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Minutes for
To:
Members of the Board
From:
Office of the Secretary
September 14, 1962
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
°41Y that you have seen the minutes.
Chin. Martin
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
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Federal Reserve Bank of St. Louis
Minutes of the Board of Governors of the Federal Reserve
SYstem on Friday, September 14, 1962.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Mitchell
Mr. Sherman, Secretary
Mr. Kenyon, Assistant Secretary
Mr. Young, Adviser to the Board and
Director, Division of International
Finance
Mr. Fauver, Assistant to the Board
Mr. Solomon, Director, Division of
Examinations
Mr. Holland, Adviser, Division of
Research and Statistics
Mr. Koch, Adviser, Division of Research
and Statistics
Mr. Brill, Associate Adviser, Division of
Research and Statistics
Mr. FUrth, Adviser, Division of International Finance
Mr. Mattras, General Assistant, Office of
the Secretary
Mr. Eckert, Chief, Banking Section, Division
of Research and Statistics
Mr. Yager, Chief, Government Finance Section,
Division of Research and Statistics
Mr. Keir, Senior Economist, Division of
Research and Statistics
Money market review.
There were distributed tables relating
t0 the Preliminary results of, anci the extent of dealer participation
'the current Treasury advance refunding operation, along with a
14
t4b1
e summarizing monetary developments during the four-week period
elllecl September 12, 1962.
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Federal Reserve Bank of St. Louis
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y,
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-2Mr. Yager commented on the results of the refunding operation
414 discussed other developments in the Government securities market,
r0110wing which Mr. Holland reviewed recent trends in bank loans,
the money supply, and bank reserves.
Al]. of the members of the staff then withdrew except Messrs.
Sherman, Kenyon, Fauver, Solomon, and Mattras, and the following
elatered the room:
Mr. Hexter, Assistant General Counsel
Mr. Daniels, Assistant Director, Division
of Bank Operations
Mr. Kiley, Assistant Director, Division
of Bank Operations
Mr. Leavitt, Assistant Director, Division
of Examinations
Discount rates*
The establishment without change by the
l'ederai Reserve Banks of New York, Cleveland, Richmond, Atlanta,
Chie4go, St. Louis, Minneapolis, Kansas City, and Dallas, on
SeAtember
13, 1962, of the rates on discounts and advances in their
elciSting schedules was approved unanimously, with the understanding
tha+
" aPpropriate advice would be sent to those Banks.
Circulated or distributed items.
The following items, which
114d been circulated or distributed to the Board and copies of which
attached
to these minutes under the respective item numbers
lialleated, were approved unanimously:
Item No.
tetter to
The Gallatin Company, Inc., New
ill 4', New York, granting consent to a change
70 ',11e. location of its principal office from
nroadway to 350 Park Avenue.
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Federal Reserve Bank of St. Louis
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-3-Item No.
T
2
relegram to the Federal Reserve Bank of Atlanta
lalterposing no objection to proceeding with the
vest
addition to the head office building.
3
eietter to
Provident Tradesmens Bank and Trust
°mPalaY, Philadelphia, Pennsylvania, approving
,
7 change in the location of an approved branch
-Ln Gladwyne,
Letter to Security Bank & Trust Company of
:
1 °2eman, Bozeman, Montana, approving an
rivestment in bank premises.
14.
rLetter to the Federal Reserve Bank of Minneapolis
be
.5,i_8-ticling Board approval of the investment in
07L loremises by Security Bank & Trust Company
Bozeman, Bozeman, Montana. (With the underilag that edited copies would be sent to
the
Presidents of all Federal Reserve Banks.)
5
Leetter to the Federal Reserve Bank of San Francisco
gaz'cling the question of republication of certain
r,,
?Its of condition of Fidelity Bank, Beverly
California.
6
Idetter to Wells Fargo Bank, San Francisco,
alifornia, approving an extension of time to
est4bl
ish a branch in Sacramento County.
7
Lette
pr r to
the Chairman of the Conference of
toesiderits noting without objection a proposal
ellgage the services of Stanford Research
m rititUte
for a study of the feasibility of
„!chanizing the currency sorting and counting
"lt
ions of the Federal Reserve Banks.
8
All of the members of the staff then withdrew except Messrs.
She1"rn
--("1/ Kenyon, Solomon, and Leavitt, and the following entered
the
rOom:
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Federal Reserve Bank of St. Louis
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Mr.
Mr.
Mr.
Mr.
Mr.
Chase, Assistant General Counsel 1/
O'Connell, Assistant General Counsel 1/
Shay, Assistant General Counsel
Powell, Special Counsel to the Board 1/
Stephenson, Special Assistant, Division
of Examinations
Continental Bank and Trust Company.
Governor Robertson
requested that the record show that although he would remain in
the room for the following discussion of a matter relating to the
841111thistrative proceeding against The Continental Bank and Trust
C°11/1)411Y, Salt Lake City, Utah, he would not participate in the
(118
eussi0n or any action taken by the Board, in accordance with
418 long-standing position of having withdrawn from participation
14 the matter.
Since the previous discussion by the Board of the Continental
°48e, there had been distributed to the Board: (1) letter dated
8e1)tember 6, 1962, from Kenneth J. Sullivan, President of Continental,
clet4iling the terms of a proposal to increase the capital of the bank
4s
POSSible
basis for termination of the administrative proceeding against
the bank; (2) memorandum from Messrs. Chase and Powell, Board Counsel,
— 11ting on Mr. Sullivan's letter; and (3) memorandum from the
'
the
Dlierisl°n of Exsminations dated September 13, 1962, analyzing
orTer
Of settlement and submitting certain statistical data prepared
bY the
Division of Bank Operations.
At the Board's request, Mr. O'Connell commented briefly on
the conversations he had held with Mr. Sullivan in Salt Lake City
°unsel to the Board in the matter of Continental Bank and Trust
,
'°mPany.
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Pursuant to the instructions given by the Board on August 29, 1962.
(Mr. Ahlf, Chief Examiner of the Federal Reserve Bank of San Francisco,
4180 participated in these conversations.)
Mr. O'Connell said he had made Mr. Sullivan aware of certain
clitticulties seen in the proposal that the latter had made orally
t° President Swan of the San Francisco Reserve Bank, as reported in
MI% Swan's memorandum of August 18, 1962. Also, he had made it clear
to Mr• Sullivan that he was not in Salt Lake City in the role of
baqatner, but rather to receive any alternative proposal that Mr.
kilivan might care to make.
Subsequently, he had expressed certain
Pel.801141 views with regard to alterations in the proposal suggested
1DY. Mr. Sullivan.
Mr. Sullivan then either withdrew those modifications
01'Placed them in a form he thought might be acceptable to the Board,
%lithout further suggestions on the part of Mr. O'Connell.
