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609 Minutes for September 19, 1966 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. Chm. Martin Gov. Robertson Gov. Shepardson Gov. Mitchell Gov. Daane Gov. Maisel Gov. Brimmer AYif, Minutes of the Board of Governors of the Federal Reserve System on Monday, September 19, 1966. The Board met in the Board Room at 9:45 a.m. PRESENT: Mr. Mr. Mr. Mr. Mr. Mr. Martin, Chairman Robertson, Vice Chairman Shepardson Daane Maisel Bri_Hauer Mr. Sherman, Secretary A record of the discussion that occurred during the initial Portion of today's meeting is appended to these minutes as Attachment A. At 10:15 a.m. the following members of the staff were called into the room: Mr. Kenyon, Assistant Secretary Mr. Bakke, Assistant Secretary Mr. Young, Senior Adviser to the Board and Director, Division of International Finance Mr. Solomon, Adviser to the Board Mr. Cardon, Legislative Counsel Mr. Fauver, Assistant to the Board Mr. Brill, Director, Division of Research and Statistics Mr. Hexter, Associate General Counsel Mr. Shay, Assistant General Counsel Mr. Partee, Associate Director, Division of Research and Statistics Mr. Gramley, Associate Adviser, Division of Research and Statistics Messrs. Eckert, Ettin, and Keir of the Division of Research and Statistics Mr. Egertson of the Division of Examinations Regulation of interest rates. The Chairman explained for the benefit of the staff members who had joined the meeting that the Board had been giving consideration to what action should be taken under 9/19/66 -2- Regulation Q, Payment of Interest on Deposits, in keeping with bill H.R. 14026, now before the President for signature, providing increased flexibility for establishing ceiling rates on time deposits and savings accounts at commercial banks and other depository institutions. He said the Board had tentatively agreed to reduce to 5 per cent (from 5-1/2 per cent) the maximum rate of interest permitted to be paid by member banks on any time deposit under $100,000. The maximum rate pay- able on savings accounts would remain at 4 per cent. The maximum rates Payable on multiple maturity time deposits (4 per cent or 5 per cent, depending on maturity) would also remain unchanged, and the ceiling rate on single maturity time deposits of over $100,000 would remain at the present level of 5-1/2 per cent. He further indicated that it was the Board's thinking that the reduction from 5-1/2 per cent to 5 per cent in the maximum rate applicable to time deposits up to $100,000 would be made effective at the beginning of business September 26, 1966. Question was raised whether the 5 per cent maximum rate would sPPlY to outstanding deposits, and Governor Robertson stated that the announcement of the action should make clear that the 5 per cent maximum would apply only to contracts made on and after the effective date Of the amendment to the Supplement to Regulation Q. It was noted that the proposed amendment would also contain a statement that in calculating the rate of interest paid on time and savings deposits, member banks could disregard the effects of compounding 9/19/66 -3- of interest. However, a member bank that elected to compound interest-- either at the maximum permissible rate or at a lower rate--must state the basis of compounding (such as semiannually, quarterly, monthly, weekly, daily, or continuously) in every advertisement, announcement, solicitation, and agreement relating to the rate of interest paid on a deposit. Governor Robertson pointed out that this was in line with a Proposal that had previously been sent to the Federal Deposit Insurance Cor poration for consideration and that the Corporation was now willing to go along in terms of its interest rate regulation applicable to nonzember insured banks. The Chairman then called for staff views on the proposed interest rate action, and Mr. Brill pointed out that there had been distributed to the Board a memorandum indicating the virtue of a proposal such as the Board had in mind that was simply stated and easily applied. Such action would preserve maximum flexibility for the Board. However, there was the possibility that the ceiling would become the floor in 8°me areas; the Board would have to follow developments closely and be alert to any shifts in competitive relationships. Mr. Partee commented that some banks might find themselves in "usiderable difficulty, in the absence of a grandfather clause, as dePosit contracts matured. For example, one national bank in the New 'ork City area had attracted a significant volume of high-rate funds 9/19/66 -4- from around the country through an aggressive advertising campaign, and it might experience a run-off of deposits that would require special assistance. In the absence of a grandfather clause, there was little that such a bank could do to protect itself. Chairman Martin commented that any action the Board might take in this area was certain to hurt somebody. The Federal Reserve probably would have to be prepared to assist some banks, such as the one mentioned, if they got into serious difficulty. Governor Robertson observed that it had been indicated in the September 1 letter to member banks that banks experiencing a severe loss of deposits could obtain assistance through the discount window. It was pointed out that there was still the question whether the President would sign the new legislation today, and it was understood that announcement of the Board's action would have to be governed accordingly. However, it was understood that the Board had agreed on the action that was to be announced when the President signed the bill. Question was raised about the actions that would be announced bY the