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k9 Minutes for To: Members of the Board From: Office Of the Secretary October 30, 1962 Attached is a copy of the minutes of the Board of Governors of the Federal Reserve .System on the above date. It is not proposed to include a statement with respect to any of the entries in this set of Minutes in the record of policy actions required to be maintained pursuant to section 10 of the Federal Reserve Act. Should you have any question with regard to the minutes, it will be appreciated if you will advise the Secretary's Office. Otherwise, please initial below. If you were present at the meeting, your initials will indicate approval of the minutes. If You were not present, your initials will indicate only that you have seen the minutes. Chin. Martin Gov. Mills Gov. Robertson Gov. Balderston 0 Gov. Shepardson Gov. King Gov. Mitchell Minutes of the Board of Governors of the Federal Reserve SYstem on Tuesday, October 30, 1962. The Board met in the Board RooM at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Balderston, Vice Chairman Mills Robertson Shepardson King Mitchell Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. Sherman, Secretary Kenyon, Assistant Secretary Molony, Assistant to the Board Cardon, Legislative Counsel Fauver, Assistant to the Board Hackley, General Counsel Noyes, Director, Division of Research and Statistics Solomon, Director, Division of Examinations Leavitt, Assistant Director, Division of Examinations Thompson, Assistant Director, Division of Examinations Stephenson, Special Assistant, Division of Examinations Landry, Assistant to the Secretary Bakke, Senior Attorney, Legal Division Lyon, Review Examiner, Division of Examinations The establishment without change by the Pelieral Reserve Bank of Boston on October 29, 1962, of the rates on cilscoUnts and advances in its existing schedule was approved unanimously, lith the understanding that appropriate advice would be sent to that Circulated items. The following items, copies of which are 4tt4ehed to these minutes under the respective item numbers indicated, aPproved unanimously: .f? 10/30/62 -2Item No. Letter to The Bank of Commerce, Charlotte, North Carolina, approving its application fOr membership in the Federal Reserve SYstem, 1 Letter to the Federal Reserve Bank of San Francisco interposing no objection to the housing in a new building of certain services, functions, and departof Union Bank, Los Angeles, California. 2 Report on competitive factors (New York-Huntington, New York). C°Pies had been distributed of a draft report to the Comptroller of the Currency on the competitive factors involved in a proposed merger Brook ()t Bank of Huntington, Huntington, New York, into The Meadow National Bank, New York, New York. the It being made evident in a discussion that members of 141ard desired a substantial revision of the conclusion of the report, the staff it/las understood that such revision would be prepared by t°r consideration at another meeting of the Board. Hill, Virginia). Report on competitive factors (Front Royal-Flint there had been distributed copies of a draft report to the Comptroller °I' the Currency on the competitive factors involved in a proposed merger °11' The Hill, Virginia, into First National Bank of Flint Hill, Flint Royal, Virginia. Citizens National Bank of Front Royal, Front transmission to the The report was approved unanimously for e()DaPtroller of the Currency, with the following conclusion: 10/30/62 -3The proposed merger of The First National Bank of Flint Hill into The Citizens National Bank of Front Royal would not have an adverse effect on competition. Report on competitive factors (Virginia Beach-Princess Anne coUnty, Virginia). Distribution had been made of a draft report to the Federal Deposit Insurance Corporation on the competitive factors 14volved in a planned merger of Bank of Princess Anne, Princess Anne 0°411tY, Virginia, into Bank of Virginia Beach, Virginia Beach, Virginia. Without objection the report, which contained the following ec)nclusion, was approved unanimously for transmission to the Federal I)ePosit Insurance Corporation: Competition in the area would not be significantly altered by the proposed merger of these two closely related banks. Rules of Procedure (Item No. 3). In a letter dated October 11, 1962) Senator Carroll, Chairman of the Subcommittee on Administrative ?I'actice and Procedure of the Senate Judiciary Committee, requested formation, in connection with a Subcommittee study, concerning changes 1444e in the Board's administrative practices and procedures during 1961 441' 1962 directed toward "strengthening and accelerating those procedures." ctraft of reply, citing changes in the Board's Rules of Organization and Plicleedure, had been distributed with a memorandum from the Legal Division 4ted October 24, 1962. Mr. Bakke referred to certain suggestions that had been 'cle for possible improvement of the proposed reply, with particular 414 l'ererence to the statements therein as to the filing of proposed findings 10/30/62 -4- of fact and conclusions of law and as to procedures applicable in connection with the Board's reconsideration of bank holding company OZ' bank merger applications. After a discussion during which certain modifications in language were agreed upon, the letter was approved unanimously for transmission to Senator Carroll in the form of attached Item No. 3. Application of Marine Midland Corporation. Copies had been distributed of several memoranda from the Division of Examinations, the Illost recent dated October 11, 1962, regarding the application of Marine 1416-land Corporation, Buffalo, New York, to acquire shares of the Security Na tional Bank of Long Island, Huntington, New York, with respect to litlich a public oral presentation had been held before the Board on September 17, 1962. The New York Superintendent of Banks and the 4%1 York Reserve Bank recommended approval of the application, whereas the Department of Justice, as stated in its letter of July 16, 1962, believed it should be denied. The Comptroller of the Currency had 4180 recommended denial. The memoranda of the Division of Examinations expressed the °Pinion that the first three factors required to be considered under the Holding Company Act of 1956 did not weigh heavily in favor of 4Pr'°Iral of the application, although it was recognized that the manageIlletlt Problems of Security National would in all probability be remedied 141thin a