The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
,163
Minutes for
To:
Members of the Board
From:
Office of the Secretary
September 27, 1963
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. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3354
Minutes of the Board of Governors of the Federal Reserve
System on Friday, September 27, 1963.
The Board met in the Board
Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Balderston, Vice Chairman
Mills
Robertson
Shepardson
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Kenyon, Assistant Secretary
Fauver, Assistant to the Board
Noyes, Director, Division of Research
and Statistics
Koch, Associate Director, Division of
Research and Statistics
Brill, Adviser, Division of Research
and Statistics
Holland, Adviser, Division of Research
and Statistics
Furth, Adviser, Division of International
Finance
Sammons, Adviser, Division of International
Finance
Broida, Chief, Consumer Credit and Finances
Section, Division of Research and Statistics
Eckert, Chief, Banking Section, Division of
Research and Statistics
Yager, Chief, Government Finance Section,
Division of Research and Statistics
Goldstein, Economist, Division of International
Finance
Money market review.
Mr. Yager commented on developments in
the Government securities market,
Mr.
Eckert described developments
14 the area of reserves, bank credit, and related matters, and Mr.
Goldstein reviewed foreign exchange market developments.
Distributed
Illa:terials referred to by the speakers included a table and charts showYields on U. S. Government securities, by maturity, during 1963; a
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-2-
9/27/63
table on the net change in business loans and total loans of commercial banks
in selected time periods; a summary of monetary developments in the
four weeks ended September 25, 1963; and a revised estimate of dollardenominated time deposits placed by U. S. corporations in foreign banks
during 1962 and 1963.
All members of the staff except Messrs. Sherman, Kenyon, Fauver,
Noyes, and Sammons then withdrew from the meeting and the following
Persons entered the room:
Mr. Cardon, Legislative Counsel
Mr. Hackley, General Counsel
Mr. Solomon, Director, Division of Examinations
Mr. Johnson, Director, Division of Personnel Administration
Mr. O'Connell, Assistant General Counsel
Mr. Kiley, Assistant Director, Division of Bank Operations
Mr. Smith, Assistant Director, Division of Examinations
Mr. Leavitt, Assistant Director, Division of Examinations
Miss Hart, Senior Attorney, Legal Division
Mr. Young, Senior Attorney, Legal Division
Mr. Fisher, Senior Economist, Division of Research and Statistics
Discount rates.
Ilederai
The establishment without change by the
Reserve Banks of New York, Cleveland, Richmond, Chicago, St.
1963, of the rates on
144", Kansas City, and Dallas on September 26,
discounts and advances in their existing schedules was approved unani140W4, with the understanding that appropriate advice would be sent
tc) those Banks.
Circulated or distributed items.
Of
The following items, copies
the respective item numbers
hich are attached to these minutes under
illaicated, were approved unanimously:
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
:356
9/27/63
-3Item No.
Letter to Bankers Trust Company, New York, New York,
approving the establishment of a branch at Castleton
Corners, Borough of Richmond.
1
Letter to The Cleveland Trust Company, Cleveland, Ohio,
approving the establishment of a branch in the River
plaza Shopping Center, Rocky River.
2
Letter to the Federal Reserve Bank of Atlanta waiving
the assessment of a penalty incurred by Fidelity
,
11ational Bank of Baton Rouge, Baton Rouge, Louisiana,
uecause of a deficiency in its required reserves.
3
Letter to Ypsilanti Savings Bank, Ypsilanti, Michigan,
aPProving the establishment of a branch at Washtenaw
Avenue and Hewitt Road, Ypsilanti Township.
4
Letter to Citizens Commercial Trust and Savings Bank
21 Pasadena, Pasadena, California, approving an extension of time to establish a branch at 1010 East
Colorado Boulevard.
5
Letter to Peoples Trust Company of Bergen County,
Rackensack, New Jersey, approving the establishment
c'r a branch in Norwood.
6
In connection with Item No. 2, there was a brief discussion,
at the instance of Governor Balderston, concerning the competitive
Posttian of Cleveland Trust Company, and particularly its right under a
grandfather" clause in the law to establish branches outside Cuyahoga
County, a privilege not available to other Cleveland banks.
Mr. Leavitt
se4d that the trust company had only one branch outside the County,
Vhict-Li It operated under the grandfather clause.
While the trust company
aa the largest bank in Cleveland, he was informed that the trust company
not been finding it easy in recent years to maintain its relative
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3;157
-4-
9/27/63
Position.
There was a lot of competition in the area and certainly no
indication of a tendency toward a monopolistic situation.
Mr. Noyes then withdrew from the meeting.
Report on competitive factors (South Bend-New Carlisle, Indiana).
There had been distributed a draft of report to the Comptroller of the
Currency on the competitive factors involved in the proposed purchase
Of assets and assumption of liabilities of The First National Bank of
Ilev Carlisle, New Carlisle, Indiana, by The National Bank and Trust
°°mPany of South Bend, South Bend, Indiana.
In discussion, similarities and differences from the standpoint
Of competitive effect were suggested between this proposed transaction
and the proposal on which the Board had recently reported to the Comptroller whereby Michigan National Bank, Lansing, Michigan, would take
°Iier two small banks in the community of Grand Ledge.
It was the view
°f the Division of Examinations that significant distinctions could be
r°4nd in the two proposals.
Certain changes in the wording of the
°I1clusion of the draft report on competitive factors were then suggested
by
approved for transGovernor Robertson, following which the report was
Mittal to the Comptroller in a form in which the conclusion read as
follows:
While the proposed purchase of assets and assumption of
liabilities of First National Bank, New Carlisle, Indiana,
by National Bank and Trust Company, South Bend, Indiana,
vould eliminate the nominal amount of competition between
National, the over-all
National Bank and Trust and First
effect on competition would not be adverse.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3358
9/27/63
-5Baystate Corporation (Item No. 7).
The Federal Reserve Bank
of Boston had requested the Board's opinion as to whether Insurance
Agent Auto Finance Plan, Inc., and Insurance Agent Auto Finance Trust,
affiliates of Harvard Trust Company, Cambridge, Massachusetts, a subsidiary of Baystate Corporation, were exempt subsidiaries of Baystate
Under section 4(c)(1) of the Bank Holding Company Act of 1956.
Two
questions were presented: (1) whether the Plan and the Trust were
subsidiaries of Baystate within the meaning of the Act; and (2) if so,
whether their activities were exempt from the prohibitions of section 4
°f the Act as bank service subsidiaries under the 1958 interpretation
by the
Board in the matter of The National Shawmut Bank, Boston, and
its subsidiary, Devonshire Financial Service Corporation.
It was the
conclusion of the Legal Division, as stated in a memorandum dated
September 25, 1963, which had been distributed to the Board, that the
Prohibitions of section 4 of the Bank Holding Company Act did not apply
to the relationships between Harvard and Plan and Trust because, in
of Baystate.
terms of that statute, the latter were not subsidiaries
4 dof letter to the Boston Reserve Bank to such effect was attached
r°r the Board's consideration in the event the Board agreed with this
e°nclusion.
