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Minutes for
To:
September 12, 1960
Members of the Board
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial below.
If you were present at the meeting, your initials will
t,
indicate approval of the minutes. If you were not presen
the
seen
have
you
that
your initials will indicate only
minutes.
Chm. Martin
Gov. Szymczak
Gov. Mills
p
.
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System on
Monday, September 12, 1960.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Martin, Chairman
Balderston, Vice Chairman
Szymczak
Mills
Shepardson
King
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Thomas, Adviser to the Board
Young, Adviser to the Board
Fauver, Assistant to the Board
Connell, Controller
Landry, Assistant to the Secretary
Messrs. Marget, Hersey, Sammons, Irvine,
Wood, Reynolds, Anderson, Elrod, and
Gemmill, of the Division of International Finance
Messrs. Noyes, Garfield, Robinson, Brill,
Dembitz, Williams, Eckert, Gehman, Keir,
Solomon, Altmann, Peret, Trueblood, and
Wernick, and Miss Dingle, of the Division
of Research and Statistics
Economic review.
The staffs of the Divisions of International
Finance and Research and Statistics presented a review of international
and domestic economic conditions and developments.
Thereafter all of the members of those Divisions except Mr. Noyes
arld Miss Dingle withdrew, as did Messrs. Thomas and Fauver, and the following
entered the
room:
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
Chase, Assistant General Counsel
Thompson, Supervisory Review Examiner, Division
of Examinations
Miss Hart, Assistant Counsel
Mr.
Mr.
Mr.
Mr.
t;
-2-
9/12/60
Items circulated to the Board.
The following items, which
had been circulated to the Board and copies of which are attached to
these minutes under the respective item numbers indicated, were approved
unanimously:
Item No.
Letter to the Federal Reserve Bank of St. Louis
expressing the opinion that the provisions of
the Clayton Act would not prevent members of the
Advisory Board of First National Bank in St. Louis
from serving as officers, directors, or employees
Of other member banks.
1
Letter to Price Waterhouse & Co., Washington, D. C.,
2
requesting that firm to make an audit of the books
and accounts of the Board of Governors of the Federal
Reserve System for the year 1960 at a convenient time
after January 1, 1961.
In connection with the approval of Item No. 2, note was taken
of the fact that this would be the fourth consecutive year in which
Price Waterhouse & Co. had audited the Board's books and that, in keeping
'with a practice of rotating the firm of outside auditors at three- or
four-year intervals, it would be expected that the Board would look into
Possible arrangements for having a different firm undertake the assignment
for the following year.
Extension of time to continue insurance business-St. Joseph Agency,
Irla. (Item No. 3).
There had been distributed copies of a proposed letter
to St. Joseph Agency, Inc., South Bend, Indiana, a bank holding company,
that would grant an additional extension to and including May 9, 1961,
Pursuant to section 4(a) of the Bank Holding Company Act, of the time
'within which the company might continue to engage in the general casualty
-3-
9/12/60
insurance business.
September
There had also been distributed under date of
8, 1960, a memorandum from the Division of Examinations
recommending that the extension be granted.
Both St. Joseph Agency,
Inc., and St. Joseph Bank and Trust Company are registered bank holding
companies, with the former owning a majority of the outstanding voting
Shares of one insured nonmember State bank and over 25 per cent of the
outstanding voting shares of another such bank, and with St. Joseph
Bank as trustee holding all of the outstanding voting shares of Agency
for the benefit of the bankts shareholders.
The Board previously had granted the applicants seven extensions
Of time during which the general casualty insurance business conducted
by Agency might be continued, the latest of these extensions having
expired September
6, 1960. At the time the applicants requested the
most recent additional extension, the Board contemplated that the
ingurance business conducted by Agency would be transferred to a new
corporation and that the shares of that corporation would be distributed
to the bankts shareholders in a tax-free spin-off, pursuant to the tax
Provisions of the Internal Revenue Code.
