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X-1530
FF..DEHAL HESEHVE BO .A...TID ANNOUNCEMENT
WEEK END:ED JANUARY 7, 1927.
CHi\..NGES IN STATE BJ....NK ]1Efv1BEHSHIP ;
Admitted to :Membership:
Total
Dist.
No.
--·-2
3
Capital
The Standard Bank,
New York, N. Y.
resources
Date
$250,000
$250,000
$8,308,085
1- 3-27
2,000,000
500,000
18,000,000
1- 3-27
The First Trust Company of Al reny, N. Y. , a member,
has absorbed the Alba-ny Trust Company, a nonmember.
12-31-26
Lycoming Trust Co.,
Will~sport,
Pa.
Nonmember~
Absorption of
2
Surplus
Closed:
4
12
Peoples Bank Company,
Peoples Bank,
Frazeysburg, Ohio
Cambridge,
Idaho
1- 3-27
1- 6-27
Succeeded by a State Member:
3
The Northern Central Trust Co., Williamsport, Pa.,
a member, has been succeeded by the Lycoming Trust Co.,
a member.
Absorbed by
12
!'.
1- 3-27
National Bank:
Hillsboro Commercinl Bank, Hillsboro, Oregon
1- 3-27
Vollmtary Wi thdr.!!<.wn.l:
9
Citizens State Bank, New Ulm,
~linn.
1- 3-27
PER:WuSS ION GBliliTED TO EXERCISE THUS·!' PO\VEHS :
2
2
2
3
4
6
10
Bergenfield National Bank, Bergenfield, N. J.
Rutherford National Bnnk,
Rutherford, N. J.(Sup.)
~'irst Nr.tione.l Br.nk,
1l['l.Dhasset, N. Y.
Fn.rmers & Merchnnt s Nr.tional Br.nk, Bridgeton, N. J.
Ci ty-·Nd ional Bnnk of Commerce, Columbus, Ohio
First Hational :&"..Dk, McComb City, 1'Iiss.
Co.,sper Nn.t ionnl Bank, Casper, Wyo.
( Supp1emen tal)
1111111-
7-27
7-27
7-27
7-27
4-27
4-27
4-27
X-1530
FEDERAL RESERVE BOlJID ANNOUNCEIIENT
\"lEEK ENDED J .ANUARY 14, 1927.
CHANGES IN STATE RANK 1VIE]iffiERSHIP:
District
No.
Effective
--"Date__ _
Admitted to
1~mbership:
None.
Closed:
State Bank of Early,
Farmers State Bank,
Delta State Benlc,
7
12
12
.§_uc~ded
8
Early, Iowa
New Plymouth, Idaho
Delta, Utah
1- 8-27
1- 6-27
l-10-27
by a Nonmember,
The Arkansas Bank & Trust Co;., Newport, Ark., a
member, has been succeeded by the .Arkansas Trust Co. ,
Newpert, Ark., a nonmember.
l-10-27
Absorbed bl a National Bank;
11
The Texas State Bank, Canton, Texas, has been absorbed by the First National Bank of Canton, Texas.
1-10-27
Merger of State Member Banks:
12
The American Bank of So.n FrC1.:reisco, Co.lif.,
has consolido.ted with and under the charter of the Mercantile Trust Company of California, San Francisco, Cnlif.,
ttrd under -the title, American Trust Company.
1-12-27
..\uTHORIZED TO ACCEPT DRAFTS AND BILW OF EXCHJJJGE
---·UP TO 100 PER CENT OFCAPfTLL l.ND-SlJRP-LUS : - ·
2
Bowery & East River National Bank, N'ew York, N ~ Y,
PERMISSION GR!:NTED TO EXERCISE TRUST
8
11
1- 8-27
POWERS~
Merce:c No. tiOYk"..l Brnk, Ifv,rrodsburg, Ky.
First Nationo.l Bl'...n~c in Brownsville, Texas
1-13-27
1-13-27
X-1530
FEDERAL l1ESER'iiE :BOAHD .A.NJ:WUNCEli'ICNT
¥lEEK EliDED J.A.NUARY 21, 1927.
CF.AUGES IN S:2AT'.J KiNK ME1ffiERSHIP:
Effective
Date
!dmi tted to :Membership:
None.
Closed:
5
:Ba...'1k of Georgetrn:m, Georgetown, S. C.
North Liberty State Bank, North Liberty, Ind.
7
11
1-21-27
l-17-27
Farmers State Bcmk, Grand Prairie, Texas, has been
absorbed by the City National Ba;.1k of Grand Prairie.
l-17-27
PERI''J.S!UO~J
7
9
GRh.lif 1
.llED CJ.lO EX3ftCISE IJ.1RUST POVv.-::RS;
First l'Jnt ionELl :Sank, Ottawa, IlL
First Nt:,tional J32.nk, Fairmont, liinn.
l-19-27
1-19-27
X-1530
FEDERAL RESERVE BOARD .ANNOLi1-JC:SI::3lJ'r
\'lEEK E}ffiED JANUARY 28, 1927.
CHJJJGES IN ST A'rE EAN'i: MEMBERSHIP:
Dist.
-rj"O-:-
Date
Acl_mitte_d to
1viembe_r_~~~y_:_
None.
Abs_orption of N8.tional Bank:
5
The First National Bank, Hartsville, S. C., has
been absorbed by the Bank of Hartsville, Hartsville,
S. C., a member.
7
Saline Savings Bank, Saline,
l~ch.
1-18-27
l-27-27
Closed:
ll
.America.n Trust & Sa.vings Bank, El Pe,so, Texas.
1-27-27
PERMISSION GR1\.NTED '1:0 EXEr1CISE 'ffiUST PO':JERS:
1
ll
12
Pittsfield National Bank, Pittsfield, 111:-:.ine.
1-25-27
]flerchants National Bank, Port Arthur, Texns.
1-25-27
First Natio11.a.l Banl;:, Portland, Oreg. ( Su:/L::lementc.l) 1-27-27
X-1530
Ii'E:DERA:U RESEJ:l."\'E BO.t\I?.D ANNOUNCEMENT
VJEEK illiDE:O FBBRULRY 4, 1927.
CH.AIJGE0 IN
S'.I:id1~ BANK
MCJ\':BEI1SHIP:
Dist.
'11otal
1r0.-·
Capital
Admitted to
2
3
United States Trust Co.,
Newark, N. J.
Paoli Ba.nk & Trust Co.,
Paoli, Penna.
Surplus
resources
--·--
Date
Member~hip :_
$1,200,000
$400,000
$1,800,000
2- l-27
125,-00
75,000
607,439
2- 3-27
Change of Title :
3
4
The Security Trust & 3Gfe Deposit Co., Wilmington, Del.,
has changed its-title to Security Trust Co.
The Fourth & Central Trust Co., Cincinnati, Ohio, a member,
has absorbed the Citizens National Bank & Trust Co., Cincirmati,
Ohio.
l-31-27
Voluntary
4
10
l-18-27
Withdra.:!_a~
lifarshall County Bank, Moundsville, Vl. Va. (not previously
re)orted)
Cha-ppell State Bonk, Cbappell• Nebr.
7-12-26
l-31-27
Closed~
7
Citizens Bank & Trust Co., Rock Hill, S. G.
Fnrmers Stt:>,te Savings Bank, B[.~y City, Mich.
l-29-27
2- 1-27
9
Deposit Bo..nk [.t.nd Trust Co., Winor.a, Minn.
1-22-27
5
FERJ',':ISSIOH GRANTED TO EXERCISE TRUST POWERS:
3
6
3
4
5
Fruit Growers National Bank and Trust Co., Smyrnc.., Del.
( Su:::rplemento.l)
N:.'.t iona.l Bank of Jersey Shore, Jersey Shore, Penna.
First National Bank f~ 'J1rus t Comp..'1.ny in We1.ynesboro,
Waynesboro, Peru1a.
Mn.rine National Bc~n}c, Pittsburgh, Penna.
First N:~tiomcl Banlc, Narrows, Vn.
2- 1-27
2·· 2-27
2- 1-27
1-28-27
2- 1-27
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED FEBRUARY 11, 1927.
CH.:.mGES IN STATE BANK MEMBERSIUJ>:
Dist.
No.
Date
Admi.tted to l:fembership:
None.
t
9
Green Lake State Bank, Gre~n Lak&, Wis.
Bank ef Ellswerth, Ellsworth, W:ts.
\
Chi¢•t Bank
& Trust Co., Lake Village, Ark.
Change
2- f-17
2- 9-27
2- 9-27
~f Titl~;
The Fourth and Central Trust Co., Cincinnati, 0 .,
4
has changed its title to Central Trust Co.
1-31-27
PERMISSION GRANTED TO EXERCISE TRUST POWERS:
2
6
6
7
10
lt
Breadway National Bank, Paterson, N. J.
Citizens National Bank, Meridian, Miss.
First National Bank, Morristewn, Tenn.
Peru National Bank, Peru, Ill,
First National Bank in Ardmore, Ardmore, Okla..
Citizens National :BD.nk, Okmulgee, Okla..
2222·
22-
9-2'1
9-27
9-27
9-27
9-27
9-27
X-1530
FEDERAL RESERVE BOARD ANNOT..TNCE11IENT
WEEK ENDED FEBRUPBY 18, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Dist.
No.
Date
.Admitted to Membership:
None.
Closed:
Peoples Bank, Sumter,
5
5
5
6
s.
C.
2-15-27
The Home Bank, St J\il'l.t thews s S. C., has been
absorbed. by the South Cu-e o:ij_n& Sewings Bank of
St. Matthews, S. C., a norllilcmter.
2-12-27
The Petersburg Savings & Trust Co., Petersburg,
Va., has absorbed the Ame:n_can Bank & Trust Co.,
Petersburg, Va., and changed its title to Petersburg
Savings and mnerican Trust Co.
2-14-27
The Dacula Banking Co., Dact.lla, Ga., has been
absorbed by the First National- Bank, Lo.wrenceyille,
Ga.
PEBl~ISS:::OlJ
4
4
6
8
GRANTED TO EX.KtiCISE rpKJST PO'ifBRS:
Coshocton National Bank, Coshocton, Ohio
Merch:l.nts & Farmers National Bank,Greensburg,Pa.
City Nc~tional Bank, Knoxville, Tenn. (Sup.)
Fan1ers National Bank, 1&'1disonville, Ky.
2-14-27
2-14-27
2-14-27
2-17-27
~.:
X-1530
FEDERAL RESERVE BOA.,.'r1D ANNOUNCEMENT
WEEK ENDED FBBRUARY 25, 1927.
CHANGES IN STATE BANK tOOtffiERSHIP:
Dist.
No.
Date
Admitted to Membership:
Nohe.
Volurtary Withdrawa}:
~armets & Miners State Bank, Belt, Mont.
9
2-16-27
Absorption of Nonmember:
12
The James M. Peterson Bank, Richfield, Utah,
a member, r~s absorbed the State Bank of Escalante,
Escalante, Utah, a nonmember.
2- 7-27
AUTHORIZED TO ACCEPT DRAFTS AND BILLS OF EXCHANGE
UP TO 1o() PER CENTC5FCA'PIT.7JJ-7J'j1f SURF-LUS : Franklin-Fourth Street National Bank,
Philadelphia, Pa.
2-23-2?'
PERMISSION GR.i\.NTED TO EXERCISE TRUST POVVERS:
l
l
3
5
5
5
7
10
City National Bank, New Britain, Conn.
2-23-27
Third National Bank & Trust Co., Springfield, Mass.
2-23-27
Central National Bank, Philadelphia, Pa.(Supplemental)2-23~27
Denton No.tional Bank, Denton, Md.
2-23-27
Commercial National Bank, High Point, N. c.
{Supplemental)
2-23-27
Norfolk National Bank of Commerce and Trusts,
Norfolk, Va. (Supplemental)
2-23-27
First National Bank, Huntington, Ind.
2-23-27
Commercial Nation.e.l Bank in .Mu.skogee, Muskogee, Okla. 2-23-27
,•(
X-1530
FEDERAL RESERVE BO.UID ANNOUNCEMENT
WEEK ENDED MARCH 4, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Dist.
No.
Date
Admitted to Membership:
None.
Change of Title :
6
The Mount Pleasant Bank, Pleasantville, N. Y., has
changed its title to Mount Pleasant Bank & Trust Co.
The Brotherhood of Locomotive Engineers Bank &
Trust Co., Birmingham, Ala., has changed its title to
Engineers Bank & Trust Company.
l-21-27
2-19-27
Absorption of-National Bank:
4
The Union Trust Co., Cincinnati, Ohio, has absorbed
the Fifth-Third National Bank, Cincinnati, Ohio, and has
changed its title to Fifth-Third Union Trust Company.
2-26-27
Consolidation of State Members:
3
The Peoples Bank & Trust Co., Philadelphia, Pa., has
consolidated with and. under the title of the Colonial
Trust Company, Philadelphia, Pa.
2-11-27
Reopened:
11
American Trust & Savings Bank, El Paso, Texas.
2-28-27
P:ERMISSION GRANTED TO EXERCISE TRUST POWERS:
2
2
3
8
11
12
Traders National Bank of Brooklyn in New York, N.Y.
National Bank of Westfield, Westfield, N. Y. (Sup.)
First National Bank, Selins Grove, P&.
First National Bank, Bridgeport, Ill,
First National Bank, Marshall, Texas (Supplemental)
Bank of Italy National Trust and Savings Association, San Francisco, Calif.
...
3- 4-2'7
3333-
3-27
3-27
1-27
1-27
3- 1-27
.,
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED :MARCH 11, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Dist.
-No-.-
Date
Admitted to Membership:
None.
Converted to National Bank:
12
3- l-27
Bank of Italy, San Francisco, Calif.
Absorbed by State Member:
12
12
Mission Savings Bank, San Francisco, Calif.
3- 9-27
Bank of Sausalito, Sausalito, Calif.
3- 9-27
(Both of the above bsnks were absorbed
by the ~\mar ican Trust Co., San Franc is co, Calif.)
PERI1J.ISSION GR1>NTED rro EXERCISE TRUST
2
2
2
6
7
12
POY~ERS ~
Peoples National Bank, Hackettstown, N. J.
3- 8-27
Brot.'.d and Market National Bank, Newark, N. J.
2-26-27
Merchants Natioml Bank, Elmira, N. Y.(Supple:roontal)3- 8-27
First Nat~onal Bank in Fort Payne, Ala.
3- 8-27
Affierican National Bnnk, Pekin, Ill.
3- 9-27
Seaboard Natioml Bank, Los Angeles, Calif.
3- 8-27
X-1530
FEDERAl, RESERVE BOARD ANNOUNCEMENT
iiEEK ENDBJD 1\rb.RCH 18, :!.927,
CHANGES IN
S~WL'E
BiuiJK :MRV-LBER3HIP:
Total
resources
Dist.
No.
Admitted to
2
7
De.te
1~mbership:
Weequahic Trust Co.,
Newark, N. J.
3-18-27
Wheaton Trust & Snvings Bank,
Wheaton, Ill.
100,000
152,310
3- 9-27
Chailge of Title:
4
The Pearl-Market Bank, Cir,e5.rma.ti, Ohio, has changed its
title to Pearl-Mf.:rket Bank ani Trt.:tst Co.
3- 9-27
Closed=
8
Citizens Savings Bank,
Cabool, Mo.
3-17-27
PERMISSION GRANTED TO EX.ERCISE TRUST POWI':.RS:
3
1
7
7
9
10
First National Banl~, Nsnt:i.coke, Pa. (3r.pplemental)
Rutland Co,mt:,· N~tiorul Bank~ Rutland, Vt.
F'1JrfJH".rs & lvrer::n:-:.nts N'1tionnl Bo.nk, Vi.J.IJr.:tsh, Ind. ~Sup.)
Fo.rmers Nationn.l Bcnk; l(_jJcxvillc, 111,
First Natior"r:.l :Bank, Lo.ke Linden, iiLic:C1.
Wyoming Nationt:.l Bank, Casper, Wyo .• esupplemento.1)
3-15-27
3-15-27
3-17-27
3-17--27
3-17-27
3-17-27
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED MARCH 25, 1927.
CHANGES IN STATE BANK .lVIEMBERSHIP:
Admitted to Membership:
Dist.
No.
2
Capital
Merchants Trust c,,.,
Newark, N. J.
$1,350,000
Surplus
Total
resources
$1,350,000 $20,710,953
Date
3-19-27
Closed:
6
12
Bank of Orange & Trust Co., Orlando, Fla.
Tillamook County B~k, Tillamook, Oreg.
3-22-27
3-18-27
Voluntary Withdrawals:
8
11
Merchants & Farmers Bank, Dums.s, Ark.
Guaranty Bond State Bank, North Zulch, Texas
3-21-27
3-21-27
Consolidated with State Member:
12
The Italian-American Bank, San Francisco, Calif., has
consolidat'3cl. with the B,mk of ItJJ.y, San F:rrcncisco, Calif.
2-16-27
?1'RMISSION GRIN TED TC :SZERCISE TRUST POVVERS:
1
2
2
2
3
7
Cap.ito2. National B~nk, H<1rtf'ord, Conn,
Line e'l National Ba11k, Lincle:~l, N. J.
Nor-c.h~: n Valley Ya·.;ional Bank, Tenafly, N. J.
Green:v:Lch Nationrl Bank, New York, N.Y.
BeaC'r~ 1-i:aven Nal:i~;_t•Y:~'-l Bank and Trust Co., Beach Ha.ven,N.J.
Piore2r Natior.JD.1 :Br'nk, Wt'..terloo, IowJ. ( Su.pplemental)
3-14-27
3-22-27
3-22-27
3-23-27
3-17-27
3-22-27
'
X-1530
FEDERAL RESERVE BOARD ANNOUNCElVIENT
WEEK ENDED APRIL 1, 1927.
CHANGES IN STATE BANK 1V!EMBERSHIP:
Total
resources
Date
Admitted to Membership:
2
Pacific Coast Trust Co.,
New York, N. Y.
$1,000,000
$250,000
$1,250,000
3-26-27
125,000
100,000
1,017,408
3-28-27
The Excelsior Trust Co., Philadelphia, Pa., has consolidated with and under the title of the Colonial Trust Co.,
Philadelphia, Pa.
3-16-27
3 Myerstown Trust Co.,
Myerstown, Pa.
Consolidation of State Members:
3
Closed;
12
Meridian State Bank,
Meridian, Idaho.
3-30-27
PERMISSION GR.ilNTED TO EXERCISE TRUST POWERS:
2
2
3
3
8
12
12
First National Bank, 1~dison, N. J.
Port Washington National Bank, Port Washington, N. Y.
Fill'st Nationo.l Bank & Trust Co., Elizc.bethtown, Pa.
First National Bank, New Egypt, N. J,
Union National Bailie, Elizabethtown, Ky.
Ne~ First National Bank, Fullerton, Calif.
First National Bank, Vfuittier, Calif.
3-29-27
3-29-27
3-30-27
3-29-27
3-30-27
4- 1-27
4- 1-27
,
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED APRIL 8, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Admitted to Membership:
\
Dist. No.
Date
None.
Closed:
5
Bank of Darlington, Darlington,
- .,_.,...
12
-. --'""' .•
s. c.
4-"7-27
Absorbed by National Bank:
~-
... -
-.- •
. ""1""\
'
The Mission Bank, San Francisco, Calif., has been absorbed by the Bank of California, N. A., San Francisco.
PEBlUSSION GRANTED TO EXERCISE TRUST PO\VERS:
9
ll
Iron National Bank, Ironwood, Mich.
First National Bank, Corsicana, Texas
4- 6-27
4- 8-27
•
X-1530
FEDERAL RESERVE BOARD ANNOUNCE}1ENT
WEEK ENDED APRIL 15, 1927.
CHANGES IN STATE BANK :MEI\lBERSHIP;
Admitted to
J\~mbership:
Date
Dist. No.
None.
~bsorption
7
10
12
12
of National Banks:
The First State Bmk, Detroit, J\lich., has absorbed
the Griswold National 3ank. J)etroi t, Mich., and has
changed its title to Griswold-First State Bank.
3-21-27
The First Bank of O¥~rche, Okarche, Okla., has absorbed the First No.tional Bank, Okarche, Okla.
1-18-27
The Pacific Southwest Trust & Savings Bank, Los
Angeles, Calif., has absorbed the Dinuba National Bank,
Dinuba, Calif.
3-19-27
Anderson Brothers Bank, Idaho Falls, Idaho, has absorbed the Idaho Falls National Bank, Idaho Falls, Idaho. 3-26-27
Absorbed by State
12
Member~
• The Home Bank, Porterville, Calif., has been n'Qsorbed
by the Pacific Southwest Trust & Savings Bank, Los
Angeles, C~lif., both members of the system.
3-26-27
Insolvent:
12
_ The Bank of Stanfield, Stanfield, Oreg.
PERMISSION
4
5
5
6
6
7
10
12
GR~\NTED
3-12-27
TO EXERCISE TRUST POWERS:
Bnnk of Pittsburgh Nc.tional Association, Pittsburgh,
Pa.
Second Nationo..l Bank, :Morgc-,ntown, W. Va.
Nationnl Bank of South Carolina, Sumter, S. C.
First Nc-.tional BE'..nk, Fort 1/wers, Fla.
First NGtiono..l Bank, Dothnn, Ala.
First Nr..tionc,l Be.nk, Birminghn.m, .Un.. (Supplemental)
First National Bnnk, Longmont, Colo. (Confir~~tory)
United Sto.tes W.:.tioMl Bank, Newberg, Orpg,
4-15-27
4-12-27
4-12-27
4-12-27
4-12-27
4-15-27
4-15-27
4-15-27
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-1530
FEDERAL RESERVE BOARD Ai''lJOUNCEJv'JENT
WEEK EJ:IJ'DED APRIL 22, 1927.
CHA..WGES IN S'rATE BANK MEMBERSHIP:
Dist.
...__
Total
resources
No,
Admitted to
Date
Yillmbers~~~
None.
Absorption of National Bank:
4
The Real Estate Trust Co., Washington, Pa., a member,
has absorbed the First National Bank of Washington, Pa.
4-16-27
Closed:
7
Wapello State Savings Bank, Wapello, Iowa.
4-19-27
PERMISSION GRANTED TO EXERCISE TRUST POWERS:
l
3
5
North National Bank, Rockland, J,J:aine
Second National Bank, Atlantic City, M. J,
Lynchburg National Bank, ,LynchbLXg, Va.
(supplemental powers)
4-22-27
4-22-27
4-22-27
X-1530
CHAl'JGES IN STA'J:lE BANK lv'IEMBERSHIP:
Date
.District
Closed:
4
7
Bridgeport Bank Company, Bridgeport, Ohio.
First State Bank,
IvTagnolia,
Ill.
4-23-27
4-26-27
PERHISSIOl; G3.11JJTED TO EXERCISE rr.rRUST PO'.TBRS:
2
2
5
5
11
First r;atio'1al 3a.nli:, Dunellen, K. J.
4-26-27
Bowery ac1d :Snst Tiiver National P:>ttnk, New York, N.Y. 4-26-27
( Confirr.1atory)
First National :Bank, Canrlen, S. C:.
4-27-27
Peoples National Bank, Rocky J'iount, Va. {Sup.}
4-26-27
Lindsn.y Nntional Be:.nk, Gainesville, Texas
4-26-27
X-1530
FEDEIU\.L RESElWE BOARD AN!JOUNCE:MJi!IJT
IVEK: EimED 1v1..W 6, 1927.
CHLNGES IN STATE BANK J\IElviBERSHIP:
Capital
nist.
Admitted to
Total
resources
Surplus .
Date
Members._J:._i:p~
I
3
Dime Banlc Title & Tru.s t Co. ,
Wilkes-Barre, Pa.
$400,000
$GOO,OOO
Converted to Natiomtl
6
11
9
5,175,141
Bank~
Citizens & Southern Bank, Savannah, Ga.
Teague State Bank, Teague, Texas.
5- 2-27
5- 2-2?
Secttr<i.ty State Bank, Lewiston, Minn.
5- 6-27
Consolidation of S.tate JI!Iembers
12
5-- 2-27
~.
The French-American Bank and the United Bank and 'rrust
Company of Cali£ornia, both of San Francisco, have consolidated
under the title of United Bmk and Trust Company.
5- 2-27
_9_bange of Title:
12
The Brit"ish-Axncrican Bank, San Francisco, Cs.lifornia, has
changed its title to B<.mk of Montreal {San Francisco).
-~~~eeeded
3
by a State
4-12-27
Memb_~_r:_
The Dime Bank Title and Trust Co., Wilkes-Barre, Pa., has
been grc.nted a new coorter under the same nccme and remains a
member of the system.
5- 2-27
PERMISSION GRf:..Nr.I1ED TO EY..ERCISE TRUST POWEitS:
3
3
5
6
7
9
9
10
SouthW2,rk National Bcnk, Philr:!.delphic., P;;.. (Supplemental)
First life,tion8.l BE'..nk, Scr2-nton, Pa. ( Confir:mc,tory)
First Nf'..tion<',l Bc.nk, .&lexl',ndrio., Vr.. {Supplemental)
Tro.ders Nationnl B:.mk, Birminghc,m, Ale,.
First Nation0.l Bp.rJ.k, Bc.rc:.boo, Wise.
Miners Nc.tionn.l Bc,nk, Ishpeming, Mich.
Grr.fton N.:'..tionnl B mk, Grc.fton, N. Da.k.
First l'J['.tionc•l Bonk, Wt..hoo, Nebr.
5- 5-27
5- 5-27
5- 5-27
5- 3-27
5- 5-27
5- 5-27
5- 3-27
5- 2-27
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED MAY 13, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Admitted to Membership:
Total
Capital
Surplus
resources
Dist.
7 Ladoga State Bank,
Ladoga, Ind.
$25,000
$ 5,000
$88,370
Date
5-12-27
Change of Title:
4
The Real Estate Trust Co., Washington, Pa., has changed its
title to First Bank and Trust Company.
4-16-27
Closed:
12
First Bank of Joseph,
Joseph, Oreg.
5-13-27
AUTHORIZED TO ACCEPT DRAFTS AND BILLS OF EXCHANGE
UJ:i""iilQ 100 PER CENT OF CAPITAL AND SURPLUS
8
First National Bank,
Memphis, Tenn.
PERMISSION GRLNTED TO EXERCISE TRUST
1
5
5
6
6
6
7
9
10
5- 3-27
POWERS~
Hartford-Aetna National Bank, Hartford, Conn.(Supplemental)
First National Bank, Westminster, Md.
Virginia National Bank, Petersburg, Va.
(Supplemental)
First National Bank of Opp, Opp, Ala.
National Exchange Bank, Augusta, Ga.
Citizens and Southern National B~k, Savannah, Ga.
Live Stock National Bnnk, Sioux City, Iowa
Citizens National Bank in Sioux F<'....lls, S. Dnk.
First National Bonk in Thermopolis, wyo.
5-:J..0-27
5-l0-27
5-;13-27
5-i0-27
5-13-27
5- 2-27
5-13-27
5-10-27
5-10-27
X-1530
FEDERAL RESERVE BOARD lJ.JNOUNCEMENT
WEEK EliJDED ].1:£\.Y 20, 1927.
CHANGES IN
ST~rE
BANK 1'lEU3:ERS:U?:
Admitted to Membership:
Dist.
5
12
·rotal
resources
Capital
Bank of Darlington, Inc.,
Darlington, s. c.
The Bank of Hoquiam,
Hoquiam, Wash.
Date
$100,000
:,;;1o,ooo
$110,000
5-17-27
100,000
50,000
1,444,447
5-18-27
1flerger of State Mepbers .:_
2
9
The Peoples Bank, Buffalo, New York, a member, has merged
into the Manufacturers and Traders Trust Co., Buffalo, New
York, a. member" under title :rv:ranufn,cturers & Traders Peoples
Trust Co.
Closed:
12
12
~~robe~~
:E. G. Young & Co., Bank, Oakland, Oregon, l1c.1.s absorbed the
Commercial Bank, Oakland, Oregon, a no:n..11ember.
Jackson County Bank, Medford, Oregon, has absorbed the
Fidelity State Bank, Gold Hill, Oregon, nonmember.
PERMISSION GRA.NT:ID TO EXERCISE TRUS 1
r
2
7
10
5-16-27
Farmers & Merchants State Bank, Saco, Mont.
Absorution of Nonmembers__by
3-14-2'7
3-31-27
PO'NERS,
Seward National Bc.n..lc, New York, N. Y.
Rockville National Bank, Rockville, Ind. ( SupplementR1)
American-First National Bank in Okle.homa City, Okla.
(confirmatory)
5-16-27
5-18-27
5-18-27
5-17-27
X-1530
FEDERAL RESEJ.l.VE :BOAt."'W ANIJOUl~JElJEN:r
V!EEK ENDED lVIA.Y 27, 1927.
CHANGES IN STATE :B.ANK
~.IEI'IIB:E!RSHI?:
Surplus
Total
resources
Admitted to ]L[eiil1ier'S"EtD:
Wilkesbarre Deposit & Sii'VIngs :Bank,
·-=--Wilkesbarre, Pa.
:j300,000
$700,000
$6,347,921
5-26-27
604,954
5-21-27
~ist.
Capital
No.
3
25,000
7
Pigeon State :Bank, Pigeon, Mich.
5
The Putnam County Bank, Hurricane, V!. Va., has absorbed the
Hurricane National Bank, Eu.rricane, w. Va.
5,000
Date
5-13-27
State Member Consolidated with National :Bank:
7
The Jackson State Savings Bank, Jackson, Hich., has consolidated with the National Union Bank, Jackson, Mich.
5- 4-27
PEPJ\1ISSION GRANTED TO EXERCISE TRUST POVlFBS;
1
3
4
4
6
7
7
7
7
State National :Bank, LyTh~, 1~ss.
Hopewell National Bank, Hopewell, N. J.
Farmers National :Bank, Cynthiana, Ky.
Ivierchants National :&1nl'=, Meadville, Pa.
Houston National Bo,nk, Dothan, Ala.
First National Bank, Naperville, Ill.
First Nationo.l :Brenk in Port Huron, Ifich.(Supplementc.l)
Commercial National Bank, 1~dison, Wis.
First Nat iono.l Bcmk, Wilmette, Ill.
5-27-27
5-27-27
5-27-(.:;7
5-27-27
5-23-27
5-27-2'1'
5-23-27
5-27-27
5-27-27
X-1530
FEDERAL RESERVE BO..:\BT "J:-Ti'T00":"JCF~~iEm:r
':J:EEK EliDED JUNE 3, 192 7.
Dist.
No.
Total
resources
Capital
Date
Ad..."llitted to Membership:
2
3
...
Bank of Avoca, Avoca., N. Y. ;;p50,000
:~50,000
$754,707
6- 2-27
Quakertown Trust Co.,
Q.uakert m.vn, Pa.
225,000
1,396,911
6- l-27
125,000
Closed;
8
Union Balli{ & Trust Co.,
Batesville, Ark.
5-31-27
PERMISSION GR.4.NTED TO EXERCISE TRUST PO'.l.ERS:
1
4
5
6
7
Hartford National Bank & Trust Co., Hartford, Conn.
(Confirmatory)
First Nc.tioncl Bank, Springfield, Ohio.
National BDnk of Suffolk, Suffolk, Va.
Folll'th & First National :a,,nk, No.shvi lle, Tem'l. (Supplemental)
Continental National ~~ru{, Indianapolis, Ind.
5-21-27
5-31-27
6- 1-27
6- 1-27
5-28-27
FEDERAL RESERVE. llQARD ANNOuNC.EMENT
\~K ENDED.JUNE 10, 1927.
CHANGES IN .STATE BANK :MEM~ERSHIP:
Admitted.to Membership:
Surplus
Cs.pito.l
Dist•
3
3
3
lloutzda.le ~st Co •,
Houtzdale, Po.. .
Total
resource.s
$125,000
$1,193,564
i8o,ooo
18,000
90;000
G.;. &;..27
991,038
15,000
feoples Savings & Truet Co-,
Nanticoke, P&..
$75,000
Date
-
Temple State Benk,
Temple, Pa..
6- 4-27
Voluntary Wi thdr.a.wal:
7
Mlrysville S.::.vi;lgs R.'Ulk 1 Mtlrysville, Mi(}h.
6- 3-27
PERMISSION GR;ijq'',liED 'ro $imCISE TRUST POWERS:
1
2
2
3
4
4
5
7
10
State National Bank, Windsor, Vt. (Supplemental)
First N~tional Bank in Greenwich, Greenwich, Conn.
Fort Plain Nw.t ional 13cnk, Fort Plo.in, N. Y.
Fermers N~tional B&nkr~f Bucks County, Bristol, Pa.
Winters N~tiona.! Bank and Trust Co., D~yton, o. (Su?plemental}
Mt • Sterling Nationo.l Balk, Mount Sterling, 1\7. ( Supplementa.l)
First N;.tional Ba.nk, Parkersbllrg, w. Vc... (Confirmatory)
Conmercinl N~tiono.l :&.nk, St. Joseph, Mich.
First Nt>-tiono.l :&.nk, Okemah, Oklo...
666666-
9-2·;·
7-2"/
9-27
7•2'/
9-27
7-27
6- 7-27
6- 7-27
6- 9-27
x ... 153o
FEDERAL RESERVE BOARD .A1TNOUNCEMENT
WEEK ENDED JUNE 17, 1927.
CHANGES IN STATE BLNK lW:MBERSHIP:
Ad.mi tted to I•iembership:
Dist.
4
7
Total
resources
C&pital
Wright B.r.nking Co.,
Bellevue, Ohio
Guardian Detroit Bank,
Detroit, Ivi:ich.
Swplus
)50,000
~~50,000
4~1,457,324
5, 000,000
3,000,000
Date
8,010,468
Closed.;
6
Peoples Be.:n.k, Mobile, Ala.
Absorbed by
12
N~tional 3~k:
Wc;.sco County :Bn.n].c, The Dulles, Oreg.
PERMISSION GR.1'>.WIED TO EX.ERC ISE TRCST P01Jf.ERS:
1
2
3
4
4
5
Central National :&-,n~c, J,liddletovm, Gon-'1.
First National B~nk, Kenmore, N. Y.
Marine National Bank, Wildwood, N. .J.
Farmers National Bank, Ashtabuln, Oh:..o
Wayne County National Bank, Wooster, Ohio
National ::&~nk of Grc:mville, Oxford, H. c.
6-14-27
6-17-27
6-14-27
6-17-27
6-17-27
6-17-27
X-1530
FEDERAL RESERVE :BOli.IID ANlfOillWID.lENT
IJEEK ENDED JUNE 24, 1927.
CHANGES IN STATE BANK iJEMBERSHIP;
Dist.
Date
Admitted to 1fumbership;
None.
Absorbed by Nonmember :Bank:_
6
Bank of Boston, Boston, Ga.
6- 6-27
Voluntary Withdrawal:
8
Grenada Bank,
Grenada, llisa.
6-23-27
Absorbed by National :&.nk:
12
Peoples Bank, Sacramento, Calif.
PEBJ.'IISSION GR.L\NTED
2
2
3
4
5
ro
6-13-27
EXERCISE TRUST POWERS:
First National Bank, Millto,vn, N. J.
First National :&:.nk:, Batavia, N. Y.
Farmers National Bo.nk,:Bedford, Eo..
First No.tiona.l :Sank & Trust Co., Tarentum, Pa.
Nationo.l Bank of Petersburg, Petersburg, Vo..
6-24-27
6-24-27
6-17-27
6- 9-27
6-24-27
X-4764
(Revised)
G ,_
OFFICERS .AIID :DIRECTOP.S OF FEDE!UL R.:"'JSERVE :BAUKS.
District No. l - Federal Reserve Ba1lk of Eoston.
(Frederic H. Curtiss, ~nairman and Federal Reserve Agent; Allen Hollis,
Deputy C~airman; W. P. G. Harding, Governor)
DIP.ECTOR
RESIDENCE
TEIU-1 EXPIRF$
Dec. 31
FJSINESS AFFILIATION
Class A:
EdwardS. Kennard
Rumford, Maine
V.P. & Cashier Rulnford ltat 1 l Bank
Frederick S.Cha.nberlain Uew Britain, Conn. V.P. ,Cash. ,New :Britain l'fat 1 1 :Dank
Alfred L. Ri:9ley
Boston, :.mss.
Pres. Merchants Nat'l Bank
1927
1928
1929
Qlass B:
Chas. G. Washburn
Albert C. Bowman
Philip R. Allen
Yiorcester, Mass.
S'l?:::-inc;f'ield, Vt.
E. Walpole, Mass.
Director, The Wasl"'. burn Co.
Pres. ~ne John T. Slack Corp 1n.
V.P. Bird & Son.
1929
Concord, N. E.
Providence, R. I.
Boston, r.fu.ss.
Lawyer.
Public Utilities.
1927
1928
1927
1928
Class 0:
Allen Hollis
Cha.s • H. il!'ru:. che s t er
Frederic H. Curtiss
- - - - - - - -- -
--
~
~
1929
- - - - - - -- ---
District No. 2 - Federal Reserve Bank of New York
(Gates W. McGarrah, m1airman and Federal Reserve Agent; Owen D. Young
Deputy Chairman; Benjamin Strong, Governor.)
Class A:
Delmer Ru..tle
Jackson E. Reynolds
R. H. Treman
HoosiCk Falls,N.Y. Pres. Peoples Nat 1 1 Bank
l~ew York, ll. Y..
Pres. First Nat 1 1 Bank
Ithaca, ~!. Y.
Pres. Tompkins County 1Tat 1 l Bank
1927
1928
1929
•
Class B:
It
;~,
Hew York, N. Y.
Ne\7 York, N. Y.
New York, bT, Y.
Pres. Lord & Taylor Pres. ~~erican Car & Foundry Co.
Pres. Francis H. Leggett & Co.
New York, H. y.
New York, N. Y.
New York, 1:-T • Y.
Samuel W. Reyburn
Wm. H. vVoodin
Theodore F. Whitmarsh
Chrm. American Radiator
1927
1928
1929
Class C:
Clarence M. Woolley
Gates W. McGarrah
Owen D. Young
-----
- --
Chrm. General ]!;lectric Co.
- -- -- - -- -- - - -- - - - ...
...
...
•
Co.
'"l
~
. - --
1927
·192B
1929
- ,..
--
X-4764
-2-
DI:s.ECTOR
BUS I :r::.;::s S AFFILIATION
RESILEECZ
T:::IRM EXP IRZS
()c. 31
District No. 3 - Federal Rosorvo Banl{: of Philadclpl1ia
(Richard L. Austin, Chairman and Fedor<:>.l Reserve Agent; Cb.as. C. Harrison,
Deputy Chairmnn; Geo.W. lqorris, Governor)
Clc..ss A:
'Francis Do ..1c:la.s
John C. So~;:.:covc
Jos. "',7tl~rno, Jr.
~-iilkcs-Barro,
Pa..
Johnstown, Pa.
Philadel:~hia,
Pa.
~Cashier,
First Nat. Bank
Banker and Coal Operator
Pres. Philadelphia-Girard Na t.Bank
1927
1928
1929
Class B:
Chas. K. Ha6. c'.o:..1
Alba B. Johnson
Arthur 'lT. S m7o.ll
Philadelphia, Po..
