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July 8, 1946.
Honorable Paul M. Herzog, Chairman,
National Labor Relations Board,
Washington, D* C«
My dear Mr. Herzog:
We understand that in connection with a petition for
certification of representatives filed by (the Office Employees
International Union, A. F. of L., with respect to the employees
of the Federal Reserve Bank of Dallas, your Board is considering
the question of the application of the National Labor Relations
Act to the Federal Reserve Banks, and a representative of your
Board has advised us that the Board of Governors may submit its
views on the question.
The Board of Governors feels strongly that the National
Labor Relations Act, in view of the express exemption of the United
States from the application of the statute, was not intended to apply and does not apply to the Federal Reserve Banks. I am enclosing
herewith a memorandum stating our views upon the question in more
detail.
We appreciate the opportunity afforded us to submit this
expression of our views in thia matter.
Sincerely yours,
(Signed) M. S. Eccles
M» S# Eccles,
Chairman.
Enclosure
HHB NATIONAL LABOR RELATIONS ACT AND THE
FEDERAL RESERVE BANKS
The question has arisen whether the National Labor Relations
Act is applicable to a Federal Reserve Bank so as to give jurisdiction
under that Act with respect to relationships between the Reserve Bank
and its employees.
Section Z of the National Labor Relations Act defines the
term "employer" to include "any person acting in the interest of an
employer, directly or indirectly, but shall not include the United States,
or any State or political subdivision thereof * * *."
It is submitted that the Act does not apply and was not intended to apply to a Federal Reserve Bank for the following reasons:
(1) Under the express terms of the Federal Reserve Act, the
Board of Governors of the Federal Reserve System was created as the
agency of Congress which is charged with the responsibility of approving
all compensation of directors, officers and employees of Federal Reserve
Banks, of exercising general supervision over such banks, of examining
them at least once a year, and of making rules and regulations necessary
to enable the Board effectively to perform all such functions.
(£) Federal Reserve Banks are public institutions set up by
Gongress to perform governmental functions in the national interest,
including their important operations in the statutory capacity of fiscal
agents of the United States- The Reserve Banks as instrumentalities
-2and agencies of the United States come within the exemption of the
United States from the provisions of the National Labor Relations Act,
DESCRIPTION OF FEDERAL RESERVE BANKS
AMD RELATIONSHIP TO BOARP 0?
to
Before specifically discussing the points mentioned above, it
may be appropriate to refer briefly to some of the more important characteristics of the Federal Reserve Banks as provided by law. The Federal
Reserve Banks were organized pursuant to the Act of Congress approved
December 23, 1913, known as the Federal Reserve Act. The purposes of
the Federal Reserve Act, as stated in its preamble, are "To provide for
the establishment of Federal reserve banks, to furnish an elastic currency* to afford means of rediscounting coiranercial paper, to establish
a more effective supervision of banking in the United States, and for
other purposes". All of the powers of the Federal Reserve Banks, as
well as limitations upon their powers, are derived from Congress. They
were not chartered under State law as are a number of the so-called
Government corporations, but were organized pursuant to direction of
Congress. The guiding principle of Federal Reserve policies and operations is, as indicated in various provisions of the Federal Reserve
Act, the accommodation of commerce atid business and the maintenance
of sound credit conditions. Under this principle, the powers of the
Reserve System are used in such a way as to contribute to the continuous employment of the nation's p3?oductive resources and to diminish
disturbing fluctuations in the volume of business.
-3Composition of the Federal Reserve System* ~ The Federal Reserve System consists of the Board of Governors of the Federal Reserve
System (hereinafter referred to as the "Board") as the supervisory body
in Washington, the twelve regional Federal Reserve Banks, and the
member banks of the Federal Reserve Banks, which comprise all national
banks and such State banks as apply for and are admitted to membership.
