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9
Minutes for
To:
Members of the Board
From:
Office of the Secretary
October 26, 1966
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. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
Gov. Brimmer
t(
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, October 26, 1966.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson, Vice Chairman
Shepardson
Maisel
Brimmer
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Approved items.
Kenyon, Assistant Secretary
Broida, Assistant Secretary
Bakke, Assistant Secretary
Young, Senior Adviser to the Board and
Director, Division of International Finance
Holland, Adviser to the Board
Solomon, Adviser to the Board
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research and
Statistics
Solomon, Director, Division of Examinations
Johnson, Director, Division of Personnel
Administration
Hexter, Associate General Counsel
O'Connell, Assistant General Counsel
Shay, Assistant General Counsel
Leavitt, Assistant Director, Division of
Examinations
Morgan, Staff Assistant, Board Members'
Offices
Sanders, Senior Attorney, and Mr. Smith,
Attorney, Legal Division
Lyon, Review Examiner, Division of Examinations
The following items, copies of which are attached
tinde
rthe respective numbers indicated, were approved unanimously following
Q°4sideration of background materials that had been made available to the
Ineltbers of
the Board:
10/26/66
-2Item No.
Letter to Manufacturers Hanover Trust Company,
New York, New York, granting an extension of
time to establish a branch at 111-121 William
Street, Borough of Manhattan.
1
Letter to The Bank of Virginia, Richmond,
Vlrginia, granting an extension of time to
establish a branch in Henrico County and
commenting on the bank's capital position.
2
Letter to the Federal Deposit Insurance
C°rporation regarding the application of
Charlevoix County State Bank, Charlevoix,
1:11chigan, for continuation of deposit
3 nsurance after withdrawal from membership
:
lo the Federal Reserve System.
3
Letter to the Assistant Secretary of the
Pecderal Advisory Council enclosing a list
Of
suggested topics for discussion at its
1.0r thcoming meeting with the Board.
4
Letter to the Federal Reserve Bank of
StJ-. Louis approving payment of salary to
rl W. Druelinger as Assistant Cashier
W" the Little Rock Branch for the period
u,
c t(Ther 16 through December 31, 1966, at
rate fixed by the Bank's Board of
ui
rectors.
5
Reports on couetitive factors.
A report to the Comptroller of
the Currency on the competitive factors involved in the proposed purchase
of
assets and assumption of liabilities of First National Bank of Lake
C"rge, Lake George, New York, by The First National Bank of Glens Falls,
Glens Palls, New York, was approved unanimously for transmittal, following
dis
cuasion and adoption of a proposal by Governor Maisel that the conlusion state that the overall competitive effect of the transaction
10/26/66
-3-
Would be somewhat adverse.
In the form in which the report was trans-
mitted, the conclusion read as follows:
The proposed purchase of assets and assumption of
liabilities of First National Bank of Lake George by The
First National Bank of Glens Falls would eliminate some
competition existing between them and increase modestly
the size of the now largest bank headquartered in the
area. However, the resulting bank would be competing
with branches of larger banks headquartered elsewhere,
and the overall competitive effect of the transaction
is somewhat adverse.
A report to the Federal Deposit Insurance Corporation on the
competitive factors involved in the proposed merger of Citizens Valley
Bank) Albany, Oregon, and Bank of Shedd, Shedd, Oregon, was approved
unanimously for transmittal, the conclusion reading as follows:
Consummation of the proposed merger of Citizens
Valley Bank, Albany, Oregon, and Bank of Shedd, Shedd,
Oregon, would eliminate some existing and potential
competition between the two banks but would enhance
the ability of the resulting institution to compete
With the area offices of the State's two largest banks.
It appears that the overall effect on competition would
not be adverse.
Applications of First National Bank of Tampa and Union Security &
Inv
----ment Company (Items 6 and 71.
411
There had been distributed drafts of
order and statement reflecting the Board's approval on October 11, 1966,
°f applications by The First National Bank of Tampa and Union Security &
Ilivestment Company, both of Tampa, Florida, for permission to acquire 55
Pel. cent of the voting shares to be issued by First National Bank of
4°°ksville, Brooksville, Florida, a proposed new bank.
Issuance of the order and statement was authorized.
4ttached as Items 6 and 7, respectively.
Copies are
10/26/66
-4-
Action to implement Public Law 88-593 (Item No. 8).
Under date
of August 23, 1966, Chairman Patman of the House Banking and Currency
Committee had written to the Board requesting copies of reports received
Pursuant to the provisions of Public Law 88-593 (dealing with change in
control of any insured bank or loans by insured banks secured by 25 per
cent or more of the outstanding voting stock of an insured bank), informati°h concerning "problem" cases encountered in administering the statute,
and comments regarding the Board's experience under the law.
In addition,
Chairman Patman had requested information concerning the expected impact on
13cerd procedures of Public Law 89-487 (the so-called "Freedom of Information
Ace)
and the measures taken or planned to comply with its requirements;
however, Mr. Cardon had been advised by staff of the Committee that the
inquiry regarding the reports rendered under Public Law 88-593 was of
Principal concern at this time.
Preliminary discussion of Chairman Patman's inquiry took place
at the Board meetings on September 29 and 30, 1966, as a result of which
the staff was instructed to confer with the staff of the Federal Deposit
II18 UranCe Corporation, which had received a similar request, to seek
development of a common position, and to report back to the Board with
l ternative draft responses that would:
'
(1) furnish the reports requested;
(2) list the banks whose stock was reported to have been transferred or
Pledged, together with the names of transferees, beneficial owners, and
b°rrowers involved, but not the names of transferors, number of shares
10/26/66
-5-
involved, purchase price, or amount borrowed; or (3) decline to furnish
the information.
There had now been distributed a memorandum from Mr. Cardon
dated October 20, 1966, to which were attached drafts of letters to
Chairman Patman embodying the foregoing alternative approaches to a
response.
The memorandum stated that consultations with the staff of the
Federal Deposit Insurance Corporation had failed to develop a consensus
On how Chairman Patman's inquiry should be answered.
The Corporation's
staff was disposed to transmit a table showing the number of reports
received, classified according to what action was taken; however, if
Obliged to choose between the first two alternatives set forth above,
the Corporation's staff would choose the second.
The memorandum further commented that while the "invasion of
PrivacY" argument could be advanced as justification for declining to
furnish any of the information sought, it could also be argued that the
enrnmittee had a right to the reports, enforceable by subpoena, as an
incident to the discharge of its legislative duties.
On balance, however, it was believed that the Committee would
be
satisfied if the Board were to take a middle course, and approval of
the
second alternative letter was recommended.
