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Minutes for
To:
September 14, 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
indicate approval of the minutes. If you were not present,
your initials will indicate only that you have seen the
minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Minutes of the Board of Governors of the Federal Reserve System on
Wednesday, September 14, 1960.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 9:00 a.m.
Martin, Chairman 1/
Balderston, Vice Chairman 2/
Szymczak
Mills 3/
Robertson
Shepardson
King 3/
Mr.
Mr.
Mr.
Mt.
Mr.
Sherman, Secretary
Hackley, General Counsel
Solomon, Director, Division of Examinations
Hexter, Assistant General Counsel
Landry, Assistant to the Secretary
Mr. Bryan, President of the Federal Reserve Bank
of Atlanta
Pan American Bank of
MIR-MI
situation.
Governor Robertson reported
on recent developments regarding the efforts of Mr. James Sottile, Jr.,
to find a buyer for his banks in Florida.
in the Board's offices on June
He referred to a meeting held
8, 1960, at which the capital and asset
Problems of Pan American Bank, Miami, Florida, were discussed, as reported
in a memorandum from the Division of Examinations to the Board under date
Of June 28, 1960.
As a result of that meeting Mr. Sottile was informed
that if arrangements had not been made to provide necessary additional
eapital for Pan American Bank by September 15, 1960, he (Governor Robertson)
would recommend to the Board that it take steps looking to forfeiture of
the bank's membership in the Federal Reserve System, and that he also
would suggest that the Board recommend to the Federal Deposit Insurance
Corporation that it cancel the bank's deposit insurance.
1/ Attended morning session only.
Entered meeting at point indicated in minutes.
-4/ Withdrew from meeting and reentered at points indicated in minutes.
1(1
9/14/6o
-2After reporting on recent efforts of Mr. Sottile to sell his
hanks, Governor Robertson said that yesterday afternoon he received a
telephone call from a partner of a brokerage firm that had taken an option
that would expire today for the purchase of the Sottile banks, from which
he gained the impression that there was perhaps a fifty-fifty chance of
the purchase going through.
However, the broker informed him that his
c°111Pany would need about two weeks more to inspect the banks, and he had
inquired whether the September 15 date could be extended to October 1.
Governor Robertson said that he had responded to the effect that he did
not have authority to act but would like to consider the matter overnight
and would call the broker today to inform him of the Board's reaction to
the request.
He went on to say that his conclusion, after reviewing the
situation with President Bryan of the Atlanta Reserve Bank, was that he
Would like to take the position today that, if Mr. Sottile requested an
extension to October 1, and if the prospective buyer understood that in
the event the purchase went through the new owners would be expected to
8UPPly the necessary additional capital, the Board would not stand in the
IlaY of Mr. Sottile's disposing of his property to maximum financial
advantage and that consequently the date would be moved to October 1.
Governor Robertson also reported that he received a telephone call
Yesterday from Mr. Moss, President of Pan American Bank, who informed him
that he planned to terminate his connection with Mr. Sottile and that if
he did so he expected two or three of the other officers who had become
associated with Pan American Bank more recently would do likewise.
45R
9/14/6o
-3President Bryan expressed agreement with Governor Robertson's
Proposal.
Since it appeared that Mr. Sottile was making a genuine effort
to dispose of his banks, he felt that it would be unfortunate if the
System were to take the position that it would not permit him the additional
time before taking more severe action.
Mr. Solomon said he assumed that, if a two-week extension was
granted to Mr. Sottile, it would be made clear to him that this was not
intended to provide additional time to "shop around" for a better offer
but rather was being provided to make it possible to conclude a deal with
the brokerage firm.
Mr. Hackley inquired whether the two-week extension under discussion
related to a time within which increased capital would be put up for the
Sottile banks, or whether it pertained to a period during which the current
negotiations for sale of the banks might be brought to a conclusion.
Governor Robertson replied that he had in mind that the time
extension would be for the purpose of determining the source of the
additional capital needed by the Sottile banks before he (Governor Robertson)
recommended actions by the Board relating to membership forfeiture or
deposit insurance.
Governor Mills questioned the desirability of fixing a new deaaline
date, stating reasons why he believed such a limit could be embarrassing
to the Board and weaken its position if the deadline were not met and the
Board then failed to take actions to remove the banks from membership or
-4-
9/14/6o
to recommend cancellation of deposit insurance.
He also referred to the
severe hurricane damage suffered by Florida since the September 15 deadline was set by Governor Robertson, a factor which he believed made it
Unwise for the Board to start drastic disciplinary action against the
Pan American Bank at this particular time.
Accordingly, he felt that no
Specific new date should be mentioned in connection with removing the
September 15 deadline but that Mr. Sottile and the brokerage firm should
be informed that the matter should be brought to a prompt conclusion.