If the Board so agreed, it would be unnecessary to reach
the question whether the Plan and the Trust would be exempt from the
13r(lhibit1on5 of section 4 as companies engaged "...solely in the business of furnishing services to or performing services for such holding
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
-6-
9/27/63
company and banks with respect to which it is a bank holding company..."
under section 4(c)(1).
Following comments by Miss Hart in supplementation of the
memorandum, Governor Mills commented that the position proposed to be
taken seemed generally consistent with the Shawmut-Devonshire decision,
which, however, he regarded as a borderline decision.
He had always
been concerned that the Board may have been an accessory to a subterfUge.
To the extent that this was true, the Board in a sense would be
compounding the earlier error by the proposed decision in the present
case. While the proposed interpretation probably was technically correct,
he had some qualms as to whether or not the decision in the Shawmutt/evonshire case was a correct one.
Miss Hart brought out that the Legal Division had concluded in
this case that if there had been a subsidiary relationship, the divestrequirements of the Bank Holding Company Act would have applied.
14 other words, the case would not have fallen within the Shawmut exception.
However, the Holding Company Act does not reach all kinds of business
relationships, and it did not seem to reach this particular relationship
8° far as the Legal Division could determine.
If not, there was no
Prov.
lsion in the Act under which the Board could require divestment.
Governor Robertson said he also had the feeling that a subterfuge
1146 involved, one that could lead to a breakdown of the whole purpose
c't the divestment requirements of the Bank Holding Company Act.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
At the
9/27/63
-7-
same time, he agreed with the Legal Division that this situation was
not covered by the Holding Company Act in its present form.
Therefore,
the conclusion reached by the Legal Division seemed correct.
Neverthe-
the Board should keep
less, this kind of situation was one on which
its eye to see whether it should request amendment of the statute.
agreement that the
After further discussion, there was general
of the present proconclusion reached by the Legal Division, in light
correct.
visions of the Bank Holding Company Act, was legally
Accordingly,
l Reserve Bank
Unanimous approval was given to the letter to the Federa
of Boston of which a copy is attached as Item No. 7.
the meeting.
Mr. O'Connell and Miss Hart then withdrew from
8).
Report on S. 810, S. 811, and S. 2130 (Item No.
Chairman
Robertson of the Senate Banking and Currency Committee had requested
to provide a
l'eports from the Board on three bills, each designed
secondary market for conventional mortgages.
S. 810 would provide for
ge
the Federal chartering of mortgage insurance corporations and mortga
Marketing corporations to insure and deal in conventional mortgages.
within the Home Loan
S. 811 would create a Home Mortgage Corporation
ns in mortgages.
1144k System with authority to deal in participatio
l National Mortgage
8* 2130 would expand the operations of the Federa
mortgages.
Association to include conventional home
ndum from the Legal Division
There had been distributed a memora
dated September 26, 1963, reviewing the three bills and the position
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3361_
9/27/63
-8-
taken by the Board with respect to similar proposals in the past.
There
sUbmitted a draft of letter to Chairman Robertson that would express
aPProval of the objective of the three bills -- to improve the marketof mortgages not presently underwritten by the Federal Government
-- but would raise a number of questions concerning the present proposals.
In commenting, Mr. Young and Mr. Cardon said that the dommittee
114d held meetings on the bills and that it wished to have a report from
the Board for inclusion in the printed record of the hearings.
They
jUdged that the bills were doubtful of enactment.
Governor Mills said his thought would be that these bills did
40t deserve even the indirect extent of endorsement that was indicated
14 the proposed letter. The letter would say that the Board approved
the underlying principle, but he wondered whether that principle was
e°rrect.
Possibly there were statistics that showed that there was an
illadequate secondary market for conventional mortgages.
In view of
1311esently available facilities, however, he considered it questionable
141ether there was indeed a clear and definite need for this sort of
secondary mortgage market operation.
Over the long run, such a device
ecAlld encourage undue mortgage activity on the part of banks and savings
an4 loan associations because they could extend their mortgage loans in
the knowledge that they could move the surplus on to the secondary market
a8 they saw fit. There was also a possibility that banks and savings and
1°44 associations would have an incentive to lend beyond the limits of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t)t)
t7m.)04,,
9/27/63
-9-
their own resources.
Unless the insurance provisions were such that
the quality of mortgages insured would be appropriate, there would be
some incentive over a period of time for these institutions to lend
and move along their mortgages for a carrying fee, which could reduce
the quality of the credits they were handling.
What this program would
dO to Federally guaranteed mortgages, he did not quite know, especially
if the Federal National Mortgage Association were permitted to enter
the conventional mortgage loan market by acquiring such mortgages.
By
and large, the yield on conventional mortgages was substantially higher
than on Government guaranteed mortgages.
It would seem that there would
the
be a strong incentive on the part of banks to move entirely out of
field of Federally guaranteed mortgages and into the field of conventional
Mortgages.
invest up to
Further, S. 810 would allow national banks to
5 Per cent of their capital and surplus in the stock of mortgage insurthe stock of
411ce corporations and up to an additional 5 per cent in
14°Itgage marketing corporations.
There was a growing extension of
authorities to allow banks to invest up to certain percentages of their
eaPital and surplus in various types of corporations.
Taking all of
these together, some banks might have a large percentage of their capital
free capital stand441d surplus absorbed in such investments, and little
in protection of their deposit liabilities.
Governor Mills' point of view.
Governor Balderston said he shared
stemmed from cogent arguments
antipathy to this whole development
ll'esented to him by Mr. Fisher and by insurance company executives.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
I,)
9/27/63
-10Governor Robertson then suggested revision of the second para-
graph of the proposed letter to eliminate the statement that the Board
aPProved the objectives of the three bills, and there was general agreement with the revised language suggested by Governor Robertson.
Governor Robertson also noted that S. 810 would give impetus
to the stretching out of terms of mortgages.
He suggested that the
letter might be amplified in this respect against the background of the
testimony given by Chairman Martin before the House Banking and Currency
Committee earlier this week on a bill -- one of several covered by the
testimony -- that had the objective of relaxing terms on conventional
mortgage loans by national banks.
There was agreement that the letter
should be amplified along the lines of Governor Robertson's suggestion.
After an additional suggestion for a clarifying change in the
Proposed letter was agreed upon, unanimous approval was given to a letter
to chai
rman Robertson in the form attached as Item No.
8.
It was under-
stood that a similar letter would be sent to the Budget Bureau, which
haci likewise requested a report on S. 810.
Foreign travel.
had
In a memorandum dated September 25, 1963, which
been distributed, Mr. Young (Adviser to the Board and Director, Division
or International Finance) noted that an understanding had been reached by
U' S. and Canadian financial officials to create a joint working party
°r senior technicians to examine available data on the interrelationships
between the U. S. and Canadian money markets, to recommend procedures
for improving such data, and hopefully to suggest measures that might
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3364
9/27/63
-11-
enhance the ability of the two markets to function together in such a
Way as to improve the operations of the international monetary system.
