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Minutes of actions taken by the Board of Governors of the Fed— eral Reserve System on Tuesday, September 13, 1955. The Board met in the Board Room at 10:00 PRESENT: Mr. Mr. Mr. Mr. Szymczak, Acting Chairman Mills Robertson Shepardson Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Riefler, Assistant to the Chairman Mr. Leonard, Director, Division of Bank Operations Mr. Young, Director, Division of Research and Statistics Mr. Sloan, Director, Division of Examinations Mr. Johnson, Controller, and Director, Divi— sion of Personnel Administration Mr. Hackley, Assistant General Counsel Mr. Goodman, Assistant Director, Division of Examinations Mr. Cherry, Legislative Counsel Mr. Molony, Special Assistant to the Board Pursuant to the understanding at the meeting on September 9, 19550 there had been prepared a draft of letter to Senator TV. Kerr Scott of North Carolina which would serve as an interim reply to the Senator's letter of June 24, 1955, in which he raised questions relating to participation of member banks of the Federal Reserve System in the Business Development Corporation of North Carolina, now being organized. The draft would take the position that although the Board was in sympathy With the objectives of such corporations in providing credit to business enterprises, it had some question about the provisions of the State statute under which a bank becoming a member of the corporation -would be 1.3 :•/ 9/13/55 -2- required to make loans to the corporation on call subject to terms arid conditions approved by its directors. The draft went on to say that in view of the long-term obligation involved, the Board considered it desirable to discuss the matter with the Presidents of the Federal Reserve Banks before expressing any definite opinion. Copies of the draft had been sent to the members of the Board prior to this meeting. Governor Shepardson said that he felt Senator Scott might be given a more definite response and that he had prepared an alternative draft based on his understanding of the views stated by members of the Board during discussions concerning the business development corporations. After saying that Governors Mills and Robertson had certain suggestions for modifications of the draft, he distributed copies to the members of the Board. In commenting on his draft, Governor Shepardson explained that it would give Senator Scott an answer to his questions although it Would indicate that the Board had some reservations concerning the terms of participation by member banks of the Federal Reserve System and would continue to study the matter. Governor Robertson offered certain suggestions for changes in the draft which he stated were based on his view that the Board should not interpose objection to member banks becoming members of the develop- merit corporation being organized in the State of North Carolina but should express the hope that development corporations established hereafter would be organized on a basis whereby member banks could participate 9/13/55 in them and not forfeit the right to have their directors pass upon loans made by. the corporation at the time such loans were made. Governor Mills expressed doubt that the Board should go as far as to suggest how development corporations should be organized, it being his view that it would be preferable for the Board to limit its comments to bank participation in such corporations, particularly the matter of forward commitments. He also felt that a letter such as suggested by Governor Robertson might be read to constitute an endorsement of the North Carolina plan and that it should be more specific in indicating the Board's reservations concerning member bank participation in the North Carolina corporation. Reference was made to Governor Vardaman's interest in the subject and the suggestion was made that the staff prepare a new draft bringing together the views expressed at this meeting so that it might be considered at a meeting when Governor Vardaman was present. There was unanimous agreement with this suggestion. Hackley then withdrew from the meeting. The following draft of letter to the Presidents of all Federal Reserve Banks, 'which had been circulated to the members of the Board prior to this meeting, was presented for consideration: It will be recalled that at the joint meeting of the Presidents and the Board on March 3 there was a discussion 1581 9/13/55 -4- as to the need for the appointment of Industrial Advisory Committees at the Federal Reserve Banks. It was understood at that time that further consideration would be given to this matter prior to the time for the appointment of the Industrial Advisory Committees for the year beginning March 1, 1956, to determine whether some more appropriate arrangement than the one existing at the present time could be worked out. In a letter to President Young dated March 101 1955, regarding the matters discussed at the joint meeting) the Board stated that it would be glad if the Reserve Banks would consider this question during the coming year and that the Board would also study the matter and give the Reserve Banks the benefits of its views at a later date. It appears to the Board that there are four possible alternative courses of action: 1. Continue the present arrangement. The objection to this procedure is that there is little or no 13b loan activity at several of the Federal Reserve Banks and Industrial Advisory Committees have no duties to perform. It has been the practice throughout the history of section 13b to select as members of the Committees industrialists who are well qualified to bring sound judgments to the consideration of 13b loan applications. It is a source of some embarrassment to the Federal Reserve Banks and possible misunderstanding on the part of members of the Committees to go through the motions of appointing members when the Committees have no function to perform. It is the view of some that a procedure should be found which would carry out the purpose of the law and at the same time avoid doing a vain thing. 