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COPY X-5750 3G? October 1, 1930 Mr. James Mr. Wyatt-General Counsel. Proposed amendments to the Federal Reserve Act and Related Statutes, Dear Mr. James: In accordance with your r e q u e s t , I r e s p e c t f u l l y submit the following information with respect to proposed amendments to the Federal Reserve Act and other s t a t u t e s a f f e c t i n g the Federal Reserve System which have been recommended to Congress w i t h i n recent years or which have been considered by the Federal Reserve Board without making any recommendation to Congress: AMENDMENTS RECOMMENDED TO CONGRESS BY THE FEDERAL RESERVE BOARD. An amendment to Section 4 of the Federal Reserve Act to permit an o f f i c e r , d i r e c t o r or employee of a mutual savings bank to serve as a Class B d i r e c t o r of a Federal reserve bank. - This amendment was recommended to Congress by the Board in i t s Annual Reports f o r the years 1927, 1928 and 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 18, 1930. Accordingly, i n the 2nd Session of the 71st Congress, Senator Brookhart on April 2, 1930, introduced a b i l l (S. 4079) containing t h i s amendment. This b i l l was passed by the Senate on April 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 was not passed by the House. An amendment to Section 9 of the Federal Reserve Act a u t h o r i z i n g the Federal Reserve Board to r e q u i r e a S t a t e member bank to s u r render i t s Federal r e s e r v e bank stock and to f o r f e i t i t s membership whenever such bank has f a i l e d to 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 banking laws of the S t a t e i n which i t i s l o c a t e d . - This amendment was recommended to Congress by the Board i n i t s Annual Report f o r the year 1929, but no b i l l conforming to the Board's recommendation was introduced i n e i t h e r the Senate or the House. An amendment to Section 9 of the Federal Reserve Act to p e r mit S t a t e member banks to e s t a b l i s h f o r e i g n branches. - This amendment was recommended to Congress by the Board in i t s Annual Reports f o r the years 1927., 1928 and 1929, and i n l e t t e r s addressed to the Chairmen of the Senate and House Banking and Currency Committees during 1929. In the 1 s t Session of the 71st Congress, Senator Norbeck introduced a b i l l (S. 1070) along 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 introduced i n the House during t h i s s e s s i o n . In the second s e s s i o n of t h i s Congress, Senator Norbeck introduced on December 11, 1929, another b i l l (S. 2605) conforming to the Board's recommendations; — 2 — X-S750 3G8 and. t h i s b i l l was passed "by the Senate on April 14, 1930. On April IS, 1930, i t was presented, to the House and. r e f e r r e d by t h a t body to i t s Banking and Currency Committee. S. 2605 was not r e p o r t e d out by the Banking and Currency Committee of the House, and no s i m i l a r b i l l was introduced in the House. An amendment to Section 13 of the Federal Reserve Act i n c r e a s ing from 15 to 90 days the maximum m a t u r i t y of advances made by Federal r e s e r v e banks to member banks 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 reserve banks. - An amendment of t h i s k i n d h a s been recommended to Congress by the Board i n i t s Annual Reports f o r the years 1927, 1928 and 1929, and i n l e t t e r s addressed to Congress under d a t e s of January 16, 1926, April 24, 1928, and March 6, 1930. On January 18, 1926, Mr. McFadden, i n the 1 s t Session of the 69th Congress, introduced a b i l l (H.R. 7894) conforming to the Board's views but no s i m i l a r b i l l was introduced i n the Senate during t h i s Congress. In the 70th Congress, 1st Session, Mr. Sunners of Texas introduced 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 introduced 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 to was ever r e p o r t e d o u t . An amendment to Section 22 of the Federal Reserve Act making the robbery or b u r g l a r y of any Federal reserve bank or member bank a Federal o f f e n s e punishable through the Federal 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 the McFadden B i l l which l a t e r became known as the Act of February 25, 1927; and d r a f t s of that b i l l containing 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 was r e i n t r o d u c e d a t the next Congress, t h i s amendment was o m i t t e d . The amendment, however, was recommended to 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 12, 1930. Following the Board's recommendations, 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 Session 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, were never r e p o r t e d out by e i t h e r the tiouse or Senate Banking and Currency Committees. An amendment to Section 22 of the Federal Reserve Act to make i t a crime to c i r c u l a t e f a l s e statements about or to b l a c k l i s t a member bank. - There 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 to the law to make punishable conspiracies 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 law although the Federal Reserve Board approved a — 3 X-6750 d r a f t of the M i l containing such p r o v i s i o n s . Daring the e a r l y p a r t of 1930, a number of b i l l s were introduced i n the House the general purpose of which was to amend the law along the l i n e s s t a t e d above, and, i n r e sponse to a r e q u e s t f o r an expression of the views of the Board with r e f e r e n c e to H. B. 10560, a b i l l on t h i s s u b j e c t introduced by Mr. McFadden 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 Congress 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 to t h e i r d e p o s i t o r s and stockholders. This b i l l was reported out by the House Banking and Currency Committee on April 24, 1930, but i