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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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