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MINUTES OF MEETING OF THE
EXECUTIVE COMMITTEE
OF THS
FEDERAL ADVISORY COUNCIL.
April 13, 1917
A meeting of the Executive Committee of the Federal Advisory
Council was held in Mr. J. P. Morgan’a library in New York on Friday,
April 13, 1917, at 10:30 A . M .
Present: Mr. L. L. Rue, Vice-President, presiding, Mr. J. P. Morgan,
Mr. D. G. fling and Mra W. 8. Rowe.
Absent: Mr. J. B. Forgan because
of illness.
Mr. Rue stated the purpose ef the meeting was to consider the
proposed Government bond issue and questions arising therefrom.
The Chair read a letter from Governor W. P. G. Harding, of the
Federal Reserve Board, as fellows:
FEDERAL RESERVE BOARD
Washington
April 12, 1917.
kr. L. L. Rue,
New York
Dear Mr. Rue:The Board has no information regarding plans for Government financing
other than that which has been given to the press. Possibly by the time
the Council meets next week more definite information will be available,
but it weuld be premature for the Board te suggest a discussion in detail,
in the absence of information as to the amount of bonds to be placed
at once, or the part that the Federal Reserve Banks will be expected to
play.
It is suggested, therefore, that the Council discuss in general
terms the present banking and investment situation in the country, and
the effect of large bond flotations upon the banks' position. The
Council might well suggest the maximum amount of bonds which could be
floated at any one time without undue disturbance to the money market.
It might also discuss the process of reabsorption by the market of
the proceeds of bonds, and the functions of the Federal Reserve Banks
in this connection. It might also discuss reasonable limitations of
taxation, and the effect of excessive taxation upon the investment
market and upon the industrial and transportation systems of this
country.
8hould the Council have time to discuss acceptances, it is suggested
Page 3.
April 13, 1917
that it should consider the advisability of having bankers' acceptances
as far as possible discounted at institutions other than those
accepting them.
The Board understands that it will meet the Council for a
preliminary discussion at 10:30 A. M. next Tuesday, April 17th.
Very truly yours,
(Signed)
t f P G Harding
Governor.
The Committee after careful consideration prepared a memorandum
on the subject of the proposed Government bond issue to be submitted
to the federal Advisory Council at a special meeting which had been
called by the Vice-President on behalf of the Committee to be held in
Washington on Tuesday, April 17, 1917. Mr. Rue's action in calling
the special meeting of the Council was approved.
The memorandum is as follows:
"The success of the loan, and the suoeess of the Administration's
financial policy, depends on the question of taxation. It would be
very desirable if the Committee1* of Congress could announce that
their desire is that taxation should be as widely distributed and as
equally borne by all the people as may well be under the circumstances;
and most particularly the taxation should be so framed as to absorb
as little as possible the industrial funds or investable surplus of
the country.
"To do this will require a vast amount of time and study. The
Committee having provided by bond issues for the immediate necessities
of the Government, request should be made for authority to continue its
meetings through the summer, to employ such experts as may be found
necessary from time to time in carrying on its work, and te report
as early as possible in the autumn with a plan for taxation as
carefully th^ oughftout as is possible.
"A taxation on expenditure, luxuries and such things should be
the aim rather than a tax on thrift and enterprise*
RATE.
The rate of
as to make the loan
in the markets with
and in our opinion,
to the subject, the
exceeding
interest to be borne by the loan should be such
a desirable investment, and enable it to compete
other securities, both Governmental and industrial,
based on the best study we have been able to give
bonds should be authorised at a rate not
April 13, 1917
Page 3.
ALOUNT TO BS ISSUED AT ONE THIS.
Thie should not exceed $__________
which would enable the Government te have prempt payment for the
bonds as fast as issued.
FREQUENCY OF ISSUES.
The next instalment should not be issued until
called for by the Government requirements.
"In regard to the issue of Treasury Certificates, these certifi
cates should bo issued only to meet the temporary necessities ef tho
Government and eheuld bo repaid out of the proceeds of the longtime
bonds, and for this reason should bo only in shert maturities.
DISTRIBUTION OF PROCEEDS.
It should be eo arranged that the proceeds
e^tfeft Government obligations ef all kinds should bo handled in such
a manner that the funds shall not, even temporarily, bo withdrawn
from circulation."
The Executive Committee then adjourned.
Secretary.
Pag# 4.
MINUTES OF JOINT MEETING OF THE
FEDERAL RESERVE BOARD
AND
FEDERAL ADVISORY COUNCIL.
April 17, 1917.
A joint meeting of the Federal Reserve Board and the Federal
Advisory Council was held, ae arranged, in the Board room in the
Treasury Department, Washington, D.C., on Tuesday, April 17, 1917,
at 10:30 A.M.
Present: Governor W.P*G.Harding, in the Chair, Messrs. P. M.
(Tarburg, Vice-Governor, C. S. Hamlin, J. S. Williams, A. C. Millar,
F. A. Delano and H. Parker Willis, Secretary, of the Federal Reserve
Board; and Messrs. L. L. Rue, Vice-President, D. G. Wing, J. P. Morgan,
I. S. Rowe, C. A. Lyerly, J. W. Norwood, F. 0. Watts, J. R. Mitchsll,
E. F. Swinney, T. J. Record, H. Fleishhacker, and Merritt H. Grim,
Secretary, of the Federal Advisory Council.
Absent: Mr. J. B. Forgan, because ef illness.
Governor Harding in calling the meeting to order expressed
regret at the absence of Mr. Forgan.
Governor Harding laid before the Federal Advisory Council
several matters ef importance for discussion, vie:
The propesed Government bond issue and
questions arising therefrom;
Advisability of having bankers acceptances dis
counted at other than the accepting banks.
The Amendments to the Federal Reserve Act proposed
by the Federal Reserve Board, which he eaid
are substantially the same as recommended by
the Board at the previous session of congress,
with an additional amendment relating to the
admission of State banka and trust companies
into the Federal Reserve system.
Governor Harding informed ttftajr Council that the Secretary of the
Treasury, Hon. William G. McAdoo, would be pleased to confer un
officially with its members as individuals in reference to the proposed
Government bond issue at his office at 12:15.
Mr. Rue then expressed the appreciation of the Council at having
this opportunity of conferring with the members of the Board on such
importantqueetions, and the meeting was then thrown open to informal
discussion in which members of both boards freely participated. In
the discussion emphasis was laid by the members of the Council cn th#
fact that taxation by the government would have a marked #ff#ct upon
th# suce«ss or failure of th# proposed bond issue.
Governor Harding referred to a proposed bill of Senator Owen
providing for a form of guaranteeing bank deposits and in that
Pago r
April 17, 1917.
connection suggeeted that in some way a fund might be created,
frou the tax on circulation, to assist in liquidation of failed
member banks.
He asked the Council to consider the sugges
tion.
At 12:15 the joint session adjourned and those
present proceeded to the office of the Secretary of the
Treasury for an unofficial conference with him in accordance
with his invitation.
Secretary.
MINUTES OF MEETING OF THE
FEDERAL ADVISORY COUNCIL
April 17, 1917.
A epeeial meeting of the Federal Advisory Council called by
the Executive Committee was held in the Board room in the Treasury
Department, Washington, D.C., at 2:30 P. M. April 17, 1917.
Present:
Absent:
D. G. tfing Representing District
M
ft
ft
ft
J. P. Morgan,
ft
ft
ft
ft
L. L. Rue,
ft
ft
ft
M
W. S. Rowe,
I
I
w
ft
f
t
J . V. Norwood,
ft
m
ft
ft
C. A. Lyerly,
f
t
w
H
f
t
F. 0. nfatte,
(
1
H
n
f
t
J. R. iiitchell,
ft
n
f
t
f
t
E. F. Swinney,
n
ft
ft
H
T . J. Record,
ft
ft
II. Fleishhacker, «
Jerritt H, Grim, Secretary.
Mr. Forgan because of illness.
No, 1
No. 2
No. 3
No. 4
No. 5
No. 6
No. 8
No* 9
No. 10
No. 11
No. 12
The Vice-President, Er. Rue, called the meeting to order, stating
that tho President, Mr. Forgan, was prevented by illness from being pres
ent; that he had telegraphed him the nature of the bueines* to be con
sidered by the Council and has received a letter from him, which he read
to the meeting.
On motion Mr. Forgan*s letter was made a part of the minutes of
the meeting. It is as follows:
Gvove Park In^, Asheville, N. C«
April 15th, 1917.
"Mr. L. L. Rue, Esq.,
Th* New Willard Hotel,
Washington, D. C.
Dear Ur . R u e :-
"I have your telegram calling a special meeting of the Federal
Advisory Council j.t Washington on Tuesday next. I very much regret
my inability to be present. My recent illness has left me very much
reduced in strength and my recovery is very tedious.
"I have been so long out of touch with affairs that I hardly
feel competent to express an opinion as to the effect of so large a
flotation of Government bonds as is proposed. A few ideas have oc
curred to me which I will state for what they may be worth.
"I have seen it stated in the press that the Federal reserve
banks are te finance the large Government issues. This must be a
loose statement of the more reasonable proposition that the Federal
reserve banks should act as fiscal agents of the Government in
rag® 7.
April 17, 1917
oonnsction with such issues. The Federal Reserve Banks have already
bad plaeed upon them all the obligations for investing in Government
bonds that, in view of the nature of their deposits, they should be
called upon or expected to assume.
•'These obligations, the purchase of 2/« bonds to be
into thirty year 3% bonds - will be more onerous than they
been, in view of the #ar issues at 3 1/2 J,. In justice to
Federal Reserve Banks and these who have already purchased
refunded
have
the
the tftirty
year 3% conversion bonds from them, those bonds should be converted
into 3 1/2 % to place them on an equality with the War issues.
MI think it would be inadvisable to offer the whole authorized
issue for subscription at once. Net more than can reasonably be
expected to be fully subscribed for should be issued and from this
standpoint I think to offerthem by instalments not exceeding
|1,000,000,000 at a time will be advisable.
"The object should be to get them as soon and as directly
as possible into the hands of the permanent investors. The banks and
bond houses will doubtless lend their facilities for this purpose.
