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# ( 5 0 P Y X-6,796 J a n . 8, 1931. 10 Federal Reserve Board SfiOM Mr. Wyatt- General Counsel. SUBJECT L e g i s l a t i o n t o "be recom- mended i n Annual Report. I t i s customary f o r t h e Board each year to recommend i n i t s annual r e p o r t such amendments to the Federal Reserve Act and r e l a t e d s t a t u t e s as the Board may deem necessary or a d v i s a b l e . The rep o r t i s now "being p r e p a r e d ; but the Board has not y e t readied any d e c i s i o n as t o what l e g i s l a t i o n , i f any, i t d e s i r e s to recommend. Of course, the chances a r e not very f a v o r a b l e f o r the enactment of new l e g i s l a t i o n a t t h i s s e s s i o n of Congress. , The long s e s s i o n of the next Congress, however, w i l l commence two or t h r e e months b e f o r e the Board's next Annual Report would o r d i n a r i l y be submitted; and i t might be h e l p f u l t o recommend i n the 1930 Report such l e g i s l a t i o n as the Board would l i k e t o have i n t r o d u c e d a t the beginning of the next s e s s i o n . In order to a s s i s t the Board i n considering t h i s q u e s t i o n , I r e s p e c t f u l l y submit below a summary of the various proposed amendments to the Federal Reserve Act and r e l a t e d s t a t u t e s which the Board has cons i d e r e d w i t h i n the l a s t two y e a r s . . At the end of the memorandum there are a l s o mentioned c e r t a i n other amendments which the Board might d e s i r e to consider a t t h i s time. There a r e a t t a c h e d f o r t h e Board's f u r t h e r i n f o r m a t i o n : (1) A summary of a l l amendments to t h e National Bank Act designed to prevent bank f a i l u r e s which were recommended t y the Comptroller of the Currency i n h i s Annual Reports f o r the y e a r s 1863 to 1930, i n c l u s i v e , b u t which were n o t enacted by Congress; and (2) Excerpts from the Annual Report of t h e Superintendent of Banks f o r t h e S t a t e of Hew York f o r the year 1930 recommending amendments t o the New York Banking Law f o r the same purpose. AMB8PMBETS mmwrnTPfm-e RECOMMENDED BUT HOT ENACTED. An amendment t o Section 4 of the Federaj Reserve Act t o p e r m i t an Officer,, d i r e c t o r or employee of a mutual saving* haxib- tri s e r v e a s a Class B d i r e c t o r of a Federal r e s e r v e b^»vT - This amendment was recommended to Congress by the Board i n i t s Annual Reports f o r t h e years 1927, 1928 and 1929, and i n l e t t e r s addressed t o t h e Chairmen of the Banking and Currency Committees of t h e Senate and House under date of February 18, 1930. Accordingly, i n the 2nd Session of t h e 71st Congress, Senator Brookhart on A p r i l 2, 1930, introduced a b i l l (S. 4079) containing t h i s amendment, This hi 11 was passed by the Senate on A p r i l 14, 1930, and although i t was r e p o r t e d out by the House Banking and Currency Committee on May 26, 1930, i t has n o t y e t been p a s s e d by the House. An amendment t o Section 9 of the Federal Reserve Act a u t h o r i z i n g the Federal Reserve Board t o r e q u i r e a S t a t e member 'hank to s u r r e n d e r i t s 76 •i . - 3 - I' ? X-6796 Federal r e s e r v e bank s t o c k and t o f o r f e i t i t s membership whenever such hank has f a i l e d t o comply.with the a p p l i c a b l e p r o v i s i o n s of the hanking laws of t h e S t a t e i n % I t i s l o c a t e d . - W i s amendment was recommended t o Congress by the Board i n i t s Annual Report f o r t h e year 1929, "but no b i l l conforming to the Board f s recommendation was i n t r o duced i n e i t h e r t h e Senate or t$te House. l e t t e r s t o the Chairmen of the Banking and Currency Commi t t e e s of both this Senate and House r e con**. ng such an amendment and t r a n s m i t t i n g d r a f t s of a b i l l f o r t h i s purpose were p r e p a r e d by t h i s off i d e and submitted t o the Board on Febr u a r y 10, 1930, but such l e t t e r s were never s e n t because i t was f e a r e d t h a t they would cause confusion with r e s p e c t to a d i f f e r e n t b i l l a l ready pending. An amendment to Section 9 of the Federal Reserve Act t o permit S t a t e member banks t o e s t a b l i s h f o r e i g n b r a n c h e s . - This amAndment was recommended ; to Congress'by the Board i n i t s Annual ' Reports f o r the y e a r s 1927, 1928 and 1929, and i n l e t t e r s ad dressed to the Chairmen Of the Senate and House Banking and Currency Committees during 1929. I n the 1 s t Session of the 71st Con — g r e s s , Senator ftorbeck introduced a b i l l (S. 1070) alofig the l i n e of the amendment proposed by the Board; but t h i s b i l l was never r e p o r t e d out by the Senate Banking and Currency Committee, and no s i m i l a r b i l l was i n t r o d u c e d i n the House during t h a t s e s s i o n . I n the second s e s s i o n of t h i s Congress, Senator Horbeck introduced on December 11, 1929, another b i l l (S. 2%6) conforming t o the B o a r d ' s recommendations; and t h i s b i l l was passed by the Senate on A p r i l 14, 1930. On j ^ r i l 16, 1930, i t was p r e s e n t e d t o the House . and r e f e r r e d by t h a t body t o i t s Banking' and Currency Committee. S . 2605 has n o t yet been r e p o r t e d out by the Banking and Currency Comnittee of the House, and no s i m i l a r b i l l has been introduced i n t h e House. An amendment t o Section 13 of the Federal Reserve Act iDecreasing from 15 t o 90 day# the maximum maturi t y of advances made by I n d e r a l r e s e r v e banks t o member batiks on t h e i r promissory notes secured by paper e l i g i b l e f o r rediscount or f o r purchase by Federal r e s e r v e banks. An amendment of t h i s k i n d has been recommended t ° Congress by the Board i n i t s Annual Reports f o r t h e years 1927, 1928 and 1929, and i n l e t t e r s addressed to Congress under dates of January 16, 1926, A p r i l 24, 1928, and March 6, 1930. On January 18, 1926, Mr. McFaddett, i n the 1 s t Session of t h e 69th Congress, introduced a b i l l (H.R. 7894) conforming to the Board's views b u t no s i m i l a r b i l l was introduced i n the Senate d u r i n g t h a t Congress. I n the 70th Congress, 1 s t Session, Mr. Sumners of Texas i n t r o d u c e d on March 23, 1928, a s i m i l a r b i l l (H.R. 12349) i n the House; and i n the 2nd Session of t h i s Congress, Mr. Baird on A p r i l 8, 1930, and Mr. McFadden on May 1 , 1930, a l s o i n t r o d u c e d b i l l s of t h i s k i n d i n the Senate and House r e s p e c t i v e l y (S. 4139 and H. R« 12068). Hone of the b i l l s above r e f e r r e d t o has ever been r e p o r t e d o u t . - 3 - X-6796 " An amendment t o Section 22 of the Federal Reserve Act tflfiklng the robbery or b u r g l a r y of any Federal r e s e r v e beak or member bank a f e d e r a l o f f e n s e punishable through the f e d e r a l c o u r t s - An amendment of t h i s kind was i n c o r p o r a t e d i n the e a r l i e r d r a f t s of t h e McFadden B i l l whidh l a t e r became known as the Act of February 25, 1927; and d r a f t s of t h a t b i l l c o n t a i n i n g such p r o v i s i o n s were favorably r e p o r t e d by the Banking and Currency Committees of both the Senate and House of R e p r e s e n t a t i v e s . These d r a f t s of the b i l l , however, f a i l e d of enactment; and, when the b i l l vras r e i n t r o d u c e d a t t h e next Congress, t h i s amendment was omitted* The amendment, however, was recommended t o Congress by the Board . i n i t s Annual Report f o r the year 1929, and i n l e t t e r s addressed t o the Chairmen of the Banking and Currency Committees of the Senate and House under date of February 12, 1930. Following the Board's r e com mendations, b i l l s were introduced under dates of February 19 and A p r i l 4, 1930, by Congressman Hooper and Senator Walcott during the 2nd Sess i o n of the 71st Congress i n the House and Senate