The U. S. members of the working party would include representatives
of the Treasury Department, a representative of the Federal Reserve Bank
Of New York, and Mr. Sammons, Adviser in the Board's Division of International Finance.
It was contemplated that several meetings of the
working party would be held, some in Washington and some in Ottawa,
Canada, and the first meeting had been tentatively scheduled for
October 10 and 11, 1963.
It was recommended that the Board authorize
travel to Ottawa by Mr. Sammons for the purpose of participating in
this meeting.
It was further recommended that he, or if necessary some
Other member of the Board's staff as his substitute, be authorized to
Make such additional trips to Ottawa as might be necessary to complete
the task assigned to the joint working party.
A request for travel
authorization would be prepared and submitted, prior to each individual
triP, to the Board member (presently Governor Shepardson) to whom
authority was delegated for approving such requests.
The recommendations contained in Mr. Young's memorandum were
aPProved unanimously.
Messrs. Cardon, Fauver, Sammons, Leavitt, Young (Legal), and
'ler then withdrew from the meeting.
Outside activities of Reserve Bank officers and employees
._. 9).
-(-1-t_TI1119
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Pursuant to discussions at meetings of the Board, most
3365
-12-
9/27/63
recently on August 30, 1963, there had been distributed, with a memorandum from Messrs. Johnson, Solomon, and Sherman dated September 26,
1963, a draft of letter to the Presidents of all Federal Reserve Banks
that would express the views of the Board with respect to speculative
activities on the part of Reserve Bank officers and employees.
This
expression of views was incorporated in a proposed revision of the
Board's letters of March 24, 1948 (S-1018, FRLS #9054) and October 7,
1957 (S-1639, FRLS #9054.1).
Except for the addition of the statement
On speculative activities, the substance of the draft letter was consistent with the content of the two letters that would be superseded.
Se leeway, however, would be provided for a Reserve Bank to authorize
the acceptance of an honorarium by an officer or employee for the
Preparation of material for articles or other publications utilizing
information accumulated in the conduct of the affairs of the Bank.
This
le-nguage was suggested because the 1948 and 1957 letters might be interPreted as being more restrictive than the rules currently applied by the
Board to its
own staff.
The memorandum suggested that the Board might
//ish to send such revised letter as it agreed upon to the Federal Reserve
11444 for comment before issuing it as a standing instruction.
Following comments on the matter by Messrs. Sherman, Johnson,
44(1 Solomon in supplementation of the distributed memorandum, Governor
Robertson raised two questions concerning the language of the draft
letter.
word "nominal" in stating
First, he questioned the use of the
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
9/27/63
-13-
that the Board would not object if the Reserve Bank authorized an
officer or employee, in a specific case, to accept an honorarium
tendered in a nominal amount for the preparation of material for articles or other publications utilizing information accumulated in the
conduct of the affairs of the Bank.
It was his suggestion that refer-
ence be made to authorizing the acceptance of an honorarium in "reasonable"
amount, or language to such effect, and there was general agreement
vith this suggestion.
Second, Governor Robertson questioned the statement in the
Proposed letter that the Board would ordinarily see no objection to an
°fricer or employee of a Federal Reserve Bank maintaining a teaching
connection with a recognized educational institution at the university
level, particularly if such a connection would be helpful in enabling
him to keep abreast of developments in his field "and if it would be
conducive to the maintenance of good relations between the Federal
Reserve System and the academic community."
It was suggested that the
language be changed to read: "if it would facilitate communication
between the Federal Reserve System and the academic community," and
there was agreement with this change.
As to the statement in the proposed letter that it would be
inaPPropriate for a member of the staff of a Reserve Bank to purchase
stock of a member bank or an affiliate thereof (except possibly where
the actual relationship of the affiliate to the member bank was remote),
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
r),-.V.0•4
300 e
9/27/63
Governor Balderston raised a question as to the purpose of the reference to affiliates, including the language in parentheses.
He inquired
Whether the purpose would be served by referring to "stock of a member
bank or a bank holding company.
In discussion, it was noted that this language was taken from
the outstanding 1948 letter.
It was pointed out that there were affil-
iates other than bank holding companies the stock of which it would be
inaPpropriate for a member of the staff of a Reserve Bank to hold.
In
general, it would be inappropriate for a member of the staff of a Reserve
Bank to acquire and hold stock of any affiliate that would fall within
the purview of examination by the Reserve Bank, but there might be
infrequent cases where the relationship of the affiliate to the member
bank would be so remote that the holding of stock of the affiliate
would not be Objectionable.
In light of these considerations, it was agreed that the use
cn the word "affiliate" would be appropriate.
Governor Balderston also raised the question whether the
distinction between speculative dealings and investments, as set forth
In the proposed letter, was sufficiently clear; in the light of ensuing
discussion, however, he agreed with the other members of the Board that
this portion of the draft letter seemed reasonably understandable.
Governor Mills raised the question whether the Board would be
rollowing an appropriate procedure in submitting the draft letter to
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
336,9
-15-
9/27/63
the Federal Reserve Banks for comment before issuing it as a standing
instruction.
He pointed out that the law vested the Board with the
Power of general supervision over the Federal Reserve Banks.
If issued,
the letter would stand as a directive, but the Reserve Banks would not
be precluded from objecting to it if they wished, and the Board could
then consider the validity of any such objections.
According to the
Proposed procedure, the Reserve Banks would be admitted to the right to
submit suggestions in advance on a letter of instruction that was to be
issued under power vested by statute with the Board.
In discussion of this point, Governor Shepardson noted, by way
°f Possible analogy, that in formulating regulations applicable to
Member banks the Board was generally required by the Administrative
Procedure Act to publish a notice of proposed rule making in the Federal
Register, thus giving the supervised institutions a chance to comment.
Governor Robertson expressed the view that the point of concern was
14hether the Board itself made the final decision as to the terms of the
letter.
before the issuance
The question whether it obtained comments
(If the letter or afterward did not seem to him so important.
Chairman
Martin expressed the view that from the standpoint of System relationshiPs the Board could benefit by following the proposed procedure.
He
rioted that the proposed letter, particularly as it related to speculative
4etivities, involved a subject that had been under discussion from time
t0 time over a substantial period.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
33C 3
9/27/63
-16It was then understood that the proposed letter, modified to
the extent agreed upon at this meeting, would be transmitted to the
Federal Reserve Banks for comment.
A copy of the letter subsequently
sent to the Presidents of the Federal Reserve Banks inviting their
comments is attached as Item No. 9.
Processing of examination reports.
In a memorandum from the
Division of Examinations dated September 25, 1963, which had been distributed, a revision was proposed of the procedures followed in processing reports of examination of the Federal Reserve Banks and the usual
suPplemental memoranda.
The object of the revision was to bring to the
attention of the Board in a more timely and concise manner those matters
rlisclosed in the reports and supplemental memoranda that seemed to
I./arrant Board action or to be of special interest.