In addition, the Federal Open Market Committee, consisting of the
members of the Board and Presidents of five of the Federal Reserve
Banks, regulate and direct the purchase and salo by the Federal Reserve
Banks in the open market of Government securities and other obligations
pursuant to specific provisions of the Federal Reserve Act under which
all such operations are) to be conducted in accordance with a general
policy laid down by Congress. The Federal Reserve Banks are thus
integral parts of a system created by- Congress to carry out central
banking policies•
Ownership Role of the United States in the. Federal Reserve
ganks. - Although the law requires every member bank to hold stock in
the Federal Reserve Bank of its District in an amount equal to a certain
percentage of the member bank's capital stock and surplus, this does
not give and was not intended to give the member banks any voice in
the operations of the Reserve Bank. The stock may not be sold,
transferred or hypothecated, and the only privileges accruing to a
member bank from the stock are the right to receive a cumulative statutory dividend of six per cent per annum and to cast one vote, regardless
of the number of shares held, in the election of two of the nine directors of the Reserve Bank. The stock subscription made by a member
bank is in effect an enforced contribution by it to the capital of the
Reserve Bank.
Any surplus remaining upon liquidation of a Federal Reserve
Bank, after payment of debts and dividend requirements, must, under the
law, be paid to the United States. In 1933, one-half of the surplus of
each Federal Reserve Ban&, about $139,000,000 in all, was appropriated
by Congress to furnish part of the capital of the Federal Deposit Insurance Corporation. Thus, xviiile the member banks own the Federal Reserve Bank stock, their position is similar to that of a holder of
bonds or preferred stock rather thazx of common stock, as the entire
residuary interest ancl ownership of the Reserve Banks is in the United
States. The United States occupies a position which as a pi^actical
matter is analogous to that of owner or common stockholder of the
Reserve Banks and the Board is the agency of the United States Government entrusted by law with the responsibility for effectuating the
control inherent in this residuary ownership.
Directors of Federal Reserve Banks. - Each Federal Reserve
Bank has a board of directors consisting of nine directors, six pf whom
are elected by its member banks (the six being elected by three groups
-5of member banks so that each such bank has the right to vote for two).
The other three directors, including the chairman and deputy chairman,
are appointed by the Board.
Of the six directors elected by the member
banks, three are required to be representative of the stockholding banks,
and three are prohibited from being officers, directors, or employees of
a bank. The three directors appointed by the Board, likewise, may not
be officers, directors, employees, or stockholders of a bank. One of
these three directors must be designated ,by the Board of Governors as
chairman of the board of directors and Federal Reserve Agent, and in the
latter capacity he is the official representative of the Board of Governors
at the Bank. A second of these three directors must be designated as
deputy chairman. Thus the directors of a Federal Reserve Bank differ
considerably from the directors of a private corporation, since six of
the directors are prohibited from haviiig any connection with the management of the stockholding institutions,
Taxation of Federal Reserve Banks» - Under the law the Federal
Reserve Banks are exempted from the payment of Federal, State and local
taxes except taxes upon real estate.
Supervision of Federeil Reserve Banks b:; Board of Governors. In addition to the function of the Board in approving the compensation
of employees of the Federal Reserve Banks as discussed hereafter, the
Board has numerous other powers with respect to the Reserve Banks. It
is required to exercise general supervision o%rer the Reserve Banks and
-5-
it niakes examinations of each Federal Reserve Bank.
It must approve
the appointment by the board of directors of each such Bank of its
President and First Vice President.
It issues regulations with respect
to the discount and purchase operations of the Reserve Banks, their relationships with foreign banks and bankers, their check collection
functions, and other operations. The Board has the power to suspend
or remove, for cause, any officer or director of a Federal Reserve Bank,
and also the power to suspend the operations of a Reserve Bank and to
liquidate it for violation of law. Since the Board is an establishment
of the United States, whenever it exercises any of these powers it is
the Government itself that is taking the action.
Approvalr of Compensation and Benefits of Federal Reserve Bank
Employees. - The Federal Reserve Act provides that ffany compensation that
may be provided by boards of directors of Federal Reserve Banks for directors, officers or employees shall be subject to the approval of the
Board of Governors of the Federal Reserve; System".
This statutory function of the Board of approving salaries of
officers and employees of Federal Reserve Banks is scrupulously carried
out; the salaries of officers are approved on an individual basis by the
Board and salaries of employees are approved through the operation of a
personnel classification plan approved by the Board for er-ch Federal Reserve Bank, which establishes a maximum salary for each position. Under
this plan, a Reserve Bank may not pay an employee a salary in excess of
-7-
the maximum for the position without the specific approval of the Board.