r e s p e c t i v e l y . These b i l l s , however, have never been r e p o r t e d out by e i t h e r the House or Senate Banking and Currency Committees. An amendment to Section 22 of the Federal Reserve Act to make i t a crime t o c i r c u l a t e f a l s e statements about or to black, l i s t a member b a n k . ~ T h e r e were contained i n c e r t a i n e a r l y d r a f t s of the McFadden B i l l , which l a t e r became known as the Act of February 25, 1927, amendments t o the law to make punishable c o n s p i r a c i e s to boycott or black l i s t or to cause a general withdrawal of d e p o s i t s from a member bank. These p r o v i s i o n s , however, did not become l a n although the Federal Reserve Board approved a d r a f t of the b i l l cont a i n i n g such p r o v i s i o n s . During t h e e a r l y p a r t of 1930, a number of b i l l s rrere i n t r o d u c e d i n the House the g e n e r a l purpose of which was t o amend the law along the l i n e s s t a t e d above, and, i n r e sponse t o a request f a r an expression of the views of the Board with r e f e r e n c e to H. R. 10560, a b i l l on t h i s s u b j e c t introduced by Mr. Brand i n the 2nd Session of the 71st Congress, the Board under date of March 27, 1930, addressed a l e t t e r to Con - ' g r e s s s t a t i n g the enactment of the b i l l would be b e n e f i c i a l to member banks and t o t h e i r d e p o s i t o r s and s t o c k h o l d e r s . This b i l l vras r e p o r t e d out by the House Banking and Currency Committee on A p r i l 24, 1930, b u t i t did not p a s s the House; and no s i m i l a r b i l l -,?as i n t r o d u c e d i n the Senate. Ah amendment to Section 22(a) of t h e Federal Reserve Act making i t c l e a r t h a t the p r o h i b i t i o n a g a i n s t examiners a c c e p t i n g loans and g r a t u i t i e s from member "banks a p p l i e s t o S t a t e examiners. - This amendment was recommended t o Congress by the Board i n i t s Annual Report f o r the year 1929, and i n l e t t e r s addressed to the Chairmen of the Banking and Currency Committees of the Senate and House under date of February 10, 1930. I n the 2nd Session of the 71st Congress, Senator Horbeck on February 12, 1930, and Mr. S e i b e r l i n g on February 19, 1930, i n t r o d u c e d - 4 - X-6796 b i l l s conforming t o the Board's recommendations i n the Senate and House, r e s p e c t i v e l y (S. 3541 and H. B. 10070)« S« 3541 was passed by the Senate on A p r i l 14th, and was p r e s e n t e d to t h e House and r e f e r r e d "by t h i s "body t o i t s Banking and Currency Committee; but n e i t h e r t h i s b i l l nor H. B. 10070 have been r e p o r t e d out by the House Banking and Currency Committee. An amendment exempting Federal r e s e r v e banks from attachment or garnishment proceedings b e f o r e f i n a l judgment i n any case or--proceeding. - The enactment of an amendment of t h i s c h a r a c t e r was recommended to Congress by the Board i n i t s A$mual Beports f o r the y e a r s 1927, 1928 and 1929, and i n l e t t e r s addressed to the Chairmen of the Banking and Qirrency Committees of the Senate and House under d a t e of February 14, 1929. Accordingly, i n the 2nd Session of the 71st Congress, Mr. Fenn on February 18, 1930, and Mr. Norbeck on February 19, 1930, introduced b i l l s conforming t o t h e Board's recommendations i n the House and Senate, r e s p e c t i v e l y ; but these b i l l s were never r e p o r t e d out. An amendment t o the J u d i c i a l Code r e s t o r i n g t o the United S t a t e s D i s t r i c t Court - j u r i s d i c t i o n of s u i t s by apd against Federal r e s e r v e banks. - The Board has recommended the enactment of an amendment of t h i s k i n d i n i t s Annual Beports f o r ttiie years 1927, 1928 and 1929, b u t no b i l l s covering t h i s s u b j e c t have ever been i n t r o d u c e d i n Congress. AMSDWmS cmSTTT%PTfp BY FSDEBAL B3SERVS BQABP BUT HOT BZCOLMEZmZD TO COmBSSS. * Aiaeridments p r o v i d i n g f o r a more e q u i t a b l e d i s t r i b u t i o n t o member banks of e a r n i n g s of Federal r e s e r v e banks. - During the y e a r s 1929 and 1930, a number of b i l l s were introduced i n Congress p r o v i d i n g f o r a l a r g e r d i s t r i b u t i o n of t h e earnings of Federal r e s e r v e banks among member banks, and the Board has gone on record i n i t s Annual Bep o r t f o r the year 1929 as saying t h a t such proposals a r e s u b j e c t s "which i n the judgment of the Federal Be serve Board might w e l l have the cons i d e r a t i o n of Congress i n connection with any l e g i s l a t i o n a f f e c t i n g the s t a t u s of member banks of the Federal Beserve System; b u t the problem involves c e r t a i n p r a c t i c a l d i f f i c u l t i e s , and the Board d e s i r e s t o study the s u b j e c t f u r t h e r b e f o r e recommending any S p e c i f i c amendment f o r t h i s purpose." On March 13, 1930, i n response to a r e q u e s t f o r a r e p o r t of the Treasury Department on S. 3564, a b i l l introduced i n the 2nd Session of the 71st Congress t o amend Section 7 of the Federal Beserve Act, the S e c r e t a r y of the Treasury addressed a l e t t e r t o Senator Uorbeck s t a t i n g t h a t he had c o n f e r r e d with the Federal Beserve Board regarding t h i s b i l l and t h a t t h e Board disapproved of i t s adoption. I t was s t a t e d t h a t |f 80 - 5 - X-6796 "The Federal Reserve Board favors a change i n the e x i s t i n g law which would accord to member banks a somewhat l a r g e r percentage of the e a r n ings of Federal r e s e r v e banks # a n they a r e Sow r e c e i v i n g , but the Board b e l i e v e s t h a t the p l a n of d i s t r i b u t i o n proposed i n t h i s b i l l should not be adopted". The B o a r d ' s o b j e c t i o n to t h i s p a r t i c u l a r b i l l was lodged a g a i n s t the p r o v i s i o n t h a t , a f t e r the payment of t h e 6$ dividend to member banks and the c r e a t i o n of the 100$ surplus fund, 10$ of t h e n e t earnings s h a l l then be p a i d i n t o s u r p l u s , and the remainder, or 90$ of such n e t e a r n i n g s , which under the p r e s e n t law a r e p a i d to the United S t a t e s as a f r a n c h i s e t a x , would be d i s t r i b u t e d to the member banks on a p r o r a t a b a s i s . As s t a t e d above, the Board has expressed t h e opinion t h a t member banks should have a g r e a t e r share i n the excess earnings of Federal reserve banks, and the Federal Advisory Council and the December, 1929, Conferences of Federal Reserve Agents and Governors have a l s o taken t h i s p o s i t i o n . An amendment to Section 9 of the Federal Reserve Act and Section 5240 of the Revised S t a t u t e s regarding examinations of member banks. This amendment p r o v i d e d , among o t h e r thingis, t h a t a l l examinations of member banks should be under the j u r i s d i c t i o n of the Comptroller of the Currency, and t h a t the expenses of such examinations should be p a i d by the Federal Reserve Board out of the proceeds of assessments l e v i e d a g a i n s t the Federal r e s e r v e banks, i n s t e a d of being p a i d by the banks examined. This amendment was prepared a t the request of Governor Young and vras submitted f o r t h e c o n s i d e r a t i o n of the December, 1929, Conferences of Federal Reserve Agents and Governors, which recommended t h a t the Board d e c l i n e t o give i t s approval to t h i s proposed measure. On February 6, 1930, the Board voted not t o recommend the enactment of such an amendment. An amendment t o the f i r s t paragraph of Section 19 of the Federal Reserve Act more c l e a r l y d e f i n i n g demand d e p o s i t s , time d e p o s i t s , savings d e p o s i t s , e t c . , and making i t more d i f f i c u l t t o 6vade the proper c l a s s i f i c a t i o n of d e p o s i t s f o r the purpose of computing r e s e r v e s . An amendment t o