The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Minutes for
To:
Members of the Board
From:
Office of the Secretary
September 3, 1965
Attached is a copy of the minutes of the
System on
Board of Governors of the Federal Reserve
the above date.
It is not proposed to include a statement
set of
with respect to any of the entries in this
red to
requi
ns
actio
y
minutes in the record of polic
al
Feder
the
of
10
on
be maintained pursuant to secti
Reserve Act.
d to
Should you have any question with regar
e
advis
will
you
if
d
ciate
appre
the minutes, it will be
al
initi
e
pleas
wise,
Other
the Secretary's Office.
your
below. If you were present at the meeting,
es. If
minut
the
of
val
appro
initials will indicate
ate
indic
will
als
initi
you were not present, your
es.
minut
the
only that you have seen
Chm. Martin
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. Mitchell
Gov. Daane
Gov. Maisel
2S"'
Minutes of the Board of Governors of the Federal Reserve
System on Friday, September 3, 1965.
The Board met in the Board Room
at 10:00 a.m.
PRESENT:
Mr.
Mr.
Mr.
Mr.
Martin, Chairman
Robertson
Shepardson
Daane
Mr. Kenyon, Assistant Secretary
Mr. Young, Adviser to the Board and Director,
Division of International Finance
Mr. Noyes, Adviser to the Board
Mr. Fauver, Assistant to the Board
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Furth, Consultant
Miss Eaton, General Assistant, Office of the
Secretary
Mr. Morgan, Staff Assistant, Board Members'
Offices
Messrs. Brill, Holland, Koch, Solomon, Axilrod,
Eckert, and Keir of the Division of Research
and Statistics
Messrs. Sammons, Reynolds, Baker, and Gemmill
the Division of International Finance
Money market review.
of
Mr. Axilrod presented for the Board a
review of developments in the Government securities market, following
which Mr. Baker summarized foreign exchange market developments.
For
purposes of today's review, there were distributed tables affording
perspective on money market developments and on bank reserve utilization.
Members of the staff except Messrs. Kenyon, Young, Fauver, Sammons,
and Goodman then withdrew and the following entered the room:
Mr.
Mr.
Mr.
Mr.
Johnson, Director, Division of Personnel Administration
Hexter, Assistant General Counsel
O'Connell, Assistant General Counsel
Leavitt, Assistant Director, Division of Examinations
2
-2-
9/3/65
Mr. Irvine, Associate Adviser, Division of International
Finance
Miss Hart, Senior Attorney, Legal Division
Mr. Egertson, Supervisory Review Examiner, Division of
Examinations
Mr. Lyon, Review Examiner, Division of Examinations
Discount rates.
The establishment without change by the Federal
Reserve Bank of Minneapolis on September 1 and by the Federal Reserve
Banks of New York, Philadelphia, St. Louis, and San Francisco on September 2,
1965, of the rates on discounts and advances in their existing schedules
was approved unanimously, with the understanding that appropriate advice
would be sent to those Banks.
Circulated or distributed items.
The following items, copies
of which are attached to these minutes under the respective item numbers
indicated, were approved unanimously:
Item No.
Letter to Chemical Bank New York Trust Company, New
York, New York, approving the establishment of a branch
at Third Avenue and East 28th Street, Borough of
Manhattan, and commenting on the bank's capital position;
letter to the Federal Reserve Bank of New York on these
matters.
1-2
Letter to United Bank & Trust Company, Hartford,
Connecticut, approving an extension of time to
establish a branch in Bristol.
3
Letter to The Bank of Romney, Romney, West Virginia,
approving an investment in bank premises.
4
Letter to the Federal Reserve Bank of Atlanta waiving
the assessment of a penalty incurred by National Bank
of Melbourne and Trust Company, Melbourne, Florida,
because of a reserve deficiency.
5
Letter to Irving International Financing Corporation,
New York, New York, granting permission to purchase
shares of China Trade & Development Corporation Ltd.,
Taipei, Taiwan.
6
9/3/65
-3Item No.
Letter to Bank of California International Corporation,
San Francisco, California, granting permission to
purchase shares of China Trade & Development Corporation
Ltd.
7
Letter to the Federal Reserve Bank of San Francisco
stating that republication of the midyear report of
condition of J. N. Ireland and Co. Bankers, Malad City,
Idaho, would not be required.
8
Letter to the Federal Reserve Bank of Minneapolis approving
the payment of salaries to two officers at rates fixed by
the Bank's Board of Directors.
9
Report on competitive factors (Altoona-Bellefonte, Pennsylvania).
After agreement had been reached on a minor change in the draft conclusion,
unanimous approval was given to the transmittal to the Federal Deposit
Insurance Corporation of a report containing the following conclusion
on the competitive factors involved in the proposed merger of Altoona
Central Bank and Trust Company, Altoona, Pennsylvania, with First
Bellefonte Bank and Trust Company, Bellefonte, Pennsylvania:
Consummation of the proposed merger of Altoona Central Bank
and Trust Company and First Bellefonte Bank and Trust Company
would eliminate the little, if any, existing competition between
them; it would expose the banks presently operating in the service
area of First Bellefonte Bank and Trust Company to the competitive
capabilities of a substantially larger institution.
The proposed transaction would unite the largest bank in
Blair County with the second largest bank in Centre County, and
the resulting institution would hold almost 40 per cent of the
total deposits held by banks in its service area. The overall
effect of the proposed merger on competition would appear to be
adverse.
Application of New Jersey Bank and Trust Company (Items 10-12).
