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Y-9449
BANKING ACT OF 1935
(Copies to be sent to all F'ederal reserve banks)
January 16, 1936.
Mr. --------------' President~
_______, --------
- - - - - - - - National Bank of - - - - '
Dear Sir:
This refers to your letter of December 7, 1935, asking certain questions with respect
to
the making-of loans by member banks
to their executive officers.
It is understood that you desire to be advised whether the
Chairman of the Board of Directors of your bank may lawfully continua
in such capacity while there remains outstanding a loan made to him
by your bank in July, 1955, in the amount of $4,000.
You state that
such Chairman of the Board of Directors of your bank is inactive and
receives no compensation as Chairman of the Board other than a regular director's fee which is received by all other directors.
As you perhaps know, subsection {g) of section 22 of the
Federal Reserve Act, prohibiting the making of loans to executive
officers of member banks, was amended by the Banking Act of 1935, approved August 25, 1955, so as to eliminate the criminal penalties previously provided for the violation of its provisions.
In lieu of such
penalties, it is now provided that an executive officer of a member
bank accepting a loan or extension of credit in violation of the provisions of this subsection is subject to removal from office in the
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X-9449
manner prescribed by section 30 of the Banking Act of 1953.
However,
i t c.ppears that the criminal penal ties must be regarded as still in
force v:i th respect to acts committed prior to the amendment of section
22(g) by the Banking Act of 1935, on August 23, 1935, in view of the
provisions of Section 29 of title 1 of the United States Code, which
provides as follows:
"The repeal of nny statute shall not have
the effect to release or extinguish any
penalty, forfeiture, or liability incurred
under such statuto, unless the repealing
Act shA-ll so expressly provide, and such
statute shall be trns.ted as still remaining
in force for the purpose of sustaining any
proper action or prosecution for the enforcement of such pennJ.ty, forfei turo, or liability."
In the circumstances, therefore, it appears that the answer to your
question depends upon v:hether the lonn made by your bank in .July, 1955,
to the Chairman of your Board of Directors was in violation of the provisions of section 22(g) of the Federal Reserve Act as it was then in
force.
In construing the provisions of that section prior to its
amendment by the Bankin.g Act of 1935, it was the position of the Board
that it could not nppropriately express an opinion as to who were "executive officers" within the meaning of its provisions since penalties
of fine or imprisonment were provided for violations thereof [lnd since
the determination of the question whether a particular case should be
prosecuted for a criminal violation of the subsection
~~s
a matter
entirely within the jurisdiction of the Department of Justice.
Ac-
cordingly, the Board cannot properly advise you as to whether the loan
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X-9449
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to which you refer constituted a violation of the law.
Under the present law, the Board of Governors of the Federal
Reserve System is authorized to issue regulations and to define the
term "executive officer" for the purposes of the subsection in question; and in accordance with this authoritj•, the Board has defined
the term "executive officer" in soction l(b) of its recently issued
Regulation 0, effective January 1, 1936, to include the Chairman of
the Board of Directors, regardless of whether he is active in the performance of the duties of his offico.
However, as indicated above,
the determination of the question who are to be considered "executive
officers" in the case of apparent violations arising prior to August
23, 1935, the date of the enactment of the Banking Act of 1935, is a
matter which appears to be properly within the jurisdiction of the
Department of Justice.
You
~lrther
request to be advised whether a member batik
may lawfully advance an executive officer his salary for the ensuing
month, i.e., whether, for
eL~mple
you might on January 1 credit an
executive officer his salary for the month of January without violating the law.
It will be noted that subsection (c) of section 1 of the
Board's Regulation 0 provides that the terms "loans", "loaning", "extension of credit", and "extend credtt" include, among other things,
"any advance of unearned salary or other unearned compensation for
periods in excess of 30 days".
Strictly interpreted, this provision
would preclude the advance of unearned salary for any full month having
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X-9449
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However, where an officer's salary is computed on a
51 days.
.
monthly basis, the Board will not regard the advRnce of unearned salary
for a month having more than 50 days as a loan or extension of credit
within the meaning of the Bonrd's regulation.
For your information, there is inclosed herewith a copy of
the Board's Regulation
o,
effective January 1, 1956.
Very truly yours,
(Signed) L. P. Bethea
L. P. Bethoa,
Assistant Secretary.
Inclosure.
@FedFRASER