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Minutes for
To:
Members of the Board
From:
Office of the Secretary
October 27, 1965
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
You were not present, your initials will indicate
only that you have seen the minute
Chm. Martin
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
eley()f
Minutes of the Board of Governors of the Federal Reserve
System on Wednesday, October 27, 1965.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Robertson
Shepardson
Mitchell
Daane
Sherman, Secretary
Kenyon, Assistant Secretary
Molony, Assistant to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Solomon, Director, Division of Examinations
O'Connell, Assistant General Counsel
Shay, Assistant General Counsel
Hooff, Assistant General Counsel
Leavitt, Assistant Director, Division of
Examinations
Mr. Thompson, Assistant Director, Division
of Examinations
Miss Eaton, General Assistant, Office of the
Secretary
Mr. Morgan, Staff Assistant, Board Members'
Offices
Miss Hart and Mrs. Heller, Senior Attorneys,
Legal Division
Mr. Egertson, Supervisory Review Examiner,
Division of Examinations
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Ratification of actions.
Actions taken at a meeting of the
available members of the Board on Tuesday, October 26, 1965, as recorded
the minutes of that meeting, were ratified by unanimous vote.
Circulated items.
The following items, copies of which are
a ttached to these minutes under the respective item numbers indicated,
wer'e approved unanimously:
1(11
3
(
t t1.
10/27/65
-2Item No.
Letter to The Farmers and Merchants Bank of Vandalia,
Vandalia, Illinois, approving an investment in bank
Premises.
1
Letter to State Savings Bank of Lebanon, Lebanon,
Missouri, approving the declaration of a dividend
in December 1965.
2
Letter to Citizens Commercial & Savings Bank, Flint,
Michigan, approving the establishment of a branch at
3267 Van Slyke Road, Flint Township.
3
With regard to Item No. 3, Governor Shepardson noted that the
capital situation at Citizens Commercial & Savings Bank, previously the
subject of comment, had not been corrected.
That being the case, he
questioned whether the Board should approve the establishment of the
branch without further reference to the matter.
Mr. Leavitt said this was a good bank except that capital was
below the optimum level.
The capital situation had been the subject of
cemment in connection with the recent examination of the bank.
The branch
in question was one that would impose relatively small additional pressure
en the bank's capital.
The Division of Examinations had felt that Citizens
Bank should be given a chance to reply to the Federal Reserve Bank of
Chicago's inquiry as to what it intended to do about the capital situation before question was raised again at Board level.
Governor Robertson commented that if the Federal Reserve Bank
had asked the bank to correct the situation and the Board made no reference to it in the proposed letter, this might be misconstrued as a diference in approach between the Board and the Reserve Bank.
10/27/65
-3-
Mr. Solomon then suggested that it might be appropriate to check
with the Reserve Bank and use language in the Board's letter reflecting
a consistency of approach.
There was agreement with this suggestion,
and the letter sent to the bank, as attached, reflects subsequent staff
conversation with the Reserve Bank.
Applicability of Bank Holding Company Act to industrial banks
...qems 4, 5, and 6).
A memorandum dated October 20, 1965, from the Legal
Division relating to the question of the status of an industrial bank
under the Bank Holding Company Act had been distributed, along with a
supplemental memorandum dated October 26.
The memoranda concluded that
such an institution was a "bank," for purposes of the Holding Company
Act, when it issued investment certificates that were repaid, in practice, on demand; an interpretation published by the Board in 1963 held
that such certificates constituted "deposits."
However, the Legal Divi-
sion concluded that an industrial bank would cease to be a "bank" if it
stopped issuing new certificates, or accepting additional payments on
Outstanding certificates; and an industrial bank that had been accepting
savings deposits" could cease to be a "bank" if it required actual
1/ritten notice of at least thirty days before permitting withdrawals.
The question arose out of an inquiry by Zions Utah Bancorporati", Salt Lake City, Utah.
Zions controlled a commercial bank and
Proposed to acquire the assets of Lockhart Corporation, a company controlling, among other interests, three industrial banks in Utah and one
?'
X
10/27/65
1.
X
-4-
in Colorado.
If any of the four were "State banks" under section 2(c)
of the Act, Zions would become a bank holding company as a result of
the proposed transaction.
Because of the time factor involved in a
Proposed underwriting of its securities, Zions preferred to alter the
Operations of the industrial banks in such a way that they would cease
to be "State banks."
In a letter of September 21, 1965, Zions asked whether the Board
Would deem it a sufficient change in operations so that the institutions
would no longer be "banks" under the Act if Lockhart's three Utah industrial banks, which formerly issued investment certificates that were
repaid on demand but were in process of transferring all such certificate
accounts to a savings and loan association, not only ceased to accept
new accounts but also ceased to accept additions to old accounts; and
if the Colorado industrial bank, which had been accepting savings deposits
"the same basis as commercial or savings banks, informed its depositors
that henceforth thirty days' written notice would be required in advance
of any withdrawal from a savings account.
The Board's staff believed that under the proposed alteration
the three Utah industrial banks would not come within the terms of the
1963 interpretation.
The Colorado institution presented a more difficult
question, since it would continue to accept funds in accounts that were
called "savings deposits," but the staff felt that the proposed requireIllent of thirty-day written notice in advance of withdrawal could be
10/27/65
-5-
regarded as sufficient to remove the institution from the definition of
4 "State bank" for purposes of the Holding Company Act.
Because it appeared that a considerably larger number of industrial banks than had been supposed actually did accept funds from the
Public that were repaid in practice on demand, the staff had also reconsidered the basis for the 1963 interpretation.
It concluded once more
that the test expressed there was probably the best that could be developed
from two points of view:
(1) approximating the original intent of Con-
gress, and (2) feasibility and fairness of administration.
The Federal
DePosit Insurance Corporation had taken the stand that it would not insure
a nything that was not legally called a deposit, and it was understood a
number of States, including Colorado, had changed their statutes so that
industrial banks could accept something called savings deposits and become
eligible for insurance.
