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1712 Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, September 27, 1955. The Board met in the Board Room at 10:00 a.m. PRESENT: Mr. Mr. Mr. Mr. Szymczak, Acting Chairman Vardaman Mills Robertson Mr. Sherman, Assistant Secretary Mr. Kenyon, Assistant Secretary Mr. Thomas, Economic Adviser to the Board Mr. Leonard, Director, Division of Bank Operations Mr. Vest, General Counsel Mr. Young, Director, Division of Research and Statistics Mr. Connell, Chief, Reserve Bank Operations Section, Division of Bank Operations The following matters, which had been circulated to the members of the Board, were presented for consideration and the action taken in each instance was as indicated: Memorandum dated September 16, 1955, from Mr. Bethea, Director, Di 1, vision of Administrative Services, recommending an increase in the rsic salary of Bruce L. Rabbitt, Painter in that Division, from $3,780 4) $3,915 per annum, effective October 9, 1955. ' Approved unanimously. Memorandum dated September 21, 1955, from Mr. Sherman, Assistant Se cretary of the Board, recommending that the resignation of Jean F. Stockwell, Records Clerk in the Office of the Secretary, be accepted efTective September 30, 1955. Approved unanimously. Memorandum dated September 19, 1955, from Mr. Sloan, Director, kvision of Examinations, recommending that an attached travel voucher fl'om Francis D. Dargo, Assistant Federal Reserve Examiner in that Division, 113 9/27/55 -2- covering the period September 1-8, 1955, inclusive, be approved for payment as submitted. (The matter was submitted for approval pursuant to the Board's travel regulations because Mr. Dargo was on sick leave for 7-3/4 days during the period in question.) Approved unanimously. Memorandum dated September 21, 1955, from Mr. Sloan, Director, Division of Examinations, recommending that the Board authorize a reception on September 29, 1955, and a luncheon on September 30, 1955, both in the staff dining room, in connection with the fourth session of the School for Examiners of the Inter-Agency Bank Examination School. Approved unanimously. Letter to Mr. O'Keefe, Assistant Secretary, Federal Reserve Bank Of New York, reading as follows: Thank you for your letter of September 16, 1955, advising that Mr. Walter H. Rozell, Jr. has informed your Bank that developments in the State Bank of Ethiopia make it desirable for him to remain there about six weeks longer than originally planned, and that he has requested reemployment as an officer of the Bank, anticipating that his return will be delayed beyond January 20, 1956. It is noted from your letter that the Board of authorized that Mr. Rozell be assured of the Bank's ness to reemploy him as an officer of the Bank upon on or before March 1, 1956, and that he has been so Mr. Treiber. Directors willinghis return advised by Approved unanimously. Letter to the Board of Directors, The Marine Trust Company of Western New York, Buffalo, New York, reading as follows: Pursuant to your request submitted through the Federal Reserve Dank of New York, the Board of Governors approves the establishment of a branch by The Marine Trust Company of Western New York, Buffalo, New York, in the village of Springville, New York, at the present location of The Citizens National Bank of Springville, provided that (a) the merger of The Citizens National Bank of Springville into The Marine Trust Company of Western New York, is effected substantially $ 9/27/55 -3- in accordance with the Plan of Merger dated August 11, 1955, (b) formal approval is obtained from appropriate State authorities and (c) the merger and establishment of the branch are accomplished within six months from the date of this letter. Approved unanimously, for transmittal through the Federal Reserve Bank of New York. Letter to Mr. Stetzelberger, Vice President, Federal Reserve Bank Of Cleveland, reading as follows: In view of the circumstances outlined in your letter of September 19, 1955, and the Reserve Bank's favorable recommendation, the Board of Governors further extends until November 1, 1955, the time within which The Provident Savings Bank and Trust Company, Cincinnati, Ohio, may establish a branch at the southeast corner of Colerain Avenue and Galbraith Road, Hamilton County, Ohio. Approved unanimously. National Bank of Letter to the Board of Directors, The Hamilton follows: J6hason City, Johnson City, Tennessee, reading as The Board of Governors of the Federal Reserve System has given consideration to your supplemental application for fiduciary powers and grants you authority to act, when not in contravention of State or local law, as trustee, bonds, executor, administrator, registrar of stocks and of esguardian of estates, assignee, receiver, committee in capacity tates of lunatics, or in any other fiduciary ons corporati Which State banks, trust companies or other