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Calendar No. 9 0 1 73D CONGRESS 2d Session ^ O A O 4 o 7 I N THE SENATE OF THE UNITED STATES APRIL 26 (calendar day, APRIL 28), 1934 Mr. GLASS introduced the following bill; which was read twice and referred to the Committee on Banking and Currency APRIL 26 (calendar day, APRIL 28), 1934 Reported by Mr. GLASS, without amendment A BILL Relating to direct loans for industrial purposes by Federal Reserve banks, and for otlier purposes. 1 Be it enacted by the Senate and House of Representa- 2 lives of the United States of America in Congress assembled, 3 That the Federal Reserve Act, as amended, is amended by 4 adding after section 13a thereof a new section reading as 5 follows: 6 " SEC. 13b. In exceptional circumstances, when it 7 appears to the satisfaction of a Federal Reserve bank that 8 an established industrial or commercial business located in 9 its district is unable to obtain requisite financial assistance 10 on a reasonable basis from the usual sources, the Federal 11 Reserve bank, pursuant to authority granted by the Federal 2 1 Eeserve. Board, may make loans to, or purchase obligations 2 of, such business, or may make commitments with respect 3 thereto, on a reasonable and sound basis, for the purpose 4 of providing it with working capital, but no obligation shall 5 be acquired or commitment made hereunder with a maturity 6 exceeding *five years,. 7 " Each Federal Eeserve bank shall also have power to 8 discount for, or purchase from, any bank, trust company, 9 mortgage company, credit corporation for industry, or other 10 financing institution operating in its district, obligations hav11 ing maturities not exceeding five years, entered into for the 12 purpose of obtaining working capital for any such estab- 13 lished industrial or commercial business; to make loans or 14 advances direct to any such financing institution on the 15 security of such obligations; and to make commitments with 16 regard to such discount or purchase of obligations or with 17 respect to such loans or advances on the security thereof, 18 including commitments made in advance pf the actual under- 19 taking of such obligations. 20 shall obligate itself to the satisfaction of the Federal Eeserve 21 bank for at least 20 per centum of any loss which may be 22 sustained by such bank upon any of the obligations acquired 23 from suchfinancinginstitution, the existence and amount of 24 any such loss to be determined in accordance with regula- 25 tions of the Federal Reserve Board: Provided, That in lieu Each suchfinancinginstitution 3 1 of such obligation against loss any suchfinancinginstitution 2 may advance at least 20 per centum of such working capital 3 for any established industrial or commercial business without 4 obligating itself to the Federal Eeserve bank against loss 5 on the amount advanced by the Federal Eeserve bank: 6 Provided, however, That such advances by the financing 7 institution and the Federal Eeserve bank shall be considered 8 as one advance, and repayment shall be made pro rata under 9 such regulations as the Federal Eeserve Board may prescribe. 10 " The aggregate amount of loans, advances, and com- 11 mitments of the Federal Eeserve banks outstanding under 12 this section at any one time, plus the amount of purchases and 13 discounts under this section held at the same time, shall not 14 exceed the combined surplus of the Federal Eeserve banks AS 15 of July 1, 1934, and all operations of the Federal Eeserve 16 banks under this section shall be subject to such regulations 17 as the Federal Eeserve Board may prescribe. 18 " For the purpose of aiding the Federal Eeserve banks 19 in carrying out the provisions of this section, there is hereby 20 established in each Federal Eeserve district an industrial 21 advisory committee, to be appointed by the Federal Eeserve 22 bank subject to the approval and regulations of the Federal 23 Eeserve Board, and to be composed of not less than three 24 nor more than five members as determined by the Federal 25 Eeserve Board. Each member of such committee shall be 4 1 actively engaged in some industrial pursuit within the Fed- 2 eral Reserve district in which the committee is established, 3 and each such member shall serve without compensation but 4 shall be entitled to receive from the Federal Reserve bank 5 of such district his necessary expenses while engaged in the 6 business of the committee, or a per diem allowance in lieu 7 thereof to be fixed by the Federal Reserve Board. Each 8 application for any such loan, advance, purchase, discount, 9 or commitment shall be submitted to the appropriate com- 10 mittee and, after an examination bv it of the business with ' V 11 respect to which the application is made, the application 12 shall be transmitted to the Federal Reserve bank, together 13 with the recommendation of the committee." SEC, 2. In order to enable the Federal Reserve banks 14 15 to make the loans, discounts, advances, purchases, and com16 mitments provided for in section 13b of the Federal 17 Reserve Act, the Secretary of the Treasury, upon the enact18 ment of this Act, is authorized and directed to pay to each 19 Federal Reserve bank such portion of the sum of $139,20 299,557 as may be represented by the par value of the 21 holdings of each Federal Reserve bank of Federal Deposit 22 Insurance Corporation stock, upon the execution by each 23 Federal Reserve bank of its agreement (to be endorsed on 24 the certificate of such stock) to hold such stock unencum- 25 bered and to pay to the United States all dividends, all pay- 5 1 ments on liquidation, and all other proceeds of such stock, for 2 which dividends, payments, and proceeds the United States 3 shall be secured by such stock itself. 