Now the applicants were making
a different proposal whereby the insurance business would be incorporated
and its stock distributed directly to the shareholders of St. Joseph Bank
and Trust Company in a tax-free distribution under section 1101(c)(2) of
the Bank Holding Company Act.
The Legal Division had expressed the view
ill a memorandum dated September
7, 1960, that it would be inappropriate
9/12/6o
-4-
for the Board to issue a prior tax certification in accordance with the
plan now proposed by applicants and that, if such certification proved
appropriate in accordance with applicants' plan, it could be issued
c)nlY after a section 4(c)(6) hearing.
It was the opinion of both the
Legal and Examinations Divisions, however, that it would be practicable
for the Board to approve an extension of time to not later than May
9,
1961, to enable Agency to continue its insurance business until the
issues were clarified.
There being no objection, unanimous approval was given to the
letter to St. Joseph Agency, Inc., South Bend, Indiana, granting an
additional extension of time to May
9, 1961, pursuant to section 4(a)
of the Bank Holding Company Act, within which it might continue its
insurance business.
A copy of the letter is attached hereto as Item No.
3.
Mr. Chase withdrew from the meeting at this point.
Prior tax certification petitions re insurance business conducted
bY St. Joseph Agency, Inc. (Item No.
4). In connection with the preceding
item, there had been distributed a draft letter to the Chicago Reserve
BRIA suggesting two alternative courses of action that might be followed
by St.
Joseph Agency, Inc., and St. Joseph Bank and Trust Company, both
°f South Bend, Indiana, for the disposal of the insurance business conducted by the former.
dated September
Accompanying the draft letter was a memorandum
7, 1960, from the Legal Division which stated that the
Parallel petitions filed on July 20, 1960, by St. Joseph Agency and
9/12/60
-5-
St. Joseph Bank and Trust Company for prior tax certifications under
section 1101(c)(2) of the Bank Holding Company Act with respect to the
insurance business conducted by Agency raised two legal questions.
The
first of these legal questions was whether an insurance business could
be considered "prohibited property" within the meaning of the Act and,
If so, whether any of the property was acquired before May 15, 1955.
The second question raised by the petitions was whether the Board could
certify that the proposed distribution in respect to that business was
tt
necessary or appropriate" to effectuate section 4 of the Act.
It was
the opinion of the Legal Division that both parts of the first question
caald be answered in the affirmative but that the second question should
be answered in the negative.
Chicago
In a letter dated July 22, 1959, the Board requested the
Reserve Bank to advise both St. Joseph Agency and St. Joseph Bank and
Trust Company that some change would have to be made with respect to
the insurance business conducted by Agency and presented two alternative
courses of action either of which would satisfy the statutory requirements of the Bank Holding Company Act: (a)
Agency might transfer its
insurance business to a newly created subsidiary corporation and then
6PPly for a hearing to determine whether, under the standards set forth
in section 4(c)(6) of the Act, it could retain the shares of the subsidiary; or, (b) since Indiana State law permits a bank to conduct an
insurance business, the insurance business could be transferred to
9/12Ao
-6-
St. Joseph Bank and operated directly by it on the theory that insurance
is part of the business of banking in Indiana.
Division's September
7
According to the Legal
memorandum, the petitions received an July 20,
1960, assumed that the Board's letter of July 22, 1959, amounted to a
determination that the insurance business of Agency is prohibited
Property; as a matter of fact, the Board's letter did not make an
affirmative statement on this point, merely holding that the insurance
business in question was not exempt from the divestment requirement
under either sections 4(a)(2) or 4(c)(6) of the Bank Holding Company Act.
Governor Shepardson inquired Whether the Board had, in effect,
conveyed to St. Joseph Agency and St. Joseph Bank and Trust Company the
Im pression that the former should divest itself of its insurance business.
