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Minutes for To: October 24, 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 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. Chin. Martin Gov. Szymczak Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King 4"%ftr Minutes of the Board of Governors of the Federal Reserve System on Monday, October 24, 1960. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Szymczak 1/ Mills Robertson Shepardson Mr. Sherman, Secretary Mr. Thomas, Adviser to the Board Mr. Young, Adviser to the Board Mr. Fauver, Assistant to the Board Mrs. Semia, Technical Assistant, Office of the Secretary Messrs. Noyes, Garfield, Koch, Robinson, Dembitz, Eckert, Keir, Sigel, Solomon, Altmann, Fisher, Manookian, Wernick, and Trueblood of the Division of Research and Statistics Messrs. Hersey, Sammons, Reynolds, Irvine, Katz, Wood, Dahl, Gemmill, and Maroni, of the Division of International Finance Economic review. Members of the staff of the Division of Inter- national Finance discussed recent international economic and monetary developments, including the rise in the price of gold in the London market, 4f.ter which the staff members of the Division of Research and Statistics Ported on domestic economic and credit trends. Governor Szymczak withdrew from the meeting at the conclusion of the economic review. All of the members of the staff except Messrs. Sherman 44a Fauver and Mrs. Semia also withdrew at this point and the following eritered the room: I/ Withdrew from meeting at point indicated in minutes. lo/24/640 -2Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Mr. Johnson, Director, Division of Personnel Administration Mr. Benner, Assistant Director, Division of Examinations Mr. Smith, Assistant Director, Division of Examinations Mr. Young, Assistant Counsel Mr. Rudy, Special Consultant, Legal Division Mr. Leavitt, Supervisory Review Examiner, Division of Examinations Items circulated to the Board. The following items, which had been minutes circulated to the Board and copies of which are attached to these Under the respective item numbers indicated, were approved unanimously: Item No. Letter to Security Trust & Savings Bank, Storm Lake, Iowa, approving the establishment of a branch at 300 West 5th Street. 1 Letter to Union Bank and Trust Company, Ottumwa, ic)wa, approving the establishment of a branch in Agency, Iowa. 2 "International" savings accounts °n (Item No. 3). At its meeting with October 18, 1960, the Board considered a draft of reply, submitted 4lnemornaum dated October 13, 1960, from the Legal Division, to an inquiry from the Federal Reserve Bank of Chicago as to whether the "international counts" plan contemplated for use by the Citizens Bank and Trust Company, 13ark Ridge, Illinois, would comply with Regulation Q, Payment of Interest Orl Deposits. The retention of savings pass books by the bank was Involved in the plan, and during the Board's discussion question was 10/24/60 _3.. raised as to whether the Office of the Comptroller of the Currency had not objected to retention of pass books by national banks. The Board therefore postponed action on the proposed reply to the Chicago Reserve Bank until the Legal Division could get in touch with the Comptroller's Office to clarify that point. A memorandum dated October 21, 1960, from the Legal Division, which had been distributed, reported that it had been learned that the Comptroller Objected to retention of savings pass books by national banks when internal controls surrounding their possession were inadequate. Adequacy of controls liae related to limitation on the easy accessibility to retained pass books, for improper purposes, by officers and employees of the savings department. This point having been clarified, the Legal Division renewed its recommendation that the draft of letter submitted with its memorandum of October 13 be sent to the Federal Reserve Bank of Chicago. After a brief discussion, the letter to the Reserve Bank was 4PProved unanimously. A copy is attached as Item No. 3. Mr. Rudy left the meeting at this point. Use of discount window. As the result of review by the Board of the reports covering the examinations of the Federal Reserve Banks of Minneapolis and Kansas City made earlier this year, letters were sent to those Banks on September 7/ 1960, regarding the use of the discount window. The letter to the Minneapolis Bank inquired about protracted borrowings by *4/0 large banks in Minneapolis, and the letter to the Kansas City Bank inquired about extended borrowings by nine reserve city banks and 23 country fV'1 lo/24/6o banks. -4- In each case the Board asked about the circumstances underlying the use of Reserve Bank credit and the administrative measures employed by the Reserve Bank to encourage the member banks concerned to adjust their affairs so as to avoid frequent recourse to the discount window. The reply from the Minneapolis Bank, dated September 9, 1960, and the reply from the Kansas City Bank, dated October 13, 1960, had been circulated. Mr. Solomon indicated that he and Mr. Smith felt the reply from the Minneapolis Bank gave a generally satisfactory explanation, while the reply from the Kansas City Bank was less satisfactory. Perhaps the replies laPPeared in this light partly because only two banks were involved in the Minneapolis District, whereas 32 banks were involved in the Kansas City District. Mr. Smith had reviewed the borrowings of the banks in question 811bsequent to the dates of the examination