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Minutes for
October 28, 1958
Members of the Board
To:
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, if you were present
at the meeting, please initial in column A below to
indicate that you approve the minutes. If you were
not present, please initial in column B below to
indicate that you have seen the minutes.
A
Chm. Martin
Gov. Szymczak
Gov. Vardaman 1/
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
1/
In accordance with Governor Shepardson's memorandum of March 8, 1957, these minutes are not
being sent to Governor Vardaman for initial.
3110
Minutes of the Board of Governors of the Federal Reserve
System on Tuesday, October 28, 1958.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Fauver, Assistant Secretary
Riefler, Assistant to the Chairman
Thomas, Economic Adviser to the Board
Leonard, Director, Division of Rank
Operations
Young, Director, Division of Research
and Statistics
Hackley, General Counsel
Masters, Director, Division of Examinations
Farrell, Associate Director, Division of
Bank Operations
Solomon, Assistant General Counsel
Items circulated to the Board.
The following items, which
had been circulated to the members of the Board and copies of which are
attached to these minutes
under the respective item numbers indicated,
were ar) roved unanimously:
Item No.
Letter to the Presidents of all Federal Reserve Banks
Nuesting the resumption of reports of member bank
borrowings on
Form F.R. 527.
,4:etter to The
First National City Bank of New York,
ew York,
New York, approving the establishment of a
1branch in Kuala Lumpur, Federation of Malaya. (For
transmittal
through the Federal Reserve Bank of New York,
and with a
copy to the Comptroller of the Currency)
1
2
10/28/58
-2Item No.
Letter to the Federal Reserve Bank of Philadelphia
concurring in the view that the relocation by The
First Pennsylvania Banking and Trust Company,
Philadelphia, Pennsylvania, of its Strafford Office
does not require Board approval.
3
Letter to Iowa-Des Moines National Bank, Des Moines,
Iowa, regarding purchase of shares of a small-business
investment company under the Bank Holding Company Act.
4
Letter to the Federal Reserve Bank of St. Louis approving
the appointment of Mr. James E. Conrad as a Federal
Reserve Agent's Representative at the Louisville Branch.
5
In connection with the above letter to Iowa-Des Moines
National Bank, Des Moines, Iowa (Item No. )), Governor Mills referred
to the Board's action
on September 25, 1958, regarding the eligibility
Of bank holding companie
s or subsidiaries of bank holding companies to
acquire shares of small business investment companies organized under
the Small Business Investme
nt Act of 1958.
It had been his impression,
he said, that a bank holding company as such could own shares of
a small
business investment company but that it could not distribute such shares
to its subsidiaries.
He also thought that a subsidiary could own such
stock if the parent holding company did not.
This led to a general dis-
cussion of the Board's action on September 25, and Mr. Hackley
outlined
the basic provisions of that interpretation. He said that
while there
"
I
some feeling originally that this would be a matter of considerable
ecncern to bank holding companies, recent conversations
with the local
counsel for the trade organization of that group had caused
him to
311
10/28/58
lonclude they were not greatly disturbed.
It was possible, however,
that they would propose a technical amendment to the Small Business
Investment Act of 1958 which would clarify this point.
Extension of time for filing hearing examiner's report re
Otto Bremer Company (Item No. 6).
Prior to the meeting there had been
distributed a memorandum dated October 27, 1958, from Mr. Solomon forwarding a request from Mr. Arthur Leff, Hearing Examiner, on the
applications of Otto Bremer Comnany under Section 4(c)(6) of the Bank
Holding Company Act, for an extension of time from October 30 to
December 10, 1958, for the filing of his report.
Mr. Solomon stated
that the request was reasonable in view of the conside
rable length of
the record and recommended that
the Board grant the extension.
Thereupon the Board approved an order in the form attached
to these minutes as Item No. 6 extending to
December 10, 1958, the
time within which the Hearing Examiner may file his recommended
d
ecision.
Interaptation of Regulation 0 re "give-aways" for Colorado
& Trust Covany (Item No. 7). Prior to the meeting there had
been distributed a memorandum dated October 24, 1958, from Mr. Hackley
Concerning the question whether the giving of trading stamps by
a
member bank to new depositors (both checking and savings)
involved an
14direct payment of interest on deposits in violation of Regulat
ion C.
question was raised in a letter dated September 5, 1958, from
3115
lo/28/58
The Colorado Savings
Trust Company, La Junta, Colorado, addressed
to the Federal Deposit Insurance Corporation and forward
ed by that
agency to the Board.
