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11 609 Minutes for To: Members of the Board From: Office of the Secretary October 8, 1965 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. Robertson Gov. Balderston Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Minutes of the Board of Governors of the Federal Reserve System on Friday, October 8, 1965. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Balderston, Vice Chairman Robertson Shepardson Mitchell Maisel Sherman, Secretary Kenyon, Assistant Secretary Broida, Assistant Secretary Young, Adviser to the Board and Director, Division of International Finance Mr. Molony, Assistant to the Board Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Miss Eaton, General Assistant, Office of the Secretary Mr. Morgan, Staff Assistant, Board Members' Offices Mr. Furth, Consultant Mr. Mr. Mr. Mr. Messrs. Brill, Holland, Koch, Solomon, Williams, Axilrod, Eckert, Keir, and Ettin of the Division of Research and Statistics Messrs. Hersey, Katz, Sammons, and Baker of the Division of International Finance Money market review. Mr. Axilrod presented a review of develop- ments in the Government securities market, Mr. Ettin reviewed bank credit developments, and Mr. Baker summarized foreign exchange market developments. Tables affording perspective on the money market, the capital market, and bank reserve utilization were distributed, along with charts on the use of negotiable certificates of deposit, the latter being the subject of special analysis by Mr. Ettin. Following the foregoing presentation, Mr. Koch commented on the relationships between money market variables, other financial variables, dzlr 10/8/65 -2- and nonfinancial measures of the general economy, from the standpoint of the development of criteria for open market policy, and a general discussion ensued during which references were made to various points explored at yesterday's meeting with academic consultants. All members of the staff except Messrs. Sherman, Kenyon, Broida, Young, Molony, Hackley, Brill, Solomon (Examinations), Holland, and Sammons, and Miss Eaton then withdrew from the meeting and the following entered the room: Mr. Mr. Mr. Mr. Mr. Farrell, Director, Division of Bank Operations O'Connell, Assistant General Counsel Kiley, Assistant Director, Division of Bank Operations Thompson, Assistant Director, Division of Examinations Poundstone, Review Examiner, Division of Examinations Discount rates. The establishment without change by the fol- lowing Federal Reserve Banks on October 7, 1965, of the rates on discounts and advances in their existing schedules was approved unanimously, With the understanding that appropriate advice would be sent to the respective Banks: New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco. Circulated or distributed items. The following items, copies of which are attached to these minutes under the respective item numbers indicated, were approved unanimously: Item No. Letter to the Presidents of all Federal Reserve Banks regarding a proposed survey of Protection Departments in the Reserve Banks. 1 10/8/65 -3Item No. Order providing a further extension of time for First National Corporation, Appleton, Wisconsin, to acquire shares of First National Bank of Appleton and Valley National Bank, a proposed new bank, (both of Appleton, Wisconsin), and for Valley National Bank to be opened for business; letter to First National Corporation regarding this matter. Letter to International Banking Corporation, New York, New York, acknowledging receipt of advice that The Mercantile Bank of Canada, Montreal, Canada, intended to establish an additional branch in Canada, to be located in the City of Quebec. 2-3 4 The foregoing Item No. 1 grew out of the January 15, 1965, report of a staff committee that had been requested by the Board to consider staff assignments regarding examination and supervision of the Federal Reserve Banks. At its meeting on February 15, 1965, the Board had agreed With the committee's recommendation that the Board, after consultation With the Presidents of the Reserve Banks, engage an outside agency to make a survey of the Protection Department at each Reserve Bank office, With the objective of appraising the effectiveness of the protection function from the standpoint of security provided and in relation to the staffing and other costs involved. The Division of Examinations had subsequently ascertained that the Federal Bureau of Investigation, because of manpower problems, would not be able to undertake the project. How- ever, it had learned that a formal request addressed to