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; X-7177 A p r i l 7, 1932 Mr. I). R. Bounds, Deputy Governor, Federal Reserve Bank of New York, New York, New York. Dear Mr. Hounds; I have examined t h e forms prepared "by Mr. Logan f o r use i n connection with loans under Sections 10(a) and 10(b) of t h e Federal Reserve Act and have c e r t a i n suggestions t o o f f e r i n conn e c t i o n with those prepared f o r use under Section 1 0 ( a ) . I inclose herewith one s e t of those forms on which I have noted a number of s u g g e s t i o n s , and I wish t o o f f e r the following a d d i t i o n a l comments. In our d i s c u s s i o n s of t h i s s u b j e c t , I t h i n k a l l of us agreed t h a t , i f t h e p r o v i s i o n s of Section 10(a) a r e a v a i l e d of to any m a t e r i a l e x t e n t , t h e r e a r e two d i f f e r e n t types of groups which might be organized, (1) groups organized f o r the s p e c i f i c purpose of a f f o r d i n g a s s i s t a n c e t o p a r t i c u l a r banks which a r e i n d i f f i c u l t i e s , and (2) more or l e s s permanent groups organized f o r t h e mutual benef i t of a l l t h e i r members without r e f e r e n c e to any p a r t i c u l a r a p p l i cation for a loan. I think we a l l agreed t h a t the f i r s t type probably w i l l be the one most f r e q u e n t l y organized and t h a t t h e forms should be prepared with a view to being used by such groups. I t h i n k we a l s o agreed t h a t i t i s u n l i k e l y t h a t any groups of t h e second type w i l l be organized and t h a t , i f any groups of t h i s type a r e organized, the a t t o r n e y s f o r the banks involved w i l l have t h e i r own ideas as t o t h e p r o v i s i o n s which should be incorporated i n the r e s o l u t i o n s of d i r e c t o r s , o r g a n i z a t i o n agreements and other forms and t h a t i t would not be worth while t o endeavor to p r e p a r e i n advance any forms f o r use by such groups. 4 8 2 X-™ 4 8 3 -0- I t seems t o me, however, t h a t a middle course has been adopted i n the p r e p a r a t i o n of the forms and t h a t they would not he e n t i r e l y s u i t a b l e f o r use by groups of e i t h e r c l a s s . If permanent groups a r e organized, i t would seem t h a t p r o v i s i o n should be made f o r a loan conw m i t t e e or some o t h e r machinery f o r a c t i o n on behalf of the group as a whole i n applying f o r and obtaining loans from the F e d e r a l Reserve Bank and t h a t i t would be p o s s i b l e t o avoid having s e p a r a t e a c t i o n by the d i r e c t o r s of every bank i n the group on each a p p l i c a t i o n f o r a loan. On the other hand, i f groups a r e organized f o r the s p e c i f i c p u r - pose of a s s i s t i n g p a r t i c u l a r banks which a r e i n d i f f i c u l t i e s , the s i t u a t i o n probably would r e q u i r e prompt a c t i o n and i t would be a p p r o p r i a t e and d e s i r a b l e t o have each bank adopt only one r e s o l u t i o n covering the e n t i r e c a s e . Under the procedure proposed i n the forms t h a t have been p r e p a r e d , the board of d i r e c t o r s of each bank j o i n i n g a loan group would f i r s t meet and adopt a r e s o l u t i o n a u t h o r i z i n g t h e bank t o j o i n the group and, subsequently, a t t h e time of the a p p l i c a t i o n f o r a group l o a n , i t would be necessary f o r t h e board of d i r e c t o r s of each such bank to meet again and adopt a r e s o l u t i o n a u t h o r i z i n g t h e a p p l i c a t i o n f o r the loan from t h e Federal r e s e r v e bank and approving t h e applicapt i o n of the borrowing bank f o r a loan from the group. The n e c e s s i t y f o r t h i s second meeting would r e s u l t i n much delay i n o b t a i n i n g advances from t h e Federal r e s e r v e