In further discussion, Governor Robertson noted that the brokerage
firm had said that two weeks would be adequate for its purpose.
The
discussion also brought out that the September 15 denaline and the proposed
extension did not refer to agreement as to when the Board or the Federal
Deposit Insurance
Corporation would act on the Pan American case, but
rather to a date which Governor Robertson had set for making a recommendation to the Board.
There was also discussion of the steps that Governor
Robertson had taken to keep the Board, the Office of the Comptroller of
the Currency, the Federal Deposit Insurance Corporation, and other
interested persons
informed at all stages of the negotiations with Mr.
Sottile.
At the conclusion of the discussion, Chairman Martin said that the
130ard was in a difficult negotiation in connection with a problem bank,
that Governor Robertson had kept the Board informed of the negotiations,
4401 that it could be assumed that they were moving a serious problem case
9/14/6o
-5-
forward in a direction acceptable to the Board.
He felt that it would
be a mistake at this juncture to change the arrangement under which this
case was being handled.
As Governor Mills had brought out, this illustrated
the difficulty of a Board carrying on detailed negotiations on a supervisory
matter of this sort.
As he saw it, the Board should accept Governor
brokerage
Robertson's recommendation for permitting Mr. Sottile and the
would
firm additional time for their negotiations, and Governor Robertson
have to make whatever further recommendation to the Board he felt was
action it
appropriate, after which the Board would have to decide what
should take.
The Chairman felt that, apart from this case, the members
Of the Board should study its operating techniques to see whether they
could be improved.
In the meantime, unless there was disagreement it
would be understood that Governor Robertson would continue to carry forward
the negotiations with the brokerage firm and Mr. Sottile along the lines he
had recommended, taking note of the fact that not all members of the Board
were in agreement as to whether it was desirable for Governor Robertson
to extend to October 1 or on some other basis the time within which he
would make a recommendation to the Board as to action he felt should be
taken regarding Pan American Bank.
No statement of disagreement with the
Chairman's suggestion was heard.
Governors Mills and King and President Bryan then withdrew from
the meeting, and Mr. Nelson, Assistant Director, Division of Examinations,
entered the room.
‘1410
-6-
9/1.14./60
Release of Attorney General's report on a proposed bank merger.
Mr. Hackley reported a telephone call yesterday from the General Counsel
Of the American Bankers Association on behalf of Mr. Lee P. Miller, Chairman
Of the Board of Citizens Fidelity Bank and Trust Company, Louisville,
Kentucky, whose application for merger with BAnk of Louisville had been
denied by the Board on August 18, 1960.
He said that Mr. Miller desired
access to the report that the Attorney General had made in this case.
Mr.
Hackley stated that his reply had been to the effect that he was not free
to accede to this request without taking the matter to the Board.
He then
referred to section 18(c) of the Federal Deposit Insurance Act as amended
May 13, 1960, which requires that the Board include in its Annual Report
a statement of the basis for all of its merger approvals, including a
summary of the substance of any report submitted by the Attorney General.
Mr. Hackley pointed out, however, that the Board is not required to include
U1 the Annual Report cases which the Board disapproves.
Thus, without
going into the question whether it would be appropriate in any event for
the Board to release in advance of its Annual Report information as to
what views the Attorney General had expressed in a bank merger case, Mr.
Hackley felt that the response to be given to Mr. Miller in this instance
was that his request should be addressed to the Attorney General, rather
than to the Board.
There was agreement with this suggestion, and it was understood
that Mr. Hackley would so respond to the inquiry.
34(
9/14/6o
-7Items 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 Bank of Georgia, Atlanta, Georgia,
approving the establishment of three in-town branches.
Letter to Peoples State Bank of East Tawas, East Tawas,
Michigan, approving an extension of time to establish a
branch at 410 Lake Street) Tawas City.
2
Letter to the Comptroller of the Currency recommending
aPProval of the application of First-Peoples State Bank,
Traverse City, Michigan, to convert into a national
banking association.
3
Letter to County Bank of Santa Cruz, Santa Cruz, California, approving the establishment of a branch in the
vicinity of Front and Cooper Streets.
L.
Call for condition reports.
With a letter dated September 12,
1960, the Comptroller of the Currency enclosed a copy of a letter sent
Under the same date to the President of the National Association of
Supervisors of State Banks informing the latter of plans to issue a call
for reports of condition from national banks this fall and asking that
411 State bank supervisors be so informed.
Accordingly, a wire was sent
to the Presidents of all Federal Reserve Banks under date of September 13,
1960, advising that the Board would contemplate making a similar call
Upon State member banks.
9/14/6o
0, Fr
f
tied
t-w,
-8The action taken in sending the wire to the Reserve Bank Presidents
was ratified by unanimous vote.
