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Minutes for
To:
Members of the Board
From:
Office of the Secretary
September 2, 1966
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
t
Minutes of the Board of Governors of the Federal Reserve
System on Friday, September 2, 1966.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Robertson, Vice Chairman
Shepardson
Mitchell
Maisel
Brimmer
Mr. Kenyon, Assistant Secretary
Mr. Young, Senior Adviser to the Board and
Director, Division of International Finance
Mr. Holland, Adviser to the Board
Mr. Solomon, Adviser to the Board
Mr. Molony, Assistant to the Board
Mr. Cardon, Legislative Counsel
Mr. Fauver, Assistant to the Board
Mr. Leavitt, Assistant Director, Division of
Examinations
Miss Eaton, General Assistant, Office of the
Secretary
Mr. Morgan, Staff Assistant, Board Members'
Offices
Mr. Furth, Consultant
Messrs. Brill, Axilrod, Gramley, Bernard, Eckert,
Ettin, Fry, Keir, Kelty, and Rosenblatt, and
Mrs. Peskin of the Division of Research and
Statistics
Messrs. Irvine, Katz, Reynolds, Baker, Gemmill,
Hayes, and Maroni of the Division of
International Finance
Money market review.
Mrs. Peskin reported on the Government
securities market, Mr. Fry commented on the projections contained in a
distributed table on bank reserve utilization, and Mr. Baker concluded
he review
with a report on the foreign exchange and gold markets.
Copies of the
tables distributed in connection with today's staff
Presentation have been placed in the Board's files.
9/2/66
-2All members of the staff except Messrs. Kenyon, Young, Holland,
Solomon, Molony, Cardon, Fauver, Brill, Irvine, Leavitt, and Maroni,
and Miss Eaton then withdrew and the following entered:
Mr. Hexter, Associate General Counsel
Mr. Hooff, Assistant General Counsel
Mr. Goodman, Assistant Director, Division of Examinations
Messrs. Plotkin and Sanders, Senior Attorneys, Legal Division
Mr. Sidman, Accountant-Analyst, Division of Examinations
Mr. Egertson, Supervisory Review Examiner, Division of
Examinations
Approved items.
The following items, copies of which are
attached to these minutes under the respective numbers indicated, were
...22.11,atsi unanimously after consideration of background material that
had been made available to the Board and clarification of points of
information about which members of the Board inquired:
Item No.
Letter to Chemical Bank New York Trust Company,
New York, New York, approving the establishment
of a branch in Brooklyn.
1
Letter to Bank of America, New York, New York,
granting permission to acquire stock of a
Venezuelan bank.
2
Letter to Stock Growers' Bank of Wheatland,
Wheatland, Wyoming, waiving the requirement
of six months' notice of withdrawal from
membership in the Federal Reserve System.
3
Letter to the Presidents of all Federal Reserve
Banks transmitting forms to be used by State
member banks in submitting reports at the next
call date.
4
9/2/66
-3Item No.
Letter to Congressman Stephens regarding
H.R. 17255, a bill to provide flexible
authority for establishment of maximum
rates of interest payable on savings-type
deposits.
5
Memorandum from the Legal and Examinations
Divisions dated August 31, 1966, regarding
the question of retroactive approval of bank
premises investments.
6
Memorandum from the Legal Division dated
August 31, 1966, recommending monthly publication, jointly with the Federal Deposit
Insurance Corporation, of summaries of equity
security transactions and ownership of directors, officers, and principal stockholders of
State banks as reported pursuant to section
16(a) of the Securities Exchange Act of 1934.
7
In discussion of Item No. 7 there was general agreement that
the proposed monthly summaries should be published, with a press release
to be issued as soon as the Federal Deposit Insurance Corporation agreed
to the action.
The main point of discussion had to do with the fact
that the proposal contemplated publishing transactions involving the
purchase and sale of more than 50 shares of stock in any one month,
whereas the Securities and Exchange Commission's summaries included
only those cases where more than 100 shares were purchased or sold by
an insider during any month.
While the Board accepted the Legal Divi-
sion's reasoning on this matter, assuming the Federal Deposit Insurance
Corporation went along, Governor Mitchell indicated that he would have had
some preference for following the practice of the Securities and
Exchange Commission.
;
9/2/66
-4Bank advertising for deposits (Items 8-12).
A distributed memo-
randum from the Legal Division dated August 15, 1966, pointed out that
in a letter of August 5, 1966, the Chairman of the Securities and
Exchange Commission had suggested that the Board make a public statement directed against misleading advertising practices by banks.
Enclosed with the letter was a proposed statement of policy with respect
to bank advertising for the sale of certificates of deposit, as drafted
by the Commission's staff.
The memorandum noted that Chairman Cohen's letter was the outgrowth of an interagency staff meeting held at the Commission's offices
on July 25, 1966.
A report on that meeting was attached to the August 15
memorandum, along with various other background papers including a
memorandum on the legal authority of the Board to regulate bank advertising, prepared pursuant to the Board's request at the meeting on
June 20, 1966.
Another attachment was a copy of a letter of June 28,
1966, from the Comptroller of the Currency to all national banks on
the subject of advertising for certificates of deposit.
Although the Legal Division concluded that action on the part
of the Board to regulate bank advertising would probably be upheld by
the courts, for various reasons discussed in the August 15 memorandum
the Division did not favor adoption by the Board of a regulation on
the subject.
On the other hand, the Division saw no objection to
adoption by the Board of a policy statement covering the points
9/2/66
-5-
enumerated in the draft statement submitted by the Commission.