Mr. O'Connell said he believed Mr. Sullivan was sincere
'hat he proposed to do with Continental Bank. It was Mr.
ettla,tvan s expressed purpose to proceed toward normal banking
°Perations. He felt that Continental had suffered by virtue of
the
Pendency of the administrative proceeding and pointed out that
it had not grown in proportion to other banks in the area. The only
8°1141°n/ as Mr. Sullivan put it, was to move as soon as possible
°Mal banking operations, in a framework suitable to System
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membership, and to work like other member banks with the Board and the
?ederai Reserve Bank of San Francisco.
the propos
al
If the Board were to reject
however, Mt. Sullivan indicated that he would have no
alternative except to litigate the matter until an ultimate court
decision was rendered.
Both Mt. Sullivan and Mr. Billings, Counsel
t°r Continental, who was called in by Mr. Sullivan when his letter
11a8reakr for transmittal to the Board, expressed the view that "no
inatter who wins the case, no one will win."
Although Mt. Billings
1141/tiling to continue the case and thought Continental was correct
14 its argument regarding capital, he expressed the judgment that
the &LW-Jive:1m proposal was the best workout in the circumstances.
Chairman Martin then suggested that Mt. Powell review the
1)°111ts he had made at the Board meeting on September 7, along with
al Y other points he would like to make.
In his initial comments, Mt. Powell said he looked upon
hie role at today's meeting as one of advising a client of long44
%t1
'
ng as to what he thought was in the client's best interest.
recommendation would not be influenced by the fact that a
e441t41QUation of the case would result in the payment of further
ree8 to his firm, or by anticipation of the "professional victory"
th'4 he Was convinced he could win for the Board if the case were
cttrzq4.e1
through to an orderly completion.
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Mr. Powell went on to say if Mr. Sullivan had come to the
Board with a proposal that beyond any doubt would result in
Continental Bank becoming adequately capitalized, he (Mr. Powell)
Ifould be the first to recommend that the Board accept it and
terminate the proceeding.
In his view, however, the present
Im°Posal was not of that nature.
Therefore, it was his unpleasant
dutY to recommend that the Board complete the capital adequacy
131‘13eceding in an orderly way and decide the case in the normal
e°11rse of events on the basis of the evidence contained in the
leeord.
'
The Board was on notice, Mr. Powell said, that the addition
or $1)100,000 of capital, as proposed by Mr. Sullivan, would still
Continental with a substantial dollar deficiency under every
"44ta1 ratio and formula recognized by the Board in its order and
"Mement of July 18, 1960.
The Board also was on notice that in
the Judgment of experienced bank supervisors who were to appear at
the show cause hearing, now scheduled to begin on October 15, 1962,
the character of the bank's operations required even more capital
1*(41 dePositor protection than the amounts indicated by the several
Ilati°s or formulas or by the median capital of banks
in the same
8iZe group.
Mr. Powell reminded the Board that the adversary proceeding
Vas,
"olf at an advanced stage.
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Federal Reserve Bank of St. Louis
This was not a case where a member
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-8-
bank vith inadequate capital was cooperating with the bank supervisors and came in with a plan that eventually would correct its
e4Pit8.1 deficiency.
Continental had refused to cooperate to this
end over a period of many years.
Instead, it had insisted on a
1311b1ic and formal adversary proceeding to test the statutory
authority
of the Board to require a member bank to maintain
tidequate capital and to test the ability of the Board to prove
the caPital requirement of a bank.
The administrative proceeding
instituted
some six years ago had been widely publicized as a test
e4e of first impression on the two points as to which Continental
441 challenged the Board.
In its 1960 order the Board concluded
that it had the authority to require adequate capital.
It also
d'efined a method of determining a bank's capital requirement, along
141th the adequacy of a bank's capital.
All that remained was for
the Board to determine whether Continental's membership in the
1-11erlaa Reserve System should now be terminated.
This would
l'ecluire simply a stipulation of facts and a few days of hearings,
tolicil
'
/I-1143 which the matter would be submitted to the Board by the
liee
'
iiing Examiner. There would be briefs of Counsel, and there
eQ1 /4 12e oral argument if the Board so desired.
It was Mr. Powell's opinion that the Board would prejudice
1)°sition in the field of regulation of bank capital if at this
Ne it terminated the proceeding on any basis that would not
in Continental's having adequate capital.
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Federal Reserve Bank of St. Louis
The Board would
9/14/62
-9-
in effect be repudiating its own method of establishing capital
MENNacY, as laid down in the 1960 order and statement. Also, it
IfoUld in effect be establishing lower standards of capital for
member banks than indicated by the application of accepted capital
Ilatios and formnlas.
The Board's action would doubtless be interpreted
48 indicating lack of confidence in its legal position in this field
°f regulation.
Mr. Powell noted at this point that he was familiar with
the memorandum from the Division of Examinations dated September 13,
1962) and the attached statistical data.
His further comments would
be made
in the light thereof.
Mr. Powell then commented that under all of the bank capital
ratiOs and formulas recognized by the Board in its
1960 order and
tEttement, Continental would continue to have a capital deficiency
or su
bstantial dollar proportions after the addition of the $1,100,000
of Ilev capital contemplated by the Sullivan proposal.
the .0ard not to be misled by percentages.
131at
48tical studies
He warned
According to some of the
Continental would appear to have, after
1**I
tuation of the Sullivan proposal, a fairly high percentage of
the e
aPital required lInder the various ratios and formulas. However,
41,0sitars
must be paid in dollars, and Continental would still have
4 sub
stantial deficiency in terms of dollars.
At this point Mr. Powell distributed to the members of the
keal.
a table which Showed in one column Continental's actual
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Capital plus valuation reserves as of June 30, 1962, and then showed
the dollar amount of the bank's indicated deficiency on that date-both
before and after taking into consideration Mr. Sullivan's offer--
°I) the basis of three capital ratios or formulas and also in relation
to the
median primary risk-asset ratio of all member banks in the
same size
group.
After describing in some detail the figures shown in the
table) Mr. Powell brought out that, after giving effect to the
8141-1Avan proposal, Continental's capital deficiency would still
tange from $700,000 to $1 million.
He also brought out that the
derieielleY suggested by the Form for Analyzing Bark Capital
*'5,000) reflected various adjustments that had been made in
1'411°1
' of Continental.
If the raw formula had been applied, it
'4°Ltla show Continental's capital requirement to be $8,472,000
l'ather t,nan
$7,325,000.
Mr. Powell then distributed copies of the Form for
41444zing Bank Capital prepared in such manner as to show an
a4ftege" based on the December 30, 1961, call reports of all
Illber tanks, This indicated that the "average member bank"
1141 1%.9 per cent of the capital requirement.
He added that
°II the basis
of using published information only, certain factors
ci not
be included in this computation, such as the amount
or
ci
assified assets.