Miss Hart replied in the negative, stating that a careful reading
of the 1959 letter conveyed the same suggestions for a course of action
that were now being proposed in the draft letter to the Chicago Reserve
Bank, Mr. Hexter added the comment that the intricacy of the tax probearing an this question possibly caused counsel for the holding
c°mPanies to misunderstand the suggestions carried in the Board's letter
Of
July 22, 1959.
In response to an inquiry from Governor Mills, Miss Hart pointed
out that St. Joseph Bank and Trust Company and St. Joseph Agency proposed
to f°rm a new corporation, exchange the insurance business for shares in
the corporation, and distribute the shares to the shareholders of Agency
9/12/60
-7-
Which would in turn distribute them to the shareholders of the bank
in a series of tax-free distributions under section 1101(c)(2) of the
Bank Holding Company Act.
In order to accomplish this end, Bank and
Agency needed a prior certification from the Board to the effect that
both the exchange and distribution were necessary or appropriate to
effectuate section 4 of the Act.
However, the Legal Division believed
that it was possible under the Act for Agency to retain shares in a
corporation formed to operate Agencyes insurance business, and accordingly the Board could not properly issue the requested certification
because distribution of the shares might not be "necessary or appropriate
to effectuate section 4" of the Act.
She noted that section 4(c)(6) of
the Act permits a holding company to retain "shares of any company all
the activities of which are ofili.q...insurance nature and which the
Board after due notice and hearing, and on the basis of the record made
at such hearing, by order has determined to be so closely related to the
business of banking or managing or controlling banks as to be a proper
tncident thereto and as to make it unnecessary for the prohibitions of
this section to apply in order to carry out the purposes of this Act....".
Board
Discussion having made it apparent that the members of the
concurred in the views expressed in the draft letter to the Chicago Reserve
by
Bank suggesting alternative courses of action that might be followed
' Joseph Agency, Inc., and St. Joseph Bank and Trust Company for the
St
the
disposal of the insurance business now conducted by St. Joseph Agency,
letter was approved unanimously.
A copy is attached as Item No. 4.
-8-
9/12/60
Messrs. Solomon and Thompson and Miss Hart then withdrew from
the meeting and Mr. Fauver, Assistant to the Board, entered the room.
Budgetary provision for 1961 consumer financial survey work.
Under date of September 6, 1960, a memorandum from Mr. Noyes had been
distributed recommending (a) authorization of $40,000 for 1961 to permit
further methodological work in the area of consumer financial surveys,
and (b) provision in the 1961 budget of $30,000 for preliminary work in
the second half of 1961 associated with the 1962 nationwide financial
survey.
It was indicated in the memorandum that the methodological
Program proposed would complete the necessary groundwork for a nationvide survey to obtain data on net worth and financial attitudes from
R sample of consumers with a heavy representation of high-income and
high-asset families.
It was hoped that such a survey could be conducted
early in 1962,with provision in the 1961 budget for any necessary expenditures late in 1961 in this connection.
Mr. Noyes noted that the methodological work proposed for 1961,
for which up to $40,000 was requested, consisted of the following projects
to be
completed before undertaking in 1962 a nationwide survey of consumer
net worth and financial attitudes:
(1)
A study to match data collected in Census projects
with Internal Revenue Service data.
(2)
Further exploration of the sample source to investigate means of splicing a sample drawn partially from
Internal Revenue Service data to a household population
sample.
9/12/60
-9(3) A pilot study to reinterview respondents in one
or more cities to test response rates and to
determine the suitability of the first-stage
questionnaire now in use.
During a discussion of these recommendations questions were raised
as to the relationship between the projects for which an additional amount
111:0 to $40,000 was being requested and those to which the request for $30,000
pertained, as well as to the estimated cost of the complete nationwide consumer survey in 1962 of buying plans, savings, and assets.
In response to
these questions, Miss Dingle said that the $40,000 authorization requested
for 1961 related to "tying up loose ends" of projects already under way,
811ch as the validation of Bureau of the Census and Internal Revenue data
On
buying plans of high-income consumers.
