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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Friday, October 8, 1954. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Mills Robertson Miller Balderston Sherman, Assistant Secretary Kenyon, Assistant Secretary Thurston, Assistant to the Board Thomas, Economic Adviser to the Board Marget, Director, Division of International Finance Mr. Dembitz, Assistant Director, Division of International Finance Mr. Tamagna, Chief, Financial Operations and Policy Section, Division of International Finance Mr. Olson, Economist, Division of International Finance Mr. Mr. Mr. Mr. Mr. The following members of the staff of the Division of Research and Statistics also were present: Young, Director Garfield, Adviser on Economic Research Williams, Assistant Director Noyes, Assistant Director Youngdah1, Assistant Director Gehman, Chief, Business Conditions Section Koch, Chief, Banking Section Weiner, Chief, National Income, Moneyflows, and Labor Section Mr. Simpson, Acting Chief, Business Finance and Capital Markets Section Mr. Wernick, Economist Mr. Wood, Economist Mr. Mr. Mr. Mr. Mr. Mr. Mr. Mr. The staff of the Division of Research and Statistics presented a review Of current business and economic developments. 10/8/54 -2Following a discussion based on this review, all of the repre- sentatives of the Division of Research and Statistics except Mr. Noyes Withdrew and Mr. Vest, General Counsel, entered the room. Chairman Martin suggested that at the meeting of the Board on M°11(11sY, October 11, 1954, Mr. Marget discuss developments in connection With the recent Federal Reserve gold loan to Banco do Brasil and that at the same meeting members of the staff of the Division of International Finance report on current international financial developments. The other Illembers of the Board agreed with these suggestions. Messrs. Marget, Dembitz, Tamagna, and Olson then withdrew from the meeting. Chairman Martin referred to Governor Szymczak's report at yesteraWs meeting of the Board regarding his telephone conversation with Mr. Cole, Administrator of the Housing and Home Finance Agency, concerning the use of conference space at Federal Reserve Banks and branches by ren-t c.-Lonal subcommittees established under the Voluntary Home Mortgage Credit l'r°gram. He then presented a letter from Mr. Cole dated October 6, 1954, requeating that fifteen regional subcommittees having their headquarters 14 Federal Reserve Bank and branch cities be permitted to meet at the Federe.' Reserve buildings in those cities periodically. In his letter, Mr. Cole stated that no aid would be asked "with regard to staff or office qUartere. Mr. Noyes stated that he had talked to Mr. Riefler, the Board's aci113°rY representative on the National Voluntary Mortgage Credit Extension 1483 108/54 -3- Committee, before the latter went on vacation, that Mr. Cole had inquired Of Mr. Riefler regarding the possibility of obtaining assistance limited to the use of facilities for meetings, and that Mr. Riefler replied that the Board had taken no action on the matter and that in his opinion Mr. Cole should restrict any request to the use of conference space at Federal Reserve Bank buildings. Following a discussion, Chairman Martin said that in view of the limited nature of the request he felt that the Federal Reserve System should accede to it. It was his view that the Federal Reserve Banks Should not be directed to comply, 'but that the Board might notify the Federal Reserve Bank Presidents that it would have no objection to their 'king space available for the subcommittee meetings if such arrangements were feasible. Thereupon, unanimous approval was given to a reply from Chairman Martin to Mr. Cole in the following form: This will acknowledge your letter of October 6 regarding arrangements for the regional subcommittees for the Voluntary Home Mortgage Credit Program to obtain the use of conference space periodically in certain of the l'ederal Reserve Banks and branches. The Board is today transmitting a copy of your letter to the Presidents of the Federal Reserve Banks and is advising the Presidents that it would have no °Nsction to their complying with your request to the extent feasible. It is noted that your regional representatives in various parts of the country will approach the Federal Reserve Bank Presidents with their requests for the use of conference space. Unanimous approval also was given to a letter to the Presidents 1484 10/8/54 of all Federal Reserve Banks in the following form: There is enclosed for your information a copy of a letter dated October 6, 1954, from Mr. Albert M. Cole, Housing and Home Finance Administrator, to Chairman Martin regarding arrangements for the regional subcommittees for the Voluntary Home Mortgage Credit Program to obtain the use of conference space periodically in certain Federal Reserve Banks and branches. There is also enclosed a copy of Chairman Martin's reply, from Which you will note that the Board would have no objection to compliance by the Federal Reserve Banks with Mr. Cole's request to the extent that it is feasible for the Reserve Banks to do so. Messrs. Thomas and Noyes then withdrew from the meeting. There were presented telegrams to the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco stating that the Board approved the establishment without change by