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Minutes for October 15, 1964.
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. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
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Federal Reserve Bank of St. Louis
Minutes of the Board of Governors of the Federal Reserve System
on Thursday, October 15, 1964.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Daane
Mr. Sherman, Secretary
Mr. Bakke, Assistant Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Molony, Assistant to the Board
Mr. Cardon, Legislative Counsel
Mr. Hackley, General Counsel
Mr. Brill, Director, Division of Research and
Statistics
Mr. Solomon, Director, Division of Examinations
Mr. Hooff, Assistant General Counsel
Mr. Dembitz, Associate Adviser, Division of
Research and Statistics
Mr. Sammons, Adviser, Division of International
Finance
Mr. Leavitt, Assistant Director, Division of
Examinations
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Hart, Senior Attorney, Legal Division
Mr. Via, Senior Attorney, Legal Division
Application of State Bank of Albany (Items 1, 2, and 3).
There
he.d. been distributed drafts of an order and statement reflecting the
Boardls approval on October 6, 1964, of the application of State Bank
ct Albany, Albany, New York, to merge with The First National Bank of
Cairo, Cairo, New York.
After a discussion during which a change was agreed upon in the
language of the statement, the issuance of the order and statement was
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-2Copies of the documents, as issued, are attached as Items 1
and 2.
A dissenting statement issued by Governor Robertson is attached
as Item No.
3.
Miss Hart and Mr. Via then withdrew from the meeting.
Foreign travel (Item No.
4). There had been distributed a memo-
randum dated October 13, 1964, from Mr. Young recommending foreign travel,
described in the memorandum (attached as Item No.
4), by Messrs. Hersey,
Adviser, and Reynolds, Associate Adviser, of the Division of International
Finance.
After discussion the recommendation was approved unanimously.
The Board also authorized Mr. Young to undertake foreign travel in connection with his attendance at the November meeting of the Bank for
International Settlements in Basle, Switzerland.
Mr. Sammons then withdrew from the meeting.
Proposed revision of Regulation Q (Items
5, 6, and 7). On May 12,
1964, the Board considered various recommendations of the Legal Division,
contained in a distributed memorandum of April 23, 1964, looking toward
a revision of Regulation Q, Payment of Interest on Deposits.
Pursuant
to that discussion, a draft of a possible revision of the regulation,
dated May 20, 1964, was sent to the Federal Reserve Banks for comment.
A summary of the Reserve Banks' views was distributed with a memorandum
July 24.
A distributed memorandum dated August 14, 1964, from the Legal
lXvision submitted for the Board's consideration a new draft, revised
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in the light of comments from the Reserve Banks.
The Division recommended
that, subject to any further changes the Board might wish, the new draft
be submitted for comment to the Federal Deposit Insurance Corporation
and the Comptroller of the Currency, with an explanatory memorandum and
a document showing textual changes; that the new draft also be sent to
the Reserve Banks for their information and any further comments they
might wish to make; and that, following receipt of comments and further
consideration by the Board, the proposed revision then be published in
the Federal Register for comment by the public.
Conforming changes
would be necessary in Regulation D, Reserves of Member Banks.
At its
meeting on May 12, 1964, the Board had indicated willingness to approve
an amendment to the Supplement to Regulation Q to provide a single
Maximum rate of interest for savings deposits, in lieu of the present
sPlit rate based upon the length of time the funds are on deposit.
The
Legal Division now recommended that, after consultation with the Federal
Deposit Insurance Corporation and agreement by the Corporation to take
similar action with respect to its parallel regulation, this change be
4dopted to become effective upon publication in the Federal Register.
It was noted that on such rate actions the Board had never requested
Public comment or given advance notice.
The August 14 memorandum continued with a discussion of the principal questions that had been raised by comments of the Reserve Banks,
and the way in which consideration of those questions had been reflected
in the new draft.
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The substance of these points was as follows:
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In the definition of savings deposits, the reference to organizations "not operated for profit" was changed to organizations "no part
Of the net earnings of which inures to the benefit of any private shareholder or individual."
The new draft, like the previous draft and the present regulation,
would exclude deposits of business corporations from the definition of
a savings deposit.
Pursuant to a recommendation by the Legal Division, the new draft
did not specify an amount limitation on savings deposits of nonprofit
organizations and trustees in bankruptcy, whereas the May 20 draft had
sPecified a limitation of $25,000.
(Several subordinate recommendations
here followed, for consideration in the event the Board preferred to
retain an amount limitation.)
The Legal Division continued to believe that a prohibition of
savings deposits with fixed maturities would avoid administrative problems,
accord with the intent of the statute, and have no real adverse effect
on depositors.
Savings deposits were limited to deposits as to which the depositor
"IllsY at any time be required" to give not less than 30 days' written notice
cds withdrawal.
The new draft omitted a provision in the May 20 draft to the effect
that premiums given for advertising purposes shall not be regarded as a
PaYment of interest if they have a value of not more than $5 and are not
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given more often than once in any period of 18 months; it was now considered preferable to cover this matter by published rulings.
Likewise,
it would seem desirable not to attempt to incorporate any provision
regarding the absorption of the costs of banking services.
Although the Legal Division shared expressed hopes that the
long-standing question whether absorption of exchange charges constitutes
a payment of interest might be settled by a specific provision in Regulation Q, solution of that question continued to depend upon the achievement of agreement with the Federal Deposit Insurance Corporation, and
the Division felt that the issuance of a revised regulation should not
be delayed awaiting that agreement.
The new draft included a paraphrase of the statutory prohibition
°f payment of interest on demand deposits.
Because the statutory exemption of foreign time deposits from
interest rate limitations was of limited application and temporary duration,
reference to it was contained in a footnote rather than in the text of the
new draft.
The footnote in the May 20 draft regarding time certificates with
alternative maturities was phrased in the new draft in more general
language to avoid reference to a specific period of notice of withdrawal.
To conform with Board interpretations, the prohibition of payment
°II interest after maturity of a time deposit was qualified in the new
clraft by a proviso permitting interest after maturity if the deposit was
renewed within 10 days.
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Two Reserve Banks felt that forfeiture of three months' interest
that had been paid on the amount of a deposit withdrawn before maturity
vas too harsh.
