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Minutes for
To:
September 28, 1961
Members of the Board
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
with respect to any of the entries in this set of
minutes in the record of policy actions required to
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial
below. If you were present at the meeting, your
initials will indicate approval of the minutes. If
you were not present, your initials will indicate
only that you have seen the minutes.
Chin. Martin
Gov. Mills
GOV. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
Gov. Mitchell
Minutes of the Board of Governors of the Federal Reserve System on
Thursday, September 28, 1961.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
The Board met in the Board Room at 10:00 a.m.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Mitchell
Mr. Sherman, Secretary
Miss Carmichael, Assistant Secretary
Mr. Shay, Legislative Counsel
Mr. Molony, Assistant to the Board
Mr. Hackley, General Counsel
Mr. Solomon, Director, Division of Examinations
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Harris, Coordinator of Defense Planning
Mr. Hexter, Assistant General Counsel
Mr. O'Connell, Assistant General Counsel
Mr. Conkling, Assistant Director, Division of
Bank Operations
Mr. Leavitt, Assistant Director, Division of
Examinations
Mr. Veret, Legal Assistant
Discount rates.
The establishment without change by the Federal
Reserve Bank of Atlanta on September 25, 1961, of the rates on discounts
and advances in its existing schedule was approved unanimously, with the
Understanding that appropriate advice would be sent to that Bank.
Items circulated to the Board.
The following items, which had
been circulated to the Board and copies of which are attached to these
Minutes under the respective item numbers indicated, were approved
Unanimously:
Item No.
Letter to the Federal Reserve Bank of Cleveland
approving the designation of First National Bank
in Indiana, Indiana, Pennsylvania, as a cash agent
bank.
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Item No.
Letter to the Federal Reserve Bank of Richmond
approving the appointment of Robert C. Duffer
as Alternate Assistant Federal Reserve Agent.
2
Letter to Trust Company of Morris County, Morris-
3
Letter to Citizens Banking Company, Anderson,
Indiana, approving the establishment of a branch
in the Edgewood Plaza Shopping Center in the 2600
block on Nichol Avenue to replace its present branch
at 3629 Nichol Avenue.
14.
Letter to Farmers and Merchants Bank of Rockford,
Rockford, Washington, approving the establishment
Of' a branch in the vicinity of the intersection of
University Street and Sprague Avenue in an unincorporated area of Spokane Valley, Spokane County.
5
Letter to the Federal Reserve Bank of Minneapolis
approving a revision in the officers' salary
structure.
6
New Jersey, approving the establishment of
a branch in the vicinity of Ridgedale and Hanover
Avenues, Morris Township.
With respect to Item No. 1, it was noted that the Federal Reserve
Bank of Cleveland had designated 15 cash agent banks for preattack storage
Of currency and that, taking into account the designation of First
authorized
National Bank in Indiana, Indiana, Pennsylvania, the Board had
11 cash agent banks in the Fourth District to store $92,150,000.
Following a question from Governor Shepardson, Mr. Harris stated
that Vice President Harrell of the Cleveland Reserve Bank had advised
him that no problems were anticipated in complying with the changes
Chairman
suggested in the Board's letter of July 27, 1961, to Mr. Bryan,
Of' the Presidents' Conference, with reference to exculpation and
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indemnification provisions of the Cash Agent
Agreements.
In this
connection Governor Mills indicated that he had the impression from
reading the minutes of the Presidents' Conference of September 11,
1961, that the Reserve Banks had accepted the suggestions in the
Board's July 27 letter and were preparing to recruit cash agent banks.
Mr. Harris said this was also his impression but in order that there
would be no doubt so far as the record was concerned, a letter to the
Presidents of the Reserve Banks reiterating the Board's position with
respect to Cash Agent Agreements was being prepared.
In regard to Item No. 3, Governor Shepardson raised a question
with respect to the capital situation of Trust Company of Morris County,
Morristown, New Jersey.
Mr. Solomon stated that, while the capital
structure of the bank was not entirely satisfactory, it had seemed
appropriate to approve the bank's application to establish this branch.
Establishment of the branch would not involve a substantial expenditure
Of funds, and it would provide convenient banking facilities in a
service area where there were no commercial banking offices at present.
According to the Board's form for analyzing bank capital, capital of the
bank was 77 per cent of the indicated appropriate amount.
However, at
the time of the most recent examination of the bank, the New York
Reserve Bank considered the capital adequate and, accordingly, had not
raised with the member bank any question as to its capital situation.
A matter of judgment was involved, Mr. Solomon said, and, since the
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bank had received no warning regarding its capital position, the Division
Of Examinations was of the opinion that it would not be appropriate to
deny the branch application solely because of the bank's capital
situation.
Mr. Solomon said that he planned to discuss the matter of
analyzing bank capital with Vice President Crosse of the New York
Reserve Bank at an early date for the purpose of ironing out any
difference of views between that Bank and the Board.
Governor Balderston noted that the New Jersey Commissioner of
Banking and Insurance had turned down two previous requests of the
member bank to establish a branch in this area on the ground that the
applications were premature.