The memorandum pointed out that the Federal Deposit Insurance Corporation had taken the position that the giving of such
stamps
by a nonmember competitor bank
of the Colorado bank should be considered an advertising expense and not an indirect payment of
interest.
The Colorado Savings & Trust Company had request
ed a ruling whether as
a member bank it could follow the same practice.
The memorandum
recommended that the Board take the position
that while it does not
look with favor upon "give-aways" as an inducement for the opening of
accounts, it would not be disposed to regard them as indirect payment
s
of interest if they were given only at the time
of opening a new
account and if they had only a nominal value.
This would be consistent
with the position taken by the Federal
Deposit Insurance Corporation.
in keeping with this position, the memorandum propose
d that the Federal
Reserve Bank of Kansas City be requested to reply to the Colorado
bank
along the lines that the Board would not object to the giving of tradillg stamps in the manner described but would not approve the
practice
it it involve
d the giving of stamps for each 4100 of a new deposit
8inee in that event the value of the gift could well be more
than
n,
'°minal.n The proposed reply would not make any distinction
between
the giving of trading stamps redeemable only in merchandise and those
-5-
10/28/58
also redeemable in cash, or between gifts to savings depositors and
Checking depositors.
In commenting upon the memorandum, Mr. Hackley said he had
been reluctant to bring this matter to the Board but that there had
been an increasing volume of inquiries on the subject and it seemed
well for the Board to clarify its position to whatever extent possible.
He recognized that the Board had generally followed a practice of not
ruling on individual cases except following disclosure of all the facts
in an examination report or in obvious or flagrant cases. The issues
here, he thought, were three-fold: (1) whether any distinction should
be drawn between the giving of cash or credit vs. the giving of an
article costing less than a certain amount; (2) whether there was any
distinction to be drawn between "give-aways" for savings deposits and
Checking deposits since the law specifically prohibited the payment of
interest on checking accounts; and (3) whether a distinction could be
drawn between "give-aways" in connection with existing depositors in
contrast to new depositors in the course of a given advertising
eamPaign. In his view, the course recommended by the Legal Division
leaned somewhat on the liberal side but it would be no more liberal than
the position already adopted by the Board with respect to free services
by
member banks on a continuing basis.
Governor Mills said he thought the draft letter was completely
aPPropriate.
311:7
10/28/58
Governor Robertson said he thought the position was
generally correct but he suggested that the letter to the Kansas City
Bank be changed so as to delineate as tightly as possible circumstances
under which "give-aways" could be used.
He felt it was not desirable to
make the give-away rule applicable to existing depositors.
Thereupon the proposed letter was approved with the understanding that it would be changed to incorporate the suggestions made
during the discussion.
It was also understood that the letter would be
issued in the form of an interpretation. In accordance with this action,
the letter was sent to Mr. Leedy, President of the Federal Reserve Bank
of Kansas City, in the form attached to these minutes as Item No. 7.
Proposed amendment to Regulation Q regarding grace periods
(Item No. 8).
In accordance with the discussion at the meeting on
October 10, 1958, the Legal Division had prepared and distributed a
memorandum dated October 24 to which were attached drafts of letters to
the Federal Reserve Banks, the Federal Deposit Insurance Corporation,
and the Comptroller of the Currency requesting their comments as to the
desirability of an amendnent to Section 3(d) of Regulation Q liberalizing the grace periods allowed in computing the maximum rate of interest
PaYable on savings deposits.
Governor Balderston pointed out that the
letters would merely ask for comments and were based on the Board's
consideration recently of the request for an interpretation of Regulati°n Q by the City National Bank of Rockford, Rockford, Illinois.
10/28/58
00740
The Board unanimously approved the sending of a letter
to the Federal Reserve Banks in the form attached to these minutes as
Item No.
8 with the understanding that similar letters would be sent
to the Federal Deposit Insurance Corporation and the Comptroller of
the Currency.
Thereupon the meeting adjou
d.
A AL
31_19
BOARD OF GOVERNORS
,
OF THE
tfl fg.kir„.
.
FEDERAL RESERVE SYSTEM
Item No. 1
10/28/58
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 28, 1958.
Dear Sir:
In the letter of May 22, 1958 (S-1657; F.R.L.S. #3949.4)
ti t was stated that reports of member bank borrowings would probably
:
gs again
be reinstated when analysis of total member bank borrowin
°soame important for purposes of monetary and credit policy.
