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9/61
Minutes for October 25, 1962
To:
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. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
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Federal Reserve Bank of St. Louis
411(-33
Minutes of the Board of Governors of the Federal Reserve System
°A Thursday, October 25, 1962.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Robertson
Shepardson
King
Mitchell
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. 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. Noyes, Director, Division of Research and
Statistics
Mr. Farrell, Director, Division of Bank
Operations
Mr. Kelleher, Director, Division of Administrative
Services
Mr. Harris, Coordinator of Defense Planning
Mr. Hexter, Assistant General Counsel
Mr. Shay, Assistant General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Kiley, Assistant Director, Division of
Bank Operations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Thompson, Assistant Director, Division of
Examinations
Mrs. Semia, Technical Assistant, Office of the
Secretary
Miss Hart, Senior Attorney, Legal Division
Mr. Potter, Senior Attorney, Legal Division
Mr. Doyle, Attorney, Legal Division
liport on emergency measures.
kr, Rarris
At Chairman Martin's request,
reported on the System's emergency planning program, against
the
background of the President's announcement on October 22, 1962, of
Et
(14
arantine on shipments of offensive military weapons to Cuba.
Mr. Harris then withdrew.
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Federal Reserve Bank of St. Louis
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Mr. Young reported on developments in foreign exchange and gold
plarkets following the onset of the present international crisis.
Circulated or distributed items.
The following items, copies
r)f which are attached to these minutes under the respective item numbers
iadicated, were approved unanimously:
Item No.
Letter to Union Bank, Los Angeles, California,
14
415.1)
, r0v1ng the establishment of a branch near
"4-4th and Main Streets.
1
legram to the Federal Reserve Bank of Chicago
IlterPosing no objection to the rental, with
!
Chase option, of a second complement of
roughs B-270 electronic check processing
2
morandum from Mr. Kelleher recommending
e3cecuti0n of an agreement between the Board
General Services Administration under which
tr Federal Reserve System would be afforded
Ce economies of multiple group communication
Te
ellifts offered by the American Telephone and
b,-egraPh Company. (The agreement was executed
/
96the
1 .) Secretary of the Board on October 26,
3
tetter to
pr
the Chairman of the Conference of
cieesidents regarding the execution of the agreement
scribed under Item No. 3.
11.
Z
tetter to Citizens Bank & Trust Company, Park
5
a cige, Illinois, granting the bank's request for
ot 4
her extension of time for discontinuance
8 United Security Account plan.
14t
w,erpretation of Regulation T regarding the timp
Wed for payment for mutual fund shares purchased
4a
the understanding
that special cash account. (With
rai a copy would be sent to the law firm that had
14 zed the question and that it would be published
the Federal Register and the Federal Reserve Bulletin.)
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Federal Reserve Bank of St. Louis
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4/25/62
With respect to Item No. 5, there was a discussion during which
certain changes in the wording of the draft letter that had been
distributed were agreed upon; the letter in the form attached to these
Ininutes reflects those changes.
Application of Virginia Commonwealth Corporation (Items 7 and
8
1)4rsuant to the decision reached at the meeting on October 11, 1962,
the
had been distributed a proposed order and statement reflecting
tile Boarcps
approval of the application of Virginia Commonwealth
e°rPoration, Richmond, Virginia, to acquire more than 50 per cent of the
vcting shares of The Bank of Virginia, Richmond, Virginia; The Bank of
Sandston, Virginia; The Bank of Salem, Salem, Virginia; The
tkilk
of Occoquan, Occoquan, Virginia; and Bank of Warwick, Newport News,
Virginia.
After discussion during which an editorial change in the statement
%148 suggested and adopted, the issuance of the order and statement was
-1-4'4 q.19-
Copies of the order and statement, as issued, are attached
44 Items 7 mid
8.
Messrs. Farrell, Kelleher, Hooff, Kiley, Thompson, and Potter
thell vithdrew, as did Miss Hart, and Mr. Furth, Adviser, Division of
Illternational, Finance, entered the room.
Testimony by bank examiner (Item No. 9).
Mr. Shay reported that
—1241. received a telephone call from Mr. Rudy, General Counsel of the
Reserve Bank of Dallas, who stated that one of the Bank's
e:d4Liners had been subpoenaed to testify on Monday, October 29, 1962,
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Federal Reserve Bank of St. Louis
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at the trial of criminal charges involving a disappearance of funds of
Pirst State Bank, Premont, Texas. (The operations of this bank had been
848Pended effective December 30, 1961.) The examiner would be expected
to testify to the effect that during the December 1961 examination of
the bank five promissory notes had been placed in the bank's vault,
/14ich notes were removed under circumstances tending to incriminate an
°1‘ricer of the bank.
At the time of the incident the examiner had
"ten a memorandum about it to former Vice President Pondrom of the
1-las Reserve Bank, and the examiner might be asked to place that
'
1)8
1/1e111°randum in evidence.
Two questions were therefore presented:
first,
/4Iether the Board would offer any objection to the examiner's testifying,
841 second, if he did testify, whether the Board would object to having
the memorandum supplied for the trial record. Mr. Rudy recommended
the.. no objection be interposed in either regard.
In continuing, Mr. Shay stated that he and Mr. Leavitt had been
gOi
-~416 through a copy of the examiner's memorandum, but had been unable
t° °°mPlete their review of it before this meeting.
Thus far they had
r°44d nothing in the memorandum that would seem to point to the
Lladvisability of allowing it to be placed in evidence.
He suggested
that) if the Board saw fit to interpose no objection, Mr. Rudy not be
4°tiried of that decision until review and evaluation of the memorandum
e°41d be completed.
After discussion the Board agreed to interpose no objection to
the
examiner's testifying at the coming trial or to his furnishing to
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Federal Reserve Bank of St. Louis
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the court, if requested, his memorandum regarding the incident in
question, on condition that completion of the review of the memorandum
bY the Board's staff did not disclose any consideration that, in the
°Pinion of the Legal Division, constituted grounds for interposing an
ob
jection.
