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Minutes for October
To:
Members of the Board
From:
Office of the Secretary
7, 1964
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.
Chm. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Minutes of the Board of Governors of the Federal Reserve System
on Wednesday, October 7, 1964.
The Board met in the Board Room at
10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman 1/
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mitchell
Daane
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Broida, Assistant Secretary
Bakke, Assistant Secretary
Young, Adviser to the Board and Director,
Division of International Finance
Noyes, Adviser to the Board
Cardon, Legislative Counsel
Fauver, Assistant to the Board
Hackley, General Counsel
Brill, Director, Division of Research
and Statistics
Solomon, Director, Division of Examinations
O'Connell, Assistant General Counsel
Shay, Assistant General Counsel
Koch, Associate Director, Division of
Research and Statistics
Partee, Adviser, Division of Research
and Statistics
Dembitz, Associate Adviser, Division of
Research and Statistics
Furth, Adviser, Division of International
Finance
Conkling, Assistant Director, Division of
Bank Operations
Goodman, Assistant Director, Division of
Examinations
Smith, Assistant Director, Division of
Examinations
Leavitt, Assistant Director, Division of
Examinations
Thompson, Assistant Director, Division of
Examinations
17-Joined meeting at point indicated in minutes.
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Mrs. Semia, Technical Assistant, Office
of the Secretary
Mr. Robinson, Attorney, Legal Division
Mr. Eckert, Chief, Banking Section, Division
of Research and Statistics
Economist, Division of Research
Ettin,
Mr.
and Statistics
Mr. Collier, Assistant to the Director, Division
of Bank Operations
Mr. Donovan, Review Examiner, Division of
Examinations
Mr. Lyon, Review Examiner, Division of Examinations
Mr. Poundstone, Review Examiner, Division of
Examinations
Mr. Smith, Review Examiner, Division of
Examinations
Application of Yampa Valley Corporation (Item No. 1).
There
had been distributed a memorandum dated September 30, 1964, from the
Division of Examinations regarding the application of Yampa Valley
Corporation, Littleton, Colorado, for a determination exempting it from
all holding company affiliate requirements except those in section 23A
Of the Federal Reserve Act.
Attached to the memorandum was a draft of
letter that would express the Board's approval of the application.
The letter was approved unanimously.
A copy is attached as
Item No. 1.
International Banking Corporation (Items 2 and 3).
meetings on July 24, September 1 and 2, and October
At its
6, 1964, the Board
(liscussed what nature of reply should be made to a request by Chairman
Jftles S. Rockefeller of First National City Bank, New York, New York,
14 a letter of June 24, 1964, for amendment of the agreement under which
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First National City's subsidiary, International Banking Corporation,
Was operating pursuant to section 25 of the Federal Reserve Act.
Mr.
Rockefeller's letter had expressed a desire that the agreement be revised in such a way as to place foreign subsidiaries of International
Banking Corporation on an operating basis comparable to that of direct
foreign branches of First National City Bank.
In particular, he cited
the fact that International Banking Corporation's subsidiary, First
National City Trust Company (Bahamas) Limited, could extend a credit
line to any one borrower equal to no more than 10 per cent of the capital
and surplus of International Banking Corporation, or $1,200,000, whereas
a direct branch of First National City Bank could lend up to 10 per cent
Of the capital and surplus of the parent bank (or about
anY one borrower).
$68,600,000 to
The lending limit of First National City Trust
Company apparently was found onerous especially with respect to a loan
in United States dollars to Pegasus Fund Ltd., a Bahamian company.
After the October
6
discussion, a revised draft of reply had
been distributed that would attach an agreement amended to conform to
the September 1, 1963, revision of Regulation lc Corporations Engaged in
Foreign Banking and Financing under the Federal Reserve Act, and would
aUspend the provisions of the Board's letter of October 21, 1960, to
International Banking Corporation, in which the Board granted consent
to purchase and hold shares of First National City Trust, so far as
they related to restrictions on loans granted in the Bahamas in the
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Currency of the country.
The last paragraph of the draft reply would
take the position that no conflict with the conditions in the Board's
letter of October 21, 1960, was presented by transactions which, although
in dollars rather than the local currency of the Bahamas, were fully
secured by hypothecation of dollars on deposit in the trust company and
hence represented no credit exposure but essentially utilization of the
depositor's own funds (these were the circumstances of the Pegasus loan).
Governor Mills stated that he would approve the letter.
Governor Robertson indicated that he would dissent.
In his
view, the proposed reply was not based on sufficient information to
Provide a thorough understanding of the situation, and he believed that
the restrictions that the letter proposed to suspend had never applied.
Mr. Solomon commented that the intention was to grant exclusions
from initially-imposed conditions, similar to the exclusions that the
Board had previously allowed with respect to the operation of International Banking Corporation's subsidiaries in Liberia, South Africa,
and Canada.
Governor Daane suggested a change in language in the third
Paragraph that would bring out that intention more clearly.
With that
Change, he would approve the letter, except for the last paragraph,
which he would disapprove.