the Federal Reserve Bank of St. Louis on October 4, by the Federal Reserve Banks of Kansas City and San Francisco on October 6, and by the other eight Federal Re- "rile Banks on October 7, 1954, of the rates of discount and purchase in their existing schedules. Following a statement by Mr. Sherman concerning the procedures on the part of the Federal Reserve Banks and the Board relative to the reestablishment of rates of discount and purchase, the telegrams were approved unanimously. In connection with the foregoing item, it was understood that in the future incoming telegrams and the proposed replies would not be circulated to the members of the Board prior to the meeting of the Board each 10/8/54 -5- Friday but that the matter would be presented for consideration at the meeting. At this point Mr. Sloan, Director, Division of Examinations, entered the room. Reference was made to the request of the Comptroller of the Curreacy for a recommendation as to whether an application to organize a national bank in Katy, Texas, should be approved. The Federal Reserve Bank of Dallas, on the basis of an investigation of the application, concluded that the proposed capital structure would be adequate, that the Msnagement would be satisfactory, but that earnings prospects were unfavorable and that, although establishment of a bank would be a convenience to the community, it seemed doubtful that a sufficient volume of business existed to support the claim that the bank was needed. In view of the over-all picture, the Federal Reserve Bank suggested that the Board recommend unfavorably to the Comptroller of the Currency. Although recognizing the borderline basis of the case, the Division of E Aaminations suggested a favorable recommendation by the Board and a dretft of letter to that effect had been prepared by the Division. In the c°11ree of circulation to the members of the Board a change in the language Balderston, and a reOf the draft was made at the suggestion of Governor vised draft of letter to the Comptroller of the Currency, Treasury Departteat, Washington, D. C., (Attention: of the this Mr. G. W. Garwood, Deputy Comptroller for consideration at Currency), reading as follows was presented meeting: 108/54 -6- Reference is made to a letter from your office dated July 261 1954, enclosing photostatic copies of an application to organize a national bank at Katy, Texas, and requesting a recommendation as to whether the application should be approved. Based upon information developed in an investigation of the application made by an examiner for the Federal Reserve Bank of Dallas, it appears that the proposed capital structure and management of the bank would be satisfactory. It also is clear that the bank would be a convenience to the inhabitants of this community, although there is doubt as to whether there is a real need for its establishment, and there is a question whether sufficient business is available to permit profitable operations. However, after considering all of the circumstances, the Board recommends approval of the application. The board's Division of Examinations will be glad to discuss this case with representatives of your office, if you so desire. Governor Balderston stated that the change in wording which he suggested had been made because the original draft might imply that the Board was recommending approval of the application almost solely on the basis of convenience to the community, and in spite of doubt as to Whether the bank would be successful. Governor Mills said that this appeared to him to be a very mar/inal situation. FOX' He went on to say that he had a great deal of sympathy Governor Vardaman's philosophy that the Board should avoid a pater- nalistic attitude in carrying out its functions in the field of bank super181011, and that where, as in this case, a group of responsible persons willing to supply adequate capital to enter the banking business, he felt that they should be encouraged. However, the banking opportunities in the community seemed doubtful enough to raise a question whether the Board 8h°uld encourage the Comptroller of the Currency to grant the requested charter. 4 .4 1.2-3C.(.3 10/8/54 -7Governor Miller referred to the difficulties experiencedby many small banking institutions in the 1930s and, after noting the considerable doubt expressed bythe Federal Reserve Bank of Dallas, said that in his Pinion the Board should look very carefully at cases of this kind. In explaining the decision of the Division of Examinations to suggest a favorable recommendation, Mr. Sloan referred to the substantial amount of business of a Houston bank coming from the Katy area and pointed out that the proposed stockholders of the national bank were persons of cons iderable means. He noted that the community appeared to he a pros- Perous one and said that if the proposed stockholders alone gave their business to the local bank, it probably could operate successfully. Governor Robertson brought out that much of the difficulty in the 1930s resulted from communities being over-banked, a circumstance which would not prevail in this case since there was no other bank in the cornHe also mentioned the resources of the organizers and proposed atockholders and the fact that banking services were not available on a c°nvenient basis. He further noted that no other institution would be Jeopardized by the