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Form No. 131 SJ ^ ^m QffjLe Correspondence h. To ^ v ^ r o r l',ccleg °RD •. ', 1935 Subject:_..Amendments to the Bankii:., Act of . . Tfyatt. teneral Counsel. FEDERAL RESERVE , 1935 recommended jbyESrU *R2 2.1£ [U— There arc attached for your information copies of the amendments to the Banking Act of 1935 recommended by Dr. ' iller during his testimony before the subcommittee of the Senate Committee on Banking and Currency on Friday, May 24, and Monday, May 27, 1936. In addition, Dr. Miller recommended: (l) That the Board be made as independent as possible by the removal of the ex officio members from the Board and by stating in the law that no member of the Board should be removed from office during his tern cf office. (?) That the pension provisions of the bill be enacted. (3) Thet the Board be reconstituted as a "Board of Governors of the federal Reserve System*1 end be given the power to elect its own Chairman; and (4) That ultimately all porters of Federal supervision over banking be consolidated in one "body. During the course cf Dr. Miller's testimony, Senator MoAdoo expressed himself in favor cf having the members of the Board appointed for life and forbidding the federal Reserve banks to use the title of "Governor11 for any of their officers. He also seemed to favor giving the Board final authority over open market operations and consolidating in one body all Federal authority with respect to the supervision of banking. To meet Senator ';iass! objection to for cine Federal Reserve banks to participate in open market operations, Senator McAdoo suggested that, instead of giving each Federal Reserve bank the right to refuse to participate in open market operations, the bill might give the Board the authority to excuse any Federal Reserve bank from participating ir. open market operations. Senator Bulkley took issue with Dr. Killer's objections to the eligibility provisions of the bill and seemed to favor those provisions. Attachments* JUUFKDwtifcT TO BANKJJO ACT OF 1 9 W RBCQMMUSSDKl' B DK« MXLLSR TO nJBCOMMITTlB Of SKBATS COMMITTES 01 BAKU 10 AID SOOOBSTBD AMBMDWm TO K.R. S M 7 AMD 8. I T U . cut everything oartmcnslng with line If en page SO, tbrougji including line II on pa^e 40, tad substitute the n ClA»» C directors shall h* appointed by the Rtitrn Baard aai «•• of th«« shall be designated by the Federal neserve Beard aa Chaimaa of the Poard of I^lreetors* The Chairman shall be the higheet effloial of the bask, shall eresiae at all wtetin^a of the feard ef r4reetora *t irfiloh he ia present, aad *ay# at M s disereti<m« •-mrcisa superriaiea ever tha bank as* its effleera* ffe shall be a nan of outstanding and tested oharaeter and ettperlen*e wtf shall be eninsntlx qualified to glte effeetlTa reeresentmtion to the point of •lew of Hie puelle interest in all matters pertaining to the t>olisles and operations of the Federal Reserve banY, snd shall oonsvlt with aad be sonsvlted by the rederal Reserre Board frsst time to tine respecting sueh natters • He shall reeelTe am annual oomponsat ion to be fixed by the Federal neserrs Beard and paid monthly by the Federal Reserve bank to whieh he Is designated. One of the dlreeters of Class C shall be appointed by the Federal Reset fa Board as Deputy Chains** and shall preside at sieetings of the Heard of Directors in the absence of the Chairman. In the abssass of both the Chaimaa aad the f Deputy Chairman, the third Class C director shall preside at meetings of the Beard of Directon* "At aaoh Podoral R m m b«k ttoro shall to A Go*ornor# «ho shall to tha astlro m w U n offtear of tto bank. Tto Giviiur shall to appolatod ay tto B M H of Dirootors. Ho may to appolatad by t t o Fadoral Raaorta Uaard aa oat of th# Claaa C diraatars of tha baaki but, In iuah ata»i,hla tam of offloa as Claaa C dlraotor atoll tarmiaata whan to *9*a*m to to dvwrnar of tha bank. Far aaah t adaral Raaarva took thara ahall to appolatad wamymlly, in tha iaM aannar aa tto Gararnor, a Viaa Ooi«arnar# «ho ahall, la tto abaanoa or dlaabllitgr of