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Minutes for To: Members of the Board From: Office of the Secretary October 15, 1962 the minutes of the Attached is a copy of eral Reserve System on Board of Governors of the Fed the above date. include a statement It is not proposed to ries in this set of With respect to any of the ent to policy actions required minutes in the record of l era Fed tion 10 of the be maintained pursuant to sec Reserve Act. stion with regard to Should you have any que you will advise the minutes, it will be appreciated if initial ase ple , ise the Secretary's Office. Otherw your g, tin mee the below. If you were present at s. If ute min the of al initials will indicate approv te ica ind l wil ls You were not present, your initia s. only that you have seen the minute Ohm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell Minutes of the Board of Governors of the Federal Reserve SYstem on Friday, October 19, 1962. at The Board met in the Board Room 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Shepardson Mitchell Mr. Sherman, Secretary Mr. Cardon, Legislative Counsel Mr. Noyes, Director, Division of Research and Statistics Mr. Holland, Adviser, Division of Research and Statistics Mr. Koch, Adviser, Division of Research and Statistics Mr. Brill, Associate Adviser, Division of Research and Statistics Mr. Furth, Adviser, Division of International Finance Mr. Mattras, General Assistant, Office of the Secretary Mr. Eckert, Chief, Banking Section, Division of Research and Statistics Mr. Yager, Chief, Government Finance Section, Division of Research and Statistics Mr. Goldstein, Economist, Division of International Finance Money market review. There was distributed a table summarizing 11434etarY developments during the five-week period ending October 17, ' Mr. Yager discussed recent developments in the Government 1962 8ecUrities market, following which Mr. Eckert reported on trends in banlo. credit and reserves and Mr. Goldstein discussed foreign exchange developments. All members of the staff then withdrew except Messrs. Sherman, C4rd(31i) Noyes, Furth, and Mattras, and the following entered the room: Mr. Mr. Mr. Mr. Mr. Hackley, General Counsel Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Hexter, Assistant General Counsel Hooff, Assistant General Counsel 1f) 10/19/62 -2Mr. Goodman, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Potter, Senior Attorney, Legal Division Real estate study. Mr. Noyes requested authorization to explore the Possibility of engaging as consultants Dr. Ernest Fisher, Professor °t 4coriomics at Columbia University, and Mr. Miles Colean, a commercial e°171sultant, to conduct an economic study of the field of real estate Other than single-fmaily dwellings. During a short discussion that followed, the feeling was expressed that there was need for such a study and that the proposed consultants e°Lali be relied on to prepare a comprehensive and objective report. Tile Board then authorized Mr. Noyes to explore the matter further. Discount rates. The establishment without change by the Federal Reserve Banks of New York, Philadelphia, Minneapolis, Kansas City, and 141 Firancisco on October 18, 1962, of the rates on discounts and 441remces in their existing schednles was approved unanimously, with the 411clerstanding that appropriate advice would be sent to those Banks. Circulated or distributed items. The following items, copies tlihich are attached to these minutes under the respective item numbers itklicated were approved unanimously: Item No. laietter to Hempstead Bank, Hempstead, New York, t1:11ring the establishment of a branch in e Town of Islip, Suffolk County. 1 10/19/62 -3Item No. Letter to President Schwegler of the Swiss 11 ,at1on2.l Bank regarding the possibility of rederal Reserve examinations of the proposed Geneva branch of First National City Bank, New York, New York. 2 With respect to Item No. 2, which related to a subject previously discussed at the meeting on October 4, 1962, the Board authorized certain minor changes in the wording of the draft letter that had been distributed. It was understood that Governor Mitchell would contact 1)resi4ent Hayes of the Federal Reserve Bank of New York to advise him the Board's action in sending the letter. Branch of Wells Fargo Bank (Item No. 3). The action taken on Ckt°ber 18, 1962, in