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..... ( COPY ) X-3f)79 Nov. l, 1923. To Mr. Dawa s , Cha.irn:an, Exami na.t ion Co111r.1ittee. From M:r. Wya.tt, Gene:ra.l Counsel, Faderal Reserve :Boa.r.d Subject: Power of the Board to Adopt a. Policy with Reference to B:t"anches of Sta.te Membe:t" Ba.nks. You have ret}uested my opinion a.s to whether or not the Federa.l Reserve Board would be a.cting within its legal rights if it should a.dopt the following :t"esolution: VJHEBEAS, the Federal Reserve Act contempla.tes a. unified banking system in which Sta.te and na.tional banks can pa.r.ticipate on a. basis fair to both, and, WHEREAS, Sta.te banks in certa.in Sta.tes have been perr.1i tted by law or regulation to enga.ge in Sta.te-wide branch banking, while na.tiona.l banks are restricted by the Federal Sta.tutes from es ta.blishing branches or offices beyond the limits of the city in vi.nich the pa.rent bank is lo ca. ted , and , WHEI'~AS, the :Boa:rd believes tha.t this results in an inequi ta.ble situa.tion which renders it impossiblt;;J for na.tiona.l a.nd Sta.te banks to exist together in the Federal Reserve System on a. fa.ir'competitive ba.sis unless the powers of Sta.te and na.tional member ba.nks to enga.ge in branch ba.nking a.t"e reconciled 1 and , WHEREAS 1 in the interest of the successful administra-tion of the Federal Reserve System, it appea.rs necessa.:ry and desira.ble to confine the opera.tions of mer:1be:r banks within :reasona.ble te:r:r.i to:rial limits, a.nd , WHEREAS, the Federal Rese:rve Boa:rd is authorized by the Federal Reserve Act to prescribe conditions under whiCh applying Sta.te banks rrJB¥ become members of the Federa.l Reserve Sys tam, NOW, THEREFORE, BE IT RESOLVED, tha.t the Boa.rd continue herea.fter a.s heretofore to require Sta.te bank:s applying for admission to the Federal Reserve System to a.g.ree a.s a. condition of membership .tha.t they will esta.blish no branches except with the permission of the Federal Reserve Board; BE IT FURTHER RESOLVED, tha.t a.s a. general principle, Sta.te banks with branches or a.dd i tiona.l offices outside of the corpora.te limits of the city or town in which they are loca.ted or territory contiguous thereto ought not be !).dmitted to the Federal Reserve System except upon condition tha.t they relinquish such branches or additional officesj -2- X-3879 BE IT FI:JB.THER BESOLVED, tha.t, a.s a. gene:ra.l principle·, Sta.te banks which a.re members of the Federal Reserve System ought not be permitted to establish or ma.inta.in branches or addi tiona.l offices outside the co'I"J)ora.te limits of the city or town in which the pa.rent bank is loca.ted or terri tory contiguous thereto; BE IT 'FURTHER RESOLYED, tha.t in a.cting upon individual al;)plica.tions of Sta.te banks for a.dmission to the Federal Reserve System a.nd in a.cting upon individual a;pplica.tions of Sta.te banks which a.re members of the Federal Reserve System for permission to establish branches or additional offices, the Board, on and after February 1, 1924, will be guided genera.lly by the above principles; BE IT FURTHER RESOLVED, tha.t the term 11 terri tox-y contiguous thereto11 a.s used a.bove shall mean the tex-:ri toty of a. city or town whose cox-po:r.a.te limits a.t son:e point coincide with the co:rpora.te limits of the city or to'Jll in which the parent bank is loca.ted. :BE IT 'FURTHER RESOLVED, tha.t this resolution is not intended to a.ffect the sta.tus of a.ey branches o:r additional offices established p:do:r to Feb:rua.ry 1, 1924. rr..As I interpret it, this :resolution would not establish an absolute, ha.rd and fa.st :rule a;pplicable in a.ll ca.ses, but would merely s ta.te certa.in general principles fo:r the guidance of the Board in a.cting upon individual ca.ses which a.:re presented to it. Being merely a. sta.tement of general p:rinciples, it would not bind the :Soa.rd absolutely to a. definite cou:rse of a.ction in eve:ry ca.se tha.t. might a.:rise in the futu:t<e, and the :Soax·d could make exceptions in any individua.l ca.se in which such general principles a.ppea:r to be ina.pplica.ble • .After tho :rough investiga.tion a.nd caxeful study of the :Boa:rd' s power to p:rescribe conditions of membe:rship, I l"endered an opinion under da.te of July 16, 1923, in which I reached the conclusion