Philadclnhin, ?a.
Philado1)ilia, ?a.
MerchLn t nnd V. P. Lu1nbormnns L1s. Co. 1927
Chrm. Southr:nrk Fciry. & Mo.ch. Co.
1928
Pros. Gen. Asphalt Co.
1929
Philo.d.ohl-.Lia, Pa.
Br id.gcvi 11 c, Dol.
Philadelphia, ?a.
Retired
Canner arid Fnrrncr
Class C:
Cbas. C. Harrison
H. L.
Ca~:..no:1
R. L. Austin
1927
1928
1929
District No. '-1- - ioder::tl Reserve Bank of Clovelnnd
(George De Camp, Ch.'lirm~1 ::u.1d Federal Reserve Agent; Lewis Blair Willb.;:ns, Do;:,uty Chairmnn; E. R. Fancher, Governor)
Class A:
0. N. Sams
C::1ess Lamberton
Robert n.::crdro:p
Hillsboro, Ohio
Franklin, Pa.
Pi tts'burgh, Pa.
Pres.
Merchant~
Nat 1 1 Bank
1927
V. P • Lamb or ton ~1a t' 1 Barik
1928
Chrm. First Uat'l Bank
1929
Youngstown, Ohio
:Eric, Pa.
Cincinnati, OlJ. o
Ir.•n ~ Steel Manufacturer
Roed Mc.nufacturing Co.
Philip Cn.rcy Manufacturing Co.
1928
Toledo, Ohio
Clovcln.ncl., Ohio
Clcvelnnd, Ohio
V.P. Bostwick-Braun Co.
En.ydcm, Miller & Co.
Class B:
John Sta-nbaugh
R. P. 'Vright
Geo. D. Crabbs
1927
1929
Class C:
w. w.
K...'1ight
L. B. Jillio.ms
George Do Camp
1927
1928
1929
J. r
{...·~~:
X-4764
-3-
DL\ECTOR
BUSIImSS AFFILIATION
RESIDENCE
T~:F:M
EXP I R2S
Dec.31
District No. 5 - Federal Reserve Bank of Richmo:1d
(William W. Haxton, Chairman and Federal Reserve Agent; Frederic
A. Delano, Deputy Chairman; George J. Seay, Governor)
Class . t:.. :
Chas • E. Ri oman
Jas. c. Braswell
L. E. Jonnso:1
Baltimore, Md.
Rocky ;-Jou."l t, l:i. C.
Alderson, ";1. Va.
Pros. \7os tern lh t i 1 Bank
Pres. ?lnn ters i:!o. t 1 1 Bank
Pres. First Nat 1 1 Ba~
1927
1928
1929
Richnonci., Va.
Washington, D. C.
Hartsville, S. c.
Pros. Atlantic Lifo Ins. Co.
Pres. Ua.t 1 1 :nee. Supply Co.
Merchant and Planter
1927
1928
1929
vashington, D. C.
Charlotte, U. C.
:S.ichmond, Va.
Receiver
Textiles
1928
Class B:
EdniU.nd S trudwi ck
Edwin C. Gra.harn
D. R. Coker
Class C:
Frederic A. Delano
Robert Lassiter
W.n. W. Hoxto:;.
1927
1929
District Noa 6 - Federal Reserve Bank of Atl::mta
(Oscar Newton 1 Chairma:1 and Federal Reserve Agent; W. H. Kettig,
Deputy Chai:t'mD.:.1; M~ B. 1Jellborn 1 Governor)
Class .A:
Eugene :\, Black
t. c. Helvin
G. G. ·,7o.re
.Atianta, Ga.
Selma., .Ala.
Leesburg, Fla.
Ptes. Atio.nta Trust Co •
Pres. Selma No.t'l Bank
Jres. First Nat 1 1 Bank
Decatur, Ga.
nashville, Tenn.
New Orleans, La.
J. B. McCrary Co.
Hartford Hosiery Mills.
Pres. Kolm, ii'eil & Simon, Inc.
1928
l..tlanta, Ga.
Birmingham, Ala.
Atlanta, Ga.
Investments·
Southern Rep, Crane Co.
1927
1928
1927
1928
1929
Class B:
J.
J.~.
:~cCrary
H. Hartford
Leon C. Simon·
·~'!.
1927
19.29
Class C:
Lindsey Hopkins
W. H. Xettig
Oscar Newton
-- - -
~
--- - --- - - --- --
1929
--- - -- --- - - -- - - - ---- - - - -
X-4764
-4-
DEECTOR
F.ESIDZlTCE
BUSI:T:E.3S . AFFILIATIOU
'ERM r:x;:, rrws
Dec.31
District 1-!o. 7 - Federal Reserve Bank of Chicngo
(":'Tillinm A. Heath, Chairmn:1 and Federal Reserve Agent; James Simpso:1,
Deputy Chair~~; James E. McDougal, Governor)
Clo.ss A:
George :d. ?.oy::1olds
Chns. H. ;,iclTidor
E. ;t. Jorr.1so:1
Chicago, Ill.
Mason City, Iowa
i'To..tcrloo, !0'.10.
Chrm. Co:1. & Comll Nat 1 1 Ba:1k
Pros. First Natll Bn:uc
Pros. Loavitt & Jolm:Jon Trust Co.
1927
l928
1929
Mi 1 '"'nuJo::oe, Tii s.
Detroit, Mich.
Decntur, Ill,
Pres. Pfister & Vogel Leather Co.
Sec.& Troa.Huro:l ?ort. Cement Co.
Mueller Ma.~ufncturing Co.
1927
1928
1929
c:1i cago, Ill.
!.!tuci e, I :1d.
Chi caso, Ill.
Pres. Ball Bros. Mfg. Co.
Pres • Mar shall Field & Co •
1927
1928
1929
Class B:
A. H. Vogel
S. T. Crapo
Robert l.fu.ellor
Class C:
',i. A. Heath
F. C. full
James Simpson
District lTo. 8 - Federal Reserve EcLlk of St. Louis
(\'Tillinm McC. Martin, Chairmu~1 and Federal Reserve Agent; John W. Boehne,
Deputy Chairma~; David C. Biggs, Governor)
Clc.ss A:
J. C. Uttorbac:::
Joh:1 C. lhrti:1
John G. Lonsdo.lc
Paduco..h, Ky.
Salem, Ill.
St. Louis, Mo.
Pres. Oi ty Ua t 1 1 Bank
V.P. ,Cashier, Snlem Hnt 1 l Bank
Pres. Uat 1 1 :Bunk of Commorco
1927
1928
1929
St. Louis, Mo.
Little Rock, Ark.
Greenville, M:iss.
Pres. Wells Realty & Invost. Co.
Pres. ?lunkett-Jarrell Groc. Co.
Pla:iter
1927
1928
1929
Clc.ss B:
:a.o lla '.7e 11 s
if. B. ?lunkett
Lchoy Percy
Class C:
Wm. Me C. Mar tin
Paul Dillard
John 71. Boehne
.,.. __
_____
St. Louis, :.fo.
Memphis, To:m.
Evansville, Ind.
Dillar<t & Coffb. Co.
Retired
_. .. ......
______
·~:;
1927
1928
1929
...
~~
X-4764
-5-
DlRECTOR
RESIDENCE
BUSINESS AFFILIATION
TERM n?IFJ5
ec. 31
pistrict No, 9 - Fec'ieral Reserve Ba.nl::: of Mi.nnea7olis
(John R. Mitchell, Chai~~~ and Federal Reserve Agent; Homer P. Clark,
Del;)Uty Chairman; R. A. Young, Go~,e:rnor)
Cta-ss .A.:
Wesley,
c.
McDowell
P~ul J. Leeman
J ~ C. :Bassett
Marion, N. D.
Minnea;_:~olis ,Min;l.
Aberdeen, S. D.
Pres. First Nat 1 1 Bank
V. P. Fi rs t Nat 1 1 Bank
Pres. Aberdeen Nat 1 1 Bank
Claire, Wis.
St. Paul, Minn.
Helena, Mont.
·v.
1927
1928
1929
C.ass B:
Jqhn S. Owen
P'-ul N. Myers
11 1 B. Holter
Eau
John s. Owen Lumber Co.
P. Waldorf Paper Prod.
A. M.. Holter Hdw. Co.
Co~
1927
1928
1929
Class C:
HQme r · P. Clark
Geo. W. ~cCormidk
Joh~ R. Mitchell
Pres. West Publishing Co.
St. Paul, Minn.
Gen.Mgr. Menominee River Sugar Co.
Menominee, Mich.
Min.."leapolis, Minn.
1927
1928
1929
District No. 10- Federal Reserve Bank of Kansas City
(M. L. McClure, Chairman and Federal Reserve Agent; Heber Horc'i
De~uty Chairman; W. J. Bailey, Governor)
Class A;
c, c.
Parks
Frank W. S?onable
~; E. :,{Ullaney
C~ass
c.
V.P. First Nut 1 l Bank
Pres. ~iami County Nat 1 1 Bank
Pres. Farmers & Merchants Bank
1927
1928
1929
B:
Thos.
Denver, Colo.
Paola, Kan.
Hill City, Kan.
Byrne
J, M. Bernardin
Lf E. Philli:ps
Omaha, 1-Teb.
Byrne & ~r Dry Goods Co.
Kansas City, Mo.
J. M. Eernardin Lumber Co.
Bartlesville ,Okla. V.P. ,G. :l. ,Phillips Petroleum Co.
1927
1928
1929
CJass C:
Heber Hard
Wm. L. Petrikin
~{. L· McClure
~
-- - - - --~
Central City,Neb.
Denver, Colo,
Kansas City, Mo.
Stockman - Farmer
Pres. Great Western Sugar Co.
------------------ ---·---
1927
1928
1929
x. . 4?64
,.
-o-
JIRZCTOR
RESIDE:JCS
(c.
c.
BUSI2iESS AFFILIATION
District No. 11 - Federal Re,serve Bank, of Da£1as
Walsh, Chairman and Federal Resarve Agent; Clarence E.
Deputy Chairman; Lynn P. Talley, Governor)
J. H. Frost
San Antonio, Tex.
Clarendon, Tex, ·
McKinney, · Tex.
\7. H. Patrick
::o'•vell E. Smith
TERI1I EX? UIFS
Dec. 31
Lil1z~
V.P~ Frost Nat•l Bar~
:Pres • Firs t Nat' 1 Bank
Pres! First Nat•l Bank
1927
1928
1S29
Q1ass :0:
Frank Kell
H. }Tail
~, J. Culbertson
o1,
Wichita Falls,Tex. Pres.& G.M., Wiqhita. Falls & S.R.R. 1927
Fort Worth, Tex. ' Cattleman · ·
1928
Paris, Texas.
V.P. Southland Cotton Oil Co.
1929
Class C;
S. B. Perkins
Dallas, ':ox.
Dallas, Tex.
Dallas, Tex •
0· ·c. Walsh
Clarence Z. Linz
..,.
- .- - -
Perkins Dry Goods Co.
192?
1928
V.P. & Trea. SoutbJJmdLife Ins. Co. 1929
--- -- - -- - -- -~
~
~
District ~To. 12 - Federal Reserve Ban..'k: of San Francisco
(Isaac B. ~Tewton, C:1air;;an and Federal Reserve Agent; Walton l"l'.MoJre,
·Deuuty Chairman; J. U. CalJ:r"..ins, Governor)
91ass A:
Turlock, Cal,
Pres. First Nat 1 1 Bank
San Francisco,Cal. Pres. Bank of CaliforniaN. A.
Red Bluff, Cal~
Pres, First Nat. Bank of Rod Bluff
Howard Whi :pple
C. K. Mcintosh
r;;. H. Ramsay
1927
1928
1929
:Jlass B:
Soquel, Cal,
Agriculturist
Madera, ~1~
V .P.& G.M. Madera Sugar Pine Co.
San Francis qo, Calf Pres, Dohrmann Comm 1.1 Co.
\7'1• T. Sosnon
"'"' H. Cox
}t.! B, C,
~lass
Dohrmann
1927
1928
1929
C: ·
San Fro.ncisco,eal, Pres. ~alton N,Moore Dry Goo~s Co. 1927
1928
Francis co, Cal, Pros. Sou thorn Pacific Ry, Co.
. 1929
Snn Fra."lciS<?o, Cal.
\7o.l ton i:T, Moore
~an
Wm. S-proule
Isaac B. l!cTiton
-- - -
~
- - - - -- -
~
-
- - - - - - - - - - - ------------------
X-4764-a
.
OFFICERS AND DIRECTQBS OF FED:mtAL RESZRVE BBAlJCH BANKS.
: ··;.
;<•••o"
. District .No. 2 - Buffalo Branch of the Federal Reserve Bank of
New York (W. W. SchneCkenburger, Managing Director)
:~RECTOR
EESIDE.~CE
-::. il. Sehnec..ltenburger
.Arthur G. Hough # Chrm.
Elliott c. McDougal
John A. Kloenfer #
Frank tt.Crandall
F. B. Cooley #
Harry r. Ramsdell
Bu.ffalo,. l~. Y
•
Batavia, ~T. Y.
Buffalo, N. Y.
Buffalo, 1-!. Y.
Westfield, ~!. Y.
Buffalo, N. Y.
Buffalo, 1-!. Y.
BUSiliESS AFFILIATION
TERivi EXPIRES
Dec. 31
Pres. Wiard Plow Company
Chrm. Y.arine Trullt Co.
Pres. Liberty Bank.
Pres. Uat. Bank of ~estfield.
Pres. u. Y. Car Wheel Co.
Chrm. ~lifgrs. & Traders Tr. Co.
-- ------- - - -
- - - -- - - - -- --
1927
1927
1927
1928
1928
1929
1929
District No. 4 - Cinci~~ti Branch of the Federal Reserve Bank
of Cleveland ( c. F. McCombs, Mru1aging Director)
c. F. McCombs
Geo. M. Verity# Chrm.
B. H. Kroger
Fred A. Geier #
E. S. Lee
·John Omwake #
Charles W. DuPuis
Cinci~~ati, Ohio.
1!id6.letown, Ohio.
Cincinnati, Ohio.
Cincinnati, Ohio.
Covington, Ky.
Cincinnati, Ohio.
Cincinnati, Ohio.
Pres •
Pres.
Pres.
Pres.
Pres.
Pres.
.America11 Rolling Mill Co.
Provident Savings & Tr. Co.
Cin. Milling ~~chine Co.
First Nat. Bank
U. S. Playing Card Co.
Citizens Nat. Bank & Tr. Co.
1927
1927
1927
1928
1928
1929
1929
District No. 4 - Pittsburgh Branch of the Federal Reserve Bank
of Cleveland ( J. C. llevin, Managing Director)
.J, C. Nevin
Joseph R.Naylor # Chrm.
:::. B. Mellon
Chas. i7. Brown #
A. E. Braun
A. L. Humghrey #
Jos. R. Eisaman
Pittsburgh, Pa.
\'Theeling, ':1. Va.
Pittsburgh, Pa.
Pittsburgh, Pa.
Pittsburgh, Pa.
Pittsburgh,· Pa.
Greens"burs:,Pa.
John S. Naylor & Co.
Pres. Mellon National Bank
Pres. Pittsburgh Plate Glass Co.
Pres. Farmers Deposit Nat. ~"It
Pres. i7es tiilghouse Air Brake Co.
V. P. First National Bank
1927
1927
1927
1928
1928
1929
1929
District no. 5 - Baltimore Branch of the Federal Reserve Bank
of Richmond (Albert·H. Dudley, Managing Director)
Albert H. Dudley
Jphn G. Rouse # Chrm.
Henry B. Wilcox
W'm. H. Matthai t/1:
Levi B. Philli-vs
Edmund P... Cohii lf
Carter G. Osburn
"!"-
_______
...,..,.
__
Baltimore' r.ld.
Baltimore, Md..
lbltimore, Md..
Baltimore, Md.
Car.ioridge, !!d.
Ha..J.cocl>::, Md.
Baltimore, Md.
- - - - - - - -
1927
Pres. Rouse, Hempstone & Co.
1927
V. Chrm. Merchant's Nat. Bank.
1927
V. P.lTat.Enameling & Sta.q>ing Co.
1928
Pres. ~rat. B~J.k of Cambridge
1928
Pres. & Treas. Tonoloway Orchard Co.1929
Chrm. Farmers & Mercha..""J.ts 1 Nat.Bank 1929
-2-
X-47S4-a
jJis tri ct lTo. S - 1Je•'! Orle.<:tns :Cr::tnch o±' the Fecieral Res~rv<: :C.e:ik
of ..~tlanta ( lvia:tcn.3 Wu1~ccr, 14o..1aging Director)
JBECTOR
B.ZS II:E£T CE
Dec. 31'".
.-:arcus Walker
;I
r. 3ush 'If'
s. Hecht.
I-1. Sa1md.ers#
t
P. Jutler, Jr.
JL
L c. Simon 7i" c"~lrm.
.t. ~v. Foote
~~l~:;ert
)
.
.
lrew Orleans,
~ilto bile, Ala.
l~en;v Orl(:anB,
~rew Orleans,
;:r~:nv Orloa;.;.s,
Xew Orleans,
3attiesburg,
La.
Pres. T. G.
Pres. Hiliernia Ba:ik & Tr. Co.
v. ? . Ne-m1an, Saunders & Co. , Inc.
Pres. Canal l3a.l1k & Trust Co.
Pres. Konn, Weil & Simon, Iac.
Pres, First National Bank
}>J.s:h Grocer,y Co.
La.
La.
La.
La.
Miss.
1927
1S27
1927
1928
1928
1929
1929
D:i.s trict ::ro. 6 - Birmingham Branch of the Federal Reserve 3an.k
of .Atlanta (.A. E. Walker, Managing Director)
..i.. E. Walker
John P. Kohn #
~1al tor E. Hel1loy
W. H. Kettig # Chrm.
Johrl H. Frye
Oscar Wells #
W. 71. Crawford.
Birmi :1gham,
;,ron tco.nory,
:SirmL1gha.m,
:3 i r::1i ngr.ta.rn,
:Sirrningha.n,
:3i1.'mingh£L71,
:Birminghan,
.Ala.
Ala..
.Ala.
Ala.
.Ala~
Ala.
..~la.
1927
1927
F. r.:. Kohn & Son
.l?rus. ?irmingham T'r. & Savings Co. 1927
1928
Sout.Le:r:1 Rc·p., Crar..e Co.
1928
Pres. 'I'radcrs lJa tional :Bank
1929
Pr,~s. J:'irst National ]ank
1929
!•res. A:ncrican Trust & Suv. :Bonk
District :r~o. 6 - Jacksonville Franch of the Federal Reserve
Ecu.k of ..~;.tl;J.nta. (Goo. R. teSaussure, Managing Director)
George R. DcSaussure
L. C. Ed'.vards # Chrm.
C. P. Ke:..1do.ll
J. c. Cooper #
J.. G-. "Jare
:;<·;J. ton Saussy
#
·~ri:mrd W. Lane
Jacksonville, Fla.
Tc..mpa,Fla.
Jacksonville, Fla..
Ja.ckso~ville, Fla.
Le€sburg, Fla.
Jacksonville, Fln.
Jacksonville, Fla,
Pres. Florida Citrus Exchaage
V. P. Barne t t Na. t i onal :Bt:1.nl::
Attorney at Lav1.
Pres. First Ua tional Ban...z
Saus sy & Com:non
Pros. Atlantic National Bn~k.
1927
1927
1927
1928
1928
1929
1929
District no. 6 - Nashville Bra.neh of the Federal Reserve :Enak
of Atlanta (Joel :a. Fort, Jr., Man.:;tging Diructor)
Joel B. Fort, Jr.
?Jm. P. Ridley
J. E.
H.
T. A.
?. M.
E. _.\.
~V.
Caldwell
Hnrtfo1·d.
Embrey
Davis #
Lindsey
#
# C:1rm.
Nashville, Tenn.
Columbia, Tenn.
lTashvillo, Tenn.
l~nshvillc, Tenn.
Winchester, Tenn.
~'!:..:.shviEo,
Te~m.
~Tnshville,
Te:r-1,
Farmer
Pres. Fourth & First :Bk. & Tr. Co.
Pres. :r:artford Hosiery Mills.
Fr<:.s. li'armers !rational :Bank:
V. P • .Arnoricnn Uetio~ml :Bc~fk
Pres. T,;~::-1. Hcrmi tagc Nat. Bo.nk
1927
1927
1927
1928
1928
1929
1929
X-4764-a
-3-
District No~ 7- Detroit Branch of the Federal Reserve
of Chicago (i7m. R. Cation, Uanaging Director)
]II RECTOR
RESIDEl:rCE
Ba1u~
BUSHJ"ESS AFFILIATION
TER:J EX? IRES
•
Wm. R. Ca. tion
pavid McMorran # Chrm.
~eo. B. Morley
""~es Inglis #
William J. Gray,
N. P. Hull #
.
11ohn W. Staley
- -
--
Detroit, ~.:lich.
Port Huron, Mich.
Saginaw, Mich.
Detroit, !tiich.
Detroit, ~1ich.
Lansing, Mich.
Detroit. Mich.
--- - -
Dec. 31
Gro'.'rer & Manufacturer
Pres. Second National Bank
}'res. American Blower Co.
Pres. First Uational Bank
Pres. Grange Life Ins, Co.
Pres. Peoples State Bank
- - - ... --- - - -
1927
1927
1927
1928
1928
1929
1929
District No. 8 - Louisville Branch of tho Federal Reserve
Bank of St. Louis ( i7. P. Kincheloe, Managing Director)
\1. P. Ki:1cheloe
E. H. ~oods # Chrm.
iilax B. Nahm
E•. L. Swearingen#
Attilla Cox
Wm. Black #
Eugene E. Hoge
Louisville, Ky.
Lucas, Ky.
Bowling Green, Ky.
Louisville, Ky.
Louisville, Ky.
Louisville, Ky.
Fra.'1kfort, Ky.
Planter
V. P. Citizens National Bank
Pres. First National Ba~~~
Attorney
Pros. B. F. Avery & Sons, Inc.
Pres. State National Bank
1927
1927
1927
1928
1928
1929
1929
District Uo. 8 - Memphis Branch of the Federal Reserve Bank
of St. Louis ( W. H. Glasgow, Ma..."laging Director)
H. Glasgow
E. M. Allen # Chrm.
R. Brinkley Snowden
T. K. Riddick #
J. 11. V
m1den
Wm. Orgill #
Jno. D. McDowell
i1.
Memphis , Tenn.
Helena, Ark.
!,!emphis, Tenn.
::!emohi s, Te~1n.
Jackson, Tenn.
Memphis, Tenn.
Memphis, Tenn.
Planter, Real Estate & Insurance
V.P. Bank of Commerce & Tr. Co.
Attorney
Pres. First National Bank
Pres. Orgill Bros. & Co.
Pres. Fidelity Bank & Tr. Co.
-------------- __ ...,..
1927
1927
1927
1928
1928
1929
1929
District No. 8 - Little Rock Branch of the Federal Reserve
:Bank of St. Louis (A. F. Bailey, Managing Director.)
A. F. :Bailey
Hamp willi~~s # Chrm.
John M. Davis
~oorhead Wright #
\1. A. Hicks
G. H. Campbell #
Stuart Wilson
Little RoCk, Ark
Hot Springs, Ark.
Little Rock, Ark.
Little Rock, Ark.
Little Rock, Ark.
Little RoCk, Ark.
Texarka.+a, Ark.
1927
Pres. Ramp Williams Hardware Co. 1927
1927
Pres. Exchange ~rational Ba~'lli:
1928
Pres. Union Trust Co.
1928
V.P. American So. Trust Co.
1929
Insurance
.1929
Pres. State National Batik
- -- - - - - - -- - - -- - - - - - - - - ~
~
·'
X-4764-a
District 1-To ~ 9 - Helena Branch of tho Federal Reserve Ban'k of
Milueapolis (R. Ei. Towle, Managing Director)
BUSI~mss
DIRECTOR·
RESID~TCE
R. E. Towle
Henry Sieben # Chrm.
T,; A. ivfarlow
C~ J. Kelly#
R. 0. Kaufman
Helena., I!!ont.
Helena, Mont.
Butte, Mont ..
Helena, r1lont.
~-------
Helena~
TERM EXPIRES
Dec, 31
AFFILIATION
lAont.
Pres. Sieben Live StoCk Co.
Pres~ Uational Ba.11J::: of Montana
H~nsen PaCking Co.
V .p~ & Cash. Union Banlt & Tr. Co·.
~
~-
1927
1927
1927
1928
1928
---- - - - -- - - -- -- - - ---
District Uo. 10 - Denver Branch of the Federal Reserve Bank of
Km1sas City (J. E. Olson, Managing Director)
J. E. Olson
Merritt~.
Gano
Harold Kountze
Murdo MncKe:mzie
Harry i7 ~ Furr
R. H. Davis #
Henry Swa."l.
#
Chrm.
#
Dc:1ver, Colo.
Denver, Colo.
Denver, Colo.
Dm.1vcr, Colo.
Greeley, Colo.
Lenver, Colo.
Denver, Colo.
1927
1927
1927
1928
1928
1929
1929
The Gano -Downs Co.
Chrm. & V .P. Colorado Nat. Bro1k
The !.h to.d.or Land & Cattle Co. Ltd.
Livestock m1.d farming
iTholesalo Drug Business
V. P., U. S. National Bank
----------------------
District No. 10 - Omaha Brm1Ch of tho Federal Reserve Bank of
Kansas City (L. H. Earhart, Managing Director)
L. H. Earhart
A. J. \7eaver # Chrm.
:a. 0. Marnell
Wm. Diesing :/i=
A. H. Marble
W:n~ E. Hardy #
T. L. Davis
Omaha, Neb.
falls City, Neb.
Nebrasl~ City,Neb.
Omaha, Neb,
Cheyen~1e , VI yo.
Lincoln, Neb.
·Omaha, Neb ..
-
-
~
1927
1927
1927
1928
1928
1929
1929
Orchards, LivestoCk & Farming.
Cashier, Merchants Nat. Bank
Cudahy PaCking Co .•
Pres., Stock Growers Nat .• Ba~1k
HaJ"d.y ·Furniture Co.•
V,. P.• First National Bank:
---- --- -
-------- .-.- -.~
.~
District !To. 10 .;.; Oklahoma City Branch of the Federal Reserve
Banlt of Kansas City (C. E. Daniel., Managing Director)
c. t.
Daniel
E. "J.. Murphy # Chr!n.
William Mee
w.. F.. Nichols #
Ned Holma.'l
Austin Miller :/1=
Walter Ferguson
1927
1927
1927
1928
1928
1929
1929
Okl~homa
City., Oldt, •.
Clinton, Okla.
Farming & Livestock
Oklahoma Ci ty·,Okla.Pros. Security National Bank
TUlsa, Okla.•
Merchant. & Livestock
Guthrie., Olda.
Pres. First ~Tationo.l Bank
· Oklahoma City,O~~la.Pres, Oklahoma Furniture Mfg.. Co .•
'Oklahomn City·;Okla..V ,p. First Uational Bank
- .... -
- - - ·.- ·- - - - - - ·- - - - - - ~
~
,.,.
- - - .. - ~
··5X-4764-o.
District No. 11 - El Paso Brancn of tho Fodernl Reserve B<'lnk of
DD.llc.s ( M. Cru."'Ip, Ha.n~ing Director)
DIR1CTOR
RES I;DE!T CE
T::::R: : 37J' IEES
BUSI:TESS AFFILIATION
Dec. 31
M. Cru:np
H. L. Kokcrnot
Geo. D. Flory
# Cr.rm.
El Paso,
Al-pine, Tox.
C. ?1:. Nmmux.1 #
E. M. Hurd
A. P. Coles #
El
El
:El
El
E• .A. Ca.hoou
Ros~o1l,
I'aso,
Paso,
Pc..so,
Peso,
1927
1927
1927
1928
1928
1929
1929
~ex.
Tex.
Tex.
Tex.
Tex.
~T • Mcx.
Cat tl oman
V.P. Tho State !Tational :Ba:.ll~
Pres. Nowma~ Investment Co.
The H. Lesinsky Company
Investments
Pres. First Uat. Bn:..1k of Roswell
District No. ll - Houston Branch of the Federal Reserve Bank
of Dallas (D. P. Rcordnn, L~~~ing Director)
D. P. Reord.an
E. A. Peden ~;~ C'i1rm.
Fred W. Catterall
R. M. Farrar #
Guy ~t.. Bryan
J. Cooke Wilson I
·E. F. Gossett
Houston, '!'ex.
Ho~sto:1, Tex.
Gn.lveston, Tex.
F.ou~ to:1, Tex.
Ho,;;.ston, Tex.
Beaumont , Tex.
Houston, Tex.
Pres. Peden Iron & Steel Co.
Casr. First lTat. Bk. of Galveston
Pres. Farrar Lumber Co.
V.P. Second Natio~1al Batik .
Pres. Tho Wilson Broach Co.
V. P. South Texas Com. Ne..t. Bank
District No. 12 - Por~l~~d Branch of the Federal Reserve
of San Francisco ( R~ B. West,~~agimg Director)
R.
:B.
West
A. c. Dixo:: fr
Wm. PolllllD.n
Ed\vard
c..
Pease
.;1=
Jorm F. Daly
Nathan Strauss # Chrm.
J. C• .Ai::1sworth
Portland, Ore.
Eugene, Oro.
Boker, Ore.
The Dalles, Ore.
Port1~.nd, Ore.
Portland, Ore.
Portland, Ore.
w. Purdy
Henry A. Rhodes #
lil.
~nas. H. Clarke
M. A. Arnold
*
Bollinghc.rn, Wash.
Tacoma, Wash.
Seattle, Wash.
Chrm. Scc. tt1e, Wash.
Seattle, Vlo.sh.
1927
1927
1927
1928
1928
1929
1929
B~~
1927
1927
1927
192.8
1928
1929
1929
Seattle, Wash.
C. R. Shaw
M. F. Backus
Ba1ik
Gen.Mgr. Booth-Kelly Lumber Co.
Pros. First Nat. Ba~
Edward C. Pease Co., Inc.
Pres. Hibernia Com. & Savings Bk.
Gen.Mgr.Fleischner, Mayer & Co.
Pre~. United States Nat. Bal~
District No. 12 - Seattle Branch of the Federal Reserve
of San Francisco ( C. R. Snaw, W~r~ing Director)
1927
1927
1927
1928
1928
1929
1929
Pres. First Ua.tional Batllt
Rhodes Bros. Department Store
Pres. 1Ta tiono.l :Sank of Omn."llerce
Pres. Kelly Clarke Company
Pres. First National Bank
- - - - - - - - - - - - -·
~
X-4764-a
-6-
District No. 12 - Spo~:n:1o Bral1Ch of the Federal Resorvc Bank of
·San Fra1cisco (D. L. Davis, ~naging Director)
DIRECTOR
:C. L. Davis
E. H,
BUSI}rnsS AFFILIATION
RES I DEUCE
Va~ Ostro.~d
S"9okane, 'ilash.
Coeur d'Alene,Ida.
#
Charles L, MacKenzie
\"im. Duling 1/:
:R. L. Rutter
G. I. Toevs # Chrm.
c. E. McBroom
- - -- - - -
~
Colfax, Vlash.
Garfield, Wash.
Spokane, Wash.
Spokane, Wash.
Spokane, Wash.
--- - - -
TERM EXPIID!>
Dec. 31
1927
P:r0s. Craig Mount. Lumber Co.,
~inChestor, Idaho.
Retired
Farming
Pros • Sp oko.ne & Eastern Trus. t Co •
V. P. Con ton:1ial Mill Co~
Pres. Exchange National Balik
1927
1927
1928
1928
1929
1929
- ...
District No. 12 - Salt Lake City Brru1ch of the Federal Reserve
Bank of San Francisco (i7. L. Partner, Managing Director)
W. L. Partner
Salt Lake City, Ut.
Chap in A. Day #
Ogden, Utah
J. S. Bussell
Pocatello, Idaho
F. J. Hagenbarth #
Spencer, Ida~o
L. H. Farnsworth
Salt Lake City, Ut,
Lafayette Hanchett#Chr.Sa~t Lake City, Ut.
Charles H. Barton
Ogde~, Utah,
~ - - - - - - - - - .... - -
-
-
-
Pres.
Pres.
Pres.
Chr;n.
Pres.
Pres.
1927
1927
Ogden ~ortlru1d Cement Co.
Citizens Bank & Trust Co.
Wood Livestock Co.
Walker Brothers Bankers
Utah Power & Light Co.
Nat. Bank of Commerce
1927
1928
1928
1929
1929
- - - - - - - - - - - - --- - -
District No. l2 ~ Los Angelos Branch of the Federal Reserve Balik
of San Francisco (R. B, Motherwell, Managing Director)
R. B.
Los Al~eles, Cal.
Redlands , Cal •
Belcher, Jr.
San Diego, Cal.
Alexander#
Los ~~eles, Cal.
M. Robinson
Los Angeles, Cal.
Vale:1tine # Chrm.Fullerton, Cal.
Sartori
Los Angeles, Cal.
Mothe~7ell
E. iA. Lyon
F. J.
J. B.
Henry
',7. L.
J. F.
4f
------
-------
# Appointed by Board
'
Corrected to May 1, 1927
Horticulturist
Pres. First Nat. B~!k
Retired
Pres. First National Bank
Pres. Fullerton Oil Co.
Pres. Security Trust & Savings Bank
__________________
.....
1927
1927
1927
1928
1928
1929
1929
_____ ,
X-4766
TREASURY
DEPARTMENT
Office of the Secretary
WASHINGTON
January 7, 1927.
The Governor,
Federal Reserve Eoard.
S i r :
You are hereby advised that the Department has referred to the
Disbursing Clerk, Treasury Department, for payment, thf account of the
Bureau of Engraving and Printing for preparing Federal reserve
note~
dur-
ing the period December l, 1926, to December 31, 1926, amounting to
$137,250, as follows:
Federal Reserve Notes, Series 1914
~
Eoston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Minneapolis
Kansas City
Dallas
San Francisco
$10
350,000
300,000
650,000
150,000
100,000
50,000
50,000
100,000
$20
Total
50,000
100,000
50,000
50,000
100,000
50,000
650,000
900,000
350,000
350,000
150,000
50,000
700,000
1CO, 000
200,000
50,000
250,000
1,600,000
1,600,000
550,000
3,750,000
200,000
200,000
50,000
500,000
100,000
100,000
3,750,000 sheets
@
250,000
50,000
50,000
100,000
$36.60 per M.
$137,250.
•
X-4766
-
2
-
'}0
, __ ) ' I
The charges against the several Federal Reserve Banks are as
•
follows:
Boston . . .
New York . .
Pbiladelphia .
Cleveland. • • • .
Richmond • • . • • . .
Atlanta. • • •
Chicago •.
l/J.nneapol1s. •
Kansas City .•
Dallas . . .
San Francisco.
$23,790.00
32,940.00
12,810.00
12,810.00
5,490.00
1,830.00
25,620.00
3,660.00
7,320.00
1,830.00
9,150.00
The Bureau appropriations will be reimbursed in the above amount·
from the indefinite appropriat-ion "Preparation and Issue of Federal Reserve
Notes, Reimbursable", and it is requested that your board cause such indefinite appropriation to be reimbursed in like amount.
Respectfully,
(s) S. R. Jacobs
Deputy Ccmmissioner.
FEDERAL RESERVE BOARD
X-4767
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE: FEDERAl. RESERVE BOARD
January 10, 1927.
SU3J~CT:
Execution of form of demand for ')ayment on
adjusted service certificates offered as
collateral for loans.
:Dear Sir:
The Board's attention has been called to the
fact t:1at the forr,1 of demand for :9aJ11lent on a number of
adjusted service certificates has been completely e~ecuted
·oy beneficiaries although the veterans to whom su¢11
certificates were issued are still living, and that batik•
are inquiring whether the execution of such demand for
payment prevents the veterans naxned in the certificates
f:rorr. obtaining loans, and, if so, what acrtion should be
ta::en to remedy the situation.
The 3oard has refel'red. this question to the
United States Veterans• Bl~eau which has replied as follows:
11
'\'ii th reference to your letter of Ja11uary
4, 1927, inquiring as to the effect w!:tich the
execution of Demand for Payment on the certificate
will have upon its value as collateral for the
purpose of securing a loan, I wish to advise you
that while the form of Demand for Payment should
not be executed it will not affect the use of
the certificate as collateral in any way , 11
Very truly yours,
D.
~.
Crissi~ger,
Governor.
TO GOVE..'=l}TORS OF ALL F. R. E.A:.."TTCS.
X-4768
IDHTED STATES CII-\CUIT CotJRT OF APPEALS
FOURTH
CIRCUIT
No. <:J558.
THJ;; LIEERTY HATION.AL lWT.K OF SOUT.d
C.AROLH~A
at Columbia, et al.,
Appellants,
versus
J. W. Mcintosh, as Comptroller of the Currency of the
United States, and 1':alcolm S. McConihe, as
F.eceiver of the Liberty national Bank
of South Carolina, at Columbia,
Appellees.
No. 2569.
J. W. Mcintosh, as Comptroller of the Currency of the
United States, and 1-f..alcolm S. McConihe, as
Receiver of the Liberty National R~nk
of South Carolina, at Columbia,
Appellants,
versus
T.riE LIBERTY NATIONAL :SA.('i!K OF SOJT'".d CAROLINA
at Columbia, et al.,
Appellees.
Appeals from the District Court of the United States for
tho Eastern District of South Carolina
at Charleston.
X-4768
-' 2 -
Decided January 11, 1927)
(Argued October lS, 1926.
Before Waddill, Rose and Parker, Circuit Judges.
D. W. Robinson and William M. Shand. (Benet, Shand &
McGowan and George Bell Timmerman on brief) for
Appellants in No. 2558 and Appellees in No. 2569.
and R. Beverley Herbert and John K. Shields for
Appellees in lJo. 2558 and Appellants in No. 2569.
Waddill, Circuit Judge:
These two causes grow out of proceedings to liquidata the affairs of the Liberty National Bank of South
Carolina, at Columbia, and were argued together in this
court, and will be disposed of in one ouinion.
The Liberty National Bank of South Carolina, at
Columbia, hereinafter referred to as the Liberty Bank,
filed its bill and amended bill in equity in the first
named cause in the court below, praying that tho action of
the Comptroller of the Currency, named as a defendant
therein, in appointing tho co-defendant, Malcolm S. ticConine Receiver of said bank, he dGclarod void; and that
tho attempted levy
~nd
collection of an assessment on
the shareholders of said
b~nk
by the defendants, in their
official capacity, be enjoined and restrained.
The bill
briefly alleged that the Liberty Bank had entered into
voluntary liquidation under contract with the National
Loan and Exchange Barik of Columbia,
(h~reinafter
re-
X-4768
- 3 -
ferred to as the Exchange Bank). which latter baclc wns to act as liquidator
of the fonner, assuming to pay certain liabilities, and to be reimbursed
oy the Liberty Bank for any deficit.
The original contract between the two banks was regularly entered into on the 23rd
of October, 1923, and pursunnt to a
sub~equent
resolution
of the :Board of Directors, and by agreement between the banks, clause 6
was added thereto.