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Federal Reserve Bank of St. Louis
Nevertheless, the paper he had distributed
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Beemed to show rather conclusively that the so-called ABC form
1"118 not unduly harsh on banks.
On the other hand, if no special
adinstments were made in its favor, Continental had only 76 per
cent of the capital requirement indicated by the form even after
givin8 effect to the Sullivan proposal.
Mr. Powell also referred to one further statistical
"411Parison, nsmely, Continental's average primary risk-asset
l'ati° of 10.5 per cent for the year 1961, which compared with a
Medlan of 15.9 per cent for all member banks in the Twelfth District
4114 4 13-3 per cent median for all member banks in its size group.
Re noted that it would have required additional capital of $2,315,000
to bl'ing Continental's ratio up to the median of all banks in its
814e grouP, or $1,215,000 after giving effect to Mr. Sullivan's
°trer.
The foregoing, Mr. Powell said, was the basis for his
stEment that under no recognized or accepted capital ratio or
8teketical comparison would Mr. Sullivan's proposal render
C°11tinental's capital adequate.
It would fall short by rather
81tential dollar amounts ranging from $700,000 to as much as
Itl'°144 $1,200,000.
As the Division of Examinations had pointed
'however, this was only the starting point in determining
QIIt
/41ether a bank's capital was adequate. Even more important was
the
xloerienced judgment of bank supervisors, formed in the light
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c3f the characteristics of a particular bank's operations.
It was
the unanimous judgment of the bank supervisors who were to testify
at the
show cause hearing that a number of factors would call for
C°Itinental to have an even more substantial capital account than
the 80-called "average bank." He had enumerated some of the principal
fact°r8 in the memorandum submitted to the Board prior to this meeting.
Row
ever) he would like to call attention to one or two of these
P°ints
by
n the light of the new statistics that had been prepared
the Division of Bank Operations.
One was Continental's role as the key bank in a chain and as
elsedit correspondent bank for a large number of relatively small
ba.1*6*
Thus,
9.68 per cent of Continental's total deposits as of
aUlle 30) 1962, consisted of deposits of other banks, compared
Ilith 4
median of 1.13 per cent for all banks in its size group.
?I'°111the report of examination of Continental made as of January 8,
1962, there were 52 banks--if he recalled correctly--that were
substantial deposits with Continental, and 15 carried more
t1141140 Per cent of their total cash and due from banks in the form
or dePosits with Continental.
Thus, if Continental got in trouble
tli08e 15 banks would be in serious difficulty and 52 banks in the
1/0uld be hurt by the loss of all or part of their substantial
4ellosits carried with Continental.
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Federal Reserve Bank of St. Louis
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9/14/62
-13Also, Continental traditionally had low net earnings.
Vice President Crosse of the New York Reserve Bank felt that the
13°E1rd should not depend on any future retention of earnings to
correCt the
current capital inadequacy.
In Mr. Crosse's opinion,
C°ntinental would need all of them to keep its capital adequate in
the light of the growth that might be expected once the administrative
°ceed1ng was concluded.
'
1)1
This might be the reason, Mr. Powell
ellggested, why Mr. Sullivan had made no commitment to retain any
given amount of future earnings.
Additionally, Continental had followed the practice of
selling substantial amounts of loans to other banks.
It stood
lead5r to repurchase those loans whenever requested, and their
'
tetal ran around $2.9 million.
FUrther, Continental had the reputation of being extremely
1b
1 eral in making loans and even boasted of that fact in its annual
Ise15°rt to stockholders.
b4111"
This was borne out by examinations of the
Continental continued to be a heavily loaned bank, with
54 Per cent of its total assets in loans as of June 30, 1962,
ecinil3exed with a median of 48 per cent for banks in its size group.
Its bond portfolio was relatively swill compared with other banks
the group, amounting to only 64 per cent of the median figure.
It c°ntinued the practice of holding a large part of its portfolio
14 1°ng-term bonds and had $500,000 market depreciation in its bond
IlecoUnt as of the January 1962 examination date.
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Continental also continued to have a large part of its
caPital account committed to fixed assets, which would be of
little value if the time came when it was necessary to obtain
cash to pay off depositors.
Continental had 41 per cent of its
caPital account in such assets compared with a median of 17 per
cent for all banks in its size group.
Giving effect to the addition
°r capital proposed by Mr. Sullivan, Continental's figure would
be 33 per cent. If Continental should increase its investment in
rixecl assets to the extent suggested by the Sullivan offer, its
rigUre would be 36 per cent.
The bank's depositors did not have the protection of an
114ePendent board of directors.
This had given rise to a number
°r (l.nagement practices for which Continental had been severely
criticized in the past.
As pointed out, the most important
ilatartgible factor in determining the capital requirement of any
barlk is
management.
Mr. Powell said he did not doubt that Mr. Sullivan
sin
cerelY wanted to get rid of the capital adequacy proceeding.
It /fa
8 a bother and an expense to him. However, Mr. Sullivan did
tot r
ePresent new management in Continental. He had been former
l'rez0A
."-Lent Cosgriff's chief of staff during the entire period since
the hank
became a State member bank of the Federal Reserve System.
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Federal Reserve Bank of St. Louis
-15tact, according to the record of the proceeding, Mr. Sullivan
actuallY had more to do with the running of the bank than Mr.
C°sgriff.
True, Mr. Cosgriff could overrule Mr. Sullivan.
Nevertheless, Mr. Sullivan was the man operating the bank and
the
man responsible for a great many, if not most, of the problems
that Mr. Powell had just enumerated.
He was president of the
ballitd4ring the time Mr. Cosgriff was a director of the Reconstruction
1111arme Corporation.
As the Board would recall, several years
ag° it was necessary to issue a section 30 warning to Mr. Sullivan
tca" over-drawing his checking account because of bank stock
siculation.
In the course of this proceeding, Mr. Sullivan had
hliagged about the Paramount Life Insurance Company arrangement and
l'elnarked that the ba.nk examiners were not supposed to have uncovered
it.
Also, Mr. Sullivan was responsible for one of the riskiest
loans on
the books of Continental today.
He had been one of the
csthostile and adamant witnesses to appear in this case.
1
11112111ate Y after Mr. Cosgriff's death, Mr. Sullivan and his fellow
°Ilticers--sitting as a board of directors--voted themselves
"talltial salary increases even though the bank was already
tth
ueet to criticism for having such a large group of senior
c)tricers when the bank had a low capital structure and needed more
ned earnings to bring up its capital.
Also, Mr. Sullivan was
l'eslaollsible for the window-dressing at the end of 1961 when
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Continental's deposits were artificially inflated so as to misl'ePresent the bank's true position to stockholders and depositors.
Not even Mr. Cosgriff had engaged in that practice.
