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ADDRESS OFFICIAL CORRESPONDENCE  T O

T H E

  FEDERAL RESERVE BOARD

X-6031

FEDER L RESERVE BO RD

W SHINGTON

May 4 , 192 8.

T ' P -

'-£<04,

SUBJECT: Revision  o f  Member Bank Reserve Requirements.

Dear

  S i r :

Under date

  o f

  Apr i l

  1 2 , 1 9 2 8 , t h e

  Board addressed

  a

l e t t e r

  t o a l l

  Governors

  o f

  Federal reserve banks ,

  a

  copy

  o f

which  w as  sent  to  each Agent, su bmi tt in g  t h e  fo l lowing topic

t o be

  p l a c e d

  o n t h e

  program

  f o r t h e

  Governors' Conference.

D e s i r a b i l i t y

  o f

  recommending legislation amending

Sect ion

  19 of

  Federal Reserve

  A c t

  r e l a t i n g

  t o r e -

qui red reserves

  o f

  member banks

  a n d o f

  wr i t ing in to

law a

  comple te def in i t ion (a long l ines

  o f t h e

  Board 's

Regula t ion  D) of  what cons t i tu tes savings  a n d  other

t ime depos i t s .

This quest ion

  w as

  di scussed

  a t t h e

  Governors ' Confer-

ence  a n d t h e  Governor  o f  your bank w il l acq uain t  y o u  wi th  t h e

act ion taken.

T he

  Board would like

  to

  have

  a t

  your early convenience

your views with reference  t o t h e  p r opos a l s ou t l i ned  i n t h e  memo-

randum prepared

  b y t h e

  Chief

  o f t h e

  Board ' s Divi s ion

  o f

  Bank

Operat ions (St .5420)

  a n d t h e

  suggested b i l l prepared

  b y t h e

Board's Counsel which would write into  l a w t h e  changes suggested

i n t h e  memorandum.

The

  proposed b i l l t hrough inadver tence f a i l e d

  t o i n -

clude

  t h e

  provi s ion conta ined

  i n

  paragraph

  one on

  page thr ee

  o f

t h e  memorandum  t o t h e  e f f e c t t h a t ,

" ( d ) n o  withdrawal  i n  excess  o f  $500  on any one day

s h a l l

  b e

  made unless

  t h e

  depos i t o r

  h a s

  given not ice

o f

  such int en ded withd rawa l

  n o t

  less than

  30

  days

be f o r e  t h e  withdrawal  i s  made.

I t

  w i l l

  b e

  appr ec i a t ed

  i f y o u

  w il l change

  t h e

  words

"m ay a t i t s

  opt ion appear ing

  in

  sub-paragraph three

  on

  page

two o f th e

  b i l l

  t o

  must ,

  so

  t h a t

  t h e

  sub-paragraph wi l l read

Af ter wr i t t en not i ce which  t h e  bank must require  t o b e  given—

11

.

F o r  your information  w e a r e  enclos ing  an  a d d i t i o n a l

copy

  o f t h e

  memorandum

  a n d t h e

  p r opos ed b i l l .

Very truly yours,

1 0 A I L

  M . A G M T S . A S A T L L E ^ T A R Y .

Enclosures :

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•

A

  BILL

To

  amend Section

  19 of the

  Federal Reserve

  A c t .

BE' IT

  ENACTED

  BY THE

  SENATE

  AND

  HOUSE

  OF

  REPRESENTATIVES

OF THE

  UNITED STATES

  OF

 AMERICA

  IN

  CONGRESS ASSEMBLED, That

  t h e

f i r s t p a r a g r a p h  o f  Sect ion  19 of the  Federal Reserve  A c t , a s

amended,  "be  further amended  a n d  re -enac ted  t o  read  a s  fo l lows:

Bank Reserves.

"S e c . 1 9 . T h e

  term

  1

 demand d e po s it s

1

  wi th in

  t h e

  mean-

i n g o f  t h i s  a c t  sha l l inc lude  a l l  depos i t s  of  publ ic

moneys  o f t h e  Uni ted S ta tes ,  a l l  cer t i f i ed checks , cash-

i e r

  1

 s

  checks , t reasure r

1

s checks, demand l e t t e r s

  of

c r e d i t ,

  a.nd

  t r av e l le r s ' checks ou ts ta nding ,

  a n d a l l

other deposits except

  '

 time d epo sit s

1

  and

  '' bank d e p o s i t s '

a s  he re ina f t e r de f ined .

