The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for October 7, 1958 To: Members of the Board 'to: 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 vere 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 Gov. Mills Gov. Robertson Gov. Balderston Gov, Shepardson m Minutes of the Board of Governors of the Federal Reserve Syste on Tuesday, October 7, 1958. The Board met in the Special Library at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman 1/ Vardaman Mills Robertson Shepardson Kenyon, Assistant Secretary Fauver, Assistant Secretary Thurston, Assistant to the Board Thomas, Economic Adviser to the Board Hackley, General Counsel ns Masters, Director, Division of ExRminatio Board the to Molony, Special Assistant Farrell, Associate Director, Division of Bank Operations Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Noyes, Adviser, Division of Research and Statistics Research Mr. Koch, Associate Adviser, Division of and Statistics Mr. Solomon, Assistant General Counsel of Mr. Nelson, Assistant Director, Division Examinations of Mr. Benner, Assistant Director, Division Examinations ion , Chief, Capital Markets Section, Divis Brill Mr. of Research and Statistics Mr. Hooff, Assistant Counsel Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. Discount rates. telegram to Unanimous approval was given to a ut the Federal Reserve Bank of Boston approving the establishment witho change by that Bank on October 6, and 1958, of the rates on discounts advances in its existing schedule. 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 a roved unanimously: 1/ Entered meeting at point indicated in minutes. 10/7/58 -2Item No. Letter to the Federal Reserve Bank of New York regarding the examination of The First Bank of Boston (International), New York, New York, made as of August 18, 1958. 1 Letter to The Richland Trust Company, Mansfield, Ohio, aPProving an additional investment in bank premises. (For transmittal through the Federal Reserve Bank of Cleveland) 2 Letter to the Federal Reserve Bank of Cleveland expressing the opinion that the maintenance of certain storage vault facilities by The Richland Trust Company, Mansfield, Ohio, would not constitute the operation of a branch. 3 In connection with approval of the letter to the Federal Reserve Bank of New York (Item No. 1) regarding the examination of The First Bank Of Boston (International), Governor Mills said that as far as he could Observe this Edge Act corporation is being operated in exemplary fashion under strict compliance with the provisions of Regulation K while Bank Of America, New York, is more aggressive and far-reaching in the scope or the transactions it handles. In both instances, he pointed out, the Edge Act corporations are in essence agents of their parent banks; in effect, they operate in New York City as the foreign departments of the Parent banks. Thus, as brought out by various studies, they are in e°mPetition with the foreign departments of New York City banks and also with certain other institutions engaged in similar financing activities. While it might be that the problem was insoluble as long as Edge Act corporations continued in existence, he hoped that some lines of demarcation could be drawn. If such lines could be drawn, he felt that they limald have to be related primarily to the question of what is incidental ' 2880 10/7/58 to 821 an Edge Act corporation's foreign business. It had always been his concept that such corporations were intended to function as domestic as domestic outposts for business to be transacted abroad rather than corporations drawing business from abroad. In other words, their trade and Purpose, as he understood it, was to foster American export they were not intended to be used as vehicles for the financing import trade. of Mills said, The longer the problem persisted, Governor the more difficult it would become. It appeared to him that either the operations of Edge Act corporations would have to be restricted to conform more closely to the original Congressional intent or the Board would be statutory Obliged to recommend to the Congress a broad expansion of the authority for otherwise, in his view, the Board was placed in the position constantly of sanctioning deviations from the purposes of the statute. the Division of It was noted that the memorandum requested from a, New York, 2x8minations on the scope of the activities of Bank of Americ the questions had now been distributed, that it touched somewhat on afford an raised by Governor Mills, and that consideration of it might appropriate occasion for further discussion of those questions. from the meeting. Messrs. Nelson and Hooff then withdrew