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Minutes for October 14, 1958 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, if you were present at the meeting, please initial in column A below to indicate that you approve the minutes. If you were not present, please initial in column B below to indicate that you have seen the minutes. A Chm. Martin Gov. Szymczak Gov. Vardaman 1/ Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson 1/ In accordance with Governor Shepardson's memorandum of March 8, 1957, these minutes are not being sent to Governor Vardamn for initial. , Minutes of the Board of Governors of the Federal Reserve System on Tuesday, October 14, 1958. The Board met in the Special Library at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Szymczak Mills Robertson Shepardson Mr. Mr. Mr. Mr. Mr. Er. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Kenyon, Assistant Secretary Fauver, Assistant Secretary Hackley, General Counsel Masters, Director, Division of Examinations Farrell, Associate Director, Division of Bank Operations Daniels, Assistant Director, Division of Bank Operations Solomon, Assistant General Counsel Hexter, Assistant General Counsel Young, Assistant Counsel Poundstone, Federal Reserve Examiner, Division of Examinations Items circulated or distributed to the Board. The following items, Which had been circulated or distributed to the members of the Board and copies of which are attached to these minutes under the respective item tumbers indicated, were approved unanimously: Item No. Letter to Bank of America, New York, New York, regarding 11e examination of that bank made as of November 22, 957. (With copies to the Federal Reserve Banks of New -Lork and San Francisco) 1 Letter to Chase International Investment Corporation, New Yoe consenting to an additional investment by Arcturus 4-nvestment & Development, Ltd., Montreal, Canada, in stock Co- Redimexl do Rio de Janeiro. (For transmittal hrough the Federal Reserve Bank of New York) 2 Zf tr„:4' 2911i 10/14/58 -2Item No. Letter to the State Bank of East Moline, East Moline, Illinois, approving an additional investment in bank Premises. (For transmittal through the Federal Reserve Bank of Chicago) 3 Letter to the First National Bank of Niles, Niles, Nlchigan, approving its application for fiduciary Powers. (For transmittal through the Federal Reserve Bank of Chicago) 4 Letter to the Helena National Bank, Helena, Arkansas, approving its application for fiduciary powers. (For transmittal through the Federal Reserve Bank of St. Louis) 5 Letter to the Smackover State Bank, Smackover, Arkansas, aPproving the establishment of a branch in Norphlet, Arkansas. (For transmittal through the Federal Reserve Bank of St. Louis) 6 Letter to the California Bank, Los Angeles, California, approving the establishment of a branch at Adams Boulevard and South Broadway. (For transmittal through the Federal Reserve Bank of San Francisco) 4elegram to the Federal Reserve Bank of Philadelphia interposing no objection to a program for improving the Bank's electrical system at a cost of $70,000. 8 Letter to the Federal Reserve Bank of Chicago approving the Payment of salary at a specified annual rate to the tank's marble man. 9 Letter to the Yontgomery County Bank and Trust Company, iorristown, Pennsylvania, approving the establishment of ! three branches incident to a proposed merger with The National Bank of Pottstown. (For transmittal through the Federal Reserve Bank of Philadelphia) 10 Letter to the Fidelity-Philadelphia Trust Company, Philadelphia, Pennsylvania, granting an extension of time within which to establish a branch in Upper Darby Township. (For transmittal through the Federal Reserve Bank of Philadelphia) 11 10/14/58 -3_ Prior to approval of Item No. 11, Governor Robertson withdrew a tentative objection to granting a further extension of time for establishment of the branch after Mr. Masters explained that the FidelityPhiladelphia Trust Company intended to terminate operations at an existing branch located .3 of a mile away when the new facilities became available. Mr. Poundstone then withdrew from the meeting. Electrical and mechanical program at St. Louis Bank (Item No. 12). In a letter dated October 9, 1958, President Johns of the Federal Reserve Bank of St. Louis stated that the Bank's directors had approved, subject to the approval of the Board of Governors, accepting the low bids for an electrical and mechanical program that contemplated discontinuance of the Reserve Bank's steam generating plant, purchase of steam for heating the bank premises, and replacement of certain electrical and air-conditioning equipment. The Division of Bank Operations had reviewed the matter and had prepared a draft of telegram to the St. Louis Bank interposing no Objection to acceptance of the low bids, but there had not been an °PPortunity to circulate the file to the members of the Board. However, in view of time pressures mentioned by Mr. Johns, Governor Balderston Presented the item for consideration at this meeting. Mr. Daniels explained that last spring the Board authorized the St. 41-lis Bank to have detailed plans and specifications drawn up for the proCram in question and to call for bids if the final estimates were in line with the original estimate. Bids were received from three electrical and 2918 10/14/59 three mechanical contractors, but the plans were then revised somewhat in the light of advice from the Bank's consulting engineers regarding certain alternates and the Bank decided to renegotiate with the two lowest bidders tor the mechanical work. According to the letter of Mr. Johns, the highest bidder for the mechanical work was not brought into the renegotiations because it was felt that his bid was too far out of line t3 make this worth while. Mr. Young commented that no legal question appeared to be involved bIlt there was a question