:By the agreement thus
entered into, the Liberty :Bank
transferred all of the assets of every kind of the bank to the Exchange bank,
the Exchange bnnk guaranteeing 9ayment to the deyositors of tho Liberty Balik
of the amount of their deposits therein; and also other obligations of the
Liberty :Ba.nk for bills p.<J.j>ablc and rediscounts at the close of business on
the 22nd day of October, 1923, as shown by Exhibit A attached to the
contr~ct;
with a proviso that tho Exchange Bank did not guarantee any liability of
said Liberty Bank to its
stoc~holdcrs
or any other liabilities of said
Liberty Bank except those thereinbefore set forth.
Under this contract
the Exchange Bank at once possessed itself of all the assets and effects
of the Liberty Ba11k, including its bru1king house, and proceeded to administer
and liquidate the assets of the bank as rapidly as in its judgment was
deemed advisable and adva.'1tageous; a..J.d it was provided that cfter reimbursing itself for all expenses, not however to include commissions to the Exchange Bruik (the latter barik making no charge for its services in the administration and liquidation of the affeirs of the Liberty Bank and collecting
and converting its assets
i~to
cash) together with all the advancements made
on account of said Li bcrty :?ro1k, and of all indebtedness of the Liberty Bank
to the Exchange 'Parle of every charnctcr; and that the residue of the assets
of said Liberty Bank should ho turned oTor to it for distribution among
its stockhelders.
Provision also wr:s made for tho liquidation and winding
up of the affairs of the Liberty Earik by and under the supervision and
direction of
the
Exch~~ge
Bank, but the Liberty Barik reserved tho right
X-4758
- 4 -
thro11£Ch its a.:9::,>ro-priate comr:1i ttees and re:prese;.1tati ves to consult and advise
daily with the Exchange 3ank as to the
a~~i~istration
and liquidation of
the assets of the Li oerty Eailk, and also reserved the right to direct in
writing the -yro-per disposition of certain of its 'bills receivable and
choses in action as it might be advised to; and the books of the Exchange
?.ank
were to be open to the ins';)ection of a representative of the Li l:erty
It was further provio.ed that the :Exchanb'e :tank should not be liable
Bank.
to the Liberty Bank for any losses in connection with the liquidation and
collection of the assets of the latter
exc~.;pt
"bank
conveyed and transferred to it,
such as arose from gross negligence on its part or its ager1ts.
The
Liberty Ea1ik stipulated that it would save harmless the :xchange Bank from
and against any and all losses, should there be any, which the Exchange Ba1ik
might sustain on account of the failure to realize from the assets and
property of the Liberty Bank sufficient to reimburse the Exchange :Eank for
all amounts which it might expend in carrying out tho provisions of the
contract, and upon final com?letion of the liquidation to pay any such deficiency to said Exchange Bank.
The bill further charged that the Comptroller was cog-:1izant of and approved the contract of liouidation, and that thereafter the Exchange :Bank
not having lived up to its contract, sought to have the Comptroller assume
jurisdiction of the affairs of the Liberty Bank, and to appoint a receiver
to take charge; which the comptroller at first refused to do, but subsequently did, and ordered an assessment of $250,000.00 against the shareholders of
the Liberty Batik for the purpose of meeting its obligations, when tho amount
so due, in addition to the indebtedness ascertained by the comptroller in
favor of the :ii:xchange Bank, towit: $453,008.10 was not in excess of $6,000.00.
The Liberty Bank also denied its liability to the Exchange Bank for the sum
so adjudged against it, as it did the power of the comptroller to make such
X-4768
- 5 -
. ··,, :;
adjuclico.tion and n.ssossment ·"gainst sho.rcholdcrs, and insisted that such
adjudication and assosmaont could only be rnado by a court of co:mpctcnt jurisdiction having authority to wind up tho affairs and assess
in insolvent national
ba1u~s
shaxchold~rs
in liquidation.
On the filing of tbe bill, the court awarded a rule against the defendants
to l:'how cause of July 27th why the interlocutory in,junction should not be
issued as ·:yrayed for;
specially
court.
~?~eared
whereu;?on the defendant CoJ1I!)troller of the Currency
for the
~~ose
of coLtesting the jtU'isdiction of the
T'ne said dafendant Com1troller and his co-defendant t:i:J.e receiver,
-:1pon the cou:-t 1 s over1--uling the plea to the jurisdiction, each moved ·.
the court to dismiss the bill for lack of equity; and the receiver duly
made return to the said rule showin;;:; his
a:p~ooint11ient
and what he had done
thereunder, with affidavits and records in support thereof.
From said re-
port it a;)pears that assets came i:J.to his hands as follows:
Good
Doubtful
Wort:1less
1·otal
$138,453.93
63,980.69
844!719.48
1,047,154.10
From the first two items, the received hoped to realize $164,865.68.
T'ne receiver denied that his appointment was because of solicitation or L::port1Uiity of the Exchange Bank, but was solely the result of a long and careful investigation and examination by the CoJII?troller of the affairs of the
Liberty Bank, and having become satisfied of its insolvency, the rocei ver
\"aS ai?"'Jointed, and the conr)troller thereafter directed the assessment of
the shareholders to cover the indebtedness of the Liberty Bank.
On the 28th of July, the court having overruled the objection to the
jurisdiction of the court, entered an order declininG to e;njoin the com,?troller from exercising the ?O"'ors conferred u:)on him by law, and denied the
injunction·as:.-::ed
...
for to restrain the receiver from proceeding with the col-
- s -.
lcction of tho
~~ha:;.·choldor;:; ;l,;.;::;osmaentu
X-4768
tho:;c-,tofore ordered by t1"'1e Com)trollor.
From this action tl1.o a:p"?ca.l in the first ni.JL<ed cause, #?558 was taken.
On the 4th of Au.gust,
1~26,
tho Liberty Bcmk a'T')licd to the dL; trict
court of the United States for an order enjoining and reutraining the defenda.YJ. ts from further prococdiag to cnfo:cce and collect tho assessment
previously made against the s:1.ar-eholdors of
t~1.o
Liberty Ban_"K:, '1onding the
a:):9eal in the first cause, which was grante<l; and from t:·lis last naJnod order
an ap'l}eal '.vas ta}:en b.y tho coml}troller of tl1e currency
theretofore appointed by him for the Liberty Bank,
w.~d
whic~1
the receiver
conGti tutes the
last nruned cause #2569, and tho two will be considered in the order nllined.
Case #~558 involves a s''l~v::Tal consideration of the National :Sa.11k Act,
:?articularly as res::oects tho })O\¥er and authority of the Comptroller of
the Currency to <r..Jpoi:at r;;::ceivers for insolvent national banks, a.'l.d assess
si1areholders in such institutions after liqu:idation proceedings
been il'laug,uratod by the
the
Com~ptroller
ba'1~c.
~1ave
The Liberty Bank insists that the right of
to appoint a receiver only exists prior to the liquidation
proceedings, and thereafter receivers are appointed a'l.d shareholders assessed
not by the comptroller, but by a court of equity of competent jurisdiction.
Whatever may have been the law prior to the amendment of the National
:Sank Act of 30th June, 1876, 19 St. L., 63, it would seem since that date
there sbould be but little trouble to meet and disnose of the questions
pre sen ted in this record.
the Comptroller
s~1all
Section 1 of thee
G.C
t J)rovides
11
* * *
become satisfied of t::1e insolve:1cy of a national
ba.'1king association, he raay, nfter due exa;aination of its affairs
a~point
whenever
***
a receiver, who shall proceed to close up such &_ssociation, and
e::1force the personal liabi1i t;:.r of its shareholders, as 'Drovided in Section
(R.S.,5234) (C.S.,982l) of said statutes."
- 7 -
X-'±753
:..;;; __ ,
{
Section 2 of the o.ct of 1276 ])rovides
t~at
w:1en any national banking
association shall have g:me into (volunta17) liouidation under the provisions
of Section 5220 R,·;, (C. S.,9806) the individo.:-;.1 liability of shareholders
provided for by R. S. 5151 (C. S. 9689)
ma:~r
be enforced by any
creditol~,
by
a bill in the nature of a creditor's bill in the district court of the district in which the association may have been located.
Section 3 of the act of 1876 (C. S. 9827) provides that when the
Comptroller has a:ppo in ted a receiver and shall have paid the creditors in
full and redeemed the circulating notes then a meeting of the shareholders
shall be called who shall decide whether the liquidation shall be co;:J.pleted
by the receiver or an agent appointed by the shareholde~s.
It will be observed that by·the first section of the amended act
(which it may be said in passing is one of far reaching importance to
the national government and the public. and in which the Comptroller of
the Currency is granted almost imperialistic powers) there is placed apparently no limitation to what he may do when the rioper conditions arise
for the exercise of the authority and discretion reposed in him.
word, whenever he becomes after due
exa~ination
In a
of its affairs, satisfied
of the insolvency of a national banking association he may appoint a receiver, who shall proceed to close up tho business of such association,
and enforce the personal liability against shareholders as prescribed by
law.
This act
c,~~
have but one meaning, and having regard to the
import~
ancc of its subject matter, and the delicate duties to be performed, positive and quick action, when found necessary,
the winding up
&~d
i~
contemplated looking to
closing of insolvent national banks.
The convenience
'
of large numbers of the public perhaps affected by what is to be done,
and the serious disturbance of business conditions liable to be involved,
would seem to justify and warrant this grant of power to an official of
dignity
the
and importance of the Comptroller of the Currency.
- c -
Ths Ulird scctio:.1 of the r1mendcd act si vos further color to this
view, in that it :provides that when. creditors, through tho Comptroller's
receiver, have boon
~paid.ir1
f-'-;_ll, and the bo.;.1k's circulating 11otes redeemed,
the institution shall bo returned to the CO<ltrol of its stockholders.
Conceding that the second section of tho runendatory act of 1876, on
which tho relief sought by the Liberty Bac''1k is largely based, may give
color to tho claim made,in that it provides that Ylhen a national ba:1king
association shall have gone into voluntary liquidation, the individual
liability of shareholders (Rev.Stat. sec.5151; Comp.St. sec.9689) may be
enforced by
~1y
creditor by a bill in the nature of a creditor's bill in
the district court of the district in which the association is located.
But we :have no such case here, and no proceedings have been instituted,
or a::lY receiver asked for, and we believe we are c.1ot called upon to pass
on the relative powers a:'ld authority of the Comptroller and the courts,
in an insolvency proceeding against a brmk in liquidation u.J.der section 2
of the amended act.
To acce:pt t):le Liberty Ba..J.k 1 s contention would be
in effect to take away the Comptroller of the Currency's authority to act
in the proper winding up of all insolvent national banking insti tutim1s,
by the mere act or atteiDl)ted act of those in charge of such institution,
to inaugurate liquidation proceedings.
pur~90 se
su~ely,
could not have
bee~
the
of the act, and to give it such an b terpretn tion w:mld not only
do violence to its manifest meaning, but
s~rstom,
This
wea~wn
tho whole national banking
a.'1d bring about a co::.dition of uncertainty and chaos i:1 connection
with this most important branch of the govornme<J.t' s business.
Ample authority will be found to ma.'>co cloar the pur-;Joses of the
national b:smking act, and to fully and clearly snow the power and authority
of those charged with its administration, cs-pccL:c>lly that of the Comptroller
of the Currency.
His jurisdictbn in respect to all matters properly with-
in his discretion is exclusive, and he is in respect thereto in no manner
,~:;
X-4768
- 9 -
amenable to
11
ru1y
CJurt, nor is
~is
action subject to review
(
t~croin.
The bank is not c 1nsidered as a private cor:;Joration, whose '!rinciyal
object is individual trade ard individual profit; but as a public cor-;oration created for public
national purposes. 11
ru1d
Chief Justice Marshall,
in McCulloch vs.Mal7land, 4 '\':'heat., 316, 425.
11
0ur conclusiona upon principle and authority are that Congress havin.::;
power to create a system of national banks, is the judge as to the extent
of the powers which should be conferred upon such banks, and has sole
power to regulate and control the exercise of their operations.
That
congress has directly dealt with the subject of insolvency of such banks
by giving control to the Secretary of the Treasury and the Comptroller
of the Currency, who are authorized to sus-oend the operations of the bnnks
and a?point receivers thereof when they become insolvent, or when they
fail to make good any impairment of capital."· Mr. Justice Shiras, in
Easton v. Iowa, 188 U.S.238.
11
The receiver il:. tho instru.-nent of tho Comptroller.
He is appointed
by the Comptroller, and the powers of the appointment ca:.cry with it the
power of removal.
It is for the Comptroller to decide when it is necessary
to institute proceedings again at the s toclr..holders to enforce their perso:J.al
liability,
~~d
whether tDc
shall be collected.
~1ese
w~olc
or a part, and if only a part, how much
questions are referred to his
cretio:J., and his determination is conclusive.
controvert it.
jud~nent ~~d
dis-
The stockholders cannot
It is not to be questioned in the litigation that may ensue.
He may ma..lte it at such t il:ue as he may deem proper,
a..~d
uyon such data as
shall be satisfactory to him. 11 Mr. Justice Swayne in Kennedy v. Gibson,
75 U. S. (8 Wall.) 505.
The decisions of the Com:9troller of the Curreacy nre not subject to
-,
... , ··
X-4768
- 10 -
collateral attack, nor is h1.s assessment against shareholders, and the
&""11ount thoreof open to review; but, on the
contl~ary,
neither the bank nor
the shareholders,clearly in the absence of fraud charged and proved, are
entitled to a judicial determination of any question involved in his.decision either as to the solvency, the sum due creditors and the amount of
assessments as ordered, such matters one and all being exclusively within
the judgment and discretion of the comptroller, and as to which he acts
in a quasi judicial capacity.
Kennedy v. Gibson, supra, 75 U.S.498; Casey
v. Galli, 94 U.S. 673; United States v. Knox, 102 U.S. (12 Otto) 422;
Richmond v. Irons, 121 U.S. 27; Schrader v. Bank, 133 U.S. 67; Bushnell
v. Leland, 164 U.S.684; Hightower v. Bank, 263 U.S. 351; Deweese v. Smith,
(7th CCA) 106 Fed.438.
Moreover, upon the Comptroller appointing a receiver of a national
bank, the receiver takes possession of tho assets of the bank, and assumes
control of its operation, not as agent of the bank, but as an officer of
the United States.
He executes band to the United States for the faith-
ful performance of his duties, and pays to the Treasurer of the United
States the moneys collected, and makes to the Comptroller under whose
supervision and control he disbUl·ses the funds to the credit of the insolvent bank, a full report of his acts and doings in the premises.
In
re Chetwood, Pet 1 r. 165 U.S.443, 458; United States v.Weitzel, 246 U.S.
533, and cases cited in each opinion.
Coming to the consideration of the second case, #2569, it is confined
within a comparatively narrow compass, and really involves the question
of the right to appeal from an order refusing to grant an injunction,
What court should exercise this power, that is, the court tl1.at declined
the injunction or the one to which the appeal is propooed to be taken,
and
the authority
of courts acting in such circumstances?
~~e
relief
X-4768
- ll -
asked is based upon a written r.1otion ma.de by the )arties wi'lo failed to
secure an injunction to preserve t;1e status quo, and stay the proceedings
sought to be enjoined.
Vf.."latever the pro11osed action may be te1 med technically, at least
1
it is but an a.3):plicat ion to grant an appeal from an order refusing an
injunction, which in effect seeks to stay or enjoin the doing of something when nothing has been done.
The novelty of this situation would
seem to be a sufficient answer to the same, save that the statute {Jud.
Code, 1911, sec. 129, with runendments Rose's Fed. Pro. Sees. 3rd Ed. sec.
612, Hopkinls Jud. Code, sec. 129, 2nd Ed.) in terms provide for such an
appeal.
Provision for appeals from orders refusing injunctions was appar-
ently first made by tho act of 18th February, 1895, (28 St.L.,666).
By
subsequent act of 6th June, 1900 (31 St.L.,660) and a still later act of
14th of April, 1906 (34 St.L.,ll6) the provision for
~)peals
from orders
refusing injunctions was omitted, and next
~~:peared
in the Judicial Code
of 1911, sec. 129 (36 St.L.,ll34), and has
rorr~ined
substantially as at
prasent, thou·Gh this section has several times been amended,
Just the proper procedure for
taki~g ~ppcals
from orders refusing to
grant injunctions, and whether the same should be granted by the trial or the
appellate courts, has brought about some divergence of views on the subject.
In the Railroad Tax cases from North Carolina, the district court sought to
afford tho relief gran ted by :postpm1ing the day on which the order dec linin,-,
the
inj~~ction
should have effect, leaving a reasonable time to apply to
the supreme court for an anpeal, if such action should Qe thought ?roper.
Southern Railway Co. and other railroads, against Watts, et al., 259 U.S.
576.
~'1e
supreme court concluded tnat as it was a matter of which the dis-
trict court was advised, and that tribunal was not, the district court
should act
u~on
the npplication.
T~e
case was proceeded with on that
X-4768
- 12 theory, the district court allowin;; t:w
~:r:xpod,
v.r::1icl1 o:poratod in off oct to
grant the hjunction originn.lly r\s:ced for, b;r ::n:..s·;cDdbg the collection of
the taxes involved :pending decision on t:1 ..; murits; and the action of the
lower court was
subseq·~entl~r
affh•mod.
Tho :precise condi tiona were
recently before tho su:oromo court in tho case of theVirginian Ra.ilwa3r Co.
vs. The United States, a."ld tho United States vs. the Virginian Railway Co.,
decided December 13th, 192&; and in the latter case, the district court
took the same action that it did in the North Carolina tax
granted tho
a~~peal
from an order declining an injunction.
ca~es,
that is,
The su:preme court
quite fully reviewed the whole subject of procedure, and held that that court
and the district court alike had the right to gr[illt or refuse the n.pyeal,
a."ld that in the particular case it should have been refused, and not
~a."lted;
especially as the effect of granting tho same operated not only to secure
the relief that had been denied on the a?plication for bjunction, but because it stayed the enforcement of the order of the Interstate Commerce
Commission, wilich had received the sa.1ction of the district court by
declining the
inj~!ction.
This decision in the Virginia Railway cases seems conclusive of this
case, as there is nothing peculiar in the circumstances here that call for
•
the grru1ting of tho relief sought in the
the
Curre~1cy
hac issued
a.'1
circumst~1ces.
Tho Comptroller of
order to proceed with the winding up of the
affairs of the insolvent bank, by appointing a receiver
~1d
ordering the
necessary assessment against the shareholders of the bank; and tho district
court having declined to enjoin this action because of the authority
vested in tho Comptroller, there was no reason w:1y the court 1 s action
and that of the Comptroller in such circwnstances should be stayed.
We are not prepared to say that there ma=r not be cases in which the
stay should be had, and the appeal gr[lltod,, ,but we aGsume the decision L1
- 13 -
the Virginian Railway Co. cases to r:1ean that at least there should be
S?ecial or U.'1usual conditions
ma~:ing
such course proper and necessary
at the stage the same was as 1::::ed for here.
granting of an
a~peal
Hence, we hold that the
from the order refusing the injunction in the
circumstances, was an unwise exercise of the discretion reposed in
the court.
Case No. 2558 - Decree affirmed as to matter appealed from.
Case No. 2569 - Decree reversed as to matter auuealed from .
.. ...
·----·--:--------·
·--
------- - - - · ------ - - - - -- ------··--. ·-·--------
·----·--
- - ---
X-4770
For
imme~iate
January 13, 1S27.
release at 3:30 ?.M.
Mr. Owen D. Young, of l1e..,. York City, hns today been a:r;»::ointed by t..lJ.e
Federal Reserve Bo&·d as a Class C Director and Deyuty Chairman of the
rectors of the Federal Reserve Bank of
Young has
me~t :~.
resi~ed
Ne~
In
or~er
to acce)t this
of Di-
~)~oint-
his position as a Class B Director of the Bank, an of-
fice to which he was twice elected by the
he ho.s held since January lst, 1923.
u~on
York.
:Bo~:.rd.
me~ber
banks of the district and which
!lr. loung has accepted the new
the unanimous reQuest of the Federal Reserve
Boar~. i~ ~hich
and officers· of the New York :Ba..."lk most heartily co11cu.rred.
.
law his successor as a Class B Director will
~pointment
the 5irectors
Under the terms of the·
.
oe determined by a special election
of the member batik~ in Grou'!? l, the b~~~~ in the district which have a ca~ital and
surplus in excess of $1,999,000,
The ;:>osition to which Mr. Young has been awointed
hel~
by Mr.
Willi~n
I
December 31, 1926.
wa~, ~til
recently,
L. Saunders, of Plainfield, New Jersey, whose term expired on
Mr. Saunders has served as a Class
as De·9Uty Cha.irJDall for five years.
·c Director
for ten years e.u:·
In recog.aition of the important service which
he has rendered, the Board of Directors of the Federal Reserve Bank of New York
adopted the following resolution at their
meeti~
today:
11 't0on the retirement of Mr. William L. SelLlders as a Class
tirector and Deputy Chairman, his associates on the Board desire
to express their ap~reciation of the u~sclfish and effective service which he has rendered durin~ the nast ten years.
Distiilgtli.shed as an engine~r, inventor and industrial cxem\tive, he has given liberally of his time ~1d energy to the affairs of the bank, and his broad knowlod~c ~td cxp~rience, caupl-
~
-.
-2-
cd with sou>"ld judgment and tact, has enabled him to make a large
contribution to tho determination of it;3 nolicic3. Tho directors
and officers will miss greatly his wise coLu'..sel anti kindly personali ty. 11
Letter sent by Mr. Young to the comnittoe ap~ointed
by the Bankers' Associations of New York, N0w Jersey and
Connecticut on nominations for d.irectors of the Federal
Reserve Bank of New York:
"Dear Sir:
One year ago I was nominated and elected for a second term
by the Group 1 il1:ember Banks as a Class B Director of the Federal Reserve Bank of New York. There is, therefore, substantially two years
of my term unexpired. It so happens that as of December 31, 1926,
Mr. Pierre Jay resigned as Chairman of the Board of the Federal Reserve Bank of 'Hew York, and the term of Mr. William L. Saunders, a
Class C Director of the Federal Reserve Bank of New York expired by
li~itation.
Mr. Saunders had during his long term of service been
designated by the Federal Reserve Board as Deputy Chairman of the
3oard. of the Federal Reserve .Bank of New York.
These two occurrences coming coincidently left the .Board
without a Chairman, and the Federal Reserve .Board designated Mr.
Clarence Woolley, the other Class C Director, to act as Deputy Chairman. Mr. Woolley, for personal reasons, felt unable to accept, for
the remainder of his term, the Deputy Chairmanship. Thereupon the
Federal Reserve Board, with the concurrence of the Secretary of the
Treasury (the Chairman of the Federal Reserve Board) requested me to
resign as a Class .B Director of the Federal Reserve Bank of New York
in order that they might appoint me a Class C Director, with the designation of Deputy Chairman. That request was concurred in by the
.Board. of Directors of the Federal Reserve .Batik of New York and by
the executive officers of the bank.
Under such circurnstances it seems to me that I was serving the Federal Reserve System and the New York .Bank best, and therefore serving the banks which nominated and elected me best by acquiescence in the request. Accordingly, I wish to advise you that
I will present my resignation as a Class .B Director of the bank to
the next meeting of this Eoard on Thursday, January 13, at which
time I have no doubt of it~ acceptance~
I sincerely hope that you gentlemen whom I may regard as
the representatives of the banks which elected me, will feel that
I have acted wisely under the circumstances in resigning the Class
.B Directorship. May I also in this way communicate to you, and to
those banks who were my constituents, my appreciation of the honor
which you did me in choosing me for such a high and responsible office.
Very respectfully yours."
..
l
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAl. CORRESPONDENCE TO
THE FEDERAl. RESERVE BOARD
X-4771
January 14, 1927
Sul3JECT: Ex1Jenso, Main Line, Leased Wire System,
Dccornbor, 1926.
Dear Sir:
Enclosed herewith you will find two mimeograph statements, X-4771-a and X-4771-b, covering in
detail operations of the main line, Leased Wire System, during the month of December, 1926.
Please credit tho amount payable by your
bank in the general account, Treasurer, U. S., on
your books, and issue C/D Form 1, National Banks,
for account of 11 Salaries and Expenses, Federal Reserve Board, Special Fund", Leased Wire System, sending duplicate .C/D to tho Federal Reserve Board.
Yours very truly,
Fiscal Agent.
· Enclosures
TO
GOVER~TORS
OF ALL F. R. BA1TKS EXCEPT CHI CABO.
d'
'·
f
X-4771-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF WORDS TRANS~ITTTED OVER WilliN LINE
OF TBE FEDERAL RFSFBVE LF..ASED WIRE SYSTEM FOR THF MONTH OF DFC:F:MBER, 1926
Buoinas•
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chica.go
St. Louis
Minneapolis
Kanoas City
Dallas
SBn Francisco
Total
F. R. Board
Words sent
by New York
chargea.ble
to other
F.R. Banks ( 1)
964
Total
37.933
155.300
43,662
8),611
49,923
61,028
115,041
79,664
39.358
80,247
64,872
110,678
950
2,363
3,657
2,848
3 ,-~73
2,603
2,751
3,033
5,590
2,812
38,897
155,300
44,612
86,174
53 ,5GO
6),876
118,414
82,267
42,109
83,280
7C;ijf>2
__!.!2,490
921,517
30,944
952,461
Total
Percent of Total
350,4J.L
1,302,878
100.00~
Treasury
Department
Business
5,778
9,854
4,915
5.931
~,715
,791
7,874
5,967
3,218
5,523
3,256
9z721
74;573.
60,368
135,441.
10.40%
War Finance
Cor-poration
Business
~
..
·~
Net Federal
Reserve Bank
Business
Percent of
total bank
Business (*)
33,119
145,446
39,697
80,243
47,365
57,085
110,540
76,300
38,891
77 '75 7 .
67~206
103z-73~
877,888
289,549
3· 77
16.57
4.52
9.14
1;.4'1
6.56
12.59
8.69
4.43
8.86
7.66
11.82
100.00%
~·
1,167,437
89.6o%
(*)
These percen ta.ges used i11 calculating the pro rata share of 1ea.sed wire expense as shown- on the
accompanying statement (X-47 71-b)
(1)
Number of words sent by New York to other F. R. Banks for their sole benefit charged to banks indicated,
in accordance with action taken at Governor's Conference November 2 - 4, 1925.
"
X-4771-b
REPORT OF EXPEl'l"SE IV'cAIN LINE
FEDERAL RESERVE LEASED VFIRE SySTEM'; DECEl\IBER, 1926
Name of Bank
OperA.tors 1
Salaries
Op~rators 1
Over tirr,e
$ 260.00
P.o,~ton
944.24
.$
216.66
284.50
199.00
255.00
3,945.00(#)
200.00
1&4.4 7
275.64
251.00
370.00
r;.:: 3 -~ 1~:-~-1 Rc;_:)erve :Sca.rd
Tota.l
$
$7,38Jo51
Yvrk
Philadelphia
Clc;ve1an.d
Richmond
Atlanta
Cnicago
St. Loui10
I•·:innea.p oli s
KMSB.S City
Dallas .
s:~n ·Fr A.l1C i sc o
1i~w
Wire
Rental
$ 260.00
J.Oo
947.24
216.66
234.50
199.00
255.00
3,945.00
200.00
134.47
275.64
251.00
370.00
$15,353.72
3-00
Total
Expenses
h5,350. r2
(&)
Credits
$
$ 260.00
$ 503.42
763.42
3,377-39
921.29
1,862.96
1,110.35
1,324.87
2,566.16
1,771.24
902.95
1,805.89
1,561.30
2,409.22
947.24
216.66
234.5Q
199-00
255.00
3,945.00
200.00
184.4 7
275-64
251.00
370.00
2,4)0 .15
704.63
1,573.46
1, ll6. 52(&)
1,069 .G 7
1,373.34(*)
1,571.24
713.43
1,530.25
1,310-30
2,039. 22
15,35S·7~2~--~~~-=..---~~~~~~~~~~-----
;f22,t4f.23
$20,332.54
2,364.6g(a.)
~20,)62.54
(#:)
(*)
(a)
(b)
Expen.;;e~
Payable to
Fedaral Re;;;arve
I1oa.rd
Pro Rata
Share of
Total
$7,388.51 $14,571·54
1,378.84(b)
~13,193. 70
Iacludes $204.67 for branch line businesa transmitted ovar rrJB.in line circuit.
Includes salaries of Wa.s.a.ington operators.
Credit.
Received $2,364.69 from Treasury Departme...'1t covoring bu:>iness for the month of December, 1926
Amount re-imbursable to Cnica.go.
.....
FEDERAL RESERVE BOARD
WASHINGTON
X-4772
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 14, 1927.
SUBJECT:
Correspondence with Director of
Veterans' Bureau.
Dear Sir:
There is attached :i1ercto, for your
information, co:?Y of a letter which tho Board
addressed recently to the Director of the United
States Veterans Bureau, together with a.copy of
his reply, both of which are self explanatory.
Very truly yours,.
J. C. Uoell, _
Assistant Secretary.
To Go-vernors of all F, R. Banks .
Enclosures:
• •
( c0
p
y)
L:''HTED STATES VFTFRANS 1 IHJRE.AU
1 ~'.ASHHrGTON
X-4772-a
Jo!l.unry 11, 1927.
D. :a. Crissinger,
Governor,
Federal Reserve Board,
Washington, D. C.
~onorable
My dear Governor Crissinger:
I wish to acknowledge your le~er of January 10, 1927,
propounding certain questions in respect to loans on Adjusted
Service Certificates.
The use of the term 11 bank11 in Regulation No. 163 was
deemed to include the Federal Reserve Banks where applicable and
this Bureau will honor loans presented by such ban~s in tho same
manner as loans received from other banks will be redeemed; For
this Bureau to assume a position that Federal Reserve Banks were
not intended to be allowed to rede~m notes when such notes are
made eligible for discounting wi tli the Federal Reserve Banks
would, in my mind, have the effect of nullifying the intent of
the Statutes.
In regard to the matter of honoring loans made to a
person not authorized to receive such loan1- I do not believe that
the Bureau would be empowered to rAa~e payment thereon as the effect
of redeeming these loans would be the same as paying on a forged
instrument, which, of course, is directly contrary to all accepted
:9rocedure.
With kindest personal regards.
very truly yours,
Frank T. Hines,
Director.
" ..
( OJPY )
FEDERAL
RFSYEVE
'BO.ARL
X-4772-b
January lO, 1927.
Honorable Fr<mlc T. Hines, Director,
United States Veterans! Bureau,
Washington, D. C.
My dear General Hines:
The question has been raised as to what your policy will
be with res9ect to paying to Federal reserve banks the amounts of
notes re:presentir:.g loans made to veterans on the security of adj,~sted
service certificates, which notes have been rediscom1ted with Federal
reserve banks and left on their hands unpaid at maturity.
The Board is familiar, of course, with the statement of
policy contained in ~ubdivision (b) of Section 8 of your Regulation
No. 163; but subdivision (a) of that paragraph states that if the
veteran does not pay the loan at its maturity 11 the bank ho-lding the
note and certificate11 may present the note to you for payment, and no
specific mention is made of Federal reserve banks. It would seem
that the word 11 bank'1 as l1ere used would clearly include Federal reserve banks; but, in view of the fact th::1.t some question has been
raised about the matter, I believe it would be desirable for you to
give the Board a specific statement as to wha.t ;:;our policy will be
when such notes are presented to you for payr~:ent by Federal resel~ve
banks.
T:he question ·has also been ra.ised as to whether there would
be any likelihood of your declining to pay a note presented by a
Federal reserve bank when such note is accompanied by an affidavit
of the lending bank stat1ng that the }Jerson who obtained the loan
evidenced by such note iJ known to be the veteran named in the adjusted
service certificate securing such note, but the Veterans 1 Bureau
discovers that the loe:.n was not actually obtained by the veteran na.med
in the certificate. In oth•3l' words, the question has been raised
whether under such circumstances there would be ~1y likelihood of
the Federal reserve b:mk suffering a."'ly loss in the event of the insolvency of the bank which rediscounted such note with the Federal
reserve bank. A definite statement from you on this point will aid
materially in clarifying the situation.
An early re;?ly from you will be greatly apprecicLtod and the
substance thereof will be corn.'Inmicated :promptly to all Federal reserve
banks.
Very truly yours.
D.
~.
Crissinger
Gover:1or.
FEDERAL RESERVE BOARD
WASHINGTON
X-4773
ADDRESS OFFICIAL CORRESPONDE:NCE TO
THE FEDERAL RESERVE BOARD
January 14, 1927.
Su:BJECT:
Receipt of Securities from Farm Loan -:legistrars
by Federal Reserve Banks Acting as Fiscal Agents
of the United States.
Dear Sir:
There are enclosed herewith for your information
a copy of a letter from the Acting Secretary of the Treasury
and a co:;y. of the Board's reply thereto with reference to
the receipt of securities for safe keeping from Farm Loan
Registrars by Federal Reserve Banks in their capacities as
Fiscal Agents of the United States.
You will note that the
Board states that it will make no objection to Federal
Reserve Banks' accepting Government securities for safe
keeping for the account of Farm Loan Registrars subject to
the order of the Farm Loan Commissioner, if the Secretary
of the Treasury requests that they do so as Fiscal Agents
of the United States.
Very truly yours,
D. R. Crissinger,
Governor.
TO GOvERNORS OF ALL
"
Enclosures:
F.R.B~~KS.
GOPY )
FEDE.."R.AL RESERVE BOARD
WAS:-inJGTON.
X-4773-a
January 13, 1927.
Honorable Garrard B. Winston,
Acting Secretary of the Treasury,
Washington, D. C.
Dear Sir:
Reference is made to your letter of January 12th regarding the recent opinion of the Federal ~eserve Board to the
effect that Federal reserve banks ar.e without lega.l authority
to receive securities for safekeeping from Federal land banks
or Federal farm loan registrars.
You sugsest that Federal reserve banks might properly accept Governme~t securities for safekeeping, subject to the order of the Farm Loan Commissioner, for
the account of ·farm loan registrars for specified Federal land
banks or joint stock land banks u~on authorization of the Treasury
to do so as fiscal agents of the United States, and ask whether
the Federal Reserve Board sees objection to handling the matter
in the manner indicated.
The Federal Reserve Board feels that the question
whether the receipt of securities for safekeeping £or the account of farm loan registrars is a fiscal agency function which
Federal reserve banks may perform, is a question properly for the
determination of the Secretary of the Treasury and the Board is
not disposed to question the decision which the Secretary may
reach. If, therefore, the Secretary of the Treasury requests Federal reserve banks as fiscal agents of the United States to accept Government securities for safekeeping for the account of
farm loan registrars subject to the order. of the Farm Loan Commissioner, the Federal Reserve Board will have no objection to
the Federal reserve banks performing this function.
Very truly yours,
D. R. Crissinger,
Govornor.
(
(X)l'Y )
TREASURY DEPARTMEN'T
WASI-lDTGTON.
X-4773-b
January 12, 1927.
Dear Governor Crissinger:
I am enclosing herewith copy of letter of December 22, 1926,
from the Farm Loan Commissioner, in regard to the recent opinion of the
Board to tho effect that the Federal Reno:;. ve :Banks e..re wi ~bout legal
authority to receive securities for safekeeping from Federal Land B~ks
or Farm Loan registrars. You will note the Commissioner's statement
in the enclosed letter to the effect that the failure of the Federal
Reserve Banks to accept such securities for safekeeping would seriously
interfere with the ~resent method of handling Govenment eacurities
held by registrars as collaterf.'ll security for Farm Loan bonds.
1
While I do not question the conclusion reached by the Board in
the matter as to the methvd heretofore observed, it would seem that
the Federal Reserve EruL~s could accept Government securities for safekeeping subject to the order of the Farm Loan Commissioner account of
Farm Loan registrars for specified Federal or Joint Stock Land Banks
upon authorization of the Treasury to do so as Fiscal Agents of the
United States, particularly as such registrars are stated to be "public
officials11 in Section 3 of the Federal Farm Loan Act.
I shall appreciate it, therefore, if you will advise me whether
the Board sees objection to handling the situation in the manner above
indicated.
Very truly yours,
(Signed) Garrard B. Winston
ACting Secretary of the Treasury.
Hon. D. R. Crissinger,
G~vernor, Federal Reserve Board.
Enclosure.
.
TREASURY DEP A?.T~.~:~~:rT
WASH I:7GTON
X-4773-c
Federal Farm Loan
December 22, 1926.
Bure~u
;,,-; dear t:r. Secretary:
Your attention is respectfully called to the attached
copy of a letter from President D. P. Hogan of the Federal Land
Bank of Omaha, Neoras:r.a, enclosing a copy of a letter from Secretary
Walter L. E&dy, of the ?ederal Reserve Board, advising the Federal Reserve Banks that they h[l.ve no authority to receive, from
Federal Land Banks or from Farm Loan Registrars, deposits of securi"tie;:; for safekce;:>ing.
:B,ailure of the Federal Reserve Banks to accept such secl.:tri ties for safekee})ing will seriously interfere with our method
of h~dling Government securities held by Registrars as collateral
security for Farm Loan 3onds. I hope t~e Federal Reserve Board will
allow the ·9resent arrangement to continue, until we can perfect other
plans, or secure an runend.ment to the Act. Will /OU please confer with
otl-wr members of the Federal Reserve Board and advise me of their
attitude.
Yours very truly,
(sgd) A. C. WILLIAMS
Farm Loan Commissioner
Honorable A;.1drew W. Mellon,
Secretary of the Treasury.
66
FEDERAL RESERVE BOARD
WASHINGTON
X-4775
ADDFlESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 19, 1927
SUBJECT:
Weekly Reports of Amounts Du.e to and Du.e from
Banks.
Dear Sir:
It has been felt for some time past that the figures
which are renorted each week by member bankS in leading cities,
other.than Federal reserve bank cities, have not been adequate to
permit the drawing of reasonably satisfactory conclusions, regarding local banking conditions, principally because of the lack of
information regarding the movement of :fUnds into and out of the
respective localities. The Board has therefore decided to ask
you to have all of the reportixt€ member banks iu leading cities,
instead of only those in Federal reserve bank cities as at present• show amounts due to banks and bankers and amounts due from
b~ and bankers in their weekly condition reports •
.A.ccordingl;y 1 t will be &p!)recia ted if ;you will ins t-ru.ct
renorting member banks in your district to show these figares in
their r~orts beginning with February 2. !he information should
be reported to the· Board against the same code words as are now
used for reporting this information for Federal reserve bank
cities, i.e., H'DPS for amounts due to banks and brmk:ers, and HOTE
for amounts due from banks and bankers. Upon receipt of these
figures the Board will show amou:a ts due to bankB and amounts due
from ba.nks for all r~rting member banks and for reporting member ba.Dks in Bn York C1 ty and in Chicago on page 2 of the weekl;y
statement. On page 3 of the weekly statement amounts due to banks
and amounts due from banks will be shown for all reporting member
ba~ in each district, instead of for reporting member banks in
Federal reserve bank cities only as at present.