perWhich come into competition with national banks are . Tennessee mitted to act under the laws of the State of proThe exercise of these powers shall be subject to the ns of visions of the Federal Reserve Act and the regulatio the Board of Governors of the Federal Reserve System. The 1955, to Specific authorization granted on February 16, of the bonds act as trustee and registrar of stocks and , is Tennessee City, Volunteer Natural Gas Company, Johnson authorherein powers now contained in the general fiduciary ized. 171_5 9/27/55 -4- A formal certificate indicating the fiduciary powers Which The Hamilton National Bank of Johnson City is now due authorized to exercise will be forwarded to you in course. Approved unanimously, for transmittal through the Federal Reserve Bank of Atlanta. of Kalamazoo, Letter to the Board of Directors, Industrial State Bank Kalamazoo, Michigan, reading as follows: Federal Pursuant to your request submitted through the s approve Reserve Bank of Chicago, the Board of Governors State of the establishment of a branch at the intersection Comstock, Highway M-96 and River Street in the Village of the InComstock Township, Kalamazoo County, Michigan, by branch is dustrial State Bank of Kalamazoo, provided the letter. established within one year from the date of this nce It is understood that as the result of a confere to agreed have With the Federal Reserve Bank of Chicago you less not provide sell sufficient additional common stock to the adethan $250,000 of new capital funds. The matter of receive should quacy of your capital structure is one which action iate appropr your continued close attention, and all mainand n positio should be taken to improve your capital funds capital tain a more acceptable relationship between and loans, fixed assets, and other risk assets. Approved unanimously, for transmittal through the Federal Reserve Bank of Chicago. Reserve Bank of Letters to Mr. Peterson, Vice President, Federal St. Louis, reading as follows: 1955, it is Referring to your letter of September 13, Louisville, noted Citizens Fidelity Bank and Trust Company, Dixie Plaze Kentucky, has been unable to open its branch in February 25, under the approval granted by the Board on building it the of 1955, because of delay in construction ent has been managem was intended to occupy. You state the and now recenter Offered another building in the shopping s on quarter these quests permission to open and operate in nt s permane quarter a temporary basis until such time as its 1716 9/27/55 -5- are completed; also that the Commissioner of the State Banking Department has no objection to this temporary arrangement. In the circumstances, the Board concurs in your favorable recommendation and will interpose no objection to the establishment of the Dixie Plaza branch in temporary quarters located in the same shopping center as its intended permanent quarters. It is understood the temporary branch will be opened prior to the expiration of nine months from the date of the Board's original approval. Please advise the trust company accordingly. Your comments are noted with respect to reinstatement of the trust company's application to establish a branch in the Preston Plaza Shopping Center, and your plans for beconducting another field investigation of the situation fore submitting the matter to the Board for further consideration. Reference is made to your letter of September 9, 1955, of the submitting with a favorable recommendation a request permisfor Lemay Bank and Trust Company, Lemay, Missouri, sion under section 24A of the Federn1 Reserve Act to inits vest an estimated $53,186 for the purpose of enlarging Present banking premises. condiThe Board has given consideration to the asset physical and tion, management, earnings, capital structure, the needs of the Lemay Bank and Trust Company and approves buildproposed investment of not to exceed S54,000 for the ing program. It is understood the trust company is giving capital consideration to increasing and rearranging its to acplan structure and hopes and expects to work out a complish this in the not too distant future. Approved unanimously. of the Currency, Letter to Mr. L. A. Jennings, Deputy Comptroller 'Preasury Department, Washington, D. C., reading as follows: 8, Receipt is acknowledged of your letter of September Mutual the for 1955 regarding a question raised by counsel _ 9/27/55 -6- ned National Bank of Chicago regarding the exception contai n sectio and in paragraph 4 of section 8 of the Clayton Act prothe 2(d)(4) of the Board's Regulation LI which makes applicable hibition against interlocking directorates not in cases where more than 50 per cent of the common stock of the two banks is owned directly or indirectly by the same persons. You ask for the Board's views on the apnational plicability of this exception in cases where the of the view in e, bank holds its own