Secretary's Note: The completion of
evaluation of the memorandum not having
developed any information that the Legal
Division considered prejudicial to the
interests of the Federal Reserve System,
a telegram in the form attached as Item
No. 9 was sent later in the day to inform
Mr. Rudy of the position taken by the
Board.
Mr. Shay then withdrew.
Status of Bank for International Settlements (Items 10 and 11).
there had
been distributed a memorandum dated October 24, 1962, from
Rackley relating to the question whether the Bank for International
Sett
lements, Basle, Switzerland, was covered by the October 15, 1962,
41flerdment to section 19 of the Federal Reserve Act (Public Law 87-827)
s
e3celliPting certain foreign institutions from interest rate limitation
(41 time deposits.
The memorandum described views conveyed to the Board's
te(°11 Division by counsel for the Treasury and the New York Reserve
4411k, both of which organizations were hopeful that the Board would
l'eakl an affirmative decision on the question.
However, after consideration
reached the conclusion
or the arguments on each side, Mr. Beckley had
that the
position that the Bank for
better legal arguments supported the
Illternational Settlements was not covered by the amendment to section 19.
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Federal Reserve Bank of St. Louis
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Although expressing this opinion, he noted that persuasive arguments
had been made in support of an affirmative view, particularly the
lOgument that coverage of the Bank for International Settlements would
be consistent with the underlying intent and purposes of the statute.
Those arguments could, of course, be relied upon if the Board should
clecide to adopt that position.
The Federal Deposit Insurance Corporation had a parallel interest
14 the matter insofar as nonmember insured State banks might receive
time deposits from the Bank for International Settlements.
111
It was the
of the corporation's General Counsel that the Bank for International
kt
tlements was not clearly covered by the statute, but that the opposite
13°81tion could be taken on the ground that coverage would be consistent
llith the intent and purposes of the statute.
Attached to Mr. Hackley's memorandum was a second memorandum
cle .d. October 24, 1962, discussing in detail the question whether or
4c)t the recent legislation covered the Bank for International Settlements.
The
waendment to section 19 accorded exemption from interest rate
littutations to three categories of institutions:
(1) Foreign governments;
(2) Monetary and financial authorities of foreign
governments when acting as such; and
financial institutions of which
International
(3)
the United States is a member.
01*1°11815r, the Bank for International Settlements was not a foreign
Rovertiment.
Consequently, it would have to fall in either category
(2) 0
r category (3) in order for its time deposits to be exempt from
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Federal Reserve Bank of St. Louis
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10/25/62
interest rate ceilings.
Whether there was reasonable ground for coverage
of the institution under either category would seem to depend upon
vhether its organization, powers, and functions were such as to bring
it 'within the language of the statute.
The memorandum then explored in some detail the purposes, history,
°IlLanization
and nature of the Bank for International Settlements.
It
seemed clear that the Bank was an "international financial institution."
Therefore, it seemed appropriate to inquire whether the United States
14118 a "member" of the Bank.
Exsmination of this aspect of the matter
led to the conclusion that, while it might be assumed that the United
States could become a "member" of the Bank for International Settlements
'
rc'
z Purposes
of Public Law 87-827, it was not now a member.
The memorandum next weighed the question whether the Bank for
14terna4 i0nal Settlements acts as a monetary or financial authority of
t°teign governments, presenting a number of arguments on each side of
that question.
After considering those arguments, Mr. Hackley's opinion
VELE that,
as a legal matter, the arguments against classifying the
)3ank for International Settlements as a monetary or financial authority
r•
°reign governments were more supportable in logic and in the light
Or the
language of the statute than those in favor of coverage.
At the beginning of the discussion at this meeting, Mr. Hackley
SIL1/11v.._
lzed the elements bearing upon the issue.
In response to a
tille"lon by chairman Martin as to whether it would make a real difference
the situation if the Federal Reserve were technically a member of
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Federal Reserve Bank of St. Louis
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0".
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-8-
the Bank for International Settlements, he expressed the belief that it
would.
The statutes of the Bank, as they now stood, cited the Federal
Reserve Bank of New York rather than the Board of Governors as the
central bank of the United States.
If the statutes were amended, the
lIederal Reserve could become a member of the Bank and that institution,
14 his judgment, then would fall within the third category of institutions
Melltioned in the amendment to section 19 of the Federal Reserve Act.
Mr. Hackley noted that a principal argument for considering
that the RAnk for International Settlements might qualify for inclusion
'Within the second category, "monetary and financial authorities of
rcTeign governments when acting as such", was that central banks of
certe.in European countries held 75 per cent of the Bank's stock and
1)krticipated in its management.
The governors of the central banks were
directors and could designate other directors.
The Bank maintained an
4clunt with the New York Reserve Bank, and it bought and sold gold from
41241 to the United States Treasury.
Ninety per cent of the Bank's deposits
ItIse deposits of central banks. Private interests held 25 per cent of
the Bank's stock and 10 per cent of its deposits; yet it was plausible
th4t the Bsnk for International Settlements would always act in its
'cial capacity regardless of its private interest participation.
"
In
the light of these facts, it could be argued that the Bank operated as
111C41etarY and financial authority of foreign governments.
In continuing, Mr. Hackley expressed the view, however, that
the
Phrase "monetary and financial authorities of foreign governments"
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Federal Reserve Bank of St. Louis
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/1°L111i normally be construed as referring to treasuries and central banks.
T° construe it to include the Bank for International Settlements would
seenato go beyond the normal meaning of the words.
He went on to say
that the legislative history of the amendment to section 19 clearly
iadicated its purpose, namely, to encourage foreign authorities to hold
bEtlances in dollars and not convert them into gold - a purpose that
1°11141 be facilitated by an affirmative determination as to the Bank for
illternationg) Settlements.
Yet the legislative history did not contain
particulArly conclusive as to whether the Bank was intended to
be covered.