However, the community had now developed
and the Commissioner had approved the bank's application to establish
this branch.
Governor Shepardson said that, while he would not offer an
Objection in this instance, in general he believed the Board should not
be granting approval for further expansion of banks that were failing to
provide adequate capital.
Messrs. Johnson and Harris then withdrew from the meeting.
Loan to purchase unregistered stock (Item No. 7).
There had
been distributed a memorandum from the Legal Division dated September 25,
1961, with reference to an inquiry from the Federal Reserve Bank of New
York as to whether Regulation U, Loans by Banks for the Purpose of
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Purchasing or Carrying Registered Stocks, applied to a loan to purchase
unregistered stock in the successor
corporation of a partnership which
is a member firm of the New York Stock Exchange.
The loan would be made
to a present partner of the firm who would pledge with the bank, as
security, corporate stocks presently held in the individual partner's
capital securities account with the firm.
The sole question on which
the Board was asked to rule was whether such a loan would be "for the
Purpose of purchasing" registered stocks, since only such "purpose"
loans are subjected to Regulation U by section 221.1(a) thereof.
Attached to the memorandum was a draft of letter to the Federal
Reserve Bank of New York that would refer to earlier rulings of the Board
and indicate that the facts presented in this case suggested that the
corporation in question would engage in all aspects of the investment
business, including the dealing in registered stocks for its own account.
The letter would state that for this reason it had been concluded that,
While the loan might also be for other purposes, one purpose would be to
enable the corporation to purchase registered stocks.
Accordingly,
Regulation U was deemed applicable to the loan in question.
In commenting on the matter, Mr. Veret observed that the proposed
ruling would be in line with earlier rulings of the Board on the applicability of Regulation U to capital loans in partnerships.
It had been
felt that the fact that a corporation rather than a partnership was
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involved in this case would not substantially change the situation.
He
also stated that the Legal Division believed it desirable to send the
Proposed ruling to the Federal Reserve Banks, but there appeared to be
no reason for publishing it.
After a brief discussion, the letter to the Federal Reserve Bank
Of New York was approved unanimously.
A copy is attached as Item No.
7.
It was understood that advice of the ruling would be sent to the Presidents
Of all Federal Reserve Banks for their information.
Mr. Veret then withdrew from the meeting.
Absorption of exchange charges.
Governor Robertson referred to
the Board's letter of July 26, 1961, to Mr. Gidney, Comptroller of the
Currency, and Mr. Cocke, Chairman of the Federal Deposit Insurance
Corporation, enclosing copies of a memorandum setting forth the results
Of a survey of nonpar items and suggesting that there be a joint meeting
on this subject similar to the one held November 10 1960, prior to the
survey.
He said that Mr. Cocke had called him on the telephone this
morning and commented that he would get in touch with him in a few days,
although he (Governor Robertson) did not know whether Mr. Cocke had in
mind the possibility of an early meeting to discuss this subject.
Governor Robertson went on to say that he felt it desirable for the
Board to determine the approach it wished to take on absorption of
exchange before such a meeting was arranged.
Also, he raised the
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question whether it would be advisable to schedule another meeting with
the other agencies prior to November 15, 1961, when a new Comptroller of
the Currency was expected to take office.
Governor Mills said it was his inclination to wait until a new
Comptroller took office before arranging a joint meeting with the other
Federal bank supervisory agencies.
He believed that the present pro-
cedures were not causing any particular problems and, therefore, there
was no pressing emergency requiring early action.
Governor King expressed the hope that it would sometime be
Possible to have par clearance throughout the entire country.
He agreed
With Governor Mills that it would be preferable to defer a meeting with
the other agencies on the nonpar problem until after the expected change
in the Comptroller's Office, although he did not feel strongly on this
Point.
Governor Mitchell said he also would like to have par clearance
and would prefer to discuss the matter with the new Comptroller of the
Currency when he took office.
However, he could see no objection to
Deposit
Preliminary discussions with representatives of the Federal
Insurance Corporation.
Governor Robertson commented that the question of rulings on
Deposit
absorption of exchange fell to the Board and the Federal
ilities
Insurance Corporation because of their statutory responsib
for regulations involving the payment of interest on deposits.
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However, the Office of the Comptroller of the Currency was the agency
that enforced such rulings so far as national banks were concerned, and
thus the Comptroller was an essential party to any arrangement that might
be agreed upon.
In the event Mr. Cocke should suggest an early meeting
to discuss the problem, Governor Robertson felt it would be difficult to
refuse to have such a meeting, although it would be understood that no
definite action would be taken until after discussion with the incoming
Comptroller of the Currency.
After further discussion, it was understood that Governor
Robertson would handle any further discussion of the subject with Mr.
Cooke in the light of the views expressed at this meeting.
During the foregoing discussion Messrs. Thomas, Adviser to the
Board, and Fauver, Assistant to the Board, entered the room.
Request of Senator Douglas (Items
8 and 9). Governor Balderston
reported that in a letter dated September 25, 1961, Senator Douglas, Chairman of the Senate Banking and Currency Subcommittee on Production and
Stabilization, indicated that the Subcommittee needed more complete
information regarding the disclosure requirements of various State laws
covering the extension of consumer credit for use in connection with the
consideration of bill S. 1740, cited as the "Truth in Lending Act."