It was contemplated that (1) each report of examination and
suPPlemental memorandum would be reviewed promptly after receipt in the
I)ivision of Examinations; (2) the summary memorandum prepared in the
131-vi8ion would cover only the more significant matters revealed in
th0se
documents; (3) copies of the Division's memorandum would be seat
to
each Board member and to appropriate members of the staff;
(4) simul-
taneously with the distribution of the summary memorandum, but as a
"Parate matter) the reports of examination and related papers would
be Placed in circulation to the members of the Board and to others to
Vhom
these documents had customarily been made available; (5) discussion
°f the
Division's memorandum would be placed on the agenda by the Secretary
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3370
-17-
9/27/63
on of the circulation of the
without necessarily awaiting completi
report of examination;
(6)
upon request, the Secretary's Office would
ion to be withdrawn from
cause the complete folder on the examinat
able to any Board member who wished
circulation and made immediately avail
him in the regular course.
to see it in advance of its circulation to
ted a second memorandum from the
There had also been distribu
dated September 25, 1963, summarizing
Division of Examinations, also
Federal Reserve Bank of Cleveland
the report of the examination of the
raade as of May 23, 1963.
of the type
This was submitted as an example
distributed if the Board approved
of memoranda that would be prepared and
ng of examination reports
the revised procedures suggested for the processi
and related papers.
Solomon on the proposed revised proFollowing comments by Mr.
on during which Governor Mills said
cedures, there ensued a discussi
on.
that he could not agree with the recommendati
As one member of the
had discharged his statutory duty
Board, he would not consider that he
solely on the basis of a staff
if be passed on an examination report
that report. Instead, he would
Memorandum condensing the information in
ion in detail on his awn account.
WazIt to review each report of examinat
if the members of the Board reHe felt that delays would be corrected
re it was circulated to several
viewed each examination report befo
Cleveland memorandum as an example,
Members of the staff. Using the
ity to read the report of
he said that if he had not had an opportun
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3371
9/27/63
-18-
examination and accepted the condensed commentary on that report, he
would be passing on the matter without an opportunity for any criticisms
that he might want to make after he had analyzed the examination report
in detail.
If the matter was passed upon on the basis of the summa-
rization, he gathered that correspondence with the Federal Reserve Bank
in question might, in effect, be regarded as terminated at approximately
the same time, the Board having indicated that it was satisfied.
Governor Mills also commented that the summary memorandum on the
examination of the Cleveland Bank contained no remarks on the character
Of the expenses of the Reserve Bank, other than to indicate that none
Of them were regarded as warranting comment.
After reviewing the reports
made recently by the Dallas and New York Reserve Banks to the House
Banking and Currency Committee concerning expenditures in several categories, he believed strongly that the Board was not discharging its
duties properly and that it should have available to it adequate comments
by the examiners on discretionary expenditures.
To approach this subject
More thoroughly, the Board also should review at an early date the
outstanding letters of instruction (S-letters) to the Federal Reserve
tanks with respect to discretionary expenditures that were used by the
Board's examiners as the basis for scrutinizing the expenses of the
Reserve Banks and determining which expenditures should be brought to
the attention of the Board.
Mr. Solomon agreed, on the question of discretionary expenditures,
that the Board might well want to review the outstanding letters of
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
.1:31n
9/27/63
-19He tuided that the Division of Examinations had under
instruction.
Preparation a memorandum describing for the Board how its examiners
went about reviewing the expenditures of the Reserve Banks, in order
that the Board could then say exactly what it wanted done and whether
it wanted to have the examiners follow a different procedure in the
future.
He felt that the Board's examiners had been diligent in inquiring
into such expenditures, with the objective of bringing to the attention
Of the Board any expenditures not appearing to conform to the letters of
instruction.
They had not thought it necessary, however, to report
similar expenditures repeatedly in successive reports of examination.
It was always possible, of course, where questions of judgment were
involved, that the examiners might consider something reasonable and
Others might take a different view.
In general, though, it was his
opinion that the examiners had been diligent in their review of discretionary expenditures and that the Federal Reserve Banks hRa not failed to
comply with the Board's letters of instruction.
Such expenditures could
only be made voluntarily and as a deliberate matter.
The management of
a Reserve Bank must approve, and the Bank's auditors must review, such
expenditures, including their character.
Governor Mills suggested that if a Bank's management was satisfied with the character of the expenditures, he did not know exactly
What question an auditor could raise, following which Governor Shepardson
commented that if expenditures were contrary to the outstanding Board
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3372
-20-
9/27/63
letters, the examiners presumably would be obliged to call attention
to them.
Governor Robertson expressed the view that Governor Mills had
made a good point in suggesting a review of the outstanding Board letters.
In the absence of definite Board policy statements, the examiners could
do little.
On the proposed revised procedures, Governor Robertson made a
suggestion intended to cure the difficulty mentioned by Governor Mills.
This was to obtain an additional copy of each examination report.
Then,
When a report was received at the Board's offices and the Division of
Examinations began working on it, the second copy could be put in circulation to the Board immediately.
Governor Balderston raised a question as to the timing that
*would be involved under a procedure such as Governor Robertson suggested,
and the latter noted that a report of examination was not, of course,
completed until the close of an examination, which took from three to
GiX weeks.
He felt that after a report was received at the Board's
cnrices the processing of it should not take more than two weeks.
Ac-
cordingly, within an over-all period of about two months, the Board
should be in a position in each instance to have completed its review
and discussion of a report of examination.
Governor Shepardson noted that part of the delay encountered
°4 some occasions had been attributable to difficulty in scheduling
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3374
-21-
9/27/63
in view of the press
reports of examination for Board consideration
Of other matters coming before the Board, and that the Board had a
reports were placed on Board
responsibility for arranging that such
tly as feasible.
meeting agenda and discussed as promp
, the proposed revised proAt the conclusion of the discussion
nation reports, as set forth in the
cedures for the processing of exami
nations dated September 25, 1963,
memorandum from the Division of Exami
were approved.
and as amended by the suggestion of Governor Robertson,
ve Bank of Cleveland,
As to the examination of the Federal Reser
it was agreed, in light of the point raised by Governor Mills and the
dures that had been agreed upon in
amendment to the processing proce
, that consideration of the
line with Governor Robertson's suggestion
would be deferred until after the
report of examination by the Board
ing to the examination, had
report, and the supplemental memoranda relat
rs of the Board.
completed circulation to the membe
The meeting then adjourned.
Secretary's Notes: Pursuant to the
procedure agreed upon by the Board
at its meeting on August 22, 1963,
y
with respect to expanding the weekl
n
matio
de
infor
inclu
to
K.2 release
ns
on various kinds of applicatio
Board,
by
the
upon
acted
and
received
al Reserve
there was sent to the Feder
a letter of
Banks under today's date
the Board
dures
proce
the
advice as to
of the
copy
A
w.
follo
to
had decided
10.
No.
letter is attached as Item
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3375
-22-
9/27/63
Pursuant to recommendations contained
in memoranda from appropriate individuals
concerned, Governor Shepardson today
approved on behalf of the Board the
following actions relating to the
Board's staff:
1,V)Pointments
.