There had been statements that the amendment was meant to
111clUde foreign agencies that were authorized to buy gold from the United
St4tea•
However, the hearings contained testimony that the Federal
1*Ire vas not a member of the Bank for International Settlements.
After further comments, Mr. Hackley concluded by observing that
8.11-11zents could be made on both sides of the question.
He would not
Illt4t to give the impression that he had any strong feeling.
While he
484 Come to the conclusion that the better legal arguments were on the
side Of holding that the Bank for International Settlements was not
etlitel'ed by the recent legislation, attorneys for the Treasury and the
11/41elg 1131%k Reserve Bank, although recognizing that the matter was not
were inclined to reach a different conclusion.
81
If the Board
id. be disposed to take the position that the Bank for International
Setti
-ements was not covered, it would seem desirable, before reaching a
--"k decision, to consult further with the Treasury and the Federal
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Federal Reserve Bank of St. Louis
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%Dalt Insurance Corporation, and possibly with the Bank for International
Settlements itself.
If the Board should be disposed to take the position
that the Bank was covered, that position might be stated in the form of
C0M0UniCatiOn
to President Holtrop--of which copies could be sent to
the Pederal Reserve Banks
stating that in light of the general purposes
Of the
legislation and the organization and functions of the Bank, the
Board had, concluded that the statute was susceptible of a construction
that the term "monetary and financial authorities of foreign governments"
included the Bank, and therefore the Bank's time deposits with United
States banks would, be covered by the statute.
Following additional discussion of the organization and functions
or the
Bank for International Settlements, Chairman Martin expressed
the vi
ew that the problem came dawn to whether the Board could construe
the
language of the statute in such a way as to accord with the obvious
illtellt•
He observed that the Federal Reserve, even though not technically
4nxiber, had been using the facilities of the Bank for International
Sett].ements
rather freely in a number of ways.
Also, 90 per cent of the
Ilatik s
deposits were deposits of central banks. Further, the amendment
to
section 19 was temporary legislation, limited to three years and
(ill'ected toward a current emergency.
In these circumstances, Chairman
Ilaltin considered that the Board should try to do as much as it could
t° be helpful. If there were a clear unanimity of legal opinion, that
/c111..d be one thing, but there was not.
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Federal Reserve Bank of St. Louis
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-11-
Governor King expressed surprise that a problem such as this
should have arisen so soon after passage of the legislation.
Faulty
11.e.rting was indicated and, although he would like to be cooperative,
there was a question in his mind whether the Board should be called upon
to rectify the matter through interpretation at the risk of possible
criticism.
Responses indicated that it had apparently been assumed by all
the Proponents of the legislation that the Bank for International
Settaeuents was covered.
Therefore, it had not been detected that the
language of the amendment, if strictly interpreted, might not include
the Bank. certainly, this possibility had never occurred to the Board's
8tatf
When the proposed legislation was reviewed.
Governor Mitchell expressed the opinion that in the circumstances
the sensible thing to do was to interpret the statute so as to make it
I/cssible for its privileges to be enjoyed by the Bank for International
8ettaements.
Further, it should be made clear to everyone that it was
the Board, rather than the Treasury or the New York Bank, that was
1114killg the interpretation.
On the latter point, Chairman Martin expressed the belief that
lt //es clearly understood that the decision was one for the Board to
4144es
This had been recognized by President Holtrop in telephone
conversation.
Governor Shepardson stated that as a practical matter, having
11/ 4Lind the intent of the legislation, it seemed to him entirely appropriate
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Federal Reserve Bank of St. Louis
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to take the position that the statute was susceptible to the interpretation
that the Bank for International Settlements was included.
The Federal
Reserve had mAOP use regularly of the Bank's facilities, insofar as the
SYstem found it convenient to use such facilities, even if not technically
"eaiber.
Had he been asked when the legislation was under consideration,
Ile would have said that he assumed the Bank was covered by it.
In all
the circumstances, he thought the suggested interpretation was justifiable.
After further discussion, the Board adopted the position that
the October 15, 1962, amendment to section 19 of the Federal Reserve Act
1/48 susceptible of the interpretation that the Bank for International
8etta4ments was included in its coverage.
Governor King asked that the
l'ee°rd show that, while he went along with this position, he did so
because the legislation was limited to three years, after which the
legislation, if extended, could be clarified.
Governor Robertson
4bsta1ned from participation in the matter, on the ground that, having
JUst returned from travel abroad, he had not had an opportunity to
stlkly the question fully.
A copy of the cablegram sent later in the day to President Holtrop
er the
the position of the
Bank for International Settlements conveying
13°41'd is attached as Item No. 10. (Before the cablegram was sent,
kr
Hackley informed the Federal Deposit Insurance Corporation of the
11°81tion the Board had taken.)
A copy of a letter of October 25, 1962,
Banks of the Board's
the Presidents of the Federal Reserve
13siti0n is attached as Item No. U.
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Federal Reserve Bank of St. Louis
10/25/62
-13Secretary's Note: An interpretation
reflecting the Board's decision was
subsequently published in the Federal
Register and the Federal Reserve
Bulletin.
Israel Discount Bank.
At its meeting on September 27, 1962,
the Board considered further an inquiry as to whether the New York City
151‘anch of Israel Discount Bank Limited, Tel Aviv, Israel, might be
l'egarded eligible, undPr the first paragraph of section 13 of the
Pecieral Reserve Act, for a nonmember clearing account.
The Board's
c°11clu8i0n was that a Reserve Bank was not precluded by the language of
tile statutes from opening and maintaining a nonmember clearing account
'a domestic branch of a foreign commercial bank.
11°x
President Hayes was
1311111ed of this view in a letter dated September 28, 1962.
Subsequently,
4es1dent Hayes addressed a letter to the Board on October 9, 1962,
ted the view
ellel°eing a memorandum in which the Bank's counsel reitera
that the language of the statute cast serious doubt on the legal authority
"4 Reserve Bank to open such an account.
