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9/61 Minutes for September 18, 1961 To: 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. Mills Gov. Robertson Gov. Balderston Gov. Shepardson Gov. King Gov. Mitchell r , ) Minutes of the Board of Governors of the Federal Reserve System °r1 Monday, September 18, 1961. PRESENT: Mr. Mr. Mr. Mr. Mr. The Board met in the Board Room at 10:00 a.m. Balderston, Vice Chairman Robertson Shepardson King Mitchell Mr. Sherman, Secretary Miss Carmichael, Assistant Secretary Mr. Young, Adviser to the Board and Director, Division of International Finance Mr. Fauver, Assistant to the Board Mr. Hackley, General Counsel Mr. Solomon, Director, Division of Examinations Mr. Hexter, Assistant General Counsel Mr. Hooff, Assistant General Counsel Mr. Goodman, Assistant Director, Division of Examinations Mr. Leavitt, Assistant Director, Division of Examinations Mr. Poundstone, Review Examiner, Division of Examinations Discount rates. The establishment without change by the Federal Ilesftve Bank of Atlanta on September 15, 1961, of the rates on discounts 841 a4v8.nces in its existing schedule was approved unanimously, with the 144erstanding that appropriate advice would be sent to that Bank. kpplication of Wells Fargo Bank American Trust Company. There 1184 been distributed a memorandum dated September 5, 1961, from the '*lon of Examinations recommending approval of an application by Wei-18 Fargo Bank American Trust Company, San Francisco, California, to aleqe with The Farmers and Merchants National Bank of Santa Cruz, Santa erLiz and to operate branches at the present two offices of 9/18/61 -2- the national bank. The recommendation of the Federal Reserve Bank of San Francisco was favorable to the proposed merger, which had been NPPraved by the California State Banking Department. Mr. Solomon commented briefly on the proposed merger, noting that there was little competition between the two banks. He observed, however, that the merger would to a small degree increase the concenation of banking resources in the State of California. ' tl Governor Shepardson inquired as to the results of the staff study 'the expansion of branch banking in California and the manner in which °I the banking structure in that State was developing, which study had been tinclertaken pursuant to discussion at the Board meeting on March 10, 1961. Mr. Solomon noted that the results of the staff study had been distributed to the members of the Board with a covering memorandum dated 411€1ist 3, 1961. Statistics for the period 1950-1960 as developed in the attukY indicated that there was not an overbanked situation in the State sO far as the total number of banking offices was concerned. there However, vas a trend toward greater concentration of banking in a small ligraber of very large banks. Governor Shepardson commented that the lack of concentration of bam, bit offices might argue for further increase in the number of branches not for greater concentration of banking resources in the large banks or tile State. He felt it desirable for the Board to resolve a general , 9/18/61 -3- aPproach for processing applications involving a further concentration Of banking resources in California. On this point, it was recalled that the suggestion had been made that, after the staff study of California banking had been completed, it might be advisable for the Board to arrange a joint meeting with representatives of the Office of the Cc411) troller of the Currency, the Federal Deposit Insurance Corpo/iation, and California State banking authorities in an effort to reach a8reement on a supervisory policy that might be followed in handling brianch and merger applications in the State of California. This part of the discussion concluded with the understanding that the staff study of California banking would be placed on the 4enda for discussion at an early meeting of the Board. In response to questions from Governor Mitchell regarding the illel'ger application now before the Board, Mr. Solomon indicated that 144nagement of Farmers and Merchants National Bank was satisfactory, that the bank had concentrated on real estate mortgage loans, but that it was not active in the commPrcial lending area. Agricultural 141ans were relatively unimportant in the immediate vicinity of the city Of LJ441ta Cruz, which was located in a resort area separated by a 111(2lI 114tainous section from the farming region in the eastern part of the county. Governor Robertson then inquired as to the status of an application by Wells Fargo to the California State Banking Department for c -4- 9/18/61 Permission to establish a branch in Santa Cruz. Mr. Leavitt replied that the member bank had not yet filed such an application with the Reserve that he was not certain whether State authorities were actively considering it, and that in any event he understood that it would be Irithdrawn if the proposed merger were approved. Governor Robertson remarked that the present application should be considered in relation to the whole program with respect to banking ill tile State of California. In the instant case, the amount of actual ecmPetition that would be eliminated by the proposed merger was slight; hover, potential competition was involved. It seemed clear that Wells l'allgo wanted to get into the Santa Cruz area, since it had filed an eaVlication to establish