The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
The attached minutes of the meeting of the
Board on October 14, 1959
which you have previously
initialed, have been amended at the request of
Governor King to revise the last paragraph on page 6,
the first full paragraph on page 7, and the first full
paragraph on page 13 of the minutes as originally
written.
If you approve these minutes as amended,
please initial beloNir.
Gov. Mills
Gov. Balderston
Gov. Shepardson '6140
FR 609
Rev. 10/59
Minutes for October 14, 1959.
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. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System
On Wednesday,
October 14, 1959.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 9:30 a.m.
Martin, Chairman 1/
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepargson
King 2/
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Riefler, Assistant to the Chairman
Thomas, Economic Adviser to the Board
Young, Director, Division of Research and
Statistics
Hackley, General Counsel
Farrell, Director, Division of Bank Operations
Solomon, Director, Division of Examinations
Noyes, Adviser, Division of Research and
Statistics
Robinson, Adviser, Division of Research and
Statistics
Koch, Associate Adviser, Division of Research
and Statistics
Dembitz, Research Associate, Division of
Research and Statistics
Chase, Assistant General Counsel
Conkling, Assistant Director, Division of
Bank Operations
Landry, Assistant to the Secretary
Collier, Chief, Current Series Section,
Division of Bank Operations
Ford, Economist, Banking Section, Division
of Research and Statistics
Knipe, Consultant to the Chairman
Further consideration of the maximum permissible rates of
interest payable under Regulation Q.
Following Board discussion of
thiG question at its meeting on October 6, 1959, there had been
Chairman Martin withdrew from meeting and re-entered at points
indicated in minutes.
2/
—
Governor King withdrew from meeting at point indicated in minutes.
10/14/59
-2-
distributed to the Board memoranda from Mr. Robinson dated October 71
1959, and from Mr. Young dated October
8, 19591 relating, respectively,
to a Federal Reserve Bank of New York memorandum of September 111 1959,
on interest rate ceilings under Regulation Q and to the question of
possible revision of such ceilings.
With respect to the timing of any announcement of an increase
in the permissible interest rates under Regulation Q1 the Chairman
suggested the advisability of discussing such a move beforehand with
the Treasury, particularly because of the effect that such action would
have on the savings bond program.
In further discussion of the question, there was a general
belief that no action should be taken on raising the maximum permissible
interest rates at present but that the question should be reviewed
next month to make it possible for banks to give 30-day notice to
depositors by means of a December 1 announcement to take effect
januarY 1, 1960, should a decision be reached to raise the maximum
Permissible rates.
Governor Mills emphasized that the statute involved was a
banking directive and in consequence expressed the view that a decision
reached on the question should be based upon banking rather than
e
conomic considerations.
Governor Szymczak suggested that additional thought be given
to the possibility of tying the maximum permissible rate on time and
10/14/59
savings deposits to some other interest rate, such as the discount rate,
in order to simplify administration of the regulation.
In answer to a question from Governor Robertson as to the reply
Which should be given to bnnkers who had written in requesting Board
action on the matter, the Chairman suggested that it would be preferable
to leave such requests unanswered, not only because the Board had not
made a decision on this question, but also because the only way in which
such questions could be stopped would be through a general announcement.
14 his opinion, there were definite advantages in saying nothing at this
time.
It was then decided that further consideration of the question
should be postponed to the week of November 9. The Federal Advisory
C°1Ancil, it was noted, would be meeting November 16 and 17, at which
time it might bring up this problem.
Mt. Ford then withdrew from the meeting.
Inclusion of vault cash as a part of required reserves and
r2131ems related thereto.
There had been distributed to the Board under
c/4te of September 29, 1959, a memorandum from Messrs. Dembitz and Thomas
l'esenting data on vault cash holdings of member banks.
Subsequently,
a letter dated October 9, 1959, had been received from Mr. Erickson of
the Boston Reserve Bank, incorporating a proposal for an outright release
°I' reserves through the inclusion of a portion of vault cash in required
-4-
10/14/59
reserves at an appropriate time in the fall of 1959.
Mr. Erickson's
letter referred to the fact that at the joint meeting of the Board and
Reserve Bank Presidents on September 23, 1959, Chairman Martin had
invited comments from the Conference members as to whether it would be
desirable and feasible to take any action this year under Public Law
86-114, enacted July 28, 1959, to permit member banks to count vault
cash as required reserves.
He pointed out, furthermore, that the
Chairman had also asked for suggestions as to the procedures that
might be followed should action be decided upon, and he indicated
that his proposals were in response to this invitation.
The Chairman pointed out that there was to be kept in mind,
atc)ng other things, the informal commitment to inform the Mint of the
time schedule of any actions which the Board might take in implementing
the vault cash proposal.
In response to a question on this point, Mr. Farrell commented
that he had talked with Reserve Bank Presidents about this problem and
that none of them believed there would be any difficulty with the
111(31fision of an adequate amount of coin to member banks should vault
cash be included among required reserves.
The Chairman then indicated that he had no strong conviction
a.bout
moving on the question at present. The reason he had caused this
tatter to be docketed was to clear the road for the Board to act, if it
"I desired, during his impending absence.
