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X-7239 FEDERAL EESERVE SYSTEM The F e d e r a l R e s e r v e S y s t e m was e s t a b l i s h e d p u r s u a n t t o a u t h o r i t y c o n t a i n e d i n t h e A c t o f December 2 3 , 1 9 1 3 , known a s t h e F e d e r a l R e s e r v e A c t , t h e p u r p o s e s of w h i c h , a s s t a t e d i n t h e p r e a m b l e , a r e "To p r o v i d e f o r t h e establishment of F e d e r a l r e s e r v e banks, to f u r n i s h an e l a s t i c currency, to a f f o r d means o f r e d i s c o u n t i n g c o m m e r c i a l p a p e r , t o e s t a b l i s h a more e f f e c t i v e s u p e r v i s i o n of banking i n t h e U n i t e d S t a t e s , and f o r o t h e r p u r p o s e s . " The S y s t e m c o m p r i s e s t h e F e d e r a l R e s e r v e B o a r d , w h i c h e x e r c i s e s s u p e r v i s o r y f u n c t i o n s , the Federal Advisory Council, which a c t s i n an advisory capacity t o t h e F e d e r a l R e s e r v e Board, t h e t w e l v e F e d e r a l r e s e r v e banks s i t u a t e d i n d i f f e r e n t s e c t i o n s o f t h e U n i t e d S t a t e s , a n d t h e member b a n k s , w h i c h i n c l u d e a l l n a t i o n a l banks and such S t a t e banks and t r u s t companies a s h a v e v o l u n t a r i l y a p p l i e d t o t h e F e d e r a l R e s e r v e B o a r d f o r m e m b e r s h i p and h a v e b e e n admitted to the System. The F e d e r a l r e s e r v e b a n k s a r e l o c a t e d i n B o s t o n , Hew Y o r k , P h i l a d e l p h i a , C l e v e l a n d , Richmond, A t l a n t a , C h i c a g o , S t . L o u i s , M i n n e a p o l i s , Kansas C i t y , D a l l a s a n d San F r a n c i s c o . There a r e a l s o i n o p e r a t i o n twenty- f i v e b r a n c h e s and two a g e n c i e s of t h e F e d e r a l r e s e r v e b a n k s , a l l o f w h i c h a r e l o c a t e d i n o t h e r c i t i e s of the U n i t e d S t a t e s , e x c e p t one a g e n c y i n Havana, Cuba. The c a p i t a l s t o c k o f t h e F e d e r a l r e s e r v e b a n k s i s e n t i r e l y owned b y t h e member b a n k s a n d may n o t b e t r a n s f e r r e d or h y p o t h e c a t e d . Every n a t i o n a l bank i n e x i s t e n c e a t t h e time of t h e e s t a b l i s h m e n t of t h e F e d e r a l R e s e r v e S y s t e m was r e q u i r e d t o s u b s c r i b e t o t h e c a p i t a l s t o c k o f t h e F e d e r a l X-7239 — 2 ^ 8 3 — r e s e r v e b a n k o f i t s d i s t r i c t i n a n amount e q u a l t o s i x p e r c e n t o f t h e s u b s c r i b i n g b a n k ' s c a p i t a l and s u r p l u s . A l i k e amount o f F e d e r a l r e s e r v e bank s t o c k mast b e s u b s c r i b e d f o r by e v e r y n a t i o n a l bank o r g a n i z e d s i n c e t h a t t i m e and b y e v e r y S t a t e b a n k or t r u s t company u p o n b e c o m i n g a member o f t h e F e d e r a l R e s e r v e S y s t e m ; a n d , when a member b a n k i n c r e a s e s i t s c a p i t a l or s u r p l u s , i t i s r e q u i r e d t o s u b s c r i b e f o r a d d i t i o n a l s t o c k i n t h e same p r o p o r t i o n . One h a l f o f e a c h s u b s c r i p t i o n must b e f u l l y p a i d and the remainder i s s u b j e c t to c a l l by the Federal Reserve Board; but c a l l f o r payment of t h e r e m a i n d e r h a s n e v e r b e e n made. A f t e r a l l n e c e s s a r y expenses of a F e d e r a l r e s e r v e bank have been p a i d o r p r o v i d e d f o r , t h e s t o c k h o l d i n g member b a n k s a r e e n t i t l e d t o r e c e i v e a n a n n u a l d i v i d e n d o f s i x p e r c e n t on t h e dividend i s cumulative. p a i d - i n c a p i t a l stock, which A f t e r these dividend claims have been f u l l y met, t h e n e t e a r n i n g s a r e p a i d i n t o a s u r p l u s f u n d , u n t i l i t amounts t o 100 p e r c e n t of t h e s u b s c r i b e d c a p i t a l o f t h e b a n k . T h e r e a f t