Section 19 of the Federal Reserve Act a u t h o r i z e ing member banks i n computing t h e i r r e s e r v e s t o deduct "balances due from banks" from t h e i r gross demand d e p o s i t s i n s t e a d of from "balances due to o t h e r banks". An amendment completely r e v i s i n g Section 19 of the Federal Reserve Act so as to a d j u s t , c l a r i f y and s i m p l i f y the r e s e r v e requirements• The Agents' and Governors' Conferences of December, 1929, recommended t h a t the above t h r e e proposals be submitted t o a s p e c i a l commi t t e e f o r s t u d y and recommendation, and the Board on February 6, 1930, voted to take no a c t i o n on t h e s e proposals i n view of the f a c t t h a t t h i s s p e c i a l committee had been a p p o i n t e d . - 6 - X-6796 Amendment t o the Bankruptcy Act providing t h a t funds i n the Custody of the f e d e r a l courts s h a l l be deposited with member "banks. «. The December, 1929, Conference of Federal Reserve Bank Governors approved of an amendment of t h i s k i n d send on January 6, 1930* i n the 2nd Session of the 71st Congress, Senator Walsh introduced a b i l l (S. 2950) p r o v i d i n g t h a t member banks may be designated d e p o s i t a r i e s of bankruptcy f u n d s . The Board has not s p e c i f i c a l l y recommended t h a t an amendment of t h i s kind be e n a c t e d , but a t I t s meeting of February 6, 1930, the law Committee was a u t h o r i z e d t o conduct such n e g o t i a t i o n s as might be necessary to have Senator Walsh's b i l l , S. 2950, so amended as to provide t h a t bankruptcy funds " s h a l l " be d e p o s i t e d i n member banks i n s t e a d of "may" be s o d e p o s i t e d ; and on February 17, 1930, Mr. Hamlin, a c t i n g f o r the Law Committee, addressed a l e t t e r to Senator Walsh suggesting t h a t the wording of h i s b i l l be changed so as to accomplish t h i s r e s u l t . The b i l l was never r e p o r t e d out by the Senate Banking and Currency Committee and no s i m i l a r b i l l was introduced i n the House. Amendment to t h e National Bank Act l i m i t i n g the amount of i n vestment by a n a t i o n a l bank i n bank b u i l d i n g and f i x t u r e s . - The December, 1929, Conference of Federal Reserve Agents recommended t h i s amendment, and on February 6, 1930, the Board voted t o r e f e r t h i s proposal to the Comptroller of the Currency. . Amendment r e q u i r i n g the approval of the Federal Reserve Board b e f o r e c h a r t e r s a r e g r a n t e d to new n a t i o n a l banks r - An amendment of t h i s k i n d was recommended by recent Conferences of Federal Reserve Agents, but the Board voted on February 6, 1930, not to recommend the enactment of such an amendment. REDISCOUNT OF NOIES REPRESENTING DIRECT LOAMS BY FEDERAL IMBRMEDIATB CRJSDIT BAUKS TO .. LIVES TOCK LOASJ COMPANIES. On J u l y 5 Governor Calkins of the Federal Reserve Bank of San Francisco i n q u i r e d by telegram whether a note with a m a t u r i t y not i n excess of nine months which i s given t o a Federal i n t e r m e d i a t e c r e d i t bank by a l i v e s t o c k loan company or an a g r i c u l t u r a l c r e d i t c o r p o r a t i o n secured by a g r i c u l t u r a l p a p e r i n accordance with tbo terms of the amendment of June 26, 1950, to the Federal Farm Loan Act i s e l i g i b l e f o r rediscount a t a Fede r a l r e s e r v e bank. On J u l y 9 t h i s o f f i c e advised the Board t h a t such n o t e s are not e l i g i b l e f o r rediscount i f the proceeds a r e used by the l i v e s t o c k loan company or a g r i c u l t u r a l c r e d i t corporation f o r the -purpose of making advances or loans to o t h e r borrowers, b u t t h a t they a r e e l i g i b l e i f the proceeds a r e used by the a g r i c u l t u r a l , c r e d i t c o r p o r a t i o n or l i v e s t o c k loan company i n the f i r s t i n s t a n c e f o r an a g r i c u l t u r a l or commercial purpose. The Board has not y e t r u l e d on t h i s question, and I understand t h a t some members of the Board a r e r e l u c t a n t to adopt the r u l i n g p r e p a r e d by t h i s o f f i c e . I t has occurred to me, t h e r e f o r e , t h a t the Board might d e s i r e t o recommend t h a t Congress amend the law so as t o make such notes c l e a r l y e l i g i b l e for rediscount. SEPEA1 OP EDGE ACT, I t has been suggested a number of times t h a t i t might be a d v i s a b l e f o r the Board to re commend t h a t Congress r e p e a l s e c t i on 25(a) of the Federal Reserve Act, commonly known as the Edge Act, which p r o vides f o r the o r g a n i z a t i o n under Federal c h a r t e r s of corporations to engage i n i n t e r n a t i o n a l and f o r e i g n banking and f o r the examination and s u p e r v i s i o n of such corporations by the Federal Reserve Board. Only a few such corporations have been organized; none of them have been v e r y s u c c e s s f u l ; and a t p r e s e n t there a r e only two such corporations engaged i n b u s i n e s s and one o t h e r which has been g r a n t e d a p r e l i m i n a r y p e r m i t to t r a n s a c t such b u s i n e s s as may be i n c i d e n t a l to i t s o r g a n i z a t i o n b u t which has not y e t p a i d i n i t s c a p i t a l and obtained a f i n a l permit to t r a n s a c t b u s i n e s s . This would i n d i c a t e t h a t the Edge Act i s not p r o ductive of ranch good. On the o t h e r hand, the Board r e c e i v e s numerous i n q u i r i e s regarding the o r g a n i z a t i o n of such c o r p o r a t i o n s and occasional a p p l i c a t i o n s f o r p e r m i t s to organize such c o r p o r a t i o n s which i n d i c a t e t h a t the Edge Act o f f e r s a constant temptation to promoters t o organize such c o r p o r a t i o n s s o l e l y f o r the purpose of s e l l i n g s t o c k t h e r e i n with the added advantage of being able to a d v e r t i s e t h a t such c o r p o r a t i o n s a r e organized under Federal law and are under the supervision of the Federal Reserve Board. I n view of a l l these circumstances, i t might be a d v i s a b l e f o r the Board to consider a t t h i s time whether i t should recommend t o Congress t h a t the Edge Act be r e p e a l e d . POWER TO REMOTE DIRECTORS AND OFFICERS OF BAKES. , ' While no formal recommendation t o t h a t e f f e c t was made, i t was suggested during the l a s t meeting of the Federal Advisory Council t h a t i t would enable the Comptroller of the Currency more e f f e c t i v e l y t o take s t e p s to p r e v e n t bank f a i l u r e s i f he were authorized to remove from o f f i c e d i r e c t o r s and o f f i c e r s of n a t i o n a l banks which a r e v i o l a t i n g the banking laws, engaging i n unsound c r e d i t p r a c t i c e s , or otherwise manageing t h e i r banks i n a manner l i k e l y to l e a d to d i s a s t e r . , Such an amendment was recommended by the Comptroller of the Currency i n h i s Annual Reports f o r the year 1895 and f o r the years 1914 to 1921, i n c l u s i v e . A s i m i l a r amendment t o the New York Banking Law was r e c e n t l y recommended by the Superintendent of Banks of the S t a t e of Hew York i n h i s Annual Report f o r the year ending December 31, 1930, page 13. I t i s p o s s i b l e t h a t Congress would not be w i l l i n g to g r a n t such d r a s t i c power to a s i n g l e Government o f f i c e r ; but i t might be w i l l i n g t o a u t h o r i z e the Federal Reserve Board to e x e r c i s e such power upon the recommendation of the Comptroller of the Currency. The Board, t h e r e f o r e , may d e s i r e to consider the a d v i s a b i l i t y of recommending t o Congress an amendment e i t h e r t o the National Bank Act or to the .Federal Reserve Act, g r a n t ing e i t h e r to the Comptroller of the Currency or the Federal Reserve Board, the power t o remove o f f i c e r s and d i r e c t o r s of n a t i o n a l banks, and p o s s i b l y of