William K. Scheirer as Economist, Division of Research and
Statistics, with basic annual salary at the rate of $8,045, effective the date of entrance upon duty. (Mr. Scheirer was to be
assigned to the Division of Data Processing and would work under
the immediate supervision of the Director of that Division.)
Edward A. Dittrich as Federal Reserve Examiner, Division of
Examinations, with basic annual salary at the rate of $10,735,
effective October 21, 1963.
James E. Miller as Operator, Tabulating Equipment (Trainee),
Division of Data Processing, with basic annual salary at the rate
Of $3,820, effective the date of entrance upon duty.
Salary increases
Ann R. Walka, from 45,375 to $5,725 per annum, with a change
iX1 title from Statistical Assistant to Research Assistant, Division
Of Research and Statistics, effective September 29, 1963.
Jack M. Egertson, from $12,245 to $13,270 per annum, with a
Change in title from Review Examiner to Supervisory Review Examiner,
Division of Examinations, effective September 29, 1963.
Charla Jo Hall, from $3,560 to $3,820 per annum, with a change
in title from Key Punch Operator (Trainee) to Key Punch Operator,
Division of Data Processing, effective September 29, 1963.
Transfer
Carol Lee Jones, from the position of Secretary in the Office
Of the Secretary to the position of Secretary in the Division of
:
1 ank Operations, with an increase in basic annual salary from
q°41725 to $5,205, effective October 13, 1963.
1
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3376
9/27/63
-23-
ansfers
Jeannette R. DeLawter, from the position of Stenographer in the
Division of Examinations to the position of Secretary in the Division
of Research and Statistics, vith an increase in basic annual salary
from $4,530 to $4,885, effective September 29, 1963.
in
Mary Theresa Johnson, from the position of Clerk-Stenographer
the
in
Secretary
of
position
the
to
Operations
the Division of Bank
annual
Division of Research and Statistics, with an increase in basic
1963.
29,
September
effective
$5,205,
salary from $4,810 to
i-f
/1
Secret=y
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
M377
BOARD OF GOVERNORS
Item No. 1
9/27/63
OF THE
FEDERAL RESERVE SYSTEM
4
1
/
AT21,
WASHINGTON 25, D. C.
45.
V
'
.
"•
(-)
•
ADDRESS OFFICIAL CORRESPOr ):
TO THE BOARD
RESts;••
September 27, 1963.
Board of Directors,
Bankers Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve
System approves the establishment of a branch at the
northeast corner of Victory Boulevard and Manor Road,
Castleton Corners, Borough of Richmond, New York, New York,
by Bankers Trust Company, provided the branch is established
within one year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
(The letter to the Reserve Bank stated that the
Board also had approved a six-month extension
of the period allayed 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.)
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
:ITV?
BOARD OF GOVERNORS
Item No. 2
9/27/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 27, 1963.
Board of Directors,
The Cleveland Trust Company,
Cleveland, Ohio.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment of a
branch by The Cleveland Trust Company, Cleveland,
Ohio, in the River Plaza Shopping Center between
Spencer Road and River Oaks Drive north of Center
Ridge Road in Rocky River, Ohio, provided the
branch is established within six months from the
date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
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.)
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD OF GOVERNORS
Item No. 3
9/27/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 27, 1963.
Mr. Harold T. Patterson,
Assistant Vice President
and General Counsel,
Federal Reserve Bank of Atlanta,
Atlanta, Georgia 30303.
15/ear Mr. Patterson:
This refers to your letter of September 16 regarding the
Penalty of $877.59 incurred by the Fidelity National Bank of Baton
Rouge, Baton Rouge, Louisiana, for the period ended September 4, 1963.
It is noted that the deficiency resulted from the failure
Of the subject bank's New York correspondent to transfer funds to
the bank's reserve account as requested; Western Union Telegraph
Company admitted its failure to transmit the message requesting the
transfer; had the transfer been made, no deficiency in the reserve
account would have occurred; and that the subject bank has had no
deficiency reserve penalties since early in 1953.
In the circumstances, the Board authorizes your Bank to
ive the assessment of the penalty of $877.59 for the period ended
September 4, 1963.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
MSC
BOARD OF GOVERNORS
Item No.
4
9/27/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORREuPoNOENC_
TO THE EIOAND
September 27,
Board of Directors,
Ypsilanti Savings Bank,
Ypsilanti, Michigan.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment by
Ypsilanti Savings Bank, Ypsilanti, Michigan, of
a branch at the southwest corner of the intersection of Washtenaw Avenue and Hewitt Road,
Ypsilanti Township, Washtenaw County, Michigan,
provided the branch is established within one
year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L.Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
that the
(The letter to the Reserve Bank stated
ion
nth
extens
six-mo
Board also had approved a
;
branch
the
ish
establ
of the period allowed to
ted,
be
reques
should
and that if an extension
the procedure prescribed in the Board's letter
of November 9, 1962 (S-1846), should be followed.)
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
1963.
Item Nct381
9/27/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25; D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 27 1963.
Board of Directors,
Citizens Commercial Trust and Savings Bank of Pasadena,
Pasadena, California.
Gentlemen:
The Board of Governors of the Federal
extends to December 18, 1963, the time
System
Reserve
within which Citizens Commercial Trust and Savings
Bank of Pasadena may establish a branch at 1010 East
Colorado Boulevard, Pasadena, California.
Very truly yours,
(signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
Item No.
9/27/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 27, 1963
Board of Directors,
County,
Peoples Trust Company of Bergen
Hackensack, New Jersey.
Gentlemen:
Federal Reserve System
The Board of Governors of the
es Trust Company of Bergen
approves the establishment by Peopl
in the vicinity of the
County, Hackensack, New Jersey, of a branch
Livingston Streets, Norwood, Bergen
intersection of Broadway and
branch is established within one
County, New Jersey, provided the
Year from the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
the
(The letter to the Reserve Bank stated that
sion
exten
Board also had approved a six-month
of the period snowed to establish the branch;
and that if an extension should be requested,
letter
the procedure prescribed in the Board's
of November 9, 1962 (S-1846), should be followed.)
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
6
3;388
Item No. 7
9/27/63
BOARD OF GOVERNORS
OF THE
', ,-)0? Got,•.
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADDRESS OFFICIAL CORRESPONOENCE
TO THE BOARD
September 27, 1963.