Very tru.ly yours,
Walter L. lddy,
Secretary. ·
TO .ALL F. 1t. AGllt'.rS.
..
.
.
h~
··-' ::(
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4776
January 19, 1927
SUBJECT:
Eligibility for rediscount of notes of parent co~oration
re:)resenting borrowb.gs of fu11ds to be advanced to
subsidiaries.
Dear Sir:
In its circular letter of December ~0, 1925 (X-4484), the Federal Reserve Board ruled upon the eligibility for rediscount at a Federal
reserve balik of notes of a parent corporation representing borrowings
by the parent cor~oration of funds to be advanced to its own sibsidiaries.
The substance of that ruli1~ may be stated as follows:
"Where a parent corporation owns at least 75 :per cent of
the stock of each of a number of subsidiary corporations the
notes of such parent corporation the proceeds of which have
been adv~~ced or loaned to its subsidiary corporations will
not be considered finance paper within the meaning of the Eoardts
reg~lations; provided that (1) the parent corporation makes no
advances except to its own subsidiaries, (2) the subsidiaries
borrow no money except from the parent corporation, and (3)
the proceeds of such advances have been or are to be used by
the subsidiary corporation for an industrial, commercial, or
agricultural purpose, within the meaning of the Federal Reserve Act and the Board's reg~lations. It is understood, of
course, that in order to be eligible for rediscount such paper
must also comply in all other respects with the requirements
of the law and the Board 1 s regulations."
In accordance with a recommendation ~~de at the recent Governors 1
Conference, the Federal Reserve Board now revokes in toto the ruling
contained in its letter of December 30, 1925 (X-4484) and rules in lieu
thereof as follows:
i"Tl1.ere the borro·~er is a parent corporation havi::lg a number of subsidiaries and the parent co~)oration and its subsidiaries are in practical effect one single organization, and
may Tiith propriety be considered a single borro~er, the pa~er
of such parent corporation, the proceeds of which have been used
or are to be used. by the parent corporation or by the subsidiary corporations for an industrial, commercial or agricul-
X-4776
-2tural purpose, '.vi thin tho mca11ing of tho Federal Reserve
Act and the Board 1·s Rcgulatio:1s, may be considered eligible
for rediscount if it co;T:>lies in all other respects with the
provisions of the la'.7 o.:1d the Regulatio:1s of the Federal Reserve Board.
Very truly yours,
D. R. Crissinger,
Governor.
ro
GOVEF.l~OF..S A!ID F. R. AG:slr.I'S AT .ALL F. R. J3Al1KS.
X-4777
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 20, 1927.
SUBJECT:
Holidays during February, 1927.
Dear Sir:
On Saturday, February 12th, Lincoln's birthday,
there will be neither Gold Settlement Fund nor Federal
:teserve ~Tote clearing, and the books of the Board will
be closed. For your irrformation, the offices of the
Board a."ld the following Federal Reserve Banks and Branches
will remain open for business as usual:
Boston
st. Louis
Little Rock
Richmond
Baltimore
Kansas City
Oklahoma City
Atlanta
1Tew Orlea."'ls
13 i rmingham
Jacksonville
Portland
On Tuesday, February 22nd, Washington's birthday,
the offices of the Federal Reserve Board and all Federal Reserve Banks and Branches will be closed.
Kindly notify Branches.
Very truly yours.
J. c. Noellt
Assistant Secretary.
TO GOVER.~ORS OF .ALL F. R. :SJiTKS.
X-4779
FOBEIGN BRAl~CHES OF AlriERIOO!
B.ANKIHG INSTITUTIOHS.
Bankers Trust Comoany, New York, N. Y.
Branches:
France:
Paris
England:
London
Egui table Trust Compa..'1y, l~ ew
Branches :
England:
France:
Mexico:
York, N. Y.
London
Paris
Mexico. City
Chase National Bank, New York, N. Y.
Branches:
Cuba:
Havana
Pana1na:
Panama Ci ty
Canal Zone: Cristobal
Farmers Loan and Trust Company, New York, N. Y.
Farmers Loan and IJ:TUst Co:·:many, Ltd., London, England (two offices)
a British Coiii?a.'1Yi all stock owned by Farmers Loan
and Tr-u.st Cor.n:?any, New York, 1~. Y.
Re~resentatives:
Paris, France
First National Bank, Boston, Mass.
Argentina: Buenos Aires
Branches:
Cuba:
Havana
Guara..'1ty Trust Company, New York, N. Y.
Branches:
England
London (three offices)
Liverpool
Belgium:
Antwerp
Brussels
France:
Paris
Havre
National City Bank of New York, Ne~ York, N. Y.
Branches:
Argentina: Buenos Aires
Rosario
Belgiu."'l:
Anherp
Brussels
Brazil:
Pernambuco
Rio de Janiero
Santos (Agency)
Sao Paulo
China:
Canton
Dairen
Hankow
Harbin
Hongkong
Peking
Shanghai
Tientsin
-2X~4779
National City Bank of lieu
Branches:
Cuba:
(continued)
Caibarien
Camaguey
Cardenas
Ciego de .Avila
Cienfuegos
Florida
Guan ta:JBmo
Ma.nzanillo
Matanzas
Santa Clara
Havana- City Branch
Belascoain
Galiano
Cuatro Caminos
La Longa
Mo~on
Nuevitas
Palma Soriana
Pinar del Rio
Remedios
Sagu.a la Grande
Sancti Spiritus
Santiago
Vertientes
Yaguajay
Chile:
Santiago
Valparaiso
Dominico.n Republic:
Barahona
La Vega
Pu.erto Plata·
San Francisco de l'lfacoris
So.n Pedro de Macoris
Santiago de Los Caballeros
Santo Domingo City
England~
London- City Branch
West End Branch
France:
Paris (National City Bank (France) S.A.,
subsidiary of !Ja tional City Bank
of New York)
India:
Bombay
CalClltta
Rangoon (Burma)
Italy:
Genoa
Milan
*3-
X-4779
National City Bank of New York, New York, 1T. Y. (continued)
Branches
Japan:
Kobe
Tokyo
Yokohama
osa.lta
Java:
Batavia
Panama:
Colon
Panama
Peru:
Lima.
Porto Rico:
San Juan
Straits Settlements:
Singapore
Uruguay:
Montevideo
Venezuela:
Caracas
BRANCHES OF FOREIGN BAHKING CORPORATIONS OPEBATDTG
UNDER AG:REE:I(ENT WITH THE FEDERAL RESERVE BOARD
Bank of Haiti, Inc. (Subsidiary of National City Bank of New York,
holding stoCk of Banque Nationale de la Republique d 1 Haiti, operating at the following
points in the Republic of Haiti:
Port au Prince (Head Office)
Cayes
Cape Ha.i tian
Gonaives
Jacmel
Jeremia
Petit Goave
Port de Paix
St. Marc
Aquin (Agency)
Miragoane (Agency)
Aux
Equitable Eastern Banld..ng -corporation (Subsidiary of Equitable Trust
Company, New York, U. Y.)
Branches:
Shanghai
China:
Hongkong
X-4779
-4-
International Banking Corporation (Subsidiary of llational City Bank
of New York, N. Y.)
Branches:
China:
*Hankow
*Pelr,ing
*Shanghai
*Tienisin
England:
London
Spain:
Barcelona
Madrid
Phili~ine
Islands:
(Jebu.
Manila
*Non-bru1king offices.
Exercise note issuing
function only
National City Bank (France) S. A. (Subsidiary, in Paris, of National
City Bank of New York, N. Y.)
Federal Reserve Board.
January 1, 1927.
X-4730
:TXCERPTS FRH! T?Z E~.IDGURAL ADDR'ESS OV THE GOVERNOR OF IOWA,
EONORJGL:S
JCE~-
F.AHMILL, TO TEE FORTY-SECOliD GENERAL ASSEMBLY,
.
DELIVERED .A:r DES MOEIJES, IOiVA, J.A.:TUARY 13tn, 1927 ·
BANKING
"Accordingly I recommend:
(a) That proposed subscribers to capital stock of State
banks ;nus t furnish a financial s taternent showing they arc worth
at least two times, over and above tneir exemptions, in unincumbered
property the a11ount of their stock subscriptions; the Banking Departmont to be required not only to investisate tho financial circumstances of subscribers to stock, but to determine whether or not
they are the character of men who have and tl\i 11 hold the respect
and confidence of the community as bankers. Subsequent statements
of financial conditions of s tock."IJ.olders to be furnished semi-annually
and filed with the Banlcing Commissioner.
(b) The stockholders should be required to deposit with
the "Banking Depart:nent securities defined by law to i:1sure the prom')t
and full J?ay:nent of any assess:r:ent vmich they may be called upon in
tbe future to pay.
This requirerr.ent should be made effective at
once on a.ny !ITEW banks or TRA1-TSFER of stock in old banks, stockholders in existing banks to receive not to exceed six ~er cent annual
dividends until this assessment liability is 'JUt u·? in ap"?roved
sccuri tics a.s aforesaid, which assessment liability requirement
might be mot either by the stockholder himself or by the bank
from its future earnings, acting in his behalf.
(c) Good baru~s should be made out of going banks rather
than of closed banks. Tho laws of some states and tr.e proposals
that have been submitted, proceed from the starting point which
has to do with closed banks. We should give our attention to
studying the situation as regards live, active institutions, and
those yet to bo formed giving, however, due regard to the liquidation requirements of closed banks.
(d) I reco~nend that the entire capital of a bru1k be paid
in before a bank can transact business; that the capital requirements
be raised to $25,000.00 for cities of 3,000 or less, $50,000.00
for cities of 6,000 or less, and $100,000.00 for cities having a
population over 6,000. Such capital must be paid in full before
the transaction of business, together with an additional subscription of 10 per cent to cover organization expenses, etc., which
it is unlikely immediate earnings of a new bank may meet. No
dividend should be declared until a surplus of 20 per cent has
been built up, and thereafter 20 per .cent of the net earnings
each year should be set aside until a 50 per cent surplus has been
created.
A requirement this drastic is not co..11mon in banking
statutes, and is for the )ur?ose of f}reventing distribution of
earnings as dividends until ~roper reserves have been set up to
~rotect against unforeseen contingencies.
Experience has shown
- 2 -
'.
x-4730
ti:.at in times ,-;ast. so'nc ban1:es l:avc been too ···n·one in )ros,)E)rous
years to decla~e di videncls to the full carni:)f; cat)acity, ,:,i thout
regard to tl:e possibility of less 1ros·')erous periods, during which
losses might be in~~rred.
(e) Officers and particularly directors should give greatBr
at tent ion to tho business of the bank. Directors should be held
·?ersonally liable for u.ny losses resul tL1g from unlawful acts in the
management of the bank which they ::.iave in any sense ap)roved or
ratified. We should surround tlw O)erations of the State Banking
System with such safeguards and resolutions as will promote better
bar~ing, solely without regard to the conveniences ~~d likes or
dislikes of the bankers, as they are semi-public servants, but
not to so couch the terms of the law as will result in unnecessarily
hampering legitimate rrasiness transactions to the detriment of the
public interest. Iowa industry, agriculture and livestock pursuits
1nust function.
Iowa ca?ital must be conserved and Jnade· available
for the develo:~nt and operation of Iowa's resources. Remove the
present facilities of the State banking system, without a sufficient
substitute, and t!1ese industries, on mich so many depend, could
not continue.
(f) Tl1at the ratio of ca?ital to deposits is also sufficient to provide a reasonable margin of safety to depositors.
After making a survey of the conditions surrounding some
failed bamcs, it is my opinion t~at one of the local causes of bank
failures is the fact that officers of the bank have been interested
in side ventures and r.ta ve ei t!:,er borrowed or loa~ed funds of the
bank in cases where they were directly or indirectly financially
interested. This ?ractice bas occurred in many instances with the
r::ana3ini:o officer of the institution. The first thougl1t is to restrict the O'?erations of the w.a.nagi:ng officer of a banking insti'tution to the business of the institution w~ich he represents. Restraint to this extent m~ be unconstitutional. We should, there~
fore, reach tJ.1is situation by restricti.--yg the loans 1 the advances
that ID80' be :nade by e. ba:1king institution in such cases, and it
should be :nade unla·wful for a bank in this State to loan to a
director 1 officer, or em:_:>loyee thereof 1 or for a director. officer
or err;ployee thereof to borrow from the bank any of its funds,
except subject to the following limitations:
1. The indebtedness of an officer, other tnan a
director or an employee, shall not exceed five per
cent of the paid-up capital stock and surplus of the
corporation.
2. No such loan sr~ll be made without first being
approved by a majority of the board of directors at
a meeting in the minutes of which such approval shall
be recorded in detail. Every such loan shall be acted
upon in the absence of the applicant.
3· The combined indebtedness of directors, officers and
employees shall not exceed forty l~r cent of the paid-up
capital stock and surplus of the cor,.,oration.
4. No officer who is actively engaged in the management
of any bank, or any employee, shall BORROW any amount
whatever from or discount any note or other commercial
-paper with the bank by whom etn;Jloyed, except uoon good
- 3 -
x-4780
co llatere1l, or other :J.."n?lo security or endorsement;
and no such lo&::J. or C.:.iscount shall 'oe 7":Ja.de until after
it lias been a•?91' ovod by a majority of the directors or
a committee of the board of directors DUthorized to act.
5· No offica 7,ho is actively enc&ged in the management of any bank, or any employee, Sr..ALL ILAKE -~'"Y LO.A..11J
for the bank by ·;rhom ornployed in w.:_ich said officer or
employee is personally or fina:1cially interested, di:;:ectly or indirectly, for his own account, for himself,
or as the partner or agel1 t of othars, except upon good
collateral, or other a~plc security or endorsement, and
no such loan shall be made until after such perso~1al
interest shall l~ve been disclosed to the board of directors and that fact sl1o<m by the min •. tes of the meeting of the board of directors, and t:w lo<.:..c'l approve.-1. by
a majority of said ~oard of directors.
It should also be provided thut if the directors of any
bank permit any of the directors, officers or em:;>loyees tl~reof
to borrow its funds, or disco~nt notes on commercial pa?er, in
violation of the foregoing reconrnendation or in an excessive
amount, or in a dishonest manner, or in a ma~~er incurring great
risk or loss to such bank, any director ~rrho l?artici?ated in or
assented to the same should be liable nersonally for all dfu~age
which the bank or its shareholders ~~w sustain by reason of
such loan.
The bank failures in the state he.ve brought forth the
question of a co:n"9Ulsory guarantee of banlc d.e:~osi ts. I know of
no model baDk guaranty law. Only eight st~tes out of the
Union have ever attempted such a law. Ho state has ·9assed
such 8..'1 Act si nee 1917. All such laws were ?Ut to the test
when t~e general 9eriod of deflation set in in 1920. Since
that time the failure of at least half a dozen or more of them
has been c:1la-ni tous. W':12- tever the cost of thoroughly co:1T9etent
a~d efficient ba:;::lk: exe.mina ticns, it is a proper charge against
banks. Whatever laws are devised to make sure that banks are
give:1. kis sort of supervision, they will have economic justification. Adequate examination and control encourage good banking and discourQge bad banking. Bank guaranty laws work contrariwise.
I am inclined to the belief that the soundest and most
effective safeguard to bank deposits is a mutual exrunination system similar to the one devised by the C~·,icago Clearing House Association. This system bas been in effect in Chicago for a number
of years and has been acce?ted by the banks tl1ereof, a.'1d while
there have been occasional failures, no depositor of a member
bank has ever lost a dollar since the ex~uination system was
established.
I believe it is feasible to divide the State into
districts and to organize the ban..l<:s b each district into a
mu.tual examination association, which ca.."l. make use of the clearing house s;ys tem effectively. Once institute such an organization and the strong banks would get in for the possible advantage that it would offer. Then competition would force other
banks to become strong enough to warrant membership.
~~-'i""'-.1
{
- 4 -
X-4730
The bankers and the baru~ te)ositors of each State should
m&ke sure tv~t the benl~ exaninations department is efficiently
managed and a"'lply provided with men and. moDey. As the banks
t11emselves pay all the costs of the de;Jartr:ent, the :public cannot
object to tbis. In my judg~ent if they would do tuis, they would
set up the soundest and most effective L1.strument of safeguarding
de;osits yet devised.
Our own Banking Deq.:,rtinent needs more men a..'l'ld money to
hire still more com96tent ;nen. Tbe head af the department should
be ·able to earn and he should be paid as much as the president of
a good sized bank. Under such condi tio!ls 11ve should have no epidemic
of baru~ failures and no demand for a guaranty la~. Iowa should
ado:,>t a banking uo licy tha. t is sound, that will maJre each banker
stand for a policy tba.t 'l\ri. 11 :;>rotect his own bank and the de·9ositors
therein.
Let us an:,>ly ourselves to devE:lo"J a.c>J.d encourage better
bankers, more careful exaninatio!l of banks and require banking
laws to be more rigidly e11fo1·ced. Tl1e res~onsibili ty of the9oor banker and the fraudulent b::mker snould not be charged to
the honest and efficient :)~:n-~er or the -)l]_blic in general.
Let us be fair and re:no:nber again tbat the economic
conditions tt:roug}-_ ·nhich we :1ave been ~nssing have been unprecedented. Borrowers, whether b·J.siness, ,)rofessional men or farmers
re·:Jresentii.lg in normal ti:nes smie of our financially strongest
and best citizens, have, due to existing conditions become financially embarrassed or "gone oroi:e. 11 Credit l1.as -,;een extended to
them legitimately and in good faith. Tl:..ese borrowers have been
unable to pay their notes or interest. The stockholders of banks
throughout the State have been making up those losses so far as
they could and in a vast number of inst&nces have themselves
GIVEN THEIR ALL in the effort to make up those losses caused by
legitimate borrowers, in order that their b~~cing institution
might survive and their depositors be 9rotected.
Prager experience, proper final1Cial ability, proper
busi~ess integrity on the part of the banker, 11as, does now, and
always will safeguard the depositors' funds.
The essential
t?1ing, the paramount necessity, is that legislative action should
en.'lance rather than nullify tl~.E: necessity tor .sue~~~ as all of the
ba..Jking experiences of the co.:mtry in all thes'e years have
der."onstra.ted the sou.-.dness of this contention and the futility
and the d~'l'lger of banking sedatives.
Affirmative let;islative st?ecifications co·1cerning invest:nent of a ban.."k' s funds are dangerous 1md offer an opportunity
for unsound banking, viliile broad gener~l restrictions as to investment of any and all of the fu.'lds of the ba..Jk, ·?rovide .?,
feasible and necessary protection to deoositors.
Wi t:1. ti1ese i:ldiSi?ensc:>..ole qnali ties our fi -:1a.11cial institutions should <~.nd will attain adegu::-,te strength and be best able
to serve the fundsmental interests of the comvr..onweal th. 11
;f
. .
X-4781
FEDERAL
RESERVE
BOARD
STATEMENT FOR THE PRESS
For release in :v:orning Papers,
-:r.<i.lrsday, J'Ocnuary 27, 1927
T~e
following is a summary of b~neral business and
financial conditions throughout the severa.l Federal
Reserve Districts, based u~on statistics for the
months of December and January, as contained in the
forthcoming issue of the Federal Reserve Bulletin.
Vohc..;ne of out-mt of industry decreased fu.rther i::J. December to
t~1e
level in :r:ore tna"l. a year, and w:tolesal.e Drices continued to decline.
lowest
Easier
co'ldi tions in the money market in Janu.q.ry re?f1ected t[le Qsual seasonal liquidation after the turn of the year.
Proci.uction.- In Dece:nber, for the tnird consecutive month, there was a
uecrease in industrial production, and the Board's new index, with adjustment
for seasonal variations, was 105 on the basis of t:ne average for 1923, 1924,
and 1925 as 100.
Tl1is compares with 113 in Se;>tember, the .. igh 90int of the
year, and with 108 a year ago.
The decline since tne recent high point has
been entirely L1 the manufacturing industries, as the output of minerals was
at a :record high level in November and showed only a slight decline in December.
By far the greatest recession of recent months .Clas "been in the automobile
inciustry, output of passenger cars and trucks in the United States decreasing
from
425,000 in August to 165,000 in December,
of automobiles is usual at the end of the year,
Reduction in the manufacture
'.~~Then
plants close for inventory
ta.lcing a:1d re1Jairs, but in December, 1926, the decline wa.s considerably larger
than usual.
Production of iron and stePl has also been sbarnly reduced since
the middle of autumn, and activity in the woolen a:nd worsted and silk industries has oeen somewhat curtailed.
Production of lu.nbe r, cerrent, end otter
building materials has reflected the usual winter decrease in demand.
Cotton
consU'J!"'?tion, on the other hand, wa.s larger t11an in any ?revious December.
Factory emolo;y!Ilent
and -s>ayrolls decli;1ed further in December, reflecting de-
x-4731
- 2 -
creases in nearly all i:ndustries exce)t cotton goods, cloL.ing, foundries and
machine shor>s, and 1rinting and. "'1u1;Es' inJ?;.
Tbe value o+' bui 1din.g co:1tracts a ..·::;rded. in Dece;:cber, · s in ?'ovembe r, wa.s
larger than in the corres-oo:r:di:1g ueriod a ;yesr
e~:rlier,
but for the first three
weeks of Jarruary contracts v·ere in s:r,aller volu:ne t:1an during tl1e saile weeks
of 1926.
l
T~·~is decline in Jan\lar;/ v;:is largel;>r concentrateO. in the :Jew York and
Atlanta Federal reserve districts,
ago.
w:~ere
ouildin~"·
'.ivas unusually active a year
Residential contracts were sialler in Dece:nbe::- than a year earlier in
nearly all districts, the incre&.se in the total for the ir,ontl1 being in other
types of building.
Trade.- Retail sales during the holiday trade in December exceeded all
previous records.
Sales of de;Jart:"ent stores were a:Jproximately
4 per cent
larger than in December of last year, and sales of mail order houses, while
slig:1tly smaller tban i:J.
any other year.
1925,
were larger than in the corres .90nding month of
Sales at wholesale, on the otl1er hand, declined in December
and were S'11aller than a year ago in practically all leading lines, exce"?t shoes.
~lerchandise
stocks carried by
is usual in December and '."•ere
de~Jart·:::ent
so~e·Hhat
stores were reduced slightly more tlwn
smaller at the end of the month than in
1925, and wholessle stocks were also sligl:.tly smaller t:1an a year ago.
"reight car loadings showed about the
us~al
seasonal decline in December,
with shi -;;r.nents of all groU')S of co·,.mnodi ties, exci:l:Jt coal and mercnandise in
less than car load lots, in
Prices.-
s~aller vol~~e tha~
~~~olesale ~rices
a year earlie::-.
declined further in December,
~~d
the Bureau
of Labor Statistics index at 147 for that :nonth was at the lowest level since
the middle of 1924.
Prices of agricultural products, which declined consider-
ably in October and November, increased slig.C.tly in December, owing to advances
in prices of grains and cattle.
In the first three weeks of
Ja.~uary
tnere
were further increases in grains, and advances also in cotton, hogs, and flour.
Prfces of non-agricultural 9roducts declined in December owing chiefly to de-
,,
-
)
x-'+7£1
creases in bi tu.~inous coal, clothing :-:1aterials, nonferrous metals, ::::nd buildi!lg
:naterials.
·~:ere
In Jan.U9.ry iron and steel wices
slightly reduced and there
were furti:cr d.ecl ines in bi tumi::wus co::..l c.nd. noafurrous ..'C::to.ls, ·,vhile :;>rices of
cotton goods and coke advanced.
Bank Credit.- At the reserve banks during the four weeks following the
peak of tho seo.sonal curreacy demand., there was a return flow of Federal reserve
notes and oth0r cash from circulation amounting in the aggregate to about
$400,000,000.
This return flow pf currency y;as in ~:.~.bout the saue volume as a
year ago, and, together wi tl1 substantial gold imyorts, was reflected in a
reduction of the volume of reserve
b~~k
credit in use to a level on January
19
lower than at a.YJ.y time since the SU'!tner of 1925.
Loans and investments of member ba!lks in leading cities, after increasing
to a record level at the end of the year, declined shar·9ly in Jarmary.
Com-
mercial loans, which l1ad reached their se'.lSOnal :;>ea'.<: in lJove:'!!ber were in the
:nidc~le
than
of JailW:J.ry about $200,0 1JO,il00 oeloi"! the rr.axi"'-lm figv.re b".J.t still more
~300, 000,000
aoove the le-.rel of a
re·?orting banks also decl L1ed after the
~rear
ago.
~'-J.r"'c
cre<:tse in Dece:nber and were slightly s:naller
Easier money conditions prevailed in the
Loans on securities of the
of t:'ll:'
t~an
~-ear
fo llo•::ing a large i::t-
in Jam::J.ry of last year.
.~1oney
market i::1 January, and rates
on prime commercial paper declined from 4 l/2 to 4 l/4 9er cent, and those on
bankers' acce9t~1ce~ from 3
7/3
to a range of 3
5/3- 3
3/4 per cent.
.
..
RESOLUTION
Adopted. By
X-4783
FEDERAL RESERVE BOARD,
At Meeting January 27, 1927,
WHEREAS, by a resolution ado~ted at a meeting held on June .
27, 1923, and amended at a meeting held on July 30, 1923, the Federal Reserve Board authorized the Federal Reserve Bank of Atlanta
and the Federal Reserve Bank of Boston to establish separate agencies in Havana, Cuba, subject to ce.rtain terms and condi tiona defining the respective rights and powers to be exercised by each
such Federal reserve bank through such agencies;
WHEREAS, pursuant to such authority, the Federal Reserve
Bank of Boston and the Federal Reserve Bank of Atlanta each established an agency in Havana, Cuba, which agencies were opened for
business on September 1, 1923;
WHESEAS, by a resolution adopted at a meeting held on December 22, 1926, and becoming effecti•e on January 1, 1927, the
Federal Reserve Board authorized the Federal R~serve Bank of Boston
to discontinue its agency in Havana, Cuba, and authorized the Federal Reserve Bank of ·.Atlanta to assume, exercise, and perform, in
its own right and on 1 ts own behalf, through its agency in Havana,
Cuba, all of the duties, functions, rights, powers and privileges
previously performed or exercised by the Federal Reserve Ban~ of
Boston through its agency in Havana, Cuba, in addition to the
duties, functions, rights, powers and privileges then being performed or exercised by the Federal Reserve Bank of Atlanta through
· its agency in Havana, Cuba;
WHE:iEAS, effective January 1, 1927, the agency of the Federal Reserve Bank of ~oston in Havana, Cuba, was disco~tinued and
the duties, functions, rights, powers and privileges ,revivusly
yerformed or exercised by the Federal 1eserve Bank of Boston
tl1rou.&h sucl1 at;;ency we:..~e assumed by the Federal "leserve Ban..lt of
Atlanta and have since been exercised and performed by the Federal
Reserve Bank of Atlanta through its agency in Havana, Cuba;
~nEiEAS, it now a)pears desirable to change in some resyects
the duties, functions, ri~ts, powers and ~rivileges to be exercised
by the Federal Reserve Bank of Atlanta through its agency in Havana,
Cuba;
NOW, THEREFORE, BE IT RESOLVED BY THE FEDERAL RESJ.mVE BOA...~,
that, effective March 1, 1927, the Federal Reserve Bank of Atlanta
is hereby authorized to maintain and operate its agency in Havana,
Cuba, subject to the following terms and conditions:
(1) The Federal aeserve Bank of Atlanta is authorized
to exercise the following powers in Havana, Cuba, through such
agency:
(a) !'o bu.;r, sell and collect prime bankers' ac'and prime bills of exchange, wnich accept-
ceptances
-
.
- 2 -
X-4783
a.>ces a..."'ld bills are :::>ayable in dollars, arise out of
actual imDort or export transactions, bear the signatures of two or uore reS)Onsible parties, bear a satisfactory bank endorser::ent, have not more than 90 days to
run, exclusive of days of grace, and are secured at the
time of :9urchase by s:1bying documents evidencing the
actual import or export and the actual sale of goods
and conveying or securing title to such goods;
(b) To buy from, or sell to, the Re~~blic of Cuba
or any banking institution doing business in Havana,
Cuba, cable transfers to or from any banking institution located in any city in the United States in which
there is located a Federal deserve Bank or a branch of
a Federal Reserve Bank, charging therefor a commission
at the rate of $1.00 per $1,000; Provided, that no such
cable transfer shall by its terms be for credit to the
account of any thir~ party;
(c) 'lo pay out Federal Reserve notes or other currency of the United States in such denominations as may
be demanded in :'_)ayment of cable transfers to Havana, or
in payment of cable transfers, bankers' acceptances, or
bills of exchange purchased in Hav&>~, the kinds of currency :paid out to be discretionary with the agency;
(d) To accept any and all kinds ~~d denominations
of United States currency, including Federal ~eserve
notes, in ~ayment for cable transfe~s. bankers' acceptances, or bills of exchange sold by it in Havana;
(e) To make direct exchanges in like denominations
and amounts of new or fit currency for mutilated or,unfit currency tendered by the Treasury of the Renublic of
Cuba or by any banking institution doing business in
Havana, charging for such exchanges a commission at the
rate of $1.00 per ~1,000; and
(f) To exercise only such incidental powe:'s as
shall be necessary to the exercise of the above powers;
(2) The maintenance and operation of such agency in Havana,
Cuba, by the Federal Reserve Bank of Atlanta a..."'ld the exercise of
the above powers through such agency shall be subject to such
ch~1ges and such furt~er.rules and regulations as the Federal
J.eserve Board may prescribe from time to time;
(3) ~1e Federal Reserve Board expressly reserves the right
to revoke at any time its consent to the continuance of such
agency by the Federal aeserve Bank of Atlanta, to require the
discontinuance of such agency, or to authorize the establislLrnent
of new agencies w:'lenever in its discretion it considers it desirable to d~ so;
"
...
-3-
X-4733
BE IT FURTRER RESOLVED that, effective March 1, 1927, this
resolution shall supersede the resolution on this subject adopted
by the Federal Reserve Board on June 27, 1923, and amended on
July 30, 1923, and the resolution on this subject adopted by the
Federal Reserve Board on December 22, 1926.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJZCT:
Dear
X-4784
January 29, 1927.
Eligibility of Certain Notes Secured by Adjusted
Service Certificates.
Sir~
One of the Federal Reserve Banks recently addressed the
Board vri th referenc.e to the eligibility for rediscount of a
note secured. by an adjusted service certificate upon which interest had been collected in advance at a rate which in terms
of true interest would brL1g the yield U'Jon the note ':'Tithin
the limitations prescribed by the World War Adjusted Compensation Act•
While the question raised arnarently required an interpretation of the :Board. 1 s Regulations the correct inte!1>retation of the Regulations necessarily depended UDon the 'l_)OSi tion
that the Director of the United States Veterans Bureau ~ould
take in the event that notes representing loans made to veterans under the circu:nstances described 1Nere presented to him
for 'l_)ayment tL~der Section 502 of the World War Adjusted Compe:1sation Act. In vimT of this fact, the :Board. recnJ.ested the
Director of the Veterans :Bu.reau to acvise it 1"hether ')aymon t
would be made on the notes described in the event they ,.,ere ':)resented to him, and the Director replied. that the 1:etera:1s Bureau
will honor such notes and ma.'tce redemJtion unon •")roner '?resentation.
In view of the position of the Director of the Veterans
Bureau, the Board is of the opinion that the notes descri1)ed are
eligible for rediscount by Federal Reserve Banks.
Very truly yours,
':7alter L. Eddy,
Secreta.J:·y.
TO GOVERNORS OF ALL F. R. BAinCS EXCEPT PHIL'\.JJELPHIA.
•
X-47155
No. 122.
In the Supreme Court of Arkansas, Jan. 24, 1927
Rainwater, Bank
Com~issioner
Vs Federal Reserve Bank
of St. Louis.
SI!.ITH, J.
B~~k
The Little Rock Branch of the Federal Reserve
of St. Louis, here-
inafter referred to as the Reserve Ban\:, filed a com}laint which contained the
following allegations.
The Reserve Bank is a cor")Oration created by an Act
of Congress a"?7"lroved December 23, 1913, "?O?Ularly
as the Federal Reserve
~mown
Act, and among its functions is the collection of all items
~ayable
in its
district when received fro::r. member ba'1':::s and other federal reserve banlcs.
Peoples Bank of Ozark, Arkansas, is a
Arkansas, and was engaged in the
cor·~oration
b~'1king
The
created under the laws of
business at Ozark, Arkansas.
Under
the Federal Reserve Act all national banks are required to become member barnes
of the Federal Reserve System, and all state
b~'1ks
and
tr~st
companies which
are eligible may become members, and all member banks are required to clear at
:par items drawn on
~r
paye.ble at their respective banks.
Nonmember banks
voluntarily agreeing to do so are permitted to enter into an agreement with
the Federal Reserve Bank to clear at :par all items drawn on or :payable at such
nonmember banks when sent direct to them.
The Peoples Bank was not a member of the Federal Reserve System, but
was a party to an arrangement existing between nonmember banks and the Federal
Reserve Bank and branches whereby tho Federal Reserve Bank of St. Louis agreed
that, through its Little Rock Branch, it would send through the United States
Mail direct to the Peo"?les Bank and other nonmember banks, as the Federal Reserve Bank's agent, for collection and remittance, all items drawn on or payable at such nonmember banks, and that remittances for collections could be
!~o.
X-4735
122 - 2
made either by the shipment of money at the expense of the Federal Reserve Bank,
or by excnange acceptable to the Federal Reserve
B~k.
It was a part &f the
agreement on the part of the Peoples Bank (and other nonmember banks) that it
would, as agent of the Reserve Bank,
~resent
such items as were drawn on it to
itself for collection and if the drawer had sufficient funds on hand to entitle
the
p~yment
Bank, and
of she draft, to pay it to itself as collection agent of the Reserve
lin~ediately
remit the funds so collected,
~•d
in the case of the
Peoples Bank the agreement was that the remittance should be made to the Little
Rock Branch either by shipment of money, or by furnishing satisfactory exchange,
and would cause to be protested and return all items it was not willing to pay
. or could not collect.
The arra...'lgement recited had been in operation for some time, when on
January 20, 1926, the Reserve Bank forwarded to the Peoples Bank, endorsed "for
collection and remitta..TJ.ce, 11 its certain cash letter containing items aggregating
The Peoples Bank collected $2,502.46 worth of these i~ems, and on
January 21, 1926, forwarded to the Reserve Bank its draft drawn on the Bankers
Trust
Co~pany
the Reserve
of Little Rock for the amount collected.
Ba~~
On January 21, 1926,
forwarded to the Peoples Bank, endorsed, "for collection and
remittance," a cash letter containing items aggregating $2,503.51 of which the
Peoples Bank collected $2,453.76, and on January 22, 1926, forwarded to the
Reserve Bank its draft for the amount of the collection on the Grand National
Batik of St. Louis, Missouri.
In each case the uncollected items were also
returned.
The Reserve Balli<, upon rocei?t of tho respective remittance drafts,
duly presented the same to the Bankers Trust Com?any of Little Rock and the
Grand National Bank of St. Louis for payment, and payment was refused and the
drafts ?retested.
In the meantime the ieoples
~ank
had been closed by order
rlo.
122 - 3
of the State l3anl::::b.g Dcpart::cnt a:1d ')laced in its
ln~1ds
for liquidation.
At tho time these i toms •,;ere collected by the Peo]les
and makers tnereof had on deposit
them, and the Peoples
B~~
~ith
the
Peo~les l3~1k
l3anl~,
the drawers
funds sufficient to pay
had sufficient funds in its vault and with solvent
corres?ondents to have paid the items, although the account of the Peoples Bank
with the Grand National
After the
Ba~k
B~~
was at the time overdrawn.
Commissioner had reconciled the various correspondent
bank: balances as ef the date of closing on January 22, 1926, the date on which
the
Co~issioner
took
cl~rge
of the Peoples
Dan~,
amount of balances due from all banks amounted
t~
it was found that the true
$7,738.99, and that the cash
in the vault of the Peoples Bank amounted to $g,155.59.
collection of the
ita~s
At no time between the
contained in the cash letters referred to and the time
the liquidating agent took charge had the cash in the
~eoples
Bank been less than
$8,155.59, :10r the balances with solvent corres?ondents been less than $7,738.99.
T:'le total assets of the Peo)les Ba.."'lk at the do.te of closing amounted to
374.37.
$197,-
Its liabilities were not sho·sn.
The Reserve Bank, acting on the request of and as the agent for its
i::1::nediate endorsers and the o·.mers of the res·:)ective items, filed a claim with
the
Baru~
Commissioner in the manner required by law and prayed that the claim
so filed be allowed as a preferred claim.
The claim was approved by the :Sank
Com:nissioner as a common claim, leaving the court to detormine whether the claim
is a
prefere~tial
one.
It was. stipulated that the facts as recited in the complaint were true,
and, in addition, it was furtaer stipulated that the items involved in the cash
letters referred to in the complaint were items drawn Gn or payable at the
Peoples Bank, and were ccllected by charging the accounts of the makers, and
that there were no bills-of-lading or similar
Digitizedthe items.
for FRASER
inst~~~ents
accompanying
ar.y of
No. 122 - 4
Ul?on tho facts so sti-r:m.lated to be trJ.e it was <:>r.::tyed that the court
decree that the clair.1 of tho Reserve Ban.. is entitled to a preference, and the
l.c
Ba::1k:
Co::!!~:1issio:J.er
be directed to allo;7 it as such.
prayed, and the Bank
Co~issioner
has
The court granted the relief
a~pealed.
It is first insisted that the Reserve Bank was without authority to
sue, for the reason that a statute of this State requires that every action
must be prosecuted in the name of the real party in interest (Section 1039 C. &
M. Digest) except as provided in certain other sections which it is insisted
do not apply.
We think, however, that the Reserve Bank had the right to sue.
Reserve
Baru~
had been constituted the agent of the owners,
a~d
The
was the legal
holder of the various items, all of which had been accepted and an abortive
attempt had been made to pay.
The agency was not discharged until the purpose
ef the agencJr had been acco::1plished, •r-hich was to make the collections and to
re::1it the
~roceeds.
Section 1092 C.
&
M. Digest provides that ".An executor, acL-ninistrator,
guardian, trustee of an express trust, a person with whom, or iri whose name, a
csntract is made for the benefit of a..'1other, or the •tate or any officer thereof,
or any perton expressly authorized by the statute to do so, may bri!l.g an action
without joining vri th him the person for whose benefit it is prosecuted.
think the relation of the Reserve Bank to
t~e
We
items sued on is such under the
facts stated as to make the statute quoted applicable.
The owners ef the respective items cannot recover from the drawers
direct, for the reason that the Peoples Bank has collected the amounts thereof
from the drawers and has charged to them their canceled ahecks duly marked paid.
Loth V. Mothner, 53 !rk. 116.
Nor
c~•
the owners of these claims after their
allow~•ce
by the B~k Co~~issioner ~aintain
suit thereon, for they have expressly
No. 122 -
5.
c.ut~:orized t-:~is
X--4735
suit to be filed.
b~-
tLe Reserve B:::'llk for
t~~eir
In the case of Second lhti onal B.::u.1k of Bc.lti:a:ore V.