relatively short time should the application be approved. As 'the fourth factor--convenience, needs, and welfare--the memorandum t°1 _5_ 10/30/62 Pointed to lack of strong evidence that banking needs of the area concerned were going unserved. It was noted further that with Security National having deposits in excess of $200 million and with prospects, as stated in its 1961 annual report, that its resources would reach 1300 million in five years, expanded and more complete services could come about through the natural growth of the bank. In consequence, the Division believed that this factor did not lend strong support for 415Proval. In connection with the fifth or competitive factor, the fl1Me °randum pointed out that consummation of the proposal would allow 4411ine Midland, the only bank holding company in New York State, to extend its operations materially through the acquisition of a bank having clIfices in Nassau and Suffolk Counties, with the principle impact believed to be in Suffolk, in which county Security National had a sizable concentration (28 per cent of the deposits and 27 per cent of Offices) of the commercial banking business. It was noted that of the two larger banks in Nassau County, one (Meadow Brook National Bank) tal'esently had no offices in Suffolk County and the other (Franklin Ikti°1.1al Bank) had a smaller concentration (15.8 per cent of deposits 1111 7.4 per cent of offices) than Security National. In the opinion or the Division of Examinations the proposal would eliminate some 114'esent competition, although not considered significant, along with 11°telltial competition between Security National and Marine Midland Trust ecli1il3arlY, New York, New York, in Nassau County, where the latter bank had the legal power to establish de novo branches. Taking all factors into •1 4 10/30/62 -6- count, the Division believed that, on balance, the favorable elements with respect to the first four factors did not outweigh the unfavorable considerations with respect to the fifth factor. Accordingly, the Division's recommendation was for denial of the application. At the request of the Chairman, Mr. Thompson commented on the 415Plication, basing his remarks on the memoranda of the Division of 44m1nations. Wriership A discussion ensued as to the distribution of stock in Security National, it being brought out that the eight lirectors of the bank and its principal officers as a group owned 4PProximately 4 per cent of the stock outstanding. Given the indication or close control of the affairs of the bank by its directors, it was Ngested that the shareholdings of the bank must in all probability be videly dispersed. In this regard, it was stated that the bank had 8°14e 8,000 stockholders, but that full information as to the size of avidual holdings was not available. With respect to the statement 14 the October 11 memorandum as to the possible use of Security National 48a correspondent bank, it was noted that there was no evidence of Secnrity National's having at the present time a large correspondent baht.. ---Aang business. by Question was then raised as to the law suit initiated ome of Security National's stockholders against the bank, its cill'ectors, certain present executive officers, certain former executive 'tficers or directors, and corporations in which a director of the bank c 144S alleged to have or have had interests. The suit charged many acts misfeasance and malfeasance in office by the directors and officers I -7- 10/30/62 0f Security National. In reply it was noted that the suit referred to, as well as another suit by stockholders that was "on the shelf," were essentially directed at the directors and officers of the bank and not against the bank itself. Should the proposed acquisition take place, lt was generally believed the suits would be terminated. At the conclusion of the discussion the Chairman asked for the Board members' views on the application, starting with Governor Mills. Governor Mills stated that after studying the application and rter listening to the oral presentation, he felt obliged to abstain trft 'voting on the application in view of the earlier denial by the Iltlard of the merger proposals by Chemical Bank New York Trust Company 4111 Chase Manhattan Bank to enter Nassau County, both of which he had ravored. I His affirmative vote on the two earlier applications had been mised on the belief that it was appropriate to permit downtown York City banks, within limits, to extend their services into Nassau County. Board denial of the earlier applications had, in his °III-Ilion, changed the character of the present proposal by Marine Midland C°1*Poration; the effect of approval would be to give the holding company 4 la.— '6.4-eater competitive advantage than would have been the case had the Chenlical and Chase applications been approved. He was not sure whether he 140u1d have approved or disapproved the instant application had Board Tr'oval been given to the two earlier applications. However, since the latter had been denied, he considered himself foreclosed from reaching -8- 10/30/62 s decision on the Marine Midland application that would give equitable consideration to all of the interrelated merits and demerits of the case. Governor Robertson said that he would disapprove the application for the reasons stated in the October 11 memorandum from the Division c3f Examinations and the July 16 letter from the Justice Department. With respect to the position taken by Governor Mills on the application, this appeared to involve a matter of judgment. So far as he was concerned, each application made to the Board needed to be considered on a case/3Y-case basis, and the Board's denial of the two earlier merger applicatic)ns was to be viewed as one of the facts requiring consideration in 4Praising the present case. Governor Shepardson said that he found a number of difficult features in the Marine Midland application, including the management situation at Security National Bank. However, the total picture included the fact that Marine Midland, the only bank holding company in New York State, was seeking to expand further its operations through the present In addition, Governor Shepardson said, there was the factor 13roPosal. elltioned by Governor Mills. Recent denial by the Board of attempts 1:1Y- Chemical Bank and Chase Manhattan to enter Nassau County by way of //lerger suggested to him that the Marine Midland application also should be denied. Therefore, he would vote to deny the