S t a t e member banks, under the circumstances o u t l i n e d above. - 8 - X-6796 f 8 3 OTHER POSSIBLE AifflHPMSEfTS EES I SITED TO PKEV53TT1 BASK FAILURES. • " " ' -Sv' . . . • f , The Board, might a l s o d e s i r e to consider what other amendments to t h e "banking laws could be recommended with a view of p r e v e n t i n g bank f a i l u r e s . To a s s i s t the Board i n considering t h i s question, I r e s p e c t f u l l y submit herewith: (1) A summary of a l l recommendations f o r l e g i s l a t i o n of t h i s c h a r a c t e r made by the Comptroller of the Currency i n h i s jtitoual Reports from the year 1863 up to and i n c l u d i n g the year 1930; and (2) c e r t a i n e x c e r p t s from the Annual Report of the Superintendent of Banks of the S t a t e of New York f o r the year ending December 31, 1930, recommending amendments to the New York Banking Law. Respectfully, Walter Wyatt, General Counsel. W OMC-SAD-GC X-6796-I ' 84 EXCERPTS FROM A32IUAI REPORT OF THE SUPERIHMBB2IT OF BANKS OF THE STATE OF $TEW YOBK. FCB THE YEAE E3DI1TG DECEMBER 31, 1930. (Pages 12 to 15 i n c l u s i v e . ) HEf LBJISLATIOlT EECOMME2JI3ED. "1. $o amend the Banking Law i n order to permit prompt mergers of banking i n s t i t u t i o n s i n case of emergency or when, necessary to p r o t e c t the i n t e r e s t s of d e p o s i t o r s and s h a r e h o l d e r s , "by p r o v i d i n g t h a t with t h e approved of t h e Superintendent of Banks, the boards of d i r e c t o r s of any two or more banking i n s t i t u t i o n s may merge such i n s t i t u t i o n s under an agreement which w i l l p r o t e c t and p r e s e r v e t h e -equities of the r e s p e c t i v e s t o c k h o l d e r s * Such amendment .might a l s o provide t h a t such agreement s h a l l be s u b j e c t to the approval of a J u s t i c e of t h e Supreme Court of New York. "Under the e x i s t i n g law when a banking i n s t i t u t i o n , because of l a c k of l i q u i d i t y or d e p r e c i a t i o n i n the value of a s s e t s , can no longer s a f e l y be p e r m i t t e d t o continue i n the conduct of i t s b u s i n e s s , the Superintendent of Banks i s p l a c e d i n the p o s i t i o n of being obliged t o e i t h e r close such i n s t i t u t i o n or urge t h a t i t merge vrith some i n s t i t u t i o n having a sound f i n a n c i a l s t a n d i n g . The l a t t e r remedy,, providing the merger i s a proper one, i s much to be p r e f e r r e d to the f i r s t , f o r the reason t h a t . the c l o s i n g of an i n s t i t u t i o n undermines p u b l i c confidence g e n e r a l l y and o f t e n l e a d s to heavy withdrawals from other i n s t i t u t i o n s . Furthermore, the c l o s i n g of a banking i n s t i t u t i o n may r e s u l t i n l o s s t o d e p o s i t o r s f o r no o t h e r reason then t h e f a c t t h a t the closing o p e r a t e s to d e p r e c i a t e the value of c e r t a i n c l a s s e s of a s s e t s , not e a s i l y l i q u i d a t e d , though of s u b s t a n t i a l value to a going i n s t i t u t i o n . "Why not mergers then i n a l l cases where the c ondition of an i n s t i t u t i o n w i l l not j u s t i f y p e r m i t t i n g i t to continue i n b u s i n e s s ? Under the p r e s e n t law, mergers t o become e f f e c t i v e must be approved by s t o c k h o l d e r s . To procure such approval i t may be necessary t o inform them of the f a c t s n e c e s s i t a t i n g the merger, which i s l i k e l y to lead to u n c e r t a i n t y and rumors, r e s u l t i n g i n runs which may cause the i n s t i t u t i o n ' s c l o s i n g bef o r e the merger can be e f f e c t e d . Furthermore, because of rumors which may o r i g i n a t e suddenly, i t becomes necessary i n some i n s t a n c e s t o accomplish mergers over n i g h t i f i n s t i t u t i o n s a r e to be saved, which under t h e p r e s ent law i s impossible s i n c e approval by stockholders must be obtained a t a meeting h e l d on two weeks' n o t i c e . "For these r e a s o n s , and because i t i s a m a t t e r of g r e a t p u b l i c i n t e r e s t t h a t banking i n s t i t u t i o n s be closed only i n cases where t h e r e i s no o t h e r a l t e r n a t i v e , i t i s urged t h a t the L e g i s l a t u r e , which i s about to meet, adopt l e g i s l a t i o n p e r m i t t i n g , i n cases where an emergency e x i s t s , the merger of banking i n s t i t u t i o n s by a c t i o n of the r e s p e c t i v e boards of d i r e c t o r s without the approval of s t o c k h o l d e r s . The proposed s t a t u t e , which i s now i n p r o c e s s of being d r a f t e d , w i l l permit such a merger only i n cases where the Superintendent of Banks d e c l a r e s t h a t such a c t i o n i s ne cessary i n order t o avoid c l o s i n g one of the i n s t i t u t i o n s . I t a l s o makes ample p r o v i s i o n f o r the p r o t e c t i o n of the i n t e r e s t of stockholders of the merging institutions. (Annual Beport-Supt of Banks-New York) X-6796 —a - 2 — "Had the p r e s e n t law contained such a p r o v i s i o n , the Baltic of United S t a t e s would have "been merged with one of our s t r o n g e s t i n s t i t u t i o n s and i t s c l o s i n g avoided. " 2 . To permit the Superintendent to remove from o f f i c e , o f f i c e r s or d i r e c t o r s of tanking i n s t i t u t i o n s who have "been g u i l t y of • p e r s i s t e n t v i o l a t i o n s of the hanking law, or of a continuance of u n s a f e and unsound p o l i c i e s and p r a c t i c e s . "3. To p e r m i t the Superintendent t o i n s i s t upon c h a r g e o f f s as d i r e c t e d "by the Department, * i t h i n s i x t y days a f t e r r e c e i p t of n o t i f i c a t i o n , p e r m i t t i n g r e s e r v e s t o he e s t a b l i s h e d i n l i e u of chargeoffs. "4. To provide t h a t the s t o c k of a l l banks and t r u s t comp a n i e s and other c o r p o r a t i o n s s u b j e c t to the s u p e r v i s i o n of the Banking Department he evidenced hy i n d i v i d u a l c e r t i f i c a t e s of s t o c k , which s h a l l n o t he coupled w i t h the stock of any other c o r p o r a t i o n . A l l such arrangements e x i s t i n g a t the p r e s e n t time s h a l l terminate w i t h i n two y e a r s . *5. To l i m i t the extension of c r e d i t and investment of funds i n s t o c k and o b l i g a t i o n s of a f f i l i a t e d c o r p o r a t i o n s a s d e f i n e d i n Sect i o n 39 of the Banking La*, hy providing t h a t t h e aggregate investment i n c a p i t a l s h a r e s or o b l i g a t i o n s o f , or d i r e c t or i n d i r e c t loans t o , o r l o a n s secured hy the shares or o b l i g a t i o n s o f , any corporation a f f i l i a t e d with a banking i n s t i t u t i o n and or any s u b s i d i a r y corporation of such a f f i l i a t e d c o r p o r a t i o n , s h a l l not exceed i n the aggregate 10 per cent of the c a p i t a l and s u r p l u s of any banking i n s t i t u t i o n . " 6 . To p r o h i b i t any o f f i c e r , c l e r k or other employee of a bank or t r u s t company from borrowing from the i n s t i t u t i o n of which he i s an o f f i c e r , c l e r k or other enployee and from becoming o b l i g a t e d d i r e c t l y or i n d i r e c t l y , c o n d i t i o n a l l y or otherwise t o such i n s t i t u t i o n . "7. To p r o v i d e t h a t an o f f i c e r of a banking i n s t i t u t i o n s h a l l not be p e r m i t t e d to become an o f f i c e r of any company engaged p r i m a r i l y i n the b u s i n e s s of t h e purchase and s a l e of s e c u r i t i e s . . " 8 , To provide t h a t every d i r e c t o r of any banking i n s t i t u t i o n who i s d i r e c t l y , i n d i r e c t l y , c o n d i t i o n a l l y or otherwise o b l i g a t e d on any loan or other e x t e n s i o n of c r e d i t made by such i n s t i t u t i o n t o such d i r e c t o r or other i n d i v i d u a l , p a r