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09
Minutes for
To:
Members of the Board
From:
Office of the Secretary
October 11, 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
grY")
0)01111
404.1
Minutes of the Board of Governors of the Federal Reserve
System on Monday, October 11, 1965.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Robertson
Shepardson
Mitchell
Daane
Maisel
Sherman, Secretary
Kenyon, Assistant Secretary
Noyes, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Mr. Solomon, Director, Division of Examinations
Messrs. Hexter, O'Connell, Shay, and Hooff,
Assistant General Counsel
Messrs. Leavitt and Thompson, Assistant Directors
Division of Examinations
Mrs. Semia, Technical Assistant, Office of the
.Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Secretary
Messrs. Sanders and Heyde of the Legal Division
Messrs. Burton, Donovan, Lyon, Noory, Rumbarger,
and (James R.) Smith of the Division of
Examinations
Application of Society Corporation.
There had been distributed
Examinations
a memorandum dated September 10, 1965, from the Division of
and other pertinent papers relating to the application of Society Corporation, Cleveland, Ohio, to acquire shares of The North Madison Banking
Company, North Madison, Ohio.
On the basis of analysis of the factors
cited for consideration under the Bank Holding Company Act, the Division
and
recommended approval, as had the Federal Reserve Bank of Cleveland
the Ohio Superintendent of Banks.
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After summary comments by Mr. Lyon, Governor Robertson asked
several questions regarding the reasons for characterizing the management of the North Madison bank as conservative.
The staff indicated
that this view was based not only on the bank's rather low loan-deposit
ratio but also on other factors such as the bank's reluctance to make
certain kinds of loans and the fact that it did not provide various
services that apparently would be useful to the community (although
there were admittedly other sources from which they could now be obtained).
Such services would be provided by the bank as a subsidiary of the holding company.
Governor Maisel inquired about previous Board decisions bearing
Upon the use of the holding company device to accomplish expansion that
would not be permitted through branching under State laws.
He noted
that the Federal Reserve Bank of Cleveland had called attention to the
fact that if this application was approved the applicant in a sense would
be accomplishing through the holding company device what a Cleveland bank
would not be permitted to do under State branching law.
The staff replied that this question had come up on many occasions.
The Board's position had been that its responsibility under the Bank Holding Company Act was to determine, after taking into consideration specified factors, whether or not a proposed transaction was consistent with
the statutory objectives and the public interest.
The discharge of that
responsibility was not understood by the Board to require that it weigh
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10/11/65
as a consideration adverse to approval of an application the existence
of a State statute restricting branch banking.
The Board had approved
acquisitions of banks by holding companies in at least three instances
where the laws of the States involved prohibited branch banking.
After further discussion statements by members of the Board as
to their positions indicated that all were in favor of the current proposal.
The application of Society Corporation was thereupon approved
unanimously, it being understood that an order and statement reflecting
this decision would be prepared for the Board's consideration.
Application of Virginia Commonwealth Corporation.
There had
been distributed a memorandum dated September 30, 1965, from the Division of Examinations and other papers relating to the application of
Virginia Commonwealth Corporation, Richmond, Virginia, to acquire shares
of The Peoples Bank of Stafford, Falmouth, Virginia.
The Division rec-
ommended approval, as had the Federal Reserve Bank of Richmond and the
State Commissioner of Banking.
Summary comments by Mr. Thompson were followed by questions by
Governor Robertson, to which the staff responded, regarding loan-deposit
ratios and the capital position of Virginia Cominonwealth's subsidiary
banks, principal among which was The Bank of Virginia, Richmond, Virginia.
It was brought out that the capital structure of the latter bank
had recently been strengthened pursuant to suggestions by the Board as
to the need for such action.
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At the conclusion of the discussion all members of the Board
expressed themselves in favor of the current proposal.
The application of Virginia Commonwealth Corporation was thereupon approved unanimously, and the staff was requested to prepare for
the Board's consideration an order and statement reflecting this action.
Application of BancOhio Corporation.
There had been distributed
a memorandum dated June 28, 1965, from the Division of Examinations regarding the application of BancOhio Corporation, Columbus, Ohio, to acquire
Shares of The First National Bank of Jackson, Jackson, Ohio.