stock as sole truste prowhich es Statut d provision in section 5144 of the Revise sole as stock own hibits a national bank which holds its directors, trustee from voting such stock in the election of . . . unless under the terms of the trust the manner in which such shares shall be voted may be determined by a donor or beneficiary of the trust and unless such donor or beneficiary voted." actually directs how such shares shall be precise The Board's files do not indicate that this case has a question has ever been considered by it or that questhe ever been presented to the Board which turned on al nation tion whether shares of its own stock held by a the not bank should be included in determining whether or . olders shareh requisite 50 per cent was "owned" by the same connection Some of the cases which might arise in this case would present little difficulty as, for example, a stock Where the national bank owns 60 per cent of its own trust and 60 per cent of the stock of the other bank in a which Where the trust instrument provides the manner in the donor or beneficiary shall direct the trustee to vote, the and such directions are in fact given with respect to type of stock of both banks. However, in another possible for the case, where the trust instrument makes no provision ion provis such voting of the stock, or where it does make stock the to but such direction is not given with respect of one or the other or both of the banks, a very difficult presented, asquestion of statutory interpretation might be on actually decisi suming that on analysis it appeared that the the trust turned on the question whether the shares held in g of the meanin the within were "owned" by the national bank other of possible number Clayton Act. There are, of course, a ent ons differ questi t combinations of facts which might presen under these statutory provisions. 1718 9/27/55 -7- In the circumstances, the Board does not feel that it should attempt to express an opinion on the various hypothetical questions suggested by your correspondent, but believes that it would be preferable to undertake a consideration of the problem only after receiving full and specific Information as to the facts of the particular case. Approved unanimously. Letter to Mr. William Leighton, 43 West 74th Street, New York, Ilew York, reading as follows: Receipt is acknowledged of the document you submitted under date of September 6, 1955, captioned "William Leighton, t", in Petitioner v. American Express Company, Responden Which you request that the Board take certain action with of respect to American Express Company under section 25(a) the Federal Reserve Act (12 U.S.C. g611, et seq.). that Your petition is apparently based upon the view be coninternational financial operations may not lawfully 25(a) section under ducted except by a corporation organized of the Federal Reserve Act and that the Board of Governors may require an institution which may be so engaged to become a corporation under that Act. This, however, is not the effect of section 25(a). Perhaps this will become clear through the following comments on the several requests stated on the last page of your petition. However, the Board will afford You an opportunity to submit any additional information or views that you may care to express. is With respect to your first request, your attention Reserve Federal invited to the fact that section 25(a) of the Act does not require but merely permits persons to organize corporations under that section. It provides: "Corporations to be organized for the purpose of engaging in international or foreign banking * * * may be formed * * *"; and provides further that, upon making and filing of articles of association and an organization certificate "and after the Board of the same Governors of the Federal Reserve System has approved on shall associati the !Ind issued a permit to begin business," Company has Express become and be a body corporate. American ion an organizat not made or filed articles of association or there has been certificate under section 25(a). Consequently to approve or no occasion for the Board of Governors either the issuance of . calisapprov e any such documents or to consider permit to the American Express CompanY pursuant to section 25(a). 