establishment of the national bank although some outc)f-t°14n banks would, of course, lose some deposits. While he recognized that the over-all situation made this a borderline case, it was his view that ill a case of this kind the Board should lean toward supporting people willto put up the necessary capital. After a further discussion of the facts, during which reference was Made to the distance from Katy to the nearest banking offices, Chairman 1488 10/8/54 -8- Martin made a statement in which, after referring to the problems posed by the Board's regulatory responsibilities, he said that as a general rule he would resolve doubtful cases in favor of allowing people to enter the banking business if they desired and if they were financially responsible. Following further discussion, during which the members of the Board who had raised questions stated that they had no strong objection to the proposed recommendation and merely wanted full consideration in view of the marginal nature of this case, the letter to the Comptroller of the Currency was approved in the form set forth above. The following matters were presented and action taken as indicated: Letter to the Board of Directors, Chemical bank & Trust Company, v New York, New York, reading as follows: Pursuant to your request submitted through the Federal Reserve Bank of New York, the board of Governors approves the operation of branches by the Chemical Bank & Trust ComPanY, New York, New York, at the following locations: borough of ManhattanNorthwest Corner of William and Beaver Streets West Side of Lafayette Street, Corners of Astor Place and East 8th Street 1146 St. Nicholas Avenue Southwest Corner of Broadway and Spring Street Northeast Corner of Canal and Varick Streets 196-198 Park Row and 200-202 Worth Street Northeast Corner of Columbus Avenue and 81st Street 155-157 East 42nd Street 375 Grand Street 1242 Second Avenue 124-126 East 86th Street Northwest Corner of Avenue D and East 10th Street Northwest Corner of Fifth Avenue and 20th Street 1724/28 Broadway 303 West 42nd Street and 669 Eighth Avenue Northwest Corner of Fourth Avenue and 29th Street .1489 10/8/54 -9- 49/53 Fulton Street 1-3 East 42nd Street 102/106 West 126th Street and 311 Lenox Avenue 101-103 West 72nd Street and 260/268 Columbus Avenue Northwest Corner of Lexington Avenue and 60th Street 1934-36 Broadway 3205-09 Broadway, on the northwest corner of Broadway and 125th Street Northwest Corner of Park Avenue and 125th Street Northeast Corner of Broadway and 91st Street Northwest Corner of St. Nicholas Avenue and 181st Street 77/81 West 104th Street Northwest Corner of Broadway and 102nd Street 543-545 West 110th Street (Cathedral Parkway) Northwest Corner of Park Avenue and 52nd Street In the New York Terminal of the Pennsylvania Railroad Company located on Seventh Avenue between 31st and 33rd Streets Northwest Corner of Rector and Washington Streets Southeast Corner of 14th Street and Seventh Avenue Northeast Corner of 72nd Street and Lexington Avenue Southwest Corner of Grove and 4th Streets Southwest Corner of First Avenue and 57th Street Northwest Corner of Church and Dey Streets Southeast Corner of Fifth Avenue and 36th Street Southeast Corner of Broadway and 28th Street 513 West 207th Street (corner of Post Avenue and West 207th Street) Northeast Corner of Fourth Avenue and 17th Street 2900/2904 Broadway 265-267 Broadway South Side of West 143rd Street, Corners of Amsterdam Avenue and Hamilton Place Northeast Corner of Broadway and 81st Street 57-59 West 86th Street 4186 Broadway Southeast Corner of Barclay and West Streets Northwest Corner of York Avenue and East 86th Street Borough of the Bronx375 East 149th Street Northeast Corner of Jerome and Burnside Avenues 1308/12 East Gun Hill Road Northwest Corner of Fordham Road and Decatur Avenue 1490 10/8/54 -10Southwest Corner of East Kingsbridge Road and Creston Avenue 1309 Clinton Avenue Northeast Corner of 170th Street and Jerome Avenue 3741/45 Riverdale Avenue Northeast Corner of Arthur Avenue and Tremont Avenue Northwest Corner of Broadway and West 231st Street Borough of Brooklyn6629/33 Bay Parkway 188-90 Montague Street 33-35 Flatbush Avenue Southeast Corner of Manhattan Avenue and Greenpoint Avenue Southwest Corner of Myrtle Avenue and Broadway 397/401 Flatbush Avenue 79 Hamilton Avenue 725 Grand Street Borough of Queens31-05/09 30th Avenue, Astoria 103-02 Northern Boulevard 1912 Mott Avenue, Far Rockaway 40-23 Main Street, Flushing Southeast Corner of Continental Avenue and Austin Street, Forest Hills Northwest Corner of Roosevelt Avenue and 82nd Street (formerly 25th Street), Jackson Heights Southeast Corner of Archer Avenue and Sutphin Boulevard Bridge Plaza North, Corners of 29th Street (formerly Academy Street) and Hunter Avenue Northwest Corner of Jackson Avenue and Fiftieth Avenue (formerly Fourth Street), Long Island City 38-18 Broadway (Corner of Broadway and Steinway Street), Long Island City Borough of RichmondNortheast Corner of Bay and Canal Streets, Stapleton 24-26 Bay Street, St. George Provided the proposed merger with Corn Exchange Bank Trust Company, New York, New York, is effected substantially in accordance with the terms of a plan of merger dated August 26, 1954, a copy of which has been supplied to us by the Federal Reserve Bank of New York, and provided further that formal approval is obtained from the appropriate State authorities. The Board of Governors also approves the establishment Of a branch by the Chemical Bank & Trust Company at 1709-11 Broadway provided such branch is opened only after the disc ontinuance of the branch at 1724/28 Broadway. 