with operations.
The mutual fund was
reported to be operated and managed under contract by another corporation with which Mr. Rebsamen had no connection as a stockholder or
Otherwise.
In a distributed memorandum dated November 1, 1965, the
Legal Division pointed out that on the basis of the facts presented
Mr. Rebsamen would not be legally disqualified from serving as a Class C
d irector.
Accordingly, the Board was free to exercise its judgment in
de termining
whether the business connections in question were likely to
be incompatible with his service as a Class C director.
The second question related to the fact that at a recent hearing before the Comptroller of the Currency on an application for a
national bank charter in Jacksonville, Arkansas, it had developed that
while Mr.
Rebsamen did not own stock in the existing State bank in the
same city, his children owned more than 50 per cent of the bank's stock.
The President of the bank had stated that the children did not know
they owned the stock and that he voted the stock for them.
It was understood that Mr. Hackley would furnish to Chairman
Martin such facts as could be ascertained on the second question and
that
Chairman Martin would then discuss the matter with Chairman Rebsamen.
The meeting then adjourned.
"N.,
Secretary
f't
„
BOARD OF GOVERNORS
Item No. 1
11/8/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orriciAL CORRESPONDENCE
TO THE BOARD
November 8, 1965
Board of Directors,
Girard Trust Bank,
Philadelphia, Pennsylvania.
Gentlemen:
The Board of Governors of the Federal Reserve
System extends to July 27, 1966, the time within which
Girard Trust Bank, Philadelphia, Pennsylvania, may
ia,
establish a branch at 3459 Walnut Street, Philadelph
Pennsylvania.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
Item No. 2
11/8/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
A0014E1115 OFFICIAL CORRESPONDENCE
TO THE SOARO
November 8, 1965
Chase Manhattan Overseas Banking Corporation,
1 Chase Manhatta
n Plaza,
New York, New
York. 10005
G
entlemen:
Reference is made to your letter of September 30, 1965,
transmitted through
the Federal Reserve Bank of New York, which referred to previous correspondence between
the Board of Governors and
Yaou.r Corporat
ion regarding the acquisition of ordinary voting shares
h
'lnd
preferre
d shares of Banco Lar Brasileiro S.A., Rio de Janeiro,
°raz1 , ("Banco
Lae) by Brasilar-Administracao e Participacoes
Limitada ("Brasilar"), your wholly-owned subsidiary in Rio
de Janeiro.
It is noted that in the absence of a market for shares in
Bra il it
is not practicable to make an offer for a specific cruzeiro
amount of the
preferred shares and that it is proposed that Brasilar
sek to
acquire at least 51 per cent of the outstanding preferred
ares by
direct solicitation from individual shareholders, stockirtokers, etc.
It is understood that Brasilar intends to deviate from
81.8 original program by engaging in active solicitation for the acquian i°11 of 51 per cent of the outstanding preferred shares of Banco Lar
co'' if sufficient cruzeiros have not been accumulated by Brasilar to
t4!Plete the program, by having Brasilar borrow cruzeiros from time to
if and when the need arises.
r
"6
In the circumstances, the Board of Governors interposes no
to Brasilar acquiring 51 per cent of the presently outstandpreferred shares of Banco Lar.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
Item No. 3
BOARD OF GOVERNORS
11/8/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
arricIAL
CORRESPONDENCE
TO THE BOARD
November 8, 1965
Board of Directors,
Farmers State Bank of Buffalo,
Buffalo, Illinois.
Gentlemen:
The Federal Reserve Bank of Chicago has forwarded to
the Board of Governors Cashier Loren C. Shanle's letter dated
October 6, 1965, together with accompanying resolutions dated
October 6, 1965, signifying your intention to withdraw from
membership in the Federal Reserve System and requesting waiver
of the six months' notice of withdrawal.
The Board of Governors waives the requirement of six
months' notice of withdrawal. Upon surrender to the Federal Reserve Bank of Chicago 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 Section 208.10(c) of the Board's Regulation H, your institution may
accomplish termination of its membership at any time within eight
months from the date the notice of intention to withdraw from
membership was given.
It is requested that the certificate of membership be
returned to the Federal Reserve Bank of Chicago.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
fir-0(1
- tJJ
.1
Item No. 4
11/8/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 8, 1965
Board of Directors,
The First State Bank,
Hawkins, Texas.
Gentlemen:
The Board of Governors of the
Federal Reserve System extends by 30 days,
to November 26, 1965, the tine within which
The First State Bank, Hawkins, Texas, may
withdraw from membership in the Federal Reserve System.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
@FedFRASER