2. Continue to appoint the Committees but limit the membership of each Committee to three. This probably would be preferable to Committees consisting of five members but in a lesser degree would involve the same difficulties as the present arrangement. 3. The Federal Reserve Banks might follow the practice of not appointing Committees in the absence of 13b activity with the understanding that should it be necessary the Committees would be appointed and approved by the Board on somewhat of an ad hoc basis. While this might not be in strict compliance with the language of the statute it might be a practicable 1582 -5- 9/13/55 solution in the existing circumstances. One objection to it would be that in the event of an emergency or disaster, of which the recent floods in New England are an example, the Federal Reserve Bank might not be in a position to function quickly to provide assistance through the medium of 13b loans. I. A policy might be adopted of having the membership of the Industrial Advisory Committees consist of members of the boards of directors of the Federal Reserve Banks who are actively engaged in some industrial pursuit within the Federal Reserve district, The objection to this is that there is considerable question whether this procedure would be carrying out the purposes of the law in establishing Industrial Advisory Committees, since it appears to have been contemplated that the Committees would act independently of the Banks and would bring to bear on 13b loans a point of view that might or might not coincide with that of the Federal Reserve Banks. The Board would appreciate it if you would discuss this matter at the next meeting of your directors and give the Board of Governors the benefit of the views of your Bank. Approved unanimously. At the meeting on September 7, 1_955, consideration was given to a draft of answers to a questionnaire from the Government Information Subcommittee of the House Committee on Government Operations regarding the availability to the press, the public, and within the Government itself, of information in the possession of Government agencies. In view of suggestions concerning the draft made by Governors Vardaman and Mills, the matter had been referred to them with the request that they discuss their suggestions with appropriate members of the staff and have a revised draft prepared. Copies of the revised draft were sent to the members of the Board prior to this meeting. 1583 —6— 9/13/55 In commenting on the matter, Governor Mills said that some of the answers had been rephrased, but that there had been no material changes. Mr. Molony then summarized the various changes that had been made and said that he understood them to satisfy the points raised by Governor Vardaman. Unanimous approval was given to the answers to the questionnaire, with the understanding that Mr. Molony was author— ized to make any further editorial changes which might be necessary. Secretary's Note: Governor Vardaman having indicated his approval of the reply and the necessary editorial changes having been made, the following letter was sent over the signature of Vice Chairman Balderston to The Honorable John E. Moss, Chairman, Gov— ernment Information Subcommittee of the House Committee on Government Operations, on September 14, 1955: In accordance with Chairman Martin's letter of August 24, there is enclosed a copy of the answers to the questionnaire which you addressed to the Board of Governors under date of August 8, 1_955, regarding the question of whether information in the possession of Government agencies is sufficiently available to the press, the public, and within the Government itself. Messrs. Leonard, Johnson, and Cherry then withdrew from the meeting and Messrs. Vest, General Counsel, and Margot., Director, and Tamagna, Chief, Financial Operations and Policy Section, Division of International Finance, entered the room. 1584 9/13/55 The following matters, which had been circulated to the mem— bers of the Board, were presented for consideration and the action taken in each instance was as indicated: Letter to the Honorable Rafael Pico, Secretary of the Treasury, Commonwealth of Puerto Rico, San Juan, Puerto Rico, reading as follows: The First National City Bank of New York has filed an application for permission to establish a branch in the Rio Piedras area in San Juan, Puerto Rico. The applicant states that in the Rio Piedras district its San Juan and Santurce Branches have over 350 governmental, current, and savings accounts with balances averaging approx— imately $1,400,000, of which commercial accounts comprise over $1,160,000. They also have about 55 