The Division
recommended approval, as had the Federal Reserve Bank of Cleveland and
the Comptroller of the Currency.
Among the supplemental papers that had been distributed was a
memorandum dated July 2, 1965, in which the Division of Examinations
commented on data prepared by the Banking Markets Unit of the Division
of Research and Statistics comparing deposits and loans of BancOhio's
subsidiaries with those of other Ohio banks in various areas and groups.
The view of the Division of Examinations was that the data presented did
not invalidate the conclusion expressed in the June 28 memorandum that
the present proposal, if consummated, would not have the effect of substantially lessening competition or tending to create a monopoly.
Because the Department of Justice had under way an investigation
(discussed at the meeting of the Board on June 4, 1965) regarding the
Position of BancOhio Corporation in relation to the banking structure of
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Ohio, in addition to the routine notice to the Department of the receipt
of BancOhio's application to acquire First National Bank of Jackson, the
Department had been advised in another communication that the Board would
welcome its views as to the relationship, if any, between that application and the Sherman or Clayton Acts.
A statement transmitted to the
Board on August 10, 1965, contained the Department's analysis of the
competitive factors involved in the Jackson application.
The conclusion
of the statement was as follows:
BancOhio presently has subsidiaries in 20 of the
88 counties in Ohio and in a number its subsidiaries
are dominant. Approval of this Application will bring
its representation to 21 counties and add to its dominance. Sixty-seven counties will remain in which
BancOhio is not represented by a subsidiary bank.
Of these 67 counties there are 33 in which the
total deposits of all banks in a county are under 50
million dollars; in 17 such total deposits are between
50 and 100 million dollars and in the remaining 17
counties such deposits exceed 100 million dollars. The
potential for BancOhio to expand is very great, particularly in those 33 counties where only a comparatively small bank would be involved.
Approval of the present Application will act as a
precedent should BancOhio seek to acquire control of a
bank, especially in one or more of the smaller 33 counties.
The result would be a holding company that would dominate
banking in Columbus and elsewhere in Ohio outside the large
centers of population.
Information relating to certain points made by the Department of Justice
waS supplied to the Board by Counsel for BancOhio in letters of September 7
and 18, 1965.
IL
326
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In a distributed memorandum dated September 22, 1965, the Division
of Examinations interpreted the statement by the Department to mean that
the Department probably would not institute legal proceedings to prohibit
the proposed acquisition in the event the Board approved the application.
The Division believed that the Department had presented no information of
material significance that had not already been considered in the Division's
memoranda.
On the basis of the Department's statement, the Division saw
no reason to change its conclusion that BancOhio's resulting concentration
of bank deposits in the area concerned did not require denial of the instant
application.
It was not believed that the acquisition would increase the
size and extent of BancOhio's system beyond limits consistent with adequate
and sound banking, the public interest, and the preservation of competition
in the field of banking.
The Division observed, with reference to the
last two paragraphs of the Department's conclusion, that BancOhio had not
been active in acquiring banks, and the Division did not agree with the
Department that approval of the present application would act as a precedent.
Each application presented in the future would be considered by
the Board on the basis of the factors requiring consideration, including
the size and extent of BancOhio's system, the public interest, and the
effect on competition.
In addition, the Board would consider any such
matter from the standpoint of its responsibilities under the Clayton Act.
Mr. Thompson discussed the salient points involved in the application, after which Mr. Solomon commented that the position of the Department
32f
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of Justice appeared to be based principally on apprehension that approval
of the present application would provide a precedent for a series of
acquisitions by BancOhio.
In the absence of evidence of such intention
on the part of the holding company and in view of the fact that the Board
could deal with such a program if and when it eventuated, the Division
did not feel that this possibility should govern the evaluation of the
Present application.
Chairman Martin observed that he understood the Attorney General's
concern was not about the presently proposed acquisition per se, but
rather that it had to do principally with the dominant position BancOhio
already occupied in one county.
Governor Daane remarked that the Department's figures indicated
that BancOhio subsidiaries had 50 per cent or more of the total deposits
In several counties, so that the plucking off of other banks envisaged
as a possibility did not seem to be the only point of concern to the
Department.
The ensuing discussion brought out that in several counties where
BancOhio controlled a sizable proportion of deposits because its subsidiary was the largest bank, the total deposits of all of the banks in the
county were relatively small.
