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Minutes for September 10, 1960
To:
Members of the Board
From: Office of the Secretary
Attached is a copy of the minutes of the
Board of Governors of the Federal Reserve System on
the above date.
It is not proposed to include a statement
to any of the entries in this set of
respect
with
record of policy actions required to
the
minutes in
be maintained pursuant to section 10 of the Federal
Reserve Act.
Should you have any question with regard to
the minutes, it will be appreciated if you will advise
the Secretary's Office. Otherwise, please initial below.
If you were present at the meeting, your initials will
indicate approval of the minutes. If you were not present,
your initials will indicate only that you have seen the
minutes.
Chin. Martin
Gov. Szymczak
Gov. Mills
Gov. Robertson
Gov. Balderston
Gov. Shepardson
Gov. King
T
Minutes of the Board of Governors of the Federal Reserve System on
Friday, September 30, 1960. The Board met in the Board Room at 10:00 a.m.
PRESENT: Mr.
Mr.
Mr.
Mr.
Mr.
Balderston, Vice Chairman
Mills
Robertson
Shepardson
King
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Sherman, Secretary
Thomas, Adviser to the Board
Young, Adviser to the Board
Shay, Legislative Counsel
Fauver, Assistant to the Board
Noyes, Director, Division of Research
and Statistics
Koch, Adviser, Division of Research
and Statistics
Landry, Assistant to the Secretary
Eckert, Chief, Banking Section, Division
of Research and Statistics
Keir, Chief, Government Finance Section,
Division of Research and Statistics
Report on money market conditions.
Messrs. Thomas and Keir
Presented a report on money market conditions including reference to
Changes in the money supply.
Messrs. Fauver, Koch, Eckert, and Keir then withdrew from the
meeting and the following entered the room:
Mr. Hackley, General Counsel
Mr. Farrell, Director, Division of Bank
Operations
Mr. Solomon, Director, Division of Examinations
Mr. Harris, Coordinator, Office of Defense
Planning
Mr. Hexter, Assistant General Counsel
Mr. Rudy, Special Assistant, Legal Division
Mr. Daniels, Assistant Director, Division of
Bank Operations
Mr. Nelson, Assistant Director, Division of
Examinations
"
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Mr. Benner, Assistant Director, Division of
Examinations
Mr. Smith, Assistant Director, Division of
Examinations
Miss Hart, Assistant Counsel
Mr. Thompson, Supervisory Review Examiner,
Division of Examinations
Mr. Wood, Chief, European Section, Division
of International Finance
Discount rates.
The establishment without change by the Federal
Reserve Banks of Richmond, Chicago, and San Francisco on September 29, 1960,
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.
Report on competitive factors
Jersey).
(Perth Amboy and Carteret, New
There had been distributed a memorandum from the Division of
report to the
Examinations dated September 27, 1960, attaching a proposed
Comptroller of the Currency on the competitive factors involved in a proNew
Posed consolidation of The Perth Amboy National Bank, Perth Amboy,
Jersey, and First National Bank in Carteret, Carteret, New Jersey.
conclusion of the report read as follows:
Control of both banks is presently held by the same
ing
individual, who will also own a majority of the outstand
consoliproposed
The
bank.
common stock of the resulting
dation would provide more and better banking and trust
services for the Carteret community and intensify competition in the trade area without adverse effect on the
present competitive situation or any apparent tendency
toward monopoly.
The report was approved unanimously.
The
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Report on competitive factors (Boonville and Newburgh, Indiana).
A memorandum from the Division of Examinations dated September 23, 1960,
attaching a proposed report to the Comptroller of the Currency on the
competitive factors involved in a proposed consolidation of Boonville
National Bank, Boonville, Indiana, and Newburgh State Bank, Newburgh,
Indiana, had been distributed.
The conclusion of the report read as
The smaller of the two institutions involved is principally competitive with much larger banks in Evansville,
Indiana. There would be no lessening of banking service
in the area and the proposed transaction would have no
apparent adverse effect on competition in the area.
The report was approved unanimously.
Delegation to the Board of emergency authority over banking
operations (Item No. 1). A memorandum from Mr. Harris dated September
20, 1960, pertaining to a Treasury draft order that would delegate
emergency banking authority to the Board of Governors had been circulated.
