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Minutes for To: October 20, 1960 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 vith 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. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Reserve System on Minutes of the Board of Governors of the Federal Thursday, October 20, 1960. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Balderston, Vice Chairman Szymczak Mills 1/ Rober-Cion Shepardson Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Sherman, Secretary Kenyon,Assistant Secretary Thomas, Adviser to the Board Hackley, General Counsel Farrell, Director, Division of Bank Operations Solomon, Director, Division of Examinations Conkling, Assistant Director, Division of Bank Operations Rudy, Special Assistant, Legal Division Smith, Assistant Director, Division of Examinations Landry, Assistant to the Secretary Eckert, Chief, Banking Section, Division of Research and Statistics Leavitt, Supervisory Review Examiner, Division of Examinations Items circulated to the Board. The following items, which had been cil'eUlated to the Board and copies of which are attached to these minutes 114der the respective item numbers indicated, were approved unanimously: Item No. Letter to Union Bank & Trust Company, Montgomery, sbanla, I n: amending the Boardts approval of the ablishment of a branch at Coliseum Boulevard Pelzer Avenue. 1 Let 2 er to the Federal Reserve Bank of Dallas (,:frIcling the time for Texas Bank and Trust c) h,ZPanY, Dallas, Texas, to register as a bank 'ding company. ithdrew from meeting at point indicated in minutes. 10/20/60 -2- Mr. Rudy then withdrew from the meeting and Mr. Fauver, Assistant to the Board, entered the room. Report on competitive factors Carolina). (Tarboro and Fountain, North Copies had been distributed of a proposed report to the Federal 1/ePo8it Insurance Corporation on the competitive factors involved in a Manned merger of Edgecombe Bank and Trust Company, Tarboro, North Carolina, with Bank of Fountain, Fountain, North Carolina. During a discussion of the report, Governor Balderston suggested deletion of the portion of the conclusion which stated "The only substantial e°4240/a relationship between the two (banks involved) is that of ownership, %41101 would be expected to minimize rather than increase or perpetuate c°11Ipetiti0n between the two." In explanation, Governor Balderston said //ss apprehensive that the use of statements to such effect might convey the impression that common ownership of banks applying for permission to Inelle was a factor that would cause the Board to look more favorably on the Proposed merger. Should such an impression be gained, parties might be encouraged to acquire stock in competing banks with a view to setting forth later that the element of common ownership argued in favor of :431"Oval of 61 a proposed merger of the institutions. The report was then approved unanimously in a form containing the tqlNing conclusion: The two banks involved in the application do not appear e°mPetitive with each other to an important degree. Other and sizable banks, including the largest two in the State, compete effectively in the general area and the location of various barlking offices suggests that the most immediate competition for each of the offices of constituent banks originates with these other banks. 3451 ,0/20/60 -3- Consummation of the proposed transaction would apparently have no adverse effect on competition and would, by reason of the expanded facilities of the larger bank, increase the competitive capabilities of the Resulting Bankts Fountain branch. Report on competitive factors (Pasadena, Texas). There had been distributed a proposed report to the Federal Deposit Insurance Corporation On the State competitive factors involved in a planned merger of Pasadena 13enk, Pasadena, Texas, with the First National Bank of Pasadena. In a discussion of this report, suggestions were made for certain modifications in the arrangement of the language of the conclusion, follow'which the report was approved unanimously in a form in which the conclusion l ead as follows: ' The two banks involved are indicated to be highly competitive. In their present locations a combination through merger would eliminate one of the two banking offices and there would be no If competition for Resulting Bank in that section of the city. of area ve competiti the banks move south into the immediately San Jacinto State Bank, the proposed transaction would eliminate one-third of the banking offices and would appear to reduce competition materially and also to effect a 75 per cent concentration Of Pasadena deposits. If viewed in the context of banking resources Of greater Houston, the proposed transaction would appear to have no significant effect from a competitive point of view. However, "with regard to the six-mile service area, as defined by the applicant, the proposed transaction would create a fairly important concentration of deposits in Resulting Bank. Mr. Leavitt then withdrew from the meeting. Fixed asset accounting (Item No. 3). Distribution had been made of rue morandum dated October 11, 1960, from the Division of Bank Operations n, D. C., "Iching a draft of letter to Price Waterhouse & Co., Washingto °171cerning fixed asset accounting by the Federal Reserve Banks. Reference -4- 10/20/60 was made in the memorandum to the action of the Presidentst Conference on September 12, 1960, approving the report on fixed asset accounting submitted by the Committee on Collections and Accounting, as well as to the discussion °f this topic at the joint meeting of the Board