Governor Maisel noted that in this case there appeared to be
°n1Y slight weight on either the positive or the negative side.
He asked
if precedents or legislative history suggested that large advantages were
required to support approval or strong adverse aspects to justify denial.
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10/11/65
Mr. O'Connell replied that there had been a number of more or
less neutral cases in which the Board, not necessarily by unanimous vote,
had found sufficient consistency with the requirements of the Bank Holding Company Act to warrant approval.
This necessarily involved a weighing
of slight advantages or disadvantages under the several statutory factors.
It was his impression that a review of cases might suggest that the Board
ordinarily had required a stronger finding of benefit to the public interest
in bank merger cases than in bank holding company cases.
In all cases, of
course, the Board had to consider its responsibilities under the Clayton
Act.
In response to a question from Governor Mitchell as to the need
for recognizing in the Board's statement on this case, if the application
were approved, that the holding company was already dominant in the
Columbus area, Mr. O'Connell responded that if the fact of dominance was
apparent, it was advisable for the Board to be on record as recognizing
it.
Having done so, the Board could cite reasons for not denying the
Particular application.
This had been done in previous cases.
Governor Mitchell expressed the view that the competitive situation and trend toward concentration would not be significantly affected
by approval of the proposed acquisition in Jackson County.
However,
BancOhio's concentration in Franklin County was apparent, which raised
the question of the relevance of that fact to the Board's decision.
Mr. Hackley commented that section 7 of the Clayton Act, read
literally at least, would only require the Board to consider whether
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10/11/65
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this specific stock acquisition would result in a substantial lessening
of competition or tendency toward monopoly.
The Board, of course, had
no responsibility under the Sherman Act.
Mr. Solomon observed that the concentration in BancOhio subsidiaries of deposits in Columbus and in Franklin County had shown some
slight decline in recent years.
Chairman Martin then called upon the members of the Board for
their views, and Governor Robertson said he found this case difficult
because he saw little advantage to the public arising out of the proposal.
First National of Jackson was a good bank and, even though its
Present owners wished to sell, there was the possibility of sale of the
bank to parties other than the holding company.
However, looking at the
Proposal from the standpoint of whether it would diminish competition
and create a monopolistic position, his view was that it would not.
He
found some merit in the position of the Department of Justice relating
to precedent; but in view of BancOhio's history of not trying to expand
on a wholesale basis, he would approve the application.
Governor Mitchell stated that in studying this application he
found little weight on either side.
He believed the effect on competi-
tion was highly conjectural, while there was also some doubt as to the
claimed advantage of better services.
BancOhio's record seemed to indi-
cate that it was not predatory, and he could not assign a great deal of
Weight, for the purpose of this case, to BancOhio's dominance in Franklin
r
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County.
Although he could not come to a very strong conclusion one way
or the other, neither could he find any outstandingly hostile element,
and therefore he would approve.
Governor Daane stated that, like Governor Robertson, he could
not see that the public interest would be served in measurable degree;
yet neither could he see a clear basis for denial.
Other members of the Board also having indicated that they would
vote in favor of the proposal, the application of BancOhio Corporation
was approved unanimously, with the understanding that an order and statement reflecting this decision would be drafted for the Board's consideration.
Member bank advertising (Item No. 1).
There had been distributed
a memorandum dated September 27, 1965, in which Governor Robertson proPosed that the Board establish a program directed toward keeping informed
as to false or misleading advertising by member banks.
Specifically,
he proposed that the Board request each Reserve Bank to designate an
Officer (preferably a lawyer) to review bank advertisements in major
newspapers published in the Bank's district.
If the officer considered
that an advertisement was false or misleading, he should forward a copy,
with the reasons for his opinion, to the Board's General Counsel.
The
staff would then bring the matter to the Board's attention with recommendations for action.
This program would not require the promulgation of a regulation
°r the issuance of a ruling.
It would be designed to prevent member
1)4 )0
kItIL
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10/11/65
banks from violating a prohibition contained in Federal law, namely,
the provision of the Federal Trade Commission Act that "Unfair methods
of competition in commerce and unfair or deceptive acts or practices in
commerce, are declared unlawful."