sending to the Federal Reserve Bank of San ?I ' alleisco a telegram authorizing Wells Fargo Bank, San Francisco, 411fornia, to establish and operate a branch each year during the QUarter Horse Show and sale at the Livestock Pavilion, San Mateo County, //as ratified by unanimous vote. A copy of the telegram is attached as 3• ftort on competitive factors (McKeesport-Clairton, Pennsylvania). Thel„ had been distributed a draft of report to the Comptroller of the ellrrelacY on the competitive factors involved in the proposed purchase assets and assuztIon of liabilities of The First National Bank of lairt°n, Clairton, Pennsylvania, by Western Pennsylvania National Bank, `'0010ort, Pennsylvania. 10/19/62 After a short discussion, it was agreed that the conclusion of the report should be revised to reflect the view that only a moderate, rather than a significant, amount of competition would be eliminated as a result of the proposed transaction. The report was then approved 14181111110us1y for transmission to the Comptroller of the Currency in a t°11a in which the conclusion read as follows: While concentration in the area would be increased slightly, only a moderate amount of competition would be eliminated. IlLe.port on competitive factors (Dayton-Vandalia, Ohio). There 114(1 been distributed a draft of report to the Comptroller of the C14‘rencY on the competitive factors involved in the proposed merger of The Vandalia State Bank, Vandalia, Ohio, into The Third National Bank 411a Trust Company of Dayton, Ohio, Dayton, Ohio. After discussion, the report was approved for transmission to the ComPtroller of the Currency in a form in which the conclusion read Merging The Vandalia State Bank into The Third National 8ank and Trust Company of Dayton would eliminate a fairly substantial amount of competition and increase concentration U1 Montgomery County where the three large Dayton banks now hold about 89 per cent of deposits of individuals, partnerships and corporations. R •ort on co etitive factors Roanoke-Blacksbur. Vir inia). had been distributed a draft of report to the Comptroller of the eltrrelleY regarding the competitive factors involved in the proposed tiler'eer of Farmers & Merchants National Bank of Blacksburg, Blacksburg, 10/19/62 -5into The First National Exchange Bank of Roanoke, Roanoke, Virginia. After a short discussion, certain changes in the conclusion of the report were agreed upon. The report was then approved unanimously r0r transmission to the Comptroller of the Currency in a form in which the conclusion read as follows: The proposed merger of Farmers & Merchants National Bank of Blacksburg into The First National Exchange Bank of Roanoke would not alter the competitive picture in the Roanoke area. However, the remaining independent bank in Blacksburg would be in direct competition with a branch of much larger institution instead of a bank about the same size. 14 11aly Holding Corporation _11 Item No. 4). There had been (tistributed memoranda from the Legal Division dated October 17 and 18, 1962) regarding a request from Counsel for Whitney Holding Corporation, liel/ Orleans, Louisiana, for the suspension of a provision in the Board's °rder of may 3, 1962, "that Whitney National Bank in Jefferson Parish be opened for business within six months." Whitney Holding C°I.Poration contended that the Jefferson Parish bank could not be by November 3, 1962, as ordered, due to a court injunction riesIllting from pending law suits that had been brought by certain banks 14 LoUlsiana to prevent the opening of the Jefferson Parish bank. The that would be required for final disposition of the law suits was 1411"tain and Whitney felt that it should be allowed a reasonable time e.tter the issues were resolved to open the Jefferson Parish bank for blIsiaess. 