The
Division did not share the Commission's view that the term "bond"
should not be used in reference to a certificate of deposit.
There
appeared to be no substantial difference between a bank "savings bond"
and a U.S. Savings Bond, other than the nature of the issuer, and it
seemed rather difficult in the circumstances for a Governmental agency
to tell commercial banks that their use of the term "bond" was misleading.
Submitted for the Board's consideration was a draft of statement proposed by the Board's staff.
It was recommended that this draft
be transmitted to the other Federal bank supervisory agencies and to
the Securities and Exchange Commission for comment.
(Among other things,
the draft statement would indicate that no deposit instrument should be
described as a "growth" investment.)
Mr. Sanders commented that a number of policy questions were
involved.
The first was whether the Board should promulgate a regula-
tion in an area where it did not have specific regulatory authority.
The Legal Division believed that although such a regulation might be
upheld by the courts, the Board should not take regulatory action if
there were a reasonable alternative approach.
The second question was
whether the Board should issue any rules, by regulation or otherwise,
that as a practical matter might not be enforceable.
The only available
remedies were obviously too severe for use in this area.
On the other
hand, if the "cease and desist" bill became law, the situation would
9/2/66
-6-
be changed.
The third question was whether and to what extent the
Board should endeavor to enforce compliance by national banks.
If the
Board did promulgate rules in this area, it seemed to the Legal Division that the Board should communicate with offending banks and request
that they modify their advertising practices.
The fourth question was
whether the Board should promulgate rules on advertising solely in the
area of deposits.
able.
Bank advertising for loans was often more objection-
The principal reason for the promulgation of rules covering only
the deposit area was that banks were the institutions most involved in
deposit advertising, although savings and loan advertising was sometimes as confusing as that of banks.
The fifth question, Mr. Sanders continued, was whether a statement of policy by the Board on the subject of bank advertising would
be worthwhile.
Even if there were no request from the Securities and
Exchange Commission for the issuance of a statement by the bank supervisory agencies, the Legal Division felt that the publication of an
expression of views by the Board would be helpful, if for no other
reason than that it would give the banking community and the public a
framework of reference in this area.
A statement might have a benefi-
cial effect, and the Securities and Exchange Commission had expressed
a willingness to support such a statement even if that required litigation.
The sixth question, Mr. Sanders said, was what specific advertising practices of banks were considered undesirable.
The Legal
9/2/66
-7-
Division had drafted a statement directed toward items that the Board
might consider objectionable.
The Division agreed generally with the
Securities and Exchange Colimtission's ideas except that it could not
see any reason for banks not to use the term "bond" to describe a
certificate of deposit.
On the other hand, the Legal Division saw
considerable objection to the use of the term "growth" in describing
a fixed income investment such as a certificate of deposit.
The draft
statement would be revised according to the Board's wishes, and then
could be circulated to the other interested agencies for comulent.
Governor Shepardson commented that he thought the approach
recommended was generally desirable.
"bonds" was probably well taken.
point on "growth" was well taken.
He believed the point regarding
He questioned, however, whether the
Over a long period of time, adver-
tising for savings had featured growth of investment through the
accumulation of interest or dividends.
He thought it would be unwise
to raise a question in that regard.
Governor Mitchell expressed the view that it would be inappropriate for the Board to issue a statement on bank advertising if something was not done regarding savings and loan associations.
He
suggested that the Federal bank supervisory agencies, the Federal Home
Loan Bank Board, and the Securities and Exchange Commission might all
make an appeal at the same time on a mutually consistent basis.
Governor Maisel commented that he would be happy to see the
statement apply also to advertising for loans.
As to "bonds," he did
-8-
9/2/66
not see that there was any relationship between certificates of deposit
and U.S. Savings Bonds, and how the former could properly be called
bonds.
They were completely different things.
He also suggested cer-
tain editorial changes in the proposed statement.
Governors Mitchell and Brimmer expressed agreement with Governor
Maisel's reasoning on the "bond" question.
Governor Brimmer also
shared the view that banks should not be subjected to published guidelines unless savings and loan associations were subject to similar
guidelines.
Governor Robertson agreed that the Board should insist, to the
extent it could, that the Home Loan Bank Board take similar action.
As
to the proposed statement itself, he noted that the Board had two questions before it.
One was whether to eliminate the "growth" references.
The other was what to do with respect to "bonds."
His own view was
that the draft statement, as circulated for comment, should include an
admonition against use of the latter term in bank advertising, recognizing that the comments received might show reason for deletion of such
language.
Governor Mitchell suggested that the Board make sure that the
Treasury's savings bond advertising did not conflict with the proposed
statement.
Governor Robertson then suggested that letters be sent to the
Federal
Deposit Insurance Corporation, Home Loan Bank Board, Comptroller
-9-
9/2/66
of the Currency, Securities and Exchange Commission, and the Secretary
of the Treasury telling them of the proposed statement and asking for
their comments.
In the form in which transmitted, the draft statement
would admonish against the use of the term "bonds," but it would not
interpose objection to "growth" advertising.
It was agreed that the procedure suggested by Governor Robertson
would be followed.
Attached as Items 8-12 are copies of the letters
sent pursuant to this understanding.
Emergency credit facilities for nonmember depositary-type
institutions (Item No. 13).
Pursuant to the understanding at the meet-
ing on August 30, 1966, a telegram had been sent to the Federal Reserve
Banks requesting any information that might assist the Board in determining whether to extend beyond September 1, 1966, the authority
contained in its letter to the Reserve Banks dated July 1, 1966, relating to emergency credit facilities for nonmember depositary-type institutions, including mutual savings banks and savings and loan associations,
in the event of severe liquidity pressures.