bank under Section 10(a) and might f r e quently make i t impossible t o obtain t h e necessary c r e d i t i n time to meet t h e emergency c o n f r o n t i n g the borrowing bank. In order t o elim- i n a t e the n e c e s s i t y f o r t h i s second meeting, i t i s suggested t h a t *-3"* the two proposed r e s o l u t i o n s "be consolidated, i n t o one arid adopted a t the time of the formation of the group• i n a d d i t i o n t o a u t h o r i z i n g the "bank to "become a member of the group such a r e s o l u t i o n could a l s o a u t h o r i z e / c e r t a i n o f f i c e r s of t h e bank t o approve an a p p l i c a t i o n of the borrowing bank f o r a loan from the group, t o j o i n i n making an a p p l i c a t i o n to the Reserve Bank f o r a group loan and to execute on behalf of the bank a group note evidencing such loan. I do not understand the theory underlying t h e p r o v i s i o n s i n the f i r s t p a r t of paragraph 6 on page 6 of the agreement covering the o r g a n i z a t i o n of the loan group and e s p e c i a l l y the r e f e r e n c e to funds under the c o n t r o l of t h e t r u s t e e which a r e s e c u r i t y , or r e p r e s e n t the proceeds of any s e c u r i t y , f o r a note of the "borrowing bank. I thought t h a t i t was contemplated t h a t a l l s e c u r i t y f o r t h e note of t h e borrowing bank would be pledged and d e l i v e r e d t o the Federal r e s e r v e bank and t h a t no s e c u r i t y would be l e f t i n the hands of the t r u s t e e . If t h i s i s the c a s e , then i t would seem t h a t t h e Federal r e s e r v e bank would be e n t i t l e d to a f i r s t claim on the proceeds of the note and should apply such p r o ceeds t o t h e indebtedness r e p r e s e n t e d by the note of t h e borrowing bank and a l s o to the r e d u c t i o n of the pro r a t a l i a b i l i t y of a l l banks on t h e group n o t e . I f , however, the t r u s t e e holds any funds or s e c u r i t y other than t h a t d e l i v e r e d t o the Federal r e s e r v e bank a s s e c u r i t y f o r the note of the borrowing bank, i t would seem t h a t t h e proceeds should be a p p l i e d f i r s t to t h e payment or reimbursement of the t r u s t e e f o r any expenses i n c u r r e d by him i n connection with t h e performance of any of h i s d u t i e s and t h a t anything remaining should be paid t o t h e Federal r e s e r v e bank and a p p l i e d i n the manner suggested above. X 7177 " -4Both the note of the "borrowing bank and. t h e note of t h e group provide f o r the payment of i n t e r e s t a t m a t u r i t y a t a c e r t a i n r a t e per annum from the date of t h e note* I t seems p r o b a b l e , how- e v e r , t h a t i n a g r e a t m a j o r i t y of c a s e s , advances under Section 10(a) would be handled on a discount b a s i s and i n t e r e s t deducted i n advance; and i t would seem d e s i r a b l e f o r these note forms to be changed so t h a t they w i l l be a p p r o p r i a t e f o r use i n cases where the notes a r e discounted as well as i n cases where i n t e r e s t i s p a i d at maturity. These forms seem t o contemplate t h a t t h e note of the group and the s e c u r i t y t h e r e f o r w i l l not be forwarded t o t h e Federal r e serve bank u n t i l a f t e r the r e s e r v e bank has considered t h e a p p l i c a t i o n and has a c t u a l l y made the l o a n . I t would seen a d v i s a b l e t o have t h e note and t h e c o l l a t e r a l s e c u r i n g i t accompany the a p p l i c a t i o n to t h e F e d e r a l reserve bank, i n order t h a t t h e l a t t e r may i n s p e c t t h e c o l l a t e r a l b e f o r e approving the loan and i n order t h a t t h e proceeds of t h e l o a n may be made a v a i l a b l e a s soon as i t i s approved. I understand t h a t t h i s i s t h e e s t a b l i s h e d