Specific information was needed as to the requirements of State laws in
regard to the seven items of information that would be required to be
disclosed on all consumer credit transactions by section
14 of that bill,
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and senator Douglas had stated in his letter that it would be helpful if
the Board would supply the Subcommittee with this compilation of State
laws.
Mr. Shay noted that Chairman Martin, in testifying before the
Subcommittee on S. 1740 on July 19, 1961, had suggested the desirability
Of investigating whether the matter of disclosure with respect to the
extension of consumer credit was a problem that might appropriately be
handled at a State level rather than by Federal legislation.
Also, on
several occasions the Board had advised the Subcommittee that the Federal
Reserve had no special competence in this particular field.
However, since
the Subcommittee had not been successful in its efforts to secure needed
information regarding State laws from other sources, Mr. Shay expressed
the view that it would be difficult for the Board not to comply with the
request of Senator Douglas.
Mr. Hackley suggested that it might be appropriate to acknowledge
the letter from Senator Douglas reiterating that the Federal Reserve had
had little experience in this field but that it would be willing to assist
by preparing the requested compilation of State laws and would endeavor to
furnish it as soon as possible, although that might not be until after the
desired date of December 1.
Mr. Hackley went on to say that the Legal
Division had made compilations of State laws in other areas, such as laws
relating to reserve requirements.
In such instances the Legal Division had
Prepared the entire compilation which was then sent to counsel of the
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Reserve Banks for checking.
At the present time the Board's Legal
Division was shorthanded and it occurred to him that the preparation of
the compilation requested by Senator Douglas might be expedited by asking
counsel of the Reserve Banks to prepare excerpts from State laws on the
subject.
The Board's Legal Division could then collate and coordinate
Into an alphabetical arrangement the excerpts submitted.
Also, if
feasible, a brief tabulation or chart digesting salient points in the
State laws could be prepared.
If such a procedure was acceptable, the
Board might wish to send a letter to the Presidents of all Federal
Reserve Banks requesting their assistance.
Also, since a conference
Of the Reserve Bank counsel would be held at the Board during the week
Of October 2, they could then be alerted regarding this matter.
During the discussion that ensued, the members of the Board
indicated that it would be desirable to comply with Senator Douglas'
for
request, even though that would involve substantial additional work
the Board's Legal Division and Reserve Bank counsel.
Among suggestions
made as to procedures to be followed, Governor Robertson said that the
acknowledgment to Senator Douglas should not indicate that it might not
be possible to furnish the material by December 1, as requested.
Governor
Mitchell said he would not wish to have the acknowledgment indicate a lack
Of competence on the part of the Federal Reserve in this field, or otherwise indicate the Board was "dragging its feet."
Mr. Hackley said that he
had not meant to suggest that the staff was not competent to prepare the
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compilation, but that because of its lack of experience in the particular
field covered by Senator Douglas' bill, a greater amount of time would be
required to complete the task.
Mr. Molony noted that the Board previously
had taken the position that the purposes of Senator Douglas' bill were
desirable, but the Board did not feel that it should have the responsibility
for administering such legislation since it had no special competence in
the field of trade practices.
Governor Robertson said that even though he was aware of the
Position mentioned by Mr. Molony, he did not think it appropriate to
repeat this in the acknowledgment informing Senator Douglas that the
Board would furnish the requested compilation.
The discussion concluded with the understanding that letters to
Senator Douglas and the Presidents of all Federal Reserve Banks would be
Prepared in the light of the views expressed at this meeting, and that
Mr. Hackley would inform Reserve Bank counsel of the request at the
conference to be held in the Board's building beginning October 2.
Copies of the letters sent to Senator Douglas and to the Reserve Bank
Presidents are attached as Items 8 and 9.
Mr. Thomas withdrew from the meeting during the foregoing
discussion.
Rules of organization and procedure.
There had been distributed
a memorandum from the Legal Division dated August 10, 1961, with reference
to a revision of the Board's Rules of Organization and Rules of Procedure
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which had been issued pursuant to the Administrative Procedure Act of
June 11, 1946.
The Rules became effective September 11, 1946, and had
been amended in a few minor respects since that time.
At a meeting on September 8, 1959, the Board requested the staff
to undertake a review and revision of the Rules of Organization and Rules
Of Procedure.
Attached to the August 10 memorandum was a draft of
Proposed revision that had been prepared by the Legal Division in
Collaboration with the Secretary's Office, and in consultation with
Other Divisions at the Board.
In the proposed revision an attempt was made to bring up to date
4
description of the Board's organization, to eliminate obsolete pro-
visions, and to clarify, restate, or expand some of the procedural
provisions in the light of current practices.
At the Board's request, Mr. Hackley commented on various aspects
of the revision.
It was proposed, he said, to replace the present Rules
relating to "Organization" and "Procedure" by four separate Rules, as
follows: (1) Rules of Organization, (2) Rules Regarding Information,
Submittals, and Requests, (3) Rules of Procedure, and (4) Rules of
Practice for Formal Hearings.