1491 10/8/54 -11- The authority to operate the branches will extend to Chemical Corn Exchange Bank in the event that name is adopted by your institution. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Letter to the National Bank of Commerce of Gastonia, Gastonia, North Carolina, reading as follows: The Board of Governors of the Federal Reserve System has given consideration to your application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee, the exercise of such authority to be subject to the provisions of the Federal Reserve Act and the regulations of the Board of Governors of the Federal Reserve System. A formal certificate indicating the fiduciary power which the National Bank of Commerce of Gastonia is now authorized to exercise will be forwarded to you in due course. Approved unanimously, for transmittal through the Federal Reserve Bank of Richmond. Letter to the Board of Directors, Pacific State Bank, Hawthorne, California, stating that subject to conditions of membership numbered and 2 contained in the Board's Regulation H and the following special application for membership in nditi°n; the Board approves the Bank's the Federal Reserve System and for the appropriate amount of stock in the_Federal Reserve Bank of San Francisco, effective if and when the °!n .lt is authorized to commence business by the appropriate State author- L 3. At the time of admission to membership such bank shall have a paid-up and unimpaired capital stock of not less than $240,000 and other capital funds of not less than $120,000. Approved unanimously, for transmittal through the Federal Reserve Bank of Sen Francisco. 1492 10/8/54 -12- Letter to Mr. Snead, Chief Examiner, Federal Reserve Bank Richmond, reading as follows: of In accordance with the request contained in your letter of September 28, 1954, the Board approves the designation of the following named employees of your bank as special assistant examiners for the Federal Reserve Bank of Richmond for the purpose of participating in the examinations of all State member banks except The Bank of Virginia, Richmond, Virginia: Shelton G. Phaup Kenneth A. Adams E. V. Schumann Britt H. W. E. Milton Smith Franklin S. Clark Geo. E. Thompson, Jr. L. B. Gee C. L. Wiltshire, Jr. Hall B. E. W. C. Wilson Chas. H. Hall Melvin B. Nunnally James R. Woody Wilbert C. Parrish The authorizations heretofore given to your bank to designate the above named employees as special assistant examiners are hereby cancelled. Approved unanimously. eral Letter to Mr. Heflin, Vice President and General Counsel, FedReserve Bank of Richmond, reading as follows: This refers to your letter of September 2, 1954, inquiring whether under Section 22(g) of the Federal Reserve Act and the Board's Regulation 0 the liability of an executive officer of a member bank to a credit union should be reported by such officer to his board of directors. The underlying question involved in the problem you have presented is whether a credit union is a "bank" within the meaning of Section 22(g) and Section 5 of the Regulation. As you know, Section 22(g) provides that if any executive officer of a member bank becomes indebted "to any bank "her than a member bank of which he is an executive officer" he shall make a written report of such indebtedness to the hoard of directors of his own member bank. The provision t°es not require executive officers to report indebtednesses ividuals or corporations or to any financial institut? ind ion s except banks. _0 It is understood that the credit union referred to in ux letter was organized under the Federal Credit Union t (12 U.S.C.A. 1751, et seq.) which grants to credit unions L lo/8/54 -13- established thereunder power to make loans -to its members, to receive from its members payments on shares, to make certain investments, to make deposits in specified financial institutions, and to borrow money. You have expressed the view in light of the Board's interpretations regarding Morris Plan companies (1936 Bulletin 249) and Federal land banks (1938 Bulletin 571), and in light of the purposes of Section 22(g), that the credit union in question should be considered as a "bank" for the purposes of reporting requirements of that section and the Board's Regulation 0. You also referred to the Board's view that credit unions which are authorized to receive savings of their members in payment for shares of capital stock and also generally to receive such savings on deposit are to be regarded as "banks" for the purposes of Section 19 of the Federal Reserve Act (1928 Bulletin 426), At the time of the 1928 opinion just mentioned, the Board analyzed several different types of financial institutions to determine whether deposits in member banks by such institutions should be classed by member banks in computing reserves as amounts "due to" banks within the meaning of Section 19 from which "due from" banks may be deducted. Because it was determined that mutual savings banks, Morris Plan banks and credit unions (organized under State law) received deposits and made loans not only out Of capital but from deposits, the Board determined that they