The Legal Division recommended that an interpretation be published
based on the present case.
If the Board agreed, it was also suggested
that the Reserve Banks be asked to bring the matter to the attention of
those companies that may have failed to realize that investment certificates, or thrift certificates, were "funds accepted from the public,"
and hence deposits, for purposes of the Holding Company Act, if in practice repaid on demand.
After summary comments by Miss Hart, Mr. Hackley added that the
Legal Division had given the matter a great deal of consideration.
It
10/27/65
-6-
had been a difficult problem.
One might say that this was an extension
of the intent of the Holding Company Act to cover institutions that the
Congress had not meant to cover.
But on the other hand the Act did
define a "bank" to include a savings bank or trust company.
It was
true that during the Congressional debate there were some indications
from Senator Robertson that the Act was intended to cover only commercial banks.
However, unless the Board took the recommended position,
there would be considerable room for evasion of the Holding Company Act
simply by applying various names to institutions or by applying various
terms to transactions involving the receipt of funds payable on demand.
In effect the Legal Division was recommending a clarifying interpretation, one that would be consistent with the interpretation issued in 1963.
Governor Mitchell asked whether the Federal Deposit Insurance
Corporation treated savings certificates of this kind as deposits, and
ilisa Hart said she understood they did not.
In those cases where State
law had been amended so that such funds were called savings deposits
theY were insurable, but the Corporation held that unless funds were
called deposits they were not insurable.
Governor Mitchell then asked
whether the Corporation would insure deposits in institutions that were
11.13t banks, and Mr. Hackley said they insured funds only in institutions
that received deposits, as defined in the Federal Deposit Insurance Act.
Governor Mitchell observed that savings and loan associations in practice
Paid out share accounts on demand, and Mr. Hackley replied that it seemed
10/27/65
-7-
necessary to conclude that savings and loan associations were not banks
for purposes of the Bank Holding Company Act, principally because the
Congress itself made the distinction and enacted a separate holding
company act for savings and loan associations on the clear assumption
that they were not covered by the Bank Holding Company Act.
Governor
Mitchell commented that he did not relish a situation where one agency
held an institution to be a bank and another agency held that the same
institution was not a bank, to which Mr. Hackley replied that the proPosed interpretation was solely for the purpose of carrying out the
intent of the Bank Holding Company Act.
Governor Mitchell then said
that he had great reservations about the whole business, but that he
would go along with the proposed interpretation.
The other members of the Board also indicated that they concurred
in the proposed interpretation.
There was, however, agreement with a
minor language change suggested by Governor Daane.
Accordingly, the proposed interpretation with respect to the
a pplicability of the Bank Holding Company Act to industrial banks was
y_Lci unanimously, along with letters to counsel for Zions Utah
Bancorporation and to the Federal Reserve Banks.
Copies of the inter-
Pretation and the respective letters are attached as Items 4, 5, and 6.
also was given to letters to three corporations owning industrial banks for the purpose of advising them of the possibility that they
Should register as bank holding companies in light of the 1963 interPretation and the current interpretation.
10/27/65
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Governor Shepardson referred at this point to a matter that he
said had been of concern to him for some time.
When the Bank Holding
Company Act was passed and the initial cases came up involving definition of competition in relevant areas, it was decided that institutions
such as savings and loan associations would not be taken into consideration.
It seemed to him that regardless of legislative niceties this
Position was inappropriate as a practical matter.
He felt that it would
be appropriate to ask the staff to reconsider the situation.
Mr. Hackley expressed agreement.
He recalled that the position
that competition furnished by savings and loan associations should not
be considered in determining the effect of a proposed transaction on
competition "in the banking field" was taken principally on the theory
that savings and loan associations were not banks for purposes of the
Rank Holding Company Act.
On the other hand, the Board did consider
the competition furnished by savings banks.
But when the Bank Merger
Act was passed there was a certain amount of legislative history indicating that it was intended to be applied in the light not only of banking
competition but competition afforded by savings and loan associations
and other types of financial institutions.
The inconsistency had trou-
bled him, and he thought it would be a good idea to have a further study
made.
Mr. O'Connell indicated that he had much the same view.
holding
In
company cases there had typically been statements by applicants
grz
ILJ
10/27/65
-9-
that they were in severe competition with savings and loan associations.
However, if the position was taken that this type of competition should
be considered in analyzing the market impact, there would be some difficulty in amassing the data necessary to make comparisons.
Mr. Shay observed that in merger cases the staff had not listed
savings and loan associations along with banks in analyzing the competitive situation in a given area.
Only in cases where there had been sub-
stantial competition from savings and loan associations or other financial intermediaries had close consideration been given to such institutions.
Their presence was mentioned and discussed in the pertinent memo-
randa, but it had been given significant attention only in cases where
the competition was very considerable.
Governor Mitchell commented that the greatest competition banks
faced today for time deposits came from savings and loan associations,
and Governor Daane observed that the savings and loans were almost always
factors of consequence in the competitive situation.
Governor Shepardson then remarked that, whatever the situation
May have been in years past, the discussion today supported the view
that the competitive market had changed.
Perhaps legislation should be
sought in an effort to reconcile some of the inconsistencies of existing
legislation.
Mr. Hackley commented that what the legal staff had been trying
to do in several cases, including the case on which the Board had just
t
10/27/65
acted, was to be realistic.
-10In the Zions Utah Bancorporation case, the
thought was to recognize that the industrial banks were doing business
in much the same manner as co mmerc ial or savings banks.
In applying
the Holding Company Act it should be possible to give a broader interPretation to competition "in the banking field" so as to include, as
far as practicable, the effect of a proposed transaction in the light
of competition afforded by savings and loan associations and other types
of financial institutions in the relevant area.
Mr. Solomon commented that it should not be too difficult to
work in savings and loan associations as a practical matter.