Ar~c.
benefit.
B~'1l{:
of Alna, 99
336, t:1e facts were tl:at tJ::.e Judge ; :achine Cm::po.ny deposited to its account
r·itl:. the Second National Bank r.f Bcltimore a dr:1ft, with bill-of-lading atto.cLed,
on tJ::.e
Company.
AL~a c~~ing
The
Bilti~ore b~1k
sent the draft, with the bill-
of-lndi:1g attac:1ed, to tl::.e Bc:n:{: of Alma for collection, <7hich last-named bank
surrendered the bill-of-lading without collecting the draft.
brought suit against the
Ba~k
The Baltimore bank
of Alma for the face value of the draft, and, among
other defenses, it was insisted that the Baltimore bank had no capacity to sue.
It Tias tl1ere s~id:
11
It (the Baltir:lore
ba...~"!.c)
had the right to sue in its own
na-:2e for any default of the defendant (the Ban"!.c of Al1:1a) by reason of which any
lia-bility was incurred by it to the Judge !lachine Com;:xmy, and it also had the
right to institute suit against the defendant for any loss which it caused by
reason of a bre2ch of duty
co~nitted
by it in collecting the draft, because the
title thereof had been actually transferred to it, although for collection, by
the Judge
H~chine
Companyu.
Upon the question of the right to preference respective counsel have
filed elaborate briefs, which review many authorities,
It may be aaid that
these authorities are in hopeless conflict and it is impossible to reconcile
We do not review these cases because in the case of Darragh Co. V.
Goo~an,·
124 Ark. 532, we anno1L1ced the principles which are controlling here.
Two cases were involved in that appeal, but as they presented the same legal
questions they were disposed of as a single case.
It will suffice, therefore,
te state the facts in a single one of them.
The First National Bank of Atchison, Kansas, sent drafts with bills-of
lading attached on
Darragh Com,any of Little Rock to the State National Bank for
CH
.J~,
:y~,-4735
No. 122-6.
collection.
This bonk, of wl1iC:1 Darragl" Co::.1pany was a custor.ler, present.ed t.he
drafts on June 15, 1914, and the;,r were paid by
·:.:r.a·~ company~
s
~becks
on the
collectill€: bank, vrhich charged the cl1ecks against ·c;he account of the payer and
'lent its
drt:~.fts
.::ollection.
on the National :Bank of Com:.1erce
I~~ediately u~on
receipt of
~f
St. Louis to cover the
th~ excl~ge
it to St. Louis for collection, but before it reacl1ed
Bank had
sus~ended
Louis barik
bec~se
the Kansas bank forwarded
tl~re
the State National
business and nay.nent of the draft was refused by the St.
of the failure of the drawer.
During the day and before the close of business on June 15, 1914, the
State National Bank had on hand over $32,000.00 in caSh, and
w~en
it closed its
doors it had $7,000.00 in cash which went into the hands of the receiver who
took charge of the assets of the bank.
This sum was the lowest amount of cash
the defunct bank had on hand at any time after the collection of the drafts.
The Chancery court held tl1a.t the collection constituted a trust fund and ordered
it paid out of the cash going into the hands of
t~:e
receiver to the exclusion
of the general creditors of the bank.
It was contended there, as it is here, tl-.oat the transaction detailed
created only the relation of debtor and creditor, and that the collection did
not becoce a trust fund because the funds of the bank were not augmented.
It
was insisted t::at the Federal Courts had so beld and that we should follotr the
decisions of the Federal courts so holding.
These contentions were not sustained.
Jnd in the opinion holding to
the contrary it was said that While a general deposit of money in a bank passes
the title imnediately to the bank and establishes the relation of debtor and
creditor between the bank and the
for collection
~erely,
de~ositor,
yet where a bank receives a draft
it is the agent of the remitter, drawer or forwarding
•
bank, and takes no title to the pa1)er, or the -,roceeds w!ien collected, but
Uo. 122-
7·
holds the saoe in trust for the :pi.l.rposo of remitting it.
It was there reci tod that t!1e drafts were sent for collection only and
with t.l.e expectation
t~-:a.t
the proceeds of tho collection should be rc:u tted iLl-
r:1ediatoly upon tl:e receipt thereof by the collecting bank, and that there was
notJ;.ing to indicate t:':lat the ';)arties intended tl-1at t:1e drafts, or t:1e proceeds,
should not re:nain the '9roperty of t!'!.e o•.vner, and t: at suc.'l;. being the ease the
nroceeds of the collection did not
~or
beco~e
the
":)ro!)ert~·
of the collecting bank
establish the relation of debtor and creditor for the amount thereof between
it f!.nd tho drawer ban.'tc, but t:mt the relation created was tl".at of principal and
agent, and t:1.at tl:.o agenc;r could )e dischu.rged only by rc.:ni tting to the principal
the collection ::1a.de, a:1d
t~,u.t
tb.e age:1t b£::.nk having failed before
t!l~
pa.y:::1ent
of its cnock on the presentation thereof in duo course of business for payment,
the drawer was entitled to the proceeds of the collected draft out of the defunct's ba."l.'lc 1 s cash going into the l1ands of t:1e receiver in preference to the
general creditors.
It will be remembered t:1at it appears from the agreed statement tf
facts and the stipulation filed herein t:i1at the items were forwarded to the
Peoples Bnnk "for collection and remitta11ce" of
t~1e
proceeds collected; that the
drawers of the items here involved had sufficient balances r.ith the Peoples Bank
to authorize the items to be charged to the account of the respective drawers,
and this was done, thus paying them, and that at the
ti::~e
these char€es were
made the Peoples Bank had sufficient funds available to honor the drafts, and
that sufficient of its funds
we~1t
into the hands of the Be.n.'tc Corw.1issioner as
receiver to '!)ay the:o, and t:::at at no ti"!lc bct111ecn the collection and the time the Bank Conwissioner took
the
itc~s
involved.
cr~rgc
of t2e Peoples
B~~k
were its funds less than
lifo.
122 -
X-4765
3.
Tl1.e case of Federal Reserve Bn:ll:: of St. Lo-uis V.
Finance Co"'l.':",issionor, 232 S. W.
·:.'hich does not differ in
case, and the
Su~reGe
any
l~ills'?D.ug:h,
St::tte
706, c.rosc ou.t of·o.n agreed sto.tc:::ent of fa.cts
r:,.aterio.l resrycct fro:n the fc.cts i::.1 t:'-e instant
Court of Hissou.ri l:elcl t:·1at the Reserve Be.nk was entitled
to have its claim ag:dnst the c:efunct bank p:dd as a preferential one, for tl1e
reason that the receiver took the funds of the
def1L~ct
baik impressed with a
In so hold the court cited as authority therefor our case of Darragh
trust.
V. Goo&nan, supra.
Other courts in announcing the same conclusion under sioilar facts
which have cited the case of Darragh V. Goodman as authority for so holding are:
In Re Messenger V. Carroll Savings & Tr~st Co.
157 N. W. 545, 193 Iowa 603;
Goodyear Tire & Rubber Co. V. Hanover State Bank,
Xesl
v.
204 Pac. 994, 109 Kans. 776; Federal Reserve Bank of
Hanover State Bank,
Riclrmond V. Peters, Receiver
Ricl!mond V. Behanan,
Louis V.
S. W.
204 Pac. 992, 109 Kans. 772;
123 S. E. 379, 139 Va. 45; Federal Reserve Bank of
127 s. E. 161, 141 Va. 255; Federal Reserve Bank of St.
~igley, (M~)
254 s. W. 164; Bank of Poplar Bluff V. Millspaugh, 275
579 (I'o.); Hawaiian Pineap':'le Co., Ltd., V. Brown 220 Pac. 1114 (Montana);
In Re City Batik of Dowagiac,
156 Fed. 250 (S. D.).
It is insisted for the reversal of the decree of the court below that
it was an
ac~
of negligence on the part of the Reserve Bank to constitute as its
agent for t:1e collection of the i te::>.s ti1e Peoples
Ba~1lc,
the bank upon which they
were drawn, and that authority was only conferred to collect and remit for those
ite~s
in money, and not in
exc:~nge.
In the Darragh case the
re~ittance
for the collection was made in ex-
change, and not in cash, and on tlUlt feature of the case the court, after stating
that it is unifor.mly held
t~~t
an agent having for collection obligations due to
his principal can receive only money in payoent unless otherwise directed, and
No. 122 - 9.
that this principle applied to banks holdinG drafts for collection, said;
"The paynent by the drawee of the draft of the anou::1t thereof by t}1e delivery of
.its check therefor against his account in the collecting bank and the charging
of the ar:1ount against his account, constituted to all intents and pu.rposes a
payment in cas:1 of the drafts,. tl1e check being oerely the vehicle of transfer
•
••
of the cash."
Continuing the discussion of this feature of the case it was said:
"Certainly there is no necessity for the drawee of the drafts to take its check
to i.ts bank, the collector, and prftsent it and receive the money and hand it
baCk to the bank in
p~ent
of the draft.•
It is stated in one of the briefs, and conceded to be true in the
other, t:1at the 1925 report of the Federal Reserve Board's Statistical Department Shows that the lederal Reserve
b~~s
collect on an average each month aP-
proximately 65,000,000 itea., acounting to $20,500,000,000, in items drawn on
or payable at 26,000 different
b~s
and trust companies.
It is quite apparent,
therefore, that if all remittances were required in cash, the entire volume of
the currency would not suffice, even though all of it were kept in transit.
It may be said that the rule announced by this court, that it was
negligence for a barik receiving for collection a clwck or draft payable in
another city or town, to send it for collection to the barik upon whiCh it was
drawn, has been changed under section 14 of Act No. 496, Jets 1921, page 514, •
Fa~ers
& Merchants Bank V. Ray, 170 Ark. 293.
This act was passed prior to the transactions out of which this liti-
gation arose, but our holding would not be different if there were no such
statute, if it be true that the relation between the Reserve Bank and the Peoples
Bank was that of Principal and agent, and not that •f O.ebtor and creditor. The
cases wniCh have followed the Darragh Case make no
~ch
distinction· in deter-
X-4735
No. 122 - 10.
mining whether there is a
~refcre~ce.
The controlling question is not how the
i tern was forwarded and presented, b :.t whetl10r the drawer had sufficient balance
against v-mich the i terns were charged, and whether the bank so chargj.zlg them had
sufficient funds WhiCh wont into the hands of the receiver upon its failure to
pay these and other
si~ilar
itecs.
In the case of Federal Reserve Bank of St. Louis V. Millspaugh State
Finance Conoissioner, to Which we have already referred as being identical with
the instant case, the court said: "When the relation existing between two banks,
as in the case at bar, is that of principal and agent, the funds collected by
the collecting bank for the forwarding bank become tmpressed with a trust in
favor of the owner of the item collected.
This is true, although the item col-
lected be one drawn on the collecting bank, and it is collected by charging the
item against the drawerfs account, or if it be an
ite~
bank an~ it is collected by a check dr~~ on it.
The tr~st in either case follows
the
f1L~ds
into the hands of the receiver - in this
sioner - although the collecting
ba~~
payable at the collecting
inst~~ce,
the finance commis-
may fail before remitting the proceeds
collected, provided the following conditions exist: (1) T:w.t the i tem:,was forwarded for collection and remittance of tne collected proceeds: (2) that the
Drawer of the cheCk had a sufficient balance with the collecting bank to authorize
the charging of the item to his account: (3)
t~~t
at the time the Charge was
made the collecting bank had sufficient funds available to honor the cheCk;
(4)
that the bank which failed had at the time the receiver took charge of same
sufficient funds on hand to pay the amount it had collected.
(Citing .Ailthori ties)"
It is stipulated that the conditions there reci.ed exist in the instant
case.
'No. 122 - 11.
If, vihen the i. te:::1s here involved haG. been accepted and charged to the
respective drawers, ths Peoples 3ank had shipped cu:.:re,ncy, instead of issuing
excl'..ange, but had closed its doors before the w0:1ey was actually delivered to
the Reserve
E~~k,
the right of the latter to receive ru1d appropriate the money
would hs.rdly be questioned, not alo:w.e because the deliver;;r to the carrier was a
delivery to the consignee, but for the reason also that the consigning bank had
segregated so r.mch of its assets to the discharge of its agency- had thu.s designated the suo renitted as a
tr~st
rand belonging to its principal.
In the Hillspaugh case fran •rt:ich we have quoted the court said:
"F-arther than tl1is, the creation of the relation of Principal and agent, under
the original agreor:1ent, pt· tho ter;:::s of ··.hich t:·;.e proceeds of the funds collected
vrere to be for•nerded to the principal, in currency or acceptable exchange, did
not change the relation to that of debtor and creditor by reason of an attempted
in
re~itt&1ce
by the
Ea~~
uncollcctab~e
of Oran on
the collection
~ade,
tl~
paper.
The sencin[, therefore, of
exche~ge
drafts
First National Eank as an attempted remitt&1ce for
was indicative of a purpose to segregate or set apart, out
of the funds in the First National :Bank, the ar.1ount represented in the drafts
under an assignment for the benefit of the Federal Reserve :Sank, the respondent.
(Citing Cases)."
So, here, the Peoples Bank had, by accepting the items, assumed the
trust relation of an agent, and was bound, as an incident to the agency, to
remit either in cash or exchange the sum collected.
breac:1 of trust not to l1ave re:oi tted.
It would have been a serious
The Uoney vras not reci tted.
It remained
either in the vault of the bailie or in the hands of its correspondents, and was
taken over by the :Sank
set out above.
Co~issio~er
as receiver, as appears fro:o the stipulation
fJf)
}Jo. l22 _, 12.
The
X--4-(6?
cou::.~t
belo71 r:as,
t~.:.eroforo,
correct in :1oldin.c
t~-c.at
the clai::1
of the Reserve Bank should be allo-.ved as a preferential one, a.'1d that decree
is affirr.:ed.
Fort Sr;;i th
Attys for Ap)ellant
Jas. G. McConkey
Atty. for Ap·;ellee.
•
X-4787
TREASURY DEP .AR TMENT
Office of the Secretary
WASHING'roN
February 4, 1927.
The GI:Svernor, ·
Federal Reserve B~rd.
Sir:
You. are hereby advised that the DepartJOOnt has referred to the
Disbursing Cler~, Treasury Dei~Q.'t' ant, for pa.ytnent, the account of the Bureau
of Enc;ra.ving and Printing for prepS!"ing Feder.:.l reserve notes during the
period J::.nu::..r;r 1, 1927, to Janu&:l.ry 31, 1927, amounting to $1~6,518, as follows:
I
Feder~l
Boston
New York
Philadelphia.
Cleveland
Richmond
Chicago
Kansas City
Dallas
San Francisco
$5
200,000
300,000
250,000
100,000
300;000
100,000
250,000
1,500,000
Reserve Notes, Series 1914
$,100
$10
$20
350,000
5,000
350,000
200,000
150,000
250,000
200,000
25,000
50,000
100,000
100,000
200,000
100,000
50,000
50,000
50,000
1,400,000
800,000
25,000
5,000
££
3,730,000 sheets C $36.60 per M
Total
555,000
850,000
400,000
576;000
150,000
600,000
250,000
50,000
300,000
3,730,000
$136,518.00
The charges against the several Federal Reserve Banks are a.t:i
follows:
:Boston
New York
Phi lad el phi a.
Cleveland
Richmond
Chicago
Kansas City
Dallas ·
San Francisco
$ 20,313•00
31,110.0()
141~0~00
21.045.00
5,490.00
21,960.00
9,150.00
1,830.00
10,980.00
$136,518.00
I
The Bureau appropriations will be reimbursed in the above amount
from the indefinite a.ppropria.tion "Preparation and. Issue of Federal Reserve
Notes, Reimbursa.b~e", and it is requested that your boat:"d cause such indefinite appropriation to be reimbursed in like amount.
Respecff'ully,
S. R. ·Jacobs,
Deputy Commissioner.
•
X-4788
ST.ATE~GrTT
FOR THE PF.ESS
Released for nublication in
the morni:1g uapers of Thursday,
February 10, 1927.
The Federal Reserve Board announced today the apnointment of l.Ir .. Gates
W. McGarrah, of New York, as Class C Director and Chairman of the Board of the
Federal Reserve BB.l1k of Uew Yorl..: and Federal Reserve Agent •• L1 order to allow
Mr. McGarrah time to. sever his existing busL1ess connections and to attend the
spri::1g meeti11g of the General Cou.."1cil of the Reichsbank, of which Mr. McGarrah
has been the ·American member under the arrangement set up by the so-called Dawes
Plan of 1924, the Board
ha~
fixed
l~y
first as the date when Mr. McGarrah will ac-
tively assume the functions of the position to which he has beon appointed by the
Board.
In connection
'~ith
this appointment the Federal Reserve :Soard gave out
the following statement:
"There is no more responsible or important position in the Federal Reserve
Ba~1k
:Sa~~s
than that of Chairman and Federal Reserve Agent at the Federal Reserve
of Uew York.
The Chai rr.nan of. the :Soard is, in a special sense, the guarantor
to the Federal Reserve Board and to the public of the good fu.:."1ctionLlg of his
ba..'1k.
!n his capa.ci ty as Federal Reserve Agent he is the "official representa-
tive of the Federal Reserve
11 The
~oard 11
at his bank.
position is, therefore, not only one of broad and great respon-
sibili ties but o:..1e which calls for exceptioilO.l qualificatio:1s.
the Federal Reserve Act the Chairman must be a
ma~1
But more than skilled banking jud@ncnt is, in the
•
of
11
By the terms of
tested banki:1g experience."
o~inion
of the Federal Ro-
{~~0
..... __. 'l: ....
X-4788
serve Board, necessary to the fullest discharge of the rcsnonsibilities
which the Chairman and Federal :ResoM'e Agent is charged.
by nature is qualified for the assumption of
~ith
He should be a man who
res~on~ibilities
public in their
character, in order that the public interest in tho 11ray in which the Federal rcservo banks are operated may bo brought effectively to bear upon the bank's every
action and attitude.
"The position calls for a combination of
in the same individual not always easy to find.
~lifications
and qualities
There are, however, in most
.American colllJlWl.i ties men who arc outstanding figures in the banking ':rorld and,
in addition, enjoy the highest repute for integrity, character and
~ublic
spirit.
"The Federal Reserve Board feels, after a careful canvass extending
over a period of two months, that it has been very fortunate in succeeding in
bringing to the chairmanship of the Federal Reserve Bank of New York a man of Mr.
McGarrah's qualifications.
Mr. McGarrah's experience as a banker in New York ex-
tends over a period of some forty years.
At the time of the organization of the
Federal Reserve System in 1914, Mr. McGarrah was President of one of the largest
commercial banks in New York City, The Mechanics& Metals National Bank.
He later
became Chairman of the Board of that institution, and when it was merged with the
anase National Bank about a year ago he became Chairman of the Jxecative Commdtteo
of the merged institutions.
J$
one of the country's outstanding commercial bank-
ers, Mr. McGarrah's interests brought him into contact with every portion of the
United States.
F~
bankers in New York City or elsewhere have his intimate k1ow-
ledge, gained. on the spot, of every section of the United States •
.liThe high regard in which Mr. McGarrah h held by the banld.ng conmmi ty
of the State of New York is evidenced by his election in 1923 by the member banks
of the Neu York Federal Reserve District to the position of Class A Director of
the Federal Reserve Bank of New York.
This position Mr. McGarrah held for a term
X-4788
-3-
of three years under the systo:-:1 of rotntio:1 observed by the bn:Jks of this District
\7i th respect to their banl::L1g repreco:.1tn.ti ves o:..1 thEl :Board of the No'7 York
"In 1924 under the arro.:1gernont set up by the Dp.wes
Council for the Reichsbank: having foreign representatives
selected to be the American me;nber.
0:1:
Pln::~
Ba~lk.
for a General
it, Mr. UcGarrnh was
This position is i:1 the nature of a:1 inter-
national trusteeship of tho highest character and in addition calls for the exercise of broadly based banking a;.1d fLw.:1cial judgments.
important European work has given
Mr.
IHis connection with this
McGarrah rare facilities for
sup~lementing
his experience as a banker in the United States with an intimate knowledge of
economic and financial conditions in Europe and the workings of leading European
banking and financial systems.
11
Mr. McGarrah's credentials, derived as they are from his wide and
varied experiences, his high personal character, and his public-mindedness are of
the best and give every promise that the Board, in bringing him into the chairmanship of the largest of the twelve Federal reserve banks &1d the most important
Reserve banking institution in the world today, is rendering a great service not
only to the Federal Reserve Bank of New York but to the whole Federal Reserve System.
The care and deliberateness with which the Board has proceeded in filling
this position is in pursuit of its policy, as
o~portunity
offers, of giving to
the "OUblic interest in the Federal reserve banks through the three Class C Directors
an~ointed
it can find.
by the Federal Reserve Board, the best and ablest renresentation
It was with this
pu~ose
that the Board recently
invited~~.
Owen
D. Young to relinquish his position as a Class B Director of the Federal Reserve
Bank of New York and
acc~t
appointment from the Federal Reserve :Board as Class
C Director of that institution and Deputy Chairman.
"The Board was led to appoint Mr. Young by substantially the same
sort of considerations that led to its selection of Mr. McGarrah, Mr. Young 1 s
X-4788
position in the oo.IIlllli;Ulity bei!'Jg 41vt only that of a business head of outstnnding
emine::~ce
but that of a man whose interest and abilities are more and more being
sought in activities and trusteeships of a public nature.' Such are, in a peculiar
degree, the Class C directorships of tho Federal Reserve Ban.l.cs. 11
'
.
'
'
:102
FEDERAL RESERVE BOARD
X-4739
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
Fcbru~ry
9, 1927.
Dc:-.r Sir:
T:10re is ::l::-.::1G.ed you hcreVTi th for your L1for:::?.tio:1, co..-)y of D. letter n;.1d enclosure received
fron t:10 Tre:J.sury Dcp::>.rtne~1t, n.dvisin;; tJ.1a.t t::e
insur:1~1ce r:1te coverinc; shipr:1ents of noney a:.1d
securities by re~istered =D.il under insurnnca
policies ~wld by the Treasury Depart::1ent will be
reduced fron 4 1/2¢ to 4 1/4¢ per eac:1 $1, 000,
effective Ec.rcl::. :, 1927, ,:;~.nd ndvising further of
an al-:J.end:-:-.ent to tho ccmcellation clo.use in th!:3
insurance policies coverint;, suC:1 s~1ipoents.
Very truly yours,
J. C. Noell.
Assistant Secretary.
(Enclosures)
TO GOVERlJORS OF ALL F. R. :Blll\T"!.:S.
TR S:~&UR Y DEP;:ill THE..-'{T
W.~SHINGJD
N
( c 0 p y )
X-4739-a
February 1,
•
1927.
Tho Secretary,
Federal Reserve Board,
WashinGton, D. C.
Sir:
Thoro arc enclosed ::orcwi th several co"9ies of circul~r notice issued this d:ty to t!10 "9rinci"pal officers of tho Trc::t.sury Do:>art:1ent and
others concerned, relating to t~c insurQnce ~olicies ~eld by the Treasury
Dopn.rtnent covering s!:-.ipr:wnts of noncy and securities by registered 4!ail 9
notifying all parties interested of a reduction in tho rate fron
cents
to 4.i; cents per each $1,000, con·::encing ~!.n.rc:: 1, 1927.
4!
Such notice nlso contdns o.d.vice of c:n ::tl terntion in tho c::mcellation
clause in said "90licies whereby oi tl·.er p2rty 'X'.::;y c:·.ncel the policy by c;i ving four r:ont:1s (120 d.[';;y·s) written notice tLercof to tho other but s:1.icl
c:1;.1ccllation s!:::.ll be without -prejudice to any ris~<: tl:cn pending.
It is requested t:,::.t all Federal Reserve :Bo-.'1C.-:s 1:1.:.1d br.:1.nch ba.nlcs be
notified of this cha.'1ge in the r9.te c.nd t:J.c :r.oC'..ification to the policies.
Sufficient copies of the notice are enclosed for tl1is -:mr"?ose.
By direction of the Secretn.ry:
Respectfully,
F. A. BIRGFELD,
Cl1ief Clerk.
Enclosure
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-4791
February 11, 1927
SUBJECT:
Expense, Main Line, Leased Wire System,
January, 1927.
Dear Sir:
Enclosed herewith you will find two mLneogra-oh statements, X-4791-a and X-4791-b, covering in
detail operations of the rr:ain line, Leased Wire System, d:J.ring the month of Januar;;r, 1927.
Please credit the amount "?a.yable by your
bank in the general account, Treasurer, U. S., on
your boo·ks, and isst'.e C/D Form l, ~!atio~1al :B::mks,
for account of 11 S::1lDries a"'ld E:A'"7!enses, Fecleral Reserve Board, S0ecial Fund", Leased Wire System,· sending du-:)licate C/D to the Federal Reserve :Board.
Yours very tr-:.1ly,
Fiscal Agent.
Enclosures
TO GOVERNORS OF ALL F. R. BANKS EXCEPT CHICAGO.
'
x-4791-a
REPORT SHOWING CLASSIFICATION AND 1TUMBER OF WORDS TRANSMITTED OVER Y.AIN LINE
OF THE :E'EDERAL RES:ERVE LEASED WIRE SYSTEM :BUR THE MONTH OF J.AWJARY, 1927
Words sent
by New York
Business
revorted
by b a.."lks
J'rom
31,491
136,609
37.553
74 2~0
43,097
5).472
93,600
72,611
36.9'57
79.935
65,652
Boston
New York
Philadel"J?hia
Cleveland
Richmond
Atlanta
•
Cl:ic.s~o
St. Louis
Minnea-polis
-x~sP,s City
Dallas
San Francisco
~
.I
Io6.SZ5
Total
81~4. 126
F. R. Board
Total
Percent of Total
chargeable
to other
F.R. Bairks(l)
495
453
1,703
2,560
3,266
2,50;1.
2,125
1,937
2,215
4,491
2.465
24.517
·Total
31,956
136,609
3g, oln
75.942
50,657
55,73t.
101,401
]4,733
35,894
52,153
70,143
10~.340
Treasury
De"?artment
Business
3,3g5
3,922
2,991
3.433
3.332
3,550
4,529
3,913
1, 776
3. 761.
2,153
War Finance
Cor")or.stion
3usL11eSS
42,410
193
2,245
100.00%
65,726
5·65:.
193
.02%
1,1
-
2ES,601
132,494
35,050
16.04
4.24
72,50~
J.-'
~.362
2~.316
Percent of
total bank
"!!rsinAs.,{*)
·- .. ,~. ...... ~
g.J6
47.325
54,$33
96,872
70,526
37, llS
75,392
67,990
103.915
lq~
366,643
2~3.602
lil'et Federal
Reserve Bank
Business
5·73
6.65
11.73
S26,o4o
210.266
1,096.326
3~46
~-57
4.49
9.49
5.23
12.'22
100.00%
94.33~
(*)
These percentages used in calculating the pro rata sl'-.are of leased wire expense as shown on the
accompanying state~ent (X-4791-b)
( 1)
l~umber
of words se·nt by l;ew York to other F. R. Banks for their solo benefit c:b..argcd to b.su.""llrs indicated,
in nccordance With action ta.'.cen at Governorr: 1 Conference November 2 - 4, 1925.
I
X-4791-b
HEPORT OF EXPEFSD }W:liT LINE
FZDELU. RESERv":E CASED ·.TIP3 SYSTEM, J1C!U.A3.Y,
1927
~=:-ro
Rat,:t
Shc.::re of
Narre of :Bank
Boston
Hew York
Philadelphia
Glovola.nd
Richmond
Atl3llta
vnicago
St. Louis
Minncaqolis
Kansas City
Dallas
09orators 1
Salaric s
Oocre:tors I
OvcrtLne
$ 260.00
$
l.llO
983.29
2SS.66
190.00
255.00
4,oso.o4(#)
200.00
193·73
275.64
251.00
370.00
$ 1.00
Ex:)ensos
$ 261.00
$ 747.07
$15.315.53 15.317.53
$15,31).53$22,363.89
1,297.35(a)
~21,5)1.54
(&)
(#)
( *)
(a)
(b)
Totu1
Total
Ex;:>enses
933.29
225.00
2&3.66
190.00
255.00
4,0G0.04
200.00
193.73
275.64
251.00
370.00
225.00
.;.;, ,n Francisco
Fcderttl Reserve Boe;rd
Total
$7,572.36
Wire
Rental
3,463.2S
915.4S
1,095·74
1,237.20
1,)+35.34
2,532.69
1,350.39
969.46
2,049.04
1,776.915
2,716.37
$21,591.54
Credits
Pe:.;yable to
Federal
:;cscrvL
3oa.rd
'
$ 261. •;0 $
933.29
225.00
286.66
190.00
255.00
4,060.04
200.00
193·73
275.64
251.00
370.00
1
bo. 07
4.,~
2,479.99
690.43
1,607.08
1 '251. b7(&)
1,160.84
1,547.35(*)
1,650.39
775.73
1,773.40
1,525.90
2,343.37
$7.573·36 $15,770.20
1 • '54 7 . -) 5 (b)
$14,222.35
Includes ~204. 67 fbr "br:·r:c': 1i 1c· business tr:mswd tt0d ow:r main line circuit •
Includes s:.1laries o:..~ 'Y::.;s.>ington O)crators.
Credit.
Received $2.96 from War Finance Corp. and $1,294.39 from Treasury Dept. covering business for
the month of January, 1927.
.Amount reimbursable to Chicago.
FEDERAL RESERVE BOARD
WASHINGTON
X-4792
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 17, 1927
Dear Sir:
ber 18,
case of
tiorari
rulings
My attention has just been called to an opinion rendered on Decem1924, by the Circuit Court of Appeals for the Seventh Circuit in the
Hiatt v. United States, 4 Fed. (2nd) 374; petition for writ of cerdenied by the Supreme Court, 268 U. S. 704, which involves several ·
of importance to the entire Federal Reserve Systa~.
The head-notes in this case are as follows:
1. "Under Burns • Ann. St. Ind. 1914, Section 4953, authorizing trust
companieS to invest in 'personal securities,' such a company held to have
power to purchase stoCk of a Federal Reserve Bank."
2. "The action of a trust company in becoming a member of the Federal
Reserve System, though it might have been questioned by the state of its incorporation, was not such an ultra vir~s act as made the transaction void,
so that it can be qUestioned collaterally, and its affiliation was validated
by a legislative act expressly extending the power to such companies".
3. "A federal court will take judicial notice of the existence, due
incorporation, and functions of a Federal Reserve Bank".
4. "Under Rev. St. Section 5209, as amended September 26, 1918 (Comp.
St. Ann. Supp. 1919, Section 9772), the making of a false entry by an officer of a member bank in a report to the Fe~eral Reserve 3ank, with intent to
deceive any officer of the latter, is an offense".
5. 11 The :9rovision of Federal Reserve Act, Section 9 ( Coli!'• St. Section 9792), permitting state banks to become members of the Federal Reserve
System, is within the powers of Congress and constitutional".
6. "Federal Reserve Act, Section 9(4), being COll!P· St. Section 9792,
making member banks of the Federal Reserve System and their officers, agents,
and employees subject to the provisions of Rev. St. Section 5209 (Comp. St.
Section 9772), as applied to state banks, deals only with their relations to
the Federal Reserve Sys tern, and is nat unconstitutional as affecting the
powers of the states over such banks".
Very truly yours,
Wal. ter Wyatt,
General Counsel.
FEDERAL RESERVE BOARD
X-4794
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 17, 1927.
Dear Sir:
The Board has been asked by one of the Federal reserve
banks to rule upon the question whether certain notes held by a:
member bank bearing the endorsement of officers of nonmember banks
.are eligible for rediscount at Federal reserve banks. It appears
that the member bank in question solicits loans through officers
of its correspondent nonmember banks. T.he notes are made payable
to the local bank officer and are endorsed by him to the member
bank which allows him part of the interest on the loan in payment
for.his services. T.he name of the nonmember bank does not appear
on the notes either as payee or as endorser.
Before ruling upon the question whether notes of this
kind should be considered eligible or desirable for rediscount,
the Board wishes to be fully informed as to the extent and prevalence of the practice of making loans in this way. You are accordingly requested to advise the Board whether notes originating in
the manner described or under similar circumstances have ever been
presented to your bank for rediscount and if so, whether or not
they were rediscounted. T.he Board would also be glad to bo advised
as to the extent to which practices of this kind prevail in your
Federal Reserve District.
Very truly yours,
D. R.
Crissinge~
Governor.
!O GOv.a:a»>BS OF ALL l'. R. umtS EXCl:P'l' XANSAS CI !t'Y.
FEDERAL RESERVE BOARD x-4795
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 19, 1927.
SUBJECT:
Holidays during March, 1927.
Dear Sir:
For your information, the following Federal Reserve Banks
and Branches will be closed on the dates s~cified, during
March, 1927, on account of holidays.
Tu.e sda;y,
J.ITew Orleans
Birmingham
Mardi Gras
Wednesday, March 2
Dallas
El Paso
Fouston
Texas
Day
March 7
Detroit
Pri~ary ~lection
March 25
Baltimore
t'~aryland
1-.~ond.ay,
~~arch
1
Inde~endence
Day
Day
On the dates indicated, therefore, the ba~~s affected will
not ~artici~ate in either the Gold Fund or the Federal Reserve
note clearing. Please include credits for the ba.."lks and branches
mentioned on e&eh of the holidays with credits for the following
business day, and make no shipment of Federal Reserve notes,
fit or unfit, for account of the Federal Reserve Barik of Dallas
on Wednesday, March 2nd.
Kindly notify Branches.
Very truly yours,
J. C. Noell,
Assistant Secretary.
TO GOVERHORS OF ALL F .R.B.ANKS.
:.Jt-4796
STA.T~fli:TT
FOR TBE PRESS.
For R~lease in Pa~ers
Sa turd.a.y, .february 19, 1927.
The first and orr]anization meeting of the Jedera.l Advisory Council
f'o~
1927 with the Federal Reserve Board at which general business and
financial conditions were discussed was held Friday, rebruary 18.
The
members of the Cou.'1cil ere:
Federal Reserve District No. 1, Boston, Arthur W. Heard
llo. 2, New Yor\c, James S. Alexander
No. 3, Philadelphia, L. L. Rue
No. 4, Cleveland; Harris Creech
No• 5; Richmond, Col. John
r.
Bruton
No. 6, Atlanta, P• D. Houston
Iro, 7. Chicago,
J'rank 0.
Wetmore
Jl'o • b, St. Louis• nreckintidge Jones
No. 9, Minner::,po 1i s. Theodora Wold
lo. 10,
lt:'l!1 :l e. c
G:i. t~l. P•::ter W.
Goebel
No. 11, Dallas, :B. A. McKinney
No. 12,
Frank 0. Wetmore of Chicago, was
Se~ ?r~lcieco,
:o:-e-~;~~lectod
HenryS. McKee
President and .COl.·
John F. Bruton of Richmond, was elec·ted Vice Pr4sident.
These
t~fficers
as ex-officio members and tlessrs • .Alexander, :Rue, Creech and Jones will
comprise the Executive Comnittee.
Secretary
•
~f
the Council •
Mr. Walter Lichtenstein continues as
X-4797
F E D E RA L
A D V I S QJ Y C 0 U H C .I L.
J. 9 2 7
Executive Committee:
Officers:
Frank 0. Wetmore, President.
John F. Bruton, Vice President.
Walter Licntenstein, Secretary
Frank 0. Vl e tmo re
Jolu'1 F. :Bruton
James S. Alexfu'1der
Levi L. Rue
Harris Creech
:BreCkinridge Jones
------------------------------------------------------------------------~------------
M E M B E R S.
District.
Address.
No.
1.
Arthur
No.
2.
James S. Alexander
National Bank of Commerce,
New York, N. Y.
No.
3.
Levi L• Rue
Philadelphia-Girard Nat.
421 Chestnut Street,
Philadelphia, Pa.
No.
4.
Harris Creech
Cleveland Trust Company,
Cleveland, Ohio.
!To.
5.
John F. Bruton
First National Bank,
Wilson, N. 0.
No.
6.
P. D. Houston
American National Bank,
Nashville, Tenn.
No.
7.
Frank 0. Wetmore
First !Tation~l Bru1k,
Cnicago, Illinois.
No.
8.
]reckinridge Jones
No.
9.
Theodore Wold
M.
w.
Heard
.A.moskeag National Bank,
Manchester, N. H.
Bar~,
·Mississippi Valley Trust Co.,
St. Louis, Mo.
!iorthwestern f.Tational Bank,
Minneapolis, Minn.
No .• 10.
.Peter
No... 11.
B. .A.. McKinney
American Exchange
Dallas , Texas •
No. 12...
Henry S. McKee
Barker Brothers,
):,os Angeles~ Calif.
-------·----.. . -.-..
Goebel
Liberty ~atior...al Bank,
Kansas City, Mo.
!~at.
Bank,
.,_-..------.·---------:.---------------------~-~or-----------------------------
Addre.ss of Mr,., Lichtenstein, ;First National Bank, Chicago, Illinois.
February 19, 1927
TEXT OF .ARTICLE .APPEARING IN THE UNITED STATES DAILY
'
Saturday, February 19, 1927.
by
D. R. Crissinger
Governor, Federal Reserve Board.
Congress has invested the Federal Reserve Board with broad
supervisory powers in the administration of our Federal Reserve System.
Those powers the Board exercises in cooperation with the 12 Federal
Reserve Banks, each of whiCh within the territory assigned to it functions as a central reserve instituti0n~
In passing the Act of December 23, 1913, Congress rejected,
along with many other schemes of bankirlg and currency reform, the proposal of a central bank operating bran~hes in different sections of the
countr,y. Some coordinating agency exercisihg supervisory controi was,
however, clearly essential for the effective functioning of a system of
regional re~erve banks, and such an agency was ~rovided in the Federal
Reserve Board, which ,is composed of six members ap~ointcd by the Presi1
dent, selectbd 1 wi th due regard to a fair re'!_)resentation of the financial; agricultural, industrial, and co~~ercial interests, and geographic
divisions bf the cou.."ltry, 11 and two members who serve ex-officio - the
Secretary of tho Treasury, ~ho acts as Chairman of the Board, and the
Comptroller of the Currency.
One of the appointive members is designated by the President
to serve as Governor of the Board, and one as Vice Governor. Members
arc appointed for terms of 10 years. The 3oard occupies rooms in the
Treasury .Building, ru1d salaries of members are fixed b,y Congress; but
expenses of the Board are levied upon the reserve banks in proportion
to their capital and surplus.
One-third of the commercial banks of the country are members
of the Federal Reser.ve System. National banks are required b,y the Act
to subscribe to the capital of the reserve banks and to operate as members, and State banks and trust companies may elect voluntarily to do
so, retaining their charter powers as State institutions in so far as
these do not conflict with provisions of the Federal Reserve Act or
with regulations of the Board. Of the member banks approximately 8,000
arc national and 1,300 are State institutions, and those banks control
nearly two-thirds of tho banking resources of the country. There are
a number of State bonks, it may bo notod, with insufficient capital to
meot the mini~ requirements of the Federal Reserve Act which are,
therefore, ineligible for admission to membership in the system.