Attached to the memorandum was a draft of letter to the Under Secretary
cf the Treasury stating that the Board interposed no objection to the
execution of the new draft order in view of the capabilities for
decentralized control through the Federal Reserve Banks and in view
Of the fact that the detailed description of specific emergency actions
1/0uld be contained in the Treasuryts Emergency Banking Regulations.
According to the memorandum, the new draft order differed from the
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One considered and approved by the Board on January 11, 1960, in the
following particulars:
1.
The new draft order would delegate to the Board authority
and power relating to the maintenance of operations and
functions in an emergency of all banking institutions,
which would be defined as including every Federal Reserve
Bank, commercial bank, trust company, private bank, savings
bank, mutual savings bank, and any receiver or conservator
of the foregoing. The previous draft order was limited to
the Board of Governors and the Federal Reserve Banks.
2.
The new draft would not contain specific references to the
following matters contained in the previous order:
a.
b.
c.
d.
e.
f.
Holding of currency.
Temporary change of banking quarters.
Authority of an employee in charge of the affairs
of a bank in an emergency to take emergency actions.
Exculpatory provisions regarding actions taken pursuant to emergency directions notwithstanding other
provisions of law.
Definition of banking operations.
Fiscal agency operations.
Following comments by Mr. Harris on the background of the new draft
order, a letter to the Under Secretary of the Treasury interposing no
Objection to its execution was approved unanimously.
A copy of the
letter is attached hereto as Item No. 1.
Mr. Harris then withdrew from the meeting.
Application of Marine Corporation.
There had been distributed two
memoranda from the Division of Examinations dated August 11, 1960, and a
Memorandum from the Legal Division. dated September 26, 1960, regarding the
aPPlication of The Marine Corporation, Milwaukee, Wisconsin, for prior
ETProval of the acquisition of 60 per cent or more of the 20,000 voting
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shares of Oak Creek Marine National Bank, Oak Creek, Wisconsin, a proposed
new bank.
It was noted in the memoranda of the Division of Examinations
that the Federal Reserve Bank of Chicago recommended approval of the
application in view of the favorable conclusions reached in connection
With the various factors specified in section 3(c) of the Bank Holding
Company Act of 1956.
The Division of Examinations recommended that a
Notice of Tentative recision approving the application be issued.
The memorandum from the Legal Division indicated that either
approval or disapproval of the application would in all likelihood be
sustained by a reviewing court as a reasonable exercise of the Boards
discretion.
The memorandum also noted that the Comptroller of the
Currency had recommended approval of the application.
Observing that there were two banks located within a five-mile
radius of the proposed location of Oak Creek Bank, one of which was a
subsidiary of Marine, Governor Mills said that he accepted the favorable
recommendation of the Division of Examinations with some reservations
because of the encirclement of the other bank (Home State Bank of South
Milwaukee) by Marine subsidiaries.
Since, however, Home State Bank did
not provide a full range of banking services to the community, he would
vote to approve the application on the grounds that rounded banking
services would be provided the growing community of Oak Creek by the
Proposed new subsidiary bank of Marine Corporation.
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Governor Shepardson said that he felt the growth of Marine Corporation might be approaching a point that would deserve close scrutiny by
the Board, although in his opinion that point had not yet been reached.
Accordingly, he would vote to approve the application now before the
Board.
The staff was then instructed to prepare for later consideration
by the Board a Notice of Tentative Decision granting the application by
The Marine Corporation, Milwaukee, Wisconsin, for prior approval, pursuant
to section 3(a)(2) of the Bank Holding Company Act of 1956, of the acquisition of 60 per cent or more of the 20,000 vottrg shares of Oak Creek
Marine National Bank.
At this point Messrs. Thomas, Rudy, and Thompson withdrew from
the meeting.
Regulation U--status of registered stock deposited with lending
banks as security for "purpose" loans (Item No. 2).
Under date of
September 27, 1960, a memorandum from Miss Hart had been distributed
zoncerning the question whether the holding for safekeeping of stock by
a lending bank or a third party caused the loan to be "indirectly secured"
and hence subject to Regulation U, Loans by Banks for the Purpose of
Purchasing or Carrying Registered Stocks.
In response to a question from Governor Balderston, Mr. Beckley
said that no specific inquiry regarding the treatment of loans of the
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type described had come before the Board that required a response at this
time.
In view of this fact, and in the light of the Board's decision at
yesterday's meeting not to initiate a restrictive action in this area at
the present time, Mr. Hackley said he realized that the Board might wish
to defer action with respect to the matter presented in the September 27
memorandum.