Governor Shepardson expressed acceptance of the letter, including
the last paragraph, but with the revised language suggested by Governor
Latuae as to the exclusion.
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Governor Mitchell said that, like Governor Daane, he would
approve the letter with the deletion of the last paragraph, and with
the change in language that Governor Daane had suggested regarding the
exclusion.
Chairman Martin joined the meeting at this point, and Governor
Balderston reviewed for his benefit the status of the matter under
consideration.
Governor Balderston stated that he would have been willing to
approve the letter without the last paragraph in order to avoid a tie
vote with consequent further delay in disposing of the matter.
He did
not feel strongly as to inclusion or exclusion of the last paragraph
except that, as Governor Mitchell had mentioned during yesterday's
discussion, it would seem preferable that the guidelines set by the
Board be of general application and not directed toward specific transactions.
The imminence of a tie vote being removed, however, Governor
Balderston's inclination was toward the more liberal position, which
vould be represented by inclusion of the last paragraph of the letter,
'which would hold that circumstances such as were involved in the Pegasus
loan did not conflict with the Board's letter of consent.
Governor Shepardson remarked that without the last paragraph
the letter would not be responsive to the request from Mr. Rockefeller,
vho had referred to the limitation on the Pegasus loan as a case in
Point.
It would seem that the letter should not omit reference to
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circumstances such as that loan involved, whether the Board took a
favorable or unfavorable position with regard to them.
Mr. Solomon asked that in any event the Board give some guidance
to the examining staff as to the treatment to be accorded such loans.
It vould be difficult for an examiner to give such a loan an adverse
classification, since it did not involve a risk.
After further discussion, Chairman Martin stated that he would
aPProve the letter, including the last paragraph, and with the revised
language in the third paragraph as to the exclusion.
The letter was thereupon approved in the form attached as
Item No. 21 Governors Robertson, Mitchell, and Daane dissenting.
Mr. Goodman inquired if the position reflected in the action
Just taken by the Board was to be applied to other situations of a similar
nature - notably, to the terms under which Chase Manhattan Overseas
Banking corporation (an Edge corporation subsidiary of The Chase Manhattan Bank, New York, New York) held shares of The Chase Manhattan
Trust Corporation Limited, Nassau, Bahamas.
In response, the Board indicated that the position taken was to
be applied to any similar situation.
Secretary's Note: A letter reflecting this
indication by the Board was sent to Chase
Manhattan Overseas Banking Corporation in
the form attached as Item No. 3.
Messrs. Goodman, Shay, and Poundstone then withdrew from the
meeting.
04%:1
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Application of Commercial Bancorp.
a memorandum dated August
3,
There had been distributed
1964, along with other pertinent papers,
regarding the application of Commercial Bancorp, Inc., Miami, Florida,
to become a bank holding company through acquisition of
80
per cent or
more of the voting shares of Commercial Bank of Miami and Merchants
Bank of Miami, both of Miami, Florida, and of Bank of Kendall, Kendall,
Florida.
In summary of the reasons upon which its recommendation of
approval was based, the Division of Examinations stated, among other
things, that it concurred generally in the conclusion of the Federal
Reserve Bank of Atlanta that the convenience and needs factor could be
regarded as lending little support for approval, although the Division
felt that circumstances related to that factor were not inconsistent
With approval.
In the light of the existing effective control of the
three banks by one individual, the Division did not believe that any
significant competition would be eliminated among them.
Also, after
consideration of all other factors involved, and the size of the proPosed holding company, the Division believed that approval would not
Militate against sound banking or be inimical to the public interest.
At the invitation of the Board, Mr. Smith (Review Examiner)
commented on the salient circumstances bearing upon the application,
after which Governor Mitchell, observing that there was an indication
that bank stocks owned by the principal stockholder of the three banks
Were "thought to be pledged to Florida National Bank of Miami," asked
)
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10/7/64
if
it might follow that Florida National had an interest in the pro-
posed transaction, possibly as presenting an opportunity to add the
banks to its group.
Response was made that there were no circumstances
that pointed to a possible effort by Florida National to gain control
Of the three banks.
Other questions asked by Governor Mitchell related
to the loan portfolios of the proposed subsidiary banks, to certain
loans made to directors, and to investments by the banks in shares of
savings and loan associations.
Governor Robertson also questioned the relationship between the
banks and the savings and loan associations, pointilig out that the
Chairman of one of the associations was the principal stockholder of
the three banks.
Governor Daane remarked upon the lack of a strong affirmative
14 the appraisals of the factors required to be considered; with the
findings in such mild terms as "not adverse" and "not inimical to the
Public interest," he wondered what there was to support a decision of
approval.
In response, Mr. Solomon commented that a number of cases
that came before the Board were essentially neutral, and in such a
situation the posture of the Board had been to avoid interfering with
the plans of the proponents. In all cases, of course, the proponents
asserted that public benefits would be derived from the proposal, and
It was conceivable that the Board's staff was unduly skeptical of such
claims.