"The

  term

t ime deposi ts ' wi thin

  t h e

  meaning

  o f

  this

a c t

  sha l l inc lude

  a l l

  ' s av ings acco un t s ' ,

  1

 time c e r t i f i -

ca tes

  o f

  d e p o s i t

1

, *posta l savings de po si ts '

  a n d

  'open

account t ime deposits '  a s  hereinafter defined, exce-p.t

that whenever,  Toy t h e  l apse  o f  time  o r t h e ^giving  of

n o t i c e

  of an

  intended withdraw al, sa vings accoun ts, t ime

c e r t i f i c a t e s

  o f

  d e p o s i t ,

  a n d

  open account time deposits

become payable

  i n

  less than

  30

  days, such de po si ts sh al l

b e

  considered demand deposits.

"The

  term

  '

 savings. accounts s ha l l mean dep osi ts

  o f

i n d i v i d u a l s

  a n d

  r e l i g i o u s , c h a r i t a b l e

  o r

  similar corpora-

t i o n s ,  i n  r e spec t  t o  wi ich-

> , '

  1

  '' ' •

(1 ) A

  pas s book, c e r t i f i c a t e

  o r

  other similar form

  o f

r e c e i p t , d e l i v e r e d

  to and

  r e t a i n e d

  by the

  depos i to r

o r h i s

  ass ignee , mas t ac tua l ly

  be

  p re sen t ed

  to the

bank whenever  a  withdrawal  i s  made;

(2) The

  depos i to r

  o r h i s

  ass ignee

  may a t a ny

  time

  b e

r equ i r ed

  by the

  bank

  to

  give not ice

  of an

  i n t e n d -

ed

  withdrawal

  n o t

  les s tnan t h i r t y days be fo re

a

  withdrawal

  i s

  made;

  and

(3 ) The  bank ' s p r in t ed reg ula t io ns , accep ted  by the

depos i to r inc lude

  t h e

  above requirements.

Deposits which

  a r e

  permi t ted

  t o b e

  withdrawn

  b y

  check

o r  otherwise , wi thout  t h e  ac tua l p r e sen t a t i on  o f t h e  pass

b o o k , c e r t i f i c a t e ,  o r  other similar form  o f  receipt whenever

a

  withdrawal

  i s

  made, shall

  n o t b e

  considered ' s avings

  a c -

counts ' wi th in

  t h e

  meaning

  o f

  t h i s

  a c t . The

  r e t e n t i o n

  o f

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$

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-UBRW

 (§ .

t h e  pas s book, ce r t i f i c a t e  o r  oth er i /a i la r form  o f

r e c e i p t

  o r a

  dup l i ca t e

  of

  same,

  by the

  bank

  or by an

o f f i c e r , a g e n t

  o r

  employee thereof,

  a n d t h e

  p r es en-

t a t i o n  o f  same  b y t h e  bank,  or by an  o f f i ce r , agen t

o r

  employee thereof, shall

  n o t b e

  cons idered

  an

  ac t ua l

p r es en t a t i on wi t h i n

  t h e

  meaning

  of

  t h i s

  a c t . A d e -

posit made

  by one

  bank

  i n

  another

  o r a

  depos i t

  of a

e

bus iness corpora t ion  or  f i rm sh al l  no t in any  case  b e

cons idered  a

  1

 savings accoun t

1

  wi th in  t h e  meaning  of

t h i s

  a c t .

11

 The  term

  1

 time c e r t i f i c a t e  of  depos i t ' s ha l l

mean  a  deposi t evidenced  b y  wr i t t en ins t rument de l i ve r -

ed to and  r e t a i n e d  by the  deposi tor evidencing  t h e d e -

pos i t w i t h

  a

  bank, ei th er wi th

  or

  w i t h o u t i n t e r e s t ,

  of

a

  c e r t a i n

  sum

  s p e c i f i e d

  on the

  face

  o f the

  c e r t i f i c a t e ,

payable  i n  whole  o r in  p a r t  t o t h e  depos i t o r  or on h i s

or de r -

(1 ) On a  ce r t a i n da t e , s pec i f i ed  on the  c e r t i f i c a t e ,

more than thir ty days after

  t h e

  date

  o f t h e d e -

p o s i t ;  o r

( 2 )  A f t e r  th e  lapse  o f a  certain t ime subsequent  t o

t h e

  date

  o f the

  c e r t i f i c a t e ,

  in no

  case less

than thi r ty days ;

  o r

( 3 )