application. Noting that, like Governor Mills, he had voted for approval t the Chemical and Chase merger applications, Governor King said that 10/30/62 -9- he had re-examined his approach to the present application in light of the point raised by Governor Mills. Upon such re-examination, however, he found himself willing to participate in the Marine Midland decision on the basis that the Chase and Chemical decisions had already been made and constituted a part of the background circumstances against //hich the Marine Midland application must be viewed. The Board was being urged by the applicant, in the present instance, to agree to the ProPosition that the best way to solve Security National's managerial Problem was to approve the holding company application. On the contrary, G°vernor King went on to say, he did not believe that in the long run the public interest would best be served by the Board's acting as an easily accessible refuge for the solution of bank management problems. 14 his opinion, the better solution would come through a recognition by independent banks of their problems and through a procedure whereby the hanks would themselves work out those problems. Therefore, although the acquisition of Security National by the holding company might result 14 improved management of the bank, he would deny the application. Governor Mitchell indicated that he was inclined to approve the aPPlication. He did not believe that approval would change the e°1r1Petitive situation in the New York City metropolitan area, which to 6101Y of thinking was the relevant one to be considered. ' 111 As the eighth in size in the city, the holding company's subsidiary bank in 4e4 York city was not too important a factor in the area, and it not be even if the current proposal were approved. Furthermore, 10/30/62 -10- Governor Mitchell Observed, he did not believe it was possible to contend that the public interest, in a general sense, would be injured by the Management of the holding company supplanting that of Security National. As Mr. Roth, Chairman of the Board of the Franklin National Bank of LohiS Island, had stated at the oral presentation, new management 11°111c1 put Security National in a much better position. For several Years Security National had been poorly operated by persons who in his estimation should not have been in the banking business. The problem Igaa to get new stockholders who would provide new management, and that did not seem likely under the present setup. For example, according to the most recent report of examination of the bank, four of its clirectors were self-serving and ineffectual. Despite some improvements the bank was still poorly managed, a situation for which the stockholders liould be held responsible. The question was to find new stockholders 1111° would supply good management to the bank, and in his estimation the Proposed acquisition by the holding company would meet this need. lie regarded the fact that the holding company had not made derogatory rel4arks about Security's management as a matter of cautious behavior. G°11ernor Mitchell said further that although the premium proposed to be Pald to Security National's stockholders was substantial, the figure illvolved had been arrived at in arm's length trading. 41though Therefore, he was not particularly happy in reaching this conclusion, he be lleVed that if Security National were to be made a good bank it required 4 Change in ownership, and the management that Marine Midland would Drovide. I 1, -11- 10/30/62 With respect to recent Board denial of the Chemical and Chase Manhattan applications to enter Nassau County by way of merger, Governor Mitchell said he did not regard these two decisions as involving principles and precedents to the same extent as the Morgan New York State holding c°14any case. The reason for this view was, he said, that in the large New York metropolitan area it was only realistic to expect that competition going to be provided in the form of several large branch systems II " °Perating throughout the area. This was unlike the situation in central and uPPer New York State involved in the Morgan application. Finally, he did not believe that the good earnings and prospects enjoyed by Security ktional reflected credit on its management. Economic expansion in the Itrea of the bank's operations would be expected almost automatically to generate volume for a bank so advantageously situated. As to the c°111Petitive situation, it could be expected that Franklin, Meadow Brook, arld eventually the New York City banks would supply all the competition r°r which anyone could ask. This was a transitional period; it would not be too long before the City banks were established in the area. In Itle// of the foregoing considerations, Governor Mitchell said, he would 411Pr'ove the application. Governor Balderston stated that his thinking on the application 414 centered on two problems: first, consistency with past decisions "the Board; second, the problem of size and scale as it affected 1101A4 --Lng company decisions, and in this regard how Marine Midland Corporadiffered from the proposed Morgan New York State holding company, 10/30/62 -12- whose formation the Board had denied. On the question of size and extent of operations, he could see no difference between the two holding companies substantial enough to affect the Board's decision. He noted that applicant was the second largest registered bank holding company in the United States. Should the present application be approved, it liould be the twelfth banking institution in size in the country and %Iould control five to six per cent of commercial bank deposits in lieu York State. With regard to the competitive situation, Governor Balderston noted the inability of Marine Midland Trust Company, the holding company's subsidiary in New York City, to branch into Suffolk 0°44tY under New York State law, unlike the ability of Chase Manhattan 441 Chemical Bank New York Trust with regard to Nassau County. Although it could SectlritY National was the largest bank in Suffolk County, 1 114rci Y be regarded as being as dominant as Franklin or Meadow Brook 14 Nassau County. Although New York City banks could not enter Suffolk Iteans of de novo branches or mergers, Meadow Brook National could etlter Suffolk and, in fact, had pending an application to merge with 1414k of Huntington. Continuing, Governor Balderston said that Security National was of such size that its acquisition by Marine Midland Corporatiorl