procedure r e - garding discounts and advances t o member banks under Section 13 and i t seems to me t h a t i t should p r o p e r l y be followed i n thi-s case a l s o . The form of note of the borrowing bank, which has been r e v i s e d so a s to omit many of the p r o v i s i o n s which were included i n the note a s f i r s t d r a f t e d , s t i l l contains a number of p r o v i sions which do not appear t o me t o be e s s e n t i a l . As I have p r e - v i o u s l y w r i t t e n Mr. Logan, I f e e l t h a t i t would be a d v i s a b l e t o 485 486 X-7177 -5use a simple, s t r a i g h t n o t e , i n c o r p o r a t i n g i n t h e a p p l i c a t i o n a l l necessary p r o v i s i o n s a s to the r i g h t s of the h o l d e r , e f f e c t of i n solvency, e t c . The second paragraph of the note e s p e c i a l l y seems to me to "be unnecessary. The r e f e r e n c e to the group agreement i n the f i r s t sentence of t h a t paragraph might a f f e c t t h e n e g o t i a b i l i t y of t h e note i n some j u r i s d i c t i o n s , and t h e c e r t i f i c a t i o n contained i n t h e second sentence of t h e paragraph as t o the amount of e l i g i b l e and a c c e p t a b l e a s s e t s of t h e borrowing bank seems unnecessary i n view of t h e f a c t t h a t such a c e r t i f i c a t i o n i s contained i n t h e a p p l i c a t i o n of the borrowing bank. The f i r s t paragraph of the note s t a t e s t h a t copies of the a p p l i c a t i o n f o r the loan and of t h e schedule of c o l l a t e r a l s e c u r i t y a r e attached t o the note and made a p a r t t h e r e o f . This would appear t o have the same e f f e c t upon the n e g o t i a b i l i t y of the note a s the s p e c i f i c i n c l u s i o n of each of the p r o v i s i o n s of the a p p l i c a t i o n and, as t h i s p r o v i s i o n does not seem n e c e s s a r y , I t h i n k i t might wisely be omitted. The note of the Member Bank Loan Group provides t h a t any member except a borrowing bank may pay the amount of i t s l i a b i l i t y a t any time and s h a l l not t h e r e a f t e r be l i a b l e . I see no reason why a borrowing bank should not be permitted to a n t i c i p a t e and discharge a l l or any p a r t of i t s l i a b i l i t y to t h e Federal r e s e r v e bank. I t might be p r o v i d e d , however, t h a t any payment made by the borrowing bank s h a l l be a p p l i e d on i t s i n d i v i d u a l note t o t h e X-7177 4 8 7 group r a t h e r than on i t s pro r a t a share of the l i a b i l i t y on t h e group note and s h a l l a l s o be a p p l i e d i n reducing pro r a t a the l i a b i l i t i e s of a l l banks on the group n o t e . I t might a l s o be well t o add t h a t , i n t h e event of such a n t i c i p a t i o n of l i a b i l i t y by any member of the group, the note and other agreements s h a l l remain i n f u l l f o r c e and e f f e c t as t o a l l other members of the group and t h a t any r i g h t s of t h e bank which has a n t i c i p a t e d i t s l i a b i l i t y i n t h e c o l l a t e r a l s e c u r i t y pledged with the Federal r e s e r v e bank s h a l l be subordinated to the r i g h t s of the latter. These suggestions a r e submitted f o r your c o n s i d e r a t i o n , and I t h i n k they deserve c a r e f u l a t t e n t i o n ; b u t , i n order to avoid f u r t h e r delay, I suggest t h a t you transmit d i r e c t l y t o t h e other Federal r e serve banks any f u r t h e r m o d i f i c a t i o n s or r e v i s i o n s of t h e s e forms which you or your committee may decide upon and t h a t they not be held f o r f u r t h e r c o n s i d e r a t i o n by t h i s o f f i c e . For t h e Board's i n f o r m a t i o n , however, we would l i k e t o have copies of any f u r t h e r conraonications on t h i s s u b j e c t which you or your committee may