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Minutes for To: Members of the Board From: Office of the Secretary October 7 1963 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, yourinitials will indicate only that you have seen the minutes. Chm. Martin Gov. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell 3442 Minutes of the Board of Governors of the Federal Reserve System on Monday, October 7, 1963. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Balderston, Vice Chairman Mills Robertson Shepardson Mitchell Sherman, Secretary Kenyon, Assistant Secretary Molony, Assistant to the Board Fauver, Assistant to the Board Hackley, General Counsel Noyes, Director, Division of Research and Statistics Mr. Farrell, Director, Division of Bank Operations Mr. Solomon, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. Holland, Adviser, Division of Research and Statistics Mr. Conkling, Assistant Director, Division of Bank Operations Mr. Daniels, Assistant Director, Division of Bank Operations Mr. Kiley, Assistant Director, Division of Bank Operations Mr. Smith, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Mattras, General Assistant, Office of the Secretary Mr. Veenstra, Chief, Call Report Section, Division of Bank Operations Mr. Mr. Mr. Mr. Mr. Mr. Circulated items, The following items, copies of which are a ttached to these minutes under the respective item numbers indicated, 'were approved unanimously: 10/7/63 -2Item No. Letter to the Comptroller of the Currency amending the order for the printing of Federal Reserve notes during the fiscal year 1964 that was transmitted in the Board's letter of June 28, 1963. 1 Letter to The Twin Vs11ey Bank, West Alexandria, Ohio, approving the establishment of a branch in Gratis. 2 Letter to the Federal Deposit Insurance Corporation regarding the application of Wharton Bank and Trust . Company) Wharton, Texas, for continuation of deposit insurance after withdrawal from membership in the Federal Reserve System. 3 Letter to the Federal Reserve Bank of San Francisco regarding the question whether the Bank should maintain Government securities rather than cash in satisfaction of its obligation under State employment securitY laws entailed by the Bank's establishment of a self_insured plan to provide disability and hospital benefits for its employees. 4 In connection with Item No. 1, it was noted that originally the Treasury did not expect to issue $1 Federal Reserve notes until the fiscal year 1965, but that it was now expected that such notes would be issued in the latter part of fiscal 1964. was The printing order therefore being revised to call for the printing of about million of notes of the $1 denomination. $600 The change in plans was thought to be desirable from a production standpoint, but to relieve the immediate strain on gold reserves that would result from the issuance of this amount of Federal Reserve notes, the Treasury proposed to issue $725 million worth of $5 silver certificates in substitution for an equal amount of $5 Federal Reserve notes. This procedure also would ease the sorting problem at the Federal Reserve Banks. 3444 10/7/63 -3Also in connection with Item No. 1, there had been raised with the staff informally certain questions regarding distribution of the initial Federal Reserve notes of the $1 denomination. After discussion, it was the view of the Board that any such questions should be addressed to the Board by letter for determination. Mr. Daniels then withdrew from the meeting. Window dressing (Items 5 and 6). There had been distributed a memorandum from Governor Robertson dated October 2, 1963, regarding the matter of window dressing by commercial banks, in which connection there had also been distributed drafts of letters to the Presidents of all Federal Reserve Banks, the Federal Deposit Insurance Corporation, and the Comptroller of the Currency. In addition, there had been distributed a memorandum from the Division of Bank Operations dated October 4, 1963, which suggested the apparent extent of window dressing at the end of 1962 by the 200 largest commercial banks in the United States. Governor e of the Robertson's memorandum proposed that in order to take advantag Publicity occasioned by the recent hearing of the Legal and Monetary Affairs Subcommittee of the House Committee on Government Operations with respect to the practice of window dressing, a copy of the testimony the Committee on behalf of the that he (Governor Robertson) presented to Board be sent to the President of each Federal Reserve Bank with the request that the Reserve Bank call in the top officers of all banks In the in District (both State and national) that were engaging 4 