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COPY X-6490 Feb. 1, 1930 To Mr. Hamlin From Mr. v/yatt - General Counsel. SUBJECT: Proposed L e g i s l a t i o n which the Board may wish t o c o n s i d e r i n c o n n e c t i o n w i t h i t s Annual R e p o r t . Under d a t e of J a n u a r y 2, 1930, I a d d r e s s e d a memorandum to t h e Law Committee s u b m i t t i n g m a t e r i a l p r e p a r e d by t h i s O f f i c e f o r t h e f o r t h coming Annual Report of the F e d e r a l Reserve Board. As s t a t e d i n t h a t memorandum, t h i s O f f i c e was u n a b l e to p r e p a r e any recommendation r e g a r d i n g p r o p o s e d l e g i s l a t i o n ; because the Board has not y e t t ak en any a c t i o n i n d i c a t i n g 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 t o Congress. At your r e q u e s t I s u b m i t t e d a memorandum on J a n u a r y 4th r e g a r d i n g p r o p o s e d l e g i s l a t i o n which might be c o n s i d e r e d "by the Board i n c o n n e c t i o n w i t h i t s f o r t h c o m i n g Annual R e p o r t . I now submit t h i s r e v i s e d d r a f t of t h a t memorandum, i n o r d e r to "bring the i n f o r m a t i o n up to d a t e . AMMDtiENTS SPECIFICALLY RECOMMENDED TO CONGRESS DURING 1929 AND COVERING- WHICH BILLS HAVE BEEN INTRODUCED IN CONGRESS. (1) An amendment to S e c t i o n 9 of t h e F e d e r a l 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 b r a n c h e s . - This amendment was recommended t o Congress by t h e Board i n i t s Annual R e p o r t s f o r the y e a r s 1927 and 1928, and i n l e t t e r s a d d r e s s e d to the Chairmen of t h e Banking and Currency Committees d u r i n g 1929. Accordingly, a "bill conforming to t h e B o a r d ' s views was i n t r o d u c e d i n t h e Senate "by Senator Norbeck on December 11, 1929 ( S . 2605 - 7 1 s t Cong., 2nd S e s s i o n ) and was r e p o r t e d out w i t h o u t amendment on December 18, 1929 by the Senate Banking and Currency Committ e e . No f u r t h e r a c t i o n t h e r e o n h a s "been t ak en i n the S e n a t e and no s i m i l a r b i l l h a s been i n t r o d u c e d i n the House. (2) An amendment to S e c t i o n s 6 and 9 of t h e F e d e r a l Reserve Act p e r m i t t i n g the c a n c e l l a t i o n of F e d e r a l r e s e r v e bank s t o c k h e l d by member banks which have gone out of b u s i n e s s w i t h o u t a r e c e i v e r or l i q u i d a t i n g agent having been a p p o i n t e d t h e r e f o r . - The enactment of such l e g i s l a t i o n was recommended "by t h e Board i n i t s Annual Reports f o r t h e y e a r s 1927 and 1928, and i n l e t t e r s a d d r e s s e d to t h e Chairmen of t h e Banking and Currency Committees under d a t e of December 2, 1929. This l e g i s l a t i o n was i n t r o d u c e d i n the House on December 5, 1929 (H. R. 6.604 - 7 1 s t Cong., 2nd S e s s i o n ) , and i n s u b s t a n t i a l l y the same form i n t h e S e n a t e on December 14, 1929 ( S . 2666), and on December 20, the Senate b i l l was r e p o r t e d out w i t h o u t amendment by the Senate Banking and Currency Committee. H. R. 6504 was r e p o r t e d out f a v o r a b l y by the House on J a n u a r y 23, 1930, and I u n d e r s t a n d t h a t t h i s b i l l i s on the House Calendar f o r F e b r u a r y 5, 1930. ( 3 ) An amendment making i t d i s c r e t i o n a r y w i t h t h e F e d e r a l Reserve Board to a s s e s s t h e c o s t s of examining S t a t e member banks a g a i n s t the bank examined. - The Board recommended t h e enactment of a b i l l of t h i s k i n d i n i t s 1927 and 1928 Annual R e p o r t s , and i n l e t t e r s a d d r e s s e d to the Chairmen of the Banking and Currency Committees d u r i n g the y e a r 100 -3- X-6490 1929. I n t h e l a s t Congress a b i l l f o r t h i s purpose p a s s e d the Senate ( S . 