a branch in the city, but understandably it Ir°111d prefer to merge with a bank that was already established. Gcrlrernor Robertson added that in his view the only way the Board e°111-li solve the problem of concentration of banking resources in California was to deny applications that would further such concentrati°11. Accordingly, he would be inclined to start with this case arld deny the request of Wells Fargo to merge with The Farmers and Ilerchants National Bank of Santa Cruz. As a basis for denying the 4151311cation, he would have in mind the over-all situation in California Vhe re banking resources were becoming increasingly concentrated in a few 141‘ge banks and snipll banks were being eliminated. While he would lean /14 9/18/61 -5- in the direction of denying this merger application of Wells Fargo, he yould have no objection to the establishment of a branch in Santa Cruz bY that bank on the grounds that the new branch would provide additional coraPetition, this view being based on the assumption that there was need an additional banking office in the area. Governor Shepardson stated that he also was concerned with the Problem mentioned by Governor Robertson and the question as to the aPPropriate place to draw a line in approving or disapproving applications involving further concentration of banking resources in Cealfornia. It was for this reason that he had raised a question as to the staff study of the banking situation in the State and the possibilitY of working out some type of concerted action among the several ballk supervisory agencies. In the instant case, a minimum amount of c°131Petiti0n would be eliminated. establish However, the applicant could probably a new branch in lieu of the proposed merger, and such a new branch would afford competition and serve the area effectively without elinlinating an independent bank. Perhaps, therefore, this might be an al5Propriate time to prevent a further increase in the concentration of b"king resources. Governor King said it would be difficult for him to justify aelliaa of the application in the light of past approvals by the Board or other mergers involving much greater concentration. he Accordingly, 'me inclined to favor approval of the Wells Fargo application. He I • k41_60 9/18/61 -6- Mentioned a pending application of United California Bank, Los Angeles, California, to merge with The Southwest Bank, Inglewood, California, 'which he felt would present a situation more logical for denial on the grounds that it would unnecessarily permit further concentration of banking in California. Governor Mitchell stated that, before taking a position on the 8841ta Cruz case, he would prefer to review the staff study of banking iu California. Sellte4ber Based solely on the information contained in the 5, 1961, memorandum from the Division of Examinations, he *)11.1c1 be disposed to disapprove this application, since the proposed erger, if effected, would eliminate a small independent bank that seemed to be able to take care of itself. On the other hand., if Wells ?aI'lgo were to open a branch in Santa Cruz, there would be more competition in the area than at present. After some further discussion, and particularly in view of ...or Mitchell's comment that he would prefer to review the staff etto_ -of covering the banking situation in California before acting on ' Proposed merger, it was agreed that further discussion of the eP1)3.1-cation would be carried over until later in the week. Item distributed to the Board. The following item, which had been distributed to the Board and a copy of which is attached to these Zia:lutes as Item No. 1, was approved unanimously: 9/18/61 Letter to Morgan Guaranty International BAnking Corporation, New York, New York, granting permission to purchase 6,000 additional shares of Credito Bursatil S. A., Mexico, D. F., Mexico. Messrs. Hooff, Goodman, Leavitt, and Poundstone then withdrew tram the meeting. Report on recent trip. Mr. Young commented informally on his recent trip to Paris to attend a meeting of Working Party No. 3 of the c'3110Blic Policy Committee of the Organization for Economic Cooperation 811c1 Development. Mr. Hexter then withdrew from the meeting. Board meeting agenda. Governor Mitchell inquired whether it /1°Iald be possible to receive earlier information as to the dates on ch various items would be placed on Board meeting agenda. 4 Following discussion during which a number of suggestions were made, the Secretary O the Board was requested to take whatever steps seemed desirable in order to Provide Board members as much advance notice as possible of dates on 1411141 Specific items would be considered. Interest rates. Governor Robertson stated reasons why he felt that it would be desirable for the Board to consider at an early date the question of the maximum permissible rate of interest on time and ".11111g5 deposits under the Board's Regulation Q. After discussion, it Vas 341-11. .119I244.2d that this matter would be placed on the agenda for a iiflg Of the Board toward the end of October when all members would be Present. 