At this meeting several
tileMbers of the Board referred to this further communication from the
ed that the Board
?ectel'ea Reserve Bank of New York, and it was suggest
ilre Prompt consideration to it.
It was understood that the matter would
he placed on the agenda at an early date.
The meeting then adjourned.
Secretary's Note: Pursuant to recommendations contained in memoranda from
appropriate individuals concerned,
Governor Shepardson today approved on
behalf of the Board the following actions
relating to the Board's staff:
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Federal Reserve Bank of St. Louis
10/25/62
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12..VjaELy employment
Modification of the employment status of Stuart H. Altman, whose
ILITointment as Economist was approved by the Board on September 10,
62/ to provide for employment for an initial period of approximately
..4) months notwithstanding his failure to pass a physical examination
u4sad on the requirements for ordinary life insurance at normal rates,
nth the understanding that the question of continued employment would
°e considered at the end of the 18-month period.
2
7._increases, effective October 28, 1962
Betty B. Schieman, Statistical Assistant, Division of Research and
Statistics, from $4,885 to $5,045 per annum.
r
Bishop Hart, Bindery Worker, Division of Administrative Services,
$5,429 to $5,720 per annum.
of sick leave
Boris C. Swerling, Senior Economist, Division of International
4a114;e, up to 26 days of sick leave effective from October 8, 1962.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 1
10/25/62
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 25, 1962.
Board of Directors,
Union Bank,
Los Angeles, California.
Gentlemen:
The Board of Governors of the Federal Reserve
Angeles,
System approves the establishment by Union Bank, Los
intersection
California, of a branch in the vicinity of the
provided
of Ninth and Main Streets, Los Angeles, California,
the branch is established within six months from the date
of this letter.
increase
The Board notes that Union Bank plans to
million
its capital structure by from $15 million to $18
in 1963.
Very truly yours,
(signed.) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
GRAM
TELE
WIRE SERVICE
LEASED
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
Item No. 2
10/25/62
October 25, 1962.
Helmer - Chicago
for rental
Board interposes no objection to your proposal
Of second complement of electronic check processing equipment at
Read Office as outlined in your letter October 11, 1962.
(Signed) Merritt Sherman
Sherman
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Federal Reserve Bank of St. Louis
Item No.1
BOARD OF GOVERNORS
10/25/62 1
OF THE
FEDERAL RESERVE SYSTEM
offieeCorrespondence
Eoard of Governors
Date October 12. 1962
Subject:
E. Kelleher
On September 10, 1962, the Conference of
ed a
Presidents of the Federal Reserve Banks approv
Leased
Cash
on
mittee
Subcom
recommendation of the
a .
Wire and Sundry Operations for the acceptance of
by
on
strati
Admini
es
Servic
Proposal from the General
afforded the
Which the Federal Reserve System would be
tariffs offered
economies of multiple group communication
y and
by the American Telephone and Telegraph Compan
on. It
strati
Admini
es
Servic
l
administered by the Genera
is estimated that an annual savings of $55,000 would be
System's leased effected in line rental charges for the
wire system.
the
The attached letter and agreement from
al
the
propos
ents
implem
on
strati
General Services Admini
ence
Confer
ents
Presid
the
by
and is in the form approved
and has been reviewed by the Board's Legal Division. It
is recommended that the agreement be executed on behalf of
the Board and that appropriate advice be given to the Federal Reserve Banks.
(Signed) JEK
Attachment
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Federal Reserve Bank of St. Louis
(ic
BOARD OF GOVERNORS
Item No.
OF THE
10/25/62
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 26, 1962.
W. D. Fulton, Chairman,
;Inference of Presidents,
(14ers1 Reserve Bank of Cleveland,
''eveland 1, Ohio.
i)eat lir. Fulton:
being sent to the Presidents
Enclosed is a copy of a letter
all the
them of the execution
informing
Federal Reserve Banks today
under which the
Administration,
.4 "ntract with General Services
4
of multiple
economies
the
grou al Reserve System would be afforded
and
Telephone
American
Tele" c°mmunications tariffs offered by the
acceptance
agreement,
this
that
Of vialfarth Company. It will be noted
report approved by the
Subcommittee
the
in
was
recommended
elh
:
Nlf
is to become ef1962,
fect7rence of Presidents on September 10,
lye October 29.
Of
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
4
BOARD OF GOVERNORS
Item No. 5
10/25/62
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 25, 1962.
The Board of Directors,
Citizens Bank 8cTrust Company,
park Ridge, Illinois.
Attention Mr. Edward J. Reilly, President.
Gentlemen:
1262,
This refers to Mr. Reillyls letter of October 11,
Chicago,
of
Bank
Reserve
Federal
the
of
Hodge
reseed to Mr. Paul C.
nuance of your
Iesting a further extension of the time for disconti
e United Security Account plan.
add
Z
loss
The Board is aware of the hardship, particularly the
.,_ c
forced
were
irtimoLe rued interest, that would result if a depositor
ediately to close his account because of the elimination of the
insist that the
pi:cking privilege. Therefore, the Board will not
be discontinued prior to the end of this year, when the
months'
peP?sitor will be entitled to receive interest for the six
the
with
given
is
1c3d from July 1st. However, this extension
plan
Account
y
Securit
be"iso that all depositors under the United
more
no
1262,
31,
11°tified by December 1st that after December
'`"ce may be drawn thereunder.
W
Very truly
A A ^,
ours,
,
x\ztyv-^, <4.1
an,
She
Merritt
Secretary
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Federal Reserve Bank of St. Louis
I t !
TITLE 12 - BANKS AND BANKING
Item No.
10/25/62
CHAPTER II - FEDERAL RESERVE SYSTEM
RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE FEDERAL
[Reg. T]
PART 220 - CREDIT BY BROKERS, DEALERS, AND
MEMBERS OF NATIONAL SECURITIES EXCHANGES
220.118
in a
Time of payment for mutual fund shares purchased
special cash account
ion whether, in
(a) The Board has recently considered the quest
connection with the purchase of mutual fund shares in a "special cash
account" under the provisions of Part 220, the 7-day period with respect
to
a 220.4(c)(2) or
liquidation for nonpayment is that described in
that described in § 220.4(c)(3).