Banks themselves should not tie up their funds in them to too great
an extent. The rate offers no inducement for their doing so and the
liquidity of their position should not be jeopordized by carrying too
heavy a load of them.
MI believe a very large amount of them will promptly find their
way into the hands of permanent investors. This will however cause
considerable dislocation of bank deposits and the Government should
arrange to leavo on deposit with the banks until it actually needs
the funds, practically tho amount of subscriptions received by each.
They are likely to receive subscriptions from their own depositors
and such an arrangement would ease matters along.
"The situation of the Federal Reserve Banks as to thoir reserves
would be seriously complicated if as fiscal agents of the Government
they snould retain on deposit the entire amount received on account
of these enormous issues and the situation of tho member banks would
also bo seriously affected.
"These are just a few off hand suggestions but as already stated
X feel so much out of touch with the situation and have had so little
tizr.e to think about the proposition, that I hardly feel competent to
offer advice. 1 have no doubt the Council after deliberation will
have some practical advice to offer and it is a great disappointment
to me not to be able to be present at such an important meeting.
"With kind regards to oach momber of the Council, I am,
Vory truly yours,”
(Signed)
Jas . B. Forgan.
Page 8.
April 17, 1917.
The Vice-Preaidant, Mr. Rue, auggeated that the Council ehould
$$nd a telegram to Mr. Forgan expreseing regret at hia illness
and
oonoequent abaence and alao thanking him for hia letter. On motion of
Sir. Morgan the auggeetien vaa approved. The Chair requeated Mr. Morgan
to prepare auch a telegram, vhich waa alao ordered made a part of the
ainutea and which ia aa followe:
"April 17, 1917.
»Mr, Jamea B. Forgan,
Grove Park Inn,
Asheville, N. C.
"Federal Advisory Council all wish you aaaured of their regret at
your absence and particularly for the cause of that absence. Also
Council wiehes to thank you for your letter which is of great uae
in their deliberationa.
"Federal Advisory Council
L. L. Rue, Vice-President."
The Vice-Prasident read a letter from Governor W. P. G. Harding
of the Federal Reserve Board. (See minutes of Executive Committee
in New York April 13, 1917.)
After discussion it was decided that the Council should
in addition to its regular report to the Federal Reserve Board on the
proposed Government bond issue also make separate reports to the
Secretary of the Treasury giving the individual views of the members
on the subject in accordance with the Secretary's request.
It was ordered that the Executive Committee should formulate
a report embodying the views ef the Council as expressed on the
various subjects before the meeting.
By unanimous consent the question suggested in Governor Harding's
letter as to the advisability of having bankers acceptances discounted
by other than the accepting banks was postponed until the next meeting
of the Council.
The so-called Hayes' bill, a copy of which is made a part of
these minutee, was read to the meeting by the Chair and referred to
the Executive Committee to prepare the Council1s opinion in reference
thereto*
House Bill, H R 2762, authorizing the government to iesue
♦5,000,000,000 of bonds bearing
and $2,000,000,000 of certificates
of indebtedness bearing not to exceed
wae read to the meeting.
(Copy of said bill is made a part of these mintues.
The membere then freely discussed all the questions
Calendar No. 10.
ss,
1st S e s s i o n .
H. R 2762.
X V
T I
[ Report N o.
IN T H E S E N A T E
8 .]
OE T H E U N IT E D
STATES.
April 16, 1917.
Read twice and referred to the Committee on Finance.
A p r il
16, 1917.
Reported bv Mr. Stmmons with amendments
A N ACT
To authorize an issue of bonds to meet expenditures for the
national security and defense, and to extend credit to foreign
governments, and for other purposes.
1
B e it enacted by the Senate and H ouse of Bepresenta-
2
fives of the United States of A m erica in Congress assembled,
3
That the Secretary of the Treasury, with the approval of
4
the President, is hereby authorized to borrow, from time to
5
time, on the credit of the United States for the purposes of
6
this A ct, and to meet expenditures authorized for the national
7
security and defense and other public purposes authorized
8
by law not exceeding in the aggregate
0
10
$ 5 ,0 0 0 ,0 0 0 ,0 0 0 ,
exclusive of the sums authorized by section four of this A ct,
and to issue therefor bonds of the United States.
H
The bonds herein authorized shall be in such form and
^
subject to such terms and conditions of issue, conversion, re-
2
1
demption, maturities, payment, and rate and time of pav-
2
ment of interest, not exceeding three and one-half per
3
per annum, as the Secretary of the Treasury may prescribe.
4
The principal and interest thereof shall be payable in United
5
States gold coin of the present standard of value and sliall
6
be exempt, both as to principal and interest, from all taxa-
7
tion imposed by authority of the United States, or its pos-
8
sessions, or by authority of any State, except estate or in-
9
heritance taxes; but such bonds shall not bear the eircula-
10
centum
tion privilege.
11
The bonds herein authorized shall first be offered at not
12
less than par as a popular loan, under such regulations pre-
IB
scribed by the Secretary of the Treasury as will give all citi-
14
zens of the United States an equal opportunity to participate
15
therein; and any portion of the bonds so offered and not sub-
16
scribed for may be otherwise disposed of at not less than
17
par by the Secretary of the Treasury; but no commissions
18
shall be allowed or paid on any bonds issued under authority
19
of this Act.
20
S ec.
2.
That for the purpose of more effectually pro*
21
viding for the national security and defense and prosecuting
22
the war b}r establishing credits in the United States tor for-
23
eign governments, the Secretary of the Treasury, with tin'
24
approval of the President, is hereby authorized, on behalf of
25
the United States, to purchase, at par, from such foroi?11
♦
2
♦2
lyovcrnments then engaged in war with the enemies of the
United States, their obligations hereafter issued, bearing the
3
same rate of interest and containing in their essentials the
4
same terms and conditions as those of the United States
5
issued under authority of this A c t ; to enter into such ar-
6
rangements as m ay be necessary or desirable for establishing
7
such credits and for purchasing such obligations of foreign
8
governments and for the subsequent payment thereof before
9
maturity, but such arrangements shall provide that if any
10
of the bonds of the United States issued and used for the
11
purchase of such foreign obligations shall thereafter be con-
12
verted into other bonds of the United
13
higher rate of interest than three and one-half per centum
14
per annum under the provisions of section five of this A ct,
15
then and in that event the obligations of such foreign gov-
16
ernments held by the United States shall be, by such foreign
17
governments, converted in like manner and extent into obli-
18
gations bearing the same rate of interest as the bonds of the
19
United States issued under the provisions of section five of
20
this A ct.
21
priated, out of any m oney in the Treasury not otherwise
^2
appropriated, the sum of $ 3 ,0 0 0 ,0 0 0 ,0 0 0 , or so much thereof
23
as may be necessary: Provided, That the authority granted
24
by this section to the Secretary of the Treasury to purchase
25
bonds from foreign governments, as aforesaid, shall cease
States bearing a
For the purposes of this section there is appro-
4
1
upon the termination of the war between the
2
and the Imperial German Government.
3
United
Sht,
Sec. 3. That the Secretary of the Treasury, under
4
such terms and conditions as he m ay prescribe, is
5
authorized to receive on or before maturity payment for
6
any obligations of such foreign governments purchased on
7
behalf of the United States, and to sell at not less than the
8
purchase price any of such obligations and to apply the pro
9
ceeds thereof, and any payments made by foreign govern
10
11
hereby
ments on account of their said obligations to the redemption or
purchase at not more than par and accrued interest of any
12
bonds of the United States issued under authority of this
13
A c t ; and if such bonds are not available for this purpose the
14
Secretary of the Treasury shall redeem or purchase any
15
other outstanding interest-bearing obligations of the United
16
States which ma}^ at such time be subject to call or which
17
may be purchased at not more than par and accrued interest.
18
Se c . 4. That the Secretary of the Treasury, in his
19
discretion, is hereby authorized to issue the bonds not already
20
issued heretofore authorized by section thirty-nine of the
21
A ct approved August fifth, nineteen hundred and nine,
22
entitled “ A n A ct to provide revenue, equalize duties, and
23
encourage the industries of the United States, and for other
24
purposes
25
Act approved June third, nineteen hundred and sixteen*
section one hundred and twenty-four of the
1
“ An
e n title d
A ct for m a k in g
further and more effectual
2
p r o v is io n for the national defense, and for other purposes” ;
3
section thirteen of the A c t of September seventh, nineteen
4
hundred and sixteen, entitled “ A n A ct to establish a United
5
States
6
developing,
7
reserve and a merchant marine to meet the requirements
8
of the commerce of the United States with its Territories
9
and possessions and with foreign countries, to regulate car-
10
riers by water engaged in the foreign and interstate com
il
merce of the United States, and for other purposes” ; sec-
shipping
board
for
the
purpose
of
and creating a naval auxiliary
encouraging,
and a naval
12
tion four hundred of the A c t approved March third, nine-
13
teen hundred and seventeen, entitled “ A n A c t to provide
14
increased revenue to defray the expenses of the increased
15
appropriations for th e .A r m y and N a v y and the extensions
16
of fortifications, and for other purposes” ; and the public
17
resolution approve/! March fourth, nineteen hundred and
18
seventeen,
19
livery of materials, equipment, and. munitions and to secure
20
more expeditious construction of ships,” in the manner and
21
under the terms and conditions prescribed in section one
22
of this A ct.
entitled “ Joint resolution to expedite the de-
-3
That the Secretary of the Treasury is hereby author-
^4
ized to borrow on the credit of the United States from time
25
to time, in addition to the sum authorized in section one of
0
1
this A ct, such additional amount, not exceeding $ 6 3 ,9 4 5 ^
2
as may be necessary to redeem the three per cent loan <\
3
nineteen hundred and eight to nineteen hundred and eight
4
een, maturing August first, nineteen hundred and eighteen
5
and to issue therefor bonds of the United States in the man
6
ner and under the terms and conditions prescribed in sec
7
tion one of this A ct.
8
Sec. 5. That any series of bonds issued under authority
9
of sections one and four of this A c t may, under such term.'