However, the Legal Division did not share that view,
and the provision was retained in the new draft.
The new draft attempted to simplify the rather complicated
pruvisions regarding payment of savings deposits, along lines suggested
by a Reserve Bank, but without any substantive change from the corresponding
Provisions of the May 20 draft.
In order to prevent the use of a savings account as the equivalent
°f a checking account, the May 20 draft prohibited arrangements for periodic
transfers from savings deposits, but allowed exceptions for four types of
transactions not involving payments to third persons.
The memorandum
suggested that the Board might wish to add a fifth exception that might
be considered reasonable, namely, periodic transfers of specified amounts
from a savings deposit to a checking account not more often than, say,
90 days.
At the Board's invitation Mr. Hackley summarized the steps that
had been taken to develop a revision of Regulation Q and the present
l eccmmendations as to procedure.
'
As to the latter, the Board's views
were desired especially with respect to the relative merits of making
4 single maximum rate of interest for savings deposits (assuming that
the Board was still of a mind to adopt such a rate) the subject of
seParate action, to be effective immediately upon publication, or including any such change in the over-all package of revisions of the regulation.
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Even though the purpose of such a change was to reduce the administrative
burden, any rate change might have policy implications.
Chairman Martin then requested expressions of views from members
Of the Board, in response to which Governor Mills read the following
statement:
The proposed revision of Regulation Q has the virtue of
modernizing and simplifying the text of the existing Regulation.
Substantively, the revised Regulation trends clearly toward a
relaxation of standards established in accordance with the
directive of the Federal Reserve Act and maintained for many
years. A prime intent of Regulation Q was to divorce demand
and time deposits so as to prohibit the iniquitous practice
of paying interest on demand deposits, which had had deleterious
order
effects on the quality of bank loans and investments. In
deposits
demand
to make the prohibition of interest payments on
effective, it became necessary to prescribe the conditions under
which interest would be payable on time and savings deposits.
The philosophy was followed that savings deposits should
represent the accumulation of savings on the part of individuals
who would be entitled to savings interest as a reward for their
thrift. According to this reasoning, business entities were
precluded from receiving interest on deposits other than for
time deposits represented by specific instruments and bearing
specific maturities. These instruments are classified as time
deposits open account and certificates of deposit. By restricting the payment of interest to business entities solely to time
deposits, it was apparently reasoned that deposits placed with
a bank for a specified period of time would be entitled to the
payment of interest without breaching the principle that such
payments would revive the evils that were inherent in the payment of interest on demand deposits. In order to prevent a
drift backward in the direction of the payment of interest on
demand deposits, the Board's Regulation Q over the years has
also prescribed varying maximum ceiling rates of interest on
different maturities of time deposits, with the shorter maturities
allotted the lowest maximum permissible rates of interest.
The proposed revision of Regulation Q relaxes the principle
embodied in the existing Regulation even beyond relaxations that
have gradually grown into the Regulation in previous revisions.
The revision of the Regulation now proposes to expand the area
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of organizations to be permitted to carry savings accounts to
go beyond those "not operated for profit" and to include organizations "no part of the net earnings of which inures to the benefit
of any private shareholder or individual." By virtue of the
liberalized language, a large variety of nonprofit organizations
Will be allowed to carry savings accounts merely because they are
not operated for profit. This liberalization violates the position that true savings deposits and accounts are those held by
individuals whose thrift deserves encouragement and discards the
position that as long as organizations can obtain interest on
deposits through the mechanism of time deposits, there is no
solid reason for permitting them the privilege of carrying savings
accounts. The liberalization in the proposed revision, if adopted,
will in all probability lead on to a complete elimination of the
restrictions against even profit-earning organizations carrying
savings accounts. This is a dangerous possibility considering the
fact that many commercial banks are paying interest on savings
accounts on a daily basis, which practice, if and when applied
to the savings deposits of profit-earning organizations, would
represent what would amount to a return to the payment of interest
on demand deposits.
n
By the same token, the provision in the proposed Regulatio
would,
deposits
time
to
doing away with any maturity distinction as
by allowing the same maximum permissible rate of interest on all
the
maturities of time deposits, represent a step backward toward
-earning
profit
a
that
in
payment of interest on demand deposits,
corporation by obtaining interest, for example, on a 30-day time
to
deposit would in effect be receiving what would be tantamount
g
permittin
ation
liberaliz
proposed
The
interest on a demand deposit.
account
checking
demand
to
deposits
savings
periodic transfers from
deposits will tend to blur the distinction now existing between
for
savings deposits and demand deposits, and encourage requests
nts.
arrangeme
such
of
ation
liberaliz
still further
Those who believe that the prohLbition of the payment of
nably find
interest on demand deposits is desirable will unquestio
adoption
whose
Q,
n
Regulatio
of
revision
proposed
fault with the
was
which
statute
Federal
a
of
ation
administr
will weaken the
banks
l
commercia
of
practices
the
in
evils
correct
enacted to
existing
which are tending to recur within the limitations of the
and
Federal statute and the Federal Reserve Board's Regulation,
which should not be encouraged.
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Governor Mills added that the whole matter, as he saw it, was
a question of philosophy, rationalization, and choice of thinking as
to whether or not interest on demand deposits should be prohibited.
Governor Robertson expressed the view that there was a real
need for revising Regulation Q, which contained obvious defects.
Even
if nothing else was done, the split maximum rate of interest on savings
deposits, which imposed an undue burden on banks in calculating interest,
should be eliminated.
There had been some justification for the split
When an increase in rate was newly-adopted, but that time had long since
Passed.
He felt that in the process of revising the regulation there
should be an attempt to solve the question relating to absorption of
exchange charges; the question should not be passed over unless it was
absolutely impossible to achieve agreement with the Federal Deposit
Insurance Corporation, and he believed that the Board could and should
get that agreement.
The changes suggested by the Legal Division seemed
to be called for, except that he had doubt as to the change in the
language of the definition of savings deposits to refer to organizations
no part of the net earnings of which inures to the benefit of any
Private shareholder or individual."
The proposed elimination
of a
dollar amount limitation on savings deposits of nonprofit organizations
eald trustees in bankruptcy was agreeable to him, but if the Board chose
to retain a limitation, he would favor the Legal Division's subordinate
suggestion that deposits of trustees in bankruptcy be exempt from that
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limitation.