Presentation of Hardy Subcommittee answers to Federal Advisory
Mr. Sherman referred to discussion at the meeting on August 31)
Council.
1960, of the question whether the Board should raise with the Federal
Advisory Council at the joint meeting tomorrow the possibility of increasing
from two to three days the maximum deferment period for credit to be granted
under the time schedules of the Federal Reserve Banks applicable to cash
items collected through the System.
In the discussion of this question that followed, the suggestion
was made by Chairman Martin that perhaps the Advisory Council should be
Provided with the Board's answers to all of the questions submitted by
Chairman Hardy of the Foreign Operations and Monetary Affairs Subcommittee
of the Committee on Government Operations of the House of Representatives
in a letter dated June 10, 1960.
At this point Governor Balderston and Mr. Noyes, Director, Division
Of Research and Statistics, joined the meeting, and Governor King reentered
the room.
Upon being informed by the Chairman of the question at hand,
Governor Balderston stated reasons why he believed it desirable that the
Federal Advisory Council be given copies of the letter addressed by
Chairman Hardy to the Board on June 10, along with copies of the Board's
Plies that had been sent thus far, namely, all but the answers to
9/14/60
-9-
questions 1 and 2 relating to float and to a single Federal Reserve note
issue, respectively.
Several other members of the Board having expressed a similar
view, and there being no indication of disagreement, it was understood
that copies of the Hardy letter and of the Board's replies would be
distributed to the members of the Council when it met with the Board on
September 15.
Publication of Board decisions on bank merger applications.
Governor Balderston reported a discussion with President Allen of the
Chicago Reserve Bank regarding the procedure followed by the Board in
announcing its decisions on bank merger applications.
Specifically,
President Allen had been asked by a bank in Chicago as to the basis for
the Board's adverse decision on August 18, 1960, on the application of
Citizens Fidelity Bank and Trust Company, Louisville, Kentucky, for
Permission to merge with Bank of Louisville.
Comment also had been made
that the votes of Board members on bank merger decisions were not made
Public, while votes on bank holding company applications were announced.
Governor Balderston went on to say that these comments raised in
his mind the question as to the way in which the Board should make available
information on bank merger cases.
In response to Chairman Martin's request, Mr. Hackley said that
there might be difficulty in understanding why there were differences in
handling merger applications under Public Law 86-463 and holding company
9/14/60
-10-
applications under the Bank Holding Company Act of 1956.
There was no
requirement in the law for publication of merger decisions in the Federal
Register, he said, and, in his opinion, there was not the same reason
for such publication as in the case of holding company decisions.
He
assumed, however, that in the case of merger decisions the Board would
include in its Annual Report a statement as to the basis for its approval
of each merger, as required by Public Law
86-463.
Mr. Solomon said that he also understood the Board was required
to report all merger approvals and the reasons therefor in its Annual
Report.
While there was no requirement for early publication of such
approvals, there was nothing in the law to preclude the Board's announcing
its decisions promptly.
Mr. Hexter noted that, with respect to applications under the
Bank Holding Company Act of 1956, the Board had only graduplly moved to
the point where it announced its decisions with statements of reasons thereand, the votes of the Board members.
He also commented that there was
a difference between the Bank Holding Company Act, administration of which
was vested solely in the Board, and the merger legislation, administration
Of which was vested in three different Federal bank supervisory agencies
With additional provisions for obtaining reports from the Attorney General.
Mr. Hexter suggested that, where three different agencies had administrative
'
lesPonsibility under the merger legislation, there might be justification
for the Board's refraining for the time being from issuing statements of
reasons for its decisions and announcing votes.
9/14/6o
-11Chairman Martin said he thought this a good point.
However, at
same stage perhaps the Board should look toward fuller disclosure of its
actions under the merger legislation as well as in other matters.
For
example, he continued to hear comments that the record of policy actions
taken by the Board and the Federal Open Market Committee would be more
useful if it were released at shorter intervals than a year when it
appeared in the Annual Report.
Perhaps there was a middle ground for such
releases; for example, quarterly releases might be feasible and desirable.
At this time, he questioned the desirability in the case of merger decisions
°f waiting for perhaps six months and then announcing the reasons for the
decisions and the votes.
His suggestion was that, in addition to any
legal requirements, the Board should be studying the public relations
aspects of merger decisions, recognizing that it might wish to move
gradually to a procedure similar to that followed in holding company
decisions.
For the present, however, the need for coordinating procedures
anlong three agencies was a problem that had not been solved.
Governor Balderston next referred to a telephone call last Friday
from Mr. Miller, Chairman of the Board of Citizens Fidelity Bank and Trust
Company of Louisville, in which the latter indicated he was coming to
Washington this week and wished to cAll at the Board's offices.