In essence, the attitude of the Division of Examinations in
3423
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_9...
neutral cases was that, if nothing adverse was found even by taking the
most critical point of view, approval would be recommended.
Governor Daane observed that the memorandum seemed to suggest
that the Federal Reserve Bank of Atlanta and the Division of Examinations dismissed the claims of possible advantages.
Mr. Solomon replied
that his personal feeling was that there was some advantage in formalizing
the control under which the three banks operated.
The simplified and
more efficient holding company control, with a clearly-defined subsidiary
relationship that was easier to administer than a loose aggregation of
banks coordinated through ownership, might result in some benefits to
the public.
Mr. O'Connell pointed out that in neutral applications the
restrained phrases appraising the statutory factors were malleable;
their role in explaining a decision of approval shifted in importance
from one supporting statement to another.
He cited language used in
the past and to be used in the draft of a forthcoming statement that
illustrated his point.
Over-all, there had been and would be statements
that made some slight concession to debatable claims of public benefits,
but the Board's general position had been that such benefits were minimai or, if they were realized, would tend to inure to the advantage of
the holding company rather than of the public, and therefore they did
not constitute strong support, or afforded only slight support, for
aPproval.
34
'e
AVIt
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Chairman Martin then called upon the members of the Board for
expressions of their views, in response to which Governor Mills stated
that he would approve for the reasons cited by the Division of Examinations, and for the supplemental reasons reflected in Mr. Solomon's
remarks regarding neutral cases.
If this was looked upon as such a
case, and no reason was found to deny the wishes of the organizers of
the proposed holding company, Governor Mills believed those wishes
Should be respected.
Also, there was an advantage in the holding comThe
Pany form of organization from the bank supervisory point of view.
three intended subsidiary banks were nonmember insured banks.
While
they were thus subject to examination and supervision by the Federal
Deposit Insurance Corporation, their control by a bank holding company
vould subject them to an additional layer of Federal supervision.
He
believed that this additional supervision would be desirable in the
light of the reservations inherent in the background material, even
though not strongly expressed, regarding the principal stockholder's
Promotional tendencies and the relationships of the banks with the savings
and loan association of which he was chairman.
Moreover, with branches
Prohibited, the banking structure of Florida had turned toward group
bellking, and he would regard it as salutary if this group of banks,
though small, were brought under the Board's jurisdiction.
Governor Robertson said that he would concur with the recommendation, on the same grounds that Governor Mills had indicated.
The
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10/7/64
three banks were already tied together, and he (Governor Robertson)
did not see enough objection to require dissent.
However, he would
want to see the terms of the majority statement, in the event of approval, before he decided whether or not he wished to file a concurring
statement.
Governor Shepardson indicated that he also concurred in the
recommendation.
Governor Mitchell indicated that he would approve, since he
subscribed to the principle that, if the proposal would not be against
the public interest, the organizers should be able to consummate their
Plan.
However, he regarded the information presented as inadequate in
some respects.
He had the feeling that the granting of bank holding
Company status conveyed an element of prestige that it might later be
wished had not been conveyed.
Governors Daane and Balderston and Chairman Martin also said
that they would approve.
The application of Commercial Bancorp was thereupon approved
unanimously, it being understood that the Legal Division would draft
for the Board's consideration an order and statement reflecting this
aecision.
Messrs. O'Connell, Thompson, Leavitt, Robinson, Donovan, Lyon,
and Smith (Review Examiner) then withdrew from the meeting.
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Reserve deficiencies (Item No.
4).
The question of procedures
relating to deficiencies, or possible deficiencies, in reserves held
by the Reserve Banks against their deposit and note liabilities was
discussed by the Board on November 29 and December 2, 1963, and at a
Joint meeting of the Board with the Presidents of the Federal Reserve
Banks on December
3,
1963.
The consensus developed by these discussions
Iras that, for the time being, in addition to the adjustments that had
been made in the then recent past in the allocation of the System Open
Market
Account to avoid deficiencies on statement dates, similar "as of"
adjustments should be made on dates other than statement dates; it was
understood that the subject would be reviewed again in 1964.
There had been distributed a memorandum dated April 10, 1964,
from the Division of Bank Operations, in which the types of problems
encountered under present procedures were reviewed.
Under the present
arrangements, security holdings in the System Open Market Account were
regularly reallocated each statement date to equalize the gold certificate
reserve ratios of the Federal Reserve Banks; daily transactions paid for
through the Interdistrict Settlement Fund seriously disturbed the equilibrium achieved through the regular reallocations; and special reallocations had to be made "as of" the previous day when the disturbances were
severe enough to cause a reserve deficiency at one or more Banks.
Three
Possible alternative courses of action would be (1) to continue the weekly
reallocations, but discontinue the special intra-weekly adjustments
3427
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as of the previous day and thus let intra-weekly deficiencies occur
(this proposal had been considered and rejected at the December
3, 1963,
meeting); (2) to continue the weekly reallocations and the special
intra-weekly adjustments as of the previous day to the extent that the
latter might be necessary to avoid deficiencies (this was the procedure
now being followed); or (3) to make daily, instead of weekly, reallocations.