(b) Section 220.4(o)(2) provides as follows:
r than
"In case a customer purchases a security (othe
does
and
nt
accou
cash
al
speci
the
an exempted security) in
days
7
not make full cash payment for the security within
the
ased,
purch
so
is
ity
secur
the
after the date on which
creditor shall, except as provided in subparagraphs (3) (7)
date the
liqui
wise
other
or
l
cance
tly
promp
of this paragraph,
(Emphasis
transaction or the unsettled portion thereof."
supplied)
des in
Section 220.4(o)(3), one of the exceptions referred to, provi
l elevant part as follows:
'
an unissued
"If the security when so purchased is
action under
trans
security, the period applicable to the
days after
7
be
subparagraph (2) of this paragraph shall
by-TE-4able
avail
the date on which the security is made
ied)
-r-asis
suppl
(Emph
issuer for delivery to purchasers."
of the mutual fund (open(c) In the case presented, the shares
erld investment company) are technically not issued at the time they are
Several days may elapse from
8°1d by the underwriter and distributor.
the date of sale before a certificate can be delivered by the transfer
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Federal Reserve Bank of St. Louis
6
;
-2-
agent. The specific inquiry to the Board was, in effect, whether the
7-day period after which a purchase transaction must be liquidated or
cancelled for nonpayment should run, in the case of mutual fund shares,
trom the time when a certificate for the purchased shares is available
for delivery to the purchaser, instead of from the date of the purchase.
(d) Under the general rule of 5 220.4(c)(2) that is applicable to purchases of outstanding securities, the 7-day period runs
fl'olm the date of purchase without regard to the time required for the
Illecharlical acts of transfer of ownership and delivery of a certificate.
Thie rule is based on the principles governing the use of special cash
accounts in accordance with which
in the absence of special circum-
8taneeS3 payment is to be made promptly upon the purchase of securities.
(e) The purpose of 5 220.4(c)(3) is to recognize the fact
tha
t1
when an issue of securities is to be issued at some fixed future
ilate, a security that is a part of such issue can be purchased on a
nuts
'
en-issued,
' basis and that payment may reasonably be delayed until
kfter
such date of issue, subject to other basic conditions for trans-
actic)ris in a special cash account. Thus, unissued securities should be
regarded as "made available for delivery to purchasers" on the date when
the
Y are
substantially as available as outstanding securities are available
Upon purchase, and this would ordinarily be the designated date of
"rice or, in the case of a stock dividend, the "payment date". In any
eaees the time required for the mechanics of transfer and
delivery of a
certificate is not material under § 220.4(c)(3) any more than it is under
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Federal Reserve Bank of St. Louis
-3(f) Mutual fund shares are essentially available upon purchase
to the same extent as outstanding securities. The mechanics of their
iesuarice and of the delivery of certificates are not significantly different from the mechanics of transfer and delivery of certificates for
151141ass of outstanding securities, and the issuance of mutual fund shares
14 not a future event in a sense that would warrant the extension of the
ing secu'41"/ for payment beyond that afforded in the case of outstand
of mutual
es. Consequently, the Board has concluded that a purchase
Shares is not a purchase of an "unissued security" to which
122°•4(c)(3) applies, but is a transaction to which § 220.4(c)(2)applies.
(15 U.S.C. 78w)
Dated at Washington, D. C., this 25th day of October, 1962.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
erman,
err
Secretary.
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Federal Reserve Bank of St. Louis
Item No. 71
10/25/62
1T1TED STAUS OF AIERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEH
WASHETGT07, D. C.
4.•
Weir
the Ilatter of the Application of
littGpITA
COIEIOITUEALTH CORPORATIO:r
rot,
hoiri4Permission to become a bank
stock
or;4-4n.F.' company by acquiring
e banks in Virginia
ORDER APPROVING APPLICATIOIT IFIDER
BANK HOLDITTG COIIPAITY ACT
There has come before the Board of Governors, pursuant to
011 3(a)(1) of the Bank Holding Company- Act of 1956 (12 U.S.C. 1842)
%!tion 4(a)(1) of the Boardfs nezulation Y (12 CFR 222.4(a)(1)),
a't"-Lication by Virginia Commonwealth Corporation, Richmond, Virginia,
the Boardts
prior approval of action whereby Applicant would become
batk
holding company through the acquisition of more than 50 per cant
or th
e voting shares of The Dank of Virginia, Richmond, Virginia,
,
11a
Of Henrico, Sandston, Virginia, The Bank of Salem, Salem,
_a, The Bank of Occoquan, Occoquan, Virginia, and the Bank of
rick 3
-T
1,
ewport News, Virginia.
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Federal Reserve Bank of St. Louis
As required by section 3(c) of the Act, the Board notified
the Commissioner of Banking for the State of Virginia of the receipt
Of tl'`° aPplication and requested his views. The Commissioner stated in
1.41-ting that his office knew of no reason why it should not be approved.
1Tot1ce of receipt of said application was published in the
?edie
re-1- Register on May 18, 1962 (27 F. R. 47)18), which notice provided
10PPort1nity
for the filing of comments and views regarding the proP(ed acquisons, and the time for filing such comments and views
1148e Pired and all comments and views filed with the Board have been
e°1181clered by it.
IT IS HEREBY ORDERED, for the reasons set forth in the Boardts
stat
Illent of this date, that the said application be and hereby is
Nted
3 and the acquisition by Applicant of more than 50 per cent of
th
oting
shares of the above-mentioned banks is hereby approved, pro114
that
such acquisition shall not be consummated (a) within seven
clr days after the date of this Order or (b) later than three months
8ald date.
Dated at Washington, D. C., this 25th day of Ootobc; 1962.
BY order of the Board of Governors.
Voting for this action: Chairman ilartin, and
Governors Balderston, Hills, Shepardson, and King.