t r a n s m i t t o t h e other banks. With k i n d e s t personal r e g a r d s , I am, C o r d i a l l y yours, (Signed*) Walter Ttyatt General Counsel WW/gc/4/7/32 35-7177-a 488 March 9, 1932. Mr. Walter S. Logan, Counseli Federal Reserve Bank of Mew York, Mew York, Mew York. Dear Walter; Confirming the conversations you and I had y e s t e r d a y and today, r e g a r d i n g the forms f o r use in connection with loans under Sections 10(a) and 10 (b) of t h e Federal Reserve Act as amended by the Act of February 27, 1932, I have not y e t f i n i s h e d my study of t h e s e forms; b u t , in order to expedite m a t t e r s , I am sending you herewith such suggestions as I have ready a t the p r e s e n t moment. There i s inclased a memorandum making d e t a i l e d suggestions r e g a r d i n g c e r t a i n of the forms, and I s h a l l incorpora t e in t h i s l e t t e r more general suggestions r e g a r d i n g o t h e r forms. In view of the f a c t t h a t these forms a r e b e i n g prepared f o r u s e throughout the United S t a t e s , i t would seem t h a t , as suggested by Governor Calkins, t h e form of note to be used by a bank borrowing from a group should be a simple, s t r a i g h t n o t e , in order t h a t t h e r e might not be any question about i t s n e g o t i a b i l i t y , and t h a t the p r o v i s i o n s regarding t h e pledge of c o l l a t e r a l and t h e o t h e r d e t a i l s of t h e c o n t r a c t of t h e borrowing bank should be incorporated in a s e p a r a t e agreement. Inasmuch a s i t i s probable t h a t t h e s e n o t e s w i l l be discounted, l i k e member bank 15-day 489 X-7177-a Mr. W. S. Logan - 2 n o t e s under Section 13, i t would seem that they should provide f o r t h e "payment of i n t e r e s t a f t e r m a t u r i t y r a t h e r than i n t e r e s t from the d a t e of t h e n o t e . Assuming t h a t the p r o v i s i o n s regarding the pledge of c o l l a t e r a l and other s i m i l a r p r o v i s i o n s w i l l be t r a n s f e r r e d to a s e p a r a t e document (which might be t h e a p p l i c a t i o n of t h e borrowing bank to t h e group), I would suggest t h a t , wherever the payee i s r e f e r r e d to i n t h e p r o v i s i o n s which a r e now incorporated i n t h e body of the n o t e , the holder of the note r a t h e r than t h e payee be r e ferred to. In view of the p r o v i s i o n s of the s t a t u t e r e g a r d i n g the pledge of s e c u r i t y f o r t h e p r o t e c t i o n of the group of banks, i t would a l s o seem a d v i s a b l e to make i t c l e a r t h a t such s e c u r i t y may not be a p p l i e d on o t h e r indebtedness to t h e Federal r e s e r v e bank u n t i l a f t e r t h e borrowing b a n k ' s o b l i g a t i o n to the group has been s a t i s f i e d in f u l l . I t would a l s o seem t h a t the borrowing bank should s p e c i f i c a l l y a u t h o r i z e t h e group or t h e t r u s t e e r e p r e s e n t i n g t h e group to pledge to t h e Federal r e s e r v e bank a l l c o l l a t e r a l or o t h e r s e c u r i t y pledged by the borrowing bank to the group, in order t h a t the borrowing bank might be estopped from claiming t h a t such s e c u r i t y was intended only f o r t h e p r o t e c t i o n of the group and not f o r the p r o t e c t i o n of the Federal r e s e r v e bank. Since the g r o u p ' s note w i l l be made payable d i r e c t l y to t h e Federal r e s e r v e bank and presumably w i l l not be t r a n s f e r r e d X-7177-a Mr. Wt S< Logan - 3 49 to any o t h e r h o l d e r , i t would not seem important f o r i t to be negotiable. Therefore, t h e r e would seem to be no o b j e c t i o n to incor- p o r a t i n g in the n o t e of t h e group the various p r o v i s i o n s regarding t h e pledge of c o l l a t e r a l and c e r t a i n a d d i t i o n a l p r o v