In the course of ensuing discussion, Governor Brimmer indicated
tilt while transmittal of the proposed letter would take care of the
1
10/26/66
-6-
immediate question at hand, he believed a more fundamental consideration
was also involved; namely, whether the Board did not have a responsibility
under Public Law 88-593 to submit a substantive report to the Congress on
its own initiative, as part of its Annual Report each year.
He believed
there was such an obligation, and recommended that that be done.
Governor Robertson concurred with this suggestion, adding that,
in addition to a summary of information received, the Annual Report should
contain an explanation of the procedures established for surveillance and
follow-up, as well as a statement of remedial or supervisory action taken,
although without naming individual banks.
There was general agreement that such annual reporting would be
de
sirable.
The form of reply proposed in Mr. Cardon's second alternative
draft was thereupon approved unanimously for transmittal to Chairman
Ilatman.
A copy is attached as Item No. 8.
During the foregoing discussion Mr. Sammons, Associate Director,
and Mr. Irvine, Adviser, Division of International Finance, entered the
room and at its conclusion Messrs. O'Connell, Smith, and Lyon withdrew.
Operation of bank credit card plan through nonstock corporate
sliS idiary
temN0.9).
There had been distributed a memorandum from
the Legal Division dated October 24, 1966, regarding a proposal by four
Cal.c
-Ltornia member banks to establish and operate a common bank credit
card
Plan, to be administered by a nonstock corporate affiliate to be
. lled the "California Bankcard Association."
a
10/26/66
-7-
The Association would be incorporated without capital stock under
the California General Nonprofit Corporation Law, and would be open to
membership of other California commercial banks.
It would perform certain
functions required for the operation of the credit card plan, including
credit information, sales audit, card security control, merchant directory
Pr eparation, and advertising, and its operating expenses would be defrayed
by charges assessed against members.
The memorandum noted that in connection with recent proposals by
State member banks to establish "operations" subsidiaries for purposes
such as selling money orders or leasing personalty, the Board had taken
the position that the stock purchase prohibition of section 5136, Revised
Statutes, would apply because the acquisition of stock of such companies
Waa neither specifically permitted by Federal law nor within the concept
Of exercising "such incidental powers as shall be necessary to carry on the
business of banking."
At the same time, however, it had been recognized
that the prohibition of section 5136 could be circumvented by creation of
an °
Perations subsidiary in a manner not involving the purchase of stock,
and
on August 26, 1966, the Board had written to the Reserve Banks inviting
c°mIneut on the question whether legislation should be recommended to allow
'ecillisition of such subsidiaries through stock purchase transactions as
The memorandum went on to observe that if, on the other hand, as
a
"lacy matter the Board should determine that member banks should not
10/26/66
-8-
be permitted to establish operations subsidiaries, the proposal currently
under consideration suggested that prohibitory legislation should be
written so as to cover control of nonstock subsidiaries as well as the
a cquisition of stock other than by purchase.
Attached to the memorandum was a draft of letter to the San
Francisco Reserve Bank stating that the formation of a nonstock affiliate
would not constitute a change in the general character of a State member
bank t s business so as to violate the condition of membership prohibiting
such change without Board approval, that on the basis of available information the provisions of the Bank Service Corporation Act would be inapPlicable, and that since there would be no purchase of stock the limitations
of section 5136 of the Revised Statutes were inapplicable.
The conclusion
'
47sa stated that Board approval of the plan was not required and the State
member banks involved were not prohibited by Federal banking statutes from
Participating in the plan.
In the course of discussion, Governor Brimmer inquired as to the
vi
ews of counsel for the San Francisco Reserve Bank.
Mr. Sanders replied
that counsel had expressed a belief that the proposal might be construed
as involving a change in the general character of the participating banks'
.
-slness so as to require Board approval under the conditions of membership
to which they were subject, and also that the requirements of the Bank
Service Corporation Act and regulations issued thereunder, including the
13"rd's Regulation S (Bank Service Arrangements), would be applicable.
As
10/26/66
-9-
indicated previously, the Legal Division did not share these views.
Mr.
Sanders also stated that Reserve Bank counsel had raised the question
Whether the plan would violate the antitrust laws.
It was the Division's
Position that this consideration was beyond the scope of appropriate
concern for the Board, since the Department of Justice was charged with
responsibility for enforcing those statutes, and that the letter to the
Reserve Bank should comment on the plan only within the context of Federal
banking
legislation.
The letter was thereupon approved unanimously for transmittal to
the San Francisco Reserve Bank.
A copy is attached as Item No. 9.
Mr. Sanders then inquired whether it was felt that the ruling
Should be made public as a published interpretation of the Board.
Governor Robertson stated that he would be opposed to issuing a
Published interpretation based on the pending inquiry, because to do so
14c)uld only call attention to a means of circumventing the restrictions
f section 5136 of the Revised Statutes.
Until the Board had decided
a matter of policy whether it was appropriate for member State banks
to establish operations subsidiaries and whether legislation should be
tee°mmended, he would advocate refraining from any pronouncement on the
sub ject for public consumption.
Governor Brimmer concurred in this view, adding that the Board
did
not now have sufficient information at its command with respect to
the ,
-Leing-run implications of bank credit card plans in particular to form
J4
10/26/66
/
-10-
a judgment on whether this was a desirable development.
Therefore, he,
t00, would recommend against a published interpretation in the instant
case.
It was agreed that no interpretation would be issued but that
the substance of the letter should be sent to all Reserve Banks for their
information.
In connection with this topic, Governor Brimmer expressed the
view that the development of bank credit card plans had far-reaching
imPlications, both from the economic standpoint and with respect to the
country's banking structure.
i mmediHe believed that the Board should -
atelY take steps to have a comprehensive study made of the subject.
Governor Robertson concurred, and suggested that a group comprised
Of
to
Board staff and counsel and economists from the Reserve Banks be formed
pursue the question in depth.
Governor Shepardson commented that a task force study of this
Matter would be highly desirable.
design
He suggested that Governor Brinuner be
to head up the project and to assemble a committee of Board
and Reserve Bank staff for this purpose, and this suggestion was adopted.
New York State Dormitory Authority bonds (Item No. 10).
On
Se ptember 22, 1965, March 21, 1966, and April 7, 1966, the Board discussed a request from the Federal Reserve Bank of New York for a ruling
tha
t the 10 per cent investment limitation of section 5136, Revised
atutes, could be applied separately to New York State Dormitory
10/26/66
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Authority bonds issued for particular colleges, provided such bonds
were actually repayable by the college.
(The seventh paragraph of
section 5136 limits the extent to which a national bank may invest in
the obligations of one "obligor or maker" to 10 per cent of the bank's
capital stock and surplus; section 9 of the Federal Reserve Act makes
the limitation applicable to member State banks.)
The requested ruling involved the question whether the Dormitory
A uthority or the college itself was the obligor for the bonds.