Abeent and not voting: Governors Robertson and Nitchell.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
r
BOARD OF GOVER1TOI1S
OF THE
Item No. 8
10/25/62
FEDERAL RESERVE SYSTEII
APPLICATION BY VIRGINIA C0/1/10111EALTH CORPORATION
FOR PERMISSION TO MCOIE A BA:T.K HOLDING COMPANY
STATEIETIT
Virginia Commonwealth Corporation, Richmond, Virginia
("Aprn
has applied, pursuant to section 3(a)(1) of the Bank
11°1ding Company Act of 1956 ("the Act"), for the Boardrs prior approval
Or
that would result in Applicant becoming a bank holding
eorapa
- namely, acquisition of more than 50 per cent of the voting
8hare
8 of
The Dank of Virginia, Richmond, Virginia, with deposits of
$151
Inillion;* The Bank of Henrico, Sandston, Virginia ("Henrico"),
th
deposits of $3.2 million; The Bank of Salem, Salem, Virginia
(1141
"I"), with deposits of $8.9 million; The Bank of Occoquan,
0%0
gliarl, Virginia ("Occoquan"), with deposits of $6.4 million; and
the
ilewport News, Virginia ("Warwick"), with deposits
Ilank of
or
$15•2 million.
48
otherwise indicated, deposit and loan figures herein stated
Of December 31, 1961.
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Federal Reserve Bank of St. Louis
•
—2—
in the State
The Bank of Virginia is the fourth largest bank
•
'Tould be the principal bank in the proposed holding company system.
ata control of that bank and the four smaller banks; the group would
still rank fourth in total d000sits, although very close in sine to
the Uational Bank of Commerce, or Norfolk, which would retain third
in five
The Bank of Virginia has 19 offices distributed
•
in Norfolk,
• as, in the Ilichmond metr000litan area, in Potersburg,
IToTrport News, and in Roanoke.
Acquisition of the bank in Occoquan
of the State.
ik)111d give Applicant representation in the northern part
from the
A chief adnitted advantage to Bank or Virginia
f*()rmation of the proposed holding corpany system arises out of statu—
terY restrictions on further branching in Virginia.
All of that Bank's
branches were acquired before a "freeze" imposed by the State legisla—
ture in 1943.
somewhat, but only
In 1962, the restriction was relaxed
in the city where
to Permit city banks to establish additional branches
the head office of the bank is located (in this case, in Richmond), or
1'1-thin five miles of the city limits.
•
III
As a result, Bank of Virginia
of the State
only establish more branches in the remaining areas
re it now has interests, or in other areas, through mergers.
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Federal Reserve Bank of St. Louis
—3—
Statutory factors. - Section 3(c) of the Act requires the
ci to take into consideration the following five factors: (1) the
"clal history and condition of the holding company and the banks
c°11cellled; (2) their prospects; (3) the character of their management;
(4) th
e convenience, needs, and welfare of the communities and area
el"ned; and (5) whether or not the effect of the acquisitions would
bet()
expand the size or extent of the bank holding company system inbeyond limits consistent with adequate and sound banking, the
'1"c Interest, and the preservation of competition in the field of
barking.
Banking factors. - The financial history, condition, prospects,
4tba
'''ttria gertlerlt
of the five banks are satisfactory, as are the proposed
c1-1 structure, proposed management, and prospects of the Applicant.
n-a Commonwealth Corporation was incorporated as a Virginia corporat1,04 0
n January 11, 1962, for the purpose of acquiring more than SO per
etrit of
the outstanding shares of, and furnishing services to, the
14144
Pl'oposed to be acquired by it. Its management is to be made up
as competent.
officers of the banks involved, who are regarded
1);Irk.
The Bank of Virginia was organized in 1922, as a Norris Plan
Ten of its branches and two facilities are located in the Richmond
tli()Poli
-Lan area, three branches in 7orfolk, and one branch each in
kruln
°Ilth, Petersburg, Roanoke, and Hewport l'e7ys. As of December 31,
1961 13
44k of Virginia had loans of $93 million.
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Federal Reserve Bank of St. Louis
Henrico was organized in 1957, with major assistance from
Dank of Virginia, It now operates two branches, and the Virginia State
CcTPoration Commission has authorized the opening of an additional
branch. It offers general commercial banking other than trust services,
414 had $2.4 million of loans on December 31, 1961.
Occoquan has its main office in the town of Occoquan, and has
three
branches, all within Prince William County, about 75 to 85 miles
north
of Richmond. It is the third largest of the five banks located
in that
county.
The bank and its branches are situated between
Washington, D. C., and Quantico, and the area is predominantly-residential. It has loans of $3.8 million.
Salem was organized in 1891. The bank did not operate any
branches until 1961 when it established a branch in a shopping center
Ftoanoke County adjacent to the city of Roanoke*
Loans outstanding
total $6 million.
Warwick was organized in 1941 in what was then the town of
Village in Warwick County. Subsequently the county became an
inecrporated city, and later was consolidated with the city of Newport
tlew,
-• Warwick operates two branches in Newport News and has made
aPPlication for a branch to be located in adjacent York County. Its
t°tal loans amount to7.5 million.
As to the prospects of the proposed holding company,
AD .
Pia-cant argues that a notable economic surge forward which Virginia
haa
'lade in recent years requires, and will require, stronger banking
a°111'ees, and that creation of the bank holding company system will help
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Federal Reserve Bank of St. Louis
;
Pr'clicla such sources with a corresponding opportunity for growth of the
*e banks as well as of Applicant. In this connection, Applicant contends that the holding company will better be able to raise the capital
Ileeded to keep pace with industrial expansion in the State than could
the individual banks.
It does not appear to the Board that it would be substantially
eaajer for the banks to raise capital through the holding company
Ste
111, as apparently none of the banks has experienced difficulty in
the Past
in floating new issues of stock when needed. On the other
hank'
'oasically, additional capital is justified by deposit growth, and
t° the
extent that general improvements in management and efficiency of
th
Illpsidiary banks promoted deposit growth, their prospects would be
IrriProvecis
Ready access to the automated equipment already installed
of Virginia should also improve the operating efficiency of
banks and facilitate their growth, thus improving their
•
173t0 1,leets
,..