10/7/63 the :practice practice, for the purpose of discussing the whole issue and urging immediate cessation of the practice. In preliminary discussion, it was noted that the draft letters to the Comptroller of the Currency and the Federal Deposit Insurance Corporation, which would request the cooperation of those offices in this effort, would be sent prior to the transmittal of the proposed letter to the Reserve Bank Presidents. It was also noted that the PUblication of Governor Robertson's statement in the Federal Reserve Bulletin would be automatic. Governor Robertson expressed the view that it would be desirable to seek the cooperation of the Comptroller and the Corporation, with the sending of the proposed letter to the Reserve Banks to be delayed until it could be determined whether the effort might be made on a joint agency basis. the He noted that the Board might wish to discuss the matter with Presidents of the Reserve Banks at the time of the next meeting of the Open Market Committee. In any event, however, he felt that it was important to follow up promptly on the matter in light of the position taken before the Legal and Monetary Affairs Subcommittee, but the only decision required this morning was whether to send the proposed letters to the other two Federal bank supervisory agencies. Governor Mills concurred in the view that the Board should move Pr°mPtlY on this matter. He felt that Governor Robertson's testimony 10/7/63 -5- before the Subcommittee had been so specific in suggesting the use of moral suasion as a means of solving this problem that it was important to follow through. Governor Shepardson expressed the view that the Federal Reserve Should not delay too long in carrying out some action along the lines proposed. He raised a question as to whether the proposed coordination of action with the other banking agencies might not result in delay. In discussion of this point, Governor Robertson said that he would expect replies quite promptly from the other agencies since there was general agreement that a problem existed. cooperation appeared to be possible. This was a situation where If cooperation was not forthcoming, however, a unilateral approach could be considered. Governor Mitchell raised a question, on the basis of the data supplied by the Division of Bank Operations, regarding the deposit increase of two large New York City banks from the December 28, 1962, call date to year end, and response was made in terms of this probably being at tributable to incorporation in the year-end voluntary statements of the assets and liabilities of foreign branches of such banks, which were required to be excluded from official condition reports. Governor Mitchell then expressed the view that the information from the Division of Bank Operations implied a more widespread pattern Of window dressing than actually existed. He believed that the best knowledge on this matter existed at the Federal Reserve Banks. It 344`",', 10/7/63 -6- would be his inclination to ask the Reserve Bank Presidents to do what they could by way of moral suasion in the relatively small number of cases that in his opinion probably deserved serious attention. In line With this thinking, he questioned the need for a procedure involving joint action with the other bank supervisory agencies. Governor Mills noted that all three of the Federal banking agencies were in agreement as to the undesirability of this practice, under which the positions of some banks were not reflected properly in voluntarily published reports. It seemed proper to him to have meetings at the Reserve Bnnks in the respective districts to ask the important commercial banks, particularly, to assume leadership in eliminating the practice. He had always sensed that the real evil lay in the practice of a round-robin exchange of interbank deposits. The supervisory agencies could hardly ask the banks to request their important commercial customers not to build up their deposits at the end of the year, or to hurry up their deposits, but interbank deposits were purely a method of pumping up deposit totals that should be discouraged and eliminated. The practice of window dressing had now come to the attention of the Congress, which lent support to Governor Robertson's proposal in terms of getting cooperation from the commercial banks concerned. Their cooperation was more likely to be forthcoming at this time than if the matter drifted along. Governor Robertson again expressed the view that it was important to try to obtain interagency cooperation. He thought that such cooperation 344 10/7/63 could be obtained in this instance, and fairly rapidly. He agreed that meetings with commercial banks should