the Chief of the U.S. Secret Service probably would be acted upon favorably. The proposed letter inviting the comments of the Reserve Banks had been prepared in cooperation with the Division of Bank Operations. di) 10/8/65 -4In discussion of the matter Governor Mitchell referred to differences from one Reserve Bank to another in the uses made of the guard force, including the areas of the respective Banks afforded protection by guards. These variations, which reflected management Policy, would have an effect costwise, and he felt that they deserved attention in the course of the proposed survey. It was pointed out that one part of the survey plan called for observation of deployment of the guard force, and it was agreed that the matter referred to by Governor Mitchell would be borne in mind in carrying out the survey. In connection with the request by First National Corporation, Appleton, Wisconsin, for further extension of time to acquire shares of First National Bank and Valley National Bank, both of Appleton, and for the latter to be opened for business, the staff recommended that the requests be granted but that First National Corporation be advised that the Board would not look favorably upon any further request for extensions of time. pany was involved. Governor Mitchell noted that a small holding comHe suggested the possibility of advising that the Board had granted the present request and merely adding that the Board trusted that the extensions now granted would suffice. Upon question, Mr. O'Connell indicated that evidences of management laxity had been confirmed by the Federal Reserve Bank of Chicago, which felt that an a dmonition of the type contained in the proposed letter would be appropriate. A consensus developed in favor of this alternative, and it was a.greed to send the letter as drafted. 321', -5- 10/8/65 In a discussion of Item No. 4, relating to the proposed establishment of an additional branch by Mercantile Bank of Canada, Governor Robertson commented that he thought this was an unwise thing to do, just as he had thought the original approval for International Banking Corporation to acquire Mercantile Bank was unwise, particularly when the Government of Canada had openly expressed opposition. he had voted against such approval. He recalled that But it seemed to him that this was not primarily a supervisory problem; instead it was a problem for the State Department. would go along. The State Department apparently condoned it, so he Governor Mitchell observed that in a case of this kind, involving establishment of a branch in a foreign country where a branch or branches already were located, the Board's regulation required only notification of intent to establish the additional branch. Thus, it was going a little beyond the usual even to raise a question. He saw no particular objection to checking with the State Department, as had been done in this case, but as far as the Board's rules were concerned this seemed to be permissible. Governor Maisel expressed the view that the matter turned primarily on management and political decisions, with Which he saw no reason to get involved. All members of the staff except Messrs. Sherman, Brill, Solomon, and Holland then withdrew from the meeting. Processing of merger and holding company cases (Item No. 5). Before this meeting there had been distributed a memorandum from -6- 10/8/65 Governor Shepardson dated October 6, 1965, regarding the analysis of economic factors involved in bank merger and holding company cases. A copy of the memorandum is attached as Item No. 5. Governor Shepardson summarized the contents of the memorandum, after which Messrs. Brill, Holland, and Solomon commented favorably on the proposals that had been presented by Governor Shepardson. After a general discussion of the work that had been done in the Past by the Banking Markets Unit of the Division of Research and Statistics and the implementation of the proposals for change that had been advanced by Governor Shepardson, unanimous approval was given to the latter's recommendations. The meeting then adjourned. Secretary's Notes: On October 7, 1965, Governor Shepardson approved on behalf of the Board the following items: Letter to the Federal Reserve Bank of Boston (attached Item No. 6) approving the designation of Maurice P. Shea, 3rd, as special assistant examiner. Memoranda recoultending the following actions relating to the Board's staff: Ap22 . 