However, the question had come up as the result of mention
of certain loans in the reports of examinations of Morgan Guaranty Trust
Company, New York City, as of October 7, 1959, and Irving Trust Company,
New, York City, as of October 28, 1959.
For that reason, the staff was
Presenting the question to the Board for the purpose of ascertaining
Whether it wished to take a position one way or the other.
The examination reports cited loans that were not technically
secured by registered stocks, but the banks were holding in safekeeping
such securities owned by the borrowers. The bank concerned would not
have the right to sell the stock and reimburse itself with the proceeds
in case of default on the loan. Nevertheless, the stock
was
not in the
Possession of the borrower or freely subject to whatever disposition he
vished to make of it, and the actual situation did provide a measure of
security to the bank.
In the view of the Legal Division, this brought
the practice within the Board's interpretation of March 6, 1959, stating
that "the original purpose of a loan should not be determined upon a
narrow analysis of the technical circumstances under which a loan is
Made... . Where security is involved, standards of interpretation
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should be equally searching...."
As pointed out in the memorandum, this
view was strengthened by a statement in the Boardts "Questions and Answers
Illustrating Application of Regulation U", issued in June 1959, which said
that "In determining Whether a loan is tindirectlyt secured, it should be
borne in mind that the reason the Board has thus far refrained (except to
the limited extent covered in section 3(q))from regulating loans not
secured by stock has been to simplify operations under the regulation.
This objective of simplifying operations does not apply to loans in which
arrangements are made to retain the substance of stock collateral while
sacrificing only the form."
Mr. Hackley said that under the Regulation as now written the
Legal Division was convinced that a sound position would be that the
loans that had been cited in the examination reports were indirectly
secured by the registered stocks.
A narrow technical interpretation
Of the Regulation under which a bank would be permitted to make sure
that a borrower did not dispose of stock he had purchased with proceeds
Of a loan before he had paid off the loan would tend to defeat the purPose of the Regulation.
Accordingly, the Legal Division had prepared
a draft of letter to the New York Reserve Bank embodying the substance
Of the Legal Divisionts views on this question.
Governor Robertson expressed the view that, since the question
at hand had been raised in reports of examinations, it was incumbent upon
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the Board to provide an interpretation for the guidance both of the
examiners and of the member banks involved.
Governor Mills said that in his opinion both the analysis and
Position taken in the memorandum were correct and he believed the draft
letter stated the case well.
He went on to say that the background of
this practice was quite similar to that occasionally mentioned in reports
Of examination, whereby banks held Series E savings bonds as indirect
collateral behind loans.
He recalled that this practice had always been
frowned upon by examiners and that in such instances the banks concerned
had been requested to release the securities.
Although he recognized
that borrowers could not legally pledge Series E bonds, the principle
involved in both cases was essentially the same.
Therefore, the exami-
nations having been completed and the criticisms of the examiners having
been questioned, he felt that the Board should follow through with an
interpretation.
The other members of the Board having expressed views similar
to those of Governors Mills and Robertson, unanimous approval was given
to a letter to the New York Reserve Bank expressing the view that the
loans of the two aforementioned banks were indirectly secured by stock
and, unless otherwise excepted, subject to Regulation U.
letter sent under date of October
A copy of the
3, 1960, is attached as Item No. 2.
At this point the following entered the room:
Mr. Johnson, Director, Division of Personnel
Administration
Mr. Goodman, Assistant Director, Division of
Examinations
Mr. Sprecher, Assistant Director, Division of
Personnel Administration
1
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Officer status of position of Assistant General Auditor at the
Reserve Banks
(Item No. 3).
There had been distributed under date of
September 29, 1960, a memorandum from the Division of Personnel Administration recommending approval of the payment of salary to the Assistant
General Auditor of the Federal Reserve Bank of Cleveland, as an officer
Of that Bank, at the rate fixed by the Board of Directors.
Attached to
the memorandum was a draft of letter reflecting this recommendation.
It was indicated in the memorandum that there appeared to be no
Objection to elevation to officer status of the position of Assistant
General Auditor at those Reserve Banks that agreed with a recommendation
to this effect made by the Chief Federal Reserve Examiner, that the Chief
Examiner's discussions had resulted in this change at the New York and San
Francisco Reserve Banks, and that the Federal Reserve Bank of Richmond
intended to recommend officer status for its Assistant General Auditor in
the near future, this proposed action being at the initiative of that Bank
prior to discussion with the Chief Federal Reserve Examiner.