10/19/62 -6- Mr. Hexter noted that the Board could grant an extension of time to some later date but that the uncertain duration of the litigation light require a series of extensions. This would impose an increased burden on the Board since each extension would require a re-examination °f the matter. Each extension would normally provide a six-month time linlit• The Board's decision would have to be made in light of existing circumstances, and the Board's determination could not extend beyond the r easonably foreseeable future. Mr. Hexter added that as an alternative the Board could advise Whitney that a request for a suitable amendment of the May 3, 1962, °1'der should be submitted if and when Whitney was in a position to open the Jefferson Parish bank. It was possible of course, that opposing 1)4411'8 might try to have the case declared a moot issue if an extension 141.8 not granted. Governor Mills expressed the feeling that in view of the Board's %)I'cval of the Whitney application, the Board should stand firmly behind Whitney and avoid any action that might weaken its position in the current litigation. He felt that a refusal to extend the expiration tie.te of the order might be regarded as an indication that the Board had etitleci its interest in the case. Governor Balderston suggested a one-year extension at this ti In the absence of unusual circumstances, he felt the Board had ilic)ral obligation to preserve its decision in the case even if the 14 igation were to continue for several years. 10/19/62 Mr. Hackley expressed the view that a twelve-month extension rather than the usual six-month extension could be regarded as appropriate in this instance since the delay in opening the Jefferson Parish bank as the result of litigation and not due to any laxity on the part of Whitney. The feeling was expressed that a periodic review of the cleveloPments in the case would be useful to the Board and that an ectetsion of time for the establishment of the Jefferson Parish bank 1'0u:babe the most effective way of demonstrating support for Whitney's Pc'sition. The Board then approved unanimously the issuance of an order ecterlding the time for opening of the Jefferson Parish bank by Whitney *°111 November 3, 1962, to November 4, 1963. A copy of the order is 1/ttached to these minutes as Item No. 4. Premiums paid by member banks (Item No. 5). There had been Qit ributed a memorandum from the Legal Division dated October 12, 1962) With respect to a request from the Federal Reserve Bank of Chicago tor the Board's opinion on whether the offer by a member bank of a Illseraillni) or credit, the redeemability of which was subject to a condition 48 t° the length of time a newly opened savings deposit must remain With the bank, would involve the payment of interest on such deposit. It was noted that the Board had decided on previous occasions thEt't Premiums or gifts would not be regarded as involving the payment t interest if they were nominpl in value and nonrecurring, and if they 10/19/62 -8- 'ere offered as part of an advertising plan. A time-limit condition 441 also been considered previously by the Board. In a letter to the Federal Reserve Bank of Chicago dated June 7, 1961, the Board a1oPted the position that a time-limit condition alone would not alter the advertising character of a premium provided the premium was of rlominal value and nonrecurring, and that an indirect payment of interest would not be involved. Since the Board's decision in 1961, however, the Federal Deposit Insurance Corporation had held in a P4rtiou1ar case that a time-limit condition on a deposit in order to l'etain a premium constituted the payment of interest. It was therefelt that the Board might wish to reconsider the matter. Mr. Hackley noted that Regulation Q, Payment of Interest 13ePosit5, did not attempt to define interest in detail. It was feeling that the determining factor in deciding what constitutes 14terest should be the purpose of the premium. Mr. Hackley felt that a. tiMe limit was a reasonable and practical limitation. If the premium 1448 nonrecurring and nominal in value, it would seem to him proper to regard such a premium as an advertising outlay. Mr. Potter expressed the opinion that a time-limit condition 1311°Illizi be regarded as indicating a payment of interest. Et lltle He felt that should be drawn at this point since the time-limit condition d. seem to introduce a fundamental characteristic of interest. In aciditi°11, Mr. Potter felt that it would be administratively advantageous to have the Board's view coincide with that of the Federal Deposit InsUrance Corporation. 