However, he had reservations as to the Division's further
contingent recommendation that, if the limitation was retained as to
deposits of trustees in bankruptcy, it be applied to each bankrupt estate
rather than to the aggregate deposits of the trustee.
He also questioned
the provision permitting regular transfers from a savings account to
effect payments on any loan made by the bank to the depositor.
Transfers
to Pay loan installments previously had been allowed only for real estate
loans owed by the depositor to the bank, and he feared that this broadening might be used for the operation of plans similar to the one operated
by a bank near Chicago that had caused the Board much concern.
It seemed
conceivable that a bank might construe the provision as allowing transfers
for any payments whatever that might arise from an open line of credit.
In response, Mr. Hackley pointed out that another provision of the proPosed revision prohibited withdrawals from a savings deposit to enable
the bank to reimburse itself for credit extended by it through payment
°r checks or drafts drawn by the depositor upon the bank; it was anticiPated that this prohibition would forestall the operation of plans such
as that used by the bank in the Chicago area.
Governor Robertson then
remarked that if the prohibition referred to was adequate to prevent operation of such plans, he had no further objection to the provision
allowing regular transfers from a savings account to pay installments
°n a loan awed by the depositor to the bank.
Governor Robertson continued by recommending that the Board
consider revising the regulation specifically to prevent evasions of
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the maximum interest rates payable on savings deposits.
He believed
that, so long as it had in effect a regulation that imposed ceilings,
the Board should not close its eyes to circumvention of those ceilings
such as he considered to exist in the scheme of borrowing on unsecured
notes inaugurated early in September by a bank in Boston and subsequently adopted by other banks.
The statute that authorized national
banks to borrow had limited such borrowing to 100 per cent of capital,
but had been amended in
1959 to increase the limit to 100 per cent of
capital and 50 per cent of unimpaired surplus.
Legislative history
Showed that the purpose of that statute was to enable small banks that
were subject to seasonal demand fluctuations to meet the needs of their
cUstomers by borrowing from other banks.
There was no difference between
funds obtained by banks through the issuance of certificates of deposit
and funds obtained by issuing liabilities called notes, except that the
funds obtained from notes were not subject to reserve requirements or
to the maximum rates of interest in Regulation Q.
Through the device
°f issuing notes, banks might be able, during periods of restrictive
tilonetary policy, to get the funds they wanted without hindrance from
any measures that might be taken to deter credit expansion through reserve requirements or maximum rates of interest.
Moreover, the issuance
°f notes by relatively large banks put smaller banks at a competitive
disadvantage, because their names were not such that there would be a
ready market for their notes.
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authorized the Board to define demand and time deposits and to prescribe
regulations to effectuate the purpose of the law and to prevent evasions.
In order to carry out those purposes, Governor Robertson suggested for
the Board's study the following definitions:
(a) Demand deposit - A "demand deposit" or a "deposit
which is payable on demand" means any indebtedness of a member
bank that arises out of a debtor-creditor relationship between
the bank and another with respect to funds that are payable
on demand, except (i) indebtedness due to a Federal Reserve
Bank, (ii) indebtedness with respect to funds lent to the bank
by another member bank for its own account, and (iii) indebtedness that is subordinated to the claims of the general creditors of the bank.
(b) Time deposit - A "time deposit" means any indebtedness
of a member bank that arises out of a debtor-creditor relationship between the bank and another with respect to funds that are
payable (1) on a specified date, (2) at the expiration of a
specified period of time, or (3) upon notice in writing that
is actually required to be given a specified time before the
date of payment, except (0 indebtedness due to a Federal Reserve
Bank, (ii) indebtedness with respect to funds lent to the bank
by another member bank for its awn account, and (iii) indebtedness that is subordinated to the claims of the general creditors of the bank.
This language, Governor Robertson believed, would bring unsecured notes
within the category of deposits from the point of view of ceilings, and
woUld preclude the use of the borrowing privilege for the purpose of
Circumventing a regulation applicable to deposits.
There would have to
be conforming amendments, of course, to Regulation D, Reserves of Member
14411ks.
go beyond
He did not believe that the proposed definitions would
either the statute or the Board's prerogative, and they appeared to him
to be a means of nullifying allegations that the Board would close its
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eyes to evasions of its regulation.
He was not suggesting that the
definitions be adopted at this time, but that they be sent to the
Reserve Banks for comment, along with the proposed revision of the
regulation.
In the meantime, it would be helpful to have the staff
analyze the suggested definitions from the viewpoints of the feasibility and desirability of preventing circumvention of the regulation
through the use of notes, and of the potentialities of the use of notes
to thwart the policy of the Board in times of restrictive monetary policy.
Governor Shepardson commented that, in general, he shared
Governor Mills' concern as to whether the proposed revision, though
containing desirable simplifications, might have the effect of further
leveling the distinctions between demand, time, and savings deposits.
He referred to Governor Robertson's point about evasion of the regulation through the use of unsecured notes, recalling that during an earlier
discussion the thought had been expressed that if a serious problem of
evasion developed, the regulation might in due course be amended to
bring such notes within its scope.
So long as there was a statute with
known intent in this area, Governor Shepardson believed that the Board
Should attempt, within whatever authority it had, to draw a regulation
in terms that would prevent what was admittedly an evasion of the present
regUlation through technicality.
He regarded the split maximum rate of
interest on savings deposits as a mistake, which should not be continued
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any longer than necessary. If there was prospect of being able to
issue the complete revision of the regulation in the near future, it
might be preferable to include abandonment of the split rate in the
Package.
However, if the over-all revision would take, say, as much
as a year, he thought it would be well to get rid of the split rate in
much less time than that.
Governor Mitchell stated that he was quite troubled about the
whole problem, though he agreed generally with the proposed revisions.
Ills philosophy, quite different from Governor Mills', was that the
regulation was a bar to healthy competition.
He would like to see the
interests of the depositors considered - not just the interests of
banks that wanted to have a monopoly and yet to blame the Federal Reserve for what they did not want to do.
He thought that the fundamental
need was to produce a revision that would open up competition and that
Would cone to grips with the major substantive issues, such as absorption of exchange charges.
