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1526
Minutes of actions taken by the Board of Governors of the
liederal Reserve System on Wednesday, September 3, 1932.
tF
The Board met
Board Room at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Mr.
Szymczak, Acting Chairman
Evans
Vardaman
Mills
Robertson
Sherman, Assistant Secretary
Kenyon, Assistant Secretary
Vest, General Counsel
Noyes, Director, Division of
Selective Credit Regulation
Mr. Boothe, Assistant Director,
Division of Selective Credit Regulation
Mr. Hackley, Assistant General Counsel
Mr.
Mr.
Mr.
Mr.
Governor Vardaman referred to discussions at the meetings of the
1'd on August 8
'
13°6
and 12, 19)2, concerning a proposed V-loan in the amount
or
$76,750,000 to be made to Reynolds Reduction Company, of Richmond,
a newly organized subsidiary of Reynolds Metals Company, by
certain i
nsurance companies and banks to finance the building and operation
to
of a
dditional aluminum facilities.
The terms of the authorization
the,
xederal Reserve Bank of New York by General Services Administration,
the —a.
66u ranteeing agency, contemplated that until completion of the facilities
the
guaranteed percentage would be 100 per cent; that for a period of five
4.118
hereafter, during which period there would be in force a supply
centract
between General Services Administration and Reynolds Reduction
e()rflAani,
- Under which the former would in effect be committed to take
9/3/52
-2-
Over any
anY excess aluminum production, the guaranteed percentage would be
7o Per cent; and that at the end of the five-year period each financing
itstitution could select any guaranteed percentage up to and including
Per cent.
11-th
At the meeting on August 12, the Board, having consulted
representatives of all of the guaranteeing agencies under the V-loan
Mr°graill, approved a letter to Mr. Larson, General Services Administrator,
statirig
that it would have no objection to the proposed form of guarantee
41'8Illent, and also approved a letter to the Federal Reserve Bank of
4ork advising the Bank that it might take such steps as necessary in
Elcccq-4lance with the terms of the authorization from General Services Adration.
Governor Vardaman stated that in view of subsequent developments
1i th
e Matter, which he had discussed fully with the staff, he felt that
the
r,
-eus should be presented to the Board for its consideration.
Mr. Boothe said that there had been tremendous pressure on General
Ser
the
'
4 eee Administration to increase the aluminum production capacity of
ountry in the interests of the national defense; that the first round
,
Of aa
tional facilities was financed privately by the three major prors) •
including Reynolds Metals Company, which sold bonds to a group of
hleur
'rice companies; that the second round of facilities expansion also
V4S
'
Illanced privately by two of the producers; but that Reynolds Metals
Precluded from financing in such a manner because of its heavy debt
9/3/52
-3-
structure (including indebtedness to the Reconstruction Finance Corporaand limited working capital.
Accordingly, he said, General Services
Allninistration explored at length various possibilities and considered
the
Proposed V-loan the most favorable arrangement that could be obtained
Oflj
the standpoint of the Government.
Mr. Boothe then referred to a letter dated August 28, 19')2, from
Mr.
an, Vice President of the Federal Reserve Bank of New York, in
/4111Chti,
Vir,
Phelan stated that a conference with interested parties, includ-
- presentatives of General Services Administration and the financing
--lone (insurance companies and banks) was held at the Bank on August
1)to
cliscuss the terms and conditions under which guarantee agreements
relating to the proposed V-loan were authorized.
At that conference, ac-
corA4
to Mr. Phelan, General Services Administration accepted certain
114 11.fi
cations proposed by the interested parties and expressed willingness
'
to ac
cept other modifications which required the consent of the holders of
oiAst
eliding 4 per cent bonds of Reynolds Metals company, due in 1962. On
22 the Runk received copies of certain documents, including a mortR8.ge aria
deed of trust ("indenture"), finance agreement, lease, and bond
AtIrchase
agreement and loan agreement, which appeared to incorporate
getlerally the modifications accepted by General Services Administration at
the Meeting on August l.
Mr. Phelan's letter pointed out particularly that the indenture,
1
"revised, would provide for the payment of premiums in the event of
vol
redemption and prepayment of the bonds as a whole.
It further
ste
'tea that the lenders would agree to participation by the guaranteeing
EigericY in any commitment fee payable after the execution and delivery of
the guarantee
agreements, but that it was proposed that the lenders also
l'eceive a fee to compensate them for holding funds available for the
liencing prior to the execution of the loan documents and the guarantee
4reeMents and, with respect to the latter fee, the lenders did not believe
Olat the guarantor should participate therein inasmuch as, during
st10,
"Period, the guarantor was not obliged to purchase the loan.
Mr. Poothe stated that the premium in event of prepayment, which
'light 1,ue
regarded as a termination fee, would be 10 per cent if the bonds
re Paid off in whole during the years 1953-1956, with the premium being
at the rate of one per cent each year thereafter through 1962 and
Eq.*,
"e rate of one-half per cent per year from 1963 until maturity in
1967
" While no premium would be involved in event of partial prepayment,
the
11/°rtgage on the properties would remain outstanding.
The "advance" commitment fee, according to Mr. Boothe, would be at
the rate of 1.7 per
cent from July 1, 19)2 to the date of execution ana
411:very of
the guarantee agreements.
It was presumed that the financing
1 titlItions would expect payment of this fee even if the agreements were
Ilelrer
executed.
1530
9/3/52
-5Mr. Boothe stated that Mr. Phelan felt that the proposed provi-
elens would not react to the detriment of the V-loan program as a whole
elici that he thought the banks involved felt the same way.
Mr. Boothe also
renlarked that, in accordance with the customary procedure, the New York
Reserve
Bank had made a credit Investigation of the borrower and had made
Urif
avorable recommendation.
There followed a general discussion of the roles of the Board and
the Federal Reserve Banks in the V-loan program during which Mr. Hackley
Stated that the Reserve Banks as fiscal agents have an obligation to protect
the interests of
the Government, while the Board has the obligation to prerates and fees.