5349 - 7 0 t h Congress) h u t was not r e p o r t e d out "by the House Banking and Currency Committee. S i m i l a r "bills were i n t r o d u c e d i n t h e House "but were never r e p o r t e d o u t . I n the p r e s e n t Congress a b i l l was i n t r o d u c e d i n the Senate (Si 485 - 7 1 s t Cong*, 1 s t S e s s i o n ) hut i t has n o t y e t been r e p o r t ed o u t . (4) An amendment to S e c t i o n 5 of the F e d e r a l Reserve Act a u t h o r i z i n g the F e d e r a l Reserve Board t o waive the s i x months' n o t i c e of t h e i n t e n d e d withdrawal of a S t a t e member bank from the F e d e r a l Reserve System. - This amendment was recommended t o Congress by t h e Board i n i t s Annual Report f o r t h e y e a r 1928, and i n l e t t e r s a d d r e s s e d t o t h e Chairmen of t h e Banking and Currency Committees under d a t e of A p r i l 16, 1929. On A p r i l 18, 1929, t h e Board v o t e d to d e f e r t a k i n g any a c t i o n r e g a r d i n g t h i s amendment and n o t h i n g f u r t h e r has been done by the Board s i n c e t h a t d a t e . B i l l s to amend t h e law i n c o n f o r m i t y w i t h t h e B o a r d ' s recommendations were i n t r o d u c e d i n the House and Senate d u r i n g the p r e s e n t Congress (H. R. 2027 and S . 684 - 1 s t S e s s i o n , 7 1 s t Cong.); and S . 684 was r e p o r t e d out w i t h o u t amendment on December 18, 1929. At t h e r e q u e s t of t h e Banking and Currency Committee of the House, H. R. 2027 was r e v i s e d s l i g h t l y by i n s e r t i n g a p r o v i s i o n t o t h e e f f e c t t h a t the Board c o u l d waive the s i x months' n o t i c e r e q u i r e m e n t s u b j e c t t o such c o n d i t i o n s a s t h e Board might p r e s c r i b e . The r e v i s e d d r a f t was s u b m i t t e d to Mr. McFadden by Governor Young under d a t e of J a n u a r y 13, 1930, was i n t r o d u c e d by him a s H. R. 8877 on J a n u a r y 20, and was r e p o r t e d out f a v o r a b l y by t h e House Banking and Currency Committee on J a n u a r y 23, 1930. I u n d e r s t a n d t h a t i t i s on the House Calendar f o r February 5, 1930. AMSmSNTS RECOMMENDED IN 1927 and 1928 ANNUAL REPORTS. an or ed On al (5) An amendment t o S e c t i o n 4 of the F e d e r a l Reserve Act to p e r m i t o f f i c e r , d i r e c t o r o r employee of a mutual s a v i n g s bank to serve a s Class B C l a s s C d i r e c t o r of a F e d e r a l Reserve Bank. - This amendment was recommendto Congress by t h e Board i n i t s Annual R e p o r t s f o r t h e y e a r s 1927 and 1928. A p r i l 18, 1929, t h e Board v o t e d to d e f e r t a k i n g any a c t i o n on t h i s p r o p o s and no f u r t h e r recommendation h a s been made s i n c e t h a t d a t e . ( 6 ) An amendment exempting F e d e r a l Reserve Banks from a t t a c h m e n t o r garnishment p r o c e e d i n g s b e f o r e f i n a l .judgment i n any case or p r o c e e d i n g . - This amendment was recommended by t h e Board i n i t s Annual R e p o r t s f o r the y e a r s 1927 and 1923. On A p r i l 18, 1929, the Board v o t e d to d e f e r t a k i n g any f u r t h e r a c t i o n on t h i s p r o p o s a l and no f u r t h e r recommendation h a s been made s i n c e that date. ( 7 ) An amendment t o the J u d i c i a l Code r e s t o r i n g to the U n i t e d S t a t e s D i s t r i c t Courts . 