10
and conditions as the Secretary of the Treasury may pre
11
scribe, be convertible into bonds bearing a higher rate of
12
interest than the rate at which the same were issued if any
13
subsequent series of bonds shall be issued at a higher rate of
14
interest on or before December thirty-first, nineteen hundred
15
and eighteen.
Sec.
16
6.
That in addition to the bonds authorized by ■sec
17
tions one and four of this A ct. the Secretary of the Ireasury
18
is authorized to borrow from time to time, on the credit of
19
the United States, for the purposes of this Act and to
20
public expenditures authorized by law /such sum or
21
in his judgment, may be necessary, and to issue therefor ee'
22
tificates of indebtedness at not less than par in such torn*
23
and subject to such terms and conditions and at such rate *'•
m eet
sum s
a>-
interest, not exceeding three and one-half per centum ! l
annum, as lie may prescribe; and each certificate so
shall be payable, with the interest accrued thereon, at sl,(l
time, not exceeding one year from the date of its issue, as
the Secretary of the Treasury may prescribe.
Certificates of
3
indebtedness herein authorized shall not bear the circulation
4
privilege, and the sum of such certificates outstanding shall
5
at no time exceed in the aggregate $ 2 , 00 0 , 0 0 0 , 0 0 0 , and
6
such certificates shall be exempt, both as to principal and
7
interest, from all taxation imposed by authority of the United
8
States, or its possessions, or by authority of any State, except
9
estate or inheritance taxes.
S e c . 7.
10
That the Secretary of the Treasury , in his dis
11
cretion , is hereby authorized to deposit in non-member as trell
12
as in member banks of the Federal Reserve System and in
13
trust companies , the proceeds of any part thereof arising from
14
the sale of the bonds and certificates of indebtedness authorized
15
hi/ this A ct, and such deposits may bear such rate of interest
1(3
and be subject to such terms and conditions as the Secretary
17
of the T reasury m ay prescribe.
18
Sec. + 8. That in order to pay all necessary expenses,
19
including rent, connected with any operations under this A ct,
20
a sum not exceeding one-tenth of one per centum of the
21
amount of bonds and one-tenth of one per centum of the
22
amount of certificates of indebtedness herein authorized is
23
hereby appropriated, or as much thereof as may be neces
24
sary,
25
appropriated, to be expended as the Secretary of the Treas
26
ury may direct.
out of any
m oney
in
the
Treasury
not
otherwise
Am end the title so as to read: “ An Act to authorize
an issue of bonds to meet expenditures for the national
security and defense, and for the purpose of assisting in the
prosecution of the war, to extend credit to foreign gov
ernments, and for other purposes.”
Passed the House of Representatives April 14, 1917.
A ttest:
S O U T H T R IM B L E ,
Pag# 9.
April 17, 1917
arising out of ths proposed government bond issue authorized in the
above bill, also the question of taxation to be imposed by the
government for war purposes and on notion the Hlxecutive Committee was
requested to formulate in their report the views expressed.
Ths
B«aorantium prepared by the Executive Committee was rsad to the Council.
(See minutes of Executive Committee April 13, 1917.)
The Council adjourned until 10 A. M. April 18, 1917.
Secretary.
HXNUTSS OF MESSING OF THE
mcyrovs
comimm
OF THS F3D3RAL ADVISORY COUNCIL.
April 17, 1917.
A meeting of the 2>:ccutive Conmittee of ths Federal Advisory
Council wa a iield in the Shorehara Hotel, Washington, at P. M.
April 17, 1917.
Present:
Messrs. L. L. Rus, in the chair, D. G. tfing, J. P.
Morgan, tf. S. Rowe, and Merritt H. Grim, Secretary.
After due consideration the Committee prepared tentative rec
ommendations to be submitted to the Federal Advisory Council*
The meeting then adjourned.
Secretary.
Page 1 1 .
m in u te s o f m e e tin g o f
The F e d e r a l A d v is o r y C o u n c il .
Ths Federal Advisory Council mox at 10 A M
A p r il 1 8 , 1917
in the Board
room as arranged .
Present:
L. L. RU8, Vice-President, in the chair, J G Zing,
J. P. Morgan, \T S Rowe, C A
Lyerly, J. ■;/. Norwood, F 0 .vatts, J R Mitchell, 3 F Swinney,
M3sors.
X
Record, li Fleshhacker, and i,ierritt li Grim, oecretary.
The Vice-President placed before the meeting the recommendations
of the Executive Goznmit-i.ee which ware carefully considered.
On motion the following recommendations were unanimously
adopted and ordered submitted to the Federal Reserve Board by the
Vice-rresident:
"TOPIC NO. 1. The Hayes’ b i l l .
ae commendation:
Suggested by Governor Harding
The Council is of opinion that the .layes* b ill ought
not at the present time be pressed a3 i t seems to it inopportune to
introduce any measure of a coercive character, when the cooperation
of all tie state banks and trust companies is so much needed to assist
iii carrying out the financial progra-n of the government.
TOPIC -’0 . 2. The proposed government bond issue . ( Governor Hard
ings le tte r of April 12, 1917.)
Recommendation:
The Council believes thai. tho fir s t o ffe rin ' of long
vine bonds should be 1 , 0 0 0 , 0 0 0 0 0 0 , i f that amount should be ade
quate to meet the immediate necessities of the government, in
order that f ir s t : a successful flotation may ho assured and,
second: the amount may not be materially in excess of short c e r t if i
cates w ncji may be issued in ant_cipation of such issue, thus avoid
ing the t y u p of either uoney or bank credits for any length of
ti " 3 .
I f handled in tnis manner, successive offerings being made as
required by th - -ovGrnment, the entire bond financing could be done
through the Federal reserve banks as fisca l agents for the Treasury
and serious disturbance of bank balances avoided.
This method
couple with a careful une o f shor.', certificates would in our opin
ion* obviate the necessity for a general deposit of government funds
in ths banks of tho country.
In our opinion the bonds should be
payable in th irty years, callable after five years.
Page 11 { / >
I
A p r il 1 3 ,
1917
TOPIC NO. 3. Taxation.
>\ecommendat ion:
In the matter of the taxation as suggested by the
Secretary of the Treasury the eenee of this Qouncil is —
1 s t . That the proportion of war cost for the
provided by taxes, v i z ., 50 %, would impose too
upon industry and the investable surplus of the
proportion should not exceed 25 % for the fir s t
first year to be
great a strain
country; the
year.
2nd. That to impose a surplus profits tax and an additional income
tax on the incomes of the calendar year 1916 would, besides being
unjust, put an excessive burden upon corporations and upon individ
uals, w^o having provided for the taxes of that year and having
thereby discharged their tax obligation to the government have dis
posed of the balance of their profits by placing them either in
permanent improvements or fixed investments.
3rd. That since the government is about tc make huge demands
upon the investable surplus of the country it would be most advis
able so to frame the tax measures that large incomes from which is
derived the greater part of that fund should not be taxed in an
undue proportion.
In this way industry aaj continue to finance
i t s e lf and at the samo time the government obtain the needed funds
with tho least possible disturbance of business.
4 th .
i t is most desirable that the taxes tc be levied should be
upon ltixuries and as l i t t l e as possible upon th r ift, enterprise and
savings .
I t was deciaed to take up the further consideration of the
aaenoiaents to the federal K.eserve Act proposed by tho Federal
Reserve Board at the afternoon meeting.
The Oounoil then adjourned until 2:30 P M owing to the
arrival ox the meabere of the Federal Reserve Board.
Secretary
Minutes of Joint Heating
of the
Federal Reserve Board
and the
Federal Advisory Council.
April 18, 1917
A joint session with the Federal Reserve Board was held
in the Board room at 11:15 A .L. April 18, 1217.
Present: Governor il P G Harding, in the chair, ViceGovernor P LI ./arburg, Messrs. F. A Delano, A C Miller, J S
L illian s, and H I’arker .Y illis, Secretary, of the Federal Reserve
Board; also Messrs. B. L. Hue, Vice-President, D G Jing, J P
.organ, J S Rowe, Chas A Lyerly, J ;/ Norwood, F 0 Watts,
J K JLtchell, -J F Swinnay, T J Record, H Fleishhacker, and
erritt H Grim, Secretary, of t.so Federal Advisory Council.
Governor Harding called on Mr. Hue, Vice-President of the
Federal Advisory Council, to read the recommendations of the
Council.
Mr. Rue read the recommendations prepared by tho Council.
(jes minutea of Council this date).
Mr. Rue informed the Federal Reserve Board that its proposed
anendmants to the Federal Reserve Act would be taken up at the
afternoon session of the Council and reported on la te r.
Mr. ;.ue also informed the Board that tie Council had considered
the suggestion made verbally bj Governor Harding for the providing
of a fun:- by tax on circulation with which to assist the liquidation
of failed banks, but as no definite plan was submitted to the Council
i t could only state that while i t believed a satisfactory plan
might be aevised to afford r e lie f to the depositors of failed banks
the Council was strongly opposed to the guaranteeing of bank deposits
in any form.
Governor Harding then asked the Council to consider ths
ana the Williams' b i l l , S. 742, and report.
Owen o i l i , S 3 . ,
The Governor then asked the Boards to discuss informally
the proposed issue of government bonds . The genetlnen of both
boards freely expressed their views on the various phases of this
important subject.
Governor -larding thon asked each member of the
Jouncil to express his individual views as to the amount of bends which
could be successfully floated in one offering.
The consensus of
opin on was that one b illio n dollars of bonds could be without doubt
successfully floated, and that an issue of two b illio n dollars of
bonds mi^ht be sold in one offering i f the public was assured that
Page 12.
April 18, 1917
gover*mnsn+. taxation would not be t^o heavy and Tould not
be nade retroactive.
The raenbers of the Council were unanireusly of the opinion that a retroactive tax as has been suggested
would seriously interfere \with the success of the bond issue.
The joint session adjourned.
Secretary
Page 1 3 .
M in u te s o f m e e t in g o f
The F e d e r a l A d v is o r y C o u n c i l .
A p r i l 1 8 , 1917
The federal Advisory Council reconvened at 2:30 P H.
The Vice-President in the chair.
The Vice-President requested the Council to decide whether the
regular statutory meeting should be held on the third Tuesday in
kay in view of this special meeting.