In making
an analysis it seemed reasonable first to look at banks only, because
in many cases it would be found that the answer was quite clear.
As a
second step, however, if the facts seemed to warrant it, the staff could
lookat the other financial intermediaries.
Request for access to records (Items 7 and 8).
A request had
been made of the San Francisco Reserve Bank by Bronson, Bronson & McKinnon,
a San Francisco law firm representing the Federal Deposit Insurance CorP°ration in connection with litigation between the Corporation and A. M. R.,
Inc., et al.,for access to certain records of the Reserve Bank.
Board
authorization was sought for access to these records in a letter from the
lac4. firm to Mr. O'Connell dated October 14, 1965.
Copies of this letter
had been distributed, along with a draft of reply.
The litigation, according to the law firm's letter, concerned
he actions taken by the banking agencies prior to the closing of San
31
10/27/65
-11-
Francisco National Bank.
The firm's investigation indicated that
personnel of the Federal Deposit Insurance Corporation had had several
conversations with personnel of the Reserve Bank prior to the closing
of the national bank.
Those conversations and all documents pertaining
to them would be relevant evidence.
In order that the witnesses for
the Corporation and the Reserve Bank could not be compromised or surprised, it was considered important that the law firm examine the records
of the Reserve Bank.
These records included primarily three types of documents:
(1)
all correspondence among the Federal agencies regarding the national
bank, and with the national bank; (2) all correspondence and memoranda
of conversations occurring among the Federal agencies, and with the
national bank; and (3) correspondence and other documents pertaining
to the borrowings by the national bank from the Reserve Bank.
The Cor-
Poration was reported to be making available to the Reserve Bank the
documents it had available on these same subjects, and the law firm
b elieved a mutual exchange of information was necessary to protect the
Position of both the Corporation and the Reserve Bank.
The depositions
of witnesses from the Reserve Bank would be taken shortly, and it was
suggested that the information be exchanged prior to the taking of those
depositions.
In commenting on the wording of the proposed reply, Mr. O'Connell
said the Reserve Bank apprehended that in the near future the Federal
tf.V1
10/27/65
-12-
Deposit Insurance Corporation might be required to sue the Reserve Bank
in its (the Corporation's) role as receiver of San Francisco National
Bank; also that defendant savings and loan associations in proceedings
instituted by the Corporation might file suit against the Reserve Bank.
In the circumstances, counsel for the Reserve Bank had suggested that
the letter to the law firm be so worded as to provide some latitude for
the Reserve Bank to protect itself in such ways as might seem prudent
in light of the probability of the aforementioned suits being filed.
Mr. O'Connell also mentioned that officers of the Reserve Bank
were to give depositions in early November, and he read as a matter of
information a telegram from the Reserve Bank indicating how it was proPosed to proceed in reference to these depositions.
The letter to Bronson, Bronson & McKinnon was then approved
u nanimously.
A copy is attached as Item No. 7.
A copy of a letter
sent to the Federal Reserve Bank of San Francisco in this connection
is attached as Item No. 8.
Messrs. Shay, Hooff, Thompson, and Egertson, and Miss Bart and
Mrs. Heller then withdrew from the meeting.
Ownership of bank stock by examining personnel (Items 9, 10,
=11_111.
A memorandum on this subject from the Division of Examinations
dated October 15, 1965, had been distributed to the Board.
It pointed
°ut that in a letter dated February 10, 1964, (S-1907), the Board set
f°rth certain general principles for conduct of System personnel.
One
10/27/65
-13-
Principle was that it would be inappropriate for a member of the staff
Of a Reserve Bank to purchase stock of a bank or an affiliate thereof
(except possibly where the actual relationship of the affiliate to the
bank was remote); officers and employees occupying responsible positions who held or acquired stock of banks or affiliates should dispose
of it as promptly as practicable without causing undue hardship.
In the
Board's letter of March 15, 1965, (S-1946), an additional principle
relating to examining personnel stated that "In keeping with the general
Principle outlined in the Board's letter of February 10, 1964, (S-1907),
and with particular reference to the views expressed in that letter with
respect to the acquisition and disposition of bank stock by a member of
the staff of a Reserve Bank, it shall be the responsibility of the Federal
Reserve Bank to obtain information as to ownership of stock, debentures,
etc., of banks or bank affiliates by its examining personnel and to
determine, on the basis of circumstances present in each individual
case, the appropriate measures to be taken to avoid embarrassment to
the Bank or the Federal Reserve System and to prevent questions being
raised with respect to the independence of the individual's judgment or
his ability to perform satisfactorily the duties of his position.
The
Federal Reserve Banks will continue to require examining personnel to
submit periodic reports, at least annually, to the board of directors
regarding such holdings of stocks, debentures, etc., of banks or affiliates thereof, and will record for review by the Board's examiners the
10/27/65
-14-
restriction(s) imposed on the examining activities of the individual
reporting such holdings."
Presidents Hickman and Scanlon of the Federal Reserve Banks of
Cleveland and Chicago had requested specific rulings, in light of the
foregoing letters, because in each of their Banks a member of the examining force owned bank stock, the stock having been held in each instance
When app ointment to the examining staff was approved.
In the circum-
stances, a general review had been made by the Division of Examinations.
Information available through examination of the Reserve Banks indicated
that, aside from the Cleveland and Chicago cases, there were no instances
of ownership of bank stock by examining personnel except at Philadelphia,
Where Vice President Campbell owned shares of two Fourth District banks
that had been acquired through inheritance and Assistant Vice President
Case owned a few shares of a large Twelfth District bank, also acquired
through inheritance.
In the cases of Messrs. Campbell and Case, the
stock had been received subsequent to their employment in the examining
function.
Submitted with the memorandum were draft letters to the three
Reserve Banks concerned.