After discussion, the issuance was authorized of the following documents
-4-
9/3/65
reflecting Board approval on August 27, 1965, of the application of
New Jersey Bank and Trust Company, Clifton, New Jersey, to merge into
itself Wayne State Bank, Wayne, New Jersey: order, statement, and
dissenting statement of Governor Maisel in which Governor Robertson
concurred.
Copies of the documents, as issued, are attached as
Items 10, 11, and 12, respectively.
Gold loans (Items 13 and 14).
There had been distributed memo-
randa from Mr. Young dated September 2, 1965, relating to proposed gold
collateral loans to the Bank of Guatemala and the Central Bank of Costa
Rica.
These loans had been authorized by the Board of Directors of
the Federal Reserve Bank of New York subject to approval by the Board
of Governors.
The Bank of Guatemala had requested a loan or loans of $10
million.
As authorized by the New York Bank, such loan or loans:
(1) would be made up to 98 per cent of the value of gold bars set aside
in the vaults of the New York Bank under pledge to it; (2) would mature
in three months with option to repay at any time before maturity, the
advances to be made in multiples of $1 million and the repayments in
multiples of $1 million; (3) would bear interest at the discount rate
of the New York Bank in effect on the date on which such loan or loans
were made; and (4) could be requested and made at any time during a
period of 30 days beginning with the date of Bank of Guatemala's acceptance of the New York Bank's terms and conditions.
The usual participation
in any such loan or loans would be offered to the other Federal Reserve
Banks.
21
-5-
9/3/65
The Central Bank of Costa Rica had requested a loan or loans
of $2 million.
As authorized by the New York Bank, such loan or loans:
(1) would be made up to 98 per cent of the value of gold bars set aside
in the vaults of the New York Bank under pledge to it; (2) would mature
in three months with option to repay at any time before maturity, the
advances to be made in multiples of $500,000 and the repayments in
multiples of $100,000; (3) would bear interest at the discount rate of
the New York Bank in effect on the date on which such loan or loans were
made; and (4) could be requested and made at any time during a period
of 30 days beginning with the date of the Central Bank of Costa Rica's
The usual
acceptance of the New York Bank's terms and conditions.
Participation in any such loan or loans would be offered to the other
Federal Reserve Banks.
After discussion of the circumstances giving rise to the loan
requests, unanimous approval was given to telegrams to the Federal Reserve
Bank of New York stating that the Board approved the making of the
requested loans on the terms and conditions indicated.
Copies of the
telegrams are attached as Items 13 and 14, respectively.
Question whether to hold hearings.
There had been distributed
memoranda from Mr. O'Connell dated August 27 and 31, 1965, relating to
the question whether hearings should be ordered on the following bank
holding company applications:
(1) application of Associated Bancorporation,
Milwaukee, Wisconsin, to form a bank holding company through the acquisition
2S4
-6-
9/3/65
of at least 80 per cent of the voting shares of the Milwaukee Western
Bank, Milwaukee, and the Menomonee Falls Bank, Menomonee Falls; and
(2) application of Denver U. S. Bancorporation, Inc., Denver, Colorado,
for approval of the acquisition of 50 per cent or more of the voting
shares of The Mercantile Bank and Trust Company, Boulder.
In the Wisconsin matter, the Commissioner of Banks at first
recommended denial of the application, which would have made a hearing
mandatory.
Later, however, after conversation with representatives of
the applicant, the Commissioner withdrew his earlier recommendation and
advised that he saw no need for a public hearing on the application.
No
other indications of opposition to the application had been received.
However, the Federal Reserve Bank of Chicago recommended denial of the
application, being critical of the asset condition of the larger of the
two proposed subsidiary banks and of the management policies in both
Proposed subsidiary banks.
(Such management was the same as proposed
for the applicant.)
Mr. O'Connell suggested that the Board authorize the staff to
proceed with its analysis of the application for presentation of the
case to the Board in the usual manner.
In the Colorado matter, the State Bank Commissioner had recommended on behalf of the State Banking Board that the application be denied,
and a hearing thereon in Denver was requested.
The Commissioner's letter was
2F42
9/3/65
-7-
not received within the 30-day period specified in the statute, so that
from a legal standpoint a hearing was discretionary rather than mandatory.
Letters of opposition from certain other Colorado banks also had been
received.
It was the Legal Division's view that the holding of a hearing
would be consistent with the Board's regulatory responsibilities under
the Bank Holding Company Act and that the hearing would serve the declared
interest of the State and also the public interest.
Mr. O'Connell's memorandum proposed that the hearing, if ordered,
be conducted by Hearing Examiner David London, who had been detailed to
the Board by the Civil Service Commission for a period of six months on
a when-actually-employed basis.
The date presently contemplated was
October 19, chosen to accede to applicant's request as to a hearing date.
Messrs. O'Connell and Heyde of the Legal Division would act as Board
Counsel.
Governor Robertson began discussion of the Wisconsin application
by stating that he looked askance at a situation where a State bank
commissioner recommended denial and then reversed his recommendation
after consultation with representatives of the applicant.
He noted, how-
ever, that Mr. O'Connell proposed, if a hearing was not ordered, to request
from counsel for applicant a statement of the additional information
furnished to the Commissioner of Banks that the latter apparently had
found persuasive.
Chairman Martin raised the question whether hearings should not
be held in this kind of situation, particularly considering the public
2843
-8-
9/3/65
relations aspect.
He inquired whether a decision to hold a hearing in
this instance would create any problem from the standpoint of precedent,
and Mr. O'Connell replied that a number of hearings had been ordered on
applications under the Bank Holding Company Act in situations where they
were not mandatory.