would seem to constitute entry into Suffolk County by the holding eciairlanY on a massive scale. So far as the management situation at several undesirable features 8ecliritY National was concerned, despite the °I' this problem, he did not believe that it was of such seriousness as t0Il1ean that the bank's acquisition would represent a salvaging operation 10/30/62 -13- by the holding company. All in all, Governor Balderston said, he did not think that the circumstances of this case were sufficiently different from those that caused the Board to disapprove the Chase, Chemical, and Morgan applications to lead to anything but denial. At the same time, he found himself wondering what his decision would be if Marine 141d-land were smaller. clear to approve. If it were, he felt that he might see his way On balance, however, he would deny the application. Chairman Martin stated that he also would deny the application, although with some reluctance. The essential problems were the same as those involved in the Chemical and Chase decisions. The question was haw to evaluate the public interest aspect--both short and long run. In the longer run, he was convinced that the banking laws would have t0 be revised, but he did not think that the Board should take steps that would in effect accomplish the revision. In many respects, he telt that in this instance the applicant had made quite a good case. Some of the value judgments that had been made might be questioned; t° doa complete job, the Board would have to get into factors such as the motivation of individuals, but that would be impractical. In brief, he felt that this must be regarded as a transitional period, one that l'i°111c1 continue until people were sufficiently aroused to demand improved ing laws. While the Chase and Chemical decisions were difficult, he felt that in retrospect his vote on them would have been the same. 111 1'14 --ts judgment, less harm had been done by those decisions than might have developed over the longer run if the applications had been approved. 10/30/62 -14Governor King then made a further statement of his views In which he stressed the importance of people assuming responsibility for solving their own problems. He felt that an attempt on the part °I an agency like the Board to assume responsibility and solve problems, aS through approval of the Marine Midland application, would work in the wrong direction from the standpoint of the public interest. As he saw it, those connected with Security National should be expected to shoulder their responsibilities. The fact that there appeared to be so taatlY dissatisfied shareholders held out some promise that a change in ovnership and management might occur. After further discussion, it was voted to deny the application 1311 Marine Midland Corporation, Governor Mitchell voting "no" and Governor Mills abstaining. It was understood that the Legal Division lI°11.1d prepare for the Board's consideration drafts of an order and state' erlt reflecting this decision, and that a dissenting statement by Governor Mitchell also would be prepared. Mr. Koch, Associate Director, Division of Research aria Statistics, J°1fled the meeting at this point and Messrs. Leavitt, Thompson, Stephenson, e/ and Lyon withdrew. Committee on Federal Credit Programs. On March 28, 1962, the ?1's1dent established a Committee on Federal Credit Programs to be ileMed by the Secretary of the Treasury (and with the Chairman of the of Governors as a member) for the purpose of reviewing legislation 4*1 administrative practices relating to Federal credit programs, using 10/30/62 -15- as a point of departure the relevant recommendations of the Commission °4 Money and Credit. In his memorandum the President pointed to "the need for a thorough review of the impact of these programs on the economy, their effectiveness for the special purposes for which they era established, and the policies and techniques employed in administering them." As more specifically defined by the President, the task of the Committee was to consider what changes, if any, in Federal credit Programs would contribute to achieving the nation's economic goals." 14 addition, the Committee was requested to consider the following sPscific topics: (a) The circumstances under which Federal credit programs should be self-supporting and the criteria for and character and extent of subsidy where subsidies are appropriate. (b) The criteria for determining whether a particular program should take the form of direct Federal lending, loan insurance, loan guarantee, or other form. (c) The budgetary treatment of Federal credit programs. (d) The appropriate credit programs policies of the credit programs degree of coordination of Federal with the general monetary and fiscal Federal Government, and the use of for counter-cyclical purposes. (e) The role and effectiveness of statutory and administrative interest rate ceilings in Federal credit programs. The P resident had requested that the Committee's report and recommendations be submitted by November 1, 1962. .5 -16- 10/30/62 There had been distributed under date of October 24, 1962, for the purpose of providing members of the Board an opportunity to eft/lent, a memorandum from Mr. Noyes attaching the draft report of the Committee on Federal Credit Programs. As noted in the memorandum, the report was not one for which the Board had a primary responsibility; the membership of the Committee included the Director of the Bureau of the Budget and the Chairman of the Council of Economic Advisers, as well as the Chairman of the Board of Governors. The views expressed in a discussion of the draft report indicated that 011 the whole the Board members believed the recommendations therein t0 be reasonable. "as Although some criticisms might be made, the report regarded as reasonably well done. All members of the staff except Messrs. Sherman, Kenyon, Molony, ahci Pauver then withdrew. Director appointments. It was agreed to ascertain through the Chairman of the Federal Reserve Bank of Boston whether Dr. Barnaby C. ICe"Y, President of Brown University, Providence, Rhode Island, would ItecePt appointment if tendered as Class C director of the Boston Bank r°r the three-year term beginning January 1, 1963, with the understanding that if it were ascertained that he would accept, the appointment would be Made. Secretary's Note: It was subsequently ascertained that Dr. Keeney would be unable to accept the appointment. 