The Comp-
troller of the Currency had ruled that the limitation could be applied to
the bonds of the individual colleges rather than to the aggregate issues
°f the Dormitory Authority, but the Board's Legal Division held the view
that the Authority was the obligor and the limitation therefore must be
a pplied to the collective issues.
At the April 7 discussion, a consensus developed that the
threshold question to be resolved was whether the holders of the bonds
were in
effect relying primarily on the credit-worthiness of each particular college, with the Dormitory Authority serving merely as a conduit
for
payments of interest and principal upon maturity, albeit perhaps
lending an additional element of security to the issues as a secondary
source of payment.
In this connection, it was felt essential that before
attempting to resolve the issue additional information should be obtained
1.°1.a the Dormitory Authority regarding its resources and the extent to
Ilhich bondholders were entitled to rely upon those resources rather than
f
10/26/66
-12-
1-'pon the particular college should the occasion arise.
Accordingly,
under date of May 13, 1966, a letter was directed to the Dormitory
Authority requesting detailed information concerning its college
financing program.
There had now been distributed a memorandum from the Legal
bivision dated October 21, 1966, summarizing the information contained
in a letter of reply from the Dormitory Authority dated September 23,
1966, to the Board's May 13 request.
The memorandum concluded that, as a practical matter, the
Authority served merely as a conduit for transmission of funds from
another source, and therefore, legally, was not an "obligor" within the
meaning of that term as used in section 5136, Revised Statutes, limiting
bank investments in obligations of one obligor.
From the facts elicited,
it aPPeared that-"Despite (1) the New York statutory provision that the
Authority's obligations 'shall be general obligations payable
out of any moneys or revenues of the authority', (2) the
statement in bond resolutions in connection with obligations
issued by the Authority that such obligations are supported
bY 'the full faith and credit of the Authority', (3) the
inclusion in such obligations of an unqualified promise to
Pay by the Authority, (4) the elaborate statutory provisions
for bondholder action against the trustee in the event of
failure of the Authority to fulfill its promise, and (5) the
statutory general borrowing power in the Authority, . . . a
bank could not reasonably rely on any source for payment of
the principal and interest on the Authority's obligations
Other than the particular college for which the obligations
were issued."
Attached to the memorandum was a proposed form of interpretation,
84itable for publication in the Federal Register and in the Federal
11)
10/26/66
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Reserve Bulletin, that would construe the terms "obligor or maker" as
used in section 5136, Revised Statutes, in light of the factual situation respecting issuance of New York State Dormitory Authority bonds,
for the guidance of member banks in other situations where there might
be some question whether funds for payment of an issue of bonds would
come from a formal promisor.
The proposed interpretation was adopted, and its publication
authorized.
A copy of the interpretation, in the form transmitted to
the Federal Register for publication, is attached as Item No. 10.
Mr. Sanders then withdrew from the meeting and Mrs. Sette,
Chief, Economic Editing, and Miss McCaslin, Technical Editor, Division
of Research and Statistics, entered the room.
Proposed revision of gold loan policy.
a
There had been distributed
utumorandum from Messrs. Young and Irvine dated October 24, 1966, review-
ing
the policy governing Federal Reserve System loans to foreign central
banks
and governments offering gold as collateral that had been adopted
bY the Board in December 1955, and proposing certain revisions in light
Of current circumstances.
Attached to the memorandum were:
(1) copy of
a memorandum to the Board from the Division of International Finance
cited September 15, 1955, proposing the policy adopted in December 1955;
and
(2) copy of a draft memorandum dated October 17, 1966, from Mr.
Robert J. Crowley, Manager, Foreign Department of the Federal Reserve
hnk of New York, to Mr. Bruce MacLaury, Assistant Vice President of that
10/26/66
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Bank, setting forth views on the questions (a) whether the interest rate
On gold collateral loans should be the discount rate, the Treasury bill
rate, or some other rate close to existing market rates, and (b) whether
such loans should be approved automatically on the basis that they are
a normal central banking operation in which there is no risk of loss.
The October 24 memorandum proposed two amendments to the existing
text of the gold collateral loan policy statement (words to be deleted
are
in brackets; words to be added are underscored):
First:
Amend section A.(2) as follows--
"[In exceptional circumstances only,] loans or commitments
therefor may be made for other purposes, as, for example, to
assist in persuading_g_saatIy to adopt sounder policies or to
support implementation of a program intended to eliminate major
balance-of-payments difficulties arising from internal financial
or monetary disturbances or from basic maladjustments in the
economy."
Second:
Amend section B.(2) as follows--
"The interest rate on a loan against gold of three months
or less should, as a general rule, be the discount rate of the
Operating bank in effect at the time of the making or the renewing of the loan, as long as this rate is reasonably representative
of the cost of money in the New York market. Should this not be
the case, the interest rate should be set at the rate on threemonth Treasury bills at the time of the making or renewing of the
loan, whichever is higher."
In addition, it was recommended that the following declaration be written
into the policy statement:
"Ordinarily, the System will not make loans against gold
to the central bank of a country that is in default on any
Official obligation to any agency of the U. S. Government or
to any international lending agency of which the U. S. is a
member, such as the International Bank for Reconstruction and
Development, the International Monetary Fund, the Inter-American
Development Bank and the Asian Development Bank, unless the
defaulter has made a commitment to negotiate a settlement that
ls satisfactory to the lender."
10/26/66
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Following explanatory comments by Mr. Irvine and expression of
tentative views on the proposals by several members of the Board, Chairman
Martin suggested that it might be well to defer further consideration of
this matter until a time when all members of the Board were present.
Accordingly, the subject was deferred until a later date.
Gold collateral loan agreement with the Bank for International
.§4.q.L.T.amt. _LIL!JILLia,_LLI.
There had been distributed a memorandum from
Mr. Young dated October 24, 1966, stating that the Board of Directors of
the Federal Reserve Bank of New York had authorized, subject to approval
by the
Board of Governors, a one-year extension of the $25 million gold
loan arrangement to the Bank for International Settlements.
This arrange-
ment had been renewed annually for a number of years.
The arrangement provided that during a one-year period beginning
on November 1, 1966, the Bank for International Settlements would be
au thorized to borrow against gold collateral amounts up to a maximum of
$25 million for periods not in excess of seven days.
Total borrowings
during any calendar month could not exceed the equivalent of $25 million
f°r a total of seven days.
The New York Reserve Bank would make a commit-
ment charge of 1/4 of one per cent per annum on that part of the maximum
iman facility not used in any calendar month.
The memorandum stated that the Bank for International Settlements
had found this facility useful in meeting very short-term needs for dollars
Occasioned by late-in-the-day demands from central banks that maintained
10/26/66
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deposit5 with it.
The Bank typically repaid the loans within one or
two days, and use of this facility had increased considerably in the
last few years.