loan accounts with credit lines of $41700,0001 of which about $21000,000 are outstanding in loans. The San Juan Branch had on hand over 800 collections totaling almost $1100,000 for Rio Piedras. In the area to be serviced by the proposed branch, there are 19 commercial accounts with deposits exceeding 811160,000 which formerly enjoyed the armored truck service, recently discontinued, comprising deposit pickup and pay roll delivery. The banks plan calls for the transfer of these accounts to the new branch which, it is estimated, should expand its busi— ness 25 to 40 per cent during the next two or three years. The bank states that many of the most important and largest industries and commercial businesses have already located or are establishing themselves in this area. A re— cent survey listed over 750 industries and businesses actually established in the area with many more under construction. It is reported that Rio Piedras has more facilities for manu— facturing expansion than other cities, particularly San Juan and its suburb Santurce) where there is said to be little or no space for further industrial expansion. The bank feels that it needs a small branch in this com— munity to enable it properly to service its industrial, com— mercial, and other clients who are presently finding it incon— venient and difficult due to traffic congestion to reach its Santurce and San Juan Branches. 1585 9/13/55 -8- The applicant states that the eventual location of its branch will be at the conjunction of Avenida Luis Munoz Mann, Ponce de Leon, Caguas Road and the extension of 65th Infantry Avenue. Pending completion of the building proposed for the site, it may be necessary to occupy temporary quarters at alternate sites; namely, at the corner of Ponce de Leon and C. Julian E. Blanco Streets, or the corner of Ponce de Leon and C. Jose de Diego. As the selection of sites will doubtless involve negotiation, it is requested that this information be treated in the strictest confidence. Following the Board's letter of November 4, 1954, addressed to former Secretary of the Treasury Descartes and his reply of December 10, 1954, regarding the armored truck day depository service operated by the San Juan Branch of The National City Bank of New York, the Board on May 6, 1955, requested that the deposit pickup service through the use of armored trucks or other vehicles be terminated. In a letter dated June 1, the bank informed the Board that its armored truck would discontinue the deposit pickup service not later than July 29, 1955. It will be appreciated if you will advise the Board of Governors if you know of any reasons why the application to establish the proposed branch should not be approved. In the consideration of this matter, it is suggested that you may wish to note (1) the Board's letter of March 1, 19511, addressed to Secretary of the Treasury Descartes with reference to the application of The Chase National Bank of the City of New York for permission to establish a branch at 8 and 10 Eduardo Georgetti Street, Rio Piedras; (2) Secretary Descartes' reply of March 11; and (3) the Board's letter of May 19, 1954, to Secretary Descartes stating that the bank had been advised that, after careful consideration, the Board had concluded that the application for permission to establish the proposed branch should not be granted at that time. However, the applicant was informed that, if it desired to submit another application at some later date, as for example after the lapse of a year's time, the Board would, of course, be glad to consider the matter in the light of all the existing circumstances. On the basis of information received informally in the interval it is anticipated that in due course The Chase Manhattan Bank, the successor State member bank, will probably desire to renew 9/13/55 its application for permission to establish a branch in Rio Piedras. Approved unanimously, together with a similar letter to the Comptroller of the Currency. Telegram to Mr. Crane, Federal Reserve Agent, Federal Reserve Bank of New York, authorizing him to issue a limited voting permit, under the provisions of section 5144 of the Revised Statutes of the United States, to Marine Midland Corporation, Jersey City, New Jersey, entitling such organization to vote the stock which it owns or controls of The Citizens National Bank of Springville, Springville, New York, at any time prior to December 1, 1955, to authorize the merger of such bank into The Marine Trust Company of Western New York, Buffalo, New York, and for such other purposes as may be necessary in connection therewith. The telegram also advised Mr. Crane that the Permit should not be issued until he was notified by Marine Midland Corporation that it had acquired a controlling interest in The Citizens National Bank of Springville, and that, meanwhile, he could assure Marine Midland Corporation that a limited voting permit would be issued Upon receipt of such notification. Approved unanimously. At this point Mr. Shay, Assistant Counsel, entered the room. Consideration was given to the proposal of International Banking Corporation, a State chartered and wholly-owned subsidiary of The First National City Bank of New York, to establish in the Republic of Liberia a subsidiary corporation which would take over the business of the Bank of Monrovia, Inc., Monrovia, Liberia, a wholly-owned