Since borrowings have become significantly large again,
it is requested that submission of reports of member bank borrowings
°n Forms F.R. 527(a), (b), (c), and (d) be resumed, the weekly rePorts with the week ended October 29, and the semi-monthly reports
with the last half of October.
The mimeographed statements, "Borrowings from Federal
Re
ti serve Banks by Central Reserve and Reserve City Member Banks Weekly computation period ended . . ." (L.5.3) and "Borrowings
from Federal Reserve Banks by Country Member Banks - Semi-monthly
e°mPutation period ended . . ." (L.5.4), will be reinstated and
Copies sent to your Bank as formerly.
Loose
The letter of May 22, 1958, will be removed from the
-Leaf Service in the next revision of pages in the service.
Very truly yours,
4-4
• ;717i.
Merritt Sshe.,man,
Secretary.
TO
THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
A(
3120
BOARD OF GOVERNORS
0;14
i;11
4;t0
OF THE
,h)v
FEDERAL RESERVE SYSTEM
it
WASHINGTON 25, D. C.
Item No. 2
10/28/58
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
Ltist,,
4**,4444;04*
October 28, 1958
The First National City Bank of New York,
55 Wall Street,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve System
authorizes The First National City Bank of New York, New York,
New York, pursuant to the provisions of Section 25 of the Federal
Reserve Act, to establish a branch in Kuala Lumpur, Federation of
Malaya, and to operate and maintain such branch subject to the
Provisions of such Section; upon condition that, unless the branch
e actually established and opened for business on or before
!IcIvomber 1, 1959, all rights granted hereby shall be deemed to ,
nave been abandoned and the authority hereby granted shall autoMatically terminate on such date. This authorization is made
th the understanding that the approval of the appropriate
IaloYan authorities will be obtained prior to the establishment
'
of the branch.
l
Please advise the Board of Governors in writing, through
the Federal Reserve Bank of New York, (1) when the establishment
cg the branch has been approved by the authorities in Malaya, and
When the branch is established and opened for business, fun"lehing information as to the exact location of the branch. It is
1_112derstood that no change will be made in the location of the branch
Fter establishment without the prior approval of the Board of
kio
vernors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
0- 1 Ca),....!
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 3
10/28/58
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOAR°
October 28, 1958
Mr. E. C. Hill, Vice President,
Federal Reserve Bank of Philadelphia,
Philadelphia 1, Pennsylvania.
Dear lir. Hill:
Reference is made to your letter of October 14,
1958, advising of the proposal of The First Pennsylvania
Banking and Trust Company, Philadelphia, Pennsylvania, to
move its Strafford Office now located at 517 West Lancaster
Avenue, Radnor Township, Delaware County, Pennsylvania, a
distance of approximately one-quarter mile east.
The Board concurs in your view that this constitutes
a mere relocation of an existing branch in the immediate
neighborhood without affecting the nature of its business
or customers served. Accordingly, the approval of the Board
Of Governors is unnecessary.
Very truly yours,
(Signed) Merritt Sherman
•
Merritt Sherman,
Secretary.
3122
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 4
10/28/58
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 28, 1958.
Mr. John T. McCormick,
Assistant Vice President,
Iowa -Des Moines National Bank,
Des Moines 4, Iowa.
Dear Mr. McCormick:
This refers to your letter of October 14, 1958, requesting
of the Board as to whether or not the Bank Holding Company
prohibits the proposed purchase by the Iowa-Des Moines National
rnk of shares of a small-business investment company, organized under
t'ne Small Business Investment Act of 1958, if that bank's parent cornfly, Northwest Bancorporation, does not purchase any such shares.
the
As indicated in the enclosed copy of the Board's interpretsticln relating to investment by a bank holding company and its banking
sidiaries in a small-business investment company organized under
ne Small Business Investment Act of 1958, (see Federal Reserve Bullenljn for October 1958, page 1161), the prohibitions of section 6 of the
eu'nk Holding Company Act would not apply to purchase by the holding
c°mPany alone of voting shares of such a small-business investment
,111ParlY even though that company would constitute a subsidiary under
tl°
Bank Holding Company Act. Also as indicated in the enclosed copy
the Board's interpretation, the prohibitions of section 6 would not
P1Y if the holding company and its banking subsidiaries should not
a-gsther acquire as much as 25 per cent of the voting shares of such
hn investment company which also was not a subsidiary of the bank
°1ding company.