In the year ending March 31, 1966, it had made 28 loans
that totaled $270 million.
raillion.)
(The maximum possible would have been $300
In the previous year loans totaled $180 million, and in the
1960-64 period, they had averaged around $100 million.
It was understood that, in advising the Bank for International
Se ttlements of the System's willingness to renew the gold loan arrangement for another year, the Bank would be requested to use its swap
facility with the Federal Reserve rather than gold loans to meet cash
requirements when possible.
Drawings under the swap facility would
involve an interest payment at the three-month Treasury bill rate and
would avoid any impact on the U.S. balance of payments.
In addition,
the Bank would be specifically requested not to use the gold loan facility over quarter-ends because of its temporary adverse impact on the U.S.
balance of payments.
The New York Reserve Bank had recommended that the interest rate
aPPlioable to any gold loans made under the proposed authorization be
at the discount rate of the New York Reserve Bank prevailing when the
loan was made.
However, the memorandum stated that it would appear more
aPPropriate at the present time to set the rate for this and other gold
14)ana at the rate on three-month Treasury bills or the discount rate of
the Federal Reserve Bank of New York, whichever was higher.
Accordingly,
10,
10/26/66
-17-
Mr. Young recommended that the Board approve the loan agreement on the
terms and conditions described in the New York Reserve Bank's request
for approval, except that the interest rate provision should embody the
a lternative method of determination specified above.
A draft of telegram
to this effect was attached.
Governor Brimmer commented that while he was prepared to accept
the proposal to extend the loan agreement for another year, he was opposed
to the suggestion for tying the interest rate on borrowings thereunder to
the Treasury bill rate.
In his opinion, to do so would inject into central
banking decisions a consideration foreign to the traditional manner of
de termining the interest rate on lendings; in transactions such as this
the prevailing central bank discount rate should determine the terms on
which loans are negotiated.
He commented that while at the present time
market rates were above the discount rate, the Board should look beyond
the immediate situation to the future and not embalm into gold loan procedures an interest rate formula predicated upon transitory circumstances.
In this
connection, he saw a clear distinction between the criterion for
setting interest rates under foreign currency "swap" agreements and the
aPPropriate interest rate criterion under gold collateral loan arrangeillents; the former was essentially a market transaction, and therefore
here was justification for using a rate reflecting market conditions.
Chairman Martin commented that since the proposals for amending
the Policy statement regarding gold collateral loans included one regarding
10/26/66
-18-
the method of determining the interest rate, and in consideration of the
fact that a decision on these proposals had been deferred, he would be
inclined to authorize extension of the Bank for International Settlements
agreement on the basis of the presently existing policy.
It was agreed that this would be the most satisfactory course
of action, and the New York Reserve Bank was authorized to conclude the
a greement on the terms proposed in its request.
A copy of the telegram
a dvising the New York Reserve Bank of the Board's action is attached as
Item No. 11.
Messrs. Hexter, Shay, Leavitt, and Irvine then withdrew from the
meeting.
Procedures for clearing staff publications.
There had been dis-
tributed a memorandum from the Editorial Committee dated October 24, 1966,
Pr°Posing that procedures be established for clearing certain types of
Pamphlets prepared by members of the Board's staff for publication by
the Board.
It was suggested that a subcommittee of the Editorial Com-
mittee be created, to have responsibility for clearing all pamphlets for
hich no clearing procedures presently existed.
The proposed subcommittee would be responsible for certifying
that various manuscripts were competently handled and that they were
deserving of and suitable for publication.
The Editorial Committee
'43111d set the general standards to guide the subcommittee in reviewing
the ma nuscripts.
Members of the subcommittee would be rotated, depending
10/26/66
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nn the subject area covered, and as a rule at least one or possibly two
members of the Editorial Committee would be included.
The following procedure for subcommittee review was proposed:
"(a) Each manuscript--after the initial editing and clearance by the Section Head and/or the Adviser in charge--would be
reviewed by an Editorial subcommittee. The subcommittee would
consist of (i) the Division Head or an Adviser to the Board who
is a specialist in the field (domestic or international); (ii)
the Chairman of the Editorial Committee (Mr. Molony, or an alternate); (iii) Mrs. Sette (or an alternate in editing and managing);
and (iv) for Pamphlet Staff Economic Studies only, one of the
readers on the ad hoc committee.
"A memo requesting approval to print would be sent to the
Board as soon as the subcommittee had cleared the manuscript.
This memo would indicate the clearance and the facts of publication; it would be routed through the Controller's office.
"(b) The galley would be reviewed by the full Editorial
Committee, if it so desires. (Presumably the galley of Pamphlet Staff Economic Studies would be sent to the ad hoc committee reader too.)"
The
memorandum concluded with the observation that authorization to
establish the subcommittee and follow the foregoing review procedure
14(3uld help reduce the workload among the research members of the Edito11-al Committee and would expedite publications.
Following an observation by Governor Robertson that he hoped the
l'ecommended review procedures would be coupled with continuing efforts
to encourage more members of the Board staff to write material for publie
ation, establishment of the subcommittee and implementation of the
clearance procedure set forth above was authorized.
Messrs. Molony, Cardon, and Sammons, Mrs. Sette, and Miss McCaslin
then withdrew from the meeting.
10/26/66
Public Bank matter.
-20Mr. Hackley reported that a request had
been received from the Michigan Commissioner of Banking for a listing
of the dates and amounts of advances made to Public Bank, Detroit,
Michigan, by the Detroit Branch of the Federal Reserve Bank of Chicago,
along with certain related information.
These advances had been made to
Public Bank, a nonmember insured institution, during the period August 26
through October 10, 1966, at the request of the Federal Deposit Insurance
Corporation, in an effort to forestall the bank's insolvency pending consu mmation of a proposed merger with Bank of the Commonwealth, also in
Detroit.
On October 11, Public Bank was placed in receivership by order
Of the Circuit Court for the County of Wayne, pursuant to a petition
filed on behalf of the Michigan Commissioner of Banking, and the Federal
1)ePosit Insurance Corporation, as receiver, arranged a purchase of assets
and assumption of liabilities of Public Bank by Bank of the Commonwealth.
Thereafter, a group of Public Bank's stockholders instituted suit
to have the receivership proceeding declared invalid, and in this connecti
0r1 members of the staff of the Michigan Commissioner of Banking had been
called upon to testify.
The information requested concerning advances that had been made
to public Bank by the Detroit Branch was intended for use in preparing
these persons for their testimony, with a view to having all pertinent
facts at
hand.
10E)
10/26/66
-21-
Mr. Hackley observed that this information was available on the
ledger sheets of Public Bank, and therefore he could see no objection
to furnishing the information requested.
Release of the information was thereupon authorized, with the
understanding that appropriate advice of this fact would be transmitted
to the Federal Reserve Bank of Chicago.