The letters to Presidents Hickman and Scanlon
would state that the examiners in question could retain the bank stock
they owned, with the understanding that the Reserve Banks would continue
to
prohibit them from examining the banks in which they owned stock or
any
bank that might compete with those banks.
The letter to President
10/27/65
-15-
Bopp (Philadelphia) would suggest that Messrs. Campbell and Case dispose
of their bank stock when this could be done without undue hardship.
In discussion Governor Robertson indicated that he was not certain
about the position proposed to be taken in the Philadelphia cases; ownership of stock of banks located outside the District would hardly affect
the judgment of the persons concerned.
Consequently, he would be inclined
at most to request disposition of the stock whenever that could be done
Without undue inconvenience.
Governor Shepardson agreed that such a
Position would seem reasonable.
Governor Mitchell observed that the problem involved was primarily
of a public relations nature.
There would seem to be no reason why Mr.
Case could not dispose of his stock, which enjoyed a ready market.
If
the other three individuals also disposed of their stock, then it could
be said that there were no bank examiners in the System who owned bank
stock.
But a requirement for disposition could involve some injustice,
and he would not ask any of the three men to dispose of their stock
except at a convenient time.
Governor Mitchell.
Governor Daane expressed agreement with
The latter, in further comments, made clear that he
would not put pressure on any of the three men to dispose of his stock.
They should know that their cases were unique in the System, but he would
11°t ask them to dispose of their stock unless there was a reasonable
°PPortunity.
There appeared to be general agreement with such an approach.
34 W-)
10/27/65
-16-
Question was raised whether transfer of stock to a wife's name
would be regarded as a satisfactory solution, and comments by members
of the Board were to the effect that it would be better than nothing,
4 Step
in the right direction.
It was noted that stocks held in the
names of wives were not required to be included in the periodic reports
s ubmitted to the boards of directors by Reserve Bank personnel.
At the conclusion of the discussion it was agreed that the letters
to the three Reserve Banks would be modified in line with the views
expressed at this meeting.
Copies of the letters subsequently sent to
the Federal Reserve Banks of Philadelphia, Cleveland, and Chicago are
a ttached as Items 9, 10, and 11.
Messrs. O'Connell and Leavitt then withdrew from the meeting.
Director appointments.
The following actions were taken with
respect to the appointment of Chairmen, Deputy Chairmen, and Class C
d irectors at the Federal Reserve Banks and appointment of directors at
Federal Reserve Bank branches, with the understanding that advice of the
a ppointments would be sent to the respective appointees at an appropriate
time and that public announcement would be made near the end of the year
in accordance with the usual practice:
The following were reappointed as Class C directors of the
Federal Reserve Banks indicated, each for a three-year term
beginning January 1, 1966:
Name
Bank
D. Robert Yarnall, Jr.
Logan T. Johnston
Wilson H. Elkins
Dean A. McGee
Philadelphia
Cleveland
Richmond
Kansas City
34
10/27/65
-17-
The following were reappointed as directors of the Federal
Reserve Bank branches indicated, each for a three-year term
beginning January 1, 1966:
Name
Branch
Maurice R. Forman
R. Stanley Laing
F. L. Byrom
E. Wayne Corrin
Eugene C. Gwaltney, Jr.
Guy S. Peppiatt
Carey V. Stabler
C. Hunter Green
Sam Cooper
D. B. Campbell
Buffalo
Cincinnati
Pittsburgh
Baltimore
Birmingham
Detroit
Little Rock
Louisville
Memphis
Houston
The following were reappointed as directors of the Federal
Reserve Bank branches indicated, each for a two-year term
beginning January 1, 1966:
Name
Branch
Edwin C. Koch
John T. Harris
Arthur G. Coons
Graham J. Barbey
William McGregor
Helena
Omaha
Los Angeles
Portland
Seattle
The following were designated as Chairmen and Federal Reserve
Agents of the Federal Reserve Banks indicated for the year
1966, with compensation fixed at an amount equal to the fees
that would be payable to any other director of the same Bank
for equivalent time and attendance to official business:
Name
Bank
Erwin D. Canham
Everett N. Case 1/
Walter E. Hoadley
Joseph B. Hall
Edwin Hyde
Jack Tarver
Franklin J. Lunding
Judson Bemis
Homer A. Scott
Carl J. Thomsen
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Minneapolis
Kansas City
Dallas
1/ This constituted reaffirmation of the intent expressed at a
Previous Board meeting.
10/27/65
-18-
The following were appointed as Deputy Chairmen of the Federal
Reserve Banks indicated for the year 1966:
Name
Bank
William Webster
Willis J. Winn
Logan T. Johnston
William H. Grier
Smith D. Broadbent, Jr.
Dolph Simons
John D. Fredericks
Boston
Philadelphia
Cleveland
Richmond
St. Louis
Kansas City
San Francisco
In the case of other appointments, reappointments, or designations for terms beginning January 1, 1966, procedures were agreed upon
that would permit the matters to be considered by the Board in due course.
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:
Salar
increase
Elsie Q. Davis, Statistical Assistant, Division of Research and
S tatistics, from $6,155 to $6,615 per annum, effective October 27, 1965.
.2Sptance of resignation
Charles A. Sloke, Guard, Division of Administrative Services,
effective at the close of business October 22, 1965.
S
Item No. I
10/27/65
BOARD OF GOVERNORS
.....
co!.
.1 Of
OF THE
FEDERAL RESERVE SYSTEM
tp•
WASHINGTON, D. C. 20551
•
ADONCIIII OFFICIAL CONRCISPONOCMCC
TO TMC •OAND
•
October 27, 1965
Board of Directors,
The Farmers and Merchants Bank of Vandalia,
Vandalia, Illinois.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves, under the provisions of section 24A of the
Federal Reserve Act, an additional investment in bank premises
by The Farmers and Merchants Bank of Vandalia of not to
exceed $70,000 for the purpose of constructing an addition
to the present quarters and drive-in and customer parking
facilities.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 2
10/27/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADORIES• °maim. CORRICIOPONOENCIL
TO THE 1110ARD
October 27, 1965
Board of Directors,
State Savings Bank of Lebanon,
Lebanon, Missouri.