t n e r s h i p , unincorporated a s s o c i a t i o n or c o r p o r a t i o n s h a l l f i l e with such i n s t i t u t i o n once i n each year and a t such o t h e r times a s the Superintendent may r e q u i r e , a statement of his financial condition. " 9 . To change the p e r i o d w i t h i n which d i r e c t o r s ' examinations are t o be made to p r o v i d e f o r such examinations a t l e a s t once i n each |7 Jt-6796-a (Annual Report-Supt. of Banks-Hew York) - 3 - " s i x months' p e r i o d . The scope of such examinations to include a complete review by each d i r e c t o r of a l l loans' and investments i n excess of o n e - t e n t h of 1 per cent of the c a p i t a l and s u r p l u s of such i n s t i t u t i o n (exceeding a minimum of $1000 however) i n c l u d i n g a l l ext e n s i o n s of c r e d i t t o a f f i l i a t e d or s u b s i d i a r y companies. At l e a s t once i n two successive years such examination i s t o include a couplete v e r i f i c a t i o n of d e p o s i t l i a b i l i t i e s . "10. To r e q u i r e t h a t banks and t r u s t companies s h a l l , a t the end of each yeax% rezider to stockholders a r e p o r t showing the a t t e n d ance o f , d i r e c t o r s a t meetings h e l d during t h a t y e a r . • * * * * * * . * "12. To l i m i t the amount of the funds of any banking i n s t i t u t i o n t h a t may be d e p o s i t e d with any other banking i n s t i t u t i o n , g i v i n g e f f e c t to the varying exigencies a t t a c h i n g t o the d e p o s i t i n g of funds with (a) designated r e s e r v e d e p o s i t a r i e s ; (b) domestic banking i n s t i t u t i o n s not a c t i n g as r e s e r v e agents; (c) f o r e i g n banking i n s t i t u t i o n s . • * * * , *' * * * "14. To omit f o r e i g n exchange balances c r e d i t e d to a banking i n s t i t u t i o n from the items t h a t may be deducted from the t o t a l de* p o s i t s of such banking i n s t i t u t i o n i n a r r i v i n g a t t h e aggregate demand d e p o s i t s thereof a g a i n s t which r e s e r v e s a r e r e q u i r e d to be maintained* * * * * 7 -•* * * * "17. To l i m i t the aggregate amount of funds which a banking i n s t i t u t i o n may i n v e s t i n the s t o c k , c o n v e r t i b l e bonds, or o t h e r obl i g a t i o n s of o t h e r c o r p o r a t i o n s . * - * * * - * * * # "19. To p r o v i d e t h a t any holding company whi<& owns s t o c k of a banking i n s t i t u t i o n s h a l l be r e q u i r e d t o maintain r e s e r v e s or s u r e t y bonds t o p r o t e c t the s t a t u t o r y double l i a b i l i t y which a t t a c h e s to such s t o c k . * * * # * * * * "23. To p e r m i t the Superintendent to o r d e r , a t the expense of a bank or t r u s t company, a p p r a i s a l s of r e a l e s t a t e p r o p e r t i e s owned by or mortgaged t o such i n s t i t u t i o n , tiy independent, i n p a r t i a l a p p r a i s e r s of recognized s t a n d i n g . " Wr-sad 86 X-6796-jb , January 7, 1931. TO Mr. Wyatt FROM Mr. Wingfield. SUBJECT? Amendments suggested by Compt r o l l e r s of the Currency from 1863 to 1930 designed to prevent t a n k f a i l u r e s . I n accordance with your r e q u e s t , 1 have examined the annual r e ports, made to Congress by Comptrollers of the Currency from the year 1863 down to date t o determine what amendments to the law designed to prevent bank f a i l u r e s have been suggested by the o f f i c e of the Comptroller of the Currency. In compiling the suggested amendments, I ' h a v e omitted any such amendments wliich i t appears have been s u b s t a n t i a l l y enacted i n t o laws. I n a number of c a s e s , the r e p o r t s of the Comptroller of the Currency r e p e a t suggestions f o r amendments which have p r e v i o u s l y been madei In the se cases, I have omitted such r e p e t i t i o n s u n l e s s some m a t e r i a l change has been made i n the previous recommendations. The suggested amendments I have discovered t r i l l be described below with a c i t a t i o n to the r e p o r t of the Comptroller of the Currency i n which the suggestion may be found. 1863 • I n h i s r e p o r t of 1863, the Comptroller of the Currency suggested t h a t a number of amendments be made to the National Bank Act. Most of the suggested amendments were f o r the purpose of c l a r i f y i n g e x i s t i n g p r o v i s i o n s of t h e Act and to remove ambiguities i n the p r o v i s i o n s of the Act. Two of the amendments contained i n t h i s r e p o r t , however, were a p p a r e n t l y made p r i marily f o r the purpose of avoiding bank f a i l u r e s . (1) An amendment providing t h a t the f a i l u r e of a n a t i o n a l bank be d e c l a r e d prima f a c i e f r a u d u l e n t and t h a t the o f f i c e r s and d i r e c t o r s under whose a d m i n i s t r a t i o n each insolvency s h a l l occur be made p e r s o n a l l y l i a b l e f o r the debts of the bank and be punished c r i m i n a l l y u n l e s s i t s h a l l appear upon i n v e s t i g a t i o n t h a t i t s a f f a i r s were h o n e s t l y administered. This p r o v i s i o n rras intended to take the p l a c e of e x i s t i n g l i a b i l i t y of s t o c k h o l d e r s i n a n a t i o n a l bank. (Report on the Finances, 1863, p . 51.) (2) An amendment t o provide t h a t no n a t i o n a l bank s h a l l commence bus in e s s r i t h a l e s s c a p i t a l a c t u a l l y p a i d i n then $50,000. The Comptroller a l s o suggested t h a t a n a t i o n a l bank should not be organized with a c a p i t a l of l e s s then $100,000* $50,000 to be p a i d i n a t the commencement of b u s i ness and the balance i n i n s t a l l m e n t s of 10% every 60 days t h e r e a f t e r . (Heport on the Finances, 1863, p . 5 1 . ) 1864. -To recommendation f o r amendments designed to p r e v e n t bank f a i l u r e s . 1865. Ho recommendation f o r amendments designed t o prevent bank f a i l u r e s — 2 - f X-6796-b I 1866. (1) An amendment a u t h o r i z i n g the C o n t r o l l e r of the Currency to appoint a r e c e i v e r rhenever s a t i s f a c t o r y evidence i s f u r n i s h e d t h a t any n a t i o n a l hank i s not carrying on the proper "business of hanking; t h a t any of i t s r e p o r t s r e q u i r e d hy law have "been f a l s e or f r a u d u l e n t ; t h a t i t s funds have been w i l f u l l y misapplied by the o f f i c e r s or d i r e c t o r s i n v i o l a t i o n of law or t h a t i t has committed any a c t of insolvency. (Rep o r t of 1865, p . X I I . ) (2) An amendment l i m i t i n g loans t o , or d e p o s i t s w i t h , p r i v a t e bankers or b r o k e r s . (Report of 1866, p . X I I . ) (3) An amendment to r e q u i r e monthly r a t h e r than q u a r t e r l y r e p o r t s of c o n d itio n of n a t i o n a l banks. (Report of 1866, p . X I I . ) 1867-1886 During these y e a r s , the Comptroller of the Currency d i d not make nay not? recommendations f o r amendments to the n a t i o n a l Bank Act designed to prevent bank f a i l u r e s . 1887 (1) An amendment to p r o h i b i t a m a j o r i t y of the board of d i r e c t o r s of a n a t i o n a l bank from c o n s i s t i n g of the o f f i c e r s of the n a t i o n a l bank. (Report of 1887, p . 4 . ) (2) An amendment r e q u i r i n g d i r e c t o r s of a n a t i o n a l bank to include i n t h e i r oath of o f f i c e an o b l i g a t i o n to inform themselves a t a l l times as to the b u s i n e s s and condition of the n a t i o n a l bank. (Report of 1 8 8 7 , p . 4 ) . (3) An amendment r e s t r i c t i n g the investment by n a t i o n a l banks i n r e a l e s t a t e s e c u r i t i e s . (Report of 1887, p . 8 . ) to law. (4) An amendment to provide a p e n a l t y f o r making loans c o n t r a r y (Report of 1887, page 8 . ) (5) An amendment r e q u i r i n g the d i r e c t o r s of n a t i o n a l banks to charge o f f a l l l o s s e s and bad debts b e f o r e the payment of d i v i d e n d s . (Report of 1887, p . 