View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

COPY
August U, 194S

Toj

Board of Governors

From:

Mr. Vest

Subject 1 Bank Reserves B i l l

There is attached a copy of the bank reserves b i l l (applicable
to member and nonmember banks) vhich has been revised in accordance
with the discussion at Board meeting on Wednesday morning.

I gave a

copy to Mr. McKenna, of the staff of the Senate Banking and Currency
Committee.

Subsequently I received a call from Mr. Hallahan, Clerk

of the House Banking and Currency Committee, indicating that he was
under the impression that we were to furnish a b i l l of this kind to
him.

Accordingly, after consulting with the Chairman, I sent a copy

of the b i l l also to Mr. Hallahan.

G.B.V
Attachment




August

A

1948.

BILL

To prevent undue credit expansion, and for other purposes.
Be i t enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That the Federal
Reserve Act is hereby amended by inserting therein immediately following section 19 thereof a new section reading as follows:
"Sec. 19A.

(a) Time Limit. - This section shall expire on

June 30, 1950.
ft (b)

Purposes. - As a result of necessary war financing,

there are now outstanding large amounts of Government securities, and
in present circumstances such securities can be converted into bank
reserves with resulting multiple increases in bank credit and in deposits
that serve as money.

Gold flowing to the United States also provides

additional bank reserves which can add to such monetary and credit expansion.

Such expansion, at a time when total effective demand for

goods and services is in excess of the supply which can be produced by
the nation's productive capacity and labor force, can further aggravate
inflationary pressures on prices and thus produce burdens upon and dislocations in interstate and foreign commerce and the nation4 s monetary,
banking and credit structure.
"The purposes of this section, in the light of which its provisions shall be construed and applied, are to require banks, whether




-2or not members of the Federal Reserve System, to hold additional bank
reserves against deposits in such amounts as may be necessary to aid in
protecting interstate and foreign commerce and the nation's monetary,
banking and credit structure from the above-mentioned burdens and dislocations •
"(c) Holding of Reserves. - ( l ) Every bank shall keep on deposit with the Federal Reserve Bank of its district a deposit balance
(and Reserve Banks are authorized to receive such deposits from any
bank) equal to the sum of such percentage of its demand deposits and
such percentage of its time deposits as the Board of Governors of the
Federal Reserve System may by regulation prescribe from time to time
to accomplish the purposes of this section, but in no event shall the
percentage so prescribed with respect to demand deposits exceed 10 per
centum or the percentage so prescribed with respect to time deposits
exceed 4 per centum.

Within these limitations, different percentages

as to demand deposits or time deposits, or both, may be prescribed by
the Board with respect to ( l ) banks located in central reserve cities,
or (2) banks located in reserve cities, or (3) banks located elsewhere.
Any percentage shall be uniform for a l l banks in central reserve cities,
uniform for a l l banks in reserve cities, and uniform for a l l banks l o cated elsewhere, except as provided in paragraph (2) below.
"(2) When a bank is located in the outlying districts of a
central reserve city or reserve city or in territory added to such a
city by extension of its corporate charter, i t may, upon obtaining




-3permission from the Board to do so, comply, when i t so desires, with
the requirements of this section applicable to banks in reserve cities
or to banks not in central reserve cities or reserve cities, instead
of with the requirements of this section which would be otherwise applicable to i t .

Banks which have permission to carry induced reserves

in accordance with paragraphs (b) or (c) of section 19 of this Act
shall be deemed to have like permission for the purposes of this paragraph.
"(3) No i n i t i a l percentage or subsequent increase thereof
shall become effective until the expiration of a period of at least
thirty days after notice thereof shall have been published in the Federal
Register; but no other notice or procedure shall be required in connection with the prescribing of any percentage under this subsection notwithstanding any other provision of law.

[The last clause of this sen-

tence can and should be omitted i f there is exclusion from the Administrative Procedure Act provided elsewhere in the b i l l . ]
"(4-) The requirements applicable to any bank under this section shall be in addition to a l l other requirements which may be applicable to such bank under State or Federal law, and any deposit
balance which a bank maintains in satisfaction of the requirements of any
such other law shall not be used to meet the requirements of this section.
"(5) In prescribing any percentages under this subsection,
the Board shall consider among other factors (A) the volume and distribution of bank reserves and of assets readily convertible into such reserves,




(B) gold movements, currency fluctuations, and other factors affecting the available supply of bank reserves, and (C) the general credit
situation of the country.
w(d)

Computations. - The amounts and percentages specified

i n subsection (c) of this section shall be computed on the basis of
such computation periods as the Board may prescribe, which may be d i f ferent for different classes of banks according to size or location.
The amount by which the average balance maintained by a bank at the
Federal Reserve Bank pursuant to this section in any computation period f a l l s below the amount required by this section or regulations
pursuant thereto shall be considered a 'deficiency 1 for such computation period.
f, (e)

Penalty for Deficiencies. - Any bank having in any

computation period a deficiency as defined i n subsection (d) of this
section shall pay to the Federal Reserve Bank of i t s d i s t r i c t for remission to the United States a penalty
at a rate to be prescribed by
the Board upon the amount of such deficiency for such period.
penalty rate shall be the same for a l l banks.