i s i o n s which a r e discussed below; but I t h i n k t h a t c a r e f u l c o n s i d e r a t i o n should be given to t h e question whether i t would not be more a d v i s a b l e t o i n c o r p o r a t e such p r o v i s i o n s in the a p p l i c a t i o n of t h e group to t h e Federal r e s e r v e bank f o r a loan. On t h i s question, however, I havo no d e f i n i t e o p i n i o n . During our d i s c u s s i o n s with t h e Committee on Sunday, March 7 t h , i t was t e n t a t i v e l y agreed t h a t the n o t e , a p p l i c a t i o n or some o t h e r agreement of the group of banks with the Federal r e s e r v e bank should c o n t a i n p r o v i s i o n s along the f o l l o w i n g l i n e s ; 1. That, with r e s p e c t to the note of t h e borrowing bank and the s e c u r i t y t h e r e f o r t h e Federal r e s e r v e bank may e x e r c i s e a l l of the powers of ownership without f o r e c l o s u r e . 2. That t h e group a s s i g n s to the Federal r e s e r v e bank a l l o t h e r r i g h t s and claims a g a i n s t the borrower a r i s i n g out of such borrowing. 3. That, in t h e case of the insolvency of t h e borrowing bank, the Federal r e s e r v e bank i s authorized to f i l e a claim a g a i n s t the borrowing bank i n i t s own name and f o r i t s own b e n e f i t f o r the f u l l amount of t h e p r i n c i p a l and i n t e r e s t of the group note and t h a t f o r t h i s purpose, t h e group a s s i g n s to the Federal r e s e r v e bank a l l X-7177-a 4 9 1 Mr. W. S. Logan - 4 of i t s r i g h t s a g a i n s t the borrowing bank; Provided, however, That the Federal r e s e r v e bank s h a l l hold t h e note of t h e borrowing bank as a holder in due course and not as assignee. ( I have not attempted to s t a t e t h i s i n proper l e g a l form b u t have simply d i c t a t e d i t from t h e rough notes which I made a t our meeting on Sunday. The -ouroose of the p r o v i s i o n , of course, i s to enable t h e Federal r e s e r v e bank to f i l e with the r e c e i v e r of the borrowing bank a claim f o r t h e f u l l amount of the borrowing, s i n c e otherwise t h e claim of the Federal r e s e r v e bank a g a i n s t the borrowing bank on t h e note of the grdtap would only be f o r t h e borrowing b a n k ' s pro r a t a share of t h e amount of the group n o t e . Of course, the Federal r e s e r v e bank, a f t e r f o r e c l o s i n g on the c o l l a t e r a l , and taking over the n o t e of the borrowing bank in i t s own r i g h t , could f i l e a claim on t h a t n o t e with the r e c e i v e r of the borrowing bank; but in some S t a t e s and under some circumstances t h i s might be u n d e s i r a b l e . I t might a l s o be claimed t h a t the Federal r e s e r v e bank would have to c r e d i t the amount r e a l i z e d in t h i s manner a g a i n s t the pro r a t a l i a b i l i t y of the o t h e r banks in the group.) 4. The above p r o v i s i o n s , however, s h a l l not a f f e c t t h e r i g h t of the Federal r e s e r v e bank to enforce t h e l i a b i l i t y of the other banks in the group on the group note without f i r s t proceeding against the borrowing bank. 5. The Federal r e s e r v e bank may grant renewals, extensions and other indulgences to any member of t h e group without a f f e c t i n g i t s r i g h t s a g a i n s t any o t h e r member of t h e group. X- 71?7-a 4 9 2 Mr. W. S. Lbgan - 5 I t would, seem also t h a t the c o n t r a c t of both t h e "borrowing bank and the c o n t r a c t of the group with the Federal r e s e r v e bank should provide t h a t , a f t e r the b o r r o w e r ' s o b l i g a t i o n and the o b l i g a t i o n of the group have been s a t i s f i e d in f u l l , any remaining c o l l a t e r a l h e l d by t h e Federal r e s e r v e bank may be u t i l i z e d by i t to s a t i s f y any other