4 bank, in addition, shall agree that, in the event such divi- 5 dends, payments, and other proceeds in any calendar year do 6 not aggregate 1 per centum of the par value of said stock, 7 it will pay to the United States in such year such further 8 amount, if any, up to 1 per centum of the par value of such 9 stock, as shall be covered by the net earnings of the bank 10 for that year derived from the use of the sum so paid by 11 the Secretary of the Treasury, and that for said amount so 12 due the United States shall have a first claim against such 13 earnings and stock, and further that it will continue such 14 payments until the final liquidation of said stock by the 15 Federal Deposit Insurance Corporation. 16 to each Federal Keserve bank by the Secretary of the 17 Treasury shall become a part of the surplus fund of such 18 Federal Reserve bank within the meaning of section 13b 19 of the Federal Reserve Act. 20 expended by the Secretary of the Treasury in order to carry 21 out the provisions of this section shall be paid out of the 22 miscellaneous receipts of the Treasury created by the 23 increment resulting from the reduction of the weight of the 24 gold dollar under the President's proclamation of January Bach Federal Reserve The sum so paid All amounts required to be 6 1 31, 1934; and tliere is hereby appropriated, out of such 2 receipts, such sum as shall be required for such purpose. 3 SEC. 3. Section 5202 of the Eevised Statutes of the 4 United States, as amended, is hereby amended by adding 5 at the end thereof the following new paragraph: 6 7 " Tenth. Liabilities incurred under the provisions of section 13b of the Federal Reserve Act." 8 SEC. 4. Section 22 of the Federal Reserve Act is 9 amended by adding at the end thereof the following new 10 paragraphs: 11 " (h) Whoever makes any material statement, know- 12 ing it to be false, or whoever willfully overvalues any 13 security, for the purpose of influencing in any way the 14 action of a Federal Reserve bank upon any application, 15 commitment, advance, discount, purchase, or loan, or any 16 extension thereof by renewal, deferment of action, or other- 17 wise, or the acceptance, release, or substitution of security 18 therefor, shall be punished by a fine of not more than 19 $5,000 or by imprisonment for not more than two years, 20 or both. 21 " (i) Whoever, being connected in any capacity with 22 a Federal Reserve bank (1) embezzles, abstracts, purloins, 23 or willfully misapplies any moneys, funds, securities, or other 24 things of value, whether belonging to it or pledged or otherr 25 wise entrusted to it, or (2) with intent to defraud any 7 1 Eederal Eeserve bank, or any other body politic or corpor- 2 ate, or any individual, or to deceive any officer, auditor, or 3 examiner, makes any false entry in any book, report, or 4 statement of or to a Federal Reserve bank, or, without being 5 duly authorized, draws any order or issues, puts forth, or 6 assigns any note, debenture, bond, or other obligation, or 7 draft, mortgage, judgment, or decree shall be punished 8 by afineof not more than $10,000 or by imprisonment for 9 not more thanfiveyears, or both. 10 " (j) The provisions of sections 112, 113, 114,115, 116, 11 and 117 of the Criminal Code of the United States, insofar as 12 applicable, are extended to apply to contracts or agreements 13 of any Federal Reserve bank under this Act, which, for the 14 purposes hereof, shall be held to include advances, loans, dis- 15 counts, purchase, and repurchase agreements; extensions 16 and renewals thereof; and acceptances, releases, and substi- 17 tutions of security therefor. 18 " (k) It shall be unlawful for any person to stipulate 19 for or give or receive, or consent or agree to give or receive, 20 any fee, commission, bonus, or thing of value for procuring 21 or endeavoring to procure from any Federal Reserve bank 22 any advance, loan, or extension of credit or discount or pur- 23 chase of any obligation or commitment with respect thereto, 24 either directly from such Federal Reserve bank or indirectly 25 through any financing institution, unless such fee, commis- 8 1 sion, bonus, or thing of value and all material facts with 2 respect to the arrangement or understanding therefor shall 3 be disclosed in writing in the application or request for such 4 advance, loan, extension of credit, discount, purchase, or 5 commitment. 6 graph shall be punishable by imprisonment for not more 7 than one year or by afineof not exceeding $5,000, or both. 8 If a director, officer, employee, or agent of any .Federal 9 Reserve bank shall knowingly violate this paragraph, he shall 10 be held liable in his personal and individual capacity for 11 any loss or damage sustained by such Federal Reserve bank 12 in consequence of such violation." Any violation of the provisions of this para- 13 SEC. 5. Section 10 of the Federal Reserve Act, as 14 amended, is further amended by changing the period at 15 the end of the third paragraph thereof to a comma and 16 inserting thereafter the following: "and such assessments 17 may include amounts sufficient to provide for the acquisition 18 by the Board in its own name of such site or building in 19 the District of Columbia as in its judgment alone shall be 20 necessary for the purpose of providing suitable and adequate 21 quarters for the performance of its functions. 22 proving such plans, estimates, and specifications as it shall 23 have caused to be prepared, the Board may, notwithstand- 24 ing any other provision of law, cause to be constructed on 25 the site so acquired by it a building suitable and adequate After ap- 9 1 in its judgment for its purposes and proceed to take all 2 such steps as it may deem necessary or appropriate in 3 connection with the construction, equipment, and furnishing 4 of such building. 5 remodel any building so acquired or constructed and shall 6 have sole control of such building and space therein." 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