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Minutes for October 11, 1966 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. Chm. Martin Gov. Robertson Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Gov. Brimmer Minutes of the Board of Governors of the Federal Reserve System on Tuesday, October 11, 1966. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Robertson, Vice Chairman Shepardson Mitchell Brimmer Kenyon, Assistant Secretary Cardon, Legislative Counsel Hackley, General Counsel Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Harris, Coordinator of Defense Planning O'Connell, Assistant General Counsel Daniels, Assistant Director, Division of Bank Operations Mrs. Semia, Technical Assistant, Office of the Secretary Messrs. Forrestal, Senior Attorney, and Smith, Attorney, Legal Division Mr. Golden, Senior Economist, Division of Research and Statistics Messrs. Egertson and Maguire, Supervisory Review Examiners, and Lyon and Rumbarger, Review Examiners, Division of Examinations Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Approved letters. The following letters were approved unanimously after consideration of background information that had been made available to the Board. Copies of the letters are attached under the respective item numbers indicated. ' Icetter to The Lorain County Savings & Trust Elyria, Ohio, approving the establishment -' an in-town branch. Letter to Old Kent Bank and Trust Company) Ctand Rapids, Michigan, granting an extension °f time to establish an in-town branch. 4 ./ 10/11/66 -2- Report on competitive factors. A report to the Comptroller of the Currency on the competitive factors involved in the proposed merger of Farmers-Matteawan National Bank, Poughkeepsie, New York, into County National Bank, Middletown, New York, was approved unanimously for transMittal to the Comptroller. The conclusion read as follows: There appears to be little competition between FarmersMatteawan National Bank, Poughkeepsie, and County National Bank, Middletown. The overall effect of the transaction on competition is not significantly adverse. However, County National Bank is the largest commercial bank headquartered in Orange County, and consummation of the proposed merger would expand its operations into another county, increasing significantly its number of offices and deposit volume through the elimination of the second largest commercial bank headquartered in Dutchess County. Applications of First National of Tampa and Union Security. A memorandum from the Division of Examinations dated October 4, 1966, and Other pertinent papers had been distributed in connection with applications by The First National Bank of Tampa and Union Security & Investment Company, both of Tampa, Florida, to acquire 55 per cent of the voting Shares to be issued by First National Bank of Brooksville, Brooksville, Florida, a proposed new bank. Following summary comments by Mr. Lyon, the applications were --P-P....1.2112.ci unanimously, with the understanding that an order and statement reflecting this decision would be drafted for the Board's consideration. Amendments to Regulation V (Item No. 3). There had been dis- tributed a memorandum dated October 10, 1966, from the Legal Division 10/11/66 -3- stating that after the Board's action on September 27, 1966, raising the maximum rate of interest on V-loans the staff had noted that Regulation V, Loan Guarantees for Defense Production, lacked a supplement setting forth the maximum rate of interest, the schedule of guarantee fees, and commitment fees. The Division proposed that such a supplement be added to the Regulation, and also suggested certain minor technical Changes in the Regulation itself. A draft of amendments that would carry out the proposals was attached to the memorandum. After discussion the proposed amendments to Regulation V were unanimously, along with addition of the Supplement, effective September 27, 1966. A copy of the notice published in the Federal Register is attached as Item No. 3. Possible amendment to Clayton Act. There had been distributed a Illemorandum dated October 7, 1966, from the Legal Division, prepared pursuant to the Board's request of August 12, 1966, submitting alternative drafts of a bill that would close the loophole provided by clause (4) for avoiding the general prohibition of section 8 of the Clayton Act a gainst interlocking service between banks. Arguments for and against the several alternatives were set forth in the memorandum. At today's meeting Mr. Hackley suggested that in view of the current legislative situation such a proposal not be submitted to the C°ngress at the present time. Moreover, he believed that the question Should be explored somewhat further by the Legal Division and that it 10/11/66 -4- might be helpful to obtain the views of Reserve Bank Counsel at their forthcoming conference. Therefore, he suggested that consideration of the matter be deferred until after the first of the year. There was general agreement