o b l i g a t i o n of t h e borrowing bank. In both agreements, i t would a l s o seem a d v i s a b l e to provide t h a t any other s e c u r i t y held by the Federal r e s e r v e bank f o r other o b l i g a t i o n s of t h e borrowing bank may f i r s t be a p p l i e d on other indebtedness of t h e borrowing bank to t h e Federal r e s e r v e bank, but t h a t any s u r p l u s remaining a f t e r a l l such o t h e r i n debtedness has been s a t i s f i e d in f u l l may, in t h e d i s c r e t i o n of the Fede r a l r e s e r v e bank, be u t i l i z e d to s a t i s f y the o b l i g a t i o n of the group or the o b l i g a t i o n of t h e borrowing bank. I t would a l s o seem a d v i s a b l e , in t h s c o n t r a c t of t h e group, to provide s p e c i f i c a l l y f o r the r i g h t of any bank to a n t i c i p a t e and discharge i t s l i a b i l i t y to the Federal r e s e r v e bank; but with a proviso t h a t , in such event, the note and other agreements s h a l l remain in f u l l f o r c e and e f f e c t as to a l l other members of t h e group and t h a t any r i g h t s of such bank ( i . e . , t h e bank which a n t i c i p a t e s and discharges i t s l i a b i l i t y ) in t h e c o l l a t e r a l or other s e c u r i t y pledged with the Federal r e s e r v e bank s h a l l be subordinated to the r i g h t s of the Federal r e s e r v e bank. X-7177-a Mr. W. S. iQgan - 6 In t h e n o t e of the loan group i t would seem a d v i s a b l e to provide f o r t h e payment of i n t e r e s t a f t e r m a t u r i t y , i n s t e a d of i n t e r e s t from t h e date of the note, fdt the reasons i n d i c a t e d above in connection with t h e n o t e of the borrowing bank* In the note or o t h e r c o n t r a c t of the group, the p r o v i s i o n s regarding t h e method of determining the pro r a t a l i a b i l i t y of each member of t h e group should be changed in accordance with t h e change recommended i n t h e inclosed memorandum with regard to the agreement to form the loan group. In t h e a p p l i c a t i o n of the loan group to the Federal r e s e r v e bank f o r a loan (paragraph I I ) you a p p a r e n t l y contemplate t h a t the n o t e of the group and the s e c u r i t y t h e r e f o r would not be forwarded to the Federal r e s e r v e bank u n t i l a f t e r the Federal r e s e r v e bank has considered t h e a p p l i c a t i o n and approved the loan. In accordance with the e s t a b l i s h e d procedure regarding r e d i s c o u n t s and advances to member banks under Section 13, would i t not be b e t t e r to have t h e note and c o l l a t e r a l accompany the a p p l i c a t i o n to the Federal r e s e r v e bank, in order t h a t t h e Federal r e s e r v e bank may inspect the c o l l a t e r a l b e f o r e approving the loan and in order t h a t the proceeds may be made immediately a v a i l a b l e as soon as the loan i s approved? In t h e a p p l i c a t i o n f o r a loan under Section 10(b), i t would seem t h a t , in view of t h e f a c t t h a t the Federal Reserve Board probably w i l l not p r e s c r i b e any r e g u l a t i o n s d e f i n i n g t h e c l a s s e s of a s s e t s which may be pledged a s c o l l a t e r a l , i t would be a d v i s a b l e to s t r i k e out the 4 9 3 . 