If Hearing
Examiner Woodall was in fact improperly influenced, Mr. Powell
8414, it was Mr. Sullivan who did it.
He entertained Mr. Woodall
414 madethe bank's car available to him, a matter for which Mr.
14°°cIall had been criticized.
In summary, Mr. Sullivan unfortunately
4ta Mt represent a fresh breath of new management blowing over the
C°11tinental situation.
On the basis of the facts that appeared in
the record, he was not the model of a modern member banker. This
1/4a a factor that the Board should bear in mind, in view of the
tact that manAgement was one of the most important intangible
factors that the Board had to evaluate.
The Board should also bear in mind that the Federal Deposit
1-11611r.'
4-Lee Corporation, a sister regulatory agency with an important
stak,e
in this matter, would have a representative appear at the
611°1? cause hearing.
This representative had advised Board Counsel
that in his view Continental should be required to increase its
eaPital in the amount of $2 million.
This was a test case, widely publicized, as illustrated by
the SePtember 10, 1962, issue of the American Banker, which contained
4 lead- article of the kind that was likely to be published freely.
The
article suggested that bankers would be watching closely the
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hearing in Salt 1%0e City.
That was why the Board should not
accept an offer of settlement that did not result in complete
adeclUacY of capital.
During the course of Mr. Powell's remarks, Chairman Martin
as
called from the Board Room.
After Mr. Powell had concluded
his comments, the Vice Chairman called upon Mr. Solomon.
Mr. Solomon said there were two points he would like to
4111ke by way of general background.
First, the Division of Examinations
lias very much interested in the question of capital adequacy, which
lias right at the heart of bank supervision.
It was extremely im-
14)rtant that the Board exercise powers in this field in order to
--e sound bank supervision.
Second, he felt that the Board had
been veil served by Mr. Powell in this proceeding.
14)1'keci 1°ng and diligently, with good results.
Mr. Pavell had
The court decisions
that had been obtained thus far would be valuable to the Board in
anY case in the future.
Mr. Powell had kept linremitting pressure
°11 this case; otherwise, the Board probably would not have before
it
the present offer of settlement.
Turning to the capital position of Continental, and what
it
W°41d look like after the adjustments resulting from Mr.
Ivan's offer, Mr. Solomon said the questions that had arisen
betue
en the Division of Examinations and Mr. Powell from a
Ett
istical standpoint had been substantially resolved.
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Federal Reserve Bank of St. Louis
He did
9/14/62
tot think
there was any substantial difference of opinion as to
where the
figures came out at this stage.
Continental's capital
totaled about $5.4 million on June 30, 1962, and most of the
aPPraisals would say that the bank needed in the neighborhood of
$7.4 million.
Thus, Continental's capital was roughly $2 million
below what might be regarded as the optimum.
As to the Form for Analyzing Bank Capital, Mr. Solomon
noted
Powell's comment that every conceivable adjustment
bad been in
favor of Continental.
The Division of Examinations
11°41d prefer to say that reasonable and appropriate adjustments
had been made.
However, the view that Continental should have
*ell $7.3 million to $7.5 million of capital to be in an optimum
Position seemed quite generally recognized.
The next question was how completely and how rigidly the
13°ar
- *as going to insist that a bank conform to such a standard.
14abanks did not have that kind of a capital position.
°r the
81
Effectuation
aullivan proposal would mean that Continental would have about
1:)er cent of the $7.4 million of capital that might be regarded
45 the oPtimum figure.
True, the bank had certain characteristics
1143:""ld make it desirable for the bank to have fairly close to
the 0,,4.
v'imum level, particularly when it was acting as the key bank
or a
of banks. Something in the neighborhood of 90 per cent
the
°Ptimum capital should be looked for from this bank. However,
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Mr. Sullivan was now making a proposal that would place the bank at
about 87 per cent.
Certain factors could be mentioned as requiring
8°Iaewhat more capital than indicated by statistical measures, but
ImanY or those were already taken into account in the Form for
41*1Y2ing
Bank Capital.
These included funds due to other barks,
the relatively high ratio of loans to deposits, the level of the
G°Iternment bond portfolio, the longer-than-average maturity of the
P°rtr°110, and the relatively high amount of fixed assets.
Where it
va8 indicated by the form that Continental needed about $7.3 to
$7.5 .
Mallon of capital, these things had been taken into account.
M. Solomon agreed with Mr. Powell that a great deal depended
°n raanagement.
Here, however, the matter began to get into intangibles.
11° one could
say for certain what kind of man Mr. Sullivan was, but
tIle Federal Reserve Bank of San Francisco had found him to be a man
Of hi
• word, even despite the strained relationships with Continental
B44k
* Mr. Solomon noted that a man is not the same person when
Ilecellcl in command as when he is first in command. While it was true
that
Mr. Sullivan was first in command at Continental during the
Pell°c1 uhen Mr. Cosgriff was with the Reconstruction Finance
C°11)0 ati
--°n, Mr. Solomon doubted that he was more than nominally
control of the bank.
Thus, it seemed appropriate to take
into „
--count the changed circumstances under which Mr. Sullivan
1412 ON,. A_
—raLing.
'
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Federal Reserve Bank of St. Louis
It seemed almost inconceivable that Mr. Cosgriff
9/14/62
-20-
would have made an offer of settlement, unless perhaps some nominal
offer.
He had said that Continental would never put up $1 of capital
by selling additional stock.
Mr. Sullivan's offer included the sale
Of stock
--and in more than a nominal amount, in fact a little over
half a million dollars.
With regard to the window-dressing operation referred to by
Mr
'Powell, Mr. Solomon said he would not want to defend windowdres54__
.Luts in principle or in this specific case. As he understood it,
h°1'relrer
in this case the window-dressing was engaged in for a reason
Other than
to give an impression of large figures.
done for tax purposes.
Instead, it was
Treasury regulations prescribe that certain
thin° shall be added together to find the basis for the bad debt
reserve. Thus, it is desirable tax-wise for a bank to have a high
b4se for the
bad debt reserve.
The higher the base, the more of a
bank's earnings can be set aside tax free to go into the reserve.
48 far as bank supervisors are concerned, the larger the bad debt
—
the better. The procedure followed by Continental followed
the
Tr.
—Bury regulations, and Mr. Solomon felt certain that other
ballks had done the smIr thing.
In fact, this window-dressing operation
alre Continental an adverse appearance at the end of the year as far
cA
-P-Ltal ratios were concerned, since it indicated a very heavily
1°44ed
position.
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Federal Reserve Bank of St. Louis
r
9/14/62
-21Simmarizing Continental's capital situation, Mr. Solomon
said that, giving consideration to Mr. Sullivan's offer, the bank
14.°111d. have about 87 per cent of what would be considered by any of
the vell-recognized measures as optimum capital.
that this was an abundant capital position.
