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0
Minutes for
To:
Members of the Board
From:
Office of the Secretary
October 17, 1966
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
°nly that you have seen the minutes.
Chin. Martin
Gov. Robertson
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
Gov. Brimmer
'2‘./tin t;
.F
Minutes of the Board of Governors of the Federal Reserve
System on Monday, October 17, 1966.
The Board met in the Board
Roam at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson, Vice Chairman
Shepardson
Mitchell
Daane
Maisel
Brimmer
Kenyon, Assistant Secretary
Bakke, Assistant Secretary
Solomon, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research and
Statistics
Mr. Solomon, Director, Division of Examinations
Messrs. O'Connell and Shay, Assistant General
Counsel
Mr. Koch, Deputy Director, Division of Research
and Statistics
Mr. Smith, Associate Adviser, Division of Research
and Statistics
Mr. Sammons, Associate Director, Division of
International Finance
Mr. Daniels, Assistant Director, Division of Bank
Operations
Mr. Dahl, Assistant Director, Division of
Examinations
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Hart and Messrs. Smith and Via of the Legal
Division
Messrs. Golden, Greenspun, and Smith (Economist)
of the Division of Research and Statistics
Miss McShane and Messrs. Achor, Egertson,
Goodfellow, Maguire, and McClintock of the
Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
10/17/66
-2-
Ratification of actions.
Actions taken by the available
members of the Board at the meeting held on October 14, 1966, as
recorded in
the minutes of that meeting, were ratified by unanimous
vote.
Approved letters.
The following letters were approved unani-
mously after consideration of background information that had been
made available to the Board.
Copies of the letters are attached under
the respective item numbers indicated.
Item No.
Letter to Bank of Lansing, Lansing, Michigan,
aPProving the establishment of branches in
,c1) Delta Township, Eaton County, and (2)
Lansing, and commenting on the bank's capital
Position.
Letter to Wells Fargo Bank, San Francisco,
alifornia, granting an extension of time to
!
stablish a branch
at Miner and El Dorado
o treets
in Stockton.
Let, er to The Northern Trust Company, Chicago,
14-linois, authorizing it to accept drafts or
fllls of exchange drawn for the purpose of
urnishing dollar exchange.
Letters
to the Federal Reserve Bank of Boston
balving the assessment of penalties incurred
2\(1) Hamden National Bank, Hamden, Connecticut
Framingham National Bank, Framingham,
Ma
m ssachusetts, and (3) Merchants National Bank,
7anchester, New Hampshire, because of deficiencies
'.11 their
required reserves.
1
2
3
4-6
J
Lett
m -er to First Trust & Deposit Company, Syracuse,
klew
York, approving an investment in bank premises
7
4
10/17/66
-3Item No.
Letter to Continental International Finance
Corporation, Chicago, Illinois, granting
Permission to purchase shares of Banco
Atlantic°, Barcelona, Spain.
Report on competitive factors.
8
A report to the Comptroller of
the Currency on the competitive factors involved in the proposed merger
of The Peoples National Bank of Greenville, Greenville, South Carolina,
and First National Bank of Greer, Greer, South Carolina, was approved
unanimously for transmittal to the Comptroller.
The conclusion read
as follows:
Consummation of the proposed merger of The Peoples
National Bank of Greenville, Greenville, South Carolina,
and First National Bank of Greer, Greer, South Carolina,
would eliminate minor existing or potential competition
between the two banks, and would not change the present
competitive situation to any marked degree. The overall
effect on competition would not be adverse.
Bank capital.
Pursuant to the understanding at the meeting on
Cetober 6,
1966, there had been distributed a memorandum dated October 12
fr°m Mr. Solomon (Examinations) regarding problems encountered by banks
ill obtaining additional capital under current money market conditions.
The memorandum commented on measurements such as the ratio of capital
to deposits, the form for analyzing bank capital, and the ratio of
caPital to risk assets; and noted that it was in the latter area that
capital was becoming increasingly inadequate as banks shifted from more
liquid to less liquid assets. The memorandum also discussed various
as
Pects of the reduced availability of capital and mentioned alternative
3Hoo
10/17/66
-4-
methods of improvement such as reducing cash dividends or substituting
stock dividends for them.
In essence, the problem was one of the
degree of supervisory pressure that should be brought for capital
imProvement, where needed, in the face of unfavorable conditions for
the flotation of new issues.
Governor Shepardson expressed the view that the present difficulties of obtaining capital pointed to the need for especially close
surveillance by examiners to see that undue risks were not incurred in
bank loan portfolios.
Governor Mitchell remarked that it seemed to him, with the
Present multiplicity of credit demands, that any bank with poor quality
ic)ans must have some deficiency in management.
He did not believe it
desirable
at this juncture that any bank be put under additional superviscjrY pressure to achieve greater liquidity by reducing its loans;
discount window administration was making as much effort in that direction as should be made.
He believed a capital-poor bank might appropri-
atelY work toward a change in its dividend policy.
Governor Brimmer said this would appear to be the very time
haw_ _
z• ought to be giving thought to improving their capital positions.