Federal Deposit Insurance Corporation and the Federal Home Loan 1/ahk Board under the new legislation, and Chairman Martin noted that G"ernor Robertson had been in consultation with them. Governor Brimmer expressed his understanding that each agency kneW fairly well what the other agencies had in mind in the way of action that would be taken. There was admittedly some risk that the other 9/19/66 -5- agencies would move in a direction quite different from the Board, but he felt the risk was slight. On the matter of the effective date, Chairman Martin expressed the opinion that the opening of business on September 26 was probably the best choice, thus allowing a brief period of adjustment but not an unduly long period. No disagreement was expressed with that view. Governor Brimmer mentioned that Governor Robertson had suggested Periodic surveys in order to keep the Board up to date on developments, and he inquired whether Governor Robertson had in mind including reference to such surveys in the Board's press release. Governor Robertson indicated that he felt there was some obligation to make known, either in the press release or otherwise, that the Board would be alert to de velopments and be prepared to take whatever further action was appro- Priete at any time. Governor Brimmer agreed that it would be in order to indicate that the Board would stay alert to developments. He also agreed that it might be premature to make a commitment at this time that the Board would conduct a survey of a certain type at a certain date. Governor Daane expressed the view that the simplicity of the action that the Board was taking should be kept in mind in formulating an announce- Mr. Cardon referred to a letter that had been received from C°11gressman Mills this morning inquiring whether municipal deposits plight be exempted from whatever rate ceilings were applied to other time deposits under the new legislation. -6- 9/19/66 Governor Robertson expressed the opinion that public deposits Should not be excluded at this time and that the answer to Congressman Mills should be in terms that the problem would be kept in mind and the Board would watch developments. for experience was indicated. Chairman Martin agreed that the need He felt that the Board probably would have to make further amendments at some stage, but it seemed desirable for the Board at this time to move in a simple, direct way and then see What occurred. Mr. Gramley commented that the situation might become quite d ifficult for the banking system, particularly some larger banks. One Of the main remaining sources of funds on which such banks had been ralYing was being cut off, in view of prevailing market rate relationThe situation must be watched carefully to see how the banks reaPonded, for at some point they might become panicky. Chairman Martin agreed that the point was well taken. However, he did not think the Board had any alternative except to take some action under the new legislation, and the question was what type of action Would be least damaging, yet of some significance. The discount window nr. other facilities would have to be relied upon to help any banks that became panicky. Mr. Hexter mentioned that the Board did not have any legal duty under the bill to moderate rates, and Chairman Martin agreed. He l'ecalled that earlier in the year he had testified that he would prefer 9/19/66 -7- not to do anything. However, the whole history of the debate of the new legislation over the summer must be borne in mind. In the circum- stances, while the Board legally could stand aside and do nothing, he felt that that would be a mistake. The discussion then turned to the content of the press release that would be issued by the Board, and Chairman Martin expressed the view that it should emphasize that the purpose of the action was to limit further escalation of interest rates paid in competition for consumer savings. This, to him, was the element that should be stressed, a lthough it could also be indicated that the action was designed to help keep the growth of commercial bank credit to a moderate pace. There were several expressions of agreement with the Chairman's view that the press release should be in such terms and also that it Should be kept relatively brief. There followed further discussion of the effect that the action might have on banks in the deposit range of $50 co $500 million, and several comments were made reflecting sensitivity to the possible consequences. earlier certain such as It was brought out, however, that as the Chairman had noted any type of action in this area seemed certain to affect a number of banks rather severely. It was suggested that action the Board had in mind was likely to have considerable impact in Individual bank cases, but that it did not portend a disruption of comIllUnity banking services generally. y 9/19/66 -8There was also some further discussion of the part of the Proposed amendment relating to compounding of interest. Among other things, it was noted that it would be possible for banks, through frequent compounding, to pay an effective rate slightly above the maximum rates expressed in Regulation Q, which were geared to quarterly comPounding. Governor Daane recalled that he had had reservations when the proposal was under consideration earlier, and he inquired whether it seemed essential to make such an amendment at this time. Governor Robertson expressed the view that that would be desirable, for banks would then be placed on a more equitable competitive basis. They would be required, however, to state the basis of compounding clearly in their ad vertising, thus minimizing possible misunderstanding and confusion. Governor Brimmer recalled that the Board had come to a tentative Conclusion on this feature earlier and that it had been awaiting the view of the Federal Deposit Insurance Corporation, which was now reported to be favorable. The discussion concluded with a consensus that the pro- relating to compounding of interest should be included in the Proposed amendment to the Supplement to Regulation Q. At this point a draft of possible press release developed by the staff was distributed. There emerged from discussion of the draft a gen- sr'l consensus in favor of a statement along the lines that had been Indicated earlier during the meeting; that is, a release going somewhat beyond a technical description of the action being taken but stopping h°rt of pronouncements on the prospective effects of the action. 