.11a
2
X-4793
Consolidation of bank reserves and their use as a basis for loans
to member banks at times of seasonal or other temporary needs is one of
the principal purposes of the Federal Reserve Act. Each member bank is
re~~ired to deposit its reserve in the Federal Reserve Bank of the district
in which it is located, and only deposit credits with the reserve bank can
be counted as legal reserve b,y the momber b~~k.
On January 22 these reserve deposits of member ba~ks amounted
to nearly $2,200,000,000. Against these deposits the reserve banks are
recpired to hold a reserve of 35 per cent in gold or lawful money. These
deposits, together with the banks' capital and the surplus accumulated
out of earnings, provide funds in the reserve banks available for making
advances to member bonks, o.nd for purchases of acceptances and Government
securities in the open market.
Under provisions ·of the Act member banks are enabled to provide
adequately for the seasonally and periodically fluctuating credit requirements of agrtculture, industry, and com~erce, since in any period of unusual credit strain, they can increase their reserves and their lending
power temporarily by borrowing at tho reserve banks.
On January 23, to t~ke a recent date, member banks were borro~
ing at the reserve banks through the operation of discou~ting co~~ercial
pa?er and their secured notes, in the or.1ount of $365,000,000. On reference to condition statements of the re~erve banks, it will be found that
advances of these banks to their member· bunks through discounting opero.tions are co~stantly increasing or decreasing in response to tho varying
credit needs in the several districts.
By tho te~s of tho Federal Reserve Act the discount rate
charged oember bonks in any district on adva?lces through discounting operations is established b,y the reserve baruc of the district subject to
review and.determination of the Federal Reserve Board. A.noth~r irnpo;rbnt
function of the Board is to define the character of paper ~t may be
accepted as eligible for rodisqounting v1ithin the !Ilea.ning of the Act.
The other activi·ties of the reserve banks, including the i13sue ,..
of Federal Reserve notes, open-market operations, tho exercise of clearing-house functions for menber banks, Qnd the rendering of services as
fiscal agents of the Federal Government are subject to the general s~per~
vision of the Federal Reserve Board.
The Board appoints three of the nine directors of·~~c~ Federal
Reserve B~~. and desib~tes one of these three, who ~st be a person of
tested bandng experience, to serve as chairman of the board of !irectors
of the bank:, and as Federal Reserve a.ge:n t representing and reporting· to _
the Federal Reserve Board. The rer.:.ainine; six directors of each "Qank
·
3
are elected by the member banks of the district, three to represent the
persons actively engaged in the dissome other industrial pursuit.
.ce~ber'banks and three chosen fro~
trict in co~~erce, agriculture, or
;
The Board may authorize or in its discretion require any Federal Reserve Bank to rediscount the discounted paper of any other reserve
bank, and so oake available to meet a t~porary deficiency of reserves
in one district any surplus that may have ac~lated in another district.
In effect this power consolidates the reserve resources of the system.
Acting through its agents at the reserve banks the Board may
"grant in 'Whole or in part or reject entirely" a:p':>lications of any Federal Reserve B~~ for Federal Reserve notes. The amount of note circulation is, however, in fact determined rather by the va~Jing demand for
currency in tho several districts than by any decision of the Board or of
those administering the reserve ba~ks.
On January 26, the note circuln.tion of the reserve banks amounted
nearly to $1,700,000,000. In December this circulation increased in response to the ho~iday demand for curren~J to $1,930,000,000 and fell off
in the weeks follovring in proportion as this seasonal de!!'.a.nd subsided. In
the post-war years the note cir~Qlation rose above $3,000,000,000.
Notes are issued to the reserve banks on a collateral of gold
or eligible co~4~ercial paper deposited with Federal Reserve agents, and
the reserve banks ar~ re~Qired to hold gold reserves of 40 per cent
against notes in circulation. The continuous f~uctu~tion of this circulation, as sho~ on the condition statements, is evidence that one of the
principal purposes for which the reserve act was passed, the "furnishing
of an elastic currency," has been achieved.
The Board may on occasion suspend reserve requirements specified
in the Act, establishing a graduated tax upon reserve deficiencies during
any period of suspension. It may, if it should find occasion for doing
so, reclassify cities as reserve, central reserve, and nonreserve cities.
It may permit or requife a reserve ban.~ to establish branches. It prescribes regulations under which State banks and trust companies are admitted to membership in the system, and approves applications for cambership.
Among the Board's administrative functions may be oentioned
administration of the gold settlement fund, through which check cleari~gs
and transfers, in so far as they involve inter-district payments and collections are effected. The reserve banks maintain balances in this fund
and wire in each ~ to the Board amounts ~wed by them to other reserve
- 4-
x-4793
t15
banks on account of checks received for collection and transfers sold.
ClcQ.rings through this fund on the average exceed $2,000,000,000 in the.
course of a week.
Through its division of exa~ination the Board regularly
exar::ines tne reserve brui!::::s and their branches at least once a year. It
may conduct exacinations of State ~ember banks, or it nay accept examinations of these b&lics by State authorities. Exa~hnations of national banks
are conducted under the direction of the Co~~troller of the Currency, who
files reports of his examinations with the reserve banks.
EaCh week the reserve banks report qy wire their condition to
the Board, which publishes weekly a statenent shov.dng the condition of
each bank and a consolidated statement for the system, and the Board may
require suCh special re~orts as it may deem necessarJ for its o~n information.
In exercising its su"?ervisorJ "9o·,7ers the Board see!.cs the counsel
of those ~inistering the reserve banks. It invites t~e governors of
those batiks to Washington at least twice each year for formal conference
on ~atters of Federal 'Reserve ~olicy, and at least once a year it invites
the Federal Reserve agents to meet in Washi~~ton for conference.
An Advisory Council, consisting of one member from eaCh district
ap?ointed ~J the ~oards of directors of the several reserve ba~ks under
specific provision of the Federal Reserve Act, meets at least four times
each year to confer and report in an advisory capacity its reco~endations
to the Board. Finally the Board oaintains a research and statistical
staff whose function it is to compile data relating to current business
and credit conditions whiCh must be taken into account in for~lating
credit policies.
·
X-4800
FEDERAL
RESERVE
BOARD
STAT:2ME::TT FOR TH:S PRESS
For immediate release
February 24, 1927
Acceptances:
The acceptance market was considerably more active in late January and
• early February than in preceding weeks, according to
re~orts
tions during the period from January 12 to Febru::try 16.
of dea:ers 1
tra~sac-
The sup-ply of hills was
particularly large around the end of the month and in spite of a good demand both
from
lo~l
and foreign purchasers, New Yo:::-k dealers 1 portfolios inc:·eased consider-
ably at that time.
Later both their
case also in Chicago.
~urchases
and sales diminished, as was the
The demand in the Bosto:!l ma.rket was relatively poor through-
out the period and tho portfolios of
lo~a.l
1ealers more than doubj.t?d.
Rates were
frequently unsettled but they wore generally lowered early in February and advanced
again on February 15.
Tho followin{. table shows the rates in effect at the be-
ginning and end of tho reporting periodo
Acceptance Rates in the l!ew York Market
Maturity
30 days
60 II
90 II
120 II
150 "
180 It
.Tanuary 12, 1927
Offered
Bid
February 16,1927
Offered
Bid
3-3/4
3··3'4
I
3-3/4
3-7/8
3-3/4
3-3/4
3-7/8
3-7/8
3-7/8
4
4
4
3-5/8
3~0/~
3-5/8
3-3/4
3:...7/8
3-7/8
3-5/8
3-5/8
3-3/4
3-3/4
3-3/4
3-7/8
X-4801
FEDERAL
RESERVE
BOARD
STATEME!TT FOR THE PRESS
February 25, 1927
For immediate release.
A branch of the Federal Reserve Bank of Richmond will be established at Charlotte, North Carolina,
a~d
a branch of the Federal Re-
serve Bank of Dallas will be established at San Antonio, Texas.
The Federal Reserve Board has had under consideration requests
for the establishment of these
br~~ches
coming from the Boards of Direc-
tors of the Federal Reserve Banks named, and after
care~~l
consideration
of the needs of the torri tories to be served by the proposed branches
has given permission for their establishment to take effect when the
McFadden ba."'lking bill becomes law.
~1e
McFadden Bill confers upon the Federal Reserve Board the
right to require at any time the discontinuance of any branch Federal
Reserve :Bank.
FEDER.l>.L RESERVE
BOA?.D
STAT:Z:.3JT :FOR TIB PP..ESS
For release L" Mor:1ing Pc~crs,
:.io:1ciay, Fobruar;l 28, 1927
Tho following is a su:rll!Tiary ..,f general business a.."ld
financial conditions throughout tho several Federal
Reserve Districts, based upon statistics for the
months of J a::mary and February, as co :1 tai ned i ::1 the
forthcoming issue of the Federal Reserve Bulletin.
Indus trial activity has been slightly larger si:1ce the turn of the yen:r than
at the close of 1926.
Seasonal
li~~idation
of reserve bank credit has been in tL"l-
usually large volume owing chiefly to the inflow of gold from abroad, and conditions i:1 the money r.1arket have bee:1 easy.
ifnolosale prices have continued to de-
cli:1e.
Production
Output of factories
~as
in January, 1926 or 1925.
larger i:1 January
tha~
in December, but smaller tha"l
Mi:1eral productio:1, thoU[;h some':"!hat below the December
level, contimted in unusually large volumo, reflectir;g the ;nainte:1ance of r,>roduc- '
tion of bituminous coal, crude 'PetroleU!'l, a:1d co:,roer.
steel, which
~~s
sharply
~Jrtailed
hinr.ufacture of iron and
in December, increased i:1
Ja~nary
and February.
Automobile output was i:1creased considerably from the unusually lo~ level of pro•
duction roached last December, but the ::J.umber of passe:1ger cn:rs 'Produced since the
begi~ni~g
.. of
the year has been smaller
past four years.
th~1
for the corresponding period of the
The textile i:adustries have 'conti:1Ucd active sL1ce Dcccnber ...ith-
out, horrevcr, sho'\7il"lg the usual seas o::;.a.l i:1crcase.
'
BuildL'lg contracts a•·ardod in 37 stctes d-.;;.ring the first seve:1 weeks of the
year were smaller in value
tha.~
those for the same neriod of 1926.
been largest in New York a::J.d i::-1 the New Engla...'1d, Southeaster:1 and
Decreases have
!Iorth•~·estern
•
X-4802
-2-
states, Tihile increases occurred in tho
:~Ud.dle
Atla:1tic a.>d Central Wester:1 stctes.
By types of building, co:1tracts a':'.'arded. for residential and bdustrial build.i:lg in
January sho':'Ted large reductions as co::mared Tii th De cem~er o.:1d ni th Ja::uary, 1926,
11hile co:1. tracts for corimercial buildings '.7ere larger tho...'1 a month or a year ago.
Retctil trade sho;'.'ed more than the usual seasonal decline between December and
January.
Sales of department stores FOre in about .the same volurne as a year ago,
Tihile those of r.:Jliil order houses \cere 7 per
in nearly all leading lines in
J~1uary
and
c~nt
~as
smaller.
Wholesale trade declined
eonsiderably smaller thru1 a year ago,
Inve::1tories of department stores ,.,.oro reduced less than is customary and at the
end of tno month were in about the same volume as in Ja:1uary, 1926.
Stocks of mer-
chandise carried by 1vholesale firms i:1creased slightly, but continued in smaller
vol~~e
than in the
decli::1ed by
corres~ondi:1g
somc~hat
montn of the nrevious year.
more than the usual seasonal amount
Freight car loadings
bet~een
December and
January, but, owi11g chiefly to hec.vier shi '?men ts of coal this year, \7eekly loadings
since the beginning of the year were larger
th~'1
for the same period of 1926.
Shipments of ncrchandise in les.s tha:1 car load lots '!:7ero also slightly larger than
last year; but those of most basic conDodities were smaller.
Prices
The general level of wholesale prices declined fractionally in January,
ing to the index of the Bureau of Labor Statistics, considerable advances
i~
accord~
urices
of livestock being somewhat more thn.:i1 offset in the total by decreases in :1early
all other co:-.1.7l0di ty grou'?s i:1clu.ded iu thEJ index.
Prices of non-agriC'J.l tural pro-
ducts, as a group, declineQ to the lowest level since early in 1922.
In February
there '"ere decreases in the price of iron a."'l.d steel, nonferrous metals, bi fu.rninous
coal, grains, a'1d hides, while '?rices of cattle, sheep, cotton, a'1d gasoline increased.
':
.
X-4802
-3-
Ja.:1k Oredi t
Co~~crcia.l
ing the four
weeks,
ru1d
loans of member
~ceks o~ding
in the middle
ba.~s i~
loading cities
co~tinued
to decline dur-
February 16, 'although at a less rapid rate than in earlier
~f
February the volune of these loans
~as
about
$270,000,000 below the seasonal peak reached in the middle of November, though
about $200,000,000 [~ove last year's level.
ing the
The
~eriod, ~hilc
volur~e
the
ba~'
of reserve
ba~
Loans on securities also declined dur-
investment holdings increased somewhat.
credit
ro~ai~ed
during the four
Februnr,y 23 noa.r the low level reached at the end of January.
~eeks
ending
Liquidation of re-
serve ba11k credit since the high point of last December has been in excess of
$500,000,000, the unusual extent of this reduction being due chiefly to the large
inflow of gold from abroad.
Total bills and securities of the reserve banks on
february 23 were about $200,000,000 smaller
th~~
on the corresponding date of last
year.
Easier money conditions in February were reflected in a decline in the rate on
prime commercial paper from 4 - 4-i/4 to 4 per cent after the first week of the
month.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAl. CORRESPONDENCE TO
THE FEDERAl. RESERVE BOARD
X-4804
March 4, 1927.
SUBJECT:
Proposed Revision of Board's Regulations.
Dear Sir:
In view of the enactment of the so-called
McFadden Bill, the Federal Reserve Board is considering the preparation of a new edition of its Regulations, and if you desire to suggest any amendments to
the Board's existing Regulations the Board will be
very glad to consider such suggestions.
Very truly yours,
Edmund Platt
Vice Governor.
TO CHAIRMEN AND GOVERNORS OF F. R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDREsS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4806
March 9. 1927
SUBJECT:
Code Words to cover new issues of Certificates of Indebtedness, Series TS2-1927
and Series TM-1928, and Treasury Notes,
Series A-1930-32, in Telegra~hic Transactions.
Dear Siri
In connection with telegra~hic transactions in Government securities between Federal reserve banks, the code words ••BELLY." and IIBELQUOID"
have been designated to cover the two new issues
of Treasury Certificates of Indebtedness, dated
March 15, 1927, Series TS2-1927 and Series TU-1928,
respectively; a.'1d the code word 11 BELOVETH 11 has oeerf
designated to cover the new issue of Treasury Notes,
dated ~:Iarch 15, 1927, Series A-1930-32.
These words should be inserted in the Federal Reserve Telegraphic Code Book :following the
supplemental code word 11 BELONITE11 at the bottom of
:page 25.
Very truly yours,
J. c. Noell,
Assistant Secretary.
TO
GOVERJ.~ORS
OF ALL F. R. BAJ.'nCS.
X-4808
TREASURY DEPARTMENT
Office of the Secretary
WASHINGTON
March 7, 1927.
The Governor,
Federal Reserve Board,
Sir:
You are hereby WQVised that the Department has referred to the Disbursing
Clerk, ~reasury Department, for payment, the account of the Bureau of Engraving
and Printing for preparing Federal reserve notes during the period February l,
1927, to February 28, 1927, amounting to $128,026.80, as follows:
Federal Reserve Notes, Series of 1914
Boston
New York
Philadelphia
Cleveland
Richmond
Chicago
St. Louis
Dallas
San Francisco
$5
200,000
600,000
200,000
100,000
600,000
100,000
100,000
150,000
2,050,000
$10
100,000
350,000
150,000
100,000
50,000
200,000
950,000
$20
$50
150,000
25,000
50,000
10,000
150,000
50,000
50,000
450,000
35,000
Total
300,000
10,000 1,135,000
150,000
360,000
150,000
950,000
150,000
103,000
3,000
200,000
13,000 3,498,000
$100
3,498,000 sheets@ $36.60 perM •••••.••.•... $128,026.80 ·
The cllllrges ago.inst the several Federn.l Reserve Bl:mks are as follows:
Boston
New York
Philadelphia
Cleveland
Richmond
Chicago
St. Louis
Dallas
San Francisco
$ 10,980.00
41,541.00
5,490.00
11,176.00
5,490.00
34,770.00
5,490.00
3,769.80
7,320.00
$128,026.80
The Bureau appropriations will be reimbursed in the above amount from
the indefinite appropriation "Preparation and Issue of Federal Reserve Notes,
Reimbursable", n.nd it is requested thAt you.r board c1:1use such indefinite e.ppropri.::tion to be reimbursed in like ['l!lount.
Respectfu}.ly,
(signed) s. R; Jacobs
Deputy Commissioner.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4809
March 11, 1927
SUBJECT:
Expense, Main Line, Leased Wire System,
February, 1927
Dear Sir:
Enclosed herewith you will find two mimeograph statements, X-4509-a and X-4509-b, covering in
detail operations of the main line, Leased Wire System, during the month of Februal."y, 1927.
Please credit the amount payable by your
bank in the general account, Treasurer, U. S. , on
your books, and issue C/D Form 1, National Banks,
for account of "Salaries and Expenses, Federal Reserve Board, S\)ecial Fund 11 , Leased Wire System, sending duplicate C/D to the Federal Reserve Board.
Yours very truly,
Fiscal Agent
Enclosures.
TO GOVERNORS OF ALL F. R. :BANKS EXCEPT CHICAGO.
X-4509-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED OVER MAIN LINE
OF THE FEDERAL RESERVE tEASED WIRE SYSTEM FOR TEE IDNTH OF FEBRUARY, 1927
From
Business
re-ported
by banks
Words sent
by New York
chargeable
to other
F.R. Banks(l)
Total
Treasury
Department
'Business
War Finance
Corporation
Business
Net Federal
Reserve Bank
'Business
Percent of
total bank
'Business~•}
'
Boston
New York
Philadelphia
Cle-veland
Riehmond
Atlanta
Chicago
St. Louis
Minneapolis
Iransas City
Dallas
San Francisco
Total
F. R. Board
(*)
(1)
436
29,124
112,646
33.521
65,271
39.740
51,259
33,355
65,145
31,643
66,4og
53.947
9.I.9.42
413
1,453
2,184
3. 710
2,692
2,132
1,764
1,931
3.995
2.026
735,501
22~576
29,610
112,646
33.939
66,729
41,924
54.969
91,547
67.277
33.4o7
63,339
57.942
9.9..9.9.3
3,052
3,294
2,513
2,820
2,304
3,503
3.743
3.339
1,233
3.306
1.592
4,655
26,558
109,352
31,426
63.909
39,120
51,466
37,799
63.933
32,174
65,033
56,350
9.5t343
3.65
15.13
4.35
8.55
5.41
7.12
12.15
3.55
4.45
9.01
7.50
13.20
753,377
274 1 273
35,359
21,9_30
722,513
252 1 343
100.00~
Total
1,032~650
57.739
974,361
Percent of Total
100.00~
5.60~
94.4~
These percentages used in calculating the pro rata share of leased wire expense as shown on the
accomnanying statement {X-4809-b).
Number of words sent by New York to other F. R. Banks for their sole benefit charged to banks
indicated in accordance with action taken at Governors' Conference November 2 - 4, 1925 •
•
'
REPORT OF EXPENSE MAIU LINE
FEDERAL RESERVE LEASED WIRE SYSTEU, FEBRUARY, 1927
Ni:lllle of Bank
:Doston
New York
Philadelphia
Cl0veland
Hichmond
."..tlanta
O-perators'
Salaries
260.00
953.29
225.00
253.66
190.00
270.00
C~1icago
4,065-31(#)
200.00
s~. Louis
Minnea~o1is
193-73
Kansas City
275-64
Dallas
251.00
Sa'1 Francis co
370.00
!ederal Reserve Board
Total
Operators"
Overtime
Wire
Rental
$
$ 7.572.63
Total
E!Eenses
260.00
983.29
225.00
236.66
190.00
270.00
4,065-31
200.00
193-73
275.64
251.00
370.00
15. 31+1. IS
$
~15.341.18
$15.341.78
Pro Rata
Share of
Total
Exoenses
$
796.06
3.272.93
941.00
1,914.44
1,170.30
1,540.20
2,623.30
1,914.44
962.63
1,949.05
1,687.30
2,855.43
$21,632.02)
$22,914.41
---1 1 252. 33(aY
$21,632.03
~-
(&)
(#)
( *)
(a)
{b)
x-4609-b
Credits
$
260.00
953.29
225.00
233.66
190~00
270.00
4,065-31
200.00
193·73
275.64
251.00
370.00
Payable to
Federal
Reserve
Board
536.06
2,239.64
716.00
1,625-78
1 • 1 54 . 97 ( & )
1,270-20
1,437-01 (*)
1, 71'+.44
76S. 90
1,673-41
1,436-30
2,455.43
*
$ 7.572.63 $15,701.13
-- ·-·
----,__,;...
1 1 4tt.01(b)
$14,.2 .12
Includes $204.67 for branch line business transmitted over main line circuit.
Includes salaries of Washington operators.
Credit.
Received $1,262.33 from Treasury Department covering business for the month of February, 1927.
Amount reimbursable to Cl1icago.
FEDERAL RESERVE BOARD
x-4&11.
WASHINGTON
ADDRESS OFFICIAl. CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March 17, 1927 .
•
SUBJECT:
Bank holidays during April, 1927.
Dear Sir:
For your information, the following .Federal Reserve Banks
and Branches will be closed on dates S!:)ecified during April, on
account of holidays:
~onday
April
4
Wednesday
April
13
Friday
April
15
Detroit
Election Day
Birmi~ham
Jefferson's birthday
Philadel~hia
Good Friday
Pittsburgh
Baltimore
New Orleans
Nashville
Jacksonville
McmDhis
Minnea:oolis
Sol t Lake Cit~'
Arbor Day
Boston
Patriots 1 Day
Friday
A:oril 15
Tuesday
A~ril
Thursday
April 21
Dallas
El Paso
Houston
Snn Jacinto Day
Friday
April 22
Omaha
Arbor Dey
Tuesday
April
Atlanta
Birmingham
Jacksonville
Southern Memorial Day
19
26
Therefor~, on the dates indicated, the banks affected will
not particip~te in either the regular Gold Fund Clearing or the Federal Reserve Note Clearing. Please include your credits for the banks
.
'
....
2 -
affected on each of the holidays '>'rith your creditsfor the following business day in your Gold Fund clearing telegrams, and make
no shipments of Federal Reserve notes, fit or unfit, for account
of the Head offices concerned, on the holidays mentioned.
Kindly notify branches.
Ver;,r truly yours,
J. C. Hoell.
Assistant Secretary.
TO GOVERNORS OF AtL F. R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4813
March 22, 1927
SUBJECT:
Topic for Governors' Conference.
Dear Sir:
The Federal Reserve Board has voted to
place upon the program of the next conference of
Governors for their consideration the question
whether notes held by a member bank bearing the
endorsement of officers of nonmember banks are
eligible for rediscount at Federal reserve banks.
This question was the subject of the Board's letter of February 17, 1927, X-4794. A copy of this
letter together with copies of the replies thereto are enclosed herewith for your information.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosures.
W GOVERNORS OF ALL FEDERAL RESERVE BANKS.
FEDERAL RESERVE BOARD
X-4794
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 17, 1927.
Dear Sir:
The Board has been asked by one of the Federal reserve
banks to rule upon the question whether certain notes held by a
member bank bearing the endorsement of officers of nonmember banks
.are eligible for rodiscotk!t at Federal reserve banks. It appears
that the menbor bank in question solicits loans through officers
of its correspondent nonmember banks. Tno notes are made payable
to tho local ba~~ officer and arc endorsed by him to the ~ember
ban..~ which allows him part of the interest on the loan in payment
for his services. The nmne of the nonmember bank does not ap~ear
on the notes either as payee or as endorser.
Before ruling upon the question whether notes of this
kind should be considered eligible or desirable for rediscount,
the Board wishes to be fully informed as to the extent and prevo.lenco of the practice of making loans in this way. You ate accordingly requested to advise the Board whether notes originating in
the manner described or under similar circumstances have ever been
presented to your bank for rediscount and if so, whether or not
they were rediscounted. The Board would also be glad to be advised
as to the extent to·which practices of this kind prevail in your
Federal Reserve District.
Very truly yours,
D. R. Crissinger.
Governor.
TO GOVERNORS OF ALL F. R. BANKS EXCEPT KANSAS CITY.
X-4013-·o.
c 0 p y
FEDERAL
0 F
R:ZSERVE
B ;,_ N K
B 0 S T 0 N
February 19, 1927.
Dear Sir:
Receipt is ac:mowledgod of your circular letter of
FebruarJ 17, X-4794, a:1d in repl¥ I would sa~r tbat no instance
such as that referred to has ever come to the attention of this
ba"lk and,as far as we know, there is !lo ?racticc of this kind
cxisti:1g in this district.
Should any note such as described in your letter be
offered us for rediscount, we wo,lld, before co:1s ide ring the
apJlication, ask counsel for his oi)inio:1 as to wl:ccther tho
tra:1saction involves a:1y violation'of ~aragra~h (c) of Section
22 of the Federal Reserve ~ct.
Very trulr yours,
(s)
~.
P. G. Hardi:1g,
Governor.
Hon. D, R. Crissinger, Governor,
Federal Reserve Board,
WashL1gto;1, D. C•.
•
c 0 p y
X-4813-·b,.
FEDERAL
:lESER~ B~"X
OF NE!l Y):aK
February 25, 1927.
Sirs:
In reply to your letter of February 17 (X-4794), we do
not r0call a:J.y cc:Lse in which notes bearing the endorsements of
officers of non-me1:1ber banks have been offered us for rediscount
b;r member banks.
We are quite certain that no such practice as
that described in your letter exists or
h~s
existed in this
district.
Very truly yours,
(Signed)
L. F. SAILER
Deputy Governor •
Federal Reserve Board,
Washington, D.
c.
c0
p
y
x-4313-c
FEDERAL RESERVE :BANK OF PHILADELPHIA
February
Dear Governor Criss in,c:•er:
In reuly to y-our letter
X-4794, I am
writing to inform you that .notes negotiated in
the manner described by you have never been
presented to this bank for rediscount
~•d
we
have never found a practice of this kind in
this district.
Very truly yours,
(s)
W. H. Hutt,
Deputy Governor.
Hon. D. R. Crissinger,
Governor, Federal Reserve Board,
Washington, D. C.
19, 1927.
X-4813-·d.
c 0 p y
February 23, 1927.
Mr. D. R. Crissinger, Governor,
Federal :aeserve Board,
Washington, D.
c.
Dear Governor Crissinger:
Reference is made to the Board's letter
X-4794, dated
Feb~~y
17, on the subject of the
eligibility for rediscount at a Federal Reserve
Bank of notes held by member banks bearing the
endorsement of officers of non-member banks.
We have not lmd an;r paper of that kind
offered to us for rediscount or as collateral.
I
Very truly yours,
(Signed)
JC. R. FANCHER
Governor.
ERF. ZD'D
•
'.
(COPY)
FEDERAL RZSERVE BA...lllK OF R! CHMOND
X-4813-e
February 21, 1927
Federal Reserve Board,
Washington, D. C.
•
Gentlemen:·
We have received and considered the
Board 1 s letter X-4794, under date of February
17, in which the Board expressed the wish to be
informed as to the extent and prevalence of
the practice with certain member ba"iks of soliciting loans through its corres~onaent nonmember banks and obtaining paper bearing the
endorsement of officers of such nonmember banks.
To ou:r knowledge, we have no such paper,
and if such paper had come to us with the knowledge, we should have made. most careful inquiry
into the circumstances, siuce the practice,
in our jndgment, apnears _one to be condemned
whether the payer may or may not be tecffi1ically
eligible for rediscount at Federal Reserve Batiks.
Very truly yours,
(Signed) Geo. J. Seay,
Governor.
x-4313-f
FEDERAL
OF
RESERVE
:SANK
ATLANTA
Februar:' 28, 1927.
Mr. D. R. Crissi~~er, Gover~or,
Federal Reserve Bo~rd,
Washi:1gton, D. C.
Dear Sir: Reference is made to :Soard I,Qtter
X-4794 under date of FebruarJ 17th, regardiP~ the
solicitation through officers of correspondent nonmember ban:ts of loans by member ba...'1.ks, etc.
To the best of our knowledge no notes
of this character have been offered to the parent bank
or our New Orleans Branch, and should it be ascertained
that such paper was offered to us it would be our policy
to disa~::>orovo suc..."'l items.
We do not think that tho practice referred
to in your letter is prevalent in this district, however,
this is merely an expression of o~inion as we have no
first ha1d information.
Yours vor:l truly,
(s) M. E. Wellborn,
Govcr:::tor.
(CuP~:)
OE'EDEP..AL RES:ii.RVE EMf!.: OF CHICAGO
X-4813-g
February 24, 1927
Federal Reserve Board,
Washington, D. C.
Dear Sirs:
Attention:
Honorable D. R. Crissinger,
Governor.
In further reference to your letter X-4794, dated February 17th,
and in which letter reference is made to a case wherein a certain me~
ber bank solicits loans through officers of its correspondent non-member
b~~, involving notes made payable to the local bank officer and endorsed by him to the member bank, you ask for advice on two points as follows:
1.
As to whether notes ori~inating in the manner
describea, or under similar cirdarnstances, have
ever been presented to this oank for rediscount
and if so, whether or not they rvere rediscoi.l."'lted.
In response I ampleased to advise you that we are unable to find any
cases VTherein notes of the class referred to, or of simJ.lar character,
have been offered to us for rediscount.
2.
The Board also inquires as to the extent to which
practices of this kind prevail in this district.
We are not aware of the prevalence. of such ~ractices, and since the receipt of your letter have carefully reviewed the examiners' re~orts on
approximately twenty-five member banks whose relations with their country
torrespondents might have led to such practice, but find no evidence of
its existence.
Very truly yours,
(Signed) J. B, McDougal
Governor.
X-4513-h
FtnE~At
RESERVE
BAFK
0 F
ST .
L 0 U I S
Fcbruar; 25, 1927.
Dear Governor Crissinger:
Replying to your letter of
the 17th, X-4794, you are informed that no notes
originating in the manner described or under similar
circumstances havo ever been prcscn tod to this bru1k
for re-discount.
We do not believe practices of
the kind described prevail at all i;;1 this District.
Ou.r :Memphis Branch has had
one or two notes offered to it whiCh did bear evidence
on their face tr~t they were either acquired from a
non-member bank or wore tal.cen indirectly thru a nonmember ba~k as an acco~~odation.
In each such case,
after ~1 investigation, the notes wore t~ccn up ~- tho
member bank re-discounting them.
Very truly yours,
( s)
Q.
M.
Atteber~r,
Dc:;m t~· Go vc r:1or •
Federal Reserve ~oard,
Washi~ton, D. C.
Attention; Governor Crissinger.
COPY
X-4813-i.
FEDERAL RESZRVE :S.A1UC OF MINNEAPOLIS.
February 24, 1927.
Hon. D. R. Crissinger, Governor,
Federal Reserve :Soard•
Washington, D. c.
Dear Governor Crissingert
This will
ac~~owledge
receipt of your letter (X4794).
Since 1923 we have not rediscounted nor have there been
offered to us any notes such as described in your letter.
Previous to 1923 When we were authorized by the :Soard to discount
paper originating in non member b&~ks, we had a few notes offered
to us bearing the endorsawent of individuals associated with 'non
~embP.r b&1ks, and did di~count such notes. te, however• gave but
little consideration to such endorsements. tn other wordsi we
looked to the maker rather than the endorser. Xn doing so, we
reasoned that if a note wa~ eligible and desirable. the fact that
an individual had endorsed or guaranteed the paper, could in no
way affect 1ts eligibility.
Yours respect;t'ully,
(Signed)
R. A. YOUNG .
Governor.
RAY-C
t:.JO
(COPY)
FZDERAL R:.:;E:;;IW2 J3A:TI<: OF KP..!,TS.AS C-ITY
X-4813-j
March 4, 1927
Fed6ral Reserve BoarQ,
Washington, D. C.
Gentlemen:
Attention - Governor Crissinger.
Replying to your letter of February 16th, which is part of a
file started on December 31, 1926, by Mr.
, then President
of the
National Bank of
-------------------------
In order to answer intelligently the questions you ask in your
letter of February 15th, I deferred answer until after a moeting of tho
Managi:.1g Directors of our branches, which was held here yesterday. In
the meantime I advised them to come prepared as to facts of tho amotUlt
of ~aper now under rediscount with us that bears earmarks as having come
from a non-member bank~ Since conferring with them, I cru1 say to you
that I do not believe there is any paper in this .bank that can possibly
be cons trued as comi:::1g from a. non-member banl{;.
For further discussion I will take the case of Mr.
at·
,, and this is on all fours with nearly every so-called live stoCk
bank at live stocl~ centers, meaning by that, banks that are located at
public stock yards. Naturally their business is with the larger live
stock operators, scattered over the ra...-.ges and feeding sections of our
District.
In the case of Mr.
, instead of sendi:1g a man from
his own ,bank out into Western Nebraska, to inspect loans for which ap')lications had been made to him by live stoCk handlers, he selected a man in
that section of the country to represent him. He selected a man who was
president of a state non-member bank, with the distinct understanding that
these loans were no uart of the bank's business. The man inspects the
cattle, values them,-rnakes the loan, looks after the cattle during the
1 s ba...'1k informed of the
grazing or feeding season, and keeps Mr.
progress that is being made with the cattle during the life of this loan.
For this service Mr.
allows the man he has SQlccted one percent
or ofttimes t~o percent on the amount of interest that is charged.
These loans are always too large ever to be taken into any
1 s bank, the
small country banks. The money is furnished by Mr.
notes are drawn to his representative and endorsed by the r~resentative
with recourse, bearL1g, of course, in this way the guarantee of the ma:1
who reoresents him. Predicated upon what I have stated to be the facts,
I c~ot but feel that this is eligible paper. I ltnow a great number of
X-4813-j
t-:J-J
iiho hove be; on doL1g this throughout their ·.-~hole banking careers;
indeed, I hnvo done it r.iysclf ·-rh0:1 I "'l'D.S in tho co~.1norcial be.!L.dng business. I think it is the proper ·.-ra'J for a men ':'Tho specializes in live
stock loaas to r.lcl<o his loa11s this 17ay, thc:1 have his inspectors go out
occasionally a."ld check u~ on his re-presentatives who are o:1 the ground,
and satisfy himself that his interests are being properly tcken care of.
banl~crs
Uo'l7, in the case of Mr.
, if he had selected a man in
that neighborhood who '.7as not con:1ected with a bank, had bad the paper
drarn o:1 Mr.
's forms and taken the loan in to his ba:.1k, I can:1ot help but feel that it would be eligible for rediscoU-"lt. I k:1ow fron
my ~c.1o·.-:ledge of the situation that these loans are not made T?rirnarily ·
for tho :?Uruoso of rediscounting with the Federal Reserve Ba..'12:c, a...'ld they
are seldo~ offered to us ~'ltil a considerable period of the note has run,
and then onl~r '.7hen some emergency comes into the bank's business and it
:leeds to rcdis count.
Wnat I m~ trying to get at is that because a note ecars the
endorsenent of a man ~ho is the president of a non-nember bank, this circwnsta."lce :aced not necessarily make that note ineligible. Whenever vre
find that a oenber ba~ is doing that, we refuse to take the paper. We
had a.n outsta.."lding case of this kind in a ba:uc at
, where the
man was coveri:~ un the makers of the notes, maki:1g the notes on the
ba:.lk 1 s fo'i-rns, but 11hen we discovered that the makers of these
notes, or the endorsers of tht:i:l '7'-ere the officers of a non-member bo:.1J::,
and that the proceeds had been passed to the cre~it of a no~-member bo:.~t
we at o:1co refused to take the :1otes, l:llld in this special case the practice has boon broken up.
----
Each one of our Managinb' Directors told me durL1g the co:lference yesterda.y that they arc following at the branches exactly the sane
rule that ..-...e have laid down here at the ho~ office and that no:!:l-member
bank paper is kept out of our rediscounts.
The point I want you to rule upon is that because a note bea.rs
the endorsement of a wan i1ho is the president or an officer of a non-me~
ber ba:'ll: need not :1ecessarily make that note ineligible for rediscount,
~hen upon i:lvestigation ~e find that the note was made in good faith to
the holdL1g :neober bank and has no relation to, or clai:;n U-::>on, the nonoc<::tber bank.
I hope I have made myself clear in this nutter, and while it
is :10 longer especially vi t.:tl to us because, as I said, I believe we now
have no such paper in the ·oank t?f this District; yet, your exai!liners apparently still rai~e the question of whether '"e are not taking non-neober
ba~ pa~er ~here they find a note bearing the endorseoent of a president
or officer of a non-oeobcr b~ik.
I reiterate that ~henever ~e find upon investigation that the
notes are made on practically the sa~e line as those of Mr.
's, and
there are several - possibly one or two at every live stock ce:..1ter tha.t
make their pc.per this ;:a.y ... I hope you rrill realize that you are goi:l€; to
X-4813-j
-3-
de:1y, first to the li vo s toe:: interests and also to the '·.1e:.1ber ba~1ks located at stock yc..rds, a great deal of thG service of the Federal 3.eserve
Sys ten by ::1£\ldng a ruling that such paper is ineligible. Of course, Mr.
- - - - - could have chosen another r:1a.."l out there, but often this local
banker is the best ::1an, and it is for that reaso:1 he is chosen, but if he
is acting in good faith and Hr.
is actL1g i:1 good faith, ~7hic.'1. ·:·e
ascertained, I feel the ~aper should be classed as eligible.
I have the honor to rewa.in,
Very truly yours ,
(Signed) W. J. Bailey
Governor.
(COPY)
FED:E...'lAL RES:::RVE :B.Alm OF DALLAS
X-4813-k
February 23, 1927
Federal Reserve Board,
D. c.
~ashingto~,
GeLJ.tlenen:
Attention Governor D. R. Crissillger.
Thi~ wili a~~owledg~ receipt of Board's letter X-4794, dated
February 17, 1927, relative to eligibility and desirability of notes offered for rediscount by ner:1ber banks and which are nayable to and bear the
e~dorseiJent of officers of non-:me;nber banks, though' such LJ.on-;ne:nber banks
do not themselves endorse them.
Replying to the Board's inquiry I a~ glad to say that ,-e cannot recall a sL~gle i~stance where pa~er of this character has been offered to this b~>k for rediscount and we hope that none ~ill be offered
in the future. Inasmuch as our attention has never been called to loa~s
of this sort in this district it is our opinion that it is not a co~on
practice here, but to the contrary if there are a~y they are few in n~
ber.
t
Wbere the proceeds of the loan are used for a purpose that
would render it eligible, while it is possible that the endorsement of
officers of ~on-menber ba~ might be merely incidental, under the circumstances stated in the Board's letter where the endorsing qfficers of,
non~member ba~~s have a. pe~~iary interest through a division of earnings
received from such loans, ~rima facie the oatter of eligibility is questionable, to say the least. In addition to this, it is apparent that this
practice should readily result in the extension of unsound credit which
v.ould be still further aggravated if the paper could be passed on to Federal Reserve E&~cs for rediscount.