9/27/55 -8- With respect to your request "(a)" that the Board "order as respondent to seek conversion into a Federal corporation be should required by" section 25(a) (12 U.S.C. §629), it noted that that portion of section 25(a) provides: "Any bank or banking institution, principally engaged in foreign business, incorporated by special law of any State or of the United States * * * may, by the vote of the shareholders owning not less than two-thirds of the capital stock of such bank or banking association, with the approval of the Board of Governors of the Federal Reserve System, be converted into a Federal corporation of the kind authorized by this section. not be in * * * Provided, however, That said conversion shall on also contravention of the State law. * * *" This provisi is permissive in character and does not require a State inauthorize stitution to convert into a Federal corporation nor the Board to require such a conversion. The Board is not instituaware of any provision of law which would require any 25(a). tion to seek to convert pursuant to section that the With respect to your request "(b)", which is of law ions conclus Board "make findings of fact and state busibanking whether respondent's practices in its foreign fraudu and ness should not be enjoined as unfair, deceptive which law lent", the Board does not know of any provision of to make would authorize it to issue such an injunction, or the for findings and state conclusions as a possible basis a by or issuance of such an injunction by some other agency court. the Board Similarly, with respect to your request "(c)", Express n America knows of no statute authorizing it to order banking n Company to cease and desist from engaging in foreig checks rs travele transactions or in "abetting the sale of its within the United States." Board, of course, With respect to your request "(d)", the to American could not make a stipulation in a permit issued were in a posiExpress Company under section 25(a) unless it is not. The it tion legally to issue such a permit, which of American behalf on Board has received no application from or as inand, 25(a) Express Company to organize under section would authorthat dicated above, knows of no provision of law such make applicato ize it to require American Express Company tion. the Board any As stated above, however, you may submit to you may dethat additional information or views in this matter sire. Approved unanimously. , 9/27/55 There vas was presented a request from Mr. Myrick, Assistant Director, Division of Bank Operations, for authority to travel to New York, New York, during the period October 5-7, 1955, to attend a meeting of the Presidents' Conference Subcommittee on Destruction of Records. Approved unanimously. Reference was made to a memorandum from Mr. Leonard dated September 22, 1955, which had been circulated to the members of the Board, regarding revised preliminary plans and specifications for a new building for the El Paso Branch. According to advice received from the Federal Re- serve Bank of Dallas, these plans had been approved by the head office and El Paso Branch directors. Mr. Leonard's memorandum discussed revi- sions made in the original design as the result of questions raised by Mr. Persina, Consulting Architect to the Board, by the Reserve Bank's consultarchitects, who designed the new building for the San Antonio Branch, and by the Dallas architect working on plans for an addition to the head °trice building. It stated that the revised proposal now submitted was considered by Mr. Persina to be a sound and efficient one, although he tavored modification of the entrance to bring it into better proportion t0 the building. Since the estimated cost of "building proper" appeared to be reasonable, the memorandum proposed sending a telegram to the Reserve 13ank which would authorize preparation of detailed plans and specifications but suggest restudying the design for the entrance. At the request of the Board, Mr. Leonard made a statement concerning the revised plans and specifications during which he said that he had 9/27/55 -10- discussed them with Governor Shepardson, who favored making a suggestion to the Dallas Bank that the entrance design be restudied. In response to a question by Governor Vardaman, Mr. Leonard said that the branch directors had participated in the planning of the new building and that they 'were understood to be pleased with the design now submitted. Thereupon, unanimous approval was given to a telegram to Mr. Irons, President, Federal Reserve Bank of Dallas, reading as follows: Reurtel September 16. Board authorizes preparation of detailed plans and specifications for a new building for the El Paso Branch on basis of preliminary plans and specifications referred to in Austin's letter of September 2. The entrance seems somewhat overemphasized in the plans and Board strongly suggests consideration be given to a restudy of this phase. Decision, however, as to whether that be done rests with the Bank. Prior to this meeting, there had been sent to the members of the 13°61-rd copies of a draft of letter to the Presidents of all Federal Reserve 8aaks reading as follows: The replies to the Board's letter of July 29, 1955 requesting the volume of credit extended to real estate mortgage lenders by weekly reporting member banks were summarized in a statement or the press dated September 8; with revisions in some figures, the summary appears in the September issue of the Federal Reserve Bulletin, page 980. Enclosed