n
Z
J
It is the Board's view that if the subsidiary alone, or
with other subsidiaries of the same bank holding company,
purchase as much as 25 per cent of the voting shares of an
A'Jestment company organized pursuant to the Small Business Investment
101:' of 1958 (even though such purchase would be within the limitations
a :scribed by that Act), such an investment company would constitute
Ac4subsidiaryn as defined in section 2(d) of the Bank Holding Company
' A ccordingly, the Purchase by Iowa-Des Moines National Bank alone,
to
houi4-'4.3
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
3123
Mr. John T. McCormick.
—2-
or together with fellow subsidiaries, of 25 per cent or more of
the shares of a small-business investment company would be prohibited by section 6 of the Bank Holding Company Act which, with
inapplicable exceptions, makes it unlawful for a bank to purchase
capital stock of a bank holding company of which it is a subsidiary,
or of any other subsidiary of such bank holding company. Otherwise
the prohibitions of section 6 would not be applicable.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosure.
3-12‘
BOARD OF GOVERNORS
0,sot,44.4
ClOgoklat,
OF THE
FEDERAL RESERVE SYSTEM
Item No*
10/28/58
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 28, 1958
Mr. Pierre B. McBride,
Federal Reserve Agent,
Federal Reserve Bank of St. Louis,
St. Louis 66,
Missouri.
Dear Mr. McBride:
In accordance with the request contained in your letter of
October 9, 1958, the Board of Governors approves the appointment of
/4.7 James E. Conrad as a Federal Reserve Agent's Representative at the
b uisville Branch, effective November 1, 1958, to succeed Mr. J. Harvey
This approval is given with the understanding that Mr. Conrad
Gov _ be solely responsible to the Federal Reserve Agent and the Board of
Ors for the proper performance of his duties, except that, during
the
tliatabsence or disability of the Federal Reserve Agent or a vacancy in
A2e„off1ce, his responsibility will be to the Assistant Federal Reserve
"6 and the Board of Governors.
When not engaged in the performance of his duties as Federal
Reserv
pede e Agent's Representative Mr. Conrad may, with the approval of the
tra ral Reserve Agent and the Vice President in charge of the Louisville
Perform such work for the Branch as will not be inconsistent with
duties as Federal Reserve Agent's Representative.
It will be appreciate if Mr. Conrad is fully informed of the
trapowi.
Rese"dance of his responsibilities as a member of the staff of the Federal
ot tirlve Agent and need for maintenance of independence from the operations
6 Bank in the discharge of these responsibilities.
It is noted from your letter that upon the approval of the
Etp/2iy,,
ttatlaCment of Mr. Conrad by the Board of Governors, he will execute the
Oath of Office which will be forwarded to the Board of Governors.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
5
3125
Item No. 6
10/28/58
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Applications of
DOCKET NOS.
BHC-29, 31-33, 35
OTTO BREMER COMPANY
For determinations pursuant to
section 4(c)(6) of the Bank Holding
Company Act
ORDER EXTENDING TIME FOR FILING OF
REPORT BY HEARING EXAMINER
Additional time having been requested by the Hearing,
Examiner within which to file with the Secretary of the Board
his report containing his recommended decision and it appearing
to the Board that such request should be granted, it is hereby
ORDERED that the time within which the Hearing Examiner may file
such recommended decision be, and the same hereby is, extended
to and including December 10, 1958.
This 28th day of October, 1958.
By order of the Board of Governors.
('iAL)
(Signed) Merritt Sherman
IMIN011.11•01111
Merritt Sherman,
Secretary.
Washington, D. C.
October 28, 1958
3126
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 7
10/28/58
ADDRESS OFFICIAL CORRESPONDENCE
TO THE tIOARD
October 28, 1958
Mr. H. G. Leedy, President,
Federal Reserve Bank of Kansas City,
Kansas City 6, Missouri.
Dear Mr. Leedy:
There is enclosed a copy of a letter dated September 5,
,1958, from a member bank, The Colorado Savings & Trust Company,
La Junta, Colorado, requesting permission to give trading stamps
or new checking and savings accounts, which has been referred to the
Board by the Federal Deposit Insurance Corporation. The member bank
states that this practice is being followed by a competitor, The La
Junta State Bank, a nonmember insured bank; and there is also enclosed
!ooPy of a letter dated September 18, 1958, from that bank to the
rederal Deposit Insurance Corporation, outlining the practice followed
1°Y that bank in giving trading stamps, together with a copy of the
Corporation's reply of September 30, 1958.