Gentlemen:
The Board of Governors of the Federal Reserve System
9 of
approves, under the provisions of paragraph 6 of Section
States
United
the Federal Reserve Act and Section 5199(b) of
$12,600 by
Revised Statutes, the declaration of a dividend of
r 1965.
Decembe
State Savings Bank of Lebanon, to be declared in
of
tions
This letter does not authorize any future declara
l under the
dividends that would require the Board's approva
foregoing statutes.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
341
Item No, 3
BOARD OF GOVERNORS
10/27/65
OF TI-4E
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orricem. CORRESPONDENCE
TO THE HOARD
October 27 1965.
Board of Directors,
Citizens Commercial & Savings Bank,
Flint, Michigan.
Gentlemen:
The Board of Governors of the Federal Reserve System
approves the establishment by Citizens Commercial & Savings Bank,
Flint, Michigan, of a branch at 3267 Van Slyke Road, Flint Township, Genesee County, Michigan, provided the branch is established
within one year from the date of this letter.
The Board has noted that capital structure of this bank
is somewhat below a desirable amount, and understands that this
matter is to be discussed with the Federal Reserve Bank of Chicago.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
Of the period allowed to establish the branch;
and that if an extension should be requested,
the procedure prescribed in the Board's letter
of November 9 1962 (S-1846), should be followed.)
Item No. 4
10/27/65
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Industrial Banks as "Banks" under Bank Holding Company Act
The Board of Governors recently considered (1) whether certain
industrial banks are "banks" within the meaning of section 2(c) of the
Bank Holding Company Act of 1956, and the interpretation published in
1963 Federal Reserve Bulletin 165 (12 C.F.R. 222.116); and (2) if so,
whether certain changes in the operations of the institutions would
remove them from the "bank" category. Section 2(d) defines "bank" to
include "any national banking association or any State bank, savings
bank, or trust company . . . ."
Classification of industrial banks for purposes of the Holding
Company Act is difficult, because they perform some of the functions of
commercial or savings banks, particularly in the consumer loan field, but
differ from such banks in other respects. It is clear from the legislative
history of the Act that Congress did not intend to include all financial
intermediaries within the definition of "banks" in section 2(c). The
Beard concluded, in its 1963 interpretation, that an industrial bank
should not be regarded as a "bank" for thia purpose
. . . unless in a particular case, regardless of the title of
the institution or the form of the transaction, it accepts
deposits subject to check or otherwise accepts funds from the
public that are, in actual practice, repaid on demand, as are
demand or savings deposits held by commercial banks."
(Emphasis in original.)
In the situations recently considered, one of the industrial
nks formerly issued "investment certificates" to the public in exchange
Or funds, and such_certificates were repaid, in practice, on demand.
°flaequently, that institution was a "bank" under the above-cited
interpretation of the Board. However, in 1964 it ceased issuing investIsant certificates in exchange for funds deposited with it and began a
Bradual program of transferring outstanding certificate accounts of this
!ature to a savings and loan association. The industrial bank no longer
kssuee new certificates or accepts additional payments on outstanding
eertificates.
Based on these facts, the Board concluded that the industrial
in question is no longer accepting funds from the public within the
,:rms of the interpretation quoted above and consequently is no longer a
uank" within the meaning of the Act.
-2-
3412
The second situation presented a.somewhat different question.
In that case the industrial bank accepts what are described as "savings
deposits", as permitted by applicable State law. Heretofore, these
deposits have been repaid on demand, and for this reason the institution
would constitute a "bank" under the above-quoted interpretation. However,
the institution proposes to "notify all holders of savings accounts
that henceforth such accounts would not be paid Limmediatelx/ upon
request but that a written notice of withdrawal would be reauired to
be presented" to the institution "for some period of time Lnot, less
than 30 days/ prior to withdrawal." In order "to cover the emergency
cash needs of a holder . .
Lthe industrial bank/ would loan such
holder the cash required not in excess of the balance in the savings
account, such loan to be secured by pledge of the savings account and
the loan to bear interest at prevailing rates for such loans", but in
nO event less than 2 per cent more than the interest rate currently
being paid on the pledged savings.
After the proposed change was put into effect, savings
dePosits accepted by the industrial bank would no longer be "in actual
Practice repaid on demand." Accordingly, the Board concluded that,
When the proposed change was consummated, the institution would no
longer be a "bank" within the purview of the Holding Company Act.
October 27, 1965.
3411 C./
Item No. 5
10/27/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON. D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 28, 1965.
Mr. George A. Blackstone,
Heller, Ehrman, White & McAuliffe,
14 Montgomery Street,
San Francisco, California.
94104
Dear Mk. Blackstone:
This refers to your letter of September 21, 1965, supplementing
Your letter of June 8, 1965, in which you requested a determination by
the Board as to the status of Zions Utah Bancorporation, Salt Lake City,
Utah ("Zions"), under section 2(c) (12 U.S.C. 1841) of the Bank Holding
Company Act of 1956 ("the Act") in regard to a proposed acquisition of
the assets of Lockhart Corporation ("Lockhart").
Section 2(a) of the Act defines the term 'bank holding company"
to include "any company . . . which directly or indirectly owns, controls,
or holds with power to vote, 25 per centum or more of the voting shares
of each of two or more banks . . .". The term "bank" is defined by
section 2(c) as meaning "any national banking association or any State
bank, savings bank, or trust company . . .". Lockhart controls four
industrial banks, three in the State of Utah, and one located in the
State of Colorado. If any one or more of these institutions is a "State
bank" within the meaning of the Act, then Zions, which already controls
a national bank, Zions First National Bank, Salt Lake City, Utah, would
become a bank holding company upon consummating the acquisition.