of policy involved in having a party go to the expense of preparing an initial bid and then excluding that party from 'ther negotiations. rill Following discussion of this point, the Board approved unanimously a. telegram to the Federal Reserve Bank of St. Louis (attached Item No. 12), ihterPosing no objection to acceptance of the low bids or to the related ekv, -venditure. At the same time it was noted that the question of 4Propriate bidding procedure had also been raised in a previous case vcaving another Reserve Bank. Therefore, it was decided that a letter °4 this subject should be sent to all of the Federal Reserve Banks. Governor Mills then referred to the capital expenditure programs e t ?ederal Reserve Banks and suggested the desirability of calling to ' their attention the need for care in avoiding programs for which the need is not very clearly demonstrated. He pointed out that in the case of the Re8erve Banks such expenditures can be made easily because the funds are 2919 10/14/58 —5— available, which tends to increase the responsibility of the Board and the Banks. In the light of the comments by Governor Mills, it was understood that steps would be taken to place the topic on the agenda for the meeting of the Conference of Chairmen of the Federal Reserve Banks to be held in December. Mr. Young then withdrew from the meeting. Application of The Michigan Bank to establish branches (Item No. 13). On August 20, 1958, the Board approved the application of The Michigan Bank, Detroit, Michigan, for permission to establish two additional in-town branches provided that prior to the establishment of such branches the capital structure of the bank would be increased by not less than $1 million through the sale of additional common stock. The State authorities Previously had approved the establishment of the branches provided the basic capital stock of the bank was increased to $4 million through the sale of at least $1 million of new stock, which might be in the form of Preferred stock, and the declaration of a stock dividend of not less than $1 million. Subsequently, on September 5, 1958, representatives of the member bank met with the available members of the Board for discussion of this matter and another matter of concern to the bank. There had now been distributed to the members of the Board a memorandum from the Division of 4am1nations recommending for reasons stated that no change be made in the 10/14/58 -6- conditi0n prescribed by the Board in connection with approval of the establishment of the branches. In a second memorandum, distributed under date of October 9, 1958, Mr. Masters stated that although his preference rested with common stock as the most acceptable method of providing needed bank capital, in this particular case he felt there was considerable merit in the views of the applicant bank supporting its desire to employ preferred stock as a means of providing additional capital. Mr. Masters pointed out that there was no legal basis on which the Board could object to the issuance of preferred stock and that if the applicant had sold the proposed issue of preferred stock in advance of filing the branch applications with the Board, it would have been most difficult to object on the basis of an undercapitalized situation. It was his opinion, therefore, that the circumstances of this case were such as to warrant action by the Board consistent with the requirements of the State banking a uthorities. In response to questions by members of the Board, Mr. Masters said that he would like to see this case decided as a special case and not one which would establish a precedent. He cited the origin of the member bank 48 an industrial bank and pointed out that the institution had enjoyed UnexPected and very substantial growth, particularly in time deposits. noted that it is a family-owned institution and that the owners did not Want to dilute their control. He 2921 10/14/58 Governor Szymczak referred to the Board's position of long standing that additional capital should be obtained by a bank through the sale of common stock except in an emergency. He said that a desire On the part of the owners to retain control would be present in many cases and that a deviation by the Board in this case would tend to create 111°re problems than it would solve. Governor Robertson concurred and stated that he saw no basis for 4 change in the Board's previous decision. In reply to questions by Governor Shepardson, Mr. Masters recalled that Mr. Stoddard of The Michigan Bank had indicated that he felt that the growth of the bank was tending to level off. Governor Shepardson then stated that he had raised the question because further growth of the bank, which might in part result from the establishment of new branches, would l ean that the bank again would be faced with the problem of adequate caPitalization. Hence, the question of the issuance of preferred stock would be likely to come into the picture again. It was noted that l'Irs Stoddard had expressly stated that the owners of the bank would prefer t° sacrifice further expansion rather than to dilute their control of the institution. In response to a further question, Mr. Masters stated that the bank was in need of additional capital in any event but that the addition of $1 million of stock would put the bank in a reasonably good Capital position. 