and the Presidents on September 13. In commenting on the matter, Mr. Farrell noted that the draft of letter to Price Waterhouse reflected a suggestion by Chairman Martin at the joint meeting on September 13 that the recommendations of the Committee On Collections and Accounting might be submitted to that accounting firm for review and comment in the same manner that previous proposals on the 811biect of fixed asset accounting had been submitted to the firm. Following a suggestion for a change in the wording of the proposed letter in the interest of clarification of intent, unanimous approval was given to a letter to Price Waterhouse & Co. in the form attached as Item 112.1.J, with the understanding that the sending of the letter would be 8111/Plemented by discussions between members of the Boards staff and rePlsesentatives of the accounting firm for the purpose of providing a 1\111 exchange of information. Proposed changes in Weekly Statement of Condition of the Federal Rea, Banks (Item No. 4). There had been distributed to the members of the Board copies of a memorandum from the Division of Bank Operations dated Oct "er 18, 1960, and attachments, relating to two proposed changes in the 14eeklY Statement of Condition of the Federal Reserve Banks which it was 10/20/60 -5- sugge5ted be transmitted to the Reserve Banks for comment. If the contem- Plated changes should be adopted, the total assets and liabilities of all Reserve Banks would be presented on the second page of the statement on a consolidated, rather than a combined, basis and all figures in the statement 14I) uld be presented in terms of millions of dollars, instead of using millions On the first page and thousands on the other three pages. It was noted that the use of combined figures on the second page of the statement resulted in Qverstatement of certain asset and liability items and that the growth of illter-district transactions in recent years had enlarged the differences bettieen combined figures and consolidated figures. In discussion of the proposals, Mr. Farrell reported that in the optnion of the Division of Bank Operations and other interested members of the staff the presentation of the statement would be improved by adoption Of both of the suggested changes. However, it was deemed desirable to btain the views of the Federal Reserve Banks before making any change in (1rder to be certain that no substantial problems, including problems of an ting nature, had been overlooked. After Mr. Conkling had provided background information on considerati011 of the proposals at the staff level over a period of time, Mr. Thomas PX'essed agreement with the suggested changes. He went on to point out, hovev_ 'r) that the Board might wish to consider certain other changes, 'el"ing generally to the definition of U. S. Treasury, foreign, and other 411(18it8) which in his opinion would improve the value of the weekly -6- 10/20/60 statement for analytical purposes. Consideration of such changes would "tail discussion with the Treasury and the New York Reserve Bank, but it you'd not be necessary to defer submission to the Reserve Banks of the changes proposed by the Division of Bank Operations for the purpose of obtaining comments on those proposals. Following discussion of various aspects of the changes mentioned by Mr. Thomas, it was agreed that the staff would submit a memorandum to The Board for consideration, with the thought that, if the Board then so desired, discussion of those items with the interested parties could proceed independently of the collection of comments from the Reserve Banks On the other suggested changes in the weekly statement. At the instance of Governor Balderston, members of the staff c°111slented on the fact that the proposed elimination of the asset item, ?ederal Reserve notes of other Banks, and a corresponding reduction in the liability item, Federal Reserve notes, would cause an increase in the System ratio of gold certificate reserves to total deposit and Ilederal Reserve note liabilities, as set forth on the second page of the veekly statement, since the liability figure would be reduced withe change in total gold certificate reserves. Reserve ratios of the vidual Reserve Banks would of course be unaffected. It was indicated that the staff had given considerable thought to this factor. However, the increase in the System reserve ratio would not be too significant, and an explanation would be made available in 3955 10/20/60 -7- the statement proposed to be issued if the changes in the statement should be aPproved and put into effect. If thought necessary, some explanatory c°mment also could be carried in the statement thereafter. With reference to the step in the consolidation procedure which 14°u1d eliminate the asset item, Federal Reserve notes of other Banks, G Wernor Mills suggested that this might be construed by persons outside the System as indicating a move toward a single Federal Reserve note issue and that this possibility should be kept in mind in reaching a final decision °11 the Proposed changes in the weekly statement. After further discussion, unanimous approval was given to the proP°8ed letter to the Federal Reserve Banks, a copy of Which is attached as item No. 4, with the understanding that a memorandum covering the additional Pc3itIts that had been referred to by Mr. Thomas would be submitted for the 1213ard's consideration. During the foregoing discussion Mr. Shay, Legislative Counsel, entered the room. At its conclusion Messrs. Smith and Eckert withdrew and Me"rs. Molony, Assistant to the Board, and Robinson, Adviser, Division of :Ekeeearch and Statistics, joined the meeting. Absorption of exchange charges. 