Annually, each Federal Reserve Bank submits for the review of the Board
salary schedules of bank employees; and, in the course of examinations
of the Federal Reserve Banks, the Board's staff reviews the pay rolls
of the Reserve Banks to see that salaries paid are in conformity-v/ith
the action of the Board in the matter.
The compensation of Federal Reserve Bank employees is, however, by no means the only matter affecting the employees of the Federal
Reserve Banks which must come before the Board of Governors for approval*
Such matters as retirement and death benefits of employees, insurance
and medical and hospital benefits for them, benefits upon termination of
employment, plans for certain educational benefits, and other related
expenditures are approved by the Board in accordance with System policies*
In fact, any substantial benefits that may be provided to such
employees must be considered by the Board,
Since the compensation and other benefits of the Federal Reserve Bank employees are detexmined finally by action of the Board,
negotiations between a Federal Rjeserve Bank and its employees with
respect to these matters could not be effective in producing any final
results. Such questions must be submitted to and considered by the
Board in Washington.
The Board is, of course, a part of the United States Government,
The statute provides that the Board shall consist of seven members ap-
-8pointed by the President by and with the advice and consent of the
Senate.
Its members are thus public officers of the United States.
It has been held by the Attorney General to be an establishment of the
United States (30 Op. Atty, Gen., p. 308). Being "the United States",
the Board is expressly exempted from the provisions of the National Labor
Relations Act.
Since the Federal Reserve Banks are not free to fix the {salaries
of their employees except with the approval of the Board of Governors,
it would be futile to require the Federal Reserve Banks to engage in
collective bargaining.
Obviously it was not intended by Congress that
the Boa^d of Governors, the final arbiter on the matter of compensation
and related matters, should participate in such collective bargaining.
Both the Board and the Banks would be placed in an impossible position
were the coverage of the National Labor Relations Act extended to the
employees of the Reserve Banks, Moreover it would nullify the present
provisions of the Federal Reserve Act with respect to salary approval by
creating a conflict between the Federal Reserve Act and the National
Labor Relations Act.
Congress foresaw problems of this kind when it made
provision for the exemption of the United States. The National Labor
Relations Act, a general statute, must be construed so as not to conflict
with the Federal Reserve Act, which specifically controls the determination of the compensation of the employees of the Federal Reserve Banks.
The Federal Reserve Act is for this purpose a special Act which must be
considered an exception to the general statute, even though the latter
were later enacted, Sea 59 C.J. 1057; 50 Am. Jur. 562.
-9-
QOVERNMENTAL FUNCTIONS OF THE FEDERAL RESERVE BANKS
INCLUDING OPERATIONS AS FISCAfr AGENTS OF THE UNITED
STATES
As pointed out, negotiations regarding compensation and
other benefits of Federal Reserve Bank employees cannot be effective
unless the results are approved by the Board, which is a part of the
United States. Moreover it is clear th&t the Federal Reserve Banks
themselves must be regarded as a part of the United States for the
purposes of the National Labor Relations Act and therefore as exempt
from it. This is true because of the public nature and important
governmental functions of the Reserve Banks, including their operations in the capacity of fiscal agents of the United States under
statutory direction of Congress, The performance of these various
important responsibilities by the Federal Reserve Banks is vital to
the effective functioning of our credit system and the financial
operations of the Government.
Functions of the Federal Reserve Banks. - The Federal Reserve Banks are not private institutions organized for profit. They
are essentially public in character and are operated for public or
governmental purposes in accordance with the mandate of Congress.
The most important functions of the Federal Reserve Banks
are carried on in the field of national credit and monetary control.
One of these functions is the so-called open market operations—that
is, the purchase and sale of Government securities under the direction
-10of the Federal Open Market Committee, which was created by Congress
and consists of the members of the ^oard and five representatives of
the Federal Reserve Banks. The law requires that these open market
operations "shall be governed with a view to accommodating commerce
and business and with regard to their bearing upon the general credit
situation of the country" and also that "no Federal Reserve Bank shall
engage or decline to engage in open market operations * * * except in
accordance with the direction and regulations adopted by the Committee",
The Federal Reserve Banks are also required to establish rates of discount, subject to review and determination of the Board, which they
charge in making loans or discounts, and the law requires that such
rates "shall be fixed with a view of accommodating commerce and business."