All of these Rules would be published in
the Federal Register, but only the last three would appear in the Code of
Federal Regulations since the Rules of Organization are not permanently
codified.
It was contemplated that the four Rules would be printed
together in the Board's pamphlet edition under the title of "Rules of
Organization and Procedure."
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With respect to the Rules of Organization, Mr. Hackley commented
that they would be changed only to bring up to date the description of
functions of various divisions of the Board and to eliminate obsolete
material.
No material changes were proposed for the Rules of Procedure,
but obsolete references would be deleted and new references to bank
holding company and bank merger applications would be included.
A revised
list of Board forms (now in the text of the Rules) would appear as an
APpendix.
The portion to be described as "Rules Regarding Information,
Submittals, and Requests" for the most part would incorporate provisions
now contained in sections
6, 7, and 8 of the present Rules, which define
Published and unpublished information and set forth a general rule that
no unpublished information shall be disclosed "except as authorized by
the Board."
The present Rules further provide that certain kinds of
unpublished information of a confidential nature will not be disclosed
at all except in confidence to other Government agencies for use in the
Performance of their official duties.
However, Mr. Hackley pointed out,
there have been times when question has arisen as to the disclosure of
such confidential information to persons other than Government agencies,
such as making confidential sections of examination reports available to
Continental Bank and Trust Company in the hearing on capital adequacy
of that bank.
There have also been questions as to whether information
of this kind should be disclosed even to other Government agencies, e.g.,
giving reports of examinations to the Department of Justice.
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Mr. Hackley stated that the staff had concluded that it would
not be feasible to attempt to itemize the various circumstances in
Which confidential information should be disclosed either to Government
agencies or to other persons.
As an alternative, it was suggested that
the Board might wish to consider issuing a document for internal use
Within the Board and Federal Reserve Banks that would contain authorizations pursuant to the Rules for the disclosure of certain unpublished
information in specified circumstances.
Such blanket authorizations
could cover those situations in which it was clearly appropriate to
disclose certain information to other Government agencies, to officers
and employees of the Reserve Banks, or to others.
This would in effect
serve to confirm and codify existing practices approved by the Board and
tend to clarify the Board's policy on this subject.
It would help also
to reduce the number of instances in which specific Board authority
would be necessary.
Mr. Hackley noted that there was attached to the August 10
Memorandum a draft of such an internal document which listed eight
categories in which unpublished information might be made available
Without specific Board authorization.
The document also listed four
tYpes of cases in which specific authorization would be necessary but
in which it would be the Board's general policy to make the information
available.
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So far as the section on unpublished information in the proposed
Rules was concerned, Mr. Hackley stated that the only changes suggested
were (1) to include in the section as to disclosure of information to
Government agencies a specific reference to the Department of Justice,
and (2) to make somewhat more flexible the present absolute prohibition
against disclosure of confidential information to persons other than
Government agencies, so that certain information might be disclosed if
the Board should determine that disclosure would clearly be in the public
interest.
Mr. O'Connell then commented on revisions in the proposed Rules
Of Practice for Formal Hearings as outlined in the August 10 memorandum.
He observed that the purpose of the revision was to conform the Rules
as much as possible to those of other agencies that conduct administrative
Proceedings involving the taking of evidence and, at the same time, to
afford an opportunity for participants in such proceedings to know in
advance the procedures with which they would be faced.
The suggested
revision reflected (1) actual changes in the Board's procedures since
September 1946, and (2) proposed changes, both deletions in and additions
to the 1946 edition of the Rules, that were felt to be in the best
interests of the Board and of the public in its dealings with the Board.
Mr. Hackley then referred to the Board's plan to consider further
in October procedures to be followed in connection with bank merger and
bank holding company applications.
If the Board desired, at least some
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of the procedures adopted with respect to such applications appropriately
could be included in the Board's Rules of Procedure in a separate section.
If the Board should be disposed to adopt the proposed Rules, Mr. Hackley
said that it would not be necessary to publish them in the Federal Register
for comment by the public.
However, he felt that it would be helpful to
sUhmit them to the Federal Reserve Banks for comment.
Governor Balderston noted that a new Comptroller of the Currency
was expected to take office on November 15, and he expressed the thought
that the Board might wish to publish before that date whatever procedures
it might adopt for handling bank merger applications.
This would suggest
that, if the proposed Rules of Organization and Procedure were to be sent
to the Reserve Banks for comment, the Banks should be asked to furnish
their comments by about mid-October.
Referring to the general rule that appeared in both the present
Rules and in the proposed revision against disclosure of unpublished
information except as authorized by the Board, Governor Mitchell said
that he was opposed to a prohibition of this type inasmuch as it was
violated daily.
While he believed that the Reserve Banks and the Board
Were justified in refusing to release statistical information relating
to an individual institution, he could see no reason for refusal to
release information covering a group of institutions; yet such information
Ifts unpublished and, according to the Rules, could not be released except
on authorization of the Board.