It would be misleading to adopt a revision
without taking account of such issues, because it would be regarded by
the Public as the finished thinking of the Federal Reserve, whereas it
v°uld leave important problems unresolved.
In his view, it might be
desirable to allow a little more leeway in the structure of time rates
in the months ahead, which would be done if the 4 per cent rate were
allowed on certificates with a 30-day maturity instead of only on those
/41th maturities of 90 days or more.
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Mx. Hackley commented that careful consideration had been given
by the Legal Division to the possibility of including in the revision
provisions to deal with the problem presented by the issuance of unsecured notes by member banks, and he had studied the language that
Governor Robertson had offered for definitions of time and savings
deposits intended to bring such notes within the scope of the regulation.
However, it seemed to Mr. Hackley that the practice had not
developed to the extent that thinking had become crystallized as to the
best possibilities for meeting the situation, especially since the
issuance of unsecured notes, among other matters, was being studied by
an ad hoc subcommittee of the Presidents' Conference Committee on Bank
Supervision.
Since the subcommittee would submit its report to the
Conference in December, and since the purpose of the revision of
Regulation Q, as the Legal Division understood it, was administrative
simplification, it had been thought that it might be premature to
include in the revision at this time any language directed at unsecured
n°tes.
As for absorption of exchange charges, Mr. Hackley agreed that
that was one of the principal questions relating to Regulation Q that
lre.s unresolved, but he had assumed that it was not one on which there
'
we.s likelihood of reaching agreement with the Federal Deposit Insurance
Corporation in the next few weeks.
In those weeks, however, some progress
Might be made on the general revision of the regulation.
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Governor Robertson indicated that he would not advocate deferring sending the proposed revision to the Corporation and the Comptroller of the Currency in the hope of reaching a solution of the
absorption of exchange question.
It would be fine if a proposed solu-
tion could be included, but if it could not, the general revision might
as well proceed.
Governor Daane said that the proposed changes in the regulation,
as he understood them, seemed to represent improvement.
He would like
to get rid of the split maximum rate of interest, which he believed had
implications regarding the 90-day minimum maturity for certificates
that could draw
4
per cent interest.
He saw no reason to hold up the
revision, although he believed that the Board had to face up to the
substantive questions.
Unlike Mr. Hackley, he thought the Board knew
Pretty well what was going on with respect to the issuance of unsecured
notes.
He was convinced that the use of such notes was spreading to
the point where medium-sized banks were entering into such transactions
because the funds were thereby put on a different basis.
The Board
would have to do some hard thinking on the substantive questions, but
as for now, he would send the proposed revision to the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, and the Federal
Reserve Banks.
Governor Balderston referred to the provision of the new draft
that paraphrased the statutory prohibition of payment of interest on
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demand deposits "directly or indirectly, by any device whatsoever,"
and asked if it might be possible to drop the word "indirectly," which
had given rise to many problems of interpretation.
Mr. Hackley responded that so long as that phrase was in the
law, it did not seem feasible to delete it from the related provision
in the regulation at this point.
He continued with comments on types
Of payments for funds that had been considered for coverage in the
revised regulation but for which handling by Board interpretation
rather than by regulation had seemed preferable.
One example of such
practices was the procurement of funds in certificates of deposit
through agents.
As to procedure, Governor Balderston said he favored sending
the new draft of regulation to the Comptroller of the Currency and
the Federal Deposit Insurance Corporation without delay.
As to the
substantive issues, it seemed to him that the question raised by
Governor Robertson regarding the use of unsecured notes should have
Prompt attention, before their volume became so large that a ruling
by the Board would be disturbing to banks.
Perhaps the letter to the
Federal Deposit Insurance Corporation could stress the need for agreement on the question of absorption of exchange charges.
necessary steps would take time.
The several
His general thought was that, the
replies from the other Federal banking authorities having been received and considered, it might be possible about in January to issue a
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revised regulation along with an announcement about the abandonment
Of the split maximum rate of interest on savings deposits, and that
York might be going forward in the meantime to enable the Board to
make a ruling at the same time relating to unsecured notes.
Chairman Martin also expressed the view that the proposed
revision of Regulation Q should be sent to the Comptroller and to
the Federal Deposit Insurance Corporation.
Also, the Board should
trY to straighten out the split maximum rate of interest, which had
caused a great deal of trouble.
It involved a practical operating
Problem in making calculations that was a real burden for banks.
Governor Mills voiced the opinion that the nature of the
press release the Board had issued on September
9,
1964, regarding
the use of unsecured notes had invited the troubles that were now
being faced.
However, the solution proposed in Governor Robertson's
suggested definitions of time and savings deposits could evoke the
same problems the Board had encountered in trying to define indirect
Payment of interest in such a way as to include absorption of exchange
charges.
To attempt to bring unsecured notes within the scope of the
interest limitations in Regulation Q, Governor Mills believed, would be
a distortion of the statute and had overtones of going through the
back door.
Presumably, the Legal Division would have to make an
exhaustive review as to whether there was any legal prohibition of
the issuance of unsecured notes, and, with the antecedent of the ruling
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on "borrowed money" published in the August 1964 Federal Reserve
Bulletin, it would be difficult to find that the issuance of unsecured
notes was legally prohibited.
Any ruling the Board might issue would
have to be thought out very cautiously.
Mr. Hackley then sought the views of the Board with respect
to three specific points in the new draft of regulation.
The first
related to the reference, in the definition of savings deposits, to
organizations "not operated for profit," which in the new draft had
been changed to organizations "no part of the net earnings of which
inures to the benefit of any private shareholder or individual."
The
latter language was used in the Internal Revenue Code and in the Bank
Holding Company Act, and there appeared to be considerable merit in
Using it in Regulation Q.
Second, Mr. Hackley drew attention to the elimination in the
neW draft of an amount limitation on savings deposits of nonprofit
°rganizations and trustees in bankruptcy, whereas the May 20 draft
had specified a limitation of $25,000 for such deposits.
The majority of the members of the Board expressed agreement
with both of the changes mentioned by Mr. Hackley.