Section 3(a) of the Act forbids any action to be taken which
results in a company becoming a bank holding company under section 2(a)
Without prior approval of the Board. Section 3(d) forbids approval of
any application which would permit a bank holding company to acquire
control of "any additional bank located outside of the State in which
such bank holding company maintains its principal office and place of
business or in which it conducts its principal operations" with one
exception not applicable in the present case. This section would forbid
the acquisition by Zions of the Colorado subsidiary of Lockhart, if that
subsidiary were a "bank" under the Act.
-17
George A. Blackstone
-2-
q,j 1
ined the
Your letter asks whether, assuming the Board determ
banks" prior
four industrial banks mentioned above to have been "State
to certain described changes in their methods of operations, they would
after the changes
cease in the Board's opinion to be such "State banks"
s
had been consummated, so that Zions could, without seeking the Board'
d
procee
of the Act,
Prior approval and without violating the prohibitions
to acquire the assets of Lockhart.
of commercial or
Because they perform many of the functions
field, classification
savings banks, particularly in the consumer loan
difficulties.
Of industrial banks for purposes of the Act has given rise to
tes that
indica
The legislative history of the Bank Holding Company Act
as "banks",
es
ediari
interm
Congress did not intend to define all financial
as
"commercial
terms
only those engaged in what can be described in general
Board
the
ence,
ve experi
banking". After some six years' administrati
e
Bulletin
Reserv
l
Federa
concluded, in an interpretation published at 1963
ered to
consid
be
not
165 (12 CFR § 222.116) that an industrial bank will
be engaged in commercial banking functions
”. . . unless in a particular case, regardless of the
transaction,
title of the institution or the form of the
ise accepts
otherw
it accepts deposits subject to check or
ce, repaid
practi
funds from the public that are, in actual
by
held
on demand, as are demand or savings deposits
commercial banks." (italics in original)
on had until recently
The three Utah industrial banks in questi
ng, and continue
repayi
been
been issuing investment certificates and had
s interpretation
Board'
The
.
to repay, outstanding certificates on demand
arily
custom
bank
rial
indust
mentions, among transactions in which an
p
paid-u
or
llment
"insta
of
accepts funds from the public, issuance
ingly,
Accord
".
ctions
transa
loan
investment certificates unrelated to
iaries of
under the terms of the interpretation, these three subsid
section 2(c).
of
es
purpos
for
Lockhart were until recently "State banks"
as a matter
However, about a year ago, Lockhart determined
were not
that
icates
certif
of policy to cease issuing installment
transferring
m
of
progra
l
gradua
a
related to specific loans, and began
ation that
loan
associ
and
s
saving
a
outstanding certificate accounts to
not yet
has
m
progra
this
While
y.
compan
ls a subsidiary of the holding
institutions
Utah
the
three
that
Board
the
ed
been completed, you have, inform
additional
ing
accept
ceased
also
have
and
,
no longer issue new certificates
it is
facts,
on
these
Based
.
icates
certif
Paymen ts against outstanding
no
are
on
questi
in
iaries
subsid
three
the
the opinion of the Board that
retation
interp
the
of
the
terms
within
public
longer accepting funds from the
within
ed as "State banks"
quoted above, and should no longer be regard
the meaning of the Act.
Mr. George A. Blackstone
-3-
341.5
The Colorado industrial bank presents a somewhat different
savings
question. That institution accepts and will continue accepting
Colorado
the
a
result,
As
do.
to
it
deposits, as State law permits
subsidiary is clearly a "State bank" within the meaning of section 2(c)
Of the Act, as interpreted by the Board. However, you propose that the
th
institution shall "notify all holders of savings accounts that hencefor
notice
a
that
written
but
request
upon
such accounts would not be paid
. .[the institution]
of withdrawal would be required to be presented to
It is understood
al".
withdraw
to
prior
for some specified period of time
days.
thirty
than
less
not
be
the period of time in question would
You also state that "To cover emergency cash needs of a
cash required
holder . . .[the institution] would loan such holder the
loan to be
such
account,
savings
the
in
balance
not in excess of the
bear
interest
to
loan
the
and
account
savings
secured by pledge of the
rates
such
that
od
understo
is
It
loans."
such
at prevailing rates for
savings.
on
paid
interest
the
over
cent
per
two
would be at least
While this proposal presents a much closer question, it appears
by the
that after it was put into effect, savings deposits accepted
on
,
repaid
practice
actual
"in
be
longer
no
would
Colorado subsidiary
change
the
once
that
opinion
the
of
is
Board
the
demand". Accordingly,
had been consummated, the subsidiary would no longer be a "State bank"
Within the meaning of section 2(c) of the Act.
This interpretation necessarily depends upon the facts which
have been submitted to the Board. Other or different facts might well
require a different conclusion.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Item No. 6
10/27/65
BOARD OF GOVERNORS
S-1971
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
OFFICIAL
CORRESPONOIENCE
TO THE BOARD
October 28, 1965.
Dear Sir:
Enclosed is an interpretation of the Board, which will shortly
sPpear in the Federal Register and the Federal Reserve Bulletin, regarding the question whether certain industrial banks are "State banks"
within the meaning of the interpretation published at 1963 Federal
Reserve Bulletin 165 (12 CFR 222.116), and section 2(c) of the Bank
Holding Company Act of 1956 (18 U.S.C. 1841); and if the answer is
affirmative, whether certain described charges in the method of operations
of the institutions would effectively remove them from the "State bank"
category.
As can be seen from the conclusions expressed in this interpretation, which relates to an actual case, a company controlling two or more
industrial banks of the kinds described, or controlling one such industrial
bank and a commercial bank, savings bank, or trust company, would be a
bank holding company, within the meaning of section 2(c) of the Act. For
this reason, the Board also considered the question whether such a company
14ould have violated section 5(a) of the Act by failing to register as a bank
holding company after publication of the 1963 interpretation had put it
On notice as to the Board's views.
