frsbog_mim_v38_0389.pdf

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SUGGESTED CHA7G3S I:" S.245

BASUD UFO".: R3 C 01 iSlTDilT I OHS

iiA.DE BY SHE FEDERAL RESERVE BOARD

III ITS

REPORT

OF

MARCH

29 , 1932

TO

THE

COl&IITTEE

Oil

3A7JKDTG-

AH)

CURRENCY

O

TEE IMITBD STATES SErlATE

Apri l 8 , 1933.

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8 9

Ir* 28

1

Section

2 ( b ) .

D e f i n i t i o n

of

" a f f i l i a t e " .

No changes i n th is sec t ion a r e recommended; b u t a t t e n t i o n i s

i n v i t e d t o t h e fac t tha t t h e d e f i n i t i o n o f t he t e r m " a f f i l i a t e " i s so

"broad that

i t

would apply

t o

organizations having "business interests

en t i re ly ou t s ide

o f t he

f i e l d

of

"banking

an d

which

do no t

necessar i ly

have

a n

important effect upon

t h e

condit ion

o r

management

of

member

"banks with which they

a r e

a f f i l i a t ed , Thtis,

i f t h e

same person

o r

group

o f

persons owns

t h e

con t ro l l ing in te re s t

i n a

cotton compress company,

. . .

a

mercantile company

o r a

manufacturing company

and

also owns more than

50$ of th e

number

o f

shares voted

f o r t h e

e lec t ion

of

d i r e c t o r s

of a

member

bank

a t t h e

preceding elect ion,

t h e

cotton compress company, mercantile

company o r manufacturing company would be an " a f f i l i a t e " o f t h e member

bank within t h e meaning of th is sec t ion. I t seems iinpracticable t o frame a

more restrictive definition which would exclude cases of th is k ind bu t

inc lude

a l l

cor por ati ons whose bus ine ss

may

a f fe c t those

of

member banks;

b u t i t i s

believed that some

o f t h e

mandatory provisions

o f t h e

b i l l

r e -

gard ing a f f i l i a t e s shou ld

b e

made discretionary,

i n

order

t o

avoid

t h e

necess i ty

of

making examinations

and

requir ing repor ts

of

condi t ion

i n

cases where

t h e

business

o f t h e

a f f i l i a t e

i s of

such

a

character that

t h e

examinations

a n d

reports would serve

no

useful purpose

a n d

involve need-

l e s s expenses. Changes

f o r

this purpose

a r e

suggested

i n

connection with

other sect ions

o f t he

b i l l d ea li n g w i th a f f i l i a t e s .

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391

L-28

- 2 -

Sect ion 5("b). A f f i l i a t e s of State member "banks.

I t i s

recommended that

t h e

following changes

"be

made

i n

th is

section: Page 6 , l i n e s 10 and 11 , s t r i k e o u t t h e words " n o t less than

three reports during each year"

and

s u b s t i t u t e

t h e

words "such reports

a s t h e

Federal reserve "bank

o r t h e

Federal Reserve Board shell deem

necessary .

n

Page

6 ,

"beginning

i n

l i n e

1 5 ,

s t r i k e

o u t a l l

a f t e r

t h e

word

"reports" down

t o a n d

including

t h e

word "shown"

i n

l i n e

23 .

St r ike

o u t a l l of t h e

paragraph commencing

on

page

9 ,

l i n e

13,

an d

ending

on

page

1 0 ,

l i n e

6 , and

subs t i t u t e t he re fo r

t h e

following:

"Any

esuniner selected

o r

approved

b y t h e

Federal

'

Reserve Bbard

may

examine

amy

a f f i l i a t e ,

,of an y

hank

a d -

mit ted t o membership under t h e provisions of this sect ion

when

i t

s h a l l

b e

deemed necessary

i n

order

t o

inform

t h e

Federal Reserve Board

o r t h e

Federal reserve bank

o f t h e r e -

l a t i o n s o f such a f f i l i a t e wit h such member bank o r of t h e e f -

f e c t

of

such relations upon

t h e

management

o r

condit ion

of

such member baUe;

The

examiner making

t h e

examination

of any

such aff i l iate shal l have power

t o

make

a

thorough emmina-

t i o n of a l l t h e a f f a i r s o f t h e a f f i l i a t e , and i n so

h e

shall have power

t o

administer oaths

an d t o

examine

any of

t h e

of f icer i , d i rec tors , employees ,

an d

agents thereof under

oath , a n d shall make a r epo r t o f h i s f ind ings t o t h e Federal R e -

serve Board

o r t o t h e

Federal reserve bank.

The

.expenses

of any

examination made under

t h e

prov is ions

of

this para^

giraph

m a y , i n t h e

d i s c r e t i o n

o f t h e

Federal Reserve Board,

b e

assessed against

t h e

a f f i l i a t e e a u n i n e d

a n d ,

when

so

assessed,

s h a l l

b e

paid

b y t h e

af f i l ia te examined .

I f

such a f f i l i a t e

s h a | l r e f u s e

t o p ay

such expenses

o r

s h a l l f a i l

to d o so

within sixty days af ter t h e date o f such asse ssme nt, then

such expenses

may be

assessed against

t h e

aff i l iated member

bank

a n d ,

when

so

assessed , sh al l

b e

paid

by

such member

bank; Pro vid ed, however, T ha t, i f t h e a f f i l i a t i o n i s with

two or more member banks» such expenses may be assessed

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<•

•» ••.

-

393

Ir*28

- 3 -

(Section

5 ( b ) ,

continued.)

a g a i n s t ,

a n d

collected from,

a ny o r a l l o f

such member "banks

l a such prop ort ions a s t h e Federal Beserve Board m a y p r e -

sc r ibe . I f a ny a f f i l i a t e of a "bank admitted t o membership

Under

t h e

provis ioi is

of

th is sec t ion sha l l re fuse

t o

permit

a n

examiner

t o

make

a n

examination

of


o r r e -

fu s e to give any information required i n t h e course of any

such exami na ti on , each member "bank with which

i t i s

a f f i l i -

a ted sha l l

"be

subject

t o a

penal ty

o f no t

more than

$100 f o r

each d a y t h a t any such re fu sa l sh al l continue. Such pen alt y

may be

assessed

"by the

Federal Reserve Board

i n i t s

d i s c r e -

t i o n ,

a n d ,

when

so

assessed,

may b e

co l l ec ted

b y t h e

Federal

reserve bank

by

s u i t

or

otherwise."

F o r t h e

reasons indicated

i n t h e

d iscuss ion

of

s ec t ion

2 , t he

above changes a r e recommended i n order that t h e Federal Reserve Board may,

i n i t s

d iscre t ion, avoid

t h e

necess i ty

o f

making examinations

o f , o r r e -

quir ing repor ts

of

condition from, business organizations which

a r e i n -

cluded technically within

t h e

d e f i n i t i o n

of

" a f f i l i a t e s ®

b u t

which

a r e

engaged

i n a

business which does

act

bring them within

t h e

purpose

of the

provis ions

o f t h e

b i l l .

I t i s

also believed that

t h e

proposed revision

o f t h e paragraph regarding examinations of a f f i l i a t e s would f a c i l i t a t e

p r a c t i

c a l '

acini

n i

s t r a t

i o n .

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393

L- 28

- 4 - •

Soctioa

5 ( b ) .

Dealings

l a

investment securi t ies

by

State neaber tanks.

:

' : :•/ ' / , ' * ' '

The M i l

pr ov id es t ha t S t a t e member "banks s h a l l

"be

subject

t o t h e same l imitat ions and condit ions with respect t o t h e purchase,

sa le , underwri t ing a n d holding of inves tment secur i t ies a nd s tock a s

a r e app l i cab le i n t h e case of nat ional banks. I n order t o make i t

clear that th i s p rov is ion i s n o t intended t o r equ i re a bank t o dispose

of any secur i t ies which i t holds a t t h e time t h e b i l l i s enacted in to

l a w , i t i s recommended that t h e per iod a t th e end of l i n e 6 on page 8

of the b i l l b e changed t o a colon a n d t h e follow#ng words in s e rt e d:

"Provided. That nothing herein shall

b e

construed

a s

r equ i r ing

a n y

bank

t o

dispose

of any

investment

s e c u r i t i e s

o r

stock which

i t

lawf ul ly holds

a t t h e

date o f t h e enactment of t h i s Act • *

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I f 28

- 5 -

Section 6 . Quarters f o r t h e Federal Reserve Board.

I t i s recommended that t h e fol lowing b e inserted between

l i n e s 5 and 6 on page 13 :

" ( d ) Section 10 of the Federal Reserve A c t , a s

amended, i s further amended "by adding a t t h e en d t h e r e -

of a new paragraph reading a s fol lows:

•The Federal Reserve Board i s authorized

an d empowered t o acquire by purchase, condemnation

o r otherwise, a building located i n t h e D i s t r i c t

of Columbia which will provide suitable an d adequate

t

offices wherein t h e func t ions o f t he Board a n d t h e

Comptroller

of

the*Currency

may be

ca r r i ed

on, or

t o

acqui re

b y

purchase, condemnation

o r

otherwise,

such s i t e located

i n t h e

D i s t r i c t

of

Columbia

a s

i t may

deem necessary

and to

cause

t o b e

cons t ruc t -

ed

thereon

a

building ^hich wil l provide sui table

and

adequate off ices

f o r t h e

purposes

o f t h e

Federa l

R e -

serve Board a n d t h e Comptroller o f t he Currency, and

t o maintain, re pa ir , enlarge o r remodel an y building

so acquired o r const ructed. The Federal Reserve Board

n a y a s s ign o f f i ces i n a n y such building f o r t h e u s e

o f t h e Comptroller o f t he Currency a n d t h e Federal

Liquidating Corporation, a n d nothing contained i n t h e

Act of June 3 , 1864 , o r i n Section 331 o f t he Revised

S ta tu tes (T i t l e 1 2 , Sect ion 1 3 , U.S.C.) , or in any

other provision o f l aw, s h a l l b e construed a s prevent -

i n g t h e Comptroller o f t h e Currency from making f u l l

use o f any o f f i c e s so assigned and from keeping t he re -

i n t h e records a n d a l l other valuable things belong-

i n g t o h i s department. The Federal Reserve Board

may

levy upon

t h e

Federal reserve banks,

i n

propor-

t i o n

t o

the i r capi ta l s tock

and

surplus, assessments

s u f f i c i e n t

t o

defray

a l l

cos ts

an d

expenses incurred

under t h e provis ions of this paragraph.

111

The

amendment

t o t h e

second paragraph

of

Sect ion

10 of the

Federal Reserve

A ct

contained

i n

Section

6 (b) of the

bill (pages

11 and 12)

would repeal

t h e

provis ion

o f

ex i s t ing

l a w

author iz ing

t h e

Secretary

o f t h e

Treasury

t o

a s s ign o f f i ces

i n t h e

Treasury

Department

f o r t h e u s e o f t h e

Federal Reserve Board;

a n d i t

would

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3 9 5

L— 28

«• 0 mm

(Section 6 continued)

seem that t h e Board should b e author ized t o purchase o r cons t ruc t a

bui ld ing f o r i t s own u s e an d t h a t , i n t h e i n t e r e s t s of convenience and

efficiency, space should b e provided i n such building f o r t h e Conptroller

of the

Currency

a n d h i s

s t a f f

a n d f o r t h e

proposed Federal Liquidating

Corporation.

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- 7 -

L -28

Section

7 .

Fe de ra l Open Market Committee.

I t i s

recommended that everything beginning with line

6 on

page 13 through a n d including l ine 16 on page 14 "be s t r i cken ou t a nd that

th e

fol lowing

"be

i n se r t ed

i n

l ieu thereof :

" S e c . 7 .

Section

14 of the

Federal Reserve

A c t ,

a s

amended,

i s

further amended

"by

s t r i k i n g

out the

words 'Every Federal reserve tank shall have power;

1

an d

i n s e r t i n g

i n

l ieu thereof

th e

following:

'Sub j ec t to such regula t ions, l imi tat ion s,

r e s t r i c t i o n s

and

procedure

a s t h e

Federal

R e -

serve Board

may

pr es cr ib e, every Federal reserve

hank shall have power:'

"Section

14 of the

Federal Reserve

A c t , a s

amended,

i s further amended by adding a t t h e e n d thereof a new

paragraph reading

a s

follows:

' T he

t ime, character

and

volume

o f a l l p u r -

chases

a n d

s a l e s

i n t he

open market under this

sect ion shal l

b e

governed with

a

view

to

accommo-

dating commerce and business and with regard to

their bearing upon

t h e

genera l c redi t s i tua t ion

o f

t h e count ry . ' "

There

i s

al ready

i n

exis tence

a n

open market committee which

h a s

come about

a s t h e

r e s u l t

of

natural development

and on

which each

of the Federal reserve banks h a s r ep re sen t a t i on ; a n d t h e Board believes

tha t i t would b e inadvisable to disturb this development b y c rys t a l z ing

into

l aw any

par t i cu la r procedure .

I t i s

also believed that nothing

fu r t he r a long th is l i ne

i s

necessary

a t

this time than amendments such

a s those suggested above clarifying t h e power o f t he Federal Reserve

Board

to

supervise

an d

regula te

t h e

open market ope ra ti on s

o f t he F e d -

eral reserve banks

an d

wri t ing into

l aw th e

principle underlying such

operations which h a s long been observed by t he Federal Reserve Board.

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- 8 - L- 28

(Sect ion

7 ,

continued)

The provis ion of subsection (b ) o f the proposed new Section 12A

(page 13, l ines 20-24) , t o t h e e f f ec t t ha t no Federal reserve tank shall

engage

i n

open market oper at ion s except

i n

accordance with resolutions

adopted "by the committee an d approved "by the Federal Beserve Board,

would deprive

a n

individual Federal reserve bank

of a l l

a u t h o r i t y

t o

make purchases

i n t h e

open market except a f t e r obta ini ng

t h e

consent

of both t h e Board a n d t h e committee. The open market committee would

have no a u t h o r i t y t o a c t without t h e approval o f the Board a n d t h e Board

would have no a u t h o r i t y t o a c t wi thout t h e approval of the committee.

This would

be too

r i g i d

an d

might make

t h e

open market operations

o f

t h e Federal Reserve System less timely and l e s s e f f i c i e n t .

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— 9 —

Section 7 . Fede ral Liquid ating Corporation.

Ir-28

I f t he amendment f i r s t made above re ga rd in g th e proposed Open M a r -

k e t

Committee

i s

adopted,

i t

w i l l

"be

necessary

to

i n s e r t

th e

fol lowing

"be-

fore l ine 17 on page 14:

"The Federal Reserve A c t , a s amended, i s amended b y i n -

serting between Sections 12 and 13 thereof t h e following

new

sec t ion : "

I t i s

recommended that,

on

pages

15 to 19 ,

inc lu s ive ,

a l l o f

p a r a -

graphs ( c ) , ( d ) , ( e ) , ( f ) a n d ( g ) b e s t r i cken out and that t h e following

be

subst i tu ted therefor ;

"(c) The

corporation shall have

a

cap i ta l s tock

of

$125,000,000, a l l o f which shall b e subscribed by the

United States of America a n d payment f o r which shall b e

subject to c a l l i n whole or in p a r t b y t h e board o f

d i r e c t o r s

of the

corporat ion.

"There i s hereby authorized to be appropriated ou t

of any money i n t h e Treasury n o t otherwise appropriated

th e sum of $100,000,000 f o r t h e purpose o f making p a y -

ments upon such su bs cr ip ti on . Rec eipts f o r payments b y

th e

United States

f o r o r o n

account

of

such sto ck sh a ll

b e

issued

by the

corporat ion

t o t h e

Secretary

of the

Treasury and s h a l l b e evidence of the *s toc k ownership o f

th e United States.

"Any


may

purchase

and

hold

any

debentures o r other such obligations of the corporat ion

in an amount n o t exceeding one-fourth of the amount of

i t s surplus fund."

The proposed section 12(B) of the Federal Reserve Ac t a s s e t

o u t i n

sect ion

7 of th e

bi l l contemplates that

t h e

Federal Liquidating

Corporation shall have a c a p i t a l a n d surplus composed o f ( a ) funds d e -

r ived from subscript ions by member banks to the ex ten t o f one-fourth

of one p e r

cent

of

t h e i r

n e t

time

a n d

demand deposits^

( b )

one-fourth

of the surplus o f t he Federal reserve banks a s o f Ju ly 1 , 1932; and

(c ) th e sum of

$125,000,000

to be

subscribed

b y t h e

United States

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- 10

(Section

7 ,

continued)

In add i t i on , th e corporation would be empowered t o s e l l a n d have

outstanding

a t any one

time

i t s

obl igat ions

i n a n

amount equal

to

twice

i t s

c a p i t a l

an d

surp lus .

I t h a s

"been estimated that

t h e

amount thus

required

of

member banks would

b e

about $65,000,000

a nd t he

amount

r e -

quired

of the

Federal reserve banks about

a n

eq ua l amount . Thus

t he

en t i r e cap i t a l

a n d

surplus

of the

corporation might

b e

approximately

$255,000,000

a n d i t s

borrowing capacity approximately $510,000,000,

o r a

t o t a l

o f

$765,000,000.

Under

t h e

amendment proposed herein,

t h e

corporation would have

a

cap i t a l

o f

$125,000,000 paid

in by the

Treasury

a nd

would

b e

authorized

t o

s e l l

i t s

obl iga t ions

i n a n

additional amount equal

t o

twice

i t s

capi ta l ,

o r , i n

other words,

i t

might have approximately $375,000,000

of

resources

ava i lab le

f o r

carrying

o n i t s

opera tion s. Bearing

i n

mind that this

sum

would

be i n t h e

nature

of a

revolving fund

and

tha t

t h e

corporat ion

w i l l

be

constantly receiving repayments from

t h e

l i qu ida t i on

of the

assets purchased

o r

held

by i t a s

col la te ral which wi l l

be

avai lable

f o r

fur ther purchases

o r

loans,

i t

seems

to the

Board that

a

t o t a l

of

$375,000,000 should

b e

s u f f i c i e n t

f o r a l l

prac t i ca l purposes .

I f ,

however,

i t

should later appear

to be

inadequate there would

be

ample opportunity

f o r Congress t o amend the law so as to provide means f o r increas ing t he

resources o f t he corporat ion. In these circumstances, i t seems u n -

necessary to impose upon member banks t h e burden o f providing par t of

th e c a p i t a l o f t he proposed corporation; and much objection h a s been made

t o t he

imposit ion

o f

such

a

requi rement , par t i cu la r ly

a t

this time.

399

L-28

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10-a

L-28

Likewise, no necessity seems to ex i s t f o r r equ i r i ng t h e Federal

reserve "banks

t o

subscribe

to the

capi ta l s tock

of the

corporat ion.

On the

other hand,

t h e

provis ion permit t ing

t h e

Federal reserve

banks t o purchase debentures of the corporation would b e he lpfu l

i n f a c i l i t a t i n g t h e marketing of the corpora t ion ' s obl iga t ions .

I n

order that

i t may be

clear that

t h e

corporation roay

issue

i t s

ob l i ga t i ons

in an

amount equal

to

twice

th e

amount

o f i t s

subscr ibed capi ta l ,

i t i s

suggested that

t h e

word "subscribed"

b e

inser ted before

t h e

word "capital"

i n

l i ne

1 on

page

24 of th e

b i l l .

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- 1 1 -

Ir-28

(Section 7 continued)

I t i s

further recommended that everything

on

page

2 1 ,

a f t e r

t h e

word "require

11

i n

l ine

14 ,

down through

and

including

t h e

word "directors"

i n

l ine

19 be

s t r i cken

o u t ;

because

i t i s

be lie ved t hat sound bu sin es s

p rac t i ce , a s well a s t h e need f o r pro tec t ing t h e Government's investment

i n t h e

cap i t a l

of

this corporation, requires that

t h e

valuations upon

which purchases

of

a s se t s

o f

closed banks

o r

loans

t o

receivers upon

t he

secur i ty

of

such as se ts

a r e

based should

be

determined

by

representa t ives

of the

Liquidating Corporation.

The

b i l l p rovides

f o r a

l i qu ida t i on

f e e o f 8 p e r

cent

of the

amount realized from

th e

sale

o r

other disposi t ion

of

assets purchased

b y

t h e

corporat ion.

The

time required

f o r t h e

l i qu ida t i on

of

such assets would

vary i n di f ferent cases f rom a few months t o several years and a f e e of 8 p e r

cent might be too g r ea t i n some cases o r t oo l i t t l e i n o the r s . I t i s recom-

mended, therefore, that

t h e

words "liquidation

f e e o f 8 p e r

centum

o f " i n

l ine

3 of

page

22 of the

b i l l

be

changed

t o

read "reasonable l iquidation

f e e

from."

I f , notwithstanding t h e recommendations of the Board above s e t

forth with reference t o t he cap i t a l s t r uc tu re o f t he corpora t ion , t he

present provis ions

o f t he

b i l l

f o r

three classes

o f

stock

a r e t o b e

retained,

th e

Board feels that

th e

stock held

by t he

Federal reserve banks should

b e

accorded

t h e

same r i g h t s

as to

dividends

a s a r e

given

th e

stock held

by

th e

member banks

a nd by t he

Government. There

i s no

reason

why the

stock

paid

f o r b y t h e

federal reserve banks should

not be

given

t h e

same treat-

ment i n th i s respec t a s t he other c lasses of stock o f t he corporat ion.

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402

— 1 2 — L - 2 8

I t i s also believed that a provision should be included which would

authorize t h e re turn to the member banks and to the Federal Reserve

Banks of a po r t i on of the amount paid in by them upon t h e s tock of the

corporat ion i f an d when i t i s n o longer needed f o r t h e purposes of the

corpora t ion .

I f i t

should develop that

th e

amount

o f the

pa id- in capi ta l

stock

of the

corporat ion

i s i n

excess

o f i t s

needs,

th e

r e tu rns

on the

stock would

b e

small

a n d i t

would seem eq ui ta bl e t h at

t h e

amount

of the

excess paid in by the member banks an d t h e Federal reserve banks should

be returned t o them. I n order t o accomplish these purposes, i t i s recom-

mended that t h e following changes be made i n t h e b i l l . In l i ne 13 on

page 16, s t r i k e o u t t h e word "not"; i n l i ne 14 on page 1 6 , a f t e r t h e ward

"dividends", omit t h e per iod an d i n s e r t t h e words " to the same extent a s

Class A s tock"; and a t the end of l ine 2 3 , a t page 18 , add the following;

" I f a t an y time i n t h e judgment of the board o f d i r e c t o r s o f

t h e

Corporation,

t h e

amount

of the

s tock

of the

corporat ion

i s

greater than

i s

needed

i n t h e

t ransac t ion

o f i t s

bus iness ,

t h e

board

o f

di rectors shal l have

t h e

power

to

suspend

an y o f t h e p r o -

vis ions o f this section with respect t o t h e subscr ip t ion by

member banks f o r Class

A

stock and to c a l l f o r t h e sur render and

cance l l a t i on on a ra tab le bas i s of such an amount of Class

A

stock held

b y

member banks

and of

Class

B

stock held

b y

Federal

reserve banks a s t h e board may deem ad vi sa bl e: Pro vid ed, however,

That such suspension may be terminated by the board o f d i r ec to r s

o f t h e corporat ion a t an y time and in case o f such termination a l l

o f the provis ions of th is sect ion with res pec t to the subscr ipt ion

an d payment f o r Class A an d Class B stoc k sha ll apply accordin g to

the i r or ig ina l t enor ."

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I M

L-28

— 13 —

Section 8 , Loans t o neater banks on their promissory notes

I t i s

recommended that

a l l of

Section

8 ( i . e .

everything

com-

mencing with line 8 on page 28 dorm through and includ ing l ine 11 on

page

29) be

s t r i cken

ou t and

that

t h e

fo l lon ing

b e

subs t i t u t ed the re fo r :

"Se c . 8 . The

eighth paragraph

of

Sect ion

13 of the

Federal Reserve A c t , a s amended, i s amended an d reenacted

to

read

a s

fol lows:

" 'A n y


may

make advances

f o r

per iods n o t exceeding f i f t e e n days t o i t s member banks

on

their promissory notes secured

b y t h e

deposi t

o r

pledge

of

bonds , no tes , cer t i f ica tes

of

indebtedness

o r

Treasury

b i l l s

o f t h e

United States,

o r by the

deposi t

o r

pledge

of debentures o r other such obligations of Federal In ter -

mediate Credit Banks phich

a r e

e l i g i b l e

f o r

purchase

by

Federal reserve banks under Section

1 3 ( a ) o f

th is

A ct ; an d an y


may

make advances

f o r

per iods n o t exceeding ninety days to i t s member banks

on their promissory notes secured by such notes , d r a f ts ,

b i l l s

of

exchange

or

bankers' acceptances

a s . a r e

e l ig ib l e

f o r

rediscount

o r f o r

purchase

by

Federal reserve banks

under t h e provisions of t h i s A c t . A l l such advances

s h a l l

b e

made

a t

r a t e s

t o b e

es tab l i shed

by

such Federal

res erv e banks, subject

t o t h e

review

and

determination

of the Federal Reserve Board.'"

This section purports

t o

amend

t h e

seventh paragraph

o f Sec-

t i on

13 o f the

Federal Reserve

A c t ; b u t ,

s ince

t h e

b i l l

w as

reported

out by the

Banking

an d

Currency Committee

o f t h e

Senate,

a new

parar»

graph

was

i n s e r t e d

i n a n

ea r l i e r pa r t

of

Sect ion

13 by t h e Act of

July

21, 1932, so

tha t

t h e

paragraph referred

to i s now th e

eighth para-

graph of Section 13 in s t ead o f the seventh paragraph of Sect ion 13.

Since this bi l l

was

reported

ou t by the

Banking

and

Currency

Committee o f the Senate, th e paragraph o f Section 13 r e f e r r e d to was

amended

by th e Ac t of May 19, 1932 , so as to

make debentures

o r

other

such obligations

of

Federal Intermediate Credit Banks, which

a r e

e l ig ib l e

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L-28

- 14 -

(Section 8 , continued)

f o r

purchase

"by

Fe de ra l r es er ve "banks under Se ct io n

13 (a ) o f t he

Federal

Reserve

A c t ,

e l i g i b l e

a s

co l l a t e r a l s ecu r i t y

t o t he

promissory notes

of member banks evidencing advances made t o them by t he Federal reserve

banks;

and

that amendment would

b e

repealed

b y t h e

b i l l

i n i t s

present

form.

The

main purpose

of

Section

8 of th e

B i l l

i s t o

l imi t

t he

r i gh t

of

member banks

t o

borrow from Feder al r es er ve banks

on

t h e i r

own

promissory notes when such member banks a r e making loans on stock

exchange collateral

and

thus

t o

di sc ou ra ge member banks f rom making loans

on stock exchange collateral when they a r e indebted t o t h e Federal reserve

banks.

I t i s

believed, however,

.

tha t th i s purpose

i s

fully accomplished

b y t h e provis ions of Section 3 ( a ) o f t he b i l l a nd tha t no fur ther l imi ta t ion

along this l ine

i s

de si ra bl e. Moreover,

th e

theory under lying th is

proposed amendment

— i . e . ,

that there

i s a

more direct connection

between member bank collateral notes

and the use of

reserve c redi t

f o r

speculative activity than between rediscounts

and

t h i s ac t i v i t y

i s

unfo unded. Member banks borrow

on

t h e i r

own

promissory notes

because

o f t he

gre at er convenience bot h

t o

them

a nd t o t h e

Federal

reserve banks;

a n d , i f

this form

of

borrowing were restricted

o r p r o -

hi bi te d, they would merely su bs ti tu te

t h e

procedure

of

rediscount ing

eligible paper without a n y change i n t h e u s e o f t h e proceeds. F o r these

reasons,

i t i s

bel ieved that

t h e

addi t iona l res t r i c t ions proposed

to be

imposed

by

this section would make

t h e

operat ion

o f t he

Federal reserve

banks l ess e f f i c ien t

and

more expensive.

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4.05

i 28

— 15 —

(Section

8 ,

continued)

The Federal Reserve Board h a s recommended i n i t s annual reports f o r

Several years that

t h e

matur i ty

of

advances which

may be

made

t o

member banks

on their promissory notes secured b y paper which i s e l i g i b l e f o r d i scount b e

increased from 15 to 90 days, because i t i s believed that such a h amendment

would

be

e spec i a l l y he lp fu l

t o

country banks

and

would increase

t h e

e f f i c i ency

and use fu lnes s o f the Federal reserve banks without departing in any way from

t h e fundamental pr inciples o f the Federal Be serve A ct . The amendment recom-

mended above would accomplish this purpose an d i s bel ieved to be very desi rable .

I f ,

notwithstanding

t h e

above recommendations, Section

8 of the

b i l l i s r e t a ined i n s u b s t a n t i a l l y i t s present form, them, i n order t o conform

t o t h e s i tua t ion resul t ing f rom t h e i n s e r t i o n of a new paragraph i n a n ea r l i e r

p a r t of Sect ion 13 o f the Federal Reserve A c t , t h e word "seventh" i n l i n e 8

on page 28 should b e changed t o "e ighth" ; an d , i n order n o t t o repea l t h e amend-*

ment

of May 19 , 193 2,

making debentures

o r

other such obligations

of

Federal

Intermediate Credit Banks which a r e e l ig ib le f o r purchase b y Federal reserve

banks el igible a lso a s co l l a t e r a l s ecu r i t y f o r t h e promissory notes o f member

banks, Section 8 of the bil l should also b e amended b y changing t h e per iod a f te r

t h e

words "United States"

i n

l i n e

20 on

page

28 to a

comma

and

i n s e r t i n g

a t

that point t h e words " o r b y t h e deposi t o r pledge of debentures o r other such

obl iga t ions of Federal Intermediate Credit Banks which a r e e l i g i b l e f o r p u r -

chase

b y

Federal reserve banks under Section

1 3 ( a ) o f

this Act*"

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4 0 6

1 - 2 8

— 16

Sgctloxi 10u Member banks a c t ing a s medrums o r agents i n making loans on

c o l l a t o r a l .

This section would forbid

a

member bank

t o a c t a s t h e

medium

o r agent of any nonbanking inst i tu t ion o r ind iv idual i n making loans on the

secu r i ty of stocks, bonds and other investment securi t ies t o brokers o r

dea le r s

i n

such secu r i t i e s .

I n

order that

i t may be

c lear that th i s

p r o -

vis ion forb ids a member bank to a c t a s a medium o r agent f o r this purpose,

n o t only of a nonbanking inst i tu t ion o r ind iv idua l , b u t a l so of a nonmember

bank which

i n

t u r n

i s

a c t i n g

f o r a

nonbanking inst i tu t ion

o r

ind iv idua l ,

i t

i s suggested that t h e words "direct ly o r ind i rec t ly " t e i n s e r t e d a f t e r the

word

" a c t " i n

l i n e

14 on

page

30 .

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Section 1 1 . Loans t o execut ive of f icers of member banks o r to the i r r e l a t ives .

One of the

prov is ions

of

th is sect ion requi r es that

a n

executive

o f f i c e r

o f a

member bank make

a

report

t o t h e

chairman

o f the

board

o f

d i r e c -

to r s

of

such bank with respect

t o an y

borrowing from

t h e

bank

b y

r e l a t i v e s

of

cer ta in speci f ied c lasses

and

provides

a

penal ty

of

f i n e

o r

imprisonment

f o r

f a i l u r e

t o d o s o . I n

order that this provision

may not

appear

t o

include

a

case

i n vshich a n execut ive of f icer i s n o t aware o f the borrowing b y a r e l a t i v e , i t

i s

suggested that

t h e

word "knowingly"

b e

in se r t ed

i n

l i n e

5 on

page

32

before

t h e

word "violating

1

.

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— 1 8 —

Sect ion 1 2 . Loans t o o r investment i n s tock of a f f i l i a t e s .

This section provides l imitat ions upon loans o r extensions of

c r e d i t

t o

a f f i l i a t e s

b y

member banks

and

upon investments

i n t h e

s tock

o r

ob l iga t i ons o f such a f f i l i a t e s b y member banks. I n order that i t may be

c lear tha t

th e

l imitat ion upon investments

i n

capi ta l s tock

of

a f f i l i a t e s

should n o t b e construed a s impl ied author i ty f o r investment i n such stock

within t h e l i m i t a t i o n s o f the sec t ion , i t i s suggested that t h e l imi t ing

provis ion of th i s sec t ion be changed so as no t to apply t o capi ta l s tock

of a f f i l i a t e s . Othe r p rov i si ons o f the b i l l fo rb id member banks t o purchase

an y

s tock

of any

corporat ion (wi th cer ta in s ta ted except ions)

a n d ,

accordingly,

t h e

l i m i t a t i o n

of

th is sec t ion wi th resp ect

t o

investments

i n

capi ta l s tock

of

a f f i l i a t e s

i s

unnecessary.

I t i s

recommended, therfore, that

t h e

words

"capi ta l s tock" i n l i n e 15 of page 32 be s t r i cken o u t .

Among t h e l imi ta t ions provided b y th i s sec t ion i s a requirement

tha t a loan o r extension of c r e d i t to an a f f i l i a t e b y a member bank b e s e -

cured

b y

co l l a t e r a l hav ing

a

.market value

o f a t

l e a s t

2 0 p e r

cent more than

t h e amount o f the loan o r extension of c r e d i t o r a t l e a s t 1 0 p e r cent more

than t h e amount thereof i f i t i s secured b y municipal obl igat ions; b u t loans

o r extensions of credit secured by obl iga t ions o f the United States, Federal

intermediate credit banks, Federal land banks, o r pape r e l i g ib l e f o r r e d i s -

count

by


a r e

excepted from th is require ment.

I t i s

bel ieved that

t h e

exception

i n

favor

of

loans secured

b y

paper e l ig ib le

f o r

rediscount

b y

Federal reserve banks would provide

a

loophole through which

t h e i n t en t i on of this provision might b e evaded. Pap er may be t echnica l ly

e l i g i b l e f o r red i scount b y Federal reserve banks and ye t no t o f a qual i ty

4 8

Ir 28

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1 - 2 8

- 19 -

(Sect ion

1 2 ,

continued)

t o

make

i t

desirable from

a

cred i t s tandpoin t .

A

member bank, t h e r e f o r e ,

might make loans t o i t s a f f i l i a t e s upon t h e secu r i ty of paper which i s n o t

of a sound quality, although eligible f o r rediscount, without complying

with t h e s p i r i t o f t he requirement of th is sect ion a s t o marg inal co l la tera l .

I t i s

accordingly recommended that

i n

l i n e

16 on

page

33 of the

b i l l ,

the

comma a f t e r t h e words "Federal land banks" b e changed t o a per iod a nd the

remainder o f t he sentence down to a nd including t h e word "banks" i n l i n e 19

b e

s t r i cken

o u t ; a n d

tha t

i n

l i n e

13 on

page

33 of t he

b i l l , a f t e r

t h e

word

" t h e r e o f " , t h e colon b e changed t o a comma a n d t h e fo l lowing b e in se r t ed :

" o r b y c o l l a t e r a l i n t h e form of n o t e s , d r a f t s , b i l l s o f exchange o r bankers '

accep tances e l ig ib le

f o r

rediscount

o r f o r

purchase

b y


having a face value o f a t l e a s t 2 5$ more than th e amount o f t he loan o r

extension of c r e d i t . "

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410

1-28

— 2 0 —

Section. 1 4 . J u r i s d i c t i o n of Federal Courts.

I n order t o accomplish t h e purpose of certain recommendations

heretofore made b y t h e Federal Reserve Board i n i t s annual reports f o r

t h e years 1927 (page 4 8 ) , 1928 (page 41) and 1929 (page 37) , and in

l e t t e r s addressed t o t h e Chairmen of the Banking and Currency Committees

of the

Senate

and the

House

of

Representatives under date

o f

February

14,

1 9 3 0 , i t i s

recommended that,

on

page

3 5 ,

l i n e

23 , o f the

B i l l

t h e q u o -

tation mark "be s t r i cken ou t and the fol lowing new paragraph i nse r te d:

"Notwithstanding an y other provis ion o f l aw , a l l

s u i t s of a c iv i l na ture a t common law or in equi ty t o which

an y Federal reserve bank shall be a par ty sha l l b e deemed t o

arise under t h e laws of the United States, an d t h e d i s t r i c t

courts o f the Uni ted States shal l have or iginal jur isdict ion

o f a l l

such su i t s ;

and any

defendant

i n an y

such suit

may,

a t an y time before t h e trial thereof, remove such suit from

a

State court into

t h e

d i s t r i c t c o u r t

o f the

United States

f o r t h e p r o p e r d i s t r i c t b y fol lowing th e procedure f o r t h e

removal

o f

causes otherwise provided

by la w . No

attachment

o r execution shall b e issued against an y Federal reserve

bank

o r i t s

property before final judgment

i n an y

s u i t ,

a c -

t i o n , o r proceeding i n an y State, County, Municipal o r United

States Court ."

Sect ion

14 of the

B i l l ,

t o

which this amendment pertains, would

add a new

sec t ion

t o t h e

Federal Reserve

A c t

conferring upon

t h e

Federal

Courts jur isdict ion over cer ta in classes

of

s u i t s

t o

which

an y

corpor-

ation organized under

t h e

laws

o f the

United States

i s a

p a r t y .

The

pr inc ipa l corpora t ions a f fec ted b y this sect ion of the b i l l i n t h e form

i n which i t passed t h e Senate a r e national banks an d foreign banking c o r -

porations organized under Section 2 5 ( a ) o f t h e Federal Reserve Act ; and

i t i s bel ieved that this sect ion o f the b i l l should b e amended so as to

incorporate certain amendments heretofore recommended b y t h e Federal

Reserve Board with regard t o s u i t s t o which Federal reserve banks a r e

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; 4:11

Ir-38

— 2 1 —

(Section

1 4 ,

continued)

p a r t i e s .

The amendment proposed would, (1 ) r e s to r e t o t h e Federal courts

j u r i sd i c t i on ove r su i t s t o which Federal reserve banks a r e p a r t i e s , and

(2 ) exempt Fed eral re se rv e banks from attach ment o r garnishment p r o -

ceedings before final judgment

i n a n /

case

o r

proc eedi ng. Each

o f

these

po in t s

i s

discussed separately below.

The Federal co urts formerly h ad j u r i s d i c t i o n of s u i t s by and

against Federal reserve banks because o f the fact that Federal reserve

banks a r e incorporated under an Act of Congress; b u t Sect ion 12 of the

Act o f

February

13 , 1925 ,

provides that

no

d i s t r i c t c o ur t

o f the

United

States shal l have jur isdict ion o f any ac t i on o r s u i t by or aga ins t an y

corporation upon t h e ground that i t was incorporated b y o r under an Act

of Congress, except corporations i n which t h e Government o f the United

Sta tes i s t h e owner of more than one-half of the capi ta l s tock.

I t i s n o t

believed that Congress

h ad t h e


i n mind when th i s amendment was enacted; b u t i t s terms deprive t h e

Uni ted Sta tes d i s t r i c t cour t s of j u r i s d i c t i o n o f a l l s u i t s by o r against

Federal reserve banks, unless

a

question involving

t h e

i n t e r p r e t a t i o n

of the

Const i tu t ion o f the United States or of some Feder al s t at ut e i s ra i sed

b y t h e

original -pleadings

of the

p l a i n t i f f .

The

provis ions

of the

Federal

Reserve Act o r the regula t ions o f t h e Federal Beserve Board a r e f requent ly

t h e grounds "upon which Fed eral re se rv e banks defend su i t s broug ht ag ai ns t

them; b u t t h e fact that such questions a r e r a i s ed i n t h e defendant ' s

p leadings

i s n o t a

ground

of

j u r i s d i c t i o n

i n t h e

Uni ted Sta tes d i s t r i c t

cour t s . The Federal reserve banks a r e thus forced t o defend i n t h e State

courts suits which turn upon essential ly Federal questions and which result

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(Sect ion 1 4 , continued)

i n

na t iona l ly impor tant in te rpre ta t ions

o f the

Federal Beserve

A c t .

Unlike national banks, t h e Federal reserve banks cannot remove

suits brought against them b y persons located i n other States to the

Uni ted Sta tes d i s t r i c t cour t s on the ground of d i v e r s i t y of c i t i zensh ip ,

because t h e Supreme Court o f the United States h a s held that a Federal

corpora t ion i s n o t a c i t i z e n of any S t a t e , and t he r e i s n o p rov i s i on i n

t h e Federal He serve A ct s imi la r t o t h a t i n t h e National Bank A c t provid-

i n g that they shal l be deemed citizens o f t h e S t a t e s i n which they a r e

loca ted ,

%e A c t o f

February

1 3 , 1 9 2 5 ,

makes

an

except ion

i n t h e

case

of

corporat ions

i n

which

t h e

Government

o f the

United States

i s t h e

owner

o f

more than one-half

o f the

capi ta l s tock;

a n d i t

would seem that

the

except ion should logical ly b e extended t o include Federal reserve banks,

since they a c t a s f i s ca l agen t s o f the United States and perform cer ta in

f u n c t i o n s of sub t r ea su r i e s a s well a s many other important functions f o r

t h e Government# Moreover , i n t h e event o f the l i q u i d a t i o n of the Federal

reserve banks, a l l o f t h e i r sur pl us , which amounts t o nearly twice their

paid—in c a p i t a l st oc k, would become t h e proper ty o f the United States.

The proposed amendment would also exempt Federal reserve banks

from attachment o r garnishment proceedings before final judgment in any

case o r proceeding.

I n

some ins tan ces , s ui ts aga ins t

a

Federal reserve bank brought'

i n a

State other than that

i n

which

th e


i s

located

have been commenced b y a t t ach ing o r garnisheeing t h e proper ty of such

Federal reserve bank located i n such othe r S ta te . Procee dings which thus

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Ir-28

- 23 -

(Section 1 4 , continued)

t i e u p t h e

proper ty

o f a


i n

advance

of

final judgment

may cause se r ious d i f f i c u l ty and embarrassment i n t h e proper adminis t ra-

t ion

o f the

a f f a i r s

of the

Federal reserve hank,

and

there would seem

to be

no

sound reason

why

t h i s should

b e

permit ted.

The purpose of attachment and garnishment proceedings i s t o

insure t o t h e complainant that he w i l l b e able t o ob t a in s a t i s f ac t i on

of any judgment which may be f ina l ly rendered i n h i s favor ; and the

c red i t and f inanc ia l s t anding of each Fed era l res er ve bank i s such that

no d i f f i c u l t y may be an t i c i pa t ed i n ob ta in ing f u l l s a t i s f a c t i on of any

judgment which may be rendered b y t h e courts against i t .

Under t h e provis ions of Section 5242 of the. Revised Statutes,

national banks

a r e

exempted from attachment

an d

execut ion before f inal

judgment i n an y case o r proceeding a n d t h e Board feels that the law

should

b e

amended

so as to

give Federal reserve banks

t h e

same pr ot ec ti on

i n t h i s r e spec t . I t i s conceivable that , i f large amount® o f th e funds

o r

c r e d i t s

of the

Federal reserve banks should

b e

t i e d

u p

through at tach-

ment o r garnishment proceedings, t h e a b i l i t y of the reserve banks t o p e r -

form these functions might b e seriously hampered.

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- 24 -

Section 1 5 . Powers of national "batiks.

I t i s recommended th a t th i s se ct io n h e amended a s fol lows:

1. On

page

3 6 ,

l i ne

1 2 ,

change

t h e

semicolon

t o a

period

and s t r i k e o u t everything thereaf ter through t h e word "Congress" i n

l i n e

18.

2. On page 3 8 , l i n e 2 , i n s e r t t h e word "general" "between t h e

word

" o r " an d t h e

word "obligations".

3. On page 3 8 , s t r i k e o u t a l l o f l i n e s 12, 13 and 14 .

The

clause

on

page

3 6 ,

l i ne s

12 to 18 ,

inclusive which would

confer upon national "banks a l l "banking powers granted "by S t a t e law to

"banking insti tutions i n t h e States where such national banks a r e l o c a t -

e d , except t o t h e extent expressly forbidden by Congress, would have a

strong tendency i n t h e d i r ec t i on of lowering t h e standard o f the n a t i o n -

a l Banking System an d would b e inconsis tent wi th t h e general theory of

t h e

b i l l .

I t

wculd consti tute

a

fur ther s t ep

i n t h e

competi t ion

i n l a x -

i t y which h a s been permitted t o grow u p between t h e national Banking

System

an d t h e

banking systems

of the

for ty-e ight Sta tes .

The suggested amendment i n l i n e 2 of page 3 8 i s intended t o

make inel igible

f o r

purchase

by

nat ion al banks spe cia l oblig ati ons

of

States and p o l i t i c a l subdivisi ons thereof which a r e payable out of

special funds and no t out of th e general revenues of the S t a t e o r

p ol i t i ca l subdivi s ion. Under exis t ing

l a w ,

national banks

may

invest

i n general obl igat ions of a Sta te or any po l i t i ca l subdiv i s ion ther eof ,

an d i t i s n o t bel ieved desi rable that t h e au thor i t y of national banks i n

this respect should

b e

extended.

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4 1

1 - 2 8

- 25 -

(Sect ion 1 5 , continued)

The

e f f e c t

of the

sentence contained,

i n

l i n e s

12 , 1 3 and 14 on

page

3 8 i s n o t

c l e a r ;

and the

sentence would seem

to be

e n t i r e l y

u n -

necessary,

i n

view

of th e

fac t that

t h e

l i m i t a t i o n s

on the

amount

of

investment securit ies which

may "be

purchased

"by

na ti on al b arks have been

c l a r i f i e d

so

that there

i s n o

doubt that they apply only

t o

investment

secur i t ies purchased af ter th i s sect ion

a s

amended takes effect.

(See

page 3 7 , l i n e s 4 , 11 a nd 12 . ) With t h e amendments above suggested,

there would seen to be no reason why i t s ef fe ct iv e date should b e

postponed

f o r o ne

y e a r .

I t s

r es tr ic t i on s would pe rt ai n only

t o

fu tu re

purchases

o f , o r

deal ings

i n ,

investment securi t ies

a n d i t

would

no t

r equ i re

any

national bank

t o

dispose

of any

investment security which

i t now holds.

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416

1 - 2 8

— 2 6 —

Section

1 8 .

Holding company a f f i l i a t e s

of

national banks*

I t

isreqommended that this section

be

amended

a s

fol lows:

Page

4 0 ,

l i n e

1 8 ,

s t r i k e

ou t t he

words

" o r

held"

and

s u b s t i t u t e

i n

l i e u , t h e r e o f

t h e

words

" o r by a ny

officer, director, employee, proxy,

nomine^,, representative,

o r

agent thereof,

o r " .

Page

4 1 ,

l i n e

1 ,

a f t e r

t h e

word "same" insert

t h e

fol lowing

new

sentencej

"Such application shall

be i n

such form

a n d

shal l

contain such agreements

and

undertakings

a s t h e

Feder-

a l

Beserve Board

i n i t s

d i s c r e t i on

may

prescr ibe ."

'Page

4 1 ,

l i n e

1 1 ,

s t r i k e

o u t t h e

comma a f t e r

t h e

word

" r e -

ceive" an d everything thereaf ter through an d including t h e word " a f -

f i l i a t e d "

i n

l i n e

12 .

Page 4 1 , l i n e 1 3 , a f t e r t h e word "shall" insert t h e words "be

authorized

t o " .

Page 4 3 . St r ike o u t a l l o f l i n e s 16 t o 22 , i nc lus ive , and

i n s e r t i n l ieu thereof t h e following:

" ( d )

Within

a

per iod

of one

year from

t h e

date

of t he

issuance

of

such voting permit, each nonmember State

bank owned

o r

cont ro l l ed

b y

such holding company a f f i l i -

a t e

which

i s

e l i g i b l e

f o r

membership

i n t h e

Federal

r e -

serve system shall apply

f o r

membership therein

i n t h e

manner prescribed

by , a nd

subjec t

t o t he

terms

o f , S e c -

t i on

9 of t h e

Federal Heserve jfcct;

i f

such ap pli cat ion

i s approved by t he Federal Reserve Board, such bank

shall become a member o f t he Federal reserve system and

shall comply with a l l o f t h e provis ions of law a p p l i -

cable t o member banks j i f such app li cat ion i s n o t a p -

proved b y t h e Federal Reserve Board, o r i f a ny such

bank sha l l fa i l to become, o r shhll cease to be , a mem-

b e r o f t h e Federal reserve system a t a n y time while such

agreement remains i n e f f ec t , such a f f i l i a t e sha l l d ives t

i t s e l f o f a l l stock ownership o r o ther in te res t i n , o r

cont ro l

o f ,

such bank within such time

a s t h e

Federal

R e -

serve Board may determine; and"

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- 27 -

L - 2 8

(Section

1 8 ,

continued)

Page

4 5 ,

l i ne

1 ,

a f t e r

th e

word

" an y "

i n s e r t

th e

words

" co n -

di t ion prescr ibed "by or".

Page 4 5 , l i ne 2 0 , s t r i ke out the quotation mark after t h e

word "amended" an d i n s e r t t h e fol lowing new paragraphs:

"Unless there i s i n e f f e c t a t t h e time a vot ing p e r -

m i t issued pursuant to the terms o f th i s sec t ion , any

person, f irm, corporation, association, "business trust ,

o r other organization, which shall vote, o r cause, di rect ,

au thor i ze , o r permit to be voted, t h e stock of any na t i on -

a l bank owned o r cont ro l l ed by any holding company a f f i l i -

a t e , o r b y a n y officer, director, employee, proxy, nominee

o r representa t ive o r agent thereof , o r by any t r u s t e e f o r

t h e b e n e f i t o f the shareholders o r members thereof, shall

b e deemed guilty of a misdemeanor a n d , upon conviction

thereof in any d i s t r i c t c o ur t o f the United States, shall

b e f i ned n o t more than $5,000 f o r each such o f f e n s e . Each

vote cast shal l const i tute a se parate offe nse withi n the

meaning of this paragraph.

"Any o f f i ce r , d i r ec to r , agen t o r employee of any

such holding company affi l iate

f o r

which there

i s i n e f -

f e c t a voting permit issued under th e provis ions o f th i s

sec t i on ,

who

shall make

any

fa l se en t ry

in any

book,

r e -

por t o r statement o f such a f f i l i a t e w ith i n t en t in any

case t o i n ju r e o r d e fr a ud such a f f i l i a t e , an y member bank

o r an y ot he r company, body p o l i t i c o r corpora te , o r an y

individual person, o r wi th intent to deceive t h e Federal

Reserve Board o r any o f f i c e r of such a f f i l i a t e or of any

member bank, o r t h e Comptroller o f the Currency, or any

agent o r examiner appointed t o examine th e a f f a i r s o f

such a f f i l i a t e , s h a l l b e deemed guilty o f a misdemeanor

and upon conviction thereof in any d i s t r i c t c ou rt o f th e

v

United Sta tes sh al l b e f i ned n o t more than $5,000 o r

s h a l l b e imprisoned f o r n o t more than five years, o r

both, i n t h e d i s c r e t i o n of the cour t .

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4 1 8

1 - 2 8

— 2 8

(Section

1 8 ,

continued)

"No

nat ion al bank sh al l ,

(1 )

make

any

loan

on the

stock

of any

hold ing company a f f i l i a t e which owns

o r co n -

t r o l s such na tio nal "bank di re ct ly o r i n d i r e c t l y , (2 ) make

a n y loan t o an y holding company{affiliate which owns o r

con tro ls such nat ion al bank, di re ct ly o r i n d i r e c t l y , on

t h e s ecu r i t y of any shares of stock of any corporat ion

o r cont ro l l ed "by such holding company affi l iate, or

(3 ) be the

purchaser

o r

holder

of the

s tock

o f

such ho ld -

i n g company a f f i l i a t e ; unless such se cu ri ty o r purchase

s h a l l "be necessary t o prevent loss upon a debt previously

contracted i n good faith; and any stock so purchased o r

acquired shal l b e sold o r disposed o f a t pub l i c o r pr iva te

sale wi thin s i x months from t h e date o f i t s a c q u i s i t i o n ,

unless t h e time i s extended b y t h e Comptroller of the

Currency.

11

The amendment suggested on page 4 0 , l i n e 1 8 , i s intended t o

guard more completely against evasions.

The

amendment suggested

on

page

4 1 ,

l i ne

1 , i s

believed neces-

sary

f o r

prac t i ca l adminis t ra t ive purposes .

Fo r t h e

reasons indicated under

t h e

d i scuss ion

of

Sect ion

2 ,

t h e proposed amendments to l i n e s 11 , 12 and 13 a re intended t o make e x -

aminations of holding company a f f i l i a t e s discre t io nar y with t h e super-

v i sory author i t i es ins tead of mandatory, i n order t o avoid t h e

neces s i t y of making examinations of business organizations which a r e

included technical ly wi thin t h e d e f i n i t i o n of " a f f i l i a t e s " b u t which a r e

engaged i n a business which does n o t b ri ng them wi th in t h e purpose o f

t h e provis ions o f t h e b i l l . "

Subsection (d) on page 43 purpor t s t o subjec t t o t h e p rov i -

sions of Section 5209 of the Revised Statutes , an y o f f i c e r , d i r e c t o r ,

agent o r employee of a holding company affi l iate who makes false entMes

i n an y book, record o r statement of such holding company affi l iate; bu t

i t i s doubtful whether t h e d i rec tors , agents and employees of a holding

company aff i l ia te can b e subjected t o a cr iminal provis ion of this kind

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-29 - L -28

(Section

18,

Continued)

merely by an agreement made, o r a condition accepted, by t he holding

company affi l ia te . I t i s believed that i t would be b e t t e r t o cover this

subjec t d i rec t ly by a provis ion of law, ins tead of incorpora t ing i t in

th e condit ions to be accepted by the holding company affiliate; and the

recommendations made above contemplate

t h e

inse r t ion

of a new

paragraph

f o r

this t)urpose

on

page

4 5 ,

near

the end of the

sec t ion.

I t i s suggested that there be inse r ted i n l i e u of sub-paragraph

(d) on page 43 ( l i n e s 16 to 22) an entirely different paragraph which

would provide that, within

a.

period

of one

year from

t h e

da te

of the

issuance

of a, votin g permi t t o a ho ld in g company a f f i l i a t e , each non-member St at e

bank owned o r control led by such holding company affiliate shall apply f o r

membership

i n t he

Federal Reserve System

i f

e l i g i b l e t h e r e fo r ,

and

tha t ,

i n

t h e event such application i s n o t approved o r i f the bank fa i l s t o become

o r ceases to be a member of the System, th e a f f i l i a t e s h a l l d i v es t i t s e l f

o f a l l i n t e r e s t in or control of such bank. Th is i s be l ieved to be of

great importance; because, without such

a

provision, the.Board would

n o t have any a ut ho ri ty over non-member banks con tr ol le d by a holding company

a f f i l i a t e which con tr ol s member banks except au th or it y t o examine them and

require them t o submit reports of co nd it io n. Moreover, wit hout such a p r o -

vision one or two banks i n a group controlled by a. holdin g company af f i l i a t e

could b e members of the Federal Peserve System and the remaining banks i n

•the group could remain outside

of the

System

b u t

obtain

t h e

b e n e f i t s

of the

System indirectly through t h e member banks i n t he grout) witho ut con tr ib ut ing

their proper shares t o t h e resources of the System through subscriptions t o

t h e

capi ta l s tock

of the


and

through

t h e

maintenance

of reserve deposits with t h e Federal reserve bank.

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— 30 —

420

1 - 2 8

ection 13 continued)

1

The

proposed change

i n

l i n e

1 on

page

4 5 i s

recommended

i n

view of th e fact that ma.ny of t he regulatory provisions regarding

holding company aff i l iates

a r e i n t h e

form

of

conditions upon which

they shall b e granted voting permits.

I t i s

bel ieved that

t h e

f i r s t

of the

proposed

new

paragraphs

to be in se r t ed on page 4 5 wil l gre at l y st rengthen t h e en t i re sect ion

and

make

i t

more easily enforceable.

The second of these proposed new paragraphs i s intended as a

subs t i t u t e f o r t h e present paragraph (d) on page 4 3 , l i n e s 16 to 22 ,

and has been discussed above.

National banks

are now

forbidden

by law to

purchase,

o r

make

loans against, shares of the i r own stock; a n d t h e l a s t o f t he th ree new

paragraphs proposed

to be

in se r t ed

on

page

4 5 i s

intended

t o

prevent

them from doing t h e same thing indirectly by making loans t o , o r p u r -

chasing

o r

lending against

t h e

stock

o f ,

another corporation which owns

t h e stock of the national bank.

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4 2 1

L - 2 8

— 3 0 - a

I t i s also suggested that t h e fol lowing "be added a t th e end of

l ine

19 on

page

42 of the

b i l l :

"Provided, however, That,

i n

computing

t h e

amount

of

re ad il y marketable as s et s, other than "bank sto ck,

which any such a f f i l i a t e i s required t o possess a t any

given time, credit shall

b e

given

t o


f o r a l l

contributions which

i t h a s

made during

t h e

preceding three years to banks owned o r control led

b y i t a t t h e

time such computation

i s

made.

The

term

• c o n t r i b u t i o n ' ,

a s

herein used, shall include

a l l

such

g i f t s

of

money, assets

o r

other things

of

va lue

t o

an y

such bank,

a l l

such amounts pa id

f o r

worthless

or doubtful assets purchased from any such bank, a n d

a l l

such other similar amounts

a s t h e

Federal Reserve

Board,

i n i t s

d i s c r e t i o n ,

may

permit

to be

t rea ted

a s con t r ibu t ions . "

The

inc lus ion

of

this provis ion would encourage affi l ia tes

t o a i d

the i r a f f i l i a t e d banks which

may be in

need

of

ass is tance

by

furnishing them with

new

money

or by

purchasing from them

worthless

o r

doubtful asse ts .

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— 31 —

• 4 2 2

1 - 2 8

Section 2 4 . Reports of a f f i l i a t e s of national "banks.

I t i s

recommended that

th e

following changes

"be

made

i n

this

section:

1. On

page

4 9 ,

l ine

13 ,

s t r i k e

o u t

everything af te r

the

word "Currency" through

an d

including

th e

word "form"

i n

l i n e

14 and

subs t i tu te i n l ieu thereof th e words "such reports".

2. On

page

4 9 ,

l ine

18 ,

i n s e r t

a

pe r iod a f t e r

t h e

word "for",

a nd

s t r i k e

o u t

everything thereafter through

a n d

including

t h e

word

"associa t ion" i n l i n e 21.

3. On

page

4 9 ,

l ine

2 3 ,

s t r ike

o u t t h e

entire sentence

com-

mencing with t h e word "each" through and including th e word "shown" on

page

50 ,

l ine

3 .

F or the reasons indicated i n connected with th e discussion

of

sec t ion

2 , t he

above amendments

a r e

recommended

i n

order

t o

avoid

t h e necess i ty of requir ing repor ts o f condition from busi ness o rgan iza-

tions which

a r e

included technically within

t h e

d e f i n i t i o n

of

" a f f i l i -

a t e s "

b u t

which

a r e

engaged

i n a

business which does

n o t

bring them

within

t h e

purposes

of

this sect ion,

and to

avoid

t h e

neces s i ty

o f

repeated reports

o f

such concerns when

th e

necessary information

ha s

been once obtained.

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— 32 —

Section 2 5 . Examinations of a f f i l i a t e s of national banks.

I t i s

recommended that this section

b e

amended

a s

fol lows:

1. On page 5 0 , l i n e 2 5 , s t r i k e o u t t h e word " include" and

s u b s t i t u t e i n l ieu thereof t h e words "have power t o make",

2. On page 5 1 s t r i k e o u t every th ing a f t e r th e word " amended"

i n l i n e 10 through a n d including t h e word "a f f i l i a t e" i n l i n e 18 .

3. On

page

5 2 ,

l i n e

1 9 ,

change

t h e

word

" t h e " t o

"each".

The proposed change i n l i n e 25 on page 50 i s intended to make

such examinations discretionary instead of mandatory, a n d thus t o avoid

t h e necess i ty of making examinations of business organizations which a r e

included technical ly within t h e d e f i n i t i o n of " a f f i l i a t e s " b u t which a r e

engaged i n a bus iness of a character n o t p e r t a i n i n g t o t h e purposes of this

sect ion ; and a l so t o avoid an unnecessary repet i t ion of examinations.

The two

sentences

on

page

51 , t he

e l iminat ion

of

which

i s

recom-

mended, would authorize t h e Comptroller o f t he Currency t o pub l i sh r e -

p o r t s

of

examinations

of

member banks

and

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

i n

c e r t a i n

c i r -

cumstances. This i s a drastic power which, i f ex er ci se d, would have a

damaging effect upon t h e banks involved and upon their borrowers and perhaps

upon gene ral banking co ndi tio ns . Furthermore, i t i s inconsis ten t wi th t h e

conf iden t ia l nature of r e p o r t s of examination; a n d i t i s unnecessary, i n

view

o f t he

fac t that o ther sect ions

o f t he

bill confer adequate powers

upon t h e Comptroller o f t he Currency t o bring about compliance with h i s r e -

quirements — especia l ly Sect ion 27 which authorises t h e removal o f o f -

f i c e r s and d i r e c t o r s of national banks who a re g u i l t y of continued unsafe

o r unsound practices o r cont inued violat ions of the law.

433

Ir*28

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33—4

L-28

I t i s also suggested, that on page 52 of the b i l l , t h e

sentence beginning i n l i ne 3 and running t o l i ne 7 b e changed

to read a s fo l lows: "The actual expense of examination of any

such aff i l ia te examined may be assessed by the Comptroller of the

Currency upon such affi l iate a n d when so assessed sha l l be pa id b y

such a f f i l i a t e " .

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425

Ir-28

- 32 b -

Section.

2 6 .

Resumption

of

business

b y

closed national "banks.

I t i s assumed that this section will b e omitted from t h e b i l l

i n view of the enactment of the Bank Conservation A c t , T i t l e I I of the

Act of

March

9 , 1933.

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L—28

- 33 -

Reserves

of

member "banks

o f the

Federal Reserve System.

I n

addi t ion

t o t h e

comments

and

recommendations submitted above

with reference t o spec i f i c provis ions of the b i l l , a t t e n t i o n i s cal led

t o t h e d e s i r a b i l i t y of a thoroughgoing revision o f the provis ions o f s e c -

t ion 19 of the Federal Reserve A ct with regard t o t h e reserve requirements

of member banks. The Board i s o f t h e opinion that t h e adoption of a

system of reserves based on ve loc i t y of accounts a s well a s o f t he i r

volume, a s recommended i n t h e r epor t o f the Committee on Bank Reserves

of the Federal Reserve System, would b e an important step i n s t rengthening

t h e inf luence that t h e System could exert i n t h e d i r e c t i o n of sound credit

condi t ions . Th e proposals submitted i n t h e Committee's report, a copy

of

which

i s

transmitted herewith, embody

a

method

of

c a l c u l a t i n g

r e -

quired reserves which

i s

bel ieved

to bo

sound

i n

p r i n c i p l e

an d

which would

eliminate many inequitable

an d

un fa i r f ea tu r e s

o f the

p r e sen t

l aw . I t i s

recommended, therefore, that t h e fol lowing new sec t ion b e added to the

bill which would incorporate t h e proposals o f t h e System's Committee on

Bank Reserves with s l i gh t mod ifi cat ion s:

" S e c . . Section 19 of the Federal Reserve A c t (United

States Code, Tit le 1 2 , Sect ions 461 to 466 , i nc lus ive , and

Sect ion 3 7 4 ) , a s amended, i s further amended an d reenacted

t o

read

a s

follows:

'RESERVES OF MEMBER BAMS.

'Sec t ion 19 , ( a ) Each member bank shall establish

an d

maintain reserves equal

t o

f i v e

p e r

centum

(5$) of the

amount

o f i t s n e t

d e p o s i t s , p l u s f i f t y

p e r

centum

(50$)

o f t h e amount of i t s average dai ly debi ts t o deposit

accounts; Provided, That

amy

member bank,

a t i t s

option,

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L*

-34— ' ^

Reserves—Continued

f o r a n y

period

n o t

less than

90

days,

may

omit

any

s p e c i f i c

deposit account o r accounts from such computation o f i t s

reserve requirements i f such account o r accounts a r e reported

separa te ly

t o

the.Federal reserve bank

and i f a

reserve

of 50$

i s maintained against such account o r account s: Provid ed.

however. That, in no event , shall t h e aggregate reserves required

t o he

maintained

by any

member bank exceed fifteen

p e r

centum

(15$ ) o f i t s gross deposits .

' ( b ) Each member bank located i n t he v i c i n i t y of a Federal

reserve bank o r branch thereof sh al l maintain n o t less than four-

f i f t h s

o f i t s

total required reserves

in the

form

of a

reserve

balance on deposit with t h e Federal reserve bank, and every other

member bank shall maintain no t less than two-f i f ths o f i t s to ta l

required reserves

i n t h e

form

of a

reserve balance

on

deposit

with t h e Federal reserve bank, ^he remainder of the t o t a l r e -

quired. reserves of each member bank, over and above t h e amount

required t o be maintained i n t he form of a reserve balance on

deposit with t h e Federal reserve bank, may, at the option of such

member bank , consi s t

of a

reserve balance

on

deposit with

t he

Federal reserve bank, or of cash owned by such member bank either

i n i t s actual possession o r in transit between such member bank

and the

Federal reserve bank: Provided. That

t h e

Federal Reserve

Board may l i m i t t h e kinds of cash owned by a member bank which may

b e counted as pa r t o f i t s required reserves; and Provided further,

when,

i n i t s

judgment

t h e

publ ic in te res t

s o

requ i re s ,

t h e

Federal

Reserve Board may l i m i t to an amount less than that permitted

hereunder t h e amount of cash which any member bank o r banks may

count a s reserve: Provided, however, That i n prescribing such l imi-

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4 2 8

- 3 5 - L - 2 8

Reserves—Continued

t a t i o n s , t h e Federal Reserve Board shall "be guided by the

gen era l p r in ci pl e th at member banks should be permitted t o

count

a s

reserve, within

t h e

l i m i t a t i o n s

of

this sect ion,

a s

much cash

a s

they reasonably need

i n

v i e w

of the

charac-

t e r o f their business and their degree of a c c e s s i b i l i t y t o

t h e c u r r e n c y f a c i l i t i e s of the Federal reserve banks.

' ( c ) mhe

term

11

gr.oss dep osi ts" , wit hin

t h e

meaning

of th is sect ion , sha ll include a l l d e p o s i t l i a b i l i t i e s of

any member bank whether o r no t immediately available f o r

withdrawal

by the

depos i to r ,

a l l

l i a b i l i t i e s

f o r

c e r t i f i e d

checks , cashiers ' , t reasurers '

and

other officers ' checks,

cash l e t t e r s of c re di t , t ra ve l er s ' checks, a nd a l l other

s i m i l a r l i a b i l i t i e s , a s fur ther def ined and s p e c i f i e d by

t h e F ede ral Reserve Board: P rovided, however, '"hat, i n

computing t h e amount of "gross deposits", (1 ) amounts shown

on the books of any member bank a s l i a b i l i t i e s of such bank

payable t o a branch of such bank located i n a foreign country

or in a

dependency

o r

possession

of the

United States,

and

( 2 ) l i ab i l i t i e s payab le on ly a t such a branch, sha ll b e

t r ea ted a s though said l iabil i t ies were due to or payable a t

a

nonmpmber bank,

' ( d ) T h e term " n e t depos i ts" , a s used i n this sect ion,

shall mean t h e amount of the gross deposits of any member bank,

a s

above defined

and as

fur ther def ined

by the

Federal Reserve

Board, minus the sum of (1 ) a l l balances due t# such member

bank from other member banks and their branches i n t he United

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— 36 — L-28

Reserves - Continued

States aind (2 ) checks a n d other cash items i n process o f c o l -

lect ion which

a r e

payable immediately upon presentation

i n

t h e

United States, within

t h e

meaning

o f

these terms

a s f u r -

ther def ined

b y t h e

Federal BEserve Board.

' ( e ) T h e

term "average daily debits

t o

deposi t accounts ,"

a s used i n th is sec ti on, sh al l mean t h e average daily amount

of

checks , d ra f t s ,

an d

other i tems debited

o r

charged

"by any

member bank t o a n y a n d a l l accounts included i n gross deposits

a s

above defined

a n d a s

fa r ther def ined

by the

Federal Reserve

Board, except charges resulting from t h e payment o f c e r t i f i e d

checks

a n d

c a s h i e r s ' , t r e a s u r e r s ' ,

a n d

o ther o f f ice rs ' checks .

' ( f ) T h e term "cash" within t h e meaning o f th i s sec t ion ,

shal l include

a l l

kinds

o f

currency

a n d

coin issued

o r

coined

under au thor i ty o f t h e laws o f the United States.

' ( g ) T h e

term "reserve balances,"

a s

used

i n

th i s

sec tio n, sh al l mean a member bank's actual n e t balance on the

books

o f t h e

Federal reserve bank representing funds available

f o r reserve purposes under regulat ions prescr ibed b y t h e Federal

Reserve Board.

' ( h ) T h e term "vicini ty of a Federal reserve bank o r branch

t h e r e o f , "

a s

used

i n

th i s secti on, sh al l mean

t h e

c i t y

i n

which

a Federal reserve bank o r branch thereof i s located, unt i l such

term i s otherwise defined b y t h e Federal Reserve Boardi Provided.

That, with respect

t o

each Federal reserve bank

a n d

each branch

the reo f , t h e Federal Reserve Board, from time to t ime, i n i t s

d i s c r e t i o n ,

may

e i t h e r

( 1 )

def ine

a

specif ic geographic area

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- 37 -

Be^er^eT w Continued

a s comprising t h e v i c i n i t y of such Federal reserve bank

o r branch thereof, within t h e meaning of th i s sec t ion , o r

(2 )

compile

a

l i s t

of

member tanks which shall

b e

deemed

t o be located i n t h e v i c i n i t y of such Federal reserve bank

o r branch thereof, within t h e meaning of th is sect ion , a nd

a d d

banks

t o , o r

remove banks from, such l i s t , from time

t o

time; Provided, however, That, i n defining such areas and

compil ing such l is ts , t h e Federal Reserve Board shall b e

guided b y t h e general principle indicated i n subsect ion (b)

hereof .

1

( )

With re sp ec t

to

each member bank,

th e

term "Federal

reserve bank?', a s used i n this section, shall mean t h e Federal

reserve bank of th e d i s t r i c t i n which such member bank i s l o -

cated.

' («j) The Federal Reserve Board i s au thor ized and em-

powered

t o

presc r ibe regula t ions def in ing fu r t he r

th e

various

terms used i n t h i s A c t , fi xi ng per iod s over which res erve

requirements

and

ac tual reserves

may be

averaged, determining

t h e methods b y which reserve requirements and ac tual reserves

s h a l l b e computed, and p resc r ib ing pena l t i e s f o r d e f i c i e n c i e s

i n

re ser ves . Such reg ulat ions

a n d a l l

o ther regula t ions

of

t h e Federal Reserve Board shall have t h e force an d e f f e c t of

l a w a nd the courts shal l take judicial not ice of them.

1

( k )

Subject

t o

such regulat ions

and

p e n a l t i e s

as may

b e prescr ibed b y t h e Federal Reserve Board, a n y member bank

may draw against o r o therwise u t i l ize i t s r ese rves f o r t h e

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Heserves

-

Continued

— 3 8 —

L - 2 8

purpose

of

meeting exi s t i ng l i a b i l i t i e s : Provided, however.

That, whenever

t h e

reserves

of any

member "bank have "been

continuously deficient

f o r

fourteen consecutive calendar days,

t h e Federal Reserve Agent or Assistant Federal Reserve Agent

of the d i s t r i c t i n which such member bank i s located shall

send t o each director of such "bank, by regis te red mai l , a

l e t t e r adv i s ing

h im of

such deficiency

and

ca l l ing a t t en t ion

t o t h e

provis ions

of

this subsection;

and

each director

of

such

bank

who

a f t e r r e c e ip t

of

such

a

l e t t e r , a s s e n t s

to or

acquiesces

i n t h e making of addi t iona l loans o r investments b y such bank

before t h e re se rves of such bank shall have been restored to the

amount required by th is sec t ion, sha l l b e he ld l i ab le i n M a

personal

o r

individual capacity

f o r a n y a n d a l l

losses sustained

by

such bank

on any

such loans

o r

investments.

1

( 1 ) A l l

p e n a l t i e s

f o r

de f ic ienc ie s

i n

reserves incurred

under regulat ions prescribed

b y t h e

Federal Reserve Board pursuant

t o t h e

provis ions

of

t h i s

A c t

sha l l

b e

paid

t o t h e

Federal reserve

bank

b y t h e

member bank against which they

a r e

assessed.

' (m) No

member bank shall keep

on

deposit with

any

State bank

or trust company which i s no t a member bank a sum in excess of ten

p e r centum of i t s own paid-up capi ta l and surplus . Ho member bank shall

a c t a s t h e medium o r agent of a norm ember bank i n applying f o r o r r e -

ceiving discounts from

a

Federal reserve bank under

t h e

provis ions

of

t h i s

A c t ,

except

b y

permission

of the

Federal Reserve Board.

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L-28

4 8 2

Reserves - Continued. - 39 -

' (n) Na ti on al 'banks o r "banks organized under local laws,

loca ted i n Alaska o r in a dependency o r insular possess ion o r any par t

of t he

United States outside

t h e

continental United States ,

may

remain

nonmember "banks, an d sha l l i n that event maintain reserves an d comply

with a l l t h e condi t ions now provided "by law regulating them; o r said "banks

may,

with

t h e

consent

o f the

Federal Reserve Board, become member "banks

of

any one of t he Fede ra l re se rve d i s t r i c t s , and sha l l i n that event take

stock, maintain reserves , and "be subject t o a l l t h e o ther provis ions of

t h i s

A c t .

1

( o ) A l l a c t s o r p a r t s of a c t s i n conf l ic t wi th th is sec t ion a r e

hereby repealed only i n s o f a r a s they a r e i n conf l ic t wi th t h e provis ions

of th is sec t ion.*

"There a r e hereby repealed t h e provis ions of Section 7 of the F i r s t

Liberty Bond A c t , approved Ap ri l 24 , 1917 , Section 8 of the Second Liberty

Bond A c t , approved September 24 , 1917 , and Section 8 of the Third Liberty

Bond

A c t ,

approved April

4, 1918

(U.S.Code, Title

3 1 ,

Section

771 )

which

read a s fol lows:

•That t h e provis ions o f sec t ion f i f t y- on e hundred and

ninety-one o f t he Revised Statutes, a s amended b y t h e Federal

Reserve A c t , a n d t h e amendments thereof, with reference t o t he

reserves required

t o b e

kept

by

national banking associat ions

and

other member banks o f the Federal Reserve System, shall n o t apply

frsbog_mim_v38_0389.pdf

Documents

t e i s

t t e n t i o n i s

mercan t i

t e s of s

i ng i n t e r e s t

i n e s

n t h i s s ec t i

r e s t r i c t