9/19/66 -9As to procedure, it was understood that Governor Robertson would be in touch with Chairman Randall of the Federal Deposit Insurance Corporation and Chairman Horne of the Federal Home Loan Bank Board to advise them of the action that had been agreed upon by the Board. It was also understood that the staff would continue work on the drafting of a press release conforming to the views that the Board had expressed regarding the scope of such statement. It was further understood that When word had been received that the President had signed the new legislation, the Board would meet again to take whatever steps were then n ecessary. Reports on S. 3158 and H.R. 17703 (Items 1 and 2). been There had distributed a draft of letter to the Chairman of the House Banking and Currency Committee regarding S. 3158, a bill to strengthen the enforcement powers of the three Federal bank supervisory agencies and the Federal Home Loan Bank Board. The Board had supported the bill in the form in which it was originally introduced, but as the bill now st°°d it reflected three major changes made by the Senate. The first Change, to which the Board had previously indicated that it would not obi ' act, limited suspension and removal orders to cases regarding pers°4e1 dishonesty. orders The second change vested authority to issue such with respect to national banks in the Board of Governors rather than the Comptroller of the Currency, although the Comptroller would be authorized to participate, with power to vote, in Board proceedings in 9/19/66 -10- such cases. The third change would require a Federal agency, before Invoking procedures authorized by the bill against a State-chartered institution, to notify the State supervisory authorities of its intent and the grounds for acting, and to specify an appropriate period within Which corrective action should be taken. The Federal agency could then Proceed if the State authority failed to act within the specified period. A distributed memorandum from Mr. Cardon dated September 16, 1966, reported that the Home Loan Bank Board had testified in support °f the bill as passed by the Senate, and an understanding that the Treasury Department and the Federal Deposit Insurance Corporation also Supported the bill. The draft of proposed letter to Chairman Patman would recommend prompt and favorable action. There had also been distributed a draft of letter in response tO Chairman Patman t s request for the Board's views on H.R. 17703, a d ifferent version of proposed legislation in the same area. The draft letter commented on the main differences between the two bills, as they a pplied to banks, and recounended against enactment of H.R. 17703. The two letters to Chairman Patman were approved unanimously; c°Pies are attached as Items 1 and 2. Approved letters. The following letters, copies of which are attached under the respective item numbers indicated, were approved unanimously after consideration of background information that had been Triade available to the Board: 9/19/66 -11Item No. Letter to Bankers Trust Company, New York, New York, approving the establishment of a branch in the Borough of Brooklyn. 3 Letter to Iowa State Bank and Trust Company of Fairfield, Iowa, Fairfield, Iowa, approving the establishment of an in-town branch. 4 Letter to Charlevoix County State Bank, Charlevoix, Michigan, waiving the requireInent of six months' notice of withdrawal from membership in the Federal Reserve System = 5 Public Bank matter. Mr. Sherman reported receipt of a telegram from President Scanlon of the Federal Reserve Bank of Chicago stating his understanding that an agreement providing for the purchase of assets of Public Bank, Detroit, Michigan, by Bank of the Commonwealth, also of Detroit, was being signed in Washington today and that the Chicago Reserve Bank recommended approval despite the capital position of Bank of the Commonwealth. Mr. Egertson brought out that it was still necessary to obtain the approval of the stockholders of Public Bank, which apparently might take some little time. Mr. Shay said it was his understanding that the Federal Deposit surance Corporation now contemplated less precipitate action on the matter than had only recently been envisaged, which might mean that the Proposed merger would be handled as a case where competitive factor reports would be obtained on a ten-day basis. 