Third, Mr. Hackley pointed out that the May 20 draft, like
the present regulation, limited savings deposits to deposits with
respect to which the depositor is required, or may at any time be
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Federal Reserve Bank of St. Louis
10/15/64
-20-
required, by the bank to give not less than 30 days' written notice
Of withdrawal.
This was narrowed in the new draft to deposits as
to which 30 days' written notice "may at any time be required," thus
excluding deposits as to which such notice "is required" by the deposit
contract.
Discussion brought out that the changed language would be
significant from the point of view of payment of interest:
a deposit
as to which the deposit contract merely reserved the right of the
bank to require notice of withdrawal would be a savings deposit, whereas
a deposit as to which the contract specified a requirement of notice
Would be a time deposit and could earn interest at no more than the
rate allowed for certificates of deposit with a maturity equal to the
term of notice required.
However, the new language might cause con-
since the deposit contracts of many banks contained a reservation of the right to require notice of withdrawal (though seldom
invoked by the bank), and through many years of banking practice deposits
accepted under those contracts as savings deposits had continued to be
treated as savings deposits even though they were subject to a specific
Maturity.
Members of the Board indicated that this point might be left
t° the discretion of the Legal Division, and Mr. Hackley expressed the
//lel? that it might be better to retain the definition now in the regulation.
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Federal Reserve Bank of St. Louis
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Governor Mitchell commented that the proposed definition of
Payment of interest as "any payment to or for the account of the
depositor as compensation for such deposit" would mean to him, as
he thought it would to the ordinary citizen, that a bank could absorb
the costs of servicing accounts of its regular customers, but could not
Pay cash to the customers (the May 20, 1964, draft of revision had
included a provision allowing "premiums" of a value of not more than
$5 to be given for advertising purposes).
Mr. Hackley said that two points were involved:
first, the
law prohibited payment of interest directly or indirectly; and second,
the Board was authorized to define what constituted payment of interest.
The Board had said by interpretation that costs of servicing accounts
did not involve payment of interest.
It could change that interpre-
tation, just as it could change its position on absorption of exchange
Charges.
Governor Mitchell then remarked that allowing banks to absorb
servicing costs, even though not to pay cash to customers, did not seem
far from allowing absorption of exchange charges.
The discussion then turned to the outlook for a change in the
Position of the Federal Deposit Insurance Corporation regarding absorption of exchange charges, and problems of timing in raising the question
.new with the Corporation.
There was majority agreement that the letter
transmitting the proposed revision of Regulation Q to the Corporation
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Federal Reserve Bank of St. Louis
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for comment should also request the current views of the Corporation
on the question of absorption of exchange charges, and ask comments
on the suggestion that deposits be defined so as to include funds
Obtained through issuance of notes, and on the desirability of abandoning the split maximum rate of interest on savings deposits.
It
was understood that the letter transmitting the proposed revision of
the regulation to the Federal Reserve Banks would also ask comments
on covering funds obtained through issuing notes into the definition
of deposits, but that that query would not be included in the letter
to the Comptroller of the Currency, whose position regarding the issuance
of notes was already a matter of record.
Pursuant to the agreement expressed by a majority of the
members of the Board, letters were sent on October 20, 1964, to the
Chairman of the Federal Deposit Insurance Corporation, to the Comptroller of the Currency, and to the Federal Reserve Bank Presidents
in the forms attached as Items
5, 6, and 7.
Governor Mills asked that his dissent be recorded, commenting
that he had not heretofore taken a position because he had hoped that
the views expressed by the Federal Reserve Banks might be more in the
direction of his thinking, but that the whole program for revision of
Regulation Q was now so far advanced that he wished the record to show
his philosophical antipathy to the trend of thought it embodied.
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Federal Reserve Bank of St. Louis
3549
10/15/64
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The meeting then adjourned.
Secretary's Note: Governor Shepardson today
approved on behalf of the Board a memorandum
from the Division of Administrative Services
recommending an increase in the basic annual
salary of Wilbert L. Stephens, Assistant Head
Messenger in that Division, from $4,180 to
$4,545, effective October 25, 1964.
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Federal Reserve Bank of St. Louis
3550
Item No. 1
10/15/64
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
UNITED STATES OF AMERICA
WASHINGTON, D. C.
In the Matter of the Application of
STATE BANK OF ALBANY
f°r approval of merger with
The First National Bank of Cairo
ORDER APPROVING MERGER OF BANKS
There has come before the Board of Governors, pursuant to
the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), an application by
State Bank of Albany, Albany, New York, a State member bank of the
Federal Reserve System, for the Board's prior approval of the merger
Of that bank and The First National Bank of Cairo, Cairo, New York,
44der the charter and title of State Bank of Albany.
As an incident
to the merger, the two offices of The First National Bank of Cairo
linuld become branches of State Bank of Albany.
Notice of the proposed
Merger, in form approved by the Board, has been published pursuant to
said Act.
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Federal Reserve Bank of St. Louis
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Upon consideration of all relevant material in the light
of the factors set forth in said Act, including reports furnished by
the Comptroller of the Currency, the Federal Deposit Insurance
Corporation
and the Department of Justice on the competitive factors
involved in the proposed transaction,
IT IS HEREBY ORDERED, for the reasons set forth in the
Board'
Statement of this date, that said application be and hereby
is approved, provided that said merger shall not be consummated
W Within seven calendar days after the date of this Order, or
(b) later than three months after said date.
Dated at Washington, D. C., this 15th day of October 1964.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Mills, Shepardson, Mitchell,
and Daane.
Voting against this action:
Governor Robertson.
(Signed)
Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
3552
Item No. 2
10/15/64
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY STATE BANK OF ALBANY
FOR APPROVAL OF MERGER WITH
THE FIRST NATIONAL BANK OF CAIRO
STATEIENT
State Bank of Albany, Albany, New York ("State Bank"), with
total deposits of $391 million, has applied, pursuant to the Bank
Ilerger Act of 1960 (12 U.S.C. 1328(c)), for the Board's prior approval
Of the merger of that bank and The First National Bank of Cairo,
Cairo, New York ("Cairo National"), which has total deposits of
$S million all The banks would merge under the charter and name of State
sank, which is a member of the Federal Reserve System.