  After wr i t ten not ice which

  t h e

  bank

  may a t i t s

op t i on r equ i r e  to be  given  a  c e r t a i n s p e c i f i e d

number  of  days ,  n o t  l es s than th i r t y days be io re

the

  date

  of

  repayment;

  and

( 4 ) In a l l  cas es onl y upon  t h e  ac t ua l p r e s en t a t i on

of the  c e r t i f i c a t e  a t  each withdrawal  f o r  proper

endorsement

  o r

  sur render .

"The  r e t e n t i o n  of the  c e r t i f i c a t e ,  o r a  d u p l i c a t e  of  same,

b y t h e  bank  or by an  o f f i c e r , a g e n t  o r  employee thereof,  and

th e  p r e s e n t a t i o n  of  same  b y t h e  bank  or by an  o f f i ce r , agen t

o r

  employee thereof shall

  n o t b e

  considered

  a n

  a c t u a l p r e s e n t a -

t ion wi th in

  t h e

  meaning

  o f

  t h i s

  a c t . A

  de po si t made

  by one

  bank

i n  another sha l l  n o t i n a n y  case  be  cons idered  a

  1

 time c e r t i f i c a t e

of  depos i t

1

  wi t h i n  t h e  meaning  of  t h i s  a c t .

"The

  term

  1

 po s t a l s avings dep os i t s

1  a s

  ^~iv. a c t

shal l mean deposi ts  of  po s t al savings funds  i n  banks under  the

terms  o f the  pos tal savings act ,approved June  2 5 , 1 9 1 9 , a s  amended.

^ *

"The

  term

  1

 open account t ime d ep os it s '

  a s

  used

  i n

  t h i s

  a c t

shal l mean deposi ts

  n o t

  evidenced

  by

  c e r t i f i c a t e s

  of

  depos i t s

  o r

savings pass books,

  i n

  r e s p e c t

  t o

  r h i ch

  a

  wr i t t en con t r ac t

  i s e n -

t e red in to wi th  t h e  depos i t o r  a t the  time  t h e  depos i t  i s  made  p r o -

viding tha t ne i ther  t h e  whole  o r any  p a r t  o f  such deposi t  may be

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withdrawn,  by  check  o r  otherwise, except  on a  given date, more than

t h i r t y days a f t e r  t h e  date  o f th e de^o i t , o r on  wr i t t e n not i ce

which mast  "be  given  b y t h e  depos i tor  a  ce r t ai n spe ci f i ed number  of

days

  i n

  advance,

  in no

  case le ss than t h i r ty days .

  I n

  order

  f o r

depos i t s  to be  c l a s s i f i e d  a s  *ope;i account t in e de co sit s*  t h e  bank

i n  which such deposits  a r e  made mast a ct ua ll y req ui re such wr it te n

not ice before permit t ing wi thdrawals  to be  made.

" T h e  term

  1

bank deposits

1

  shal l include  a l l  deposit balances

due to  other banks, bankers,  a n d  trust companies  i n t h e  United

S t a t e s

  a n d

  f o r e i gn coun t r i e s .

Every bank, banking associat ion,  a n d  t r u s t company which  i s

o r  which becomes  a  member  o f any  Federal reserve bank shall

e s t a b l i s h

  a n d

  mainta in

  a

  reserve cons i s t ing

  of an

  a c t u a l

  n e t

balance wi th  t h e  Federal reserve bank  of i t s  d i s t r i c t equa l

t o n o t  l e s s t han t h i r t ee n  p e r  centum  o f t he  aggregate amount

o f i t s  bank dep osi ts , three  p e r  centum  of th e  aggregate amount

o f i t s  t ime deposi ts ,  a n d t h e  fo l lowing  p e r  centum  o f t h e a g -

gregate amount  of i t s n e t  demand de p o si t s:

Banks  i n  cen t r a l r e s e r ve c i t i e s ,  1 3 p e r  centum;

Banks  i n  r e s e r v e c i t i e s ,  S p e r  centum;  a n d

Other banks,

  7 p e r

  centum;

PROVIDED, HOWEVER, That, upon

  t h e

  a f f i r ma t i ve vo t e

  o f

  f ive

members

  o f t h e

  Federal Reserve Board,

  a n y

  bank located

  i n a n o u t -

l y i n g d i s t r i c t

  o f a

  cent ra l r eserve c i ty

  may be

  pe r mi t t ed

  t o

  main-

t a i n

  a

  reserve balance equal

  t o n o t

  less than seven

  o r

  nine

  p e r •

centum

  o f i t s n e t

  demand deposits,

  and any

  bank located

  i n a n o u t -

l y i n g d i s t r i c t

  o f a

  reserve c i ty

  may be

  pe r mi t t ed

  t o

  mainta in

  a

reserve balance equal

  t o n o t

  less than seven

  p e r

  centum

  o f i t s

n e t

  demand deposits;

  AHD

 PROVIDED FURTHER, That,

  i n

  computing

  t h e

amounts

  o f n e t

  demand deposits against which reserves must

  b e

maintained,

  a l l

  member banks

  may

  deduct from

  t h e

  amount

  of

  t he i r

gross demand deposits,

  a l l

  balances

  due to

  thorn from other banks

(except Federal reserve banks

  a n d

  foreign banks) ,

  a l l

  cash items

depos i t ed

  by

  them wit h Fed era l re se rv e banks

  a n d

  other banks

  i n

pr oces s

  o f

  c o l l e c t i o n ,

  a l l

  exchanges

  f o r t h e

  clear ing house,

a n d a l l

  checks

  i n

  other banks

  i n t h e

  same p l a c e .

"The

  Federal Reserve Board shall have authori ty

  t o

  p r es c r i be

regula t ions governing

  t h e

  maintenance

  o f t h e

  reserves r equi red

by

  t h i s s ec t i on

  a n d

  f u r t he r de f i n i ng  th u  var ious c l as ses

  o f d e -

posi ts herein ment ioned.

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L

  4 3 < J

"No

  member bank shall keep

  on

  deposit with

  an y

  State bank

o r

  t r u s t company which

  i s n o t a

  member bank

  a sum in

  excess

  o f

t e n p e r

  centum

  of i t s own

  paid-up cap i ta l

  an a

  su rp lus .

  Ho mem-

b e r

  bank shall

  a c t a s t h e

  medium

  o r

  agent

  o f a

  nonmember bank

i n

  applying

  f o r o r

  receiving discounts from

  a

  Federal reserve

bank under

  t h e

  provis ions

  of

  t h i s

  A c t ,

  except

  by

  permission

o f t h e

  Federal Reserve Board.

"The  required balance carr ied  by a  member bank with  a

Federal reserve bank  may,  under  t h e  r e g u l a t i o n s  and  subject

t o  such pe na l t i e s  as may be  p re sc r ibed  by the  Federal Reserve

Board,  b e  checked against  and wi thdrawn  by  such member bank

f o r t h e  purpose  of  meeting existing liabilities: PROVIDED*

HOWEVER. That  no  bank shall  a t a n y  time make  n«w  loans  o r

s h a l l  p a y a n y  dividends unless  and  u n t i l  t h e  tota l balance

requ i r ed

  by law is

  fu l l y r e s to r ed .

National b&nks,  or  banks organised under l oc al la ws,

l oca t ed  i n  Alaska  or in a  dependency  o r  insu la r possess ion

o r a n y  p a r t  o f t h e  United States outside  t h e  cont inen ta l

United States

  may

  remain nonmember banks,

  a n d

  s h a l l

  i n

  that

event maintain reserves

  and

  comply with

  a l l t h e

  conditions

now

  provided

  by law

  regulating them;

  or

  said banks

  may,

  -vith

t h e

  consent

  o f t he

  Reserve Board, become member banks

  of

any one of the

  r e s e r v e d i s t r i c t s ,

  and

  s h a l l

  i n

  that event

take s tock, maintain reserves ,

  and be

  sub j ec t

  t o a l l t h e

other p rovis ions

  of

  t h i s

  A c t . "