Although
efforts had been made to get banks to moderate their lending
ctivity,
evidence as to the results was inconclusive.
It seemed to
him that,
far from relaxing discussions with banks looking toward
caPit
a-- improvement, they should be intensified.
Perhaps a paper
10/17/66
-5-
could be developed, for use within the System, emphasizing the desirability of building up an adequate capital cushion.
Governor Daane remarked that portfolio quality was essentially
a management problem.
In his view it would have to be approached
Primarily along those lines rather than through bank capital relationships.
Governor Robertson noted that it was necessary to accept the
fact that capital was difficult to obtain.
It was the job of the
su pervisor to see that banks were sound; if their capital was low, their
lending policies should take that into account.
°Ile way to achieve a sound institution.
There was more than
One way was to increase capital.
Another was to moderate expansion of credits and encourage improvement
in their quality; in this connection, the authority given the Board
under the Financial Institutions Supervisory Act of 1966 to order State
member banks to cease and desist from unsound practices should prove a
useful supervisory tool.
When
He agreed with the view that the very time
capital was not readily available was the time when the quality of
P(Irtfolios should be improved.
In response to an inquiry by Chairman Martin as to whether the
discussion had provided the guidance sought, Mr. Solomon replied that
the views expressed had been helpful.
Messrs. Solomon (Adviser), Sammons, Daniels, Dahl, and Goodfellow
then withdrew from the meeting.
10/17/66
-6-
Application of St. Joseph Valley Bank.
At the meeting on
August 25, 1966, the Board, after consideration of distributed material
including a memorandum dated August 19 from the Division of Examinations,
agreed to hold a private oral presentation regarding the application of
St. Joseph Valley Bank, Elkhart, Indiana, to merge First Old State Bank,
also of Elkhart.
The oral presentation was to be preceded by a confer-
ence with representatives of the Federal Reserve Bank of Chicago.
First Old State Bank had been rated a problem bank in five of
the last six examinations; its capital position was low and ability to
raise new capital appeared doubtful; earnings prospects did not appear
favorable; and its management was characterized as essentially a onemall operation, with domination by a president who persisted in loan
Policies that had resulted in substantial losses.
The view of the
Oar
dstaff had been in favor of approval on the ground that these
b4nking problems outweighed the adverse competitive effect of the proPosed merger (the two banks served almost identical market areas).
im
An
portant question was whether there was any alternative to the proposed
Merger as a means of resolving the banking factor problems.
At the
e of the Board's August 25 discussion no suitable alternative appeared
to be available.
In response to the Board's request at that meeting for
flirther information on certain aspects of the case, supplementary material
14as distributed with memoranda dated August 31 and September 1
from the
Division of Examinations.
10/17/66
-7-
On September 9, 1966, the Board conferred with representatives
Of the Federal Reserve Bank of Chicago, and an oral presentation was
held on September 20.
There had now been distributed a memorandum dated October 7,
1966, from the Division of Examinations stating that after consideration
Of the information developed through the conference with the Chicago
Reserve Bank and the oral presentation, the Division of Examinations,
the Legal Division, and the Banking Markets Section of the Division of
Research and Statistics continued to feel that the banking factors
su pported the merger as the best solution to First Old State Bank's
Problems, notwithstanding the adverse competitive effects.
Because of
the anticompetitive effects, however, the matter of alternatives was
of importance.
As to the possibility of a sale of First Old State Bank
to interests other than St. Joseph Valley Bank, Assistant Vice President Fults of the Chicago Reserve Bank had commented as follows:
As the Board is well aware the purchase of a majority,
if not almost all, banks is accomplished with borrowed
funds and this could prove to be extremely difficult in
the present money market. Also, it is doubtful that such
a purchaser would be in a position to inject additional
capital funds into the bank, which has a deficiency of
about $500,000, and it is believed that he would be reluctant for the bank to sell stock and thereby lose the
control he had just acquired. Furthermore, as has been
discussed, it probably would be difficult for the bank
to sell additional stock in view of its present unsatisfactory condition.
It has been our experience that prospective purchasers
of banks are not interested in problem institutions unless
10/17/66
-8-
they can be acquired at an extremely attractive price.
Instead, purchasers are searching for banks with strong
capital structures from which large dividends may be paid
to liquidate loans required for the acquisition, or for
banks with well below average ratios of loans to deposits
in order to enlarge earnings and thus increase dividends
or enhance the value of their investments. Obviously
neither of these situations is present in the subject
instance.
It should also be noted that sale of the bank would
not solve the bank's management problem. Should the purchaser not be an experienced and capable banker, a complete
staff of senior officers would be required, and if he were
experienced a number of other competent officers would still
be needed.
The memorandum continued by recalling that two other possible alternatives discussed in the Division's original memorandum were (1) a
c°1-nhination with another banking institution, and (2) a change in
Present management, retaining present ownership.
(1) Was
As far as alternative
concerned, the only other practical merger of First Old State
140uld he
with First National Bank in Elkhart (the largest bank in
Elkhart),
and such a merger would be less desirable from a competitive
standpoint than the one proposed.