On motion of Mr. Morgan
it was resolved that when the Council adjourns it adjourn subject
to the calx of the President or Vice-President and failing such
call the next meeting of the Council to bo at the stated time
in September.
Jxie Vice-President laid before the meeting the amendments to
the Federal Preserve Act as proposed by the Federal Reserve Board,
contained in a b i l l , a copy of which is made a part of these minutes.
All of the amendments were read and carefully considered after which
on motion of Mr. I/atts the following resolution was unanimously
adopted:
"Resolved that the Vice-President of this Council be
requested to report to the Federal Reserve Board that the Council
hai carefully considered the proposed amendments as presented to it
by the Federal Reserve Board and that in view of changed conditions
it revises its previous recommendations made in January ( and for
mally approved at the Council meeting in .''ebruary ) and approves
of the Board's proposed amendments to the Federal Reserve Act
with the exception of that to Jection 22.
The Council would again
submit to the ioard its recommendation and proposed amendment to
iection 2 2 as follows:
" ' The Council would recommend that the proposed addition to
Section 22, commencing with ’'Provided, however, That nothing in this
Act contained' should be amended as follows:
" M Provided, however, that nothing in this Act contained
shall jg construed to prohibit a director, office r, or employee
from receiving the some rate of interest paid to other depositors
for similar deposits made with xkm such bank; or to prohibit a direc
tor who is not an o fficer or employee from receiving, directly or
indirectly, the usual and customorycommissions or fees for services
rendered in buying and celling securities or other investments for
or on account of such bank, but each such transaction must be recorded
in the minutes of tho meeting of said Board, such minutes to specify
the name of the director and the firm or corporation with which he is
connected i f any. through which such order is executed together with
the amount of the foe or commission paid on each transactions; and,
provided further, that notes, drafts, b ills of exchange, or other
evidences of debt, executed or indorsed by directors of a member bank
*ay be discounted with such member bank on the same terms and con
ditions as other notes, drafts, b ills of exchange or evidences of
debt
Digitized for M
FRASER
’ The Council makes this recommendation because in its judg
Page 1 4 .
A p r i l 1 8 , 1917
»ent an affirmative vete or written assent of at least threefourtha of the members of the board is an unnecessary restriction
in connection with such services by a director as the buying and
sailing of securities and inasmuch as notes, drafts, b ills of
exchange or other evidences of debt executed or indorsed by bank
directors are as a rule the very beat of their class, the placing
of special restrictions on the discounting of such instruments
for directors would only unnecessarily and unwarrantably impede
legitimate business or force it into other banks.' H "
By unanimous consent the action taken previously at this
session of the Council concerning a portion of the b ill contain
ing the Federal Reserve Board's amendments to the Federal Reserve
Act -as ordered stricken from the minutes in view of the adoption
of the above resolution.
The Vice-President then laid before the Council B ills 3. 9
introduced in congress by Senator Owen, and S . 742 introduced by
Senator Williams, upon which Governor Harding had asked the Council's
opinion.
Both b ills were read for the information of the Council
and after doe consideration onnotion of Mr. Watts, seconded by
Mr. Mitchell, the following recommendation was unanimously adopted:
"The Council has considered B ills 3. 9 and .j. 742 at the
request of the Federal Reserve Board and begs to report that in its
opinion any le gislation providing for the guaranteeing of deposits
or the establishment of a fund for the insurance of deposits is
undesirable .
A plan might however be devised by the Federal Reserve
lioard which would provide for prompt r e lie f to be given depositors
of failed banks . The Council does not approve of legislation reg
ulating the ratio of depesits to capital as proposed in Section 1 0
of S. 742. “
The Council having no further business to consider adjourned
until September subject to call of the President or Vice-President.
Secretary.
R E C O M M E N D A TIO N S BY T H E FE D E RA L A D V ISO R Y
COUNCIL T O T H E FE D E R A L RESERVE BO A RD
April 18, 1917
T O P IC
NO.
1 .— T h e H a y e s ’ B ill
be it e n a c t e d b y th e se n a t e a n d h o u se of r e p r e s e n t a t iv e s of
THE UNITED STATES OF AMERICA IN CONGRESS ASSEMBLED,
“ That every bank, banking association, aird trust company authorized by the laws of
the United States or of any State to receive money on deposit subject to check shall pay
an annual tax of one-tenth of one per cent on the aggregate amount of checks paid by it
during each fiscal year which bear the indorsement of or which are collected through any
other bank, banking association, trust company, or private banker located outside of the
State in which such checks are made payable, and every bank, banking association, and
trust company shall make a return at the end of each quarterly period* t'o the Collector of
Internal Revenue showing the aggregate amount of such checks paid during that quarter,
such return being verified by the oath of at least two of its officers, PROVIDED, however,
That this tax shall not apply to any Federal reserve bank or member bank of any Federal
reserve bank, or to any non-member bank or trust company which carries andr-maintains a
collection or exchange account with any Federal reserve bank under authority of Section
2 of this Act.
“ Section 2. Any Federal reserve bairk, solely for the purpose of exchange or of collec
tion, may receive from any non-member bank or trust company deposits of current funds
in lawful money, national bank notes, Federal reserve notes, checks and drafts payable
upon presentation, or maturing notes and bills: Provided, such non-member bank or trust
company maintains with the Federal reserve bank of its district, under such rules and
regulations as the Federal Reserve Board may prescribe, a balance in an amount to be
determined by such Board, but in no event to exceed the amount of reserves which it
would be required to maintain with its Federal reserve bank if it were a member bank,
and. Provided, further, That' such non-member bank or trust company agrees to comply
with the provisions of law and the regulations of the Federal Reserve Board relating to
the collection or clearance of checks, drafts, notes, and bills through Federal reserve
banks. ”
R ec o m m en d a tio n :—
T h e C ou n cil is o f opinion that the H a y e s ’ b ill o u g h t n ot at the present
time to be pressed as it seem s to b e in opp ortun e to in trod u ce an y m easure o f a
coercive character, w h en the co-operation o f a ll the state banks and trust com
panies is so m uch n e e d e d to assist in carrying ou t the financial program o f the
government.
T O P I C N O . 2 . — T h e p rop osed governm ent b on d issue.
R ec o m m en d a tio n :—
T h e C ou n cil b elie v es that the first offering o f lo n g tim e bond s sh ould be
$ 1 , 0 0 0 , 0 0 0 , 0 0 0 , if that am ount sh ou ld b e a d eq u a te to m eet the im m ediate
necessities o f the governm ent, in order that, first: a su ccessfu l flotation m ay be
assured, and, secon d : the am ount m ay not b e m a terially in excess o f short
certificates w h ich m ay b e issued in an ticip ation o f such issue, thus avoid in g
the tying up o f either m on ey or b ank credits for an y length o f time. If h and led
in this manner, su ccessive offerings b ein g m ade as required b y the governm ent,
the entire bond financing co u ld b e d on e through the F ed era l R eserv e B an ks
as fiscal agents for the T r ea su ry and serious disturbance o f bank b alances
avoided. T h is m ethod co u p led w ith a carefu l use o f short certificates w o u ld
in our opinion ob viate the n ecessity for a general d ep osit o f governm ent funds
in the banks o f the country. In our opinion the bonds sh ould be p a y a b le in
thirty years, c a lla b le after five years.
TOPIC NO. 3.—Taxation.
Recommendation:—
In the matter of the taxation as suggested by the Secretary o f the Treas
ury the sense of this Council is—
1st. That the proportion of war cost for the first year to be provided
by taxes, viz., 50 per cent, would impose too great a strain upon industry and
the investable surplus of the country; the proportion should not exceed 25
per cent for the first year.
2nd. That to impose a surplus profits tax and an additional income tax
on the incomes of the calendar year 1916 would, besides being unjust, put
an excessive burden upon corporations and upon individuals, who having pro
vided for the taxes of that year and having thereby discharged their tax obli
gation to the government have disposed o f the balance o f their profits by
placing them either in permanent improvements or fixed investments.
3rd. That since the government is about to make huge demands upon
the investable surplus of the country it would be most advisable so to frame
the tax measures that large incomes from which is derived the greater part
of that fund should not be taxed in an undue proportion. In this way industry
may continue to finance itself and at the same time the government obtain
the needed funds with the least possible disturbance o f business.
4th. It is most desirable that the taxes to be levied should be upon
luxuries and as little as possible upon thrift, enterprise and savings.
T O P I C N O . 4.— Amendments to the Federal Reserve A c t as pro
posed by the Federal Reserve Board.
A BILL
To amend the Act approved December twenty-third, nineteen hundred and thirteen, known
as the Federal reserve Act, as amended by the Acts of August fourth, nineteen hundred
and fourteen; August fifteenth, nineteen hundred and fourteen; March third, nineteen
hundred and fifteen; and September seventh, nineteen hundred and sixteen.
Be it enacted by the Senate and House of R epresentatives of the U nited States
of America in Congress assembled, That section four of the Act approved December twentythird, nineteen hundred and thirteen, known as the Federal reserve Act, be amended by
striking out the sentence reading as follows: “ One of the directors of Class C, who shall
be a person of tested banking experience, shall be appointed by the Federal Reserve Board
ps deputy chairman and deputy Federal reserve agent, to exercise the powers of the chair
man of the board and Federal reserve agent in case of absence or disability of his prin
cipal,’’ and by adding in place thereof the following:
“ Subject to the approval of the Federal Reserve Board each Federal reserve a gen*
chpll appoint such assistants, clerks, and other employees as m ay be deemed necessary to
p-operly conduct the business of his office. Under regulations o f the board the Federal
reserve agent shall prescribe the duties of such employees, fix their compensation, and
for his protection may require bonds of those whose duties make this necessary or
advisable. He may, with the approval of the Federal Reserve Board, designate one o f
his assistants as acting Federal reserve agent in the absence or d isability o f th e Federal
reserve agent, and, under rules and regulations of the Federal Reserve Board, m ay delegate
to such acting Federal reserve agent such powers and duties as the circumstances) may
require; and the assistant so designated shall, while acting as Federal reserve agent,
assume full responsibility for all acts performed by him. The Federal R eserve Board
may require such bond of the acting Federal reserve agent as it m ay deem necessary.
