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Minutes for

To:

Members of the Board

From:

Office of the Secretary

October 20, 1965

Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.

Chm. Martin
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel

41. 11
If)
4LIOC)4_./

Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, October 20, 1965.

The Board met in the Board Room

at 10:00 a.m.
PRESENT:

Mr.
Mr.
Mr.
Mr.
Mr.

Balderston, Vice Chairman
Robertson
Shepardson
Mitchell
Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Broida, Assistant Secretary
Young, Adviser to the Board and Director,
Division of International Finance
Mr. Molony, Assistant to the Board
Mr. Cardon, Legislative Counsel
Mr. Fauver, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Brill, Director, Division of Research
and Statistics
Mr. Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of Examinations
Mr. Shay, Assistant General Counsel
Mr. Sammons, Adviser, Division of International
Finance
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Sprecher, Assistant Director, Division
of Personnel Administration
Mr. Young, Senior Attorney, Legal Division
Miss Eaton, General Assistant, Office of the
Secretary
Mr.
Mr.
Mr.
Mr.

Ratification of actions.

Actions taken at a meeting of the

a vailable members of the Board on Monday, October 18, 1965, as recorded
trl the minutes of that meeting, were ratified by unanimous vote.
Discount rates.

The establishment without change by the Federal

Reserve Bank of Atlanta on October 19, 1965, of the rates on discounts

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10/20/65

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and advances in its existing schedule was approved unanimously, with
the understanding that appropriate advice would be sent to the Bank.
Circulated or distributed items.

The following items, copies

of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to Provident International Corporation,
Philadelphia, Pennsylvania, approving an amendment
to its articles of association.

1

Letter to the Federal Reserve Bank of Kansas City
waiving the assessment of a penalty incurred by
First National Bank, Chanute, Kansas, because of
a deficiency in its required reserves.

2

Letter to Federal Reserve Bank of New York approving
the payment of salaries to five officers at rates
fixed by the Bank's Board of Directors.

3

Request of Michigan National Bank.

A memorandum from the Legal

Division dated October 13, 1965, on a matter involving Michigan National
Bank, Lansing, Michigan, had been distributed to the Board.

In a letter

dated September 17, 1965, from Mr. Howard J. Stoddard, Chairman of the
Board of Michigan National Bank, a request had been made for a hearing
before the Board at its earliest convenience.

Mr. Stoddard's letter,

a ddressed to Chairman Martin, referred to the unfavorable report made
by the Board on September 8, 1965, to the Senate Banking and Currency
C ommittee on S. 308, a bill to permit the establishment and operation
of certain branch offices by Michigan National Bank.

cyq
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10/20/65

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In discussion, Mr. Young (Legal) commented that he gathered the
Principal point Mr. Stoddard would discuss, if he appeared before the
Board, related to the question of whether an error of law was made by
the Comptroller of the Currency in 1940, as a consequence of which
Michigan National Bank had been denied the privilege of operating four
branches since that time.

This question had been discussed fully before

the Senate Banking and Currency Committee at hearings during a previous
session of Congress.

The Board members would in effect be sitting as

Judges on a question of law.

This would be unusual, Mr. Young said, and

it seemed to him Mr. Stoddard should make his case before a Congressional
Committee rather than before the Board.
Mr. Hackley noted that the bill considered at the earlier session
had been strongly opposed by a number of parties such as the Michigan
State Banking Commissioner, the Michigan Bankers Association, the Independent Bankers Association, and the National Association of Supervisors
°f State Banks, as well as by various banking competitors of Michigan
National Bank.

To allow Mr. Stoddard to appear before the Board to argue

his case without also allowing the opposition to appear might put the
Board in a bad light, he felt.

He mentioned, incidentally, that Mr.

S toddard had spoken of political factors that entered into the decision
°f Michigan National not to litigate the Comptroller's interpretation
in 1940.
Governor Robertson, who as Deputy Comptroller of the Currency
Was one of those familiar with the interpretation in 1940, said that as

33'?
10/20/65

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he recalled the bank's lawyers had agreed that it was a proper interpretation of the law.

It was not until several years later that the bank came

in and asked for review.
by the Comptroller.

After such review the same conclusion was reached

Any intimation of political influences was most

unfortunate.
Governor Daane commented that he felt the Board's position in
its letter of September 8, 1965, was the correct one.

However, the ques-

tion now before the Board was whether it should deny a member bank the
right to be heard.

The Board's practice had been normally to accede to

such a request.
Governor Robertson noted that the decision at issue was not one

the Board could reverse; the Board had nothing to do with the interpretation.

The Congress had sought the Board's views on pending legislation,

Which had been given, and now the bank wanted to intercede.

However,

the Board, in this instance, was not in the role of an agency with independent power to act.