3 10/30/62 -17It was agreed to ascertain through the Chairman of the Federal Reserve Bank of Richmond whether Dr. Wilson H. Elkins, President of the University of Maryland, College Park, Maryland, would accept appointment if tendered as Class C director of the Richmond Bank for the three-year term beginning January 1, 1963, with the understanding that if it were 4seertained that he would accept, the appointment would be made. Secretary's Note: It having been ascertained that Dr. Elkins would accept, an appointment wire was sent to him on November 21, 1962. The meeting then adjourned. Secretary's Notes: The Board today issued an order terminating the administrative proceeding involving The Continental Bank and Trust Company, Salt Lake City, Utah, the issuance of such order having been approved by the Board on October 11, 1962. A copy of the order is attached as Item No. 4. Governor Shepardson today approved on behalf of the Board the following items: n , Memorandum from the Division of Personnel Administration dated Ober29, 1962, recommending increases in the per diem and hourly VEL tW rates of the following part-time and substitute employees: Annie W. Becton, Substitute Maid, Division of Personnel day. Administration, from $12.32 to $12.96 per Personnel of Division Maid, Ruth Page, Substitute day. Administration, from $12.32 to $12.96 per Frances L. Hornbeck, Substitute Charwoman, Division of per hour. Administrative Services, from $1.69 to $1.77 ae_ Memorandum from the Division of Administrative Services recommending in"'ePtance of the resignation of Herbert E. Haney, Senior Programmer that Division, effective at the close of business November 10, 1962. 10/30/62 -18- Letter to the Federal Reserve Bank of Dallas (attached Item NO. 5) approving the designation of Gerald B. Garrett and J. Lero Griffin as special assistant examiners. Letter to the Federal Reserve Bank of San Francisco (attached Item approving the appointment of Stephen L Eschler as assistant-examiner. BOARD OF GOVERNORS Item No. 1 OF THE FEDERAL RESERVE SYSTEM 10/30/62 WASHINGTON 25, D. C. ADDRESS OFrICIAL CORRESPONDENCE 'TO THE BOARD October 30, 1962 Board of Directors, The Bank of Commerce, Charlotte, North Carolina. Centlement The Board of Governors of the Federal Reserve System the application of The Bank of Commerce, Charlotte, North ?Proves arolina, for stock in the Federal Reserve Bank of Richmond, subJect to the numbered conditions hereinafter set forth. 1. Such bank at all times shall conduct its business and exercise its powers with due regard to the safety of its depositors, and, except with the permission of the Board of Governors of the Federal Reserve System, such bank shall not cause or permit any change to be made in the general character of its-.business or in the scope of the corporate powers exercised by it at the time of admission to membership. 2. The net capital and surplus funds of such bank shall be adequate in relation to the character and condition of its assets and to its deposit liabilities and other corporate responsibilities. In connection with the foregoing conditions of membership, Particular attention is called to the provisions of the Boardis t7sgulation H, regarding membership of State banking institutions in Federal Reserve System, with especial reference to Section 208.7 ere°f. A copy of the regulation is enclosed. BOARD OF 13OVERNORS OF THE FEDERAL RESERVE SYSTEM The Bank of Commerce -2- If at any time a change in or amendment to the bank's Charter is made, the bank should advise the Federal Reserve Bank, furnishing copies of any documents involved, in order that it may be determined whether such change affects in any way the bank's status ae a member of the Federal Reserve System. Acceptance of the conditions of membership contained in this ,?tter should be evidenced by a resolution adopted by the board of ( '? Irectors and a certified copy of such resolution should be transmitted to the Federal Reserve Bank. Arrangements will thereupon be made to !ccept payment for an appropriate amount of Federal Reserve Bank stock, t411 accept the deposit of the required reserve balance, and to issue he appropriate amount of Federal Reserve Bank stock to the bank. The time within which admission to membership in the Federal Reserve System in the manner described may be accomplished is limited !? 30 days from the date of this letter, unless the bank applies to Board and obtains an extension of time. When the Board is advised at all of the requirements have been complied with and that the appro4Jiate amount of Federal Reserve Bank stock has been issued to the bank, ,"e Board will forward to the bank a formal certificate of membership , • r1 the Federal Reserve System. The Board of Governors sincerely hopes that you will find illt:!!)ership in the System beneficial and your relations with the Reserve pleasant. The officers of the Federal Reserve Bank will be glad liesassist you in establishing your relationships with the Federal b erve System and at any time to discuss with representatives of your means for making the services of the System most useful to you. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. Zrielosure 440**,4 BOARD OF GOVERNORS Item No. 2 10/30/62 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. '4,4trast. 4440**" ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 30, 1962 Mr. Eliot J. Swan, President, Federal Reserve Bank of San Francisco, San Francisco 20, California. near Mr. Swan: This refers to Mr. Ahlf's letter of September 19, 1962, With respect to services, functions, and departments the Union Bank, Los Angeles, California, expects to house in a new service building. The Board has no objection to these operations being carried on by Union Bank in a service building. However, a more .lin damental question is whether the Board's express permission is oequired by statute (R. S. 5155; 12 U.S.C. 36) for these operations, bank-by-mail eat e ground that they constitute a branch. The are received" "deposits at ture, at least, raises a question whether 0, this office, and, accordingly, whether a branch authorization by the Board is necessary. As you know, the Bank Service Corporation law has been signed by „ he President and under that law banks are authorized to participate su the operation of a bank service corporation, and the functions of d u a corporation may have a definite relation to the question now une det?r consideration. Therefore, it seems inadvisable to take a a "nite position on the question whether Union Bank will be operating to ranch" in its service building until the Board has had an opportunity by c°nsider the entire question of "internal" services being performed be °r for banks at a central location. In the meantime, Union Bank may tioassured that the Board will issue a branch permit for these operaIle if it is concluded that such permission is required by statute. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Ctutt***4. Item No. 3 BOARD OF GOVERNORS OF THE 0 C t ‘‘ 701 0 04 Pg FEDERAL RESERVE SYSTEM 1030/62 WAS 11101V *"!-oci.4.0 OFFICE OF THE CHAIRMAN October 31, 1962. he Honorable John A. Carroll, Chairman, qlbcommittee on Administrative Practice and Procedure, 1;(311anittee on the Judiciary, wtThilt,ed States Senate, -1snington 25, D. C. Mr.. Chairman: This is in response to your letter of October 11, 1962, cta,n4esting information regarding changes made in the Board's 6 41-nistrative practices and procedures during 1961 and 1962 'Ibected toward strengthening and accelerating such procedures. The Board's Rules of Organization and Procedure were ed in late 1961 and again in early 1962. The revised rules t!Wect a number of changes which are believed to serve the objec. referred to in your inquiry. These changes are discussed revia lOW e 1. The rule regarding disclosure of unpublished informa/ orl 112 CFR 261.2(b)) was amended to permit disclosure by appropriate irrt cers, employees, or agents of the Board to persons properly tested of unpublished economic, statistical, or similar informatoa-,,and unpublished information regarding interpretations by the 4/101%4 of statutory or regulatory provisions, without prior Board 1 °17al, unless such information is scheduled for public release at: or subsequent specified time, relates to or discloses the affairs where disclosure is not identified person, or is of a nature Board approval for formal (48,1e Public interest. Previously, As applied to required. was a -.Losures of unpublished information to expedite serve can rule tQat istrative proceedings, the present ng access facilitati by Board to (11's Which are or may be before the . It can possession Board's the t4ertinent factual information in Board the before s proceeding of byn,!erve to strengthen the record persons interested and parties frig more readily available to regarding prior Board 4-1. ' 84* and interpretive precedents 4.043.information 2, A new rule was added, spelling out the procedures bank hcati.cable in connection with the Board's consideration of CFR 262.2(f)). (12 ns applicatio `grig company or bank merger BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM The Honorable John A. Carroll -2- to present Paragraph 6 thereof was designed to encourage parties age discour and capricious relevant facts in the first instance, be graph 7 may st subpara Pet intere for reconsideration. Also of ed in that provid is it n f the rule here under consideration, wherei a public or oral g hearin 84Y case in which the Board orders a public as practicable T'esentation of views on an application, as soon notice of subh of er lOWing publication in the Federal Regist be available for shall lic proceeding the subject application f as to which thereo ns portio 11sPection by the public except such 4, interest. the public in be not e Board finds that disclosure would sing of us expres s desiro person b,41.1 making available an application to nt and ent releva pertin :j'ell3 thereon, it is believed that more applicant, ,ressions will be received, thus assuring the Board, on. for decisi 4nciPublic of the most reasonable basis r s for the purpose of taking 3. The rule relating to hearing ev-1,4 for the designation provide ,Aence (12 CFR 263.2(c)) was amended to to ," represent the an attorney, to be known as "Board Counsel on s applications under t;314rd. Particularly with respect to hearing in non-adversary are : 11 1. Bank Holding Company Act of l956, which then and streng .6241re, this provision can expedite the proceeding ghly familiar ipant, thorou partic ial impart record by providing an 1,th the statute involved and the Board's administration thereof, ;4 4rough whose activity development of a fair and complete record , "011.1d be more assured. submission of evidence at 4. The rule relating to the to 8.,.; provide that written "-ngs (12 CFR 263.2(h)) was amended by the Hearing Examiner, i7ts will not, unless otherwise permitted record, and that the for c accepted unless submitted in duplicate : parties to the other to n,Pies of such exhibits must be furnished delay incurred when the obviate °ceeding, This rule is intended to in sufficient d supplie not are bill).11:es of exhibits offered in evidence r, the rule . Furthe ements requir to satisfy basic procedural i7'er ting g by permit hearin a ;0 calculated to strengthen the record of and ation examin of crossrj7e thorough and intelligent formulation by is ion ented provis implem a7uttall rarticularly where the exchange place the prior take to to 0, -hearing order requiring exchange ening of the hearing. ' objections to the admission or 5. The rule regarding ex elusion of evidence (12 CFR 263.2(i)) was changed to provide that Examiner thereon need not be !ePtions to rulings of the Hearing ed in order to preserve the right to urge such exceptions in avnsideration of the matter by the Board. This change can expedite hearing by eliminating the time consumed in making formalistic Z 1 c',1 z BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Ills Honorable John A. Carroll -3- Prleadings on the record, and it also can serve to strengthen the : cord be-fore the Board by not foreclosing counsel from pursuing a 711torious objection, which pursuit might have been foreclosed er the p'7evious rule had counsel not preserved his objection by Pl'oPer exception, 6. The rule relating to the filing of proposed findings and conclusions of law (12 CFR 263.5) was revised to permit /3,fd Connsels in non-adversary proceedings such as those under the 1:711: Holding Company. Act, to file romments concerning the evidence of 11:cord or on the proposed findings end conclusions submitted by any hil Y; previously, the only way in wAich Board Counsel could place in such proceedings before the Hearing Examiner was by b,'-ng proposed findings of fact ard conclusions of law. This change, milAing Board Counsel to await the submission of proposed ndings and conclusions by parties to the proceeding before making hi8,z ubmission„ can have the effect of expediting the proceeding by ;703.din repetitious or cumulative