No one would contend
On the other hand, he
did not
consider it an extremely low or unreasonable capital position.
It was
for the Board to decide, of course, whether in the particular
11°sture of this case it would be desirable to pursue the capital
ade(luacY proceeding to a finish.
This involved the question whether
turther prosecution of the matter, after an offer such as Mr. Sullivan
had made) would be regarded as vindictive and an attempt to harass
this Particular institution.
Governor Mills noted that Mt. Sullivan had refused to admit
the authority of
the Board to require a bank to provide additional
callitals
He inquired whether it was felt that a man who had served
as second in command of a bank for many years and had acceded to
the unsound banking practices of his superior was the kind of man who
c°11141 be expected to change his habits.
He inquired whether Mr.
8°1°r°°n Would like to see in charge of a bank an individual who,
disPuted the soundness of the practices followed by the
i Lstit
)
n, nevertheless remained a party to them.
--"
if
Mr. Solomon replied in terms that he thought the principal
tillarrel that the Federal Reserve System had had with this bank
re
lateAt to
the capital situation. The bank had been criticized for
`'Ll Practices, but in general they traced back to the question of
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Federal Reserve Bank of St. Louis
-22The bank had taken certain risks.
However, if the bank
had had adequate capital, they would not have been flagrant risks.
Governor Mills indicated that he could not agree with this
st
mement.
Governor Balderston noted that Continental kept its books
°II 4
cath rather than an accrual basis.
Some of the figures that
116144 now been placed before the Board were based on end-of-June data.
Re inquired whether it appeared that at some other time of year,
as the end of March, the figures would have looked better or
itorses
Mr. Solomon replied that there appeared to be a time in
the .pring
of each year when Continental's capital position looked
"
111
favorable. In March of this year its position looked more
ralrorable than it did at the end of the preceding December or at
the end of June.
at
This was also true in April 1961. The figures
tilat season of the year did not seem truly representative of
the hauk's situation; the end-of-June figures seemed to come closer
tc)xlerlecting an average picture of the bank.
Chairman Martin returned to the roam at this point.
In further reference to Governor Balderston's question,
114.1)clwel1
said that the Form for Analyzing Bank Capital had been
41)1534ed to Continental for examination dates going back to 1951.
l'esults showed that regardless of the time of year when the
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Federal Reserve Bank of St. Louis
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examinations were made, a substantial deficiency of capital was
indicated.
There were certain times of the year when the bank
sPPeared better capitalized than at other times, but the capital
deficiency of Continental was apparent despite the time of year
at which examinations took place.
With regard to Continental's method of bookkeeping, Mr.
4-1- noted that in 1957 a special study was made by a certified
141b1ic accountant because the bank contended it had hidden reserves.
This study shoved that there were no hidden reserves arising out
ot the cash method of bookkeeping. One reason for making the 1962
exiq„,
—m-Lnation in the early part of January was to catch the bank at
tilne when it had just ramie its payments of interest on savings
4ceounts and when it had just made dividend disbursements.
In
thie manner the Reserve Bank was trying to get a true picture.
because it did not keep its books on an accrual basis,
tencled to look artificially good just before the payment of
diliidends and interest.
Chairman Martin then turned to Mr. O'Connell, who began
his r
"larks by expressing concurrence in Mr. Solomon's commenda-
ti0
4 c'r Mr. Powell.
Mr. O'Connell also made it clear that if the
'd should reject the offer of settlement he would continue to
13°41
%7(11'k closely with Mr. Powell and Mr. Chase in pursuance of the
13°41sdi s Position to the point of the most favorable decision that
Co1114 be reached.
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Federal Reserve Bank of St. Louis
9/14/62
-24As to the validity of Mr. Sullivan's proposal, Mr. O'Connell
said that he had tried to measure it against several considerations
that he felt the Board must bear in mind.
am" study,
After considerable thought
he could not concur in the recommendation of Mr. Powell.
T° the contrary, in his judgment the proposal submitted by Mr. Sullivan -he viewed as in effect a proposal of Continental Bank
- consti-
tilted a reasonable basis for termination of the administrative proceeding) which was now in its sixth year.
As the basis for his judgment,
O'Connell outlined the considerations mentioned in the following
1)41%agraPhs.
The first question was the extent to which the Board's purposes
°riginally instituting this proceeding would be realized by
aceePtance of the offer.
cieterraine
The Board's original purposes were to
whether the capital position of Continental was adequate;
kact 4'41 it was not, the extent of the inadequacy and the period of
tim„
"tc that should be allowed for the bank to increase its capital.
The bank, capital had been found inadequate, but the bank had
s
ed to increase its capital.
Thus, the next question was
Ithet
her its membership in the Federal Reserve System should be
ter..,
In large part these points had been resolved in the course
°t the
Proceeding.
A rather clear and adequate record was before
the 10_
4auard on the bank's capital position, and the Board's determination
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Federal Reserve Bank of St. Louis
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as to the amount of additional capital that should be provided by
the bank was a matter of record.
the
The ultimate issue was whether
ban's membership in the System should be terminated.
As to the Board's statutory authority to require a bank
to Provide adequate capital, if the Board should go forward with
the case, it was quite possible that the Board would get a judicial
8tatement confirming its statutory authority.
On the other hand,
the one certain thing in litigation is uncertainty as to the outThe Board might never obtain a judicial statement regarding
its statutory authority in as full and complete form as it would
Clealre.
Also, there was the possibility of a judicial statement
If°uld negate the statements already made by the courts in the
4°'arcli s favor.
For example, there was the statement of the Tenth
eiretat Court of Appeals regarding Continental's attempt to enjoin
the
addirdnistrative proceeding that had been ordered by the Board.
the iesue
of the Board's statutory authority to require adequate
c4Pital was
not directly raised; the question was whether the
Examiner could go forward with the hearing.
However, the
age of the court opinion confirmed the Board's authority to
141114re into a bank's capital and to take such steps as necessary.
11\/1thermore, court decisions rendered in this case had gone a long
14tYt a-.
offsetting the views expressed in the Hearing Examiner's
°
and Recommended Decision, especially the alleged violation of
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Federal Reserve Bank of St. Louis
7
9/14/62
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CiIle Process of law.
While the issue was not directly raised or
tiseussed, every opportunity was available for the courts to take
to require termination of the proceeding.
However, the
c°1-11ts regarded the proceeding as a reasonable means of determining
the issues that the Board had sought to prove.
Another question was whether the Board should accept an
rter of settlement that was clearly aimed at a level of capital
114°24 inadequate in the circumstances.
It definitely should not.
It the Board should conclude that this kind of an offer was before
it
the Board would have little choice but to go forward and take
teP8 designed to achieve the goal it had set out to obtain.
In
1111' O'Connell's judgrent, however, while Mr. Sullivan's proposal
d. not
produce an optimum capital position, it would bring the
1)41* sufficiently within range of the median as to constitute a
l'eEtsonable basis for settlement.