Although the third alternative would delay the closing of the
books each day at the various Reserve Banks, and would cause additional
Work at the Board and at the New York Bank, it appeared to afford the
best hope of avoiding deficiencies without other major changes.
Operating
details for the third alternative were set out in the memorandum.
The fact that daily reallocations of securities would have the
effect of largely reversing the results of the clearings through the
Interdistrict Settlement Fund, the memorandum continued, suggested that
an easier way of avoiding deficiencies in required reserves would be to
Prevent the clearings from disturbing the gold reserve ratios of the
individual Banks.
This could be done by settling the clearings directly
through the security holdings, instead of through the gold holdings and
then reversing the results by reallocating the securities.
If this plan were put into effect, gold certificate holdings
Would be initially distributed (by a reallocation of security holdings)
14 such a way as to provide each Bank with the best possible cushion
against its reserve requirements for note and deposit liabilities.
_1I
10/7/64
Thereafter, the gold certificate holdings of the individual Banks would
remain unchanged until gold transactions or continuing trends in note
and deposit liabilities necessitated an adjustment to reestablish equilibrium in the gold reserve ratios, which would probably not be necessary
more often than quarterly unless and until System gold holdings dropped
considerably below their present level.
The holdings of securities in
the System Open Market Account would be used for daily settlements of
interdistrict transactions.
The transition to daily settlements in
securities could be accomplished with a minimum of change in the present
Interdistrict Settlement Fund procedures.
The Reserve Banks would in-
crease or decrease their holdings of securities, instead of gold certificates, according to the daily Settlement Fund wire.
The Division
Of Bank Operations would maintain a ledger control of such holdings,
just as it now did with the Interdistrict Settlement Fund balance reflecting gold certificate holdings.
The memorandum continued with other suggested operating details,
Pointed out certain advantages the plan would have (including the fact
that there was in securities holdings a margin of $5.4 billion to take
care of fluctuations in clearings, compared with a margin of $2.4 billion
in gold holdings), suggested questions that might arise, and concluded
Irith the recommendation that the proposal be submitted to the Federal
Reserve Banks for comments.
t.44or...,
elt
4 t
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1°/7/64
There had also been distributed a memorandum dated July 24, 1964,
from Mr. Hackley regarding the legality of allocations of Government
securities in the System Open Market Account to avoid Reserve Bank reserve deficiencies.
On the basis of an extensive analysis, Mr. Hackley
expressed the opinion that (1) the law does not expressly prohibit
transfers of particular assets between Federal Reserve Banks, as provided by the present allocation procedure, in order to avoid reserve
deficiencies; on the contrary, such transfers might be regarded as a
legitimate means of achieving compliance with Reserve Bank reserve
requirements; (2) the Federal Open Market Committee has statutory authority to determine the basis upon which securities in the System
Account shall be allocated, and the basis provided in the present allocation procedure is therefore to be regarded as valid unless clearly contrarY to some provision of law; and (3) transfers of assets among the
Reserve Banks, including allocations of Government securities in the
SYstem Account, had been regarded since the earliest years of the
SYstem as an appropriate means of equalizing the reserve positions of
the Reserve Banks and avoiding reserve deficiencies; and Congress had
been aware of, and had not objected to, the System's long-established
Practice in this respect.
At the Board's invitation, Mr. Conkling commented on the proposal
that interdistrict clearings be settled through reallocation of Government
security holdings rather than of gold holdings.
3:130
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Governor Mills stated that he had taken exception to the present
procedure, and that he took even stronger exception to the proposal now
advanced, which he did not regard as straightforward accounting for
Federal Reserve Bank deficiencies in gold accounts. He believed that
accounting should follow the spirit of the law and should subject deficiencies to the penalties provided, and that if deficiencies were widespread among the twelve Reserve Banks, with a breach in the 25 per cent
reserve requirement, there should be a suspension of requirements.
In
his view, the law provided a disciplinary factor that the Board had a
responsibility to hold in regard.
Although he was not a lawyer, he
could not accept the conclusion of the Legal Division that the proposal
'would be legally permissible.
Certainly it would contravene the spirit
°f the law and would raise the same sort of criticism that had been
brought against the System for not seeking Congressional approval for
a franchise tax but instead being a party to what he regarded as almost
4
subterfuge, namely, paying interest on Federal Reserve notes as a
vehicle for transferring Federal Reserve Bank earnings into the Treasury.
As he saw it, the present proposal had the same quality of subterfuge
and vas not becoming to a body such as the Board.
Governor Robertson expressed himself in favor of sending the
ProPosal to the Federal Reserve Banks for comment.
He was not sure it
Provided the right answer, but it did offer a possible simplification
°I' procedure for avoiding reserve deficiencies at individual Reserve
1/44ks so long as the System as a whole was able to meet the 25 per cent
3431
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statutory requirement.
After the views of the Reserve Bank Presidents
were obtained, the Board could consider it again.
Governor Shepardson said that he concurred generally with
Governor Robertson's view.