t t o Qa^atnar or during any moanay la tto of f iaa of Oaroarnar, sarra aa tto aatl^a oxaoutl^a of floor of tha bank* ^haaarvar a vaaaaay atoll ooour la tho offioo of oittor tha QovarnoT or Viaa Govaraar of a Fadaral Haaorra bask, i t ahall ba fillad la tto mummr proridod far original appointnaatai and tha paraan ao appoiatad atoll hold offioo until tto oxpiratlaa of tha torn of his prodoooaaor* "EffootiTO niaoty days aftor tto oaaotaaat of t t o Aot containing thia — anitaant, tto offioo of Fodoral kasarra agant ahall to aboliahod and tto toraa of offioo of tha proaoat inotambaato of tto position as Class C dlrootors sad Chfilnson of tto Boards of Dlrooters shall tarminatai bat thoy shall to oligiblo for roappolntaaat, la tha disorotiom of tha >adaral uaaarra Board, as Class C dirootors aad Chalnaan. Haroaftor I the duties prescribed by law for tha Fodoral HeserYo agent •hall be perform** by suoh parson or person* at ths Fadaral kaaarra Board shall designate* * No Class A dlraator shall serre continuously for asra than aaa full tarn of thraa yaars9 axaapt that a Class A diraotor aloatod to fill an unoxpirod tana may be raaloatod aad say sarta for tha naxt full tarn* 9a Class B diraotor shall aorta continuously for sara than two oonsaoutlrs full tarns of throe years each, oxoopt that a Class B diraotor elected to fill an unexpired tarn aay be elected to sorme tha naxt two fall tanas of throe years eaoh." AMEWHEKT TO MXXim ACT OP 1 9 8 8 RBCOMIOTD D BY DR. MILLER TO iiUBCOMMITTBE OF SSHATE C0MMITT8S OS BAMKHTr Alfr CORRBKY. SUBSTITUTE 10-I SBCTIOM «O6 OF H. K. 7617 AHD S. 1T1S. See»tO6. Section ISA of the Federal Keserve Act, as amended* it aasndedtoystriking out subsections (•) and (A) thereof and Inserting in lieu thereof the following "(•) Th» time, character* and volume of all open market operations of the federal ftsservo System under section 14 of this Aot shall bo gOTorned with a view to supporting and reinforoin^ the oredit end discount polioies of the Federal Reserre System* when this may *» neoessary, la order to aid in the establishment and maintenance of sound banking, credit* financial and eoonomio condition*. M (d) la acoordance with proeedure prescribed by regulations of the Federal Reserve Board* the Committee shall from time to time consider* adopt sad transmit to the Federal Roserve Beard resolutions rsnnmiiomiMn» the policies whioh* la the jud^ssmt of the Committee* should bo adopted with respect to the open market operations of the Federal Reserve System and stating the reasons for sueh riir—em list lens* Sneh resolutions shall be subject to review* modifisation sad determination by ths Federal Roeorvs Beard and* if approved by the Federal Reserve Boar** shall beeome binding upon all of the Federal Reeervs banks* subjeot to suoh modifioatlons as may be ordered by the Federal Reservo Beard. The Federal Keeerve Beard* apea its owa initiative - M i upon the affiraatiT* rote of not lee* than f<wr of its appointive ndbtri, nay frea tiae to tine, on its own initiative, proseribo epea aarket poliola« for the Federal Rsasrve Systeaw *(•) SaOh Federal Keeerve bask shall purehaae or M i l obligations of the United State*, beakers' aoeeptanees, bills of axahanea ana othar obligation* of tte kind* and amturitias mmim aligibla far purohaao undar tha prorisiona of saoUon 14 of this A*tf to auoh axtant and in auah wnmiar as »a/ bs ra» quirad by tha iodaral I oaaita Board in ard«r to affootuata tha aarkat polio la • approrad or praaorlbad by tha Psdarml \<m Board under tho prorisiona of this tootion and aaoh »adoral Haaorvs bank shall oooporats fully• in anrary nay, in asking suah polleioa affaotlvo. w (f) All aatloas takon by tha Fodarsl Roasrra Board with roapoat to opaa aarkat polioloa shall bo olsmrly rooordod, to* gathar with a atataaoat of tha roaaona tharofori and, if any aaabar af tha Board roto against suoh action*, auah rote, togathar with any roaaona tharofor, shall also bs rooordad* In its annual raport far aaoh yaar tha t adaral Haaorra Board shall publish in full all rosolutlons roooanaading opon aarkat polioioa and stating tha roaaona tharafor whioh wars sxloptod by tho I adaral Opon Markat Coaaittss during tha yaar oorarsd by auoh annual roport, to, othar with tha full taxt of tha oontaaporansous rooord of all action* takan by tha Board with rsapaot to opon market operation* and tho reasons therefor aad all dieaentlng rotes and tha reasons AMI*. K NT TO BAHKIIG ACT uF 1 9 8 6 RBCuflttiaujD BY t*« Mil bDbcomarr l O U f l cuini TTBJJ, OI BAWUMO AID CUHRKMCY. PROPOSED SUBSTITUTE FOli SKCTloN 106 of 3 , 1716 and I -..I;. 