9/19/66 -12Members of the Board urged that the staff keep closely in touch With developments so as to avoid any possibility that it could be said that consununation of the proposed merger was in some manner being held Up by the Federal Reserve. The meeting then adjourned. Secretary's Notes: Governor Shepardson today approved on behalf of the Board the following items: Letter to the Federal Reserve Bank of Dallas (copy attached as Item No. 6) approving the appointment of John N. Ainsworth as Federal Reserve Agent's Representative at the Houston Branch. Letter to the Federal Reserve Bank of Dallas (copy attached as Item No. 7) approving the appointment of Robert G. Jenkins as assistant e xaminer. Letter to the Federal Reserve Bank of San Francisco (copy attached as Item No. 8) approving the appointment of Willard A. Bogart as assistant examiner. Memorandum from the Division of Research and Statistics dated Se ptember 16, 1966, recommending that Professor Otto Eckstein of the Center for Advanced Study in the Behavioral Sciences be appointed as , onsultant effective to December 31, 1966, on a temporary contractual asis with compensation at the rate of $75 a day, with the understandthat any necessary travel would be in accordance with the Board's travel regulations. Memoranda recommending the following actions relating to the Board's staff: SS,2..alEeLEE s. Helen C. Droitsch, from the position of Clerk-Typist in the Diviil°n of Personnel Administration to the position of Clerk-Typist in Office of the Secretary, with no change in basic annual salary at ne rate of $4,701, effective September 25, 1966. Joyce M. Hile, from the position of Secretary in the Office of Secretary to the position of Secretary in the Division of Data secessing, with an increase in basic annual salary from $5,683 to ' °65, effective September 25, 1966. t, 1,7 9/19/66 -13- Transfers (continued) Kathryn A. Jackson, from the position of Statistical Assistant to the position of Statistical Supervisor, Division of Data Processing, With an increase in basic annual salary from $7,055 to $7,516, effective September 25, 1966. Marguerite L. Renucci, Statistical Assistant, Division of Data Processing, to another budget position in that Division, with no change in basic annual salary at the rate of $6,211, effective September 25, 1966. Dorothy B. Slagle, from the position of Statistical Clerk to the Position of Statistical Assistant, Division of Data Processing, with no change in basic annual salary at the rate of $5,256, effective September 25, 1966. eptance of resignation Michael W. Estes, Electrician-Operating Engineer, Division of Administrative Services, effective the close of business September 29, 1966. Governor Shepardson today noted on behalf of the Board a memorandum advising that Glenn M. Goodman, Assistant Director, Division of Examinations, had filed application for retirement effective October 1, 1966. Attached as Item No. 9 is a copy of a letter sent to the Bureau of the Budget over the signature of Chairman Martin recommending approval of enrolled bill H.R. 14026, which had been the subject of discussion at today's Board meeting. In July the Board agreed to publish for comment certain proposed amendments to its regulations to sharpen the technical distinctions between time and savings deposits, but it was understood that a check would first be made with the Federal Deposit Insurance Corporation. That now having been done, action was instituted to transmit to the Federal Register a notice 9/19/66 -14of proposed rule making. Attached as Item No. 10 is a copy of the notice as submitted. It did not include a proposal to classify Christmas and vacation club accounts as savings deposits in view of an objection expressed by the Corporation. 311,4. Attachment A 9/19/66 Governor Robertson reported on conversations that he had had over the past few days with the representatives of various agencies that would be concerned with the implementation of bill H.R. 14026, now before the President for signature, providing increased flexibility for establishing ceiling rates on time deposits and savings accounts at commercial banks and other depository institutions. The conversations reported at this meeting included those with representatives of the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board, with both of which the new legislation required consultation in connection with the changing of maximum permissible rates. Governor Robertson commented on several alternative procedures that had been d iscussed, noting that he had pointed out that the entire Board would have to consider what action it would wish to take and that he could not speak for the Board until the latter had considered the matter. H owever, his own view was that the best course would be a simple change that would reduce from 5-1/2 per cent to 5 per cent the maximum permissible rate on all time certificates of deposit of less than $100,000. This would leave the present maximum of 4 per cent applicable to savings accounts and 5-1/2 per cent applicable to time deposits of $100,000 or More. Governor Robertson indicated that he had also discussed the pos- Sibility of including a "grandfather" provision whereby presently held deposits could be renewed at the existing rates rather than be made -2subject to the reduced rate of 5 per cent for amounts of less than $100,000, but that there was not much disposition to include such a provision, partly because it would be somewhat complex to administer. Chairman Martin expressed the view that the simpler any change made under the new legislation the better. It appeared probable that the bill would be signed by the President early this week, and it would seem desirable for the Board to be in a position to announce promptly Whatever changes it agreed upon under the new bill. Governors Brimmer and Maisel also reported on conversations that they had had over the week end, all of which seemed to point toward the desirability of a simple reduction from 5-1/2 per cent to 5 per cent in the maximum permissible rate for time deposits of less than $100,000. In response to a question from Governor Daane, Governor Robertson Stated that no views had been expressed in his conversations regarding a figure different than $100,000 as the