He recalled that in its Jetter to the Reserve Banks
Of Feb
ruary 8,
1951, the Board, having consulted with the guaranteeing
prescribed a general rule that no termination fee should be
ellaree,
u in connection with any V-loan made primarily for working capital
13111q)
08A
--s, this being the same rule Prescribed during the World War II V-loan
During the interagency consultations, Mr. Hackley said, General
4rvi
ees Administration recommended that a distinction be made between work-
ttle
'saPital and long-term loans and as a result the Board took no position
With
respect to termination fees in connection with long-term loans for
t't4c1
caPital purposes. Therefore, the current proposal for a prepayment
Dee 14
ae not contrary to any position taken by the Board, the matter simply
114117111,,
not been covered previously. If the Board should want to take any
•
9/3/52
-6-
Position, it
would have to consult with the guaranteeing.agencies and
then issue a
general instruction.
In response to a question, Mr. Backley
8 /14 that if the Poerd should feel that the charging of a high premium
tclr PrePayment of the bonds in this case would be contrary to the best
Ittere
sus of the Government, it might have an obligation to make some
l'ec°111nlendation to the guaranteeing agency.
In discussion it was pointed out that if rates of interest should
(kci4
,ne and the
borrower wished to refinance without a guarantee, the high
eau
Price of the bonds would militate auainst such refinancing. Similarly,
it the
further expansion
Government should decide at a later date that a
Or ea
14111-num facilities was required, it would not be possible to consolidate
e'lld any subsequent financing except upon payment of the stated premium.
as
brcuptt out, on the other hand, that in the opinion of the New York
te.
the company, in view of its financial condition, would be in no Dosi-
104 -to refinance
this indebtedness within the period that a premium was
Pflyable.
With respect to commitment fees, Mr. Boothe pointed out that the
lIcard
. 'ad prescribed a maximum commitment fee of 1/2 of one per cent, such
tee to 4
uake effect from the time the guarantee agreement was executed, and
thtlt
-
t was provided that the guaranteeing agency should. share in that fee
,
9I3!52
-7-
ording to
the guaranteed percentage of the loan.
He said this raised a
u as to the propriety of any commitment fee prior to execution of
the agre
ement and particularly as to the proposed rate of 1.7 per cent;
44°) if such a fee were to be permitted, whether the guaranteeing
4elicy should
share in it.
There followed an extended discussion of the facts of the case and
the Possible actions which might be taken by the Board.
During this discus-
814)4 it was stated that, in the absence of some agency such as a Defense
Corporation, there was no way by which the Government could build
racilities and lease them to a producer as was done in World War
Various suggestions were made as to the course which might be
r°110
14ed by the Board, including a letter expressing its views to the
'
al Services Administration, a letter to the Federal Reserve Bank of
°1'Irtel
lle" York/ or
the calling of a meeting of the guaranteeing agencies to
coriBuit as
to the policy to be followed with respect to termination fees
•(341°11g-term loans for fixed capital purposes.
At the conclusion of the
1.4°11881°n) the staff was requested to prepare a draft of letter to the
G4ler41 l ervices Administration incorporating suggestions made at this
ee
ting and to present the draft for consideration by the Board this after-
Messrs. Noyes, Boothe, and Hackley withdrew from the meeting at
Point,
9/3/52
—8—
Governor Szymczak reported that he had received a telephone call
Nterday from Mr. Bryan, President of the Federal Reserve Bank of Atlanta,
114° inquired whether the Board would be willing to supply the Bank with
20 Paper-bound copies of the booklet, "The Federal Reserve System:
its purposes and Functions", for distribution at the time of the official
c)ining of the new Jacksonville Branch building on October 17.
It was agreed unanimously that
the Reserve Bank should be furnished
the requested number of copies of the
booklet.
In a further discussion concerning
the opening of the new building at Jacksonville, it was understood that Chairman Martin and Governors Evans, Vardaman,
and Robertson expected to attend, and
it was agreed unanimously that Messrs.
Thurston, Assistant to the Board, Leonard,
Director, Division of Bank Operations, and
Sloan, Director, Division of Examinations,
also should be authorized to attend.
At this point Messrs. Sloan, Director, Hostrup, Assistant Director,
1111c174°mPeon, Federal Reserve Examiner, Division of Examinations, and Chase,
Ass 1
4tallt Solicitor, joined the meeting.
Governor Robertson presented a statement concerning a proposal
tor et
Merger of the First National Bank of Arizona, Phoenix, Arizona, and
The 33
8ulk of Arizona, Prescott, Arizona, a nonmember bank.
His statement
°Iged the lines of a memorandum on the subject which he addressed to the
Under date of August 29, 19)2.
The memorandum, which was circulated
9h/52
-9-
to the other members of the Board following this meeting, read as follows:
"President Hugh Gruwell of the Phoenix bank, and Sherman
Hazeltine, President of the Prescott bank, called on me today
with respect to the above matter and requested that they be
advised as soon as possible, and preferably the first of neyt
week, as to whether the Board would issue a voting permit to
Transamerica Corporation for the purpose of authorizing it to
vote stock of the First N.)tional Bank of Arizona in favor of
the Proposed merger. The Transamerica Corporation owns, as
You know, approximately 80% of the stock of the Iirst IJational
°f Arizona. The Bank of Arizona, a nonmember state bank, is
°%Ined exclusively by the Hazeltine family (some of the owners
are related by marriage rather than blood).
"Under the proposal, the two banks would be merged outwith stock of the First National Bank of Arizona being
,aeued to the present shareholders of The Bank of Arizona, to
.7 held
by them in lieu of their present state hank stock. It
1L8 understood that those shareholders would be in a position
dispose of their shares of the merged institution to anyone
on
w omsoever, with no strings attached. In other words, the
Ynership of Transamerica Corporation in the stock of the merged
s
I
!