subsidiary of the Pirestone Tire and Rubber Company formed under the laws of the State of Nev Mexico. In a memorandum dated September 12, 1955, copies of which had been sent to the members of the Board, Mr. Shay referred to corresPondence with International Banking Corporation concerning the proposal Over a period of several months and stated that in a letter dated 1587 9/13/55 -10- September 1, 1955, the Board received for the first time information indicating the extremely broad charter powers of the Liberian subsidiary and other details of the proposal. This letter also advised that the Proposal mould be consummated and that the subsidiary would commence active business not later than September 16, 1955. The memorandum stated that there might be some question whether the Board/3 present agreement with International Banking Corporation under section 25 of the Federal Reserve Act required the Board/3 approval of the acquisition and holding of the stock of the new Liberian corporation, but that the Board's regulatory authority was believed to cover such a transaction and the spirit of the agreement was believed to contemplate that such a transaction would not be entered into over the Board's objection. It was suggested that the Board advise International Banking Corporation that it would offer no objection to the proposed transaction provided that, except with the Prior consent of the Board, the Liberian subsidiary would not transact or engage in any business in the United States, mould not purchase or hold any stock or other certificates of ownership of any organization doing business in the United States, and would exercise only such powers and do only such things as are incidental to banking conductad in the countries and dependencies where it may transact business. Attached to the memorandum was a draft of letter to International Banking Corporation whicil Would carry into effect the suggestion made in the memorandum. 1388 -11- 9/13/55 Governor Szymczak commented on various aspects of the proposal, including correspondence with International Banking Corporation and discussions with that Corporationfs representatives. He referred particularly to the broad charter powers of the proposed wholly-owned subsidiary and stated that this raised a question as to haw far the subsidiary would go in its activities, particularly those which might be conducted outside of Liberia. He said that this in turn raised a question as to what action, if any, should be taken by the Board since it was not entirely clear that the acquisition and holding of the stock of the new Liberian corporation by International Banking Corporation required the Boardfs approval under terms of its present agreement with the Corporation. At Governor Szymczakfs request, Mr. Vest made a statement in Which, after reviewing the provisions of section 25 of the Federal Reserve Act, he discussed the scope of the Board f, agreement with International Banking Corporation. He said that the agreement was not as complete and comprehensive as it might be but that it contained a provision that International Banking Corporation may not establish branches or agencies without the Board's permisssion. In a sense, he said, the establishment of the Liberian subsidiary constituted the establishment of an agency in that country. He pointed out that it mould be possible for the Board to amend its agreement with International Banking Corporation but went on to say 1589 9/13/55 -12- that in the opinion of the Legal Division that should not be done except after taking the matter up with the persons affected and giving them an opportunity to express themselves in line with the requirements of the Administrative Procedure Act. All things considered, he felt that a letter along the lines submitted with Mr. Shay's memorandum would be a satisfactory way of handling the matter. Mr. Goodman stated that an important question of principle concerned the establishment of branches since it hardly seemed appropriate for a wholly-owned subsidiary to establish branches without the Board 13 Permission when, under the terms of the agreement with International Banking Corporation, the Board's permission would be required for the establishment of branches by that Corporation. He suggested adding to the Proposed letter language to the effect that the Liberian subsidiary would not establish branches in that country or elsewhere except with the Board's Permission, Mr. Sloan suggested an alternative form of letter to International Banking Corporation which would indicate that while the Board had no objection to the acquisition of the proposed Liberian subsidiary, it intended to amend the agreement between the Board and the International Banking Corporation. He felt that the amendment of the agreement need not necessarily be accomplished immediately but that in this manner the Corporation would be placed on notice of the Board's intention. 