1421112Ela Thurman E. Council as Messenger, Division of Administrative Services, With basic annual salary at the rate of $3,385, effective the date of entrance upon duty. . Raphael L. Wallace as Messenger, Division of Administrative Services, With basic annual salary at the rate of $3,385, effective the date of entrance upon duty. -7- 10/8/65 Salary increases Name and title effective October 10 1965 Division Basic annual salary To From Board Members' Offices Doreen Dippre, Secretary to Governor Shepardson Robert I. Stewart, Messenger Henry Tate, Messenger $ 9,535 4,555 4,680 $ 9,830 4,680 4,805 6,985 6,985 7,170 7,170 9,830 8,935 10,125 9,180 6,800 7,650 14,660 6,985 7,850 15,150 13,755 6,800 11,670 12,735 8,945 7,650 13,335 6,320 17,110 10,250 10,605 14,175 6,985 12,025 13,090 9,240 7,850 13,755 6,485 17,600 10,605 10,960 8,650 17,030 8,935 8,945 17,600 9,180 Office of the Secretary Adaline R. Beeson, Records Analyst Helen E. Cook, Supervisor, Bank and Miscellaneous Records Beatrice Hunter, Chief, Records Section Mildred E. Pilger, Assistant Chief, Records Section Legal Dorothy V. Brooke, Secretary Jean Crosby, Secretary Robert S. Plotkin, Senior Attorney Research and Statistics Bernard N. Freedman, Economist Tressa B. Hemminger, Secretary Evelyn M. Hurley, Economist Lynda11 C. McCloud, Economist Watkins Leigh Ribble, Jr., Economist Harvey A. Robinson, Statistical Assistant Alvern H. Sutherland, Chief Librarian Charles G. Trescott, Library Assistant Lorman C. Trueblood, Economist Joan Lee Turek, Economist Mary C. Wing, Technical Editor (Economics) International Finance Levon H. Garabedian, Administrative Assistant Paul Gekker, Senior Economist Dorothy L. Helprin, Economist f4, -8- 10/8/65 r increases effective October 10 Name and title 1965 (continued) Division Basic annual salary From _To Bank Operations John C. Franzoni, Technical Assistant $12,735 $13,090 7,650 14,660 7,850 15,150 9,790 4,305 4,305 4,305 3,994 6,985 10,060 4,420 4,420 4,420 4,514 7,170 7,450 7,650 7,450 7,650 7,450 7,650 7,450 7,650 Personnel Administration Ruth Hadley Goodyear, Secretary John J. Hart, Assistant to the Director Administrative Services Marjorie B. Beattie, Manager, Cafeteria Ruth P. Ellis, Cafeteria Helper Ruth M. Flowers, Charwoman Edith C. Hartzell, Charwoman Bert Harvey, Chauffeur (Station Wagon) Ethelyn M. Palmer, Secretary Office of the Controller Joseph H. Hoyle, Supervisor, Payroll and Disbursing Benjamin R. Reading, Accountant Office of Defense Planning Margaret M. Wolfe, Secretary Data Processing Margaret K. Ball, Supervisor, Call Report Unit Acceptance of resiznation Guy E. Noyes, Adviser to the Board, effective at the close of business October 29, 1965. Governor Shepardson today approved on behalf of the Board memoranda recommending the following actions relating to the Board's staff: 32'' • 10/8/65 -9- Appointments Gloria Agnes Chapuis as Key Punch Operator, Division of Data Processing, with basic annual salary at the rate of $4,005, effective the date of entrance upon duty. Robert B. Haycock as Analyst, Division of Bank Operations, with basic annual salary at the rate of $5,875, effective the date of entrance Upon duty. Adlyn E. McWhirter as Research Assistant, Division of Research and Statistics, with basic annual salary at the rate of $6,050, effective the date of entrance upon duty. .Extension of appointment Leslie M. Alperstein, Summer Research Assistant, Division of Research and Statistics, appointment extended to about February 15, 1966, with no change in basic annual salary at the rate of $6,050. _Salary increases George L. Spencer, Jr., General Assistant, Office of the Secretary, from $9,520 to $10,125 per annum, with a change in title to Staff Assistant, effective October 10, 1965. Dale K. Osborne, Economist, Division of Data Processing, from $12,380 to $13,335 per annum, effective October 10, 1965. Theodore J. Vander Noot, Jr., Chief Analyst, Division of Data Processing, from $13,090 to $14,175 per annum, effective October 10, 1965. Transfer Mary Ann Rose, from the position of Clerk-Typist in the Division of Administrative Services to the position of Clerk-Typist in the Division of Data Processing, with no change in basic annual salary at the rate of $4,005, effective October 24, 1965. Item No. 1 10/8/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL CORREEiPONDENCE TO THE BOARO October 8, 1965. Dear Sir: As you know, committees of the Conference of Presidents have recently completed studies of internal controls and safeguards in the Federal Reserve Banks with the broad objective of strengthening the provisions in effect for the safe custody of valuables entrusted to their care. As a somewhat related matter affecting both internal and external security, the Board believes it would be timely to undertake a survey and appraisal of the Protection Departments in the Banks. As contemplated, such a survey would comprehend all pertinent aspects of the protection function, including but not necessarily limited to-1. Organization and administration of the Protection Department in each Reserve Bank office. 