The replies indicated that
most of the Reserve Banks either favored or saw no objection to an
extension of the program.
A distributed memorandum from Mr. Kenyon
dated September 1, 1966, suggested that in the circumstances the Board
might want to consider extending the authority for a period of 60 or
90 days.
After discussion the Board approved unanimously an extension
until December 1, 1966, of the authority contained in its letter of
-10-
9/2/66
July 1, 1966.
A copy of the telegram sent to the Federal Reserve Banks
pursuant to the Board's action is attached as Item No. 13.
Governor Brimmer reported that Mr. Young
Boeing presentation.
had had a letter from Boeing Aircraft Corporation offering to make a
presentation on the outlook for jet aircraft sales abroad.
He proposed
that the Board invite them to make this presentation, which was being
offered to various Government agencies, particularly those most concerned
with the balance of payments.
It was agreed that Mr. Young would extend an invitation to make
the presentation.
Secretary's Note: The presentation
was subsequently arranged for Friday,
September 16.
The meeting continued from this point with limited staff
attendance.
Rate on gold loans.
Mr. Young reported that the Bank of the
Republic (the central bank of Colombia) had requested a loan on gold
collateral of $13 million for 180 days.
The New York Reserve Bank had
authorized the loan, subject to the Board's approval, for 90 days with
interest at the discount rate of the Reserve Bank on the date that the
loan was made.
There had been discussion of the loan request with
other interested Government agencies and no objection had been interposed except in the case of the Treasury, which suggested that the loan,
if granted, be made with the understanding that it would be for 90 days
-11-
9/2/66
only and would not be renewed.
Renewal would carry the loan over year-
balance of
end, and the Treasury did not want it to be a factor in the
payments statistics.
Mr. Young also said that during discussion of the request by
y and
staff of the National Advisory Council on International Monetar
interest
Financial Policies question had been raised concerning the
rate on gold loans.
The practice had been to make such loans at the
rily binddiscount rate of the New York Bank, but that was not necessa
ing.
should
After discussion, it was the consensus that the Board
, with
approve the Colombian loan on a 90-day basis, without renewal
the date the loan
interest at the discount rate of the New York Bank on
be
was made; and that the question of rates on gold loans should then
reviewed by the Board in a broader context.
Discount administration.
Mr. Holland raised the question of
Reserve Bank
Opening up channels of communication among the Federal
to sharing experidiscount officers and the Board's staff with a view
dopted program
ences with discount administration in light of the newly-a
banks in
discussed in the letter sent by the Reserve Banks to member
their respective districts.
to
There was general agreement that it would be desirable
Bank disarrange periodic telephone conferences in which the Reserve
pate, with
count officers and members of the Board's staff would partici
9/2/66
-12-
a view to keeping mutually informed of developments at staff level and
also in order to keep the Board informed.
Discount rates.
The establishment without change by the Federal
Reserve Banks of New York and San Francisco on September 1, 1966, of
the rates on discounts and advances in their existing schedules was
approved unanimously, with the understanding that appropriate advice
would be sent to those Banks.
A telegram had been received from the Federal Reserve Bank of
Philadelphia advising that the Board of Directors of that Bank, at a
meeting on September 1, 1966, had established, subject to review and
determination by the Board of Governors, rates of 5 per cent on discounts for and advances to member banks under sections 13 and 13a of
the Federal Reserve Act, 5-1/2 per cent on advances to member banks
under section 10(b), and 6 per cent on advances to individuals, partnerships, and corporations other than member banks under the last paragraph of section 13.
It was agreed unanimously that the Philadelphia Bank should be
advised that the Board did not at this time approve the action taken
by the directors, which meant that the rates on discounts and advances
in the Bank's existing schedule automatically continued in effect.
Exhibit of publications.
Governor Shepardson stated that the
National Association of Business Economists would be meeting in
Washington at the end of this month and that the Board had been invited,
9/2/66
-13-
along with other organizations, to arrange a publications exhibit at
the meeting.
There would be no cost involved except time spent in the
preparation and tending of the exhibit.
It was agreed that there would be no objection to furnishing
the exhibit.
The members of the staff then withdrew and the Board went into
executive session.
The Secretary's Office was advised later by Governor Shepardson
that during the executive session the following actions were taken:
Services of Professor Bach.
The Board authorized negotiations
with Professor G. L. Bach of Stanford University to serve as consultant
on a Board staff recruitment problem, with the terms of the fee to be
negotiated.
Appointment of Mr. Dahl.
Frederick R. Dahl, presently Chief
of the Special Studies and Operations Section, Division of International
Finance, was appointed Assistant Director of the Division of Examinations
effective October 1, 1966, with annual salary at the rate of $20,000.
The meeting then adjourned.
Secretary's Notes: A letter was sent today
to First National City Bank, New York, New
York, acknowledging receipt of notice of its
intent to establish two additional branches
in Chile, one to be located in the downtown
area of Santiago and the other at 1534 Calle
Condell, Valparaiso. The letter noted that
no additional capital investment would be
required to establish the branches.
-14-
9/2/66
Governor Shepardson today approved on
behalf of the Board the following items:
Memorandum from the Division of Research and Statistics dated
August 31, 1966, recommending the establishment of a new Research
Assistant position in the Banking Section.
Memoranda recommending the following actions relating to the
Board's staff:
Acceptance of resignations
Stanley B. Kay, Summer Law Clerk, Legal Division, effective the
close of business September 1, 1966.