submissions. It can also strengthen in such proceedings by giving the Hearing Examiner the e;;II,s!it of an objective appraisal of the proposed findings and ions of parties by a disinterested and experienced observer. _atter point takes on added significance when it is noted that lioard does not have Hearing Examiners on its staff; when the pl:',,sion for an examiner arises, one is borrowed from another agency p-1;*ollant to the provisions of section 11 of the Administrative c)cedurr. Act.) Or Bo_act of the Hearing Examiner's RtPort 7. The rule relating to submission ND, (12 CFR 263.6) was revised to provide specifically that such shall contain findings and conclusions, with reasons or the th;:ls therefor, upon all material issues of fact or law involved in re, Proceeding. This requirement in the Board's rules parallels the k41.I'ement of the Administrative Frocedure Act and, although as a t>1.:! of course requirement was adhered to in all proceedings priW to the re7icion of the ruleE, it makes explicit that the underlyisg the Administrative Ft'ocedure Act requirement 40t P:ly to all procee-lings of the Loard even where that Act does n'rsrn the conduct of e. particular proceeding. This requirement ktt".ce the effect of assuring more expeditious action on a particular Y b precl”ding a later controversy as to what specific action ikzs 7r !444;,n ke by the Hearing Examiner, end of strengthening the record by eeell flg thPct the Board will ha-e before it an objective treatment of 4,41 and e'rery factual and legal issue invol-ed 1-ten it considers a arld' In rsgad to Board act4 en in aiopting or rejecting the findings v.oaconclusions of the Hearing RxamirD:-,te prov)_sions cf 12 CFR 263.6 2'0111 assure formulation of a propc! -:ecorrl for purposes of any judicial ew. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM The Honorable John A. Carroll -4- 8. A new section was included in the Board's Rules 1?lating to the handling and disposition of motions (12 CFR 263.8). ie believed that this addition to the Rules will further assure urderly proceedings by establishing and apprising parties as to the kint in any proceeding at which all motions must be made to and rilllad on by the Hearing Examiner rather than the Board, thereby 1111811ring that motions are properly directed in the first instance. los of course, in addition to expediting administrative proceedings having the procedures to be followed in submission of motions !Naled out in detail, the new rule can effect substantial savings of fll'a by having motions addressed to and passed on by the Hearing 11iner, since the time-consuming requirement of formal Board action iteed not be involved with respect to motions filed during the Hearing qtaminer's involvement with the case. V 9. The rule dealing with service of papers (12 CFR 263.12) revised to provide that the Board will serve all orders, notices, ' rePort, and other papers issued by it when service thereof is pired, as well as of reports of Hearing Examiners, and that every „:!er paper requiring service, including motions, proposed findings conclusions, exceptions, and briefs, shall be served on any party Bu a proceeding by the party filing the same, Previously, the 15° .ardis Rules provided that service of all papers and pleadings, eJ whomever initiated, was to be made by the Board. The change can Zedite proceedings by obviating the delay incident to having all toP'rs and pleadings which are not issued by the Board transmitted A for service onprties to the proceeding. 4 In summary, when the individual changes which have recently made in the Board's Rules are viewed in total perspective, it is all iaved that the net result has been and will be to insure a better more complete record in administrative proceedings, more 1Z'teditiou5 disposition of such proceedings, and greater procedural aubstantive fairness to parties thereto. be MY, In addition to comments on changes in the Board's Rules, n letter requests copies of "the order, minute, memorandum, or 411".er paper which put the change into effect and explained it." t rioted previously, the changes referred to above were made in the (4°11Pe of a general revision of the Board's Rules of Organization Procedure. Notices of the changes were, of course, published SOARD OF DOVERNORS OF THE FEDERAL RESERVE SYSTEM The Honorable John A. Carroll in the Federal Register, but no explanatory or descriptive material accompanied such publication. However, with the thought that your subcommittee may find it helpful to have a convenient source of reference to the procedural provisions discussed above, there is enClosed a current copy of the Board's Rules of Organization and Procedure. Sincerely yours, 44.4klb McC. Martin, Jr. (*4 UNITED STATES OF AI,ERIOA Item NO. 4 10/30/62 BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM In the Matter of TRZ COrtrlIENTAL BAIIK All )TRUST COMPANY Salt Lake City, Utah ORDER TERMINATr1G PR OCEEDETO. This proceeding was initially instituted by an Order of the tioar4 q of Governors of the Federal Reserve System dated June 29, 1956, 1416,4 -L-Lch the Board ordered a hearing to determine (1) the adequacy or acillacY of the net capital and surplus funds of The Continental Bank Trust Company of Salt Lake City, Utah (hereinafter called the "Bank"), () th-e additional amount of capital funds, if any, needed by the Bank, ktd 4rat -, what period of time would be reasonable in which to allow the t0 increase its capital funds to make them adequate. By an Order dated July 18, 1960, based upon evidence contained th record of that hearing, to the extent indicated in that Order, kq u PQn examination and supervisory reports of the Bank equally available t° the Bank, the Board found that the Bank's net capital and surplus as of that date were inadequate in relation to the character and '4(1,1tio n of its assets and to its deposit liabilities and other P rate responsibilities, and ordered that within six months of the 4- the Order the Bank, by the sale of common stock for cash, effect -2- increase in its net capital and surplus funds in the amount of not less than $1,500,000. Upon failure of the Bank to comply with such Order of Y 18, 1960, the Board on June 28, 1961, issued an Order for a hearat which the Bank might show cause why the Board should not require It to surrender its stock in the Federal Reserve Bank of San Francisco "to forfeit all rights and privileges of membership in the Federal Reser-73 System for failure to comply with the Banks Condition of Mem- 