Federal Reserve Banks, through the issuance of Fedei'&l Reserve notes, furnish the bulk of the currency now in use by the public.
These Federal Reserve notes are under the law "obligations of the United
States". As of ^tay 22, 1946, the total amount of currency in circulation in the country was $27,961,000,000, of which Federal Reserve notes
constituted $23,728,000,000.
The Federal Reserve Act provides in section 4 that the board
of directors of a Federal Reserve Bank "may, subject to the provisions
of lav; and the orders of the Board of Governors of the Federal Reserve
System, extend to each member bank such discounts, advancements, and
-11-
aocanmodations as may be safely and reasonably made with due regard
for the claims and demands of other member banks, the maintenance of
sound credit conditions, and the accommodation of commerce, industry
and agriculture". It is clear from this provision of law that Reserve
Banks make discounts and advances not for the purpose of making profits
or obtaining revenue but in the exorcise of the governmental function
of maintaining sound credit conditions and accommodating commerce,
industry and agriculture.
Under the law the Federal Reserve Banks hold the reserve
balances of their member banks and enforce the reserve requirements
prescribed by the statute. They likewise are instruments through
which the Board of G-overnors enforces its regulations (T, U and w)
relating to the extension of credit for the purchasing or carrying
of securities registered on national securities exchanges and relating
to the extension of consumer credit. These law enforcement functions
are all obviously governmental functions performed for the benefit
of the public and not for the benefit of banks or of any private
segment of the community.
The governmental nature of the Federal Reserve Banks
is emphasized also in the supervisory and examination functions
which they exercise with respect to State member banks of the
Federal Reserve System. Similar functions are performed by the
Comptroller of the Currency, by the Federal Deposit Insurance
Corporation and by the Banking Departments of the various States
-12with respect to banking institutions under their respective jurisdle*
tions. Periodic examinations are made by the Federal Reserve Banks of
their State member banks with examiners approved by the Board of Gov*
ernors, end the Reserve Banks maintain a continuing supervision of these
member banks on the basis of these examinations and other reports obtained
from the member banks.
During 1945, Federal Reserve Banks handled 1,341,000,000
checks exclusive of Treasury checks. Many of these, of course, were
checks payable to the United States for which credit was given by the
Reserve Banks in the Treasurer's Account. They received and counted
more than 3,000,000,000 pieces of paper currency and 4,500,000,000 coins,
in addition to tremendous operations in collecting so-called noncash
items and handling coupons from bonds held in safekeeping. Before the
Federal Reserve Banks \vere established, such currency and coin functions
were performed by the Treasury. There was not at the time an adequate
system for the collection of checks and one of the reasons for the establishment of the Reserve Banks was to provide a satisfactory mechanism for this purpose.
No attempt has been made in the above paragraphs to describe
fully or in detail the various public functions performed by the Federal Reserve Banks, but what has been said is sufficient to demonstrate
beyond question the public nature and governmental character of the operations and functions of the Federal Reserve Banks. They are functions
-IS*
performed for the sovereign the United States, and are functions which*
but for the Federal Reserve Banks, the soveriegn would have to perfoxro
in its own name or through other similar instrumentalities.