He believed it was wrong for the Rules to
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imply that information must be published before it could be disclosed,
and he thought it might be feasible to list in the Rules items that
the Board was not willing to have disclosed.
Governor King said he assumed that the prohibition against the
release of unpublished information without Board authorization was
based on the premise that it would not be desirable to leave to individual members of the Board's organization generally the judgment as
to what information on a variety of subjects should be disclosed.
Every-
one would agree that some types of information should not be disclosed
and, as a practical matter, he could understand that the only way to
control this was to make a general prohibition against releasing information unless the Board had said that it should be made public.
He
felt that the alternative was, in effect, for the Board to delegate to
each member of its organization the responsibility for judging what
Should be disclosed.
His own view was that it would be better to have
a general rule that would permit anyone to give out some clearly defined
types of information but to require that questions as to other information
be brought back to the Board for decision.
He would lean to this kind
Of a rule even though there might be some instances where it would be
violated.
Governor Robertson said that one trouble was that the present
Rules were extremely restrictive.
He thought they might be changed to
expand in specific terms the kinds of information that could be given
out freely.
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In response to a question from Governor Balderston as to whether
the Rules might state in positive terms what types of information could
be released, Mr. Hackley said that he believed such an approach would
Present difficulty.
However, he noted that a list of unpublished items
Of information that might be disclosed with the Board's approval had
been included in the draft document proposed for internal distribution
to Board and Federal Reserve Bank employees that had been attached to
the August 10 memorandum.
These items had been listed with the thought
that they would indicate some kinds of information that the Board would
almost automatically approve for release upon request.
Governor Mills commented that the Board had lived with the
Present Rules of Organization and Procedure for 15 years without
serious problems resulting from the provisions regarding disclosure of
unpublished information.
He realized that it might be desirable to
tidy up the current Rules; however, he had no quarrel with them as they
now stood.
So far as the Rules of Practice for Formal Hearings were
concerned, he would rely on the view expressed by counsel that the
Rules proposed were equitable to all parties concerned.
As he saw it,
the real problem involved a matter on which he had expressed his views
in the past.
As proposed, the Rules would provide that the Department
Of Justice would be permitted to have certain unpublished information.
This had connotations about which he was greatly concerned.
By granting
such permission, the Board was giving the Justice Department entry into
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confidential matters without a subpoena.
The Board, he believed, had
an obligation to the banks examined by the Federal Reserve and to the
customers of those banks; accordingly, it was his view that the Board
had no right to release confidential information from examination reports
Without notice to the banks.
He added that the only advantage he could
see in the proposed Rules with respect to making certain material
available to the Justice Department was the fact that by their adoption
the Board would be putting the public on notice as to what it proposed
to do rather than doing it secretly.
Governor Mills went on to say that he felt there was another
aspect that deserved further study.
He then referred to public hearings
on bank holding company cases under section 3 of the Bank Holding Company
Act of 1956 and the practice of making the details of holding company
.
applications available for public inspection prior to such hearings
In this connection he recalled a case in which it had been felt that
the release of confidential material relating to a proposed acquisition
of stock could be damaging to the applicant if such material were to
come into the hands of a competitor.
For this reason, Governor Mills
hoped that any decision on procedures would be postponed until all
aspects could be considered exhaustively.
Governor Robertson said he thought it incumbent on the Board
to bring the Rules of Organization and Procedure up to date, and he
felt the Board should proceed promptly in that direction.
There was,
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however, one point that still needed to be clarified, and that related
to the type of unpublished information that the Board would not want
to have disclosed.
He doubted that any good purpose would be served
by sending the proposed Rules to the Reserve Banks for comment, but
he thought it desirable for the Legal Division to review them in the
light of today's discussion and for the matter to be brought back to
the Board for consideration at the end of October along with the
procedures relating to bank merger and bank holding company applications.
It also was his view that it would be desirable to incorporate the
latter procedures in the proposed Rules of Procedure and publish them
in the Federal Register, provided this would not result in too much
delay.
Governor Shepardson said he could see no real need for sending
the proposed Rules to the Reserve Banks for comment.
As to the portion
Of the Rules dealing with unpublished information, it seemed to him
that it should be possible to define some additional areas of unpublished
information that might be disclosed freely.
While he was not certain
as to the exact language to be used, he believed that employees of the
Board and the Federal Reserve Banks should be permitted to reveal general
unpublished economic information not relating to the private affairs
Of any person or organization or to monetary and credit policy.
Governor King agreed that the Rules need not be sent to the
Reserve Banks for comment.
He would not adopt the Rules at this time,
0)471.-4
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however, having in mind that it might be desirable to consider them
at the time the Board took up procedures that might be adopted relating
to bank merger and bank holding company applications.
With respect to
the release of unpublished information, he thought it would probably
not be feasible to prepare a detailed statement as to what might be
disclosed without coming back to the Board.
The choice seemed to be
either to have a rule that was quite restrictive and which admittedly
might result in some violations in actual practice, or to leave the
matter quite wide open, with the individual employee left with nothing
but his sense of propriety as a guide.
Governor Mitchell then observed that the proposed Rules of
Organization and Procedure were in four parts.