Alternative (2) would involve replac-
ing President
Martin of First Old State or hiring official personnel
t° work
with him. As revealed in the testimony of Chairman Walker of
Pi
rst old
State, President Martin to many people was First Old State
8411k and his forced resignation could seriously worsen the bank's prosPects.
On the other hand, if President Martin were retained it seemed
doubtf
--111, based on past experience, that the bank's policies or general
t
10/17/66
-9-
condition would improve.
Chairman Walker had testified that a change
in the bank's operating policies would be impossible if the bank
remained under
the direct management of President Martin.
In summary, First Old State was a problem bank with unfavorable
Prospects.
While it could not be said that the bank was on the brink
of failure, it was clearly in need of strong remedial action.
However,
there was nothing in its history, present condition, or projected
unfavorable future to suggest that the bank would solve its own problems
An analysis of the available alternatives led the Division to conclude
that the proposed merger was the most reasonable solution.
Were there
available a solution other than merger with another Elkhart bank, the
12/1-vision would recommend denial; in the present circumstances, however,
the Division reiterated its recommendation of approval.
The discussion began with comments by Mr. Solomon in support
of the
continued staff view that, undesirable as the proposed merger
147as from the competitive standpoint, the supplemental explorations
undertaken since the Board's first consideration of the case had not
closed a practical alternative solution.
Of all those whose views
had been
received, only the Comptroller of the Currency had expressed
str°ng opposition, in that he had drawn a parallel between this case
and
°Tie involving a proposed merger of two banks in State College,
Pen?,
"sYlvania, and had contended that since the Department of Justice
had
"ontested the latter, consistency would require that it also contest
10/17/66
-10-
the St. Joseph Valley case, if approved by the Board.
In short, it
a ppeared to the staff that the Board was confronted with a banking
situation for which the proposed merger provided the only reasonably
a cceptable solution.
The members of the Board then expressed their tentative views,
beginning with Governor Shepardson, who stated that he concurred with
the Division's favorable recommendation on the ground that the problems
of First Old State Bank must be corrected and there appeared to be no
Other way to do so except through the proposed merger, even though
competition thereby would be diminished.
Governor Mitchell commented that he was quite perturbed by the
situation because the supervisory authorities did not appear to have
acted vigorously over the years.
First Old State Bank had been in the
ilr°blem category for most of six years, yet no positive measures had
been
LI required to bring it out of that category.
seOp
It was true that the
-r
a of available positive measures was limited, but at least examina-
tic'os could have been conducted more than once a year.
that
there was no alternative to this merger.
Now it was said
He did not believe the
Itna gement of First Old State Bank was as poor as had been contended.
Ris •
impression after listening to the oral presentation was that President m
artin had had a salutary influence on the availability of banking
aevices in Elkhart, and it would be unfortunate that that influence
.leuld be gone.
th
He would accept the recomtendation of the Division, but
considerable reluctance.
10/17/66
.?Qt*
-11-
41,)(10
Governor Daane stated that his reasons for feeling uncomfortable
about the
case were somewhat different.
There was clearly a management
Problem at First Old State Bank, but he was not convinced that the management of St. Joseph Valley Bank was of extremely high competence.
Nevertheless,
he thought the merger probably was the only practical
answer to a regrettable situation.
Governor Maisel expressed the view that the only justification
for approval was that First Old State was a floundering bank.
That,
be su
ggested, should be made clear in the Board's statement, in light
of the anticompetitive aspects, if the application was approved.
Governor Brimmer expressed the view that the search for alternatives had been inadequate on the part of both the Federal Reserve and
the State banking authorities.
He believed First Old State Bank itself
cOuld have done something about its management problem if it had really
wanted to; although a proxy fight might have occurred, he did not besuch a contest would necessarily have destroyed the bank.
It
seemed to him that First Old State Bank had provided broadened services
to the community, and those apparently would be lost because the continuing bank had not evidenced a clear intent to continue them.
He would
suPPort the recommendation of approval, but hoped that the full range
Of concern for the community and unhappiness with the situation would
be reflected in the Board's statement, which should be studied by the
hoard
with special care.
144- 71.
10/17/66
-12-
Ot71T4T)
Governor Robertson stated that he would not support the merger.
While First Old State Bank was not in particularly good condition and
had management problems, in his view those problems were not such as to
warrant approval of a merger that would be severely adverse to competition and leave only two banks in a community of 45,000.
Bank had been an aggressive competitor.
First Old State
In his mind, this case was
tailor-made for use of the Financial Institutions Supervisory Act of
1966) signed by the President yesterday, that gave the Board (among
Other
agencies) power to issue cease and desist orders with respect to
unsound banking practices.
It seemed to him that before the public was
made to suffer from a reduction in banking competition, the Board should
use to the fullest the powers it now had to correct conditions such as
those that had prevailed at First Old State Bank, and he was satisfied
that that
there was
could be done.
This was not a failing bank by any estimate;
nothing in the record to indicate that the merger could be
justified under the failing bank doctrine.