9/18/61 -8In this connection, Governor King expressed the view that all Board members should be present when the maximum rate of interest under RegUlation Q was considered. He noted that the question had been dis- cussed on various occasions in the past and individual members of the lloard had expressed differing views, some of which were strongly held. While he recognized that the Board could take the matter up whenever a 111°rum was present) he felt that in the absence of an urgent need for so, which he did not believe existed, the effect of scheduling discussion of this subject at a time when any member of the Board was absent would be to deny that member the right to record his position. Governor Robertson then referred to a copy of a recent letter that a Reserve Bank President had sent to a member bank in which the /rieW was expressed by the President that the Board should raise the 111111(inium permissible interest rate ceiling under Regulation Q to 4 per "lit- He raised the question as to the propriety of such a statement hY. a Reserve Bank President in view of the nature of the problem and the responsibilities of the Board in the matter. Governor Shepardson said that his reaction to the statement in the letter was the same as that of Governor Robertson; he doubted that he solution to the interest rate ceiling problem would be facilitated If Reserve Bank officers expressed views to the public as to the action that the Board should take. 9/18/61 -9Governor King stated that he believed the wording of the letter van - unfortunate and that it might cause misunderstanding. Governor Mitchell said that, while he had not yet read the letter to 'which Governor Robertson referred, he was in sympathy with the position °11 Reserve Bank officers who were called upon to answer questions such as those relating to the interest rate ceiling. He did, of course, visualize that anY reply to a member bank would present both sides of a question 41-41, if a. position were taken, it would seem preferable for the writer to indicate that he was expressing his own view and not necessarily that 't the System. Governor Balderston observed that, if the letter had followed the Pattern suggested by Governor Mitchell without expressing a definite view 48 to the action that Should be taken by the Board, no question would be rEtised. In this instance, he had in mind mentioning the matter to the Serre Bank President concerned at an opportune time so as to help him lulderstand all aspects of the problem. The meeting then adjourned. Secretary's Note: Governor Shepardson today approved on behalf of the Board the following items: Memorandum from the Division of Bank Operations recommending ) 4;lrante of the resignation of William J. Thompson, Analyst in that ai°11, effective at the close of business September 15, 1961. o1S9 9/18/61 Letter to the Federal Reserve Bank of Cleveland (attached No. 2) approving the designation of John Rothwell as special assistant examiner. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 1 9/18/61 WASHINGTON 25. D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD September 18, 1961 ! 1) ,rgan Guaranty International Banking Corporation, Wall Street, "ew York 8, New York. Gentlemen: In accordance with the request and on the basis of the information furnished in your letter of September 6, 1961, trans•t• through the Federal Reserve Bank of New York, the Board of Go cernors grants consent for Morgan Guaranty International Banking v,P°ration to purchase and hold 6,000 additional shares, par 'lle Mexican pesos 100 each, of the capital stock of Credit° ;4. . 41,?Latil S. A., Mexico, D. F. Mexico, at a cost of approximately n,000 acquired within one year from e date p provided such _stock is of this letter. r The Board's consent is granted upon condition that Guaranty International Banking Corporation shall dispose itS holdings of stock in the Mexican corporation, as promptly at Practicable, in the ,,vent that the Mexican corporation should utiarlY time (1) engage in issuing, underwriting, selling or distribbug securities in the United States; (2) engage in the general modtneas of buying or selling goods, wares, merchandise, or coines in the United States or transact any business in the ror'ed States except such as is incidental to its international or xna,eign business; or (3) otherwise conduct its operations in a th;41er which, in the judgment of the Board of Governors, causes tailkeontinued holding of its stock by Morgan Guaranty International seejlIg Corporation to be inappropriate under the provisions of -011 25(a) of the Federal Reserve Act or regulations thereunder. r op Can Very truly yours, ' ---- it-t C'e‘zLec-t‘-z_C.L'i Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS OF THE % FEDERAL RESERVE SYSTEM X Item No. 2 9/18/61 WASHINGTON 25, D. C. ADDRESS OFFICIAL CORRESPONDENCE TO THE BOARD September 19, 1961 Mr. Paul C. Stetzelberger, Vice President, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Dear Mr. Stetzelberger: In accordance with the request contained in Your letter of September 12, 1961, the Board approves the designation of John Rothwell as a special assistant examiner for the Federal Reserve Bank of Cleveland for the purpose of participating in examinations of member banks except The Newport National Bank, Newport, Kentucky. The authorization heretofore given your Bank to designate Rothwell as a special assistant examiner is hereby c anceled. Appropriate notations have been in our records °f the names to be deleted from the list of special assistant examiners. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary.
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