1960, In a letter dated September 1, the Bank Management Commission of the American Bankers Association Iserltlested modification of the Board's ruling of August to 4, 1960, relative he absorption of exchange charges as payment of interest on demand li'e13°8its so as to provide that member banks be permitted to absorb exchange 10/20/60 °f -8- less than five cents on any one nonpar item or to absorb exchange Charges on nonpar items drawn in amounts of less than $50. The Commission 8180 requested restoration of the ruling that permitted a member bank to absorb exchange up to $2 per month for any one account. In a letter dated °etober 13, 1960, the Association of Reserve City Bankers proposed that .efliber banks be permitted to absorb exchange of less than five cents on allY one nonpar item and that the $2 rule be restored. During informal discussion by the Board, it had been suggested that a meeting be arranged with the Comptroller of the Currency and the directors of the Federal Deposit Insurance Corporation with a view to determining whether there was a position on which all of the three Federal bank supervisory agencies could agree, and the discussion today was for the purpose of determining What views might be expressed by the Board at stleh a meeting. Governor Mills suggested the possibility of a compromise under Which the so-called $2 rule would be restored, but the amount per month that a member bank would be permitted to absorb for any one customer would be increased to perhaps $4 or $5. In making this suggestion he pointed °Ilt that the $2 rule was originally adopted in 1945 and that a large crease had occurred since that time in the volume of checks handled, „ ding presumably a sizable increase in the volume of nonpar items. After a discussion of trends since 1945 in the number, size, and 1°eation of nonpar banks, Governor Mills made the further comment that 4 1 10/2o/60 -9- adoption of the suggestion of the Bank Management Commission which would Permit absorption of exchange up to five cents on any one nonpar item 1/1241-111 appear to permit absorption of a substantial proportion of all exchange charges. " ch a proposal. Accordingly, he would have reservations about accepting On the other hand, restoration of the $2 rule, or some 11113dification thereof, would tend to meet the public relations problem illIT'lved in making charges in trivial amounts to a customer's account. Member banks, clearing house associations, and others Who had written to he Board also had complained of the recordkeeping problem involved in adhering to the Board's recent interpretation, and restoration of the $2 le 'would not appear to meet the recordkeeping problem, but in the view °fG°vernor Mills this argument was not as compelling as the one pertaining t° the public relations problem. There ensued discussion of the effect of restoring the $2 rule, t°1241ring which Governor Robertson indicated that his position was quite -Lar to that of Governor Mills. Consequently, he would be inclined to e31131ore with the Bank Management Commission and the Association of Reserve CitY Bankers their reaction to restoration of the $2 rule, or some modific4ti°11 thereof. If, however, agreement could not be reached on that basis, he ,,- "'4114 be inclined to favor reversing compeletely the Board's position °4 absorption of exchange charges as payment of interest on demand deposits, thersbY adapting a position similar to that of the Federal Deposit Insurance CO -voration. If, as had been indicated to him by one banker, the adoption 10/20/60 -10- Of a proposal such as suggested by the Bank Management Commission and the Association of Reserve City Bankers would permit the absorption of as much as Co or 70 per cent of all exchange charges, it was his feeling that a c°mPlete reversal of the Boardts position might be preferable to acceptance Of such a proposal. Governor Mills withdrew from the meeting at this point. Governor Szymczak indicated that he would be inclined to go along Igith restoration of the $2 rule or some modification thereof, but that he d°1-Ibted whether this would be satisfactory to the Bank Management Commission and the Association of Reserve City Bankers. Governor Shepardson expressed the view that consideration should be ilren to seeking legislation that would clarify the current situation, elislinate confusion, and provide a statute that would be enforceable. In this connection he drew a distinction between provisions of the law relating to absorption of exchange charges as payment of interest on demand deposits 1111cl Provisions of the law requiring the establishment of maximum rates on tirU and savings deposits, pointing out that although the latter provisions Ilve rise to difficult administrative problems, they did not pose the same 131soblems of definition. Governor Shepardson:s comments led to discussion of the unavailability of appropriate penalties for violation of provisions of the law such as those IslitIng to payment of interest on demand deposits, during which it was 1311gge8ted that a penalty in terms of a stated dollar amount per day as long 10/2o/60 -11- as a violation continued might provide a reasonably effective enforcement Procedure and yet not involve a penalty more severe than warranted by the nature of the violation. Further discussion along these lines brought out, aalcMg other things, that hearings might be necessary to determine whether a violation of the law had occurred before the penalty could be assessed. There ensued additional discussion during which Governors Szymczak allci Robertson