Governor
Balderston thought that Mr. Miller's telephone call might be related to the
approval last week by the Comptroller of the Currency of an application by
The First National Bank of Louisville to merge with Lincoln Bank and Trust
9/14/6o
-12-
Company of Louisville.
He anticipated that Mr. Miller might seek an
oPportunity to appear again before the Board to request reconsideration
Of its August 18 denial of the application of Citizens Fidelity to merge
With Bank of Louisville, and he inquired as to the nature of reply to be
given Mr. Miller in that event.
After Chairman Martin had commented that the Board would not
Wish to deny Mr. Miller an opportunity to present his views, Mr. Hackley
slIggested that it was quite possible Mr. Miller, rather than requesting
reconsideration of the August 18 decision, would wish to file an entirely
new application for permission to merge on the grounds that the facts had
changed materially since the Board had acted on the earlier application
Of Citizens.
Mr. Nelson then withdrew from the meeting.
System seminar to discuss answers to questions submitted by
.gommission on Money and Credit.
1111Y
'
8, 1960,
Reference was made to the meeting on
at which the Board authorized that steps be taken to arrange
for a seminar of System personnel to consider draft replies to questions
slibmitted to the Board on January 12, 1960, by the Commission on Money
and Credit.
Mr. Noyes stated that it now appeared that Monday and Tuesday,
October 10 and 11, would be suitable days for the seminar.
Thereupon the Board approved the making of final arrangements for
the holding of the seminar in the Board's building on those days.
All members of the staff withdrew at this point and the Board
Went into executive session.
9/14/60
-13Actions taken in executive session.
Later in the day, Governor
Shepardson informed the Secretary that during the executive session the
Board took the following actions:
1. Approved the appointment of Wilson L. Hooff, presently
Assistant Counsel, as Assistant General Counsel in the Legal
Division, effective September 181 1960, at a salary of $13,750
per annum.
2. Approved an interpretation of the term "each year of
service or fraction thereof" contained in the last paragraph
of the Board's letter of June 71 1956, S-1592, F.R.L.S. 9152,
relating to severance pay, under which interpretation this term
would be construed to include all service of an officer or
employee of a Federal Reserve Bank at any Reserve Bank or at the
Board of Governors. In approving this interpretation, it was
understood that appropriate advice would be given to all Federal
Reserve Banks.
The meeting reconvened in the Special Library at 3:00 p.m. with
the following attendance:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Szymczak
Mills
Robertson
Shepardson
King
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Hackley, General Counsel
Mr. Solomon/ Director, Division of Examinations
Mr. Hexter, Assistant General Counsel
Mr. Rudy, Special Assistant, Legal Division
Mr. Landry, Assistant to the Secretary
Miss Hart, Assistant Counsel
Mr. Thompson, Supervisory Review Examiner,
Division of Examinations
9/14/6o
Further information concerning Pan American Bank of Miami.
Governor Robertson said that following this morning's meeting he talked
by telephone with the brokerage firm that had called him yesterday about
Possible purchase of the Sottile banks and was informed that the firm
wished to withdraw its request for an extension of time since Mr. Sottile
had not seemed interested in selling his banks under the conditions laid
down.
Subsequently, he received a telephone call from Mr. Moss, President
of Pan American Bank, who confirmed that negotiations between the brokerage
firm and Mr. Sottile had fallen through.
Governor Robertson went on to
report on additional information Mr. Moss had given him as to Mr. Sottile's
next move, after which he said that Mr. Moss had indicated that Mx. Tenney
of Connecticut Mutual Life Insurance Company planned to get in touch with
him (Governor Robertson) regarding action to be taken in connection with
Pan American Bank.
Governor Robertson concluded his report with the
remark that, as had been the case right along, he was keeping the Office
Of the Comptroller of the Currency and the Federal Deposit Insurance
Corporation fully informed of developments in this case, and that he
would report any further developments to the Board.
Notice of Tentative Decision and Tentative Statement--Northwest
139ncorporation
Minneapolis
Minnesota (Items
5 and 6). There had been
distributed under date of September 13, 1960, a transmittal memorandum
from the Legal Division attaching for the Board's consideration a draft
°f Notice of Tentative Decision stating that the Board proposed to deny
'I'1)
9/14/6o
-15-
the application of Northwest Bancorporation to acquire 80 per cent or
more of the outstanding voting shares of The First National Bank of
Pipestone, Pipestone, Minnesota.
There was also attached to the memo-
randum a draft of Tentative Statement and a proposed press statement
regarding the Board's decisions.
Mr. Hackley said that the staff had encountered great difficulty
in preparing the Tentative Statement in this case and that even at this
stage it would like to make further changes to strengthen certain portions.
He noted that the difficulties encountered related to efforts to work in
two particular thoughts: (1) the effect on competition of the existence
Of a second holding company, First Bank Stock Corporation, in the area,
and (2) the likelihood of competition between the banks in Pipestone and
Luverne, which was only a short distance beyond the secondary fringe area
Of Pipestone.