The $30,000 request on the other
hand) she said, involved preliminary work on consumer surveys relating to
net worth and savings attitudes among high-income, high-asset families.
She recalled that the Board on August 24, 1960, approved the provision of
$135,000 for continuing the quarterly survey of consumer buying intentions
in
1961 and for a limited amount of special work in the field.
The additional
$70,000 requested for 1961 would raise the consumer survey budget for 1961
to a
total of $205,000, of which $30,000 would be associated with the proJected 1962 survey of consumers financial positions.
She said that in
view of the desire to leave the quarterly survey of consumer buying intentions unchanged and to postpone the financial survey to 1962, no expenditures had been made in 1960 in connection with planning the 1961 quarterly
surveYs and planning a 1962 financial survey of net worth and savings
at
titudes of consumers.
9/12/60
-10Governor Mills commented that he assumed that Board approval of
these requests totaling $70,000 for expenditures in 1961 would not commit
the Board to financing a larger project along these lines When presented
at a future meeting unless such larger project fell within the Board's
concept of what was reasonable and proper in this area.
Miss Dingle replied
that this was the case and that the entire consumer survey program would be
Presented to the Board in detail about the middle of 1961.
Following a comment by Governor Shepardson that there were two or
three additional major projects to be brought before the Board by the
r)ivision of Research and Statistics for preliminary consideration prior to
inclusion in next yearts budget, unanimous approval was given to the recommendations contained in Mr. Noyes' memorandum authorizing $40,000 for 1961
to
permit further methodological work in the area of consumer financial
Position surveys and provision in the 1961 budget of $30,000 for preliminary
vork in the second half of 1961 associated with the 1962 nationwide financial
Position survey.
The meeting then adjourned.
Secretaryts Note: Governor Shepardson today
approved on behalf of the Board a memorandum
dated September 9, 1960, from Mr. Koch, Adviser,
Division of Research and Statistics, recommending the appointment of Joan D. Hosley as Statistical
Assistant in that Division, on a temporary basis for
a period of three months, with basic annual salary
at the rate of $4,840, effective the date of entrance
upon duty.
Secretary
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 1
9/12/60
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1960
Mr. George E. Kroner, Vice President,
Federal Reserve Bank of St. Louis,
P. 0. Box 442,
St. Louis 66, Missouri.
Dear Mr. Kroner:
Receipt is acknowledged to your letter of August 11, 1960,
regarding the question whether members of the Advisory Board of
First National Bank in St. Louis may serve as officers or directors
of member banks in view of the provisions of section 8 of the
Clayton Act. You point out that the situation seems very similar
to the one considered by the Board in its lettersof October 10, 1951
and December It, 1951, with respect to the Advisory Board of the
Mercantile Trust Company, St. Louis.
The members of the Advisory Board of the Mercantile Trust
Company not only met with the directors at all of their meetings
but had a chairman who had to be invited to participate ex officio
in all of the meetings of all committees of the board, and the
members of the Advisory Board could be appointed to serve in an
advisory capacity to any committee of the Board of Directors.
As you know, a great many member banks have advisory
boards, and although the applicability of the Clayton Act must be
determined on
the basis of the facts of each case, in the usual
ease the members of such advisory boards are not regarded as
Officers, directors, or employees of the bank within the meaning
of the Clayton Act.
In the present case it appears that the members of the
AdvisorY Board of First National Bank in St. Louis attend all
Teetings of the board and participate in the discussions. However,
they have no official vote on any matter coming before the
board of directors, and no provision is made for their serving on
:I=ittees of the board of directors, nor do they have a
who is to participate ex officio in all meetings of all
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. George E. Kroner
-2-
committees of the Board. It does not appear that they have any
authority to manage or direct any part of the business of the
bank or do anything except offer advice to the board of directors.