Where a company controlled two or more industrial banks of the
second or "savings deposit" type, or one such industrial bank together
with a commercial or other bank described in section 2(c), then it seems
Clear that the company should have considered itself a bank holding
Company after the 1963 interpretation was published. The situation is
somewhat different as to companies which are bank holding companies only
because they control one or more industrial banks issuing investment
certificates that are in practice repaid on demand.
The Board believes that the conclusion expressed in the
enclosure, that investment certificates not connected with specific loans
represent "funds received from the public" within the meaning of the 1963
interpretation, and that if such certificates are repaid, in practice,
- 341 7,
S-1971
on demand, the institution issuing them must be considered to be a "State
bank" as defined in section 2(c), derives necessarily from the language
Of the 1963 interpretation itself, and that no alternative reading would
be well supported. However, there is no explicit statement to this effect
in the interpretation. Moreover, there is also an implication that
relatively few industrial banks will be found to be "State banks" under
its terms, whereas it appears that in some parts of the country, at least,
it is a fairly prevalent practice for industrial banks to issue investment
certificates that are repaid, in practice, on demand.
Accordingly, the Board believes that except in special circumstances indicating a different conclusion, it would be difficult to
support a charge that a company had willfully violated the Act by failing
to register as a bank holding company where such registration would have
been required only because the company controlled one or more industrial
banks issuing investment certificates of the kind under discussion.
However, the Board believes that publication of the enclosed interpretation will remove any future excuse for failure by holding companies so
situated to register as bank holding companies under the Act, and would
appreciate your Bank making every possible effort to call the matter to
the attention of any holding companies controlling industrial banks that
may be located in your District.
Very truly yours,
Merritt Sher.'
Secretary.
Enclosure.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
Item No. 7
10/27/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS
orrictAL
CORRESPONDENCE
TO THE BOARD
October 27, 1965.
Charles A. Legge, Esq.,
Bronson, Bronson & McKinnon,
255 California Street,
San Francisco, California. 94111
Re:
Federal Deposit Insurance Corporation v.
A.M.R., Inc., et al., U.S.D.C. N.D. of Cal.,
No. 43272
Dear Mr. Legge:
This acknowledges your letter of October 14, 1965,
addressed to Mr. O'Connell of the Board's staff, confirming a telePhone conversation in connection with the above litigation, wherein
You refer to an earlier request made by you of counsel for the
Federal Reserve Bank of San Francisco for access to certain records
Of the Reserve Bank in connection with the litigation, and you State
Your understanding that your request of the Reserve Bank is now pendlng before the Board, and you ask that the Board authorize your access,
on behalf of the FDIC, to the records generally identified in your
October 14 letter. It is noted that the FDIC expresses its willingness
to make available to counsel for the Reserve Bank documents in possession of the FDIC relating to the subjects covered by the documents you
seek.
The Board is in accord with the FDIC's desire to prepare as
fully as possible witnesses from the FDIC and the Federal Reserve Bank
for any testimony that they may be called upon to give in this matter,
either in pre-trial depositions or during trial of the case. Similarly,
the Board concurs in the view of the FDIC that an appropriate exchange
Of information is highly desirable insofar as such exchange may properly
secure the respective positions of the FDIC and the Federal Reserve Bank.
Accordingly, the Board has authorized the staff of the
Federal Reserve Bank of San Francisco to make available to the FDIC, as
Plaintiff in the pending suit against A.M.R., Inc., et al., such of the
documents in its files that fall within the three broad categories set
forth in your October 14 letter as may by their nature constitute
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Charles A. Legge, Esq.
-
.1.
34-4
-2-
unpublished information" as that term is defined and discussed in
Section 261.2 of the Board's Rules Regarding Information, Submittals,
and Requests, 12 CFR Part 261.
In view of the fact that from neither your letter nor an
earlier letter from the Reserve Bank on the same subject is the Board
able to know the exact contents of the specific documents that may
fall within the three categories set forth in your letter, the authorization given to the staff of the Reserve Bank contemplates that as to
all documentation considered to constitute "unpublished information of
the Board", the members of the Reserve Bank's staff, acting under this
authorization, will make the further determination that access to
Specific documents will reasonably assure accomplishment of the purposes
implicit in the FDIC's request. Should the Reserve Bank have question
as to whether particular documents fall within the scope of the authorization herein given, we are certain that any steps necessary to a
resolution of such questions will be taken with your time schedule requirements in mind.
A copy of this letter is being forwarded to the Federal
Reserve Bank of San Francisco.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
1rI A 41,,C4
cx..viowt.
BOARD OF GOVERNORS
Item No. 8
10/27/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 27, 1965.
Mr. H. E. Hemmings,
First Vice President,
Federal Reserve Bank of San Francisco,
San Francisco, California. 94120
Re:
Federal Deposit Insurance Corporation v.
A.M.R., Inc., et al., U.S.D.C. N.D. of Cal.,
No. 43272
Dear Mr. Hemmings:
This refers to the above litigation and to a letter of
October 14, 1965, from Mr. Charles A. Legge, a member of the firm
representing the FDIC in this litigation, wherein he submits a request
for access to certain records in the possession of your Bank, to be
Utilized by Mr. Legge in preparation for pre-trial depositions and
possibly during the conduct of the trial of the case. Your letter of
October 15, 1965, hereby acknowledged, discusses Mr. Legge's request
and contains a recommendation of your Bank that the Board authorize
Mr. Legge's access to the requested information.
As you know, Mr. William R. Bollow of your legal staff
conferred on Monday and Tuesday of this week with the Board's legal
staff regarding Mr. Legge's request. During these conversations,
Mr. Bollow made known your Bank's wish that the extent to which Mr. Legge
is granted access to your Bank's records take into consideration the
Possibility that the FDIC may, in its role as receiver for San Francisco
National Bank, feel required to bring suit against your Bank in connecwith the advances made to San Francisco National Bank. Accordingly,
it was agreed that the recommendation for authorization that would be
Presented to the Board would be so couched as to give appropriate consideration to the contingency mentioned.