10/14/59
_5..
Governor Shepardson suggested the possibility of a two-part
Package approach which would use vault cash to meet some of the seasonal
bulge in reserve needs during the fourth quarter of
1959, after which
the return flow of currency from circulation could be offset by raising
reserve requirements.
Governor Robertson then proposed that reserve city and central
reserve city banks be permitted to count all vault cash over that
Portion represented by 1-1/2 per cent of demand deposits, such amount
to be
counted as legal reserves in the last week of November, for
example, to be followed in December by permission to country banks to
count all vault cash in excess of
14°111d release about
3 per cent of demand deposits. This
$165 million reserves to the first two classes and
about $350 million reserves to the country banks.
In addition, there
would be an announcement that as of January 15, 1960, the Federal Reserve
lanks would shift to a three-day maximum deferred availability from the
Present two-day basis, thereby absorbing about an equal amount of
reserves.
The advantages of this plan were that it would provide an
incentive to banks to build up their currency holdings for emergency
Poses, it maintained the present interclassification gap in effective
serve requirements, it did not create further inequities as between
individual banks so far as reserve requirements were concerned, it would
Provide a more realistic deferment schedule, and it would not prejudice
the
further program of action under the recent reserve requirement
legislation.
10/14/59
-6-
At this point the Chairman withdrew from the meeting.
Mr. Thomas noted that Governor Robertson's proposal would place
maximum effective reserve requirements for country banks at 14 per cent
and for city banks at 18 per cent and that the added feature to change
the deferment schedule was not a necessary part of the proposal.
His
Principal question would be whether the proposal went far enough in its
release of reserves.
Admittedly, it would leave the Board in a position
'where it could not be handicapped in taking further steps under the
new legislation.
Referring to Governor Robertson's suggestion that a reduction in
float that would result from increasing the maximum deferment schedule
to three days could recapture the reserves released through counting
vault cash in the reserve base, Governor Shepardson inquired to what
extent the System would need to recover after the first of the year
the seasonal release of reserves before Christmas.
In other words,
how inu'eh of the reserves released should remain in the banking system
clue to the growth factor?
or
Mr. Thomas replied that at least nine-tenths
the reserves released should be recaptured.
Mr. Farrell remarked that an increase in the deferment schedule
4°111d hit some banks harder than others, that Governor Robertson's suggestion
'
or counting only the vault cash at country banks in excess of
3 per cent
of demand deposits would provide no benefit to those banks currently holding
valat cash less than
3 per cent of demand deposits, and that the combining
Of these two steps might tend to "compound inequities" for some banks.
•
•
•
; .
10/14/59
To this, Governor Robertson replied that it -would be impossible
to produce complete equity among individual banks and that he realized
certain banks would be hurt by a reduction in float.
Governor Shepardson pointed out that it was possible, as an abstract
ProPosition, that some banks having relatively large amounts of vault cash
also were benefiting most from a large float factor.
Mr. Thomas called
attention to the fact that the existing situation could be said to be
inequitable because the deferment schedule favors some banks more than
others and because an advantage accrues to banks that hold little vault cash.
In an additional reference to Mr. Farrellts comments, Governor King
Pointed out that whenever a situation of inequity exists and a means is
Undertaken to correct it, it becomes necessary to provide more for some
and less for others in order to effect correction of the basic inequity.
An inevitable result of attempting to correct the inequities inherent
in the current system of reserve requirements would be to give some
banks more benefit and others less.
In response to a question from Governor Balderston as to whether
the problem should be attacked piecemeal or in one fell swoop, Governor
Robertson noted that his proposal recognized that the Board was not in
4
Position at present to evaluate further problems under the reserve
Ise qUirement legislation and that it would not complicate such problems.
Governor Mills said that his approach would be a less ambitious
°tie and would fall more in line with Governor Shepardsonts first comments
and the thinking of Mr. Erickson; namely, to join the supplying of
10/14/59
-8-
seasonal reserves to a release of a minor amount of vault cash.
He
would, stop short at that point and find out what lessons were to be
learned from the initial step. To increase the availability of reserves
to country banks presented a problem because that area is less under
System control in the expansion of credit than the city bank area.
How reserves in the country bank area could be absorbed after the end
of the year unless reserve requirements were raised constituted a
difficult problem, but when it came to raising reserve requirements
or increasing the deferment schedule there were filnaamental public
relations problems to consider. In either case, the Board would be
°Pen to the charge of being an "Indian giver". The spirit of the law
that the Board had been asked to implement was to reduce inequities
41a offer greater reserve advantages to banks that had suffered under
the old law.
As to the question of three-day maximum deferment, when
that question was up for discussion earlier and was discussed with the
Pederal Advisory Council, it created a tremendous amount of discussion
ill banking circles, even to the point that it was reported that the
matter had entered into the Government Borrowing Committee's discussions
at the Treasury.
Governor Balderston inquired whether it was not important, each
ttIfle vault cash was released for some or all banks, to raise reserve
'
leqUirements soon thereafter so as clearly to associate the one action
With the other.
10/14/59
Governor Mills replied that he was not sure.