The bank had had some
4sses, but not enough to impair its capital. The losses attributable
to
twoor three bad lines of credit could be absorbed, and competent
management could be acquired. The situation was correctable, with
hard
work by management and the full backing of the supervisory authorities.
Chairman Martin commented that although it would be desirable
if
-4
' the situation could be corrected in the way suggested by Governor
• :1,
10/17/66
-13-
Robertson, he seriously questioned whether that was feasible.
He
believed such an effort would be likely to stir up a great deal of
smoke, and probably some additional fire, without really accomplishing
anything.
That was a matter of judgment, of course.
Chairman Martin
then reminded the other members of the Board that under established
Procedures
the first canvass of views was not binding as far as votes
were concerned.
Governor Shepardson commented that it would appear that the
situation confronting the Board was one in which the supervisory authorities had not exercised as close long-term surveillance as might have
been desirable.
It was possible that correction might have been achieved
if the new authority to issue cease and desist orders had been available
earlier, but with events having advanced to their present stage it seemed
to him that recourse now to that authority would not provide the necessary cure.
He expressed the view that the Board should review its
Procedures in regard to problem banks; he recalled that until a few
Year
ago such cases were reviewed at Board meetings periodically.
Governor Daane said that he had a strong leaning toward Governor
Robe
rtson's position.
Approval of the merger would tidy up a management
Problem, but he was not sure whether the community would be benefited
the long run.
Nevertheless, in all the circumstances, he would sup-
Port the staff recommendation.
Governor Mitchell observed that with President Martin apparently
hawln
g no plans to relinquish his hold on the bank if it were not merged,
, y4
10/17/66
y,
-14-
and with Chairman Walker being strongly in favor of the merger, it
aPPeared difficult to find a channel other than the proposed merger for
measures that would correct the bank's problems.
Governor Robertson expressed the view that the Board could insist that management be augmented.
If the merger were turned down, the
stockholders might be motivated to protect their investments by bringing
in management that would salvage as much of the bank's value as possible.
The merger proposal had been the easy way out.
Governor Mitchell commented that although there was general
agreement at the supervisory level that management was unsatisfactory,
the fact remained that the President was the bank's image in the communitY.
The public image he had created was, generally speaking, a good
°Ile, and even among supervisors there was some opinion that he had done
s°rnething for the community in terms of banking services.
The discussion then turned to the approach that might be taken
in
the Board's statement if the merger were approved.
Mr. Shay cau-
tioned that, if First Old State Bank was indeed a floundering instituti°n, it would be important that a great deal of delicacy be used in
ePressing the basis for the Board's decision. Since there appeared to
be
no basis for expediting the merger as an emergency measure, the usual
thirtY days would be allowed prior to consummation.
Therefore, it would
1213e ar to
be in the public interest to use restraint in expressing the
flou
nuering bank concept lest public apprehension cause damage to the
batik
in the interim.
3C1t);;e
10/17/66
-15-
Governor Brinuer said he was not willing to have the merger
Presented as a good thing.
at
If the Board wanted to consider the case
greater length he would like to do so, because he was not voting
for the merger with the expectation that the statement was going to
Praise it.
If it was the feeling of the majority that the real reasons
for the decision should not be made public, he would join Governor
Ro
bertson in dissent.
Governor Maisel expressed the view that the statement could be
Worded so as to reveal the dynamics of the situation without indicating
that the institution was in danger of immediate collapse.
Also, it
should be obvious that if there was any such danger, the Board would
use the emergency procedure rather than allow the customary thirty days
Prior to consummation.
There ensued further discussion of how a decision for approval
might be supported in a statement without provoking undue public appreens
ion or, on the other hand, diluting the strength of the argument
for
approval.
At the instance of Governor Daane there was also discus-
of the question whether there might be hope for improvement of
Pir,
'' Old State Bank through the use of cease and desist orders.
It
was brought out that with cease and desist orders a supervisor could
stoP certain practices and even remove management, but the supervisor
e°uld not actually operate the bank.
Unless management was willing to
irt1Plement
remedial procedures, the supervisor's ability to work out
o'it
1.)C1
10/17/66
-16-
corrective measures was limited.
It was observed that if such an
effort were made in the present case and the bank's condition nevertheless worsened, emergency action could still be taken; the question
was whether to run the risk of possible need for emergency action in
order to provide every opportunity for the bank to correct itself.
Governor Brimmer expressed some sympathy for this point of
view, commenting that First Old State had looked to the proposed merger
as its only recourse, but if the merger were turned down the bank would
be Obliged to approach its problems by remedial action internally.
Mr. Shay observed, in response, that if the pending proposal were to
be turned down and the situation could not be resolved internally, the
question of the merger route would inevitably arise again, at which
time First National Bank of Elkhart might enter the picture with a proPc)sal, which would raise even more serious question about adverse
competitive effect.
Governor Maisel remarked that the critical question seemed to
be whether a good executive officer could be found to run First Old
State Bank.
Approval of the merger would be tantamount to saying that
that could not reasonably be expected.
After the oral presentation he
had been willing to concede that it could not, although previously he
had
hoped that such a course would provide a solution.