As Governor Shepardson saw it, from the
standpoint of conforming to the law a more or less artificial adjustment was being made at the present time.
It seemed to him that as long
as total requirements for all Reserve Banks combined were met, whatever
adjustment was necessary among the individual Reserve Banks was primarily
a matter of form.
He would be glad to hear what the Reserve Banks thought
Of the proposal suggested by the Division of Bank Operations.
Governor Mitchell commented that he thought the proposed procedure probably would be better than the one now in use.
While he had
a great deal of sympathy with the exceptions taken by Governor Mills
and would prefer that, rather than prevent deficiencies, they be allowed to occur with consequent assessment of penalties, he was in favor
Of asking the views of the Presidents regarding the new proposal.
Governor Daane said that he saw no harm in asking the Presidents
for their views.
Governor Balderston stated that, while Governor Mills had raised
4
good point, as the System now functioned in world affairs he (Governor
Balderston) believed that both at home and abroad people looked upon
the System as the central banking system of the country - a single unit
rather than a group of individual Reserve Banks.
If the really essential
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10/7/64
thing at the moment was that the dollar be protected, and that the
Possible breaching of the 25 per cent gold cover be regarded as a problem for the System rather than just for one of its constituent parts, then
it would be well at least to explore alternative procedures for applying
the requirement to the over-all System.
He would favor sending the
Proposal to the Reserve Bank Presidents for comment.
Chairman Martin remarked that, while he could argue both sides
of the question, he thought it would be helpful to hear the reaction of
the Presidents.
In his view, all of the members of the Board would
have to give deep thought to this problem, and it would be well to get
the Presidents' views before any final conclusion was reached.
Pursuant to the majority view expressed during the foregoing
discussion, a letter was sent to the Federal Reserve Bank Presidents on
October 16, 1964, in the form attached as Item No. 4, transmitting for
their comments the memoranda dated April 10, 1964, from the Division of
13ank Operations and dated July 24, 1964, from the Legal Division.
In
taking this action the Board noted Governor Mills' objections in principle to any procedure for applying the statutory reserve requirement
tcl all Reserve Banks combined rather than to individual Banks, as contemplated in the Federal Reserve Act.
Mr. Smith then withdrew from the meeting.
Frequency of Open Market Committee meetings.
There had been
distributed a memorandum dated July 24, 1964, in which Mr. Brill discussed
olft
.foLowi_IL-A3#
lo/7/64
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a suggestion made by President Hayes of the Federal Reserve Bank of
New York that the meetings of the Federal Open Market Committee be held
monthly rather than at three-week intervals as at present.
Attached to
the memorandum were schedules showing how the meeting dates would fall
in 1965 according to various guides for placement within the month; all
of these schedules resulted in a four-week interval between meetings
about two-thirds of the time and a five-week interval for the remainder
Of the time.
Also attached to the memorandum was a chart showing the
times during the month when various statistics became available.
On
balance, it appeared that meetings after the third week of the month
would have available more major series than would earlier meetings.
However, whenever in the month meetings were held, the staff would be
Obliged to estimate the current economic situation, and while availability
Of statistics thus might argue to some extent for a shift in meeting
dates, it was not an overpowering reason.
The memorandum also discussed
the argument that a monthly meeting would mesh better with Treasury
financing in that it would reduce the number of occasions when the ComMittee would be locked in to an even-keel position.
However, since a
ebange in the number of meetings would nLt change the number of weeks
for which the Committee would be locked in, that argument was valid
041Y if it was deemed undesirable to write a split directive, i.e.,
°Ile specifying a change in policy to become effective during an intermeeting period, say, after Treasury financing was completed.
If split
343di
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directives were not desirable, the whole concept of extending the time
Period, between meetings was brought into question; the longer the interval
between meetings, the greater the importance of recognizing the possibility of a need for a shift in policy between meetings.
After weighing
Other considerations relating to a possible change in the pattern of
meeting dates, Mr. Brill concluded his memorandum by expressing the
view that the only indisputable argument was wear and tear on personnel
for frequent meetings, especially on those persons who had to travel
great distances.
In introductory comments made at the invitation of the Board
Mr. Brill said that in his opinion the advantages claimed for a monthly
meeting schedule tended to be overstated in terms of availability of
statistics and burden on the staff.
Superficially, the idea of moving
fl'om 17 or 18 to 12 meetings a year was attractive to a staff that had
a heavy work-load; but there would be four periods a year when the
interval would be five weeks, and since interim statistics would probably
then be desired, the staff burden would not be greatly decreased.
Per-
haps the physical tax on Reserve Bank personnel, especially those who
haa to
make long trips, might be a more important consideration.
Governor Mitchell commented on the recent study of the directive
(If the Federal Open Market Committee.
In connection with that study,
ecInsideration had been given to the day of the week on which meetings
were to
be held.
The conclusion had been that Tuesday, when meetings
10/7/64
were now held, was the best day.