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 F e d e r a l Reserve Banks. In i t s jjnnual R e p o r t s f o r the y e a r s 1927 and 1928 the Board recommended the enactment of an amendment of t h i s k i n d . On A p r i l 18, 1929, t h e Board v o t e d to d e f e r t a k i n g any f u r t h e r a c t i o n i n c o n n e c t i o n w i t h t h i s p r o p o s a l and no f a r t h e r recommendation ' h a s been made s i n c e t h a t d a t e . —3— X - 6490 ( 8 ) An amendment t o S e c t i o n 13 of the F e d e r a l Reserve Act i n c r e a s ing; from f i f t e e n to n i n e t y days the maximum m a t u r i t y of advances made by F e d e r a l Reserve Banks to member banks on t h e i r promissory n o t e s s e c u r e d "by paper e l i g i b l e f o r r e d i s c o u n t "by F e d e r a l Reserve Banks. - An amendment of t h i s k i n d h a s been recommended to Congress by t h e Board i n i t s Annual Reports f o r t h e y e a r s 1927 and 1928. I n t h e 70th Congress a b i l l (H.R. 12349) was i n t r o d u c e d on March 23, 1928, and under date of A p r i l 24, 1S28, the Board a d d r e s s e d a l e t t e r to Congress i n which i t . s a i d t h a t i t was i n sympathy w i t h t h e g e n e r a l p u r p o s e s of the b i l l . However, t h i s b i l l was not r e p o r t e d out and no s i m i l a r b i l l has s i n c e been introduced* On A p r i l 18, 192S, the Board v o t e d t o d e f e r t a k i n g any f u r t h e r a c t i o n on t h i s amendment and no f u r t h e r recommendation h a s been made s i n c e t h a t d a t e . OTHER AMimEOTS CONSIDERED BY TH2 BOARD III 1929. In a d d i t i o n t o the above, the Board h a s c o n s i d e r e d the f o l l o w i n g p r o posed amendments b u t h a s t a k e n no d e f i n i t e a c t i o n t h e r e o n i n view of t h e p o s i t i o n t a k e n a t t h e Board m e e t i n g of A p r i l 18, 1929, t h a t a c t i o n on such amendments should be d e f e r r e d : (9) An amendment t o t h e f i r s t p a r a g r a p h of S e c t i o n 19 of t h e Fede r a l 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 , s a v i n g s 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 p r o p e r 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 . The A g e n t s ' and Governors' Conferences of December 1929, recommended t h a t the m a t t e r of r e s e r v e s be s u b m i t t e d to a s p e c i a l committee f o r study and recommendation. (10) An amendment to S e c t i o n 19 of t h e F e d e r a l Reserve Act a u t h o r i z i n g member banks i n computing t h e i r r e s e r v e s t o deduct " b a l a n c e s due from banks" from t h e i r g r o s s demand d e p o s i t s i n s t e a d of from " b a l a n c e s due to o t h e r b a n k s . " The Agents' and Governors* Conferences of December 1929, recommended t h a t the m a t t e r of r e s e r v e s be s u b m i t t e d t o a s p e c i a l committee f o r s t u d y and recommendation. (11) A complete r e v i s i o n of S e c t i o n 19 a d j u s t i n g , c l a r i f y i n g and s i m p l i f y i n g the r e s e r v e r e q u i r e m e n t s . The A g e n t s ' and Governors' C o n f e r ences of December 1929, recommended t h a t t h i s m a t t e r be s u b m i t t e d to a s p e c i a l committee f o r study and recommendation. (12) An amendment r e q u i r i n g the a p p r o v a l of t h e F e d e r a l 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 b a n k s , (13) An amendment t o S e c t i o n 9 of the F e d e r a l Reserve Act r e q u i r i n g a l l S t a t e banks h e r e t o f o r e or h e r e a f t e r a d m i t t e d t o member s h i p i n the System to comply a t a l l times w i t h the banking law of t h e S t a t e s i n which t h e y a r e l o c a t e d . 