In saying this, he again had in
14t1141 /4hat might result if the Board continued with the proceeding.
A further question was whether it would be to the Board's
441r4lItage to continue the proceeding for the central purpose of
bta.illing a definition of its authority.
Admittedly, the rather
j'ere statement by Hearing Examiner Woodall was a part of the
.
O11 There was no assurance, however, that this could be fully
a
Conceivably, Hearing Examiner Doyle would issue
l'eloort
- and recommended decision that would offset certain of the
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Federal Reserve Bank of St. Louis
t`iSs:K";19/14/62
-27stated by Hearing Examiner Woodall. However, Mr. Doyle
not have before him a number of the issues commented on by Mr.
'1111-1; they would not be brought back before him.
W°°
Thus, those
issues might not be considered by Mr. Doyle as appropriately the
811biect Of commenit.
As to the methods of determining capital adequacy, the Board
.0-Lready rejected the Hearing Examiner's rejection of various
by issuing its 1960 order and statement, in which the Board
r°111141-as
Set
or
by
forth what it felt was a reasonable approach to the determination
caPital adequacy; that is, the ratios and formulas supplemented
e44
I-scretionary judgments such as described by Messrs. Powell and
Solomon.
A further question was whether acceptance of the Sullivan
Ill'ell°813-1- would be regarded by other banks and by the public as a
811Of weakness in the Board's position.
-gcoulat it would not.
In Mr. O'Connell's
One could not be certain that other banks
844cIthe Public would not jump to the conclusion that the Board had
in on the matter; nor, if the hearing went forward, could it
bet-.
aranteed that press reports of it might not appear to the bank's
'
IciVaritage.
However, there was sufficient basis presented by this
pro.130,,
Qa1 whereby any inquiring mind could accept the reasons why the
kal"„
-s-Cerl4
44-ng was terminated by acceptance of the offer. For one thing,
'
th
e time of the Board's 1960 order demanding an increase in capital
$3.
or
*5 million, the bank's capital was about $5 million. Based on
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Federal Reserve Bank of St. Louis
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the June 30, 1962, condition report, and after giving effect to
Mr. Sullivan's proposal, the bank's capital would be almost $6.5
Mr. O'Connell vent on to make the comment that he had
'
l eceived from Messrs. Swan, Ahlf, and Galvin of the San Francisco
1141* indications to the effect that they were impressed with the
8ineerity and honesty of purpose of Mr. Sullivan.
They sensed a
citv°reement from the type of bank management implicit in former
iresident Cosgriff's reign.
The latter's management of the bank
1148 identified closely with the capital adequacy problem;
Mr.
C°8(riff's management tactics had permeated the entire hearing record.
Adtalttedly, Mr. Sullivan could not be completely divorced from this
l'ee°rci.
However, to the extent that the Board accepted as legitimate
414 sincere Mr. Sullivan's offer of settlement) including his statenielit of intent as to the future conduct of the bank's operations,
t the same extent would Mr. Cosgriff's attitude in operating the
"
11 lk seem of less importance.
Mr. O'Connell also said that he had discussed with Mr.
-84 in general terms the type of statement that might be issued
th
-e Board if Mr. Sullivan's offer should be accepted as a basis
r"erminating the proceeding, indicating that the views stated
l'erlected his (Mr. O'Connell's) judgment and that the matter had
tt°t been
discussed with the Board.
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Federal Reserve Bank of St. Louis
A statement such as he had
9/14/62
-29-
Outlined might refer to the present capital position of the bank,
the nature of the capital proposal made by the bank, and the
NPParently sincere intent of the management of the bank to conduct
4 sate banking operation in the future; and it might indicate that
these bases were deemed sufficient by the Board to terminate the
pro
ceeding.
Mr. O'Connell said both Mr. Sullivan and Mr. Billings
1/841 indicated agreement with this type of statement and expressed
thetr intent not to separate the Board and the bank in the eyes of
the Press or the public.
Mr. O'Connell concluded by saying that in general the points
by' Mr. Powell had a good deal of force as arguments for going
roll iwith the proceeding. However, that line of reasoning looked
to
llard a scheme of litigation. Mr. O'Connell felt there was much to
be
8 .
41d for considering a termination of the proceeding on the basis
Or the settlement offered.
Although not wholly adequate
the ProPosal was reasonably adequate.
eax"erta
he thought
On balance, he would suggest
consideration of the proposal.
Governor Shepardson inquired whether the Division of
it4411mat1ons had given consideration to the action taken earlier
:113Year with respect to the salaries of the officers of Continental.
reP1Y, Mr. Solomon said he understood Mr. Sullivan had told
l'I'esiclent Swan that the bank proposed, in making these adjustments,
to ell
minate bonuses to its officers. In effect, the bonuses
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Federal Reserve Bank of St. Louis
9/14/62
-30-
torte/ay given had been a part of the officers' salaries.
Because
q the bank's cash method of bookkeeping, the giving of such bonuses
Oade the bank look better at one season of the year than another.
The salary payments would be spread throughout the year rather than
1141Pecl at the end of the year.
Mr. O'Connell indicated that Mr.
8141-11van had spoken to him along the same lines.
Governor Mitchell then raised with Board Counsel certain
cil/estians with respect to the procedure that would be anticipated
14 connection with the scheduled show cause hearing.
The replies
illdicated that in an effort to save time, and in view of the
elqlressed desire of Continental, an agreement might be worked out
Illth Counsel for Continental for the stipulation of certain
staLtistical evidence, including reports of condition, earnings and
cil\ridend reports, and--without admitting agreement with the
ec)ilellisions—certain capital ratios and formulas.
A complete
%Illation would mean that the opinions of expert supervisory
Vitts„
--ses would not be included in the record, and the Hearing
Ex ,
alaialer would simply certify to the Board the evidence in the
recor
d. Then Counsel would analyze the evidence of record in a
,
brie
a..
In Mr. Pcuell's opinion, due to the expert opinions already
the record, the Board would not need further testimony of that
ki4a .
14 order to reach a decision. On the other hand, the further
eXPert
aPinions would be interesting. His preference would be to
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Federal Reserve Bank of St. Louis
9/14/62
-31-
atiNlate the basic statistical data, but to put witnesses on the
stead to express their opinions with respect thereto.
Governor Mitchell inquired of Mr. O'Connell whether he
1144 discussed with Mr. Sullivan the possibility of the bank's agreeilagto increase retained earnings over the next four or five years.
111% O'Connell replied that Mr. Sullivan felt he had gone about as
r4r as he could in proposing an amount of additional capital stock
that would be sold for cash.