7617, See. IOt* eetions 10(a) and 10(b) of the Federal heserre Aet* I, are hereby repealed and seetion IS of the Federal teserre Aet* as amended, is emended by adding at the end thereof a new para* graph reading as folloves *Notwithstanding any ether provision of law, when it deems it in the public interest end by ea affirmative vote of met lose than ____ of its members* the Federal fteeerve Board* nay authorise any Federal Iteeerre beak* for limited periods to be prescribed by the besrd but which may be extended by the Beard from time te time* te make advanoes to member banks whleh have no further eligible sad aeeeptable assets available te enable then to obtain adequate credit aeeoMsodatloas through redlseounting at the Federal neeerve bank or by say other method provided by this Aet* Sueh ad* vmaoee may be made on the promissory notes of sueh member banks secured to the satisfaction of the Federal Heserre bank and shall be subject to sueh regulations and shall bear suoh rates of iatereet as may be preseribed from time to tl e by the Fed* oral Reserve Beard*" ; HT TO 1AVKXB ACT J9 19SS * I .« LL» TO StiBCOttl.TTKI OK SUIATE COlGUttKS Jit HAIUCIIM AW. J»Jf, i 0*0 • 20*9 VBSirrir i 208 ,. . .171* »nd • .76XT, 7 bo sooond paragraph of t o o t l e s fc of tho -odoral otorro A«t t • • •n«ao«4» i t •ir«nd«4 t« r«ad «• follwmi «4«r«l ^•••rr* bvlc ««y »«k« • p p l l o s i l o s to th» t i i r r * ^ « i t for «u«h mamatt ot #lab»for« ^rorid«d for *m i t »» application choll be •oo«ny«jilo4 v i t h • torn-or to th# loool : od- orol Vosorro «£oat of oollatoroJl l a n o u a t oqaml t« ttto ouai of tho odfr»l kooorro aotoo thtw applioA for and Itcuod purouaat to iwoh «vplleatlon« t t » oollatoro.1 aoourlty tteo offor«J ohoJLl bo aotoot «r«ft«» b i l l * of oaohamto* or aoeoptonooa ooqulrod uader tho yrovtsiono of tootlon 1? of thio Aot# or b i l l t of oxoh»tv€ l a dor »od by a Monbor bank of aay ^adoral kooorro cfiotrlot and , urohaood uttd«r tho prorloioao of oootion 14 of thlo ot # or battlcori* acoo? tanooo purcfcaaoi «id#r tho proviwioiui of oaid ••otloa 14, or gold oortlfloatoot Froyjdoda howoror. That tho Fodoral MTV* Boord# alMwld I t daojt I t Booooaary to aafaguard tho pub 11 • iatoroat* tapes tho afflnaatiro ^oto of aot lot* than •MMbort, nay awthorlio tho fodoral I odoral .. of lt« at, oiatlvo •••rv© bariiit to off«r # and tho ooorro a«;onta to aooopt« aa tuoh oollatoral •oov.rlty, di* root obli atlona of tho nltod rtat»«. «oh authorltatlott shall bo graatod only l a o«o ptloaoj. aad «xl garni olroumataaa^a and oaly for 11 ltod porloda but mmy bo a <tondo4 fra» t l o to fcliao apon tho afflnoatlTO voto of not l o i o than appolntlro «#nbor« of tao - 2 - Federal Reserve :>oard* Upon the expiration oi such authoriza- tion, such obligations of the inited 3tatee shall be retired at security for laderel heaerve notes* In no erent shall such collat- eral security be leas than the amount of federal rtmBwre notes applied lor* The federal i<*umrv agent shall each day notify the federal teserre Board of all issues and withdrawals of federal Reserve notes to and by the federal accredited* eserre bank tc which he is The said federal 1 ©serre Board may at any time call upon a Federal Kes«rve bank for additional security to protect the lederal reserve notes issued to it." AMKHQM.