“ One of the directors of Class C shall be appointed by the Federal Reserve Board as
vice chairman to exercise the powers of the chairman o f the board in h is absence or d is
ability. In the absence of the chairman and vice chairman the third class C director
shall preside at the meetings of the board and perform the duties o f chairman.”
Sec. 2 That section nine of the Federal reserve Act be amended and reenacted to
read as follows:
“ A ny bank incorporated by special law of any State, or organized under the
general law s of any State or of the U nited States, desiring to become a member of the
Federal reserve system , m ay make application to the Federal Reserve Board for the
right to subscribe to the stock of the Federal reserve bank organized w ithin the district
in which the applying bank is located. Such application shall be for the same amount
o f stock th at the applying bank would be required to subscribe to as a national bank.
The Federal R eserve Board, acting under such rules and regulations as it may prescribe,
subject to the provisions of this Act, may perm it th e applying bank to become a stock
holder of such F ederal reserve bank.
“ In acting upon such applications the Federal R eserve Board shall consider the
financial condition o f the applying bank, the general character o f its management, and
w hether or not the corporate powers exercised are consistent w ith the purposes o f this Act.
“ W henever the Federal R eserve Board shall permit the applying bank to become
a stockholder in the Federal reserve bank o f the district its stock subscription shall be
p ayable on call of the Federal R eserve Board and stock issued to it shall be held subject
to th e provisions o f th is Act.
“ A ll banks adm itted to membership under authority of th is section shall be re
quired to com ply w ith the reserve and cap ital requirem ents of th is A ct and to conform
to those provisions o f law imposed on national banks which prohibit such banks fro i*
lend in g on or purchasing th eir own stock, w hich relate to the w ithdraw al or impairment'
o f th eir capital stock, and w hich relate to the paym ent o f eneam ed dividends. Such
banks and their officers, agents, or em ployees thereof shall also be subject to th e provisions
o f and to the penalties prescribed b y section fifty-tw o hundred and nine o f thei R evised
S tatutes, and shall be required to m ake reports o f condition and o f the paym ent o f
dividends to the Federal reserve bank o f which th ey becom e a member. N o t less than
three o f such renorts sh all be made annually on call of the F ederal reserve bank on dates
to be fixed b y th e Federal R eserve Board. F ailure to m ake such reports w ithin ten days
after the date th e y are called for shall subject the offending bank to a p en alty of $100 ai
d ay for each d ay th a t it fa ils to transm it such report; such p en alty to be collected by
the F ederal reserve bank b y suit, or otherw ise.
“ A s a condition of membership such banks shall lik ew ise be subject to exam ina
tions made b y direction o f th e F ederal R eserve Board or of the F ederal reserve bank
by exam iners selected or approved b y th e F ederal R eserve Board.
“ W henever th e directors o f the F ederal reserve bank shall approve th e exam ina
tions made b y the S tate authorities, such exam inations and th e reports thereof m ay be*
accepted in lieu o f exam in ations m ade b y exam iners selected or approved by the F ed eral
R eserve Board: Provided, however, That w hen i t deem s it necessary the board m ay order
special exam in ations b y exam iners o f its own selection and shall in all cases approve
the form o f report subm itted. The expenses o f all exam inations, other than those made
b y S tate authorities, shall be assessed again st and paid b y the banks exam ined in the
same manner and at the same rate th a t n ational banks are assessed for such expenses.
“ I f at any tim e it shall anpear to the F ederal R eserve Board th a t a member bank'
has fa iled to com ply w ith th e provisions o f th is section or th e regulations o f the Federal
R eserve Board m ade nursuant thereto, i t shall be w ith in the nower o f th e board after
h earing to reauire such bank to surrender its stock in th e F ederal reserve bank and to
fo r fe it all rights and p rivileges o f membership. The F ederal R eserve Board m ay restore;
m em bership upon due nroof o f com pliance w ith the conditions im posed b y this section.
“ A n y S ta te bank or tru st com pany desiring to w ithdraw from membership in a
F ederal reserve bank m av do so. after six m onths’ w ritten n otice shall have been filed
w ith th e F ederal R eserve Board, upon the surrender and cancellation o f all o f it s holdings
o f ca p ita l stock in th e Federal reserve bank: Provided, how ever That no F ederal reserve
bank shall, excep t under express au th ority o f the F ederal R eserve Board, cancel w ithin
the sam e calendar year more than ten per centum of it s cap ital stock for the purpose of
effectin g v olu n tary w ithd raw als durinsr th a t year.
“ A ll applications shall be d ealt w ith in the order in w hich th ey are filed w ith the
board.
“ W henever a member bank shall surrender it s stock holdings in a Federal reserve
bank, or shall be ordered to do so b y the Federal R eserve Board, under au th oity o f th is
section, all o f it s rights and p rivileges as a member bank shall thereupon cease and de
term ine. and a fte r due provision has been made for any indebtedness due or to become
due to the F ederal reserve bank it shall be en titled to a refund o f its cash paid subscrip
tion w ith in terest a t the rate o f one-half o f one per centum per m onth from date o f la st
dividend, i f earned, th e am ount refunded in no ev en t to exceed th e book value of the
stock at th a t tim e, and shall lik ew ise be en titled to repaym ent o f deposits and o f any
other balance due from th e F ederal reserve bank.
“ N o ap plying bank shall be adm itted to membership in a F ederal reserve bank
unless it p ossesses a paid-up unim paired cap ital sufficient to en title it to become a national
banking association in th e place w here it is situ ated under the provisions of the n ational
hank Act.
“ B anks becom ing mem bers o f the F ederal reserve system under authority o f th is
section shall be su bject to th e provisions o f th is section and to th ose o f th is A ct w hich
rebate sp ecifically to m em ber ban’"s. S u h iect to th ese provisions and to th e regulations
o f th e board m ade pursuant thereto, any bank becom ing a member o f th e Federal reserve
system shall retain its full charter and statutory rights as a S tate hank or tru st com
pany, and may continue to exercise all corporate powers granted it b y th e State in
which its was created, and shall be entitled to all the p rivileges o f member hanks: Pro
vided however, That no Federal reserve bank shall be perm itted to discount for any
State bank or trust company notes, drafts, or b ills of exchange o f an y one borrower w ho
is liable for borrowed money to such State bank or trust com pany in an amount greater
than ten per centum of the capital and surplus of such State hank or tru st company,
but the discount o f bills of exchange drawn against actu ally ex istin g v alu e shall not he
considered as borrowed money w ithin the m eaning o f th is A ct. The Federal reserve
bank, as a condition o f the d is'ou nt of notes, drafts, and h ills of exchange for such
S tate bank or trust company, shall require a certificate or guarantee to th e effect that
the borrower is not liable to such bank in excess of the am ount provided b y th is section^
and w ill not be perm itted to become liable in excess o f th is amount w hile such notes,
drafts, or bills of exchange are under discount w ith th e Federal reserve hank.
“ It shall be unlaw ful for any officer, clerk, or agent o f any bank adm itted to mem
bership under authority of this section to certify any check drawn upon the association
unless the person or company drawing the check has on deposit w ith the association a t
the tim e such check is certified an amount of m oney equal to th e amount! specified ini
such check. A ny check so certified by duly authorized officers shall be a good and valid
obligation against the association, but the act of any officer, clerk, or agent o f any asso
ciation in violation o f this section shall subject such bank to a forfeitu re o f it s member
ship in the Federal reserve system upon hearing by th e F ederal R eserve Board.”
Sec. 3. That the first paragraph of section thirteen be amended so as to read as
follows:
‘‘Any Federal reserve bank may receive from any of its member banks, and from
the United States, deposits of current funds in lawful money, national-bairk notes, Federal
reserve notes, or checks, and drafts, payable upon presentation, and also, for collection,
m atu riw or ro^es and bills; or. solely for ipurposes of exchange or of collection, may receive
from other Federal reserve banks deposits of current funds in lawful money, nationalbank notes, or checks upon other Federal reserve banks, and checks and drafts, payable
l’pnn presentation within its district, and maturing notes and bills payable within its
district: or. solely for the purposes o f exchange or o f collection m ay receive from any
prn-member bank or trust company deposits of current funds in law ful money, nationalbank notes Federal reserve notes check s and drafts payable upon presentation, or matur
i t y notes and bills: Provided, That such non-member bank or trust com pany m aintains
with the Federal reserve bank of its district a balance in an amount to be determined by
tbe Federal Reserve Board under such rules and regulations as it may prescribe, but the
Federal Reserve Board shall in no case require a non-member bank to m aintain a
balanre in excess of the amount it would be required to carry as reserve w ith its Federal
reserve bank as a member bank.”
Sec. 4. That the fifth paragraph of section thirteen be, and is hereby, amended
further so as to read as follows:
“ Any member bank may accept drafts or bills of exchange drawn upon it haviirg not
more than six months sight to run, exclusive of days of grace, which grow out of transac
tions involving the importation or exportation of goods; or which grow out of transactions
involving the domestic shipment of goods provided shipping documents conveying or
securing title are attached at the time of acceptance; or which are secured at the time
of acceptance by a warehouse receipt or other such document conveying or securing title
covering readily marketable staples. No member bank shall accept, whether in a for
eign or domestic transaction, for any one person, company, firm, or corporation to an
amount equal at any time in the aggregate to more than ten per centum of its paid-up
and unimpaired capital stock and surplus, unless the bank is secured either by attached
documents or by some other actual security growing out of the same transaction as the
acceptance; and no bank shall accept such bills to an amount equal at any time in the
segregate to more than one half of its paid-up and unimpaired capital stock and surplus:
Provided, however That the Federal Reserve Board, under such general regulations as
it may prescribe, which shall apply to all banks alike regardless of the amount o f capital
stoc’- and surplus, may authorize any member bank to accept such bills to an amount not
exceeding at any tim e in the aggregate one hundred per centum of its paid-up and unim>paired capital stock and surplus: Provided, further, That the aggregate of acecptances
growing out of domestic transactions shall in no event exceed fifty per centum o f such
capital stock and surplus.”