be scheduled only to the extent that appeared necessary on the basis of the best information available to the Reserve Banks and regional representatives of the other two Federal banking agencies. If those banks around the country that set the standard could be dissuaded from following the practice of window dressing, he felt that the whole problem would disappear. After further discussion, Governor Mitchell indicated that he would go along with the proposed procedure if favored by the other members of the Board. In making this an interagency effort, however, he felt there might be set up machinery that would be more massive than necessary to deal with the relatively small number of banks that he thought were importantly involved. In light of a suggestion, it was agreed that the letters to the Comptroller and the Corporation should be revised to suggest that joint meetings be held by representatives of the Federal Reserve Banks with regional representatives of the Comptroller's Office and the Corporation to exchange views on the extent of window dressing, after which meetings with individual banks might be set up to such extent as seemed d esirable. The Board then approved unanimously the letters to the Comptroller of the Currency and the Federal Deposit Insurance Corporation with 10/7/63 -8- the understanding that they would be revised as agreed upon at this meeting. It was understood that no action would be taken on the sending of a letter to the Federal Reserve Banks until replies from the other Federal banking agencies were received and appraised. Copies of the letters sent to the Comptroller and the Corporation are attached to these minutes as Items 5 and 6. Messrs. Holland, Conkling, and Veenstra then withdrew from the meeting. Coin sorting operations (Item No. 7). There had been circulated a draft of telegram to all Federal Reserve Banks with regard to coin o perations. The sending of the telegram had been suggested in view of the discovery of collusive activity among coin sorters and custodians at the Los Angeles Branch of the San Francisco Reserve Bank in screening out silver dollars for sale at premium values in numismatic circles. The tel. egram would suggest that the Reserve Banks review their coin operations with a view of assuring that appropriate measures were in effect to prevent any such occurrence. After discussion, the Board approved unanimously the sending of the telegram, a copy of which is attached as Item No. 7. Messrs. Hexter and Leavitt then withdrew from the meeting. System film. Governor Balderston recalled having advised the B°4rd previously that Mr. Javier Marquez, Director of the Center for Latin American Monetary Studies, had indicated an interest in obtaining * 450 10/7/63 -9- a Spanish sound track version of the System motion picture, "Money on the Move--The Federal Reserve Today." In subsequent consideration of this matter, the suggestion had been made that it would be desirable for the System to produce the Spanish version itself to afford assurance that the work would be done in a professional and accurate manner. Ac- cordingl—, Y certain steps toward that end had been taken. During further discussion, there was general agreement that the staff should present a copy of the Spanish-language version of the film to the Center for Latin American Monetary Studies after its showing at the Seventh Meeting of Technicians of Central Banks of the American C ontinent, to be held later this month in Rio de Janeiro, Brazil. The Board then authorized the expenditure necessary to complete the technical work on the Spanish sound track version, including a corresponding increase in the 1963 budget of the Board Members' Offices, with the understanding that a copy of the Spanish-language version would be presented to the Center. The meeting then adjourned. Secretary's Note: Pursuant to recommendations contained in memoranda from appropriate individuals concerned, Governor Shepardson today approved on behalf of the Board the following actions relating to the Board's staff: Roberta Weil as Economist, Division of Research and Statistics, oli.th basic with annual salary at the rate of $6,675, effective the date entrance upon duty. :t51. 