Mr, Luther M. Hoyle, Jr.,
Vice President,
Federal Reserve Bank of Boston,
Boston, Massachusetts. 02106
Dear Mr. Hoyle:
April 12, 1963, enclosing
This refers to your letter of
to Insurance Agent
copies of documents and correspondence relating
e
Auto Finance Plan, Inc. ("Plan") and Insurance Agent Auto Financ
Trust ("Trust"), affiliates of Harvard Trust Company, Cambridge,
Massachusetts ("Harvard"). A majority of the capital stock of
g company, Baystate
liarvard is owned by the registered bank holdin
Corporation ("Baystate").
whether Plan and Trust
Two questions are presented, (1)
g of section 2(d) of
meanin
the
are subsidiaries of Baystate within
and (2) if so,
Act"),
("the
1956
the Bank Holding Company Act of
exempt from the
be
would
Trust
Whether the activities of Plan and
rule laid down
the
under
Act
the
Prohibitions of section 4(a) of
on", which was
retati
interp
ut
"Shawm
IDY the Board in the so-called
piublished at 1958 Federal Reserve Bulletin 431, as companies
services to or perrengaged solely in the business of furnishing
y or subsidiary
compan
g
holdin
Services for" their "bank
) of the Act.
4(c)(1
n
sectio
of
Ianks thereof" within the meaning
'
'
is unnecessary
it
ve,
negati
is
on
f the answer to the first questi
,
60 reach the second.
show that Plan was
The documents which you submitted
bile, and
formed to
automo
of
provide Harvard with a source
of this kind
Paper
paper.
- -Ilcidentally, of automobile insurance
:
ed through
financ
are
, generated when purchases of automobiles
a
When
customer
car.
1.114 e agent who is writing insurance on the
him, and
for
ing
financ
the''4shes his insurance agent to arrange bank
ation
an
s
applic
submit
agent is working with Plan, the agent
ed,
is
approv
ation
applic
or
financing to Plan's office. If the
J
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
BOARD
OF GOVERNORS
Mr. Luther M. Hoyle, Jr.
OF THE
FEDERAL
RESERVE SYSTEM
-2-
insurance is to
Plan pays the dealer by means of a draft on Plan (if
is similarly
r
broke
ny
or
compa
be financed as well, the insurance
ng the draft or
signi
mer
,
the
custo
Paid by means of a draft on Plan)
sells the
Plan
day,
drafts, a note, and a chattel mortgage. Each
rd credits
Harva
rd.
notes it has received, without recourse, to Harva
paid from
are
s
draft
,
the
Plan's account in payment for the notes and
sends
and
books
its
on
this account. Harvard then sets up the loans
mer
custo
the
on,
point
this
From
each customer a coupon payment book.
mer.
custo
t
loan
deals with Harvard as would any installmen
Trust, the successor
All stock of Plan is presently owned by
of Harvard for
tors
to a trust originally established by three direc
ding to a letter
Accor
rd.
the benefit of all the shareholders of Harva
Noyes, Secretary
P.
d
of April 2, 1963, addressed to you, from Mr. Donal
tted, the
submi
you
ials
of Harvard, which was included with the mater
had become
it
after
ary 11, 1963,
original trust was terminated on Febru
ate
Bayst
11
the
er
ion as to wheth
apparent that there was some quest
a benefihave
could
)
Bank (Harvard
Corporation as a stockholder of the
ng
Holdi
Bank
cial interest in this (the original) trust under the
then
were
s of the original trust
Company Act of 1956." All the asset
rs
holde
stock
iciaries comprise all
turned over to Trust, whose benef
Of Harvard excluding Baystate.
ration which establishes
Under the provisions of the decla
be held and managed "in the best
Trust, the trust property is to
of Harvard, defined to exclude Baystate.
interests of the shareholders"
n, and vacancies are
The trustees are to serve until death or resignatio
or trustees. The
ee
ning trust
to be filled by appointment by the remai
n of all three
actio
by unanimous
trust may be amended or terminated
trust or
the
of
ses
altering the purpo
trustees, but no amendment
may be made
ies
iciar
the benef
"denying the rights and interests" of
n, trust
natio
On
termi
of them.
Without the consent of a majority
property
and
ies,
iciar
among the benef
Property is to be distributed
the
benefiamong
ly
ratab
d
not needed in the trust may be distribute
rd) at
Harva
in
ngs
holdi
share
to their
ciaries (apparently in proportion
any time.
of Harvard remain as trustees of
The same three directors
rather than by virtue of their positions
Trust, but serve as individuals
statement, received at the Board's
With Harvard. In its registration
Baystate stated that "No officer or
offices on January 25, 1957,
e) is on the board of directors of any
director of Registrant (Baystat
of affairs resulted from "the policy
state
member bank" and that this
directors of each member bank
of Registrant that the officers and
its actions." It is assumed
for
lity
nsibi
should retain full respo
men are not,
that this statement is still correct, and that these three
therefore, directors or officers of Baystate.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
C.7;
BOARD
OF
GOVERNORS
Mr. Luther M. Hoyle, Jr.
OF THE FEDERAL RESERVE SYSTEM
-3-
Trust is an "affiliate" of Harvard within the meaning of
which provides that the
section 2(b)(3) of the Banking Act of 1933,
trust, association, or
business
on,
corporati
term shall include "any
of its directors are
majority
a
which
similar organization . . . of
a "holding company
is
Baystate
bank."
directors of any one member
section 4(c)(1) of
of
s
provision
of
affiliate" of Harvard by virtue
the shares of
of
majority
a
owns
the same statute, since Baystate
question before
the
to
material
not
is
capital stock of Harvard. It
within
Baystate
with
d
affiliate
are
Trust
the Board whether Plan and
estabto
serve
which
criteria
the
since
the meaning of that statute,
of
Act
Company
Holding
Bank
the
under
lish a subsidiary relationship
law.
earlier
the
in
down
laid
1956 are different from those
Section 2(h) of the Bank Holding Company Act of 1956 defines
"company" to include "any corporation, business trust, association, or
similar organization . . ." and Trust would appear to be a "company"
for this purpose. However, Trust does not seem to fall within any of
the three categories of "subsidiary" set forth in section 2(d) of the
Act. As to the first category, the trustees hold Trust for the benefit
or the (minority) shareholders of Harvard, other than Baystate, and
BaYstate does not control the trust in any way under the terms of the
"rust instrument, so that Baystate cannot be said to own or control
25 per centum or more" of the "voting shares" (or interest) in Trust.
Nor does Baystate in any manner control the election of a majority of
the trustees of Trust, as would be required if Trust were to be a
Subsidiary of Baystate under the second category, since, although it
did help to elect the directors who became trustees of the original
trust, it has no authority under the trust instrument to influence the
selection of successor trustees under Trust.
Finally, assuming that the shareholders of Baystate do not
substantially overlap the minority shareholders of Harvard, 25 per
!entum or more of the interest in Trust cannot be said to be "held by
trustees for the benefit of the shareholders or members of" Baystate.
This fact would eliminate applicability of the third category of subsidiary defined as such in section 2(d).
ons of
Accordingly, it would appear that the prohibiti
hip
between
Harvard
section 4 of the Act do not apply to the relations
*Ild Plan and Trust, nor to the relationship between Baystate and Harvard
'tat least, so far as that relationship is relevant to Plan and Trust),
"inee Plan and Trust are not subsidiaries of Baystate. Therefore, it is
lalnnecessary to reach the second question outlined above. It would be
appreciated if you would communicate the substance of this letter to
liarvard and to Baystate.
Very truly yours,
j
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
t.'.