In view of these circumstances, this board would appear
to be essentially the same as the usual advisory board, which the
Board of Governors, in the absence of special circumstances,
regards as not consisting of officers, directors or employees of
the bank within the meaning of the Clayton Act. In the circumstances the Board is of the opinion that the Clayton Act does not
prevent the members of the Advisory Board of First National Bank
in St. Louis from serving as officers, directors or employees of
a member bank.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
3430
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 2
9/12/60
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
h110,*
September 12, 1960
Price Waterhouse & Co.,
1710 H Street, N. W.,
Washington
6, D. C.
G
entlemen:
It is requested that your firm undertake as promptly as
flvenient after January 1, 1961, an audit of the books and accounts
the Board of Governors of the Federal Reserve System for the year
460.
You will make the audit as extensive as you deem appropriate and in such manner as appears to you to be desirable in the light
er generally accepted auditing standards.
Written confirmation that you will undertake this audit
/41-11 be appreciated.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 3
9/12/60
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
40,Latt
September 13, 1960.
Mr. W. W. Brummitt, Vice President,
St. Joseph Agency, Inc.,
St. Joseph Bank Building,
South Bend 1, Indiana.
Dear Mr. Brummitt:
This refers to the application of St. Joseph Agency,
Inc. and St. Joseph Bank and Trust Company, requesting an
additional 90-day extension of time within which St. Joseph
Agency, Inc. may continue its insurance business.
In view of the questions involved concerning
applications for a prior tax certification pursuant to
provisions of the Internal Revenue Code, the Board. has
an extension to and including May 9, 1961, pursuant to
4(a) of the Bank Holding Company Act of 1956.
the
the
granted
section
Attention is drawn to the fact that section 4(a) of
the Act requires that by May 9, 1961, St. Joseph Agency, Inc.
and St. Joseph Bank and Trust Company shall cease to be engaged
in any business other than that of banking or of managing or
controlling banks or of furnishing services to or performing
services for any bank of which they own or control 25 per centwa
or more of the voting shares.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary,
BOARD OF GOVERNORS
44.01'0**,4.4
4
(11 COI"*40
44,
°41
0:R
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
Item No. 49/12/60
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 130 1960
Mr. W. R. Diercks, Vice President,
Federal Reserve Bank of Chicago,
Chicago 901 Illinois.
Dear 1,1r. Diercks:
This refers to your letter of July 18, 1960, which enclosed
petitions from the St. Joseph Agency, Inc. ("Agency") and the
St. Joseph Bank and Trust Company ("Bank") asking that the Board
grant prior tax certifications under section 1101(c)(2) of the Bank
11?1ding Company Act (the "Act"), with respect to a proposed dispositlon of the insurance business now conducted by Agency. Both Bank
and Agency are bank holding companies, since Agency owns two banks,
nd all the stock in Agency is held by Bank as trustee for the
:Ipenefit of Bank's shareholders. Agency has conducted an insurance
ooziness since a time prior to May 15, 1955.
In a letter dated July 22, 1959, the Board asked that
You advise the holding companies that neither section 4(a)(2) nor
!ection 4(0(6) of the Act permits retention of the insurance business
its present form, since such a business does not qualify under
re "servicing" exemption of the first, nor can it be fitted into
'he exemption provided by the second section, which applies only to
ares in a corporation conducting a qualified business and not to
lrect ownershiD of the business itself.
p
The Board's letter also suggested that either of two
alternative courses of action would satisfy the statutory requirement thRt bank holding companies divest themselves of interests in
l ioinbanking businesses not eYplicitly exempted under
section 4 of
e Act. Agency might transfer its insurance business to a newly
created subsidiary corporation, applying for a hearing to determine
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. W. R. Diercks
-2-
whether, under the standards set forth in section 4(c)(6), it could
retain the shares of the subsidiary. Or, since Indiana law permits
a bank to conduct an insurance business, the insurance business
could be transferred to Bank and operated directly by it.