All members of the staff except Messrs. Kenyon, Bakke, Fauver,
and Morgan then withdrew from the meeting.
Director appointments.
Following discussion, it was agreed to
ascertain through the Chairman of the Chicago Reserve Bank whether
Emerson G. Higdon, President of The Maytag Company, Newton, Iowa, would
accept appointment, if tendered, as a Class C director of that Bank for
the three-year term beginning January 1, 1967, with the understanding
that if it were found he would accept, the appointment would be made.
Secretary's Note: It having been ascertained
that Mr. Higdon would accept the appointment
if tendered, an appointment wire was sent to
him on October 28, 1966.
It was agreed to appoint Elvis J. Stahr, Jr., President of
Indiana University, Bloomington, Indiana, as Deputy Chairman of the
Chicago Reserve Bank for the year 1967.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board
memoranda recommending the following
actions relating to the Board's staff:
(10341,
10/26/66
-22-
ArtaaiaLaIL
Rose C. Noonan as Secretary, Office of the Secretary, with basic
annual salary at the rate of $5,683, effective November 28, 1966.
Transfer
Kathryn A. Morisse, from the position of Economist in the Division
of Research and Statistics to the position of Economist in the Division
of International Finance, with no change in basic annual salary at the
rate of $8,479, effective upon assuming her new duties.
/;5r7;<44/KO
Assistant Secretary
BOARD OF GOVERNORS
Item No. 1
10/26/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20351
ADDRESS
orricIAL
CORRESPONDENCE
TO THE •OARD
October 26, 1966
Board of Directors,
Manufacturers Hanover Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System extends to February 14, 1967, the time within
which Manufacturers Hanover Trust Company, New York,
New York, may establish a branch at 111-121 William
Street, New York, New York.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 2
10/26/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 21:153I
AOORIOSO °mow.CONIRCOPONOENCE
TO THE 'SOAR°
October 26, 1966
Board of Directors,
The Bank of Virginia,
Richmond, Virginia.
Gentlemen:
The Board of Governors of the Federal Reserve
System has approved an extension to September 1, 1967,
of the time within which The Bank of Virginia, Richmond,
Virginia, may establish a branch at 6922 Lakeside Avenue
in Henrico County, Virginia.
The Board understands plans to strengthen
Your bank's capital position are being formulated.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
403S
BOARD OF GOVERNORS
Item No. 3
10/26/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AC/DREES OFFICIAL CORRESPONDICNCIE
TO THE •0A110
October 26, 1966
The Honorable K. A. Randall, Chairman,
Federal Deposit Insurance Corporation,
Washington, D. C.
20429
Dear Mt. Randall:
Reference is made to your letter of October 18,
1966, concerning the application of Charlevoix County State
Bank, Charlevoix, Michigan, for. continuance of deposit
insurance after withdrawal from membership in the Federal
Reserve System.
There have been no corrective programs urged
upon the bank, or agreed to by it, which have not been
fully consummated, and there are no programs that the
Board would advise be incorporated as conditions of admitting the bank to membership in the Corporation as a
nonmember of the Federal Reserve System.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
403.,
BOARD OF GOVERNORS
Item No. 4
10/26/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADORES! OFFICIAL CORMLIIIPONOCHCE
TO THE •OARD
October 26, 1966.
Mr. William J. Korsvik,
Assistant Secretary,'
Federal Advisory Council,
do The First National Bank of Chica
go,
Chicago, Illinois. 60690
Dear Bill:
The Board of Governors suggests the topics
shown on the attached list for discussion at the meeti
ng
of the Federal Advisory Council on
November 14, 1966,
and the joint meeting of the Board and the Counc
il on
November 15.
The other arrangements requested in your
letter of October 17 are being made.
Very truly yours,
Kenneth A. Kenyon,
Assistant Secretary.
Enclosure
4040
Suggested Topics for Discussion at Meeting of
Federal Advisory Council on November 14-15, 1966
Economic conditions and prospects.
A.
How does the Council appraise the general economic outlook
for the remainder of 1966 and the year 1967?
B.
Do Council members have the impression, from information
received by bank loan officers, that any significant number
of firms have been cutting back on actual or planned capital
expenditures and inventories because of stringent bank
lending terms or tight credit conditions in general? Because
of the temporary suspension of the investment tax credit and
accelerated depreciation allowances?
C.
In the judgment of Council members, have the reductions in
housing starts in their respective regions resulted primarily
from the reduced flows of funds into mortgage markets through
nonbank depositary institutions and life insurance companies,
or has there also been some significant weakening in the
demand for housing for other reasons?
Banking developments.
A.
How strong does the Council expect business loan demand to be
over the remainder of 1966? Does the recent slackening in
growth of business loans at banks primarily reflect bank
lending policies, or is there also evidence of some moderation
of demands? If the latter, is the moderation due mainly to a
less expansive outlook for sales, or to earlier anticipatory
borrowing?
B.
What does the Council foresee as to the ability and willingness of banks in coming months to attract time deposits
through large and small-denomination CD's? Do banks expect
their main competition for time-deposit funds to come from
other depositary institutions or from market instruments?
Balance of payments.
A.
How strong and widespread are current foreign demands for term
loans, short-term loans, and acceptance credits from U.S. banks?
Have such demands shown recent signs of changing significantly?
4.041
B.
Have Council members observed any significant changes in
recent months in foreign attitudes towards maintaining
deposits in banks in the United States and/or in the foreign
branches of U.S. banks?
C.
Does corporate liquidity, or lack of liquidity, seem to be
a factor now influencing corporate decisions to finance
direct investments abroad by borrowing abroad?
4. What are the Council's views on monetary and credit
policy under
current circumstances?
.
BOARD OF GOVERNORS
Item No. 5
10/26/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS orricsAL CORRESPONDENCE
TO THIC BOARD
October 26, 1966
AIRMAIL
Mr. Darryl R. Francis, President,
Federal Reserve Bank of St. Louis,
P. O. Box 442,
St. Louis, Missouri. 63166
Dear Mr. Francis:
The Board of Governors approves the payment of salary
to Mr. John W. Druelinger as an Assistant Cashier of the Federal
Reserve Bank of St. Louis, assigned to the Little Rock Branch,
at the rate of $12,500 per annum for the period October 16
through December 31, 1966. This is the rate fixed by your Board
of Directors as reported in your letter of October 14.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Item No. 6
10/26/66
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
14 the
Matter of the Applications of
FIRST NATIONAL BANK OF TAMPA and
leN SECURITY & INVESTMENT COMPANY
f approval of the acquisition of voting
:
11-c)ck of First National Bank of Brooksville,
tooksville,
Florida.