Merritt Sheman,
Secretary'.
L 1
33SC.
tvtio ft
BOARD OF GOVERNORS
OF THE
'?0;%
t(
•
FEDERAL RESERVE SYSTEM
Item No. 8
9/27/63
WASHINGTON
\kW/
OFFICE OF THE CHAIRMAN
.04,107,*
September 27, 1963.
The Honorable A. Willis Robertson, Chairman,
Banking and Currency Committee,
United States Senate,
Washington, D. C.
Dear Mr. Chairman:
This is in response to your requests for reports on
810, that would provide for the Federal chartering of mortgage
flsurance corporations and of mortgage marketing corporations to
1-nsure and to deal in, respectively, conventional mortgages; S. 811,
would create a Home nortgage Corporation within the Home Loan
Jank System with authority to deal in participations in mortgages;
sank
:11c1 S. 2130, that would expand the operations of the Federal National
1°rtgage Association to include conventional home mortgages.
'
The objective of each of the three bills is to improve the
11,14rketability of mortgages not presently underwritten by the Federal
,
tiTovernment. The Board believes that certain questions arising from
.ss proposals should be carefully considered and resolved before
h.?
c'don is taken with respect to any of the three.
'
The mortgage insurance corporations chartered under
S. 81
, J-0 would be required to pay "in cash without delay" insurance
l
Icaims
arising out of loans that are in default for a period of
rinetY-one days. Just how long such a corporation could meet this
equirement during an extended period of decline in real estate prices
. see a serious question, darticularly in view of the further mandate
1°
1
n the bill that "there shall be maintained at all times unimpaired
,
';,aPital, surplus, and undivided profits ... of not less than
o yercentum of the unpaid principal amounts of all outstanding
'
:tracts of mortgage insurance.0 The experience with guaranteed
mortgages in the 1930's was that they became frozen illiquid invest„Illte. This raises a serious question whether the liquidity of the
Proposed mortgage insurance corporations could be assured during an
nded period of unfavorable real estate market conditions, protection against which their insurance oolicies are presumably to be
-Lasued.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3%.
The Honorable A. Willis Robertson
-2-
to
S. 810 would permit mortgage insurance corporations
per cent
90
to
up
of
ratio
lue
to-va
loaninsure mortgage loans having a
30 years.
of
es
maturiti
maximum
and
property
of the appraised value of the
on
a
e
relaxati
encourag
to
serve
would
n
It seems clear that this provisio
these
period,
postwar
the
in
Already
0f mortgage credit standards.
effort to meet
standards have been progressively relaxed, partly in an
economy. In
the
e
stimulat
to
partly
Pent-up demand for housing and
legislative
implied
even
give
to
the Boardls view this is not the time
s.
standard
these
of
sanction to a further relaxation
The Board has serious reservatioLs about provisions of
8. 810 which would allow national banks to invest up to 5 per cent of
thelr capital and surplus in the stock of mortgage insurance corporations
and up to an additional 5 per cent in the stock of mortgage marketing
e°rPorations. This would be in addition to whatever obligations were
Purchased by national banks. Furthermore, the bill would permit a
national bank to deal in, underwrite, and purchase for its own account,
believes that
°bligations of mortgage marketing corporations. The Board
?-nvestment banking should be kept separate from commercial banking and
the existing exceptions to this rule should not be broadened to
authorize underwriting of the securities envisaged under S. 810.
In the case of the proposed mortgage insurance corporations,
it appears from the language of S. 810 that the Joint Board would be
repired to charter any and all applicants oncethe Board "is of the
°Plnion that the incorporators transmitting the articles of association
et the requirements of the Act. • • ." This provision apparently
ould.permit a number of mortgage insuring asoociations to be chartered,
aoh insuring conventional home mortgages at possibly differing premium
impede-leiat
If so, the result might be to fragment further and
loanscLuner than to improve-- present markets for conventional home mortgage
r
810
One possible alternative in the direction intended by S.
would
Governpresent
of
uld be to improve the acceptability to the market
me
nt,programs by removing the statutory requirements requiring
'Trl-nistratively-determined interest rate ceilings on FHA- insured and
v ,_t-guaranteed home loans. The Board, as you know, has long advocated
.„1
l'n° removal of these statutory requirements as one step toward
improved primary and secondary home mortgage markets.
S. 811 would establish a precedent in authorizing Federal
home .oan
tion
banks, by participating through the Home Mortgage Corporaindr
conventional first home mortgage loans, to advance funds
"tly on mortgage security. Under existing legislation Federal
home loan
banks may make advances to member institutions, usually
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
R.
The Honorable A. Willis Robertson
-3-
collateralled by mortgages or United States Government obligations,
and insured savings and loan associations may participate in mortgages
,mong themselves. Under S. 811 no minimum or maximum participation
ls proposed. Thus, the Home Mortgage Corporation could assume a
vcrY large share of each loan and consequently of the total risk.
The Board is also concerned about provisions of S. 810 and
S. 811 which would appear to work against the maintenance of loan
cluality. S. 810, for example, would provide for 100 per cent
Insurance of principal, interest, and approved allowances from time
of default on insured conventional loans; such insurance, if granted,
would seem to offer originators of insured loans little incentive to
Illaintain loan quality. S. 811 would appear to shift mortgage risks
to the proposed Home Mortgage Association to the extent of its
Participation, which under the terms of the bill could be any share
Of less than 100 per cent.
It is apparent that the extension of the activities of the
Federal National Mortgage Association into the conventional mortgage
field, as is provided by S. 2130, would present a number of special
Problems not necessarily present in the case of Government guaranteed
1 insured mortgages. As has been mentioned recently in testimony
7
,!fore your Housing Subcommittee, these problems involve uniform
'Landards of appraisal, mortgage instruments, property requirements,
and procedures, as well as uniform methods for determining the
2.oceptab1e credit standing of mortgagors. It is noted also that
2130 contains provisions which apparently assume the enactment
°f S. 810, or at least those provisions of the latter bill relating
y_o the Federal chartering of mortgage insurance corporations with
'eepeet to which the Board has already commented.
Sincerely yours,
(Signed) Wm. McC. Martin, Jr.
WM. MbC. Martin, Jr.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
L's
11)1,- 1L -
Item
BOARD OF GOVERNORS
3:389
9/27/63
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARD
October 4, 1963.
Dear Sir:
reThe Board has reviewed its outstanding letters
pnd
s
officer
lating to outside activities of Reserve Bank
1948,and
24,
May
dated
#9054,
.
F.R.L.S
employees (S-1018,
in connection
S-1639, F.R.L.S. #9054.1, dated October 7, 1957)
a
with a question that arose regarding the maintenance of
careAfter
Bank.
a
Reserve
of
e
employe
margin account by an
the
of
s
and
letter
two
these
of
s
content
ful review of the
ties, the Board has
additional question of speculative activi
ding letters along
the
of
outstan
n
revisio
tentatively approved a
anding that
the
underst
with
copy,
d
the lines of the enclose
be
asked for
would
Banks
Reserve
before it was issued the
you will review
if
ated
be
appreci
will
it
comments. Accordingly,
may wish to
you
s
any
comment
Board
the
to
this letter and send
make, preferably to be received by October 21.