reiterated that their tentative position would be to go as far as reinstatement of the $2 rule, or something similar, but that if general agreement could not be reached on such an interpretation they %43111c1 go no further and instead would feel that the Boardts position 11°Iild be reversed or that a request for new legislation should be considered. c3vernor Shepardson agreed with the view that an interpretation along the lines of the $2 rule was not likely to gain the support of the banking triti+ -.ernity, particularly since it would not appear to meet the recordkeePing problem. However, he was inclined to feel that he might prefer a e°117Taete reversal of the Boardts position to acceptance of a proposal that 145144 go as far as the proposal of the Bank Management Commission. Reference was made to a plan that had been followed over a period r Years by member banks of the St. Louis Clearing House Association which 4-ved in essence absorption of exchange on all items under $25, collection Charges on items from $25 to $500 according to a prescribed schedule, and e°11action of actual charges on items over $500. A request that the local 10/20/60 -12- clearing house banks be permitted to continue on such a basis WBS contained In a letter from the St. Louis Clearing House Association dated September 14) 1960. The suggestion then was made that the problem of absorption of "change charges be discussed with the Presidents of the Federal Reserve Banks, particularly in the light of the proposals by the Bank Management Coate J-asion and the Association of Reserve City Bankers, and it was agreed that arrangements should be made for such a meeting on Tuesday, October 25, 1'4)11 Wing the meeting of the Federal Open Market Committee. In stating that he would favor such a meeting, Governor Balderston indicated that he was almost at the point of feeling that it might be a'clvicable for the Board to reverse its position on absorption of exchange chm, 'Kes as payment of interest on demand deposits, although he recognized that Such a reversal would be opposed by the banking profession generally. 14 the circumstances, he considered it particularly desirable to obtain the views of the Reserve Bank Presidents at this stage. During the foregoing discussion.Mr. Shay withdrew and Mr. Noyes, til'ector, Division of Research and Statistics, entered the room. Application of Deposit Guaranty Bank & Trust Company. Mr. Solomon lel"ad that representatives of Deposit Guaranty Bank & Trust Company, aacits°11, Mississippi, were meeting today with members of the Boardts staff the Purpose of presenting additional information pertinent to the bankts t15151 ication to merge with the Bank of Hazlehurst, Hazlehurst, Mississippi, 3961 10/20/60 -13- application had been denied by the Board. The question raised by Mr. Solomon was whether it would be preferable that the presentation be made direct to the Board. After consideration of this question, it was the view of the Board that the presentation of the representatives of Deposit Guaranty should be Illade to the staff, that the staff should thereafter analyze the additional inrcIrmation and submit a memorandum for the Boardts consideration, and that the Board should then decide what procedure would be followed. Activity in London gold market. Mr. Molony referred to developments in the London gold market, where speculation had resulted in a rise in the "of gold substantially higher than $35 an ounce, and reported that he 1311 haxl been in receipt of inquiries from the press regarding the situation. After discussion, during which Governor Balderston summarized a tel 14-48 call this morning from the Federal Reserve Bank of New York, it understood that the response to inquiries from the press or others hould be in terms that the Board had no comment regarding the developments In the London market. The meeting then adjourned. , Secretary •' ‘3,'')f;tr-". ti„ BOARD OF GOVERNORS OF THE Item No. 1 10/20/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, O. C. ADDRESS orricoAL CORRESPONDENCE TO THE BOARD October 20, 1960 Board of Directors, Union Bank & Trust Company, Montgomery, Alabama. Gentlemen: In its letter of September 19) 1960, the Board of Governors approved the establishment of a branch at the intersection of Coliseum Boulevard and Pelzer Avenue, Montgomery, Alabama, by Union Bank & Trust Company, provided the branch was established Within twelve months, and with the understanding that the -capital structure of the bank would be increased in the amount of not less than"37001000 through the sale of additional common stock, and the investment in premises for the branch would not exceed 3125,000, under the requirement of the State Banking Department. The foregoing approval is hereby amended to conform with an authorization of the State Banking Department to increase the total investment in bank premises for the branch from ',;',)12,51000 to170,000. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth I. Carmichael, Assistant Secretary. "01% BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 2 10/20/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 20, 1960 Mr. Watrous H. Irons, President, Federal Reserve Bank of Dallas, Dallas 2, Texas. Dear Mr. Irons: The Board has considered the information submitted with Mr. Pondrom's letter of August 9, 1960, concerning the status of Texas Bank and Trust Company ("Texas Bank") as a bank holding eQmPany and a holding company affiliate. It appears clear to the Board that the Texas Bank became holding company on May 2, 1960, the date on which more than 25 per cent of the stock of each of four banks was set up in the assets of the Texas Bank. 4 bank Upon the basis of information before the Board, it further ':!PPears that the Texas Bank is a bank holding company at the present ime because 25 per cent or more of the stock of each of at least two hafilks - West National Bank and First National Bank of Richland - is in trust for the Texas Bank. It is also possible that it u ntrols more than 25 per cent of the stock of each of three other banks t The Texas Bank should, therefore, register as a bank holding corn.