reports, Mr. Solomon continued, and found that the two Minneapolis banks had reduced their borrowings in both volume and frequency. However, a number of the banks in question in the Kansas City District were continuing to borrow frequently and in fairly substantial volume. That did not necessarily mean that the borrowing was °11g, he said, because there might be ample justification for it. ' wl On the 0ther hand, there might be some question as to the time being taken by the borrowing banks to aajust their positions so as to obviate the need for i'requent recourse to the discount window. Governor Mills expressed concern about the long-range effect on the administration of the Reserve Bank discount windows if the belief 10/24/60 became circulated that the Board, as contrasted with the Division of Examinations, was making inquiries that might seem to be looking toward Punitive action with respect to discount practices. Although it appeared Probable that there had been a degree of leniency, especially at the Kansas City Bank, country banks in the agricultural districts had perhaps been willing to take on too many nonliquid loans, and thus had become rather constant customers of the discount window. To the extent that the reported borrowings were necessitous, aggressive action on the part of the Board at this time could be more harmful than helpful. The discussion that ensued centered principally around problems faced by banks in the Great Plains States in assisting ranchers and farmers to rebuild herds that had been reduced during the drought that ended in 1956. Governor Shepardson commented, in this connection, that in his °Pinion the herds had been overbuilt at the time of the drought, and since the end of the drought they had been rebuilt to what were considered critically high levels in the minds of a number of knowledgeable people. After further discussion the Board decided not to pursue further at the present time the questions that had been raised regarding the use °f the discount window. It was understood that no acknowledgements would be made of the letters received from the Minneapolis and Kansas City Banks, but that the Board would continue to watch the situation in regard to the extent of member bank city. borrowings at the Federal Reserve Bank of Kansas r ACI1A 10/24/60 -6- Salary for Dallas Reserve Bank officer (Item No. 4). Pursuant to the favorable recommendation of the Division of Personnel Administration, aS set forth in a file that had been circulated to the Board, unanimous aPProval was given to a letter to the Federal Reserve Bank of Dallas aPProving an annual salary for Mr. Philip E. Coldwell, as Vice President in charge of research. A copy of the letter is attached as Item No. 4. Request from Justice Department for services of bank examiner A memorandum from the Division of Examinations and the (Item No Legal Division dated October 21, 1960, had been distributed in connection with a request from the Department of Justice that an experienced bank examiner be assigned to assist the United States Attorney in preparing fOZ the criminal trial of certain officers of the North Shore Bank, a member bank in Miami Beach, Florida, and to act as an expert witness at the trial set for November 14, 1960. The Department also asked that certain records and reports relative to the matter be made available to the examiner, and for review by the United States Attorney. The memorandum indicated that it had been ascertained informally that the Office of the Comptroller of the Currency had received a similar request and would make the services of the District Chief National Bank miner available. It was also understood that the Federal Deposit Insurance Corporation had received a similar request but had not reached a. decision as to its reply. The memorandum further pointed out that aever] years ago, in connection with the same case, the Board was requested 10/24/6o .7-. to make reports of examination available to the United States Attorney aaa that, at the Board's request, an examiner for the Federal Reserve Bank Of Atlanta took the reports to the United States Attorney in Miami for review in the examiner's presence. Mr. Solomon said he had learned informally that the Federal Reserve Bank of Atlanta was somewhat reluctant to comply with the request, teeling that it would be difficult to prove that fraud had occurred and that the pressing of charges was unwarranted. Mr. Solomon commented that the charges did not grow out of facts reported to the Department of Justice bY the Federal Reserve, but out of facts reported by the Home Loan Bank System in connection with the operations of related savings and loan associations. The Reserve Bsnk's attitude was, of course, not necessarily a controiling factor in the Board's decision. Mr. Hackley commented that from a legal point of view the request aPpeared to fall within the scope of section 9(b) of the Board's Rules of °rganization regarding instances in which an officer of a Federal Reserve 1/ank is asked to testify, the Rules providing that he can do so only with the Board's approval. Mr. Solomon said his conversations with the Office of the Comptroller °f the Currency did not indicate that that Office had given a great deal of thclUght to the validity of the charges in the case, its attorneys having felt that there was no alternative to compliance with the request of the JUstice Department. 