2. Quantitative and qualitative analysis of the guard force. 3. Protection equipment to control access to building and secured areas, to protect guard stations, etc. 4. Communications and alarm systems, including tie-in to City police department or other outside protection services. 5. Deployment of guard force (1) during business hours, (2) after vaults are closed, (3) after business hours. 6. Firearms and other weapons. Because of the specialized nature of the function, the Board considers it desirable that the survey be performed by persons who have sPecial competence in the field of security, and has inquired informally Of the U.S. Secret Service about the possibility of their undertaking the assignment. On the basis of their response, it seems probable that the Secret Service would be willing to assist in the project. -2- " 432r-) on a purely tentative basis, Although the discussions have been ce assumes the task, t it was generally understood that if the Secre Servi d over a fairly long exten the program of Reserve Bank surveys will likely and other convenwer of manpo Period of time, depending upon availability bly be suited proba would s ience factors; and that the order of Bank visit planned also is It to the option and convenience of the Secret Service. r of the membe one tions and that one member of the Division of Bank Opera to tance assis and be of general Division of Examinations would accompany the agent or agents making the surveys. the Secret Service, the Before concluding arrangements with nts you may have with Board would like to receive any views and comme respect to this proposed project. Very truly yours, Merritt Sherman, Secretary. TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS. Item No. 2 10/8/65 UNITED STATES OF AMERICA RESERVE SYSTEM BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL WASHINGTON, D. C. 14 the matter of the Application of PIRST NATIONAL CORPORATION, APpleton, Wisconsin, for prior approval of acquisition of vot4 ,---og shares of First National Bank of "Ppleton, and Valley National Bank, a Proposed new bank, both of Appleton, Wisconsin. 4 60 06 06 0* ORDER EXTENDING PERIOD OF TIME the Board of WHEREAS, by Order dated February 25, 1965, Governors, pursuant to section 3(a)(1) of the Bank Holding Company Act Of 1956 (12 U.S.C. 1842(o)(1)) and section 222.4(a)(1) of Federal Reserve of 4agulation y (12 CFR 222.4(a)(1)), approved an application on behalf corporation, pursuant P4at National Corporation, a proposed Wisconsin acquisition to which it would become a bank holding company through the First National Bank of °f 80 per cent or more of the voting shares of d new bank, both of Appleton, APPloton and Valley National Bank, a propose proviso "that the acquiIliaconsin; and said Order was made subject to the months consummated ..(b) later than three eitic41 so approved shall not be be opened for after said date [of Order]", and "that Valley National Bank bu of the Board's Order]"; and sincus within six months [of the date 325L*-2icant, by Order of the WHEREAS, pursuant to request of Appl uary 25, 1965, was Board dated June 10, 1965, the Board's Order of Febr 1965, to consummate the acquiamended to allow Applicant until October 1, r than December 31, 1965, sition approved by the Board, and 'until no late and to effect the opening for business of Valley. National Bank; further extension of the time WHEREAS, Applicant has requested a be consummated and within which within which the approved acquisition may ness; and it appearing to the Valley National Bank is to be opened for busi d not be inconsistent with Board that such further extensions of time woul the public interest, d's Order of June 10, 1965, IT IS HEREBY ORDERED, that the Boar 17, 1965 (30 F. R. 7851), as published in the Federal Register on June dates by be and hereby is amended so that the proviso relating to the ummated, and Valley National which the acquisition approved shall be cons than December 1, 1965, Bank opened for business, shall read: "(b) later l be opened for and provided, further, that Valley National Bank shal business no later than March 1, 1966." 8th day of October, 1965. Dated at Uashington, D. C., this By Order of the Board of Governors. (Signed) Herritt Sherman Merritt Sherman, Secretary. (SEAL) 325f Item No. 3 10/8/65 BOARD OF GOVERNORS OF THE ..."soev;;;;;;;;•. so:. 