„ T -v arW. The Board hereby extends the time within which the Bank must register to December 30, 1960. The information ; 11 the Registr ation Statement, in accordance with the instructions, °41d relate to the time when the Texas Bank became a bank holding e°mParty. However, at the time of filing its Registration Statement, 'III'sxas Bank should also furnish complete information as of that time am--ing upon its current status as a bank holding company, including, -41ng other such information, (1) a statement with respect to the BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. Watrous H. Irons -2- disposition, if any, made of its interest in stock of West National Bank and First National Bank of Richland since the date on which it became a bank holding company; (2) facts concerning the sale to Mr. J. P. Stegall, Jr., of stock of the Powell State Bank and First State Bank of Eustace, including the consideration, if any, Paid therefor, the manner in which such stock is registered, and the extent of any interest, direct or indirac, now held by Texas Bank in such stock; (3) the extent, if any, to which the Texas Bank has et!. direct or indirect interest in stock or First National Bank in nichland, successor to First National Bank of Richland, by virtue Of any verbal or written agreements or understandings or otherwise; aId (4) the status of liquidation proceedings with respect to First National Bank of Richland, including the anticipated time of completion of such proceedings. It further appears to the Board that Texas Bank is a holding company affiliate in that a trustee holds in trust for Texas Bank more than 50 per cent of the number of shares voted for the election of directors of the West National Bank at the preceding election. The trustee could not, therefore, vote the shares unless Texas Bank secures a voting permit. It will be appreciated if you will advise Texas Bank of the Board's views as herein expressed. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE W%op(t. FEDERAL RESERVE SYSTEM WASHINGTON 25. O. C. Item No. 3 10/20/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 20, 1960 Mr. Theodore Herz, Price Waterhouse & Co., 1710 H Street, N. W., Washington 6, D. C. Dear Mr. Herz: Following the meeting of your associates with staff members of the Board and the Subcommittee on Accounting for the Federal Reserve Banks on February 9, 1960, further consideration has been given to the subject of fixed asset accounting by the Federal Reserve Banks. Enclosed is a copy of a memorandum of August 19, 1960 containing recommendations submitted by the Committee on Collections and Accounting of the Conference of Presidents of the Federal Reserve Banks, which were approved. by the Conference °r1 September 12. The Board would appreciate your reviewing and commenting on the proposals approved by the Presidents. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Enclosure 39f; BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. Item No. 4 10/2060 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 20, 1960. DO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS Dear sir: The Board has under consideration a proposal to present the figures on the second page of the weekly Statement of Condition of E4ral Reserve Banks (H.4.1), which shows total figures for all 12 fi s, on a consolidated rather than a combined basis, and to show all • gures in the statement in millions of dollars. The purpose of changing the figures on page 2 to a consoliclated b res . asis is to eliminate the overstatement of assets and liabilities itelliting from the way the items "F. R. notes of other Banks," "Cash arenie in process of collection," and "Deferred availability cash items" ass n°w handled. In the consolidation process here at the Board the corst item "F. R. notes of other Banks" would be eliminated with a hotTlesPonding reduction in the liability item "Federal Reserve notes"; the deferred alimi c°mPonents of float would be reduced by the amount of and the Banks; n'ability Reserve d cash items due to other Federal funds" ed --collect Banks 1,e4sit liability item "Due to other F. R. in reduction ding correspon the d be eliminated when it occurs with a eliminaThese n." collectio tio„asset item "Cash items in process of shel would involve no change in reporting or publishing the balance ,4J of individual Banks except at those Banks with branches where e) lng Practice for convenient accounting is to treat another office irit, "e same district in the same way as another Reserve Bank. The objectives of showing all figures in millions of dollars Wottict millions are easier to use, the appearance of the statement statetriert. be improved, and there would be uniformity within the press at Both of these proposals are set forth in more detail in the tatt 4'ed memorandum. Before taking further action with regard to this er, the Board would like to have the views of the various Reserve aa nks. comments ITJ4 Where the attached memorandum suggests alternatives, ed. appreciat be would thereof ity 'egard to the relative desirabil Very trly y Zricio slares Merritt Sh Liecreta