Governor Shepardson agreed that that point seemed to be at the
hear t of the problem.
President Martin admittedly had provided benefits
10/17/66
-17-
to the community in terms of banking services and had built up a favorable public reputation, yet his manner of operation had led to the
Present situation.
It seemed doubtful that he was going to change his
Zethod of operation even if a capable second officer was brought in.
Re was accustomed to control, and apparently would seek to protect his
stature in the community.
An attempt to replace President Martin might
°IllY arouse the community and create an unfortunate situation.
By
c°ntrast, the merger proposal provided an opportunity for transfer of
cornmand that President Martin had accepted.
Chairman Martin commented that although he would like to follow
a course such as Governor Robertson had suggested, he doubted that it
was practical to do so at this juncture.
Perhaps more harm would be
4°11e to the public interest than if the Board proceeded in the direction
in which, in a sense, it was being forced.
Governor Robertson then suggested that it might not be too late
to follow up on the last examination of First Old State Bank, which had
been
in January 1966.
If the bank had not deteriorated since then,
sfte doubt would be cast on classifying it as a floundering bank at the
Present time.
It might be worth while to send examiners in to see what
the status of the bank was at present.
Discussion of Governor Robertson's suggestion included comments
that even if a current examination should disclose a somewhat better
condition than in January, the dynamics of the situation were such that
10/17/66
-18-
the improvement probably should be regarded as only temporary.
Unless
some way was found to improve management fundamentally, according to
this
reasoning, there was little likelihood of continued progress toward
a healthy condition.
After further discussion the Chairman inquired how the Board
wanted to proceed, and it was agreed that a vote would be taken.
Governor Shepardson stated that he would stand by his affirmative position.
Governor Mitchell said his best judgment at this juncture was
along the lines he had expressed earlier.
He did not like the situa-
ti", and wished he knew more about the directors of First Old State
sank and their capacity to deal with the problem.
The Federal Reserve
1311k of Chicago, which was closer to the situation than the Board could
be,
was satisfied that the merger was the only practical solution.
It
seemed doubtful that the present management would respond to supervisory
Pressure any more than in the past, which had been for only temporary
Periods following examinations.
for
Under the circumstances, he would vote
aPProval.
Governor Daane also said he would vote to approve the applica-
tion
, although he regretted that such a decision must be made.
Governor Maisel suggested the possibility of deferring final
action until a draft of statement could be studied.
In the meantime
PeThaPs an alternative proposal could be offered -- possibly by the
10/17/66
-19-
Federal Reserve Bank of Chicago -- for improving First Old State Bank's
management.
In response to an inquiry by Chairman Martin, Mr. Hackley stated
that it would be unusual for the Board to delay its decision on the
merits of a case until the statement was available.
Under the Board's
Internal Rules of Procedure a vote was to be taken at the time of consideration
of a case on its merits, not at the time issuance of the
statement was authorized.
However, until the latter action, the case
was still in the hands of the Board.
Governor Maisel and Chairman Martin then joined Governors
ShePardson, Mitchell, and Daane in voting for approval, while Governors
Ro bertson and Brimmer voted for denial.
The application of St. Joseph Valley Bank was thereupon approved,
Governors Robertson and Brimmer dissenting.
It was understood that an
°rder and statement reflecting this decision would be prepared for the
4ard's consideration, and that a dissenting statement or statements
also would be prepared.
Secretary's Note: At the meeting on
October 18, 1966, there was further
discussion of the condition and management of both St. Joseph Valley Bank
and First Old State Bank on the basis
of the latest available information.
At the end of the discussion the Board
indicated that the staff should proceed
with the drafting of the order and
statements.
10/17/66
-20-
Messrs. Molony, Cardon, Fauver, and Koch then withdrew from
the meeting.
Application of Colonial Bank and Trust Company.
There had
been distributed a memorandum dated September 9, 1966, from the Division of Examinations, and other pertinent papers, regarding the
aPPlication of The Colonial Bank and Trust Company, Waterbury,
Connecticut, to merge with Puritan Bank and Trust Company, Meriden,
Connecticut.
The Division recommended approval, stating that while
the proposed merger would eliminate the moderate degree of competition
e)Usting between the participants, it would neither materially increase
the size of Colonial Bank relative to its competitors nor significantly
alter the banking structure in the relevant market area.
The resulting
bank would be the eighth largest commercial banking institution in the
State and the largest with headquarters in the Waterbury-MeridenWallingford area, a comparative position presently held by Colonial
Eank.
Effective competition would be afforded by branch offices of the
sec°nd, third, and tenth largest banks in the State, and by a slightly
latger mutual savings institution.
The proposed merger would bring to
the Meriden-Wallingford communities an alternative source of full bankservices and an additional facility for meeting the credit needs
f a community experiencing viable economic growth.
Accordingly, while
the bivision recognized this as a close case, it believed that approval
Ikuld serve the public interest.
10/17/66
-21-
The Banking Markets Section of the Division of Research and
Statistics
concurred in the favorable recommendation of the Division
of Examinations.
A distributed memorandum from the Legal Division (Messrs. Shay
and via.