1)w I , • /4, '';77 : fing• i,ct \ ... FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 . V ADORE/II OFFICIAL CORRESPONDENCE TO THE BOARD d' .• . 4te •.0 S.REO: October 8, 1965 AIR MAIL - REGISTERED RETURN RECEIPT REQUESTED First National Corporation, 204 West College Avenue, Appleton, Wisconsin. 54910 Gentlemen: 1965, This acknowledges your letter dated September 27, Chicago, of Bank transmitted to the Board through the Federal Reserve given be ion whereby it is requested that First National Corporat the shares of until December 1, 1965, to consummate acquisition of and to Bank, l First National Bank of Appleton and Valley Nationa Bank. l Nationa March 1, 1966, to open for business the Valley request The Board has granted First National Corporation's effect this to for extensions of time and a copy of the Board's Order is enclosed. granted to The Board notes that with the extensions of time date of the between elapsed Applicant, more than a full year will have nt's Applica of date the and the Board's approval of Applicant's proposal notes Board the , Further Opening Valley National Bank for business. requested, said that in respect to each of the two extensions of time period previously the of day requests were submitted on or about the last of the fore- . view In l. proposa granted for effectuation of Applicant's that assumes Board the that going circumstances, Applicant is advised periods time the within Applicant will totally consummate its proposal favorably upon any further now granted, and that the Board will hot look request for extensions of time. advised when the The Federal Reservt Bank of Chicago should be Bank is opened l Nationa Valley acquisition of shares is consummated and for business. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. Enclosure BOARD OF GOVERNORS Item No. 4 10/8/65 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS orriciAL CORRESPONDENCE TO THE BOARD October 8, 1965. International Banking Corporation, 399 Park Avenue, New York, New York. 10022 Gentlemen: of September 2, 1965 This will acknowledge your letter The Mercantile Bank of that ing (received September 8, 1965), advis lish an additional branch Canada, Montreal, Canada, intends to estab c, Province of Quebec. in Canada to be located in the City of Quebe Grande Allee It is understood that the branch will be located at 580 East. lished and opened for Unless the branch is actually estab it will be deemed that plans business on or before November 1, 1966, authority for its establishment have been abandoned, in which event r of lette your in shed furni to establish the branch under notice nate. September 2, 1965, will automatically termi through the Federal Please inform the Board of Governors, h is opened for business, Reserve Bank of New York, when the branc ion of the branch. The locat exact furnishing information as to the future change in locaBoard should also be informed promptly of any tion of the branch in the City of Quebec. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. 0 Item No. 5 10/8/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Corres ondence to Board of Governors Pro Governor Shepardson Date Subject: October 6, 1965 Analysis of economic factors involved in merger and holding company cases In the bank merger and holding company cases presented to the Board of Governors the most difficult problems usually arise in judging the economic impact of the propcsals, i.e., the competitive factor and the convenience and needs factor. The recent decisions by the Federal Courts have focused attention almost exclusively upon the effect of mergers on the markets aff,lcted; both the definition of the relevant markets and the presumed impact upon competition have been at issue in these recent cases. In early 1962, when the Board approved the inauguration of a broad research program on the relationship between banking structure and market performance, one of the arguments presented in the memorandum requesting authorization was ". . . there is also need for the provision of more organized economic analysis of the individual bank merger and holding company cases coming before the Board." Since the establishment of this research effort, the Banking Markets Unit has contributed analyses in a few selected cases, but most of its efforts have been directed toward (a) longer-range background studies, and (b) the development of statistical and analytical methodology that could be used in the study of problem areas. On the basis of the progress made by the Unit to date, I believe that a