As an incident
tO the
merger, the two offices of Cairo National, one of which is
PI:eaently a seasonal agency located at Greenville, New York, would
become branches of State Bank, increasing the number of its offices
from 24 to 26.
Under the law, the Board is required to consider, as to each
Of the banks involved, (1) its financial history and condition, (2) the
Ilecluacy of its capital structure, (3) its future earnings prospects,
(4) the general character of its management, (5) whether its corporate
17-3—
ePosit figures are as of December 20, 1963.
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Federal Reserve Bank of St. Louis
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Powers are consistent with the purposes of 12 U.S.C., Ch. 16 (the
Federal Deposit Insurance Act), (6) the convenience and needs of the
enmmunity to be served, and (7) the effect of the transaction on
competition (including any tendency toward monopoly).
The Board may
not approve the transaction unless, after considering all of these
factors, it finds the transaction to be in the public interest.
Banking factors. - The financial histories of State Bank and
Cairo National are satisfactory, and each bank has a sound asset
condition
and an adequate capital structure.
State Bank's earnings
record is good and its future earnings prospects are favorable.
Although
the gross income of Cairo National has been above the average
for banks of comparable size in the Second Federal Reserve District,
it has realized less-than-average net earnings during the past two
Years due to its relatively high expenses.
The bank's future earnings
Prospects are considered to be reasonably satisfactory.
While the management of Cairo National is satisfactory, the
bank has a management succession problem.
The bank's chief executive
°fficer, who is past the usual retirement age, wishes to leave the bank
°Ild, thus far, the bank's efforts to replace him have been unsuccessful.
C"aummation of the transaction would solve this problem, as the resultbank would be under the capable and aggressive management of State
13enk. The resulting bank also would have a sound financial condition,
411 adequate capital structure, and favorable future prospects.
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Federal Reserve Bank of St. Louis
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The corporate powers of the two banks are not, and those of
the resulting bank would not be, inconsistent with the purposes of
12 U.S.C., Ch. 16.
Convenience and needs of the community. - Cairo National,
the only bank in Cairo, is located in the Catskill Mountains of Greene
County, New York, approximately 40 miles southwest of the main office
Of State Bank
in Albany.
2/
The service area— of Cairo National consists
Of Cairo, the adjacent towns of Greenville and Durham, all located in
the northeastern section of Greene County, and the towns of Rensselaerand Westerlo, both located in the southwestern portion of
adjoining Albany County.
There is no other banking office in the
service area of Cairo National.
The banking offices nearest to Cairo
are some 10 miles distant.
The economy of the service area of Cairo National is dependent
the most part upon the summer tourist trade, and its residents
include many retired persons.
The normal population of the service area
is about 7,500, but rises to around 40,000 during the summer months.
ca
iro National's deposits are subject to wide seasonal fluctuations,
°s is usual for banks located in resort areas.
Deposit volume is
8enera1ly at the low point when loan demand is at the peak and, conversely,
v/hen
deposit volume is high, loan demand is low.
z
ie The area from which a bank obtains 75 per cent or more of its
Posits of individuals, partnerships, and corporations ("IPC deposits").
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Federal Reserve Bank of St. Louis
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Cairo National offers the range of banking services commonly
Provided by small local banks.
However, it does not offer trust
services or investment counseling services, both of which must presently
be sought from banks located outside the service area of Cairo National.
In addition, although it follows a rather restrictive lending policy,
there is evidence that Cairo National's relatively low lending limit
renders it unable to serve adequately the credit needs of some businesses in the area.
State Bank would provide for the community now
served by Cairo National a greater variety of banking services and
would be fully able to cope with the inverse fluctuations in deposits
and loan demand which are characteristic of the area's banking business.
The banking convenience and needs of the areas presently
served by State Bank would not be materially affected by consummation
Of this proposal.
Competition. - The nearest offices of State Bank to Cairo are
s°111e 15, 19, and 29 miles distant, respectively, located on the opposite
side of the Hudson River and accessible to the residents of Cairo
Na tional's service area only by use of a toll bridge.
Mile State Bank
could enter Greene County through the establishment of de novo branches,
it could not, because of the home-office-protection feature of State
law) expand by this method into the more significant towns.
Cairo National is the largest commercial bank headquartered
In Greene County.
National Commercial Bank and Trust Company of Albany
("National Commercial"), the second largest bank in New York's Fourth
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Federal Reserve Bank of St. Louis
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Banking District in terms of total deposits, operates a branch in
Greene County at Athens, about 13 miles from Cairo.
Four other
commercial banks, each essentially local in character, operate a total
Of five offices in Greene County which are situated within a range of
about 10 to 21 miles from Cairo.
There is no significant overlapping
Of the service area of Cairo National with the service area of any
Other commercial banking office; nor is there any evidence that the
Presence of the Athens branch of National Commercial has had any
adverse competitive effect on the other commercial banks operating in
Greene County.
This 'would seem to be attributable in large part to the
nature of the local economy and the tendency of the mountainous terrain
tO intensify the localization of banking competition.
For similar
reasons, it would seem that the competitive situation with respect to
the remaining small banks in the area would not be materially affected
by
consummation of the proposed merger.
There were 43 commercial banks in New York's Fourth Banking
District at the end of 1963.
Of the 167 commercial banking offices in
the District, State Bank and National Commercial operated 24 and 38,
respectively.
State Bank, with 25 per cent of the total commercial
bank deposits in the District, was the largest, and National Commercial,
'dith 23 per cent of such deposits, was the second largest.
On the basis
°f commercial bank IPC deposits alone, State Bank held 20.4 per cent
and National Commercial held about 21 per cent.
The acquisition of
Cairo National would increase State Bank's share of IPC and total
co mmercial bank deposits in the District by only four-tenths of one
Per cent each.
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Federal Reserve Bank of St. Louis
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Summary_pd conclusi on
i.•••••••
- If consummated, this merger would
AM.PMMO....••••...N..•
•
replace the only bank in Cairo with a branch of one of the two largest
banks in the Fourth &Inking District of New York.
The concentration
in banking resources in this District was an important factor in the
Board's decision denying the application of State Bank to merge with
the Unadilla National Bank.
However, in the present case the total of
the circumstances differs significantly.
See 49 Federal Reserve
Bulletin 631 (1963).