There had also been distributed under date of September 30, 1960,
a memorandum from Mr. Smith regarding supervision of auditing departments
Of Federal Reserve Banks and noting that the letter from the Federal Reserve
Bank of Cleveland advising of the change to officer status of its Assistant
General Auditor indicated that this action by its Board of Directors may
have been prompted by discussions with the Chief Federal Reserve Examiner.
In view of the letter from the Cleveland Bank, as well as the actions taken
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9/30/60
at the New York and San Francisco Reserve Banks raising their Assistant
General Auditors to officer status, the memorandum from Mr. Smith undertook to review recent developments in this area for the information of
Attention was called in the memorandum to the fact that,
the Board.
including Cleveland, six Reserve Banks currently would be according
Officer status to the Assistant General Auditor.
Mr. Solomon said that the memorandum of September 30 had been
Prepared in order to make clear to the Board the nature of the circumstances surrounding the suggestions made by Chief Federal Reserve
Examiner Schaeffer in his discussions of this question at the Reserve
Banks.
It seemed desirable to lay the matter before the Board in order
to avoid any misunderstanding as to whether the Board believed that the
suggestion for the Assistant General Auditor to have officer rank was
desirable.
Governor Mills said that he thought the idea of advancing the
position of Assistant General Auditor to officer rank had merit, and he
would not object to having the question raised with the Reserve Banks
from time to time as a kind of suggestion for them to consider.
However,
he wondered whether, if the Board indicated a definite view on the question,
it might be an undue interference with the management of the Reserve Banks.
Governor Robertson said that, although he believed this suggestion
generally
WES
desirable, it would be unfortunate if the Chief Federal Reserve
271
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9/30/60
Examiner were tO take the position that elevating the post of Assistant
General Auditor to officer status was a matter of Board policy.
Governor Shepardson said that he was not entirely sure that the
Chief Federal Reserve Examiner had been understood as merely putting
forward a suggestion.
He (Governor Shepardson) had gathered that at
least one or two Reserve Banks had gotten the feeling that pressure
was being exerted for this particular move. Governor Shepardson said
that his view was that this change could be desirable at some Reserve
Banks, but at others it would not be necessary.
He understood that one
of the Reserve Banks that had heard the suggestion felt that such a move
was definitely not to its interest at the time, but it was willing to go
along with the suggestion if it was a matter of Board policy.
Mr. Solomon said that Governor Shepardsonts comments brought out
the usefulness of presenting this matter to the Board since there apparently
vas some misunderstanding of the Chief Federal Reserve Examiners intent.
Although Mr. Smith had talked with Mr. Schaeffer and received assurance
that his raising of the question was intended only as s suggestion for
consideration by the Bank, Mr. Solomon said that it -would be helpful for
Mr. Schaeffer to realize that the opposite impression existed.
Governor King suggested that the question of elevating the position
Of Assistant General Auditor to officer status at any Reserve Bank be left
in the Bank's hands.
In his opinion the Board should lean over backwards
to avoid giving the impression that it wished to force conformity upon the
9/30/10
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Reserve Banks in this regard by requiring such a change in those Reserve
Banks where the Assistant General Auditor did not have officer status.
He
said that he did not believe this problem to be of sufficient importance
to warrant prodding the Reserve Banks.
Governor Balderston said that he gathered that the Board would not
Object to the Chief Federal Reserve Examiner continuing to raise the question
Of the status of the Assistant General Auditor, so long as he made certain
that the Reserve Banks did not understand this to be a means of urging them
to adopt a suggestion that this position be given officer status.
There was no indication of disagreement with Governor Balderston's
statement.
The letter to the Federal Reserve Bank of Cleveland approving the
payment of salary to Mr. Alvah R. Mills as Assistant General Auditor at
the rate fixed by its Board of Directors was then approved unanimously.
copy of the letter is attached hereto as Item No.
A
3.
Messrs. Johnson, Nelson, Smith, and Sprecher withdrew from the
meeting at this point.
Items circulated to the Board.
The following items, which had been
circulated to the Board and copies of which are attached to these minutes
under the respective item numbers indicated, were approved unanimously:
Item No.
