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9 Minutes for November. 9, 1.964 To: Members of the Board From: Mice 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. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Minutes of the Board of Governors of the Federal Reserve System on Monday, November 9, 1964. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Broida, Assistant Secretary Bakke, Assistant Secretary Young, Adviser to the Board and Director, Division of International Finance Molony, Assistant to the Board Cardon, Legislative Counsel Fauver, Assistant to the Board Furth, Consultant Messrs. Brill, Holland, Koch, Garfield, Williams, Dembitz, Altmann, Eckert, Fisher, Gehman, Keir, Osborne, Weiner, and Wernick of the Division of Research and Statistics Messrs. Sammons, Irvine, Katz, Reynolds, Gekker, Gemmill, and Hayes of the Division of International Finance Economic review. The Division of International Finance suMmarized selected international financial developments, following Vhich the Division of Research and Statistics reviewed domestic bUsiness and financial developments. All members of the staff except Messrs. Sherman and Bakke then withdrew from the meeting, as did Mr. Furth, and the following entered the room: e 11/9/64 -2Hackley, General Counsel Solomon, Director, Division of Examinations Shay, Assistant General Counsel Hooff, Assistant General Counsel Leavitt, Assistant Director, Division of Examinations Miss Hart, Senior Attorney, Legal Division Mr. McClintock, Supervisory Review Examiner, Division of Examinations Mr. Mr. Mr. Mr. Mr. Capital structure of United California Bank (Item No. 1). There had been distributed a memorandum from the Division of Examinations dated November 2, 1964, to which was appended a draft of letter to United California Bank, Los Angeles, California, regarding that institution's capital structure. The letter referred to previous communications and discussions between the Board and the bank regarding this subject, noted actions already taken by the bank to improve its capital position, and commented favorably upon a proposed further addition to capital. Governor Mills observed that the bank's previous increase in caPital had been achieved through the issuance of debentures, which the Board had countenanced at the time on the grounds that the aequisition of capital funds in this manner was not illegal. He coMmented further that the bank's current proposal to augment capital 4180 involved the issuance of debentures and expressed concern that the tone of the draft letter might suggest that the Board was now €°ing one step further and endorsing this vehicle of financing. He if ...A..); 11/9/64 -3- questioned whether this would be desirable; in his view, it would be preferable to comment with favor on the bank's proposed capital increase and state that while issuance of debentures for this purpose would be legal, the Board would much prefer to see the objective achieved by the issuance of common stock. During further discussion, the question whether transmittal of the proposed letter was called for at all was explored. A consensus developed that as a matter of courtesy to the bank some acknowledgment Of the efforts to improve its capital position would be appropriate, but that in doing so the Board should stress the desirability, under °rdinary circumstances, of resort to issuance of common stock rather than capital debentures. The letter to United California Bank was thereupon approved unanimously, subject to revision along the lines indicated by the ec)nsensus. A copy of the letter as transmitted is attached to these Illinutes as Item No. 1. Inquiry by Rhode Island Hospital Trust Company (Item No. 2). There had been distributed a memorandum from the Division of Examinati°ns dated November 2, 1964, to which was appended a draft of letter t° Rhode Island Hospital Trust Company, Providence, Rhode Island, Ilegarding a plan to provide a listing service for institutional inl estors. ' In a letter to the Board dated October 16, 1964, the trust e°41Pany had requested permission to engage in such activity, whereby 11/9/64 it would act as "middleman" in bringing together prospective institutional buyers and sellers of large blocks of securities. Governor Mills expressed concern about the proposed arrangement, commenting that while such activity might not be inconsistent with a literal reading of section 5136, Revised Statutes, which prohibits national banks from underwriting corporate securities (made aPPlicable to member State banks as well by section 9, paragraph 20, of the Federal Reserve Act), the proposal would be tantamount to unclerwriting and would therefore be contrary to the spirit of the applicable statutes. In his opinion, it would be undesirable for the Board to endorse the practice in question. In response to a question from Chairman Martin regarding the 1303rd's authority to prohibit the trust company from going forward with its plans, Mr. Hackley stated that the only basis upon which such action could be justified would be if the arrangement were deemed to be 4a unsound banking practice that would endanger the institution's s°1vency. He added, however, that the Division of Examinations had taken the view that such would not be the case, and therefore there /448 no legal basis for objecting to the trust company's proposed service. In further discussion, various members of the Board expressed the view that while both the practicability and the ultimate success °f the investors' listing service were open to serious doubt, the 11/9/64 -5- Board had no legal basis for advising the trust company that it could not implement its plans. Based on the foregoing discussion, Mr. Hackley suggested that the proposed letter might better accord with the Board's thinking on the matter if it were to state that on the basis of the facts presented there appeared to be no violation of Federal law involved, rather than to say that the Board would not object to the trust company's proposed service. The draft letter, incorporating Mr. Hackley's suggested change, 1/as thereupon approved, with Governor Mills dissenting for reasons indicated in these minutes and set forth in greater detail in a memorandum dated November Board's files. 