e r 10 per cent of such e a r n i n g s i s p a i d i n t o t h e s u r p l u s , and t h e remaining n e t e a r n i n g s 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 tax. Federal reserve banks, including t h e c a p i t a l s t o c k a n d s u r p l u s t h e r e i n and t h e i n c o m e d e r i v e d t h e r e f r o m , a r e exempt f r o m F e d e r a l , S t a t e and l o c a l t a x a t i o n , e x c e p t t a x e s u p o n r e a l e s t a t e . The b o a r d o f d i r e c t o r s of e a c h F e d e r a l r e s e r v e bank i s composed of n i n e members, e q u a l l y d i v i d e d i n t o t h r e e c l a s s e s , d e s i g n a t e d C l a s s A , C l a s s B and C l a s s C. member b a n k s . D i r e c t o r s of Class A are r e p r e s e n t a t i v e o f the s t o c k h o l d i n g D i r e c t o r s of C l a s s B must b e a c t i v e l y e n g a g e d i n t h e i r d i s t r i c t i n commerce, a g r i c u l t u r e or some o t h e r i n d u s t r i a l p u r s u i t , and may n o t b e o f f i c e r s , d i r e c t o r s or e m p l o y e e s o f a n y b a n k . C l a s s C d i r e c t o r s may X-7239 - 3 n o t b e o f f i c e r s , d i r e c t o r s , e m p l o y e e s , or s t o c k h o l d e r s o f a n y b a n k . S i x of t h e n i n e d i r e c t o r s , t h o s e of C l a s s A and Class B, a r e e l e c t e d by t h e s t o c k h o l d i n g member b a n k s , w h i l e t h e F e d e r a l R e s e r v e B o a r d a p p o i n t s t h e t h r e e Class C d i r e c t o r s . The t e r m o f o f f i c e of e a c h d i r e c t o r i s t h r e e y e a r s , s o arranged t h a t t h e term of one d i r e c t o r of each c l a s s e x p i r e s each y e a r . One o f t h e C l a s s C d i r e c t o r s a p p o i n t e d b y t h e B o a r d i s d e s i g n a t e d a s chairman of t h e board of d i r e c t o r s o f t h e F e d e r a l r e s e r v e bank and a s Federal r e s e r v e a g e n t , and i n the l a t t e r c a p a c i t y he i s r e q u i r e d t o m a i n t a i n a l o c a l o f f i c e o f t h e F e d e r a l R e s e r v e B o a r d on t h e p r e m i s e s o f t h e F e d e r a l r e s e r v e bank. Another C l a s s C d i r e c t o r i s a p p o i n t e d by t h e F e d e r a l R e s e r v e Board a s deputy chairman. F e d e r a l r e s e r v e b a n k s a r e a u t h o r i z e d , among o t h e r t h i n g s , t o d i s c o u n t f o r t h e i r member b a n k s n o t e s , d r a f t s , b i l l s o f e x c h a n g e and b a n k e r s ' a c c e p t a n c e s o f s h o r t m a t u r i t i e s a r i s i n g o u t o f c o m m e r c i a l and a g r i c u l t u r a l t r a n s a c t i o n s , and s h o r t term paper s e c u r e d by o b l i g a t i o n s of t h e U n i t e d S t a t e s ; t o make a d v a n c e s t o t h e i r member b a n k s f o r p e r i o d s n o t e x c e e d i n g f i f t e e n days upon c o l l a t e r a l s e c u r i t y of c e r t a i n p r e s c r i b e d c l a s s e s ; i n c e r t a i n e x c e p t i o n a l c i r c u m s t a n c e s and under c e r t a i n p r e s c r i b e d c o n d i t i o n s , when a u t h o r i z e d b y a t l e a s f f i v e members o f t h e F e d e r a l R e s e r v e B o a r d , t o make a d v a n c e s t o g r o u p s o f member b a n k s (and u n t i l March 3 , 1 9 3 3 , t o i n d i v i d u a l member b a n k s ) u p o n o t h e r k i n d s o f s e c u r i t y ; i n u n u s u a l and e x i g e n t c i r c u m s t a n c e s when a u t h o r i t y h a s b e e n g r a n t e d b y a t l e a s t f i v e members o f the Federal Reserve Board, t o discount f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s , under c e r t a i n p r e s c r i b e d c o n d i t i o n s , n o t e s , d r a f t s and b i l l s o f e x c h a n g e o f t h e k i n d s and m a t u r i t i e s nia&e e l i g i b l e f o r d i s c o u n t f o r member S>7239 l 8 - 4 "banks; t o p u r c h a s e and. s e l l i n t h e o p e n market "bankers * a c c e p t a n c e s and " b i l l s o f e x c h a n g e