Letter to Bank of America, New York City, approving the
relocation of the Oria Agency of Banca dilAmerica e
'Italia, Milan, Italy, from Via Papatodero 2 to permanent quarters at No. 11 Piazza Domenico Albanese, Oria,
and the Sanremo Branch from Corso Imperatrice 13 to permanent quarters at No. 18 Via Matteotti-Corner No. 27
Via Roma, Sanremo.
14.
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Item No.
Letter to Bank of America, New York City, approving
the establishment by Banca dtAmerica e dtItalia,
Milan, Italy, of a seasonal a7,ency in Villanova
dtAlbenga.
5
Letter to the Federal Reserve Bank of Atlanta
approving an adjustment in the salary structure
applicable to employees at the Jacksonville
Branch.
6
Letter to Pine Lawn Bank and Trust Company, Pine
Lawn, Missouri, approving the establishment of a
branch at 6102 Grimshaw Avenue and an additional
investment in bank premises.
7
With respect to Item No. 4, a letter to Bank of America, New York
City, approving the relocation of the Oria Agency and the Sanremo Branch
Of Banca dtAmerica e dtItalia, Governor Shepardson inquired as to the
reason for Board approval of all changes in location of foreign branches.
During the ensuing discussion, Governor Robertson said that if a
change in location of a branch abroad involved a move from one city to
another, he felt the Boardts approval should be required.
It might be
Possible to work out an arrangement for not having mere relocations of
existing branches come to the Board for approval, but this would involve
the problem of drawing a line—whether relocations within a city or some
different area should be permitted without express Board action.
Since
the number of moves of foreign branches was not large, he believed it
Preferable to continue the present practice rather than to attempt to
Specify when a foreign branch might be relocated without Board approval.
19
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Governor Mills stated that it was necessary for the Board's
records to reflect the current address of any foreign branch, and he
felt that continuation of the present procedure was desirable for this
purpose as well as for the reasons indicated by Governor Robertson.
The meeting then adjourned.
Secretary's Notes: Pursuant to the recommendations contained in memoranda from appropriate
individuals concerned, Governor Shepardson today
approved on behalf of the Board increases in the
basic annual salaries of the following persons
on the Board's staff, effective October 2, 1960:
Division
Name and title
Basic annual salary
To
From
Office of the Secretary
Edna B. Poeppel, Chief, Records Section
Edna L. Stoll, Records Clerk
$ 9,380
14,1460
$ 9,735
4,565
5,490
5,655
4,o4o
5,850
4,115
6,435
10,895
11,155
4,510
4,675
Legal
Verna P. Ryon, Secretary
Research and Statistics
Betty Schieman, Statistical Clerk
Natalie C. Strader, Survey Statistician (Economics)
(change in title from Research Assistant)
International Finance
Robert F. Gemmill, Economist
Examinations
Margaret M. Tunstall, Recording Clerk
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9/30/60
Salary increases
Name and title
effective October 2, 1960 (continued)
Basic annual salary
From
To
Division
•••1•1110.00111..••••
0•11•411...
Administrative Services
$3,920
James R. Carnahan, Guard
Flora Griffith, Chief Telephone Operator
Blanche C. King, Charwoman
5,335
3,500
Governor Shepardson also approved on behalf
of the Board acceptance of the resignations
of Noel C. Locke, Statistical Clerk, Division
of Research and Statistics, effective September 26, 1960, and Mary K. Stephanos, Secretary,
Division of Research and Statistics, effective
October 21, 1960.
N r
Secretary
$4,025
5,500
3,605
BOARD OF GOVERNORS
OF THE
Item No. 1
9/30/60
FEDERAL RESERVE SYSTEM
WAS
OFFICE OF THE CHAIRMAN
September 300 1960;
The Honorable Fred C. Scribner, Jr.,
Under Secretary of the Treasury,
Washington 251 D. C.
Dear Fred:
In your letter of August 171 19601 transmitting a new
draft order delegating emergency authority to the Board of Governs,
You stated that Secretary Anderson would execute the order in the
absence of objection from me.
The Board is of the opinion that no objection should be
interposed to the execution of the new draft order in view of the
Board's capabilities for decentralized control through the Federal
Reserve Banks, and in view of the fact that the detailed description
of specific emergency actions is to be contained in Treasury's Emergency Banking Regulations.
