The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
677 - x4i6i (COPY) IN THE DISTRICT COURT OF THE UNITED STATES, FOR THE NORTHERN DISTRICT OF GEORGIA. PASCAGOULA NATIONAL BANK, VS. PLAINTIFF, FEDERAL RESERVE BANK OF ATLANTA, ET. AL. DEFENDANTS. ) ) ) ) ) ) ' NO. 295 IN EQUITY. ANSWER OF DEFENDANT, FEDERAL RESERVE BANK OF ATLANTA. And now comes Federal Reserve Bank of Atlanta,, a body c o r p o r a t e under t h e laws of the United S t a t e s , one of the defendants i n the cause above s t y l e d and makes answer t o the b i l l of complaint as f i l e d h e r e i n by the p l a i n t i f f , and f o r answer s a y s ; -1- Upon information and b e l i e f , t h i s defendant admits as t r u e t h e a l l e g a t i o n s contained i n paragraph 1 of the b i l l of complaint. -2- This defendant admits the averments of paragraph 2 of the b i l l of complaint, -3In response to paragraph 3 of said b i l l , t h i s defendant says t h a t i t i s a Federal Reserve Bank, organized and e x i s t i n g under and pursuant to t h a t c e r t a i n Act of Congress approved December 23, 1913, known as the Federal Reserve Act, a s amended; t h a t i t s p r i n c i p a l o f f i c e i s i n the City of A t l a n t a , in the r 678 X4i6i S t a t e o f G e o r g i a , w i t h i n t h e N o r t h e r n D i s t r i c t o f G e o r g i a , and t h a t i t i s t h e Federal R e s e r v e Bank f o r the S i x t h Federal Reserve D i s t r i c t . It maintains a branch i n t h e C i t y o f New O r l e a n s , i n t h e S t a t e of L o u i s i a n a , p u r s u a n t t o t h e p r o v i s i o n s o f S e c t i o n 3> o f t h e F e d e r a l R e s e r v e A c t , t h r o u g h w h i c h "branch i t t r a n s a c t s c e r t a i n of i t s b u s i n e s s # -4~ Paragraph 4 of said b i l l of complaint c o n s i s t s l a r g e l y of l e g a l conclusions and o f s t a t e m e n t s a s t o t h e t e n o r and e f f e c t o f v a r i o u s o f t h e p r o v i s i o n s o f t h e . F e d e r a l Reserve Act and, to t h a t e x t e n t , the same r e q u i r e s no answer * This defendant d e n i e s t h e a l l e g a t i o n t h a t the Federal Reserve Board ,T is a q u a s i corporation, 1 1 and i t d e n i e s , a s charged, the averirsnt in said paragraph to the e f f e c t t h a t Joseph A* McCord, Federal Reserve Agent, i s a c t i n g f o r the Board with p a r t i c u l a r r e s p e c t to n those f u n c t i o n s i n t h e S i x t h Federal Reserve t h a t operate upon p l a i n t i f f , and other member banks in said D i s t r i c t , 1 1 D i s t r i c t ^ ' / of which complaint i s i n said b i l l made • This defendant admits the t r u t h o f t h e a l l e g a t i o n s c o n t a i n e d i n t h e f i r s t s e n t e n c e o f p a r a g r a p h 4 and t h a t the F e d e r a l R e s e r v e Board h a s i t s p r i n c i p a l o f f i c e s i n t h e T r e a s u r y B u i l d ing of the United S t a t e s in the City of Washington, as a l l e g e d in the b i l l . ~5~ I n response t o p a r a g r a p h 5 of said b i l l of complaint, t h i s d e f e n d a n t says that Joseph A* McCord r e s i d e s i n t h e City c f A t l a n t a , and m a i n t a i n s on the premises of the Federal Reserve Bank of A t l a n t a , under the terms of t h e Federal Reserve Act and f o r t h e purposes s p e c i f i e d in said A c t , a l o c a l o f f i c e of said • Board and t h a t he i s , t o the e x t e n t s p e c i f i e d i n said Act and not o t h e r w i s e , the o f f i c i a l r e p r e s e n t a t i v e in the Sixth Federal Reserve D i s t r i c t of t h e Federal - (2) ,„L 679 Reserve Board for the performance of t h e .functions c o n f e r r e d upon i t by said Act. H e i s a l s o C h a i r m a n o f t h e Board o f D i r e c t o r s o f t h i s d e f e n d a n t . This defendant 5 admits as correct the averment in said paragraph/as to the present personnel of the Federal Reserve Board. —6— This d e f e n d a n t says t h a t i t i s advised by counsel that paragraph 6 of said b i l l requires no answer. -7Paragraph 7 of said b i l l o f complaint c o n t a i n s o n l y s t a t e m e n t s as to p r o v i s i o n s o f t h e F e d e r a l R e s e r v e A c t and , t h e r e f o r e , r e q u i r e s n o a n s w e r . - S - Paragraph S of said b i l l contains only a r e c i t a l of what the p l a i n t i f f s t a t e s a r e t e r m s and p r o v i s i o n s o f t h e F e d e r a l R e s e r v e A c t t o u c h i n g t h e p o w e r a n d a u t h o r i t y o f t h e F e d e r a l R e s e r v e Board and w h i l e t h e s a i d r e c i t a l o f t h e t e r m s and p r o v i s i o n s o f t h e F e d e r a l R e s e r v e A c t i s p a r t i a l a n d i n c o m p l e t e , t h e s a m e requires no answer. -9paragraph 9 of the b i l l of complaint contains o n l y s t a t e m e n t s of c o n c l u s i o n s and, therefore, r e q u i r e s no answer. This defendant d e n i e s , ho -ever , that the Federal Reserve System i s i t s e l f a l e g a l e n t i t y with corporate peters> but says t h a t t h e t w e l v e F e d e r a l R e s e r v e B a n k s a r e t w e l v e s e p a r a t e and d i s t i n c t c o r p o r a t i o n s a n d t h a t t h e F e d e r a l R e s e r v e B o a r d i s n o t a c o r p o r a t i o n o r quasi c o r p o r a t i o n , b u t i s a g o v e r n m e n t a l e s t a b l i s h m e n t o r b o a r d e x e r c i s i n g governmental p o w e r s among w h i c h p o w e r s i s a g e n e r a l s u p e r v i s i o n o v e r a l l t h e Federal R e s e r v e B a n k s . xUili 6 8 0 —10— This defendant i s informed and , upon such i n f o r m a t i o n , s t a t e s t h a t the method of c o l l e c t i n g checks described i n paragraph 10 of said b i l l was a method l a r g e l y employed in the c o l l e c t i o n of checks p r i o r to the passage of the Federal Reserve Act of 1S13* This defendant i s f u r t h e r informed t h a t t h e r e was then a p r a c t i c e among some banks f o r the r e m i t t i n g bank to rake a small charge called "exchange" and to deduct the amount thereof from the r e m i t t a n c e , but t h a t such p r a c t i c e was not u n i v e r s a l or customary and was modified or abated by various i n t e r bank arrangements, so t h a t i t ^as n e i t h e r c e r t a i n nor uniform* —11— Answering paragraph 11 of said b i l l , t h i s defendant says t h a t the averments of the f i r s t sentence thereof appear to be s u b s t a n t i a l l y correct* In further response to paragraph 11 of the b i l l of complaint t h i s defendant says t h a t i t i s true t h a t i t was not u n t i l the summer of 1916 t h a t the Federal Reserve Board required of the various Federal r e s e r v e banks, i n c l u d i n g the defendant Reserve Bank, t h a t they act as c l e a r i n g houses f o r t h e i r r e s p e c t i v e members* This defendant f u r t h e r says, however, t h a t a t BO time p r i o r to l $ l b or subsequent thereto