Istitution
will be slightly less percentagewise than its owner-P of shares of the First National Bank of Arizona at the
Present time.
T1
"The First N'ttional Bank has total resources of $129,000,000.
„
la BPnk of Arizona has resources of $19,000,000. The capital
:'
v,ructures will, when consolidated, aggregate $9,915,000. Hows er, after the merger, the bank will issue 55,000 shares of new
ock (1 to 5) at $27 per share, producing $1,375,000 of new
caPital funds.
"The Bank of Arizona has four branches, and if the merger
1_ consummated, the First National Bank of Arizona will be granted
uran
"es in those four places, plus Prescott, wherein the head
th-LiCe of The Bank of Arizona is now located. For your information,
e °n1Y other bank in Prescott is a branch of the Valley National.
I,,
r lagstaff there is another bank, recently organized, which is
by funds held by persons alleged to be closely connected
,Tin the Valley National. In Williams, Clarkdale and Cottonwood,
e 13?.11k of Arizona operates the only banking facility:
'The Board must express its willingness or unwillingness to
Gue a voting permit for the purpose aforementioned. In reaching
a decision it should bear in mind that although this represents
1Z
9/3/52
-10-
"az expansion on the part of the First National Bank of Arizona,
it is allegedly not a part of any imperialistic or expansionistic
Plan of that bank. Mr. Gruwell stated that one of the principal
Purposes of the merger is to permit the First National Bank of
Arizona to acquire the services of Mr. Sherman Hazeltine, President of The Bank of Arizona, who will become Executive Vice President of the First National Bank of Arizona, with the understanding that he will succeed Mr. Gruwell some time during the next
f°ur years. Secondly, Mr. Hazeltine stated that if the merger
does not take place, The Bank of Arizona will liquidate because
the shareholders (all members of one family) are not in a position to raise additional capital, and it is asserted that the
bank is not adequately capitalized at this time. As a matter
t fact, Mr. Hazeltine stated that the Federal Deposit Insurance
'2rPoration has refused to permit this bank to move a banking
iecility from one place to another because of its undercapitalized
2
c
"The Board should also bear in mind that in the event the
,
lanon Act proceeding results in the Board's decision being upby the Courts, the Transamerica Corporation will be obliged
!
,
- 0 dispose of its holdings of the stock of the First National
!:64nk of Arizona. Whether at that time the bank is a $129,000,000
.tristitution or $170,000,000 would seem to be of small consequence.
tt Should be noted that in Arizona, the competition of this bank
Provided by the Valley National Bank of Arizona, which is
eltrger in every respect, volumewise, capitalwise, branchwise,
and which, in addition, controls the third largest bank
lIthe
t
state (volumewise and branchwise), The Bank of Douglas,
1,rAligh the acquisition of its stock by the Employees' Pension
the trustees of which are the principal officers of the
alleY National Bank.
It is asserted that the Office of the Comptroller of the
currency is willing to approve this merger and authorize the es::blishment of additional branches for the First National Bank
4LArizona. Consequently, if the Board of Governors is confident
'
,st,14t
1
its decision in the Transamerica case will stand up in Court,
e Board should not stand in the way of the merger by refusing
t
"
',i8sus such a voting permit to Transamerica Corporation. On the
t1
:
48r hand, if the determination of the Board is to be based on
_48 size and dominance of the Transamerica system of banks, witha
vllt regard to the Clayton Act proceeding, there would be a real
°Ilbt that the Board should permit expansion even in this manner.
j
1536
9/3/52
-11-
"1 have been advised that the Comptroller's Office informed Mr. Gruwell and Mr. Hazeltine that it would not act
17tPon the proposed transaction until after the Board had isSued or refused to issue a voting permit in order to enable
the transaction to be consummated, but intimated that if such
Permit were granted, that office would approve the merger
and authorize the establishment of branches.
"Mr. Saunders, Superintendent of Bsni-s in Arizona, ad'Ted Mr. Slade, Vice President of the Federal Reserve Bank
San Francisco, that he had been eypectin7 this merger for
he last three years - ever since Mr. Hazeltine went on the
/3ard of Directors of the First National of Arizona in Phoenix that the result of this merger would be, for all practical purP"es, the estobliohment of a two-bank system 'la Arizonu, which
ref.3„retted but which he thourrht was probably inevitable, and
that he had no persona) objection.
1, "There is no certainty in my opinion as to the outcome
°- the Clayton Act proceedings against Transamerica Corporation,
elad since that case was brought as a means of preventing further
exPansion by Transamerica Corporation in the banking field, our
!PProval now of this proposed expansion (irrespective of the
1,actor8 which would warrant favorable action if Tria.:eanerica
/11!!G out of the picture and we were dealing solely with Arizona
ing) would place the Board in an inconsistent position and
7ght indicate to the public that the present Board Is not in
'
InYatki with the so-called Transamerica case. Consequently,
ot notwithstanding the favorable factors present, namely,
trengthened management, strengthened capital, and the possibility
!t building up a bank adequate to meet the competition of the
11ch larger and expansionistic Valley National Bank of Phoenix,
*3uld recommend that the Board authorize me to advise Mr.
11)1%11 that it would not be inclined to issue a voting permit
;
the purpose mentioned, but that it appreciated fully the
a ctors which in ordinary circumstances might call for a favor,
1 °1e decision, and as a result would be glad to reconsider the
8
4:°s1tion after the termination of the Clayton Act proceedings
1.ea1llst Transamerica Corporation. It is my feeling that such
t Position taken by the Board at this time would merely serve
tcl.Postpone the consummation of this merger rather than to defhIcItltelY eliminate it, and consequently would not work any real
4
'clshiP on the First National Bank or The Bank of Arizona, or
r
7
fr!