This was in contrast to starting
4
lesser amount that might have been regarded as a "talking"
rrer%
Having gone as far as he did in this regard, Mr. Sullivan
141th
414 11°t feel that he could promise to retain a specific amount of
ellIllings over a period of years.
Therefore, he did not insert in
hi8 letter any specific figure. Mr. O'Connell said Mr. Sullivan
stat.A
quite vigorously that his letter reflected his best judgment
as t° what could be done by way of providing additional capital
stock
and giving general assurance of retention of earnings.
Question was raised at this point as to the ability of
e°4t
illental to sell a greater amount of additional capital stock
thttril
13roPosed by Mr. Sullivan, with particular reference to the
- of the principal stockholders to purchase such stock.
On
this point, Mr. Stephenson said that although initial analysis might
lidicate an ability on the part of the Cosgriff family to purchase a
°I.derable amount of stock, there were certain factors which might
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Federal Reserve Bank of St. Louis
ir
9/14/62
-32-
diminish that ability, including the fact that a substantial part
°I' the net
worth was tied up in estates.
that
Mr.
Mr. O'Connell indicated
this appraisal coincided with statements made to him by
Sullivan, executor of the estates of Mr. Cosgriff and Mr.
C°8grirf'8 mother, who said that the proposal made by him reflected
the Ultimate ability to purchase stock, working within the confines
°1!the two estates as they stood.
the
Mr. Powell maintained, on the
hand, that there was certainly an indication that as much as
59° million of additional stock could be purchased readily by the
008eriff family on the basis of the net worth statements of Mr.
e°8griff and his mother at the time of death.
Governor Shepardson inquired as to the procedure that would
he "ntemplated if the Board decided to accept the Sullivan proposal.
141*. ntr.
uonnell replied that he assumed the Board's intention would be
ei'aprn--"'ulaCated
r0r
to Mr. Sullivan.
Thereafter, arrangements would be made
- formal submission of the proposal to the Board by the bank.
fl'hen 41.
u fact of the formal proposal and its acceptance by the Board
'de
411°11141 become a part of the record of the case. To do this, the
shovl
Hearing
Cause hearing would be opened at a given date. The
KEktai_
ner would have the posture of the matter identified to him by
1°11118e1 for the Board and the bank, following which an order would be
al3ilecl closing the hearing and terminating the proceeding.
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Federal Reserve Bank of St. Louis
9/14/62
..33..
Governor King inquired whether there had been any formal
"Ilrges of improper influence by Continental against Hearing
18W1-14er Woodall, and Mr. Powell replied that there had never been
allY formal charges or investigation.
not
In any event, this factor was
material to the Board's deliberations today.
Governor King
inclicated that, in the circumstances, he questioned whether it was
414)roPriate for allegations in this regard to have been mentioned at
this
meeting.
In reply to a question, he was informed by Board Counsel
that the minutes of this meeting would not be a part of the record of
the ease in the event of judicial review.
In a further question with regard to procedure, Governor
Naardson inquired whether, if the Board were inclined to accept
the
L.entative offer of settlement, further evidence would need to
be introduced on the capital position of Continental.
%Itether
He asked
there could not simply be an account of the present capital
1°81tion of Continental, the proposal to increase capital and what
11°414 be accomplished by it, and an indication of the Board's
be
4ceePt4nce. Mr. O'Connell replied that he felt this would
surti
''cient as a basis for termination of the proceeding. Governor
IlePardson
hearing were to
went on to suggest that if the show cause
14,0c,
ecl. to the point of putting on witnesses, who would state their
View,
Q. as to the bank's capital requirements, a subsequent decision
bY the
—vard--as the result of further deliberation--to accept the
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Federal Reserve Bank of St. Louis
9/14/62
-34-
bank's proposal for settlement might leave the matter in a more
confused posture from the standpoint of public discussion.
Mr.
Connell replied that if the hearing should proceed in such
rashim) he supposed it would be on the basis that there was no
°I)ter outstanding.
The hearing would be held on the basis that the
IkArd had rejected the proposal.
Governor Shepardson noted, however,
that he assumed the Board could accept another offer of settlement,
it °Ile were made
be
'41/4:eePted
and Mr. O'Connell confirmed that such an offer could
at any time.
Mr. Powell noted that the current offer,
it ejected,
would not be part of the record of the proceeding;
II° °Ile would know that an offer had been made.
later
If Mr. Sullivan should
make even the same offer a second time, that would be a new
rrer as far as the record of the proceeding was concerned.
Governor Belderston referred back to Mr. O'Connell's earlier
cotnm..
'nzs
-about the nature of a possible announcement if the offer
or
se
ttlement were accepted, and Mr. O'Connell assured him that
11°.tilillg had been put in writing in this regard.
He had simply
laili188ted to Mr. Sullivan that in his personal opinion a statement
411°It be made along the lines of defining the purpose for which the
'ttitkl adequacy proceeding was instituted, citing the capital position
c)rthe bank at this time, stating what had been proposed by the bank,
44a
,
iluacating that on such basis the Board felt justified in terminatthe
proceeding.
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Federal Reserve Bank of St. Louis
9/14/62
-35Chairman Martin then inquired whether there were further
SPAestions.
tatter
There being none, he suggested that the Continental
be discussed further by the Board at its meeting on Monday,
%Umber 17, Find it was agreed that this procedure would be
16°11oved.
The meeting then adjourned.
Secretary's Note: Governor Shepardson
today approved on behalf of the Board a
letter to the Federal Reserve Bank of
New York (attached Item No. 9) approving
the reappointment of N. Dennis Stafford,
Jr. as assistant examiner.
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Federal Reserve Bank of St. Louis
Item NO. 1
9/14/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1962
The Gallatin Company, Inc.,
70 Broadway,
New York 15, New York.
Gentlemen:
In accordance with the request made by Mr. R. P.
Furey, Vice President, Manufacturers Hanover Trust Company,
on behalf of your Company and on the basis of the information furnished in his letter dated August 17, 1962, transmitted through the Federal Reserve Bank of New York, the
Board of Governors grants its consent to The Gallatin
Company, Inc. to change the location of its Principal Office
from 70 Broadway, New York, New York, to 350 Park Avenue,
New York 22, New York. The location of the Principal Office
may not be changed, after removal, without the prior approval
of the Board of Governors.
Please advise the Board of Governors in writing,
through the Federal Reserve Bank of New York, when the Company
has moved to the new location.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
Item NO. 2
9/14/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADORtSS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1962.
Board of Directors,
Provident Tradesmens Bank and
Trust Company,
Philadelphia, Pennsylvania
Gentlemen:
The Board of Governors of the Fed.ral
approves the change in location of
System
Reserve
a branch by Provident Tradesmens Bank and Trust
Company, Philadelphia, Pennsylvania, from Righters
Mill Road near Youngsford Road to Merlon Square
Shopping Center on the western corner of Righters
Mill Road and Youngsford Road--both locations in
Gladwyne, Lower Merlon Township, Montgomery County,
Pennsylvania. This approval is granted provided
the branch is stablished by May 10, 1963.