has i t paid remission or exchange charges on checks collected by or through i t * c 4 ) G81 ^l2r X4l6l Paragraph Id of s a i d b i l l ^ s e t s up mere conclusions of the p l e a d e r and, t h e r e f o i e , r e q u i r e s no answer* This defendant says, however, t h a t the e f f e c t of the s a i d amendment of September 7i 1916, was t o a u t h o r i z e any F e d e r a l Reserve Bank to r e c e i v e from i t s member banks checks and d r a f t s . payable upon p r e s e n t a t i o n without l i m i t a t i o n e*s to the d i s t r i c t where payable and from o t h e r F e d e r a l Reserve Banks checks and d r a f t s payable upon p r e s e n t a t i o n w i t h i n i t s d i s t r i c t . By the Act of June 21, 1917, Section 13 of the F e d e r a l Reserve Act was amended so as t o a u t h o r i z e F e d e r a l Reserve jjanks to r e c e i v e a l s o from nonmemher banks checks and d r a f t s payable on p r e s e n t a t i o n without any l i m i t a t i o n as to the d i s t r i c t where such checks a r e p a y a b l e ; provided, such nonmember banks m a i n t a i n with t h e Federal Reserve Bank of t h e i r own r e s p e c t i v e D i s t r i c t s balances s u f f i c i e n t to o f f s e t the items in t r a n s i t . known as ,f Such banks a r e now non member c l e a r i n g hanks* 11 —lj"* Paragraph 13 of s a i d b i l l s e t s up mere conclusions of the p l e a d e r and, t h e r e f o r e , r e q u i r e s no answer. This defendant says, however, t h a t t h e F e d e r a l Reserve .board was not only a u t h o r i z e d by t h e o r i g i n a l Act, but i s now a u t h o r i z e d by the Act, as amended, to r e q u i r e member banks t o remit a t par f o r items d r a m upon them and sent t o them f o r c o l l e c t i o n and remittance by t h e i r r e s p e c t i v e r e s e r v e banks. More- over, member banks a r e forbidden by law t o make exchange charges f o r checks s e n t t o them f o r payment and r e m i t t a n c e by or through .Federal Reserve Banks, and Federal Reserve Banks a r e f o r b i d d e n to pay exchange charges# ( 5 ) xUl6l r 682 ~lU— This defendant says t h a t by Act approved June 21, 1917, c e r t a i n language, known as the Hardwick Amendment, was i n s e r t e d i n Section 13 of the Federal Reserve Act to the following e f f e c t : "That nothing in t h i s or any other s e c t i o n of t h i s a c t s h a l l be construed as p r o h i b i t i n g a member or nonmember bank from making reasonable charges, to be determined and regulated by the Federal Reserve Board, but i n no case to exceed 10 cents ~ per $100 or f r a c t i o n t h e r e o f , based on the t o t a l of checks and d r a f t s presented a t any one time, for c o l l e c t i o n or payment of checks and d r a f t s and remission t h e r e f o r by exchange or otherwise; but no such charges s h a l l be made a g a i n s t the Federal r e s e r v e banks"« This defendant f u r t h e r says t h a t the plan and purpose of t h i s defendant since J u l y , 1916, has uniformly been to c o l l e c t for those e n t i t l e d to use t h e c o l l e c t i o n f a c i l i t i e s of the Federal Reserve System, a l l checks which might l e g a l l y be c o l l e c t e d by i t , t h a t i s to say, such checks es i t could c o l l e c t a t p a r . This defendant f u r t h e r says t h a t i t s p l a n and purpose in t h i s regard h a s been and now i s i n accord with the provisions of the Federal Reserve Act and the r e g u l a t i o n s of the Federal Reserve Board made pursuant t h e r e t o . Any averments i n paragraph l 4 i n c o n f l i c t with t h i s s e c t i o n of t h i s answer a r e denied * -15This defendant i s informed that the Hon. W« P» G. Harding, while Governor of the Federal Reserve Board , mad e a statement to the House Committee on Banking ^ and Currency s u b s t a n t i a l l y as quoted i n paragraph of said t i l l . 683 The other a l l e g a t i o n s of said paragraph contain only conclusions of the pleader and, f o r t h a t r e a s o n , no f u r t h e r answer i s made t h e r e t o . -lbThis defendant i s informed t h a t on or about September 5> 1923* the Hon# R« Cr i s s i n g e r , now Governor of the Federal Reserve Board, wrote to Mr* L. R. Adams, General Secretary of the National and S t a t e Bankers 1 P r o t e c t i v e A s s o c i a t i o n , a l e t t e r .in the form s e t out i n paragraph 15 of said b i l l . Upon information and b e l i e f , t h i s defendant says t h a t the same was w r i t t e n in reply to the printed l e t t e r , a copy of which i s attached to said b i l l of complaint as ^Exhibit "A" t h e r e o f . This defendant i s without information upon which to make further, answer to said paragraph 16 of said b i l l . -17In response to paragraph 17 of said b i l l , t h i s defendant denies the averments thereof except t h a t t h i s defendant admits t h a t i n t h e year 1916 the Federal Reserve Board i s s u e d , pursuant to the terms and provisions of the Federal Reserve Act, a c e r t a i n r e g u l a t i o n upon the s u b j e c t of check c l e a r i n g and c o l l e c tion. Said r e g u l a t i o n has been revised and changed from time to time and , as revised and changed, i s now of f o r c e and i s now known as Regulation J ( S e r i e s of 3-924) • S&id r e g u l a t i o n d i r e c t s each Federal Steserve Bank to " e x e r c i s e the functions of a c l e a r i n g nqu.se and c o l l e c t c h e c k s , a n d p r e s c r i b e s the general terms and conditions upon which such Federal r e s e r v e banks s h a l l a c t as c l e a r i n g houses and c o l l e c t checks.. Among such terms and c o n d i t i o n s a r e t h e following-2 •••• V x fl6l6@4 "(1) Each Federal Reserve Bank w i l l r e c e i v e a t par from i t s member banks and from non-member c l e a r i n g banks in i t s d i s t r i c t , checks drawn on a l l member and nonmember clea r i n g banks, and checks drawn on a l l other nonmember banks which a r e c o l l e c t a b l e a t par in funds acceptable to the Federal Reserve Bank of the d i s t r i c t i n which such nonmember banks are l o c a t e d . "(S) Each Federal Reserve Bank w i l l r e c e i v e a t par from other Federal Reserve Banks, and from a l l member and non-member c l e a r i n g banks i n other Federal Reserve D i s t r i c t s which a r e authorized to r o u t e d i r e c t f o r t h e c r e d i t of t h e i r r e s p e c t i v e Federal Reserve Banks, checks drawn on a l l member and nonmember c l e a r i n g banks of i t s d i s t r i c t , and checks drawn on a l l ot' er nonmember banks of i t s d i s t r i c t which a r e c o l l e c t a b l e at par i n funds acceptable t o the c o l l e c t i n g Federal Reserve Bank, "(3) No Federal Reserve Bank s h a l l r e c e i v e on d e p o s i t or f o r c o l l e c t i o n any check drawn on any non-member bank which cannot be c o l l e c t e d a t par i n f u n d s acceptable to the Federal