In the course of these discussions
Governor Mitchell had come to a strong view that it was unfortunate to
have a Committee meeting on a Tuesday that followed a holiday on Friday
or Monday; there was then insufficient time to get statistics and other
information into the hands of participants.
Governor Daane emphasized the importance of the physical burden
Of travel.
This was a problem he had lived with, and had found it a
difficult one, even though he had had to contend only with the relIf meetings were
atively short distance from Richmond to Washington.
spaced farther apart, the wear and tear of travel would be somewhat
reduced.
Chairman Martin agreed that the burden of travel was an important
consideration.
Over-all, his view was that there should be as many
meetings as could be used profitably, but no more than that.
The bringing
together of participants from all over the country provided a valuable
liaison that could not be achieved in any other way.
He still leaned to
the view that a schedule of meetings every three weeks was about as close
to the maximum of efficiency as could be obtained.
He regarded Governor
ktchell's point about holidays as extremely good.
Also, it was desir-
able to
arrange the schedule for the entire year, with any changes in
Pattern that were agreed upon, at the beginning of the year so that
Participants could frame their other plans accordingly as far as possible.
10/7/64
-22Governor Mills indicated that he had no strong preference, but,
marginally, would lean to the three-week interval.
Governor Robertson remarked that he was not persuaded that the
three-week interval was not the best choice.
Governor Shepardson commented on the desirability of projecting
for the coming year the pattern decided upon, with any adjustments necessary, such as for holidays.
He believed that relative frequency of
meetings was desirable, and that there was not a persuasive argument for
changing the present three-week interval.
Governor Balderston concurred with Governor Mitchell's point as
to holidays.
Consideration for the health of the participants, men-
tioned by Governor Daane, might weigh in favor of President Hayes'
suggestion for monthly meetings, and another favorable argument for
that suggestion was the possibility that a four-week interval might
enable the staff of both the Board and the Reserve Banks to do a more
t
horough job on background material.
A consideration against the sugges-
t1011, Governor Balderston believed, was the fact that these times were
full of problems.
It had occurred to him that there might be a compromise
between a schedule of 12 meetings and one of 17 that would also take
account of the problem of holidays.
At some times during the year meet-
even three weeks were timely, but at holiday seasons the pace of
the economy and the work of the System slowed somewhat. If meetings
were set
at three-week intervals as a general rule, but when a holiday
10/7/64
-23-
occurred the ensuing meeting not be merely set back within the same
week but postponed to the following week, the result 'would be to reduce
somewhat the total number of meetings.
Governor Daane expressed agreement with Chairman Martin's
remark relating to the benefits of personal assemblage; it provided
a synthesizing force that strengthened the System.
However, Governor
Balderston had made a discerning observation that there were times
When it was known in advance that a meeting would be relatively pro
forma, while at others banking and credit developments were such that
meetings more frequent than every three weeks would be useful.
Governor
Daane suggested that as an experiment a schedule might be set up for
six months on the basis outlined by Governor Balderston.
Governor Mills commented that if a monthly schedule were adopted,
there would be no reason why an intervening meeting might not be called,
except that the public - the financial press in particular - was accustomed to three-week intervals.
If a monthly schedule was adopted and
then it was found desirable to hold an interim meeting, the press would
'
lalae questions as to what the emergency was and the market might be
disturbed.
During further discussion the possibility of future resort to
closed circuit television for meetings was mentioned, and comments were
14ade on
the present stage of technological developments and the extent
to
Which that medium was being adopted as a means of business communication.
t-rt
3442
s
10/7/64
-2i-
Problems relating to particular dates for meetings were cited, and
references were made to the extent to which added distance increased
flight time and other travel burdens.
At the conclusion of the discussion the staff was requested
to prepare for the Board's consideration a schedule of meeting dates
during 1965 based primarily on three-week intervals between meetings,
but with adjustments reflecting the suggestions made during today's
meeting.
Mr. Axilrod, Chief, Government Finance Section, Division of
Research and Statistics, then joined the meeting.
Reserve requirements.
There had been distributed memoranda
from Mr. Brill dated September 21 and October
6, 1964, presenting var-
i°us information and statistical projections bearing on the question
Whether 1964 seasonal reserve needs should be met through open market
°Perations, or whether at least a part of the needed reserves should
be provided by reducing member bank reserve requirements. The question
as explored
from the points of view of impact on bank portfolios, the
reasu,y bill market, alternative forms of reserve requirement reducti°4s, related problems of gold reserve requirements, profitability
Of member
banks, the possibility that reserve requirement legislation
Zight be proposed, operating problems, application of any reduction
that might be made in requirements to the deposit structure, and the
tlIning and magnitude of reserve needs.
,
10/7/64
-25During the course of discussion, which,it was emphasized, was
not intended to lead to any action at today's meeting, Governors
Balderston, Mills, and Robertson read prepared statements of their
views, copies of which have been placed in the Board's files.
