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The attached proposal for amendment to the Federal Reserve Act
is submitted for consideration as a measure intended as much for the
advantage of the Federal Reserve and the banking structure of the country as in the interests of the Mutual Savings Banks and tneir depositors.
It recognizes the purposes sought to be accomplished by existing
national banking statutes and is in harmony with the amendments proposed
in the Banking Act of 1955.
The proposed amendment as drafted and attached is intended to
extend the privilege of federal heserve Membership to one central banking
organization in each State where such organization is owned exclusively
by the mutual Savings Banks within the same State, and is under the supervision of the banking supervisory body of that State.
In the State of New York application was made for membership in
the Federal Reserve System by and for Savings Banks Trust Company, a trust
company organized and operating under the banking laws of the State and
under the supervision of the State Banking Superintendent, all of the
capital stock oi which trust companyis owned by all of the Mutual Savings
Banks in the State of New York. The trust company's charter powers differ
in no respect from those possessed by other New York State trust companies
which have, for many years, been stockholders in the Federal Reserve Bank
of New York and consequently members of the Federal Reserve System. Savings Banks Trust Company differs from such other trust companies in that
it is an instrumentality of the State of New York for the protection of
the depositors of the Mutual Savings Banks of the said State during the
present emergency. The Trust Company is trustee of the Mutual Savings Banks
fund v,hich insures the deposits of members in New York State. Self imposed
limitations coniine the use of its facilities to Mutual Savings Banks in this
State but thereby the trust company indirectly serves the depositors of
such uutual Savings Banks.
The trust company's application for membership has not been acted
upon favorably, and the Federal Reserve Board in deciding not to approve

its application stated through the Secretary for the Board, in a letter

dated July 20, 1954 and addressed to the FedejttL Reserve Agent in New York,
the following:

The application of the Savings Bank Trust Company

has been given careful consideration by the Federal Reserve
Board and it is understood that, while it has general banking
and trust powers, the trust oompany was organized as a part
of a plan to make additional credit facilities available to
mutual savings banks which hold the capital stock of the
trust company, that its relations are principally with such
mutual savings banks, and that it is not engaged in the business of receiving deposits from or making loans to or otherwise
dealing with the public generally. As you know, under the provisions of the Federal Reserve Act mutual savings banks are
themselves eligible for admission to membership in the Federal
Reserve System, with the approval of the Federal Reserve Board,
and upon admission the iacilities of the Federal Reserve System
are available to them. In the circumstances, the Board is of
the opinion that the Savings Banks Trust Company is not an institution of the kina which it is contemplated should be admitted
to membership in the federal Reserve System under the provisions
of the Federal Reserve Act, and, accordingly, the Board-has decided not to approve its application for membership in the
Federal Reserve System,


It is the purpose of the proposed amendment to clarify the iederal
Reserve Act in such manner that there may be removed the Board's uncertainty
that the Savings Banks Trust Company is an institution of the kind which it
is contemplated should be admitted to membership in the Federal Reserve
System under the preserve provisions of the Jederal Reserve itct.
The proposal is not inconsistent with the purposes of the Act as
presently constituted nor with those of the proposed "Banking Act of 1955".
The Federal Reserve Act as amended by the Banking Act of 19ob extends the
privilege of Federal Reserve Membership to mutual savings banks. The proposed lfBanking Act of 1955" contemplates no change in this situation. In

fact, the implications of the new Banking Act coMirm the belief that its
proponents not only favor the intention of bringing Bautual Savings Banks
into the Federal Reserve System but desire to make the rediscount facilities of the Federal Reserve Banks ampJy available to the savings banks"by
bestowing liquidity on all sound assets through making them eligible as a
basis of borrowing at the Reserve banks in case of need". Governor Lccles
stated in his address at Columbus, Ohio, on February 1&, as follows:
"foe want to make all sound assets liquid by making them
rediscountable at the Reserve banks, (.d then to use the
powers of monetary control in an attempt to prevent the
recurrence of national conditions which result in radical
aedines of national income, in the freezing 01 all bank
assets whether they are technically in liquia form or


Mutual Savings Banks are preponderantly mortgage loaning institutions. The policy of admitting them to the Federal Reserve System is established by express provision now in the Act. The intention to extend
the rediscount privilege over mortgage loan assets is expressed by the
proponents of new amendments to the Act. The attached proposed amendment « \
seeks nothing in this direction that is not already available or proposed *
to be made available.
The proposed amendment submitted recognizes that the Federal Reserve Board, if it were requested to admit to membership in the iederal
Reserve System the Mutual Savings Banks1 system of the country, would find
it helpful tha-o they had taken intermediate action and had admitted to membership the central banking agencies organized by Mutual Savings Banks. It
is hardly reasonable to declare today that the correct policy is to make
our savings banks1 structure, with its $10,000,000,000. oi* deposits backed
up to approximately 60£ by mortgage loans, an integral part of the federal
Reserve System. The recommendation of Governor Kccles to permit banks to
make loans on improved real estate in an aggregate amount up to 60^ of
time deposits and to make those real estate loans rediscountable at the
Federal Reserve is one of the most frequently criticized parts of the