Margin regulations (Item No. 4). Prior to the meeting there had of letter to the Federal been distributed to the members of the Board a draft possible unreported and Reserve Banks, prepared by Mr. Solomon, discussing unrecognized increases in stock mnrket credit as the result of weaknesses 10/7/58 -4- in the provisions of Regulation U or inadequate compliance with its provisions and suggesting possible remedial steps. It was contemplated that a somewhat similar letter might be sent to the Comptroller of the Currency and the Federal Deposit Insurance Corporation. In response to statements by Governors Robertson and Vardaman indicating that before entering into discussion of the letter itself they would like to have a discussion of the seriousness of the problem, Mr. Solomon stated that the suggested letter had been prepared for the Board's consideration on the premise that a problem existed mui that he had not attempted to inquire into the magnitude of the problem. in Mr. Thomas stated that the present situation -- the increase stock market activity, the rise in stock prices, and the movement from ation bonds into stocks -- presented an atmosphere conducive to acceler Of the speculative boom through increasing use of credit. For people various nting to speculate, there was a great inducement to find devices for doing so. had From persons in the financing field, he heard stories that this was going on to a very considerable extent; that is, people were said to be finding all kinds of devices for getting into the stock market. A part of this took the form of Shifting from liquid assets and it appeared that a substantial system, but amount of money was available from outside the banking anYthing the banks might be doing would contribute to the problem. The thought behind a letter such as presented to the Board for consideration therefore was to obtain information and at the same time issue a warning 2882 10/7/58 -5- that the bank supervisory authorities were alive to the possibility of evasion, with an intimation that the rules might be tightened if it were found that a problem existed in this respect. Governor Vardaman agreed with Mr. Thomas' comments about the general atmosphere of speculation but said he thought it would be desirable to separate the idea of a warning from an effort to get additional information. An alternative approach might be to get the information first and bring such data before the Board for its consideration. At that point, he said, the Board would be in a better Position to consider the issuance of a warning letter. Governor Mills expressed concern about involving the Federal Reserve Banks in a spot-checking operation which could produce an unfavorable reaction. On the one hand, he observed, the Federal Reserve System has regulatory responsibilities, but on the other hand it has a broad responsibility to accommodate the various elements of the financial community as much as possible and to avoid harassing tactics. It appeared to him that the proposals contained in the suggested letter dealt with minutiae and not with the Board's major responsibility in this field; namely, the responsibility for the level of margin requirements. From available statistics, he could of 4c3t find evidence to suggest a serious problem in the area 4°nPurpose loans. Mr. Koch recalled that in 1955, at the request of the Senate 4nking and Currency Committee, which was then engaged in a study of the 2S8 -6- 10/7/58 stock market, the Federal Reserve Banks were asked to make a spot surveyregarding the use of nonpurpose loans. Such information could be gathered quite promptly, he felt, if it was thought desirable. Following further discussion of the difficulty involved in Obtaining information about the use of nonpurpose loans, Governor Shepardson said that he was concerned about the possible reaction to the collection of information on this subject. Merely checking with leading banks might carry with it an implication that the Board was contemplating action. It was the implication of a threat which concerned him and he wondered whether there was some other way in which information could be obtained. Mr. Noyes referred to the information obtained on mortgage warehousing operations and suggested the possibility of a somewhat similar series on nonpurpose loans. While this approach would not answer all of the questions, it would give additional insight into haw this particular segment of credit was behaving. After some discussion of this possibility and its limitations, Governor Vardaman inquired whether the bank examiners could shed any light on the subject through discussions with the bank officials in the course of