) commented at some length on the application.
Given an assump-
tion that
the combined area served by Colonial Bank and Puritan Bank
constituted a meaningful market (that
is, an area of effective competition, either existing or potential), the memorandum maintained that the
(1°Trlinant position of Colonial Bank in that area was not made substantially less significant, within the meaning of the antitrust laws, by
the
presence of mutual savings banks. The memorandum brought out also
that whether the combined area might properly be regarded as the
relevant
geographical market was, of course, a crucial issue.
combined
If the
area was so regarded, the anticompetitive effects of the
Proposal
were deemed adverse within the meaning of section 7 of the
Clayton Act.
Also, the Division believed the convenience and needs
factor in
this case fell short of the requirements of the law (assuming
that the combined area was a meaningful market).
Puritan Bank was in
no
difficulty, and the proposed merger was not considered essential to
the
convenience and needs of the communities involved.
After summary comments by Mr. Egertson, the staff responded to
a n
umber of questions by members of the Board.
Governor Maisel observed that there were banks in the area that
hadlarge enough lending limits to take care of any probable needs.
10/17/66
-22-
Also, although there was not a complete economic analysis of what was
happening in the area, it appeared that the markets of the two banks
were growing into a single market, with the same type of manufacturing
and urbanization.
Mr. Smith (Associate Adviser) responded that it had
seemed to the Banking Markets Section that the growth of the MeridenWallingford area was predominantly to the east and south and away from
W aterbury
rather than toward it.
Therefore, it seemed to be a separate
market that had more ties with the Hartford-New Haven area than with
the Waterbury area.
Governor Brimmer remarked upon the divergent views among the
staff as to the weight to be given to the competition afforded by
tautual savings banks, the Division of Examinations stressing the importance of
that competition and the Legal Division being of the view that
it should not be considered as diminishing the dominance of Colonial
13ank'S Position.
Mr. Shay responded with comments on the recent amend-
to the Bank Merger Act, which contained standards that had brought
ab
out a closer relationship to the antitrust laws.
If there was a
substantial lessening of competition in any line -- whether deposits
• commercial loans -- the proposed merger must be denied unless the
adver
se competitive effect was clearly offset by other factors.
There
ensued further discussion of the degree to which mutual savings banks
•
savings and loan associations offered competition to commercial
batiks
.
, with no definitive consensus being reached.
10/17/66
-23-
Governor Shepardson stated that even though there appeared to
be some overlap of the areas served by the two banks, it seemed to him
that competition would be enhanced both in the local communities and
with the large banks to the east that had branches in the communities
here involved.
He believed it was proper to measure each bank in its
Particular market, and on that basis it appeared that the proposal
would increase competition in a growing area that at present was having
to push credit demands elsewhere.
He would approve.
Governors Mitchell and Daane said they would approve for the
reasons cited by the Division of Examinations.
Governor Maisel stated that he would disapprove.
It appeared
t° him from the history of the Connecticut banking system that this
ease
presented exactly the kind of situation the Bank Merger Act had
been passed to forestall.
The large banks in the State were becoming
14°re and more dominant through mergers and were growing at a rapid rate.
&bout a third of the size of Colonial Bank had come from two mergers
111 the past ten years.
Puritan Bank was a small, profitable bank in a
a(1)14ing area and gave every indication that it could continue to grow
all(' to
the
give competition.
There was a strong anticompetitive effect to
Proposal, in his view, and nothing to say that Puritan Bank should
0ut of business.
Governor Brimmer said he believed the entry of the larger bank
140111d somewhat stimulate competition in the area of the smaller one.
-24-
10/17/66
Although he was not convinced that users of bank credit in Meriden had
to rely solely on local banks, being able to reach even as far as New
York City if necessary, it seemed to him that another large bank in
Meriden would be helpful.
The community was not starved for service,
but more flexibility would seem desirable.
Therefore, the balance
seemed to be in favor of the application.
Governor Robertson indicated that he would vote for denial,
because of the anticompetitive aspects.
He agreed with Governor Maisel's
vlew that the situation was of the kind the Bank Merger Act was designed
to
Prevent.
factor.
He saw nothing persuasive under the convenience and needs
Puritan Bank was a sound, profitable, small bank that was serv-
ing needs in the community that might not be served as well by larger
institutions.
Chairman Martin remarked that while there was much to be said
for
the last point made by Governor Robertson, he did not believe banks
c°111d be forced to remain small purely on anticompetitive grounds.
He
thought the over-all needs of the communities probably would be better
served by this merger in the long run than they would be by denial of
it
although that was admittedly a matter of judgment.
The application of Colonial Bank and Trust Company was there-
Upo
,
'-__Pt2E2L7fli, Governors Robertson and Maisel dissenting.
It was
uhderstood that an order and statement reflecting this action would be
PtePared for the Board's consideration, and that a dissenting statement
c)1. s tatements also would be prepared.
10/17/66
-25-
Application of Bank of New York.