He felt it would be inappropriate, in the circum-

s tances, to permit Mr. Stoddard--or opponents of the proposed legislation--to appear before the Board.
Governor Mitchell agreed that apparently there was little the
Board could do, but he was inclined to feel that Mr. Stoddard probably
Should be allowed to come in and talk to the Board about his problem if
he wished.
Mr. Hackley noted that this was a legal problem involving the
Comptroller of the Currency.

The Board was merely asked to provide a

de

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10/20/65

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report on the pending bill.
views of Governor Robertson.

Therefore, he agreed generally with the
On the other hand, if the Board wanted

to arrange for Mr. Stoddard to come in and express himself, no harm
Probably would be done.

But if the Board was inclined to reverse its

report, it would be appropriate to hear the opposition also.
Governor Shepardson felt no purpose probably would be served in
Mr. Stoddard's meeting with the Board.

However, he thought there was

something to be said for maintaining the practice that the Board had
customarily followed in being willing to listen to member banks on matters
of concern to them.

It should be clear in any letter the Board might

send to Mr. Stoddard that the Comptroller's interpretation was a matter
outside the jurisdiction of the Board, but if Mr. Stoddard still wanted
to come in, the Board could provide him an opportunity, if only as a
matter of courtesy.
Governor Balderston commented that he thought the question was
largely one of public relations.

He gathered the sentiment of the Board

members was that nothing probably would be accomplished by hearing Mr.
S toddard, except that he could not then say he had asked the Board to

hear his bank's case and had been refused.
It was the consensus, from which Governor Robertson dissented,
that a letter along the lines suggested by Governor Shepardson should
be prepared and sent to Mr. Stoddard.

It was not thought necessary to

set a date for a possible appearance at this time; if Mr. Stoddard still
wanted to come in after receiving the Board's letter, a date could then
be arranged.

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10/20/65

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Mr. Young (Legal) withdrew from the meeting at this point.
Loan of personnel to Bank for International Settlements.

Mr.

Sammons reported that the Federal Reserve Bank of New York was prepared
to make the services of George Bossy, an economist in the Research
Department, available to the Bank for International Settlements on the
basis of a six-month leave of absence without pay.

This would follow a

Procedure the Reserve Bank had followed in the past of making staff members
available from time to time to the Bank for International Settlements.
The proposal was noted without objection, it being understood
that the New York Bank would be advised to this effect.
Mr. Sammons withdrew from the meeting at this point.
Bank merger legislation.

Mr. Cardon advised that a bank merger

bill (H.R. 11489) apparently had been reported by the House Banking and
Currency Committee.

There was some question whether the meeting at which

it was decided to report the bill was a legal one, the Chairman of the
Committee contending it was not.

In any event, however, it appeared

that a report on the bill had been filed last night with the Speaker of
the House.

Congressman Ashley, a member of the Committee, had requested

°rally that the Board furnish its views on the bill, on the basis that

the Committee had authorized him to act in place of the Chairman of the
Committee to bring the bill before the House.

Reports had also been

asked of the Federal Deposit Insurance Corporation and the Treasury.
Mr. Cardon went on to mention that following receipt of Congressman Ashley's request, there had been distributed for the Board's consideration a draft of possible letter to Congressman Ashley reading as follows:

,
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10/20/65

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You have asked for the views of the Board of Governors
on H.R. 11489, relating to bank mergers. The Board recommends enactment of the bill.
The bill would eliminate much of the hardship and
confusion that have arisen from the apparently contradictory
provisions of the Bank Merger Act of 1960 on the one hand
and the Sherman and Clayton Acts on the other, by providing
uniform standards by which bank mergers shall be judged in
the future, not only by the bank supervisory agencies but
also by the Attorney General and the courts in suits instituted under the antitrust laws. In addition, the bill would
help to avoid the hardships and inequities of divestiture
proceedings in the future, not only by providing for a
reasonable time limit on antitrust suits to challenge an
approved merger, but also by providing that if such a suit
is brought the merger may not be consummated until the suit
is decided "unless the court shall otherwise specifically
order."
As to past mergers, opinion on the Board is divided, as
indicated by the testimony of the Board members during the
hearings on S. 1698. A majority of the Board members support
the provisions of H.R. 11489; a minority of the members question the wisdom of extending antitrust immunity to mergers
that have been challenged in court.
Subsequently, Mr. Cardon continued, it was learned that the bill
contained an amendment, reportedly included at the request of Congressman
°ttinger, which seemed to present certain problems.

He distributed copies

of the amendment.
Mr. Shay pointed out that the Ottinger amendment would in effect
seem to prevent approval of any bank merger unless it was found that the
transaction did not violate the antitrust laws.

There followed an excep-

tion indicating that the responsible agency, the Attorney General, and
any court reviewing the legality of such a transaction should take into

33(1
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-8-

account the effect on the public interest and the community to be served
of six enumerated banking factors.