Governor Daane expressed the view that a hearing should be held,
noting that one would have been required by law if the Commissioner had
not reversed his position.
Governor Shepardson observed that the fact that representatives of
the applicant had gone to the Commissioner and persuaded him to change
his position apparently was not public information.
However, knowledge
of the circumstances could in some way become public, and this might be
an additional argument for holding a hearing.
He also referred to the
fact that the Federal Reserve Bank of Chicago had recommended denial of
the application, and Mr. O'Connell mentioned that this presented something
of a delicate situation because the Reserve Bank's recommendation was
based on criticism of the asset condition of one of the banks concerned
as well as management policies in both banks.
If a hearing were held,
the Board would have to reach a decision on the application on the basis
of the hearing record, which meant that evidence on the financial condition and management policy aspects would have to be adduced at the
hearing.
The Board, he noted, conceivably might reach a different con-
clusion from the Reserve Bank on these aspects.
2S4 4
-9-
9/3/65
After further discussion Chairman Martin reiterated his view
that there were enough complications in this matter to justify a hearing,
and Governor Robertson said he would resolve his doubts in favor of a
hearing.
Accordingly, it was agreed unanimously to order a hearing on
the application of Associated Bancorporation.
A hearing then was ordered on the application of Denver U. S.
Bancorporation, and it was understood that arrangements would be made
along the lines suggested in Mr. O'Connell's memorandum.
As to the Wisconsin hearing, Mr. O'Connell was authorized to go
forward with the necessary hearing arrangements on a basis that would
avoid conflict with the Denver hearing.
In his memorandum on the Wisconsin application, Mr. O'Connell
had suggested that the Board might wish to authorize the staff to proceed in the future on the assumption that the Board would not be required
to conduct a hearing in any case where, prior to publication of notice
for a hearing, a supervisory authority withdrew previously-filed objections,
With the understanding that the staff would bring before the Board any
case where it appeared that the Board might wish on its own motion to
conduct a hearing.
This suggestion was not approved, and it was under-
that the staff would continue to bring before the Board in such
circumstances the question whether a hearing should be held.
Apparent Regulation U violation.
An interested party had brought
to the attention of the Securities and Exchange Commission certain
-10-
9/3/65
information suggesting a violation of Regulation U, Loans by Banks for
the Purpose of Purchasing or Carrying Registered Stocks, that had been
noted in a proxy statement recently filed by an organization known as
Precisionware, Inc.
the Board.
The Commission had referred the correspondence to
The Board's staff was subsequently in touch with staff of
the Federal Reserve Bank of Boston, and through the latter the incident
was discussed with the bank involved, namely, The First National Bank of
Boston, Boston, Massachusetts.
In summary, it appeared that the bank
had advanced about $1.9 million to an organization known as The Triangle
Corporation for the purchase of 372,206 shares of common stock of
Precisionware, Inc., which stock was registered on a national securities
exchange.
The amount loaned was far in excess of 30 per cent of the
market value of the pledged stock, and it appeared that the loan was
made in violation of sections 221.1(a), 221.3(n)(1), and 221.3(n)(3) of
Regulation U.
There were distributed at this meeting copies of a proposed
letter that might be sent promptly by the Federal Reserve Bank of Boston
to First National Bank of Boston requesting an explanation of the transaction in question along with proposals for steps the bank might take
to undo the transaction if the Board should conclude that the loan was
made in violation of Regulation U.
Following explanatory comments by Miss Hart, it was agreed that
the Federal Reserve Bank of Boston should be requested to send to counsel
2,
-11-
9/3/65
for First National Bank of Boston a letter along the lines of the draft
that had been distributed.
The meeting then adjourned.
Secretary's Notes: On September 2, 1965,
Governor Shepardson approved on behalf of
the Board the following items:
Letter to the Federal Reserve Bank of Richmond (attached Item No. 15)
approving the appointment of Donald E. Beazley as assistant examiner.
Memoranda recommending the following actions relating to the Board's
staff:
§2121y increases, effective September 12
1965
Division
Name and title
Basic annual salary
To
From
Office of the Secretary
Pearl S. Thompson, Senior Records Clerk
$ 5,990
$ 6,155
19,310
19,880
10,960
5,875
11,315
6,060
12,495
10,605
12,915
10,960
6,050
6,250
4,480
4,630
4,005
4,140
Research and Statistics
Harlow D. C. Osborne, Chief, Consumer Credit
and Finances Section
S. G. Schmid, Economist
Margaret Stewart, Secretary
International Finance
Charles C. Baker, Jr., Economist
Henry F. Lee, Economist
Bank Operations
Peter N. Sapsara, Analyst
Personnel Administration
Edna J. Chavis, Stenographer
Administrative Services
Sanford N. Johnson, Guard
284';'
9/3/65
-12Governor Shepardson today approved on
behalf of the Board the following items:
Letter to the Federal Reserve Bank of Dallas (attached Item No. 16)
approving the designation of Sammie C. Clay as special assistant examiner.
Memoranda recommending the following actions relating to the Board's
staff:
Reemployment following maternity leave
Daisy L. Condon as Secretary, Division of Data Processing, with
basic annual salary at the rate of $6,615, effective September 20, 1965.
Acceptance of resignation
Barry E. Huber, Research Assistant (Summer), Division of Data
Processing, effective at the close of business September 3, 1965.
Assistant Secretarj
2S4
BOARD OF GOVERNORS
Item No. 1
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
AOORE195 OfrICLAL CORRESPONDENCE
TO THE BOARD
September 3, 1965
Board of Directors,
Chemical Bank New York
Trust Company,
New York, New York.
