View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

/ i e( ct


For Immediate Release

ober 8, 1974

Dr. Arthur F. Burns, Chairman of the Board of Governors of
the Federal Reserve System, today issued the following statement concerning
Franklin National Bank:

The arrangements announced today represent a resolution of the

long-standing difficulties surrounding Franklin National Bank that is very
much in the public interest.

Depositors, borrowers and other customers

of Franklin will be able to continue to do business at the same locations
by virtue of the merger agreement.

Depositors will suffer no loss.

Borrowers and other customers will have a full range of banking service
available to them without interruption.

The former offices of Franklin

will open for business tomorrow at the usual time as offices of EuropeanAmerican.

All of Franklin's depositors will automatically become depositors

of European-American,
The Federal Reserve, as lender of last resort, provided
emergency assistance to Franklin beginning last May.

By doing so, we

kept Franklir/s banking services available, prevented serious adverse
consequences in financial markets both here and abroad, and provided the
time necessary for the Comptroller of the Currency, the Federal Deposit
Insurance Corporation and the Federal Reserve to work out a satisfactory
permanent solution.

The merger agreement announced today guarantees that

banking service will be provided to Franklin's customers and the community
through a strong institution.

The interest of the public, the Federal

Government, the depositors and loan customers of Franklin are protected
by these arrangements.

The outcome constitutes the only viable means

for resolving Franklin's difficulties consistent with the public interest."

Earlier this year, Franklin National reported poor operating
earnings, and subsequently it reported substantial losses in its foreign
exchange operations.

The management of the holding company that controlled

the bank--the Franklin New York Corporation--announced on May 10 that
it would recommend passing the regular dividend payment on both common
and preferred stock.
On May 12, the Federal Reserve announced that it would advance
funds to Franklin as needed--so long as the bank remained solvent and
within the limits of the collateral that could be supplied--if the bank
experienced unusual liquidity pressures.

Federal Reserve lending to

Franklin was substantial thereafter, reaching a maximum of approximately
$1,75 billion in earlv October.
Because of the size and complexity of the problem, a period of
time was required to work out a permanent, satisfactory solution.
the options studied



the regulatory authorities was possible continuation

of Franklin as an independent bank.

Merger with another institution emerged

as the onlv acceptable route, however, for continuing the banking services
provided bv Franklin

Accordinglv, Federal Reserve assistance was continued

until a merger could be effectuated.


The Comptroller, in determining Franklin to be insolvent,
designated the Federal Deposit Insurance Corporation as receiver for

An arrangement worked out with FDIC ensures the repayment

of all Federal Reserve funds loaned to Franklin.
As receiver for Franklin National, the FDIC assumed the
Federal Reserve loan and has agreed to repay it over the next three
years as collateral supplied by Franklin is liquidated.

FDIC will act

as agent for disposition of the collateral which backed the loan to

- 0 -