9/3/52
7 P1-'5
c
-12-
"seriously interfere, except from the point of view of time,
vith the establishment of a more adequate competitive -position for the First National Rank in the tate of Arizona."
In his comments, Governor Robertson said that although The 'Bank
Of '
'Ili-Lzona was regarded by the Federal Deposit Insurance Corporation as
bei
undercapitalized, it was a conservatively operated
ristitution,
its c4Patal funds in relationship to its risk assets were not far out
?line) and it had had a fairly good earninF,s record.
As to the possible
cf the
Board's granting a voting permit to Trulsamerica Cori,oratio
11 to vote its stock of the First National Bank of Arizona in favor of
the ,pr,
°Posed merger, Governor Robertson expressed the view that such
8.ction
would have no legal effect on the Clayton Act proceeding but that,
l'cr the reasons stated in the above memorandum, he felt the Board should
tab,. „
- 'Ile course recommended therein.
Governor Vardaman noted that the Clayton Act proceedinL miF:ht not
be (le
"dad. finally by the courts for some time and expressed the view that
the
chould be careful not to take any action which would inure the
-PaatieE at
interest in a proposed transaction merely because that litiga''ras Pending.
It was his understanding that the proposed Iri:er wa
d. by all parties as advantageous per se and that, if the merger
14(*e aPProved and the Board's position in the Clayton Act proceeding should
11Phe'd by
the courts, the only difference would be that Transamerica
Cc31"Porp1+4
would be forced to divest itself of its interest in an institution
1.538
9/3/52
-13-
having resources of approximately $1LA million rather than one having
resources of about $129 million.
In reply to a question by Governor Vardaman, Governor Robertson
st9:ted. that, if it were not for the pending litigation and the fact that
Trans
america Corporation was involved, he would favor the proposed merger;
he vo,,
Luxi, not, however, favor a merger of The Bank of Arizona with the Valley
Ilationf,
.Ank. of Phoenix because such a merger would result in an institu-
tio,
)
- even more dominant in banking in the Etate of Arizona than is the latter
Irlk at Present.
Governor VardArrinn then stated that he could not support Governor
Roberts04,
s recommendation because, in the light of the other circumstances
147°1v
ed. and possible injury to innocent parties, he did not feel that the
tact that the
Clayton Act proceeding against Transamerica Corporation was
1?11(1111g constituted a sufficient reason for refusing the necessary voting
Re said he had some doubts about the adequacy of the Arizona banking
.1.tilation but did not know how it could be changed in view of Arizona law,
41A the
fact that the people of Arizona seemed satisfied.
Governor Robertson then asked that members of the staff who had
t
ed
the matter comment on it.
Mr. Vest said that, so far as the legal points involved were cant
Istled
'he agreed with Governor Robertson's analysis. He also thought that
it vo
ula he preferable to postpone the merger If that could be done without
1NU("v to the competitive situation in Arizona.
fr" 0700
9/3/72
-14Mr. Chase stated that he concurred in Governor Robertson's recommen-
dation
uecause he felt it was possible that the granting of a voting permit
toTr
ansamerica Corporation for the purpose of effecting the merger might
11a7e some bearing on the current Clayton Act proceeding.
He said that
the Board had been trying for twenty years to contain the Corporation's
1Par4s
that the institution of the Clayton Act proceeding was simply
LI
the latestt of a chain of moves in that direction, that the Board was now
the
1.
courts to confirm its opinion that a dangerous situation tend-
,
towa
4A-L monopoly was developing, and that favorable action on an ap-
1)11es:tier' for a voting permit in this instance might be regarded as inconsisterit•
Ilttter
Mr. Chase felt certain that, although technically action on this
mould have no place in the current litigation, counsel for respondent
1(41-141 file a brief advising the court of any favorable action which might
be
-44en, and it was impossible to know what, if any, weight would be given
that
bY the court.
Governor Vardaman disagreed with Mr. Chase's contention, stating
til4t in his opinion there was no procedure whereby such action by the Board
e01.0,4
e taken into account by the courts, and that the decision in the
°11 Act proceeding against Transamerica Corporation must be made solely
()Ilthe record as it now stands before the court.
Mr. Sloan said that as a practical matter, considering the current
8.11k1hrr
.
eltuation in Arizona, the merger would seem to be In the public
9/3/52
-15-
interest and that in his opinion the Board's decision should rest, theree, on
its conclusion as to the possible effect of favorable action by
the Poard on the Dending litigation under the Clayton Act. He agreed uith
Goip„
.rnor Robertson that, in the circumstances, it would be desirable if the
-'ger could be postponed.
In answer to Questions by Governor Evans, Mr. Sloan emphasized thet
Ilia statement that the merger would be in the public interest was based on
the competitive
situation now prevailing in Arizona where one institution
clverel,
"Mows all others; in the particular case under consideration, he felt
that t
he merger would tend to assure the continuance of strong interbank
e°14Petition within the State.
Governor Evans said that while he agreed with Gcvernor Robertson's
444e1idation, he disagreed strongly with Mr. Sloan's reasoning and he
eted that there be a full discussion by the Board at some time in the,
e to ascertain whether the Board, as presently constituted, favored
the Dr
eservation of the current banking structure or whether it advocated
eXte
lision of the practice of multi-unit banking.
Thereupon) the recommendation
contained in Governor Robertson's
memorandum was approved, Governor
Vardaman voting "no", it being understood that Governor Robertson would
advise Mr. Gruwell accordingly.
At this point Messrs. Vest, Chase, and Thompson withdrew from the
eeti4g.
9I3/52
-16Governor Robertson referred to a memorandum dated August 25, 1952,
141lich he had placed in the files regarding a conversation in his office
that
day with Mr. Bayard F. Pope, Chairman of the Board of Marine Midland
ecl'Poration, regarding the contents of a letter dated August 19 which was
/111Aten, to
the corporation by the Federal Reserve Think of New York in ace°rdance with the Board's letter of August 18 concerning the proposed ab)1'17ti°n of the Bank of Hamburgh, Hamburg, New York, by The Marine Trust
eo
Of Western New York, Buffalo, New York, a subsidiary of Marine
Corporatjon.