Reserve Bank of the d i s t r i c t in which such nonmember bank is located." Said r e g u l a t i o n a l s o provides "checks received by a Federal Reserve Bank, on i t s member or non-member c l e a r i n g banks, w i l l o r d i n a r i l y be forwarded or presented d i r e c t to such banks and such banks w i l l be required to remit or pay t n e r e f o r a t par i n cash or in bank d r a f t acceptable to the c o l l e c t i n g Federal Reserve Bank". P r i o r to 1916 n e i t h e r t h i s defendant nor any other Federal r e s e r v e bank had a t r a n s i t or c o l l e c t i o n department, maintained as such. R e l a t i v e l y few checks reached t h i s defendant f o r c o l l e c t i o n and such checks were items s e n t by member ( S ) x^ifi 6 8 5 banks, or by other Federal reserve banks , for d e p o s i t , c o l l e c t i o n and credit# No charge was made for t h i s service by this defendant and such checks so deposited, being drawn upon i t s member banks, were collected a t par and without deduction for exchange or c o l l e c t i o n charges. On or about the 15th day of July, 1916, this defendant, pursuant to instructions issued by the Federal Reserve Board, began the operation of a t r a n s i t and c o l l e c t i o n department. For a short time, a nominal charge was made by this defendant for such c o l l e c t i o n s , b u t no charge for remittance was included therein or permitted to be made. Subsequently such items were handled without charge to the extent of f i v e hundred checks per month for any one bank. On or about the 15th day of June, 1918, t h i s defendant and other federal reserve banks began to c o l l e c t for the account of members, and others entitled to use the c o l l e c t i o n f a c i l i t i e s of the Federal Reserve System, without. any charge therefor,, a l l items which i t might l e g a l l y deceive on deposit for' c o l l e c t i o n , and such service i s now being given and such c o l l e c t i o n department i s now being maintained. I t i s not true that a l l members, including the p l a i n t i f f , are, under the regulations aforesaid and under the law, required t o remit the proceeds of a l l checks presented to- them through this defendant -by mail without any deduction because of the remittance. On the contrary, they are given the option of remitting d r a f t s in payment thereof by mail i n addressed end stamped envelopes furnished by the Federal Reserve Bank or paying such checks by mailing or shipping cash to the Federal Reserve Bank at the expense and r i s k of the Federal Reserve Bank. - IS Paragraph lg of the b i l l of complaint sets forth mere conclusions of the pleader and , therefore, requires no answer. (9) This defendant denies the soundness xui^ 0 8 6 of such conclusions and f u r t h e r says t h a t , i f i t should he considered tiset saifd paragraph contains any i s s u a b l e averments of f a c t , any and a l l of such aver rants a r e d.enied* -19Paragraph 19 of said b i l l of complaint contains only conclusions of the pleader as to s e t t e r o :f law and , t h e r e f o r e , r e q u i r e s no answer* I f , however, i t "be considered t h a t said paragraph contains any i s s u a b l e averments of fact> the same, and each t h e r e o f , are denied. Defendant f u r t h e r says in response to said paragraph t h a t i t i s not t r u e t h a t t h i s defendant i s r e f u s i n g to obey the mandate of Section l 6 of the Fed eta 1 Reserve Act to t h e e f f e c t t h a t ; "Every Federal Reserve Bsmk s h a l l rGlaive on d e p o s i t a t par from member batiks or from Federal Reserve Banks checks and d r a f t s drawn upon any of i t s d e p o s i t o r s , and when remitted by a Federal Reserve Bank, checks and d r a f t s drawn by any depositor i n any other Federal Reserve Binok or member banks upon funds t o the c r e d i t of said d e p o s i t o r in s a i d reserve bank or member bank,** Every cash item received for deposit by t h i s defendant from the p l a i n t i f f and. from a l l of t h e other member banks of defendant is received f o r d e p o s i t a t par without any deduction whatever» I t i s t r u e t h a t i n c a s e s where t h i s defendant receives f o r d e p o s i t a t par cash items which may not be collected during banking hours on t h e same day i n which received, c r e d i t i s given i n accordance with the time schedule r e f e r r e d to i n said b i l l of complaint; but t h i s defendant says t h a t a c r e d i t a t par of an item, to be a v a i l a b l e to a member bank for i t s r e s e r v e account and as funds a g a i n s t which a check may be drawn i n accordance with said time schedule, i s not a d e n i a l to the member bank of i t s r i g h t to d e p o s i t such items a t par * (10) xUith. 6 8 V *- SO — This defendant d e n i e s , as charged, the averments contained i n par a graph 20 of the "bill of complaint* I t says t h a t i t is t r u e t h s t in cases where <jfa$h items deposited "by a member can not be immediately c o l l e c t e d by d e f e n d a n t , as in the next preceding s e c t i o n of t h i s answer more f u l l y s e t o u t , c r e d i t i s given a t par and without any deduction whatsoever, i n accordance with said time schedule# Def end ant f u r t h e r says t h a t said time schedule r e p r e s e n t s the ex- perience of t h i s d e f e n d a n t as t o the usual time f o r a c t u a l c o l l e c t i o n of items as indicated t h e r e i n , but t h a t , i n accordance with said time schedule, the amount of each cash item so received is n©de a v a i l a b l e to the r e s e r v e account of each member bank a t the e x p i r a t i o n of the time stated i n said time schedule, whether or not the same be then a c t u a l l y collected« Were immediate c r e d i t given as demanded by complainant each member bank could count as a p a r t of i t s reserve and draw checks a g a i n s t items not collected and while the same were s t i l l in the 11 float 1 1 * Such a p r a c t i c e would be economically unsound and c o n t r a r y to e x i s t i n g banking p r a c t i c e , would r e s u l t i n the c r e a t i o n cf f i c t i t i o u s r e s e r v e s , would mean t h e pyramiding of c r e d i t s , and lead to other abuses; and any such p r a c t i c e would be contrary to t h e purposes and express p r o v i s i o n s of the Federal Reserve Act* - 21 - Paragraph 21 of the b i l l of complaint s e t s up mere conclusions of the. pleader and, t h e r e f o r e , r e q u i r e s no answer# This d e f e n d a n t , however, denies the soundness of such conclusions* (11) xUl - ? 