Hovever, his
instinct told him that the Board should avoid trying to look too far
ahead.
He suggested that nature was likely to come to the help of the
Board in some of these matters and said that he felt the Board should
not try to outguess the economy.
Mr. Thomas then listed that he considered to be four principal
Points for discussion: (1) The desirability of not releasing into the
reserve base so much vault cash as to interfere with monetary policy;
(2)adherence to the view of the bill's managers in the House of
Representatives that the legislation was not intended to encourage the
SYstem to sell securities from its Open Market Account; (3) the desirability of avoiding an undue spread in percentage reserve requirements
as between reserve city and country banks; and (4) observing the
inherent purpose of the legislation to aid most of those banks with
large vault cash holdings.
He said that the third of these aspects was
the most important in his estimation and that the first three taken
t°gether suggested that the release of vault cash to reserves should be
largely offset by increases in reserve requirements, particularly for
e04ntry banks.
Such an increase could be avoided only in case the vault
eaah vere released to supply increased reserves that might be needed over a
1°4 Period of time and in that event requirements at reserve city banks
16)111d need to be lowered to avoid too vide a differential between classes.
10/14/59
-10-
He then proceeded to outline four alternative methods that might be
followed to implement the provisions of Public Law 86-114 as follows:
(1) The simplest method would be immediately to permit banks
to count 01 of their vault cash as required reserves, thereby releasing
about $2.1 billion of reserves, without any increase in required reserves.
This plan would serve the purpose of removing existing inequities as to
effective reserve needs among individual banks within each reserve class,
hut it would create a spread of 5-1/2 percentage points in required
reserves between reserve city and country banks compared to an effective
current spread of 3-1/2 percentage points.
It would release more reserves
than desirable under present circumstances and would have to be offset
by open market operations, contrary to the admonition of the House
raanagers.
(2) A second method would be to count as legal reserves vault
cash of some limited proportion of deposits.
An example would be not
over 1 per cent of demand deposits for central reserve and reserve city
banks and not over 2 per cent for country banks.
This would release
about $1.3 billion of vault cash to reserves but would not accomplish
banks
One purpose of the law, namely, a reduction of inequities between
in the same class, and it would still leave a vide spread between
l equirements for reserve city banks and country banks.
'
10/14/59
-11-
(3) A third method would be the one proposed by Governor
Robertson, namely, releasing all vault cash in excess of 1-1/2 per cent
Of
demand deposits at reserve city and central reserve city banks and
it excess of
Of
3 per cent at country banks. This would have the effect
establishing maximum effective reserve requirements of 14 per cent
at country banks, 18 per cent at reserve city banks and 19.5 per cent
at central reserve city banks.
Banks with smaller vault cash holdings,
including nearly all central reserve city banks and about 30 per cent
of other banks, would continue to have lover effective requirements.
This would lover effective reserve requirements for about 4,250 banks,
voUld not raise these requirements for any bank, and would encourage
baro, to
hold vault cash.
This method would release only about $500
Million to reserves, which could be offset if tied in with lengthening
the deferred availability schedule, as suggested by Governor Robertson.
It 'would also leave the way open for adjusting reserve requirements for
the two classes when the remainder of the vault cash was released.
(4) A fourth method would be to release all vault cash into
serves and raise reserve requirements sufficiently to offset practically
Ell of this release.
This could be done, for example, by leaving
requi ements for central reserve city banks at 18 per cent, and raising
eserve city banks to 17-1/2 per cent and country banks to 14 per cent.
The- 4.
e4fect would be to lover effective reserve requirements for over
10/14/59
-12-
4,000 country banks, 230 reserve city banks, and 30 central reserve
city
banks, but to raise them for 1,850 country banks and less than 40 reserve
City banks.
The net result would be a release of about
$600
million of
reserves that would have to be absorbed.
Mr. Thomas said that he favored this last mentioned method since
it would finish the job completely except for appropriate adjustments
to monetary policy and since the other methods would be administratively
uhldsldy.
As second best, he favored Governor Robertson's proposal,
*tell would be a step in the same direction.
He cautioned that the
aPPsrent haste of the Reserve Banks to act in this matter for public
relations reasons was in danger of getting the System into a box from
Which it would be difficult to escape later on.
by
To release reserves
counting vault cash without adjusting the requirement percentages
1/01ac1 leave such a wide differential between reserve city and country
belnks that it would be difficult to execute the provisions of law with
respect to classification of individual banks without having inequitable
dirterencesbetween competing banks. Also for monetary policy purposes
the effective reserve requirements for country banks would be too low.
Chairman Martin withdrew from the meeting at this point, having
reentered the room during the preceding discussion.
Mr. Dembitz indicated a preference for Governor Robertson's
P
' lan since it met the Congressional specification of removing inequities
41O Ig
banks.
Furthermore, from the viewpoint of public relations, it
10/14/59
-13-
would do something for the majority of member banks with the amount of
reserves released being relatively small and easily offset.
He responded
in the negative to a question from Governor Balderston as to whether
he would favor raising reserve requirements in January.