o f t h e k i n d s and m a t u r i t i e s e l i g i b l e f o r d i s c o u n t , a n d o b l i g a t i o n s of t h e U n i t e d S t a t e s ; t o deal i n g o l d c o i n and b u l l i o n ; t o r e c e i v e and h o l d o n d e p o s i t t h e r e s e r v e b a l a n c e s o f member b a n k s ; t o i s s u e F e d e r a l r e s e r v e n o t e s ; t o a c t a s c l e a r i n g h o u s e s and a s c o l l e c t i n g a g e n t s f o r t h e i r member b a n k s , and u n d e r c e r t a i n c o n d i t i o n s f o r nonmember b a n k s , i n t h e c o l l e c t i o n o f c h e c k s and o t h e r i n s t r u m e n t s ; t o a c t a s d e p o s i t a r i e s and f i s c a l a g e n t s of t h e Tfiiited S t a t e s ; and t o e x e r c i s e o t h e r b a n k i n g functions s p e c i f i e d i n the Federal Reserve Act. F e d e r a l r e s e r v e n o t e s a r e a f i r s t a n d paramount l i e n on a l l t h e a s s e t s o f t h e F e d e r a l r e s e r v e b a n k s t h r o u g h rrhich t h e y a r e i s s u e d and a r e also obligations of the United States. They c o n s t i t u t e a t p r e s e n t n e a r l y o n e h a l f o f t h e t o t a l money i n a c t u a l c i r c u l a t i o n i n t h e U n i t e d S t a t e s o u t s i d e of t h e Treasury Department and t h e F e d e r a l r e s e r v e b a n k s . They a r e i s s u e d a g a i n s t t h e s e c u r i t y o f g o l d and of commercial and a g r i c u l t u r a l paper d i s c o u n t e d o r p u r c h a s e d b y F e d e r a l r e s e r v e b a n k s , and u n t i l March 3 , 1 9 3 3 , when a u t h o r i z e d b y t h e F e d e r a l R e s e r v e B o a r d , may a l s o b e s e c u r e d b y d i r e c t obligations of the United States. Every Federal r e s e r v e bank i s required t o m a i n t a i n r e s e r v e s i n g o l d of n o t l e s s t h a n 4 0 p e r c e n t a g a i n s t i t s F e d e r a l r e s e r v e n o t e s i n a c t u a l c i r c u l a t i o n and i s a l s o r e q u i r e d t o m a i n t a i n r e s e r v e s i n g o l d o r l a w f u l money o f n o t l e s s t h a n 3 5 p e r c e n t a g a i n s t i t s deposits. Broad s u p e r v i s o r y powers a r e v e s t e d i n t h e F e d e r a l R e s e r v e Board, which has i t s o f f i c e s i n Washington. The l a w d e s i g n a t e s t h e S e c r e t a r y o f t h e T r e a s u r y a n d t h e C o m p t r o l l e r o f t h e C u r r e n c y a s e x - o f f i c i o members, a c d g X-7239 . 5 _ 186 p r o v i d e s f o r t h e a p p o i n t m e n t of s i x members b y t h e P r e s i d e n t w i t h t h e a d v i c e and c o n s e n t o f t h e S e n a t e . I n s e l e c t i n g t h e s e s i x members, t h e P r e s i d e n t i s r e q u i r e d to have a due r e g a r d to a f a i r r e p r e s e n t a t i o n of t h e f i n a n c i a l , a g r i c u l t u r a l , i n d u s t r i a l and c o m m e r c i a l i n t e r e s t s , a n d g e o g r a p h i c a l d i v i s i o n s of the country. No two a p p o i n t i v e members may b e f r o m t h e same F e d e r a l r e s e r v e d i s t r i c t . Among t h e more i m p o r t a n t d u t i e s o f t h e F e d e r a l R e s e r v e B o a r d a r e t h e r e v i e w and d e t e r m i n a t i o n of d i s c o u n t r a t e s charged by t h e F e d e r a l r e s e r v e b a n k s o n t h e i r l o a n s t o member b a n k s and t h e a p p r o v a l o r d i s a p p r o v a l o f t h e o p e n m a r k e t o p e r a t i o n s of t h e F e d e r a l r e s e r v e b a n k s . In connection w i t h i t s s u p e r v i s i o n of F e d e r a l r e s e r v e banks t h e Board i s a l s o a u t h o r i z e d t o make e x a m i n a t i o n s o f s u c h b a n k s ; t o r e q u i r e s t a t e m e n t s and r e p o r t s f r o m such banks; t o r e q u i r e t h e e s t a b l i s h m e n t or d i s c o n t i n u a n c e of branches o f s u c h b a n k s ; t o s u p e r v i s e t h e i s s u e and r e t i r e m e n t o f F e d e r a l r e s e r v e n o t e s ; and t o s u p e