688 22 - Paragraph 22 of the b i l l of complaint s e t s up merA conclusions and , t h e r e f o r e , requires no answer* This defendant,however, denies the soundness of the con- clusions i n said paragraph contained, and denies that the proviso i n S e c t i o n 13 contained i s u n c o n s t i t u t i o n a l for the reasons s t a t e d , or f o r Sny other reason, This defendant says f u r t h e r that at the time p l a i n t i f f became a member of the Federal Reserve Bank of Atlanta i t v o l u n t a r i l y agreed to comply with the terms of the Federal Reserve Act and the r e g u l a t i o n s of the Federal Reserve Board* - 2] In response to paragraph 2} of the b i l l of complaint t h i s defendant says t h a t i t is true that i t did h e r e t o f o r e issue i t s Circular G-l6l addressed to member banks and to nonmember banks maintaining c l e a r i n g accounts, which said c i r c u l a r was on the s u b j e c t of check clearing and c o l l e c t i o n and was in a l l r e s p e c t s in accord with Regulation J of t h e Federal Reserve Board* February 2S, 1921. Said c i r c u l a r was dated Said c i r c u l a r i s not now of f o r c e , the same having been superseded by l a t e r c i r c u l a r s on the same subject* This d e f e n d a n t denies that the p r o v i s i o n s of said c i r c u l a r s , or any of them, or any of i t s p r a c t i c e s t h e r e - under, were or are i n anywise unlawful or i n c o n f l i c t with any of the p r o v i s i o n s of the Federal Reserve Act, - 24 - Paragraph 24 of the b i l l of complaint s e t s up mere conclusions of the pleader and, t h e r e f o r e , r e q u i r e s no answer. I f i t should be considered, however, that said paragraph contains any proper averment of f a c t , the same, and every such, averment, a r e denied , except that t h i s defendant admits t h a t i t i s now c i r c u l a t i n g (12) xkik 6 8 9 a par l i s t such as t h a t expressly approved by the Supreme Court of the United S t a t e s in the case of American Bank & Trust Company e t s i . , v . Federal Reserve Bank of A t l a n t a , e t a l - , 262 U. S. 6U); and except t h a t t h i s defendant admits i t s p r a c t i c e s with regard to d e f e r r e d c r e d i t s s s i n t h i s answer described and not o t h e r w i s e . This defendant p a r t i c u l a r l y denies t h a t the p l a i n t i f f , or any other member bank, has been under any d u r e s s or the s u b j e c t of any i l l e g a l p r a c t i c e , and t h i s defendant denies t h a t any a c t done by i t and i n said b i l l complained of has been i n v i o l a t i o n of any p r o v i s i o n of t h e Federal Reserve Act, or contrary t o any a d j u d i c a t i o n of the Courts, or any c o n s t r u c t i o n of said Act as made by the Courts. - 25 To the e x t e n t t h a t Paragraph 25 of the b i l l of complaint contains mere conclusions ;of the p l e a d e r , i t r e q u i r e s no answer, This defendant d e n i e s , hovrever, the c o r r e c t n e s s of the conclusion t h a t Federal r e s e r v e banks a r e not ... authorized to receive f o r c o l l e c t i o n from t h e i r members and c l e a r i n g members any check or d r a f t t h a t i s not payable on p r e s e n t s t i o n w i t h i n t h e d i s t r i c t of the Federal reserve bank r e c e i v i n g i t , and f u r t h e r denies the c o r r e c t n e s s of the conclusion t h a t defendant can not receive f o r c o l l e c t i o n checks payable within i t s d i s t r i c t deposited with i t f o r such purpose by another Federal r e s e r v e bank. This defendant says t h a t i t i s t r u e t h a t i t r e c e i v e s for c o l l e c t i o n from i t s members and from i t s non-member c l e a r i n g banks checks t h a t are payable i n other Federal Reserve D i s t r i c t s , and, denying t h a t i t r e c e i v e s checks f o r any purpose from the members of other Federal r e s e r v e banks, admits t h a t i t does receive from other Federal r e s e r v e banks checks t h a t a r e c o l l e c t i b l e a t par and tiaat are payable upon p r e s e n t a t i o n w i t h i n t h e Sixth Federal Reserve D i s t r i c t . (13) X4i6l V 690 Defendant says t h a t i t s r i g h t and corporate capacity so to do a r e p l a i n l y stated i n the Federal Reserve Act, as now amended. — 26 — Paragraph 26 of the b i l l of complaint, as charged, i s denied. — 27 " In response to Paragraph 27 of the b i l l of complaint this defendant says that i t i s true that the checks referred to therein, aggregating $4,806*97» were tendered to i t i n settlement of certain d a i l y l e t t e r s , as alleged i n said paragraph, and that such checks represented r e s p e c t i v e l y the amounts of said d a i l y l e t f e r s , l e s s an attempted charge for remittance which the p l a i n t i f f sought » to impose upon t h i s d e f e n d a n t . I t i s , furthe rmore, t r u e t h a t the p l a i n t i f f did also tender to t h i s defendant two c e r t a i n bank d r a f t s i n the aggregate sum of $55^-93 88 being i n payment of c e r t a i n checks drawn on p l a i n t i f f and s e n t by defendant t o p l a i n t i f f f o r payment and r e m i t t a n c e . The checks so sent have been deposited with t h i s defendant by other Federal r e s e r v e banks, and n e t by the members thereof a s a l l e g e d , and had, t h e r e f o r e , come to defendant from outside the t e r r i t o r i a l l i m i t s of the Sixth Federal Reserve D i s t r i c t . Said l a s t mentioned batik d r a f t s represented the aggregate of the checks so sent f o r payment and r e m i t t a n c e , l e s s a charge for remittance which t h e p l a i h t i f f attempted to impose on t h i s d e f e n d a n t . This defendant says t h a t the said attempts of the p l a i n t i f f to impose on defendant such charges were contrary to the Federal Reserve Act, and, f o r said r e a a o n , i t refused to accept said d r a f t s , and each of them, and, thereupon, requested the p l a i n t i f f e i t h e r to remit in f u l l a t (14) X4i6l p • 691 P^r for said cash l e t t e r s , and each thereof, or to return to defendant the Items which had oeen sent to p l a i n t i f f by defendant for payment and remittance. I-i refusing to accept said d r a f t s , this defendant wrote the p l a i n t i f f the l e t t e r of July ) 1 , 1924, a copy of which i s attached as "Exhibit B" to the b i l l of complaint. This defendant says that the p l a i n t i f f was, under the law, required to remit for said items without deduction and, therefore, denies the averment that the p l a i n t i f f was compelled by an i l l e g a l act of thiti defendant to forego said exchange and to pay said additional amounts, to i t s l o s s . Defendant denies the other averments of said paragraph 27* - 25 In response to paragraph 23 of the b i l l of complaint, this defendant says that, under the provisions of the Federal Reserve Act and of Regulation J , the p l a i n t i f f has at a l l times been bound to remit to t h i s defendant at par for items drawn upon the p l a i n t i f f and sent to i t by t h i s defendant for payment and remission of proceeds. This defendant says t h a t , except i n the particular cases described i n paragraph 27 of the b i l l of complaint, p