The Board has authorized your Bank to make available to
Mr. Legge the documents sought, to the extent and under the circumstances reflected in the enclosed copy of letter which the Board has
oday sent to Mr. Legge. We will assume that your Bank's counsel will,
in respect to the several documents included in the categories enumerated
bY Mr. Legge, exercise whatever judgment is necessary to accomplish most
effectively the mutual purposes of your Bank and the FDIC in the pending
action and secure the Federal Reserve Bank's position along the lines
aforementioned.
Enclosures
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
•
34'2
Item No. 9
10/27/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 27, 1965.
Mr. Karl R. Bopp, President,
Federal Reserve Bank of Philadelphia,
19101
P hiladelphia, Pennsylvania.
Dear Mr. Bopp:
#9054),
In its letters of February 10, 1964 (S-1907, FRLS
its
restated
and March 15, 1965 (S-1946-c, FRLS #9189), the Board
Federal
of
s
employee
views with respect to actions by officers and
letters also
Reserve Banks that might embarrass the System. The
p
exPressed the Board's views regarding the ownershi of bank stock
1337 Reserve Bank personnel holding responsible positions.
reviewed
In the light of these letters, the Board recently
this
During
l.
personne
the ownership of bank stock by examining
with
jointly
owns,
review, it was noted that Vice President Campbell
Fourth
the
in
his wife, stock in two member banks, both located
holds in
Federal Reserve District. Assistant Vice President Case
.
N.T.&S.A
,
America
his own name 20 shares of stock of the Bank of
nce
inherita
by
acquired
The stock owned by these individuals was
subsequent to employment in the examining department.
bank stocks
The Board is confident that ownership of these
Campbell or
Mr.
either
of
ity
objectiv
1411 not in any way affect the
, N.T.&S.A.
America
of
Bank
of
stock
of
Mr. Case. •However, the 20 shares
believes
Board
the
and
le,
marketab
readily
that are owned by Mr. Case are
see
to
t
difficul
is
it
since
promptly
of
that these should be disposed
case,
's
Campbell
Mr.
In
.
hardship
undue
how such sale could involve
cause undue
the stock owned may not be readily marketable and sale might
Campbell
hardship. For this reason, the Board does not require that Mr.
arise
should
ity
opportun
an
if
However,
Sell the stock at this time.
Whereby he could dispose of his stock without undue financial loss or
burden, it is assumed that he would take advantage of such opportunity.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
- 3422
BOARD OF GOVERNORS
Item No. 10
OF THE
10/27/65
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
December 16, 1965.
Mr. W. Braddock Hickman, President,
Federal Reserve Bank of Cleveland,
Cleveland, Ohio 44101.
Dear Mr. Hickman:
This refers to your letter of September 13, 1965, in which
You requested the Board's views regarding ownership of stock of The
Harrison Deposit Bank & Trust Company, a nonmember bank located in
eYnthiana, Kentucky, by Examiner E. R. Gossett.
The Board has reviewed all of the circumstances regarding
the ownership of this bank stock by Examiner Gossett. It noted that
When Mr. Gossett was employed he reported owning the stock as a result
of an inheritance and that letters approving his appointments as
assistant examiner and later as examiner noted this fact. The Board's
aPProval of his appointment was given with the understanding that he
would not participate in any examination of the bank concerned so long
as he owned stock in it. Moreover, it is the Board's understanding
that as a matter of practice the Federal Reserve Bank of Cleveland
does not permit Mr. Gossett to participate in the examination of any
bank considered to be in competition with The Harrison Deposit Bank &
Trust Company.
After reviewing your letter and the circumstances of this
'flatter, the Board has concluded that Mr. Gossett should not be required
!
0 dispose of stock in The Harrison Deposit Bank & Trust Company at
time. If an opportunity should arise whereby Mr. Gossett could
dispose of his stock without undue financial loss or burden, it is
assumed that he would take advantage of such opportunity. It is understood, of course, that you will continue to impose the same restrictions
ss.in the past regarding Mr. Gossett's participation in examinations of
this bank or ones in competition with it.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
3423
Item No. 11
BOARD OF GOVERNORS
10/27/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
December 27, 1965.
Mr. Charles J. Scanlon, President,
Federal Reserve Bank of Chicago,
Chicago, Illinois 60690.
Dear Mr. Scanlon:
This refers to your letter of September 2, 1965, in which
you requested the Board's views regarding ownership of stock in
Frankenmuth State Bank, an insured nonmember bank located in
Frankenmuth, Michigan, by Assistant Examiner John P. Trinklein.
The Board has reviewed all of the circumstances regarding
the ownership of this bank stock by Assistant Examiner Trinklein.
It noted that when Mr. Trinklein was employed he reported owning
this*stock as a gift from his father and that the letter approving
his appointment as assistant examiner noted this fact. The Board's
approval of his appointment was given with the understanding that
he would not participate in any examination of the bank concerned
so long as he owned stock in it. Moreover, it is the Board's understanding that as a matter of practice the Federal Reserve Bank of
Chicago does not permit Mr. Trinklein to participate in the examination of any bank considered to be in competition with Frankenmuth
State Bank.
After reviewing your letter and the circumstances of this
matter, the Board has concluded that Mr. Trinklein should not be
required to dispose of stock in Frankenmuth State Bank at this time.
If an opportunity should arise whereby Mr. Trinklein could dispose
of his stock without undue financial loss or burden, it is assumed
that he would take advantage of such opportunity. It is understood,
of course, that you will continue to impose the same restrictions as
in the past regarding Mr. Trinklein's participation in examinations
of this bank or ones in competition with it.
Very truly yours,
12_
)
1
Merritt, Sherman,
Secretary.
@FedFRASER