10/14/58 -8- Governor Balderston said he felt that the Board ought not to deviate from past policy. He cited the reasons advanced by Governor Szymczak at this meeting and the reasons advanced by Governor Vardaman at the time of earlier discussion of The Michigan Bank's applications. Governor Mills, who was on vacation when the Board's decision was reached, recalled that before leaving on vacation he had taken a position in favor of approval of the requested branches and that following his return he had recorded his position in the minutes. He concurred in the views expressed by Mr. Masters, stating that by and large the Board, through counseling with member banks, was able to explain its position regarding the sale of preferred stock, and member banks usually were willing to adhere to the Board's recommendation. In a case in Minnesota, the Board recently approved the issuance of a hybrid form of debenture as, in essence, a form of capital. It was extremely difficult to draw a line and not deviate from it, he said, and in this case there was a question Whether the Board's position could be sustained at law. Hence, it seemed to him that an attempt to maintain that position would be impolitic. Er. Hackley commented that the legal point was debatable. In view °II the possibility that the matter might be taken to court, he suggested that it might be desirable to send the member bank a copy of the memorandum PrePared by the Secretary's Office concerning the meeting held on September 5, although he was not sure whether this would be of any aid to the Board in the event of litigation. It would only serve the purpose of showing 10/14/58 _9_ that the Board had not acted without considering the views and comments of the applicant institution. Governor Szymczak observed that nothing brought out at the meeting changed the circumstances of the case in any significant way. The Board had been aware before the meeting that Michigan State law permits a bank t° sell preferred stock. Moreover, regardless of local law it seemed to him that on a national basis the Board must take a position with regard to what it considers the best way to obtain additional capital, and the Board had heretofore taken the position that the best way to proceed was on the basis of the sale of additional common stock. Governor Balderston said he thought the Board should go to the eQngress for explicit authority in matters of this kind before test cases de veloped. At the instance of Governor Shepardson, there ensued a discussion Of the reasons for preferring common stock to preferred stock. Reference 448 made to reasons cited when the applications of The Michigan Bank first ' came up for discussion before the Board, following which Governor Robertson blsought out that the issuance of preferred stock enables parties holding ec)mmon stock to maintain control of the bank and in effect to borrow additional capital in the form of preferred stock. As a result, a small ' l °111) may be able to maintain control of a banking institution. Nrthermore, once resort is had to preferred stock the only option when 4dditional capital is needed may be to obtain that capital through the 10/14/58 -10- sale of more preferred stock. Governor Szymczak called attention to the fact that preferred stock is of a temporary character because it is borrowed money. In addition, he said, preferred stock has a special status which places a financial strain on the bank issuing it. Governor Mills agreed with Governor Robertson's comments regarding the general question of the issuance of preferred stock. He observed that the proposed Financial Institutions Act contains a provision which would impose some limitations on the issuance of preferred stock by national banks, so that within the Federal regulatory authorities there is a rather clearly defined position. Because of statements made in connection with that Act, he pointed out, the Board had not been remiss in presenting its views to the Congress. However, until the Congress took a stand on the matter through legislation it was his contention that the Board did not have legal authority to impose a requirement such as that attached to it8 approval of the branches for The Michigan Bank. In further discussion Mr. Masters said it was his view that the 8c)ard had a responsibility to consider not only the dollar adequacy of capital but also the form of capital stock. In his opinion the Board Should not apply the principle arbitrarily and always insist on the issuance of common stock regardless of the circumstances of a particular ease. In the case of The Michigan Bank it was his view that factors such as the quality of management, the record of good administration, and good earnings would support a deviation from an otherwise sound approach. 2925 10/14/58 -11- At the conclusion of the discussion the Board reaffirmed, with Governor Mills dissenting, the position originally taken with regard to the branch applications filed by The Michigan Bank. A copy of the letter to The Michigan Bank transmitted through the Federal Reserve Bank of Chicago pursuant to this action is attached as Item No. 13. Processing of branch and merger aulications (Item No. 14). Under date of October 10, 1958, there had been distributed to the Board copies of a draft of letter to the Federal Reserve Bank of New York with respect to the procedural suggestion for processing branch and merger applications which was made on the occasion of the recent visit to the Board's offices by Mr. George A. Mooney, New York State Superintendent of Banks. A copy Of the letter would be sent to Mr. Mooney. In discussing the proposed letter, Governor Robertson cited reasons why Mr. Mooney and his staff might have left the Board's offices with an erroneous understanding of the suggested procedure. In the event such misunderstanding, he stated, it would be better to have the matter cleared up now than to risk a possible dispute at a later date. At the suggestion of Governor Mills, the letter was changed to state more fully the role played by the Federal Reserve Bank of New York in the functioning of an application, and the letter was approved tillahimously in the form of attached Item No. 14. Request from the Council of Economic Advisers. Governor Mils 1 sPorted a request from the Council of Economic Advisers for the 2926 10/14/58 —12— Cooperation of the Board's staff in an informal study of the prospective growth of the money