A further
Merit of Governor Robertson's plan, in his opinion, was that it constituted a reasonable first step to implementing the law, which could
be followed in the latter part of next year by a further release of
vault cash into reserves.
Governor King raised for discussion the alternative possibility
that a specified percentage of vault cash might be released to reserves
for all classes of banks since this would be more palatable to the
banks than a varying percentage.
Mr. Thomas commented that such a plan would move slowly toward
helPing banks with larger amounts of vault cash and that it would not do
ae much as the Robertson plan to eliminate inequities.
He also commented
that adoption of this alternative would give up some of the possibilities
for offsetting, if it should be desired to raise reserve requirements later.
Governor Shepardson added that regardless of which plan was
adopted, if the figures on reserve levels were correct and offsetting
adiustments were made by the System to any release of reserves, what
given
to one bank would necessarily be taken from another, a fact
thieh some observers failed to recognize.
There followed a brief discussion as to the extent to which
clIfernor Robertson's plan would meet the emergency planning need for
10/14/59
_11+
distribution of cash.
Mr. Noyes expressed the view that no action should
be taken towards implementing Public Law-86-114 at present.
This
decision, he thought, should be accompanied by a public statement pointing
out that the problems of introducing the measure at a time of monetary
restraint would be compounded if the System took into account the 'wishes
Of the
House of Representatives in this matter and that the System's
decision had been reached from the point of view of the interests of
both the banking system and the country.
Mr. Riefler suggested the Whole job of permitting all vault
ca.sh to be counted as legal reserves be done in January, raising reserve
equirements at that time to 13 per cent for country banks and to 17-1/2
Per cent
for reserve city banks, leaving central reserve city banks at
18 per cent. Half of the resulting release of $1 billion to reserves
could be offset by advancing the deferment schedule to three days, and
the
remainder through open market operations and other reserve changes
that 'would be involved in the large operations ordinarily necessary in
41111arY.
There would be no change in the central reserve city category
the three-year permissible grace period had lapsed.
Mr. Koch expressed some concern that the matter of equity between
eBerve city and country banks was getting a rather low priority in
t414 discussion.
He would be inclined to mesh the first gradual release
3
10/14/59
-15-
Of vault cash with a reserve requirement increase.
Practically speaking,
a gradual release of vault cash probably was called for, and the first
Point would be to tie that in with a reserve requirement increase.
An
alternative would be to release some vault cash this fall, and then to
use the open market technique next January or February for offsetting.
Mr. Young withdrew from the meeting at this point.
Governor Shepardson observed that a disadvantage of Mr. Thomast
Package proposal was that not all banks would be affected in the same
Y.
Although banks with a large amount of vault cash would not be
hurt by an offsetting increase in reserve requirements, banks with a
Mlnimum amount of vault cash would be adversely affected by such an
lalcrease.
Accomplishing the program in stages would provide more time
for such banks to adjust to the changed circumstances.
Mr. Dembitz stated that if the Board should start on the basis
Of Governor Robertson's plan, this would involve no necessary future
Pl'oblems. In the fall of 1960 there would be an opportunity to consider
at the time of seasonal expansion of credit the impact on the problem
of interim economic developments.
If the economic setting were not
different from the current one, a further amount of vault cash could
be released to reserves by reducing the minimum percentages that must
be retained
to 2 per cent and 1 per cent for country and noncountry
banks) respectively, thereby releasing about another $500 million of vault
Q4sh to reserves.
A similar move after 1960 could be offset, if necessary,
by
'nereasing reserve requirements which would cause net suffering by only
a 8
mail number of banks.
10/14/59
Observing that he preferred adopting Mr. Noyes' suggestion
because of the uncertainty relating to the current steel strike,
Governor King withdrew from the meeting.
Governor Szymczak indicated that he would favor doing nothing
at this time and that he would issue a statement setting forth the
If it was the majority view that something should be done,
reason.
he would be inclined to agree with Governor Mills' reasoning, that is,
to do a little something.
Eventually, however, he felt that the Board
would have to accept the Riefler-Thomas plan.
He agreed with Governor
Mills that the deferment schedule presented a public relations issue
and said he would not like to see the two things tied together.
Governor Balderston said that philosophically he had a great
deal of sympathy with the plan of Governor Robertson.
As a practical
zatter, however, he wondered whether the deferment schedule matter
vould not so complicate the whole problem as to lead to doing nothing,
Which he felt would be inappropriate in view of the Board's representations
to the Congress.
His feeling at the moment was that the Board should
act in November but be careful to think out the further steps of any
I3rogram.
The schedule proposed by Mr. Dembitz had considerable appeal
to him if the Board felt it could approach the problem piecemeal and
hot create difficulties that would be insuperable.
The cleanest thing
t° do would be to get the whole problem behind, but he was not sure it
1-glit not be wiser to approach the problem in steps.
k
10/14/59
-17-
During a discussion which then ensued as to the relative merits
Of
offsetting any release to reserves of vault cash by raising required
reserves or by open mnrket operations, Mr. Riefler pointed out that if
the reflux of currency to the banks at the first of the year were not
offset by raising reserve requirements, the market would misconstrue
this.