Sincerely yours,
(Signed) Wm. Mee. Martin,
Wm. MbC. Martin, Jr.
tr-,1"ffirjo
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
Item No. 2
9/30/60
WASHINGTON 25, D. C.
A D 0 I-4
Ei 5' OFFICIAL CORRESPONDENCE
TO THE HOARD
October
3, 1960
Mr. Howard D. Crosse, Vice President,
Federal Reserve Bank of New York,
New York 45, New York.
Dear Mr. Crosse:
In recent reports of examination of two banks in your
District, Morgan Guaranty Trust Company of New York ("Morgan")
and Irving Trust Company ("Irving"), your examiners raised questions as to the circumstances under which certain loans made by the
banks for the purpose of purchasing or carrying securities registered
on a national securities exchange ("purpose loans") Should be considered to be secured indirectly by stock, so that the loans should
be treated as subject to the regulation. These questions arose
under the four following factual situations:
(1) Certain loans were made in unsecured form in order
to enable borrowers to exercise options for the purchase of listed
stocks, the borrower placing the acquired stock in a custody account
at the bank. Management states that these custody accounts are in
no way considered collateral for the loans, because the bank has no
"hold" on the securities. (Report of Examination of Irving, October 28,
1959, page
(2) In the case of loans made by another bank under
similar circumstances, the bank required the borrower to endorse
the stock and place it in a custody account at the bank. In this
case, the notes embodying the loan agreement incorporate a statement to the effect that the bank waives the right to apply the
proceeds of the securities to payment of the loan, but the bank
also states that the purpose of the deposit is to "provide assurance
that the borrower cannot dispose of" the securities or pledge them
elsewhere until the loan is paid. (Report of Examination of Morgan,
October 7, 1959, page 10-(a).) (The Board agrees with your examiner's
conclusion that certain other loans in this group were made in violation
of section 221.1(b) of the regulation because, although technically
unsecured, they represented advances in addition to other regulated,
stock-secured purpose loans.)
BOARD
OF GOVERNORS
Mr. Howard D. Crosse
OF THE FEDERAL RESERVE SYSTEM
-2-
(3) A loan was made in unsecured form to the Hope Record
Company, for the purpose of purchasing listed stock. The loan is
guaranteed by the National Broadcasting Company, and the borrower
has pledged all assets purchased with the borrowed funds with
the National Broadcasting Company to secure the guarantee. The
pledged stock is held in custody by the lending bank. (Report of
Examination of Irving cited above, page
(4) Loans are being made jointly by two banks, Irving and
Manufacturers Trust Company, under agreement with the employer,
American Electric Power Company, Inc. to key employees of American
for the purpose of purchasing stock under employee stock purchase
plans. Under the agreement, the employees make a down payment, and
the stock is pledged with Manufacturers to secure loans in the
maximum amount permitted under Regulation U. The balance of the
purchase price is supplied by Irving on an unsecured basis. However,
although the parties agree that Irving shall have no security interest in the pledged stock, Manufacturers is to hold the stock,
under the agreement, until both the secured and the unsecured loans
have been paid. (Report of Examination of Irving cited above,
Page 11(a)-(8).)
In each case, the question is whether the arrangements in
regard to the purchased stock amount to indirect security for the
loan. It is, of course, impossible to give a comprehensive definition of "indirect security". However, in its proposed amendments
to Regulation U, issued on March 13, 1959, the Board said that a
loan was indirectly secured, among other instances, when "the
borrower agrees to hold stock free of any claim by others or to
Pledge stock with the bank upon request or in certain circumstances."
For technical reasons, this language was dropped from the final
amendments which became effective June 15, 1959, but the omission
did not indicate an intention of the Board to change its position.
The Board indicated the attitude which it expects banks
to adopt in construing the requirement as to security in its pamphlet
entitled "Questions and Answers Illustrating Application of Regulation U"
(Page 6), where the Board explained that
"In determining whether a loan is 'indirectly
secured, it should be borne in mind that the reason
the Board has thus far refrained (except to the
limited extent covered in section 3(q)) from regulating loans not secured by stock has been to simplify
operations under the regulation. This objective of
simplifying operations does not apply to loans in
which arrangements are made to retain the substance
of stock collateral while sacrificing only the form."
BOARD
OF C3OVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Howard D. Crosse
-3-
and in an interpretation published at
where it stated that
45
Federal Reserve Bulletin 256
(1959)
"The Board has long held, in the ... 'purpose'
area, that the original purpose of a loan should not
be determined upon a narrow analysis of the technical
circumstances under which a loan is made .. .