supply under certain assumptions. The request grew out of a recent staff paper, transmitted informally by Chairman Martin to the Secretary and Under Secretary of the Treasury, in which estimates were made regarding investment funds that would be available for the Treasury in its financing operations. Although it was recognized at both the Board and the Council that a thorough study of the money supply would be a monumental task, the request anticipated a study that could be made within a period of approximately three weeks. As finally worked out, Governor Mills said, the study would be a Board project from inception to completion. It would then be reviewed by representatives of the Treasury and the Council of Economic Advisers. At the conclusion of Governor Mills' comments, it was agreed that there would be no objection to the undertaking of the study on the basis indicated. Mr. Masters then withdrew from the meeting. Denver Branch building site. Governor Balderston reported that on October 9 he talked with Chairman Hall of the Federal Reserve Bank of 44nsas City on two occasions concerning the controversy that had developed regarding the Denver Branch building site. He said he informed Mr. Hall that in addition to certain telegrams that had been relayed to Kansas City the Board also had been in receipt of inquiries from Congressional offices, Protipted apparently by the publicity that had arisen from the controversy. ' .- 4,1 001 10/14/58 -13- He said he urged Mr. Hall to ascertain the true facts by seeking written statements from Denver bankers as to their views and also made the suggestion that, if possible, a final decision on the matter come out of a joint meeting of the head office and branch directors. At the time of the second telephone call, Mr. Hall stated that the owner of a piece of land adjacent to the present Denver Branch building reportedly had now stated in public that he would give the land to the Federal Reserve. Also, the owner of land on the other side of the branch building, who had Previously taken the position that he would not sell, reportedly had now Changed his mind. Therefore, the Kansas City Board of Directors had decided to seek, if possible, an option from each of those owners with the minimum payment that would make the options legal, the purpose being to ascertain whether the reported offers were real. With regard to the site selected for a new branch building, it appeared that technical difficulties stood in the way of obtaining good title to some of the Parcels, and this was giving the directors some concern. Accordingly, they were taking steps to see whether those technicalities could be resolved satisfactorily. In all the circumstances, the Kansas City directors had decided to await the ascertainment of the necessary facts and then, in conference with the branch directors, review the whole situation. In the meantime, the directors were considering the approval hY the Board of Governors as not existing," for it was their feeling 2)2 10/14/58 -14- that no matter how the problem was eventually resolved they would want to come back to the Board for approval. Governor Balderston said Mr. Hall also had stated that he would Personally call both of the Colorado Senators to advise them of the current status of the matter. Furthermore, it was proposed to issue a Press statement in a form which Governor Balderston then read. Processing of bank holding company cases. Governor Shepardson referred to the discussion at the meeting of October 3, 1958, relating to the Board's desire to expedite processing of bank holding company applications and informed the Board of steps designed to accomplish this end by eliminating certain review work in the Division of Examinations. He stated that some headway already was reported in cleaning up the backlog and that he was keeping closely in touch with the situation. All of the members of the staff then withdrew and the Board went into executive session. Correspondence with Congressman Wright (Item No. 122. The Secretary was later informed that during the executive session the Board 11P.P.E.11 a letter (attached Item No. 15) to Congressman James C. Wright °f Texas regarding the appointment and removal of Federal Reserve Bank Presidents. The meeting then adjourned. Secretary's Note: Pursuant to the recommendations contained in memoranda from appropriate 2929 10/14/58 individuals concerned, Governor Shepardson approved on behalf of the Board on October 13, 1958, increases in the basic annual salaries of the following persons on the Board's staff in the amounts indicated, effective October 19, 1958: Name and title Division Basic annual salary From To Office of the Secretary Dorothy A. Crutcher, Secretary Ruth W. Eschmeyer, Records Clerk Ava Mae Landes, Records Clerk 790 3,850 3,850 $4,940 3,945 3,945 4,640 4,790 4,325 5,985 4,515 6,135 6,735 7,510 6,885 7,750 10,130 10,370 3,245 3,340 3,340 3,435 5,390 5,580 Legal Hallie A. Desmond, Secretary Research and Statistics /7. vlrginia Lambert, Clerk-Stenographer LUcile R. MacLean, Librarian Examinations 2 . Halvor Bookman, Assistant Federal Reserve Examiner 4alcolm F. Johnson, Federal Reserve Examiner International Finance Gordon B. Grimwood, Economist Administrative Services Ruth A. Brown, Charwoman Edith C. Hartzell, Charwoman Controller j”:ePh H. Hoyle, Supervisor, Payroll and Disbursing kChange in title from Payroll Clerk) 10/14/58 -16As recommended by the Controller in a memorandum dated October 7, 1958, Governor Shepard son approved on behalf of the Board on October 13, 1958, an expenditure of $761.31 for the purchase of a dictating machine and transcriber by the Division of International Finance. The National Labor Relations Board having responded favorably to the Board's request for an extension of the detail of Charles W. Schneider, Hearing Examiner, for an additional period of six months from June 30, 1958, a letter was sent to the Civil Service Cornmission on October 13 requesting approval of the extension. 