Very truly yours
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
539
Item No,
9/14/62
TELEGRAM
SERVICE
LEASED WIRE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
September 14, 3.962
Bryan - Atlanta
The Board will interpose no objection to proceeding with
the West addition to the Atlanta head office building on
the basis of the plans outlined in Mr. Patterson's letter
of August
9, 1962, and the architects' drawings submitted
with the letter.
(Signed) Merritt Sherman
SIEMMAN
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Federal Reserve Bank of St. Louis
3
4
Item No.
4
9/14/62
BOARD OF GOVERNORS
.0.:1M41}4.4
,z1:#AV V} q0kr*kt
4,
',.
iaili
OF THE
4•:',,,
9°a1)
. tr
A*
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
* ti
*,:ttkist
ADDRESS
orrociAL
CORRESPONDENCE
TO THE BOARD
September 14, 1962
Board of Directors,
Security Bank & Trust Company of Bozeman,
Bozeman, Montana.
Gentlemen:
The Board of Governors of the Federal Reserve
SYetem approves, under the provisions of Section 24A of
the Federal Reserve Act, an investment in bank premises
by Security Bank & Trust Company of Bozeman, Bozeman,
Montana, of $193,170.69. The amount approved includes
$163,170.69 representing the bank's investment in leasehold improvements, prior to amortization, and $30,000
representing the bank's acquisition cost to expand parking facilities.
Very truly yours, '
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
t7t,
',3S1
Item No. 5
9/14/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1962
Mr. H. G. McConnell, Vice President
and Secretary,
Federal Reserve Bank of Minneapolis,
Mlnneapolis 2, Minnesota.
tear Mr. McConnell:
Reference is made to your letter of July 27, 1962, submitting
the request of Security Bank & Trust Company of Bozeman, Bozeman,
M°ntana, for the Board's approval, pursuant to Section 24A of the
Federal Reserve Act (12 USC 371d), of an investment in bank premises.
The enclosed letter, to be forwarded to the applicant bank,
investment of $193,170.69, representing the investment by
an
nProves
'due State member bank in leasehold improvements and a parking lot.
It is noted that Security Building, Inc., which incurred
indebtedness of $500,000 to erect the bank building, is an "affiliate
?f the State member bank, under Section 2(b)(2) of the Banking Act of
1933 (12 USC 211a), by reason of common stock ownership, but that the
itself has no investment in the company. Although Section 24A
squires uthe amount of any indebtedness" of an affiliate holding the
mank premises to be taken into account in determining whether an investin,
;
bank premises by the bank requires Board approval, the statute
''es not ordinarily require approval for the incurring of such indebtedness by
the affiliate. However, in the case of a bank-premises company
t is a majority-owned subsidiary of the bank, an indebtedness incurred
such company would be incurred indirectly by the bank itself and
13therefore would require Board approval. Attention is directed to the
_°4rd's letter of November 9, 1956 (F.R.L.S.#6852), dealing with indebtedness of an affiliate awned by the bank.
t
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
41closure
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Federal Reserve Bank of St. Louis
Item No. 6
9/14/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 142 1962
Mr. James Ahlf, Chief Examiner,
P
r,ederal
Reserve Bank of San Francisco,
'Ian Francisco 20, California.
Dear Mr. Ahlf:
This refers to your letter of August 24 inquiring whether
the
Board would require republication of the March 26 and June 30, 1962,
Ports of condition of Fidelity Bank, Beverly Hills, California.
It is
understood that (1) the member bank sold to a savings and loan
4esoc1ation under repurchase agreements about $1,153,079 of real
estate mortgages all of which were outstanding at the June 30 call
date and some of which were outstanding at
March 26; (2) the March 26
lind June 30 reports of condition of Fidelity Bank, Beverly Hills,
c4-11-tornia, as submitted to your Bank, and presumably as published
Uant to existing regulations, show no amount against item 21,
''ediscounts and Other Liabilities for Borrowed Money; and (3) this
!
lsreloorting was discovered incident to the examination of the
litaber bank as of May 14, 1962, at which time the bank was advised
4t) in accordance with existing instructions for preparing reOf condition of State member banks, its liability under such
4greements to repurchase should be reported as borrowings.
The Board concurs that under the instructions for the
r eparation of reports of condition the amounts should have been
8c
iPorted and published in loans and in borrowings. In view of the
or4ab1e amount involved, the republication of the bank's reports
13 condition submitted after it had been advised as to correct ret,Iiting would be clearly justified; but inasmuch as republication '
oc)
the June 30 report at this late date would probably serve no
eful purpose, it need not be required.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Nr, James Alf
It is suggested that you inform the bank in writing how
the real estate loans and borrowings items should have been
reported,
and should be reported if any portion of the borrowing is outstanding
when the next cp31 is made. After this has been done, your Bank is
4uthorized to require republication, without referral to
the Board,
°11 any report of condition submitted by the Fidelity Bank within the
next two years which is incorrect in these matters.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
Item NO. 7
9/14/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. 0. C.
ADDRESS OFlCAL CORRESPONDENCE
TO THE BOARD
September 14, 1962
Board of Director
Wells Fargo Bank,
San Francisco, California.
Gentlemen:
The Board of Governors of the Federal Reserve
System extends to September 20, 1963, the time within
which Wells Fargo Bank may establish a branch in the
vicinity of the intersection of Winding Way and
Manzanita Avenue in an unincorporated area of Sacramento
County, California.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael
Assistant Secretary.
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Federal Reserve Bank of St. Louis
Item No. 8
9/14/62
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1962
147'' W. D. Fulton, Chairman,
e°,nference of Presidents)
elo Federal Reserve Bank of Cleveland,
Cleveland 1, Ohio.
Dear Mr. Fulton:
The Board notes without objection the recommendaions of the Subcommittee on Electronics as approved by the
'°nference of Presidents on September 10, 1962, that the
services of Stanford Research Institute be engaged to appraise
the economic and operational feasibility of mechanizing the
sPer currency sorting and counting operations of the Federal
aeserve Banks. It is understood that the contract will be
executed by the Federal Reserve Bank of New York and the
,T3st, not to exceed 03,000, prorated among all Federal
aeserve Banks.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
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Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 9
9N1/62
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1962
Mr. John F. Pierce, Chief Examiner,
Federal Reserve Bank of New York,
New York 451 New York.
Dear Ni.
Pierces
In accordance with the request contained in your
letter of September 10, 1962, the Board approves the reappointof N. Dennis Stafford, Jr., as an assistant examiner for
The Federal Reserve Bank of New York. Please advise the
effective date of the reappointment.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
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Federal Reserve Bank of St. Louis
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