with Mr. Hackley's suggestion. Messrs. Cardon, Forrestal, Smith, Golden, Egertson, Lyon, Maguire, and Rumbarger then withdrew from the meeting. Denver Branch building. There had been distributed a memorandum dated October 7, 1966, from the Division of Bank Operations regarding a request from the Federal Reserve Bank of Kansas City for authorization to award contracts in connection with a proposed new building for the Denver Branch. The estimated total cost was $5,171,078. In July 1966 the Board had authorized the Bank to call for construction bids, the architects' estimate of total cost at that time and earlier being $5,172,000. The seven bids for general construction that were received fell within a relatively narrow range, but on the basis Of the lowest bid the total cost of the building would be $1,084,700 greater than the architects' estimate. After a recheck, the architects admitted that there were errors in their estimates. The Kansas City 8ank i s head office and Denver Branch directors then considered whether t° reject all bids and write addenda to the plans and specifications and Call for new bids. (This would have been the procedure called for accord- to the instructions in the Board's letter of April 21, 1959, regarding Federal Reserve Bank building programs.) However, because of the time C)Awk) 10/11/66 -5- already elapsed in developing the Denver building program, the delay that would be involved in getting new bids, and rising construction costs, and on the advice of certain Reserve Bank directors with special knowledge of the construction industry, the Reserve Bank decided to negotiate with the low bidder to bring the cost within the estimate by e liminating certain features where it was believed that that could be done without affecting the structure significantly from an aesthetic or functional standpoint. The Division of Bank Operations questioned two of the proposed rn°difications, namely, elimination of Steelcrete reinforcement for the vault walls and reduction in thickness of the depository vault ceiling frft 36 inches to 24 inches, and reduction in standby electric power from that sufficient for continued operations to the minimum needed for use of the fallout shelter. Standards for vault construction were discussed at some length the memorandum. The Board's consulting Architect recommended that the vault walls in the new Denver Branch building not be reduced to less than 30 inches (without Steelcrete reinforcement), and that provision f°r standby power sufficient to permit essential operations be restored. It was estimated that these items would add about $85,000 to the project cost. With these revisions, and if the Board was satisfied that the tankl s consultation with the low bidder resulting in downward revision f that bid was a justified exception to the established procedure, the 10/11/66 -6- Division recommended authorizing the Bank to accept the low bids for general construction and other work and to proceed with construction. In discussion of the changes proposed in the construction of the building in order to bring costs within the estimate, question was raised whether appropriate standards should not have been more firmly es tablished in the first place and then adhered to, rather than have 'iritten into the specifications features that apparently were now considered dispensable. Comment was made that the Reserve Bank should not have had the impression that the Board was interested in cost at the sacrifice of functional efficiency. In this connection, doubts were expressed that the Reserve Bank was correct in the view that some of the Proposed eliminations would not affect operating efficiency; examples were cited to illustrate the point that the elimination of some features, While reducing construction costs, would appear to necessitate continuing °Perating and labor costs that would have been obviated by the retention (3 the feature. It was mentioned also that some of the deletions aPPeared to represent only deferral of items that would have to be added later, probably at higher cost than if they were included in the initial c°11s truction. Of After extended discussion of vault construction, members the Board indicated agreement with the Consulting Architect's recom- illendation of 30-inch walls without Steelcrete reinforcement. The discussion also dealt with the question of the propriety of tleg°tiating with the low bidder rather than rejecting all bids and calling •I *11_7 4w4' 10/11/66 for new ones. -7Comment was made that if it was a matter of adjustment of only a few items, such a procedure was fairly common. Another view expressed, however, was that if the Board had instructions outstanding they should be observed unless a Reserve Bank obtained the Board's permission to depart from them. It was recalled that in a somewhat similar situation several years ago the Board had authorized a Reserve Bank to negotiate with the two lowest bidders, whose bid figures had been close together, with