Governor Robertson said that in the absence of objection by the
other
Illembers of the Board, he felt it would be desirable to send a copy
or the
memorandum,which dealt with the Board's attitude toward possible
fu
rther
expansion of Marine Midland Corporation,to the New York Reserve
-°1- use in connection with the survey of Marine Midland Corporation
13e '
16 Made by that Bank at the request of the Board.
Governor Vardaman said that he questioned whether the Board should
a precedent of sending copies of memoranda such as this outside
the t
°ard unless it was necessary for the Reserve 1LLnk to have the benefit
or the
raernorandum in carrying out its survey.
Governor Robertson said that he thought the memorandum would be
ilerY u
seful to the Bank for that purpose.
Thereupon, it was agreed unanimously
that there would be no objection to transmitting a copy of the memorandum to the New
York Bank.
15"
9/3/52
-17At this point Messrs. Sloan and Hostrup withdrew from the meeting.
Governor Szymczak reported receipt of a letter dated August 28,
1952
Mr. Sproul, President of the Federal Reserve Bank of New York,
etattng that the Bank's directors had authorized him to make a trip to
4r0-.
0
-- of approximately six weeks' duration, beginnini7 about October 1,
fOr
the purpose of renewing contacts with officials of European central
'
and discussing with them Informally matters of current interest.
G°7ernor
Szymczak said that Mr. Sproul had. apprised Chairman Martin of
418 P1ans
before the latter's departure for Mexico City.
During a discussion of this matter, Governor Vardaman suggested that
the
b
"00ard consider whether it would be desirable to have some other member
Or +1,
""e l'ederal Open Market Committee stationed in New York during NT.
nroul's
Thereupon, it was agreed
unanimously that Mr. Eproul should
be advised that the Board would
have no objection to his contemplated trip: with the understanding that Governor Vardaman's suggestion would be discussed further at
a meeting of the Board following
Chairman Martin's return to his
office.
There was presented a draft of letter for the signature of the
Chat
4 to Mr. L. K. Elmore, Commissioner, Banking Department, State of
Coate
eticut) Hertford, Connecticut, reading as follows:
9/3/52
-18-
"This refers to your letter of June 2, 1952, addressed
to Governor Powell, pointing out that a Connecticut State
bank which becomes a member of the Federal Reserve System
must forego the right which it has under State law tc invest in bank stocks under certain limitations, in view of
the fact that State member banks are prohibited by section
? of the Federal Reserve Act and section 5136 of the United
States Revised Statutes from purchasing corporate stooks.
14 his acknowledgment of June 5, Governor Powell stated that
J°ur letter would be brought to the Board's attention.
The Board has carefully considered the views expressed
Your letter and has asked me to advise you of its tenta'
1ve views. We appreciate your interest in the Federal Reserve System and your obvious desire to eliminate any obstacles to membership. However, as you know, the Banking
Act of 1933 amended section 5136 of the Revised Statutes
to
Prohibit national banks from purchasing corporate stocks
th certain limited exceptions and, by an amendment to sec10n9 of the Federal Reserve Act, placed State member banks
on the same basis as national banks in this respect. The
rea8ons for these amendments to the law would seem to be as
e.PPlicable to purchases of bank stocks as they are to purchs.8es of other types of corporate stocks; and, in this conyou will recall that one of the general Purposes of
e Banking Act of 1933 was to regulate affiliations between
°anks.
"In these circumstances, and notwithstanding the desira-
b.
ollttY of having as many banks as possible join in carrying
_ ut the purposes for which the Federal Reserve System was
the Board would be reluctant to favor an amendment
eat,th
40 --e law which would permit member banks in any State to
'Ilvest in 1-)an1; stocks."
The letter had been redrafted following discussion EA the meeting
Of
the B
°e-rd on August 18, 1952, and was placed in circulation among the
tletaber
6
01' the Board in the revised form.
"consideration
Governor Vardaman had requested
of the matter at a meeting of the Board.
,
9I3/52
-19Governor Vardaman stated that, although he agreed in principle with
the
vuBition taken in the last paragraph of the letter, against an amendment
t0 the law which would permit member banks in any State, regardless of State
to invest in bank stocks, he felt that the Board should not take a
)11itiJorl on any such proposal to introduce legislation, but should wait until a bill was actually introduced and the Board's views were requested, as
they certainly would be, by the cognizant Congressional committee in the
Itsual
waY*
In a discussion of this point, other members of the Board brought
out
Mr. Elmore had requested an expression of the Board's views and
that it
-would be inadvisable, by failing to state its views, to mislead
Rr.
4411ore as to what the Board's attitude probably would be if legisla°I1 the subject were introduced.
It was also mentioned that the question of Board policy with respect
to
he r
etention by State banks of their holdings of corporate stocks upon
4 the System was to be discussed at a forthcoming meeting of the Board.
Thereupon, the letter to Mr.
Elmore was approved in the form shown
above, Governor Vardaman voting "no"
for the reason indicated.
The meeting then recessed and reconvened at 2:25 p.m. with Messrs.
%111
ezak, Evans, Vardaman, Mills, Robertson, Sherman, Kenyon, Vest, Noyes,
te
4'and Hackley present.
In accordance with the understanding at the morning session, there
9/3/52
-20-
141.8 Presented a draft of letter to Mr. Larson, General Services Administ141t°r: relating to the proposed V-loan to Reynolds Reduction Company.
Following a reading of the draft, there was a further extended
(118euesion of the desirability of sending the letter and, if so, how it
811°124 he phrased.