He said he was prepared
at this time to adopt all of the Rules except the one relating to the
disclosure of unpublished information.
He thought it was not necessary
to send the Rules to the Reserve Banks for comment and he believed it
advisable to dispose of this matter as soon as possible.
He felt the
Legal Division would have no difficulty in incorporating the suggestions
made at today's meeting with respect to the release of unpublished
information.
Mr. O'Connell noted that a number of the Reserve Banks had in
the past furnished counsel to conduct hearings for the Board.
Accordingly,
it had been thought that it would be advantageous to have the comments
Of Reserve Bank counsel at least on the Rules of Practice for Formal
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Hearings.
He also commented that difficulties might be expected to
result from including in the Rules a list of specific unpublished
information that could not be disclosed.
Mr. Hackley said the Legal Division would review the proposed
Rules regarding unpublished information and make whatever changes seemed
feasible, having in mind especially authorization for release of general
statistical information not relating to the private affairs of an individual or a corporation.
Governor King reiterated his concern as to the problems that
might arise if individual employees were given blanket authorization to
determine what types of unpublished information should be released.
It
would be difficult for employees to know where to draw the line, and
he did not think it desirable to place that responsibility on them.
Governor Mills said that if the Board should be disposed to
adopt the proposed rule with respect to making confidential material
available to the Justice Department, he would wish to have the record
Show that he had strong feelings contrary to the favored position that
Would be accorded that Department.
He did not see how the Board could
put a Government agency ahead of civil laws that would prevent
furnishing material to any other citizen or corporation.
To say that
it was implicit in the law that the Department of Justice should be
eligible to receive otherwise confidential information was, he thought,
a distortion of the principles of confidentiality itself.
4' "4 of "I
2
3339
-23-
9/28/61
Governor Shepardson said he also felt that consideration should
be given to the point raised by Governor Mills about voluntarily
furnishing material to the Department of Justice that would normally
be obtained under subpoena or some other legal procedure.
Governor Balderston then referred to Governor Robertson's
suggestion that the Legal Division review the proposed Rules in the
light of the discussion at today's meeting and that the matter be considered along with the procedures on bank merger and bank holding
company applications at the end of October.
Governor Mitchell reiterated his preference for adopting today
those parts of the Rules on which there was no disagreement.
However,
after other members of the Board had expressed a preference for
considering the four proposed Rules at a later date, it was agreed
that such a procedure would be followed.
In the meantime, it was understood
that the Legal Division would revise certain portions of the proposed Rules
for the Board's consideration.
Also, it was understood that the draft of
Rules of Practice for Formal Hearings would be sent to Reserve Bank counsel
for comment.
The meeting then adjourned.
Secretary's Notes: On September 27, 1961,
Governor Shepardson approved on behalf of
the Board a letter to the Federal Reserve
Bank of Dallas (attached Item No. 10)
approving the appointment of James B. Watson
as assistant examiner.
t_a
ll
9/28/61
-24Governor Shepardson today approved the
following items:
Memorandum from the Division of Personnel Administration recommending the appointment of Carol H. Karstetter as Clerk-Stenographer
in that Division, with basic annual salary at the rate of $4,355,
effective the date of entrance upon duty.
Letter to Mr. William S. Swingle, President of the National Foreign
Trade Council, Inc., New York, New York, responding to the Council's
invitation to send guest observers to the National Foreign Trade Convention to be held in New York City, October 30-November 1, 1961, and
advising that Messrs. Hersey and Gemmill of the Board's Division of
International Finance would attend.
3341
BOARD OF GOVERNORS
OF THE
Item No. 1
9/26/61
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
ADOREBB OFFICIAL CORRESPONDENCE
TO THE BOARD
September
28, 1961
Mr. W. D. Fulton, President,
Federal Reserve Bank of Cleveland,
Cleveland 1, Ohio.
Dear Mr. Fulton:
The Board has approved the proposal contained in
a letter from the Federal Reserve Bank of Cleveland,
June 22, 1961, for the preattack storage of 03,500,000 in
currency in the First National Bank in Indiana, Indiana,
Pennsylvania, an authorized Cash Agent Bank.
It is understood that the general terms, conditions,
and procedures for effecting the preattack storage of currency with this Cash Agent are substantially the same as those
approved by the Board in its letters of May 26, 1960, and
the
August 23, 19611 with respect to other Cash Agent Banks in
Fourth District.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
* Should be August 231 1960.
•4
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 2
9/28/61
WASHINGTON 25. D. C.
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE BARD
September 28, 1961
Mr. Alonzo G. Decker, Jr.,
Chairman of the Board and
Federal Reserve Agent,
Federal Reserve Bank of Richmond,
Richmond 13, Virginia.
Dear Mr. Decker:
In accordance with the request contained in your letter of
September 14, 1961, the Board of Governors approves the appointment
of Mr. Robert C. Duffer as Alternate Assistant Federal Reserve Agent
at the Federal Reserve Bank of Richmond to succeed Mr. J. Franklin
Wilson.