Gentlemen:
The Board of Governors of the Federal Reserve System
approves the establishment of a branch by Chemical Bank New York
Trust Company, New York, New York, at the intersection of Third
Avenue and East 28th Street, Borough of Manhattan, New York,
New York, provided the branch is established within six months
from the date of this letter.
The Board notes that the capital adequacy of your bank
has declined in the past two years or more and, while it is
confident that management is aware of this trend, it urges that
consideration be given to the need for strengthening capital
structure in light of the bank's growth in recent Tears.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2RIU
BOARD OF GOVERNORS
Item No. 2
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20351
ADDRESS
orrictAL
CORIIIESPONOENCIE
TO THE /MARC
September 3, 1965.
Mr. Fred W. Piderit, Jr., Vice President,
Federal Reserve Bank of New York,
New York, New York. 10045
Dear Mr. Piderit:
bank, the
There is enclosed, for delivery to the applicant
by
branch
wn
in-to
an
of
hment
establis
Board's letter approving the
interthe
at
York,
New
York,
New
Company,
Chemical Bank New York Trust
Manhattan.
section of Third Avenue and East 28th Street, Borough of
use.
your
for
Two copies of the letter are enclosed
Company provides
The letter to Chemical Bank New York Trust
The Board also
branch.
the
of
hment
a six-month period for the establis
Bank
has approved a six-month extension of that period. If Chemical
n, the
New York Trust Company should hereafter apply for an extensio
9, 1962 (S-1846),
Procedure prescribed in the Board's letter of November
Should be followed.
the Board's
You will note that the letter also refers to
capital
bank's
the
of
adequacy
concern for the deterioration in the
the
that
s
indicate
Capital
Bank
structure. The Form for Analyzing
from 102 per
ratio of actual capital to that required has declined
the March 1965
at
cent
per
73
to
ion
cent at the February 1963 examinat
risk assets has also
examination. The ratio of adjusted capital to
the current report leads
deteriorated and is 1 to 8.0. Our analysis of
less
US to the conclusion that the bank's capital position is somewhat
than satisfactory.
careful considerThe bank's capital position should be given
ation in the course of future examinations.
Very truly yours,
idva e:
Karl E. Bakke,
Assistant Secretary.
Enclosure.
28'5U
BOARD OF GOVERNORS
Item No. 3
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
ADDRESS
OFFICIAL
CORRESPONDENCE
TO THE BOARD
September 3, 1965
Board of Directors,
United Bank & Trust Company,
Hartford, Connecticut.
Gentlemen:
e
The Board of Governors of the Federal Reserv
1965,
30,
er
Novemb
System has approved an extension until
y,
of the time within which United Bank & Trust Compan
1232
at
branch
Hartford, Connecticut, may establish a
Farmington Avenue, Bristol, Connecticut.
granted
Authority to establish this branch was
Corporation,
nce
Insura
t
on June 30, 1964, by the Federal Deposi
which
ticut,
Connec
l,
Bristo
to Bristol Bank and Trust Company,
rd,
Hartfo
y,
Compan
Trust
ide
was subsequently merged into Rivers
y,
Compan
Trust
ide
Rivers
Connecticut, under the charter of
was
and title of United Bank & Trust Company. This merger
1965.
4,
June
of
Order
approved by the Board in its
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2851
BOARD OF GOVERNORS
Item No. 4
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20531
ADDRESS
orrictAL
CORRCIIIPONOILNCC
TO THIE BOARD
September 3, 1965
Board of Directors,
The Bank of Romney,
Romney, West Virginia.
Gentlemen:
Pursuant to the provisions of Section 24A of
the Federal Reserve Act, the Board of Governors of the
Federal Reserve System approves an investment of $225,000
by The Bank of Romney, Romney, West Virginia, for construction of new banking quarters.
It is the Board's understanding that present
banking premises are to be sold with the proceeds used
to reduce the carrying value of bank premises.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
2852
BOARD OF GOVERNORS
Item No. 5
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
DENCE
ADDRESS orriciAL CORRESPON
TO TO-4E BOARD
September 3, 1965
Mr. Harold T. Patterson,
First Vice President and General Counsel,
Federal Reserve Bank of Atlanta,
Atlanta, Georgia. 30303
Dear Mr. Patterson:
This refers to your letter of August 17, 1965, regarding
the penalty of $1,312.49 incurred by the National Bank of Melbourne
and Trust Company, Melbourne, Florida, on an average daily deficiency
of $570,309 in its required reserves for the biweekly computation
period ended August 41 1965.
error
It is noted that (1) the deficiency resulted from an
r of
transfe
a
d
reverse
tally
acciden
who
by an employee of the bank
red
discove
was
error
the
(2)
;
account
funds to the bank's reserve
been
not
has
bank
the
(3)
and
ncy;
too late to prevent the deficie
g a member
Penalized for a deficiency in its reserves since becomin
on May 1, 1964.
Bank to
In the circumstances, the Board authorizes your
period
the
for
49
$1,312.
of
penalty
the
waive the assessment of
ended August 4, 1965.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
28.
r
.)3
Item No. 6
9/3/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 3, 1965.
Irving International
Financing Corporation,
One Wall Street,
New York 15, New York.
Gentlemen:
In accordance with the request contained in your letter
of August 11, 1965, transmitted through the Federal Reserve Bank
of New York, and on the basis of the information furnished, the
Board of Governors grants consent for Irving International Financing
Corporation ("IIFC") to purchase and hold 1,000,000 shares of capital
stock of China Trade & Development Corporation Ltd., Taipei, Taiwan,
at a cost of approximately US$250,000, provided such stock is acquired within one year from the date of this letter.