Kenneth K. Pustilnik, Summer Law Clerk, Legal Division, effective
the close of business September 2, 1966.
Julia M. Frager, Summer Trainee, Division of Administrative
Services, effective the close of business September 2, 1966.
Ronald D. Smith, Summer Trainee, Division of Administrative
Services, effective the close of business September 2, 1966.
Assistant Secreta
BOARD OF GOVERNORS
Item No. I
OF THE
FEDERAL RESERVE SYSTEM
9/2/66
WASHINGTON, O. C. 20551
PDHOENCE
CORREB
ADDREBB OFFICIAL
TO THE BOARD
September 2, 1966.
Board Of Directors,
ny,
Chemical Bank New York Trust Compa
New York, New York.
Gentlemen:
Federal
The Board of Governors of the
by
ent
establishm
Reserve System approves the
York,
New
ny,
Chemical Bank New York Trust Compa
borneigh
immediate
New York, of a branch in the
,
Dunne Court
hood of Coney Island Avenue and
branch is estabthe
ded
provi
York,
Brooklyn, New
date of this
lished within one year from the
letter.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
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. 2
9/2/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS orriciAL CORRESPONDENCE
TO THE BOARD
September 2, 1966.
Bank of America,
41 Broad Street,
New York, New York.
10015
Gentlemen:
In accordance with your request of July 26, 1966, transmitted through the Federal Reserve Bank of New York, and on the basis
of the information furnished, the Board of Governors grants consent
for Bank of America ("B of A") to purchase and hold 50 per cent of
the paid-in capital stock of a Venezuelan bank, being organized to
acquire the banking assets and banking liabilities of Banco de Fomento
Comercial de Venezuela, Caracas, Venezuela, at a cost of approximately
US$2,778,000, provided such stock is acquired within one year from
the date of this letter. It is understood that such acquisition will
be under the provision that any actual losses and uncollectible or
doubtful assets of Banco de Foment() Comercial de Venezuela will be
absorbed by Corporacion Venezolana de Foment() (or other Venezuelan
Government institution) prior to your investment.
The Board's consent to the proposed purchase and holding
of shares of the Venezuelan bank by B of A is granted subject to the
following conditions:
(1) That B of A shall not hold any shares of stock
in the Venezuelan bank if the Venezuelan bank at any
time fails to restrict its activities to those permissible to a corporation in which a corporation organized under Section 25(a) of the Federal Reserve
Act could, with the consent of the Board of Governors,
purchase and hold stock, or if the Venezuelan bank
establishes any branch or agency (other than those
presently operated by Banco de Fomento Comercial de
Venezuela) or takes any action or undertakes any operation in Venezuela or elsewhere, in any manner,
which at the time would not be permissible to B of A;
Bank of America
-2-
(2) That, when required by the Board of Governors,
B of A will cause the Venezuelan bank (a) to permit examiners selected or auditors approved by the
Board of Governors to examine the Venezuelan bank,
and (b) to furnish the Board of Governors with such
reports as it may require from time to time;
(3) That
B of A shall not carry on its books the shares
acquired of the Venezuelan bank at a net amount in
excess of its proportionate share of the book capital accounts of the Venezuelan bank, after giving
effect to the elemination of all known losses; and
(4) That any share acquisitions or dispositions by the
Venezuelan bank be reported under Section 211.8(d)
of Regulation K in the same manner as if the
Venezuelan bank were a corporation organized under
Section 25(a) of the Federal Reserve Act.
Subject to continuing observation and review, the Board
suspends, until further notice, the provisions of subparagraph (1) of
the second paragraph of this letter so far as they relate to restrictions on loans granted by the Venezuelan bank in Venezuela in the
currency of that country.
Upon completion of the proposed acquisition, it is requested
that the Board of Governors be furnished, through the Federal Reserve
Bank of New York, with a translation of the Articles of Association and
By-Laws of the Venezuelan bank and a copy of the management contract.
.The foregoing consent is given with the understanding that
the investment now being approved, combined with other foreign loans
and investments of your Corporation and Bank of America National Trust
and Savings Association, will not cause the total of such loans and
investments to exceed the guidelines established under the voluntary
foreign credit restraint effort now in effect and that due consideration
is being given to the priorities contained therein.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
Item No. 3
9/2/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
PONDENCE
ADDRESS OFFICIAL CORRES
TO THE BOARD
September 2, 1966.
Board of Directors,
Stock Growers' Bank of Wheatland,
Wheatland, Wyoming.
Gentlemen:
forwarded
The Federal Reserve Bank of Kansas City has
18, 1966, signed by
to the Board of Governors a letter dated July
ng resolutions
President Hellbaum, together with the accompanyi
membership in the Federal
signifying your intention to withdraw from
six months' notice of
Reserve System and requesting waiver of the
such withdrawal.
t of six
The Board of Governors waives the requiremen
Section
of
sions
months' notice of withdrawal. Under the provi
may accomn
tutio
insti
208.10(c) of the Board's Regulation H, your
months
eight
n
withi
plish termination of its membership at any time
ship
member
from
raw
withd
from the date that notice of intention to
s City
Kansa
of
Bank
ve
Reser
was given. Upon surrender to the Federal
stock
such
n,
tutio
insti
of the Federal Reserve stock issued to your
be made thereon.
will be cancelled and appropriate refund will
membership be
It is requested that the certificate of
s City.
returned to the Federal Reserve Bank of Kansa
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 4
9/2/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 14, 1966.