l a i n t i f f has made no demands upon this defendant touching the remission for items i n amounts l e s s than the par value t h e r e o f . The p l a i n t i f f and t h i s defendant, as member bank and as Federal reserve bank r e s p e c t i v e l y , have had between themselves many transactions, the p l a i n t i f f sending to t h i s defendant cash items for deposit, the defendant sendi% to the p l a i n t i f f cash l e t t e r s for payment and remittance, as to' the aggregate whereof this defendant i s not informed. In no case, however, except those s p e c i f i e d in the b i l l , has the p l a i n t i f f un#ertaken to remit l e s s than the f u l l amount of ehy cash l e t t e r ; nor has the (15) xUl £ 692 "plaintiff neretofUBB demanded the immediate c r e d i t to i t s r e s e r v e account of items not immediately a v a i l a b l e to i t under the provisions of the time schedule aforesaid. Except as h e r e i n s p e c i f i c a l l y admitted, the averments of paragraph 23 of the b i l l a r e denied so f a r as t h i s defendant has any knowledge t h e r e o f , and so f a r as t h i s defendant i s without knowledge thereof they are denied f o r that reason# - 29 Paragraph 29 of said b i l l , as charged, i s denied• - 30 In response to paragraph 30 of said b i l l , t h i s defendant says t h a t i t i s true that on or about J u l y 29, 1924, the p l a i n t i f f presented to i t checks of the kind and character g e n e r a l l y described in said paragraph and f o r the aggregate amount t h e r e i n s t a t e d , and requested t h a t said dhecks be placed to the immediate c r e d i t of p l a i n t i f f i n i t s r e s e r v e account, and that the defendant declined t o accede to such request f o r reasons s e t out i n t h e l e t t e r of J u l y 311 1924, w r i t t e n by t h i s defendant to the p l a i n t i f f , a copy of which i s attached as "Exhibit B11 to said b i l l , namely; t h a t , under the r e g u l a t i o n s of the Federal Reserve Boatfd 9 c r e d i t could be given t h e r e f o r only i n accordance with said time schedule* Defendant denies the other a l l e g a t i o n s of said paragraph, and says that the p l a i n t i f f was not e n t i t l e d to r e c e i v e immediate c r e d i t to i t s r e s e r v e account f o r funds then uncollected; nor was the p l a i n t i f f e n t i t l e d to i n t e r e s t thereon, and t h a t no i n j u r y to p l a i n t i f f , a t law or i n e q u i t y , r e s u l t e d from the a c t i o n of the defendant i n t h i s regard the p l a i n t i f f having no r i g h t to u t i l i z e uncollected funds as a c o l l e c t e d balance t o i t s c r e d i t * (16) Defendant XUlfrl further says that p l a i n t i f f was immediately given credit at par i n a deferred account for the f u l l amount of such checks without any deduction whatever, and, upoh the expiration of the time stated in the aforesaid time schedule, p l a i n t i f f was given credit at par in i t s reserve account for the f u l l amount of such cnecks without any deduction whatever, in accordance with the terms of Regulation J. Defendant further says that the p l a i n t i f f has at no time, prior to July 29, 192^, made any demand upon defendant for immediate credit in i t s reserve account for any checks which, under the regulations of the Federal Reserve Board, are receivable for deposit and deferred credit to i t s reserve account,in accordance with said time schedule; and that said request of July 29, 192%, was the f i r s t request or demand made by the p l a i n t i f f of the defendant to that end invoking i t . -31 This defendant admits that i t wrote sod delivered to the p l a i n t i f f the l e t t e r referred to in paragraph 31 of said b i l l of complaint; but denies that such l e t t e r constituted a refusal to receive such checks on deposit at par within the meaning of Section 16 of the Federal Reserve Act. -.32 This defendant denies the a l l e g a t i o n s contained i n paragraph 32 of said b i l l of complaint. - 33 ~ To the extent that Paragraph 33 of said b i l l contains mere conclusions of the pleader the same requires no answer. Defendant, however, denies the allegations of f a c t s e t forth in said paragraph arai particularly that this defendant has at any time disregarded any l i m i t a t i o n imposed upon i t by law. I 17 ) xUl6l r 894 - 34 In so f a r as paragraph 3^ of said b i l l contains any i s s u a b l e averment of f a c t , t h e sane i s d e n i e d . - 35 - • The a l l e g a t i o n s of paragraph 35 of said b i l l of complaint are d e n i e d . ~ 36 ~ The a l l e g a t i o n s contained i n paragraph 36 of said b i l l of complaint are admitted. - 37 I f i n any of those p a r t s of the b i l l of complaint which t h e defendant has r e f e r r e d t o as containing only statements of conclusions t h e r e be any a l l e g a t i o n s of f a c t contrary to the admissions in t h i s answer contained , defendant denies each and every one of said a l l e g a t i o n ^ . - 38 Defendant denies each and every a l l e g a t i o n of f a c t contained i n the b i l l of complaint, except those a l l e g a t i o n s which defendant has s p e c i f i c a l l y a d mitted in t h i s answer, and except those a l l e g a t i o n s as to which defendant has stated in t h i s answer t h a t i t i s without knowledge or i n f o r m a t i o n . - 39 And now, having f u l l y answered the p l a i n t i f f 1 s b i l l , defendant shows to the Court, by way of f u r t h e r d e f e n s e , as f e l l o w s : A. P r i o r to the enactment of the Federal Reserve Act, h e r e t o f o r e r e f e r r e d t o , the monetary and f i n a n c i a l s i t u a t i o n of the United S t a t e s had become such as to cause grave apprehension and i n s i s t e n t demands for l e g i s l a t i o n by Congress to (IS) x4i6l '' 695 p . o t e c t both the n a t i o n and i t s people a g a i n s t the havoc wrought by r e c u r r i n g depressions, c r i s e s , p a n i c s , v i o l e n t f l u c t u a t i o n s i n the r a t e of i n t e r e s t and an general the consequences which always threatened and o f t e n d i s a s t r o u s l y a f f e c t e d p u b l i c and p r i v a t e business a l i k e . These e v i l s were caused i n l a r g e p a r t by an i n e l a s t i c currency, based upon disappearing bonded indebtedness of the general government, and the general p r a c t i c e which had grown up with regard to reserves required by law to be maintained. Such r e s e r v e s , required by law to bear a fixed r e l a t i o n to the d e p o s i t l i a b i l i t y of the banks, were kept i n p ^ r t in cash f o r d a i l y counter t r a n s a c t i o n s and i n l a r g e r p a r t consisted of balances i n other banks, v&ich other banks in turn s i m i l a r l y maintained t h e i r own reserve requirements. The r e s e r v e s thus maintained by c r e d i t s i n other banks were sometimes r e c i p r o c