useful framework for consistent economic analysis of bank structure changes has been developed and that it would be further Sharpened if it were required to be applied on a regular basis to the cases that come before the Board. This could be done by asking the Banking Markets Unit to present an economic analysis of the convenience and needs and competitive factors on selected cases as a supplement to that prepared by the Examinations Division. The analysis to be presented by the Banking Markets Unit could vary in accord with the issues presented in each case, from a brief comment in those cases dominated by banking factors to a fairly 21aborate appraisal in those cases involving substantial market overlap. Of necessity there would be a period of experimentation in developing these new procedures, as analytical approaches and information-collecting techniques are adapted to the various types of cases that come up for decision. To: Board of Governors 2 Even with currently available data, an economically oriented analysis of the convenience and needs and competitive factors ought to sharpen the issues and make Board decisions easier. But it is also likely that such analysis would often make clearer the need for supplemental information in order to resolve such issues as the degree of competitiveness in markets for bank services and the extent to which higher lending limits and additional types of banking services are needed in an area. In some cases the necessary supplementary data could undoubtedly be obtained by correspondence with the Federal Reserve Banks and the applicants. On the other hand, it might well be that the preparation of economic analyses would point up the need for more "on-the-spot" investigations of bank records and customer attitudes. Unless and until the Reserve Banks can develop the necessary competence in this field, such information might have to be obtained either by contracting with a suitable survey organization or by adding.a small group of interviews to the Board's staff. The important consideration, however, is not how such information is gathered, but that it be made available in analytical form and in timely fashion to help the Board reach its judgments concerning the approval or denial of applications. While such a procedure might result in some duplication of effort for a time, it would afford the Unit opportunity to develop procedures and for the Board to appraise the usefulness of such reports without disrupting the present flow of information from the Examinations Division. It is assumed, of course, that the Unit and the Division Will work in close cooperation in the development of sources and exchange of information to the mutual advantage of each and that, as a result of the experiment, a more satisfactory long-range program may be developed. To implement this proposal, several steps would seem to be essential: 1. Additional competent personnel would be needed, and the Research Division hopes to get Mr. George Hall, who was formerly with the Board, to return and take an important part in this program. If Mr. Hall is not available, they have other competent prospects in mind. 2. The Unit should be given the status of a section and since Mr. Brill's plans for reorganization of his Division, which will be presented at a later date, contemplate another assignment for. Tynan Smith, the Division should be authorized to recruit Mr. Hall for a Section Chief position. To: Board of Governors - 3 - 3. The Secretary should be authorized to write a letter to the Presidents of the Federal Reserve Banks asking the cooperation of their Examination and Research Departments in providing such additional information as the Unit may need and within their capabilities. 4. The Unit should be authorized to explore the use of a survey organization to get the necessary additional survey data in appropriate cases. I recommend that the above steps be authorized. k Item No. 6 10/8/65 BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. 20551 ADDREBB OFFICIAL CORRESPONDENCE TO THE BOARD October 8, 1965 • Mr. Lee J. Aubrey, Assistant Vice President, Federal Reserve Bank of Boston, Boston, Massachusetts. 02106 Dear Mr. Aubrey: In accordance with the request contained in your letter of October 4, 1965, the Board approves the designation of Maurice P. Shea, 3rd as a special assistant examiner for the Federal Reserve Bank of Boston. The authorization heretofore given your bank to appoint Mr. Shea as an examiner is hereby canceled. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary.
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