Consummation of the merger with Cairo National would increase
State Bank's present 25 per cent share of the District's total commercial
bank deposits by less than one-half of one per cent.
It does not appear
that other banks would be exposed to adverse competitive effects as a
result of the merger, or that any significant existing or potential
Competition would be eliminated.
Further, in addition to solving the
1114nsgement succession problem of Cairo National, the merger would result
in a bank better able to serve the banking needs and convenience of
the
community concerned.
Accordingly, the Board finds that the proposed merger would
be in the public interest.
O
ctober 15, 1964.
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Federal Reserve Bank of St. Louis
3
Item No. 3
DISSENTING STATEMENT OF GOVERNOR ROBERTSON
10/15/64
Two formidable opponents, one a national, the other a State
member bank, are engaged in a race to dominate the Fourth Banking
District of New York.
At the end of 1963, the two between them held
48 per cent of total commercial bank deposits and 37 per cent of
commercial banking offices in the District.
Citing this situation,
the Board, in its Order of April 26, 1963, denied the application of
the State member to merge Unadilla National Bank, a healthy $4.7 million
institution in a prosperous agricultural region, Otsego County, in the
District's southwest corner. (1363 Federal Reserve Bulletin 631)
Rftever, not long after, the Comptroller authorized the rival to merge
a small bank in the same county.
Now the State member comes to the
Board again, hat in hand, and asks to be allowed to catch up.
Although consistency in governmental administrative decisions
is not easily achieved, it is a characteristic devoutly to be sought.
TspdaY, in the bank supervisory field, it seems to be especially elusive.
The Board, by its approval of the application in this case, permits and
entnurages the same kind of increase in banking concentration which it
"tight to discourage eighteen months ago.
Like the Unadilla bank, Cairo National is a small but
snund, growing, and profitable bank with satisfactory prospects..
Indeed, in my judgment, for the purpose of this application, the two
8itnations are indistinguishable - except that Cairo is a resort community
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Federal Reserve Bank of St. Louis
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(vlith no industry and little commercial activity), whereas Unadilla
is in the heart of a faiming area.
Surely the needs of a farming area
for adequate banking facilities are at least equally important from a
economic point of view with those of a resort area.
The following quotation from the Board's decision in the
Unadilla case, with no more than parenthetical insertions as to name
and location to adapt it to the present situation, squarely covers and
Should govern the disposition of the application now before the Board:
"If approved, this merger would replace the only bank
in Unadilla (Cairo) with a branch of one of the two largest
banks in the Fourth BLnking District of New York having its
main office 100 (40) miles away, and would coastitute one
more step in a significant series of bank absorptions by
State Bank. There is no substantial evidence that the banking
needs or convenience of the Unadilla (Cairo) area are not being
served adequately, or that Unadilla National (Cairo National)
cannot continue its operations profitably. Any benefits that
might accrue to the public as a consequence of the merger
would be more than offset in the circumstances of this case
by the increase in the size of the largest bank in the Fourth
Banking District of New York, by the increase in the already
high concentration of banking resources in that District,
and by the adverse potential effect on banking competition in
Unadilla (Cairo) and the surrounding area."
In this language, the Board clearly recognizes that the Bank
Ilerger lict (as reflected in its legislative history) requires a very
P°sitive showing of public benefit under the other criteria set forth
in the statute to offset competitive considerations which are as
PQ tently adverse as those in the Unadilla or the Cairo situation.
the
In
present case, as was true in the previous one, there is no substantial
evidence in the record that the banking needs or convenience of the area
concerned are not being served adequately, or that the bank to be
ccluired could not continue its operations profitably.
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Federal Reserve Bank of St. Louis
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What of competitive considerations?
In Unadilla, like Cairo
a one-bank town, the Board was concerned with a trade area containing
eight offices of modest-sized, thriving banks.
The Board found that
"Expansion by State Bank into the Unadilla area would expose the . • •
[nearest] bank ... and also the other six banking offices located
from 10 to 16 miles from Unadilla, to the strong competitive capabilities
of a significantly larger bank".
Is the threat to the remaining small
local banks any less in the Cairo area?
Five independent banks within
4 radius of 21 miles from Cairo, none even as large as the larger institutions in the vicinity of Unadilla, are already struggling to compete
Ilith a branch of the vigorously aggressive National Commercial Bank,
State Bank's rival.
Approval of the present application subjects the
remaining four to the "strong competitive capabilities" of a second
significantly larger" bank.
True, the record shows that in a few isolated instances, the
Cairo bank has been unable or unwilling to respond to requests for
credit _ in 1963 the bank found it necessary to participate one loan
because of its low lending limit.
But the local branch of the other
big Albany bank is already there to meet any community needs and
convenience which cannot be satisfied by banks headquartered in the
area.
To admit a second big bank will only deprive the remaining
smaller ones of the few attractive crumbs still remaining on the table.
The majority also mentions a management succession
Problem
as a factor weighing in favor of approval of the application.
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Federal Reserve Bank of St. Louis
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But it is herd to believe, as someone else has said, that a bank with
assets in excess of six million dollars and operating income of over
$240,000 per year is incapable of providing sufficient emoluments to
Obtain the services of one qualified, full-time executive officer.
Certainly management problems may weigh in favor of approval in some
instances.
However, to give significance to this factor in a case like
the present one will encourage other small banks similarly situated to
neglect planning for management succession -- a tendency to be decried.
Finally, it is alleged in the record that the prime incentive
for the merger is the desire of the shareholders of the Cairo bank to
sell their stock.
However, the premium being paid - nearly $350,000
in excess of book value and approximating 6.4 per cent of the bank's
dePosits - would seem to indicate that an even stronger incentive is
the desire of the big bank to "buy" another office.
If supervisory
authorities continue to permit bank acquisitions - aided by the lure
°f such lush premiums - which have no more to justify them than appears
in the record of this case, then the continuing trend toward concentration of banking power in large banks, able to pay attractive prices,
1411 surely hasten the demise of small banks - including those in the
Pourth Banking District which may fall under the covetous eye of State
Bank or National Commercial in their race for dominance.
I would disapprove the application.
October 15, 1964.