Very truly yours,
•t
sv%
4
Merritt Sherman,
Secretary.
Enclosure
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
* Should have read March 24, 1948.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
A_ "A,,4
((%
:3391)
Attachment to letter to
all Reserve Lankg,
October 4, 1963.
Dear Sir:
This letter, which is designed to incorpoiate in a single comof Federal
munication the Board's views concerning outside activities
Reserve Bank officers and employees, supersedes the Board's letters of
March 24, 1948 (S-1018; FRLS #9054), and October 7, 1957 (S-1639,
PRLS #9054.1).
The views expressed in this letter are applicable to
De-
outside activities of all officers and full-time regular employees.
Pending on the particular circumstances, they may or may not be equally
a pplicable to individuals engaged on a consultant basis, those employed
"a part-time basis, or those employed for temporary periods such as
during vacations or for work on specific projects.
As an over-riding general principle, the Board continues to take
the Position it has held for many years that officers and employees of a
Federal Reserve Bank should refrain from placing themselves in any position
that might embarrass the Bank or the Federal Reserve System as a whole in
the
conduct of its operations or result in any question being raised as
to the independence of the individual's judgment or his ability to perform
satisfactorily all of the duties of his position with the System.
In
keeping with this concept, outside business affiliations and teaching
activities should be entered into only with the approval of a Federal
Reserve Bank.
The Board believes that the propriety of participation in
8Pecific outside activities can be determined effectively only after
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3391
condideration by the management of a Federal Reserve Bank in light of
the circumstances pertinent to the particular situation:
fore, not be feasible
It would, there-
for tHe Board to attempt to Coinment on all types of
activities in Which Reserve Bank officers and employees might be engaged.
Por the guidance of the Reserve Banks, however, the Board's views on certain
kinds of outside activities follow:
1.
n to an
The Board would ordinarily see no objectio
maintaining a
Officer or employee of a Federal Reserve Bank
nal institution
teaching connection with a recognized educatio
at the university level, particularly if such a connection
would be helpful in enabling him to keep abreast of developments in his field and if it would facilitate communication
between the Federal Reserve System and the academic community.
teachSimilarly, the Board would ordinarily see no objection to
ing connections with other reputable institutions of learning,
the
especially if the curriculum bears some relationship to
functions of a Federal Reserve Bank, as in the case of the
American Institute of Banking.
Teaching engagements should, of
course, be clearly secondary and should not interfere with the
performance of Reserve Bank duties.
2.
If a Federal Reserve Bank approves the participa-
tion of an officer or employee in the preparation of material
for articles or other publications utilizing information
accumulated in the conduct of the affairs of the Bank, it is
the Board's view that no additional compensation should accrue
to the individual
concerned, although it would not object if the
Bank authorized
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
the individual in a specific case to accept an
.142(If)
nt.
honorarium tendered in a small amou
The foregoing would apply,
chapter in a book on the Federal
for example, to authorship of a
outside the System, as well as
Reserve System edited by a person
ies.
to separate articles or reports of stud
a Federal Reserve Bank underIf an officer or employee of
assignment in his capacity as
takes a public speaking or similar
is the Board's view that no
a representative of the Bank, it
accrue to the individual concerned.
additional compensation should
3.
inappropriate for any officer or
4. The Board considers it
Bank to engage in speculative dealings
employee of a Federal Reserve
in securities, com(as distinguished from investments), whether
or otherwise. Indicators of
modities, real estate, exchange,
ive nature would include, but not
activities primarily of a speculat
on a
be limited to, accounts for trading in securities whether
accounts, and the like.
margin or a cash basis, commodity trading
5.
member of the staff of a
It would be inappropriate for a
bank or an affiliate
Reserve Bank to purchase stock of a member
relationship of the
thereof (except possibly where the actual
and employees holding stock
affiliate to the member bank is remote),
of member banks or affiliates should dispose of it as promptly as
practicable without undue hardship.
continue to
It is understood that all Federal Reserve Banks will
submit
require officers and employees occupying responsible positions to
periodic reports to the Board of Directors concerning outside business
a ctivities and
d of Governors
indebtedness. The examiners of the Boar
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3393
-4continue under instruction, in connection with each examination of a
Federal Reserve Bank, to review those reports and inform
the Board of
any situations that they feel should be brought to the Board's attention.
Very truly yours,
Merritt Sherman,
Secretary.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3394
Item No. 10
9/27/63
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 27, 1963.
Dear Sir:
You will recall that on July 22, 1963, the Board wrote to
obtain the views of the Reserve Banks on expanding the material included
in the weekly "K.2" release regarding applications received by the Board
to include additional information on the receipt of, and action on,
a pplications of a general licensing character.
The Board appreciated the care with which the responses from
the Reserve Banks were prepared. In general, there seemed to be a consensus favoring announcements regarding applications for branches,
foreign and domestic, and for the formation and expansion of Edge Act
and Agreement Corporations. Reservations were expressed by some of the
Banks concerning the inclusion of applications for permission to carry
reduced reserves and especially for those relating to System membership.
Gene rally, those Banks favoring the release of such information felt its
a nnouncement would provide information of public interest. Banks opposing this procedure felt that the announcement might be objectionable to
applicant banks and might be embarrassing in the event of a denial.
After careful consideration of all the views expressed, the
Board concluded that, as a matter of public policy, routine announceents should be made about all of the matters referred to in the July 22
etter. Accordingly, beginning with the week ending October 4, 1963, the
weekly K.2 release, which is given relatively limited distribution, will
include announcements of the receipt of, and actions on, applications for:
T
(1)
Branches, foreign and domestic,
(2) Edge Act and Agre.ament corporations
and new branCaeg thereof,
(3) Admission to and withdrawal from
membership in the System, and
(4) Permission to carry reduced reserves.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
3395,
-2orations and actual admission to or
The opening of such branches and corp
on the
banks will continue to be reported
Withdrawal from membership of
occur.
Board's K.3 release when they
tioned when an application would be
Several Reserve Banks ques
of these
by the System. For the purposes
considered to have been received
it has
when
ived
will be considered to be rece
announcements an application
ion
rmat
info
and is found to contain all
arrived at the Board's offices
ect
by the Board and its staff. With resp
necessary for its consideration
n
nsio
expa
the
Regulation M or
to applications for foreign branches under
oval
appr
e
wher
K,
under Regulation
of Edge Act and Agreement Corporations
approved for a given country,
been
has
is semiautomatic once a branch
intention to establish subsequent branches
notice from the institution of
tion" and, upon the expiration of the
1411 be considered to be an "applica
Board,
there having been objection from the
prescribed time limit without
it will be considered to have been "approved."
Very truly yours,
Merritt Sherman,
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS.
http://fraser.stlouisfed.org
Federal Reserve Bank of St. Louis
@FedFRASER