He observed that in this connection there was no extensive
competition between the present subsidiary of Northwest Bancorporation
in Luverne and Pipestone National Bank, and the supplemental material made
available by the Division of Examinations relating to the competitive
stivation within a 50-mile radius of Pipestone National in Minnesota and
referred to at the Board meeting on August 31 had not been mentioned in
the Tentative Statement because it might be regarded as irrelevant to
competition.
However, there was a possible advantage to adding a comment
that of the 40 banks within a 50-mile radius, only 14 had deposits of
more than $3 million, and of these 14 all but 5 were controlled by one
-16-
9/14/60
or the other of the two holding companies, which condition would be
Changed by having all but
4 of the 14 banks controlled by either holding
company.
Governor King stated since he had indicated at the August 31
meeting that he did not favor directing the staff to draw up a Tentative
Statement that would deny the application, he had no strong feelings
regarding editorial changes.
He noted that his statement at the August 31
meeting was premised on the belief that no adverse effect upon present
competition would result from Board approval of the application.
Following certain suggestions for further changes in the wording
of the Notice of Tentative Decision and Tentative Statement, the Notice
and Statement were approved in the form attached as Items
5 and 6.
The meeting then adjourned.
Secretary's Notes: Pursuant to the recommendations contained in memoranda from appropriate
individuals concerned, Governor Shepardson
approved on behalf of the Board on September 13,
1960, the following items relating to the Board's
staff:
Salary increases
effective September 18, 1960
Eleanor S. Frase, Economist, Division of Research and Statistics,
from $12,470 to $12,730 per annum.
from
Edward Kalachek, Economist, Division of Research and Statistics,
$8,080 to $8,955 per annum.
Joyce Ann Meyer, Secretary, Division of Research and Statistics,
from $4,675 to $4,84o per annum.
349°'
9/14/60
-17-
Salary increases, effective September 18, 1960 (continued)
JoAnn L. Murray, Secretary, Division of Research and Statistics,
from $5,005 to $5,170 per annum.
Maria Jo Peterson, Payroll Clerk, Office of the Controller, from
$4,840 to $5,005 per annum.
Patricia L. Gannon, Secretary, Division of Administrative Services,
from $5,160 to $5,325 per annum.
John S. Hollis, Jr., Messenger, Division of Administrative Services,
from $3,185 to $3,290 per annum.
Transfer
Carolyn Ruth Cullipher, from the position of Clerk-Stenographer in
the Division of Personnel Administration to the position of Stenographer
in the Division of Examinations, with no change in her basic annual
salary at the rate of $41o4o, effective September 18, 1960.
f
Seere
BOARD OF GOVERNORS
OF THE
Item No. 1
9/14/60
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1960
Board of Directors,
The Bank of Georgia,
Atlanta, Georgia.
Gentlemen:
Pursuant to your request submitted through the
Federal Reserve Bank of Atlanta, the Board of Governors
of the Federal Reserve System approves the establishment
of branches by The Bank of Georgia at the following locations in Atlanta, Georgia:
2265 Cascade Road, S. W.,
Corner of Moreland and Custer Avenues, S. E.,
1349 Northside Drive, N. 1J.,
provided the branches are established within six months
from the date of this letter.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
ir"14
BOARD OF GOVERNORS
tr*il,
OF THE
.0
Cepj
Item No. 2
9/14/60
FEDERAL RESERVE SYSTEM
I
t 4
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
Q
s,
TO THE BOARD
444***
September 14, 1960
Board of Directors,
Peoples State Bank of East Tawas,
East Tawas, Michigan.
Gentlemen:
Pursuant to your request, the Board of Governors
of the Federal Reserve System extends the time within which
Peoples State Bank of East Tawas may establish a branch at
410 Lake Street, Tawas City, Michigan, to February 15, 1961,
under the authorization contained in the Board's letter
dated November 2, 1959.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 3
FEDERAL RESERVE SYSTEM
9/14/60
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOAR°
September 14, 1960
Comptroller of the Currency,
Treasury
Department,
Washington
25, D. C.
Attention Mr. C. C. Fleming,
Deputy Comptroller of the Currency.
441" Mr. Comptroller:
Reference is made to a letter from your office dated
August
,
12.
reo
- 1960, enclosing copies of an application of First—
tl4e8 State Bank, Traverse City, Michigan, to convert into a
i°nal banking association and requesting a recommendation as
whether or not the application should be approved.
A field investigation of the application has not been
nde but
the Federal Reserve Bank of Chicago has furnished us with
a re
48 Port on the application based upon the examination of the bank
c't August 15, 1960, and other data available.