Fiscal ^ency Operations o| the Federal Reserve Banks. «•
Federal Reserve Banks as fiscal agents of the United States play a
vital role in the handling of the public debt and in carrying out
other Government financial operations. Section 15 of the Federal Reserve Act provides that monies held in the general fund of the Treasury "may, upon the direction of the Secretary of the Treasury, be deposited in Federal Reserve Banks, which banks, when required by the
Secretary of the Treasury, shall act as fiscal agents of the United
States, and the revenues of the Government or any part thereof may be
deposited in such banks, and disbursements may be made by checks drawn
against such deposits.tf
Various other statutes provide for the Federal Reserve Banks
acting as fiscal agents of the Reconstruction Finance Corporation, the
Federal Home Loan Banks, the Federal Intermediate Credit Banks, the
Commodity Credit Corporation and similar institutions, as well as for
the War and Navy Departments,
By Act approved May 29, 1920, Congress repealed the laws pro<viding for subtreaswies of the United States and authorized the Secretary of the Treasury to discontinue them. The law also authorized the
Secretary to transfer their duties and functions to the Treasurer of the
United States and to the mints and assay offices, and to utilize the
-14Federal Reserve Banks as depositaries and fiscal agents of the United
States for the purpose of performing any or all of such duties and
i
functions. Pursuant to this authority, the Secretary of the Treasury^
through regulations issued during 1920 and 1921, discontinued the sub*
treasuries, transferred some of their functions to the Treasurer and
the mints and assay offices and provided that certain other duties and
functions of the subtreasuries would be performed by the Federal Re*
serve Banks. (See Departmental Circulars of the Treasury Department
for 1920 and 1921.)
Pursuant to these various statutory provisions, an.enormous
volume of transactions is carried on through the Federal Reserve Banks
as agents for the Government. They carry the principal deposit ac*
counts of the United States Treasury and handle much of the work entailed in issuing and redeeming the tremendous volume of Government
securities such as has been necessary in the financing of "ttie war.
The Government is continuously receiving funds through taxation and
otherwise in all sections of the United States and is spending them for
its many governmental purposes in all parts of the country. Governmental receipts are deposited in the Federal Reserve Banks for the
credit of the Treasurer of the United States, and these funds are disbursed by checks drawn upon the Treasurer.
Checks drawn upon the Treasurer of the United States are
handled by the Federal Reserve Banks in two ways: Some of them, the
-15!
paper checks, are presented to the Federal Reserve Banks and forwarded
by them to the Treasury Department in Washington for final payment.
Others, the so-called "punch card11 checks, are presented to the Reserve Banks and actually paid by them; they are not sent to the Treasury
Department for examination or payment.
Beginning in 1940, transactions involving property in this
country in which any of the Axis countries or occupied countries had
an interest were prohibited except as authorized by the Treasury Department*
These Foreign Funds Control activities of the Treasury, including
the issuance of licenses for transactions in blocked accounts, have
in large measure been handled by the Federal Reserve Banks as fiscal
agents of the United States*
Perhaps the most important aspect of the services of the
Reserve Banks as agents of the Government is in connection with the
public debt. When a new issue of Government securities is sold by the
Treasury, the Reserve Banks receive the application of banks, dealers
and others who wish to buy, make allotments of securities in accordance
with general instructions of the Treasury, deliver the securities to
the purchasers, receive payment for them, and credit the amounts re*ceived to the Treasurer's Account.
The Reserve Banks also redeem
securities as they mature, pay coupons representing interest on such
securities, make exchanges of denominations or kinds, handle transfers
-16and conversions* hold United States savings bonds in safekeeping for
owners without charge, and perform many other similar functions in
servicing the Government debt.
Magnitude of Fiscal Agency Operations. * Some idea of the
magnitude of the f i s c a l agency operations of the Federal Reserve Banks
for the Government may be found in the fact that during the calendar
year 1945, when there was an average number of employees of 23,210,
50 per cent of the salaries of such employees was paid to those engaged
in fiscal agency operations.
The number of employees engaged in such
operations constituted 52 per cent of the average number of employees
on the banks1 payroll.
The Federal Reserve Banks were reimbursed for
89 per cent of the salaries of their employees engaged in fiscal agency
operations.
The bulk of the remainder of their expenses was obtained
from the income derived from their open market operations in Government
securities pursuant to the directions of the Federal Open Market Committee, a statutory body created by Congress.
During 1945, a total of 382,068,000 pieces of Government
securities was issued, exchanged, or redeemed by the Federal Reserve
Banks, 18,292,000 coupons representing interest on the public debt
were paid, 233,021*000 Government card checks were paid, and 107,213,000
paper checks were forwarded to the Treasury Department for final payment.
60,602,000 ration checks were handled and forwarded to the Office of
-17Price Administration.
At the end of December 1945 the Federal Reserve
Banks held 4,607,000 United States savings bonds in safekeeping for
owners*
These were in addition to numerous other operations as fiscal
agents.