1o/24/60 -8- Governor Mills expressed the view that it would be in order to allow a bank examiner to appear as an expert witness on examination procedures. However, if it was expected that the examiner would go beyond such role and give testimony regarding material that had been obtained in confidence in the course of examination of a member bank, he thought the request should be carefully studied in the light of the rules of procedure governing disclosure of unpublished material. In such event, he felt that the Board should refuse to permit the examiner to appear except under subpoena. If confidential information were subpoenaed, the Board should then reach a decision as to whether it would comply. Governor Robertson stated that in his opinion, in view of the fact that the Department of Justice had asked the cooperation of the supervisory e*gencies, the Board had no alternative but to comply. One Government 4genCY shouldnothave to resort to a subpoena to get cooperation from another agency. He would be unwilling to assume that this was a political Persecution, as had been alleged, rather than a bona fide criminal proceeding, arld he would suggest assigning the best man in the District to the case. After further discussion it was agreed by a majority of the members °I) the Board, Governor Mills dissenting, that the request of the Department Justice should be granted. It was understood that the reply to the 1)ePartment of Justice informing it of the Board's decision would be worded in sUch a way as to make it clear that the examiner to be assigned would "sist the United States Attorney before the trial only in an advisory 10/24/60 -9- capacity and not in the actual preparation of the case, and that his testimony was to be given only as an expert witness and not as a part of the prosecution. A copy of the letter sent to the Department of Justice pursuant to this action is attached as Item NO. 5. The meeting then adjourned. Secretary's Note: Pursuant to the request contained in a memorandum dated October 21, 1960, from Mr. Entriken, Legal Assistant, Legal Division, Governor Shepardson today granted permission for him to work part-time as Secretary-Treasurer of the Northeast Masonic Temple Association, Inc. -1 , Secretafy 4 I O.« BOARD OF GOVERNORS OF THE Item No. 10/24/60 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. AOORM °maim. COIRRESPO TO THE *CARD October 24 1960 Board of Directors, Security Trust & Savings Bank, Storm Lake, Iowa. Gentlemen: Pursuant to your request submitted through the Federal Reserve Bank of Chicago, the Board of Governors of the Federal Reserve System approves the establishment of a branch at 300 West 5th Street, Storm Lake, Iowa, by Security Trust & Savings Bank, provided the branch is established within six months from the date of this letter. Very truly your (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. OICINCIC BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 2 10/24/60 WASHINGTON 25, D. C. ADDRESS orrsciAL CORRICSOONOICNCE TO THE •OAR0 October 24, 1960 Board of Directors, Union Bank and Trust Company, Ottumwa, Iowa. Gentlemen:. Pursuant to your request submitted through the oederal Reserve Bank of Ghicago, the Board of Governors of the Federal Reserve System approves the establishment of a branch in Agency, Iowa, by Union Bank and Trust Caopany, orovided the branch is established within nine months from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. Item No. 3 10/24/60 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 24, 1960 Mr. Paul C. Hodge, Vice President, General Counsel and Secretary, Federal Reserve Bank of Chicago, Chicago 90, Illinois. Dear Mr. Hodge: The Board has considered the "International Accounts" Plan of Citizens Bank and Trust Company, Park Ridge, Illinois, as detailed in the information submitted with your letter of August 17, 1960. The Application-Agreement Form contains a statement, "That my INTERNATIONAL SAVINGS pass book is to be retained by the Bank and held as representing my INTERNATIONAL SAVINGS ACCOUNT collateral, and --", which the Park Ridge bank has requested permission to delete and to issue written receipts for each deposit in lieu of a pass book. The plan contemplates retention of the pass book accompanied by authority in the bank to make withdrawals to repay loans in the event a payment is not made within seven days after a check has been cashed. Section 217.1(e) of Regulation Q provides that withdrawals are permitted upon presentation of the pass book through payment to the person presenting the pass book. It is also provided that 'rhe presentation by any officer, agent or employee of the bank of a pass book or a duplicate thereof retained by the bank or by any of its officers, agents or employees is not a presentation of the pass book within the meaning of this part except . . . where the pass book is held by the bank as security for a loan." The credit account is established at the time of the opening of the Savings account; however, loans are considered as coming into existence only when a check drawn against the credit account is cashed. Consequently, at the time the pass book is presented in connection with a withdrawal it would be held as security for a lean. It is the Board's view, therefore, that the above-mentioned exception of section 217.1(e) is applicable and that the plan, 48 submitted, conforms to Regulation Q. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Hr. Paul G. Hodge The Citizens Bank and Trust Company has asked permission to delete the above-quoted provisions concerning pass books and issue written receipts for each deposit. Section 217.1(e) provides that "Savings Deposit" also means a deposit evidenced by a written receipt or agreement although not a pass book. However, when the deposit is so evidenced, "Withdrawals are permitted only through payment to the depositor himself but not to any other person whether or not acting for the depositor." This quoted portion of Regulation Q would prevent a withdrawal from the savings account at the end of seven days to pay a loan, should no new payment occur Within such period. It is the Board's view that the plan would violate the terms of Regulation Q0 should written receipts be issued in lieu of the pass book. It would be appreciated if the Board's views would be communicated to the Citizens Bank and Trust Company. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Q BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. WASHINGTON 25. O. C. 10/24/60 4 ADORES* OffiCIAL COMIIIMPONOINCIE TO The SOAR* OctOber 24, 1960 pONFIDENTIAL (FR) Mr. Watrous H. Irons President, Federal Reserve Bank of Dallas, Dallas 20 Texas. Dear Mr. Irons: The Board of Governors approves the payment of salary to Mr. Philip E. Coldwell as Vice President (in charge of Research) of the Federal Reserve Bank of Dallas at the rate of $17,000 per annum for the period November 1 through December 31, 1960, which is the rate fixed by your Board of Directors as reported in your 'letter of October 13. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 5 10/24/60 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORREBPONDENCC TO THE BOARD October 25, 1960. 4. Malcolm Richard Wilkey, Assistant Attorney General, T,Crilninal Division, united States Department of Justice, 1444angt0n 25, D. C. Attention: Re: Ni'. Nathaniel E. Kossack, Chief, Fraud Section. United States v. Baron de Hirsch Meyer, Leonard L. Abess, W. George Kennedy, and Sam R. Becker. fliami, Florida (ERN:NEK:baj 29-18-243) Mr. Wilkey: This is a reply to your undated letter received October 21, 1960, ;1 1 1.ch refers to the request made by Assistant United States Attorney Brons of Miami, Florida, that an examiner from this office be 11 .eY 47 elgned to him to advise in the preparation of the above case. It is the Board's understanding that the examiner would be used r()r,the purpose of informing Mr. Brons about banking practices and pos84 Y of testifying in an expert capacity. Er. Brons yesterday telephoned stated that the services of the examiner would be needed for the : 011111°d between now and the trial on November 14, 1960, and for approximately e additional week after the trial date. The Board has considered your written request for the above stated I311rPos Ber,. e and has authorized Er. Nalcolm Bryan, President of the Federal Resend an examiner to your office in Miami as Bank of Atlanta, 0 t4:e -LY as possible. The arrangements necessary to send an examiner may little time since these men are assigned to examinations in the al:'n District. However, every effort will be made to make a man available kr:n early date. It is contemplated that any records which the Reserve eiders pertinent will be sent with the examiner for review by the thlit ed States Attorney. Very truly(yoUrs, ./' e\•"\ Merritt Sher n, Secretary: Governor Mills' memorandum of December 271 1960 together with Mr. Sherman's memorandum of the same date, was circulated to all members of the Board with the minutes of October 25 1960. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Correspondence Date December 27, 1960 Subject: Reference is made to the attached memorandum from Governor Hills ng the minutes of the meeting of the Board held on October 25, 1960, lch he states that he is not initialing these minutes because he feels or' should be expanded beyond the mere reference to the informal discussion ault cash and reserve requirements that took place at that time. reCardi Since a detailed record of the informal discussion on October 25 tw% ii8t11°t kept by the Secretary, it was not possible to write the minutes for Ohq 8essi0n in as much detail as is customary for most Board meetings. Inall Martin had asked that the meeting be called with only limited attt : the'ndance for the purpose of having an exploratory exchange of ideas on I'larksnject of vault cash in advance of that morning's meeting of the Open actie 'Committee. He pointed out that he did not have in mind that any re :n would be taken or decision reached at that meeting of the Board ' 44' 14(14j-11g the subject. Because of the nature of this meeting, which was -ively brief, notes were made only of the main points of the discussion-40t,' comments. The substance of some of these notes was inthc)rated by reference in the paragraph starting on page 5 of the minutes Meeting on October 26, 1960, at which point there is presented a of the comments of Governor Mills. The October 26 minutes are acti,--eu to present the views of all members of the Board leading to the -11 taken on that date. ehllent December 27, 2960. Mr. Sherman Minutes of October 25, 100 Governor Mills The Minutes of the meeting of the Board of Governors on 2!tober 25 are continued in circulation without my initialing. The butes of October 25 were a precursor of the Minutes of October 26 which the subject of vault cash and reserve requirements was re. to a decision. If our Minutes are to have value, those for rtdbor 25 should be expanded beyond the mere reference "There fo1r‘led an informal discussion" to give the spirit and extent of that gi scussion. at klaithbw
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