"'Where security is involved, standards of interpretation should be equally searching . • • •tl
Arrangements under which a borrower surrenders the power
to dispose of stock so long as a loan remains outstanding clearly
serve to protect the interest of the lender, in a practical sense,
to some extent. The fact that the bank suggests or insists on the
arrangement emphasizes this fact. This is true whether the borrower
agrees not to dispose of the stock elsewhere, agrees to pledge it
with the bank on demand, or actually leaves it in a custody account
with the bank. The advantage to the bank remains, even though the
bank agrees not to look to the stock for reimbursement on the loan.
It is possible that the banks entered into the arrangements
described above in the belief that they were excepted under section 221.3(f), which provides that
"A loan need not be treated as collateralled by
securities which are held by the bank only in the
capacity of custodian, depositary or trustee, or
under similar circumstances, if the bank in good
faith has not relied upon such securities as
collateral in the making or maintenance of the
particular loan."
However, this section only applies where the bank "in good faith
has not relied" upon the securities deposited "as collateral".
The example given in "Questions and Answers Illustrating Application
of Regulation U" (page 20) is one where the bank "holds stock under
a bona fide trust agreement established by a borrower for the
benefit of a college." In circumstances such as those described
above, where the deposit is made in connection with the loan, section 221.3(f) would not apply.
BOARD Or DOVERNDR8 OF THE FEDERAL RESERVE SYSTEM
Mr. Howard D. Gros
Accordingly, the Board is of the opinion that in all
four situations described above, the loans are indirectly secured
by stock and, unless otherwise excepted, subject to the regulation.
It will be appreciated if you will notify the banks of this conclusion, so that the loans may be brought irto conformity with the
regulation as promptly as possible*
Very tastily yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
if?loN
)#
i4;,,•
74"1,
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
77t
(4)
t*
7!7
3
9/30/60
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
tt:/4 V
TO THE BOARD
411.
tuppl-September 30, 1960
CONFIDENTIAL (FR)
Mr. W. D. Fulton, President,
Federal Reserve Bank of Cleveland,
Cleveland 1, Ohio*
Dear Mr. Fulton:
The Board of Governors approves the payment of
salary to the following officer of the Federal Reserve Bank
of Cleveland, for the period October 1 through December 311,
1960, at the rate indicated, which is the rate fixed by your
Board of Directors as reported in your letter of September 8,
1960:
Name
Alvah R. Mills
Title
Annual
Salary
Asst. General Auditor $9,1C0
Very truly yours,
(Signed) Merritt Sherman
Merritt Sherman,
Secretary.
}0,0
BOARD OF GOVERNORS
OF THE
Item No. 4
FEDERAL RESERVE SYSTEM
9/30/60
WASHINGTON 25, D. C.
ADDRESS
orriciAL
CORRESPONDENCE
TO THE BOARD
September 30, 1960
Mr. Tom B. Coughran,
Executive Vice President,
Bank of America,
41 Broad Street,
New York 15, New York.
Dear Mr. Coudhran:
Receipt is acknowledged of your letter dated
August 30, 1960, transmitted through the Federal Reserve
Bank of New York, informing the Board of Governors of the
relocation of the Oria Agency of Banca diAmerica e dlItalia,
Milan, Italy, from Via Papatodero 2 to new permanent quarters
at No. 11 Piazza Domenico Albanese, Oria, Italy, and the
Sanremo Branch from Corso Imperatrice 13 to permanent
quarters at No. 18 Via Matteotti-Corner No. 27 Via Roma,
Sanremo, Italy.
The Board of Governors notes these Changes to
permanent quarters, with approval, with the understanding
that the locations of these offices may not be changed
without the prior consent of the Board of Governors. Please
advise the Board of Governors, through the Federal Reserve
Bank of New York, when the agency and branch were removed to
the now locations.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
r;tin-,, i1c„Tet
BOARD OF GOVERNORS
OF THE
Item No.
FEDERAL RESERVE SYSTEM
5
9/30/60
WASHINGTON 25. D. C.
ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD
September 30, 1960
Mr. Tom B. Coughran,
qxocutive Vice President,
Bank of America,
41 Broad Street,
New York 151 New York.