Bank and Agency have applied for and received a series
Of extensions of time, while exploring various alternative solutions to the difficulty; the current extension will expire Eay 9,
1961. They now propose to form a new corporation, exchange the
insurance business for shares in the corporation, and distribute
the shares to Bank as shareholder of Agency, and Bank will in
turn distribute them to the shareholders of Bank, in a series of
tax-free distributions under section 1101(c)(2) of the Act. In
order to achieve this end, they must have a prior certification
from the Board that both "the exchange and distribution are
necessary or appropriate to effectuate section 4" of the Act.
The Board is of the opinion that such a certification cannot be
given, under the statute, for the following reasons.
A preliminary difficulty concerns the question whether
the property exchanged will include prohibited property which was
Owned by the holding company prior to Hay 15, 1955, as the statute
requires. Little, if any, of the property involved in conducting
an insurance agency business, of course, attains an age of over
four years. It is believed that this difficulty can be met, however, in view of the fact that the insurance department of Agency,
las a
going business, has "goodwill". Goodwill has been held to
ue a transferable capital asset under the Internal Revenue Code,
of which section 1101 forms a part.
A more serious obstacle concerns the question whether
the distribution of stock in a new corporation formed to receive
and conduct the insurance business of Agency would be "necessary
°r appropriate" to effectuate section 4. Section 4(c)(6) permits
a holding company to retain "shares of any company
all the activities of which are of [an) . •
• insurance nature and which the Board
ter due notice and hearing, and on the basis of the record made
't such hearing, by order has determined to be so closely related
0 the business of banking or of managing or controlling banks
to be a proper incident thereto and as to make it unnecessary
Ic)r the prohibitions of this section to apply in order to carry
°ut the purposes of this Act .. . ."
as
BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. W. R. Diercks
-3-
From preliminary information available to the Board,
it appears that if a hearing were held to determine whether Agency
could retain shares in a corporation formed to operate the insurance
business which Agency now carries on, the Board might well reach
an affirmative conclusion. In view of this fact, the Board could
not properly issue the requested certification, since the distribution of the shares might not be "necessary or appropriate to
effectuate section 4" of the Act. A contrary interpretation with
respect to section 1101(c)(2) would permit a bank holding company
to make use of the statutory provisions for tax-free divestment
of nonbanking property with respect to property which it might be
entitled to retain under section 4(c)(6), and would not seem to
accord with the stated intent of Congress to provide tax-free paths
for divestments which the Act imposes on a holding company.
In the light of these views, Agency and Bank
to withdraw the petitions enclosed with your letter of
1960, and to reconsider their future course of action.
Board held in the Matter of the Requests of First Bank
Corporation, 1959 Federal Reserve Bulletin, page 928,
may wish
July 18,
As the
Stock
H
. the language of Section 4(c)(6) ... does
not, in the Board's opinion, preclude consideration of
a request for exemption with respect to a corporation
in which the Applicant proposes to acquire stock where
• . . the nature of the activities to be carried on by
that corporation is susceptible of determination."
For this reason, it would be appropriate for the Board to consider
a request for a determination under section 4(c)(6) with respect to
shares in a corporation formed to carry on the insurance business
(314 conducted by Agency. Or, alternatively, as stated above, it
JA-s the opinion of the Board that Bank could take over and operate
the insurance business in question without violating section 4(a)(2)
f the Act. It should be pointed out, however, that the Act does
no
Permit an extension of time for the disposal of the prohibited
tr_cperty of Agency beyond May 9, 1961, a date which is now less
Lian eight months
in the future.
2
It would be appreciated if you would transmit the
Substance
of this letter to St. Joseph Agency, Inc., St. Joseph
o rik and Trust Company, and Mr. Charles M. Boynton of the
law firm
Iporan and Manion, counsel for both bank holding companies.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
@FedFRASER