amount below which deposits would be subject to a reduced rate. In response to an inquiry from Governor SbePardson, Governor Robertson stated that his own approach had been that any changes should apply only to deposits made after the effective datc perhaps October 1, 1966. Governor Maisel inquired again as to the possibility of includ- jug a "grandfather" clause that would permit banks already holding eet'tain deposits to continue to pay the present maximum rate on renewals Of such deposits. His feeling was that this might avoid liquidity prob- lerns for certain banks which were now paying more than 5 per cent and -3which otherwise might be faced with considerable pressure if those deposits were to move elsewhere. In discussion of this point, the consensus seemed to be that While a provision such as that suggested by Governor Maisel might have logic, it would complicate the administration of the regulation and, further, such a provision was not looked upon with favor by the other agencies concerned. Chairman Martin suggested that if members of the Board were generally in agreement that a simple change along the lines mentioned by Governor Robertson under which the maximum permissible rate on time dePosits of less than $100,000 would be reduced to 5 per cent would be aPpropriate, it would be desirable to call in other members of the staff 4nd to explore in greater detail the effects of such a change and the kind of announcement that might be issued by the Board in connection /41-th such action, dependent, of course, on the signing of the legislati°n by the President. ' BOARD OF GOVERNORS OF THE: FEDERAL RESERVE SYSTEM Item No. 1 9/19/66 WASHINGTON, D. C. 20551 OFFICE OF THE CHAIRMAN September 19, 1966. The Honorable Wright Patman, C hairman, Committee on Banking and Currency, House of Representatives, Washington, D. C. 20515 bear Mr. Chairman: This is in reply to your request for a report on S. 3158, 48 Passed by the Senate. As you know, the Board joined with the Secretary of the the Chairman of the Federal Deposit Insurance Corporation, and the Chairman of the Federal Home Loan Bank Board in recommending enactment of S. 3158 as introduced. We now recommend favorable action on the bill as passed by the Senate. Treasury, In exercising its supervisory responsibilities with respect State member banks, the Board has found that for the most part ( gestionable practices are corrected when brought to the attention of e officers or directors of the bank involved. In the exceptional ease where corrective action is not obtained in this fashion, the Board has available two basic enforcement procedures, both of which re too severe and too cumbersome for use in any but the most extreme eases.r, Under section 9 of the Federal Reserve Act, the Board may : orminate a State bank's membership in the System, with a resulting of88 of its deposit insurance. Under section 30 of the Banking Act 1933 the Board may remove an officer or director of a member bank i'luar continuing a violation of law or unsafe or unsound practice after ng been warned to stop it (where a national bank is involved, thevi:t Proceeding must be initiated by the Comptroller, but the Board ermines whether the individual should be removed). tO ';eU The Honorable Wright Patman, -2- September 19, 1966. The provisions of S. 3158 authorizing cease and desist orders fill two important needs: the need for an intermediate, less drastic means of enforcement than those now available, and the need for a sanction that can be employed promptly in emergency situations. Although the Board has reservations about the Senate amendment limiting suspension and removal orders to cases involving personal dishonesty--an amendment that may prove unduly restrictive--we believe that the benefits to the public and the banking industry to be derived from the new cease and desist procedures outweigh any Shortcomings in the suspension and removal procedures. the bill. Accordingly, we recommend prompt and favorable action on Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. 14 II_ BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Item No. 2 9/19/66 WAS.1-41NOTON OFFICE OF THE CHAIRMAN September 19, 1966. The Honorable Wright Patman, Chairman, Committee on Banking and Currency, House of Representatives, Washington, D. C. 20515 Dear Mr. Chairman: This is in reply to your request for the Board's views On H.R. 17703, a bill to strengthen the regulatory and supervisory authority of Federal agencies over insured banks and insured savings and loan associations, and for other purposes. Because of the limited time available to study this bill, our comments Will be restricted to the main features in which it differs from S s 3158. We are also commenting only on title II of the bill, inasmuch as we assume title I, dealing with savings and loan associations, will be the subject of comment by the Federal Home Loan Bank Board. Title II of H.R. 17703 differs from the corresponding title of S. 3158 in four principal respects, one relating to suspension or removal orders and three relating to cease and desist orders. First, H.R. 17703 omits the provisions of S. 3158 relating to suspension or removal of directors, officers, and other persons participating in the management of banks. Insofar as member banks are concerned, it would thus leave in effect the existing provisions of section 30 of the Federal Reserve Act, 1/ which have proved too drastic for use in most cases and too cumbersome to bring about prompt correction. Since the suspenstl°n and removal provisions of S. 3158 were amended in the Senate b° limit their use to cases involving personal dishonesty, we elleve that this authority would be of very limited use; nev ertheless, in those rare instances when dishonest individuals might threaten the safety of a bank we believe the much more exPeditious provisions of S. 3158 should be available for the Protection of the public. 