Since the functions of the Federal Reserve Banks, including
their fiscal agency operations for the United States, are governmental
functions, it must be recognized for the purposes of the National Labor
Relations Act that they are a part of the United States in performing
these operations.
These fiscal agency operations are pursuant to
specific directions of Congress and are operations of the United States
itself.
The Federal Reserve Banks in performing these functions are
analogous to subtreasuries of the United States and have been so since
1920, when the subtreasuries were abolished and their functions transferred to the Federal Reserve Banks.
Effect of Possible Federal Reserve Strike upon Government* •
If negotiations under collective bargaining with Federal Reserve Bank
employees should fail to bring about agreements on all occasions,
strikes or work stoppages might well occur*
Such strikes would, it
is submitted, be strikes against the United States with disastrous
consequences to the operations of the Government*
If a strike should
occur at a time when the Treasury was engaged in a drive for raising
-18funds through the sale of securities, such as the War Loan Drives
during the recent war, or during refunding operations, the public
debt transactions of the Government would be interrupted to the
serious disadvantage of the Treasury and the public•
Not only would public debt transactions be held up in the
event of a strike but the payment Of checks issued by the Treasury
which are presented to the Reserve Bank or Banks affected would be
stopped or greatly delayed*
More important, however, is the fact that
checks drawn in favor of the Government could not be processed through
the Reserve Banks and as a result the flow of revenues into the Treasury
would be seriously interrupted,
F E D M ^ RESERVE BANKS ARE ^ ^ ^ g ^ A l I T I E S OF THE
UNlTED STAGES AND AS SUCH BXfeffllPT FROM THE NATIONAL
~~~~~~~m LABOR RELATIONS ACf
' "~~1
"""
The courts have frequently recognized the Federal Reserve
Banks as agencies or instrumentalities of the Government.
In Federal
Reserve Bank of Minneapolis v. Register of Deeds, 288 Mich* 120, 284 N.W,
667, the Supreme Court of Michigan, in holding that a real estate mortgage given to a Federal Reserve Bank to secure a loan from it was exempt
from a State mortgage tax, saidj
"The Federal Reserve Bank is an
-19-
operating agency of the Federal Government. Its creation was to supply a need of the national Government.11
In Raichle v. Federal Reserve
Bank of New York, 34 Fed. (2d) 910, 916 {C.C.k. 2nd 1929), a suit
brought to enjoin the Federal Reserve Bank of New York from taking
certain actions with reference to open market operations and discount
rates> the court said that "the Bank is, as to the matters complained
of here, a governmental agency under the direction of the Federal Reserve Board.ff The Commissioner of Internal Revenue held in a ruling
dated' October 25, 1944, th#t the Federal Reserve Banks are exempt from
the taxes imposed by Titles VIII and IX of the Social Security Act,
the Federal Insurance Contributions Act, and the Federal Unemployment
Tax Act, since these acts contain an exemption of ffservice performed
in the employ of the United States Government or of an instrumentality
of the United States*.
In Federal Reserve Bank of Richmond v, Kalin, 77 Fed. (2d) 50,
51 ( C C A . 4th 1935), with reference to the jurisdiction of the United
States Courts over actions involving Federal Reserve Banks, Mr. Justice
Parker stated:
"The language of this provision is so clear
as to leave no room for construction or interpretation. The act of which it forms a payt extended
the control of the federal government over the operations of the Federal Reserve Banks; and it was
-20-
doubtless the intention of Congress to grant full
right of recourse to the federal courts to these
institutions, which had bepome important agencies
of the federal government in its control of banking
and currency.ff
In Armand Schmoll» Inc. v. Federal Reserve Bank of New York,
37 N.E. (2d) 225 <Ct. App. of N.Y. 1941), cert. den. 315 U.S. 818,
with regard to the statutory authority of the Federal Reserve Bank of
New York under section 522(c) of the Tariff Act of 1930 to certify
the buying rate for cable transfers for use in the assessment of ad
valorem customs duties, the court stated:
"The Federal Reserve Bank
is a Federal agency exercising powers conferred by Federal statute
and performing duties imposed upon it by Federal statute in a field
which, under the Constitution of the United States, is within the
sole and exclusive jurisdiction of the Federal Government.ft
In Federal Laud Bank v. Biffmarck Company, 314 U.S. 95 (1941)
the United States Supreme Court considered an argument to the effect
that Congress cannot constitutionally immunize the lending functions
or the activities incidental thereto of Federal Land Banks from State
taxation.