ORDER APPROVING APPLICATIONS UNDER
BANK HOLDING CCMPANY ACT
There has ccme before the Board of Governors, pursuant to
4.eti°4 3(a) of the Bank Holding Company Act of 1956 (12 U.S.C. 1842(a),
as emended by Public Law 89-485), and section 222.4(a) of Federal Reserve
1114Mlation
y
(12 CFR 222.4(a)), applications on behalf of The First National
ti
of Tampa and Union Security & Investment Company, both registered bank
11°144 companies located in Tampa, Florida, for the Board's approval of
the
acquisition by Union Security & Investment Ccmpany of 55 per cent of
the 20)000 voting shares to be issued by First National Bank of Brooksville,
trook
aville, Florida, a proposed new bank.
As required by section 3(b) of the Act, the Board notified the
CQN)t
toller of the Currency of receipt of the applications and requested
4044
-2-
Views and recommendation.
The Comptroller recommended approval of
the
aPplications.
Notice of receipt of the applications was published in the
Nieral Register on August 11, 1966 (31 Federal Register 10704), which
Provided an opportunity for submission of comments and views regarding
the Proposed acquisition. Time for filing such ccmments and views has
aired and all those filed with the Board have been considered by it.
IT IS ORDERED, for the reasons set forth in the Board's Statement
this date, that said applications be and hereby are approved, provided
that the acquisition so approved shall not be consummated (a) before
he thirtieth calendar day following the date of this Order or (b) later
thall three months after said date, and provided further that the First
Nat anal
Bank of Brooksville shall be opened for business not later
then Six months after said date.
Dated at Washington, D. C., this 26th day of October, 1966.
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Robertson, Shepardson, Mitchell, and Brimmer.
Absent and not voting:
Governors Daane and Maisel.
(Signed)
Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
(StAL)
Item No. 7
10/26/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATIONS BY THE FIRST NATIONAL BANK OF TAMPA AND UNION
SECURITY & INVESTMENT CCMPANY FOR APPROVAL OF ACQUISITION
OF SHARES OF FIRST NATIONAL BANK OF BROOKSVILLE,
A PROPOSED NEW BANK
STATEMENT
The First National Bank of Tampa ("First National") and Union
4e4titY & Investment Company ("US & I"), both of which are registered
bar,I.
holding zompanies located in Tampa, Florida, have filed with the
11Np—,
4.4
') pursuant to section 3(a) of the Bank Holding Company Act of 1956,
as
amended ("the Act"), applications for approval of the acquisition of
Ss
I/e cent of the voting shares to be issued by First National Bank of
Ig 41
."..374-1-1e, Brooksville, Florida ("Bank"), a proposed new bank. (First
Nat,
'04a1 and US & I are referred to collectively herein as "Applicants".)
US & I, a majority of the stock of which is trusteed for the
11141efit of the shareholders of First National, owns controlling stock of
(114aY National Bank of Tampa and Second National Bank of Tampa. At
1/
ber 31, 1965,— the three banks in the group had total deposits aggreabout $197 million.
Bank, a proposed new institution which will be
1°e4ted about 45 miles north of Tampa, is expected to have deposits of
ion after three years of operation.
S otherwise indicated, all banking data noted are as of this date.
10,1
-2Views and recommendation of supervisory authority. - As
Nnired by section 3(b) of the Act, notice of receipt of the applications
Vas
given to, and views and recommendation requested of, the Comptroller
Of the Currency.
The Comptroller recommended approval of the applications.
Statutory considerations. - The Act prohibits Board approval of
atlY Proposed acquisition which would result in a monopoly, or further any
411thination, conspiracy, or attempt to monopolize the business of banking
anY relevant area.
Nor may approval be given where the Board finds
that the effect of a proposal may be substantially to lessen competition,
ot in any other manner be in restraint of trade, unless such anticompetitive
e4ect8 are clearly outweighed by the probable effect of the transaction in
eetillg the convenience and needs of the area to be served.
so,
The Board is
required to consider the financial and managerial resources and future
11173Pect5 of the bank holding company and banks concerned, and the convenience
aad
need s of the communities to be served.
Competitive effects of proposed acquisition. - There are eight bank
holdin
g company groups either operating, or approved by the Board to commence
cltations, in the State of Florida. Combined, they control 71 banks, or
16,
Per
cent of the banks in the State, and they hold about $2 billion of
41)(18its, representing 26 per cent of the deposits of all banks in the State.
licents' holding company system controls less than 3 per cent of the total
deh8it3 in the State.
First National's service area includes generally all of Hillsborough
C°11ntl,
The service areas of the Applicants' two subsidiary banks lie wholly
1047
-3qthin Hillsborough County.
Applicants' group represents 3 of 24 banks in
Rillsborough County, and controls about 32 per cent of the total
deposits
Of those
banks.
Although the proportion of deposits in the County which
°e under control of the Applicants is significant, the degree of concentration
in that area would not be increased by the proposed acquisition
illasmuch as Bank will be located some
distance away, in Hernando County,
Hernando County is located to the north of Hillsborough County,
arld is separated from Hillsborough County by Pasco County.
There are
fou
r banks presently located in Pasco County and only one bank in
Hernando
cou„,
'LY, Hernando State Bank at Brooksville, which has deposits of about
$11 million.
There is also a savings and loan association located in
4o0ksviiie.
Applicants propose to establish and acquire control of a new bank
gn area where no holding companies are presently represented; and since
tItee is some distance separating Bank's location from Applicants' existing
kbsi
diaries, it is the Board's judgment that the transaction proposed
4/414 not result in a monopoly, nor does it appear to be in furtherance
°411Y combination or conspiracy to monopolize or to attempt to monopolize
the business
of banking in any relevant area,
Since the proposal involves the acquisition of a new bank, no
at
ing compPtition will be eliminated.
Nor is there a likelihood that
Si
tliacEnt potential competition will be foreclosed between Bank and
4414
e4nts' other subsidiaries as a result of the proposal. As before noted,
artk
141l be located about 45 miles from Tampa and outside the primary
40,1 S
-4.-
service areas of Applicants' banks.
First National is the only one of
the group's banks which derives deposits or loans frcm Hernando County.
Such business, whether related to First National's total deposits and
loans held, or to such held by Bank, is insignificant in number or amount.
It is not anticipated by Applicants, nor does it appear likely in the
illdgment of the Board, that Bank will derive any significant amount of
business from the Tampa area.
On the basis of the foregoing, it is con-
lUded that consummation of the proposal would have no significant effect
(34 Present or potential competition between the proposed new bank and the
banks now comprising Applicants' group.
only
Referring now to the probable competitive effect on the
elqsting bank in Hernando County, Hernando State Bank, Brooksville, it
"ted that the county has a population of nearly 13,000.
The two neigh-
of about
counties of Citrus and Sumter, with respective populations
12)000 and 14,000, each has two banks.