111'shi-13 !To. 2; which prolides: "The net capital and surplus funds of such bank shall be adequate in relation to the character and condition of its assets and to its deposit liabilities and other corporate responsibilities, and its capital shall not be reduced except with the permission of the Board of Governors of the Federal Reserve System." The Show Cause Hearing was held before a duly appointed Rear4_ 'flg Examiner on October 29, 1962, the record of such hearing was 4sed on the same date by the Hearing Examiner, and such record has certified by the Hearing Examiner to the Board. ' The record so certified contains a letter addressed by the 441k to the Board under date of October 9, 1962, enclosing a resolution "its Board of Directors which sets forth a plan for increasing the 4rikt s capital accounts. In substance that plan provides: 1. By the end of 1962 the capital, surplus, undivided profits, `111(1, '41aPp1ied reserve accounts of the Bank will be increased to a total or 11°t less than $6,500,000, which will require a cash increase of not 1:a8 than $1,111,000 over the June 30, 1962 total of these accounts. -32. This cash increase of $1,111,000 in its capital structure /411 be accomplished by the Bank in the following manner: a. The issuance and sale of additional common stock for cash in the amount of $540,000; and "b. Cash dividends from the two wholly owned building subsidiaries of the Bank; cash proceeds of the liquidation of the Paramount Life Insurance Company of Texas; and the declaration of a stock dividend in lieu of the Bank's 1962 year-end cash dividend, the total of such dividends and Proceeds of liquidation amounting to $571,000. 3. This $1,111,000 cash increase in the Bank's capital structure vila be allocated as follows: $810,000 to capital stock $270,000 to surplus, and *31,000 to undivided profits and/Or reserves 4. Upon the accomplishment of this capital increase the Bank 1'111 have: Capital stock Surplus Undivided Profits Reserves $3,510,000 11 700,000 505,000 785,000 $6,500,000 In addition the Bank's letter of October 9, 1962, represented that Ilet the Bank would continue to improve its capital structure through retained earnings. 111 The Board has considered the fact that during the period between the aforesaid July 18, 1960 Order and the June 30, 1962 Report (3t Condition the Bank had increased its capital accounts by 088,530 troraretained earnings, which together with the additional 01,111,000 result in a total capital account increase since July 18, 1960 of 1,9953Q h The Board has further considered such changes as have ( larred since July 18, 1960 in the amount, character, and condition the Bankis assets and in its deposit liabilities and other corporate r"Pcnsibilities. The Board has also noted that through earnings retained ee the commencement of this proceeding in 1956, the Bank had increased eaPital structure as of June 30, 1962 from 33,488:202 to $5,389,350. th the addition of the aforesaid 01,111,000 by year end 1962, the 14404 . . 14111 have increased its capital structure by somewhat more than 00,000 since the commencement of this proceeding. On the basis of these considerations the Board addressed a ter to the Dank dated October 11, 1962, which is a part of the certittea record, stating that accomplishment of the plan set forth by the 4/1a'14ould constitute sufficient cause for terminating this proceeding. Accordingly, the Board finds that, in the light of the Banks tit capital condition as reflected by the latest report of examinaet the Bank, and by the Bank's latest reports of condition and of &tleo 111° and dividends, the anticipated accomplishment within a reasonable Of time of the actions to increase the Bank's capital funds, as ; l'escribed in the resolution of the Bank's Poard of Directors enclosed Ilfth the said letter from the Bank dated October 9, 1962, constitutes slifficient cause for termination of this proceeding. IT IS HEREBY ORDERED that the capital adequacy proceeding trilrelving the Bank, originally instituted by the Board's Order of allne 29, 1956, and culminating in the Board's Order to Show Cpuse and Rearing Thereon of June 28, 1961, and the hearing held on October 29, 162, Pursuant to that Order, is hereby terminated, on the condition that if within the period of time proposed by the Bank, or by such later date as the Board, for good cause shown, may hereafter specify, the Bank 8411 not have furnished the Board with satisfactory evidence that the 4 has 1 / substantially accomplished the actions described in the resolu- 40„ " of its Board of Directors enclosed with such letter of October 90 1962 then and in that event this Order shall be deemed to be of no "teet and the Board may then reopen the record of the Show CPuse Hearing tal, --e such other action as may be appropriate in the circumstances 4t that time. Dated at Vashington, D. C., this 30th day of October, 1962. By order of the Board of Governors. (Signed) Herritt Sherman (SAL) Merritt Sherman, Secretary. BOARD OF GOVERNORS Item No. OF THE 10/30/62 5 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 31, 1962 CONFIDENTIAL (E2 Mr. Thomas R. Sullivan, Vice President, Federal Reserve Bank of Dallas, Station K, Dallas 2, Texas. Dear Mr. Sullivan: In accordance with the request contained in your letter of October 24, 1962, the Board approves the designation of the following employees as special assistant examiners for the Federal Reserve Bank of Dallas for the purpose of Participating in examinations of State member banks except those listed opposite their names: Gerald B. Garrett • The First State Bank, Rockwall, Texas. J. Lero Griffin • Empire State Bank, Dallas, Texas. The authorizations heretofore given your Bank to designate these employees as special assistant examiners are hereby canceled. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. HOARD OF GOVERNORS Item No. 6 10/30/62 OF THE o*. FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADOREBO OFFICIAL CORRESPONDENCE TO THE BOARD 405. • RESt. October 31; 1962 Mr. P. W. Cavan, Vice President, Federal Reserve Bank of San Francisco, San Francisco 20) California. Dear Mr. Cavan: In accordance with the request contained in your letter of October 231 19621 the Board approves the appointment of Stephen L. Eschler as an assistant examiner for the Federal Reserve Bank of San Francisco. Please advise the effective date of the appointment. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.
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