2931 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 1 10/14/58 ADDRESS OFFICIAL CURRIESPONDIENCe TO THE BOARD October 14, 1958 Mr, Jesse W. Tapp, Chairman of the Board of Directors, Pank of America, 40 Wall Street, New York 15, New York. Dear Mr. Tapp: This refers to a letter dated June 27, 1958, addressed to the board of Governors of the Federal Reserve System by Executive Vice President Russell G. Smith, regarding the rePort of examination of Bank of America, New York, made as of November 22, 1957, by examiners for the Board of Governors. The letter was accompanied by a second letter, also addressed to the Board by Executive Vice President Russell G. Smith, which referred particularly to certain organizational changes of Bank of America, New York, placed in effect on May 12, 1958. It has been noted that the report of examination was Presented to the hoard of Directors at its meeting on May 19, 1958, and that it has been carefully reviewed by your Auditing and Examining Committee and by Executive Officers. It is also noted that special consideration has been given to the comments, recommendations and suggestions of the examiner as well as to the Past Due and Classified Loans, Other Loans Subject to Special Comment, and Nonconformin4 Extensions of Credit, Nonconforming nePosit Accounts, and to the Examiner's suggestions in connection with Records, Systems, and Controls. With respect to the comment cf the Examiner that the "edit policies of the Corporation appear liberal in relation to capital funds and that outstrindings in certain countries are .onsidered large, it is noted that unsecured outstandings in venezuela, Brazil, and Colombia have ben reduced to less than 20 Per cent of Capital and Surplus by the sale of participations 0 the parent company, and that outstandings in France and Israel nave also been reduced. It is noted that the outstandings in these countries and in Uruguay have the close attention of the Inanagement. The changes outlined in Mr. Smith's letter relative !WARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ' Mr. Jesse W. Tapp - 2 11111111, to Foreign Exchange Trading operations to be placed in effect J114 1, 1958, will undoubtedly provide an improvement in the control of such operations. The detailed replies to each of the nonconforming extensions of credit and deposit accounts listed by the Examiner in the report of examination have been reviewed. by The only extension of credit considered nonconforming loan the is here mention the Examiner which appears to require Corporation, a !?mmitment for $700,000 to Marshall Transportation Liberian corporation. The Examiner stated that the proceeds of the oan are to be used for shipbuilding in a domestic shipyard. The on two 'Corlooration replies that "the loan is secured by mortgages under Thus, trade. tional interna in l'iberian flag vessels engaged 6his loan an obligation has been acquired of a foreign corporation s engaged in international trade." In view of the use of the proceed of the loan, the facts indicate that the loan is nonconforming irrespective of the nationality of the borrower or nature of the collateral. l United Nonconforming deposit accounts of citizens of the time orming nonconf as well States domiciled in foreign countries as valances of domestic depositors and nonconforming accounts of °reign banks and foreign individuals appear to be receiving proper a ttention. depositors In connection with demand accounts of domestic listed as nonconforming by the Examiner, the reply of the Corporaclosed and indicates that some of the accounts have since been steps that it:flat others have either been brought into conformity or coned furnish L av's been taken to do so. However, the information rs custome c ,!rning the following demand deposit accounts of domesti conthe warrant l-.1sted as nonconforming is not of such nature as to ..e: of blusion that the deposit accounts conform to the requirements ' le gulation K. American Israeli Shipping Co. American Steamship Agencies Bahia Ceras Products, Inc. A. L. Burbank & Co., As Agents for Daido Lines Equipment & Supply Corp. J. M. Santo Domingo & Co., Inc. General Tire & Rubber Co. Incres Nassau Line, Incres Line Agency (2 accounts) BOARD OF GOVERNORS Mr, Jesse W. Tapp or THE FEDERAL RESERVE SYSTEM 3- Jethmal & Sons, Ltd. Kervin Shipping Corp. Ocean Shipping and Trading Corp. Overseas Steamship Corp. Rutland Navigation Co. (2 accounts) San Jacinto Venezolano, C. A. San Mateo Compania Naviera, S. A. Transatlantic Navigation Corp. Transmundo, S. A. are it -will be noted that ten of the accounts named above t• ho8e of stamship companies or their agents in New York. In some 41st8.nces, the cepositors, including a few Panamanian or Liberian maintaio their main offices in New York, while other ofPositors act as agents for foreign companies whose principal used are usually ;ces are abroad. These shipping company accounts n operatio the in ry ely in conjunction with disbursements necessa that appears It ports. foreign flag vessels calling at American sr Corporation considers such accounts to be conforming. While the ion 4PPing accounts might in a sense be said to arise in connect accounts deposit 7'-th international business: the acceptance of such not considered by the Board to be permissible under the Federal ion eserve Act and Regulation K at an office of an Edge Act corporat the United States. account 41)Advice is requested, with regard to each deposit acthe bring ore named as to the steps that will be taken to cob,,.. the e terminat uu into conformity with the Regulation or to • -s • Posit relationship. critical The report of the Examiner included some comments .ofthe at found °f the limited authority in administrative matters fie the that fact the of also e of the Corporation in New York, and t?