It is al.so conceivablo that through separate agreer.lents loans
that were in fact made at the instance of non-member baru~ might in this
ma~ner be cw~ouflaged with a view of making thew technically eligible
for rediscount at Federal Reserve Batiks which would not be the case if
they bore the actual endorse~ent of such non-member ba:u~.
In substance, it is our opinion that loans of this character
should not be encouraged by a ruliYJg that would :::-!Ellce the~J. eligible for rediscount by a Federal Reserve Bnr.k.
Yours ver;i truly
(Signed)
L~~~n
p. Talley
Governor.
COPY
FEDERAL RESERVE
E~TC
OF DALLAS.
X-4813-k-1
March 18, 1927.
Federal Reserve Board,
Washington, D. C•
Gentlemen I
Attention Vice Governor Edmund Platt.
I have your letter of March 14, in reply to mine
of February 23.- a."ld it is apparent that we are discussing
two separate propositions, one being a legitimate loan for
an eligible purpose and the other a subterfuge to evade
legal loan limitations and to use the rediscount facility
in a manner not conter1lJ>lated by law.
•
I fully agree with you that in a number of instances the resources of banks are not sufficient to finance
their larger custo~ers. It is also a fact, as you state, that
frequently banks in the larger towns and cities make loans
direct to customers of smaller banks and this is particularly
true where the smaller banks have already loaned such customers
up to their legal limit. Under such circumstances where it is
a legitimate transaction and the proceeds are used for an eligible purpose, the notes betng offered for rediscount by a
member bank, apparently there can be no sound reason for discriminating against them merely because they bear the endorsement of an officer of a non-member bank. In other words, the
matter of eligibility and acc91)tabili ty should a.lways be governed by the facts in the particular case.
On the other hand, it is conceivable that a nonmember bank might enter into an arrangement with its cor:t·espondent member bank to make loans for its account with a
separate agreement to provide for them at maturity, thus
violating the spirit, if not the letter, of the law with
reference to its legal loan limit and, furthermore, enjoying
indirectly the use of the rediscount facility of the Federal
Reserve Bank. If the loans are in fact made at the instance of
the member bank, instead of the non-member bank, apparently
there is no g9od reason for making them payable to an individual who is an officer of the non-member bank and, in our
•
00PY
- 2 X-1813-k-1
judgment, the fact that they are made payable to him, instead
of to the member bank which is sup?osed to have made the loan,
should place the Federal Reser~e Bank u1on inquiry as to the
legitimacy of the transaction.
It is our further thou&~t that it is not a sound
practice for a member bank to solicit loru1s and, as I stated
in my previous letter, where the officer of a non-member bank
has a pecuniary interest throu&~ a division of discount or
otherwise there would be an incentive through the use of the
rediscount facility to~uf~~~ xnso~1d credit.
I hope that this will give you a clearer understanding of the idea that I intended. to express in my previous letter
and it is still my opinion that nothing would be gained through
a ruling of the Board on this subject as tho matter of cli6iJility
and credit acceptability would have to be determined by the actual
facta in each case.
(Signed)
LYNN P.
TAlth~.
Governor.
RES~RV:S
FEDERAL
0
:t
S A l-'!
F R _'\. ?T
c!
sc
0
February 25, 1927.
Federal Reserve Board,
Washi~gto~, D. C.
Dear Sirs:
In reoly to your letter of Februar~· 17th (X-4794), you
are i~formcd t~t it is not a g~noral practice in this district
for the officers of b~iks to mru{e commercial loans for correspon~cnt banks and to receive commission for their services.
We
camtot recall any insta.:'lco in wnich a :10tc was offered to us for
discount, drawn payable to officers of a non-member bru1k. Had
such paper been submitted, however, ~~d had we detected tho fact
that the endorsers were officers of non-mmnbcr b~~ks, we would
have inquired into tho purpose of making tho loa..• in such form,
to determine, first, whether the member b~~k was ap~lying for
funds of the Federal Reserve Ea~~ with the object of extending
its business beyond ordinary channels, and, secondly, whether the
member b~~k ap~lying for the discount was acti~ as agent of a
non-member bank •
.A.s ~roumay real~zc, it is quite a custom for city ba.~lcs
to gra:1t relief to country corros")o:::ldents b~r "9Urchasing custoi]lers 1
notes without recourse, or by making direct loa•1s, ~articularl:i in
the case of excess lines, to customers of country correspondents.
Tho for.m whic~ these loans truce v~rics quite considerably. Some
city bo.~~-:s require, wherever ...,ossiblc, that the loan s:i1all be made
on its own form of '9romissory note. In other instances, thc~r
require that the loans shall be made on the foiT.l of the corrcs;::>ondent b~•k, dr~wn to the order of the borrower or to the order of
the country b~~~. or, in rare instuncos, to the order of officers
of such count~· ba~. Whether or not sucll notes would be endorsed
without recourse would depend upon urrangements agreed upon.
Yours very truly,
(s)
Jno. U. Calkins,
Governor.
~
.• it
.i
j,_t,ljo,J
X-4814
FEDERAL RESERV"E :BOARD
Statement for the Press.
Fot imrnediate release
March 23, 1927.
Condition of Acceptance :.:arket
February 17, 1927 to March 16, 1927.
Acceptances.
T.~ere was a temporary scarcity of new bills offered in the New York acceptance
market during the first week of the reporting period, February 17 - March 16, ,but
later the supply regained its former volume, consisting chiefly of bills based on
cotton, silk, coffee, and sugar.
The supply was small in :Boston throughout the
period, with cotton, sugar, wool, and rubber bills in largest number.
The demand
was active in both centers through February and then fell off somewhat, but in New
York dealers' sales reached an unusually large total during the week ending March
16, largely on account of foreign purchases.
Dealers' offerings to the reserve
banks v.ere light early in the period but later increased and their portfolios on
March 16 were reduced to the smallest proportions reported since last October.
Rates on 30 and 90 day bills were lowered by most dealers on February 25 in the
face of the limited supply and these lower razes prevailed during the remainder
of the period.
The following table shows the market rates on bills of various
maturities at the beginning and end of the period:
~raturity
30
60
90
120
150
180
days
days
da;)-·s
days
days
days
Bid
3
3
3
3
3
4
3/4
3/4
7/8
7/8
7f8
Feb.l7
Offered
3
3
3
3
3
3
5/8
5/8
3/4
3/4
3/4
7/8
March 16
Offered
Bid
3 5/8
3 3/4
3 3/4
3 7/8
3 7/8
4
3
3
3
3
l/2
5/8
5/8
3/4
3 3/4
3 7/8
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March 24, 1927.
SUBJECT:
Deductio~
in Computing Reserves of Member Eaw<s.
Dear Sir:
The Board has received from one of the Federal reserve
ban'cs a letter r:;;.ising certain questions as to the inter"?retation
of the "Board's rulir.t{':' of October 27, 1926 (X-4705) on the question
whether a me:nber ba.'1.k in computing its reserves ma:r yroperly treat
as amounts due from ba.'1.ks credits actually eYJ.tered ~Y corres:oondent
banlcs representiYJ.g such items as cou;?ons, chec':cs drawn on themselves
by coroorations otner than banks, bill of lading drafts, etc., vrhich
items nave not yet actually been collected by the correspondent banks.
In this ruling the Board held t:aat when credit has actually been
entered by a correspondent bank on items of this kind forwarded to it
by a member bank and the member bank is i~~ediately entitled to draw
against the credit so entered, the amount of this credit may properly
be considered an a."nount due from banks and deducted by the member
bank from its balances due to baru{S notwithstanding the fact that the
corresp~'~ndent bank has not yet actually collected the items.
The first question submitted was whether a bailie in computing
its reserves may anticipate on the basis of past experience that
credit will be given by its corresponder:t bank itn-~ediately upon receipt of the items or should.wait '.lntil it has advice that credit has
actually been given. Where there is an agreE~ment between the forwarding bank and the correspondent bank by the ter'ins of which the credit
is given to the forwarding bank immediately upon receipt by the correspondent, the situation is the same with regard to i ~e ,r:. of the
kind under consideration as in the case of checks and other cash items,
and the same rules with regard to deductions should apply.
In cases
where there are such agreements, therefore, items such as coupons,
checks drawn on themselves by corporations other than banks; bill of
lading drafts, etc., which have been placed in the·mails and charged
to the account of a correspondent bank, may be treated as balances
due from banks and may be deducted from due to ba~~ balances by the
forwarding barik in com~uting its reserves. In the absence of such an
agreement between the forwarding bank and the corres?ondent bank the
deduction ma:,r.hot be ·::>ermitted, until the items have actually been
collected and ~laced to the credit of the forwarding bank .
•
-1! ('ll_ 0
-~L j
x-4sl6
2
The second inquir~· was whether under the ruling referred
to a bank should be "?ermitted to deduct i terr.s of t:1is ~dnd provided its· corres-?onde:nt bank credits such i te1-:1s imnedia.tcly ,xpon
recei nt, regardless of whether or not t::-1e ba.n3: has i tsolf crodi ted
its own denositor. Here ·again when there is an agreement by the
corrcs"?ondent, ba."l~-~ to give i:n-ncdiate credit the i te:ns under consideration should be treated in the sa11e manner as chec~:s and other
cash items. Consequently when there is such an agreement, these
i te:ns may be deducted as soon as the:' have been :9laced in the mails
and charged to the account of the corres?ondent ba.!~, regardless of
whether or not the forwarding ban~ has given credit to its own
depositor.
By direction of the Federal Reserve Board.
Very truly yours,
Walter L. Eddy.
Secretary.
TO GOVEIDTORS OF .ALL FEDERAL RESERVE B.Al\!T{S.
,.,
t60
X-4517
FE.DERAL
RESERVE
BOARD
STATEME!rr FOR THE PRESS
For release in Uorning Papers
Mondey, March 2S, 1927.
a
The following is
s~nary of general business and
financial conditions throughout the several Federal
Reserve Districts, based u~on statistics for the
months of February and March, as co:1tained in the
forthcoming issue of the Fodcrcl F~servo Bulletin.
Industri.3.l output increased furt:1er in February a."ld was slightly larger
than a year ago, and d.istri but ion of
than for the
corrcs~onding
co~·nodi ties
period of any
by the railroads was larger
~revious
year.
The general level of
wholesale "J?rices continued to decline and rras in February at the lo;vest level
since the summer of 1924.
Production
Production of manufactures increased in Febru.ar;;.· for the second consecutive
month, and the output of minerals, after declini:1g in
more in February to the record level reached last
~nd
Ja.."l.uar~r,
Dec~~ber.
advanced once
Factory production
employment, howevert continued smaller than during the corresponding month
of last year.
Production of iron and steel has increased steadily since December,
and reports indicate that operations of steel mills in March were at almost the
sa~e
high rate as in March, 1926.
~tomobile
production increased from 234,000
cars in Ja"l.uary to 295,000 cars in February, and weekly figures of em?loyment
in Detroit factories indicate some further additions to production in March, but
output has continued much smaller then a year ago.
Daily average
consum~tion
of cotton by mills in February was larger than in any -,revious month on record,
but activity of· w,ole:J. mid siU:: mills dccrco.sod ns cor:!"90.rcd. "il'ith January. Pro•
duction of bituminous coal has boon maint~incd in lr:trgc volUMe, while that of
X-4817
2
anthraci to has been
considernbl~:
smaller d.u.ring the first two
The ou tpu.t of building materials was
of tl1is ye.::tr than in the corres·;onding
mont~1s
The val"'J.e of buildi:v; contracts awarded in February was 3 per
period of 1926.
~ent
reduced.
smaller than in the
of last ;)'ear, but awards for the first three
s~e ~onth
weeks in March were in an~roximately the same volume as in 1926.
Contracts in
Southeo..stern and Northwestern states have been considerably smaller than a year
ago, while those in the Ce:1tral West have been much larger.
Trade.
Retail. trade showed less than the usual seaso~al decline between January
and February.
Februa~·
Sale' of department stores and chain stores were larger than in
of last year, while those of mail order houses were smaller.
sale firms reported a
~~aller
m1ole-
volume of business in February than a year ago,
and this decline occurred in nearly.all leading lines.
Inventories of depart-
ment stores increased in February in anticipation of the usual expansion in
spring trade, but the growth wns less than is customary at this season and at
the end of the month stocks were slightly smaller than a year ago. Stocks of
merchandise carried by wholesale
fir~s
also increased in February, but they were
generally smaller than in the corres·.;onding month of last year.
Railroad shi1)ments of com!:lodities have. increased steadil;>r since January by
more than the usual seasonal
last year, owing to larger
~ount
and have exceeded those for the same
shi~ments
~riod
of coal, of miscellaneous commodities, and
of merc:..-,.andise in less-tl'l.an-car-load lots.
Prices
lf.holesale prices, according to the index of the Bureau of tabor Statistics,
co~tinued
to decline in February.
Among non-agricultural products decreases
X-4317
3
occurred in the urices of coal, pctrolcun, iron ::t:J.d steel, nonferrous metals,
and bJ.:T.ber, and tho index for non-c:.gricultural oriccs as a grou:;> was at the
lowest post-war level.
Prices of l i vostock and. livestock
ing materials advanced in Februar:l·
~roducts
and of cloth-
During tho first three weeks of March there
rrere decreases in prices of grains, li vostock, sugar, silk, wool, coa.l, petroand gasoline, while prices of potatoes, pig iron, hides, and rubber ad-
le~~.
Vfu'1Ced.
Banl-:: credit
Demand for
co~~ercial
credit at member ba"lks in leading cities increased
seasonally between the middle of February and the middle of March.
There was
also growth in the volume of funds used in the security market as indicated by
increases in loans to brokers and dealers in'securities.
loans of the reporting banks at the end of the
of last autumn.
Financial
o~erations
~riod
Consequently total
were close to the level
of the United States Treasury around the
middle of March, with distursements temporarily in excess of receipts, resulted
in a temporary ab'andance of funds which was reflected at me:nber
ban~-::s
in lead-
ing cities in a growth of deposits, in reduced indebtedness at the reserve
ba~{s,
and in increased holdings of securities.
At the reserve
ba~s.
follo~ing
changes in holdings of bills and securities
acco:n?anying the financial operations of the Treasury, the total volume of
credit outstanding on March 23 was somewhat larger than four weeks earlier.
Conditions in the money market in March were slightly fi!T.ler than in February.
Rates on pr~e co~nercial paper advanced from
4 per
cent to
4 - 4 1/4
cent and call money was also higher, while rates on acceptances declined sowe';ihat.
per
FEDERAL RESERVE BOARD
x-4313.
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
H::crch 23, 1927.
SUB.DCT:
Group Life
I~1surance.
Dear Sir:
It is the Boa:::·d 1 s understo.ading tLat all Federal reserve bM~cs
have tDken out c.:rrplo~rees • grou:;:> life insura:'lce covering. officers and eoployees at both :-.ead offices and branches in an n;,1ount equal to their
annual salaries with a naximu:n lioit, usually (f $5,000. We also understand that recently sooe of the Federal reserve bonks have made arrDngemerits with insu.ra:1ce cormmnies to allow cnployees of the bo.n:c to tak:e out
additional group ins·u.rance at their own ex,9ense, or at a. flat rate, any
difference between such rate and actual cost being charged or credited to
the bo.n:c 1 s expenses. The Board would like to have rather cor:1plete information in its files regarding the group life ins·J.rance policies now carried by each bank on the lives of its officers and employees, and I would
request that you furnish it, at your earliest convenience, with the following inforr:J.ation:
•
1.
Date on which baruc first took out group life insurance.
2.
N3me of the company with which original policy was tclcen
out, together with all cho.nges in compr...nies to date and
reasons for changin5.
3.
Copies of all grou'l:) life insur2..nce contro.cts now in effect.
4.
Schedule of r.:1tes cho.rged by ages or groups, if not shown
in contracts now in force.
5.
Whether all c~nloyecs of heo.d office and br.:mch are considered as one grou) and if not how n:ru1y se·9arate groups
are there and what are the reasons for the se·~arate groups.
6.
Stater:.1ent showing tho following inforcation by years since
group life insurance has been carried:
Year Total
Premiu;'!ls
paid
Dividends
Net
Expense
Er.:ployees
.Average Average
age
lJo.
Average
cost per
er:1ployee
Clair.1s
paid
beneficiaries
..
,
x-40lg
2
7.
. 3.
Whether officers 0-nd e.::nlo;yoGs arc ']C'rr:1i ttcd to t~·::e out
aC.c~i tional group 1 ife ins,.1r:1:1.ce under -~~resent con tracts
~.lt t::ceir O':m ox·:wnso <:nd, if so, t'·w :'1.U.;:'bor cn.r:rying
tlJ.e ad.~lition:ll insu.r.'lnce, tLo a:1ou:1t of suc-::1 insur:mce
in force and tl1e :-·.ethod of nsscssL1g tJ.1c e::.ployees
therefor •
If bn:.ll<:: ~las wade n.rrange:::;ent s refcrrod to in No. 7 above,
sl:..ow rate ~L:lc1. tot:.•l u:.:o1mt p'licl b:,· e:-::?lo;yees for additiona.}.
grou;? ins'..lr:>.:lce anC. cost, if ru1.y, ascu::~:cd by bun,J.:.
It will ·oo ap)rccio.tec1_ if you will f·.1.rnis::;. us, in adC::.i tion to
the above infor;:;ation, su.ch data as ;y-ou :ulVo bcarL•g o::. the reasoas for
cha.:1ges froo ;year to ~tear in tho cost of croup life ius-.1T&-:1cc ar.d other
pertine:1t data. reg.1rding ;ro~.lr ex::erioace 71'i th grou:p life insurance which
you thi:nk would be of interest to tLe Board.
Ver,/ tru.ly yours,
lt'al ter L. Edc.J·.
Secretar.r •
..
FEDERAL RESERVE BOARD
WASHINGTON
X-4820
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March 31, 1927.
SUBJECT:
Changed Procedure in Elections of Class
A and B Directors.
Dear Sir:
At the last Conference of Federal Reserve Agents
Messrs. Haxton, Martin and Curtiss were appointed a
committee to submit a plan providing for changes in
the procedure. now followed by the Chairmen of the
Federal reserve b~~ks in electionsof Class A and E
Directors, along the lines of the discussion of the
subject which took place at the Conference.
The
Committee's report, copy of which is enclosed, has
been filed with and approved by the Federal Reserve
Board, and the procedure outlined therein should be
made effective at the time of the next elections.
Very truly yours,
D. R. Crissinger,
Governor.
(Enclosure)
TO .ALL CHf.. IRMEN •
c
0
p
X-4321.
y
December ·13,
1923~
Examinations of member banks.
Mr. James
Mr. wyatt and Mr. Herson
During a conversation we had with yon recently, we suggested a
.
possible solution of the entire problem of examining member banks and you
requested us to give you a memorandum containing a discussion of the plan
we had in mind.
It is believed that the plan will be mqch better under-
•
stood if, before outlining the plan itself, we discuss briefly the problems
involved in the examination of member banks and the methods by which the
various features of this
~roblem
I•
1.
might be
ap~roached.
THE ?RO'BLEM. .
The Federal Reserve Act originally required the Com--/troller
of the Currency to examine all member banks (both State and national) at
least twice a year and to assess the expenses of such examinations
the banks
ex~uined
2.
agaL~st
in proportion .to their resources.
. That provision is still applicable to national banks; but
the State banks were unwilling to subject themselves to examination by
the Comptroller of the Cnrrency, and in order to induce them to join the
System the .Act was amended June 21, 1917, so as io exempt them from this
requirement.
3·
.As a substitute,
howe~er,
they were made subject to exami-
nation bw the Federal Reserve Board or the Federal reserve banks, and it
was expressly provided that the oxpenses of all suCh examinations Should
I
be assess&d against the ba."lks e.xamined.
'"
X-4&21.
- 2-
4.
to
ex~~ine
The Fedorol Reserve Board
~oe~
not exercise its authority
State member banks but leaves that function to be performed
by the Federal reserve b:mks.
5·
In order to reduce the costs of
membershi~
and thus mru{e
it more attr:1ctive to State bc...nks, the Federal reserve b:ll'1kJ adopted the
practice of absorbing the exnenses of
6.
This
w~s
ex~mining
State memrer banks.
manifestly unfair to the nationE::.L banks ,which
had to nay for their exnminations and was a ?lain violation of the law.
7.
serve
Under d'J.te of April 7, 1923, therefore, the Federal Re-
Boar~ r~led
t:m.t the law must be com?lied
~ith
and that Federal
reserve b'mks must assess !',gainst State member bDnks the costs of their
examinations.
3.
This ruling met with a storm of
r0serve bnnks and from some member banks.
pro~E'st
from the Federal
It was clairaed that it was
unfair to the State member banks, mo.ny of whom had joined the System on
the assurance that they would not be assessed fo1 tLe ex-penses of their
e:xc.'mlina.ti ons.
Some of the State banks even ta.:i.l-: of wi thdra.wing from
the System for this reason alone.
9·
It has also been claimed, both before the Board and be-
fore the Joint Congressional Committee on
M~~bership
in the Federal Re-
serve System, that this ruling of the Board will be an additional reason
why State banks will not join the System.
10.
Under these circumstances, it is to be expected that Fed-
eral reserve banks will refrain from examining State member banks except
when compelled to do so, and that even then they will ado-,t any possible
x-4fS21.
- 3 -
OX'l')edient to avoid s.ssossing the costs of such e7.A"":'linations ngainst the
,
banks exc.!nined.
11.
In many cases, State
of examinations by the
Fcder~l
will be
acce~ted.in
lieu
reserve bam:, even though they are entirely
inadequate and unreliable, as they
12.
ox~inations
alw~s
are in most of the States.
Even uben the Federal reserve bariks exacine State member
banks, the value of their
ex~~inations
is somewnat
impa~red
by the fact
that they are not independent, disinterested parties, -JUt are the creditors
of the bc.nks examined, havo consto.nt dealings with them and frequently are
on very friendly relations with
13.
theo~
lndeed, such exaninations often amount to nothing more than
credit investigations, especially since the Board has ruled that the expenses of !!lere "credit investigations" need not be assessed Otgainst the
banks examined.
14.
.
Furthermore, there is an entire lack of uniforei ty in bank
examinations •. The Comptroller of the Currency has one method and
~:~tandard
of examination; the 48 States have 4s different kinds and standards of
exaoinati.ons; and the 12 Federal reserve banks have at least 12 different
kinds, and probably more, since their
ferent States of their
re~pective
practi~es
districts.
usually vary in the dif-
Thus we have something more
than 57 varieties of bank examinations.
15.
In view of these facts, it certainly cannot be denied that
the Federal Reserve System has not fully accomplished one of the fundamental purposes of the Federal lieserve.Actsion of banking
16.
~roved,
i~
to establish a better supervi-
the United States".
~is entire situation is very undesirable ~d should be
if p01sible.
11
- 4 -
X-4821
;··
II.
METHOD OF SOLTJTIO!T
(\
~~~j1
One way to remove the irritation and dissatisfaction ,resulting from the
Board's ruling requiring Federal reserve banks to assess the expenses of examining Stat--member banks against the banks examined, would be to get the law
amended so as to legalize the preexisting practice whereby Federal reserve
banks absorbed the expenses of such examinations.
This would also make ;nember-
ship more attractive to State banks by reducing the expenses of membership
a~d
•
removing entirely one of the reasons for non-membership reported to the Congressional Committee.
It would also meet indirectly another demand made to the
Congressional Committee - namely, that member banks be permitted to share r.10re
largely in the earnings of the Federal reserve banks, which have been quite
large.
It would be manifestly unfair to nat iona.l banks, however, to· permit Federal reserve banks to absorb the expenses of examining State member ban'rs without also absorbing the expenses of examining national banks.
No such discrim-
ination against national banks should be considered, and if Federal reserve
banks are to bear the expenses of examining State member banks, they should also
bear the expenses of examining national banks.
Any legislation on the subject,
therefore, should deal alike with the. expenses of examining all member banks,
both State and national.
It might be argued that to permit the Federal
~eserve.banks
to absorb the
expenses of examining national banks as well as State banks would be unfair to
the State banks, because the State banks would still have to bear the er2enses
of examinations made by the State authorities whereas the national banks would
be relieved of all such expenses.
The proper and natural solution for t:mt dif-·
ficulty, however, would be for the State banks to gp to their legislatures
&~d
secure the enactment of a law which would permit or require the State authorities to accept examinations made by the Federal authorities in lieu of exar.aine-·
X-4821
- 5 -
i
t'-'()
\];
tions made by tho State authori ti.cs. A few States already have such ln.ws with
respect to member banks, and the enactment of suCh laws in other States would
tend more and more to a substitution of Federal examinations of a high type and
uniform character for State .examinations whicn in most States are notor..iously
insuffict.nt.
This is a result which is very desirable.
The expenses of examining all member banka (both State and national)
would be so great, however, as to make 1t d.oub tful that Federal reserve banks
could bear such expense: in normal times when their earnings are small without
depleting their dividends andpossibly impairing their surplus.
To avoid this
undesirable result, Federal reserve banks should be permitted to 'bear such expenses only when they can do so out of their excess earnings, after the payment
of all other expenses and their dividends.
Whenever the excess earnings are in-
sufficient to cover the expenses of examinations, the deficiency should be made
·up by assessments
~ainst
all member banks in proportion to their resources, as
national banks are now assessed by the Comptroller of the Currency.
While it is believed that the expenses of examining all member banks could
well be defrayed out of the excess earnings of the Federal reserve banks when
they are sufficient for the purpoae, it is not believed that the function of
making such examinations should be entrusted to the Federal reserve banks.
The
disadvantage of having Federal reserve banks examine State member banks are set
forth above, and the present excellent system of examinations of national banks
by the Comptroller of the Currency should not be in terfor\,d •:·i tll
ir~
r£Y -r:a:y.
It is believed that it would be desirable to have all State member banks
examined regularly by the Comptroller 4f tho
~~cy,
aa they were
re~ired
to be under the original Federal Reserve Act; but experience has shown that
State banks are unwilling to submit to eXamination by the Comptroller of the
Currency.
l\
The most feasible solution, therefore, would be to let the Comptrol-
ler of the Currency continue to examine national banks as at present and let the
Federal Reoorve lloerd
http://fraser.stlouisfed.org/
. \
.
--.. .. -·-···
Federal Reserve Bank of St. Louis
teJr;e
-
ov01' the function of 8lt8Jllining State member banks,
I
X-4821
... 6 -
and make regular examinations of all State member banks, such examinations to be
of a u,niform ty:pe a.."'l.d of a standard at least as high as th-:1t attained by the
Comptroller of the Currency.
This could be done without any amendment to the
law, and would eliminate all the objections to the present more or less haphazard
methods followed by the various Federal reserve banks and would make sure that
all member banks, both State and national, would l;l.e given the benefit of regular
1
examinations of a uniformly high standard by
disinterested in, the banks examined.
purpose of the Federal Reserve Act
11
e~iners
totally independent of, and
It would gp far toward accomplishing the
.
to establish a more effective supervision of
banking in the Uhi ted States".
It would
re~lt
also in certain collateral benefits, one of which would be
greater economy and efficiency in the
ex~inations
of State member banks. Instead
,·of 12 different examining forces maintained by the various Federal reserve banks,
, there would be a single staff under
th~
Federal Reserve Board,...wi th the increased
economy and efficiency which would result from such consolidation.
force probably would be divided, for convenience, into
~oups
While such a
stationed at the
various Federal reserve banks, it could be concentrated in one place, say to examine a large State member bank with a large number of branches, or to examine a
chain of
~filiated
member
b~"'l.ks.
This would solve once for all the troublesome
problem of examining banks such as the Bank of Italy.
The examination of State member banks by the Federal Reserve Board would
also settle the much mooted question of the right of State member banks to advertise that they are under Government or Federal a-u±,orriaion.
In 1920, the Board
ruled that member banks might properly advertise that they are subject to Government or Federal supervision, and in reliance upon that ruling many State banks
advertised that they were under Government supervision and prepared expensive
, signs and stationery bearing this legend. In March, 1923, however, the Board re-·
•
versed that position and held that,inasmuch aa State member banks are not examined by the Federal Reaerve Board or any other representative of the Federal
Government, but are merely examined by the State authorities and the Federal re-
- 7 -
sArve bar.ks (which are
~1ot
arns of the Fedcr':l.l G-overnment), they should aot a.dver-
tise that they are u..."'lder Gover:r....-nont supervision! This hc.s caused U1'.1Ch 'dissatisfaction Dnd some friction on the part of the State uembor banks, a few af which claim
that the principal reason for th8ir joinbg the :d.,ederal Reserve System was to obtain the prestige that they would gain by bebg .c;,blc to advertise that they are
"under Federal su!'ervision. n
If the Bou.rd, itself, should U."'lderta1-ce to examine
all State menber banks, as it is now authorized to do by law, it would be perfectly proper for the State member banks to advertise that they are under Government
su~rvision,
this source of friction would be re:1oved, and a."l additional induce-
i'
ment would be given them to join the Federal Reserve System.
In order to avoid depriving the Federal reserve banks of their sources of
information as to the condition and credit policies of their member ba."lks, they
should be furnished at· all times with full copies of all reportliJ of examinations
of all member banks, both State
and
national, and the examinations should be so
conducted as to produce the infornation which they need.
Board and the
Co~troller
of the Currency
sho~d
Furthermore, both the
stand ready at all times to make
special examinations of mer.1ber banks whenever requested by the Federal reserve
bru1.l::s.
b~~ks
Such other special credit informrttion' as is desired by the Federal reserve
could be obtained by members of the staffs of their credit or discount de-
partme~ts,
ments.
and it would not be necessary for them to maintain examining depart-
The law should be amended so as to make clear their right. to make such
credit investigations without assessing the costs thereof against the banks
examined.
If the examinations of member banks were thus to be conducted by the
troller of the Currency
~"'ld
Com~
the Federal Reserve Board, the Federal reserve banks
could not absorb directly the expenses of such examinations, and a method would
have to be devised of assessing such costs against them. This could be covered by
X-·4821
- 8 -
an
~~endment
to the law authorizing the Federal Reserve Board to defray the ex-
penses of examining State member banks and
al~o
the expenses of the examinations
of national banks by the Comptroller of the Currency.
The Eoard already fixes
the salaries of P:ational bank examiners upon the recommendation of the Comptroller of the Currency, and it could easily be authorized to go a step further
and pay their salaries and expenses.
All such ?ayments could be made from
funds derived. from assessments levied by the Federal Reserve Board on the Federal reserve·banks, whenever their excess earnings are sufficient, and from
assessments on the member
ba..'l~s
reserve banks are insufficient.
whenever the excess earnings ::,f the Federal
Eaving these assessments levied by the Federal
Reserve Eoard rather than by the Federal reserve ba'lks would incidentally reduce somewhat the temptation of the Federal reserye ba'lks to make excessive
earnings in order to avoid hav.ing to assess their member banks •
•
• g ••
X-4S21
1.
Let the Cor:rotroller of the Currency continue to examine all
'
.'
national:, bonks as at present, but have tho ex"?enses of such ex:::uninations
defrayed by the Federal Reserve Board out of funds derived from assessments
on the Federal reserve banks or on all member banks.
2.
Let all State member banks be examined regularly by the
Federal Reserve Board instead of irregularly by the Federal reserve banks.
3. Furnish Federal reserve banks with full copies of all reports
of examinations of member banks made by the Comptroller of the Currenc,v or
by the Federal Reserve Board and have special examinations made by the
Board and the Comptroller when requested by the Federal reserve banks.
4.
In addition to examinations made by the Federal Reserve
Board or tile Comptroller of the Currency, permit the Federal reserve banks
to make credit investigations of State
me~ber
banks at any time they con-
sider it desirable to do so, without assessing the costs against the
member banks.
5·
Whenever the excess earnings of the Federal reserve banks
(after payment of expenses and dividends) are sufficient, let the Federal
Reserve Board pay the expenses of examining all member banks, both State
and national, from funds derived from assessments on the Federal reserve
ba:rlb.
6.
Whenever the excess earnings of Federal reserve banks are
not sufficient to defray the expenses of examining all member banks, let
the Federal Reserve Board make up the deficiency by assessments on all the
member banks in proportion to their respective resources on the dates of
exami~tion.
X-4321. -1
}t_
CONCLUSION.
Much of the above plan, of course, could not be put into effect
unless the existing law is amended; but inasr:IUch as the Joint Congressional
CO!'!'.!":'littee is now investigating reasons why State banks do not ,join the
Federal Reserve System, and inasmuch as several features of the above plan
would tend to rnruce membership in the Federal Reserve System rnore attractive
to State banks, this
~uld
seen to be the 'sychological time to ask Con-
gress to enact such a'"!lendments.
If you consider th0..t the -plan has sufficient
rneri t to make i t -.·1o rth i7hilEJ, we stall be glad to draft a bill e.':!bodying
the necessary
amen~~ents.
In drafting such a bill, it woulcl not be amiss to insert a provision relieving Federal examiners of the limitation of Five dollamper day
now prescribed by statute on the allowance for maintenance of Federal officers and employees while travelling on Government business.
Five dollars
a day is notoriously insufficient for this purpose, since a good room at a
hotel costs that much or more without leaving anything for meals or other
incidental expenses, ani the present limitations of the law constitute
~ite
a hardship on persons travelling on Government business. It might
also
be possible/to make the amen~nt broad enough to relieve members of the
Federal Reserve Board and
e~ployees
of the Board, as well as the examiners,
from this unjust limitation.
Res'9ectfully,
( C O P T )
X-4822
April 6, 1957.
To
The Federal Reserve Board.
j gg
SUBJECT: Powers and duties of the
Board, the Federal Reserve Agents and
the Federal Reserve Banks with respect
to examinations of State member banks.
From Mr. Wyatt - General Counsel
The Federal Reserve Board has requested this office to render an opinion "setting forth the powers and duties of the Board, the Federal Reserve Agents.
k
4
and the Federal reserve banks with respect to examinations of State member 'banks."
OPINION
After very careful consideration of this subject, I have reached certain
conclusions which will be summarized below for the convenience of the Board.
No
mere summary of my conclusions, however, can be sufficient to inform the Board
adequately as to the exact nature and scope of the powers and duties of the Federal Reserve Board, Federal Reserve Agents and the Federal reserve banks with
respect to examinations of State member banks.
The Board's attention is respect-
fully invited, therefore, to the discussion which follows this summary of my
conclusions.
My conclusions may be summarized brief as follows:
1. Powers of the Federal Reserve Board.
1. Under Section 11(a), the Federal Reserve Board ia authorized and empowered to examine at its discretion the accounts, books and affairs of each
member bank and to require such statements and reports as it may deem necessary.
2. Under Section 11(1), the Board is required to perform the duties,
functions or services specified in the Federal Reserve Act and to make all rules
and regulations necessary to enable said Board effectively to perform the same.
3. Under Section 9, the Federal Reserve Board is authorized to direct
examinations to be made of all State member banks by examiners selected or
approved by the Federal Reserve Board.
4. Even when the directors of the Federal reserve bank have
approved
and accepted
the examinations mado by the State authorities in lieu of
- 2 -
X-4822
16^
Federal reserve examinations, the Federal Reserve Board may order special examinations of such banks when it deems necessary.
5. All examinations made under authority o£ Section 9, either under the
direction of the Federal Reserve Board or under the direction of the Federal reserve bank, mast be made by examiners selected or approved by the Federal Reserve
Board and the Federal Reserve Board is required in all cases to approve the form
of the report.
6, Section 9 as amended provides that the expenses of all examinations,
other than those made by the State authorities, shall be assessed against and paid
by the banks examined.
II. Duties of the Federal Reserve Board.
1. The primary function and duty of the Federal Reserve Board is to see
that all provisions of the Federal Reserve Act are administered, enforced, and
complied %ith in such a way as to carry out faithfully the purposes of the Federal
Reserve Apt and the intent of Congress in enacting the Federal Reserve Act.
2. One of the purposes mentioned in the title of the Federal Reserve Act
is "to establish a more effective supervision of banking in the United States."
3. In order to carry out this purpose the Federal Reserve Board is given ^
ample authority to examine State member banks at its discretion and to require
such statements and reports as it may deem necessary.
4. The Federal Reserve Act also contains many regulatory provisions designed to improve banking conditions and to prohibit dangerous, unsound and fraudulent banking practices; and it is necessary for the Federal Reserve Board to
have available reports of examinations sufficient to disclose violations of such
provisions in order to enable the Federal Reserve Board to enforce these provisions of the Federal Reserve Act.
5. Even as to examinations made at the direction of Federal reserve bankfif,
the Federal Reserve Board is specifically required by law to select or approve the
examiners making
such examinations and in all cases to approve the forqs of the
reports of such examinations,
6. It is reasonable to assume that Congress expected the examinations made
by examiners selected or approved by the Federal Reserve Board under the provisions
of Section 9 to be the same " thorough examinations of all the affairs of the bank!'
as were previously required to be made by the Comptroller of the Currency and that
in prescribing the forms of the reports of such examinations the Federal Reserve
Board would require them to be the same " full and detailed" reports of the condition of the banks as were required to be rendered by national bank examiners.
?. The ultimate responsibility for seeing that proper, adequate and sufficiently frequent examinations of all State member banks are made rests squarely
upon the Federal Reserve Board.
8. This responsibility cannot be discharged by permitting Federal Veserve
banks to make mere credit investigations which are so limited in their scope that
they cannot adequately disclose the financial condition of the banks examined,
the character of their management, or violations of the provisions of the Federal
Reserve Act.
.
9. It is the duty of the Federal Reserve Board to enforce that provision
of the Federal Reserve Act which requires the expenses of all examinations of
State member banks, other than those made by the State authorities, to be assessed against and paid by the banks examined.
III. Powers of the Federal Reserve Agent.
'
1. Except for the power granted by Section 21 of the Federal Reserve
of,
Act to approve/ the making of special examinations of member banks by Federal
reserve banks, which probably is superseded by the provisions of Section 9 author-*
izing Federal reserve banks to make examinations without obtaining the approval of
the Federal Reserve Agent, no specific power with respect to examinations of member banks is granted to the Federal Reserve Agent by the Federal Reserve Act.
- 4 -
X-4923
IV. Duties of the Federal Reserve Agent.
'$• f)
{'?
1. By the provisions of Soction 4, the Federal Reserve Agent is required to
act as the official representative of the Federal Reserve Board and to maintain,
under regulations to be prescribed by the Federal Reserve Board, a local office
of said Board on the premises of the Federal reserve bank.
2. Through instructions issued by the Federal Reserve Board from time to
time, the Federal Reserve Agent is charged with general supervision over the examination of State member banks in each Federal Reserve District and is charged with
full responsibility for seeing that at least one examination of every State member
bank in his district is made each year,either by the State authorities or by the
examiners selected or approved by the Federal Reserve Board, and that copies of
reports of examinations made by the State authorities are filed with the Federal
reserve bank and the Federal Reserve Board.