Dear Sir:
The indicated number of copies of the following forms are
bet-ng forwarded to your Bank under separate cover for use of State
teraber banks and their affiliates in submitting reports as of the
next call date. A copy of each form is attached.
Nulther of
pi
Form FR 105 (Call No. 181), Report of Condition
of State member banks.
Form FR 105e (Revised February 1966), Publisher's
copy of report of condition of State member
banks.
Form FR 105e-1 (Revised February 1966), Publisher's
copy of report of condition of State member
banks.
Form FR 220 (Revised September 1966), Report of
affiliate.
Form FR 220a (Revised September 1966), Publisher's
copy of report of affiliate.
The faces of the condition report forms are identical to
As for other recent spring and
411 calls the supporting schedules on the reverse have been eliminated
oept for the items required for deposit insurance assessment purposes.
he memoranda items for reporting valuation reserves on loans and securities have been included but the items pertaining to averages of
deposits and loans have been eliminated from the Memoranda section for
consistency with the forms being used for national and nonmember State
1A.nks. The same form is being printed by the Federal Deposit Insurance
those used for the June 1966 call.
-PC(IrPoration foie disttibutioh to insured nonmember State banks. It is
Understood the Office of the dobPtroller of the Currency will distribute
a form similar to that used at the June call. This form cc&tbinues to
differ in some respects from the State bank forms.
The average deposit and loan items have
Publisher's copy. However, since they are not as
call as for the mid-year and year-end calls, when
been a problem, reporting banks should be advised
oPtional. The Comptroller of the Currency is not
Of these items for this call.
been retained on the
pertinent for this
"window dressing" has
that publication is
requiring publication
Because of the difficulty and high cost of processing State
Member and national member bank condition report forms to achieve
comparable statistics for all member banks and all insured commercial
banks, it is not planned to keypunch and tabulate these reports. The
existing heavy backlog of work in data processing planning and operating
fUnctions at both the Reserve Banks and the Board has also contributed
to this decision. The value of interim data, which can be obtained only
for the broad asset and liability items from the face of the report, does
not appear to warrant the high cost of editing, processing, and summarizing
these reports.
Forms FR 220 and 220a have been amended to reflect the change
occasioned by recent legislation eliminating the "holding company
affiliate" provision from the Federal banking laws, including Section 2(c)
Of the Banking Act of 1933. Although Section 2(c) was repealed, Section
gb) was amended by adding a new subdivision "(4)" which now defines the
term "affiliate" as including corporations, etc., formerly defined as
'lading company affiliates, but no exemptive-determination authority is
included.
In effect, all corporations, etc., coming within the definition
Of affiliate as now contained in Section 2(b)(4) of the Banking Act of
1933 are subject to the appropriate portions of the Federal Reserve Act
Vith respect to reports of affiliates. Thus, reports of corporations,
etc., that formerly held voting permits from or exemptive determination
bY the Board must in the future be filed and published unless exempted
bY the Waiver Requirement for Reports of Affiliates. These changes are
discussed in the Board's letter of August 31, 1966 (5-2003). Questions
on the impact of these changes in specific cases should be directed to
the Board's Legal Division.
Very truly yours,
Merritt Sher
Secretary.
tnelosures.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 5
9/2/66
WASHINGTON
N
OFFICE OF THE VICE CHAIRMA
September 2, 1966
The Honorable Robert G. Stephens, Jr.,
House of Representatives,
Washington, D. C. 20515
Dear Mr. Stephens:
e System has
The Board of Governors of the Federal Reserv
your bill,
for
t
suppor
asked me to express to you its unqualified
ishment
establ
for
ity
author
H.R. 17255, which would provide flexible
We
ts.
deposi
pe
s-ty
saving
of maximum rates of interest payable on
steps
the
rce
reinfo
to
believe that enactment of the bill is needed
sharp shifts of
that have already been taken to forestall sudden and
your effort to
that
hope
we
funds among financial institutions, and
be successful.
will
14026
substitute its provisions for those of H.R.
and other members
We agree with the view expressed by you
tee Report on
Commit
the
in
of the Banking and Currency Committee
te funds to
alloca
to
t
attemp
H.R. 14026, that Congress should not
statute. This
a
in
g
ceilin
various markets by fixing a deposit rate
in
ied
specif
that
as
is particularly true of a ceiling such
tly paid
curren
rates
of
ck
rollba
H.R. 14026, which would involve a
latest
our
e,
exampl
For
ts.
deposi
on a substantial portion of time
4-1/2
than
more
of
rate
m
maximu
a
ng
survey showed that banks offeri
ted for more than
Per cent on negotiable CD's under $100,000 accoun
g of 4-1/2
half of such CD's outstanding. Establishing a ceilin
banks to
Per cent on such CD's would severely impair the ability of
portfolio
into
banks
attract and retain savings funds, and could force
obligapal
munici
mortgages,
adjustments that would damage markets for
tions, and other securities.
a ceiling on the rates
It should be stressed that imposing
not strike at the
that may be paid for any one class of deposits does
rates prevailing
The
root cause of generally rising interest rates.
strength of
the
of
now in most financial markets are symptomatic
capacity in a
tive
produc
demands for goods and services relative to
pressures
ionary
inflat
Period when the primary burden for combatting
authority
r
broade
that
e
has been placed on monetary policy. We believ
in
useful
prove
might
to fix rate ceilings on savings-type deposits
turn,
in
this,
ts;
deposi
moderating excessive competition for such
particular sectors of
could ease the impact of monetary restraint on
ished, however,
establ
the economy, such as housing. The ceilings
The Honorable Robert G. Stephens, Jr.