Turning to the third factor, the character of the management
tile A
-PPlicant and the banks concerned, it appears that Bank of
Thr
-111 has for some years maintained a strong training program.
the extension of this program, Applicant argues, it will be
be
t41,11
t
° suPPly the smaller banks with officers who are more qualified
t,
"e which the banks individually could attract or develop.
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Federal Reserve Bank of St. Louis
-6Against this contention, it can be urged that, on Applicant's
°14 showing, the present management of all the banks is satisfactory,
ladthere is no reason to suppose, except in the case of one of them,
hichhas recently had a management succession problem, that they will
be unable to attract capable officers in the future. Despite past perl'0
'111411ce in this regard, however, it would appear that since Applicant
/41-11-be able to place officers from the smaller banks for periods of
trai1-ng in the more specialized departments of the large bank, and can
tfel' executives of the smaller banks better opportunities of promotion,
°41advantage would accrue to the smaller banks under this factor.
Convenience and needs of communities. the
The fourth factor,
convenience, needs, and welfare of the communities and the areas
c°neerned, is of course intimately interwoven with the first three.
Mditi
-(3na1 arguments which have been brought forward under the fourth
t
'°/' include the fact that Bank of Virginia has a sizable and active
a
tNst -epartment,
and Applicant plans to make expert advice and guidance
Ilithe trust field available to the smaller banks, although it does not
131m,,
8Q to establish trust departments in the three which have none. A
"
111. Point made by Applicant is that the greater ease of arranging
Da.zti •
'
clPations within the holfling company system would have the effect
°11'412ing the effective (although not the legal) lending limit of its
t4bn.
-idiary banks.
While the contemplated guidance on trust matters would be of
4ssistance to the smaller banks and to their communities, the
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Federal Reserve Bank of St. Louis
4
8ca1e of their future operations will probably not justify much trust
8.etIlritY.
As to the second point, the smaller banks have been able
to cIrrange participations with correspondent banks, particularly with
4rik or Virginia, when needed, and should be able to continue doing so
%Iet'e they to remain independent of the system.
Competitive effect. -
The final factor, whether the effect
t the proposed transaction would be to expand the size or extent of
the 134nk holding company involved beyond limits consistent with adequate
44a sound banking, the public interest, and the preservation of competit104 in the field of banking, is more difficult to analyze. However,
the 7,
C°a.rd is of the opinion that the proposed holding company system
111-1- remain well within limits consistent with adequate and sound banking,
e.raci
80 far, will be consistent with the public interest.
Applicant's banks would have about
aePosits of all banks in the State.
ore
5
per cent of the offices
In the areas where more than
the proposed subsidiaries have offices, the group's proportion
°I %osits would be about 10 per cent in the case of the Roanoke and
'enl banks and 11 per cent of banks in the Richmond metropolitan area.
8al
1"QwPort News, the subsidiary banks would have about 26 per cent of
ollibiried bank deposits, considi:rably less than that of the largest bank
14 the citY.
The merger of that bank with First and Merchant's National
44111t°13 Richmond, on October 31, 1962, will make it a branch of the
Ilfgest bank in the State.
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Federal Reserve Bank of St. Louis
(!,
On the question whether there will be a significant lessening
(31c
ompetition in the field of banking as a result of approval, the
1)ePartment of Justice has urged that
"The proposed formation of a holding company, which
standing alone may appear of not too great significance,
MaY actually be the incipient step which will trigger
2."her and more substantial conglomerations resulting in
virginia banking in every community being dominated by
a, small number of large holding companies with a consequent
Qiminution in the number of smaller, locally controlled
banks.it
The Board agrees with the inference in the statement by the
lePartnient of Justice that the lessening of present competition which
4141_
4 elY to result from the proposed acquisitions is not sufficient to
'
-Itecillire denial of the application. Occoquan is about 85 miles from
illehlilesncl, and there is no existing competition between Occoquan and
tarit.
of Virginia. In the case of Henrico, the close relationship with
11111` Of Virginia, as well as the location of Henrico in suburbs of the
ltY, where the larger bank is not represented, has forestalled the
cilrel°131'nent of competition between them.
In the case of Salem, Applicant urges with some reason that
the de
gree of existing competition with the Roanoke branch of Bank of
1111tRini,
-- is slight and due to special, self—terminating factors.
As to Warwick, the $1.05 million of deposits and $.9 million
at loa
ns of Bank of Virginia's Newport News branch which originate in
tlie Pr*
to 6.9 per cent of
117'417 service area of Warwick are equivalent
the d
ePosits and 12.2 per cent of the loans of the Bank of Warwick. The
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Federal Reserve Bank of St. Louis
-9 —
deposits and loans of Warwick which originate in the primary service
4.ea of Bank of Virginia's branch are less significant from the competiti\re Point of view, as five commercial depositors, two of whom are
ilirectors of Warwick, account for about $.3 million of the $.35 million
q such deposits, and three commercial customers, two of whom are
44'ectors, account for about 85 per cent of the $.2 million of such
In addition, the size and number of alternative banking
sour
ces which would remain would tend to mitigate the lessening of
c.°1111 etition which can be expected to result from approval.
The statement that approval of this application will "trigger
other
and more substantial conglomerations", as urged by the Department
or ju
"ice, seems to imply that approval will in some fashion commit
the t
0ard to approving future applications. But it is the statutory
Of the Board to determine the point at which a line should be drawn,
ci ter.1.4
further concentration of banking facilities, and it has done
'
4 one recent case, the matter of the application of Morgan
`31.k State Corporation, where the proposed system would have included
the ri
-- largest bank in New York City, and six of the largest banks
14
the respective upstate New York areas, thus widening the competitive
Rap b
etween the larger and the smaller banks in the cities concerned,
thet
(341'd found that this prospective result compelled the conclusion
that
formation of the holding company would have adverse consequences
thf,
- competitive banking structure of the State and required denial.