The scope
of comments extended to appraisals of reserve requirements as the choice
of instruments to be employed, the incidence of effects of employing
that instrument, practical realities as contrasted with ideal measures,
Possible alternatives in the area of fiscal rather than monetary policy,
the magnitude of the gold problem as an element in the decision to be
made, the use of reserve requirement action from the standpoint of possible needed revision of the Board's statutory powers, considerations
°f public psychology, probable stresses in the money supply, and the
timing of any action that might be taken.
At the conclusion of the discussion Chairman Martin asked that
copies of the statements read by Governors Balderston, Mills, and
Robertson be furnished to the other members of the Board.
Mr. Noyes asked if there would be any objection to apprising
Reserve Bank economists of the tenor of the Board's thinking, in order
thatthey might assemble information that would make coming discussions
15 the Board with the Reserve Bank Presidents more fruitful.
The re-
sPonse indicated a general view that information relating to the discussion should be confined to the Board and its staff for the time being.
The meeting then adjourned.
3440
10/7 64
-26Secretary's Note: Governor Shepardson
today approved on behalf of the Board
memoranda recommending acceptance of
the resignations of the following persons on the Board's staff, effective
the dates indicated:
Thomas J. Farmer, Cafeteria Laborer, Division of Administrative
Services, effective at the close of business October 9, 1964.
Gretchen Walrath, Clerk-Stenographer, Division of Research and
Statistics, effective at the close of business October 21, 1964.
Catherine ZaMbri, Clerk-Stenographer, Division of Research and
Statistics, effective at the close of business October 21, 1964.
BOARD OF GOVERNORS
.....
0.00VG01,*.
•
.o
o%
Item No. 1
10/7/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 71 1964
Mr. R. E. Johnson, President,
Yampa Valley Corporation,
Littleton,
Colorado.
Dear Mr. Johnson:
This refers to the request contained in your letter of
September 21, 1964, submitted through the Federal Reserve Bank of
I.5ansas City, for a determination by the Board of Governors of the
Federal Reserve System as to the status of Yampa Valley Corporation,
as a holding company affiliate.
From the information presented, the Board understands
that the object and purpose of Yampa Valley Corporation are activities pertinent or appertaining to the insurance, banking, real
estate, and construction business; that it is a holding company
affiliate by reason of the fact that it owns 1,233 (61.7 per cent)
of the
2,000 outstanding shares of stock of The Moffat County State
Bank,
Craig, Colorado; and that it does not, directly or indirectly,
?wn or control any stock of, or manage or control, any other banking institution.
In view of these facts, the Board has determined that
Yampa
Valley Corporation is not engaged, directly or indirectly,
ia_8 a business in holding the stock of, or managing or controlling
1.7nks, banking associations, savings banks, or trust companies
(;thin the meaning of section 2(c) of the Banking Act of 1933
•
U.S.C. 221a); and, accordingly, it is not deemed to be a holdtIlsg company affiliate except for the purposes of section 23A of
tr Federal Reserve Act and does not need a voting permit from
ue Board of Governors in order to vote the bank stock which it
Owns.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. R. E. Johnson
-2-
If, however, the facts should at any time indicate that
Yampa Valley Corporation might be deemed to be so engaged, this
matter should again be submitted to the Board. The Board reserves
the right to rescind this determination and make further determination of this matter at any time on the basis of the then existing
facts, including additional acquisitions of bank stocks even though
not constituting control.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
,
R .1f1
111
1
3
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 2
10/7/64
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
October 7, 1964.
Mr, James S. Rockefeller,
Chairman,
First National City Bank,
399 Park Avenue,
New York, New York.
Dear Mr. Rockefeller:
This refers to your letter of June 24, 1964 to Chairman
Martin regarding the review of the Agreement under which your
subsidiary, International Banking Corporation ("IBC"), is operating
pursuant to Section 25 of the Federal Reserve Act.
Regulation K, as revised effective September 1, 1963,
Provides in Section 211.10, "Corporations with Agreements under
Section 25 of the Act," that no Corporation having such an agreement shall purchase or hold any asset or otherwise exercise any
Power in the United States or abroad in any manner not permissible
for a Corporation (organized and operating under Section 25(a) of
the Federal Reserve Act) engaged in banking. To conform to the
revised Regulation K, the outstanding Agreement (as amended through
read
December 6, 1955) is hereby amended, effective immediately, to
as shown in Attachment A to this letter.
Your letter of June 24 also related to conditions set
forth in Board letters granting consent to IBC to acquire shares of
letter.
the various foreign banks and trust companies named in your
so
conditions
The Board has granted certain exceptions from those
respecthe
of
currency
far as they relate to loans made in the local
tive countries (Liberia, South Africa, and Canada) where neither
IBC nor First National City Bank had any branch. No such exception
was made by the Board's letter of October 21, 1960, granting consent
for IBC to purchase and hold shares of First National City Trust
a
Company (Bahamas) Limited, as First National City Bank operates
is
kind
this
of
direct branch in Nassau. However, an exception
of
granted in respect to the provisions of the Board's letter
loans
on
ns
restrictio
October 21, 1960, so far as they relate to
country.
the
granted in the Bahamas in the currency of
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
3444
. James S. Rockefeller
A related matter involves transactions which, although
in dollars rather than the local currency of the Bahamas, were
fully secured by hypothecation of dollars on deposit in the Trust
Company and hence represented no credit exposure but essentially
Utilization of the depositor's own funds. In the circumstances,
the Board is of the opinion that the transactions do not conflict
With the conditions in the Board's letter of October 21, 1960.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
Enclosure:
Attachment A.