the outcome that upon rebid the low figure was submitted by the original second low bidder. A suggestion was made that the views of the Legal Division would be helpful in appraising this element of the situation. At the conclusion of the discussion it was agreed that the Legal 4vision would explore the question of procedures, that in the meantime %embers of the Board and the Division of Bank Operations would review further the proposed changes in the specifications, and that possibly the Federal Reserve Bank of Kansas City should then be requested to review it8 recommendation in the light of the questions that had been raised. Public Bank matter. Mr. Solomon reported on telephone conversa- ti°ns with the Federal Deposit Insurance Corporation indicating that ilichigan State Banking Commissioner Slay intended to try to obtain a court order closing Public Bank, Detroit, Michigan, tonight, with the l'ederal Deposit Insurance Corporation named as receiver. This would call ilit° Play the alternative plan, the existence of which was known when the ;IL )olt,)" 10/11/66 -8- Board recently approved the merger of Public Bank into Bank of the Commonwealth, Detroit, under which the Federal Deposit Insurance Corporation (as receiver) would sell to Bank of the Commonwealth the assets Of Public Bank and the offices of the latter bank would open as branches Of Bank of the Commonwealth. All members of the staff who were present then withdrew and Messrs. Kelleher, Director, Division of Administrative Services, Kakalec, Controller, and Smith, Assistant to the Director, Division of Administrative Services, entered the room. Utilization of outside space. The Board considered a plan for Utilization of temporary space that it was hoped could be acquired in 4n office structure relatively close to the Federal Reserve Building, and it was understood that negotiations for the leasing of such space 14c)u1d continue. (Note: It subsequently developed that the space in question could not be obtained.) The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Letter to the Federal Reserve Bank of Boston (copy attached as Item 14°• 4 approving the designation of Frederick D. O'Connell as special Stant examiner. as Letters to the Federal Reserve Bank of New York (copies attached approving the appointment of Eugene A. Gallucci and 11.1") ert C. Thoman as examiners. 0 staffMamoranda recommending the following actions relating to the Board's 113 10/11/66 -9- APITIlt.T2LILL Edward L. Jewell as Messenger, Division of Administrative Services, with basic annual salary at the rate of $3,609, effective the date of entrance upon duty. . Shirley T. Stoney as Clerk-Typist, Division of Data Processing, with basic annual salary at the rate of $3,925, effective the date of entrance upon duty. Transfer Carolyn J. Latina, from the position of Stenographer in the Division °I Personnel Administration to the position of Stenographer in the Division of Data Processing, with no change in basic annual salary at the rate of $4,936, effective October 23, 1966. Acce --„ptance of resignation Susan K. Huffman, Stenographer, Division of International Finance, effective September 30, 1966. Assistant Secretary BOARD OF GOVERNORS Item No. 1 10/11/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDRESS orriciAL. CORRESPONDENCE TO THE 'CARD October 11, 1966 Board of Directors, The Lorain County Savings & Trust Co., Elyria, Ohio. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by The Lorain County Savings & Trust Co., Elyria, Ohio, of a branch at 248 North Abbe Road, Elyria, Ohio, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, 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 OF THE FEDERAL RESERVE SYSTEM Item No. 2 10/11/66 WASHINGTON, D. C. 20551 ADDRESS orriciAL CORRESPONDENCE TO THE BOARD October 11, 1966 Board of Directors, Old Kent Bank and Trust Company, Grand Rapids, Michigan. Gentlemen: The Board of Governors of the Federal Reserve System extends to December 31, 1966, the time within which Old Kent Bank and Trust Company, Grand Rapids, Michigan, may establish a branch in the vicinity of the intersection of East Beltline, S. E., and 28th Street, S. E., Grand Rapids, Michigan. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. TITLE 32A - NATIONAL DEFENSE, APPENDIX CHAPTER XV - FEDERAL RESERVE SYSTEM Item No. 3 10/11/66 ON REG. V - LOAN GUARANTEES FOR DEFENSE PRODUCTI Maximum rates of interest 1. amended Effective September 27, 1966, Regulation V is as follows: (a) Section 1 is amended to read as follows: Section 1. Authority. to the This regulation is based upon and issued pursuant Defense Production Act of 1950 (referred to in this regulation as the "act"), and Executive Order No. 10480, dated August 14, 1953 as amended on as the (3 CFR 1949-1953 Comp., p. 962) (referred to in this regulati guaranteeing Order"), and after consultation with the heads of the agenCieS the Department designated in the act and the order, namely, Of the Army, the Department of the Navy, the