Sec. 5. That section sixteen, paragraphs two, three, four, five, six and seven, be
amended and reenacted so as to read as follows:
“ Any Federal reserve bank may make application to the local Federal reserve agent
for such amount of the Federal reserve notes hereinbefore provided for as it may
require. Such application shall be accompanied with a tender to the local Federal
reserve agent of collateral in amount equal to the sum of the Federal reserve notes thus
applied for and issued to such application. The collateral security thus offered shall be
notes, drafts, bills of exchange, or acceptances rediscounted under the provisions of
section thirteen of this Act, or bills of exchange indorsed by a member bank of any
Federal reserve district and purchased under the provisions of section fourteen of this
Act, or bankers’ acceptances purchased under the provisions of said section fourteen,
or gold or gold certificates. The Federal Reserve agent shall each day notify the Federal
Reserve Board of all issues and withdrawals of Federal reserve notes to and by the Federal
reserve bank to which he is accredited. The said Federal Reserve Board may at any
time call upon a Federal reserve bank for additional security to protect the Federal re
serve notes issued to it.
*‘Every Federal reserve bank shall maintain reserves in gold or lawful money of
not less than thirty-five per centum against its deposits and reserves in gold of not less
than forty per centum against' its Federal reserve notes in actual circulation: Provided,
.however, That when the Federal reserve agent holds gold or gold certificates as col
lateral for Federal reserve notes issued to th e bank th e reserve th a t such bank: is re
quired to m aintain again st its Federal reserve notes in actual circulation shall be reduced
in a corresponding amount, and not -offset by gold or lawful-money deposited with the Fed
eral-reserve-agent. Notes so paid out shall bear upon their faces a distinctive
letter and serial number, which shall be assigned by the Federal Reserve Board to each
Federal reserve bank. Whenever Federal reserve notes issued through one Federal re
serve bank shall be received by another Federal reserve bank they shall be promptly
returned for credit or redemption to the Federal reserve bank through which they were
originally issued, or, upon direction o f such Federal reserve bank, th ey shall be forwarded
direct to the Treasurer of the U nited S tates to be retired. No Federal reserve bank shall
pay out notes issued through another under penalty of a tax of ten per centum upon
the face value of notes so paid out. Notes presented for redemption at the Treasury of
the United States shall be paid out of the redemption fund and returned to the Federal
reserve banks through which they were originally issued, and thereupon such Federal
reserve bank shall, upon demand of the Secretary of the Treasury, reimburse such re
demption fund in lawful money, or, if sueh Federal reserve notes have been redeemed
by the Treasurer in gold or gold certificates, then such funds shall be reimbursed to the
extent deemed necessary by the Secretary of the Treasury in gold or gold certificates,
and such Federal reserve banks shall, so long as any of its Federal reserve notes remain
outstanding, maintain with the Treasurer in gold an amount sufficient in the judgment
of the Secretary to provide for all redemptions to be made by the Treasurer. Federal
reserve notes received by the Treasurer, otherwise than for redemption, may be ex
changed for gold out of the redemption fund hereinafter provided and returned to the
reserve bank through which they were originally issued, or they may be returned to
such bank for the credit of the United States. Federal reserve notes unfit for circula
tion shall be returned by the Federal reserve agents to the Comptroller of the Currency
for cancellation and destruction.
“ The Federal Reserve Board shall require each Federal reserve bank to maintain
on deposit in the Treasury of the United States a sum in gold sufficient in the judg
ment of the Secretary of the Treasury for the redemption of the Federal reserve notes
issued to such bank, but in no event less than five per centum o f the to ta l amount o f
notes issued less the am ount of gold or gold certificates held b y th e Federal reserve agent
as collateral security; but such deposit of gold shall be counted and included as part
of the forty per centum reserve hereinbefore required and shall be counted and con
sidered as i f collateral secu rity deposited w ith th e F ederal reserve agent. The board
shall have the right, acting through the Federal reserve agent, to grant' in whole or in
part or to reject entirely the application of any Federal reserve bank for Federal re
serve notes; but to the extent that such application may be granted the Federal Reserve
Board shall, through its local Federal reserve agent, supply Federal reserve notes to the
bank so applying, and such bank shall be charged with the amount of such notes issued
to it and shall pay such rate of interest on said- amount as may be established by the
Federal Reserve Board -and-the^a m ount of on only th a t am ount o f such notes which equals
th e to ta l amount o f it s outstanding F ederal reserve n otes less th e amount of gold or gold
certificates held b y th e F ederal reserve agent as collateral security. -Such Federal re
serve notes so issued to any such bank shall, upon delivery, together with such notes
of such Federal reserve bank as may be issued under section eighteen of this Act upon
security of United States two per centum Government bonds, become a first and para
mount lien on all the assets of such bank.
-eral reserve-notes-by depositing with-the Federal reserve agent its Federal reserve, notes,
.gold, gold-certificates, or lawful-money of the United States.— Federal reserve notes..so
-deposited— shall— sot— be— reissued^— except upon— compliance— with— the— conditions— of an
The Federal reserve agent shall hold suoh gold; gold— certificates;— or— law fu l— m oney
available exclusively—
-exchange— for— the— outstanding— Federal— reserve— notes— w h en— o£4ered-by the reserve 4>attk-of-whieh he is a director. Upon the request of the Secretary
of the Treasury the Federal Reserve Board shall require the Federal reserve agent to
transmit -so-mueh--of-^*aid-goM to the 'Treasury Treasurer of the United States so much
o f the gold held by him as collateral security for Federal reserve notes as may be re
quired for the exclusive purpose of the redemption of such— notes Federal reserve notes.
“ Any Federal reserve bank mav at its discretion withdraw collateral deposited with
the local Federal reserve agent for the protection of its Federal reserve notes deposited with
it issued to it and shall at the same time substitute therefor other like collateral of equal
amount with the approval of the Federal reserve agent under regulations to be prescribed by
— 9—
the Federal Reserve Board. Any Federal reserve bank may retire any of its Federal reserve
notes by depositing them with the Federal reserve agent or w ith the Treasurer o f the United
States, and such Federal reserve bank shall thereupon be en titled to receive back th®
collateral deposited w ith tl’e Federal reserve agent for the security of such notes. Fed*
eral reserve banks shall not te required to m aintain the reserve or the redem ption fund,
heretofore provided for against Federal reserve notes w hich have been retired; nor shall
they be further liable to pay any interest charge which m ay have been im posed thereon
by the Federal Reserve Board. Federal reserve notes so deposited shall not be reissued
except upon compliance w ith the conditions o f an original issue.
“ A ll Federal reserve notes and all gold, gold certificates, and la w fu l m oney issued
to or deposited w ith any Federal reserve agent under the provisions o f the Federal re*serve A ct shall hereafter be held for such agent, under such rules and regulations as the
Federal Reserve Board may prescribe, in the joint custody o f h im self and the Federal
reserve bank to which he is accredited. Such agent and such F ederal reserve bank shall
be jointly liable for the safe-keeping of such Federal reserve notes, gold, gold certifi
cates, and law ful money. N othing herein contained, however, shall be construed to pro
hibit a Federal reserve agent from depositing gold or gold certificates w ith the Federal
Reserve Board to be held by such board subject to his order or w ith th e Treasurer o f
the U nited States for the purposes authorized by la w .”
Sec. 6. That section sixteen be further amended by adding at the end of the section
the following:
“ That the Secretary of the Treasury is hereby authorized and directed to receive
deposits of gold coin or of gold certificates w ith the Treasurer or any A ssista n t Treas
urer of the U nited States when tendered by any Federal reserve bank or F ederal reserve
agent for credit to its or his account w ith the F ederal R eserve Board. The S ecretary
shall prescribe by regulation the form of receipt to be issued b y the Treasurer or A ssist
ant Treasurer to the Federal reserve bank or Federal reserve agent m aking the deposit,
and a duplicate o f such receipt shall be delivered to the F ederal R eserve Board b y the
Treasurer at W ashington upon proper advices from any A ssista n t Treasurer th a t such
deposit has been made. D eposits so made shall be subject to the orders o f th e Federal
Reserve Board and shall be payable in gold coin or gold certificates on the order o f the
Federal reserve Board to any Federal reserve bank or F ederal reserve agent a t th e Treas
ury or at the Subtreasury of the U nited S tates nearest the place o f business o f such Federal
reserve bank or such Federal reserve agent: Provided, however, That any expense incurred
in shipping gold to or from the Treasury or Subtreasuries in order to m ake such payments,
or as a result o f m aking such payments, shall be paid b y the F ederal R eserve Board and
assessed against the Federal reserve banks. The order used by the Federal R eserve Board
in ma’ ing such payments shall be signed b y the governor or vice governor, or such oither
officers or members as the board m ay by regulation prescribe. The form o f such order
shall be approved by the Secretary o f the Treasury.
“ The expenses necessarily incurred in carrying out th ese provisions, including th e
cost of the certificates or receipts issued for deposits received, and all expenses in cid en t
to the handling o f such deposits shall be paid b y the Federal R eserve Board and included
in its assessments against the several Federal reserve banks.
“ Gold deposits standing to the credit o f any Federal reserve bank w ith the Federal
Reserve Board shall, at the option of said bank, be counted as part o f the law fu l reserve
whirh it is required to m aintain aeainst outstanding Federal reserve notes, or as a part
of the reserve it is required to m aintain against deposits.
“ N othing in this section shall be construed as am ending section six o f the A ct of
March fourteenth, nineteen hundred, as amended b y the A cts o f March fourth, nineteen
hrndred and seven, and March second, nineteen hundred and eleven, and June tw elfth ,
nineteen hundred and sixteen, nor shall the provisions of those A cts be construed to
apply to the deposits made or to the receipts or certificates issued under authority o f
this section.”
Sec. 7. That section seventeen be, and is hereby, amended so as to read as follows:
“ Sec. 17. So much of the .provisions of section fifty-one hundred and fifty-nine o f
the Revised Statutes of the United States and section four of the Act of June twentieth,
eighteen hundred and seventy-four, and section eight of the Act of July twelfth, eighteen
hundred and eighty-two, and of any other provisions of existing statutes as require that
before any national banking associations shall be authorized to commence banking busi
ness it shall transfer and deliver to the Treasurer of the United States a stated Amount
of United States registered bonds, and so much o f those provisions or o f any other pro
visions of existing statutes as require any national banking associations now or hereafter
organized to m aintain a minimum deposit o f such bonds w ith the Treasurer is hereby
repealed.”