Pasco County, which adjoins
Ilernando County to the south, has four banks and a population of 40,300.
The
establishment of Bank in Hernando County will, in the Board's judgment,
an added source
Pl'"e beneficial in that it will introduce into that County
°thanking service, and healthy competition for Hernando State Bank, a
411-established institution with $11 million of deposits and of adequate
81e to compete effectively with the proposed new bank.
the
In this regard,
statement in
President of Hernando State Bank submitted a written
°IllInsition to Applicants' establishment and control of Bank, stating that
and operation
and() State Bank would have no objection to local ownership
'
-5-
10.
OfBank,
but that it objected to the "adverse competitive position in
which our bank [Hernando State] will be placed in ccmpeting with First
National Bank of Tampa and its affiliates." The Board recognizes that
44k, as a subsidiary of Applicants' system, will probably exert a stronger
eftTetitive force initially than would a completely independent new bank,
liNever, when considering that Tampa is 45 miles away, that Applicants'
banks
compete principally with more than 20 other banks in Hillsborough
CourItY, and that there are four banks located in Pasco County, which
seParates Hillsborough County from Hernando County, the Board concludes
that the establishment of Bank in Brooksville, as proposed, would not be
in ical to the competitive
position of Hernando State Bank. There appear
to be no
other banks in sufficiently close proximity to Bank's proposed
site as to be affected competitively to any measurable extent by the proPosed establishment and operation of
Bank.
It is the Board's judgment, based on the foregoing considerations,
that
APplicants' acquisition of Bank will not tend substantially to lessen
c°41Petition nor will it in
any other manner be in restraint of trade.
Financial and managerial resources and future prospects. 41-tbetigh Applicants' bank holding company system has been in operation only
sitlee mid-1964, US & I and each of the group's banks have been in existence
4
number of years.
The financial resources of Applicants and their
subsidiary banks are satisfactory and, on the basis of their past operations
tQco
rds, their prospects are viewed as favorable. Management of US & I is
d141711 from the management staff of First National and, with respect to
both
companies, is considered to be capable and experienced. Managements
th,
- subsidiary banks are considered similarly satisfactory.
-6-
The pro forma financial condition of Bank is regarded as
satisfactory and its prospects, viewed in light of the satisfactory
eci°110mic prospects for the area it will serve, are considered favorable.
The Board finds reasonable
Applicant's position that consummation of the
Proposed acquisition will assure the placement in Bank of experienced and
t111_ trained management.
The Board finds the "banking factors" to be consistent with
approval
of the application.
Convenience and needs of the area to be served. - Bank's
designated primary service area includes all of Hernando County.
Hernando
eolintY, which is situated north of Tampa on the Gulf Coast, has a populati°4 of nearly 13,000 - about double its 1950 population.
ttt
Total employment
the county has increased moderately in recent years, with more
than
Per cent of the total labor force being engaged in mining activities.
Der
sonal inccme in Hernando County is reported to have nearly doubled
bet11-p
en 1956 and 1964, although per capita income is still below the State
aVer
age,
A major portion of the County's income is derived from mining,
Culture, and fisheries.
While the economy of Hernando County should
e°1Itinue its relatively moderate growth in the immediate future, the geoPh
i- expansion of the Tampa-St. Petersburg Metropolitan Area is expected
tob
-4Ve,
at a later date, a significantly favorable effect on the economy
(31E Rernando
County.
As earlier noted, Hernando State Bank is presently the only bank
4e4ted in Hernando County.
Applicants do not propose that Bank will pro-
services of a scope or nature different than those generally available
-7-
40:)1
in Bank's service area either through Hernando State Bank or other banks
located in surrounding counties.
However, Bank's establishment as an
affiliate of Applicants will make available to the public, more immediately
and more certainly than would be the case were Bank to be independently
established, an alternative source of modern banking services and facilities.
Although there is no evidence in the record that major banking
needs in Hernando County are going unserved or are being inadequately
served, it is the Board's judgment that the installation of another banking
4ci1ity in the county will prove beneficial to the convenience and needs
(1 certain of the area's businesses and residents. It is therefore concluded that considerations relating to the convenience and needs of the
4/ 4 to be served provide some support for approval of the applications.
Summary and conclusion. - On the basis of the record before it,
Ile Board concludes that the acquisition of control of Bank by Applicants
ill not have any significant adverse competitive consequences, and that
c'cllsiderations relating to the financial and managerial resources and prosPects of Applicants and Bank, and to the convenience and needs of the area
to
be served, are consistent with approval of the applications, and in
ai respects provide affirmative support for such approval.
In light of the factors set forth in the Bank Holding Company
) and on the basis of the evidence of record, it is the Board's judgment
that the proposed acquisition is in the public interest and that the appli4tiOrtS should be approved.
Ober
26, 1966.
10.1)44 :
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 8
10/26/66
WASHINGTON. D. C. 20551
OFFICE OF THE CHAIRMAN
November 7, 1966
The Honorable Wright Patman,
Chairman,
Committee on Banking and Currency,
House of Representatives,
Washington, D. C.
20515
Dear Mr. Chairman:
This is in response to your letter of August 23, 1966,
With respect to Board action to implement Public Law 88-593.
As was indicated in the Board's 1964 Annual Report to
the Congress, steps were taken promptly to implement the provisions of Public Law 88-593 (enacted September 12, 1964) which
requires that the appropriate Federal bank supervisory authority
be notified of changes in control of insured banks, of management
changes occurring within one year following a change of control,
and of loans granted by insured banks secured by 25 per cent or
more of the stock of an insured bank. On September 18, 1964,
the Board, in conjunction with simultaneous action by the Federal
Deposit Insurance Corporation, sent to the chief executive officer
of all insured banks a copy of the Act and a statement regarding
the provisions of the new legislation and the procedures to be
followed in submitting the required reports. Arrangements among
the three Federal supervisory agencies were subsequently made
Whereby copies of reports are exchanged in accordance with the
Provisions of the Act. The Reserve Banks provide copies of all
reports received by them to the appropriate district office of
the Corporation, the Regional Comptroller of the Currency, and
the State bank supervisor.
Upon receipt of reports involving changes in control of
State member banks, the Reserve Banks are under instructions to
forward such reports promptly to the Board, together with a statement that the new owner and management are known and acceptable to
the Reserve Bank or that they are not known and an investigation
Of):.
The Honorable Wright Patman
-2-
18 being made. The findings of any investigation and the Reserve
Bank's conclusions based on such findings are forwarded to the
Board. The investigations made by the Reserve Banks have disclosed
no instance where failure or serious deterioration in a bank's
condition could be expected to result from the change in control
reported.