Nor— The applicant bank was organized in 1931 and subsequently
It Eanlzed in 1934 after a stock assessment and waiver of deposits.
11:ras admitted to membership in the Federal Reserve System in 1939.
Inall capital structure, earnings prospects, and general character of
eata.keement of the bank are favorably regarded. The bank is well
th:Lulished and appears to be serving the convenience and needs of
con,!ea. Accordingly, the Board of Governors recommends favorable
Ila,..4ueration of the application of the bank to convert into a
`193nal banking association.
The Board's Division of Examinations will be glad to discuss
atlY aaPects of
dew
this case with representatives of your office if you so
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
9/14/60
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September
14, 1960
Board of Directors, .
County Bank of Santa Cruz,
Santa Cruz, California.
Gentlemen.:
Pursuant to your request submitted through
the Federal Reserve Bank of San Francisco, the Board
of Governors of the Federal Reserve System approves
the establishment of a branch in the vicinity of
Front and Cooper Streets, Santa Cruz, California, by
County Bank of Santa Cruz, provided the branch is
established within one year from the date of this
letter.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
4
34
BOARD OF GOVERNORS
Item No. 5
9/14/60
OF THE
FEDERAL RESERVE SYSTEM
TA= OF TENTATIVE DECISION ON APPLICATION FOR PRIOR
APPRO'vAL OF ACOUISITION BY A BANK HOLDING COMPANY
OF VOTING SHARES OF A BANK
Notice is hereby given that, pursuant to section 3(a)
cr
the Bank Holding Company Act of 1956, Northwest Bancorporation,
'eaPolis, Minnesota, has applied for the Board's prior approval
'4" th
acquisition of 80 per cent or more of the 1,500 outstanding
11°tirlg shares of The First National Bank of Pipestone, Pipe stone,
esota. Information relied upon by the Board in making its
teat
atttre decision is summarized in the Board's Tentative Statement
°f this date, which is attached hereto and made a part horeof, and
'111.ch is
available for inspection at the Office of the Board's
4el'etarY, at all Federal Reserve Banks, and at the Office of the
ral Register.
The record in this proceodinr to date consists of the
4PPI.
cation, the Board's letter to the Comptroller of the Currency
it
-
his views and recommendations on the application, the
of the Comptroller of the Currency, this Notice of Tentative
tleeisio
and
the Tentative Statement.
mt,?
For the reasons set forth in the Tentative Statement,
the Board proposes to deny the application.
Notice is further given that any interested person may,
11°'t later than fifteen (15) days after the publication of this
ce in the Federal ReOster, file with the Board in writing any
e lments upon or objections to the Board's proposed action. Commutlications should be addressed to the Secretary, Board of Governors of
the Pederal Reserve System, Washington 25, D. C.
Following expiration of the said 15-day period, the
"
4 t 3 Tentative Decision will be made final by order to that
effe t unless for good cause shown other action is deemed appro1311'ate by the Board.
Dated at Washington, D. C., this 15th day of
SePt°mber, 1960.
By order of the Board of Governors.
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
34'e.
BOARD OF OVERNORS
Item No. 6
9/14/60
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY N-i.RTHTEST BANCORPORATION, MINNEAPOLIS, MINNESOTA,
FOR PRIOR APPROVAL OF ACQUISITION OF VOTING SHARES OF
THE FIRST NATIONAL BANK OF PIPESTONE, PIPESTONE, MINNESOTA
TENTATIVE STATRENT
Northwest Bancorporation, Minneapolis, Minnesota
(nNorthwest"), a bank holding company, has applied,* pursuant to
4etiQn 3(a)(2) of the Bank Holding Company Act of 1956 ("the Act"))
1131" the Boar
s prior approval of acquisition of 80 per cent or
rilc)rbe of the 1,500 outstanding voting shares of The First National Bank
°fIliPostone, Pipestone, Minnesota ("Dank").
Views and recommendations of the Comptroller of the
— As required by section 3(h) of the Act, the Board gave
11(Itice to the Comptroller of the Currency of the receipt of this
Pplication. The Comptroller recommended that the application be
4DProved.
Statutory factors. — Section 3(c) of the Act requires the
()°(1 to take into consideration the following five factors:
the
financial history and condition of the holding company and
hatit
concerned; (2) their prospects; (3) the character of their
4 1Li
date aloP1
cation was filed prior to July 1, 1960, the effective
Drovicd' the amendment to section 4(e) of the Beard's Regulation Y
applications
kir,„,cling
-4ant for the publication of notice of receipt of
to section 3 of the Act in lieu of the issuance of tentative
°"8 and tentative statements by the Board.
:31 SO
-2rlanagement; (4) the convenience, needs, and welfare of the communities
and area concerned; and (5) whether or not the effect
of the acquisi-
tion would be to expand the size or extent of the bank holding corpany
sYstem involved beyond limits consistent with adequate and sound
benking, the public interest, and the preservation of competition
in the field of banking.