Taken together, it could be argued

that the foregoing language might not amount to too much of a change in
the standards pursuant to which proposed mergers were considered, but
the Ottinger amendment concluded with the following statement:

"A merger

transaction which tends to lessen competition may be approved where the
Probable adverse competitive effect thereof is clearly outweighed in the
Public interest by the probable effect of such transaction in meeting
the convenience and needs of the community to be served."

In total, Mr.

Shay said, the Ottinger amendment--particularly in view of the seemingly
contradictory element introduced by the inclusion of the final sentence-could mean different things to different people and could create additional confusion in the administration of bank merger legislation.
Governor Balderston noted that the Board, if it submitted a report,
a pparently would have to report on the bill as a whole.

It could not

ignore the Ottinger amendment.
Mr. Cardon commented that the only thing that evidently would
be useful to Congressman Ashley at this time would be a favorable report,
W ithout qualification.
Governor Daane saw much to be gained by passage of the Ashley
bill.

The question in his mind was whether the language of the Ottinger

a mendment was troublesome enough to warrant a report that might kill any
Chance for the enactment of legislation at this session.

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10/20/65

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Mr. Hackley remarked that the principal, and desirable, objective
of the Ashley bill was to provide some element of certainty.

After thirty

days, merging banks would know whether they were safe from the filing of
antitrust action.

However, he was inclined to agree with Mr. Shay that

the Ottinger amendment might well give rise to more differences of interpretation than had existed to date.

Also, the Board would be in the

Position of having to determine whether a bank merger would violate not
Only the Clayton Act but the Sherman Act.
In further discussion Governor Mitchell said it seemed to him
the amendment was badly drafted, and Governor Daane said he would not
disagree.

He inquired whether it would be feasible to have some change

made in the language of the proposed legislation that would allow the
Board to report favorably.
Mr. Cardon then suggested awaiting developments, including indication of the nature of the Treasury report, and it was decided to follow
this suggestion.
Governor Robertson observed that he was in favor of waiting and
moreover that he questioned the advisability of the Board's injecting
itself at all into the situation as it had developed in the House, especially by taking a position that would recommend the enactment of a bill
including the Ottinger amendment.

From his point of view, not only was

the bill bad because it contained the retroactive feature, but also
because the Board for the first time would have to take into consideration

10/20/65

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the provisions of the Sherman Act as well as the Clayton Act.

Further,

he agreed that the last sentence of the Ottinger amendment was inapproPriate and would lead to confusion.
Meeting dates for Open Market Committee.

There had been dis-

tributed a memorandum from Mr. Broida dated October 19, 1965, suggesting
Possible dates for meetings of the Federal Open Market Committee in 1966.
The schedule called for 15 meetings, spaced at either three or four-week
intervals.
The Board, after discussing the schedule set forth in the memorandum, noted that the matter would be brought up at the meeting of the
Open Market Committee to be held on November 2, 1965.
Directors Day.

Governor Shepardson referred to a memorandum

from Mr. Morgan, Staff Assistant, Board Members' Offices, suggesting the
date of March 24, 1966, for Directors Day, with a dinner to be given for
the Reserve Bank directors attending the meeting on the evening of March 23.
The Board agreed that the suggested date was appropriate.
The meeting then adjourned.
Secretary's Notes: On October 19, 1965,
Governor Shepardson approved on behalf
of the Board memoranda recommending the
following actions relating to the Board's
staff:
-Perrilissi

ae in outside activities

Paul F. Quirante, Jr., Statistical Clerk, Division of Research and
Statistics, to work for a local music store on a part-time basis.
Dorothy M. Vereb, Statistical Clerk, Division of Bank Operations,
t0 work as cashier at a local theater on a part-time basis.

4r.147

4.-)t

10/20/65

-11Governor Shepardson today approved on
behalf of the Board the following items:

Letters to the Federal Reserve Bank of San Francisco (attached
.1..5.L2LITLI) approving the appointment of James E. Denson and Lewis A.
Reeves, Jr., as assistant examiners.
Memoranda recommending the following actions relating to the
Board's staff:
aal...ga increases

effective October 24

1965

Ketty Anagnos, Statistical Assistant, Division of Research and
S tatistics, from $5,330 to $5,495 per annum.
Gloria U. Harper, Secretary, Division of Research and Statistics,
from $5,690 to $5,875 per annum.
Ruth Logue, Economist, Division of International Finance, from
$12,025 to $12,380 per annum.
John A. Marlin, Economist, Division of International Finance,
from $7,220 to $7,465 per annum.
A

Eleanor E. Omohundro, Analyst, Division of Bank Operations, from
7,955 to $8,200 per annum.
..c.ptance of resignation

Audrey Litman, Statistical Clerk, Division of Data Processing,
effective at the close of business October 29, 1965.

reta

Item No. 1
10/20/65

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OfilOIAL OORRIESPONOCNCIC
TO THIC 1110ARD

October 20, 1965.