Department of the Air , the P°ree, the Department of Commerce, the Department of the Interior DePartment of Agriculture, the General Services Administration, the Atc)rnio Energy Commission, the Defense Supply Agency, and the National Aeronautics and Space Administration. (b) Section 5 is amended to read as follows: '5. Rates and fees. Sec fees, and other Rates of interest, guarantee fees, commitment Charges• and guarantees which may be made with respect to guaranteed loans eecuted through the agency of any Federal Reserve Bank under this regulation -2specifically or by will from time to time be prescribed, either ion 7 (the Supplement) by the maxtmum limits or otherwise, in sect the guaranteeing agencies. Board of Governors after consultation with is added: (c) The following new section 7 Sec. 7. Supplement. Defense Production Act Pursuant to the provisions of the August 14, 1953 as °f 1950 and Executive Order No. 10480, dated Federal Reserve System hereby amended, the Board of Governors of the nt rest, guarantee fees, and commitme Prescribes the maximum rate of inte loans executed fees which may be charged with respect to guaranteed : through the agency of any Federal Reserve Bank maximum interest rate (a) Maximum rate of interest. - The to a guaranteed Charged a borrower by a financing institution with respect 1°141 shall not exceed 7-1/2 per cent per annum. of fees with respect to (b) Guarantee fees. - The schedule guaranteed loans is as follows: Per cent of loan guaranteed 70 or less 75 80 85 90 95 Over 95 Guarantee Fee (Per cent of interest payable by borrower on guaranteed portion of loan) 10 15 20 25 30 35 40-50 loan is in excess of In any case in which the rate of interest on the 6 Per as though the interest cent, the guarantee fee shall be computed rate were 6 per cent. -3t fee (c) Commitment fees. - In any case in which a commitmen is charged a borrower with respect to a guaranteed loan, such fee shall not exceed 1/2 of 1 per cent per annum. In any such case, the financing percentage of such institution will pay to the guaranteeing agency a credit, equal to commitment fee, based on the guaranteed portion of the the same percentage of the interest payable on the loan which is . as required to be paid by the financing institution to the guarantor a guarantee fee. 3a. n The purposes of these amendments are to bring the regulatio uP to date and to incorporate into the regulation the currently effective on defense maximum rate of interest, guarantee fees, and commitment fees Production loans. The only substantive change relates to the maximum 7-1/2 per Permissible rate of interest, which is increased from 6 to cent per annum. b. The requirements of section 553(b) of title 5, United States Code, with respect to notice, public participation,and deferred effective date were not followed in connection with these amendments. Punctions exercised under the Defense Production Act are exempt from Such requirements (50 App. U.S.C. 2159). (50 App. U.S.C. 2154 and Executive Order 10480.) Dated at Washington, D. C., this 11th day of October, 1966. 383( -4By order of the Board of Governors. (SEAL) (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. BOARD OF GOVERNORS Item No. 4 10/11/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 L ADDRIEBB OFFICIAL CORREBPONDENCI TO THE BOARD October 12, 1966 Mr. Lee J. Aubrey, Assistant Vice President, Federal Reserve Bank of Boston, 02/06 Boston, Massachusetts. Dear Mr. Aubrey: In accordance with the request contained in Your letter of October 3, 1966, the Board approves the designation of Frederick D. O'Connell as a special assistant examiner for the Federal Reserve Bank of Boston. The authorization heretofore given your bank to appoint Mr. O'Connell as an assistant examiner is hereby canceled. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. F)ti, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 5 10/11/66 WASHINGTON, D. C. 20551 ADDRESS orric4AL CORRESPONDENCE TO THE BOARD October 12, 1966 Mr. Fred W. Piderit, Jr., Vice President, Federal Reserve Bank of New York, 10045 New York, New York. Dear Mr. Piderit: In accordance with the request contained in your letter of October 5, 1966, the Board approves the appointment of Eugene A. Gallucci, at present an assistant examiner, as an examiner for the Federal Reserve Bank of New York. Please advise the salary rate and the effective date of the appointment. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 6 10/11/66 WASHINGTON, D. C. 20551 ADDRESS OfirICIAL CORRESPONDENCE TO THE BOARD October 12, 1966 Mr. William F. Treiber, First Vice President, Federal Reserve Bank of New York, 10045 New York, New York. Dear Mx. Treiber: In accordance with the request contained in your letter of October 6, 1966, the Board approves the appointment of Robert C. Thoman as an examiner for the Federal Reserve Bank of New York, effective today. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.
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