t did not pass the House; and no s i m i l a r b i l l was introduced i n the Senate. An amendment to Section 22(a) of the 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 to State examiners. - This amendment was recommended to 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. In the 2nd Session of the 71st Congress, Senator ITorbeck on February 12, 1930, and Mr. S e i b e r l i n g on February 19, 1930, introduced b i l l s conforming to 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.R. 10070). S. 3541 was passed by the Senate on April 14th, and was p r e s e n t e d to the House and r e f e r r e d by t h i s body to 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.R. 10070 were r e p o r t e d out by t h e 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 Annual Reports f o r the years 1927, 1928 and 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 14, 1930. Accordingly, in the 2nd Session of the 71st Congress, Mr. Fenn on February 18, 1930, and Mr. ITorbeck on February 19, 1930, introduced b i l l s conforming t o the Board's recommendations in 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 o u t . An amendment to the J u d i c i a l Code r e s t o r i n g to 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 and a g a i n s t Federal r e s e r v e banks. The Board has recpmmended the enactment of an amendment of t h i s k i n d i n i t s Annual Reports f o r the years 1927, 1928 and 1929, but no b i l l s covering t h i s s u b j e c t have ever been introduced i n Congress. AMENDMENTS CONSIDERED BY FEDERAL RESERVE BOARD BUT HOT RECOMMENDED TO CONGRESS. Amendments 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 to member banks of earnings of Federal reserve banks. - During the y e a r s 1929 and 1930, a number of b i l l s were introduced i n Congress providing f o r a l a r g e r d i s t r i b u t i o n of the earnings of Federal reserve banks among member banks, and 4 - X-S750 370 the Board has gone on r e c o r d i n i t s Annual Report f o r the year 1929 as saying t h a t such p r o p o s a l s are s u b j e c t s "which i n the judgment of the Federal Reserve Board might well have the c o n s 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 Reserve System; but 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 to study the s u b j e c t f u r t h e r before 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 to amend Section 7 of the Federal Reserve 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 Norbeck 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 Reserve Board regarding t h i s b i l l and t h a t the Board disapproved of i t s adoption. I t was s t a t e d t h a t "the Federal Reserve Board f a v o r s 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 earnings of Federal r e s e r v e banks than they a r e now 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 Board'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 the 670 dividend to member banks and the c r e a t i o n of the 100$ surplus fund, 10$ of the net 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 net earnings, which under the p r e s e n t law are p a i d to the United S t a t e s a s a f r a n c h i s e tax, would be d i s t r i b u t e d to the member banks on a pro r a t a basis. As s t a t e d above, the Board has expressed the 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 r e s e r v e banks, and the Federal Advisory Council and the December, 1S29, Conferences of Federal Reserve Agents and Governors have a l s o taken the position. 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 b&nks, This amendment provided, among other things, 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 t h e proceeds of assessments l e v i e d a g a i n s t the Federal reserve banks, i n s t e a d of being p a i d by the banks examined. This amendment was prepared a t t h e r e q u e s t of Governor Young and was submitted f o r the 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 decline to give i t s approval to t h i s proposed measure. On February 6, 1930, the Board voted not to recommend the enactment of such an amendment. An amendment to the f i r s t paragraph of Section 19 of the Federal Reserve Act more c l e a r i n g 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 to evade 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 . 871 X-6750 - 5 r Ail amendment to Section 19 of the Federal Reserve Act a u t h o r i z ing member "banks i n computing t h e i r r e s e r v e s to 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 other banks". An amendment completing 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 three proposals be submitted to a s p e c i a l committee f o r study and recommendation, and t h e Board on February 6, 1930, voted to take no a c t i o n on these 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 appointed. Amendment to the Bankruptcy Act providing t h a t funds i n the custody of t h e Federal c o u r t s 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 and 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 k i n d be enacted, 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 to 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 t o provide t h a t bankruptcy funds " s h a l l " be deposited i n member banks i n s t e a d of "nay" be so dep o s i t e d ; and on February 17, 1930, Mr. Hani in, a c t i n g f o r the Law Comm i t t e e , 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 a s 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 in the House. Amendment to the 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 to 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 before 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. - 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. Respectfully, (S) SBS sad Walter Wyatt, General Counsel
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