The Board also approves the purchase and holding of shares
of the Chinese company within the terms of the above consent in excess of 10 per cent of IIFC's capital and surplus.
The foregoing consent is given with the understanding that
the foreign loans and investments of IIFC, combined with those of
Irving Trust Company, including the investment now being approved,
will not exceed the guidelines established under the voluntary foreign
credit restraint effort now in effect.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2R 4
BOARD OF GOVERNORS
Item No. 7
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
..
.0'
F..:
I•
,
.1..
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
(Q •
4
.•.
.RES CL
•..• • •
S
September 3, 1965.
Bank of California
International Corporation,
400 California Street,
San Francisco, California. 94120
Gentlemen:
In accordance with the request contained in your letter
of August 16, 1965, transmitted through the Federal Reserve Bank
of San Francisco, and on the basis of the information furnished,'
the Board of Governors grants consent for Bank of California
International Corporation ("BCIC") to purchase and hold 1,000,000
shares of capital stock of China Trade & Development Corporation
Ltd., Taipei, Taiwan, at a cost of approximately US$250,000, provlded such stock is acquired within one year from the date of this
letter.
The foregoing consent is given with the understanding
that the foreign loans and investments of BCIC, separate and apart
from the foreign loans and investments of your parent bank, and
including the investment now being approved, will not exceed the
guidelines established under the voluntary foreign credit restraint
effort now in effect.
Very truly yours,
(Signed) Karl E. Bakke
Karl E. Bakke,
Assistant Secretary.
2S,S5
Item No. 8
9/3/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
AC/DRUMS 01/101AL CORRIE•PONOCNOC
TO THIC SOAR°
September 3, 1965
t,
Mr. E. H. Galvin, Vice Presiden
cisco,
Fran
San
of
Bank
rve
Federal Rese
94120.
San Francisco, California.
Dear Mr. Galvin:
23, 1965, you report on
In your letter of August
t of J. N. Ireland and Co.
an error in the published statemen
that
The publication indicated
Bankers, Naiad City, Idaho.
feel
of $564,304.13. You
cash was $2,186,395.21 instead
is
r since the larger amount
erro
s
this is clearly a printer'
ons.
gati
obli
nt
n as U. S. Governme
identical to the amount show
ioned in your letter it
In the circvmstances ment
e no
the bank's report would serv
appears that republication of
be
not
ld
shou
d agrees that it
useful purpose and the Boar
required.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
2S!
BOARD OF GOVERNORS
Item No. 9
9/3/65
OF" THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20531
ADDRESS
orriciAL
CORRIESPONOIENCIE
TO THE 110ARO
September 3, 1965
CONFIDENTIAL (FR)
Mr. Hugh D. Galusha, Jr., President,
Federal Reserve Bank of Minneapolis,
Minneapolis, Minnesota. 55440
Dear Mr. Galusha:
payment of salaries to
The Board of Governors approves the
Minneapolis from
the following officers of the Federal Reserve Bank of
indicated,
rates
at
1965,
effective dates shown through December 31,
in your
as reported
which are those fixed by your Board of Directors
letters of August 3 and August 23, 1965.
Name
Title
Annual
Salary
Effective September 1
Clarence W. Nelson
Director of Research
$16,000
Effective October 1
Douglas R. Hellweg
Assistant Vice President
14,500
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
28.3
Item No. 10
9/3/65
UNITED STATES OF AMERICA
BEFORE THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.
In the Matter of the Application of
ITEW JERSEY BANK AND TRUST COMPANY
for approval of merger with
Ilayne State Bank
ORDER APPROVING MERGER OF BANKS
There has come before the Board of Governors, pursuant to the
Bank Merger Act of 1960 (12 U.S.C. 1328(c)), an application by New Jersey
Bank and Trust Company, Clifton, New Jersey, a State member bank of the
Federal Reserve System, for the Board's prior approval of the merger
of that bank and Wayne State Bank, Wayne, New Jersey, under the charter
and title of the former.
As an incident to the merger, the two offices
Of Wayne
State Bank would become branches of the resulting bank.
Notice
of the proposed merger, in form approved by the Board, has been published
pursuant to said Act.
Upon consideration of all relevant material in the light of
the factors set
forth in said Act, including reports furnished by the
Comptroller of the Currency, the Federal Deposit Insurance Corporation,
2858
-2and the Attorney General on the competitive factors involved in
the proposed merger,
in the
IT IS HEREBY ORDERED, for the reasons set forth
hereby
Board's Statement of this date, that said application be and
ated
is approved, provided that said merger shall not be consumm
(a) within seven calendar days after the date of this Order or
(b) later than three months after said date.
er, 1965.
Dated at Washington, D. C., this 3rd day of Septemb
By order of the Board of Governors.
Voting for this action: Chairman Martin, and
Governors Balderston, Shepardson, Nitchell,
and Daane.
Voting against this action:
and Maisel.
Governors Robertson
(signed)
Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
(SEAL)
2859
Item No. 11
9/3/65
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
APPLICATION BY NEW JERSEY BANK ADD TRUST COMPANY
FOR APPROVAL OF MERGER WITH WAYVE STATE BAAK
STATEMENT
New Jersey Bank and Trust Company, Clifton, Few Jersey
("Jersey Bank"), with total deposits of $319 million, has applied,
the
Pursuant to the Bank Merger Act of 1960 (12 U.S.C. 1828(c)), for
Board's prior approval of the merger of that bank and Wayne State
Bank, Wayne, New Jersey ("State Bank"), which has total deposits of
$8 million.11
of
The banks would merge under the charter and title
Jersey Bank, which is a member of the Federal Reserve System.