There had been distributed
a memorandum dated October 12, 1966, from the Division of Examinations,
with other pertinent papers, relating to the application of The Bank
of New York to merge with Empire Trust Company, both of New York, New
York-
The Division recommended approval, as did the Banking Markets
Section of the Division of Research and Statistics.
After summary comments by Mr. Egertson, Governors Shepardson,
paane, and Maisel indicated they would approve on the basis of the
Division's recommendation.
Governor Mitchell stated that he would disapprove.
The partic-
ipant banks had indicated a desire to serve larger customers.
While
his desire was understandable, he did not believe it was in the public
fLerest for the Board to facilitate a move in that direction.
If the
natural growth of the banks should bring them to the point where they
could serve the largest corporate customers, that was not avoidable,
but the very customers who needed their services were the ones they
14ere serving now -- the middle-sized customers.
From this point of
vie
he did not believe the merger would be in the public interest.
The
were already many large banks capable of accommodating large
rPorate customers.
Governor Brimmer said that he would approve, but pointed out
that he considered fallacious, and not germane to the issue, the
gt-iment that Empire Trust, because of the specialized nature of its
10/17/66
-26-
business, was not in competition with Bank of New York.
Many banks
s pecialized -- whether in oil and gas customers or otherwise -- but
they were all
competing for business loans.
On balance, he believed
the merger should be supported, not on the basis of the specialization
argument but because of the remainder of the staff analysis.
Governor Robertson stated that he would disapprove.
The pro-
Pcsal would enable these institutions to combine in order to serve
larger customers who already had many channels through which to get
their credit needs filled.
It seemed to him no case had been made
that the convenience and needs factor would offset the elimination of
com petition.
He agreed with Governor Brimmer that specialization in
certain types of loans had no bearing, and he did not think with so
mahY large institutions already operating in New York City it was necessarY to create another large one.
Chairman Martin said he would approve.
He believed that size
was a factor in New York, and that it was necessary for banking instituti°ns to grow in order to prosper in that market.
The application of Bank of New York was therefore approved,
Coy
ernors Robertson and Mitchell dissenting.
It was understood that
all order and
statement reflecting this decision would be prepared for
the Bc)ard i s consideration, and that a dissenting statement or states also
would be prepared.
le.2211_ty Mr. Brill.
Mr. Brill reported on meetings he had
tecentlY attended in Europe sponsored, respectively, by the French
v c,Icl
e.')C3C31—
10/17/66
-27-
nationalized savings industry, the Organization for Economic Cooperation and Development, and the Bank of Italy.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
the recommendation in a memorandum from
the Division of Administrative Services
that Junius M. Fletcher, Jr., Messenger
in that Division, be granted military
leave beginning the close of business
October 27, 1966, for service in the
Armed Forces of the United States.
Assistant Secretary
82
8
3
BOARD OF GOVERNORS
Item No. 1
10/17/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551
ADDRILIO1 orrscom. OORRESPONDIENCE
TO MC IMOARD
October 17, 1966
Board of Directors,
Bank of Lansing,
Lansing, Michigan.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment by Bank of Lansing,
Lansing, Michigan, of branches (1) at the northwest
corner of the intersection of Saginaw Street and
Elmwood Road, Delta Township, Eaton County, Michigan,
and (2) in the 5100 block of South Cedar Street near
the southwest corner of the intersection of South Cedar
Street and Jolly Road, Lansing, Michigan, provided the
branches are established within six months from the date
of this letter.
The Board notes that your bank's capital
position is less than satisfactory and understands that
Plans have been formulated to strengthen the bank's
capital structure.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allowed to establish the branches;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
BOARD OF GOVERNORS
Item No. 2
10/17/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
orriciaL
CORRESPONDENCE
TO THE BOARD
October 17, 1966
Board of Directors,
Wells Fargo Bank,
San Francisco, California.
Gentlemen:
,The Board of Governors of the Federal
Reserve System extends to November 6, 1967, the
time within which Wells Fargo Bank, San Francisco,
California, may establish a branch at the intersection of Miner and El Dorado Streets, Stockton,
California.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
•
BOARD OF GOVERNORS
Item No. 3
10/17/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 17, 1966.
The Northern Trust Company,
50 South LaSalle Street,
Chicago, Illinois. 60690
Gentlemen:
The Board of Governors of the Federal Reserve System
authorizes your bank to accept drafts or bills of exchange drawn
for the purpose of furnishing dollar exchange as required by the
usages of trade in such countries, dependencies, or insular possessions of the United States as may have been designated by the Board
of Governors, subject to the provisions of Section 13 of the Federal Reserve Act and the Board's Regulation C.
Enclosed is a list of the countries with respect to which
the Board of Governors has found that the usages of trade require
the furnishing of dollar exchange.
The foregoing authorization ,has been given with the underStanding that the foreign loans and investments of The Northern
Trust Company will not exceed the guidelines established under the
voluntary foreign credit restraint effort now in effect and that
due consideration is being given to the priorities contained therein.
Your attention is also directed to the fact that dollar exchange
acceptance financing does not represent export credit.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
Enclosure
Item No. 4
10/17/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 17, 1966
Mr. E. O. Latham,
First Vice President,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
02106.
