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X-4131

IN THE

UNITED STATES DISTRICT COURT

FOR THE

NORTHERN DISTRICT

OF

GEORGIA

PASCAGOULA NATIONAL BANK

VS

IN EQUITY

FEDERAL RESERVE

BAM OF

ATLANTA,

ET AL.

TO THE HONORABLE, THE JUDGES OF THE DISTRICT COURT

OF THE

UNITED STATES

FOR THE

NORTHER DISTRICT

OF

GEORGIA.

The

Pascagoula National Bank

of

Moss Point, with

a

branch

a t

Pascagoula , Mississ ippi , br ings this bi l l

of

complaint

in i t s own

behalf and in behalf of other banks i n l i k e s i t ua t i on and a l l eges

t h e

fol lowing facts :

1 .

P l a i n t i f f

i s a

National Banking Association under

t h e

laws

of t he

United States maintaining

i t s

pr inc ipa l of f i ce

and

place

of

business

a t

Moss Point, Mississippi,

and a

branch bank

a t

Pascagoula

Miss i ss ippi ,

a s

authorized "under

i t s

cha r te r . Organizat ion

of

said

bank

a n d i t s

branch

w as

completed under

i t s

char ter

a n d i t s

business

a s a

National Bank began

on or

about

t h e

l 4 t h

day of

March,

1907 , a nd

i t h a s

been continuously operating

a s a

National Bank ever since.

2.

In due

course af ter

th e

enactment

o f t he

Federal Reserve

Act

by

Congress,

a nd t he

organiz at ion

o f t he

Federal Reserve System

thereunder, plaintiff became a stockholder in and a member of the

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# ' ' T

- 2 - X-U131

Federal Reserve Bank

of

Atlanta ,

as i t was

compelled

to do

upon pain

of

f o r f e i t i n g

i t s

char te r

a s a

National Bank,

and has so

continued

t o

t h e present t ime.

. 3 .

The


c f

At lan ta

i s a

banking corporation

created

a nd

existing under

t h e

laws

of the

United States with

i t s

p r i n -

c ipa l o f f ice

i n t h e

City

o f

Atlanta, Georgia, within

t h e

Northern

D i s -

t r i c t

of

Georgia,

a n d

operates

i n t h e

Sixth Federal Reserve District

and

i s

made

a

party defendant

t o

t h i s b i l l .

I t

maintains

a

branch bank

i n

t h e

City

of New

Orlean s, Louisiana,

a s a

par t

o f i t s

corporate organiza-

t i on a s provided i n t h e Federal Reserve A c t .

4 .

Under Section

10 of the

Federal Reserve

Act

there

was

created

a Federal Reserve Board, consisting, under th e or ig ina l Ac t , o f seven

members,

and by an

amendment approved June

31 1$22,

increased

t o

eight

members,

two of

whom

a r e t h e

Secretary

o f the

Treasury

o f the

United

Sta tes

and the

Comptroller

of the

Currency

of the

United States,

f o r t h e

time being

i n

o f f i c e ,

as Ex

Officio members,

a n d t h s

remaining

six mem-

advice

bers a r e appointed by the President o f the United States by and with the /

and consent o f the Senate.

The. Act

also provides that

t h e

Secretary

of the

Treasury shall

be ex

officio chairman

o f t h e

Board

an d

tha t

t h e

President shall desig-

nate

one of the

appointed members

a s

Governor,

a nd

another Vice Governor,

of the

Board.

The

said Board acts

as an

organizat ion

and i s a

quasi

corporation having

i t s

pr inc ipa l o f f ices

i n t h e

Treasury Building

of the

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United States i n t h e City of Washington, an d under said a c t t h e Board i s

required t o maintain a local of f ice on the premises of each o f t he twelve

Federal Reserve Banks created and operating under t h e Federal Reserve A c t ,

and to designate from among Class C Direc tors , a l l o f whom a r e appointed by

th e Federal Reserve Board f o r each Federal Reserve Bank, a Federal Reserve

Agent, who is also Chairman of the Board of Direc tors of the Federal Re-

serve Bank where

he i s

loca ted .

The

Federal Reserve Agent

a t t h e

defend-

a n t Federal Reserve Bank a t Atlanta a t t h e present time i s Joseph A. McCord

and a -pa r t o f h i s duties under t he l aw i s t o maintain a loca l o f f i c e of the

Federal Reserve Board

on the

premises

of

said Federal Reserve lank oi

A t-

lanta where he i s required t o , a n d does, ac t a s t he o f f i c i a l r epresen ta t ive

of the

Board

i n t h e

performance

o f i t s

func tio ns under

t h e A c t , and

espec-

i a l l y of those functions i n t h e Sixth Federal Reserve District that oper-

a t e upon p la in t i f f , and other member banks i n s a i d d i s t r i c t , of which com-

p l a i n t i s hereinafter made»

5-

Said Joseph A. McCord resides i n t h e City of Atlanta, within t h e

Northern Distr ict

of

Georgia,

and

maintains

h i s

o f f i c e

a s

Federal Reserve

Agent,

a s

a fo resa id ,

on the

premises

o f t he


of

Atlanta,

i n t h e City of Atlanta, i n t h e Northern Distr ict of Georgia, a s required b$r

law , and as such i s t h e o f f i c i a l r epresen ta t ive of the Federal Reserve Board

within

t h e

Sixth Federal Reserve District,

a s

well

a s

Chairman

of the

Boar:

of Direc tors of defendant Federal Reserve Bank. The present personnel of

t h e Federal Reserve Board i s a s f6llows:

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- b - X-U13I

A. VJ. Mellon, Ex Of f i c io , S sc r sv a ry o f t h e Treasury,

Chairman

Henry Dawes,

Ex

Off ic io , Comptrol ler

o f t h e

Currency.

D. B* Cr is si ng er , Governor

Edmund P l a 1 1 V i c e Governor

Adolph C. Mil ler

Chas*

3 .

Haniin

Geo, 3*

James

Edward H* Cunningham

b*

Said Joseph

A«

McCord,

a s

Federal Reserve Agent,

and

s a i d

F e d -

eral Reserve Board, a s a Board* of which said McCord i s t h e o f f i c i a l

r e p r e s e n t a t i v e i n s a i d d i s t r i c t , a r e made pa rt ie s defe ndant t o t h i s b i l l .

7 •

The Federal Reserve Act f i x e s t h e s a l a r i e s o f the personnel

of the Federal Reserve Board and provides f o r t h e payment thereof by

semi-annual assessments upon

t h e

twelve Federal Reserve Banks

i n

propor-

t i o n t o the i r cap i ta l s tock a n d surplus , including t h e es t imated operat-

i n g expenses o f t h e Federal Reserve Board f o r t h e half year succeeding

t h e levy ing of each assessment , toget her with an y d e f i c i t c a r r i e d f o r -

ward from t h e preceding hal f ye ar .

S»

The Federal Reserve Board i s clothe d wit h au th or it y under

t h e Federal Reserve Act to examine such Federal Reserve Bank, t o r e -

quire t h e Federal Reserve Banks t o rediscount cer ta in descr ibed com-

mercial paper a t r a t e s of i n t e r e s t t o b e f i x e d by the Board; t o suspend

any

reserve requirements specif ied

i n t h e A c t ; t o

superv ise

a n d

regu-

l a t e t h e u s e a n d re t i rement of Federal Reserve notes; t o require each

Federal Reserve Bank t o mainta in t h e required gold reserves against t h e

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- 5 - x-4%31

Federal Reserve notes;

t o

c l a s s i f y

t h e

severa l c i t i es

i n t h e

country

a s

Federal Reserve cit ies

and to

r e c l a s s i f y

t h e

same;

t o

suspend

o r

remove an y o f f i c e r o r d i r ec to r of any Federal Reserve Bank ̂ t o require

t n e wr i t ing off of doubtful o r worthless assets upon t h e books of any

of t he several Federal Reserve Banks; t o suspend t h e operations of any

Federal Reserve Bank a n d , when deemed advisable, t o l i q u i d a t e o r r e r

organize

i t ; t o

require bonds

of

Federal Reserve agents

and

make regu-

l a t i ons f o r t h e safeguard of co ll at er al , res erve note s, money o r prop-

erty deposited i n t h e hands of such agent; t o grant t o National Banks

t h e

r igh t

t o a c t a s

Trustee, Executor, Administrator

o r

Regis t ra r

of

stocks a n d bonds; t o employ atto rney s, experts , ass is ta nt clerk s o r

other employees deemed necessary t o conduct t h e business o f t he Board;

and , f i n a l l y , t o exercise general supervision over a l l Federal Reserve

Banks created

an d

existing under

t h e

terms

and

provis ions

o f t he

Federal

Reserve Act*

9 .

P l a i n t i f f

i s

advised

by

counsel,

and

thereupon alleges that

under

t h e

legal machinery

o f t he

Federal Reserve

Ac t , a s

hereinbefore

out l ined, an d more fully s e t f o r t h in the Act i t s e l f , of which t h e Court

will take judicial cognizance, there i s created a "Federal Reserve

System" endowed with a l l t h e corporate powers necessary t o regula te t he

National Banks

of the

United States, including

t h e

twelve Federal

R e-

serve Banks, t h e primary functions of which a r e t h e establishment of a

f lexible currency and the s t a b i l i z i n g of credits throughout t h e en t i re

system, upon which t h e Federal Reserve Board i s superimposed a s t h e u l -

t imate and control l ing directorate*

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—6— X-4131

10 ,

Pr io r t o t h e passage o f t h e Federal Reserve i c t in 1913»

checks drawn upon "banks i n o ther loca l i t i es than tha t o f t h e payees o r

holders

of

such checks, were customarily collected through Clearing

Houses o r Collection Bureaus and remitted f o r b y n a i l t o t h e bank i n

which they had been deposited f o r co l l ec t i on i n t h e form of a draf t

on the

drawee's deposit

i n

some reserve city.

F o r t h e

service rendered

by the drawee bank in so remit t ing i n funds avai lable f o r u s e a t t h e

place

o f the

deposit

o f the

checks,

i t was a

common practice

t o

nake

a

small charge called "exchange," and to deduct t h e amount thereof from

t h e

remittance.

11

The Federal Reserve Act , as originally enacted, authorized

t h e Federal Reserve Board t o require member banks t o remit by mai l , o r

otherwise, t o their respective Reserve Banks, t h e proceeds of checks

drawn upon such members, se nt t o them f o r co l lec t ion a n d remit tance, t h e

full face value of such checks without t h e customary deduction f o r e x -

change . This prov isio n o f the original Federal Reserve Act was not en-

forced against member banks until t h e Summer of 1916.

12.

Under t h e provis ions o f the Federal Reserve A c t , a s or ig ina l ly

passed,

t h e

c l a s s

of

checks which

t h e

Federal Reserve Barks might

r e -

ceive was l imi ted as to each Reserve Bank t o those checks which were

drawn upon

i t s own

members.

By an

amendment

t o t h e

Federal Reserve

Act

of September J t h , 1916 , t h e c lass of checks which t h e Reserve Banks were

permit ted t o rece ive was expanded so as to include a l l checks on whomso-

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?

- 7 -

X-U131

ever drawn which were payab le upon p re sen ta t ion "within t h e d i s t r i c t of

t h e receiving Federal Reserve Bank.

13.

According t o t h e l e t t e r of the or ig inal a c t , t h e Federal R e-

serve Board

w as

authorized

t o

require member banks

t o

forego

t h e

r ight

t o charge exchange f o r t h e co l l ec t ion and . remission of checks presented

f o r payment through their respective reserve banks,

14 .

P l a i n t i f f i s advised t y counsel, and thereupon alleges that by

an

amendment

o f t he

Federal Reserve

Act of

June

21st , 1917»

known

a s t he

Hardwick amendment, member banks regained t h e r ight t o charge exchange,

wi thin cer ta in l imi ta t ions , b u t i n t h e meantime th e Reserve System had

es tabl i shed,

o r

were undertaking

t o

e s t ab l i sh ,

a

universal system

f o r

t h e co l l ec t ion of checks throughout t h e United States and known a s t he

"Par Clearance System.

n

This purpose and system h a s been continued u p

t o t h e f i l i n g of t h i s b i l l .

1 5 .

That this

was the

purpose

of the

Federal Reserve system,

i s d i s -

closed b y t h e o f f i c i a l dec la ra t ion of the then Governor o f t he Board —

W. P. G.

Harding,

i n t h e

following statement which plain tiff

i s

informed

he made t o t h e Chairman of the House Committee on Banking and Currency.

"The

Board believes that

i t i s

charged wi th

t h e

duty

a n d r e s -

p o n s i b i l i t y of inaugurating a complete check clearing system throughout

t h e United States, that t h e Federal Reserve Banks i n compliance with t he

evident purpose

o f t h e l aw and in

f a i r n e s s

t o a l l

t h e i r member banks rftisit

exercise their power t o receive f o r col l ec t ion fi'om th es e member banks

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- g - X-U131

•checks upon whomsoever drawn which a r e payable upon presenta t ion,"

l 6 .

That i t i s t h e i n t e n t i o n o f t h e present Federal Reserve Board

t o

continue this system,

i s

further shown

"by the

d e c l a r a t i o n

of i t s

present Governor—D. R . Crissinger, which defendant i s informed was

signed by him, as fol lows:

FEDERAL RESERVE BOARD

WASHINGTON

OFFICE OF GOVERNOR September 5 , 1923.

"Your pr in ted le t ter to n;e, dated September 1 , 1923 , ha s been

received an d brought t o t h e a t t e n t i o n of the Federal Reserve Board which

d e s i r e s

t o

s t a t e t h a t

i t

in tends

t o

continue

t h e p a r

clearance system

under t h e p rov is ions o f the Federal Reserve A c t , a s construed by the Su-

preme Court o f the United Sta tes ,"

Very truly yours,

D. R, Cr iss inger ,

Governor.

Mr, L. R, Adams, General Secretary,

National

a n d

State Bankers Protective Association,

512 Haas Howell Building,

Atlanta, Georgia.

P l a i n t i f f i s informed an d b e l i e v e s , and 30 c h a rg e s , t h a t t h e

p r in t e d l e t t e r t h e re in r e f e r r e d to was addressed t o t h e Governor of the

Federal Reserve Board by the National and State Bankers Protective Asso-

c i a t i o n , and a copy thereof i s hereto attached, marked "Exhibit A . "

This le t te r pos t -da ted ce r ta in dec is ions of the Supreme Court interpreting

Sect ions 13 and l6 o f th e Federal Reserve A c t , P l a i n t i f f is a , member of

t h e National a n d Sta te Bankers Protect ive Associa t ion a n d t h i s l e t t e r was

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-U131

w r i t t e n

i n t h e

i n t e r e s t

o f

t h i s p l a i n t i f f

a nd a l l

other member banks

i n

l i k e s i t u a t i o n ,

1 7 .

I n

order

t o

supply machinery

f o r t h e

establ ishment

of

universa l

p a r

c learance ,

t h e

Federal Reserve Board issued

a

ce r t a in r egu la t ion

known a s Regulat ion J , which p l a i n t i f f i s informed i s s t i l l of force

throughout

t h e

system, providing that member banks will

b e

requi red

by

t h e Federal Reserve Board to^provide funds t o cover a t p a r a l l checks r e -

ceived

f o r

their account

i n t h e

Federal Reserve Banks,

a n d

t h a t

t h e F e d -

eral Reserve Banks i n handling such items f o r member banks will a c t a s

agents only, without an y l i ab i l i t y excep t f o r the i r neg l igence . P l a i n t i f f

i s

informed th at duri ng

t h e

ea r ly h i s to ry

o f t he

a c t i v i t i e s

o f t he

system,

t h e cost of clearing checks-was taxed against t h e Banks receiving t he

benef i t t he reof , b u t a l l charges f o r such services have been withdrawn

a n d t h e

member banks, including

t h e

p l a i n t i f f he r e i n,

a r e ,

under said

regula t ion, requi red t o remit t h e proceeds o f a l l checks pre sen ted t o

them through t h e defendant Federal Reserve Bank by mail without a n y d e -

duction whatever f o r t h e service rendered i n t h e t r a n s f e r o f funds i n -

volved

i n

such t ransact ions ,

18 .

P l a i n t i f f i s informed by Counsel, a n d thereupon al le ge s, t ha t

this course

of

bus iness

i s i n

d i re c t co nf l ic t wi th

t h e

express tarms

of

Section 13 of the Act r e se rv ing t o member banks t h e r i g h t t o make t h e

service charge f o r c o l l e c t i n g an d remit t ing proceeds of bank checks

handled

f o r

col lec t ion, because

t h e

p r o h i b i t i o n

o f t h e

payment

of

such

charge w as designed solely f o r t h e p r o t e c t i o n o f t h e revenues o f t h e Fe d -

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—10— X-U131

e r a Bank. Inasmuch a s t h e Fed er al Rese rve Bank und er t h e said regula-

t i o n

o f t he

Federal Reserve Board acts

a s

agent only

i n

col lect ing such

checks, t h e service charge f o r their conversion into cash a t t h e place

where said cash

i s

ava i l ab le

t o t h e

payee

o r

endorser

of

said check,

operates a s a ipat ter of law agains t t h e par ty f o r whom t h e Federal R e -

serve Bank i s a c t i n g a s col lect ing agent a n d i s n o t a charge against t h e

Federal Reserve Bank itself.

1 9 .

P l a i n t i f f i s informed by Counsel, and thereupon al le ge s, tha t

under

t h e

p rov i s ions

of

Sect ion

l 6 o f t h e

Federal Reserve

A c t ,

every

F e d -

eral Reserve Bank i s requi red t o rece ive on deposi t a t p a r from member

banks

o r

from other Federal Reserve Banks checks

o r

d r a f t s drawn upon

any

of t he depos i to r s i n t h e Federal Reserve Bank receiving such deposit, and

th is sec t ion preserves t o t h e member banks t h e r igh t t o charge their

actual expenses incurred

i n

c o l l e c t i n g

and

remit t ing funds

o r f o r

exchange

t o the i r pa t rons , t h e amount o f such charges, i n case of c o l l e c t i o n and

remittance through t h e Federal Reserve Banks t o b e f ixed b y t h e Federal

Reserve Board* Pl a i n t i f f al le ge s th at under

t h e

r egu la t ions

o f t h e Fe d -

eral Reserve Board a l l o f t h e Federal Reserve Banks, including t he de~

fendant reserve bank, a r e forbidden t o comply with t h e p rov i s ions of th is

sec t ion , t o t h e i n j u r y of p l a i n t i f f an d other banks, i n that checks so

tendered f o r deposi t and f a l l i n g w i t h i n t h e d e s c r i p t i o n o f th is sec t ion

a r e n o t

rece ived

on

deposi t

a n d

credi t given therefor

a t p a r , b u t a r e r e -

ceived f o r c ol le ct io n only with credi t t o t h e deposit account o f t he de -

pos i to r de fe r red un t i l t h e proceeds of said checks o r drafts have been

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- l i - " X-U131

ac tua l ly r ece ived by the Federal Reserve Bank. P l a i n t if f i s informed

a s a mat ter of law that such deferred credit i s n o t compliance with t h e

mandate of Sect ion l 6 o f t h e Federal Reserve Ac t t o r ece ive on deposit

a t p a r t h e checks thus tendered under t h e provi s ions of said sect ion.

P l a i n t i f f a l l e g e s a s a mat ter of law t ha t a depos i t i n a bank, which i s

t h e charac ter o f the deposit here dealt with, i s a r e c e i p t o f money,or

i t s equiva lent , by the bank upon a n engagement t o repay the sum so de-

pos i t ed on demand i n t h e usual and customary form of checks o r d r a f t s

agains t such cr ed i t , A bank d ep osi t i s immediately and cons tant ly s u b -

j e c t t o t h e check o f the depos i tor and i s always payable on demand u n -

l e s s i t be by special contract known a s a t ime deposi t bear ing interes t .

Said Section l 6 does n o t deal with deposits f o r c o l l e c t i o n f o r they a r e

speci f i ca l ly dea l t wi th i n Sect ion 1 3 . Sect ion l 6 deals with general

deposits only , and expressly requires that checks a n d drafts drawn u p -

on any of th e members o f the system shall b e received on deposi t a t

p a r .

P l a i n t i f f a l l e g e s

a s a

mat ter

of law

th at t h is requi reme nt makes

such checks

a n d

d r a f t s

t h e

equivalent

of

lawful money

a n d

receiving such

checks on deposi t i s , therefore , equiva lent t o receiving lawful money

f o r which immediate credit mast be give n. There bei ng no q u a l i f i c a t i o n

o f t h e word "deposit" a s used i n said Sect ion 16 of the Federal Reserve

A c t , i t takes t h e meaning applicable t o a bank depo s i t . P la in t i ? f i s

informed by Counsel that t h e Supreme Court o f t h e United States h a s d e -

cided that a deposi t i n bank creates, a t t h e same time t h e deposi t i s

made, a n ob l i ga t i on o n t h e bank to pay the amount o f the depos i t , or any

par t o f i t , a s soon a s t h e depositor sees f i t t c draw a check against i t .

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r

*r>r

- • - 1 2 - X-U13I

That clause of said Section referring t o deposits by one Federal Reserve

Bank

i n

another Federal Reserve Bank

i s

rendered "unnecessary

and

useless

by the

establishment

of

what

i s

known

a s t he

Gold Settlement fund

through which

a l l

tr an sa ct io ns between Fede ral Reserve Banks in t e r s ese

a r e

l iquida ted ,

2 0 . '

Under said regulations

of the


no

deposits

under Section l6 of said Ac t a re received a t p a r from i t s members by any


i n t he

system, save

and

except where checks

and

d r a f t s so deposited a r e convertible into actual money i n t h e town where

t h e

Federal Reserve Bank,

so

receiving

i t , i s

located

on or

before

t he

close

of

banking hours

of the day on

which said de po si ts

a r e

tendered*

I f a

single business

day, or

more,

i s

required

t o

ac tua l ly rece ive

the

proceeds

of

such checks

and

d r a f t s ,

t h e

amount thereof

i s

withheld from

a v a i l a b i l i t y

t o t h e

de posi tor u n ti l such proceeds

a r e

ac tua l ly rece ived .

In

order

t o

prevent

t h e

accounting necessary

t o

provide

f o r

deferred

credi t

on e^ch

i t em, p la in t i f f

i s

informed that

a

system

h a s

been

i n -

augurated

by the

Federal Reserve Board under which

t h e

amount

of

time

elapsed before actual credit

on

such items

i s

given

t h e

deposi tor

i s

averaged over t h e geographical terr i tory of the United States by a d j u s t -

ment

t o t h e

m a i l f a c i l i t i e s

f o r t h e

t ransmission

of

such checks

and

d r a f t s

t o t he

bank upon which drawn

and the

receipt

of

their proceeds

i n

re gu la r course» This

i s

known

a s t he

n

£im£ schedule"

o r

"zone system

The

e f f e c t

of

defer red c redi t

on t h e

member banks

i n

said system

i s

very

mater ia l» I t r e s u l t s i_n depriving t h e member banks of the use of the

amounts of money represented by checks a n d dr af ts c i r cul at i ng through

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r

- 1 3 - X-4131

t h e channels of commerce f o r t h e period of time involved, i n t he i r t r ans -

mission

t o t h e

banks upon which they

a r e

drawn

and th e .

r e tu rn

of

the i r

proceeds* As to a l l of t he banks i n t h e sys tem, p la in t i f f i s informed

that th e amount of credits thus congealed i n t r a n s i t and commonly called t he

" f loa t ,

t f

averages about fi ve hundred mi ll io n do ll ar s conti nuous ly, t h e

i n t e r e s t on which according t o t h e lowest rate on bank balances of 2$

p e r

annum would amount

t o t e n

mi l l ion do l la rs

p e r

annum*

21.

P l a i n t i f f i s informed by Counsel a s a matter of law, and t h e r e -

upon al le ge s, th at a s a r e s u l t o f t he r e f u s a l t o give immediate credit

f o r checks a n d d r a f t s r equ i r i ng one or more days f o r . ac tua l co l le c t ion ,

t h e

banks upon which such items

a r e

drawn

a r e

e n t i t l e d

t o

charge exchange

f o r t h e t ransmission of their proceeds, a n d , conversely, banks so depos i t -

ing. them a r e e n t i t l e d t o charge excJonge on the checks presented t o them,

b u t i f immediate credit i s given f o r such items, an d t i t l e i s thereby

vested

i n t h e


so

receiving them

on

deposit t hen

t h e

r igh t t o charge exchange would b e destroyed by the p roh ib i t i on of the

proviso of Section 13 , i f that proviso i s cons t i t u t i ona l a s appl ied t o

member banks, b u t would sti l l leave t h e member bank making t h e co l lec t ion

an d remi t tance en t i t l ed t o i t s ser vic e charge aga ins t t h e member bank f o r

whose account

t h e

deposit

was

made-

22.

Pla in t i f f a l l eges a s a mat ter of law that i f t h e p roh ib i t i on of

exchange charges against

t h e

Federal Reserve Banks,

a s

expressed

i n t h e

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I

- 1 4 - X-U131

proviso of said Section 13 thereof i n these words,

l l

but no such charges

s h a l l be made against t h e Federal Reserve Banks,

n

is so i n t e r p r e t e d as t

r e q u i r e p l a i n t i f f

and

other member banks

t o

perform

t h e

serv ice

o f r e -

mi t t i ng t h e proceeds of checks drawn upon them beyond t h e i r re sp ec ti ve

banking houses,

t h e

said enactment

i s i n

co nf l ict wi th that clause

of

Ar t i c l e f i ve ( 5 ) o f the Amendment t o t h e Cons t i tu t ion o f t h e United

Sta tes provid ing tha t , -

"No person *** s ha l l be deprived of ***

property, without due process o f l a w . "

Pl a i n t i f f p l eads t h e u n c o n s t i t u t i o n a l i t y of said prov is ion o f

Sect ion 13 of the Federal Reserve Act as appl i ed to i t , and to any

other member bank

i n

l ike si tuat ion becoming

a

pa r t y

t o

this cause

a s

being obnoxious t o said clause o f the Fifth amendment t o t h e Federal Con-

s t i tut ion, when i t operates t o prevent a reasonable charge f o r t h e

valuable service rendered by a member bank i n t r ans mi t t i ng t h e funds rep-

resented

by

checks drawn upon

i t

beyond

i ts own

banking house*

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? '

. i

5

- X-U131

23-

Following instructions from t h e Federal Reserve Board as con-

ta ined i n said Regulation "J " and in the said "time schedule" o r "zone

system"

as to the

f l o a t ,

t h e

defendant Reserve Bank issued

a

c i r cu la r

known a s "G " l S l , under which t h e pract ices hereinbefore detai led were

adopted by i t i n the Sixth Federal Reserve District a nd a r e s t i l l enforced

aga ins t p l a in t i f f a nd a l l other member banks i n t h e d i s t r i c t .

24.

While

¥ . P . G.

Harding

was

Governor

of the

Federal Reserve Board,

p l a i n t i f f i s informed th at a policy of coercing member and non-member banks

into p a r remit tance was inaugurated and car r ied out as to both member and

non-member banks u n t i l such pr ac t ic es

as to

non-member banks were condemned

by the Federal Courts i n such cases a s Brookings St at e Bank ve rs us Fe der al

Reserve Bank of San Francisco (12 Federal Reserve District) 281 Federal Re

porter, pags 222 ; Farmers and Merchants Bank of Cat-lettsburg, Kentucky,

versus t h e Federal Reserve Bank of Cleveland, Ohio, (4 th ' Federal Reserve

D i s t r i c t ) 286 Federal , 586, 610; American Bank and Trust Company versus

th e Federal Reserve Bank of Atlanta, Georgia, ( 6 t h Federal Reserve District

S56

United States,

350 ; and

Farmers

and

Merchants Bank

of

Monroe, North

Carolina, versus t h e Federal Reserve Bank of Richmond, Virginia ( 5 t h Feder-

a l Reserve Dis t r ic t ) 262 United States, 64 9. By reason of membership and

t h e

consequent obligatory dealings with

th e

Reserve Banks,

th e

member banks

have hitherto submitted under duress t o t he i l legal prac t ices aforesa id

rather than embarrass their patrons

and

r i sk repr isa ls upon the i r necess i t i

i n t he matter of re di sc ou nt s. When t h e said sect ions 13 and l6 of the Fed-

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- IS -

X-U131

eral Reserve A ct were in terpreted by th e Supreme Court, i n i t s opinions

found,

in 2^6

United Sta tes

350, and 262

United St at es , pages

6U3 an d 6U9,

p l a i n t i f f , and other member ta.nl s vl th which pl a i n t i f f confer red, expected

and had a r i g h t t o expect that t h s Federal Reserve Board would, so modify

i t s

r e g u la t io n s p e r t i n e n t

t o t h e

subject

a s t o

abandon

a

col lec t ion system

tha t

t h e

Supreme Court said

i t was

under

no

duty

t o

adopt,

a n d

t h a t

w a s i r -

reconc i lab le wi th t h e p rov is ions of Sect ion 13 of the Federal Reserve Act as

amended, and that Congress never intended i t t o es t ab l is h. More than a year

h a s e lapsed, and p l a i n t i f f i s informed th at t h e only change of method author-

ized

by the


h a s

been

t o

withdraw specia l col lec t ion

agents

i n

whose hands checks

on

non-member banks (refusing

t o

remit

a t p a r )

were placed

to be

presented

a t t h e

counters

of

drawee banks

and

payment

thereof demanded i n currency over t h e counter ; a pract ice which t h e Supreme

Court said was warfa re on s t a t e i n s t i t u t i o n s and would subject country banks

t o ser ious loss by depriving them of t h e i r irco irs from exchange and reducing

*- t he i r income producing as se ts to an

j n t that might render them insolvent, (2b2 United States 557-3)• But th e

p a r l i s t s a r e s t i l l c i r cu l a t ed and s t i l l d rawing t o t h e Federal Reserve banks

f o r c o l l e c t i o n t h e large volume of checks that could otherwise b e presented

i n other ways; deferred credit i s s t i l l p rac t iced wi thou t a l lowing any i n t e r -

es t on c red i t ba lances , and the income producing assets o f a l l deposi t ing

members thereby reduced and no income fro m customary exchange charg es t he re-

on permi t ted . Since voluntary act io n b y defendants looking t o t h e cor rec t ion

of these pr ac t i ce s seems unl ik ely , t h e p l a i n t i f f now appea ls to a court of

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X-4i3i

equity

f o r

r e l i e f ,

on th -

ground that such p rac t i c e s

a r e

i l l e g a l

and the

damages suffered

b y t h o

p l a i n t i f f ,

and s i l o th : r

m:.rnb^r banks

i n 1 ik e

s i tuat ion, cannot

be

adequa te ly ssc . r to in jd

'and

recovered,

and

they

a r c

therefore romadi less

a t l a w ,

25-

P l a i n t i f f i s inform ,d by counsel, and thereupon a l l : g e s , that

under

t h v.

provis ions

of s

act ion

1} of th-

Federal Reserve

A c t ,

Federal

Reserve Banks

a r c n o t

authorized

t o r

ecsive

f o r

co l l e c t i on

any

check

or

d ra ft except from th ei r res pe ct iv e members,

or

depositing non-m-mbers,

and no

check

or

dra f t tha t

i s n o t

payable

on

presen ta t ion wi th in

tho

d i s t r i c t of th . Feder al Reserve Bank re ce iv in g i t . P l a i n t i f f f u r t h e r a l -

leges

on

l ike information that

no

check

o r

draft , drawn against deposits

i n

p l a i n t i f f bank,

or in any

other member bank

i n t h e

Sixth Federal

R e -

serve Di s t r i c t , tha t

has be_n

negotiated

and

deposi ted

in any

bank that

i s

ent i t l ed by membership or a f f i l i a t i o n t o clear through a Federal Reserve

Bank, i s lawful l y receiv able f o r c o l l e c t i o n by argr Federal Reserve Bank

outside of the Sixth Federal Reserve District , no r by defendant Roserva

Bank except from

o n e o f i t s

m-mb^rs

or

deposit ing non-numbers. Pl ai nt i f f

fur ther a l leges

on

information

and b -1 i „ f

that, under

t h e

said regulations

of th - Federal Reserve Board t h e defe ndan t Reserve Bank does rs ce iv - f o r

collection chocks

and

dra f t s f rom

i t s

members that

a r e

payable

in Fed

ora l

Reserve Districts other than

i t s own , and

receives checks

and

d r a f t s

f o r

col le ct i on from members i n o ther d i s t r i c t s tha t a r , payable i n t h e Sixth

Dis t r ic t ; tha t

o th o r

Federal Reserve Banks, under

t h e

same regulations

do

rece ive

f o r

collection* checks

and

draf ts payable

in the

Sixth Federal

R e-

serve Di st r i c t , including checks drawn against p l a i n t i f f , that

a r e

forwarded

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X-U131

a c r o s s d i s t r i c t l i n e s to defendant Federal Reserve Bank and remi t tance

the ref or required withou t compensation. Pl a i n t i f f al l ege s t ha t such

p r a c t i c e s

a r e

unlawful

as to i t and

cause

t o i t

l o s s

and

damage herein-

a f t e r s e t f o r t h .

2b.

Pla int i f f a l leges upon informat ion and be l i ef that such pra c-

t i c e s a r e a p a r t o f t h e scheme to e s t a b l i s h u n i v e r s a l p a r c learance a s

he re in be fo re de sc ri be d; tha t said scheme i s i r r e c o n c i l a b l e in l aw with

sa id Hard wick amendment and with t h e l i m i t a t i o n i n Sect ion 13 to checks

payable within th e d i s t r i c t r ec ei va bl e only from members of the Federal

Reserve Bank

t o

which such checks

a r e

del ivered

f o r

c o l l e c t i o n ,

and i t s

enforcement h a s h i t he r to in f r inged t h e l awfu l r i gh t s of p l a i n t i f f , and

a l l ot he r member ba nk s, and cont inuat ion thereof wi l l inf l ic t i r reparable

damage

and

in ju ry upon p la in t i f f

a nd a l l

other member banks

i n

l i k e s i t u -

a t ion.

27-

On or

about July

2 9 , 1 9 2 4 ,

p l a i n t i f f tendered

t o t h e

defendant ,


of

A t l an ta ,

a t i t s

branch

in New

Orleans

two

excha

ig

bank drafts , payable a t p a r , i n t h e aggregate sum of $4,gOb-97 t o cover

th e proceeds of certain checks drawn on p l a i n t i f f ' s bank and forwarded t o

said defendant

b y i t s

member banks

f o r

c o l l e c t i o n

and

mailed

t o t h e

plain

t i f f

by

said defendant

f o r

c o l l e c t i o n

and

rem itt anc e (said forwa rding

b e -

i n g b y mail and known a s "Dai ly Bet ters" ) . The amount of said exchange

drafts equaled t h e f ace of said checks, less remittance charges thereon

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- 19 -

x-i+131

(c all ed exchange) aggr ega tin g $4, 80, same bein g a t t h e r a t e of 10 cents

f o r eaflfc hundred d o l l a r s of the aggregate amount o f said checks, a s p r o -

vided

by

Sect ion

13 of th e

Federal Reserve

A ct . At the

same time

and

place pl ai nt i f f tendered t o t h e defendant , th e Federal Reserve Bank o f

Atlanta ,

two

exchange bank drafts

i n t h e

aggregate syraeof $554,93

t o

cover

proceeds

of

certain checks drawn

on

p l a i n t i f f ' s b a n k

s rd

forwarded

to

p l a i n t i f f by members of other Federal Reserve Banks i n o t h e r d i s t r i c t s o f

th e Federal Reserve System, and not manbers o f t h e Federal Reserve Bank

of Atlanta , vfco forwarded sane to said defendant across Federal Reserve

Di s t r i c t l i ne s

f o r

co l l ec t i on

and i t

forwarded same

to

p l a i n t i f f

f o r p a y -

ment and remittance as a fo re sa id . The amount of said remittance drafts

was 55

cents less than

t h e

aggregate face

of

said checks, said deduction

being made t o cover exchange thereon a t the afo resa id ra t e . Said defend-

a n t r e f u s e s t o accept said drafts, or ei t i e r of them, without adding t o

th e

amount thereof said deductions

f o r

exchange, %hich deductions plain'-

tiff clMmed th e l ega l r ight t o make and collect under t h e provisions

of Section 13 d>f the Federal Reserve A ct hereinbefore referred t o -

Thereupon, plaint i f f

was

compelled

to

for ego said exchange charge

and to

p a y said additional amounts, t o i t s l o s s , bee ays e of th e greater injury

i t

would have suffered

b y

embarrassing

i t s

deposi tors

who

drew sa id checks

against adequate balances on depos i t to their credit with t h e p l a i n t i f f .

Said payment

of

said exchange charges;

was

made under protest,

and was en-

forced by duress aforesaid i n order t o avoid greater loss to p l a i n t i f f ' s

business- Defendant ' s re fus al to permit said deduction f o r exchange was

a

v i o l a t i o n

of

p l a i n t i f f ' s r i g i t s u n d e r

th e

laws

o f t h e

United States

aforesa id ,

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600

- ^ 2G -

28.

Pl ai nt i ff fu rt he r alle ges that Jaici defen dant, said Federal

Reserve Bank of Atlanta, acting under mandatory instructions o f t he Fed-

eral Reserve 3oai'd,

h a s

refused

t o

permi t p la in t i f f

to

charge exchange

f o r remit tances t c cover checks drawn upon it and forwarded t o i t fo r

col lec t ion

an d

remit tance,

i n a l l

respects l ike

t h e

specif ic tenders

and

r e f u s a l s s e t fo r oh above, conti nuous ly since th e f i r s t day of August, up

to date . The aggregate o f checks thus forwarded and remit ted fo r by

p l a i n t i f f

f o r

account

of

member banks

i n t h e

Sixth District since August

1 , 1913 , Tip to July 1 5 ,

igzlt,

i s approximately

4,750,000*00,

snd p l , i n -

t i f f h a s been thereby illegally deprived of the value o f i t s services i n

making said remittances

i n t h e sum of no t

less than $4,750.00

by

reason

oi

i l l ega l regula t ions

of

defendants

a s

aforesaid

-

During

th e

same per-

iod p l a i n t i f f

h a s

been required

by

defendant, under said r egu lat io ns,

to

remit t o defendant proceeds of checks drawn upon p l a i n t i f f fl oa ti ng

outs ide of the 6th Federal District without permitt ing an exchange charge

f o r said services i n a n aggregate of approximately $3,500,000+00, t h e l e g -

itimate exchange charges on .vhidb would have been n o t less than $3

,500.00*

P l a i n t i f f was e n t i t l e d t o charge and c ol le ct such exchange under t h e p r o -

vis ions

of

Section

13 of the

Federal Reserve

Act , out was not

permitted

tc

do so

under de fe nd an ts regulat ions

a s

aforesaid»

2 9 .

P l ai n t if f fu rt he r alle ges that defendant rese rve Bank, under

said regulat ion o f t h e Federal Reserve Eo^rd , r e fu se s t o receive on de-

pos i t

a t p a r ,

f rom Pl a i n t i f f

or

from

an y

other member bank

i n

l i k e s i t u -

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I 4

r

*> A

i K J •_ Jil

-

ation, checks

and

drafts drawn against other member banks

in the 6 th

Federal Reserve Distr ict a s provided i n Setetion l 6 of Federal Reserve

A c t , b u t defers credi t avai lable t o p l a i n t i f f , e i t h e r t o increase i t s

reserves o r f o r other uses, f o r t h e length of time necessary to t r a n s -

m it said checks by mail to their several drawees and r ece ive the i r p r o -

ceeds i n r e tur n . P l a i n t i f f a l l eges tha t sa id r ef usa l to give i t immed-

ia te c redi t f o r such funds infl icts i rreparable injury upon i t , and has

forced i t i n the; pas t t o adopt and employ other means f o r t h e handl ing

of

such credits ,

t o i t s

i n j u r y ,

and the

cont inuat ion

of

such practice

by the defendant Reserve Bank m i l in f l i c t i r r eparable in jury upon

p l a i n t i f f a rd a l l other member banks i n l ike s i tuat ion*

30+

On or about July 2$ , 1924, p la in t i f f presented t o t h e said

federal Reserve Bank of A t l an t a , at i t s New Orleans Branch , checks drawn

upon and payable by other banks i n t h e Sixth Federal Reserve Distr ict ,

each

of

which banks

was a

member

of

said Federal Reserve Bank,

( a n d r e -

quired

by law to

maintain continuous depos its t he re in ) , aggreg ating

$4,006«51* Each of said checks was duly endorsed t o t h e order of said

Federal Reserve Bank of Atlanta , and p la in t i f f r eques ted t h e face amount

of such checks to be placed to the c r ed i t o f i t s reserve account o n d e -

pos i t a t par as of the date same were tendered, md this reques t was de -

nied ,

and

only defe rred c re di t given

t o

p l a i n t i f f , re s u l ti n g

i n t h e

loss

to p l a i n t i f f of the use of the moneys represented by said checks f o r

about three days. The in teres t va lue of said funds to p l a i n t i f f f o r said

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x-4i3i

time

was

$2,00,

of

vthieh plaintiff

h a s

"been deprived

by

reason

of

said

i l l ega l r e fu sa l of said defendant t o receive said checks on deposi t a t

p a r , a s provided "by. Section lb o f the Federal Reserve A c t . P l a i n t i f f

alleges that said defendant

,

said Federal Reserve Bank/

h a s

always here-

tofore refused

t o

rec eiv e from pl a in ti ff l i ke checks

on

deposit

a t p a r ,

r esu l t i ng

i n

p l a i n t i f f having

t o u s e i t s

correspondents

t o c l ea r i t s

checks

and

r e t a i n balance s wi th them

a s

compensation therefor,

i n

addi-

t ion to the reserve balances p la in t i f f i s required by law to keep with

said Federal Reserve Bank- The amount of income-producing funds, thus

required

to be

kept i dle

by

p l a i n t i f f

by

reason

of the

i l l ega l r e fu sa l

of

defendant, Federal Reserve Bank,

to

comply with

th e

provisions

of

Section

l 6 o f t h e

Federal Reserve

A c t , h a s

caused

a

loss

t o

p l a i n t i f f

of approximately $4,500 since August 1 , 1913.

31*

Pl ai n t i f f a t taches here to and makes a pa rt hereof with us ua l

leave o f reference, marked Exhibit

n

B

T

, a copy of th e wr i t ten refusal

of

defendant

* t he


of

Atlanta, dated July

31* 1924,

t o

accept

t h e

remit tances

f o r

daily letters, less exchange charges,

as

alleged

i n

paragraph

27 $ aid

r e f u s i n g

to

receive

on

deposi t

a t par the

checks on other banks i n t h e said Federal Reserve District that are mem-

bers of the Federal Reserve Bank of At lan ta , a s alleged i n paragraph 33

of

this bi l l*

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~

2 5

™ x-i+131

33.

Pla in t i f f f u r t he r a l l eges , a s a matter of 1 aw, that nei&er

Section 13 nor Section l6 of the Federal Reserve Act forb ids p la in t i f f

or any

other member bank

t o

charge exchange except against Federal

R e -

serve Banks themselves;

on t he

contrary said

A ct

expressly authorizes

and

preserves

th e

r i g h t

of

p l a i n t i f f

and

other member banks

to

make

reasonable charges against each other , t o be determined and regulated

t>y the


f o r t h e

co l lec t ion

and

payment

of

checks

and drafts arri t h e remission therefor b y exchaage or otherwise. Pl ai n-

t i f f a l leges that th e continued i l legal operation of the co l l ec t i on d e -

partment

o f t he

Federal Reserve System

as

hereinbefore

s e t

dtvfc,";in which

a l l o f the defendants par t i c ipa te , wi l l depr ive p la in t i f f , snd a l l other

member banks

i n

l i ke s i t ua t i on ,

of the

b e n e f i t

of

th i s r ight

to i t s and

their irreparable injury*

33*

Pla in t i f f fur ther a l l eges

as a

matter

of law

that

t h e

c o l l e c t -

ion and

clearance functions

of

defendant Reserve Bank,

a s a

pa r t

of the

Federal Reserve System,

a r e

l imited

b y t h e

memoership

of

banks

f o r

which

they

may act as

co l lec t ing agents ,

and by the

r i gh t

of

p l a i n t i f f

and

other

member banks

i n

l i ke s i t ua t i o n

t o

charge exchange

a s

here inbefore

s e t o u t .

The

defendan ts he re to have disregarded these li mi ta ti on s

i n t h e

p a s t ,

and ,

by thei r refus al to modify said re gu la ti on s, evidence their purpose to

continue such disregard in the f u t u r e , and thereby p la in t i f f and other

member banks i n l i ke s i t ua t i on a r e deprived of their rights under said

l a w , t o i t s a nd

th e i r i r reparable in jury-

7/17/2019 frsbog_mim_v21_0581.pdf


- & - X-U131

5.

R

<-•

34 .

Pla in t i f f a l l eges on information and "belief that S ie expense

of

operat ing

t h e

collection system

o f t h e

Twelve Federal Reserve Banks

h a s reached such proportions as to ser iously threaten t h e a b i l i t y o f a l l

of them, and espec ia l ly t h e defendant Reserve Bank, of %hidi plaintiff

i s a member and s tockholder , t o earn t h e s i x p e r cent p e r annum divi-

dends that member banks

a r c

l imited

to by

statutory compulsion,

on the

capital stock of said Reserve Banks paid in by them. Pl ai nt if f alle ges

on information and belief that th e expansion o f th i s i l l ega l co l lec t ion

system h a s caused defendant t o e rec t a large addi t ion t o i t s bui lding

i n t h e c i t y o f At lan ta , and to employ and compensate large numbers of

clerks that would

be

unnecessary

i f

defendant bank

was

permitted

by the


t o

confine

i t s

co l lec t ion

o r

transit department

to i t s own members and affiliated members and checks and draf ts l imited

ano

described

i n t h e

Federal Reserve

Act os

a foresa id* P l a i n t i f f

h a s

reason t o fear that th e increase of this expense t o meet t h e normal i n -

crease

o f t he

volume

of

business

a s t he

country grows wi ll r e s u l t

i n

enforced increase of discount ra tes , or in assessments o n t h e members, i n -

c lud ing p l a in t i f f ,

to

make

u p t h e

consequent def ic i t

of

earnings

t o

meet

<

operating expenses, t o t he i r reparab le in jury of p l a i n t i f f and other stock- •

holders i n l ike s i t ua t ion ,

35*

Pla in t i f f a l l eges tha t t h e i l l ega l r egu l a t i ons and p r ac t i c e s a -

foresaid dic ta ted

by the


and

carr ied

ou t by the

Federal Reserve Bank of Atlanta aforesaid,hcve injured and damaged plain-

t i f f in th e sum of $12,750*CO prior t o t he f i l i n g of th i s b i l l and th e con-

tinuance of said pra c t ic e wi l l i n f l i c t i r reparab le lo ss , in jury and damage

u p o n p l a i n t i f f , snd upon a l l other member banks i n t h e Federal Reserve system.

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-

£

5 - X - 4 1 j l

3 6 .

P l a i n t i f f a l l e y s t h a t t h e controversy s e t f o r t h i n th i s b i l l

arises "finder t h e Cons t i tu t ion and Laws o f th e United States and th e ma t -

t e r i n

controversy exceeds, exclusive

o f

i n t e r e s t

an d

c o s t s ,

th e sum or

value

of

Three Thousand ( 3 0 0 0 . 0 0 Dolla rs ,

PRAYERS

07 TEE

PILL

WHEREFORE , the premises cons idere d, p l a i nt i f f prays fo r th e

issuance o f t h e w r i t of i n ju n c t i o n o f this Honorable Court directed t o

t h e d e f e n d a nt s , t h e i r o f f i c e r s and agents permanently enjoining them

a s follows;

1* That t h e defendant Federal Reserve Bank o f Atlanta b e perman-

ent ly enjoined f rom de fe rr in g c re di t

on a l l

deposits made

or

tendered

to

i t b y th e p l a i n t i f f , a s 3 member bank, o f a l l checks an d drafts drawn a -

gainst deposits in any other member bank i n t h e Sixth Federal Reserve Di st -

r i c t , an d that pending final decree a r e s t r a in in g o rd er to th e same effect

be

granted.

2 . That th e defendant Federal Reserve Bank of Atlanta b e p e r -

manently enjoined from accepting

f o r

c o l l e c t i o n

any

check

o r

draft drawn

t h e

u p o n / p l a i n t i f f f o r account of any other member bank o r Reserve Bank in th e

Feder al 2ieserve system wit hout pr ov id in g f o r t h e deduction from t h e p r o -

ceeds thereof

3

re as ona bl e exchange charge

n o t

exceeding

t e n

cents

t o r

each

hundred dollars o r f rac t ion the reof to b e paid o r allowed to th e p l a i n t i f f

f o r t h e se rv ice of r e m i t t i n g th e proceeds o f a l l such checks o r dra f ts f rom

i t s banking house t o t h e Federal Reserve Bank that presents such checks o r

d r a f t s i n regu la r course , and tha t pending f ina l decree a r e s t r a in in g o r ^ e r

t o t h e same e ffec t b e granted.

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3* That t h e Federal ReserveBank of Atlanta be enjoined from

accept ing f o r co l l e c t i on o r deferred credit from any bank other than

i t s own members any check o r d r a f t , and from i t s own members any check

or dra f t tha t i s n o t payable upon presentation within t h e Sixth Federal

Reserve Dist r ic t , and that pending final decree a res t ra in ing order t o

t h e same effect b e granted.

4*

That

t h e


and

Joseph

A*

MeCord, o f f i -

cial Representative of said Board i n t h e Sixth Federal Reserve District,

be enjoined from promulgating and enforcing t h e provis ions of Regulation

,T

J

,

that operate t o depr ive p la in t i f f o f i t s r igh t t o charge lawful

r a t e s

of

exchange

f o r t h e

co l lec t ion

and

remittance

o f t he

proceeds

of

checks and d ra f ts drawn upon p la i nt if f and presented f o r payment by or

through

t h e


of

Atlanta

i n

regular banking channels

by mai l , i n a l l cases where such checks and d r a f t s a r e received by said

defendant Federal Reserve Bank f o r co l lec t ion f o r account o f i t s members,

o r f o r account of any member of any other Federal Reserve Bank, a n d that

pending final decree a res t ra ining order t o t h e same effect be gzanted.

That

t h e


of A

l an t a

b e

enjoined from

exacting of p l a i n t i f f , or any other member bank i n t he Sixth Federal

Reserve Dist r ic t , t h e service of col lect ing, paying an d remi t t ing t he

proceeds of any check o r dr af t drawn upon p l a i n t i f f or any member bank

i n

l i ke s i t ua ti on , without compensation th er ef or , f ixe d

b y

lav-

a t not ex -

ceeding t e n cents p e r hundred dollars ($100*00) o r f r ac t i on t he reo f ,

based

on the

t o t a l

of

such checks

and

dra f t s p resen ted

a t any one

time,

and that pending final decree a res t ra ining order t o t h e same e f f e c t be

granted.

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• - I

- 27 -

X-U13I

6 ,

That

a n

accounting

be had

between

t h e

p l a i n t i f f

and


of

At lanta

c f the

amconts

of

exchange

a n d i n -

terest earnings

of

v.'hich

i t h a s

been i l legally deprived

up t o

date

of

decree,

by

reason

of

v io l a t i on

of

said provisions

of

Section

13

and l 6 of th e

Federal Reserve

Act by

defendant;

and

that decree

be

rendered against said defendant, Federal Reserve Bank of At lanta , f o r

t h e

recovery

of

said sums,.

7 , That

a n

accounting

be had

between

t h e

Federal Reserve

Bank

of

At lanta

a n d a l l

ot her member banks tha t sh al l he r ea ft e r

be

allowed

t o

intervene

a s

p a r t i e s p l a i n t i f f

in

this cause,

of the

amounts

of

exchange

and

in te res t losses

of

which said interveners have been

i l legal ly depr ived t o date of decree by reason of the v io l a t i on of

t h e

said provisions

of

Sections

13 and 16 of the

Federal Reserve

Ac t ,

by defendant; and that decree be rendered against said defendant. f o r

t h e recovery of said sum.

S . Pla in t i f f prays f o r t h e writ of subpoena to be issued

and served a s usual under t h e Rules of the Court, a n d f o r such other

general re l ief a s m y t o t h e Court be deemed just and equi table .

Smith, Hammond

&

Smith,

Atlanta, Georgia,

Denny

&

Heidel berg,

Pascagoula, Miss.

_

Sol i c i t o r

f o r

P l a i n t i f f

of

Counsel.

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STATE OF MISSISSIPPI )

COUNTY

OF j

Personally appeared before th e unders igned author i ty H. C,

HERRING-, President of the P l a i n t i f f in the above cause, who, being duly

sworn as to t he t r u t h of the allegations made i n t h e above b i l l , says th

he has read t h e foregoing b i l l and knows th e con-cents thereof, and that

t h e

same

i s

t r ue

to his own

knowledge, except

as to

matters there in stat

on

information

a nd

b e l i e f ,

and as to

those matters

he

be l i eves them "»•«?>

to be true.

Sworn to and subscribed )

before me t h i s \

day of

,1924.

)

N. P . County, Miss. )

The foregoing b i l l h a s been presented to me and i s sanctioned

and ordered f i l ed . L e t defendants b e served a s usual and show cause bef•

me a t th e U. S. Court House, Atlanta, Georgia, a t 10 :00 a

4

c lock A. M.

October

2n d, 192 4, why an

inter locutory injunct ion should

n o t

i ssue

a s

prayed.

This August

8 th , 1924 .

Samuel

H.

Sibley

U. S.

Judge

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EXHIBIT' A X-41J1

NATIONAL AND. STATE BANKERS' PROTECTIVE ASSOCIATION

President Chas.

De B.

Claiborne GENERAL COUNSEL

Vic e-P res ide nt Whitney-Central Nationa l Bank Alexander W. Smith

New Orleans, l a . . . At lanta , Ga^

Washington, D. C.

GENERAL SEC'TY-TREAS.

L. R. Adams.

SECRETARY-TREASURER COUNTRY BANKERS'

ASSOCIATION

OF

GEORGIA

ATLANTA, GEORGIA-

5 12

Haas-Howell Bldg.

Atlanta, Georgia.

, AT LA FT A, GEORGIA, September 1 , 1523.

HON. D. R. CRISSINGER,

Governor Federal Reserve Board,

Washington, D. C.

Dear S i r

S ix years a g o , pursuant t o i t s conception o f i t s du t i e s an d powers,

t h e Federal Reserve Board inaugurated a system of so-called "universal

p a r clearance" a n d thus assumed, in the Federal Reserve System, t h e sole

•responsibi l i ty f o r t h e pol i cy i n reference thereto which h a s governed a l l

Reserve Banks i n thei r operat ions up to this time.

Out of that pol icy ha s grown a controversy which f o r year s h a s divide:

t h e banking f ra tern i ty in to prac t i ca l ly two opposing camps, a n d h a s r esul t ed

i n long dravm o u t litigation between Federal Reserve and non-member banks;

and apparently the end i s no t ye t .

With a l l of t h i s you a r e , o f course, ent i rely famil iar .

f h e reasons, aims, purposes and motives of the Federal Reserve Board i n

adopting this policy have been much controverted and debated i n banking circle

a n d were officially announced from time to time by former Governor Hording,

under whose ad min ist rat ion th is polic y was adopted.

I n a l e t t e r to Hon. Edmund Piatt, Chairman o f th e Houaa- Committee on

Banking and Currency, d^ted May 5 . ^ 0 , Governor Harding sta rted:

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I r / r

Exhibit ,4 No. 2 .

1 v

—*- '

The Board believes that i t i s charged, with t h e duty ana

r e s p o n s i b i l i t y

of

inaugurating

a

complete check clearing system through-

out t he United Sta te s, that t h e Federal Reserve Banks in compliance with

t h e

evident purpose

of the law and in

f a i r n e s s

t o a l l

the i r member banks

must exercise their power t o rece ive f o r collection from those memeet

banks checks upon whomsoever drawn which a r e payable upon presentation.

* * * *

While banks

a r e

s t i l l author ized

to

charge each other

f o r

such

service, they a r e pro hibi ted from charging t h e Federal Reserve Banks, which

a r e required t o receive from member banks a t p a r a l l checks which a r e

payable upon presentation.

Before

t h e

House Committee

on

Rules,

On

flay

4 , 19 20 ,

Governor Harding

made t h e following statement:

" A l l t h e Board i s t ry ing to do i s to carry ou t t h e law as we

understand

i t j a n d t h e

point

we

want

t o

make

i s

tha t

i f t he l aw

should

b e

amended so that non-member banks may be permi t ted to charge exchange,

tha t

the law be

amended

in a way

broad enough

t o

permit member banks

to

make

t h e

same charge."

On May 19 20 , a t a hearing before t h e Federal Reserve Board on

complaints of State banks of Nebraska an d others against alleged methods

of check co l l ec t i on of Federal Reserve Banks, Governor Harding m=4e t he

following statements:

We have no r i g h t , n o r have we ever attempted, to manufacture

t he l aw. That i s n o t o u r province. I t i s o u r duty, however, t o carry out

t h e provis ions o f t he Federal Reserve A c t , a s we under stand those

provis ions

and a s

they have been interpreted

to u s . * * * *

Now, unfor tunat e ly , there i s a d i f f e r e n c e of opinion a s t o whet

t he l aw

means.

The


h a s

considered

t h e

matter very

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Exhibi t A No . 3<

X

-U13I.

c a r e f u l l y - n o t h a s t i l y in any v,ay - and. »ve have load i t f o r three years

now, and we a r e

sa t i s f i ed tha t what

we a r e

doing

i s

along

t h e

l i n e

of

carrying

o u t t h e

i n t e n t

of the

Federal Reserve

A c t ,

tha t

i s ,

the re sna il

b e a univ ersa l cl ea r in g house es tabl ish ed f o r American checks * * *' *

The Board does n e t f ee l tha t i s h a s a n y option under the law

as i t now s t ands , We f ee l t ha t we are bound to a t tempt t o p u t that

po l i cy i n t o e f f e c t , to pu t in e f f e c t a un iv er sa l system, and i f obstacles

a r e thrown in ou r way t o such an extent that we cannot d o i t , then i t i s

no t ou r

f a u l t .

.

* * * * bu t the

Federal Reserve Board cannot

b e

guided

by

sentiment.

Vie have a duty to perform; we have taken a solemn, oa th of o f f i c e to t ry

t o i n t e r p r e t the law c o r r e c t l y and adminis ter i t i n accordance with the

i n t erpre ta t ion which

we

have conceived

to be

c o r r e c t .

I f we a r e mis -

taken i n that you have t h e Court t o appeal to , on one s ide , and the

Congress t o appeal to on th e other .

These ut te ra nc es s t i l l remain th e l a s t pu o l i c s t a t euent of the Board's

aims, purposes a n d pol i cy i n regard to this mat ter , an d u n t i l superseded by

some la te r o f f i c i a l dec lar at i on, must be taken a s s t i l l r e p r e s e n t a t i v e of

i t s pos i t ion ,

Tn e suggested appeal t o t h e Courts was taken a n d , since those

statements were made, n o t only h a s t h e per sonnel of the Board largely

changed, ou t upon three occasions t h e Supreme Court of the United Sta te s

h a s handed down opinions end dec i s ions on the law governing t h e clear ing

f unc t i ons o f th e Reserve Banks, and cons t ruing t h e Federal Reserve Act in

r e l a t i on t he r e t o .

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Exhibi t

A No.

4 .

X-4-131.

Inasmuch, a s these opinions d if fe r widely, i n ir.any ui at er ia l re sp ec ts ,

from th e Board's previously announced official construction of the law,

i t would seem that a l l interested banks ( and tha t in clu des every bank

i n t h e

United States)

are now

e n t i t l e d

to be

spec i f i ca l ly en l ightened

a s

to t h e present Board's fu tu re pol icy on this mat ter , and we feel sure that

t h e

Board will

b e

glad

t o

give

u s a

f u l l

an d

f rank reply

t o t h e

many

questions upon which t h e Board 's present posi t ion is now in doubt.

This Association

i s

composed

of

both member

and

non-member banks,

and i s therefore in te res ted i n t h e whole subject o f par clearance equally

from th e s tandpoint of both classes of banks.

These questions arise wholly apart from any cons idera t ion of the so-

called Claiborne-Adams plan,

and

would

n o t b e

wholly answered even

i n t h e

contingency of that plan being adopted.

We regre t t h e neces s i t y of going into t h e mattar t o t h e extent of

t h e unusual length of t h i s l e t t e r , b u t mast plead t h e great importance

and

complexity

of the

subject

a s

j u s t i f i c a t i o n .

Although i t may be u rg jd by some that t h e Supreme Court's opinion

i n

c e r t a i n p a r t i c u l a r s

may be

capable

of

divergent construct ion,

y e t

i t must b e conceded that, f o r t h e most pu.rt, i t s f indings a r e s e t o u t

i n language t o o c lear and unequivocal to be misunderstood,

In

view

o f th e

Supreme Court's statement regarding

t h e

al leged

duty imposed by th e law to e s t a b l i s h a system of universa l p a r clearance

from which we quote as fol lows:

Congress

d i d n o t i n

terms confer upon

t h e

Federal Reserve

Board o r t h e Federal Heserve Banks a duty t o e s t ab l i sh un ive r sa l par

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Exhibi t

A F o . 5- • i~*

c l ea r ance a n d c o l l e c t i o n o f checks ; an-: t h e r e i s nothing i n t h e or ig ina l

a c t o r i n a n y

amendment from which such duty

t o

compel

i t s

adoption

may be i n f e r r e d . The only sections which in any way deal with ei ther

c learance o r c o l l e c t i o n ar e 1 j and 16. In ne i the r sec t ion i s there

any sugges t ion that t h e Reserve Board a n d t h e Reserve Banks shall b e -

come an agency f o r univer sa l c l earance . On th e contrary Sect ion l b

s t r i c t l y l i m i t s t h e scope of t h e ir d u r a n c e f u n c ti o n s. I t provides

t ha t

t h e

Federal Reserve Board:

may a t i t s d i s c r e t i on exe r c i s e t n e f u n c t i o n s of a clear ing house

f o r such Federal Reserve Batiks * * * an d may also require each sach

bank t o exe r c i s e t h e funct ions , of a clear ing house f o r i t s member banks.

There i s no reference whatever t o "par

11

i n Sect ion 1 3 , ei ther

a s or ig ina l ly enac ted

or as

attended

£,-om

time

t o

time. There

i s a

r e f e r ence t o "par

11

i n Section l o j a n d i t i s s o c l e a r and e x p l i c i t as to

prec lude a c o n t e n t i o n . t h a t i t h a s a n y app l i ca t i on , t o non-member banks;

or to the ordinary process of check co l l ec t io n here involved —

we des i r e t o i n q u i r e i f t h e Federal Reserve Board st i l l adheres to tne

view that i t i s under any duty o r mandate t o es t abl i sh such " p a r clearance

system" and to maintain and cont inue t o operate that v»nich i t h a s

es tabl i shed?

Or must we no t assume that t h e Borrd h a s adopted t n e opinion of one

Supreme Co ur t, t h a t

the l aw

imposed

n o

euch duty,

and

contains nothing

from which i t might be i n f e r r ed?

I f , a s t h e Supreme Court h a s s t a t e d , "The Federal Reserve Board may

a t i t s d i s c r e t i o n , e x e r c i s e t h e f unc t i ons of a clear ing house f o r such

Federal Reserve Bank * * * * and may al so re q u ir e each such bank t o

exerc i se t h e f u n c t i o n s of a clear ing house f o r i t s member banks,"

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~

J

/

Exhibi t A. No, 6.

X-4131

such

i s i t n o t equal ly wi thin i t s d i s c r e t i on t o a b o l i s h / a c t i v i t y ?

I t h a s been claimed and. seems to be conceded that i t i s t h e duty of

t h e Reserve £®ard to cons t rue t h e Federal Reserve A c t f o r t h e System,

t o announce p o li c ie s requir ed by or permit ted under t he Ac t and to p ro -

vide regula t ions

f o r

pu t t i ng same into e f fe c t ,

a n d t o

supervi se

t h e

execution of such po l i c i e s b y t h e Federal Reserve Banks an d thei r agents .

I f i t i s t h e Board's duty to see that pol icies proper ly promulgated

under t h e terms o f the Ac t a r e ca r r i ed o u t , i s i t n o t equal ly t h e Board's

duty

to

immediately abandon

a

previous po l ic y tha t

h a s

been declared

by

t h e Supreme Court to be beyond t h e purview o f t he l aw and t o se e to i t

' t h a t a l l Federal Reserve Banks a n d the i r agent s cease ef for t s t o enforce

such policy?

I s i t n o t

a l so

t h e

Board's duty

t o

s upe r v i s e

and

prevent

and

force

i f necessary t h e discont inuance of unlawful a n d u l t r a v i r e s ac t s of the

agents o f t h e Reserve Banks?

Again quoting from

t h e

Cour t ' s opinion:

The power o f the Federal Reserve Board t o e s t a b l i s h p a r clearance

w a s , thus , l imi ted by the u n r e s t r i c t e d r i g h t of unaffi l iated non-member

banks

t o

make

a

charge

f o r

exchange

and the

r e s t r i c t e d r i g h t

of

members

a nd

af f i l ia ted non-members

t o

make

t h e

charge therefor f ixed

a s

reason-

ab l e b y t h e Federal Reserve Board.

How, when, and to what extent does t h e Federal Reserve Board now

purpose

t o

r ecognize

and

abide

b y t h e

l imi ta t ions upon

i t s

power

to

e s t a b l i s h p a r clearance, which t n e Supreme Court says t h e l a w placed

upon i t ?

7/17/2019 frsbog_mim_v21_0581.pdf


Exhibit

A. No. 7-

2-4131.

What power, i f any to e s t a b l i s h p a r clearance, does t h e Board now

claim to possess , or undertake t o exercise, which to any extent renders

nugatory or in any way ac t s t o abr idge or to prevent t h e exerc i se and

exchange

enjoyment of trie rights of member or non-member banks t o charge | a s thus

described b y t h e Supreme Court?

Not only i s t h e power o f the Board t o e s t a b l i s h p a r clearance l imited

by the r i gh t s of banks to charge exchange a s s e t o u t b y t h e Court , to an

extent which, i f recognized and observed would render i t s establishment

impossible, b u t t h e court also said:

Moreover, th e contention that Congress h a s imposed upon the

Board t h e duty of es tab l i sh ing universa l p a r clearance and co l l ec t i on of

checks through

th e

Federal Reserve Banks

i s

i r reconc i lab le wi th

t h e

specif ic provis ion of the Hardwick amendment which declares that even

a

member

or an

affiliated non-member

may

make

a

limited charge (except

t o Federal Reserve Banks) f o r "payment of checks and * * * remission

therefor by exchange o r otherwise,"

I f i t s establishment i s i r reconc i lab le wi th t h e specif ic provis ion

o f t h e

Hardwick amendment

( t o t h e

Federal Reserve

Act ) as the

Supreme

Court says i t i s , how i s i t pos s ib l e to reconci le t h e continued operation

of the system a s es tabl ished and which defeats t h e purpose o f the Hardwick

amendment a s i n t e rp re t ed b y t h e Supreme Court?

The Supreme Court further said:

The r i g h t t o make a charge f o r payment of checks, thus regained

by merit)er and preserved t o a f f i l i a t e d non-member banks, shows th at i t was

n o t intended, o r expected, that t h e Federal Reserve Banks would become

7/17/2019 frsbog_mim_v21_0581.pdf


Exhibi t

A. No, 8 .

X-41J1.

t h e

universal agency

f o r

clearance

of

checks.

F o r ,

since ag ai ns t these

t n e f inal c lause prohibi ted t h e making of any charge, tnen i f the Re-

serve Banks were

t o

become

t h e

universal agency

f o r

clea ranc e, the re

would

be no

opportunity

f o r a n y

bank

to

make

a s

against

any

bank

a

charge

f o r t h e

"payment

of

checks."

The

Supreme Court having said

" i t wa s n o t

intended,

o r

expected

(by

Congress) that

t h e

Federal Reserve Banks would become

t h e

universal

agency f o r t h e clearance of checks", and the pr ese nt system avowedly

having that object, what change,

i f a ny ,

does

t h e

Board contemplate

making

i n t h e

present clearing system

i n

order

t o

comply with

t h e

intent ion

and

expectation

of

Congress

a s

enacted

in the law and

pointed

out by the

Supreme Court,

so as to

cease

t o be " t he

universal agency

f o r t h e

clearance

of

checks?"

Qaoting

t h e

Supreme Court fu r t h e r :

The

purpose

of

Congress

i n

amending Section

13 by th e a c t of

1917, was to enable t h e Board t o o f f e r t o non-member banks the use of

i t s

f ac i l i t i e s wh ich

i t w a s

hoped would prove

a

sufficient inducement

t o them t o forego exchange charges; bu t t o preserve i n non-member banks

t h e

r i gh t

t o

re jec t such of fe r ;

and to

p ro t ec t

th e

i n t e r e s t s

of

member

and

affiliated non-member banks

( i n

competition with

t h e

n o n - a f f i l i a t e d

state banks)

b y

allowing also those connected with

t h e

Federal system

t o

make

a

reasonable exchange charge

t o

others than

t h e

reserve banks.

The

power

o f t he


t o

e s t a b l i s h

p a r

c learance

was ,

thus , l imi ted

by t he

un re s t r i c t ed r i gh t

of

unaffiliated non-member banks

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J ,•;-*

.<? W

Exhibi t

A* No, 9»

x-4131.

t o make a charge f o r exchange and the r e s t r i c t e d r i g h t of members and

aff i l ia ted noh-members t o make t h e charge therefor f ixed a s reasonable

by the

Federal Reserve Board.

The

reasons which impelled

th e

Supreme Court

t o

conclude thau

t h i =

vvas

n e t intended n o r expected re la te to member banks and a f f i l i a t e d n o n -

members a n d n o t tc- u n a f f i l i a t e d non-members. And tn e Supreme Court

p o in t s o u t that through t h e Hardwick amendment member bauks regained

" t h e

r igh t

to

make

a

charge

f o r t h e

payment

of

cnecks.»

I s i t , then, t h e purpose of the Federal Reserve Board t o recognize

that member banks have regained th e r i g h t t o charge exchange?

How wi l l i t b e recognized?

Ihen will t h e member banks b e pe rmi t ted t o begin making such charge?

To what exte nt wi ll t hi s ri gh t be recognized?

On what cla ss es of checks will members b e permit ted t o make such a

charge?

As

Reserve Banks

now

c l e a r

a l l

checks

on

member

.8 m ;.J, and

permit

no

charge, what classes or d iv i s io n s of checks will t h e Reserve Banks d i s -

continue handling so as to allow member banks t o exercise t h e r i g h t to

make t h e charge which th e Supreme Court said they regained t h e r i g n t t o

make?

Through u s , member ba_nks are now saying to you:

"Due to a m i s i n t e r p r e t a t i o n of the law by th e Federal Reserve Board,

which was charged with t h e duty and r e s p o n s i b i l i t y of i n t e r p r e t i n g and

admin is te r ing the law, we nave f o r s i x years been wrongfully deprived of

7/17/2019 frsbog_mim_v21_0581.pdf


Exhib i t

A* No. 10 . *

X-4l j l

a l a rge par t of our r i g h t fu l revenue which t h e Supreme Court h a s said

Congress intended f o r u s t o have, and we now as k th e Board i f i t i s

going to s t i l l main ta in a system and po li cy wnicn wil l cont inu e to deprive

us of this revenue in the f u t u r e as i t h as i n t h e past?

"Or, on the other nand, will you change that policy an d system

so as to r e s t o r e t o u s t h e enjoyment of that revenue?

"On June 1 1 , l>-3* t h e Supreme Court announced tnat o y t h e Hardwick

amendment member banks regained t n e r i gh t t o charge exchange - t h e

Hardwick amendment ^ a s enacted June 2 1 , 1 $ 1 7 , y e t s i x year s l a te r ,

we are s t i l l den i ed t h e p r i v i l e g e of exe r c i s i ng and enjoying t h e bene f i t s

of

that r ights

"A poli cy adopted by your board deprived us of our r ight , wnich we

want - must we no t assume that t h e Board will now follow t h e Supreme

Court*s decision a i d r e s t o r e i t ?

"The admi n i s t r a t i on of former Governor Harding inaugurated this

po l i cy o f p a r c l ea r ance , and wa s l a rge ly respons ib le f o r i t s operation

up to

June

1 1 , 1 9 2 3 , b u t

s ince

t h e

Supreme Court 's decisions

on

that

date, does n o t t h e s o l e r e s pons i b i l i t y f o r i t s continuance i n l i g h t of

those decis ions res t

on the

present Board?

"Must we n o t f ee l tha t t h e present Board will b e r e s pons i b l e f o r

whatever exchange revenue

we may be

deprived

of

s ince that date?"

What

i s t h e

Board ' s cons t ruct ion

and

a p p l i c a t i o n

of

that clause

of

t h e Supreme Court's decision i n t h e At lan ta case , a s fo l lows :

Bu t t h e

c l a s s

of

checks

to

which

t h e

Reserve Bank's collection

service might legal ly b e app l i ed , was l e f t b y t h e amendment a s those

"payable upon presentation within

i t s

d i s t r i c t . "

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I

f )

'

Exhibit

A. No. 11 .

X-4131.

I s n o t

t hi s lim it at io n upon

th e

c l a s s

of

checks v,hich

may be

legal ly

received by t he Federal Reserve Banks just a s d e f i n i t e a s though this

sentence read: "Bat the c l a s s of checks t o which t h e Reserve Banks'

col lect ion service

nay be

legally applied

a r e

those payable with in

i t s

d i s t r i c t ? "

To give force t c this qualif ication riuot i t no t be held t hat t he

collection system of each Federal Reserve Bank i s l ega l l y r e s t r i c t ed t o

checks payable within

i t s own

d i s t r i c t ,

and to

receive checks payable

i n

any

other d i s t r i c t save

i t s own i s an

i l l eg a l appl ica t ion

o f i t s

co l lec t ion

service?

I t i s

undeniably true t h a t there

a r e

today thousands

of

banks

on

t he pa r

l i s t

a s a

resu l t

o f t he

statements

and

representations made

t o

them

by the


a n d i t s

then Governor,

a nd t he

Federal

Reserve Banks and t he i r o f f i ce r s and serva nts , that the law required th e .

establishment

of a

univ ersa l par- clea ranc e system,

and

tnat

th e l aw had

deprived these banks

of the

r i g h t

t o

charge exchange,

The

Supreme Court having completely exploded both

of

these contentions

and

having held that there

was no

such duty imposed

by th e l a w, and

nothing from which

i t may be

infer red

-

t ha t

i t was no t

intended

or ex-

pected that i t would become t h e universal agent f o r t h e c o l l e c t i o n of cnecks,

that i t s ;ower t o es tabl ish such a system w as l imi ted t o such an extent

as to

render

i t

impossible

of

accomplishment

a nd

f ina l ly tha t

t he

establishment of i t s system i s i r reconci lable wi th t h e eg re s s p rov i s i on of

7/17/2019 frsbog_mim_v21_0581.pdf


Exhibit

A, No. 12 .

X-Uljl .

t h e Hardvrick amendment - what expression o r ac t ion i s t h e Board now

going

to

take

to

correct these erroneous statements

as to th e law and i t s

r

eqc-i rement

s ?

As a r e s u l t of these mis in te rpre ta t ions by the Board of th e law and

i t s requirements millions of checks a r e being daily cleared a t p a r , which

would otherwise be subject t o exchange charges. I s t h e Board content f o r

th e system to remain, th e benef ic ia ry of misplaced reliance on the

correctness of the Board's construction o f t he law?

O r, will you say to these state Ocnks in e f f e c t , "We were mistaken ;

we misconstrued th e law and mistakenly stated i t s requirements to you;

we a re no t requi red to inaugurate universal p a r c learance and i t was

n o t expected o r intended that we should become universal agency f o r t h e

clearance

of

cnecks ,"

Are you

going

to

tell these state banks that

t h e Federal Reserve Act d id not and does n o t undertake t o des t roy the

s ta te banks ' r ight to charge exchange, bu t on the other hand that t he

state banks a r e f r e e t o accept o r r e j ec t t h e p a r clearance system and to

withdraw from t h e p a r l is t wi thout fear of open o r secret repr isals?

All of tne

questions which

we

nave he re in propounded being important

and pe r t i nen t t o a matter of public policy solely within t h e discret ion

and j u r i s d i c t i o n of the Board, we t r u s t i t w i l l be entirely convenient

and

agreeable

f o r y o u t o

give

us an

ea r ly , f u l l

and

de f in i t e r ep ly

t o

each, as our immediate future conduct must necessarily b e l a r g e l y i n -

fluenced thereby.

Respectful ly ,

(Signed)

L« R .

ADAMS.

GENERAL SECRETARY-

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' - • I'" J L

Exh ib i t

B .

X-4131.

NTSV ORLEANS BRANCH

FtLDEEAL RESERVE BANK OF ATLANTA

New Orleans, J uly 31 , 1$24 .

Pascagouia National 3?IIK,

Pascagoula, Miss.

At ten t ion Mr. K. C. Earr ing, President .

Pascagouia National Bank,

Moss P o i n t , Miss,

Gentlemen:

We have you rs of the 23 th , enc los ing dra f t on the Marine Bank and

Trust Company

f o r

$2,263.21 which

you

^ t a t e

i n

your l e t t e r

i s t o

cover

proceeds of ca sh l e t t e r of the Federal Reserve Bank of A t l an t a (New

Orleans Branch) dated July 26th,

1924;

l e s s

a

charge thereon

of

$2,>6

which you hav3 deducted on account of the Remittance.

In

your l e t t e r

you

s t a t e ,

"We

claim

t h e

r i g h t

to

deduct

t h e

f o r e -

going remittance o r exchange charge under provisions of Sect ion 13 of the

Federal Reserve Ac t a s amended, a s lawful charges ."

\7e

als o have your l e t t e r

of

July

2 9 ,

enc los ing dra f t

on the

Marine

Bank and Trust Company, f o r $332*96 which y o u s t a t e i n you r l e t t e r i s t o

cover proceeds

of

ca sh l e t t e r

of the

Fe de ra l Reserve' Bank

of

Atlanta

(New Orleans Branch) dated Ju ly 26, 1924, l e s s a charge o f 3 3 cents, which

y o u have deducted on account of the remi t tance .

In t he

las t ment ioned le t ter

you

s t a t e

" In a s

much

a s t h e

endorsements

on these checks show that taey have come t o y o u from banks i n other

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Exhibit

B. No.

2,

X - 4 1 3 1 .

Federal Reserve Dist r ic ts ,

and.

t ha t

you a r e

a c t i n g

a s

Collection Agent

only,

we

c la im

t h e

r i g h t

t o

deduct

t h e

foregoing remit tance

o r

exchange

charge under provisions

of

Sect ion

13 of th e

Federal Reserve

Act as

amended, a s lawful charges.»

li e also have your l e t t e r , l ikewis e, of Ju ly 29 , 1924 , enclosing

d r a f t

on the

Canal Commercial Trust

a nd

Savings Bank

f o r

$221.97, which

you

s t a t e

in

your l e t t e r

is to

cover proceeds

of our

d a i l y l e t t e r

of

July 28th, less a charge thereon of 22 ce nt s, which you have deducted

on account o f t h e remit tance.

In

t h i s l a s t l e t t e r

you

make

t h e

same observation with respect

t o

t h e

reason

f o r

deduction that

you

make

i n t h e

le t t e r concern ing

t h e

d r a f t

f o r

$332.96,

We

al so have your le t t e r

of

July

29

enclosing your draft

on the

Canal Commercial Trust

a n d

Savings BsnK

f o r

$2 ,5^3 -> wh ich

you

s ta te

i n you r l e t t e r , i s t o cover proceeds of our d a i l y l e t t e r of July 23th

l e s s

a

charge thereon

of

$2.$4 which

you

have deducted

cn

account

of

t h e

remi t tance .

In

this las t ment ioned le t ter

you

c la im

t h e

r i g h t

to

make

th e

deduction

"because

t h e

items covered

by

this remittance have been handled

f o r t h e

account o f t h e several banks sending t h e same t o u s .

With respect

t o

eacn

o f t h e

aforement ioned draf ts

y o u s a y " I f

this

remi t tance i s n o t acceptab le , p lease re turn i t a t on ce ." Inasmuch a s

this Bank i s forbidden by law to pay exchange i t cannot acc ept a remittance

d r a f t

f o r t h e

amount

of the

checks minus exchange.

We a r e

t he re fo re

r e -

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I

<-tx

Exhibi t B. No, 3 .

X-U131.

turning

to you a l l o f the

drafts above generally described

and

r espec t fu l ly

request that

you

either remit

i n

f u l l

a t p a r f o r o u r

c a s h l e t t e r s

o r

return

t h e

checks conta ined the re in

t o u s .

We also have your l e t t e r s of July 2 9 , 192*+, the one enclosing two

checks aggregating $1,025*00

a s p e r

your cash letter Number

59^9, %rid the

other enclosing

tw o

checks aggregating $2,981.59

a s

p e r

your letter

Fumber

5971. In

both l e t t e r s

you

request t hat

we

give

you

immediate credit

in your reserve account, f o r t h e full amount of the checks i n question.

I t

appears that three

o f t h e

items

f o r

which

you

des i re cred i t

a r e

drawn

on

Mobile Alabama

.and the

other said item

i s

d ram

on

Jackson Miss.

The

Federal Reserve Banks

a r e

forbidden

b y t h e

r egu la t ions

of the

Federal Reserve Board, to give immediate credit f o r checks received f o r

col lect ion, except

a s

permitted/under

t h e

time scneaule, applicable

to

such cases.

We

reg re t , the refor e , that

we are

unable

t o

accede

t o

your

request

f o r

immediate credit .

You

have, however, been given de fe rr ed

c r e d i t f o r t h e checks enclosed, in accordance with t h e time schedule.

Yours very truly,

MARCUS WALKER,

Manager.

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FEDERAL RESERVE BOARD

WASHINGTON

ADDRESS OFFICIAL CORRESPONDENCE T O X—Ul39

T H E FEDERAL RESERVE BOARD

AugUSt 20, 1^24.

Personal and Confident ia l .

Dear

M r.

Yrooman:

I mist apologize f o r n o t having sooner answered your

l e t t e r of July

23rd.

When i t a r r ived i n Washington, I was on my vacation

a t

Matta poiefe tt,f rom which

I

have just returned,

and I had no

data

a t

hand

from which t o wr i te y o u .

I

send th is le t t er

f o r

your personal

and

con f iden t i a l

i n -

formation.

The

figures stated thereon have been checked

up and a re

accur-

a t e »

You

ask.why

t h e

Federal Reserve Board raised

t h e

discount

r a t e s of the Federal reserve banks tw o points "at one fell swoop," just

p r io r t o t he "precipi tous an d ruinous def la t ion of the farmers ."

I

assume that

you

r e f e r

t o t he

increase

i n

discount rates

made by most of the Federal reserve banks i n January, 1A20, and the fur ther

increase made i n June, 1920 .

The Federal Reserve Board d i d n o t make these increases;

they were made,

i n

f a c t ,

b y t h e

Federal reserve banks,

and

represented

t he

best judgment o f t he d i r ec to r s of those banks; they were, however, i n fact ,

approved

b y t h e

Federal Reserve Board.

These rates were

n o t

advanced

tw o

po in t s

at any one

time;

on the

contrary,

i n

January,

1920 , t he

maximum advance

was I15

po in t s

on

90-day commercial paper, while on ag r i cu l t u r a l s i x months paper t h e maximum

advance a t that time was one point a t New York, Phi lad elp hia , and Richmond,

and

from one-half

t o

th ree-quar te rs

of one

point

a t t h e

other Federal

r e -

serve banks.

The 6$ ra te es tabl ished i n January, 1920, was th e same a t

a l l t h e

Federal reserve banks

f o r

both 90-day commercial paper

and fo r s ix

months agricultural paper, - ce r t a in ly no discr iminat ion against t h e farmer.

You as k a s t o th e reason f o r these increases i n discount

r a t e s .

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- 2 -

X-U139

I am

sure

you

wi l l reca l l

t h e

speculative wave which

spread over t h e country, and was in f u l l oper ation when the se i ncre ases

were made. The Federal Reserve Board had given repeated warnings which

were unheeded; t h e speculative movement went on increasing s tep by step;

large stocks

of

merchandise were held

i n

storage

f o r

speculative purposes

awaiting an expected further increase in p r i c e s . The Federal reserve J

bank discount rates

h ad

been kept

a t a

r e l a t i v e l y

lo w

le vel from

t h e n e -

ces s i t y of a s s i s t i n g t h e Treasury i n i t s f i sca l opera t ions , and i t was

f e l t t ha t a n immediate increase i n discount rates was necessary t o con-

tr ol fu rt he r specula tion which would inevita bly r es u lt

i n

grea t d i sas te r .

In 1919

a n (

l 1920, credit extension by member banks and

t h e i r use o f reserve bank credit was increasing a t an alarming rate; t he

borrowings

of

member banks from Federa l r es er ve banks

h ad

increased from

1 , 8 b i l l i o n s i n June, 1919 , t o 2 ,1 b i l l i o n s i n December, 1919 ; t he loans

and discounts of member banks h ad increased from 1 5 - 5 b i l l i o n s i n June,

1 9 1 9 , t o I S .3

b i l l i o n s

i n

December,

1Q19;

Federal Reserve notes

i n

c i rcu-

l a t i o n

had

increased from

2.U

b i l l i o n s

i n

June, I Q I 9 ,

t o

over

3

b i l l i ons

i n December, 1919 . In addi t ion t o t h i s , t h e United States had lost over

300 mi l l ions of gold, n e t , between June, 1919, and December, 1919*

On the other hand, t h e reserves held by the Federal r e -

serve banks against their deposit a n d n o t e l i a b i l i t i e s had been steadily

decl ining, fa l l ing from 53^ in June, 1919, to U3.7$ by January 2 , 1920.

This decline brought

t h e

reserves perilously near

t he min-

imum point.

As a

matter

of

f a c t , th re e Federa l re ser ve banks would have

been a t that time below t h e legal reserve minimum had i t no t been f o r i n -

ter-Federal reserve bank rediscounts.

Under these circumstances there seemed nothing to do

other than t o increase Federal Reserve discount rates i n order t o control

t h e dai ly increase i n specula t ive ac t iv i ty . The ra tes f ixed i n January,

1920, above referred t o , were found powerless t o control this speculation,

and

ea r ly

i n

June,

1920 ,

they were increased again

a t

four Federal reserve

banks to 7$ on bo th agr icu l tu ra l and commercial pa pe r. This advance was

made t o pro tec t t h e Federal reserve banks

1

re se rv es , which were wel l down

t o t h e legal minimum, and to ind ica te t o t h e publ ic that fur th er cre di t

expansion

w as

fr au gh t wit h danger. Legit imate cr ed it needs, however,

c o n -

t inued t o b e supplied,

These rate increases d i d n o t discr iminate against agr icul-

t u r e ; on th e contrary, t h e Federal reserve banks

1

ag r i cu l t u r a l c r ed i t s

were nearly three times a s great in 1920 as in 19 19 .

7/17/2019 frsbog_mim_v21_0581.pdf


f —

/ * #

-

,

3~

X-I4139

I am sure you wi l l apprec ia te tha t t h e dec l i ne i n pr ices

in 1920 - a decline which took place over t h e whole world, - was not

caused b y con t r ac t i on of c r ed i t s by banks, when y ou consider that while

wholesale prices declined from a n index number of 247 in May, 1920, to

179 in December, 1920 , the loans of member banks t o their customers i n -

creased between these same dates over 269 mi l l i ons of dol l a r s , whi l e F e d -

eral reserve bank loans t o member banks increased during t h e same period

b y l 6 S

mi l l i ons ;

so

a l s o

t h e

money

i n

c i r cu l a t i on ou t s i de

o f the

Treasury

a n d t h e

Federal reserve banks increased between January

1 , 19 20, and Ho-

vember

1 , 1920, 316

mi l l i ons

of

do l l a r s . Sure ly

no one

would contend

that these increased credits caused

a

dec l ine

i n

p r i c e s ,

a n d

some other

cause must

b e

found

t o

explain this decl ine.

The real cause o f the dec l i ne i n p r i ces was that they had

been boosted out of propor t ion t o wages, and other economic conditions,

an d t h a t a speculative boom i s bound t o collapse sooner o r l a t e r ,

Furthermore, a n examination o f the peri od from Ap ril , 1921>

when rates were decreased down t o t h e pre sen t time, wi ll show co ncl usi ve ly

tha t t h e lower discount rates were n o t fol lowed by higher member bank b o r -

rowings, b u t t h a t o n t h e con tra ry, such borrowings decr ease d from over 2

b i l l i o n s on Apr i l 15 , 1921 to 260 mi l l ions a t t h e present t ime, while

t h r ee

o f t h e

banks have

a

present rate

as low as

3

a n

&

t h e

*&te

a t t h e


of New

York

i s

only

3$•

This decline i n t h e borrowings of member banks from t h e

Federal reserve banks w as made possible because o f the enormous gold im -

ports coming into

t h e

United States, enabling

t h e

member banks

n o t

only

t o

care

f o r

thei r cus tomers

f

needs,

b u t

a l s o

t o p a y o f f

the i r r ed i scount s

with t h e Federal reserve banks. The n e t imports of gold between November

1, 1920, and August 1 , 1924 , were nearly 1 . 5 b i l l i o n s of d o l l a r s .

You w i l l s e e from t h e above figures that increased discount

r a t e s

i n

fact were fol lowed

by

increased loans, while decreased discount

rates have i n fact been followed by a decrease i n t h e loans o f the rnemoer

banks from

t h e

Federal reserve banks,

These facts bring o u t c l ear ly tha t i t w as t h e dec l ine i n

pr i ce s which ul t i ma te ly caused t h e loans t o decrease; that . i s to sa y , t h e

dec l i ne

i n

pr i c es came f i r s t ,

a n d t h e

decrease

i n

loans fol lowed

the de~^

d i n e , because le s s money

and

l e s s c r ed i t

w as

needed

t o

car ry

o n t h e

b u s i -

ness

o f t h e

country

a t t h e

then lower level

of

p r i ces ,

I hope I have made this clear t o y o u , b u t i f n o t , d o wr±te

me again.

Sincerely yours,

frsbog_mim_v21_0581.pdf

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