1/ 1 Should have read "section 30 of the Banking Act of 1933." The Honorable Wright Patman The differences between the two bills as regards cease and desist orders are of much greater importance, since the authority to issue such orders is, in our judgment, the heart of the bill. H.R. 17703 omits the provisions of S. 3158 authorizing the issuance of temporary cease and desist orders to cope with emergency situations. It also provides for de novo review in Federal district courts of cases in which permanent cease and desist orders are issued, in contrast to S. 3158, which follows the standard pattern specified in the Administrative Procedure Act for review by Federal courts of appeal based on the record made at the administrative proceeding. The third difference as to regards cease and desist orders between the two bills relates S tate-chartered banks. S. 3158 provides that before the Federal s upervisory agency may take action under the bill with respect to such a bank, it must notify the State supervisor and allow an appropriate time for the State supervisor to take action. Under Failing such action, the Federal agency may then proceed. could agency Federal the action H.R. 17703, however, the only take in such a situation would be to bring suit in a Federal district court to settle the question of which agency, if either, should be allowed to proceed. Taken together, these of a Provisions of H.R. 17703 would so delay the taking effect useless proceeding a cease and desist order as to render such in emergencies and extremely cumbersome in other situations. against The Board of Governors, therefore, recommends enactment of H.R. 17703. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. BOARD OF GOVERNORS Item No. 3 9/19/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 AI:MRCSS OFFICIAL CORRESPONDENCIC TO THE BOARD September 19, 1966 Board of Directors, Bankers Trust Company, New York, New York. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Bankers Trust Company, New York, New York, of a branch on the northwest corner of 88th Street and Fourth Avenue, Brooklyn, New York, provided the branch is established within one year from the date of this letter. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) BOARD OF GOVERNORS Item No. 4 9/19/66 ...... • .* OvG0p• OF THE o's FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 4%.* ADDRESS OrrICIAL CORRESPONDENCE TO THE BOARD RESt September 19, 1966. Board of Directors, Iowa State Bank and Trust Company of Fairfield, Iowa, Fairfield, Iowa. Gentlemen: The Board of Governors of the Federal Reserve System approves the establishment by Iowa State Bank and Trust Company of Fairfield, Iowa, Fairfield, Iowa, of a branch at 311-313 West Burlington Street, Fairfield, Iowa, provided the branch is established within six months from the date of this letter. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. (The letter to the Reserve Bank stated that the Board also had approved a six-month extension of the period allowed to establish the branch; and that if an extension should be requested, the procedure prescribed in the Board's letter of November 9, 1962 (S-1846), should be followed.) 431 f BOARD OF GOVERNORS Item No. 5 9/19/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS orriciAL CORRESPONDENCE TO THE OCIARD September 19, 1966 Board of Directors, Charlevoix County State Bank, Charlevoix, Michigan. G entlemen: The Federal Reserve Bank of Chicago has forwarded to the Board of Governors a letter dated September 7, 1966, signed by President E. D. Hawley, together with the accompanying resolution, ! ignifying your intention to withdraw from membership in the rederal Reserve System and requesting waiver of the six months' notice of such withdrawal. The Board of Governors waives the requirement of six ; 171°11the' notice of withdrawal. Under the provisions of Section ',18.10(c) of the Board's Regulation H, your institution may accomlish termination of its membership at any time within eight months ':Qm the date that notice of intention to withdraw from membership given. Upon surrender to the Federal Reserve Bank of Chicago lOf u.lp he Federal Reserve stock issued to your institution, such stock the 11 be cancelled and appropriate refund will be made thereon. returned It is requested that the certificate of membership be to the Federal Reserve Bank of Chicago. Very truly yours, (Signed) Karl E. Bakke Karl E. Bakke, Assistant Secretary. f BOARD OF GOVERNORS Item No. 6 9/19/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 ADDRESS OFFICIAL. CORRESPONDENCE TO THE BOARD September 20, 1966 AIR MAIL Mr. Carl J. Thomsen, Chairman of the Board and Federal Reserve Agent, Federal Reserve Bank of Dallas, Dallas, Texas. 