During the approximately two year period since enactment
Of Public Law 88-593, the Reserve Banks have forwarded copies of
120 reports to the Board's offices pertaining to changes in control
of State member banks or to loans secured by stock of a State member
bank.
A list is enclosed, showing the banks whose stock was
reported to have been transferred or pledged, their deposits, and
the names of the transferees, beneficial owners, borrowers, and
lending banks involved.
Sincerely yours,
Wm. McC. Martin, Jr.
Enclosure.
BOARD OF GOVERNORS
OF THE
Item No. 9
10/26/66
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
OFFICIAL
CORRE•POHDENCE
TO THE BOARD
October 27, 1966
11r. Eliot J. Swan, President,
!
ederal Reserve Bank of San Francisco,
'all Francisco, California.
94120
Llear Mr. Swan:
This refers to your letters of September 8 and 30, and
0ctober 12, 1966, relating to a proposal by Bank of California,
°cker-Citizens National Bank, United California Bank, and Wells
s. rgo Bank to establish and operate a common bank credit card plan
rough a "clearing house" called theChlifornia Bankcard Association.
It appears that the Association (1) is incorporated without
ea •
under the California General Nonprofit Corporation Law
stock
Pita]
rile°rporations Code, Title 1, Division 2, Part 1); (2) is open for
_embership by other California commercial banks; (3) will perform
'certain functions required for the operation of the plan, including
edit information, sales audit, card security control, merchant
slrectory preparation, and advertising; and (4) will be supported
!
i lelY by charges against members assessed in a manner to liquidate
'Ls total operating expenses.
j
Although the plan involves a new procedure for the extension
Of
0,. consumer credit by a participating bank, the Board does not consider
1a,.
it involves a change in the general character of such bank's
bu
thsiness. Accordingly, participation in the plan bya member bank without
approval of the Board would not violate the condition of membership
Bo the Federal Reserve System directed against such changes without
"
a
approval (see 12 CFR 208.7(a)(1)).
Because the Association will have no stock and no bank may
othe,_
lise "invest" therein "by making a loan or otherwise, except a
)
;71tent for rent earned, goods sold and delivered, or services rendered
z:°r to the making of such payment", the provisions of the Bank
se3
Th vice Corporation Act (12 U.S.C. 1861 ff.) are considered inapplicable.
e limitations imposed on bank investment in securities and stock by
i
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
405,
Mr. Eliot 1. Swan
Paragraph Seventh of section 5136 of the United States Revised
Statutes (12 U.S.C. 24) are also considered inapplicable.
In conclusion, from the information submitted, action by
the Board is not required as a condition to establishment and operation
Of the plan, and it does not appear that participation in the plan by
a member State bank would be restricted by any of the provisions of the
Pederal banking statutes applicable to such banks.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
40!)
TITLE 12 - BANKS AND BANKING
Item No. 10
10/26/66
CHAPTER II - FEDERAL RESERVE SYSTEM
FEDERAL RESERVE SYSTEM
SUBCHAPTER A - BOARD OF GOVERNORS OF THE
[Reg. H]
INSTITUTIONS
PART 208 - MEMBERSHIP OF STATE BANKING
M
SYSTE
VE
RESER
IN THE FEDERAL
Investments in Securities
208.120
mining limitation
Meaning of "obligor or maker" in deter
banks.
State
r
membe
by
s
on securities investment
Dormitory Authority
(a) From time to time the New York State
a different educa"ters issues of bonds with respect to each of which
"rental" payments
4°11411 institution enters into an agreement to make
t° the Authority sufficient to cover interest and principal thereon
1411e4 due.
Reserve System has
The Board of Governors of the Federal
t up to 10 per cent
been asked whether a member State bank may inves
o
it8
.
capital and surplus in each such issue
of the United States
(b) Paragraph Seventh of section 5136
the
ItellIsed Statutes (12 U.S.C. 24) provides that "In no event shall
obligor or maker,
t°t41 amount of the investment securities of any one
exceed at any time
held by [a national bank] for its awn account,
.
10 Per centum of its capital stock ... and surplus fund"
That
liunitation is made applicable to member State banks by the twentieth
335).
'agraph of section 9 of the Federal Reserve Act (12 U.S.C.
hl
meaning of these
(c) The Board considers that, within the
1117°visions of law, "obligor" does not include any person that acts
405
-2received from another
8°1-elY as a conduit for transmission of funds
ipal or
sOurce, irrespective of a promise by such person to pay princ
intereSt on the obligation.
be
While an obligor does not cease to
pay the obligor amounts
14101 merely because a third person has agreed to
obligations when due,
sufficient to cover principal and interest on the
obligation, but as a practical matter
4 PerSOR that promises to pay an
has
of the obligation
uo resources with which to assume payment
n, is not an "obligor"
e cept the amounts received from such third perso
with in the meaning of section 5136.
tory Authority Act (N. Y. Public
(d) Review of the New York Dormi
Authorities Law §§ 1675-1690), the Authority's interpretation thereof,
Bonds, Mills
alid materials with respect to the Authoriqs "Revenue
the Authority is
C011ege of Education Issue, Series A" indicates that
bonds.
11°t an "obligor" on those and similar
Although the Authority
that
hctlises to make all payments of principal and interest, a bank
considered as doing so in
irive ats in such bonds cannot be reasonably
ellance on the promise and responsibility of the Authority.
Despite
bonds, if the parthe Authority's obligation to make payments on the
l payments
tic
Allar college fails to perform its agreement to make renta
to the Authority sufficient to cover all payments of bond principal
arid interest when due, as a
practical matter the sole source of funds
for
particular college.
payments to the bondholder is the
has
from which to assure repay—
general borrowing power but no resources
The Authority
particular colleges, and rentals
tnerit of any borrowing except from the
-3-
t
received from one college may not be used to service bonds issued for
another.
(e) Accordingly, the Board has concluded that each college
for which the Authority issues obligations is the sole "obligor" thereon.
A member State bank may therefore invest an amount up to 10 per cent
Of its capital and surplus in the bonds of a particular college that
are eligible investments under the Investment Securities Regulation of
the Comptroller of the Currency (12 CFR 1), whether issued directly
Or indirectly through the Dormitory Authority.
(12 U.S.C. 248(i).
Interprets 12 U.S.C. 24 and 335.)
Dated at Washington, D. C., this 26th day of October, 1966.
By order of the Board of Governors.
(SEAL)
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
40.
Item No. 11
10/26/66
TELEGRAM
LEASED
WIRE SERVICE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
October 26, 1966
MAC LA
Y - NEW YORK
Board approves granting loan or loans on gold up to a
total of $25 million by the Federal Reserve Bank of New York to
the Bank for International Settlements on the terms described
in your wire of October 20, and subject to the conditions
outlined.
(Signed) Kenneth A. Kenyon
KENYON
@FedFRASER