9 . ) In h i s r e p o r t of 1887, the Comptroller suggested the enactment of a n a t i o n a l bank code i n c o r p o r a t i n g a number of changes i n the R a t i o n a l Bank Act, as i t e x i s t e d a t t h a t time. The amendments above described appear to be the most important changes suggested and i n c o r p o r a t e d i n t h i s proposed code to prevent the f a i l u r e of n a t i o n a l banks. The code i s s e t out on pages 12-38 of t h e Henort of the Comptroller of the Currency f o r t h e year 1887. — 3 — X-6796-b f. 1888-1890 Ho recommendation f o r amendments designed to prevent bank f a i l u r e s . 1891 (1) An amendment to p r o h i b i t a c t i v e o f f i c e r s of a National Bank from borrowing from the bank with which he i s connected and l i m i t i n g the loans to any d i r e c t o r of a N a t i o n a l Bank to 20$ of the p a i d up c a p i t a l of the bank. (Report of 1891, p . 3 1 . ) (2) An amendment to r e q u i r e the p u b l i c a t i o n of l i a b i l i t i e s of o f f i c e r s and d i r e c t o r s of n a t i o n a l banks. (Report of 1891, p . 3 1 . ) 1892 Ho recommendation f o r amendments designed t o prevent bank f a i l u r e s . 1893 An amendment t o r e q u i r e National Bank examiners t o take an oath of o f f i c e and t o give bond i n such amount and with such s u r e t i e s a s the Comptroller of the Currency may r e q u i r e . (Report of 1893, p . 2 3 . ) 1894 Ho recommendation f o r amendments designed to prevent bank f a i l u r e s . , 1895 An amendment t o a u t h o r i z e the Comptroller of the Currency with t h e approval of the S e c r e t a r y of the Treasury, a f t e r a h e a r i n g , to remove o f f i cers and d i r e c t o r s of National Banks f o r v i o l a t i o n s of law and mismanagement of the bank. ( Report of 1895, p . 2 1 . ) 1896 (1) An amendment l i m i t i n g loans to o f f i c e r s of a National Bank and r e q u i r i n g t h a t a l l l o a n s to o f f i c e r s and d i r e c t o r s of National Banks be secured by c o l l a t e r a l or by personal endorsement. ( Report of 1896, p . 100.) (2) An amendment to r e q u i r e the d i r e c t o r s of each National Bank to make an examination of the batik a t l e a s t once a year and submit a r e p o r t thereof to the Comptroller of the Currency. ( Report of 1896, p , 100.) 1897-1899 No recommendation f o r amendments designed to prevent bank f a i l u r e s . — 4 — X-6796-jb , 90 1900 (1) An amendment to l i m i t loans to o f f i c e r ' s ; d i r e c t o r s and employees of National Banks. (Report of 1900, p . XIV.) (2) An amendment p r e s c r i b i n g a s p e c i f i c p e n a l t y f o r v i o l a t i o n s of Section 5200 Revised S t a t u t e s of the United S t a t e s . (Report of 1900, p.XVIII.) 1901-1905 Ho recommendation f o r amendments designed t o prevent "bank f a i l u r e s . 1906 2To recommendation other than with r e f e r e n c e to extending the j u r i s d i c t i o n of the Comptroller of the Currency of banks i n the D i s t r i c t of Columbia and with r e f e r e n c e t o the i s s u e of currency by n a t i o n a l banks. (Report of 1906, pages 63-78.) 1907 Ho recommendation other than a general d i s c u s s i o n of the need f o r a c e n t r a l r e s e r v e and note i s s u e system. 1908 Ho recommendation f o r amendments designed to prevent bank f a i l u r e s . 1909 2To recommendation f o r amendments designed to prevent bank f a i l u r e s , but r e f e r e n c e i s made to suggestions made by Comptroller of the Currency to the N a t i o n a l Monetary Commission. (Report of 1909, page 94.) 1910 Ho recommendation f o r amendments designed to prevent bank f a i l u r e s . 1911 (1) An amendment to provide t h a t any c o r p o r a t i o n which purchases stock of a n a t i o n a l bank s h a l l be l i a b l e f o r assessment on such s h a r e s . I t appears t h a t c o r p o r a t i o n s which have purchased n a t i o n a l bank stock without having a u t h o r i t y under t h e i r c h a r t e r to do s o , a r e n o t , i n view of c e r t a i n court d e c i s i o n s , s u b j e c t to an assessment on such s t o c k . This amendment was sugg e s t e d t o take care of t h i s s i t u a t i o n . (Report of 1911, page 80.) (2) An amendment to provide t h a t criminal o f f e n s e s a r i s i n g under the p r o v i s i o n s of the National Bank Act may be prosecuted a t any time w i t h i n ten y e a r s a f t e r the commission of the o f f e n c e . (Report of 1911, page 82.) 1912-1913 No recommendation f o r amendments designed to p r e v e n t bank f a i l u r e s . - 5 - X—6796-|B m± (1) i n amendment t o a u t h o r i z e t h e Comptroller of the Currency to p e n a l i z e "by i m p o s i t i o n of a p p r o p r i a t e f i n e s a l l i n f r a c t i o n s and v i o l a t i o n s of law an& t h e Comptroller*e r e g u l a t i o n s , such f i n e s t o be imposed upon t h e o f f e n d i n g o f f i c i a l s , a s w e l l as upon the bank "by which they a r e employed. The Comptroller a l s o s u g g e s t e d t h a t c e r t a i n v i o l a t i o n s of the law and r e g u l a t i o n s should, "be p u n i s h a b l e by imprisonment a s w e l l a s by f i n e s . ( R e p o r t of 1914, page 1 7 . ) (2) An amendment f i x i n g a l i m i t upon t h e a g g r e g a t e amount which a n a t i o n a l bank may l a w f u l l y l o a n t o or d i s c o u n t f o r , d i r e c t l y or i n d i r e c t l y , a s i n g l e b o r r o w e r , such l i m i t t o be e i t h e r a p e r c e n t a g e of the b a n k ' s c a p i t a l and s u r p l u s o r of i t s t o t a l loans« ( Report of 1914, page 1 7 . ) (3) A s p e c i f i c amendment a u t h o r i z i n g t h e Comptroller of t h e Curr e n c y t o impose a p p r o p r i a t e f i n e s f o r d i s r e g a r d of t h e C o m p t r o l l e r ' s i n s t r u c t i o n s w i t h r e f e r e n c e t o o v e r d r a f t s * (Report of 1914, page 1 8 . ) (4) An amendment a u t h o r i z i n g t h e Comptroller of t h e Cusrfcncy t o e n f o r c e t h e a d o p t i o n by each n a t i o n a l bank of a s t a n d a r d s e t o f b y - l g w s c o v e r i n g c e r t a i n e s s e n t i a l r u l e s and elementary r e g u l a t i o n s , (Report of 1914, page 1 9 . ) (5) An amendment a u t h o r i z i n g t h e Comptroller of t h e Currency, w i t h the a p p r o v a l of t h e S e c r e t a r y of t h e T r e a s u r y , t o r e q u i r e t h e removal of any d i r e c t o r o r o f f i c e r of a n a t i o n a l bank g u i l t y of a v i o l a t i o n of any of t h e more i m p o r t a n t p r o v i s i o n s of t h e R a t i o n a l Bank Act and t o d i r e c t t h a t s u i t be b r o u g h t i n the name of the bank a g a i n s t such d i r e c t o r or o f f i c e r f o r l o s s e s s u s t a i n e d by m a l f e a s a n c e or m i s f e a s a n c e i n o f f i c e . (Report of 1914, page 1 9 . ) (6) An amendment p r o v i d i n g t h a t i f a d i r e c t o r of a n a t i o n a l bank does n o t q u a l i f y and f o r w a r d h i s o a t h t o the Comptroller of the Currency w i t h i n t h i r t y days a f t e r h i s e l e c t i o n , a vacancy s h a l l be immediately d e c l a r e d and s h a l l be f i l l e d by the remaining d i r e c t o r s and t h e d e r e l i c t d i r e c t o r be made i n e l i g i b l e f o r r e e l e c t i o n d u r i n g t h a t y e a r . (Report of 1914, page 1 9 . ) (7) An amendment t o p r o v i d e t h a t no n a t i o n a l bank s h a l l be p e r m i t t e d t o h o l d d e p o s i t s i n e x c e s s of t e n times i t s u n i m p a i r e d c a p i t a l and s u r p l u s . (Report of 1914, page 2 1 . ) 1915 (1) An amendment t o p r o h i b i t o f f i c e r s of a n a t i o n a l bank from borrowing funds of t h e bank by which t h e y a r e employed. ( R e p o r t of 1915, page 3 2 . ) (2) A$ amendment t o p r o h i b i t a n a t i o n a l bank f r o m making any l o a n t o a d i r e c t o r or a f i r m i n