The first four factors. - The town of Pipestone, with
a Population of about S,700, is located in southwestern Minnesota in
well-diversified farming area. There are two banks in Pipestone,
The First National Bcnk of Pipestone, the subject of this application, with deposits of about $7.5 million, and the Pipestone National
Bank, with deposits of about $3.2 million. The latter bank is a
subsidiary of First Bank Stock Corporation, which also is a bank
h°1ding company.
With respect to the first three statutory factors, it
appears that, as to both Northwest and Bank, their financial history
and condition are satisfactory, their prospects are good, and their
14anagement5 are competent. In connection with their prospects and
Illanagements, the Board has considered (1) that the two senior
°racers of Bank, because of their age, are contemplating retirement
°r a less active role in Bankts management; and (2) that the
laqest single stockholder of Bank, who may eventually become the
the
1114j°ritY stockholder, is a nonresident who is not engaged in
481
_3_
banking business, and that this fact might affect the continuance
Of Bank in its present status.
However, these facts, in the Board's
°Pinion, are not sufficient to impair the future prospects of Bank
or to suggest that it will not continue to be competently managed.
With respect to the effect of the proposed acquisition
uPen the convenience, needs, and welfare of the area concerned, it
aPPears that Bank has consistently been a leading bank in the area
and has adequately met its customers' banking needs.
It is recognized
that Northwest's acquisition of control might result in
-
80me expansion of Bank's services and facilities, but this does not,
in the Board's judgment, provide strong ground in itself for approval
Of the application, since Dank already is adequately contributing
toiJard fulfilling the needs of its community for banking services.
The fifth factor. -
As in nearly all cases arising under
the Lank Holding Company Act, the most difficult determination
relates to whether the particular acquisition would expand the holdCompany's system "beyond limits consistent with adequate and
Sound banking, the public interest, and the preservation of competition
in the field of banking."
This is a determination that cannot be
illade in accordance with any formula but must be based upon consideration of all the relevant facts in each case.
3482
Northwest controls 77 banks in Minnesota; Iowa: Montana,
4/Ta8ka, North Dakota, South Dakota, and Wisconsin, Within
flr"
-1-esotal Northwest controls 47 banks with aggregate deposits of
"$1 billion.
These banks account for 7.2 per cent of total
QltIllercial banking offices in the State and about 26 per cent of
total deposits of commercial banks.
upon
In appraising the effect of the proposed acquisition
banking competition, the Board has taken into consideration Northwest's
Presentations as to the areas in which Bank's business originates
Aa indicated by a map submitted by Northwest, Bank's "primary area",
trem
Which it obtains about 73.2 per cent of its deposits of indi-
vidul
comprises
--Ls/ partnerships, and corporations ("IPC deposits"),
the
town of pipestone and an area within a radius of 7 miles from
—one; and its "secondary fringe area", from which it obtains
the remainder of such deposits, consists of the area beyond the
11:Inlarlr area but within a radius of somewhat less than 25 miles
*0111 Pipestone.
Northwest does not presently control any bank in Bank's
14111.1a„ or
secondary service areas. Northwest's nearest subsidiary
ba4k
is the Rock County Bank in the town of Luverne (population
415°Ilt
which is just beyond the limits of Bank's secondary
trin
ge area. In the general area between Luverne and Pipestone,
the,
e are three smaller banks not controlled by any bank holding
Corn
1/ 1117.0
It does not appear that there is extensive competition
eel' Bank and Northwest's subsidiary in Luverne.
3483
It is necessary, however, in the light of the fifth statutory
factor, to consider not only the extent to which Northwest's acquisition
of Bank would immediately lessen competition but also how it may affect
the future competitive position and growth of other banks in the areas
involved.
If Bank were to be acquired by Northwest, the holding company
would control one of the two banks in Pipestone and approximately
72 per cent of the 1PC deposits held by those banks.
Within the
Primary area and the secondary fringe area of Bank, as previously
described, there are 13 banks - 11 in Minnesota and 2 in South Dakota.
Bank is the largest of these banks.
Its acquisition by Northwest would
cause Northwest to control 32 per cent of the aggregate IPC deposits
held by the 11 Minnesota banks in those areas and nearly 26 per cent
er such deposits held by all 13 of the banks in those areas,
As has been noted, Northwest's designation of Bank's
secondary fringe area does not include the town of Luverne located
lust beyond the limits of that area.
There are two banks in Luverne,
°he a subsidiary of Northwest with total deposits of about qt.2 million,
arid the other a subsidiary of First Bank Stock Corporation with deposits
Qf about
Regardless of the extent of present competition
between the banks in Luverne and those in Pipestone, it is apparent
that the service area of the Luverne banks must to some extent overlap
taro).,
S secondary fringe area; and, in view of their proximity
arid the economic similarity of the areas served, it appears likely
34
-6that each of these banks, in order to retain its customers, must
°ffer banking services approximately as adequate and as attractive
as those offered by the others.