494 X-7177-a Mr. W. S. Logan - 7 c e r t i f i c a t e to t h e e f f e c t t h a t the c o l l a t e r a l l i s t e d i n Schedule A i s e l i g i b l e And to s u b s t i t u t e t h e r e f o r a statement to t h e e f f e c t t h a t none of t h e c o l l a t e r a l l i s t e d in Schedule A i s t h e o b l i g a t i o n of any f o r e i g n government, i n d i v i d u a l , p a r t n e r s h i p , a s s o c i a t i o n , or corporat i o n organized under the laws t h e r e o f . I t would also seem a d v i s a b l e to i n s e r t in t h i s form a c e r t i f i c a t e to t h e e f f e c t t h a t t h e statement of the exceptional and exigent circumstances which i s i n c o r p o r a t e d in the a p p l i c a t i o n or a t t a c h e d t h e r e t o i s a t r u e statement and i s b e l i e v e d to be s u f f i c i e n t to j u s t i f y the g r a n t i n g of the advances a p p l i e d f o r . As soon a s I can complete my study of your t e n t a t i v e d r a f t s of the forms, I s h a l l forward such a d d i t i o n a l suggestions a s m^y occur to me; and I would l i k e to have you consider them b e f o r e you d e l i v e r your f i n a l d r a f t of the forms to the Committee. I t i s a l s o understood, of course, t h a t the Committee w i l l submit a l l of t h e forms to the Fede r a l Reserve Board f o r i t s c o n s i d e r a t i o n b e f o r e t r a n s m i t t i n g them to the Federal r e s e r v e banks. R e g r e t t i n g t h a t we were unable to see more of you during our r e c e n t v i s i t to New York and with k i n d e s t personal r e g a r d s , I am C o r d i a l l y yours, Walter Wyatt, General Counsel. In c l o s u r e . X-717?-b March 9, 1932* (Mr. W y a t t ' s Tentative Suggestions re forms f o r use in making Advances under Sections 10(a) and 10(b).) RESOHJTION AUTHORIZING BANK OB TRUST COMPANY TO BECOME MEMBER OF LOAN GROUP. Last l i n e of f i r s t paragraph, omit word "unanimously", since the r e s o l u t i o n may not be adopted unanimously. AGREEMENT TO FORM LOAN GROUP Suggest amission of f i r s t two "Whereas" c l a u s e s , a s being unnecessary and unduly lengthening the agreement. Suggest t h a t l a t t e r p a r t of f i r s t paragraph on page 2 be changed to read a s f o l l o w s ; "deem i t advisable to fonn themselves i n t o a group of member banks f o r the purpose of a v a i l i n g themselves of the b e n e f i t s of Section 10(a) of the Federal Reserve Act*" Page 2, paragraph numbered 1$ read a s f o l l o w s : Change l a t t e r p a r t to "When t h i s agreement has been p r o p e r l y execu- ted by a l l members named in the next succeeding paragraph hereof". I t would seem inadvisable to r e q u i r e the approval of such agreement by the Federal reserve bank; since such approval might be considered to carry with i t an implied commitment t o make loans to the group organized t h e r e u n d e r . Page 3, paragraph numbered 3s Commencing w i t h the word "unless" change to read "unless there i s a n o t a t i o n to the c o n t r a r y f o l l o w i n g i t s name in paragraph 2 h e r e o f . " Paragraph numbered 4 on page 3: follows; change to read a s 495 4 9 6 X-7177-1 "4. The l i a b i l i t y of each member of the loan group fof advances made by the r e s e r v e bank to the loan group s h a l l be l i m i t e d , i n accordance w i t h the p r o v i s i o n s of Section 10(a) of the Federal Reserve Act, * to such p r o p o r t i o n of the t o t a l amount advanced to such group as the d e p o s i t l i a b i l i t y of the r e s p e c t i v e banks b e a r s to the aggregate d e p o s i t l i a b i l i t y of a l l banks in such g r o u p ' ; and the l i a b i l i t y of each member on each note of the Loan Group s h a l l be determined on the b a s i s of i t s g r o s s d e p o s i t l i a b i l i t i e s a t the opening of b u s i n e s s on the date of the w r i t t e n a p p l i c a t i o n by the Loan Group to t h e Federal Reserve Bank f o r the advance evidenced by such n o t e , which s h a l l be computed by adding t o g e t h e r , ( l ) i n the case of a n a t i o n a l bank, the f i g u r e s corresponding to those c a l l e d f o r by items 21, 22, 23 and 24 on the Comptroller of the Currency's Call Report Form No. 2130, a s r e v i s e d i n November, 1931, or (2) in the case of a State member bank, the f i g u r e s corresponding to those c a l l e d f o r by items 19, 20, 21 and 22 on the Federal Reserve Board's Call Report