Of
Therefore, so long as the business boom continued, the reflux
currency should be offset.
At this point Mr. Young re-entered the room.
It was then suggested that a staff memorandum should be prepared
for consideration at a Board meeting listing the various alternative
Ir°P°sals, including Mr. Ericksonts, with consideration of the effects
the banking system of the various proposals, and Governor Shepardson
added the suggestion that the question of the extent to which a partial
Increase in reserve requirements and reduction in float could be substituted
for each other should also be explored.
The Chairman having re-entered the room at this point, Governor
338-1derston explained that the principal proposals on this question to
b
.
- considered at a future meeting of the Board were the plan of Messrs.
Th°111as and Riefler, counseling that the whole job be done at one time,
and that of Governor Robertson and Mr. Dembitz, perhaps either making
°lance for some offsetting increase in required reserves or extension
or the deferment schedule to reduce float.
t
10/14/59
-18-
There then ensued a brief discussion of the various proposals
that might be considered, after which the Chairman stated that he
favored getting three or four plans to see whether there was general
agreement on any one of them.
He went on to say that the legislation
in question had been proposed under economic conditions different from
those in
existence when it was finally passed.
Consequently, if a clear
rnaiority of the Board did not have a wholehearted conviction that certain
action should be taken, it would seem better to take none.
The Board
should not be jockeyed into action simply because autumn offered an
oPportunity for supplying reserves.
It was then agreed that the staff would state the alternatives
"ailable in memorandum form and submit such a memorandum to the Board
ror later consideration.
Messrs. Dembitz and Collier then withdrew.
Discussions between Mr. Knipe and representatives of the
0cmmA
on Money and Credit.
There had been distributed to the
33oat'd a memorandum from Mr. Knipe dated October 7, 1959, relating to
ci8enasions with representatives of the Commission on Money and Credit
of the Committee for Economic Development.
In commenting on his memo-
Mr. Knipe stated that the Commission had farmed out several
studies of credit and monetary policy which might be critical of positions
take
bY the System in certain areas. He reminded the meeting that
l*ePlsesentatives of the Commission felt they had been rebuffed last
10/14/59
-19-
November when they attempted to establish liaison with the System.
As
he saw it, this may have been for the best since it would be construed
as evidence the System had not attempted to influence the Commission's
thinking on monetary and credit matters, but a System policy of general
l'aPprochement to the Commission's representatives seemed desirable at
the present time.
The purpose of his memorandum had been to inform the
Board of the nature of the present relationship with the Commission which
had been initiated by a meeting and lunch on October
5 with Alfred Neal,
President of the Committee for Economic Development, and Bertrand Fox,
8taff director of the Commission, as arranged by Chairman Martin.
He
said that in
his estimation it should be up to the Commission to conduct
its ovn
studies but that Mr. Fox had specifically requested permission
to 4.11_
-.-Lm with Mr. Pickering of the Board's staff regarding a study
cle8igned to measure the impact of restrictive monetary policy on the
floating of State and local bond issues and that Mr. Fox
had also
requested permission to approach Mr. Wendel of the Board's staff with a
131*°P°sa1 to do a spare-time study for the Commission on "Source of Funds
Ilnancing Methods for State and Local Bond Issues."
The Board concurred in the procedures outlined by Mr. Knipe in
114 Memorandum for maintaining liaison with representatives of the
eel/111681°n as well as with Mr. Knipe's suggestion that Board staff
niellibers should be permitted to respond to reasonable requests from the
10/14/59
-20-
Messrs. Riefler, Thomas, Young, Hackley, Farrell
Solomon,
Noyes, Robinson, Koch, Chase, Conkling, and Knipe withdrew at this
Point, and Messrs. Fauver, Assistant to the Board, and Johnson, Director,
Division of Personnel Administration, entered the room.
Items circulated or distributed to the Board.
The following
items) which had been circulated or distributed to the Board and copies
Of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to the Federal Reserve Bank of New York
interposing no objection to a one year-leave of
absence for Lawrence S. Ritter.
1
utter to the Garfield Commercial and Savings Bank,
ast Los Angeles, California, granting an extension
(")!Ltime within which it may establish a branch at
"-cp West Garvey Avenue, Monterey Park.
2
Letter to the Presidents of all Federal Reserve Banks
4fe
th holding of public or political office by
i
0:galc=
Banks. g/ directors, or employees of the Federal Reserve
Irter to The First National Bank of El Campo, El Campo,
approvinr its application for fiduciary powers.
4
l'etter to City Bank, Detroit, Michigan, approving the
.sta
blishment of an in-town branch at 660 Woodward
4Yenue.
5
t
6
itter to Senator Eastland on S. 1070, a bill to rewrite
e Administrative Procedure Act.
!*;
10/14/59
21Consideration of the appointment of a Class C director at a
Federal Reserve Bank.
Governor Shepardson referred to a memorandum
from Mr. Fauver dated October 13, 1959, giving biographical information
r'egarding four persons who might be considered for appointment to
succeed Mr. J. Stuart Russell as a Class C director for the Federal
Reserve Bank of Chicago since Mr. Russell had served two terms and
8 not considered to be eligible for re-appointment.