Accordingly, any realistic appraisal
Of the competitive effect of the proposed transaction should, in the
4ardts opinion, take this into account.
If the Luverne banks are
ackled to the banks located-inpankfs primary and secondary fringe areas,
it appears that Northwest's acquisition of Bank would cause it to
control about 30 per cent of the aggregate total deposits of the
15 banks.
In addition, the Board believes that the full effect of the
11..°Po3ed acquisition upon the public interest and preservation of comPetition cannot be fairly determined without taking into account the
fact that the other bank in Pipestone is a subsidiary of First Bank
Stock Corporation, a bank holding company which controls 36 banks in
5 States) 49 of which, with aggregate deposits of about $1,202,550,0001
al'e in Minnesota.
As indicated in the Board's Statement (1959 BULLETIN 134)
r egarding the application of Firstamerica Corporation to acquire stock
'
°t California Bank, the Board does not regard the Holding Company Act
aarneaning that the mere size or extent of an applicant holding company's
"em should itself be regarded as an adverse consideration.
Further-
tl1°1'e, the existence of a subsidiary bank of another holding company in
the
area in which an applicant holding company proposes to acquire a
bero_
"t does not, of course, compel an adverse decision.
The law re-
(1141"es the Board to consider whether a particular acquisition would
_7_
expand the size or extent of "the bank holding company system involved"
beyond limite consistent with the put,lc interest and preservation
Of competition. As a part of such consideration, the strength of
another holding company in the area concerned may be relevant.
The Board has recognized the adverse effect upon the public
interest and preservation of competition that may follow from control
°f a large proportion of the banking resources of a community by
relatively large bank holding companies. When Northwest sought to
acquire a proposed new bank in Rochester, Minnesota, the Board noted
that two of the three existing banks in Rochester were subsidiaries
°f Northwest and First Bank Stock Corporation, and that, if Northwest
should establish a fourth bank in Rochester, three of the four banks
140u1d be subsidiaries of these holding companies, and Northwest,
controlling two of those four, "presumably would be in a strong position
t° increase its relative proportion of the banking business of the
community." (1958 BULLETIN 11)
In the present case, the two holding companies would control
not only all
of the deposits of banks in the town of Pipestone but
4180 nearly 37 per cent of the aggregate deposits of all banks in the
P11-111arY and secondary fringe areas. If the two banks in Luverne were
4180 taken into account, Northwest and First Bank Stock Corporation
SC
-8together would control about 52 por cent of the aggregate deposits
held by the 15 banks.
These facts assume greater significance because
the bank .proposed to be acquired by Northwest is the largest of these
15 banks. Moreover, as indicative of the strength of the two
holding companies in the general area, it „lay be noted that, while
there are 40 Minnesota banks within a radius of 50 miles of Pipestone,
137 14 of these have deposits of more than $3 million.
"
Of these
larger banks, the two holding companies now control 9 and, if the
Proposed acquisition were consumtated, they would control 10 of the
14 larger banks in the general area.
It is recognized that there would remain within the
Prirdary and secondary fringe areas a number of alternative sources
banking services, including banks not controlled by a holding
e°iParlY.
However, all of these banks are smaller than the bank
ePosed to be acquired by Northwest. In these circumstances, it
'
Pl
is the Board's judgment that Northwest's acquisition of the largest
bank in the areas involved would have an adverse effect upon the
general competitive situation.
What has been said here should not be construed as suggesting
that the expansion of a bank holding company in an area in which
411°thar holding cocipany operates would be regarded by the Board in
1.1 cases as having an equally adverse effect upon banking competitto,
-* As previously indicated, the Board's decision must depend upon
4fi
-9all the facts of each case. Thus, in an earlier case involving
Northwest
(1959 BULLETIN 1)47), the Board approved an application
to acquire
a bank in Eveleth, iiinnesota, despite the fact that it
caused Northwest and First Bank Stock Corporation to control three
Of the five banks in the vicinity, since that adverse circumstance,
in the Board's opinion, was outweighed by considerations favorable
to the
proposed acquisition.
By contrast, in the present case it
aPPears to the Board that the benefits that may result from the proPosed acquisition are not sufficient to offset its adverse effect
11Pon the public interest and preservation of competition.
Conclusion. - After weighing all the circumstances of
this case in the light of the statutory factors, and for the reasons
heretofore indicated, it is the Board's conclusion that approval of
the proposed acquisition would not be consistent with the public
terest or the purposes of the Bank Holding Company Act and that
the application should be denied.
@FedFRASER