r v i s e t h e . f o r e i g n o p e r a t i o n s o f t h e F e d e r a l r e s e r v e b a n k s . The F e d e r a l R e s e r v e B o a r d a l s o p a s s e s on t h e a d m i s s i o n o f S t a t e b a n k s and t r u s t c o m p a n i e s t o membership i n t h e F e d e r a l R e s e r v e S y s t e m and on t h e t e r m i n a t i o n o f membership of s u c h b a n k s ; i t h a s t h e p o w e r t o e x a m i n e member b a n k s e i t h e r t h r o u g h i t s own p e r s o n n e l o r i n c o o p e r a t i o n w i t h n a t i o n a l and S t a t e b a n k i n g a u t h o r i t i e s ; i t r e c e i v e s c o n d i t i o n r e p o r t s f r o m member banks; i t p a s s e s on a p p l i c a t i o n s of n a t i o n a l banks f o r a u t h o r i t y t o e x e r c i s e t r u s t p o w e r s or t o a c t i n f i d u c i a r y c a p a c i t i e s ; i t may g r a n t a u t h o r i t y t o n a t i o n a l banks t o e s t a b l i s h b r a n c h e s i n f o r e i g n c o u n t r i e s o r d e p e n d e n c i e s o r i n s u l a r p o s s e s s i o n s o f t h e U n i t e d S t a t e s , or t o i n v e s t i n t h e s t o c k o f banks or c o r p o r a t i o n s engaged i n i n t e r n a t i o n a l or f o r e i g n b a n k i n g ; i t s u p e r v i s e s t h e o r g a n i z a t i o n and a c t i v i t i e s o f c o r p o r a t i o n s o r g a n i z e d u n d e r X-7239 u 6 u F e d e r a l law t o engage i n i n t e r n a t i o n a l or f o r e i g n banking; and i t i s s u e s p e r m i t s u n d e r t h e a u t h o r i t y g r a n t e d "by t h e p r o v i s i o n s o f t h e C l a y t o n A n t i t r u s t Act r e l a t i n g t o i n t e r l o c k i n g bank d i r e c t o r a t e s . Another f u n c t i o n of the Board i s t h e o p e r a t i o n of the g o l d s e t t l e m e n t f u n d , by which b a l a n c e s due t o and f r o m t h e v a r i o u s F e d e r a l r e s e r v e b a n k s a r i s i n g o u t o f t h e i r orn t r a n s a c t i o n s or t h o s e o f t h e i r member b a n k s a x e s e t t l e d i n W a s h i n g t o n without p h y s i c a l shipments of gold. In e x e r c i s i n g i t s s u p e r v i s o r y f u n c t i o n s over the F e d e r a l r e s e r v e b a n k s and member b a n k s , t h e F e d e r a l R e s e r v e B o a r d p r o m u l g a t e s r e g u l a t i o n s , pursuant t o a u t h o r i t y granted by the Federal Reserve A c t , governing c e r t a i n o f t h e a b o v e - m e n t i o n e d a c t i v i t i e s o f F e d e r a l r e s e r v e b a n k s and member b a n k s . To m e e t i t s e x p e n s e s a n d t o p a y t h e s a l a r i e s o f i t s members and i t s e m p l o y e e s , t h e B o a r d makes s e m i - a n n u a l a s s e s s m e n t s u p o n t h e F e d e r a l r e s s r v e b a n k s i n p r o p o r t i o n t o t h e i r c a p i t a l s t o c k and s u r p l u s . A n n u a l r e p o r t s of t h e o p e r a t i o n s o f t h e B o a r d a r e made t o t h e S p e a k e r o f t h e House o f R e p r e s e n t a t i v e s f o r t h e i n f o r m a t i o n of C o n g r e s s a s r e q u i r e d b y l a w . The F e d e r a l A d v i s o r y C o u n c i l a c t s i n an a d v i s o r y c a p a c i t y , c o n f e r r i n g w i t h t h e F e d e r a l R e s e r v e B o a r d on g e n e r a l b u s i n e s s c o n d i t i o n s and making r e c o m m e n d a t i o n s c o n c e r n i n g m a t t e r s w i t h i n t h e B o a r d ' s j u r i s d i c t i o n and t h e g e n e r a l a f f a i r s o f t h e F e d e r a l R e s e r v e S y s t e m . The C o u n c i l i s composed of t w e l v e m e m b e r s , one f r o m e a c h F e d e r a l r e s e r v e d i s t r i c t b e i n g s e l e c t e d a n n u a l l y by t h e board of d i r e c t o r s 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 . The C o u n c i l i s r e q u i r e d t o meet i n W a s h i n g t o n a t l e a s t f o u r times each y e a r and o f t oner i f c a l l e d by t h e F e d e r a l R e s e r v e Board.
@FedFRASER