1 0 2 -4- X-6490 A!SiTn.C:,:TTS H3CCMM3asnM) BY DECaSSR, 1929 AGENTS' Aim GOVERNORS' C01TFSRS1TC3S. In a d d i t i o n to the above, the f o l l o w i n g amendments recommended "by the December, 1929, Agents' and Governors' Conferences may "be worthy of c o n s i d e r a t i o n a t t h i s t i m e : (14) Amendment to t h e Bankruptcy Act p r o v i d i n g t h a t f u n d s i n t h e custody of the F e d e r a l C o u r t s s h a l l "be d e p o s i t e d w i t h member "banks. - The Governors' Conference approved of an amendment of t h i s k i n d , "but the Board has not made any recommendation to Congress. A "bill ( S . 2950) was i n t r o d u c e d i n t h e S e n a t e on January 6, 1930, however, p r o v i d i n g t h a t member "banks of t h e F e d e r a l r e s e r v e system may be d e s i g n a t e d d e p o s i t o r i e s of bankruptcy f u n d s . (15) Amendment to t h e N a t i o n a l Bank Act l i m i t i n g t h e 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 A g e n t s ' Conference r e p o r t e d t h a t a n amendment of t h i s k i n d i s d e s i r a b l e . (16) Amendment to S e c t i o n 4 of t h e F e d e r a l Reserve Act t o c l a r i f y the meaning of the p h r a s e " e l e c t o r s v o t i n g " i n t h a t p a r t of t h e s e c t i o n p r o v i d i n g the method of c o u n t i n g b a l l o t s i n e l e c t i o n s of F e d e r a l Reserve Bank d i r e c t o r s . - The A g e n t s ' and Governors' Conferences recommended such an amendment. (17) Amendment t o t h e F e d e r a l Reserve Act p r o v i d i n g f o r a d i f f e r e n t d i s t r i b u t i o n of e a r n i n g s of F e d e r a l Reserve Banks to member "banks and t h e Government and f o r t h e r e t i r e m e n t of n a t i o n a l bank n o t e s . - The A g e n t s ' and Governors' C o n f e r e n c e s f a v o r e d the enactment of an amendment p r o v i d i n g a more l i b e r a l d i s t r i b u t i o n of F e d e r a l Reserve Bank e a r n i n g s i n t h e way of d i v i d e n d s . I n t h e 70th Congress, 2nd S e s s i o n , a b i l l was i n t r o d u c e d by Senator Glass on F e b r u a r y 5, 1929 (S. 5723) t o amend S e c t i o n 7 of t h e F e d e r a l Reserve Act so a s t o p r o v i d e f o r a more l i b e r a l d i s t r i b u t i o n of t h e e a r n i n g s of F e d e r a l Reserve Banks, and t o amend S e c t i o n 18 so a s to p r o v i d e f o r the r e t i r e m e n t of n a t i o n a l bank n o t e s . With r e g a r d t o the enactment of t h i s b i l l , the S e c r e t a r y of the T r e a s u r y a d d r e s s e d a l e t t e r t o Congress s t a t i n g t h a t he was not i n c l i n e d t o f a v o r l e g i s l a t i o n of t h i s k i n d . The Board c o n s i d e r e d t h i s l e t t e r b e f o r e i t was m a i l e d and a d v i s e d t h e S e c r e t a r y t h a t "while c e r t a i n members of t h e Board a r e n o t n e c e s s a r i l y opposed t o t h e g e n e r a l i d e a of the amendment to S e c t i o n 7, * * * t h e y see no o b j e c t i o n to t r a n s m i t t a l of t h e a t t a c h e d l e t t e r , a s w r i t t e n , a s an e x p r e s s i o n of the views of the S e c r e t a r y of t h e T r e a s u r y . " The b i l l i n t r o d u c e d by S e n a t o r Glass was never r e p o r t e d out by the S e n a t e Banking and Currency Committee. 