It will be noted that there are some discrepancies between
practices described by these two banks. The member bank indicates
at the trading stamps would be redeemable not only in merchandise
1Tt also in cash payable by the bank, whereas there is no evidence
at the nonmember bank proposes to redeem the stamps in cash. Also,
re member bank understands that a certain number of stamps are given
°1* each $100 of a new deposit; while the nonmember bank states that
eves a certain number of stamps for each new checking account of
010 or more and each new savings account of $25 or more.
1
As you know, the Board's general policy, which has been
toi 1
owed
for
many years, is not to make detailed interpretations or
,,;„ing5
44"
with respect to questions as to whether particular practices
;
onstitute an indirect payment of interest on deposits, but rather to
+nY 'upon the cooperation and good faith of member banks in adapting
practices to conform to the spirit and purpose of the statutory
Tf"isions on the subject. However, the Board has made exceptions to
'
41-11 policy in cases involving obvious or flagrant practices or
0Posals.
The Board does not look with favor upon the practice on the
Pkrt of member banks of giving articles of value to depositors as an
UDARD
OF
GOVERNORS
ur THE
FEDERAL RESERVE SYSTEM
3127
Mr, H. G. Leedy
inducement for the opening of accounts, particularly because of
Possible abuues that may result. However, the Board recognizes that
it is the practice of many banks on occasion, in order to stimulate
new business, to offer premiums to persons opening new deposit accounts.
Mine the Board would not wish to encourage this practice, it is not
disposed to regard the practice as involving an indirect payment of
interest (1) if such premiums are given by a member bank to new
depositors only at the time of the opening of the new accounts and
not on a recurring basis, and (2) if the premium or article given has
only a nominal value. In such cases, and in the absence of evidence
of any intent to evade the law and Regulation Q, the Board would
regard the practice as an advertising or promotional medium rather
than an indirect payment of interest. This is not intended, however,
tO suggest that premiums given to depositors in other
eases would
necessarily involve an indirect payment of interest, since each case
would need to be considered in the light of its particular facts.
In the present case, for the reasons above indicated, the
Beard would not consider the practice described in the letter of.
The La Junta State Bank as involving an indirect payment of interest
If that practice should be adopted by
The Colorado Savings & Trust
Company, The Board's views would be different, however, if the
Practice should include the giving of a certain number of trading
atemps for each $100 (or some other amount) deposited in a new account, sinciTTEe value of the premiums could obviously be far more
than nominal.
It will be appreciated if you will advise The Colorado
84vings & Trust Company of the Board's views as stated in this letter.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Closures
3128
BOARD OF GOVERNOF<'S
OF THE
FEDERAL RESERVE SYSTEM
Item No. 8
10/28/58
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCL
TO THE BOAR()
October 28, 1958.
"ookit.t*''
Dear Sir:
As you know, section 3(d) of Regulation Q permits member
banks to compute interest at the applicable maximum rate from the
first day of the month on savings deposits received during the
first 10 business days of any calendar month commencing a quarterly
or semiannual interest period or during the first 5 business days
of any other calendar month. The Board recently received a letter
from a national bank suggesting that this provision be liberalized
to permit a grace period of 10 calendar days in any month. There
ls enclosed a copy of the national bank's letter and of the Board's
reply, and it will be noted that the Board undertook only to explain
that the provision in question would not be applicable unless the
member bank would be paying more than the maximum rate prescribed
bY the Board for the actual time the deposit is in the bank.
The Board, however, is presently considering whether the
regulation should be amended as suggested by the national bank.
You may recall that before the present provisions of section 3(d)
Of Regulation Q were adopted in 1952, consideration was given to an
alternative suggestion that a grace period of 10 business days be
allowed in every calendar month, and that consideration was also
given to the question whether the provision should refer to calendar
(la:Vs rather than business days.
The Board will be glad to have your comments and recom112ondations as to whether, for the reasons indicated in the national
uank l s letter or for any other reasons, it would be desirable to
3n1end Regulation Q as suggested by that bank or in some similar manner.
Very truly yours,
Enclosures
Merritt SherManfl
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RLSERVE BAMS
@FedFRASER