*? TO BAIKIIG ACT OF 19S* tW^miSDiJ) BY MUMlLLifi TO SUBCOmiTTEI OF SHUTB COMK'TTSE Oil BAJU30 AKD CURRJ3ICY. FSLHULL AiWISORY COsmUTTII For tho purpose of aiding i n tho establishment and naifitamof more stable economic oenditions l a tho Unite* States, there i i hereby ereated a Fodoral Adrieory Committee (hereinafter referred to i n t h i s sootion as "tho Csmwdttee"), whieh shall consist of firm members appointed by the President of tho United States) by and with the adriee smmmnl A m f t i f t t # f ^^^^^™ ^ ^ * ""^•^w^^m*w 4 W a SwMn\mV^ne» wew^BF «Prw^mmmwj W^^FSJ That mwswswsn^oMPsl ftf feHom CeMsnwn4.fefcamawiml Kami \ o e w JSBwasmmw^Bho) ss> w # WOO^SF wvwjsmwAja> w ^ i s ^ m w ovaejOjoAA Kan sm)momntsnw& •#•# sjp>£#mwsBomsjB> with partieular regard for their oualifieationo for tho diaohargo of tho duties 1: peaod upon them by this Aet. not more than two members of tho Fodoral Reserre Board may aerro at tho same time as nantiars of tho Com- tho purpoee of assisting tho President in tho seleetlon of tho members of tho Cemmitteo, twe U s t s of persons eminently qualified for membership thereon shall bo proparod and submitted to tho Fodoral keserre Board on or before October 1, i t W , Bach lie* shall include tho ic of not loos than fire nor more than fifteen persona cad shall bo by a memorandum stating the ottaliflcations of each suoh per* Ono list shall bo proparod and submitted by the American Bsuaosjjo Association, and ono by tho twelrc Fodoral Reoerre banks0 in accordance with procedure to bo prescribed by the Federal 1 eeerre Board* After careful oonaidcration and such inroatigation aa it dooms necessary, the Fodoral Koaorre Board shall transmit such lists to the President, shall advise the l resident which persons among those named in such lists are in the Board's Judgment beet qualified for membership - 2 - oa tho Coaaittoo, sad aball add thoroto any neninatlon* of i t s aolootloa. l a •olootlajr tho aoabors of tho Coaaittoo, tho Proaldsat •hall glvo too ooaoldoratioa to ouoh l i s t s , tho addition*! aoalaatloao subadttod by tho Fodoral Hoaarro Board, sad tho Board s riowa thoreont bat ho shall not bo roqulrod to toloot tho nombora of tho Condttoo from VvBwAi 4 * 1 wV Wo> ol^^BJLSVwO' 0 Siallar l l « t . .hall bo proporod wad iwbmittod to tho Proiidont in llko Banner end with liko offoot vhomoror any raoaaoy ooomro or i s about to oeour in tho noKborahlp of tho Coaaittoo* Of tho flro original ooaliiri of tho Coaalttoo, oao oholl bo appolatod for a torn of too yoajro9 oao for a t o n of four yoaro# oao for a torn of six yoart, oao for a torn of olgfet yoaro» and oao for a tortt of toa yoaro oad thoir tueooasort shall bo apoointod for torao of ton yoare oaoh9 oxoopt that a poraon apyoiatod to f i l l a raoanoy oroatod othorwiao than by tho •acpiration of tho torn of a laanfcar shall aorro for tho uaoxplrod torn of hia prodoooooor* Tho aoabora of tho Coaaittoo (othor than thoae who aro at tho •oao ti»o noabora of tho Fodoral koaorro Board) shall doroto thoir o&tlro t i o to tho business of tho Coaa&ttoo and ahall roaoiro aalarioo of V12*000 par anxma# payablo aonthly t togothor with aotual noooaaary trsrollog oxpoaaoB, which oalarioa aad oxponaoa# togothor with a l l othor oxponses of tho Cotasittoo, ahall bo paid by tho Fodoral Hoaorro Board -8- fram who proooed* of assoassontt loriod an tho : odoral Kooorvo banks in t h# H K i r prosoribod by tho rodoral Ro»or»o Aot for defraying tho oalarlos and oaponsos of tho Podoral osorvo isoardi Proridod, That tho Coaaittto shall annually submit a budget to tho Fodoral Roooiio Board *iioh •hall bo subjoot to tho Board1* approval* With tho oonftost of tho Fodoral Booorro Board* tho Cowaittoo •ay utllito tho oorvioot of aoabort of tho Board* • otafff aad# within tho lladtatlorui of tho bodgrk approvod hy tho Board* tho Conaittoo ohall haro authority to omploy omd fix tho eomponoation of »uoh additional oxporto* ojsistants^ attornoym, olorks and othor «aployoot as nay ho dooaod Boooooary to oondoot tho baoiaoto of tho Coomittoo* 111 oalarloo and foos of its ««loyooo shall bo fixsd im adTuioo by tho Cosmittoo aad •hall bo paid la tho oaao ssnnor as tho •alarlos of tho xasmbors of tho COBMittOO* Hotirod appointiTo — f e T i of tho Fodoral Rooorro Board aay, in thoir dloorotlom