1441dent International Corporation,
!
°road & Chestnut Streets,
hiladelphia, Pennsylvania.
Ge
ntlemen:
er 30, 1965,
Reference ie made to your letter dated Septemb
tra
, encloselphia
Philad
of
Bank
Reserve
nsmitted through the Federal
sharethe
of
meeting
l
specia
a
at
adopted
S copy of a resolution
es
Articl
g
nc'uere of your Corporation of September 30, 1965, amendin
to
stock
Association of your Corporation to increase the capital
$100 each.
250,000 consisting of 22,500. shares of the par value of
'

Z

t to the proIn accordance with the request, and pursuan
effective
se vile of Section 211.3(a) of Regulation K, as revised
nt to
amendme
A Ptember 1, 1963, the Board of Governors approves the
tticie SEVENTH of your Articles of Association.
re will be
It is noted that your present capital structu
ent National
Provid
to
tA vceased by the sale of 2,500 additional shares
shown as
be
will
00
Philadelphia, for $500,000, of which $250,0
'41Pital surplus.
the capital inPlease advise the Board of Governors when
cr
eciee has been effected.
Very truly yours,
(Signed) Karl E. Bakke

Karl E. Bakke,
Assistant Secretary.

t
•

BOARD OF GOVERNORS

a'
t

A

Item No. 2
10/20/65

OF THE

FEDERAL RESERVE SYSTEM
'0. C. 20351
WASHINGTON
ADDRCIIII OFFICIAL DORRIEMPONDENDE
TO THE BOARD

October 20, 1965

Mr. John T. Boysen, Vice President,
Federal Reserve Bank of Kansas City,
Kansas City, Missouri. 64106.
Dear Mr. Boysen:
This refers to your letter of October 6, 1965, regarding
the penalty of $104.08 incurred by the First National Bank, Chanute,
Kansas, on a deficiency in its reserve account for the computation
Period ended September 29, 1965.
It is noted that (1) the deficiency resulted because a
new employee responsible for computing the bank's reserve position
used Federal Reserve balances reflected on the bank's books instead
of the balances from the daily statements forwarded to the member
bank by your Bank; (2) the error was not detected until after the
computation period had ended, although the bank has good internal
controls and procedures; and (3) since 1961, the bank has had
(411Y five small deficiencies, for which the penalties were waived
by your Bank.
In the circumstances, the Board authorizes your Bank to
waive the assessment of the penalty of $104.08 for the period ended
September 29, 1965.
Very truly yours,

(Signed) Merritt Sherman

Merritt Sherman,
Secretary.

I

Item No. 3
10/20/65

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADO

CSI ornoim. OORMICIIPONOINOC
TO THC 110ARD

October 20, 1965

9SNFIDENTIAL
Mr. William F. Treiber,
First Vice President,
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Treiber:
The Board of Governors approves the payment of salaries to
officers of the Federal Reserve Bank of New York listed below, for the
period October 1 through December 31, 1965, at rates indicated, which
are those fixed by your Board of Directors as reported in your letter
of September 30, 1965..

Name
Bruce K. MacLaury
Thomas M. Timlen, Jr.
Richard A. Debs
Ernest E. Blanchette
Betty Jean Shea

Annual
Salary

Title
Assistant Vice President
Assistant Vice President
Secretary, and
Assistant Counsel
Manager, and
Assistant Secretary
Assistant Counsel

821,000
23,500
18,000
16,000
14,500

The Board has noted the changes in assignments of these and
Other officers referred to in your letter.
Very truly yours,
(Signed) Merritt Sherman

Merritt Sherman,
Secretary.

Item No. 4
10/20/65

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD

October 20, 1965

Mr. E. H. Galvin, Vice President,
Federal Reserve Bank of San Francisco,
94120
San Francisco, California.
Dear Mr. Galvin:
In accordance with the request contained in
Mr. Davenport's. letter of October 13, 1965, the Board approves the appointment of James E. Denson as an assistant
examiner for the Federal Reserve Bank of San Francisco,
effective today.
Very truly yours,
(Signed) Elizabeth L. Carmichael

Elizabeth L. Carmichael,
Assistant Secretary.

M
Item No. 5
10/20/65

BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRIEBB OrrICIAL CORRIEBPONDENCE
TO THC BOARD

October 20, 1965

Mr. E. H. Galvin, Vice President,
Federal Reserve Bank of San Francisco,
San Francisco, California. 94120
Dear Mr. Galvin:
In accordance with the request contained in
Mr. Davenport's letter of October 14, 1965, the Board
approves the appointment of Lewis A. Reeves, Jr. as
an assistant examiner for the Federal Reserve Bank of
San Francisco, effective today.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.