a l , sometimes cumulated and u t i l i s e d by many banks at the same time, and the tendency of such reserves * r , 0 f i i m l l y to accumulate i n the great f i n a n c i a l i n s t i t u t i o n s in c e n t r a l r e s e r v e c i t i e s where they were f r e q u e n t l y loaned out f o r s p e c u l a t i v e purposes on c a l l . Reciprocal and c i r - culating c r e d i t s to r e s e r v e s thus rendered such r e s e r v e s i n l a r g e p a r t f i c t i t i o u s , and pyramided a l a r g e imaginary r e s e r v e upon an o r i g i n a l small actual d e p o s i t for r e s e r v e purposes. Hie consequences of these p r a c t i c e s were that the actual r e s e r v e s of the banks were s c a t t e r e d and t h e i r a v a i l a b i l i t y depended upon the febility of other banks in time of s t r e s s e i t h e r to r e - capture t h e i r own r e s e r v e s or cecal1 l o a n s . At the f i r s t s i g n of f i n a n c i a l disturbance banks hoarded t h e i r cash, brought d i s t r e s s i n g and sometimes d e s t r u c t i v e p r e s s u r e to bear upon commercial and i n d u s t r i a l i n t e r e s t s to (1?) . . ' x4i,6l ccrcpel payment 896 ox l o a n s , and with i n c r e a s i n g panic found d e c r e a s i n g a b i l i t y to r e a l i z e e i t h e r upon t h e i r own r e s e r v e s i n other banks or pay the other bank balances held by them as r e s e r v e f o r those other banks. Such s i t u a t i o n s occurred with p e r i o d i c a l and i n c r e a s i n g frequency and led to business and bank suspensions and f a i l u r e s and attempts a t r e l i e f by the issuance of unauthorized forms of currency by c l e a r i n g houses and a s s o c i a t i o n s of banks - a l l expedients which, unusual and r e s t r i c t i v e , increased the panic they were designed to a l l e y . This s i t u a t i o n was aggravated by the p r a c t i c e of counting as r e s e r v e the socalled " f l o a t " c o n s i s t i n g of checks deposited f o r c o l l e c t i o n and c r e d i t but s t i l l i n t r a n s i t and uncollected and which upon p r e s e n t a t i o n in times of d i s t r e s s were met e i t h e r by delays or r e f u s a l s , or by payments i n other c r e d i t s r a t h e r than money, such as checks or d r a f t s which i n t u r n could not be collected when presented for payment, thus a c c e n t u a t i n g the f i c t i t i o u s and unreal character of the r e s e r v e s upon which the i n t e g r i t y of the system depended. Thus the very stringency which gave r i s e to the need of r e s e r v e s f o r use rendered them unavailable* Meantime t h e currency a v a i l a b l e to the country was r i g i d l y l i m i t e d by i t s bond b a s i s and could not expand however g r e a t t h e need. In 1907 the causes above described produced a d i s a s t r o u s p a n i c throughout the United S t a t e s and challenged p u b l i c a t t e n t i o n s h a r p l y to the u n s t a b l e basis of both p u b l i c and p r i v a t e finance i n the United S t a t e s . Continuously t h e r e a f t e r the s u b j e c t was considered by Congress; extensive h e a r i n g s were had, committees and conferences were organized by p u b l i c a u t h o r i t i e s , by business and banking groups, and f i n a l l y , informed and e x p e r t opinion moulded the Federal Reserve Act which was passed by Congress to r e d r e s s the e v i l s above (20) 697 x4i6l described by providing p r i m a r i l y f o r the i n s t i t u t i o n of the Federal Reserve System, supervised on b e h a l f of the Government by t h e Federal Reserve Board, but administered and operated by the twelve Federal r e s e r v e banks, each, bank operating independently i n i t s own d i s t r i c t except as the s e v e r a l banks a r e required t o cooperate i n t h e p u b l i c i n t e r e s t to meet n a t i o n a l emergencies. The o b j e c t of the Federal Reserve Act i s to bring about the establishment of a s t a b l e f i n a n c i a l s t r u c t u r e i n the United S t a t e s s t r o n g enough t o support the great f i s c a l operations of the Government i n times of peace and war and f l e x i b l e enough to meet the c r e d i t and currency needs of the commerce and industry of the country. To the and above s e t f o r t h the Federal Reserve Act# operating compuleorily upon n a t i o n a l banks and seeking to induce the voluntary cooperation of S t a t e banks and t r u s t companies, c r e a t e s an a c t u a l r e s e r v e f i n a l l y mobilized i n the Federal Reserve Banks and t h e r e represented by actual net b a l a n c e s , of which not l e s s than 35/3 cmst be kept by the Federal Reserve Banks i n the form of gold or lawful money. In i t s o r i g i n a l form the Federal Reserve Act authorized member banks to keep a p a r t of t h e i r r e s e r v e with other banks and a p a r t as a balance witu tne the Federal Reserve Banks. I n i t s z e a l , however, to assure actual and a c c e s s i b l e r e s e r v e s , Congress, by amendment to t h e Act, required member banks to keep t h e i r e n t i r e r e s e r v e s i n Federal r e s e r v e banks and prescribed t h a t such r e s e r v e s must c o n s i s t of "an actual n e t balance", thus excluding uncollected checks and items in t r a n s i t . The Federal Reserve Banks a r e required t o a s s u r e tne maintenance of t h i s a c t u a l n e t balance "by the imposition of i n c r e a s i n g l y severe p e n a l t i e s upon delinquent member banks. (21) B ' ^ 698 In order that the member banks may maintain the a c t u a l net balances required t o be kept a s r e s e r v e s , i t was e s s e n t i a l t h a t Federal r e s e r v e banks possess the power to c o l l e c t checks deposited f o r c o l l e c t i o n and c r e d i t t h e r e t o , s i n c e i t i s by means of checks - t h a t bank balances are b u i l t up, and a check must be c o l l e c t e d before the amount thereof can be considered as c o n s t i t u t i n g "an a c t u a l net balance 11 within the meaning of the Act. The checks and d r a f t s which the p l a i n t i f f sends to t h i s d e f e n d a n t f o r c o l l e c t i o n and c r e d i t to i t s r e s e r v e account a r e credited by t h i s d e f e n d a n t , not immediately upon d e p o s i t but i n accordance with the time schedule and t h e r e g u l a t i o n s of the Federal Reserve Board. The checks and d r a f t s which the defendant sends to the p l a i n t i f f f o r payment and r e m i t t a n c e a r e those which to a very l a r g e e x t e n t , i f not e n t i r e l y , have been deposited by dither member banks of t h i s defendant or of other Federal Reserve Banks f o r the purpose of b u i l d i n g up and maintaining t h e i r r e s p e c t i v e r e s e r v e accounts* Under the p r o v i s i o n s of Section l 6 of the Federal Reserve Act, each Federal Reserve Bank i s required to accept at par from i