Form No. 105, a s r e v i s e d in November, 1931." Page 3, paragraph numbered 5: S t r i k e out the words "and agent" in two p l a c e s . Page 3, paragraph numbered ( a ) : S t r i k e out the words " c o l l a t e r - a l " and p l a c e quotation marks b e f o r e and a f t e r the words "Borrowing Bank". Page 4, l i n e s 1 and 2: S t r i k e out the words " c o l l a t e r a l " and s u b s t i t u t e t h e r e f o r the word " s e c u r i t i e s " . words "as s e c u r i t y " . S t r i k e out the -3Page 4, l i n e 3: X-7177-& S t f i k d gtit the words ''not tin'1 and sub- s t i t u t e the word "no". Page 4 , paragraph (b) l i n e 2: insert Ir A f t e r word " a p p l i c a t i o n s " by or on b e h a l f " . Page 4, paragraph (b) l i n e 7; A f t e r word "aggregate" i n s e r t word "amount". Page 4, paragraph (b) l i n e 9: Change word "are" to " s h a l l be". Page 4, paragraph (b) l i n e 14: S t r i k e out words "secured by the c o l l a t e r a l " and s u b s t i t u t e "and the s e c u r i t y " . Page 4 , paragraph (b) l i n e 15: S t r i k e out words "as security". S t r i k e out word " c o l l a t e r a l " and s u b s t i t u t e t h e r e f o r the word " s e c u r i t y " . Page 4 , paragraph (b) l i n e 18: S t r i k e out words "Loan Group" and s u b s t i t u t e "Federal reserve bank". Page 4, paragraph ( b ) , f i v e l i n e s from the bottom: S t r i k e out word " c o l l a t e r a l " . Page 4 , paragraph ( b ) : At end of paragraph, add the following: "When a member has signed and d e l i v e r e d to the t r u s t e e a note of the Loan Group, such members s h a l l , by such a c t i o n , be deemed to have a u t h o r i z e d or r a t i f i e d , ( l ) the making of a loan or loans by the loan group to the member or members named in the a p p l i c a t i o n of such Loan Group to the Federal r e s e r v e bank, and (2) the s i g n i n g and d e l i v e r i n g to the Federal r e s e r v e bank on behalf of the Loan Group of the a p p l i c a t i o n of such Loan Group f o r the loan d e s c r i b e d i n such a p p l i c a t i o n on the terms and c o n d i t i o n s stated therein." ~4~ X-7177*-b Page 5, paragraph (ti) lifted 5, 6 and 7} S t r i k e out the words " c o l l a t e r a l o f f e r e d a s s e c u r i t y f o r said note oi* notea of the "borrowing bank or "banks and" and s u b s t i t u t e t h e r e f o r the word " s e c u r i t y " . Page 5, paragraph (c) l i n e 12: S t r i k e out the words "without r e c o u r s e " . Page 5, paragraph (c) l i n e s 16 and 17: S t r i k e out words "with c o l l a t e r a l s e c u r i t y f o r s a i d loan or l o a n s " and s u b s t i t u t e t h e r e f o r t h e words " s e c u r i t y t h e r e f o r " . Page 5, paragraph ( d ) : S t r i k e out the word " c o l l a t e r a l " in four places. Also a f t e r the word " r e t u r n " in the f i f t h l i n e of the paragraph, i n s e r t the words "or r e l e a s e " . Page 6: Immediately b e f o r e paragraph 6, i n s e r t a new paragraph a b s o l v i n g the t r u s t e e from a l l personal l i a b i l i t y f o r any and a l l a c t s done by him on behalf of the Loan Group pursuant to the terms of t h i s agreement and w i t h i n the scope of his authority. RESOLUTION OF BORROWING BANKS. Immediately a f t e r the words "NOW, THEREFORE, BE IT RESOLVED," i n s e r t the f o l l o w i n g "that "(name and t i t l e of o f f i c e r ________________________ i s authorized other than the one signing a t t a c h e d c e r t i f i c a t e . ) " and d i r e c t e d : " At end of paragraph 2, s t r i k e out the word "and". At end of paragraph 3, i n s e r t the word "and". Add a new paragraph as f o l l o w s , immediately a f t e r paragraph 3: -5- X-7177-b 4 9 9 "4. To give such othei? a M i M f i l a i s e c u r i t y as may "be necessary f o r the purpose of obtaining such advance." t
@FedFRASER