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Federal Reserve Bank of St. Louis
162
:
35
Item No. 4
10/15/64
October 13, 1964,
To:
Board of Governors
PRom:
Ralph A. Young
SUBJEcT:
Foreign travel:
Mx. A. B. Hersey
Mr, John E. Reynolds
Two international meetings will be held in the next few
,eeks to consider the statistics required for multilateral surveillance,
°Y the Group of Ten, of "liquidity creation" and balance-of-payments
se
ttlements.
On October 22 and 23, the Esteva Group (the Group of Ten's
14°rking party on this question) will meet in Paris. On November 9 to 11,
central bank economists will meet at the BIS in Basle (continuing the
series of semi-annual meetings on various subjects). Both meetings
1411 consider the national statistics presently being submitted in
cinnection with surveillance, with particular attention to their content,
!
Lo differences among countries in statistical concept and coverage, to
P°ssible reconciliation of items, and to the purposes that such statistics
rwaY serve.
It is recommended that Mr. John E. Reynolds attend the Paris
11,1esting in October, that Mr. A. B. Hersey attend the Basle meeting in
N ovember, and that they receive the per diem in lieu of expenses
'
4uthcrized by the Standardized Government Travel Regulations,
Mr, George Willis of the Treasury will head the U.S. delegation
t° the Esteva Group meeting in Paris. Mr, George Garvy of the Federal
4eserve Bank of New York will join Mr. Hersey at the Basle meeting.
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Federal Reserve Bank of St. Louis
Item No.
BOARD OF GOVERNORS
5
10/15/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orriciAt. CORRESPONDENCE
TO THE BOARD
October 20, 1964.
The Honorable Joseph W. Barr, Chairman,
Federal Deposit Insurance Corporation,
Washington, D. C. 20429
Dear Mk. Barr:
For more than a year, the Board of Governors has had under
consideration a possible revision of its Regulation Q that would make
administration of this Regulation less difficult and time consuming.
As you know, the Regulation in the past has frequently given rise to
troublesome questions of interpretation.
Enclosed is a draft dated October 20, 1964, of a proposed
revision of the Regulation, together with an explanatory memorandum
and a comparative draft showing textual changes that would be made
in the present Regulation.
The views and comments of your Corporation regarding the
Proposed revision will be appreciated. It is hoped, of course, that,
if and when such a proposed revision is submitted to the Federal
Register for comments by the public, a similar revision of the
corresponding regulations of your Corporation would be proposed at
the same
time.
•
The proposed revision would not deal with the question
Ifhether absorption of exchange charges constitutes a payment of
Interest on deposits. However, as indicated in the explanatory
!
emorandum, resolution of this long-standing problem at an early
rate would be highly desirable, whether in connection with or apart
rom the proposed revision of the Regulation. The Board would be
glad to have your current views as to this matter.
Recent announcements by some banks of proposed borrowings
by them
through the issuance of short-term notes have given rise to
:
°fleern on the part of the Board as to whether the development of
duch a practice night tend to make regulation of interest rates on
tePosits less effective. The Board would like to have your views as
t° Whether consideration should be given to an amendment to Regula,
lon Q and your corresponding regulations that would define deposits
"I include funds obtained through the use of notes of the kind in
question and, if so, the form that any such amendment should take.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
The Honorable Joseph W. Barr
11 ,
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Since January 1, 1962, the maximum rate of interest
Prescribed by the Board and your Corporation for savings deposits
of member banks and nonmember insured banks has been 4 per cent for
deposits that have remained on deposit for 12 months or more and
3-1/2 per cent for deposits that have been on deposit for less than
12 months. Such a "split" rate has occasioned questions of interpretation and administrative problems for banks. The Board, therefore,
is considering the desirability, solely for administrative reasons,
of establishing a single 4 per cent maximum rate for savings deposits,
Irrespective of the time the deposit has remained in the bank. It
is contemplated that any such action would be taken at an appropriate
time without prior publication of notice of the action in the Federal
Register for comments by the public. The Board would like to have
Your views as to the desirability of such action.
It would be appreciated if the Board could receive your
ews and comments regarding the above matters not later than
oovember 20, 1964.
n
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
EnolOsures
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
10/15/64
6
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 20, 1964.
The Honorable James J. Saxon,
Comptroller of the Currency,
Treasury Department,
Washington, D. C. 20220
Dear Mr. Saxon:
For more than a year, the Board of Governors has had under
consideration a possible revision of its Regulation Q that would make
administration of this Regulation less difficult and time consuming.
As you know, the Regulation in the past has frequently given rise to
troublesome
questions of interpretation.
Enclosed is a draft dated October 20, 1964, of a proposed
evision of the Regulation, together with an explanatory memorandum
and a comparative draft showing textual changes that would be made
in the present Regulation.
The Board would be glad to have any views and comments
that you might wish to offer regarding the proposed revision of
Regulation Q. It would be appreciated if any such views or comments
could be received by the Board not later than November 20, 1964.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Lnclosures
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Federal Reserve Bank of St. Louis
3566
Item No. 7
10/15/611.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
October 20, 1964.
Dear Sir:
There is enclosed a revised draft dated October 20, 1964,
of a proposed revision of the Board's Regulation Q, that has been
prepared in the light of comments of the Federal Reserve Banks
with respect to a previous draft of May 20, 1964.
Copies of the revised draft have been sent to the Federal
Deposit Insurance Corporation and the Comptroller of the Currency
with a request for their comments by November 20, 1964. The Board
will, of course, be glad to have any further comments that your Bank
may wish to submit.
Recent announcements by some banks of proposed borrowings
to
by them through the issuance of short-term notes have given rise
of
t
developmen
concern on the part of the Board as to whether the
such a practice might tend to make regulation of interest rates on
of
deposits less effective and also permit substantial avoidance
as
views
your
have
reserve requirements. The Board would like to
Regulato
to whether consideration should be given to amendments
funds
tion Q and Regulation D that would define deposits to include
if
and,
obtained through the use of notes of the kind in question
so, the form that any such amendment should take.
Very truly yours,
Merritt Sherman,
Secretary.
Enclosure
TO THE PRESIDENTS
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Federal Reserve Bank of St. Louis
OF ALL FEDERAL RESERVE BANKS.
@FedFRASER