Sec. 8. That section nineteen be further amended and reenacted so as to read as
follows:
“ Sec. 10. Demand deposits within the meaning of this Act shall comprise all de
posits payable within thirty days, and time deposits shall comprise all deposits payable
after thirty days, all savings accounts and certificates of deposit which are subject to
not less than thirty days’ notice before payment, and all postal savin gs deposits.
W ht»n the Secretary -of- t - h e - T r o a s n r y s h a l l h a v e - o f f i c i a l l y a n n o u n c e d , i n such manner-as
tip m a y e l e c t , t h e e s t a b H s lm n vnit t r f - a - f V d ^ r a l - r r e t e r v e b a n k - i n - a n y - d i s tr i c t , e v e r y subscribing
— 10—
member bank “ Every bank, banking association, or trust company which is or which b e
comes a member of any Federal reserve ban t shall establish and maintain reserves re
serve balances with its Federal reserve bank as follows:
“ (a) A hank If not in a reserve or central reserve city, as now or hereafter defined,
it shall hold and maintain rpsprv-pa Gijiml tn twplvp ppr ppnt.nm nf t.hft fl.gflrpgatp ammint
Tn its—vaults ^or a period-of thirty-six montlis-afte-r-sa.i4 -days- five-twelfths thereof
and permanently the r©after -fmi r-~twe1ftl^ In the F ederal reservo ban k date, two-twelfths, and
five-twelfths have been -deposited^-which shall be- the—amoumt
For-a period of thirty-six
held in its own- vaults, -or-in the Federal reserve bankT or in i
central reserve -cities as now-defined- by -law.
After said thirty-six
quired to be-held in-the-vaults of-the-m em ber bank--and in the Eederalbe held in the vaults of the member-bank or in-the Federal- reserve bank, oreption of the member bank w ith the Federal reserve bank o f its district an actual net bal
ance equal to n ot less than seven per centum of th e aggregate amount of its demand de
posits and three per centum o f its tim e deposits.
“ (b) A bank I f in a reserve city, as now or hereafter defined, it shall hold and main4
tain reserves equal to fifteen—per eon turn
and five per centum-o^ its thne-depositsj-as fellows:
‘ ^Tn i t s v aults-fo r f ^ e « o t l ~ e f - tM fty-six—months af t er said date, six -fifteenths thereof,
-ant}-permanently
‘ ■‘In1
dateaforesard,at least three-i
o n e - fifteenth-, until six-fifteenths have beerr so-deposited,m an enily-require4.
“ For a. period—of^u4ty--six—months—after—said—date—the-balance—of—the—resexves—may
be—held in its own vaults, or in 4:-he Feelerah reserve "
reserve
After said thirty-six months-’ period all—of—said -reserves, except those hereinbefore
reqiaifed to be held -permanently in the-vaults of the m e m b er bank and in the Federal
tion of the member-bank w ith the F ederal reserve bank of its d istrict an actual n et balance
equal to not less than ten per centum of the aggregate am ount o f its demand deposits and
three per centum of it s tim e deposits.
“ (c) A bank I f in a central reserve city, as now or hereafter defined it shall hold and
maintain a, reserve equal to eighteen per centum
“ Tn its vaults, six-eighteenths thereof.
— ‘In the F ederal reserve -bank, seven-eighteenths.
‘‘The balance of said reserves shall be held in its own vaults or in the F ederal reserve
bank .^at its-eptiea.
-reeding one half-of each installment, eligible paper as described in seation thirteen propIf a State -bankor-trust-eompany-is required -or permitted-!
keep its reserve-either-in its o w n vaults or with another State bank or trust eomipany-or
"w ith--a--national-bank,---sucfr reserve deposits so kept in such State bank, trust company, or
national bank shall be construed within the meaning1of-this section as if they were reserve
-depositsirra-nn^ional bank in a reserve or central reserve city for a period of three years
after the Secretary of the Treasury shall have officially announced the establish m ent of-a
Federal reserve bairk in-the district in-wfrtch-sueh State bank—or-trust company is situate.
Except ~as thus -provided with the Federal reserve bank of its district an actual net
balance equal to not less than thirteen per centum of the aggregate amount of its demand
deposits and three per centum of its time deposits.
“ No member bank shall keep on deposit with any non-member bank a sum in ex
cess of ten per centum of its own paid-up capital and surplus. No member bank shall
act as the medium or agent of a non-member bank in applying for or receiving discounts
from a Federal reserve bank under the provisions of this Act, except by permission of
the Federal Reserve Board.
“ The Feae-f'V-e required balance carried by a member bank with a Federal reserve bank
may, under the regulations and subject to such penalties as may be perscribed by the
Federal Reserve Board, be checked against and withdrawn by such member bank for the
purp'ose of meeting existing liabilities: Provided, however, That no bank shall at any
time make new loans or shall pay any dividends unless and until the total j &sei-ve balance
required by law is fully restored.
“In. estimating-the
balances required by this Act, the. net ■balance difference
of amounts due to and from other banks shall be taken as the basis for ascertaining the
bank deposits against which "reaiTves required balances with Federal reserve banks-shall
— 11—
be determined. Dalames in reserve
<1no to m o m b o F bonks nholl, to th-e-e-at-ent horoin
provided.be counted as reserves.
“ National banks, or banks organized under local law s, located in Alaska or in a
dependency or insular possession or any part of the U nited S ta tes outside the continental
United States may remain non-member banks, and shall in that event maintain reserves
and comply with all the conditions uow provided by law regulating them; or said banks,
except in the Philippine— Inland*, may, with the consent of the Reserve Board, become
member banks of any one of the reserve districts, and shall in that event take stock, main
tain reserves, and be subject to all the other provisions of this Act.”
Sec. 9. That that part of section twenty-two which reads as follows: “ Other than
the usual salary or director’s fees paid to any officer, director, or employee of a member
bank and other than a reasonable fee paid by said bank to such officer, director, or
employee for services rendered to such bank, no officer, director, employee, or attorney of
a member bank shall be a beneficiary of or receive, directly or indirectly, any fee, com
mission. gift, or other consideration for or in connection with any transaction or business
of the bank,” be, and hereby is, amended and reenacted so as to read as follows:
“ Other than ^the usual salary or director’s fee paid to any officer, director or employee,
or attorney of a member bank, and other than a reasonable fee paid by said bank to
such officer, director, or employee, or attorney for services rendered to such bank, no officer,
director employee or attorney of a member bank shall be a beneficiary of or receive, di
rectly or indirectly, any fee, commission, gift, or other consideration for or in connection
with any transaction or business of the bank: Provided, however, That n oth ing in th ii
Act contained shall be construed to prohibit a director, officer, employee, or attorney
from receiving the same rate of interest paid to other depositors for sim ilar deposits
made with such bank: And provided further, That notes, drafts, bills o f exchange, or
other evidences of debt executed or indorsed by directors or attorneys o f a member
bank may be discounted w ith such member bank on the same term s and conditions as
other notes, drafts, bills of exchange, or evidences o f debt upon the affirm ative vote «r
written assent of at least three-fourths of the members o f th e board o f directors o f such
member bank.”
Recommendation:—
Resolved that the vice president of this Council be requested to report
to the Federal Reserve Board that the Council has carefully considered
the proposed amendments as presented to it by the Federal Reserve Board
and that in view of changed conditions it revises its previous recommendations
made in January (and formally approved at the Council meeting in February)
and approves of the Board’ s proposed amendments to the Federal Reserve
Act with the exception of that to Section 22. T h e Council would again sub
mit to the Board its recommendation and proposed amendment to Section 22,
as follows:
“ The Council would recommend that the proposed addition to Section
22 commencing with ‘ Provided, however, that nothing in this A ct contained’
should be amended as follows:
“ ‘ Provided, however, that nothing in this A c t contained shall be con
strued to prohibit a director, officer, or employee from receiving the same
rate of interest paid to other depositors for similar deposits made with such
bank; or to prohibit a director who is not an officer or employe from receiving,
directly or indirectly, the usual and customary commissions or fees for serv
ices rendered in buying and selling securities or other investments for or on
account of such bank, but each such transaction must be recorded in the min
utes of the meeting of said board, such minutes to specify the name o f the
director and the firm or corporation with which he is connected, if any, through
which such order is executed, together with the amount of the fee or commis
sion paid on each transaction; and, provided further, that notes, drafts, bills
of exchange, or other evidences of debt executed or indorsed by directors of
a member bank may be discounted with such member bank on the same terms
and conditions as other notes, drafts, bills of exchange or evidence of debt/
j
“ T h e Council makes this recommendation because in its judgment an
affirmative vote or written assent o f at least three-fourths o f the members of
the Board is an unnecessary restriction in connection with such services by
a director as the buying and selling of securities and inasmuch as notes,
drafts, bills o f exchange or other evidences of debt executed or indorsed by
bank directors are as a rule the very best o f their class, the placing of special
restrictions on the discounting o f such instruments for directors would only un
necessarily and unwarrantably impede legitimate business or force it into other
banks.”
T O P I C N O . 5.— Bills S. 9 and S. 742.
65th C O N G R E S S , 1st Session
S. 9.
IN TH E SE N A T E OF TH E U N IT E D STATES.
A pril 4, 1917.
A B ILL
To indemnify depositors in “ member banks,” as defined by the Federal reserve Act,
against loss in the event of the failure or suspension of business of such bank.
Be it enacted b y the Senate and H ouse of R epresentatives o f the U nited S ta tes
o f A m erica in Congress assembled, That to indemnify depositors in “ member banks”
as defined by the Federal reserve Act against loss and to make provision for the prompt
payment to such depositors of the amounts due them in the event of the failure or sus
pension of business of such banks, there is hereby created a fund to be known as the
depositors’ indemnity fund, to be under the control and supervision of the Federal Re
serve Board. Such fund shall consist of the proceeds of the tax on national-bank circula
tion beginning with January first, nineteen hundred and fourteen, until the same accu
mulates to the extent of one per ceuitum of the deposits of the member banks of the Fed
eral reserve bank system, and thereafter if necessary to replenish the fund so that such
fund shall at all times be not less in amount than one per centum of the average annual
deposits of all the member banks of the Federal Reserve Bank System in the United
States for the preceding calendar year, such average annual deposits to be computed by
adding together the total deposits of all member banks as stated in their several reports
of condition made during said calendar year and dividing the aggregate sum by the
number of reports of condition so made.