108 -5- X-6490 0TE3R PROPOSED AMEimSlTTS. The Board may a l s o wish to c o n s i d e r t h e f o l l o w i n g p r o p o s e d amendments: (18) An amendment t o S e c t i o n 9 of the F e d e r a l Reserve Act and S e c t i o n 5340 of t h e R e v i s e d S t a t u t e s r e g a r d i n g examinations of member t a n k s . This amendment p r o v i d e s , among o t h e r t h i n g s , t h a t a l l e x a m i n a t i o n s of member banks s h a l l 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 expense of such examinations s h a l l be p a i d by the F e d e r a l Res e r v e Board out of t h e p r o c e e d s of a s s e s s m e n t s l e v i e d a g a i n s t the F e d e r a l Reserve Banks, i n s t e a d of b e i n g p a i d by the banks examined. This amendment was p r e p a r e d a t the r e q u e s t of Governor Yougg and was s u b m i t t e d f o r the c o n s i d e r a t i o n of t h e Conference of F e d e r a l Reserve Agents i n December, 1929, which recommended t h a t the Board d e c l i n e to g i v e i t s a p p r o v a l t o t h i s p r o p o s e d measure. Apparently the Board h a s t a k e n no a c t i o n on t h i s recommendation. (19) An amendment t o the f o u r t h p a r a g r a p h of S e c t i o n 13 of the F e d e r a l Reserve Act making the l i m i t a t i o n s p r e s c r i b e d by t h a t p a r a g r a p h conform t o S e c t i o n 5200 of the Revised S t a t u t e s , a s amended by the McFadden A c t . - A p r o v i s i o n t o amend t h e law i n t h i s way was c o n t a i n e d i n t h e McFadden B i l l when i t was p e n d i n g i n Congress b a t i t was s t r i c k e n o u t of t h e b i l l by the S e n a t e . At t h e time t h i s p r o v i s i o n was p e n d i n g i n t h e McFadden B i l l i t was approved by t h e F e d e r a l Reserve Board a l o n g w i t h a number of o t h e r p r o v i s i o n s and Congress was so a d v i s e d . (See X-4500). The amendment was t h e n c o n s i d e r e d by the Conference of Governors i n A p r i l , 1928, and a r e s o l u t i o n a s k i n g the Board to u r g e the enactment of such an amendment was d e f e a t e d . On A p r i l 18, 1929, the Board v o t e d to d e f e r t a k i n g any a c t i o n on the p r o p o s a l ; b u t on October 18, 1929, the Board a d d r e s s e d a l e t t e r to Congressman Hudspeth, i n r e p l y to a l e t t e r a s k i n g f o r the B o a r d ' s views on an amendment of t h i s c h a r a c t e r , i n which i t ' was s t a t e d t h a t the Board h a s not r e c e d e d from i t s e a r l i e r p o s i t i o n a p p r o v i n g of such a n amendment. On December 18, 1929, a s a r e s u l t of a c o n f e r e n c e between t h i s o f f i c e and Mr. Thompson, from Congressman McFadden 1 s o f f i c e , t h e r e was p r e p a r e d by t h i s o f f i c e a l e t t e r a d d r e s s e d t o Congressman McFadden, e n c l o s i n g a p r o p o s e d d r a f t of an amendment t o amend the law a s s e t out above* On January 13, 1930, Governor Young s u b m i t t e d t h i s l e t t e r and p r o p o s e d d r a f t of amendment t o Mr. McFadden; and on J a n u a r y 15, t h i s d r a f t was a l s o s u b m i t t e d to S e n a t o r Sheppard by Governor Young. On J a n u a r y 23, Mr. McFadden i n t r o d u c e d t h i s d r a f t i n the House a s H. R. 9046, but i t h a s not y e t been r e p o r t e d out or i n t r o d u c e d i n t h e S e n a t e . (20) An amendment t o S e c t i o n 2 2 ( a ) of the F e d e r a l Reserve Act raakiqe; 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 l