As an
incident to the merger, the two offices of State Bank would become
Offices of Jersey Bank, increasing the number of its authorized offices
from 18 to 20.
as to each
Under the law, the Board is required to consider,
of the banks involved, (1) its financial history and condition, (2) the
adequacy of its capital structure, (3) its future earnings prospects,
(4) the general character of its management, (5) whether its corporate
powers are consistent with the purposes of 12 U.S.C., Ch. 16 (the
Deposit figures are as of June 30, 1965.
2860
-2-
Federal Deposit Insurance L.ct), (6) the convenience and needs of the
community to be served, and (7) the effect of the transaction on
competition (including any tendency toward monopoly).
The Board may
not approve the proposed merger unless, after considering all of these
factors, it finds the transaction to be in the public interest.
Bankinr; factors. - The financial history and condition of
Jersey Bank and State Bank are satisfactory.
Jersey Bank's capital
structure is adequate, as is its management, and its earnings prospects
are favorable.
years ago.
State Bank opened for business a little more than three
Its capital structure is satisfactory and the growth of the
bank has exceeded original projections, but has not been based on broad
community support.
Earnings have been slightly above average for banks
of its class, but the bank has achieved this result by avoiding loans
vhich require specialized personnel, and by purchasing a high proportion
02 its portfolio from other banks.
Earnings of State Bank would probably
continue to be satisfactory, were the application denied.
Management of State Bank has rested chiefly in the hands of
its president, a man of dominant personality but not a professional
banker, uho is beyond normal retirement age.
The bank has been unable to
solve the problem of obtaining a satisfactory full-time executive officer
Mu) can work with the president.
Were the proposal consummated, Jersey
Bank would be able to supply appropriate executive personnel. While
the problem could undoubtedly be solved in ether ways, this factor
provides some slight support for approval of the application.
2861
-3-
The condition of the resulting bank would be sound, its
capital structure satisfactory, its earnings prospects favorable, and
its management competent.
e%isting banks
Neither the corporate powers of the two
nor those of the resulting bank are, or would be,
inconsistent with the purposes of 12 U.S.C., Ch. 16.
Convenieace and needs of the communities. - On a map, Passaic
County shows a wasp-waisted or hourglass figure.
The only banking offices
in the northern and larger portion, which is mainly
rural, are those
of First National Bank of Passaic County ("First National"), the second
largest bank in the county.
The southeastern two-thirds of the southern
populated
Portion, where Jersey Bank's offices are scattered, is densely
and heavily industrialized, with the older manufacturing cities of
Paterson and Passaic losing inhabitants to the growing residential
sectors of Wayne Township.
the
Because State Bank is too small for consummation of
Proposal to affect the services the larger bank can render, the effects
02 the merger would be felt only in Wayne Township.
and
Wayne, the middle ground, covers about 25 square miles
lies just south of the county's narrow waist.
While it is the fastest
Crowing area in the county, with a number of new industrial parks and
residential developments, it remains almost completely fragmented as
to its commercial life, with neighborhood instead of regional shopping
centers, and inconvenient local road communication.
As a result, the
head office of State Bank serves very little more of the township than
2862
-4-
the two miles surrounding it. State Bank's new branch, operating in a
trailer on the site of a projected shopping center which, it is claimed,
will be the world's largest, serves only a very limited area at present.
The township's banking needs are being met, to a considerable
extent, by two offices of First National, a $305 million bank capable
of meeting the needs of all but the largest customers located in the
county.
Jersey Bank, with four offices located not far across the
township border, also offers a full range of banking services.
Five
Other banks located in Passaic County, ranging in size from $98 to about
$11 million, as well as several in neighboring counties, are reasonably
accessible to Wayne customers.
Were State Bank to remain as an independent institution,
local customers would have a choice of banking services from a Nader
J.ange of sources.
However, State Bank has been making very little effort
to serve community needs.
three strata.
These needs can be allocated, roughly, to
The largest customers, represented by such national firms
U.S. nubber Company, American Cyanimid, U. R. Grace and Company, and
01;en-Illinoi5 Glass Company, have requirements far beyond the capacity
of any of the county's banks.
No rearrangement of local banking
facilities is likely to make any difference to their convenience and
needs.
A second stratum contains customers whose needs are within the
capacity of either Jersey Bank or First National to serve, but who are
Ear larger than a $8 million bank can hope to deal with, even on a
2S63
_5-
Participation basis.
This stratum would contain some local industrial
of substantial floorconcerns, real estate developers, merchants in need
plan credit, and the like.
Uhile customers in this stratum can, and
counties for
undoubtedly do, range over Passaic and neighboring
presence of a second bank
alternative sources of banking services, the
will contribute,
capable of serving them, within Uayne Township itself,
to some extent, to their convenience.
and convenience
However, it is the third stratum whose needs
are most directly concerned in the proposed merger.
This group includes
s wanting installment
individual homeowners in need of mortgages, customer
s, small
loans to purchase automobiles, appliances, and for other purpose
commercial and industrial concerns, and the like.
not to attempt to serve this market.
State Bank has chosen
The bank has no FHA or GI mortgages,
and has generally avoided committing bank funds in the mortgage market.
customers
Such few mortgages as it has made were accommodations to
connected with the board of directors.
It has made few automobile loans
tions.
in the community, preferring to purchase paper from other institu
loans, originating
Indeed, it has followed a similar policy as to all
contacts
only a minor portion in Unyne, obtaining some from directors'
y.
outside the community, and purchasing a large majorit
In sum, only
from its
about 20 per cent of the bank's total loan volume is derived
oun community.
and installment
Jersey Bank has specialized in mortgage
customers who do
lending, and would provide a genuine alternative for
2864.