For the purposes of this Act the indemnified deposits shall be construed to mean and
includp all liabilities of a bank excepting capital, surplus, unpaid dividends, circulation',
and United States deposits, and depositors shall be construed to mean and include all
persons to w h o m such liabilities are due.
Whenever any member bank shall fail to meet its obligations to depositors and close
its business or its business shall be suspended, the Federal Reserve Board shall provide
for the immediate payment out of the depositors’ indemnity fund of all sums due by
such member bank to its depositors, and thereupon such fund shall become and be
subrogated to all the rights of said depositors, and in the settlement' of the affairs of
any such bank all dividends that would have been due to such depositors shall be paid
into such fund.
The Federal Reserve Board is fully authorized and empowered to promulgate and
enforce any and all needful rules and regulations for carrying out the purposes of this
Act and administering and conserving the fund hereby created.
65th C O N G R E S S , 1st Session
S. 742.
IN T H E SE N A T E OF TH E U N IT E D STATES.
A pril 6, 1917.
A B IL L
To found and maintain a mutual insurance fund for depositors in national banks, to be
kept available in the United Spates Treasury and to be administered by a bureau in
the Treasury Department organized and regulated for that purpose.
Be it enacted by the Senate and House of Representatives of th e U n ited S ta tes
of America in Congress assembled, That there is hereby created iir connection with the
national banking system a department in the office of the Comptroller of the Currency
to be known as the Depositors’ Insurance Department, over which the Comptroller of
— 13 —
tho Currency shall have full supervision ami management, as provided in this Act.
lie shall receive and disburse all moneys paid in and belonging to the several funds
herein provided for and shall keep suitable books, in which shali be kept an account
known as the reserve fund and an account to be known as the premium fund.
He shall also keep a separate account with each national bank in which he shall
credit said bank with all moneys paid by it to the account of said Depositors’ Insurance
Department and shali debit it with its proportionate share of losses paid from said in
surance funds.
He shall also keep such other accounts as may by him be deemed necessary and
shall have power and authority to appoint such deputies, assistants, and clerks as may
be necessary to carry into effect the purposes of this Act. All the expenses of this de
partment shall be paid by and charged to the premium fund.
Sec. 2. That the* Comptroller of the Currency shall invest the money received
through the reserve fund in interest bearing bonds of the United States or may there
with purchase or at maturity pay such bonds, replacing their A’ a l u e in the reserve fund
with United States Treasury notes: Provided, That any national bank may, in lieu of
cash payment of its one per centum reserve fund dues, deliver to the Comptroller of
the Currency bonds of the character above described, at par value, to be approved by
him. The interest on all bonds in the reserve fund shall be collected by the Comptroller
of the Currency when due and remitted to the national banks proportionately to the
amounts paid by them; or, in case of national banks that have deposited their own bonds,
the interest on such bonds as they may have to their credit shall be collected and for
warded to them. The remitting of interest to national banks shall be made at the end
of each fiscal year.
Sec. 3. That the Comptroller of the Currency may deposit with the Secretary of the
Treasury any surplus money in the premium fund; or, in case such surplus should accu
mulate beyond the requirement of the department, he may invest the same in interesthearing bonds of the United States, as provided by the investment of the reserve fund,
the interest derived therefrom to be credited to the premium fund.
Sec. 4. That the comptroller shall make an annual report to the Congress of the
United States at the commencement of each regular session thereof setting forth therein
a full statement of the affairs of the Depositors’ Insurance Department for the previous
fiscal year and shall make such recommendation as he may believe would tend more
fully to carry into effect the intent and purposes of this Act.
Sec. 5. That every national bank shall, within thirty days after this Act takes
effect or when it shall be organized any time thereafter, file with the Comptroller of
the Currency a report showing its capital and total deposits; and at the beginning of
each fiscal year thereafter it shall file with the Comptroller of the Currency a report
showing its capital and average deposits for the preceding year.
Sec. 6. That all national banks having deposits in an amount greater than their
capital when this Act takes effect shall pay to the Comptroller of the Currency, within
thirty days after this Act becomes operative, one-half of one per centum on its total
deposits, which shall be credited to the reserve fund, and one mill on its total deposits,
which shall be credited to the premium fund.
At the beginning of each fiscal year thereafter every national bank shall pay to or
receive from the Comptroller of the Currency one-fourth of one per centum on its average
deposits of the preceding year, which amount shall be credited or charged to the reserve
fund, and shall also pay 1 mill on its average deposits of the preceding year, which
amount shall also be credited to the premium fund.
Sec. 7. That all national banks having less deposits than capital wThen this Act
takes effect shall pay to the Comptroller of the Currency, when this Act becomes oper
ative, one per centum on their capital, which shall be credited to the reserve fund, and
1 mill on their capital, which shall be credited to the premium fund. If at the begin
ning of the following year the deposits should still be less than the capital, then go
much of the one mill premium dues paid in the previous year shall be refunded as may
be found overpaid on that bank’s proportionate share of its average deposits for the
previous year, and shall pay for the current year one mill into the premium fund on its
average deposits of the preceding year and every year thereafter until such deposits
shall exceed the capital, the reserve fund dues paid in the previous year to remain the
same so long as the deposits do noit exceed the capital. If, however, the average deposits
during the previous year shall have exceeded the capital, then it shall pay on its aver
age deposits one per centum into the reserve fund and one mill into the premium fund,
and shall further pay for the current year on its average deposits of the preceding year
one mill into »the premium fund; thereafter it shall be subject to the same provision as
applied to banks in paragraph six.
Sec. 8. That all national banks organized at any time after this Act takes effect
which have been organized or converted from or consolidated with any other banking
association and have deposits in an amount greater than the capital so organized shall
be subject to the same provisions as apply to national banks in paragraph six, excepting
that only such a proportion of the one mill premium fund dues shall be paid as the
unexnired time from the date of organization to the end of a fiscal year shall bear to
a whole year, and that payment of dues shall be made at the time when the bank is
authorized to do business.
— 14 —
Sec. 9. That any national bank organized at any time after this Act' takes effect
and having less deposits thair its capital when so organized shall be subject to the
same provisions as apply to national banks in paragraph seven, excepting that pay
ment of dues shall be made when the bank is authorized to do business.
Sec. 10. That whenever a national bank’s total deposits at the beginning of a
fiscal year exceeds ten times its capital, and if its average deposits for a whole pre
ceding year has exceeded ten times its capital, then it shall on the beginning of said
fiscal year increase its capital to such an amount that the average deposits of the
preceding year shall not exceed ten times its capital or else reduce its deposits so
that they will not exceed ten times its/ capital.
Sec. 11. That after a receiver has been appointed for a failed bank and has
been in the discharge of his duties for thirty days, such receiver shall make and
transmit to the Comptroller of the Currency a statement showing the deposit liabilities
of such failed bank, the assets thereof as he may be able to determine, and the assets
then available for the payment of the first dividend to depositors; and if the amount
so available shall not be sufficient to pay a dividend equal to or greater than one hun
dred per centum of the total deposits of such failed bank, then the Comptroller of
the Currency shall transmit to said receiver such amounts from the premium fund as
shall enable said receiver to pay forthwith each depositor on proved claims a dividend
of one hundred per centum of his claim.
In case the premium fund shall be insufficient, then the reserve fund shall be drawn
upon for the amount required to pay all depositors ninety per centum of their claims,
and said reserve fund shall be reimbursed (therefor as soon as the premium fund shall
have accumulated a surplus beyond its needs. All the amounts so advanced by the
Comptroller of the Currency to the receiver shall remain a first' lien on the remaining
assets of said failed national bank in favor of said Depositors’ Insurance Department.
The receiver shall from time to time transmit to the Comptroller of the Currency all
the proceeds which may be derived from the remaining assets up to the amount so ad
vanced, and all such sums so transmitted shall be credited to the funds taken from.
The remaining assets of such failed national banks after such lien shall have been satis
fied, if any there may be, shall be administered by the receiver for the benefit of the
creditors thereof.
Sec. 12. That any national bank which shall go out of business and which shall
have paid its depositors in full shall receive from the Comptroller of the Currency such
an amount as shall stand to its credit after having charged against it all its propor
tionate share of losses sustained in the Depositors’ Insurance Department up to the time
of its retirement.
A bank’s proportionate share of loss shall be such part of the losses sustained as
its average deposits may have borne to the aggregate deposits in all banks for the same
period and as reported to the Comptroller of the Currency.
Sec. 13. That deposits, within the meaning of this Act, shall be construed to mean
all liabilities of a bank excepting capital, surplus, undivided profits, unpaid dividends,
circulation of said bank, and United States deposits.
Sec. 14. That the average deposits of a bank shall be ascertained by adding to
gether the total deposits as stated in the several report's of the bank submitted to the
Comptroller of the Currency and dividing the sum total by the number of reports so
made, or, if for shorter periods, then by the irumber of days.
Sec. 15. That a fiscal year, within the meaning of this Act, shall be construed to
mean an entire year from and after this Act takes effect and each entire year thereafter.
Sec. 16. That all Acts or parts of Acts inconsistent with this Act are hereby re
pealed, and nothing herein contained shall affect existing rights of banks which have
failed prior to the time this Act shall take effect.
Recom m endation:—
T h e Council has considered Bills S. 9 and S. 742 at the request o f the
Federal Reserve Board and begs to report that in its opinion any legislation
providing for the guaranteeing o f deposits or the establishment o f a fund
for the insurance o f deposits is undesirable. A plan might, however, be de
vised by the Federal Reserve Board which would provide for prompt relief
to be given depositors o f failed banks. T h e Council does not approve of
legislation regulating the ratio o f deposits to capital as proposed in Section
10 of S. 742.
@FedFRASER