10/7/63 Salary increases -10effective October 13 1963 Name and title Division Basic annual salary To From Board Members' Office Doreen Dippre, Secretary LeRoy T. Morgan, Staff Assistant $ 8,575 11,515 $ 8,84o 11,880 4,250 4,390 8,84o Office of the Secretary Joan L. Scott, Records Clerk Beatrice Hunter, Chief, Records Section 8,575 Research and Statistics Gay Linda Eiler, Statistical Clerk Jill D. Francis, Statistical Clerk Bernard N. Freedman, Economist Evelyn M. Hurley, Economist Frank de Leeuw, Economist Alvern H. Sutherland, Chief Librarian An Pike Ulrey, Economist Helmut F. Wendel, Economist 3,925 3,820 11,88o 10,105 11,880 11,880 11,88o 11,515 4,o3o 3,925 12,245 10,42o 4,565 13,695 4,725 14,120 8,575 8,84o 4,110 4,250 3,980 4,085 12,2)45 12,2)45 12,245 11,88o International Finance Carol Sullivan, Secretary Robert F. Gemmill, Economist Examinations Irwin W. Robinson, Federal Reserve Examiner Personnel Administration SellY L. Hayes, Clerk-Stenographer Administrative Services Ruth A. Brown, Charwoman Secretflry 345? Item No. 1 10/7/63 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 7, 1963. The Honorable, The Comptroller of the Currency/ Treasury Departemnt, Washington 25, D. C. Sir: Reserve notes This refers to the order for printing Federal Board's in the transmitted during the fiscal year 1964, which was letter to you of June 28, 1963. supplemental It is respectfully requested that you place a .,(der with the Bureau of Engraving and Printing for printing 6o6,88o,000 cl. Federal Reserve notes (single units) of the 1963 Series during the go urrent fiscal year in the amounts shown below for the various Federal FeReserve Banks for printing $5 and 'at the same time revise the order shown below. amounts deral Reserve notes of the 1950 Series to the Boston Denomination Number of notes Dollar amount $1 $5 33,920,000 5,760,000 $33,920,000 28,800,000 88,960,000 New YorkS8,960,000 $1 270,000,000 54,000,000 $5 Philadelphia $1 $5 Cleveland$1 $5 Richmond Atlanta 42,240,000 8,64ol000 42,240,000 11.3,200,000oo 37,760,000 37,760,000 23,400,000 14.,680,000000 $1480,000 52,480,000 52, 27,000,000 5,400,000 $5 $1 $5 76,800,000 5,040,000 76,800,000 25,200,000 34 SYSTEM BOARD OF GOVERNORS or THE FEDERAL RESERVE The Comptroller Of the Currency 2 Denomination Number of notes Dollar amount Chicago $1 $5 105,120,000 12,520,000 105,120,000 62,600,000 St. Louis $1 $5 33,280,000 7,200,000 33,280,000 36,000,000 Minneapolis $1 $5 10,880,000 2,880,000 10,880,000 14,400,00o Kansas City $1 $5 26,880,000 2,880,000 26,880,000 14,400,00o Dallas $1 $5 28,800,000 2,880,000 28,800,000 14,400,000 San Francisco $1 $5 69,760,000 lo 080 000 69,760,000 Totals $1 $5 606,880,00o 606,880,00o 609,800,000 121,960,000 Respectfully, (Signed) Merritt Sherman Merritt Sherman, Secretary. 3454 Item No. 2 BOARD OF GOVERNORS 10/7/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE OCIARD October 7, 1963 Board of Directors, The Twin Valley Bank, West Alexandria, Ohio. Gentlemen: ThQ Board of Governors of the Federal Reserve SYstem approves the establishment of a branch by The Twin Valley Bank, West Alexandria, Ohio, in Gratis, Ohio, provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter Of November 9, 1962 (S-1846), should be followed.) 35 4 Item No. BOARD OF GOVERNORS 3 10/7/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 7, 1963. The Honorable Jesse P. Wolcott, Director, Federal Deposit Insurance Corporation, Washington, D. C. 20429. Dear Mr. Wolcott: Reference is made to your letter of September 24, 1963, concerning the application of Wharton Bank and Trust ??InPany, Wharton, Texas, for continuance of deposit insurance arter withdrawal from membership in the Federal Reserve System. No corrective programs that the Board of Governors believes should be incorporated as conditions to the continuance of deposit insurance have been urged upon or agreed to by the bank. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 3456 Item No. BOARD OF GOVERNORS 4 10/7/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 7, 1963. Mr. Eliot J. Swan, President, Federal Reserve Bank of San Francisco, San Francisco, California. 94120 Dear Mr. Swan: This refers to your letter of August 20, 1963, regarding the possibility of depositing United States Government securities - lieu of cash in order to meet the obligations of your Bank under ,1.11 Californ law and regulations of the State Department of EmployTent in connection with the self-insured plan established by your ,B,ank t0 provide for disability and hospital benefits for your ualifornia employees. In order to secure its obligation to the State T nder the plan, your Bank is required to deposit with the State Under areasurer of California security in the form of (1) cash; (2) guarntee bond issued by an admitted surety insurer; or (3) bearer bonds or guaranteed by the United States or the State of California. When een the plan became operative at the beginning of 1962, your Bank win cided against use of a guarantee bond because of the substantial premium involved, and since then you have maintained the cash d:nual ptosit which at present is in the amount of $40,000 and which you an 1-01-pate will become $50,000 on