examinations. Mr. Masters replied that he thought quite a bit could be accomplished in this manner but that he did not think this approach would produce quantitative information. At this point Governor Robertson suggested a two-pronged approach. Pirst, he suggested that the Vice President in charge of Examinations at each Reserve Bank be contacted, and also the Comptroller of the Currency, 10/7/58 -7-- to Obtain views on the extent to which the proceeds of nonpurpose loans are being used to finance the purchasing or carrying of registered stocks. This would involve talking with chief and senior examiners but it would not involve going outside the supervisory agencies. It should be possible to obtain reactions of this kind, he thought, within a week or 10 days. Second, while that process was going on, the Board should consider Whether the present coverage of the margin regulations was adequate, and Particularly whether the withdrawal and substitution rule should be tightened. the For this purpose it might be desirable to send members of staff to New York to study the effect on market operations of a change in the rule. be With the accomplishment of these two steps the Board would in a better position to act, if it so desired, following the Chairman's return. strict There ensued some discussion of the nature and effect of a Withdrawal and substitution rule, following which consideration was given to the proposals advanced by Governor Robertson. At the conclusion of to the discussion it was agreed that a communication would be addressed the President of each of the Reserve Banks asking for the Bank's views regarding the volume of credit going into the stock market as the result Of evasion or avoidance of the provisions of Regulation U. These views Bank Examinations Were to include those of the Vice President in charge of and the Chief Examiner but were to be furnished without consultation with Persons outside the Bank. It was understood that the Office of the Comptroller of the Currency would be contacted by Governor Robertson with 10/7/58 -8- a view to obtaining similar comments. With regard to the sending of staff members to New York to study the effects of changes in the margin regulations, it was understood that Messrs. Thomas, Hackley, and Young would recommend to the Board which members of the staff should unnertake such an assignment. Secretary's Note: Subsequent to the meeting and in accordance with the above action, there was sent to the President of each of the Reserve Banks a telegram in the form attached to these minutes as Item No. 4. At this point all of the members of the staff withdrew except Messrs. Hackley, Masters, Solomon, Kenyon, and Fauver. Firstamerica. Mr. Hackley presented to the Board the results for Of efforts by the Legal Division to obtain a suitable hearing officer the hearing ordered by the Board on the application of the Firstamerica nia Corporation to acquire 80 per cent of the voting stock of the Califor Bank. employee of the The choice had narrowed to two individuals, one an Jensch, Department of Commerce, Mr. Herman Tocker, and the other Mr. S. W. an employee of the Atomic Energy Commission. Mr. Tocker is not on the pointed out Civil Service Register of hearing examiners but Mr. Hackley officer that he need not have such status in order to serve as hearing in the Firstamerica hearing. examiners. approved Mr. Jensch is on the roster of ndations from those at the Both men had received high recomme made. Civil Service Commission with whom contact had been during which Governor Balderston At the conclusion of a discussion, ments e Joined the meeting, Mr. Hackley was authorized to conclud arrange for the retention of Mr. Jensch as hearing examiner for this case subject 288E 10/7/58 -9- to certain questions being resolved satisfactorily. If those questions were not resolved satisfactorily, Mr. Hackley was authorized to make arrangements for the retention of Mr. Tocker. Thereupon the meeting adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board a letter to the Chairman of the Presidents' Conference Subcommittee on Retention and Disposal of Records agreeing to an arrangement for disposal of older copies of the Daily Letter to the Board of Governors held at the Federal Reserve Bank of New York, in reliance upon copies being available in the Board's files. ' BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 1 10/7/58 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDIENCli TO THE BOARD October 7, 1958 Mr. R. B. Wiltse, Vice President, Federal Reserve Bank of New' York, New York 45, New York. Dear Mr. Wiltse: This will acknowledge receipt of two copies of the report of examination of The First Bank of Boston (International), New York, New York, made as of August 18, 19580 by Mr. John J. Quinn, in his capacity as a Federal Reserve Examiner. It is noted that the affairs of the Corporation appear to be conducted in a generally satisfactory manner and, at this time, are considered to be conducted in accordance with the provisions of Regulation K. It is also noted that certain deposit accounts listed at the previous examination as of August 23, 1957, which were considered to be nonconforming with the requirements of Section 6(b), Regulation K0 have been eliminated or otherwise corrected. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. 2888 BOARD OF GOVERNORS F THE Item No. 2 10/7/58 FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENLE TO THE BOARD October 7, 1958 Board of Directors, The Richland Trust Company, Mansfield, Ohio. Gentlemen: Federal Pursuant to your request, submitted through the , under approves s Reserve Bank of Cleveland, the Board of Governor investan Act, Reserve the provisions of Section 24A of the Federal result will which Company ment in bank premises by The Richland Trust capital the by ted represen in an aggregate investment of $629,939.52, , and stock of The Richland Building Corporation carried at $300,000 wholly its and ion Corporat the indebtedness of The Richland Building aggregate amount owned affiliate, the R-T Building Corporation, in the °f $329,939.52. Very truly yours, (Signed) Kenneth A. Kenyon Kenneth A. Kenyon, Assistant Secretary. t3Q BOARD OF GOVERNORS cot.;44x oq,9, 4'F.A.77t41',0% A4, OF THE Item No. FEDERAL RESERVE SYSTEM 3 10/7/58 WASHINGTON 25, D. C. ADDRESS OrFICIAL CORRESPONDENCE TO THE BOARD hialLins% October 7, 1958 lb. Paul C. Stetzelberger, Vice President, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Dear Mr. Stetzelberger: Reference is the a pplication of The Illission to establish a 4)e known as Boulevards made to your letter of August 26, 1958, submitting Richland Trust Company, Mansfield, Ohio, for perbranch at 452 West Cook Road, Mansfield, Ohio, to Office No. 2. It is noted that the proposed "branch" will consist of a storage : 1: t 12 X 20 feet underneath the rear portion of the building leased by bankk through its wholly-owned affiliate, to the U. S. Post Office 'I'Irrtment, which is separated from the bank's Boulevard Office at 460 021' Cook Road by a parking lot. It is further noted that the property ,:!urded by the branch, the parking lot, and the Post Office Building, is d by the bank through its affiliate. Z The Board has previously held that a facility located on bank°%Ited Property with a 65-foot lot intervening is not a branch, but that 8__-Lnere should be any change in the ownership or use of the intervening Tree the question would require reconsideration. (Also see FRLS #3561.1.) 114,request of The Richland Trust Company involves a somewhat similar sit, ; °n, and the Board does not consider that the proposed vault facilities /70 ,4.1.d constitute a branch. While the Board of Governors does not look with favor upon the **ant._ through th-7(Iction involving the acquisition of the post Office building, wiiluankts building the that fact the of view wholly-owned affiliate, in poe be Partially used for banking purposes, no objection will be inter0 its retention. Very truly yours, Kenneth A. Kenyon, Assistant Secretary. 2890 TELEGR AM LEASED WIRE SERVICE Item No. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON October E RICKSON HAYES BOpp PULTON - BOSTON NEW YORK PHILADELPHIA CLEVELAND LEACH BRYAN ALLEN JOHNS - RICHMOND ATLANTA CHICAGO ST. LOUIS DEMING LEEDY IRONS MANGELS- 10/7/58 7, 1958 MINNEAPOLIS KANSAS CITY DALLAS SAN FRANCISCO The Board would be interested to learn the views of your bank as to Idlether a substantial volume of credit is going into the stock market 48 4 result of evasion or avoidance of Regulation U provisions. 4ecif1cally (1) whether the proceeds of loans by commercial banks secured by stocks have been used to purchase or carry registered stocks asePite the filing of a "non-purpose" statement by the borrower, and (2) wh ether the proceeds of other types of loans, such as unsecured credit lines, are also being used to finance the purchasing and ca "4r-mr --- -ng of securities. The views of your Vice President in charge Of bank examinations and your Chief Examiner on both these points would be help„, 1., Particularly their impressions concerning bank lending " Pract4 -J-ces and other recent developments in this area. The observations NUested should be furnished without consultation with commercial bank (3fricers and should be in Board's hands prior to October 15. (Signed) Kenneth A. Kenyon KENYON 4
@FedFRASER