Such

I f such penalty is not

paid as above provided by the end of the calendar month succeeding that
i n which such computation period ended, such penalty, together with i n terest thereon at the rate of six per centum per annum from the end of
such succeeding month u n t i l paid, may be sued for and recovered by the
United States in a suit to be brought by the United States District
Attorney in the District Court of the United States of the judicial




-5district in which the principal place of business of such bank in the
United States is located> and the District Courts of the United States
shall have jurisdiction of such suits.

I f and when the Board shall so

request, i t shall be the duty of the several District Attorneys in
their respective districts, under the supervision of the Attorney
General, to institute proceedings to collect such penalties including
interest.

When a bank has a deficiency which results from excusable

error made in good faith or from extraordinary circumstances beyond
the control of the bank, or a deficiency which is deemed to be inconsequential in amount, such bank may in the discretion of the Board or
under regulations prescribed by i t be excused from payment of a penalty
on account of such deficiency.
, f (f)

Reports. - Except as otherwise provided in subsection

(h) hereof with respect to nonmember banks, the Board may require any
bank to furnish from time to time such reports and other information
as i t may prescribebut no such reports or information shall be required under this section except such as the Board may find to be
necessary to obtain information as to compliance with this section or
otherwise to enable i t to carry out its functions under this section.
Any person who shall knowingly make any false statement or report or
give any false information or wilfully f a i l to furnish any report or
information required under this subsection shall be guilty of a misdemeanors and upon conviction shall be fined not more than $5,000 or
imprisoned not more than one year or both.
n (g)

Regulations and Administration. - The Board may from

time to time prescribe, amend or revoke regulations to effectuate the




-6provisions of this section or to prevent evasion or circumvention of
its purposes; and such regulations may, among other things, include
definitions of the terms used in this section not inconsistent with
the definitions contained herein or with the purposes of this section.
Any function of the Board under this section other than the prescribing
of regulations and the determination of matters of general policy may
be performed by such member, officer, or representative of the Board
as i t may designate for the purpose; and in the administration of this
section, the Board may utilize the services of the Federal Reserve
Banks and any other agencies, Federal or State, which are available
and appropriate.
,f (h)

Policy of Enforcement as to Nonmember Banks. - (1) In so

far as nonmember banks ( i . e . , banks not members of the Federal Reserve
System) are concerned, i t is the policy of the Congress that the
functions of ascertaining compliance with this section shall be exercised by the State authority in each State having supervision over
such banks to the f u l l extent that such method is practicable and is
acceptable to such State authorities.

For that purpose, each such

State authority which has advised the Board of its willingness to do
so may make certifications from time to time, in such manner and form
and within such reasonable time limits as the Board may specify, as
to compliance or noncompliance with the requirements of this section
by any nonmember bank subject to the supervision of such State authority.




Such certification shall state either ( l ) that, on the basis

-7of reports obtained by i t , such State authority is satisfied that
such bank has complied with the requirements of this section for a
specified period or has paid the specified penalty for any deficiency
for such period, or (2) that, on the basis of such reports, such State
authority is satisfied that such bank has failed to comply with the
requirements of this section for such specified period, including in
such certification the amount of the deficiency and the uncollected
penalty therefor.
(2) The Board shall accept any such certification as evidence
of compliance with this section by the bank designated in the certification for the period specified therein or as evidence of noncompliance
for such period and of the amount of the deficiency and uncollected
penalty, and the Board shall not be authorized to require such bank to
furnish any reports or other information for the purpose of determining
compliance for such period.

I f there is a certification of failure to

comply, the penalty for the deficiency may be collected as provided in
this section in the case of other banks.

I f there is neither an adequate

certification of compliance nor an adequate certification of failure to
comply as provided above for a nonmember bank for a specified period,
the other provisions of this section shall apply in the same manner as
in the case of other banks.
fl(i)

Definitions. - When used in this section, unless other-

vise required by the context —
"(1) Person1 means any individual, partnership, corporation,
business trust, association, or other similar organization.




-8"(2) 'Bank1 means any person having a place of business in
any State or in the District of Columbia which is (A) a national bank,
or (B) a person engaged in the business of receiving demand deposits
and subject to supervision or examination by the authority in the State
or the District of Columbia having supervision over banks; but the
Board may by regulation exclude from such term persons which i t deems
not to be substantially engaged in the performance of functions customarily
performed by banking institutions receiving demand deposits and also
not to be within the scope of the purposes of this section,
"(3) The term 1demand deposits1 means gross demand deposits
and includes a l l deposits of a bank, except time deposits.
ftime

The term

deposits1 has the meaning given such term by regulations prescribed

from time to time by the Board of Governors of the Federal Reserve
System pursuant to section 19 of this Act, except that such regulations may prescribe a different meaning for such term with respect to
nonmember banks which are subject to different laws or regulations
on the subject*"