January 1, 1965. Your letter raises the question whether a deposit of Government securities would be more desirable than a deposit of cash, and you suggest that, if a substitution of Government securities 11ould be .. made, the Federal Open Market Committee be asked to consider n advisability of authorizing the purchase by, or on behalf of, the San n F rancisco Reserve Bank, or the making available to that Bank, of 0,sl_Ifficient am unt of securities to meet its obligations to the State o California in this connection. The Board is not aware of any material objection to the maintenance of a cash deposit with the Treasurer of the State of California for the purpose required, especially in the light of the relativelya small amount involved. The Board also questions whether any advantages that might result from a deposit of Government securiLles rather than cash would outweigh the procedures of a nuisance BOARD Or GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr, Eliot J. Swan -2- nature that would be involved, such as bookkeeping and accounting a rrangements and the substitution of securities from time to time. Accordingly, in the absence of additional information as to why the cash deposit is objectionable, the Board would not be disposed to suggest that the Federal Open Market Committee be asked to consider at this time the advisability of authorizing the purchase by or on behalf of your Bank of United States Government securities for the Purpose of meeting your obligations to the State. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. BOARD OF GOVERNORS Item No. 5 10/7/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25, D. C. ,;• ADDRESS OFFICIAL CORRESPEINDENCE TO THE BOARD •A`c'• .• Liu.s 0;•• •..•• October 7, 1963. ' The Honorable James J. Saxon, Comptroller of the Currency, Treasury Department, Washington 25, D. C. Dear. Mr, Saxon: bankS,In an effort to eliminate window dressing by commercial the Board suggests that joint meetings be held.by representes of the Federal Reserve Banks, your Regional Chief Examiners, and r __/!. Insurance Corporation, epresentatives of the Federal Deposit weith.the principal officers of the institutions that. have been ..gaging in the practice. If you are agreeable to this approach, Board will ask the Presidents of the Reserve Banks to contact dYour winrepresentative for the purpose of exploring the extent of individual with , a ,dressing, and thereafter set up such meetings ° nks.as may seem desirable. the . The Board is sending a similar letter to Mr. Wolcott of Pederal Deposit Insurance Corporation. Your cooperation will be appreciated. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 5‘:, 1 34 BOARD OF GOVERNORS Item No. 6 10/7/63 OF THE FEDERAL RESERVE SYSTEM WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD October 7, 1963. The Honorable Jesse P. Wolcott, Director, Federal Deposit Insurance Corporation, 20429 Washington, D. C. Dear Mr. Wolcott: In order to endeavor, through moral suasion, to eliminate window dressing by commercial banks, the Board suggests that joint meetings be held by representatives of the Federal Reserve Banks, your Supervising Examiners, and the District Chief National Bank Examiners with the principal Officers of the institutions that have been engaging in the Practice. If you are agreeable to this approach, the Board Will arrange to have the President of each Federal Reserve Bank contact your representative for the purpose of explaining the extent of window dressing, and thereafter set up such meetings with individual banks as may seem desirable. The Board is also communicating with the Comptroller of the Currency in a similar vein in the hope that his repres entatives will participate. Your cooperation will be appreciated. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 3460 AM TELEGR SERVICE Item No. LEASED WIRE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON 10/7/63 October 7, 1963 TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS The Board has been informed that at one Reserve Bank Office there recently was discovered widespread activity among coin sorters and coin custodians, including collusive silver dollars which acti011 by the custodians, in screening out circles. are traded at premium values in numismatic were substituted for the coins extracted. develop Other coins In view of this review coin the Board suggests that your Bank are in effect operations to aasure that appropriate measures that would prevent the development of such practices in your Bank. A COpy his of this wire is being sent to your General Auditor for information. (Signed) Merritt Sherman SHERMAN 7
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