Concerning the question whether the Board should place
itself on record by means of a letter to Mr. Larson, it was the consensus
that 41611e Board would be remiss in not calling to the attention of the
ee.,_
atLa
g agency any questions relating to rates and fees which would
to affect the interests of the Government since the guaranteeing agency
e°1114 Properly look to the Board for expert knowledge in this phase of the
t1
4118action.
It was thereupon agreed that the
letter to Mr. Larson should be redrafted
to take into account various suggestions
made at this meeting, with the understanding that if Mr. Taxson indicated a desire
to meet with the Board for exploration of
the questions involved, Mr. Phelan, Vice
President of the Federal Reserve Bank of
New York, would be invited to attend the
meeting.
Secretary's Note: The letter to Mr. Larson
was sent under date of September 4, 1952,
in the following form:
"In connection with the proposed V-loan guarantee by
General
re. Services Administration of a loan to the Reynolds
Re
Company, Richmond, Virginia, for the construction
7
1 certain aluminum facilities, the Board has been advised
Y* the Federal Reserve Bank of New York that the proposed
1546
9/3/52
-21-
arrangement contemplates payment by the borrower of a
certain fee or premium in the event of payment of the
01)ligations before maturity.
"The Board has heretofore taken the position, after
consultation with the guaranteeing agencies as required
by Executive Order 10167, that no termination fee or preor fee on account of prepayment may 1-,e charged a
•
borrower by a financing Institution in connection with
• V-loan made primarily for working capital purposes.
The arrangement proposed in the present case raises a
question, not heretofore considered by the Board, as to
what position should be taken with respect to prepayment
fees charged in connection with long-term V-loans made
for the purpose of financing facilities expansion.
"The Board also understands that in the present case
a commitment fee is being charged the borrower by the fiancing institutions in advance of the execution of the
• n documents and the guarantee agreement; and this fact
res rise to a question, also not previously considered
cY the Board, as to whether advance commitment fees of
kind should be permitted and, if so, whether maximum
• ts should be prescribed.
"As indicated in our letter to you of August 12, 19)2,
the
Board is not attempting to express an opinion with
IsesPect to the merits, the soundness, or the desirability
°f this loan or of its guarantee by General Services Adt itration. However, as you know, the Board has a par,eular responsibility in this field as to the fees and
,2flerges which may be made and the Board is required by
xecutive Order 10161 to consult with the guaranteeing
:
gencies regarding any action with respect to rates and
.
4.eeE
•
"On the basis of the information available to it, the
t
i°ard feels that there is a serious question whether the
'
f,nclusion of such provisions with respect to prepayment
;?es and the payment of advance commitment fees are con11 tent with the best interests of the Government. It believes, therefore, that, If the presently contemplated V°an arrangement is to include such features, the general
(.1t.11estion5 above mentioned should be discussed with renresenatives of the guaranteeinr_; agencies before determining what
P
9/3/52
-22-
Position should be taken with respect to such questions.
liowever, before consulting the other guaranteeing agencies,
the Board will be very glad to discuss the matter with you
and will be prepared to meet with you for that purpose at
any time which you may find convenient."
Messrs. Vest, Boothe, and Hackley withdrew from the room at this
Point.
Reference was made to a memorandum from Mr. Noyes dated September
2,
to which was attached a letter dated August )from Mr. Aubrey M.
Cost
kr,
) President of thn Mortgage Bankers Association of America, inviting
"'Yes to appear on a panel on October 2 in connection with the annual
c°1117ention of the Association, to be held in Chicago.
In his memorandum
14r.
11°Yes stated that he had discussed the invitation with Governor Evans
th
Director of the Division of Research and Statistics,
Young,
that they
-Pelt he should accept in view of the desirability of mainMr.
4"ng friendly relations with the Association whether or not Regulation .
Ileal Estate Credit, was in force. The memorandum stated that, among
other
'Llings, the staff was anxious to obtain the cooperation of the
v0e in 4-
'Loa in the collection and compilation of data on mortgage finance.
Mr. Noyes said that he had no particular desire to participate in
thal)allel but that the Mortgage Bnnkers Association had been very co.-)rerative
111 e°11nection with Regulation Y and its representatives had participated in
e"ferences at the Board's offices concerning Regulation Y problems.
4 his understanding that the panel would consist of reprcsentatives of
9/3/52
-23-
"vel'al of the Government agencies having an interest in the mortgage
lerlding field, plus an insurance company representative, a private real
estate
consultant, and possibly others.
Governor Vardaman said there was some question in his mind
hether
l'eDresentatives of the Board should participate in such programs at this
tixe
8111ce he was not entirely satisfied concerning the nature of the
131a)licity that might result and he would not want the Board or members of
the st
aff placed in an embarrassing position. Governor Vardaman recalled
that
he had always taken the position during his tenure on the Board that
110
1161111)er of the Board or its staff should appear on any convention programs
tilllese they were in a position to make a distinct contribution and what
had to say would carry some weight.
He also questioned somewhat the
desira
bility of Mr. Noyes' appearance on a panel with representatives of
Other Government agencies since he felt that the approach of the Board to
1411. estate credit problems was different from that of the other agencies.
Illelltioned that the presence of several persons on the panel would mean
that
the Board's representative probably would be heard only briefly and in
N?olise to
specific questions.
Following some discussion of the nature of the panel and the types
Qt*
ilestions which might be asked, Governor Robertson said that, while he
tlereed
'with Governor Vardaman's comment that the Board's approach to the
48.1
estate credit field was different from some other Government agencies,
9/3/52
he failed to see how the public could be made aware of that unless representeitive8 of the Board appeared to explain its position.
He said that, assum-
'the Board's confidence in its representative to do a good job, he
14
th°1-Int it desirable to have the Board's position explained in an appropriate
Governor Evans said that he deemed it a great mistake for the
eni not to send its representativQsout to a greater extent to contact the
He recognized that this involved a calculated rick but felt that
eou
Vould be gained by talking to the public and presenting the Board's
P°111t of view to justify taking this risk.