which a d i r e c t o r may be a p a r t n e r w i t h o u t f o r m a l a u t h o r i t y of t h e b o a r d of d i r e c t o r s of t h e b a n k . (Report of 1915, page 3 2 . ) . - 6 - X-6796-b [ 9 3 (3) An amendment t o r e q u i r e a l l o f f i c e r s or employees of a n a t i o n a l bank having custody of i t s funds or s e c u r i t i e s or engaged i n the h a n d l i n g of i t s money t o f u r n i s h s u r e t y "bonds. (Beport of 1915, page 3 2 . ) (4) An amendment p l a c i n g a c o n s e r v a t i v e and p r o p e r l i m i t a t i o n upon the a g g r e g a t e amount of money any one p e r s o n , company, c o r p o r a t i o n , or f i r m may o b t a i n from a n a t i o n a l bank through the d i s c o u n t i n g of comm e r c i a l p a p e r and b i l l s of exchange and p r o v i d i n g a s p e c i f i c p e n a l t y e n f o r c e a b l e a g a i n s t the o f f i c e r s and d i r e c t o r s of t h e n a t i o n a l bank r e s p o n s i b l e f o r any v i o l a t i o n of the p r o v i s i o n s of S e c t i o n 5200 of the Revised S t a t u t e s . ( Beport of 1915, page 3 2 . ) (5) An amendment l i m i t i n g o v e r d r a f t s and making the d i r e c t o r s p e r s o n a l l y l i a b l e f o r any v i o l a t i o n of such l i m i t a t i o n s and a l s o r e q u i r i n g the o f f i c e r s of t h e bank t o p r e s e n t a t each d i r e c t o r s ' meeting a l i s t of a l l overd r a f t s made s i n c e t h e p r e v i o u s m e e t i n g . (Beport of 1915, page 3 3 . ) (6) An amendment r e q u i r i n g a l l c e r t i f i c a t e s of d e p o s i t t o be signed by two o f f i c e r s of t h e bank and p r o v i d i n g a p e n a l t y f o r t h e i s s u e of any such c e r t i f i c a t e n o t s i g n e d by two o f f i c e r s . (Report of 1915, page 3 3 . ) (7) An amendment to p r o h i b i t any o f f i c e r or employee of a n a t i o n a l bank from e r a s i n g or c a u s i n g t o be e r a s e d any e n t r i e s on the books of a n a t i o n a l bank and r e q u i r i n g any erroneous e n t r i e s t o be canceled i n such a manner t h a t i t i s n o t i m p o s s i b l e to d e c i p h e r t h e o r i g i n a l e n t r y . (Report of 1915, page 3 3 . ) (8) An amendment l i m i t i n g the amount of i n t e r e s t a n a t i o n a l bank may p a y on i t s d e p o s i t s t o 4$, the r e d i s c o u n t r a t e of t h e F e d e r a l r e s e r v e bank of the d i s t r i c t or t h e maximum r a t e allowed by S t a t e law. (Report of 1915, page 3 3 . ) (9) An amendment a u t h o r i z i n g t h e Comptroller of the Currency t o b r i n g p r o c e e d i n g s a g a i n s t d i r e c t o r s of a n a t i o n a l bank f o r l o s s e s s u s t a i n e d by t h e bank through v i o l a t i o n s of the p r o v i s i o n s of t h e N a t i o n a l Bank Act or t h e F e d e r a l Reserve A c t . (Report of 1915, page 3 4 . ) (10) Dae Comptroller c a l l e d a t t e n t i o n t o the f a c t t h a t a l l d i r e c t o r s of a n a t i o n a l bank s h o u l d be r e q u i r e d t o s e r v e by t u r n f o r a s t a t e d p e r i o d on t h e e x e c u t i v e committee of the bank, b u t he d i d n o t make a s p e c i f i c recommendation f o r l e g i s l a t i o n on t h i s p o i n t . (Report of 1915, page 3 8 . ) The C o m p t r o l l e r a l s o renewed numerous recommendations f o r l e g i s l a t i o n which had p r e v i o u s l y been made by h i s o f f i c e . (Report of 1915, p a g e s 3 9 - 4 2 . ) 1916 (1) An amendment to p r o v i d e t h a t any p e r s o n , f i r m or c o r p o r a t i o n o b t a i n i n g a l o a n or c r e d i t from a n a t i o n a l bank b a s e d on a f a l s e s t a t e m e n t , w i l f u l l y made, of the f i n a n c i a l c o n d i t i o n of the b o r r o w e r , s h a l l be g u i l t y of a f e l o n y p u n i s h a b l e by a p p r o p r i a t e p e n a l t i e s . (Report of 1916, page 1 9 . ) - 7 - X-6796-b (2) An amendment p r o v i d i n g t h a t the "breaking or e n t e r i n g of a N a t i o n a l Bank f o r t h e purpose of t h e f t or r o b b e r y s h a l l be a crime p u n i s h a b l e under t h e laws of t h e United S t a t e s . (Beport of 1916, p . 1 9 . ) (3) An amendment p r o v i d i n g t h a t no n a t i o n a l Bank s h a l l be p e r m i t t e d t o t i e up by i n v e s t m e n t i n any o f f i c e or bank b u i l d i n g an amount i n e x c e s s of the p a i d - i n c a p i t a l of the bank. (Report of 1916, p . 2 0 . ) ' " " . The Comptroller r e p e a t e d numerous recommendations f o r l e g i s l a t i o n c o n t a i n e d i n h i s p r e v i o u s r e p o r t s . (Beport of 1916, p p . 1 4 - 1 9 . ) 1917 (1) An amendment t o a u t h o r i z e the C o m p t r o l l e r ' s O f f i c e t o r e q u i r e N a t i o n a l banks t o s h i f t t h e i r bookkeepers and o t h e r employees from time to time from one desk or s e r v i c e t o smother so as t o make i t d i f f i c u l t f o r employees t o h i d e d e f a l c a t i o n s or m a n i p u l a t e books. (Report of 1917, p . 2 3 . ) (2) An amendment p r o v i d i n g f o r t h e F e d e r a l i n s u r a n c e or g u a r a n t e e of d e p o s i t s i n N a t i o n a l banks where t h e c r e d i t t o any one i n d i v i d u a l amounts to a sum n o t exceeding $5,000. (Report of 1917, p . 2 4 . ) (3) An amendment p r o h i b i t i n g any n a t i o n a l bank from making any charge a g a i n s t the a c c o u n t of a d e p o s i t o r except on a charge t i c k e t o r d e r s i g n e d b y a t l e a s t two o f f i c e r s of t h e bank. (Report of 1917, p . 2 7 . ) The Comptroller a l s o r e p e a t e d numerous recommendations f o r l e g i s l a t i o n made by h i s o f f i c e i n p r e v i o u s r e p o r t s . (Beport of 1917, p a g e s 18-22.) 1918 No new recommendation or amendment d e s i g n e d t o p r e v e n t bank f a i l u r e s b u t numerous recommendations of p r e v i o u s y e a r s a r e r e p e a t e d i n t h i s r e p o r t of t h e C o m p t r o l l e r . 1919 No new recommendation f o r amendments t o p r e v e n t bank f a i l u r e s but numerous recommendations of p r e v i o u s y e a r s a r e r e p e a t e d i n t h i s r e p o r t of t h e C o m p t r o l l e r . 1920 (1) An amendment t o e n a b l e a n a t i o n a l bank t o o b t a i n r e l i e f i n emergency from a Jtederal r e s e r v e bank by u s e of s e c u r i t i e s o t h e r t h a n e l i g i b l e p a p e r or U n i t e d S t a t e s bonds. (Report of 1920, page 5 2 . ) (2) An amendment t o broaden and s t r e n g t h e n t h e p r o v i s i o n of law which p r o h i b i t s an o f f i c e r of a n a t i o n a l bank from p r o f i t i n g p e r s o n a l l y through c o n t r o l and u s e or misuse of the funds of t h e bank. (Report of 1920, page 5 5 . ) 8 X~6796-t| (3) The Comptroller c a l l e d a t t e n t i o n t o t h e growing p r a c t i c e of e s t a b l i s h i n g " s e c u r i t i e s conpanies" as a d j u n c t s t o n a t i o n a l banks and recommended t h a t Congress enact such p r o t e c t i v e l e g i s l a t i o n a s t h e f a c t s obvious t e n d e n c i e s and e q u a l l y obvious p e r i l s of t h e f u t u r e so c l e a r l y demand. I n t h i s c o n n e c t i o n the Comptroller s u g g e s t e d t h a t such s e c u r i t i e s conpanies s h o u l d be o p e r a t e d s e p a r a t e and a p a r t from t h e n a t i o n a l b a n k s . The c e r t i f i c a t e s of s t o c k i n such c o r p o r a t i o n s s h o u l d n o t be t i e d up w i t h t h e s t o c k c e r t i f i c a t e s of n a t i o n a l banks and the management of t h e bank and s e c u r i t i e s c o r p o r a t i o n s h o u l d be e n t i r e l y d i s t i n c t , even when t h e s t o c k h o l d e r s of one a r e the s t o c k h o l d e r s of the o t h e r s . (Report of 1920, p a g e s 5 5 - 5 7 . ) (4) An amendment t o p r e v e n t the a c t i v e and s a l a r i e d e x e c u t i v e o f f i c e r s of a n a t i o n a l bank w i t h r e s o u r c e s i n e x c e s s of a p r e s c r i b e d amount ( $ 3 , 0 0 0 , 0 0 0 o r $5,000,000 s u g g e s t e d a s such p r e s c r i b e d amount) from h o l d i n g p o s i t i o n s as d i r e c t o r s , t r u s t e e s , or o f f i c e r s of o t h e r b u s i n e s s , i n d u s t r i a l , r a i l r o a d or o t h e r commercial c o r p o r a t i o n s , or a s s o c i a t i o n s . (Report o f . 