-2-
institutions; should
should not create new inequities among financial
be
not pose a threat of disruptions in financial markets; and should
g economic
administered flexibly so as to cope with rapidly changin
conditions.
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson
Item No. 6
9/2/66
August 31, 1966.
Board of Governors
Subject: Retroactive approval of
Legal and Examinations Divisions
bank premises investments.
fl_PA•fokj
Section 24A of the Federal Reserve Act provides that no State
member bank shall, without the approval of the Board of Governors,
(1) invest in bank premises, or in the stock, bonds, debentures or other
such obligations of any corporation holding the premises of such bank or
(2) make loans to or upon the security of the stock of any such corporaif the aggregate of all such investments and loans, will exceed the
amount of the capital stock of such bank.
The statute does not specify "prior" approval. However, it
seems reasonable to conclude that asking for approval after funds have
been spent is not a proper procedure. In many cases, when the investment
is relatively small, the Board's approval is virtually automatic, but in
a borderline case, the Board might refuse approval before construction
has begun or cause the bank to reduce proposed investments. The Board's
actions are somewhat restricted if its approval is requested after construction has begun, is complete, or nearly so. Of course, in such
instances the Board can demand that the bank provide additional capital
funds if such appears necessary.
For sometime prior to May 1965 it was the Board's practice
when receiving requests for approval for past investments to advise the
bank that approval would not be given. However, the bank was usually
advised that if a timely request had been received, such approval would
have been given and therefore the Board would not object to the investment. Many of these violations had been picked up in the course of
bank to
examinations, whereupon the Reserve Bank would advise the member
stating
Board
the
from
letter
seek Board approval with the resultant
that no approval would be given.
In May 1965, at the suggestion of the Legal and Examinations
attached),
Divisions, the Board advised the Reserve Banks (S-1952; copy
Board except
the
to
submitted
be
not
should
cases
that in the future such
by mention in the report of examination, but the Reserve Bank should by
letter bring the matter to the bank's attention and caution against
future violations. The reason for this suggestion was primarily to
t
eliminate the presentation to the Board of a great many unimportan
Now,
cases and to impress upon the member bank the proper procedure.
only requests for prior approvals are submitted to the Board.
In January 1966, a new procedure was instituted which estabof
lished guidelines for use by the Board's staff in submitting most
Therefore,
these remaining cases to the Board on a name basis only.
very few cases now have to be considered by the Board.
Ara"
—.IF
Board of Governors
May of last year
The procedure established by the Board in
exception of a case which
seems to have worked satisfactorily with the
obtained a commitment
arose last month involving a member bank that had
would now be
for a mortgage loan at a lower rate of interest than it
avoid this commitment,
Possible to obtain. It was asserted that, to
as to the legality of the
question had been raised by the lending bank
investment in bank premises.
mortgage since the Board had not approved the
r" approval
As stated above, the statute does not actually specify "prio
given for all
and to assist the member bank in this case approval was
Past investments.
ve that the present
The Legal and Examinations Divisions belie
procedures should be continued.
Attachment
Item No. 7
9/2/66
1
). 1'
August 31, 1966..
Board of Governors
Legal Division (Robert S. Plotkin)
SUBJECT: Publication of a summary
of insiders' reports filed pursuant
to Regulation F, "Securities of
Member State Banks".
As you know, officers, directors, and principal stockholders
(hereinafter referred to as "insiders")of each bank that is registered
Pursuant to Federal Reserve Regulation F are required to file reports
disclosing changes in their beneficial ownership of the bank's securities.
The initial ownership report is filed on Form F-7 ("Initial Statement of
Beneficial Ownership of Securities"); a report on Form F-8 ("Statement of
Changes in Beneficial Ownership of Securities") is thereafter required
vithin 10 days after the end of any month in which any change in the
nature or amount of beneficial ownership has occurred. Approximately
2000 insiders have filed ownership reports with the Board and an average
of 200 Form F-8's are filed each month. (The respective figures for the
FDIC are approximately 1900 and 150.)
The purpose of the ownership reports is two-fold: (1) to expose
to the broad glare of publicity insiders' "short-swing transactions",
anY profit on which may be recovered by the bank under section 16(b) of
the 1934 Act, and (2) to reveal to the investing public information 'which
might be useful in the evaluation of the security. In the latter connection,
it should be noted that the reports may reveal insiders' views as to the
Prospects of the bank and its stock, as well as evolving changes in the
control of the bank.
Although all other reports required under Regulation F are
available for public inspection at all Reserve Banks (as well as at
the FDIC), the ownership reports are only available for public inspection
in Uashington.
In the interest of ready availability of such information,
the SEC has, for many years, published a monthly "Summary" of insiders'
security transactions and holdings. The SEC summary shows purchases and
sales of stock (if more than 100 shares were purchased and/or sold by
an insider during any month), but omits data reflecting stock splits,
stock dividends, and gifts.
It seems advisable that the Board and the FDIC, following
SEC practice, should jointly publish a combined summary of insiders'
transactions in bank stock that are reported to our agencies. Our
Summary would generally follow the form used by the SEC and would be
Published monthly, except that transactions involving the purchase and
Board of Governors
-2-
sale of more than 50 shares of stock in any one month, rather than
100 shares, would be published, in view of the generally higher pershare prices of bank stock as compared to industrial stock.
The subject has been discussed with the staff of the FDIC
and they are prepared to recommend that their Board authorize publication
in the manner contemplated herein. It is believed that initially the
FDIC will undertake the manual preparation of the publication
(incorporating data supplied by our staff), but in .any event this is
an administrative detail which can be worked out by the staffs.