-6-
not wish to bank with First National and for whom it is, perhaps,
something more than inconvenient to bank outside their own community.
Competition. -
As discussed above, Passaic County is served
by eight banks, Jersey State and First National in the $300 million class,
and the others ranging downward from $100 million.
In addition, banks in
neighboring counties compete in Passaic, as do, to a considerable extent,
larger New York City and other metropolitan banks which actively advertise,
in newspapers and on radio and television, for business over the entire
area, and are accessible by mail and to commuters from the county and
fro m Wayne, itself.
Nevertheless, despite customer mobility, particularly as to
larger accounts, and the fact that banking connections may be made
elsewhere by commuters or by mail, office location is probably still a
dominant factor in banking competition, at least as to the lower and
middle strata described above.
However, under present State law, it is
extremely difficult for meaningful office competition to occur, especially
in smaller communities, or in developing areas, such as Wayne.
Under the
local form of office protection, only a bank headquartered in a
municipality can establish a de nova branch there if any other bank
already has an office in the community.
Thus, local office competition
fer First National in Wayne is limited to that State Bank can provide,
a burden the smaller bank is unable to assume.
is
Its single new branch
operating at a loss, despite the loan of paid personnel from Jersey
28135
-7-
Bank, and it lacks resources to open another.
Moreover, the record
been aggressively
indicates that competitive tactics of First National have
itself on a firm
calculated to prevent the smaller bank from establishing
tion to do so.
community basis, even had it shown a healthier disposi
National
That the community would welcome competition for First
before
is shown by the amount of business Jersey Bank drew from Wayne
business,
State Bank was established. Partly because of the e::tent of this
accounts and
amounting to $4 million in some three thousand deposit
location
$6 million in over a thousand loans, and partly because of the
Of four Jersey Bank offices near Wayne's borders, there would have been a
had the
Potentiality for substantial competition between the two banks,
smaller institution followed different policies.
However, such competition
Bank
has not developed, nor does it seem likely to develop unless State
were radically to alter its policies.
Bank and
The relative absence of competition between State
Jersey Bank is evidenced by a number of circumstances.
First, the smaller
bank has not developed business in Wayne beyond the immediate environs
of its home office.
ted.
The balance of the township has remained unaffec
are mortgages,
Second, about three-quarters of Jersey Bank's loans in Wayne
a type of loan which State Bank generally avoids.
Of these, more than
half originated before State Bank opened for business, and about 60 per
cent were made to home purchasers moving from Jersey Bank's service
-2/
in lower Passaic County into Wayne Township.
area
In fact, according
deposits
The area from which a bank derives 75 per cent or more of its
of individuals, partnerships, and corporations ("ipc" deposits).
2/
2866
-8-
to the 1960 Census, about 40 per cent of persons moving into Wayne during
the five preceding years came from Passaic, Paterson, or Clifton, all in
Jersey Bank's service area.
Customer inertia, and the failure of the
smaller bank to make any real effort to attract their business, have
evidently caused Jersey Bank's customers to leave their accounts with
their former bank on moving to Wayne.
It is a disturbing factor in the competitive picture that
effectuation of the proposal would increase, although to an insubstantial
alttent, the proportion of county loans and deposits held by the slightly
larger of the two largest banks in Passaic County. Jersey Bank's share
3/
of IPC— deposits will rise from 36.5 to 37.3 per cent, and of total loans
from 38.2 to 39.2 per cent, as opposed to First National's 33 per cent of
IPC deposits and 32.3 per cent of loans.
Banking concentration in the
county will be increased, and the only small independent bank in an area
dominated by First National will disappear.
However, under present State
417, there seems to be no other way in which meaningful banking competition
CCrl be provided through offices located in Wayne.
It does not appear that consummation of the merger will have
any adverse competitive effect on the remaining banks located in southern
and southeastern Passaic County, which are already competing successfully
17ith Jersey Bank.
Summary and conclusion. - While consummation of the merger
lhould increase banking concentration in Passaic County, this effect is
.'Based
on data for December 31, 1964.
-9-
2867
more apparent than real, due to the failure of State Bank to provide
meaningful competition for eith2r of its larger neighbors.
Under State
law, a merger of this kind is the only means by which First National's
virtual local-office monopoly can be broken, and the entrance of a second
large and vigorous bank into the community will improve both the competitive
Picture and the way in which community needs and convenience are served.
A management problem in the smaller bank will incidentally be solved.
Accordingly, the Board finds that the proposed merger would be
in the public interest.
September 3, 1965.
24SW-3
DISSENTING STATEMENT OF GOVERNOR MAISEL
IN WHICH GOVERNOR ROBERTSON CONCURS
Item No. 12
9/3/65
It is difficult to understand, let alone to justify, the
decision announced today by the Board, which grants the two largest
banks in Passaic County a duopoly position in the county's fastest
growing market.
There is general agreement that nothing in the banking
factors justifies this merger.
are strongly adverse.
On the other hand, the competitive factors
Under New Jersey law, once this merger is consummated
no third bank can enter Wayne Township except for a bank that is newly
°rganized.
Prospects for establishing a new local competitor, when two
large banks are so firmly entrenched in the field, seem very unpromising.
Today, three banks are competing in Wayne Township, one
of them, the acquiring bank in the application before the Board, very
effectively from just across the township line.
The smaller bank, it
is true, may not be competing with great energy.
But it is an alternative
source of banking services, it is competing, and, in fact, is making money.