Following a
discussion of the four individuals, it was agreed that in the absence
°f Chairman Frail from the country the Deputy Chairman, Mr. Russell,
should be asked to ascertain if Dr. James H. Hilton, President of Iowa
State University of Science and Technology, would be available and willing
to serve and that, if so, he should be appointed effective January 1,
1960) with formal appointment and announcement to be withheld until the
111°4rd i s general announcement on director appointments toward the end of
this
year.
Mr. Young re-entered the room at this point to inform the
130ard that he had just received a four-page letter from Mr. James
1(4°/iles, of the staff of the Joint Economic Committee, containing
eight Specific questions relating to data on trading volume and positions
Or
Government security dealers since 1953.
He suggested the appropriate
Illeth°c1 for handling this request would be to transmit the questions to
the New York Reserve Bank via Mr. Rouse and let the New York Bank
determine the procedure for answering the questions.
He added that
he 'would have copies of the letter made for the use of the Board.
•
10/14/59
-22-
There was unanimous approval of this plan, and the meeting
then adjourned.
Secretary's Note: On October 13, 1959,
Governor Shepardson, acting on behalf of
the Board, approved the designation of
Mr. John R. Farrell, Director, Division
of Bank Operations, to serve as an
associate on the ad hoe subcommittee of
the Conference of Presidents appointed
to study the System policy of absorbing
shipping charges on currency shipments.
Seer
Item No. 1
10/14/59
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 14, 1959
Mr. William H. Braun, Jr.,
S
ecretary,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Braun:
Thank you for your letter of September 25, 1959, advising
that at the request
of Mr. Bertrand Fox, Staff Director of the
0mmittee for Economic Developmentls Commissio
n on Money and Credit,
ITihe services
of Mr. Lawrence S. Ritter, Chief, Domestic Research
1.41:vision, Research Department, were made available to the Commission.
Is noted
from your letter that Mr. Ritter was granted a leave of
4151eence without pay for a period of one year commencing March 1, 1959.
9
The Board of Governors interposes no objection to the
arr
a4gements with respect to Mr. Ritter as described in your letter.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 2
10/14/59
BOARD OF GOVERNORS
eAy40,20ki,
OF THE
-
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
0,0
ADDRESS OFFICIAL CORRESPONDENCE
\41k
TO THE BOARD
04..
October 14, 1959
Board of Directors,
Garfield Commercial & Savings Bank,
East Los Angeles, California.
Gentlemen:
Pursuant to your request submitted through
the Federal Reserve Bank of San Francisco, the Board
Of Governors of the Federal teserve System extends
until January 4, 1960, the time within which Garfield
Commercial & Savings Bank may establish a branch at
225 West Garvey Avenue, Monterey Park, California,
under the authorization contained in the Board's
letter dated April 13, 1959.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
7
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
s_,A87f4N
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 14, 1959.
Dear Sir:
This letter refers to the Board's resolution of December 23,
191t
> prohibiting the holding of political or public office by directors
°ITicers of Federal Reserve Banks (F.R.L.S. #3090) and to the
t°ard's letter of June 30, 1954 (F.R.L.S. #3151), which makes it clear
the principle of the 1915 resolution prohibiting political activities
A,es of the kind covered should be applied to employees as well as
-4-rectors and officers.
On occasion, questions have been presented to the Board after
the
publ
tor, officer, or employee involved had accepted a particular
que ,
e office. In order to permit advance consideration of such
as ion5, it is suggested that every effort be made to keep employees,
tha
:
ell as officers and directors, informed of the Board's policy so
ate
'
aY such question may be brought to the attention of the appropriat,°facers of the Reserve Bank and, if necessary, to the Board's
or''ention, before the individual concerned seeks or accepts an office
a Public or political character.
Another aspect of this general subject may be mentioned for
SrOlar 4
'trite 4-nformation. In a few instances a number of years ago, the Board
as :Posed no objection to the service of Federal Reserve Bank directors
rec'embers of State banking boards. This question has recently been
rnertiVsidered in a particular case and the Board is now of the view that
a8
:
2
r hiP on a State banking board would not be compatible with service
ser;ctor of a Federal Reserve Bank and that, therefore, dual
stevt,l!e of this kind should be regarded as inconsistent with the policy
e in the 1915 resolution of the Board.
'
it° TRE PRESIDENTS
Very truly ypurs,
, ), A
Merritt S
an,
Secret
OF ALL FEDERAL RESERVE BANKS
I
•
BOARD OF GOVERNORS
OF THE
Item No. 4
10/14/59
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE EIOARO
October 14, 1959
Board of Directors,
The First National Bank of
El Campo,
El Campo,
Texas.
G
entlemen:
The Board of Governors of the Federal Reserve System
has given consideration to your supplemental 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,
°r in any other fiduciary capacity in which State banks,
trust
c°mPanies, or other corporations which come into competition
th national banks are permitted to act under the laws of the
tate of Texas. The exercise of such rights shall be
,
subject
0 the provisions of Section 11(k) of
the Federal Reserve Act
,..nd Regulation F of the Board of Governors of the Federal
iteserve System.
r
In addition to the fiduciary powrs herein authorthe bank was granted authority on March 27, 1942, to
as co-trustee under the trust agreement of Guy F. and
1-th Stovall,
ized 3
A formal certificate indicating the fiduciary
Powe
rs
that
your bank is now authorized to exercise will be
for-14
arded in due course.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
oki
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 5
10/14/59
WASHINGTON 25, D. C.