10/19/62 -9There followed a discussion and an exchange of views with respect to the opinions expressed by the legal staff. The Board then .ta101211, to adhere to its 1961 position, which provided that a time limit °4 a premium would not be regarded as involving an indirect payment of Interest. A letter advising the Federal Reserve Bank of Chicago of the Board's position is attached to these minutes as Item No. 5. All members of the staff except Mr. Sherman then withdrew tram the meeting. Director appointments. The following actions were taken with l'esPect to the appointment of Chairmen, Deputy Chairmen, and Class C directors at Federal Reserve Banks and the appointment of directors at Federal Reserve Bank branches, with the understanding that the tinling of advice of the appointments would be determined by Chairman Mal'tin and that public announcement would be made near the end of the Year in accordance with the usual practice: The following were reappointed as Class C directors of the Federal Reserve Banks indicated, each for a three-year term beginning January 1, 1963: Name Bank Nils Y. Wessell Philip D. Reed David C. Bevan J. M. Cheatham James H. Hilton Atherton Bean Robert O. Anderson F. B. Whitman Boston New York Philadelphia Atlanta Chicago Minneapolis Dallas San Francisco 10/19/62 -10- The following were reappointed as directors of the Federal Reserve Bank branches indicated, each for a three-year term beginning January 1, 1963: Name Branch Howard E. Whitaker F. L. Byrom J. C. Cowan, Jr. Jack W. Warner Claude J. Yates Andrew D. Holt J. O. Emmerich William H. Harrison William King Self Roger B. Corbett John R. Stockton Cincinnati Pittsburgh Charlotte Birmingham Jacksonville Nashville New Orleans Louisville Memphis El Paso San Antonio The following were reappointed as directors of the Federal Reserve Bank branches indicated, each for a two-year term beginning January 1, 1963: Name Branch Harry K. Newburn R. A. Burghart Otto C. Barby Clifford Morris Hardin S. Alfred Halgren Raymond R. Reter Thomas B. Rowland Helena Denver Oklahoma City Omaha Los Angeles Portland Salt Lake City The following were designated as Chairmen and Federal Reserve Agents of the Federal Reserve Banks indicated for the year 1963, with compensation fixed at an amount equal to the fees that would be payable to any other director of the same Bank for equivalent time and attendance to official business: Name Bank Nils Y. Wessell Philip D. Reed Walter E. Hoadley Joseph B. Hall Jack Tarver Boston New York Philadelphia Cleveland Atlanta 1e 10/19/62 -11Name Bank Robert P. Briggs Atherton Bean Homer A. Scott Robert 0. Anderson F. B. Whitman Chicago Minneapolis Kansas City Dallas San Francisco The following were appointed as Deputy Chairmen of the Federal Reserve Banks indicated for the year 1963: Name Bank Erwin D. Canham James DeCamp Wise David C. Bevan Edwin Hyde Henry G. Chalkley, Jr. James H. Hilton J. H. Longwell Judson Bemis Lamar Fleming, Jr. John D. Fredericks Boston New York Philadelphia Richmond Atlanta Chicago St. Louis Minneapolis Dallas San Francisco Travel by Mr. Reynolds. Governor Shepardson advised the Board a request from Mr. Reynolds, Chief, Special Studies and Operations Sect1011, Division of International Finance, for Board authorization of exPenses of a trip to Paris, France, during the period October 23-30, 1962) to attend meetings of Working Party 2 of the Economic Policy C°rarnittee of the Organization for Economic Cooperation and Development. Governor Shepardson noted that it had been the practice of the 1)sPartment of State to pay the costs of representatives of other agencies to such meetings but that the State Department now felt that other 4 encies should defray the costs of their own representatives. The Board then authorized the payment of Mr. Reynolds' eqenses to the meeting of Working Party 2 on the basis of actual (1 1020 10/19/62 -12- necessary transportation expenses and a per diem in lieu of subsistence in accordance with the Federal Government travel regulations. Actions relating to Board's staff. Governor Shepardson stated that on the basis of discussions with Mr. Noyes he recommended the f011aw1ng actions: 1. Appointment of Mr. Koch, Adviser, Division of Research and Statistics, as Associate Director, Division of Research and Statistics, effective immediately. 2. Appointment of Mr. Brill, Associate Adviser, Division of Research and Statistics, as Adviser, Division of Research and Statistics, effective immediately. The Board approved the actions recommended by Governor She pardson. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Noyes, Director, Division of Research and Statist. Memorandum from Mr. lcs, recommending the appointment of James R. Schlesinger, Associate eXessor of Economics at the University of Virginia, as Consultant lilective until December 31, 1962, on a temporary contractual basis extop compensation at the rate of $75 for each day worked for the Board 41 with the understanding that any necessary transportation and per them for time spent in travel status would be paid in accordance with e Board's travel regulations. Itm e u Letter to the Federal Reserve Bank of San Francisco (attached approving the appointment of Paul J. Martin as assistant 4Iainer. IT ) Secretary Item No. 1 10/19/62 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 19, 1962 Board of Directors, Rempstead Bank, Rempstead, New York. Ge ntlemen: The Board of Governors of the Federal Reserve Syst. n 'em approves the establishment of a branch at Store No. 13, ireat Bay Shore Shopping Center, Montauk Highway, Hamlet of (unincorporated area), Town of Islip, Suffolk County, 114 York, by Hempstead Bank, Hempstead, New York, provided ""le branch is established within six months from the date of this letter. As noted in the Board's letter of June 29, 1962, spi--nN, '°ving the establishment of a branch in Old Bethpage, : - eaau County, the Board is concerned about the bank's capital `geition and again wishes to stress the need for strengthening at Position at the earliest opportunity. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael,' Assistant Secretary. BOARD OF GOVERNORS OF THE 91% FEDERAL RESERVE SYSTEM Item No. 2 10/19/62 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE \ 4trailr,0*'44***w TO THE BOARD October 22, 1962. Walter Schwegler, ;'esident, 'anclue Nationale Suisse, Zurich 22, Switzerland. near Dr. Schwegler: 1962, receiv_, Reference is made to your letter dated September 7, I, Department Generale Direction rege,,171 September 21, from your esYork, to New Bank, City tahl: ng the plans of First National pedsisn a branch in Geneva. Mr. Alfred Hayes,' President of the Board of Governors Of Jai Reserve Bank of New York, has informed the the course of during the is conversation with you about the matter recent Basle meeting. On April 11, 1962, pursuant to the provisions of Section 25 () the F Natio ederal Reserve Act, the Board of Governors authorized First opal, nal City Bank to establish a branch in the City of Geneva and to Seejte and maintain such branch subject to the provisions of such ia 0-t°n. In granting authority to member banks to establish branches tahl."er countries, the Board, of course, recognizes that such esas is subject to all statutory and regulatory requirements may ay be prescribed by the host country. Your letter states that Mr. Richard S. Perkins, Chairman, -ve he Committee, First National City Bank, has informed you that has til been in touch with the Board and the Comptroller of the Currency he could give you assurance that the application of paragraph to ex°, amina Section 25, of the Federal Reserve Act, which relates with conflict way no in will condition, ii°11s and reports of %iset, you have asked for an anking laws and regulations. Nonetheless, 4t1 : advise us in please you "Will question: f:'er to the following City National First the of branch ,) with regard to the Geneva Barik,-r to m L Lhe Board of Governors and the Comptroller of the Currency intend 25 (6) Qf 4" use of their authority vested in them by virtue of Section and the you Coalpte Federal Reserve Act, and, in particular, whether information or records from the '1.ratt°11er will abstain from asking for branch"ational City Bank concerning the business activity of the Geneva With its customers." Bt. Walter Schwegler Although the Federal Reserve Act vests in the Board of Governors the authority to grant permission to member banks to establish Trerseas branches, the Comptroller of the Currency, a Bureau of the surY Department, has primary responsibility for the supervision of fr l°nal banks, and overseas branches of national banks are examined Om time to time by examiners for the Comptroller of the Currency. reports of examination by national bank examiners of overseas b ranches of national banks are furnished to the respective Federal ReSee Banks and are available to the Board of Governors for official rutposes. : The Board has heretofore found that the review of such rePrts o ove_ made by the examiners