is a memorandum prepared for the Board to supply additional detail on the subject. One of the items requested in the Board's letter, but not mentioned in the press statement, was the manner of loan classification being used by the various banks in reporting the amounts Schedule A of the call report and in the weekly report form. It was realized that misclassifications were fairly common, but yhe size was larger than expected. For all weekly reporting member banks the misclassification of loans to mortgage companies, 1722 9/27/55 -11- which should be classified as commercial and industrial loans, totaled *371 million, of which *300 million had been classified as real estate loans. The misclassification of real estate mortgage loans purchased under resale agreements, which should be classified as real estate loans, amounted to *27 million, of Which *23 million was misclassified as commercial and industrial. Although loans to insurance companies and to savings and loan associations should be classified as "all other", *40 million vas misclassified. The net effect of these revisions, applied to the weekly reporting member bank figures of August 10, 1955, is as follows: Revised Series as Revision figures reported Commercial and industrial loans Real estate loans Other loans 23,754 8,028 + 331 -- 294 9,364 -- 37 24,085 7,734 9,327 These revisions are so large that they should not be made piece-meal, and inquiring Reserve Banks have been so advised. It would seem impracticable either to attempt to obtain revisions of back data, or to request that existing loans be classified as they have in the past but that new loans be classified correctly. In the circumstances, it seems advisable that the Reserve Banks should request revisions of the weekly reports at one date, the second Wednesday following the date of this letter. Efforts should be made to obtain figures for the items affected at that date on both the new and old basis, in order that the press statements and related statistics may be appropriately footnoted to indicate the amount of the revision based on data and forwarded by the Reserve Banks. Fortunately, the loans misclassified are concentrated in relatively few banks, and Your Bank may overlook at this time the smaller misclassifications that aggregate less than a million dollars in your District. It is suggested that the member banks concerned be advised that the requested reclassifications are consistent with positions 4:111:oth the Office of the Comptroller of the Currency and Following a discussion, during which Mr. Young stated, in response to a question by Governor Mills, that the errors in classification referred to in the draft of letter were corrected prior to publication of the Federal Reserve Bulletin article, the letter was approved unanimously in the form submitted. 9/27/55 -12Messrs. Leonard, Vest, and Connell then withdrew from the meeting. Governor Vardaman suggested that the staff be authorized to look into the possibility of installing a telephone hook-up which would permit the Board to have telephone conferences with the twelve Federal Reserve Banks, since the mechanism now installed in the Board Room did not appear to be adequate for that purpose. He also suggested that the conference equipment might be installed in Room 2019 or at some other appropriate location on the second floor of the building. During a discussion of Governor Vardaman's suggestion, Governor Robertson referred to the authorization given at the meeting on September 21 '1955/ for the obtaining of technical advice looking toward an improvemeat of the acoustics in the Board Room. He felt that consideration might be rr4.'6".‘ren to the matter mentioned by Governor Vardaman in conjunction with the stUdY of acoustical features of the room. The other members of the Board expressed agreement with the procedur e suggested by Governor Robertson. Mr. Young stated that if this morning's rally in the stock market vere f01, .44.owed by further declines later today or tomorrow, the Board might Illsh to consider sending a telegram to the Federal Reserve Banks request- them — .o sUbmit, on the basis of information available to them, an assessniev,.L. of the impact of the market decline in the respective Federal Redistricts 24 9/27/55 -13In a discussion of the stituation, it was noted that the Reserve Bank Presidents would be in Washington for the meetings of the Presidents' C onference and the Federal Open Market Committee on October 3 and 4, and that they might be able to supply sufficient information of the type mentioned by Mr. Young. It was agreed that no decision should be made at this time to send such a request as Mr. Young proposed. Minutes of actions taken by the Board of Governors of the Federal Reserve System on September 23, 1955, were approved unanimously. The meeting then adjourned.
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