In rejecting this contention, the Court said:
"The argument that the lending functions of the
federal land banks are proprietary rather than governmental miscpnceives the nature of the federal government with respect to every function which it performs.
The federal government is one of delegated powers, and
from that it necessarily follows that any constitutionalm
exercise of its delegated powers is governmental. Graves
v. New York ex rel O'Keafe, 306 U.S. 466, 477. It also
-21-
follows that, when Congress constitutionally creates a
corporation through which the federal government lawfully
acts, the activities of such corporation are governmental.
Pittman v. Home Chroysy.' kpan Corp., 308 U.S. 21, 32; Grates
v. N E W Yprk ex rel. OfKeefe« supra, 477.ff
The National Labor Relations Board has held that instrumentalities of a State are not employers within the meaning of the National
Labor Relations Act. See Mobile Steamship Association, et al (1938),
8 N.L.R.B. 1297, and Oxnard Harbor District (1941), 34 N,L.R.B. 1285.
The same rule has been applied to an agency of the United States in
the case of Panama Railroad Company Steamship Line. See AmericanFrance Line (1939), 12 N,L.R.B. 766. In this connection, it is particularly to be noted that the public functions of the Federal Reserve
Banks are of a true governmental character and not of a proprietary
character. Such matters as issuing and redeeming securities of the
Government, paying coupons on such securities, issuing currency and
disbursing coin, and paying checks issued by the Government are all
essential to the functioning of the United States and are in no sense
private functions 021 competitive with private business.
In National Labor Relations Board v. Bank of America» 130 Fed. (2d)
624 ( C C A . 9th 1942) f it was contended that the bank (a national bank)
was an instrumentality of the United States and therefore not an employer as defined in the National Labor Relations Act. The court took
the contrary position, however, pointing out that the bank was a privately
owned corporation operated in the interest of its stockholders and that
-22-
the United States did not create it but merely enabled it to be
created. The court also said that the fiscal agency activities of
national banks are occasional and incidental. The court found it
unnecessary to consider whether governmentally created corporations
like the Reconstruction Finance Corporation, 'the Tennessee Valley
Authority, the Home Owners Loan Corporation, the Federal Deposit
Insurance Corporation, the Federal Intermediate Credit Banks, and
like strictly governmental agencies are employers within the definition of the Act.
Federal Reserve Banks, however, are vastly different from
national banks. The latter are commercial banking institutions
operated for the profit of their private shareholders* As has been
pointed out above, the Federal Reserve Banks are public institutions
set up by Congress to perform governmental functions, and the residuary
interest in them is in the United States. The United States did »ot
merely enable them to be created but directed their creation and
passed a specific statute for the purpose. Their fiscal agency
activities, far from being occasional and incidental, constitute an
important part of their total operations. It would be difficult to
find an instrumentality or agency of the Government other than the
executive departments and establishments of the Government themselves
whose functions are more closely tied in with Government operations
and whose activities are more governmental in character than the
-23Federal Reserve Banks*
The Government must necessarily act in
matters through instrumentalities and agencies and where it has
specifically required such instumentalities to carry on operations
for the Government, as it has required in the case of the Federal
Reserve Banks, they must necessarily be considered as the "United
States" for the purposes of the National Labor Relations Act.
CONCLUSION
In view of the fact that the Federal Reserve Banks were
organized pursuant to direction of Congress, that their nature and
functions are governmental in character, that included in these gov«ermental functions are their operations as fiscal agents of the
United States pursuant to statutory requirement, that the Reserve
Banks are held by the courts to be instrumentalities and agencies
of the United States, and that the compensation and other benefits
of employees at the Federal Reserve Banks must have the approval of
the Board, it is clear that the National Labor Relations Act is
not applicable to the Federal Reserve Banks so as to give jurisdiction under that Act with respect to relationships between the
Reserve Banks and their employees.
July 8, 1946.
@FedFRASER