"Banking Act of 1955". lwhat must be the attitude^f those critics if
eii'ort were suddenly maae to secure lor the savings banks the individual
membership which it is their privilege under the statute to apply for?
tfro would be right, no matter what the decision might be? Would it not
be easier to rearrange, if necessary, the relationships created by having
admitted to membership one central banking agency for savings banks than
•oo overcome the consequences of having erroneously admitted or failed to
aoiLit to ieaeral Reserve Membership a great number of individual Mutual
Savings Banks?
It is not easy to understand why the Federal Reserve Board
would want to take the Mutual Savings Banks into the Federal Reserve System except to provide them with rediscount facilities. It appears from
his speech at Columbus, Ohio, that Governor Eccles would not seek such a
result except as a means ior providing the necessary accommodations to bestow
liquicity on the sound assets of the savings banks, even though they be
in the lorn of mortgage loans. Governor Eccles said:
"bo far as the investment of savings is concerned, a large
degree of local autonony should be left with the individual
bankers. The State should lay down miwiipmn standards to be
observed in the interests of protecting savings of indiviauaib, but the&e standards can only be minima, and chief reliance for the safe investment of the community's savings
must rest on the judgment and knowledge of the individual
Savings banks1 deposits arise almost exclusively from the lodgment
of cash. They represent genuine savings by the people. Savings banks have
practically no deposits which arise directly from loans. The savings of the
people do not intluenee credit conditions, but real savings are themselves
aficcted by important credit or monetary changes. Consequently, as Savings
banks play no part in the variations of the eomaiunity' s money supply, they
do not seem to require the "conscious and deliberate control" advocated by
Governor iiccles.

There is little else that a central baaflkg agency can or should
do for mutual savings banks except to provide adequate rediscount facilities for emergency aid and supervisory attention to the conservation of
the banks1 resources and management generally. This, it seems, can best
be accomplished through a self-created central agency, having a direct
financial stake in the proper management of its constituent parts-such
as is Savings Banks Trust Company with its stockholding Mutual Savings
Banks, in association by membership with the nation's bank of rediscount,
the Federal Reserve Bank.
The proposed amendment submitted herewith woula give the Mutual
Savings Banks ample access to the emergency rediscounting devices of the
Federal Reserve System, with the least entanglement for the System, but
with the assurance or close attention by a responsible central agency to
the financial management of the entire Mutual Savings Banks structure in
each State.
If the proposed amendment under discussion shoula become part of
the federal Reserve Act, as suggested, it is conceivable that the Fcoexal
Reserve Bo; rd v«ould eventually be approached by the iiutual Savings Banks
in all of bile eighteen States having that type of institution. That is
a. result, horn ever, that neea not be feared but shoulo be \elcoued. If
each of the eighteen State© should bring-About. thfi-.oo?guniaaXian--o£--a
ccntial &£fcncy having the powers and responsibilities of that created
ir. the fctate of llev IOTA, in the £ovu of Savings Banks Trust Coxajtny, tnd
ii oi those central soencies should be admitted to membership in the
leceral Reserve System, the ?/ay woulo be prepared to extend the influence
of the leceral Reserve Board over all savings backs through the coordination of policies anc practices among the eighteen members. i.t lea^i, it
see:.t> possible to s&y tnat such an approach to the unification of the
. ututl Savings Banks system gives better promise of satisfactory results
then the eixort to bring all savings banks into the iederal Deposit Insurance Corporation and the i'ederal Reserve System, moreover, judged iroiL the
of practicability and coaaBUnity interest, a localized aciiini-

stration is more likely to be successful in bringing about improvement of
bhe mutual Savings Banks system and greater usefulness for the banks than
woula be a national effort at unification and control.
A final comment should be made as to a fear expressed at the time
S&vings Banks Trust Company^ application for membership in the Federal
Reserve System was under consideration in 19S4. It was stated that ii tne
trust companyfs application were approved, the State non-vernier banic& and
trust companies in States where few are members would attempt to organize
a central banking institution and importune the iederal Reserve boaru to
give 1 embership to such an institution) and that the state non-member banks
ana trust companies woula thereby gain the beneiits of I'ederal Reserve iacilities without the responsibilities which accompany inaivioual membership,
ouch a fear overlooks entirely the fundamental difference between the C O D mercial bank and the mutual savings bank, the iormer with the po\ «?r to
increase or uecrease the supply of cre<«it, the latter only accepting, xor
&aie cuetocy andj uaicious investment the accumulated CLt.h sav^n^k oi a
loctl com. iuni oy.
The attachea proposed amendment is offered simply to suggest the
substance for the desired addition to the Federal Reserve Act. It ic eypectec that the drafting facilities in Washington are best eouipped to fina
a suit&ble place in the Act and appropriate language ior the actual amenci~atory' legislation'.

Suggested For Incorporation Into Banking Act of 1955

Any state bank, banking association, trust
company, or other banking institution organized under the
laws of any state, the capital stock of which is wholly
ovmed by at least two-thirds in number of all of the mutual
savings banks in such state having deposits aggregating not
less than fifty per cent of the total deposit liabilities
of all of the savings banks in such state, may apply for
and be admitted to membership in the Federal Reserve System
in the same manner and subject to the same provisions and
laws as state banks and trust companies, notwithstanding the
fact that such state bank, banking association, trust company or other banking institution is not engaged in the
business of receiving deposits from or otherwise dealing
vith the public generally but limits its relations principally with the mutual savings banks which hold the capital
stock of such state bank, banking association, trust company
or other banking institution, as a part of a plan to make
additional credit facilities available to such mutual savings