Governor Robertson's memorandum cited
a court decision, interpreting this provision, which held that "soliciting the purchase of goods by advertisement is a method of competition;
if the advertisement contains false representations, it is an unfair
method of competition."
Although a bank could not lawfully solicit
Patronage by false or misleading advertising, the Federal Trade Commission was without power to require a bank to cease and desist therefrom
because banks were specifically exempted from its jurisdiction.
However,
because both the language and the policy of the statute clearly were
directed against all false and misleading advertising, it seemed to
Governor Robertson that the Board should accept responsibility, to the
extent of its abilities, to assure that banks acted in accordance with
the law.
There was attached to the memorandum a draft of letter to the
Federal Reserve Banks reflecting Governor Robertson's proposal.
In discussing his memorandum Governor Robertson commented that
the proposed program represented an attempt to do something that he felt
all bank supervisors should have been doing for many years.
Although
there did not appear to have been too many situations that called for
remedial attention, he saw a need to insure that false advertising did
not become a part of the fabric of the banking industry.
There had been
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instances where individual Reserve Banks had exercised persuasion against
misleading advertising successfully; the proposed program would institute
uniformity of practice within the System.
Mr. Hackley commented that while there was no question as to the
desirability of the objective, he was somewhat concerned that in the
Proposed letter to the Reserve Banks the program would seem to be based
almost entirely on a provision of the Federal Trade Commission Act,
enacted over fifty years ago, under which no bank supervisory agency
had ever taken action.
It could be argued that banks perhaps had been
exempted from the jurisdiction of the Federal Trade Commission because
the activities of many banks fell under the supervision of other agencies,
but he believed it would be preferable in any event to couch the letter
to the Federal Reserve Banks more in terms of a supervisory matter.
It
was his view also that it would be preferable if the letter merely stated
the problem and asked the Reserve Banks to keep informed and report any
apparently misleading or false advertising to the Board.
In the ensuing discussion it was suggested that primary responsibility be placed upon the Reserve Banks to handle cases of false or
misleading advertising.
Object.
Governor Robertson indicated that he would not
His purpose had been partly to promote uniformity of approach
among the Reserve Banks, which could be accomplished by reports to the
Board on any instances of apparently false or misleading advertising by
member banks, including reports of action taken where State member banks
were involved.
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There developed to be general agreement that it would be well
to base the letter to the Reserve Banks upon the Board's concern from
the supervisory standpoint rather than on the provisions of the Federal
Trade Commission Act.
In reply to a question in this regard, Mr. Hackley
Pointed out that it could be argued that false or misleading advertising
by a member bank constituted an unsafe and unsound banking practice, one
that could easily subject the bank to litigation.
There was also general
agreement with the suggested procedural approach that would assign primary responsibility to the Reserve Banks for handling instances of apparently false or misleading advertising.
At the conclusion of the discussion a letter to the Federal
Reserve Banks in the form attached as Item No. I was approved unanimously.
The meeting then adjourned.
Item No. 1
10/11/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
S-1970
WASHINGTON, D. C. 20551
ADORERS orriciAL CORNICSPONOENCE
TO THE INOARD
October 13, 1965.
Dear Sir:
s and
From time to time the Board of Governors receives inquirie
complaints regarding advertising by member banks.
s, the
Quite apart from any question of unfair trade practice
of the
banks
member
by
ing
Board feels that false or misleading advertis
practice
banking
unsound
Federal Reserve System constitutes an unsafe and
that is a proper subject of concern to the Board and the Federal Reserve
Banks from a bank supervisory standpoint.
been alert to
It is assumed that the Reserve Banks have always
, in order to
However
banks.
any instances of false advertising by member
your Bank
that
(1)
d
requeste
assure uniform policies and procedures, it is
with
informed
itself
take such measures as may be appropriate to keep
or other advertisrespect to any apparently false or misleading newspaper
involving a
cases
any
in
that
(2)
ing by member banks in your District,
n with a
attentio
bank's
the
to
State member bank the matter be brought
as well as
s,
instance
such
all
that
(3)
request for prompt correction, and
banks,
national
by
ing
advertis
ng
misleadi
instances of apparently false or
s.
be reported to the Board of Governor
Very truly yours,
ASLAA
-QJLA/V1/kMerritt Shetm n,
Secretary.
@FedFRASER