o a n s and g r a t u i t i e s from member banks a p p l i e s to S t a t e examiners. - Under d a t e of November 13, 1929, I a d d r e s s e d a memorandum to t h e Board c a l l i n g a t t e n t i o n t o the f a c t t h a t a U n i t e d S t a t e s D i s t r i c t Court h a d h e l d t h a t t h i s p r o v i s i o n of S e c t i o n 22( a ) does not a p p l y t o S t a t e examiners. I recommended t h a t the Board suggest "to the A t t o r n e y General t h a t i t would be i n the p u b l i c i n t e r e s t not to a c c e p t t h i s d e c i s i o n a s a c o r r e c t i n t e r p r e t a t i o n of the law and t h a t i t would be a d v i s a b l e to a p p e a l e i t h e r t h i s c a s e or some o t h e r case where t h e r e c o r d may be more f a v o r a b l e to the Supreme Court of t h e U n i t e d S t a t e s , w i t h a view of h a v i n g t h i s d e c i s i o n r e v e r s e d or o v e r r u l e d . I a l s o r e com*~ mended t h a t ' ' the Board r e q u e s t the A t t o r n e y General to a d v i s e i t i f ho i s not i n c l i n e d to adopt the above s u g g e s t i o n , i n o r d e r t h a t t h e Board may c o n s i d e r the a d v i s a b i l i t y of recommending to Congress an amendment removing any doubt a s to the a p p l i c a b i l i t y of t h i s p r o v i s i o n to S t a t e bank e x a m i n e r s . I a l s o s u b m i t t e d a proposed l e t t e r to the A t t o r n e y General a l o n g t h i s l i n e , which was approved a t the Board meeting on November 2 5 t h ; b u t a p p a r e n t l y n e i t h e r t h i s l e t t e r nor any s i m i l a r l e t t e r h a s y e t been sent t o the A t t o r n e y G e n e r a l . Under t h e s e circums t a n c e s , the Board may d e s i r e t o c o n s i d e r the a d v i s a b i l i t y of recommending t o Congress an amendment t o S e c t i o n 2 2 ( a ) removing any doubt a s to the a p p l i c a b i l i t y of t h a t s e c t i o n to S t a t e bank e x a m i n e r s . (21) An amendment to make the robbery or b u r g l a r y of a member bank a F e d e r a l o f f e n s e p u n i s h a b l e through the F e d e r a l c o u r t s . - Under date of J a n u a r y 13, 1S30, Mr. George J . S c h a l l e r , P r e s i d e n t of the C i t i z e n s F i r s t N a t i o n a l Bank of Storm Lake, Iowa, and C l a s s A d i r e c t o r of t h e F e d e r a l Reserve Bank of Chicago, a d d r e s s e d a l e t t e r to Mr. Cunningham s u g g e s t i n g t h a t i t would h e l p and s t r e n g t h e n t h e banking s i t u a t i o n and would make f r i e n d s f o r t h e F e d e r a l Reserve System, i f t h e F e d e r a l Government would u n d e r t a k e the a p p r e h e n s i o n and p r o s e c u t i o n i n the Fede r a l c o u r t s of a l l p e r s o n s who commit crimes a g a i n s t n a t i o n a l banksand S t a t e member banks of t h e F e d e r a l Reserve System and p a r t i c u l a r l y such crimes a s h o l d - u p s and r o b b e r i e s . Mr. Cunningham h a s t r a n s m i t t e d t h i s l e t t e r t o the Law Committee w i t h a s u g g e s t i o n t h a t the Board should recommend i n i t s Annual Report an amendment making i t a F e d e r a l o f f e n s e p u n i s h a b l e through the F e d e r a l c o u r t s to b u r g l a r i z e or r o b any member bank. I u n d e r s t a n d t h a t the Law Committee has r e p o r t e d f a v o r a b l y on t h i s s u g g e s t i o n , b u t t h a t the Board h a s not y e t t a k e n a c t i o n on i t . Respectfully, Walter H y a t t , General Counsel
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