Dear Mr. Latham:
This refers to your letter of October 5 regarding penalties
otaling $1,390.94 incurred by the Hamden National Bank, Hamden,
, 3nnecticut, on deficiencies in its required reserves during the
19 reserve computation periods beginning December 23, 1965, and
ending September 14, 1966.
It is noted that the deficiencies resulted from treating
!ash collateral accounts maintained with a correspondent bank as
rmand balances due from banks, thereby understating net demand
uePosits; that the deficiencies were discovered upon a comparison
111f
3 the June 30 Call Report with the Hamden bank's Daily Report of
iePosits; that your Bank is inclined to charge the error to
hn"Perience, as the bank is a rather new one; and that the bank
as an otherwise good record of maintaining its reserves.
In the circumstances, the Board authorizes your bank to
waive
assessment of the penalties totaling $1,390.94 for the 19
reserve computation periods ended September 14, 1966.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
1S'if
k
Item No. 5
10/17/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONOENCE
TO THE BOARD
October 17, 1966
E. O. Latham,
rirst Vice President,
Pederal Reserve Bank of Boston,
hston, Massachusetts.
02106.
tea
r Mx. Latham:
This refers to your letter of October 6 regarding a
441tY of $117.43 incurred by the Framingham National Bank,
zrarsingham, Massachusetts, on a daily average deficiency of
'
6 per cent in its required reserves for the reserve computation
Period ended August 17, 1966.
r
It is noted that the deficiency was due to a mistake by
the
i
member bank in computing required reserves following a change
its procedure for forwarding cash letters for collection; that
bank has a history of generally carrying substantial excess
xL4-1 serves; that your Bank feels the deficiency was inadvertent and
r:s the result of inexperience of the personnel concerned with
waived the
peeve management; and that your Bank would have
if this
instructions
neltY under paragraph E of the Board's
uthority
1964.
had not been used in October
In the circumstances, the Board authorizes your Bank
dive the penalty of $117.43 for the reserve computation period
d August 17, 1966.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Item No. 6
10/17/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 17, 1966
E. O. Latham,
First Vice President,
Pederal Reserve Bank of Boston,
02106.
Boston, Massachusetts.
tear Mr. Latham:
This refers to your letter of October 5 regarding the
1
1,enalties
totaling $496.64 incurred by the Merchants National Bank,
nchester, New Hampshire, on deficiencies in its required reserves
nring the six reserve computation periods beginning June 23 and
ending September 14, 1966.
T
It is noted that the deficiency was due to the bank's
exclusion of trust department deposits from deposits it reported
:°r reserve purposes beginning June 27, 1966, and that this error
ptc'se from a misunderstanding of Paragraph 2735 of the Board's
rublished Interpretations, which states that a bank need not carry
eserves against trust funds kept segregated and apart from its
neral assets. It is noted also that the bank has an excellent
ec°rd of maintaining its required reserves.
r
In the circumstances, the Board authorizes your Bank to
Waive assessment of penalties totaling $496.64 for the six reserve
e°mPutation periods ended September 14, 1966.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
i• LI 4.j
I..
BOARD OF GOVERNORS
Item No. 7
10/17/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20531
1,
,
ADORERS
orncom. OORRICISPONOICHCIL
TO THE MONAD
RES
October 17, 1966
Board of Directors,
First Trust & Deposit Company,
Syracuse, New York.
Gentlemen:
'Pursuant to section 24A of the Federal Reserve
Act the Board of Governors of the Federal Reserve System
approves an investment of not to exceed $800,000 by First
Trust & Deposit Company, Syracuse, New York, for the
Purchase and improvement of property adjoining the bank's
main office.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
'1(
Item No. 8
10/17/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 17, 1966.
Continental International
Finance Corporation,
231 South LaSalle Street,
Chicago, Illinois. 60690
Ge
ntlemen:
As requested in your letter of August 17, 1966, the Board
of
Governors grants consent for your Corporation ("CIFC") to purchase
stld hol,
a
up to 39,600 ordinary shares of Banco Atlantico, Barcelona,
in,
at
:
a maximum cost of approximately US$3,325,000, provided such
th?ck is acquired within one year from the date of this letter. In
"connection the Board also approves the purchase and holding of
su
ch shares in excess of 15 per cent of CIFC i s capital and surplus.
The foregoing Consent is given with the understanding that
the
suA investment now being approved, combined with other foreign loans
investments of your Corporation, Continental Bank International,
1',1 Continental Illinois National Bank and Trust Company of Chicago,
11 not cause the total of such loans and investments to exceed the
:
81
st;delines established under the voluntary foreign credit restraint
is being given to the
pr4"t now in effect and that due consideration
that compliance
considers
Board
The
vi-t-orities contained therein.
that total
require
would
4
Guideline
in
40nh the priorities expressed
export credits to developed countries in Continental Western Europe
of
19, exceed the amount of such loans and investments as of the end
ability
to°53 unless this can be done without inhibiting the bank's
within the overaiirneet all reasonable requests for priority credits
target.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
@FedFRASER