This approval is given with the understanding that Mr. Duffer
Will be solely responsible to the Federal Reserve Agent and the Board of
Governors for the proper performance of his duties, except that, during
the absence or disability of the Federal Reserve Agent or a vacancy in
that office, his responsibility will be to the Assistant Federal Reserve
Agent and the Board of Governors.
When not engaged in the performance of his duties as Alternate
Assistant Federal Reserve Agent, Mr. Duffer may, with the approval of
the Federal Reserve Agent and the President, perform such work for the
Bank as will not be inconsistent with his duties as Alternate Assistant
Federal Reserve Agent.
It will be appreciated if Mr. Duffer is fully informed of the
importance of his responsibilities as a member of the staff of the
Federal Reserve Agent and the need for maintenance of independence from
the operations of the Bank in the discharge of these responsibilities.
It is noted from your letter that, upon approval of this
appointment by the Board of Governors, Mr. Duffer will execute the
usual Oath of Office which will be forwarded to us showing the effective
date of the appointment.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
e 10,
("ve
BOARD OF GOVERNORS
4
OF THE
4,9 cov:40
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
4tit
Item No. 3
9/28/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
a Q.kot
04***
September 28) 1961
Board of Directors,
Trust Company of Morris County,
Morristown, New Jersey.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment of a
branch by Trust Company of Morris County, Morristown, New Jersey, in the vicinity of the intersection of Ridgedale and Hanover Avenues, Morris
Township, Morris County, New Jersey, provided
the branch is established within one year from
the date of this letter.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth I. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
WASHINGTON 25, O. C.
ADDRESS
orrictAL
CORRESPONDENCE
TO THE BOARD
September 28, 1961
Board of Directors,
Citizens Banking Company,
Anderson, Indiana.
Gentlemen:
Pursuant to your request submitted through
Reserve Bank of Chicago, the Board of
Federal
the
Governors of the Federal Reserve System approves the
establishment of a branch in the Edgewood Plaza Shopping Center in the 2600 block on Nichol Avenue,
Anderson, Indiana, by Citizens Banking Company, provided the branch is established within nine months from
the date of this letter, and branch operations now
conducted at 3629 Nichol Avenue, Edgewood, Indiana, are
discontinued simultaneously with the establishment of
the new branch.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
4
9/28/61
BOARD OF GOVERNORS
.0.41tetete,44
OF THE
001,.
7,446%
Item No. 5
FEDERAL RESERVE SYSTEM
°t1
9/28/61
WASHINGTON 25, O. C.
ADDRESS OFFICIAL CORRESPONDENCE
St 4
TO THE BOARD
t fC,,S KW,*
September 281 1961
Board of Directors,
Farmers and Merchants Bank of Rockford,
Rockford, Washington.
Gentlemen:
The Board of Governors of the Federal
Reserve System approves the establishment of a
branch in the vicinity of the intersection of
University Street and Sprague Avenue in an unin.
corporated area of Spokane Valley, Spokane County,
Washington, by Farmers and Merchants Bank of
Rockford, 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.
;
3341
BOARD OF GOVERNORS
OF THE
Item No. 6
FEDERAL RESERVE SYSTEM
9/28/61
WASHINGTON 25, D. C.
ADDRESS OFFICIAL. CORRESPONDENCE
TO THE BOARD
September 281 1961
CONFIDENTIAL (FR)
Mr* Frederick L. Deming, President,
Federal Reserve Bank of Minneapolis,
Minneapolis 2, Minnesota*
Dear Mr. Deming:
The Board of Governors has approved, effective January 1,
1962, the following minimum and maximum salaries for the respective
Officer salary groups at the Federal Reserve Bank of Minneapolis,
as requested in your letter of September 15, 1961.
Group
Minimum
Maximum
A
$160000
$22,500
13,500
180500
110500
1,00
10,000
13,0O
Very truly yours,
(Signed) Merritt Sherman
Merritt Shermanl
Secretary.
33,1
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON 25, D. C.
Item No. 7
9/23/61
ADDRESS OFFICIAL CORRESPONDENCE
TO THE SOARD
September 28, 1961
Mr. Howard D. Crosse, Vice President,
Federal Reserve Bank of New York,
New York 45, New York,
Dear Mr. Crosse;
Reference is made to your letter dated June 21, 1961, presenting the question whether Regulation U applies to a loan to
purchase unregistered stock in the successor corporation of a
partnership which is a member firm of the New York Stock Exchange.
The loan would be made to a present partner of the firm who would
pledge with the bank, as security, corporate stocks presently held
in the individual partner's capital securities account with the
firm. According to the letter of May 22, 1961, from the law firm of
Dewey, Ballantine, Bushby, Palmer & Wood, the firm in question "is
engaged in all phases of the investment banking and broker-dealer
business."
The Board was asked to view this inquiry without regard to
the question whether the loan will enable the borrower to reduce or
retire indebtedness Which was originally incurred to purchase
registered stock or to carry such stock for customers. Therefore,
the views expressed herein are without reference to the possible
applicability of paragraph (b)(1) of section 221.3 of Regulation U,
relating to "carrying" loans. The sole question is whether the loan
would be "for the purpose of purchasing" registered stocks.