1 9 2 0 , page 5 7 . ) (5) An amendment r e q u i r i n g d i r e c t o r s t o f u r n i s h t o s t o c k h o l d e r s a t each a n n u a l m e e t i n g a s t a t e m e n t of the a s s e t s and r e s o u r c e s of t h e bank, the p r o f i t and l o s s f o r the y e a r , s t a t e m e n t a s t o the s a l a r i e s p a i d t o t h e i r p r i n c i p a l o f f i c e r s , and t h e average s a l a r y p a i d t o a l l employees. (Report of 1920, pages 5 7 - 6 0 / ) The Comptroller i n t h i s r e p o r t a l s o c a l l s a t t e n t i o n t o numerous recommendations f o r l e g i s l a t i o n which had p r e v i o u s l y been made. (Report of 1920, p a g e s 6 0 - 6 8 . ) • 1921 The Comptroller i n t h i s r e p o r t c a l l e d a t t e n t i o n t o numerous recommendations f o r enactment of l e g i s l a t i o n p r e v i o u s l y made by h i s o f f i c e . (Report of 1921, page 1 1 . ) 1922 (1) An amendment t o r e q u i r e an i n c r e a s e i n c a p i t a l of n a t i o n a l b a n k s commensurate w i t h an i n c r e a s e i n d e p o s i t l i a b i l i t i e s . (Report of 1922, page 5 . ) (2) An amendment to r e q u i r e the oath of a d i r e c t o r of a n a t i o n a l bank t o be f i l e d w i t h the Comptroller w i t h i n t h i r t y days s u c c e e d i n g h i s e l e c t i o n and making any d i r e c t o r who becomes d i s q u a l i f i e d by h y p o t h e c a t i o n of h i s s t o c k i n e l i g i b l e t o reappointment d u r i n g t h e r e mainder of the y e a r . (Report of 1922, page 6 . ) The Comptroller i n t h i s r e p o r t a l s o c a l l e d a t t e n t i o n t o recommendations f o r enactment of l e g i s l a t i o n p r e v i o u s l y made by h i s o f f i c e . ( R e p e r t of 1922, page 5 . ) -? 9 *• *-6796|> 9 1923 ITo recommendation f o r amendments designed t o p r e v e n t 'bank f a i l u r e s . 1924 A recommendation f o r the p a s s a g e of p r o v i s i o n s c o n t a i n e d i n t h e McFadden B i l l . I t does n o t a p p e a r , however* t h a t any of t h e p r o v i s i o n s of t h i s b i l l were p r i m a r i l y designed t o p r e v e n t "bank f a i l u r e s e x c e p t p o s s i b l y t h e recommendation t h a t t h e r e a f t e r t h e f t s b y bank examiners and c e r t a i n o t h e r o f f e n c e s be made p u n i s h a b l e u n d e r t h e F e d e r a l Law. 1925 Comptroller renewed h i s recommendation t h a t the McFadden B i l l be e n a c t e d . 1926 Comptroller renewed h i s recommendation f o r t h e enactment of the McFadden B i l l . 1927 ITo recommendation f o r amendments designed t o p r e v e n t bank failures. 1928 ( l ) An amendment t o p r o v i d e f o r r e s t r i c t i o n s on t r u s t companies l o c a t e d o u t s i d e of t h e D i s t r i c t of Columbia, b u t doing a f i d u c i a r y b u s i n e s s w i t h i n t h e D i s t r i c t of Columbia, and t o p r o v i d e f o r s u p e r v i s i o n of such t r u s t i n s t i t u t i o n s . (Heport of 1928, page 5 . ) 1929 (1) An amendment t o p e r m i t n a t i o n a l banks w i t h the a p p r o v a l of the Comptroller of t h e Currency t o e s t a b l i s h b r a n c h e s w i t h i n t h e t r a d e a r e a s of the c i t i e s w i t h i n which such banks may be s i t u a t e d . (Report of 1929, page 5 . ) (2) An amendment which would b r i n g bank s t o c k h o l d i n g companies under some degree of F e d e r a l s u p e r v i s i o n where t h e y own t h e m a j o r i t y of the s t o c k of more than one n a t i o n a l bank and a f u r t h e r amendment t o s a f e g u a r d the s h a r e h o l d e r s ' l i a b i l i t y i n c a s e s where t h e s t o c k of a n a t i o n a l bank i s h e l d by a h o l d i n g company. (Report of 1929, page 9 . ) (3) An amendment making i t a c r i m i n a l o f f e n c e t o c i r c u l a t e any. f a l s e r e p o r t c o n c e r n i n g any member of the F e d e r a l Reserve System i n d i c a t i n g i n s o l v e n c y or unsound f i n a n c i a l c o n d i t i o n or which may t e n d - 10 - to cause t h e w i t h d r a w a l of d e p o s i t s from such hank. page 1 0 . ) X-6796-b (Report of 1929, (4) An amendment t o empower the Comptroller of t h e Currency to make r e g u l a t i o n s governing s a v i n g s "banks or t r u s t companies doing a b a n k i n g b u s i n e s s i n t h e D i s t r i c t of Columbia, (Report of 1929, page 1 0 . ) ( 5 ) An amendment p r o h i b i t i n g b u i l d i n g and l o a n a s s o c i a t i o n s from doing b u s i n e s s i n the D i s t r i c t of Columbia e x c e p t w i t h the p e r m i s s i o n of the C o m p t r o l l e r . (Report of 1929, page 1 0 . ) 1930 (1) An amendment t o a u t h o r i z e a committee composed of t h e S e c r e t a r y of t h e T r e a s u r y , t h e Governor of the F e d e r a l Reserve Board, and t h e Comptroller of t h e Currency, to s e l e c t c i t i e s which a r e commercial c e n t e r s i n t h e United S t a t e s and t o map out t h e i r t r a d e a r e a s ; t o d e f i n e the term " t r a d e a r e a " ; t o a u t h o r i z e n a t i o n a l banks s i t u a t e d i n any such c i t i e s , with t h e approval of t h e Comptroller of the Currency, to e s t a b l i s h b r a n c h e s w i t h i n the t r a d e a r e a of the c i t y ; and t o r e q u i r e t h a t t h e p a i d - i n c a p i t a l s t o c k of any n a t i o n a l bank so e s t a b l i s h i n g branches s h a l l n o t be l e s s than $1,000,000, and t h a t t h e r a t i o of i t s c a p i t a l and s u r p l u s t o d e p o s i t s s h a l l be maint a i n e d a t not l e s s t h a n 1 t o 10. ( Report of 1930, page 5 . ) (2) An amendment t o p e r m i t any banks s i t u a t e d w i t h i n a t r a d e a r e a t o c o n s o l i d a t e , w i t h t h e approval of t h e Comptroller of t h e Currency, u n d e r a n a t i o n a l c h a r t e r and t o s p e c i f i c a l l y a u t h o r i z e the Comptroller t o d i s a p p r o v e any such c o n s o l i d a t i o n upon the ground t h a t i t might r e s u l t i n an undue c o n c e n t r a t i o n of banking c a p i t a l w i t h i n the t r a d e a r e a . (Report of 1930, page 5 . ) (3) An amendment c o n f e r r i n g upon the Comptroller of the Currency such v i s i t o r ! a l powers a s may e n a b l e him t o examine i n t o t h e a f f a i r s of any c o r p o r a t i o n which owns or c o n t r o l s a m a j o r i t y of t h e s t o c k of any n a t i o n a l bank. (Report of 1930, page 6 . ) (4) An amendment p r o h i b i t i n g any c o r p o r a t i o n from owning t h e m a j o r i t y of the s t o c k of any n a t i o n a l bank i f a t t h e same time i t owns the m a j o r i t y of t h e s t o c k of a S t a t e b a n k . (Report of 1930, page 6 . ) (5) An amendment to p r o h i b i t a n a t i o n a l bank from l o a n i n g upon the s e c u r i t y of t h e s t o c k of a c o r p o r a t i o n which may own t h e m a j o r i t y of the s t o c k of such n a t i o n a l bank. (Report of 1930, page 6 (6) An amendment to a u t h o r i z e the Comptroller of t h e Curr e n c y t o examine s e c u r i t y or i n v e s t m e n t companies a f f i l i a t e d w i t h a n a t i o n a l bank. (Report of 1930, page 1 0 . ) - 11 - X-6796-t) The Comptroller of the Currency i n h i s r e p o r t f o r 1930 a l s o renewed a number of recommendations f o r l e g i s l a t i o n which were cont a i n e d i n h i s p r e v i o u s Aaiiti&l R e p o r t s . Respectfully, B- Magruder W i h g f i e l d A s s i s t a n t Counsel. BMf-omc-sad
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