1590 9/13/55 -13Following further discussion of the proposed transaction and the action which it would seem appropriate for the Board to take, Mr. Vest suggested an amendment of Mr. Sloan's proposal pursuant to which International Banking Corporation would be asked for its views regarding an amendment of its agreement with the Board and action to amend the agreement would be postponed, at least until there had been a reasonable opportunity for the Corporation to offer any comments which it desired to make. Governor Szymczak said that in having this matter put on the agenda, he felt that the Board probably would not want to act today. The legal and policy aspects of the proposal having been outlined and alternative courses of action suggested, he proposed that a decision be deferred until after further discussion at another meeting of the Board. This suggestion was approved unanimously. During the foregoing discussion Messrs. Riefler, Young, and Molony withdrew from the meeting. The following matters, which had been circulated to the members of the Board, were presented for consideration and the action taken in each instance was as indicated: Letter to Mr. Hill, Vice President, Federal Reserve Bank of Philadelphia, reading as follows: In accordance with the request contained in your letter of September 2, 1955, the Board approves the designations of Alexander A. Kudelich and James M. Neveras as 9/13/55 -114- special assistant examiners for the Federal Reserve Bank of Philadelphia to participate in the examination of State member banks only. Approved unanimously. Letter to Mr. Armistead, Vice President, Federal Reserve Bank of Richmond, reading as follows: In accordance with the request contained in your letter of September 2, 1_955, the Board approves the designation of George B. Evans as a special assistant examiner for the Federal Reserve Bank of Richmond to participate in the examination of all State member banks. The Board also approves the designation Palmore, Jr. as a special assistant examiner eral Reserve Bank of Richmond to participate ination of all State member banks except the Bank and Trust Company, Richmond, Virginia. of Marvin A. for the Fedin the examState-Planters Approved unanimously. Reference was made to the request of The Pennsylvania Company for Banking and Trusts, Philadelphia, Pennsylvania, for permission to establish branches at the locations of the present banking offices of The First National Bank of Philadelphia incident to the proposed merger of the national bank with and into the State member bank. The file on this matter had been circulated to the members of the Board with a recommendation from the Division of Examinations that the request be apProved. The file also noted that The Pennsylvania Company for Banking and Trusts had submitted information to the Anti-trust Division of the Department of Justice relating to the proposed transaction. 592 9/13/55 -15A question was raised as to whether the Board should act on the matter prior to having been informed concerning the views of the Department of Justice, and it was suggested that the Secretary's Office communicate with the Chairman of The Pennsylvania Company for Banking and Trusts in order to ascertain whether that institution had received word from the Department of Justice. This suggestion was approved unanimously. At this point all of the members of the staff except Mr. Sherman withdrew from the meeting. Governor Robertson referred to a request from Mr. Goodman, Assistant Director Division of Examinations, for authority to travel to Denver, Colorado, during the period October 9-16, 1955, to attend the annual convention of the National Association of Bank Auditors and Comptrollers being held in that city October 10-13, 1955. In addition, he said, Mr. Goodman had inquired concerning travel to Chicago, Illinois, later this month for the purpose of attending the annual convention of the American Bankers Association and the meeting of Federal Reserve Bank re presentatives to be held in conjunction with the annual convention of the National Association of Supervisors of State Banks. He recommended aPProval of Mr. Goodman's request to attend the convention of the National As sociation of Bank Auditors and Comptrollers but said that he questioned the fecessity of the trip to Chicago, particularly in view of the fact 1.593 9/13/55 -16- that other members of the staff of the Division of Examinations had been authorized to attend the convention of the National Association of Supervisors of State Banks, which was to be held just prior to the convention of the American Bankers Association. FOT the reasons stated by Governor Robertson, Mr. Goodmants travel to Denver, Colorado, was approved unanimously but his proposed trip to Chicago, Illinois, was not approved. Minutes of actions taken by the Board of Governors of the Federal Reserve System on September 9, 1955, were approved unanimously. The meeting then adjourned. Secretary 13 Note: Pursuant to the action taken by the Board on August 29, 1955, the following telegram was sent to Mr. Erickson, President of the Federal Reserve Bank of Boston, on September 12, 1955: Reurtel today. Board approves effective September 13, 1955, rates of 2-1/4 per cent on discounts for and advances to member banks under Sections 13 and 13a, 2-3/4 per cent on advances to member banks under Section 10(b), and 3-1/h per cent on advances to individuals, partnerships, or corporations other than member banks under last paragraph of Section 13. Otherwise, Board approves establishment by your Bank, without change, of rates of discount and purchase in Bank t3 existing schedule. Board 13 announcement on change in discount rate is being given to press at 3:30 p.m. EDST today for immediate release.
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