tha.t, in admitting Sta.te banks to membe:w:-ship in the Fecteral Reset'Ve System, the Fede:ra.l Resene Board ha.s power to prescribe such rea.sona.ble conditions of membe:rship as in its disc:retion it deems necessa.x-y o:r advisable in order to ca:r.:ry out the b:w:-oa.d purposes and policy of the Fede:w:-al Resex-ve Act and is not limited to such conditions a.s are necessa.ry to ca.rry out the exp:ress provisions of the Act; and tha.t if, in the exe:rcise of its disc:retion a.nd judgment, the Board believes tha.t a. condition should be· imposed upon an applying bank px-ohibi ting it fx-om esta.blishing branches Without the Board's consent, then the Board may legally and va.lid).y p:r-esc:ri l:e such a. condition a.s a. prerequisite to membex-ship. I a.lso exp:ressed the opinion tha.t, when the :Boa.:l'd ha.s px-escribed such a. condition and the bank in question ha.s a.ccepted i t a.nd become a. oember of the System, the Boa.:rd ha.s a. x-ea.sona.ble d isc:retion in dedding whether o:r not to penni t tha.t bank to establish a. pa:-rticular branch; and tha.t if ~3- X-3879 it believes that the establishment of a. pa.:t"ticuls.:r branch would be inconsistent with the spi:t"it ox- purp0se of the Federe.l Reserve Act, then it rre.y pX'operly de cline to pex-mit it. In that opinion a.ttentiol.l. we.s celled to the fact tha.t in a.cting upon the a.pplice.tion of a. Sta.te ba.nk for admissi.on to the Fede.t'al Rese.t've System, the Fede.t'a.l Reserve Boa.J:'d is exp:cessly X"~qu:i.red to conside:t' "whether ox- not the corpox-a.te powe:rs exero:i.sed a::.-e amsistent with the purposes of this Act." That :requi:rer:Jent of the Act we.s discussed in p8Xt as folloii'/S (pa.ge 17): "If any of the co:rpora.te powers of the epplying ba.nk a.x-e not cons is tent with the pttl.'poses of the Fede:t'al Rese:rve .Act, then the :Boa:r.d is authox-ized to :reject the applica.tion o:r. to px-escribe conditions of admission to membership to x-econcile these inconsistencies. It is clea:t· the.t the Fede:r.el Resex-ve Boa.rd is to exe.rc~ise its ovm d isc~e tion in a.pproY:i.ng or x-ejecting a.pplic.a.tions or in prescribbg conditinns. It is also to exeX'cise its d isc:retion e.s to wha.t conditions of membex-ship to prescribe. If the Fede:ra.l Reserve :Boa.rd in the exex-cise of its discretion end judgrr;ent, believes tha.t a. ce:r.ta.in condition is necessary in ox-der to make the powex-s of a.n applying bank consistent;. with the pu:rposes of the Fedex<al Reserve Act, it rrJ3.Y px-escribe such condition. * * * It is not indica.ted in the Act what powe:r.s a:t'e inconsistent with membership a.nd the Fedex-al Rese:rve Boax-d, therefo:t·e, must be the judge • 11 It appears from the x-epox-t of your Committee rec.ommending the adoption of the above x-esolntion· tha.t the p:t'inciples sta.ted in tha.t resolution a.re based upon two p:r.opositiClns: (1) That one of the funda-mental pu:rposes of the Federal Reserve Act is to cx-ea.te a. unified. system of bar..king in which Sta.te and ne.tiona.l banks can exist togethe:r on a basis faix- to bothj and (2) that the admission of Sta.te ba.nks to the iFedera.l Resene System with the unrest:rictRd povve:t' to engage in Sta.te-wide bx-a.nch ba.nking is inconsistent wi t.h tbis pu:rpose of the Act, beca:nse i t cJOeates a. competitive situa.tion under which national banks cannot continue to exist. If the Boa:?.'d thus finds that the power of a. pe.:rticula.r bank to enga.ge in State-wide branch banking is inconsistent with the pu"-'poses of the Federal Reserve Act, i t may, undex- the principles set forth in my opinion of July 16, refuse to adrr,i t any pa.x-ticula.:r Sta.te bank having such power o:r. it may edmit i t only on condition tha.t it a.g:ree not to exe:t'cise such power except with the Boa.rd' s consent • Having the powex- to impose such a. condition, the Fedex-al Rese:rve Board must necessa.x-ily ha.ve the powex- to e.dopt genex-a.l principles -4fol' its guidance in a.cting upon ea.ch ind ividua.l case Which is presented to it. Ina.smuch as the a.bove quoted :t'esolutionpurports to do nothing rr.o:re than this, I am of the opinion tha.t the BoaJ•d would be a.cting within its legal :rights in adopting such a. :t•asolution. Respectfully, (signed) Waltel' Wya.tt Gene :r.al Counsel.
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