Thereupon, Mr. Noyes was authorized by unanimous vote to accept
the invitation extended by the Mortgage Bankers Association of America.
In this connection, unanimous approval
was given to a request submitted by Mr.
Noyes covering authority to travel to
Chicago on October 1 and 2 for that purpose.
Mr. Noyes then withdrew from the meeting.
Upon motion by Governor Robertson,
unanimous approval was given to letters
to the Presidents of all Federal Reserve
Banks reading as follows:
"Following receipt of the replies to the Board's telegram
or 1iugust 8 regarding a supplemental order for the printing
Pederal Reserve notes as part of the emergency program,
the
placed an order for 45,000,000 sheets to be printed
trIng the remainder of the fiscal year. This is in addition
the regular order for 60,880,000 sheets placed last spring.
of
1550
9/3/52
-25-
"The goal of the program so far as Federal Reserve
notes are concerned is a two-years' supply of notes for
each Bank and denomination by June 30, 19')3. Allocations
Of the supplemental order by Bank and denomination will
be deferred for some time in order that they may, when
Made, more closely approximate this goal.
"Printings of notes under the regular and supplemental
orders are expected to commence at a substantially accelerated
rate in November. We have been advised that approximately
20 Per cent of the supplemental order will be printed during 1952 and the remainder in 1953. It is suggested that
this distribution be taken into consideration in preparing
Your budget for 1953."
"As you have been advised previously, the emergency program contemplates a build-up of larger reserve supplies of
currency. The goal is a two-years' supply of denominations
°f $5 and upwards, and a one-year's supply of $1 bills.
"A supplemental order for 45,000,000 sheets of Federal
Re
,serve
notes has been placed. It is estimated that with
'fle regular order this will result in a two-years' supply
°F currency in denominations of $5 and more by June 30, 19)3.
"The Treasury's program for printing $1 bills contemPlates a sizeable increase in reserve supplies during the
,ctUrrent fiscal year, although not sufficient to build up
tal holdings by the Treasury and Reserve Banks of $1 bills
4° a Year's supply by June 30, 1953. Accordingly, the Treasury
!
4- considering the possibility of requesting the Federal Re13'rye Banks to increase for a time the emergency supplies of
$1 bills.
"The preparedness program contemplates that the storage
Of c
Urrency at Washington will be held to a minimum. This
;
411 create a serious storage problem for the Federal Reserve
ta
i_like and branches. Replies to our letter of July 3 indicate
214t throughout the System provision can be made for storing
;
Ubstantially increased reserve supplies of currency through
81111er utilization of present vault space, adaptation of other
!
r curitY areas, use of book vaults, and construction of strong
isjIlle suitable for the storage of coin, $1 tills, or other
rlou held in the vaults which do not require the maximum
'eurity Drovided by the regular vaults.
j
1551
9/3/2
-26-
"The Board believes that the Reserve BAlks should
Promptly undertake plans to participate fully in this
!torage program. Accordingly, it will be appreciated
lf you will advise the Board the extent to which your
l.
- Lk Is
s n a position to participate, and specifically
as to.
1. Your plans for storing the additional currency, including especially any steps to increase the storage
facilities at the Head Office and each branch.
2. The amount of space which will be available fcr
storing additional currency, showing separately any
Space considered suitable for storage of $1 bills
but not regarded as suitable for bills of higher
denominations.
Cubic feet
R.
b. Capacity
(1) Number of packages of new currency, or
(2) Number of pieces of unfit currency
3. When the space in paragraph numbereel. 2 above will be
available.
4. Estimated cost of new construction, alterations or
equipment.
5. Estimated additional protection expenses, if any, on
an annual basis."
There was presented a draft of letter to the Board of Directors
°D the
AMerican Trust Company, San Francisco, California, reading as fol101,7s:
"Pursuant to your request submitted to the Federal Re!
t Ilre Bank of San Francisco, the Board of Governors approves
cue establishment and operation of a branch at Menlo Park,
v
,
lifornia, by American Trust Company, San Francisco, pro2;ded the branch is established within six months from July
1952, as required by the State Banking Department.
In applying for approval of the establishment of this
l)ra
theacn, reference was made to the question of adequacy of
i, capital funds of the trust company and to its continu:
I el Policy to strengthen its capital position through the
ention of earnings and the sale of stock when feasible.
52
1 41.‘
r
9/3/52
-27-
vhile it is realized that substantial additions have been
made to the capital structure in recent years, in view of
the growth in the volume of business of the trust coml:ally
the Board again urges that steps be taken es ri,- ir',1y as
possfble to provide additional capital funds."
In this connection, there was also presented a draft of letter to
14r. Slade, Vice President of the Federal Reserve B,.nk of Fr,n In_ncisco,
l'eadillg as
follows:
"Reference is made to your letter of August C,
re
.garding the request of American Trust Ccm.-pan;e, SAn 7ranlsco, California, for permission to establish a branch at
Arllo Park, California.
"The Board has approved the establishment of the branch
!.s Provided in the enclosed letter which you are requested to
Iorward to the Board of Directors of the bank. A copy is enclosed for your files.
"It is understood that counsel for the Reserve Bank will
r
4eview and satisfy himself as to the legality of all steps
'
aken to establish the branch.
"In March 1950, the Board expressed the view that further
e
P8nsion should not he undertaken by the American Trust Company
,
II the absence of special circumstances unless its capital
-4381-tion was substantially improved. since that time its capis`j has been increased, and in part through the sale of new
c c)ck, but due to the expanding volume of business its relative
4aPital position has not been substantially improved. It is
t°
sted, however, that a program for further capital increases
re llow under consideration, but that a decision has not been
th"hed as to whether additional capital should be provided
whr°uCh sale of common stock or some type of preferred issue.
le the Board is very much in favor of augmenting the capitA;
t-.4 structure of the trust company it is not presently disposed
stock for
thi ck with favor upon the issuance of preferred
purpose.
In approving the establishment of the proposed branch the
130ex,,
tlIat*-t has been impressed with the view that the purpose is not
c, of expansion but rather to provide better service for
0;stemers of the trust company and to relieve congestion at two
J
it's nearby existing branches."
913/52
-28The drafts had been placed in circulation among the members of
the
card prior to consideration at a meeting and Governor Vardaman had
(Illestioned whether the statement in the last paragraph of the letter to
14r. Slade concerning the purpose of establishing the branch was warranted.
In connection with the question raised by Governor Vardman, Governor
Robertson stated that prior to 1936 a branch was operated in Nenlo
American Trust Company, but at that time the community was extrema„,
sMall and apparently did not support the branch, with the result
that it
--was discontinued. He pointed out that the po-oulation of the area
had in
creased rapidly since then, and that the trade area of Fenlo Park
11°14 estimated at 56,000, the city and surrounding territory being
1-1-Y residential with no heavy industries established. cr contemplated.
Gover
IlOr
Robertson said that in applying for permission to reestablish a
br n
'
e -e in Menlo Park, American Trust Company stressed that the operation
Of
'—he
branch would relieve congestion at two branches in nearby communi-
ties
vhiCh have substantial volumes of business oriLinatinF in the Lenlo
Parlc area,
and that the ban Francisco Reserve "Rank was favorably impressed
bthe contention of the trust company that the principal purpose of open4 the branch was to relieve that congestion and afford better service
Ither than, to expand its activities.
He went on to say that branches
114I4e1110 park were established by the Bank of ,unerica National Trust and
,
9/3/52
4,
-29Association, in 1937, and by the First National Bank of San Mateo
C°111atY) Redwood City, California, in 1951, and that these branches were
°Perating
successfully.
Governor Robertson then referred to the fact that in 1,:arch 19)C,
Ighen the Board approved an application by American Trust Company to
estaba
:,
a branch in Woodland, California, it expressed the view that
th -r expansion
e
should not be undertaken by the trust company in the
elDselic
e of special circumstances unless its capital position was substantially
irli3r
"
ed-
While the bank's capital accounts were increased by about 29
iper Cent during the period from the beginninr, of 1950 to June 30, 19)2,
Gove,
'nor Robertson said, loans and discounts increased by 3 per cent so
that
'41ere was still a need for introduction of additional capital. For
this re
ason the proposed letter to American Trust Company urged that steps
13e
taken as
rapidly as possible to provide additional capital funds while
the 13ro.posed.
letter to the Reserve Bank was so worded as to indicate that
the 41DProva1 of the requested branch in Menlo Park reflected a recognition
the special circumstances involved rather than a deviation from the posit
ion
taken in the March 19)0 letter.
Governor Robertson concluded that in all the circumstances, includ14 the
absence of any serious objections on the part of the two banks now
(4)1
'
,Eit
he
11 branches in Menlo Park, he would favor approval of the application.
n the course of discussion, Governor Evans stated that, although
'
uldered the move by American Trust Company as expansion in the broad
155.
9/3/52
-30-
slise of the telw, he recognized that it did not represent an expansion
ilithe exact meaning of the Board's letter of March 1950.
He said that he
14°111(1 be oPposed to such a proposal nine times out of ten, especially In
the
.L
"e
Q..e-c of California, where he felt that conditions were approachinE the
n't that
the smaller banks would have little chance to continue success-
rilY•
ba
He remarked that the adoption of a restrictive policy against branch
by the Board would eliminate this type of problem.
Governor Mills said that, although he had no strong views en the
Ittter, he was
somewhat fearful that with branches of two large banks
ciPere-tille. in a community the size of Menlo Park, the branch of the First
1°---L Bank of San Mateo County might be squeezed out since there would
eeelalt° be a question whether the town would be able to support three
titutions.
Ilith reference to Governor Mills' comments, Governor Robertson
zit°'ed that in
a nonindustrial area such as Menlo Park the smaller instl-
1'141
"
. Vould not be so badly handicapped by its lower lendine, limits and
thegil
'
-e-LitY of service rendered would be a more important competitve
Etet,14,
Re also mentioned that the State banking authorities had approved
the
4pPlication of American Trust Company and that it might be well to
Clue s
°Ille consideration to the fact that the applicant institution was a
2tEtte
allk whereas the two banks already operating branches in the commtnity
ere
te.tional banks.
1556
913152
-31After further discussion, the
letters to American Trust Company and
the Federal Reserve Bank of San Francisco were approved unanimously in the
form in which they were submitted.
The following additional actions were taken by the Board:
Minutes of actions taken by the Board of Governors of the Federal
lelsve System on September 21 1952, were approved unanimously.
Letter to the Board of Directors, Camden Trust Comi,any, Camden,
jerEeY, reading as follows:
"Pursuant to your request submitted through the Federal
!!8erve Bank of Philadelphia, the Board of Governor.i approves
6rae est&hlishment and operation of a branch at Collingswood,
,
11 Jersey, by Camden Trust Company, provided the absorption
'
"
°f The Citizene National Bank of Collingswood, Collinswood,
e14 Jersey, is effected substantially as proposed and prior
;
°Mal approval of the appropriate State authorities is
obtained.c . "In connection with the proposed absorption of The
itizens National Bank of Collingswood by Camden Trust 0om.1311Y the Board of Governors hereby gives Its consent to the
)
!
ansaction as required under Section 13(c) of the Federal
aePosit Insurance Act, provided the banking house and any
,r,ld all securities acquired by Camden Trust Company from
tie
Citizens National Bank of Collingswood are not carried
the books of Camden Trust Company at amounts in e;:cess
00,000 for banking house and the market value of the
24 0(
*'eourities on August !), 1952."
Approved, for transmittal
through the Federal Reserve
Bank of Philadelphia, Governor
Evans not voting.
Asslett t Secretalv.
@FedFRASER