The amount of loans and deposits which Jersey Bank and State Bank draw
f-rom one another's territory is evidence that competition exists.
State
Bank offers more attractive rates to individual customers both with respect
to interest on savings deposits and charges on checking accounts, than
Jersey Bank does, this is competition.
In fact, whenever a member of the
Public, Mr. A. or Mrs. X, makes a choice whether to drive to an office
of State Bank or First National, or just across the line to an office of
jerseY Bank in, say, Haledon, competition occurs.
And the potential for
future competition, were the application denied, is far stronger.
2869
-2The majority complains that State Bank is not competing in
C vigorous healthy way, and is not serving the needs of its community,
CS if this were an unalterable state of affairs.
The fact remains,
however, that some competition is far greater than none.
Even if one
assumes that State Bank's board of directors has determined to dispose
of the bank, it is plain that they have a very attractive, salable
article.
A location in what is advertised to become a giant shopping
center is inherently very desirable.
Given, in addition, the projected
from
growth of Wayne Township, and that a location there is protected
much competition, what State Bank's directors have to sell becomes
extremely valuable.
That this is so is demonstrated by the permium offered
by Jersey Bank, the highest ever to come before the Board in a merger
application.
The record shows that this high offer was made to outbid
Other institutions anxious to acquire State Bank.
a
There can be no doubt that, if the application were denied,
on
less dominant Passaic County bank would be found willing to purchase
satisfactory terms and merge State Bank.
After all, at least two of the
Others are in the $75 to $100 million class, not exactly Lilliputians.
continuing
Thus, denial of the application would assure Wayne Township of
to be
access to three banks located in it or so close to the line as
conveniently available.
,
There are two troubling fallacies in the majority's reasoning
meant by
both indicating a failure to analyze and apply what Congress
"the effect of the transaction on competition (including any tendency
toward monopoly)".
The first, and by far the most important, is the
merger applications-assumption--not only here, but in earlier decisions on
2870
-3-
that competition is improved by increasing the size of the competing
banks.
This argument has perhaps been made most often where the bank
to be aggrandized is already one of the largest in the community, and
is particularly fallacious in such a case.
The Board is to concern
itself with competition in respect to its effect on community welfare.
The competition offered by a pair of powerful banks is of a different
character and does not have the therapeutic effect on the public
welfare usually implied by the term competition.
This is particularly
true as to customers in the lower and lower-middle strata described by
the majority.
A third choice for these groups is certain to be better
than only two.
The second fallacy is a weakness for having things both ways.
In other statements on merger applications, where the question
was
Whether offices of two merging banks were in competition, the majority
has solemnly stated that the fact that offices of other banks were
located in between the two prevented any serious amount of competition
from occurring.
Here, where the question is whether Wayne Township
Will be subject to a duopoly if the application is approved, the
majority with equal solemnity assures us that banks outside Passaic
County, and even in New York City, compete effectively within the
township, despite myriad intervening offices!
In sum, what the majority has done is to grant an assured
duopoly position in a protected market to the two largest banks already
Present there, on the pretext that this will "improve competition" by
eliminating a small bank that has failed to exert itself.
This has
_4_
2871
been done in the face of the virtual certainty that a more eligible
applicant would have appeared if the application had been denied,
and that the merger will foreclose the possibility of a stronger,
third competitor appearing in Wayne Township for quite some time
in the future.
I would disapprove the application.
September 3 , 1965.
2
,
2s
Item No. 13
9/3/65
TELEGRAM
SERVICE
LEASED WIRE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
September 3, 1965
SANFORD - NEW YORK
BOARD APPROVES GRANTING LOAN OR LOANS ON GOLD UP TO A
YORK TO
TOTAL OF $10 MILLION BY THE FEDERAL RESERVE BANK OF NEW
THE BANCO DE GUATEMALA ON THE TERMS DESCRIBED IN YOUR WIRE OF
SEPTEMBER 2.
(Signed) Kenneth A. Kenyon
KENYON
2873
Item No. 14
9/3/65
EGRAM
TEL
LEASED WIRE SERVICE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
WASHINGTON
September 3, 1965.
SANFORD - NEW YORK
GOLD UP TO A
BOARD APPROVES GRANTING LOAN OR LOANS ON
BANK OF NEW YORK TO
TOTAL OF $2 MILLION BY THE FEDERAL RESERVE
DESCRIBED IN YOUR
THE BANCO CENTRAL DE COSTA RICA ON THE TERMS
WIRE OF SEPTEMBER 2.
(Signed) Kenneth A. Kenyon
KENYON
2871
BOARD OF GOVERNORS
Item No. 15
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, O. C. 20551
wooRess OFFICIAL
CORREOPONOENCE
TO THE •OARO
September 3, 1965
Mr. John L. Nosker, Vice President,
Federal Reserve Bank of Richmond,
Richmond, Virginia. 23213
Dear Mr. Nosker:
In accordance with the request contained in your
August 300 1965, the Board approves the appointment
of
letter
Beazley as an assistant examiner for the Federal
E.
of Donald
Richmond, effective today.
of
Reserve Bank
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
Item No. 16
9/3/65
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C. 20551
ADDFIEBB
orriciAL
CORRESPONDENCE
TO THE BOARD
September 3, 1965.
Mr. Thomas R. Sullivan, Vice President,
Federal Reserve Bank of Dallas,
75222
Dallas, Texas.
Dear Mr. Sullivan:
In accordance with the request contained in your
letter of August 31, 1965, the Board approves the designation
of Sammie C. Clay as a special assistant examiner for the
Federal Reserve Bank of Dallas.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
@FedFRASER