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L-94 SUMMARY OF TITLE II AS REPORTED TO THE SENATE Section 201 - Organization of Reserve Bank. Provides for "president" of Reserve bank to be chief executive officer and to be appointed by board of directors with approval of Federal Reserve Board for term of five years. While somewhat ambiguous, apparently would require reappointment by directors and reapproval by Board every five years. All other executive officers and all employees would be directly responsible to president. Vice president to be appointed in same manner and for same term and to serve in absence of president. Federal Reserve Agent not abolished and no change made in present law requiring appointment of Chairman of board of directors by Federal Reserve Board. President would not be member of Board of directors, chairman of the board or chairman of executive committee. Dual organization would be continued and conflicts intensified. Section 202 - Federal Reserve Board. \ Name of Federal Rfeserve Board changed to "Board of Governors of Federal Reserve System" and governor and vice governor changed to "chairman" and Vice chairman". Board to consist of seven members appointed by the President , and confirmed by Senate, omitting Secretary of Treasury and Comptroller of Currency. Members to serve for 14-year terms, except as hereinafter provided. Ambiguously drafted but apparently contemplates that President shall appoint an entirely new board within ninety days and present members would go out of office upon appointment of successors and at all events within ninety days from enactment. Would not prevent President from reappointing present members if not more than four of them are Democrats* Upon expiration of term of any appointive member in office on date of enactment, President shall fix term of successor at not to exceed 14 years but in such manner as to provide for expiration of term of not more than one member in any two-year period. In selecting Board members, President shall have due regard to fair representation of financial, agricultural, industrial, and 2 - L-94 commercial interests and geographical division of the country and least tv7o members shall be persons of tested banking experience. more than one from any one District* Not more than four to be of political party; and members of different parties to be appointed ternately as nearly as practicable• at Not same al- Salaries increased to $15,000 per annum* Members subject to removal "for cause" by the President* President to designate one member of the Board as Chairman and one as Vice Chairman to serve as such for a term of four years, the Chairman to be the Board's "active executive officer" but no statement as to duties of Vice Chairman* Upon expiration of their terms of office, members of the Board shall continue to serve until their successors have been appointed and have qualified• Any member hereafter appointed shall not be eligible for reappointment after he shall have served a full term of 14 years* No provisions for pensions and no provision permitting Chairman to reenter banking business within t?/o years if he resigns as member of Board upon termination of his designation as Chairman* Board required to keep complete record of all actions taken by it and by Open Market Committee on all questions of policy, Aether or not relating to open-market operations, and to include in its annual report a full account of all such actions, together with a copy of the contemporaneous records thereof* Section 205 - Eligibility for discount* Makes section 10(b) permanent omitting "exceptional and exigent circumstances" but retaining penalty rate of 1 percent more than highest discount rate* It would provide, in substance, that, whenever any member bank has no eligible and acceptable assets available to enable it to obtain adequate credit accommodations at the Federal Reserve bank, the Federal Reserve bank, under rules and regulations prescribed by the Board, may make advances to such member bank on its time or demand notes secured to the satisfaction of such Federal Reserve bank and bearing interest at a rate not less than 1 percent higher than the -3- L-94 highest discount rate in effect at such bank. Section 204 - Open Market Committee. Provides for Open Market Committee consisting of seven members of the Board and five representatives of the Reserve banks selected as follows: One by the Boards of Directors of the Federal Reserve Banks of Boston, New York and Philadelphia, one by the Boards of Directors of the Federal Reserve Banks of Cleveland, Chicago and St. Louis, one by the Boards of Directors of the Federal Reserve Banks of Richmond, Atlanta and Dallas, one by the Boards of Directors of the Federal Reserve Banks of Minneapolis, Kansas City and San Francisco, and one at large elected by the Presidents of the twelve Reserve Banks• Federal Reserve banks forbidden to engage or decline to engage in Open Market operations except in accordance with regulations adopted by the Committee. The Committee shall consider, adopt, and transmit to the several Federal Reserve banks, regulations relating to open market transactions of such banks and relations of the Federal Reserve System with foreign central or other foreign banks. The time, character, and volume of all 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. Repeals present provision that any Reserve bank not desiring to participate in open market operations shall notify Board and Chairman of the Committee within thirty days. No requirement that banks purchase or sell on the open market in accordance with policies adopted by the Committee. Committee given no authority over discount rates or changes in reserve requirements. Section 205(a) - Government guaranteed obligations. Same provision as House Bill, permitting Reserve banks to purchase direct obligations of the Government and those fully guaranteed by the Government without regard to maturities, but only in the open market. Section 205(b) - Discount rates* Requires each Reserve bank to establish discount rates every ~4~ L-94 fourteen days or oftener if deemed necessary by the Board. Purpose and effect not clear; but apparently would require banks to propose rates for "review and determination11 by Reserve Board at least as often as every fourteen days. Section 206 - Changes in reserve requirements* Same as House Bill except changes require affirmative vote of not less than five Board members; may not be reduced below present requirements; and may not be increased to more than twice present requirements. Section 207 ~ fieal estate loans. Permits each national bank to make loans secured by first liens upon improved real estate, including improved farm land and improved business and residential properties, situated within bank's own Federal Reserve district or within a radius of 100 miles of the bank regardless of district lines. Defines real estate loans as being obligations secured by mortgages, trust deeds, etc. "when the entire amount of such obligation or obligations is made or is sold to such association". Limits real estate loans to 50 percent of the appraised value of the real estate and limits maturities to 5 years, except that: 1. Loans may be made for terms not exceeding 10 years and in amounts not exceeding 60 percent of the appraised value of the property if they are amortized by "installment payments" sufficient to retire 50 percent of the principal within 10 years, and 2. The foregoing limitations do not prevent the renewal or extension of loans previously made and do not apply to real estate loans insured under the provisions of Title II of the National Housing Act. The aggregate amount of real estate loans made by any bank shall not exceed the amount of its capital and surplus or 60 percent of its time and savings deposits, whichever is the greater. Gives the Board no power to regulate real estate loans and does not make t)ie above restrictions and limitations applicable to State member banks of the Federal Reserve System. ~S- L-94 Section 208 - Comptroller of Currency. Increases the salary of the Comptroller as such to $12,000 per annum and repeals the provision of existing law that his appointment by the Pi*dsident must be "upon the recommendation of the Secretary of the Treasury*" Matters dmltted entirely. 1\ Authority to waive requirements for admission of State banks to membership. 2. Authority to delegate duties to individual Board members or representatives of Board. 3. Objectives stated in House Bill. 4. Provision simplifying Federal Reserve note issues and doing away with collateral req\iirements. 5* Abolition of Federal Reserve Agents. 6. Limitation on continuous service of Federal Reserve bank directors. 7. Qualifications of members of Federal Reserve Board. 8. Pensions for members of Federal Reserve Board. 9. Provision that Governor may reenter banking business without waiting two years if he resigns when no longer designated as Governor. 10. Any clear requirement that Federal Reserve banks purchase or sell on the open market in accordance with decisions of Committee. 11. Authority of Reserve Board to regulate real estate loans. 12. Requirement that State member banks conform to same regulations, limitations and restrictions on real estate loans as national banks,
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