-rection of foreign brinch operations was from San Francisco rather ' an from New York. Whetner the organizational changes described in the administ"e letter of Executive Vice President Smith will correct be deter-. cannot y probabl :atiVe procedures to a satisfactory extent Ihl with line in be to appear at this time. However, these changes that that the probelieved is it and h e recommendations of the Examiner 'sed steps will transfer a substantially greater measure of autonomy tion. ° New York in the over-all operations of the Corpora J The Board appreciates the problems confronting an Edge Act rPoration arising out of the specialized character of business to ldh such corporations must necessarily be limited. The Board has CO t ; 293 BOARD OF GOVERNORS OF THE FEDERAL RESERVE *SYSTEM Mr. Jesse W. Tapp 11 - found the letters of Executive Vice President Smith in regard to matters in the recent report of examination, to be comprehensive and informative as well as cooperative. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Scretary. 2934 2935 BOARD OF GOVERNORS 4011 OF THE 449 OW COk FEDERAL RESERVE SYSTEM '401 Item Nbo 2 10/14/58 ** WASHINGTON 25, D. C. 141 44 : ADDRESS OFFICIAL CORRESPONDENCE A: TO THE BOAR 7/ tk titiP0 4440** October 14, 1958 141". V. E. Rockhill, Executive Vice President, Chase International Investment Corporation, 18 Pine Street, New York 5, New York. Dear Sir: In accordance with your request and on the basis of the information submitted in your letter of September 26, 1958, transmitted through the Federal Reserve Bank of New York, the Board of Governors grants its consent to an additional investmerit by Arcturus Investment & Development, Ltd., Montreal, nada, a wholly-owned subsidiary of Chase International flvestment Corporation, of Cruzeiros 1,080,000 (approximately 4.7,000 equivalent) in stock of Concreto Redimix do Rio de Janeiro, S.AThe Board's consent is granted with the understandthat Arcturus will be expected to dispose of the stock of the Brazilian cornoration as promptly as practicable in the event that operations of the Brazilian corporation should at any time be inconsistent with the provisions of Section 25(a) ?f the Federal Reserve Act or regulations thereunder relating to corporations whose stock is owned by an Edge corporation. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2936 BOARD OF GOVERNORS ocgt**,4 OF THE " OBto, • tv „ FEDERAL RESERVE SYSTEM Item No. 3 10/14/58 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE Qtt), TO THE BOARD 't;,•-k*0.4 October 14, 1958 Board of Directors, State Bank of East Moline, East Moline, Illinois. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves an additional investment in bank premises by the State Bank of East 'Moline of not to exceed $310,000 for the purpose of constructing a new bank building. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 29R BOARD OF GOVERNORS OF THE FEDERAL REq-pRVE SYSTEM Item No. 4 1014/58 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 14, 1958 Board of Directors, First National Bank of Niles, Niles, Michigan. Gentlemen: The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary Powers and grants you authority to act, when not in contrarator, vention of State or local law, as trustee, executor, administ , registrar of stocks and bonds, guardian of estates, assignee receiver, committee of estates of lunatics, or in any other other fiduciary capacity in which State banks, trust companies, or are corporations which come into competition with national banks the , Michigan of State the permitted to act under the laws of ns of exercise of all such rights to be subject to the provisio F of the section 11(k) of the Federal Reserve Act and Regulation Board of Governors of the Federal Reserve System. y powers A formal certificate indicating the fiduciar exercise *itch First National Bank of Niles is now authorized to vill be forwarded to you in due course. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assis'Ldant Secretary. 293S BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 5 10/14/58 WASHINGTON 25, O. C. ADDRESS OFFICIAL CORRESPONDENC'E TO THE BOARD October 141 1958 Board of Directors, Helena National Bank, Helena, Arkansas. Gentlemen: The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or in any other fiduciary capacity in -which State banks, trust companies or other corporations which come into competition with national banks are permitted to act under the laws of the State of Arkansas, the exercise of all such rights to be subject to the provisions of section 11(k) of the Federal Reserve Act and Regulation F of the Board of Governors of the Federal Reserve System. A formal certificate indicating the fiduciary Powers which the Helena National Bank is now authorized to exercise will be forwarded to you in due course. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2, 9 BOARD OF GOVERNORS ,„01.40,4 e0004201, OF THE Item No. 6 FEDERAL RESERVE SYSTEM 1 A* 10/14/58 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE 444:14 TO THE BOARD o %64141V.St "tt000** October 14, 1958 Board of Directors, Smackover State Bank, Smackover, Arkansas. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of St. Louis, the Board of Governors of the Federal Reserve System approves the establishment of a branch in the unincorporated town of Norphlet, Union County, Arkansas, provided the branch is established within nine months from the date of this letter. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2940 BOARD OF GOVERNORS 444atio**0 , ‘ 40 OF THE FEDERAL RESERVE SYSTEM Item No. WASHINGTON 25. D. C. 1014/58 7 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD tti 04**** October 14, 1958 Board of Directors, California Bank, Los Angeles 54, California. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of San Francisco, the Board of Governors of the Federal Reserve System approves the establishment of an in-town branch in the vicinity of the intersection of Adams Boulevard and South Broadway, Los Angeles, California, by California Bank, Los Angeles, California, provided the branch is established within six months from the date of this letter, and the approval of the State authorities is in effect as of the date of the establishment of the branch. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2941 item No. 8 10/14/58 TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON October 14, 1958 BopP - Philadelphia Board will interpose no objection to your proceeding Ilith the proposal to improve the Bankis electrical system at a cost of approximately $70,000, as outlined in Mr. Wilgus letter Qt September 29, 1958. (Signed) Kenneth A. Kenyon Kenyon 2942 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 9 10/14/58 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 14, 1958 CONFIDMIAL (FR) Yr. H. J. Newman, Vice President, Federal Reserve Bank of Chicago, Chicago 90, Illinois. Dear Mr. Newman: The Board of Governors approves the salary by the Federal Reserve Bank of Chicago "marble man" at the annual rate of $5,592.60, to September 29, 1958, in accordance with the contained in your letter of October 1, 1958. payment of to the Bank's retroactive request Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2943 BOARD OF GOVERNORS OF -I HE FEDERAL RESERVE SYSTEM Item No. 10 10/114/58 WASHINGTON 25, 0. C. ADOREEiti OFFICIAL CORRESPONDENCE TO THE BOARD October 141 1958 Board of Directors, Montgomery County Bank and Trust Company, Norristown, Pennsylvania. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank °f Philadelphia, the Board of Governors approves the establishment of the following branches by Montgomery County Bank and Trust Company, Norristown, Pennsylvania: 205 High Street, Pottstown, Pennsylvania. High and Wilson Streets, Pottstown, Pennsylvania. West High Street, Stowe, Pennsylvania. This consent is given provided: a. the merger with The National Bank of Pottstown, Pottstown, Pennsylvania is effected substantially in accordance with the joint plan of merger dated August 7, 1958; b. shares of stock acquired from dissenting shareholders are disposed of within nix months from date of acquisition; c. the branches are established within six months from date of this letter; d. is that formal approval of State authorities obtained. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2914 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 11 10/14/58 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 14, 1958 Board of Directors, Fidelity-Philadelphia Trust Company, Philadelphia, Pennsylvania. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Philadelphia, the Board of Governors extends until October 1, 1959, the time within which Fidelity-Philadelphia Trust Company may establish a branch in the Oak Park Shopping Center, situated between Oak Road and Bishop Road, West Baltimore Pike, Upper Darby T°mIship, Pennsylvania, under authority contained in the Board's letter of July 12, 1956. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2945 Item No. 12 10/14/58 TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON October 14, 1958 Johns.St. Louis Reurlet October 9, 1958, Board will interpose no objection to your Bank's acceptance of low bids for electrical • and mechanical work referred to in your letter, and expenditure o e Pproximately $283,000, including engineering fees. (Signed) Kenneth A. Kenyon Kenyon 2948 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 13 10/14/58 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 20, 1958 AIR MAIL REGISTERED RETURN RECEIPf REQUESTED Board of Directors, The Michigan Bank, Detroit, Michigan. G entlemen: for This is with further reference to your application t subjec 4PProval of the establishment of two branches, which was the sion discus 0f the Board's letter of August 20, 1958 and also of a ber 5, Septem on Bank your and Board u tween representatives of the 1958 terms While the Board's Regulation H provides that the refers and "capital stock" include preferred stock, this to .0 the minimum capital required by statute as one of the pre-condi1 purport 4t14hs for admission to membership in the System, and does not : aside to determine the general question of capital adequacy. Quite ,l_rom that provision, however, it is true that preferred stock issued a bank is part of the bank's capital structure, but it is also ecognized that preferred stock is substantially different in nature from common stock. The differences include the claim, in fact if not connected with legally, of preferred stock on bank earnings, problems ution, and instit Ildue separation of control from investment in the ' necessary with Problems preferred stock may create later in connection cy must adequa Ilotation of additional stock. Any appraisal of capital of nature the necessarily take into account not merely the amount but c apital. discussion that Your representatives indicated at the they Would not anticipate a large increase in deposits in the near persons who control ;:4_141re from the proposed branches, and that the ':?e.bank do not wish to dilute such control by having the bank issue to purchase. Your common stock which they do not wish representatives also indicated, however, that the growth of the bank expectations. The Board is :, the present time had greatly exceeded ( (2. stockholders to the opinion that unwillingness of controlling on of their condiluti Purchase additional common stock or to permit l. capita for does not satisfy or offset a bank's need 2947 Board of Directors, The Michigan Bank. -2- Having carefully reconsidered this matter in the light of all relevant circumstances, including those explored at the discussion with your representatives, the Board has again reached the co nclusion that approval of the branches you have requested would not -e 1- warranted without the sale of at least $1 million of common pock!t in addition to your Bank's proposed stock dividend of million. Accordingly, the Board must continue to specify such a sale of common stock as a condition to its approval of your aPPlication to establish the branches. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 2949 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 14 10/14/58 WASHINGTON 25, D. C. t4,1 44 k' ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD Vitt vr,1,1> 4044.11* October 14, 1958. Mr. Howard D. Crosse, Assistant Vice President, Federal Reserve Dank of New York, New York 45, New York. sear Mr. Crosse: The Superintendent of Banks for the State of New York, Mr. George A. Mooney, visited the Board's offices recently in cormP4AY with members of his staff to discuss certain matters of mutual interest with the members of the Board. One of the problems con!idered at that time related to the possibility of the New York :tate banking authorities and the Board of Governors announcing conflicting decisions with respect to a branch or merger application Idlioh requires both State and Federal Reserve approval. As you know, the Board of Governors has for some time fel -lowed the practice of not taking action on any branch or merger 4PPlication unless such application has received the favorable consideration of the State banking authorities concerned. While this !erves to reduce substantially the number of cases where conflict411g decisions conceivably could be rendered, it leaves open the Possibility that the Board of Governors, in the exercise of its natutory responsibilities, might decide adversely on an applica10n which already beers the announced approval of the State ' au thorities. It is understood that the New York State Banking DepartInent Confers informally with the Federal Reserve Bank of New York an early stage concerning any branch or merger application reived by that Department which will also require the approval of Board of Governors, and that thereafter the State Banking Dodecides upon the recommendation which it intends to make r the State Banking Board. In the meantime, the New York Reserve rnk processes the application received by it for Federal Reserve ;royal and formulates its recommendation, which is weighed tl,!vilY by the Board of Governors in making its decision. After e;:i .ts processing is completed, the Reserve Dank transmits the appliet,ion, along with its recommendation, to the Board of Governors advises of the recommendation which is to be made by the State nking Department. However, before the Board of Governors acts "Pon the matter it awaits the decision of the State Banking Board. n j Mr. Howard D. Crosse -2- The Board's understanding of the agreement reached during Mr. Mooney's visit is that none of the foregoing procedures will be Changed. In other words, the State Banking Department and the Federal Reserve Bank of New York will proceed in exactly the same manner as heretofore. However, before the decision of the State Banking Board is announced to the applicant, the Board of Governors will advise the Reserve Bank of its decision and this information will be communicated by the Reserve Bank to the New York State authorities. Assuming that the decisions by the Board of Governors and the State Banking Board are both favorable, the State authorities yI11 then announce their decision and, at the same time, advice of the action taken by the Board of Governors will be transmitted to the applicant through the New York Reserve Bank. If it should develop that the decision of the Board of Governors is unfavorable, discussion between the Federal and State authorities may be desired. As stated to Mr. Mooney at the time of his visit to the Board's offices, it is the Board's sincere desire to avoid the occurrence of any embarrassing incident that might arise because of condieting views with respect to an application which falls within the Jurisdiction of both the Board of Governors and a State banking aUthority. Accordingly, the Board was Riad to surest the procedure outlined above, which would appear to provide a means of resolving satisfactorily the problem referred to by Mr. Mooney. A copy of this letter is being sent to Mr. Mooney for his tformation. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 2950 BOARD OF GOVERNORS OF THE Item No. 15 10/14/58 FEDERAL RESERVE SYSTEM WASHINGTON OFFICE OF THE VICE CHAIRMAN October 15, 1958 The Honorable James C. Wright, House of Representatives, Washington 25, D. C. Dear Mr. Wright: This is in response to your letter of October 6, 1958, -1fasting information on behalf of a constituent concerning the aPPointment and removal of Federal Reserve Bank Presidents. rem, The provisions of the Federal Reserve Act expressly • de ling , of Federal neserve with the appointment and removal of officers Banks are contained in paragraph 4 of section 4 and section 11(f). Paragraph 4 of section 4 empowers each Federal Reserve Bani, ,to appoint "by its board of directors a president, vice ! ' Issidents, and such officers and employees as are not otherwise novided for in [the] Act, . . . and to dismiss at pleasure such nricers or employees. The president . . . shall be appointed by 1s board of directors, with the approval of the Board of Governors („the Federal Reserve System, for a term of five years. . . ." 4 \-1.4 U.S.C. 341) Section 11(f) of the Federal Reserve Act authorizes and ell1Powers the Board of Governors to "suspend or remove any officer ! ° 4. director of any Federal reserve bank, the cause of such removal : 3 ; 1 be forthwith communicated in writing by the Board of Governors a t Federal Reserve System to the removed officer or director t° said bank." (12 U.S.C. 248(f)) Sincerely yours, (Signed) C. Canby Balderston C. Canby Balderston, Vice Chairman.
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