t s members and from other Federal Reserve Banks such checks and d r a f t s as may be placed with i t on d e p o s i t for c o l l e c t i o n and c r e d i t , or on d e p o s i t f o r - c o l l e c t i o n and the remission of proceeds when c o l l e c t e d . The member banks of t h i s defendant, including the p l a i n t i f f bank, a v a i l themselves to a l a r g e extent of the c o l l e c t i o n f a c i l i t i e s a f f o r d e d by t h i s d e f e n d a n t , and other Federal Reserve Banks forward to t h i s defendant such checks and d r a f t s , payable upon p r e s e n t a t i o n i n the Sixth Federal Reserve D i s t r i c t , as may be collected a t p a r , and t h i s defendant i s r e q u i r e d , under the p r o v i s i o n s of (22) xUl$1 699 the Act and of the r e g u l a t i o n s a f o r e s a i d , to receive such items a t the face or par value thereof« Being i n h i b i t e d by law from paying exchange charges, and being by law required to give c r e d i t a t par t h i s defendant cannot a t the same time permit the drawee bank t o deduct exchange charges. C. A f u r t h e r reason a c t u a t i n g Congress in passing the Federal Reserve Act was to provide for an e f f e c t i v e and prompt c l e a r i n g and c o l l e c t i o n of checks and d r a f t s , an) i t was i n order to carry cut t h i s purpose that Regul a t i o n J was promulgated. The advantage and b e n e f i t of a systematic, expeditious and economical c o l l e c t i o n of checks i s i n c a l c u l a b l e in i t s d i r e c t b e n e f i t s to the e n t i r e country. P r i o r to the i n s t i t u t i o n of the Federal Reserve System, with i t s f a c i l i t i e s f o r the o r d e r l y and prompt c o l l e c t i o n of checks, the banks of the country maintained c l e a r i n g a r r a n g e ments among themselves. Such arrangements o f t e n involved the c i r c u i t o u s r o u t i n g of checks in order to escape the payment of an exchange charge * Each bank was s t r i v i n g to s e t t l e the problem of c o l l e c t i o n for i t s e l f , namely; by c o l l e c t i n g checks deposited with i t for the purpose in such manner as to avoid the payment of exchange charges, and many of these banks were at the same time charging exchange on checks drawn a g a i n s t them. The r e s u l t was sn expense to business and a t o l l upon i n d u s t r y , with the inconvenience and Gangers a r i s i n g from delayed c o l l e c t i o n s and the i n d i r e c t r o u t i n g of •checks . I f the p l a i n t i f f and other member banks had t h e r i g h t at w i l l to disregard the p r o v i s i o n s of Regulation J , i t would mean that such o b j e c ing member banks would s t i l l have the r i g h t , under Section l6 of the Act, to forward to t h i s defendant for deposit f o r c o l l e c t i o n and c r e d i t at p a r such cash items as the p l a i n t i f f might d e s i r e to have c o l l e c t e d at par and which could be by the defendant collected a t par; whereas, (23) x4i6i 7 0 0 the p l a i n t i f f would r e s t under no r e c i p r o c a l duty to r e m i t f o r i t s own checks without d e d u c t i o n . In other words, the p l a i n t i f f seeks to u t i l i z e f o r i t s own advantage the c o l l e c t i o n f a c i l i t i e s of d e f e n d a n t , maintained under the p r o v i s i o n s of Regulation J , and at tne same time to hold as i n o p e r a t i v e upon i t the said r e g u l a t i o n , which was passed under the Act and as required by the Act, and. without which there could be no e f f i c i e n t c o l l e c t i o n of checks by t h i s defendant. D As h e r e t o f o r e pointed o u t , the Federal Reserve Board h a s , in and by said Regulation J , required each Federal Reserve Bank to e x e r c i s e the f u n c t i o n s of a c l e a r i n g house and c o l l e c t checks f o r such of i t s member banks as d e s i r e to avail tnemselves of i t s p r i v i l e g e s and f o r such nonmember S t a t e banks and t r u s t companies a s may maintain with the Federal Reserve Banks balances s u f f i c i e n t to q u a l i f y them under the p r o v i s i o n s of Section 13 of the Federal Reserve Act to send items to Federal Reserve Banks for purposes of exchange or of c o l l e c t i o n . I n and by said Regulation J , each Federal Reserve Bank i s required to e x e r c i s e the f u n c t i o n s of a c l e a r i n g house and c o l l e c t checks under the general terms and c o n d i t i o n s s e t f o r t h i n Regulation J - This defendant avers t h a t i n promul- gating Regulation J the Federal Reserve Board was a c t i n g pursuant to the aut h o r i t y Vested in i t by the Act a f o r e s a i d , and was actuated by the d e s i r e (as set f o r t h in said Regulation J) 11 to a f f o r d both to the p u b l i c and to the v a r i - ous, banks of the country a d i r e c t , e x p e d i t i o u s , and economical system of check c o l l e c t i o n and s e t t l e m e n t of balances". (24) This d e f e n d a n t , t h e r e f o r e , has the corporate c a p a c i t y and power i n and "by the Federal Reserve Act, as now amended, conferred upon i t to accept from i t s members and c l e a r i n g members f o r d e p o s i t and c o l l e c t i o n checks and d r a f t s payable upon p r e s e n t a t i o n , r e g a r d l e s s of whether they a r e payable w i t h i n i t s own d i s t r i c t . I t h a s , furthermore, the corporate c a p a c i t y and power to accept on deposit f o r c o l l e c t i o n from other Federal Reserve Banks checks and d r a f t s payable upon p r e s e n t a t i o n w i t h i n i t s d i s t r i c t . Any checks so deposited f o r col- l e c t i o n or c r e d i t must be accepted by defendant a t p a r , under the p r o v i s i o n s of Section 1J of the Federal Reserve Act. Under the p r o v i s i o n s of Section 13 of the Federal Reserve Act, t h i s defendant i s i n terms prohibited from paying any charge to any bank for the c o l l e c t i o n or payment of checks and d r a f t s and remission t h e r e f o r , by exchange or otherwise. All of the f o r e g o i n g powers and p r o h i b i t i o n s a r e established and upheld by the Supreme Court of the United S t a t e s i n the cases of American Bank and Trust Company, e t al» v . Federal Reserve Bank of A t l a n t a , e t . s i . , 262 U. S . , 6U3, and Kernsrs & Merchants Bank of Monroe, North Carolina e t a l * v* Federal Reserve Bank of Richmond, 262 U. S. 649 • P l a i n t i f f bank has u t i l i z e d , and now u t i l i z e s , the c o l l e c t i o n f a c i l i t i e s maintained by t h i s defendant and other Federal Reserve Banks, and a v a i l s i t s e l f thereof in order to secure the handling without expense to i t s e l f of items which are c o l l e c t i b l e a t par through the Federal Reserve C o l l e c t i o n System. E - The regulation of the Federal Reserve Beard requiring checks, not immediately c o l