75222 • Dear Mr. Thomsen: In accordance with the request contained in your letter of September 2, 1966, the Board of Governors approves the appointment of John N. Ainsworth as a Federal Reserve Agent's Repres entative at the Housto n Branch to succeed Mr. H. A. Yancey. This approval is given with the understanding that Mr. Ainsworth be solely responsible to the Federa l Reserve Agent and the Board of Governors for the proper performance of his duties, except that, during the absence or disability of the Federal Reserve Agent or a vacancy in thatA office, his responsibility will be to the Assistant Federal Reserve Agent and the Board of Governors. When not engaged in the performance of his duties as Federal kese.rve Agent's Representative, Mr. Ainsworth may, with the approval of. e Federal Reserve Agent and the Vice President in charge of the Houston 1144nch, Perform such work for the Branch as will not be inconsistent with 's duties as Federa l Reserve Agent's Representative. It will be appreciated if Mr. Ainsworth is fully informed of Portance of his responsibilities as a member of the staff of the al. Reserve Agent and the need for maintenance of independence from the °Perations of the Bank in the discha rge of these responsibilities. the ped 4 A'It is noted from your letter that, with the approval of 14r. the lnsworth's appointment by the Board of Govern ors, he will execute wit, usual Oath of Office which will be forwarded to the Board together " advice of the effective date of his appointment. Very truly yours, (Signed) Merritt Sherman Merritt Sherman, Secretary. 34 BOARD OF GOVERNORS Item No. 7 9/19/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, 0. C. 20531 ADDRESS OFFICIAL CORRUPONDENCIL TO THIE 110ARO September 19, 1966 Mt. Thomas R. Sullivan, Vice President, Federal Reserve Bank of Dallas, Dallas, Texas. 75222 Dear M±. Sullivan: In accordance with the request contained in your letter of September 13, 1966, the Board approves the appointment of Robert G. Jenkins as an assistant examiner for the Federal Reserve Bank of Dallas, effective today. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. 3460 BOARD OF GOVERNORS Item No. 8 9/19/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D. C. 20551 orrociAL COAMIESPONOCNCIL TO TIME •omeo September 21, 1966 Mr. Irwin L. Jennings, Vice President, Federal Reserve Bank of San Francisco, 94120 San Francisco, California. Dear Mr. Jennings: In accordance with the request contained in your letter of September 14, 1966, the Board approves the appointment of Willard A. Bogart as an assistant sco, examiner for the Federal Reserve Bank of San Franci effective today. Very truly yours, (Signed) Elizabeth L. Carmichael Elizabeth L. Carmichael, Assistant Secretary. BOARD OF GOVERNORS Item No. 9 9/19/66 OF THE FEDERAL RESERVE SYSTEM WASHINGTON, O. C. ZOSSI OFFICE Of THE CHAIRMAN September 20, 1966. Mr. Wilfred H. Rommel, Assistant Director for Legislative Reference, Bureau of the Budget, Washington, D. C. 20503 Dear Mr. Rommel: This is in response to your communication of September 16, 1966, requesting the views of the Board on enrolled bill, H.R. 14026, "To provide for the more flexible regulation of maximum rates of * interest or dividends payable by banks and certain other financial institutions on deposits or share accounts, to authorize higher reserve requirements on the time deposits at member banks, to authorize open market operations in agency issues by the Federal Reserve banks, and for other purposes." The Board favors prompt Presidential approval of the bill. Sincerely yours, (Signed) Wm. McC. Martin, Jr. Wm. McC. Martin, Jr. FEDERAL RESERVE SYSTEM Item No. 10 9/19/66 112 CFR Farts 204, 2171 Mewl. D, Q] RESERVES OF MEMBER BANKS; PAYMENT OF INTEREST ON DEPOSITS Notice of Proposed Rule Making The Board of Governors is considering amending Parts 204 end 217 as follows: 1. Section 204.1(d) and (e) and § 217.1(d) and (e) would be amended to read as follows: (d) Time deposits, open account.--The term "time deposit, °Pen account" means a deposit, other than a "time certificate of 4Po8it", with respect to which there is in force a written contract /lien the depositor that neither the whole nor any part of such deposit may be withdrawn, by check or otherwise, prior to the date of 414turi which shall be not less than 30 days after the date of the det .. 2/ or prior to the expiration of the period of notice which o'Its Illust be given by the depositor in writing not less than 30 days in vaLme 2/ of withdrawal. (6) Savings deposits.--The term "savings deposit" means a 4°P°8it.(1) which consists of funds deposited to the credit Of /414 ePosits, such as Christmas club accounts and vacation club accounts, be'h are made under written contracts providing that no withdrawal shall during Dillade until a certain number of periodic deposits have been made account" el:icld of not less than 3 months constitute "time deposits, open of end the from days 30 within made are the though some of the deposits Period. A,dePosit with respect to which the bank merely reserves the right to telu aot 41.6 notice of not less than 30 days before any withdrawal is made is def411 time deposit, open account", within the meaning of the above 'nition. .2 One or more individuals, or of a corporation, association, or Other organization operated primarily for religious, philanthropic, Charitable, educational, fraternal, or other similar purposes and A/ "t operated for profit; or in which the entire beneficial interest 18 held by one or more individuals or by such a corporation, associa- tion) or other organization; and (2) with respect to which the depositor is not required by the deposit contract but may at any time be required by the bank to give notice in writing of an intended withdrawal not less than 30 2/ deYs before such withdrawal is made and which is not payable on a 8Pecified date or at the expiration of a specified time after the date Of deposit. 2. Footnote 7 in § 217.2(b)(2) would be redesignated footnote 6; footnote 8 in § 217.3(e) would be redesignated footnote 7. 3. Section 217.5 would be amended to read as follows: 1 217.5 Withdrawal of savings deposits. (a) Requirements regarding,notice of withdrawal.