41fr
ATTACHMENT A
11
REGULATIONS (AS AMENDED THROUGH OCTOBER 7, 1964)
APPLICABLE TO INTERNATIONAL BANKING CORPORATION
UNDER SECTION 25 OF THE FEDERAL RESERVE ACT
System
Prescribed by the Board of Governors of the Federal Reserve
Governors
In consideration of the granting by the Board of
provisions
of the Federal Reserve System (the "Board"), under the
pursuant
of Section 25 of the Federal Reserve Act (the "Act") and
to an application heretofore filed with the Board by First
to acquire
National City Bank, New York; New York, of permission
(the
and hold stock of International Banking Corporation
the provisions
"Corporation"), the Corporation, in accordance with
agrees with
of said Section 25 of the Act, hereby undertakes and
(except as to
the Board that it shall comply in all respects
Section 25(a)
organizational procedure) with the requirements of
engaged in
of the Act and Regulation K as if organized and
banking thereunder.
BOARD OF GOVERNORS
Item No.
3
10/7/64
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
November 5, 1964.
Chase Manhattan Overseas Banking Corporation,
One Chase Manhattan Plaza,
New York, New York. 10005
Gentlemen:
Reference is made to the Board's letter of December 16,
1960, to The Chase Manhattan Bank ("CMB") granting permission for
Chase Manhattan Overseas Corporation ("CMOC") to purchase and hold
the stock of The Chase Manhattan Trust Corporation Limited, Nassau,
Bahamas.
In a recent similar situation, the Board excepted, from
the conditions on which its consent to an investment was made,
loans granted in the particular foreign country involved in the
currency of that country. This had been done also with respect
to Banco Hipotecario Lar Brasileiro, S. A., and Banco Mercantil y
Agricola by the Board's letters to CMB of February 14, 1962, and
2, 1962, respectively.
Accordingly, an exception of this kind is granted with
respect to the provisions of the Board's letter of December 16,
1960, by amending that letter to include at the end thereof the
f°110wing additional paragraph:
"Subject to continuing observation and review, the
Board suspends until further notice the provisions of subparagraph (1) of the fourth paragraph of this letter, so
far as they relate to restrictions on loans granted by
The Chase Manhattan Trust Corporation Limited in the
Bahamas in the currency of that country."
Very truly yours,
(signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
0(N COvi •
Cr •
FEDERAL RESERVE SYSTEM
0'01
Item No. L.
10/7/64
WASHINGTON, O. C. 20551
w*
ADDRESS OFFICIAL CORRESPONDENCE
TO 1. 1-1E BOARD
.tAL RE.g.s- ••
•I
October 16, 1964.
Dear Sir:
ts on
At the joint meeting of the Board and the Presiden
for
es
December 3, 1963, there was a discussion of the procedur
The
allocating securities in the System Open Market Account.
dewas
it
d iscussion included particularly the question whether
the
e
objectiv
sirable as a matter of System policy to have as an
Reserve
al
avoidance of deficiencies in the reserves of any individu
Bank, so long as rlombined System gold certificate reserves exceeded
the statutory miLimum of 25 per cent. The alternative, of course,
would be a procedure under which an individual Reserve Bank might
incur a deficiency and pay penalty taxes for such deficiency in
dated July 30,
accordance with Board letter S-865, F.R.L.S. 5883,
the 25
1945, even though the zombined System reserves exceeded
Per cent minimum.
a memorandum
The Board's Division of Bank Operations prepared
for cond
suggeste
under date of April 10, 1964, in which there was
Interthe
s ideration a procedure for settling of clearings through
instead
,
district Settlement Fund directly through security holdings
of through gold holdings. In accordance with the Board's request, a
to each Reserve
i esPY of that memoranddm is being transmitted herewith
that
comments
"Ilk President. The Board will appreciate receiving
ity
feasibil
Your Bank may have with respect to the desirability and
will
Board
Of a plan such as that envisaged in the memorandum. The
also appreciate receiving your views on whether, as a matter of
be directed toward avoiding a
m policy, actions should
dYstam
;
as
in reserves at any individual Reserve Bank no long
meet
all Banks combined may have sufficient gold certificates to
uhe statutory requirement.
For your information there is also enclosed a memorandum
Prepared by the Board's General Counsel under date of July 24, 1964,
commenting on the legal aspects of the use of a procedure for
allocating securities in the System Open Market Account which would
have as its objective the avoidance of a deficiency at any individual
Reserve Bank so long as the reserve ratio for the twelve Federal
Reserve Banks combined equaled or exceeded 25 per cent.
Very truly yours,
Merritt Sherman,
Secretary.
Enclosures
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
@FedFRASER