l e c t i b l e , to be credited to the reserve account of a member 702 X4i6l bank i n accordance with t h e time schedule i s not only p e r m i s s i b l e and l a w f u l , under the Federal Reserve Act, but i s required by business prudence and by fundamental economic c o n s i d e r a t i o n s . This defendant and the ether Federal Reserve Banks r e p r e s e n t i n t h e aggregate the mobilized r e s e r v e s of the country, the r e s e r v o i r of c r e d i t , and t h e p r i n c i p a l medium of note currency issue... Considerations of inherent s t a b i l i t y of bank r e s e r v e s and of c r e d i t extensions and of s e c u r i t y f o r note i s s u e s r e q u i r e t h a t the r e s e r v e s carried by the member banks be r e a l and not f i c t i t i o u s . To allow each member hank the u n r e s t r i c t e d r i g h t to count as a p a r t of i t s l e g a l r e s e r v e an u n c o l l e c t e d balance s t i l l i n the " f l o a t " could only mean t h e establishment of an erroneous and unsound b a s i s f o r the computation of r e s e r v e s ; because the items i n t r a n s i t f o r c o l l e c t i o n , while s t i l l u n c o l l e c t e d , would not only determine, to the f u l l extent t h e r e o f , the r e s e r v e of the bank d e p o s i t i n g the same with a Federal. Reserve Bank, but would, u n t i l a c t u a l l y p a i d , be a l s o r e f l e c t e d in the r e s e r v e of the drawee bank. I t i s impossible t o a n t i c i p a t e with any c e r t a i n t y the aggregate of the " f l o a t " , f r o m day to day, and i t is l i k e vise impossible to s t a t e h e r e i n any a c c u r a t e f i g u r e s of averages, but t h i s defendant does aver (as i s a l s o alleged by t h e p l a i n t i f f i n the b i l l of complaint) t h a t t h e r e i s p r o bably a t o t a l of " f l o a t " i n the Federal Reserve System i n each day of not l e s s than $500,000,000. I n order t o prevent t h i s " f l o a t " which c o n s i s t s of 'uncollected checks, from being used as bank r e s e r v e s , Congress amended Section 19 of the Federal Reserve Act on June 21, 1917, so as to r e q u i r e that the r e s e r v e s of member banks should c o n s i s t not merely of "balances" with the Federal Reserve (26) * Ai6i" / 7 0 3 Bank, but of "an a c t u a l n e t "balance11, which i s commonly understood in banking c i r c l e s to mean a net balance c o n s i s t i n g of a c t u a l l y c o l l e c t e d funds with a l l " f l o a t " or uncollected checks eliminated* The only s a f e r u l e i s t h a t thus adopted by Congress and incorporated in Regulation J by the Federal Reserve Board, namely, t h a t c r e d i t f o r a check deposited with a Federal Reserve Bank shall be given in the c o l l e c t e d funds or reserve account of each member only a t the approximate time when the check a c t u a l l y has been c o l l e c t e d . The p l a i n - t i f f i s not e n t i t l e d t o the immediate use of the proceeds of a check which i s s t i l l uncollected* Nothing in. the Federal Reserve Act gives to p l a i n t i f f t h i s p r i v i l e g e and such p r i v i l e g e , i f extended, would be c o n t r a r y to business usage and the fundamental c o n s i d e r a t i o n s of sound business p o l i c y , as well as contrary to the express p r o v i s i o n s of Section 19 of the Federal Reserve Act- 'This d e f e n - dant says t h a t the acceptance on d e p o s i t for d e f e r r e d c r e d i t to . the r e s e r v e account of a member bank, in accordance with the time schedule, i s not a denial to the p l a i n t i f f of i t s r i g h t to have such items received f o r d e p o s i t a t par by the d e f e n d a n t , because the r i g h t to d e p o s i t a t par does not irnply the r i g h t to demand immediate a v a i l a b i l i t y for u n c o l l e c t e d items, and f o r tne f u r t n e r reason t h a t t o give the p l a i n t i f f immediate c r e d i t f o r u n c o l lected checks would be c o n t r a r y to the p r o v i s i o n s of Section 19 of t h e Federal Reserve Act* ? • This defendant f u r t h e r says t h a t were i t to allow i t s members to check a g a i n s t and otherwise u t i l i z e as c o l l e c t e d funds t h e a n t i c i p a t e d proceeds of uncollected items, the" member banks would thereby a c q u i r e , without cost by way of i n t e r e s t charge or o t h e r w i s e , the constant use ofl a r g e amounts of money a t the expehse of t h i s defendant* ( 27 ) Member banks would then seek to employ t h e s e funds by l e a d i n g them out or i n v e s t i n g them and t h i s wgrnld lead to widespread i n f l a t i o n with consequent high p r i c e s to the g r e a t detriment of the e n t i r e country. (Phis d e f e n d a n t , t h e r e f o r e , says t h a t the Federal Reserve Act and the amendments t h e r e t o c o n s t i t u t e a c o n s i s t e n t Act of Congress .addressed to the remedying of grave e v i l s of a p u b l i c character and seeking by i t s several p r o v i s i o n s , requirements, and a u t h o r i t i e s to e r e c t a s t a b l e f i n a n c i a l s t r u c t u r e i n t h e p u b l i c i n t e r e s t and f o r the w e l f a r e and convenience of the p e o p l e ; t h a t the demand of the p l a i n t i f f t h a t immediate c r e d i t be given f o r uncollected checks would destroy the i n t e g r i t y of the reserve the establishment of which was the p r i n c i p a l purpose of the Federal Reserve Act and would be a t variance with the express language of said Act, that t h e demand of the p l a i n t i f f that i t and other member banks i n t h e Federal Reserve System be authorized to charge exchange upon checks presented for payment and remission would l i k e w i s e impair the u s e f u l n e s s of the System to the banks and business of the country and be i n c o n f l i c t with the express requirements and p r o h i b i t i o n s of the Federal Reserve Act; t h a t a l l of the a c t s of t h i l defendant i n the r e s p e c t s complained of are h e r e i n b e f o r e shown to be i n harmony with the purpose of the Federal Reserve Act and s t r i c t l y w i t h i n the powers granted to by Congress and that no i n j u r y hasbeen done to the p l a i n t i f f , bat t h a t on the contrary the p l a i n t i f f d i r e c t l y and as a p a r t i c i p a n t i n t h e general bu i e w e l f a r e of the country has g r e a t l y advantaged t h e r e b y . ( 2S ) For t h e f o r e g o i n g rea X4i6l ' I 70S this defendant says that the injvmction and other r e l i e f i n said b i l l sought against i t should not "be granted, V/HSEEFCES this defendant prays that this s u i t be dismissed against i t with i t s reasonable costs in t h i s behalf expended. Hollina N. Randolph Robert S. Parker S o l i c i t o r s for Defendant Federal Reserve Bank.of Atlanta* Walter Wyatt Montgomery B. Angell Newton D, Baker Of•Counsel» ( 29 )
@FedFRASER