should be regarded as "banks" within the meaning of Section 19. In so finding, the Board made particular reference to the authority of credit unions, not only to receive savings of their members in payment for shares of capital stock, but also to the fact that they were generally authorized to receive such savings on deposit. At the same time, however, the Board was of the opinion that building and loan associations, as well as cooperative banks of the type found in Massachusetts, were not "banks" within the meaning of Section 19 since these institutions, while authorized to make loans upon the security of real estate and membership shares, do not usually receive deposits from members or others, except installment payments on membership shares. The Board considered such payments to be essentially capital rather than deposits. In determining whether a particular financial institut. tion is a "bank" for purposes of various provisions of law, `4,e Board has considered not the name of the institution 1 lo/8/54 -14- but the nature of its corporate powers and particularly whether it has authority to receive deposits. For example, in concluding that Federal land banks should be regarded as "banks" for purposes of Section 22(g), the Board specifically noted that such institutions were authorized by law to accept deposits of securities or of current funds of national farm loan associations. In this connection, the Attorney General of the United States had ruled in 1927 that joint stock land banks should be regarded as "banks" for purposes of the Clayton Act on the ground that they were authorized to receive deposits of the United States even though it appeared that this authority was not actually exercised. The Federal Credit Union Act of June 26, 1934, Which obviously was not involved in the 1928 opinion, Provides no specific authority to receive deposits from members of the union or others, although there is authority to receive from members payments on shares and such Payments, at least in a technical sense, are essentially capital and not deposits. These payments on shares are to be distinguished from payments made in installments on certificates of indebtedness issued by Morris Plan banks and Morris Plan companies which were the subject of the Board's 1936 opinion. In that connection the Board stated that the certificates of indebtedness on which installment payments were made, in effect represent deposits and serve the same purpose as certificates of deposit. The Board, therefore, considered that the Morris Plan company in question should properly be regarded as a "bank" within the meaning of Section 22(g) of the Federal Reserve Act. In view of the above, the Board has concluded that indebtedness of an executive officer of a member bank to a credit union organized under the Federal Credit Union Act Of June 26, 1934, need not be reported to the board of directors of the member bank. Approved unanimously. Letter to Mr. Hassell Bell, Division of Audits, General Accounting Offic e/ 441 G Street, N. W., Washington, D. C., reading as follows: The enclosed reports set forth the status of guaranteed loans purchased by the Federal Reserve Banks in their 108/54 -15- capacity as fiscal agents of the Departments of the Army, Navy and Air Force under the Defense Production Act of 1950. Enclosed also are statements showing the number, date and amount of Certificates of Deposit issued by the Reserve Banks to the designated disbursing officers of these departments during fiscal year 1954, together with a record of expense vouchers covering fiscal year 1954 for which the Reserve Banks received payment. This information has been obtained from the Federal Reserve Banks at the request of the Departments of the Army, Navy and Air Force in connection with an audit which the General Accounting Office is making of the guaranteed loan programs of these departments as of June 30, 1954. Approved unanimously. Reference was made to a memorandum dated October 5, 1954, from Mr. Johnson, Controller, recommending, pursuant to the request contained in an attached memorandum from Mr. Vest dated September 24, 1954, that the Board approve the Legal Division expending an excess of $600 over the amount provided in its 1954 budget for "Traveling Expenses" and an excess 4. $300 over the amount budgeted for "Telephone and Telegraph". Approved unanimously. There was presented a memorandum dated September 30, 1954, from Mr. Sherman, Assistant Secretary of the Board, recommending that the l eeignation of Catherine H. McGee, File Clerk in the Office of the ' Seerstary, be accepted effective November 30, 1954. Approved unanimously. Chairman Martin suggested that meetings of the Board be limited ordinarily to 1-1/2 or 1-3/4 hours and that, if necessary to complete the 4enda, the Board reconvene in the afternoon. 14ith the Chairman's suggestion. There was general agreement 1496 10/8/54 -16Mr. Vest stated that pursuant to the understanding at the meet- ing on October 4, 1954, arrangements had been made for representatives of Investors Management Company, Inc. and Hugh W. Long & Co. to meet With the Board at 2:30 p.m, on Monday, October 11, 1954. Minutes of actions taken by the Board of Governors of the FedReserve System on October 7, 1954, were approved unanimously. The meeting then adjourned. ABS Secretary
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