Accordingly, the Legal Division recommends the publication
of a Summary of insiders' reports in the form annexed hereto as
Exhibit A". A draft of a press release relating to the matter is also
attached (Exhibit B). It is contemplated that this press release will
be issued as soon as the FDIC agrees to the action, so that a mailing
list can be compiled in advance of the first publication.
Attachments
BOARD OF GOVERNORS
ottil
,
CWYL1/
Item No. 8
9/2/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
MAN
OFFICE OF THE VICE CHAIR
September 9, 1966
,
The Honorable Manuel F. Cohen, Chairman
on,
Securities and Exchange Commissi
Washington, D. C. 20549
Dear Mr. Cohen:
r of August 5, 1966, to
This is in response to your lette
advertising practices by banks in
Chairman Martin on the subject of
n deposits.
connection with their efforts to obtai
dered your letter and the
The Board of Governors has consi
that your agency considers to
attached list of advertising practices
with respect to each
be objectionable. The Board shares your view
, and it also believes that
of the practices referred to in that list
bank supervisory agencies to
it would be appropriate for the Federal
directed against such practices.
publish a joint statement of policy
deration a draft of such
There is enclosed for your consi
the Board's staff. The Board
a statement, which has been prepared by
ncy and the Federal Deposit
has invited the Comptroller of the Curre
it in publishing an appropriate
Insurance Corporation to join with
asked for their views on the
statement and, in this connection, has
enclosed draft.
am directed toward
Because the Board believes that a progr
deposits should apply to savings
eliminating misleading advertising for
banks, it has also invited
and loan associations as well as commercial
publishing the statement.
the Federal Home Loan Bank Board to join in
ury Department for its views
In addition, the Board has asked the Treas
on the proposal.
will be prepared to
Members of the Board's organization
of your Commission at any time.
discuss the matter with representatives
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosure
t
DRAFT STATEMENT ON
ADVERTISING FOR DEPOSITS
financial institutions
In recent years, competition among
for funds has become intense.
An outgrowth of such competition has
tutions of advertising
been the development and use by a few insti
public's attitude toward
Practices that could be detrimental to the
the nation's financial system.
In some respects, certain of the ad-
vertising practices are considered misleading.
a bank emphasized
For example, a recent advertisement by
"Guaranteed interest of 6%".
A reader who was not experienced in
not alert to the smaller
calculating interest rate quotations and
akenly thought that such
Print in the advertisement might have mist
bank was assuring the
statement meant that someone other than the
simple interest per annum
depositor that he would receive six per cent
on funds placed in the bank.
In fact, "guaranteed interest" meant
the advertised rate
only that the bank promised to continue to pay
six per cent rate quotation
throughout the life of the deposit; the
rn that the depositor would
represented the average annual rate of retu
d interest on such funds on
receive if he left the funds and accumulate
deposit for five years.
r of the Currency,
Under the circumstances, [the Comptrolle
ral Home Loan Bank
the Federal Deposit Insurance Corporation, the Fede
ral Reserve System, as
.Board, and] the Board of Governors of the Fede
country's deposit-receiving
supervisoi.s of the major portion of the
helpful, both to the public and
institutions, believe that it would be
-2agencies to outline certain
the institutions themselves, for such
ions should
private financial institut
Principles that they consider
funds.
directed toward attracting
follow in their advertisements
s
regarded as minimum standard
Those principles, which are
in advertising for funds, are:
s
stated in terms of annual rate
(1) Interest rates should be
ounded
e whether interest is comp
of simple interest and should stat
and, if so, the basis of compounding.
to "profit".
(2) No reference should be made
However, the
a deposit if
or the percentage return on
average annual interest rate
e of simple
be stated if the annual rat
held for a specified period may
with equal prominence.
interest thereon is presented
"bank guaranteed" should not
(3) The words "guaranteed" and
osits.
be used in connection with interest on dep
be used in describing a
(4) The term "bond" should not
certificate of deposit.
in
solicits deposits in amounts
(5) Every advertisement that
e
r that Federal deposit insuranc
excess of $10,000 should make clea
extends only to that amount.
t,
Commission has indicated tha
The Securities and Exchange
sit are securities under the
in its opinion, certificates of depo
4 and,
Securities Exchange Act of 193
Securities Act of 1933 and the
e statutes.
anti-fraud provisions of thos
accordingly, subject to the
1
-3The Commission has further indicated that it considers advertisements
by financial institutioris that are contrary to the principles set
is
forth above to violate those anti-fraud provisions and that it
that persist
prepared to take appropriate action against institutions
in such advertising practices.
Item No. 9
9/2/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
OFFICE OF THE VICE CHAIRMAN
September 9, 1966
The Honorable James J. Saxon,
Comptroller of the Currency,
Treasury Department,
Washington, D. C. 20220
Dear Jim:
The Board of Governors has received a letter from
on dated
Chairman Cohen of the Securities and Exchange Commissi
the Federal
that
August 5, 1966, in which the Commission suggests
policy with
of
t
statemen
bank supervisory agencies publish a joint
in conbanks
by
s
respect to objectionable advertising practice
od
understo
is
It
.
nection with their efforts to obtain deposits
that a similar letter was sent to you.
on is
The Board considers that the Commission's suggesti
each
to
respect
with
views
appropriate. It also shares the SEC's
to
nt
attachme
the
in
of the advertising practices referred to
Chairman Cohen's letter.
in
Accordingly, the Board invites you to join with it
ing
eliminat
toward
directed
t
Publishing an appropriate statemen
this consuch practices from bank advertising for deposits. In
of such
draft
a
ation
consider
your
nection, there is enclosed for
staff.