5, 1964, a copy of which has been placed in the A copy of the letter in the form transmitted is attached as Item No. 2. The meeting then adjourned. Secretary's Notes: A letter was sent today to First National City Bank, New York, New York, granting an extension of time within which to establish a branch in the Chowringhee area of Calcutta, India. A copy of the letter is attached as Item No. 3. Governor Shepardson today approved on behalf of the Board memoranda recommending the following actions relating to the Board's staff: increases Nelson S. Dyson, Photographer (Offset), Division of Administrative Services, from $7,571 to $7,842 per annum, effective November 9, 1964. r Irma B. Gavin, Draftsman-Illustrator, Division of Data Processing, $6,80o to $7,250 per annum, with a change in title to Senior ul'artsman, effective November 9, 1964. g U/9/611. -6- Permission to engage in outside activity John A. Marlin, Economist, Division of International Finance, to edit student guide books for Unicorn Press, Inc., New York, New York. , tiOfry r"CAry Item No. 1 11/9/64 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OfFICIAL CORRESPONOCNCE TO THIC •OARD November 101 1964. Mr. Clifford Tweter, President, United California Bank, tos Angeles, California. Dear Mr. Tweter: The Board's letter of July 10, 1963, to you noted you had informed the Board you planned to review thoroughly the capital position Of United California Bank within not more than one year. In accordance th that understanding the bank's capital position was reviewed as of on tine 30, 1964, and discussed with members of the Board's staff October 29, 1964. The Board has observed with interest the actions taken to im when ,Prove United California Bank's capital position, and was pleased of ip relationsh tile June 30, 1964, figures revealed that the improved of increase ,aPital funds to risk, obtained at the time of the capital f$2 million, had not deteriorated. The Board understands that you are informally considering ely ommending to your Board of Directors a further sale of approximat be to continues Board Y35 million of subordinated capital notes. The Of the view that common stock is the preferable form of bank capital and, f of surthermore, that serious problems can result from undue proportions it However, banks. of rubordinated debt in the capital structure cognizes that the issuance of subordinated notes by your bank in the ';,1:°Posed amount, and in no greater proportion to equity capital than and, 4114t proposed, would provide additional protection for depositors 411 the circumstances, a strengthening of yourbank's capital position. rec Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. k BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 2 11/9/64 WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD November 9, 1964. Mr. Clarence Gifford, Jr., President, Rhode Island Hospital Trust Company, Providence, Rhode Island. 'Dear Mr. Gifford: This refers to your letter of October 16, 1964, with . respect to a plan whereby Rhode Island Hospital Trust Company proposes to provide a listing service for institutional investors. It is understood that under this plan the Trust Company's Participation would be restricted to acting in a confidential capacity as a clearing house for institutional investors in transmitting offers to buy or sell blocks of securities. The Trust Company would not become involved in fixing the price for such sales and would only transmit offers and counter-offers until an agreement Was reached. Not until that time, would the identities of both Parties be made known to each other. From that point on the contracting parties would arrange for the transfer of securities by broker or otherwise. Under no circumstances would the Trust Company influence the sale price or act as a dealer, even indirectly, by buYing or selling securities for its own account. Neither would the Trust Company underwrite any liability for failure of either party to complete any purchase or sale negotiated under the proposed arrangement. On the basis of the proposition as outlined above, the offering of this service by Rhode Island Hospital Trust Company would .not, in the Board's opinion, violate any provision of Federal law. t:lowever, if at cny time an extension or modification of this program ,!-s contemplated, the Board is to be advised so that a decision can be reached as to whether the changed plan would be contrary to any Proviso of Federal law, or would be considered a change in the general character of the Trust Company's business requiring the Board's perTission under an applicable condition of membership. Of course, the 150ard expresses no opinion as to whether the bank's charter and the s tatute of Rhode Island authorize this service. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. t-39 BOARD OF GOVERNORS Item No. 3 11/9/64 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OrrICIAL CORRESPONDENCE TO THE BOARD LM.St'/ November 9, 1964. First National City Bank, 399 Park Avenue, New York, New York 10022. Gentlemen: Reference is made to your letter of October 30, 1964, referring to your letter of November 1, 1963 (received November 5, 1963), advising, pursuant to Regulation M, of your intention to establish a branch in the Chowringhee area of Calcutta, India. The Board's letter of November 15, 1963, acknowledged your letter of November 1, 1963, and stated that unless the branch is actually established and opened for business on or before December 1, 1964, It will be deemed that plans for its establishment have been abandoned, in which event authority to establish the branch under the notice furnished in your letter of November 1, 1963 will automatically terminate. It is noted from your letter of October 30, 1964 that, due to delays in leasing adequate quarters, it is not expected that You will be ready to open for business in the Chowringhee area of Calcutta before June 1965. Accordingly, the Board extends to June 30, 1965 the date specified in line 2 of paragraph 2 of the Board's letter of November 15, 1963. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary.
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