(48p
cleral Reserve Bulletin 567, May 1962)
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Federal Reserve Bank of St. Louis
Approval of the application of First Bancorporation of
'Iorida similarly would have united four powerful banks already "strongly
el*enched" in the State's four largest metropolitan areas. The Board
r°utid that
to
since "Among relatively large and aggressive banks competing
the business of sophisticated customers such as other banks,
411 advantages caa be decisive", it was "probable that the
41'
e()IrrPetitive ability of the remaining major correspondent banks would be
8811°us1y diminished" and denied the application. (48 Federal Reserve
klaetin 979 at 982, August 1962)
By contrast, the proposed holding company would not be the
oi
klant banking institution in any area in which it operated. Four of
the 1,
vealks are relatively small, and there would be no change in the
re
-ve rank of the principal State banking organizations as a result
13Proval.
While the shoe industry is, of course, different from the
be.
111411g 1fldustry, it may be relevant to note that in its recent decision
t
l'wri Shoe Co. v. United States, the Supreme Court found that
Noor+
--ers of the 1954 amendment to section 7 of the Clayton Act
eated that it would not impede, for example, a merger between
to
81111111 companies to enable the combination to compete more effecrelY with larger corporations dominating the relevant market" and
held.
that "Congress indicated plainly that a merger had to be funct1(4144Y viewed, in the context of its particular industry."
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Federal Reserve Bank of St. Louis
Indeed, the
1 rIcr7
Court described, as a '
,mitigating factor" a "demonstrated need for combinatioft to enable small companies to enter into a more meaningful competition
Ilith those dominating the relevant markets." (370 U.S. 294 at 319, 321four smaller
322) 346 (June 25, 1962)) In the present case, uniting the
b4nks with Bank of Virginia should enable all these banks to compete more
effectively, both with the larger banks in their own areas and with the
now active in the
Powerful Richmond and out-of-state banks which are
stances does it appear
Virginia banking field. Nor under all the circum
that the remaining smaller independent banks would be adversely affected.
of the general purposes
Viewing the relevant facts in the light
Of the Act and the factors enumerated in section 3(c), as well as the
cited opinion of the Supreme Court, it is the judgment of the Board that
statutory objecth proposed acquisitions would be consistent with the
should be granted.
tilies and the public interest and that the application
October 25, 1962
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Federal Reserve Bank of St. Louis
(19F4
Item No.
RAM
TELEGSERVICE
10/25/62
LEASED WIRE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
October 25, 1962.
1144Y - Dallas
Reference your telephone conversation earlier today with
111.' Shay concerning whether the Board has objection to the appearance by Federal Reserve Examiner William C. Reddick, Jr., pursuant
to a subpoena to testify on Monday, October 29 at Corpus Christi,
Telcaa, at the trial of criminal charges that arose following the
nscember 1961 examination of First State Bank, Fremont, Texas.
It
ita- u
that
nderstood that the United States Attorney has indicated
114'. Reddick will be expected to testify with respect to the disappearance from the vault of the bank during the aforementioned examination
Of five promissory notes.
You related in addition that Mr. Reddick
Might be directed during his testimony to furnish in open court a copy
tlf his memorandum to Vice President Pondrom of your Bank, a copy of
vhicu
was enclosed with Mr. Pondrom's letter to Mr. Solomon of
lanlierY 19, 1962.
no
You are advised that the Board will interpose
°Ilection .to Mr. Reddick's appearance and testimony in pursuance of
the
aforementioned subpoena, and to furnish a Copy of the aforementioned
nien4Irandum if directed to do so as outlined herein.
(Signed) Merritt Sherman
Sherman
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Federal Reserve Bank of St. Louis
9
TELEGRAM
Item No. 10
10/25/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
October 25
1962
M. W Holtrop, President,
Ilatik for International Settlements,
Ilasle, Switzerland.
telephone inquiry
This is in response to your recent
•
to me regarding status of B.I.S. under Public Law 87-827,
rates of interest payable
;
4PProved October 15, 1962, regarding
foreign and incertain
!Y member banks on time deposits of
purposes of
general
ernational institutions. In light of
of B.I.S.,
functions
at statute and nature of organization and
financial
and
lioard has concluded that phrase "monetary
of construe!
1!thorities of foreign governments" is susceptible
of
deposits
time
as including B.I.S. and that therefore
that
by
covered
13.1.S. when acting in such capacity would be
s
tatute.
(signed) William McC. Martin,
Martin
Fedreserve
"HORS OF 'THE FEDERAL
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Federal Reserve Bank of St. Louis
RsaHvE S'STFl
S-1844
BOARD OF GOVERNORS
OF THE
Item No. 11
10/25/62
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 25, 1962.
Dear sir:
For your information and guidance, there is set forth
.
b e]
ow the text of a telegram sent today by Chairman Martin to
•
Roltrop, President of the Bank for International Settlements,
response to a recent telephone call from Dr. Holtrop to the
}IL:airman regarding the question whether time deposits of the
with member banks would be exempted from interest rate
'
imitations under Public Law 87-827 approved October 15, 1962,
amending section 19 of the Federal Reserve Act.
This is in response to your recent telephone
inquiry to me regarding status of B.I.S. under Public
Law 87-827, approved October 15, 1962, regarding rates
of interest payable by member banks on time deposits
of certain foreign and international institutions. In
light of general purposes of that statute and nature
Of organization and functions of B.I.S, Board has concluded that phrase "monetary and financial authorities
of foreign governments" is susceptible of construction
as including B,I.S and that therefore time deposits of
B.I.S. when acting in such capacity would be covered by
that statute.
Very truly yours,
Merritt Shdrpan,
Secretary.
11%() 1111C PRESIDENTS OF ALL MERU, RESERVE BANKS
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Federal Reserve Bank of St. Louis
@FedFRASER