Dear Mr. Couohran:
In accordance with th reque,t made in your letter
of August 30, 1960, transmitted through the Federal Reserve
Bank of New York, the Board e Governors grants its consent
e dtitalia, Milan,
to the establishment by Eanca
d'Albenga, Italy.
Villanova
in
Italy, of a seasonal agency
will be located in
agency
proposed
It is understood that the
the period
during
only
open
and
market
the local flower
is granted
consent
This
year.
each
30
October 1 to April
letter ot
in
the
Board's
contained
conditions
the
subject to
the
of shares
to
consent
purchase
granting
1957,
September 12,
may
of
agency
the
location
The
d'Italia.
e
of Banca dtAmerica
approval
the
prior
without
nt,
establishme
after
not be changed,
of the Board of Governors.
Unless the agency is actually established and opened
for business on or before October 1, 1961, all rights granted
hereby shall be deemed to have been abandoned and the authority
hereby granted will automatically terminate on that date.
Please advise the Board of Governors in writing,
through the Federal Reserve Bank of New York, when the agency
is established and opened for business, furnishing information
as to the exact location of the agency.
Very truly yours,
(Signed) Elizabeth L. Carmichael
Elizabeth L. Carmichael,
Assistant Secretary.
BOARD OF GOVERNORS
OF THE
Item No. 6
FEDERAL RESERVE SYSTEM
9/30/60
WASHINGTON 25. D. C.
ADDRESS
OFFICIAL
CORRESPONDENCE
TO INC BOARD
September 301 1960
COVIDEMtl, (Fa)
Er. Ealcolm Bryan, President,
Federal fieserve Bank of Atlanta,
Atlanta 3, Georia.
Dear lir. 1.:ryan:
In accordance vith the request outlined in Mr. Patteeson's
letter of SeAumber 16, 1960, the Board of Governors approves the
following minimum and Na;:imum salaries for the respective grades of
the salary structure epplicable to the Jacksonville 'Branch of the
Federal Reserve Bank of Atlanta, effective October 1, 1960:
Grade
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Lanilatha Salary
Maximum Salary
$ 3,060
3,180
3,300
;:000
3,600
2,640
1 2,220
2,880
3,180
3,600
4,080
14,600
5,200
3,900
4,320
20
-0
5;0
L ,9
53
6,200
7,000
5,800
6,400
7,000
7,800
8,600
9,500
7,700
8,400
9,200
10,400
11,300
12,400
The Joard approves the payment of salares to the e.aployees,
other than officers, within the limits specified for the grades in
uhich the positions of the respective employees are classified. It is
assumed that all employees whose sn1aries Lcro below the minimum of
their grades as a result of the structure increase will be brought
within the appropriate range as soon as practicable and not later than
January 1, 1261.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
1.1e. L'alcolla :!rynn
The Dmrd understans that 2rovision hLs )-ylen made in the
19o3 buket to cor inceeaseJ t):)ense arisin Croi t11.3 chatu: in
tAructure.
It is understovl that the .:.J Yresnt eitvloyeest salc,ry
strucWres of the Head.Officel'and the Binainham, ilash.Alle, and
New Orleans Branches, 19hich .vere made effective January 1, 1958,
will continuo to be app)icble to those oMces.
Very truly yours,
(Signed) Merritt Sherman
Yerritt Sherman,
Secretar,y.
(M
0
BOARD OF GOVERNORS
•
OF THE
FEDERAL RESERVE SYSTEM
Item No. 7
9/30/60
WASHINGTON 25. D. C.
ADDRESS
orricim. CORRESPONDENCE
TO THE BOARD
September 30, 1960
Board of Directors,
Pine Lawn Bank and Trust Company,
Pine Lawn, Missouri.
Gentlemen:
Pursuant to your request submitted through the Federal
Reserve Bank of St. Louis/ the Board of Governors of the Federal
Reserve System approves the establishment of a branch at 6102
Grimshaw Avenue, Pine Lawn, Missouri. This approval is given
provided the branch is established within six months from the
date of this letter. The Board of Governors, as requested,
further approves under the provisions of Section 24A. of the Federal
Reserve Act, an additional investment of $33,264 in bank premises
by Pine Lawn Bank and Trust Company, Pine Lawn, Missouri.
Very truly yours,
(Signed) Kenneth A. Kenyon
Kenneth A. Kenyon,
Assistant Secretary.
@FedFRASER