ADDRESS orrtmAt. CORRESPONDENCE
TO THE BOARD
October 14, 1959
Board of Directors,
City Bank,
Detroit, Michigan.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Chicago, the Board of Governors
approves the establishment of a branch at., 660 Woodward
Avenue, Detroit, Michigan, by City Bank, Detroit, Michigan,
Provided the branch is established within six months.
This approval is given with the understanding
that management of the bank will use its best efforts to
optain the necessary authority at the stockholders' meeting
January 1960 to increase the capital of the bank at
.Least $1,600,000 through the sale of additional common
stock.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No.
ttotf..,h+
6
10/14/59
BOARD OF GOVERNORS
OF THE
f?
FEDERAL RESERVE SYSTEM
WASHINGTON
)
"
0
44 .14tatt
4c,sip-O L
OFFICE OF THE CHAIRMAN
October 14, 1959
The
Honorable James O. Eastland,
9,hairman, Committee on the Judiciary,
united States Senate,
Washington 25, D. C.
Dear
Mr. Chairman:
Your letter of August 13, 1959, asks for the comments of
tAelle Board of Governors regar
ding S. 1070, a proposed revision of the
ktnistrative Procedure
Act.
The bill would make a large number of changes in the exist- -aws most of them designed to give additional protection to the
/A hts of parties to agency proceedings. It
would rewrite the entire
rather than make certain specific amendments; and, therefore,
the
effect of the changes may not be immediately apparent in all
cases.
A study of the bill, however, indicates that it would
sub04- uantially affect the practice and
procedure of the Board in several
th ortant
particulars; and the Board is especially concerned regarding
t;ilfi
feet the bill might have upon the effectiveness
of rules adopted
, Board in the discharge of its respo
nsibilities in the field of
rere'it and monetary regulation
. Thus, in adopting changes in margin
ehc irements, changes in reserve requi
rements of member banks and
avt7e8 in Federal Reserve Bank disco
unt rates, it is essential to
advance notice of such actions in order to preclude
unfair profits
A sPeculators. Under the present provisions
of
secti
on
4(a)
of the
out istrative Proce
dure Act, such actions are taken by the Board withof proposed rule making on the basis of findi
ng that such
pel,!?e would be "cont
rary to public interest". While S. 1070 would
ce:"'
se t the Board to continue
to dispense with advance notice in such
hea 8) this could
be done only on a tepor
m
ary basis and a subsequent
foiling would be required. However, any notic
e and public hearing
tri,„.,_
°111-ng a credit policy action of the Board
,
such as a change in
64-11 requirement
s, would appear to serve no useful purpose.
li
The Honorable James 0. Eastland
-2-
Although it is not (dear, it appears that section 1009 of
the bill might permit a reviewing court to substitute its judgment
i'oz)r the discretionary judgment of the Board in a matter committed
,?5' law to the Board's discretion, and might substitute a more liberal
▪
for reversal than the existing rule under which a reviewing
ourt may set aside agency action which it finds to be unsupported
"substantial evidence". As explained in the accompanying sectionoY-section comments, the Board would be opposed to either such change.
C
As requested, there is enclosed a section-by-section discussion of the bill, with a statement of the manner in which S. 1070
nuld change the Board's present procedure, and, where appropriate,
'he Board's opinion as to whether such change would be desirable.
With respect to S. 600, the Board of Governors is in
6Y1r1Pathy with provisions designed to enhance the status of hearing
1
xelniners. The Board does not have hearing examiners of its own,
and therefore refrains from detailed comments on S. 600.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
Wm. McC. Martin, Jr.
41elosure
SECTION-BY-SECTION COMMENTS
Section 1002. - It appears that this section of the bill
w°41d not make any substantial change in the existing statute which
14°Il1d affect the Practice of the Board of Governors.
However, attention is invited to the fact that the functions
°f the Board of Governors affected by the Administrative Procedure
ket are almost exclusively functions relating to banks and bank
84Per1flisi0n.
These matters are traditionally and of necessity largely
e°4fidential in nature, and much of the information is obtained by
bank
examinations and by statistical information submitted in eon-
rtdenee. The confidentiality of bank examination reports is carefully
ellat'cled by all bank supervisory agencies. However, it is assumed that
the Provisions of section 1002(f) would not alter the existing
altuation
.
Section 1003. - The Board of Governors, even before the
'enactment of the Administrative Procedure Act, was at great pains to
artain the views of all concerned, before issuing or amending any
regulations.
r
In a typical case the Board consults the Federal
"‘e Banks, and asks them to discuss the matter informally with
interested persons, before even initiating any of the more
torm„,
steps contemplated by the Administrative Procedure Act. S. 1070
ther
ef°re would not affect substantially the practice and procedure
the
Board, even though it is designed to require fuller public
1/4 ti •
clpatien in rule making than does the present statute.