The Board has in the past taken the position that Regulation U applies to loans to individuals when the proceeds are used to
contribute capital as partners to, a brokerage firm. For example,
see 1946 Bulletin 995 (F.R.L.S. #8127). As you pointed out, there
appears to be no valid basis for distinguishing the present case from
those covered by the rulings relating to partnerships. In economic
fact, there is little difference, for this purpose; between a partnership intere0 and a stodkholder interest in a broker-dealer concern.
This is underscored by the New York Stock Exchange rule restricting
trading in the stock of corporate member concerns.
Mr. Howard D. Crosse
-2-
In the Board's opinion, the rulings to the effect that the
original purpose of a loan is controlling are not decisive with
respect to the present case. In fact, the ruling of June 250 1937
(S-111 F.R.L.S. #8120) specifically states:
"It should be borne in mind in this connection, however, that the original purpose of the loan should not be
determined upon a narrow analysis of the immediate use to
which the proceeds of the loan are put. Instead, the
fundamental purpose of the loan should be considered to be
controlling."
The facts presented to the Board in this case indicate that
the corporation in question will engage in all aspects of the investment business, presumably including dealing in registered stocks for
its own account. For this reason, the Board has concluded that, while
the loan may also have other purposes, one purpose is to enable the
concern to purchase registered stocks. At this time it is not
necessary to re-examine the correctness of earlier interpretations to
the effect that Regulation U applies to such a loan where the concern
rs
in question purchases and carries securities only for its custome
and not for its own account.
For the reasons stated above, you are requested to inform
in
the inquirer that Regulation U is deemed applicable to the loans
this case.
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
Item No. 8
9/28/61
OFFICE OF THE VICE CHAIRMAN
September 28, 1961.
The Honorable Paul H. Douglas, Chairman,
Subcommittee on Production and Stabilization,
Committee on Banking and Currency,
United States Senate,
Washington 25, D. C.
Dear Mr. Chairman:
This is in response to your letter of September 25, 1961,
requesting that we prepare for the use of your Subcommittee a compilation of State laws regarding the extension of consumer credit
to the extent that they relate to the seven items of information
that would be required to be disclosed by section 4 of S. 1740,
the truth in lending bill.
We shall be glad to undertake the preparation of a
compilation of the kind requested with the hope that it may be
completed for submission to you by the first of December.
Sincerely yours,
(Signed) C. C. Balderston
C. Canby Balderston,
Vice Chairman.
BOARD OF GOVERNORS
OF THE
:J4'4):4 0 G0444
FEDERAL RESERVE SYSTM
A*
WASHINGTON 25, D. C.
a4
*4.
Item No.
9/28/61
9
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 28,
1961.
Dear Sir:
er 25, 1961, from
The Board has received a letter dated Septemb
ion and Stabiliza—
Product
Senator Douglas, Chairman of the Subcommittee on
ing that the
request
ee,
tion of the Senate Banking and Currency Committ
tion of
compila
a
ittee
Board have prepared for the use of his Subcomm
provisions
contain
that
State laws regarding extensions of consumer credit
to be
d
require
be
would
related to the seven items of information that
"
bill.
Lending
in
disclosed by section 4 of S. 1740, the pending "Truth
of
copy
a
with
r
togethe
A copy of Senator Douglast letter is enclosed,
S. 1740.
the several Federal
The Board will appreciate the assistance of
Specifically,
laws.
Reserve Banks in making such a compilation of State
the
prepare
could
lt would be most helpful if counsel for your Bank
in
cities
capital
their
relevant excerpts from statutes of States having
or
table
a
with
s
excerpt
Your District and, if feasible, accompany such
upon the items
Chart summarizing the statutes as they may have a bearing
wish to
course,
of
may,
Of information described in S. 1740. Counsel
ion with
connect
in
States
consult the Attorney Generals of the various
ed.
involv
be
to
seem
any questions of interpretation that may
tion be submitted by
Having in mind the request that the compila
find it possible
may
counsel
your
the first of December, it is hoped that
to prepare and submit to the Board the relevant information as to the
States in your District by November 1, in order that the Board's Legal
to collate the various
Division may then have adequate time within which
tion.
excerpts and incorporate them in a single compila
cooperation and assistance
The Board will be grateful'for your
in this matter.
Very truly your5,
Enclosure
Merritt Sherman,
Secretary.
TO THE PRESIDENTS OF ALL FEDERAL RESERVE BANKS
BOARD OF GOVERNORS
OF THE
Item No. 10
9/28/61
FEDERAL RESERVE SYSTEM:
WASHINGTON 25, Q. C.
ADDRESS
arriciAL coRREeponoeNct
TO THE BOARD
September 281 1961
Mr. L. 0. Pondrom, Vice President,
Federal Reserve Bank of Dallas,
Station K,
Dallas 2, Texas.
Dear Mr. Pondrom:
in your
In accordance with the request contained
approves the appointletter of September 22, 1961, the Board
examiner for the
ment of James B. Watson as an assistant
today.
Federal Reserve Bank of Dallas, effective
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER