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COPY X-6201
FEDERAL RESERVE
BOARD
DATE
Dec. 17, 1928 .
TO Law Committee SUBJECT Proposed Amendments to the
FROM Mr. Wyatt - General Counsel. Federa l Reserve Ac t .
I t
appears from
th e
attached memorandum (which
was not
received
i n
t hi s o f f ic e u n t i l December
1 3 t h )
that ,
on
November
15 th , t he
Board voted
to request the Law Committee t o report to the Board with respect to the
more important amendments
on
which prompt action
by
Congress should
he r e -
quested.
I t
would seem that before
i t can
report
to the
Board
on
this matter
i t wi l l be necessary for the Law Committee to consider a l l proposed amendments
to the
Federal Reserve
A ct
which have been considered
by the
Board during
the
past year
and
decide which ones
a r e
sufficiently important
to
make prompt
action by Congress desirable. As a preliminary step, ther efor e, I shal l , in
this memorandum, call attention
to the
various proposed amendments which have
been considered during th e past year and comment briefly on the s ta tus and.
importance
of
each
one .
Unless
t h e
Committee desires
to
have
a
formal meeting
to
consider
this subject,
I
respectfully suggest that each member
of the
Committee place
h i s in i t ia ls oppos i te t h e b i l l s on which he thinks prompt action should be
requested,
an d
that
t h e
Committee report
to the
Federal Reserve Board
the
amendments
on
which
th e
majori ty
of the
Committee thus indicate their desire
f o r prompt action.
AMENDMENTS RECOMMENDED IN ANNUAL REPORT.
I n i t s
Annual Report
f o r the
year
1927
(pages
46 to 50 ,
inclusive)
th e
Board recommended
th e
enactment
of the
following amendments, drafts
of
which were prepared
b u t n o t
published
in the
Annual Report:
(1) An amendment to Section 9 of the Federal Reserve Act to -permit
State member banks
of the
Federal Reserve System
to
have foreign branches.
-
The
Board s tated that this amendment should
be
enacted
a s
soon
a s
possible.
(2) An
amendment
to
Section
4 of the
Federal Reserve
Act to
permit
an
off icer , d i rec tor
o r
employee
of a
mutual savings bank
to
serve
a s a
Class
B or
Class
C
director
of a
Federal reserve bank.
-
Such
an
amendment probably
would
n o t
meet with much opposition
and
might
be
enacted
a t the
short session,
b u t i t
would
n o t
seem
to be
very important
o r
urgent.
(3) An
amendment permitting
th e
cancellation
of
Federal reserve bank
stock held by member banks which have gone out of business without a receiver
or
liquidating agent having been appointed therefor.
-
This matter
is not of
great importance a nd i s usually handled sat isfactori ly by every Federal reserve
bank except Chicago;
b u t i t
seems
to be
giving
the
Federal Reserve Bank
of
Chicago much annoyance
and the
enactment
of
such
an
amendment
a t an
opportune
time" was recommended by the last Conference of Federal Reserve Agents. In a
circular letter dated October
12 th
(X-6173-a) addressed
t o a l l
Federal Reserve
Agents, which was presented by Governor Young to the Conference of Federal
Reserve Agents,
i t was
stated that this proposed amendment will again
be
presented
to
Congress
a t the
opening
of
Congress
i n
December";
and
this state-
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ment was "noted, with gra ti fi ca ti on ' by the Conference of Federal Reserve
Agents. This o f f i ce knew nothing o f i t , however, until I discovered i t
by accident on December 1 7 t h .
(4) An
amendment making
i t
discretionary with
th e
Federal
Reserve Board
to
assess
t h e
costs
of
examining State member banks against
the
hanks examined.
-
Such
an
amendment
i s
believed
to be the key to the
entire problem
of
obtaining more adequate examinations
of
State member
banks
and,
therefore ,
may
well
be
considered both urgent
and
important.
(5) An amendment exempting Federal reserve banks from attachment
or garnishment proceedings before final judgment in any case o r proceeding. -
Such
an
amendment
i s
very desirable
and
further delay
i n i t s
enactment might
resu l t
i n
embarrassment
and
inconvenience
to
Federal reserve banks.
The
present session, however,
may not be an
opportune time
to
urge
i t s
enactment.
(6) An
amendment
to the
Judicial Code restoring
to t he
United States
District Courts .jurisdiction
of
s u i t s
by and
against Federal reserve banks.
-
Such
an
amendment
i s
very much
to be
desired,
a nd i t s
enactment should
be
urged upon Congress
a t t he
earliest favorable opportunity.
I
doubt, however,
that
th e
present time
i s a
favorable time
to
urge such
an
amendment, because
of the fact that there is now pending i n Congress a b i l l fu r the r to r e s t r i c t
t h e j u r i s d i c t i on of the Federal courts and a very bitter fight over that bill
h a s
developed.
(7) An amendment to Section 15 of the Federal Reserve Act increas-
i n g from f i f te en to ninety days th e maximum maturity of advances made by
Federal reserve banks
t o
member banks
on
their promissory notes secured
by
paper eligible
f o r
rediscount
by
Federal reserve banks.
-
Under date
of
March
23, 1928,
Congressman Sumners
of
Texas introduced
a
b i l l ,
H.R.
12349, which
would have extended
to 90
days
th e
maximum maturity
of
member bank promissory
notes secured
n o t
only
by
eligible paper
b u t
also
by the
deposit
o r
pledge
of
bonds
or
notes
of the
United States.
In
response
to a
l e t t e r from Congressman
McFadden requesting
th e
Board's views
on
th i s b i l l ,
th e
Board
on
April 24th,
stated that
i t was in
sympathy with
th e
general purposes
of the
b i l l
b u t
would
prefer that
th e
increased maturity
be
l imited
to
promissory notes secured
by
paper el igible
f o r
rediscount
o r f o r
purchase
by
Federal reserve banks
and
that
no
change
be
made
in t he
maximum maturity
of
advances ag ai ns t such promis-
sory notes secured,
by the
deposit
o r
pledge
of
bonds
or
notes
of the
United
Sta tes .
The
b i l l
was
never reported
out by the
Banking
and
Currency Committee,
b u t i t
would seem
to
have
a
good chance
of
enactment
i f i t
should
be
reported
out a t
this time, because
of the
fact that
i t
would
be
especial ly helpful
to
country banks and ind i rec t ly to t he farmers.
AMENDMENTS CONSIDERED
BY
BOARD LAST JANUARY,
BUT NOT
RECOMMENDED
IN
ANNUAL REPORT.
I n
addit ion
to the
above,
th e
Board last January considered
the
following, proposed amendments,
bu t d id no t
recommend their enactment
i n i t s
Annual Report:
(1) A
proposed amendment
to the
first paragraph
of
Section
19 of
th e
Federal Reserve
Act
more cl ea rl y de fining demand dep osi ts, time deposit s,
savings deposits,
e t c . , a n d
making
i t
more difficult
to
evade
th e
proper
c l a s s i f i c a t i on of deposits f o r t h e purpose of computing reserves. - Some
l e g i s l a t i on of this kind i s badly needed.
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(2) An amendment to Section 19 of the Federal Reserve Act
authorizing member "banks
in
computing their reserves
to
deduct "'bal-
ances
due
from "banks" from their gross demand deposits instead
of
from "balances due to other banks". a s a t present . - I t has been s u g -
gested that such an amendment should be obtained i n order to give
the
country banks
th e
same advantages
i n
this respect
as are now en-
joyed
by the
city banks,
an d
there
has
been considerable agitation
f o r such an amendment.
(3) A
complete revision
of
Section
19 .
ad jus t ing , c l a r i fy -
ing and simplifying th e reserve requirements. - Mr. Smead and I have
drafted such a bill based upon a careful analysis an d study of this
subject made by Mr. Smead. The b i l l so draf ted was submitted t o a l l
th e
Federal Reserve Agents
f o r
their cr i t icism
and
comment,
and a
revised draft h as been prepared, which i s generally believed to be
the best thing along this line y e t produced. The Board, however, has
never approved
i t and
there
i s
some doubt whether
th e
Board would
a p -
prove i t i n i t s present form.
BILLS RECOMMENDED BY CONFERENCES OF GOVERNORS
AND
AGENTS.
I n addition to some of the above bills, th e enactment of some
of
which
was
favored
by the
recent Conferences
of
Governors
and
Federal
Reserve Agents, th e following b i l l s were discussed a t those Conferences:
(1) To
require
th e
approval
of the
Federal Reserve Board
before charters a r e granted to new national banks.- Such an amendment
was recommended by the Conference of Federal Reserve Agents in 1927,
on the ground that a l l na ti on al banks, when cha rte red , auto mat ica lly
become members of the Federal Reserve System; and the last Conference of
Federal Reserve Agents again called attention to this recommendation.
(2) To
require
th e
appointment
of a
liquidating agent
by the
stockholders
of any
l iquidating national bank
and in the
event of thei r fa i lure to do so to empower the Comptroller of the
Currency to appoint a l iquidating agent and fu r ther to require a l l
l iquidating agents
to
report regularly
to the
Comptroller
of the Cur-
rency. - Such an amendment was recommended a t the recent Conference of
Federal Reserve Agents i n connection with the recommendation providing
for the
cancel lat ion
of
Federal reserve bank stock held
by
member banks
which have ceased
to do a
banking business without
a
receiver
or
l i qu ida t -
in g agent having been appointed the re fo r. A similar amendment was recom-
mended by the Comptroller of the Currency i n h i s last Annual Report, page
4»
(3) An amendment authorizing t h e Federal Reserve Board to waive
s i x months' notice of the intended withdrawal of a State member bank from
th e
Federal Reserve System.
-
Such
an
amendment
was
favored
by the
recent
Governors' Conference,
b u t
opposed
by the
recent Conference
of
Federal
Reserve Agents. Af te r cons idering th e recommendations of both Conferences,
th e Board voted to suggest th e enactment of such an amendment to Congress
a t t he proper time".
(4 ) Pension B i ll , - In the report of the recent Governors' Confer
ence
i t was
stated that
th e
proposed Federal Reserve Pension Bill would
be
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reintroduced
i n
Congress
a t
this session
and an
attempt made
to
obtain
i t s
enactment. This t i l l , however,
h a s
"been handled e xc lu sive ly
by the
Federal
reserve banks and the Board heretofore h a s purposely re fr ai ne d from making
any formal recommendations with regard thereto.
OTHBR AMEIIBCTTS»
I n addi t ion to the above, the following amendments have been
considered i n some form o r another, an d may be e n t i t l e d to some considera-
t ion a t this time:
( l ) The b i l l t o exempt joint stock land banks and s imilar non-
commercial banking institutions from the provisions of the Clayton Anti-
Trust Ac t . - Such a b i l l (S . 4039) passed th e Senate during th e last session
of the
present Congress,
but was
never reported
out by the
Banking
and
Currency
Committee
of the
House. There
a r e
stfohg reasons
fo r t he
enactment
of
such
a
b i l l ; a n d i t would seem that an effort should be made to have this bill reported
out by the House Banking and Currency Committee and passed by the House a t th e
present session, i n order that th e advantage gained b y i t s passage in the Sen-
a t e
might
not be
lost through
th e
death
of
th i s b i l l
a t t he
explication
of the
present Congress.
(2) An amendment to the fourth paragraph of Section 13 of the
Federal Reserve A ct making th e l imitat ions prescribed by that paragraph con-
form
to
Section 5200
of th e
Revised Statutes,
a s
amended
by the
McFadden
A c t . -
This section pertains to the amount of paper of any one borrower which may be
discounted by a Federal reserve bank for any one member bank; and the provision
of the Federal Reserve Act does no t contain many of the exceptions contained
i n
Section 5200.
At
present , therefore,
a
national bank
may not
rediscount
with a Federal reserve bank a l l t h e paper of any one borrower which i t may
acquire lawfully under Section 5200 of the Revised St at ut es . This questio n
was
considered
by the
Conference
of
Governors
i n
April,
1928, and a
resolution
asking
th e
Board
to
urge
t h e
enactment
of
such
an
amendment
was
defeated
by a
vote of ten to two.
(3) . An
amendment
to
Section
9
requiring
a l l
State banks heretofore
or hereafter admitted to membership i n t he Federal Reserve System to comply
a t a l l times with t h e banking laws of the States i n which they a r e located. -
Such
an
amendment
h as
never been formally eonsidered
by the
Board,
but was
discussed informally
by
Governor Young
and the
undersigned
i n
connection with
a let ter addressed to the State Bank of Payson, Payson, Utah, by Mr. Sargent,
Assistant Federal Reserve Agent at San Francisco, wherein M r. Sargent errone-
ously stated that
any
v io la t ion
of
State
law by a
State member bank
i s con-
sidered
a
v io la t ion
o f i t s
conditions
of
membership, Such
a n
amendment would
enable th e Board to expel from th e Federal Reserve System a State member bank
which habitually violates th e State bafiking laws; b u t would also impose upon
th e Federal Reserve Board th e duty of ascertaining whether State member banks
a r e complying wi th th e laws of their respective States .
C O N C L U S I O N .
Draf ts of nearly a l l o f the above bills have been prepared and a re
avai lable
i n
t h i s o f f i c e .
As
soon
as the
Committee decides
on
which
of
these
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t i l l s prompt act ion should be requested of Congress, th is of fi ce wi ll be
glad
to
prepare
a
report
to the
Board, drafts
of
l e t t e r s ,
and any
other
documents desired by th e Committee.
Respectfully,
(S)
Walter Wyatt,
General Counsel.
Memorandum attached.
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