-2
The above statement is subject to one exception of the
Utmost importance; namely, margin requirements, discussed in the
accompanying letter.
Section 1004. - The Board construes the first throe lines
cr section 1004 of S. 1070 to mean that except where specifically
l'equired by statute, licensing proceedings before the Board will not
require a formal hearing and decision in conformity with section 1006
and 1007 of the proposed statute. For example, at present an application for the establishment of a branch bank does not require a formal
hearing either under any existing statute, nor, in the Board's opinion,
411cler the Constitution.
The Board would object strongly to any other
14terPretation that might be given to S. 1070, because the regulation
orbanking presents wholly different problems from those of agencies
14°1*king in other fields. Applications relating to banks are handled
°11 the basis of examinations conducted in the field and protected by
e°4fidentiality, followed by opportunity for discussion with the
4enc5r both before and after agency action. The Attorney General's
c°44ittoe (prior to the enactment of the Administrative Procedure Act)
-"'"4
that in these circumstances there was no need for formal
131'°ceedinL;s, and the Board still feels that this position is eminently
. 304ncie
Section 1006(b). - The Board of Governors does not now
have the
power to issue subpoenas (except under U. S. Code Title 12,
ae" 603, a power which it has never had occasion to use).
It is
_3_
not clear whether section 1006(b)(2) is intended to give the Board
the
Power to issue subpoenas in all of its proceedings, or whether it is
intended to give the presiding officer the power to issue subpoenas
even thou,gh the Board itself does not have such power, or whether it
i8 not intended to make any change in existing law as to the issuing
Of
subpoenas in Board proceedings.
The Board of Governors is generally in sympathy with
Provisions increasing the dignity and status of the hearing officer.
Section 1006(c). - The procedure of interlocutory appeals
is already being followed by the Board of Governors.
Section 1006(d). - As stated above with respect to sectien1002, those functions of the Board which are affected by the
Admi •
nlstrative Procedure Act almost exclusively relate to banks and
their supervision, and involve matters larely of a confidential nature
11°11 as ban': examination reports.
The Board assumes that under
8ecti0n 1006(b) it could continue to maintain the confidentiality of
these Ilatters; otherwise, the Doa2d woud object very st:onjy to
the bill.
Section 1007. - These pruvisiev.s, spec ;Ting what shall
cori
stitute the "record", wo9.1d not iaterially alter the present
14'actice of the Board of Governors, and the Board would
have no
ebjection
to them.
Section 1008. - See cement, on section 1004, re,&aruing
4)4
"-Loensing"
in banking matters.
Section 1009. — The provision of the first sentence of
section 10 of the Administrative PL'ocedure Act, excluding from judicial
review agency action that is by lalv committed to agency discretion, is
orlitted from section 1009 of the oroposed legislation.
The effect of
this Change is not clear, but it appears that this provision might
Perib a reviewing court to substitute its judgment for the
discretionary judgment of the agency in a matter committed by law to
az)c'ne:Y. discretion.
If this is so, the Board would be strongly opposed
to_
Lio amendment for reasons uhich have boon stated so often by courts
414 textwritcrs that they do not need to be repeated here.
Possibly the provisions in subsection Cr) arc intended to
Le!:c the place of the opening sentence in section 10 of the Administra—
tive Procedure Acb. However, it is by no means clear that they would
do
80, because they are similar in effect to the e:AstinL; provisions
Casco Lion
(e) of section 10.
Moreover, as indicated below, the
Pl"sions in the bill would apparently weaken rather than strengthen
he 0
Lin6 provisions in subsection (o).
Section 1009(f) specifying what agency action a reviewing
e°t-trt
Y set aside appears to differ in substance from section 10 of
the ,
-W ministrative Procedure Act in that L.cction 1009(f) fails to
Prn-vIA_
•
e for the setting aside of agency action found to be 4unsupported
substantial evidence". Possibly the same effect is intended by the
'Llk,;(2 of section 1009(f) providing' for the setting aside of agency
"
11 "based upon findings of fact that are clearly erroneous on the
r
whole record" or 4oLhr,rwise contrary to lawl;.
If this is the intent
oiLher or both of the above-quoted provisions, the Board would have
40 °I)juction.
However, the Board is of the opinioi. that, existing law
al1°14Ing a reviewins court to set aside agency action only if
not
sillted by substantial evidence should remain unchanged in a statute
of this
nature.
Section 1009(c)(3). - This would make a very substantial
chan,
the
in existjn law by ,aakin„ agencies subject to suit not only in
Jisbrict of Columbia where they reLide baL -iso in the judicial
_Let where the defendant resifts of wherein the act or omission
ecInTaained of occurred.
This obviously is a major change in policy
eal4 Practicb wirich would affect all a_plc e- uf tho Govermlent.
Boarrl
-- of
The
vernofs has very celdo. been sued, and therefore it seemed
clGsirabl0 for the Board to refrain from commenting on the provision,
blAt
ratiler to leave it to agencies affected to an important degree to
clebe ti-,0 issue.
@FedFRASER