for the Comptroller Of the Currency of cseas branches has been adequate for its purposes and neither the Board nor the Federal Reserve Banks have examined overseas branches Of ill ational banks. Nevertheless, there might be circumstances which, Boa he Board's judgment, would make it necessary or advisable for the to resort to the authority granted it by-Section 25 of the Federal Reserve branches of Ilati Act to order special examinations of overseas with the inconsistently acting be stat°nal banks, and the Board would not be would authority its that assurance exe2te Were it to give any arise. should 'cised even if such a situation In view of some of the remarks in your letter, it might be 14nrtb overseas branches of United Stau. -°ting the scope of examinations of banks. The examiner undertakes to ascertain the condition of the he °ranch and the quality of its assets and management. In doing so, (3uld review the books, records, and credit files of the branch in : ord and r to reach a conclusion concerning the quality of the assets held pur the nature of its liabilities. However, it would not be for the other , e of sending "accounts, contracts, correspondence, or any 4cre the to customers" with dealings its concerning thlitrr of the branch Incideeu States for submission to the Board, as you seem to fear. penalties for .riltallY, the United States Criminal Code provides severe borrowers of "the names of nr tTimProper disclosure by a bank examiner of the Federal Reserve bank member any of loans Syat e collateral for Corporation, ni3 or bank insured by the Federal Deposit Insurance eltalj would, examiners Of lned by him". Where examinations are made, the of the records Lse, be expected to have access to all books and br, qriche of both national Under present procedures, overseas branches at the end of condition their each ate member banks render reports of Year, to the Comptroller of the Currency in the case of national batik A cos, and to the Federal Reserve Bank in the case of State member banks. elloPY of the report form used by the Comptroller of the Currency is 441sed. and st r. -3_ er Schwegler Obviously, the Board cannot make any commitments for the ptroller of the Currency. If you wish to ascertain his policy, f)r, may make direct inquiry or, if you so desire, the Board would ' glad to make inquiry in your behalf. t With kindest regards, Sincerely, (Signed) Wm. McC. Martin, Jr. Wm. MCC. Martin, Jr. tire Item No. 3 10/19/62 TELEGRAM LEASED WIRE SERVICE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON October 18, 1962 CALITIN - SAN FRANCISCO /14)4rd of Governors has approved the establishment of a branch during the annual Quarter Horse Show and sale to be held at the Livestock 1%414 On, San Mateo County, by Wells Fargo Bank American Trust Company 1/ ' to be Operated during the period October 19 through October 21, 1962. tti u nderstood the bank wishes to operate an office at this location each su cceeding year in which the Quarter Horse Show is open to the Nate. Consequently, the Board of Governors approves the establishment 444°Psration of a new branch at this location each succeeding year that quarter Horse Show and sale are open to the public. This approval f'3'r each succeeding year is subject to cancellation by the Board of °I)verncira upon reasonable notice to the bank prior to the beginning of period of any year. (Signed) Merritt Sherman SHERMAN 1/ Tit Janie changed to Wells Fargo Bank, effective 4arY 31, 1962. Item No. 4 10/19/62 UNITED STATES OF AMERICA BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. •It 1111. Illthe Matter of the Application of 141411' Y HOLDING CORPORATION e.IpProval of its becoming a bank holding ecl itn , tPelaY by acquiring the stock of Crescent atie National Bank, New Orleans, Louisiana, Parish 1 treWhitileY National Bank in Jefferson crson Parish, Louisiana ORDER EXTENDING PERIOD OF TIME PRESCRIBED BY PROVISO IN ORDER OF APPROVAL WHEREAS, by Order dated May 31 1962, the Board of Governors, 1)14'811a:it to section 3(a)(1) of the Bank Holding Company Act of 1956 ' 3.C. 1842) and section 222.4(a)(1) of Federal Reserve Regulation Y (1211 u`S.C• 222.4(a)(1)), approved action whereby Whitney Holding IlItion would become a bank holding company by acquiring substantially 44 or the voting stock of two banks named therein, and said Order was subject to the proviso "that Whitney National Bank in Jefferson A4rish shall be opened for business within six months after said date"; kid toata WHEREAS, Whitney Holding Corporation has applied to the rot' modification of said proviso for the reason that compliance the time prescribed therein apparently will not be feasible, and -2- It aPPears to the Board that good cause exists for modification of the tellzs of the proviso with respect to the period of time prescribed therein; IT IS HEREBY ORDERED, that said Order be, and it hereby is, alllended so that said proviso shall read as follows: "provided further thst Whitney National Bank in Jefferson Parish shall be opened for bus!- riot later than November 4,1 1963". Dated at Washington, D. C., this 19th day of October, 1962. By order of the Board of Governors. (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS Item No. 5 OF THE FEDERAL RESERVE SYSTEM 10/19/62 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 22, 1962. Mr 'Paul C. Hodge, Vice President, m General Secretary, rederai Counsel & Reserve Bank of Chicago, Chicago 90, Illinois. De ar Mr. Hodges This refers to your letter of September 14, 1962, requesting ngas to whether the offer by member banks of a premium, subject to a iimi tation as to length of time a deposit must remain in the bank, 1141°Wit8 to the payment of interest on the deposit. It is understood that a Chicago food chain will sell a game Cont 4, 604 ng a coupon redeemable by the holder for credit of $2.50 on the 14:4t of $25.00 in a savings account in any of the participating banks olititod on the coupon, but no bank would redeem more than one coupon per dep0 : 44er• The premium would be credited to the account at the time of this :" hut the signature card would provide that the bank could charge ' Illetomer with the amount of the premium in the event the account lalp_ c'2sed prior to the expiration of six months from the date of openNational expansion of the program is contemplated. As you indicated in your letter, the Board has stated (jute CL80 i72 1961, S-1798; FRLS #6245) in a somewhat similar situation kg ad 4volving nonrecurring premiums of only nominal value as part of be arj!rtising plan, that the Board does not consider such premiums to 14direct payment of interest even though a time limit is imposed it or, tha ,'er for the customer to retain the credit premium. Although in tha Present case many banks may be involved and national expansion of llot r°gram is contemplated, it appears that the plan now proposed does 'eviate materially from that passed upon by the Board in 1961. tool, „ The Board has frequently stated that it does not look with tor t Pon the practice of giving premiums to depositors as inducement that "e opening of accounts, particularly because of possible abuses pracjaY result. However, the Board recognizes that it has become the lee of many banks, in order to stimulate new business, promote good Dro'and encourage thrift, to offer such premiums as an advertising or zot"hal medium and not as financial compensation to the customer for 4 Mr. Paul C. Hodge the " use of his funds. The Board does not believe that the imposition 0; A time limitation is a material variation from the "advertising" ;7 neePt and therefore the Board does not deem the value of the t, premiu' be interest on the deposit. However, there is a feature of this proposed plan that is Object the ''vlonable; namely, the failure to prescribe a time within which 410J°uPon may be used to obtain the premium. An advertising program not run for an indefinite period. Therefore, there should be for the adver6isi„definite terminal date, not to exceed six months, the coupon. "g campaign and use of Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. ( 104 BOARD OF GOVERNORS OF THE Item No. FEDERAL RESERVE SYSTEM 10/19/62 6 WASHINGTON 25, O. C. ADD/3 S OFFICIAL ORRES TO THE aOARO October 22, 1962 P. W. Cavan, Vice President, Federal Reserve Bank of San Francisco, San Francisco 20, California. Pea Mr. Cavan: In accordance with the request contained in YoUr letter of October 11, 1962, the Board approves the appointment of Paul J. Martin as an assistant examiner for the Federal Reserve Bank of San Francisco. Please advise the effective date of the appointment. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. rsIOE:NCE
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