Board's
the
by
prepared
been
a statement, which has
Because the Board believes that a program directed
deposits should
toward eliminating misleading advertising for
apply to all Federally-supervised commercial banks and savings
and loan associations, it is also inviting the Federal Deposit
Bank Board to
Insurance Corporation and the Federal Home Loan
join in the publication of such a statement.
before
The Board would appreciate receiving your views
to
prepared
are
tion
October 1, 1966. Members of its organiza
time.
any
at
office
your
of
discuss the matter with representatives
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosure
33(
Item No. 10
9/2/66
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
CHAIRMAN
OFFICE OF THE VICE
September 9, 1966
Chairman,
The Honorable Kenneth A. Randall,
oration,
Federal Deposit Insurance Corp
9
2042
Washington, D. C.
Dear Kay:
ived a letter from
The Board of Governors has rece
ange Commission dated
Exch
es and
'Chairman Cohen of the Securiti
ral
ission suggests that the Fede
August 5, 1966, in which the Comm
with
cy
a joint statement of poli
bank supervisory agencies publish
coning practices by banks in
respect to objectionable advertis
rstood
obtain deposits. It is unde
nection with their efforts to
you.
that a similar letter was sent to
Commission's suggestion is
The Board considers that the
each
SEC's views with respect to
appropriate. It also shares the
to
nt
to in the attachme
of the advertising practices referred
Chairman Cohen's letter.
you to join with it in
Accordingly, the Board invites
ing
ement directed toward eliminat
publishing an appropriate stat
conthis
ing for deposits. In
such practices from bank advertis
such
of
t
draf
your consideration a
nection, there is enclosed for
f.
staf
by the Board's
a statement, which has been prepared
a program directed
Because the Board believes that
advertising for deposits should
toward eliminating misleading
commercial banks and savings
apply to all Federally-supervised
inviting the Comptroller of the
and loan associations, it is also
Bank Board to join in the
Currency and the Federal Home Loan
publication of such a statement.
iving your views before
The Board would appreciate rece
organization are prepared to
October 1, 1966. Members of its
at
tatives of your Corporation
discuss the matter with represen
any time.
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosure
BOARD OF GOVERNORS
Item No. 11
9/2/66
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
MAN
OFFICE OF THE VICE CHAIR
September 9, 1966.
The Honorable John E. Horne, Chairman,
Federal Home Loan Bank Board,
20552
Washington, D. C.
Dear John:
received a letter from
The Board of Governors recently
which
es and Exchange Commission in
Chairman Cohen of the Securiti
a
ish
publ
cies
agen
ory
supervis
he suggests that the Federal bank
ing
rtis
adve
ain
cert
against
joint statement of policy directed
ection with their efforts to
conn
in
s
bank
some
Practices used by
obtain funds.
of such a statement, but
The Board favors publication
apply to
program in this area should
believes that any governmental
rvised
well as all Federally-supe
savings and loan associations as
commercial banks.
ting the Comptroller of the
Accordingly, the Board is invi
your agency
Insurance Corporation, and
Currency, the Federal Deposit
opriate statement. In this
to join with it in publishing an appr
t of such
for your consideration a draf
connection, there is enclosed
with
by the Board's staff
a statement, which has been prepared
banks. With some slight
by
rtising
particular reference to adve
on
be made suitable in connecti
modification it would, we. believe,
and loan.
with advertisements by savings
receiving your views before
The Board would appreciate
discuss
organization are prepared to
October 1, 1966. Members of its
.
your Board at any time
the matter with representatives of
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosure
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 12
9/2/66
WAS
OFFICE OF THE VICE CHAIRMAN
September 9, 1966
The Honorable Henry H. Fowler,
Secretary of the Treasury,
Washington, D. C. 20220
Dear Joe:
The Board of Governors is considering publishing a statement
of policy directed against certain advertising practices used by
banks in connection with their efforts to obtain deposits.
The Board has invited the Comptroller of the Currency, the
Federal Deposit Insurance Corporation, and the Federal Home Loan Bank
Board to join with it in such effort to eliminate misleading advertising for funds by our country's financial institutions. In doing so,
the Board has circulated the enclosed draft to those agencies for
comment.
You will note that certain of the practices that the draft
is directed against have been used by the Treasury in promoting the
sale of United States Savings Bonds. The Board considered that you
Should be informed of this and given opportunity to express your Views
Oil the desirability of publication of such a statement. The Board
would appreciate receiving any comments that you may have, if convenient, before October 1, 1966.
Sincerely,
(Signed) J. L. Robertson
J. L. Robertson.
Enclosure
Item No. 13
9/2/66
GRAM
TELE
SED WERE SHAVICIE
LICA
E SYSTEM
THE FEDERAL RESERV
BOARD OF GOVERNORS OF HINGTON
WAS
September 2, 1966.
Reserve Banks.
Presidents, all Federal
ks to Board's
replies by Reserve Ban
After consideration of
at least
including indication of
wire of August 30, 1966,
ed, Board
may possibly be requir
one case where assistance
6, of
until December 1, 196
has authorized extension
1966, with
its letter of July 1,
authority described in
nonmember
ding accommodation to
respect to emergency len
extreme
ons in the event of
depositary-type instituti
liquidity pressures.
(Signed) Kenneth A. Kenyon
Kenyon
@FedFRASER