--Whether or not interest is paid, no member bank shall require notice of withdrawal 84 to any amount or percentage of the savings deposit of any depositor a. ePosits in joint accounts of two or more individuals may be classified , 8avinga deposits if they meet the other requirements of the above b:Iinition, but deposits of a partnership operated for profit may not x07,80 classified. Deposits to the credit of an individual of funds in 4; 1-01 any beneficial interest la held by a corporation, partnership, h..80ciation, or other organization operated for profit or not operated imerily for religious.Philatrrik_ropies charitable, educational, fraternal. "r other similar purposes may not be classified as savings deposits. Th -e exercise by the bank of its right to require such notice shall --"‘ cause the deposit to cease to be a savings deposit. -3- 3461 "less it shall similarly require such notice as to the same amount °t percentage of the savings deposits of every other depositor which are subject to the same requirements as to notice of withdrawal. If 4 member bank, without requiring notice of withdrawal, pays interest that has accrued on a savings deposit during the preceding interest Period, it shall, upon request and without requiring such notice, pay the same manner interest that has accrued during the preceding illterest period on the savings deposits of every other depositor. No nleraher bank shall change its practice with respect to requiring notice quithdrawal of savings deposits for the purpose of discriminating in 41/or of or against any depositor or depositors, and no such change of P4CtiCe shall be made except pursuant to duly recorded action of the bunks's board of directors or a properly authorized committee thereof. (b) Loans on security of savings deposits.--If it is not the hattice of a member bank to require notice of withdrawal of savings deP"ite, no restrictions are imposed by this part upon loans by such 1/41lik -0 its depositors upon the security of such deposits. If it is the Practice of a member bank to require notice of withdrawal of a 411inil8 deposit, such bank may make loans to a depositor upon the IleturitY of such deposit, but the rate of interest on such loans shall be Ihlt less than 2 per cent per annum in excess of the rate of interest 11414 °II the savings deposit. 3. Subparagraphs (2), (3), and (4) of present § 217.1(e) 14°‘114 be transferred to § 217.5 and become paragraph (c) of that section, With edesignation of such subparagraphs as subparagraphs (1), (2), and -4(3) respectively, with conforming changes in cross-references within such subparagraphs, and with redesignation of present footnote 5 as footnote 8. * * * * * The purpose of these amendments is to sharpen the distinction between savings deposits and time deposits in order to facilitate interPretation and administration of the Regulations. The Regulations are Ilot entirely clear whether certificates or other instruments that are Payable at a "fixed" maturity (i.e., at a specified date or at the exPiration of a specified period after the date of deposit), which meet the definition of a "time certificate of deposit", may nevertheless hero -488sifed as savings deposits. Also, under the present Regulations, "savings deposits" are dsf4 4ned as deposits of individuals and certain types of non-profit 411amizations as to which the depositor "is required, or may at any 441e be required, by the bank to give notice in writing of an intended wttbdrawal not less than 30 days before such withdrawal is made." 1144use this definition includes a deposit of an individual as to which at least 30 days' written notice of withdrawal is required by the det*sit contract, an individual is literally presluded from having a tiLne deposit, open account". The definition of that term includes 411448 as to which not less than 30 days' written notice of with-. 4/441 is required, and expressly excludes any deposit that meets the d efinition of a savings deposit. -5- 3466 The proposed amendments to the Regulations would amend the definition of savings deposit so that'' (1)deposits payable on a specified date or at the of expiration of a specified period of time after the date deposit wuld be expressly excluded from savings deposits; (2) deposits as to which notice of withdrawal is deposits, SlakiEti by the contract would be excluded from savings but the exercise of a bank's reserved right to require such notice would not cause a savings deposit to cease to be'such. 8eceuse the definitions of "time deposit, open account" and "savings dePcaits" would no longer overlap, the exception from the definition $4 "time deposit, open account" of a "savings deposit" would be liminated. contain Because a savings deposit contract could no longer 4 Provision requiring the depositor to give notice of withdrawal, the hovieions of Regulation Q with respect to the requirements of notice ill connection with contracts containing such a provision would also be eliminated. In doing so, the section relating to notice of withdrawal 411 savings deposits would be editorially revised, and subparagraphs (2), 0)) and (4) of the present § 217.1(e), which relate to the manner of 11415Fment of savings deposits, would be transferred thereto. title 5, This notice is published pursuant to section 553(b) of ikilted States Code, and section 1(b) of the Rules of Procedure of the ). 4etd of Governors of the Federal Reserve System (12 CPR 262.1(b) To aid in the consideration of this matter by the Board, trite rested persons are invited to submit relevant data, views, or (IA ts..) 414 6uUlent8• Any such material should be submitted in writing to he Secret -arY, Board of Governors of the Federal Reserve System, Ihshington, 1). C., 20551 to be received not later than October 21, 1966. Dated at Washington, D. C., this 21st day of September, 1966. By order of the Board of Governors. (signed) Merritt Sherman Merritt Sherman, Secretary.
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