aad with tho oonsont of tho Goasdttoo# oorvo as «xoffiolo Moaborc of tho C«oadttoo# la addition to tho firo appointivo aoaborsi bat anoh ox-offiolo Boabors of tho Ooaalttoo •hall haro no Toto aad t ho asppogato BSJIIUII of thoir rotiroaomt pay, plus say ooaqponsatioa r«coirod froa tho Coanittoo, shall not oxoood #11*000 por aanaa* It shall bo tho duty of tho Coanlttoe to stady (1) oooaomie, industrial, fiaanolal aad aoaotary ooaditions # tho norkin^s of tho bank- lag systea sad the Federal xmwrr* System, tb# effeote of United states Treus-iry operation*, the l*ws relatin to banking, «ad aay other farters which, la Its judgment, B*V affect the stability of gvweral eoonoode conditions, sad (8) ths methods of tiding in the ebtatllafaaMot sad seeuriag the ^asluteftsnee of were stable eeonoede eeaditiens in the u ited "States* The esHdttee shall report i t s flacla^s tnm time to t i e to the Ptaersl kassrra *aard« Fear the purpose of aiding la tha »staulift)ftMAt «ad seeuriag the nalatenacee of Kiore stable eooaeaie oos4lt;ieiia» the Uasalttee shall else mske reooattendatlezw to the : oderal immtrw liocrd trcm tlas to tiae with regard to the open suurket operatloas mv& dieeou&t rttss of the iedersl Reserve banks and the reserves required te be cislatained by aaivber beaks ef the Federal kmnmrr* • ymtvs.* It *4*s\*£ uaanlaeasly b^ the newbers of the Ceesrtttee heldlag: offlee st the t i n s , the iedertl ^eserre tteard shall proeeed to out tueh reooaneadatiens late cXfeet9 aalesa they be dlsaypretved isiaai easly by all aenbers of the iederal ***wrw Beard heldlac •ttlmm at the ti * • If the run—en dat ion a of the Cassslttee ae aet adopted by ttutai out rote, s full statement of the reasons fer sue* reeoasMsvatleas tad full stettRents af the wimm ef the alaority aM»bers ef the Ces» aittee sad the reasons therefor shall be eeanaaieased la writing to the M o r a l ^iesenre Board* After rewiewia* sueh raaowwea atioms sad the mm of the majority sad odLaority for sad acaiaat the see*, tae FesV v oral R t u m Board shall set a date for a hearing at which the members of the Committee shall appear. At such hearing, each mombsr of the CoasRlttee shall be given an opportunity to state fully his reason* lor or against the recommendations ef the Committee and shall answer all questions pertaining thereto propounded by the ambers of the federal Reserve Board* Following euoh hearing* the federal Keeerve Uoard shall again review the recommendations of the Committee and, within a reasonablo time, shall either approve or disapprove the r o w s rotations of the Committee, with such modification* as the Board way deem to be in the public interest* If the recommendations of the Coemlttoe bo approved by the federal Reserve Board, the Federal loserve ^oard shall proceed to put then into offoot* with sueh modification* as it deems advisable* The Committee shall not mates public any of its reeommendatlons or findings or the results of may of its studies or any other information in its possessieni but the Federal "©servo Board shall publish all findings and. rooosasendations of the Committee and statements of the Board9s actions thereon, in the Board's annual reports to Congress in supplements thereto, or in the Federal Reserve Bulletin* Upon the completion of the bull:in^ which the I ederal heserve Board has boon authorisod to erect for its use, it may assign quarters therein i or the use of the Committee* ft' - f w - Fadmral H«Mnrt Board, tha Udtrtl K«««rre banks, tha 3«*ratary of tha Treasury, tha R#««nrtructi<m tlnanaa Corporation, th« >«dMr«l D«f««it Iarartae* Corporation, tha « aoqptroll«r of th« Curraney, th» Comli«loa«r of Intanutl M«v«i«», th* Jnlt«d st«t«« Tariff Co»la« •ion, tha Collaatar of Cuctom«# and a l l otbar offlears, aaployaae, daT«rbM&ts0 buraaut, boards, oonaltslans, lndapandant astabliahaants and aeaaalat wt tha Uftltad &t*taa ara authoritad and diraatad ta naka avail* abla ta tha coradttaa any inforaatiam la thair possasslon which tfaa Coanittaa «ay raqulra for tha parfonnanea of lt« dittlas uadar this f ct.
@FedFRASER