3. For the faithful discharge of this duty the Federal Reserve Agent is responsible to the Federal Reserve Board; but the Federal Reserve Board is responsible for the ultimate result, because the Federal Reserve Agent is merely the
Board's agent or representative.
V. Powers of Federal reserve bpnks.
\
1. Under the provisions of Section 9, the Federal reserve banks are authorized to make examinations of all State member banks, such examinations to be made
by examiners selected or approved by the Federal Reserve Board and the forms of
the reports of such examinations to be approved by the Federal Reserve Board.
2. The directors of the Federal reserve banks are authorized to approve the
examinations of State member banks made by the State authorities and to accept such
examinations and the reports thereof in lieu of examinations made by examiners
selected or approved by the Federal Reserve Board.
3. This, however, does not preclude the right of the Federal Reserve Board
to make its own examinations nor relieve the Board of its duties with respect to
examinations.
v 5 —
X—4882
4. Under the provisions of Section 21, Federal reserve tanks are author-
J
"
ized, with the approval of the Federal Reserve Agent or the Federal Reserve Board,
to make "special examinations" of member banks in their districts.
5. It is provided that such "special examinations" shall be so conducted
as to inform the Federal reserve banks of the condition of their member banks and
of the lines of credit which are being extended by them.
6. The expenses of all examinations of State member banks, other than
those made by the State authorities, are required to be assessed against and
paid by the banks examined.
71.Duties of Federal reserve banks,
1. The principal purpose of "special examinations" made by the Federal
reserve banks clearly is to inform the Federal reserve banks with respect to
the condition of their member banks and the lines of credit which are being
extended by them, in order that the Federal reserve banks may "extend to each
member bank such discounts, advancements and accommodations as may be safely
and reasonably made with due regard for the claims and demands of other member banks", as required by the provisions of Section 4.
2. This would also seem to be the primary purpose of the other examinations which Federal reserve banks are authorized to make under Section 9.
3. Unless examinations made by the State authorities or by examiners selected
or approved by the Federal Reserve Board are available, and unless such examinations are sufficient to inform the Federal reserve banks as to the condition of
their State member banks arid the lines of credit being extended by them, it is the
duty of the Federal reserve banks to make "examinations" of State member banks sufficient to inform them a 8 to the condition of such member banks and the lines of
.
credit being extended by them and tp assess the costs of such examinations against
the banks examined,
4. So-called "credit investigations" made by the Federal reserve banks
without assessing the costs against the member banks are, by their very nature,
so limited in their scope as to be insufficient to discharge the responsibility
of the Federal reserve banks with respect to informing themselves as to the
condition of member banks and the lines of credit extended by them.
-
6
-
X-4822
1 /1
DISCUSSION.
The principal powers of the Federal Reserve Board are set out in Section
11 of the Federal Reserve Act.
The first five lines of that section, which have
never teen amended and still appear in the Federal Reserve Act in the form in which
they weTe originally enacted, read as follows:
"Sec. 11. The Federal Reserve Board shall be authorized and empowered:
"(a) To examine at its discretion the accounts, books
and affairs of each Federal reserve bank and of each member
bank and to require such statements and reports as it may deem
necessary."
The very first power granted to the Federal Reserve Board under this section, therefore, includes the power to examine, at its discretion, the accounts,
books, and affairs of each member bank and to require such statements and reports
as it may deem necessary.
Moreover, Section 11 (i) provides, in part, that:
"* * said board shall •perform the duties, functions, or services specified in this Act, and make all rules and regulations
necessary to enable said board effectively to perform the same.?*
It will be noted that this section is mandatory.
Reading these two pro-
visions of the Federal Reserve Act alone, therefore, it would appear that the Federal Reserve Board is required to examine the accounts, books and affairs of each
member bank.
,
j
The principal section of the original Federal Reserve Act on bank examina-?
tions, however, was Section 21, which reads in part as follows:
"Bank Examinations.
"Sec. 21. Section fifty-two hundred and forty, United
States Revised Statutes, is amended to read as follows:
"The Comptroller of the Currency, with the approval of
the Secretary of the Treasury, shall appoint examiners who
shall examine every member bank at least twice in each calendar year and oftener if considered necessary: Provided, however, That the Federal Reserve Board may authorize examination
- 7 X-4822
-I > 6?
by the State authorities to he accepted in the case of State
banks and trust companies and may at any time direct the holding
of a special examination of State hanks or trust companies that
are stockholders in any Federal reserve bank. The examiner mak-r
ing the examination of any national bank, or of any other membey
bank, shall have -povror to make a thorough examination of all the
affairs of tho bank, and in doing so he shall have power to administer oaths and to examine any of the officers and agents thereof under oath and shall make a full and detailed report of the condition of said bank to the Comptroller of the Currency.
"The Federal Reserve Board, upon the recommendation of the
Comptroller of the Currency, shall fix the salaries of all bank
examiners and make report thereof to Congress. The expense of the
examinations herein -provided for shall be assessed by the Comptroller
of the Currency upon the banks examined in proportion to assets or
resources held by the banks upon the dates of examination of the
various banks.
"In addition to the examinations made and conducted by the
Comptroller of the Currency, every Federal reserve bank may, with
the approval of the Federal reserve agent or the Federal Reserve
Board, provide for special examination of member banks within its
district. The expense of such examinations shall be borne by the
bank examined. Such examinations shall be so conducted as to inform the Federal reserve bank of the condition of its member bapks
and of the lines of credit which are being extended by them. Every
Federal reserve bank shall at all times furnish to the Federal Reserve Board such information as may be demanded concerning the
condition of any member bank within the district of the said Federal reserve bank.
"No bank shall be subject to any visitatorial powers other
than such as are authorized by law, or vested in the courts of
justice or such as shall be or shall have been exercised or
directed by Congress, or by either House thereof or by any committee of Congress or of either House duly authorized."
It will be seen that the first paragraph of this section originally required the Comptroller of the Currency to appoint examiners who are required to examine every member bank at least twice in each calendar year, except that the Federal
Reserve Board might authorize examinations of State banks and trust companies by
State authorities to be accepted in lieu of examinations by the Comptroller of the
Currency.
It is also important to note the character of examinations provided for
in this paragraph.
The examiners are authorized "to make a thorough examination of
all the affairs of the bank" and were required "to make a full and detailed report
of the condition of said bank."
State banks, however, objected to being examined by the Comptroller
- 8 X-4822
of the Currency and, in order to ;aako the Federal Reserve System more attractive to
State banks, Section 9 of the Federal Reserve Act vo.s amended and reenacted by the
Act of June 21, 1917, so as to provide that State banks
1
1
shall not be subject to cxr
ami nation under the provisions of the first two paragraphs of Section fifj;y-two hundred and forty of the Revised Statutes as amended by section 21 of this Act".
State
banks, therefore, are no longer subject to examination by the Comptroller of the
Currency, as provided in the first paragraph of Section 21, but remain subject to
the special examinations by
Federal reserve banks provided for in the third para-
graph of Section 21,
In lieu, of the requirement of examinations by the -Comptroller of the Cur-?
rency, Section 9 as amended contains the following provision with referenpe to examinations of State member banks:
"As a condition of membership such banks shall likewise be subject
to examinations made by direction of the Federal Reserve Board or of
the Federal reserve bank by examiners selected or approved by the
Federal Reserve Board.
"Whenever the directors of the Federal reserve bank shall ppr*
prove the examinations made by the State authorities, such exajaiMotions and the reports thereof may be accepted in lieu of examinations made by examiners selected or approved by the Federal Reperve
Board: Provided, however, That when it deems it necessary the jjoard
may order special examinations by examiners of its own selectipn
and shall in all cases approve the form of the report. The expenses
of all examinations, other than those made by State authorities, shall
be assessed against and paid by the banks examined."
It will be seen that this subjects State banks to examinations made either
at the direction of the Federal Reserve Board or at the direction of the Federal reserve bank.
It is further provided that whenever the directors of the Federal Re-
serve bank approve the examinations made by the State authorities, such examinations
and the reports thereof may be accepted in lieu of examinations made by the examine
ers selected or approved by the Federal Reserve Board; but the Federal Reserve Board
may order special examinations whenever it deems it necessary.
Moreover, all such
examinations, whether made at the direction of the Federal reserve bank or at the
X-4822
- **
direction of the Federal Reserve Board, mast be aade "by examiners selected or approved by the Federal Reserve Board and the Federal Reserve Board is required in all
cases to approve the form of the report.
While the initiative with respect to approving State examinations is "by
the amendment transferred from the Federal Reserve Board to the hoard of directors
of the Federal reserve bank, therefore, the ultimate responsibility would seem to
*
remain in the Federal Reserve Board, since all examinations must be made by examiners selected or approved by the Federal Reserve Board, said Board must in all cases
approve the form of the report, and the Federal Reserve Board may at its discretion order special examinations whenever it deems necessary.
Moreover, the Board's
power to examine State member banks at its discretion under Section 11(a) remains
unimpaired except for the fact that Section 9 provides explicitly that, "The expenses of
all examinations, other than those made ty State authorities, shall be
assessed against and paid by the banks examined."
Reading all of these sections in the light of their history, therefore,
their effect may be summarized briefly as follows:
By the original Federal Reserve Act:
I.
le
The Federal Reserve Board was authorized, at its discretion, to
examine the accounts, books and affairs of each member bank and
to require such statements and reports as it may deem necessary;
2.
The Comptroller of the Currency was required to make at least two
examinations of every member bank each year, except that the
Federal Reserve Board might authorize the examinations by
the State authorities to be accepted in lieu of examinations
made by the Comptroller of the Currency;
3*
The examinations made "by the Comptroller of the Currency were re-
X-4822
quired to be
1
1
thorough exaninations" of all the affairs of the
"banks, and the reports of such examinations were required to "be
"full and detailed" reports of the condition of said hanks;
Every Federal reserve hank, with the approval of the Federal reserve agent or the Federal Reserve Board, was authorized to make
special examinations of member "banks in its district, which examinations were required to he so conducted "as to inform the
Federal reserve hank of the condition of its member banks and
of the linos of credit which are "being extended by them".
The expenses of such examinations were required to be assessed
against the bank examined;
It apparently was contemplated, therefore, that a thorough examination of all the affairs of every member bank would be made
either by the Comptroller of the Currency or by the State authorities at least twice every year and that, in addition to such
thorough examinations, the Federal reserve banks were to be permitted to make special examinations for credit purposes;
Under the amendment of June 21, 1917:
State member banks are no longer subject to examination by the
Comptroller of the Currency;
They remain, however, subject to examinations at the discretion
of the Federal Reserve Board under the provisions of Section
11(a), which examinations are to be examinations of the accounts,
books and affairs of such banks;
They also remain subject to special examinations by the Federal
reserve banks for credit purposes under the third paragraph of
Section 21, and the expenses of such examinations are required
-
11
-
X-4322
i / 8
to ba assessed against the banks examined;
4.
In addition to the above mentioned examinations, State member
banks are, by the provisions of Section 9, subject to examinations made by direction of the Federal Reserve Board or of the
Federal reserve bank in lieu of the thorough and complete examinations previously required to be made by the Comptroller of
the Currency.
5.
By the provisions of Section 9, the power of approving State examinations in lieu of Federal examinations is transferred from
the Federal Reserve Board to the board of directors of the Fed-?
eral reserve bank;
6.
It is specifically provided, however, that the Federal Reserve
Board may order special examinations of State member banks whenever it deems it necessary;
7.
All examinations made under Section 9 must be made by examiners
selected or approved by the Federal Reserve Board and the Boar<|
is required in all cases to approve the form of report;
8.
It is specifically provided that the expenses of all examinations
of State member banks, other than those made by State authorities, must be assessed against and paid by the banks examined;
With this preliminary survey of the provisions of the Federal Reserve
Act, I will now proceed to a consideration of the respective powers and duties of
the Federal Reserve Board, the Federal reserve agents and the Federal reserve bankp
with respect to examinations of State member banks.
POWERS AND DUTIES OF THE FEDERAL RESERVE BOARD.
From an analysis of the above quoted provisions of the Federal Reserve
4
Act, the powers of the Federal Reserve Board with respect to examinations of State
member "banks nay bo sunuiarized as follows:
1.
Under Section 11(a) the Federal Reserve Board is authorized and empowered
to examine at its discretion the accounts, books, and affairs of each member bank
and to require such statements and reports as it may deem necessary.
2.
Under Section ll(i), the Board is required to perform the duties, func-
tions or services specified in the Federal Reserve Act and to make all rules and re
gulations necessary to enable said Board effectively to perform the same.
3.
Under Section 9, the Federal Reserve Board is authorized to direct examine
tions to be made of all State member banks by examiners selected or approved by the
Federal Reserve Board.
4.
Even when the directors of the Federal reserve bank have approved and ac-
cepted the examinations made by the State authorities in lieu of Federal Reserve
examinations, the Federal Reserve Board may order special examinations of such
banks when it deems necessary.
5.
All examinations made under authority of Section 9, either under the di-
rection of the Federal Reserve Board or under the direction of the Federal reserve
banks, most be made by examiners selected and approved by the Federal Reserve Board
and the Federal Reserve Board is required in all cases to approve the form of the
report.
6.
Section 9 as amended provides that the expenses of all examinations, other
than those made ty the State authorities, shall be assessed against and paid by the
banks examined.
Turning now to a consideration of the duties of the Federal Reserve Board
it may be said that the primary function and duty of the Federal Reserve Board is
to see that all provisions of the Federal Reserve Act are administered, enforced
and complied with in such a way as to carry out faithfully the purposes of the Fed
<*
2
13 X-4832
1 V 8
era! Reserve Act and the intent of Congress in enacting the Federal Reserve Act.
The Federal Reserve Board is an independent establishment of the Federal Government
created especially for this very purpose.
One of the purposes mentioned in the title of the Federal Reserve Act is
"to establish a more effective supervision of banking in the United States".
To
this end, the Federal Reserve Act confers ample authority on the Federal Reserve
Board to examine State member banks and to require of them such statements and reports as it might deem necessary.
I
The Federal Reserve Act also contains many regulatory provisions designed
to improve banking conditions and to prohibit dangerous, unsound, and fraudulent
banking practices.
For instance, Section 9 requires all State member banks to com-
ply with the reserve and capital requirements of the Federal Reserve Act, and to
conform to those provisions of law imposed on national banks which prohibit such
banks from lending on or purchasing their own stock, which relate to the withdrawal
or impairment of their capital stock, and which relate to the payment of unearned
dividends; Section 9 subjects State member banks and the agents, officers gnd employees thereof to the provisions of, and the penalty prescribed by, Section 5209
of the Revised Statutes; Section 9 forbids State member banks to certify checks unless the drawer has on deposit an amount equal to the amount of such check; Section
19 forbids any member bank to make new loans or to pay any dividends while its reserves are deficient; and Section 22 contains numerous penal provisions providing
for the punishment of dishonest and fraudulent acts.
The fact that the Federal Reserve Board is charged with the duty of enforcing compliance with the provisions of the Federal Reserve Act and that the power to
examine Federal reserve banks is intended to enable the Board to perform this duty
- 14 X—4-322
- i ~t
is further indicated by the fact that Congress considered such power to "be
"visitorial" or "visitatorial" in its nature.
After providing for special ex-
aminations of State member "banks, Section 5240 of the Revised Statutes, as
amended by Section 21 of the Federal Reserve Act, provides that:
"Ho bank shall be subject to any visitatorial powers
other than such as are authorized by law, or vested in the
courts of justice or such as shall be or shall have been exercised or directed by Congress, or any House thereof or by
any committee of Congress or of either House duly authorized."
Construing a similar provision of
Section 5241 of the Revised Statutes, the
Supreme Court of Oregon construed the tern "visitorial powers" to mean the power
"to control and arrest abuses, and to enforce a due observance of the statutes";
(State v First National Bank of Portland. 6l Ore. 551, 123 Pac. 712).
Moreover, this is in accordance with the ordinary meaning of the term "visitorial powers".
The dictionary defines the term "visitation" as follows:
"The ac«t of a superior or superintending officer who
officially visits a corporation, college, church or the
like, to inspect the manner in which it is conducted, and
to see that its laws or regulations are observed and executed."
The Board's power of examination, therefore, is a "visitorial power" conferred upon it by Congress for the purpose of enabling the Board to control and
arrest abuses and to enforce compliance with the provision's of law pertaining
to member banks.
In view of the above, it seems quite clear that the ultimate responsibility
for seeing that proper, adequate and sufficiently frequent examinations of State
member banks are made rests squarely on the Federal Reserve Board.
Not only are such examinations themselves necessary in order to carry out
the purpose of the Federal Reserve Act "to provide for a more effective supervision of banking in the United States", but they are necessary in order to
enable the Board to enforce the regulatory provisions of the Federal Reserve Act
applicable to State member banks.
Thus, such examinations are necessary to
- 15 -
X--4822
I8(r
•J
enable the Board to know whether State member "banks are complying with the
reserve requirements of the Act; whether they are making loans or paying
dividends while their reserves are deficient; whether they are violating the
penal provisions of Section 22; whether they are violating the provisions of
Section 9 with reference to the over certification of checks; or whether they
are violating the provisions of the National Bank Act with reference to the
withdrawal or impairment of their capital stock or the payment of unearned
dividends.
Without examinations sufficient to disclose such matters, the
Federal Reserve Board cannot possibly discharge its fundamental responsibility
of seeing that the Federal Reserve Act is complied with in all respects.
The ultimate responsibility with respect to examinations of State member
banks, therefore, rests with the Federal Reserve Board; and this is true notwithstanding the fact that, by the amendment of June 21, 19X7, the authority
to approve State bank examinations made by State authorities is transferred
from the Federal Reserve Board to the directors of the Federal reserve bank.
When such examinations are approved by the directors of the Federal reserve
bank that does not relieve the Federal Reserve Board of the responsibility of
seeing that State member banks are properly examined and that they comply with
the provisions of the Federal Reserve Act.
The Board would not be justified
in relying upon the examinations made by the State authorities unless such examinations are not .only entirely adequate to disclose the financial condition,
the character of the management of the bank, and the soundness of the practices
engaged in by the bank, but also to disclose all violations of the Federal Reserve Act.
If the State examinations are not sufficient for this purpose,
the Board clearly is not justified in relying upon, such examinations in lieu
of examinations made by examiners selected or approved by it.
-16 -
' ^4822 181
Even where the Federal reserve banks make examinations, they must be made by
examiners selected or approved "by the Federal Reserve Board and the Federal Reserve
Board'must approve the form of reports of such examinations.
Even in such cases,
therefore, Congress is relying upon the Federal Reserve Board to see that such examinations are made by c o m e tent examiners and that the reports are in such form
as' adequately to disclose the condition of such hanks and whether or not they are
complying with the provisions of the Federal Reserve Act*
Moreover, the history of this subject indicates, that the examinations made by
examiners selected or approved "by the Federal Reserve Board under authority of Section 9 arc expected to be thorough and complete examinations.
As shevm above, they
take the place of examinations previously made by the Comptroller of the Currency,
•hich were required to be "thorough examinations of all the affairs of the bank"
evidenced by a "full and detailed report of the condition of said bank".
It is
reasonable to assume that Congress expected the examinations made by examiners
selected or approved by the Federal Reserve Board to be of the same high standard
as those formerly required to be made by the Comptroller of the Currency, ^nd tht-t
Congress expected the Federal' Reserve Board in performing its statutory duty of
prescribing the forrjs of the reports of such examinations to require that they be
the same "full and detailed" reports of the condition of the banks examined as
™ore required to be rendered by national bank examiners.
In this connection, I feel that I should call attention to the fact that the
so-called "credit investigations" made by the Federal reserve banks are, by their
very nature as defined and limited by the Federal Reserve Bonrd, inadequate to
discharge or fulfil the examining function and responsibility of the Federal Reserve Board.
17 -
X-US22
As stated in the Board's circular letter of I'ay 31, 1923, (X-3728):
^
"A credit investigation such as the "Bonre intended to
authorize should "be confined to sn inspection and appraisal
of such of the assets of a member hank as arc represented
by loans to its customers and any further activity by the
examiners of a reserve bank to determine the condition (solvency)
of a meTiber bank is to be considered an examination within
the meaning of the Federal Reserve Act and the costs thereof
must be assessed."
In order not to amount to "examinations" the expenses of which must be assessed
against the banks examined, therefore, the so-called "credit investigations" must
be so limited in their scope as to be entirely inadequate to furnish the Federal Be?
serve Board with sufficient information to enable it to determine the financial con-,
dition of such banks, the character of their management, or whether or not they are
violating the provisions of the Federal Reserve Act.
If the Board relies entirely
upon such "credit investigations", therefore, it cannot discharge its duty to
enforce compliance with the provisions of the Federal Reserve Act and provide for a
better supervision of banking in the United States.
In my opinion, therefore, so-called "credit investigations" should be considered valuable only as furnishing credit information to the Federal reserve banks and
should be totally disregarded in considering the problem of obtaining adeouate "examinations" of State member banks.
As stated above, it is the primary function and duty of the Tederal Reserve
Board to enforce compliance with all provisions of the Federal Reserve Act.
It is,
therefore, the duty of the Federal Reserve Board to enforce compliance with that
provision of the Federal Reserve Act which requires the cost of all examinations cf
State member banks, other than those made by the State authorities, to be assessed
against and paid by the banks examined.
"
AB
"
X-4822
PQ-TORS Aim DUTIES OF FEDERAL RESERVE AG23T.
Except for the power granted, by Section 21 of the original Federal Reserve Act
to approve of the asking of special examinations of member banks by Federal reserve
banks, which probably is superseded by the provisions of Section 9 authorizing Federal reserve banks to a alee examinations without obtaining the approval of the Federal Reserve Agent, no specific power with respect to examinations of member banks is
granted to the Federal Reserve Agent by the Federal Reserve Act.
By the provisions of Section 4, however, the Federal Reserve Agent is required
to act as the official representative of the Federal Reserve Board and to maintain,
under regulations to be established by the Federal Reserve Board, a local office of
said Board on the nrevises o- the Federal reserve bank; and the Federal Reserve Boari
has from t : n to time issued certain instructions to the Federal Reserve Agents
i-e
regarding examinations of State rjenber b?tiks.
The powers xio. duties of the Federal
Reserve Agents with respect to ^examinations'of State member banks, therefore, are
such as have been d elegated to them by the Federal Reserve Board through such instructions.
In a circular letter addressed to all Federal Reserve Agents under date of
January 26, 1918 (X-677)• the Board called attention to the fact that 'it is necessary either for the Board of Directors of each Federal reserve bank to authorize an
unqualified acceptance of State reports or for the Federal Reserve Agents to make
arrangements to have special examinations made in all States where such authority
has not been given, the examinations in such case to be made by representatives of
the Federal Reserve Agent or by men who have been or may be designated as special
examiners by the Federal Reserve Board.
After some discussion of tjiis subject,
the Board concluded with the following statement:
"In general the Board desires that you assume the
X 4822
-
184
full responsibility for seeing that an examination is
made of each State member, institution in your district
at le^st once each year, either by the designated State
authority where the furnishing of a report has been consented to by the State authorities and approved by your
bank, or by representatives of the Federal reserve bank
vfho have been or may be designated as special examiners
by the Federal Reserve Board. In either case the Federal
Reserve Board oust be furnished with a signed or certified
co-py of the report.
"It mast, however, be understood, that even though
acceptance of State examinations is authorized, it maybe
necessary to make special examinations by examiners selected or approved by the Federal Reserve Board Then such
examinations ere clee~ed by the Board to be required."
In a letter addressed to all Federal Reserve Agents under date of December
24, 1918 (X-I327), the Board reiterated the request that the Federal Reserve Agent
assume fall responsibility for seeing that an examination is made of each State
member bank in his district at least once each year either by the State authorities or by the-representatives of the Federal reserve bonk who have been or may be
designated as special examiners by the Federal Reserve Board, and suggested that
a Department of Examination be organized in each Federal reserve book,this department to be under the general supervision of the Federal Reserve Agent.
It thus appears that the Federal Reserve Agent is charged by the Federal Reserve Board with general supervision over the examination of State member banks
in each Federal Reserve District and is charged with responsibility of seeing that
at least one examination of every State member bank in his district is made each
year, either by the State authorities or by examiners selected or approved by
the Federal Reserve Board, and that reports of examination made by the State
authorities are required to be filed with the Federal reserve bank and with the
Federal Reserve Board.
While it is not entirely clear whether examinations made by the Federal Reserve Agent pursuant to these instructions are intended to be examinations made
X-US22
on "behalf of the Federal reserve "bank or examinations made on behalf of the Federal Reserve Board, it would seem that, since the Federal reserve agent is the
local representative of the Federal Reserve Board and his instructions in this
matter emanated from the Federal Reserve Board, such examinations are made pursuant
to the direction of the Federal Reserve Board and the Federal Reserve Board is
responsible for them.
If therefore, such examinations are inadequate the Federal
Reserve Agent is responsible to the Federal Reserve Board; but the ultimate responsibility rests with the Federal Reserve Board, because the Federal Reserve
Agent is merely the agent or representative of the Federal Reserve Board.
X -4822
1 8 6
POWERS AHD DUTIES OF FEDERAL R3S33VE BANKS.
From az analysis of thu above quoted provisions of the Federal Reserve
Act, the powers of Federal reserve banks with respect to examinations of State
member banks may be summarized as follows:
1. Under the provisions of section 9, the Federal reserve banks are
authorized to make examinations of all State member banks, such examinations
to be made by examiners selected or epproved by the Federal Reserve Board, and
the forms of the reports of such examinations to be approved by the Board.
2. The directors of the Federal reserve banks are authorized to approve the examinations of State member banks made by the State examiners and
to accept such examinations and the reports thereof in lieu of examinations
made by examiners selected or approved by the Federal Reserve Board.
3. This, however, does not preclude the right of the Federal Reserve
Board to make its own examinations nor relieve the Board of its duties with
respect to examinations.
4. Under the provisions of section 21, the Federal reserve banks are
authorized with the approval of the Federal Reserve Agent or the Federal Reserve Board, to make "special examinations" of member banks in their districts*
5.
It is provided that such "special examinations" shall be so con-
ducted as to inform the Federal reserve banks of the condition of its member
banks and of the lines of credit which are being extended by them.
6.
The expenses of all examinations of State member banks, other than
those made by the State authorities, are required to be assessed against and
paid by the banks examined.
Reading the entire Federal Reserve Act, together, it would seem
that the purpose of special examinations made by the Federal reserve banks
clearly is to inform the Federal reserve "banks with respect to the condition of
their member banks and the lines of credit which are being extended by them,
in order that the Federal reserve banks may "oxtend to each member bank such
discounts, advancements and accommodations as may be safely and reasonably made
with due regard for the claims and demands of other member banks", as required
by the provisions of Section 4.
Naturally, this would also seem to be the
primary purpose of the other examinations which Federal reserve banks are authorized to make under Section 9*
It might be said, therefore, that the duty of the Federal reserve
banks with respect to examinations of State member banks is to inform themr\
selves as to the condition of such banks and the lines of credit being extended
by them, in order that the Federal reserve banks might use such information
for their guidance in extending credit to member banks
For this purpose, the Federal reserve banks have the option of:
(1) Making regular examinations under section 9;
(2) Accepting State examinations and reports thereof
in lieu of their own examinations; or
(3) Making special examinations under section 21,
While it is not specifically so provided, it would also seem that
they would be justified in accepting for this purpose the reports of any examinations which may be made by the direction of the Federal Reserve Board.
While it does not clearly appear from the Federal Reserve Act, it may
be that one of the purposes of authorizing Federal reserve banks to make examinations of State member banks is further to carry out and make effective the
purpose of the Federal Reserve Act "to establish a more effective supervision of banking in the United States".
If Federal reserve banks made or
obtained from the State authorities examinations of all State bmoinber banks
~
23
"
X-4823
1 8 8
which were entirely adequate in every respect, it might he unnecessary for the
Federal Reserve Board to make any further examinations of such State member
banks, provided that reports of such examinations were furnished to the Federal Reserve Board.
In order to be adequate for this purpose, however, it
would be necessary for such examinations to show not only the condition of
such member banks and the lines of credit being extended by them but also
the character of the management of such banks, the soundness or unsoundness of
the banking practices engaged in by them, and whether or not they are complying
in every respect with all relevant provisions of the Federal Reserve Act.
The Federal reserve banks, however, are not charged with the duty of „
enforcing compliance with the Federal Reserve Act, nor of enforcing compliance
with the State laws.
For this reason, it would seem that the duty of seeing
that all State member banks are subjected to examinations sufficient to disclose violations of the Federal Reserve Act does not rest primarily with the
Federal reserve banks.
As pointed out above, the ultimate responsibility in
this matter rests with the Federal Reserve Board; because the Board is charged
with the duty of enforcing compliance with the provisions of the Federal Reserve Act and is required to perform the duties, functions and services
specified in the Federal Reserve Act and to make such rules and regulations as
may be necessary to enable it to perform the same.
Conceivably, the Federal
Reserve Board could issue regulations directing the Federal reserve banks to
make examinations sufficient to disclose violations of the Federal Reserve Act;
but the Board would still be responsible for seeing that such direction is
complied with and that all violations of the Federal Reserve Act are corrected.
The Federal reserve banks are forbidden to discount for member banks
the paper of any one borrower who is indebted to the member bank in an amount
X-4822
i g g
exceeding the limitations prescribed in section 13 of the Act; and, by the
Board 1 s regulations, the Federal reserve banks are charged with the duty of
enforcing penalties for deficiencies in reserves#
In this respect, it may
be said that the Federal reserve banks are charged with the responsibility of
informing themselves as to the lines of credit extended by State member banks
to individual customers and as to the deposit liabilities of member banks
against which reserves must be carried, and these are matters which might
very well be checked up in examinations made by Federal reserve banks. Such
information may be obtained through other channels such as the usual periodical
reports covering the matter of reserves and financial statements submitted
with applications for rediscounts; but it would seem that such reports and
statements should be checked by an examiner to verify their accuracy.
In addition to the power to make Examinations" this office has
held, and the Board has ruled,that Federal reserve banks may make so-called
fl
credit
investigations** of member banks, and that the expenses of such
credit investigations need not be assessed against the member banks#
In
so ruling, however, this office held that any general investigation of
a member bank by a Federal reserve bank for the purpose of determining
(1) the solvency of the member bank or (2) the general lines of credit
which are being extended by it, should be deemed to be an "exainination"
within the meaning of the Federal Reserve Act and that the cost : thereof
must be assessed against the member bank.
In view of this fact, it would
seem that the so-called "credit investigations" made by Federal reserve
banks cannot possibly be adequate to perform the function of the "examinations" provided by the Federal Reserve Act or to discharge the duty
of Federal reserve banks to make "examinations" of State member banks
- 25 -
X-4822
sufficient to inform them as to the solvency of such banks and the general lines
of credit which are being extended by ' .them.
In a ruling issued by the Board under date of April 7, 1923 (X-3688),
the Board has gone a bit further than the ruling made by this office and has
provided that:
"4. There are certain kinds of independent investigations
or inquiries which a federal Reserve Bank may usefully and
properly make of member banks which would not constitute examinations within the meaning of the Federal Reserve Act and the costs
of which, therefore, need not be assessed against the bank examined; to-wit: investigations of member banks with branches for
the purpose of finding out the nature of the organization and the
extent of coordination between the head office and branches, and
inquiries with respect to ^discounts, advancements and accommodations1!
which have been extended to or applied for by any member bank.
"5, On the other hand, any general Investigation of a member
bank by a Federal Reserve Bank for the purpose of determining:(1)
the solvency of the member bank, or (2) the general lines of credit
which are being extended by it, should be deemed to constitute an
examination within the meaning of the Federal Reserve Act and the
costs thereof must be assessed against the member banks."
Without expressing any opinion as to the legality of this ruling, it
may be said that, even when "credit investigations" are extended in their scope
so as to cover the matters referred to in the first paragraph quoted above, they
are still inadequate to discharge the bank , s responsibility with respect to
"Examinations".
Realizing this, the Board addressed the following telegram to all
Federal reserve
banks under date of April 26, 1923:
"Replies received by the Board to letter X-3688 on Rules Governing Examination of State Member Banks indicate that sons of the
Banks have misunderstood the purpose and application of certain
of these rules, mainly because of apparent inconsistencies between paragraphs 4 and 5, The Board was led to lay down certain
specific principles governing Federal Reserve Banks in the matter
of examinations because of practice in some Districts of Federal
Reserve Banks violating the terns of the law by virtually performing examining functions of the State gratuitously. ' It was not the
!
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X-4822
191
intention cf the Board, to prevent Federal Reserve
from oaking purely credit investigations. It is the view
of the Board that Federal Reserve Banks should, as a part
of good credit administration, keep themselves informed
of the credit practices and loan practices of their member
"banks. For this purpose Federal Reserve Banks are authorized
from time to tine to make investigations of their member banks
for credit purposes. Such investigations need not be charged
for. It is also the view of the Federal Reserve Board that
Federal Reserve Banks should bo free to use their judgment
as to the time of making such investigations, and Board sees
no objection to such purely credit investigations being made
at times rrhen State authorities are making their regular
examinations. The provisions of paragraph 5 are intended to
apply only to special examinations made by Federal Reserve
Bank examiners and to such examinations as they may make to
determine the solvency of a member bank. These two classes
of examinations, under the terms of the Federal Reserve Act,
must be charged for,"
This telegram was again qualified by a circular letter addressed to all
Federal Reserve Agents under date of May 31, 1923 (X-3728), which reads as follows:
"The correspondence received by the Board since the
dispatch of a telegram supplementing its letter X-3688, on
"Be&qs .governing examination of State member banks", indicator, an inclination to give too liberal interpretation to
the principles laid down by the Board.
"When the Board authorized the banks to make purely
credit investigations of member banks, without assessing the
costs, it was done %n the interest of good credit administration
and it was not intended that this authorlTy;should be used as
a basis for conducting examinations without assessing the
costs,
"A credit investigation such as tho Board intended to
authorize should be confined to an inspection and appraisal
of such of the assets of a member bank as are represented by
loans to its customers and any farther activity by the examiners
of a reserve bank to determine the condition (solvency) of a
member bank is to be considered an examination within the
meaning of the Federal Reserve Act and the costs thereof
mast be assessed."
VJ2
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X-4822
Without expressing any opinion as to the legality of the ruling contained
in the Board's telegram as thus qualified, I would say that, in my opinion,
'
•
"credit investigations" made pursuant to this ruling are not sufficient to discharge the responsibility of the federal reserve banks with respect to informing
themselves as to the condition of member banks and the lines of credit extended
by then.
In my opinion, therefore, unless examinations made "by the State authorities
or by examiners selected or approved by the Federal Reserve Board are available
to them, and unless such examinations are sufficient to inform the Federal reserve
banks as to the condition of their State member "banks and the lines of credit
being extended by them, it is the duty of the Federal reserve "banks to make
"examinations" of State member banks sufficient to inform the Federal reserve
banks as to the condition of such member banks and the lines of credit being extended by then and to assess the costs of such examinations against the "banks
examined.
CONCLUSION.
In this memorandum, I have attempted to set forth the principal powers and
duties of the Federal Reserve Board, the Federal reserve agents and the Federal
reserve banks with respect to the examinations of State member banks as indicate^
"by the provisions of the Federal Reserve Act.
Because there are no specific
provisions of the Federal Reserve Act on the subject, I have not attempted to
discuss such matters as the making of joint examinations or the lending of
examiners to the State authorities.
If, therefore, the Board desires a further
— 28
—
X-4822
opinion from this office on such questions or on any other questions not
covered by this opinion, I shall be glad to render a supplemental r:.crr.orandun
upon request.
Respectfully,
Walter Wyatt.
General Counsel.
No. 505.
IN THE
COURT OF CIVII, APPEALS
FOB THE
TENTH SUPREME JUDICIAL DISTRICT
OF TEXAS, AT WACO.
J. S. ODLE, Appellant,
,
v.
S. C. BARNES, ET AL, Appellees.
Appeal from County Court,
Bosque County.
Appellant J. S. Odle instituted this suit against appellees
6. C. Barnes, the Farmers Guaranty State Bank of Meridian, herein called
Meridian Bank, the First National Bank of Fort Worth, herein called Fort
Worth tank, and the Federal Reserve Bank of Dallas, herein called the Reserve hank, to recover the sum of $345.00.
Appellant alleged, in sub-
stance, that appellee Barnes was indebted to him upon a vendor's lien note,
which note was in the hands of his agent, Judge Hale, for collection; that
said Barnes in part payment of said note executed and delivered to his said
agent his check dated November 4th, 1934, on the First National Bank, of
Morgan, Texas, herein called Morgan hank, for said sum of $345.00; that
Judge Hale promptly endorsed said check and deposited the same with the
-
2 -
X-4824 1-/<'
Meridian tank and. said "bank credited his current account with the amount
thereof; that aaid Meridian "bank forwarded said check for collection to
its correspondent, the Fort Worth bank, which bank in turn forwarded the
same to its collecting and clearing correspondent, said Reserve bank;
that said bank forwarded the same on or about November 7th, 1924, to said
Morgan bank, on which it was drawn, for payment, said bank being the only
bank at that place; that the same, and all the same, was in the due and
regular course of business and in the usual and ordinary way that checks
were collected when deposited with local banks at Meridian, Texas; that
the same, and all the same, was without undue delay and without negligence
on the part of plaintiff or his agent, Judge Hale, and so far without
nogligence on the part of said forwarding and collecting banks through
which it passed;
that said Morgan bank marked said check "Paid,11 can-
celled the same, and surrendered the same to appellee Barnes, and that
none of the appellees have remitted to appellant or to his agent, Judge
Hale, the amount of said check or returned the same; that said Morgan
bank failed and refused to pay said check and that because of such failure
appellee Barnes was liable to him for the amount thereof.
He further
alleged that each of the appellee banks was negligent in failing to
promptly report back to him the non payment of said check, and that had
they done so he could and would have collected the same direct from the
Morgan bank before its failure.
Ho further alleged that if mistaken in
the allegations aforesaid and if the Morgan bank did in fact pay said
chock and make remittance therefor, then that appellee banks received
such remittance and failed and refused to pay the same to him or to his
X-4824
- 3 -
1 9
said agent, and that by reason of withholding such remittance all the appellees were liable to him in the amount of said check ae aforesaid.
Appellee Reserve "bank alleged that it was a banking corporation,
organized under an act of Congress of the United States commonly known as
the Federal Reserve Act; that by the provisions of said Act the Federal
Reserve Board was granted certain powers of regulation and control over iti
that pursuant to the powers conferred upon said board by sections 13 and 16
of said Act, said board had promulgated cettain rules and regulations governing tho operation of the check clearing and collection departments of
each Federal Reserve Bank; that such regulations include one commonly known
as Regulation J, Series of 1924; that said regulation provides, in substance, that every bank sending checks thereto for deposit or collection
shall bo deemed to authorise the Reserve bank to handle the same subject
to the terms and conditions of said regulation, and to warrant its own
authority to give said bank such authority so to handle the same; that
said regulations provide that a Federal Reserve Bank shall act only as the
agent of the bank from which j t receives such checks; that It may present
*
such checks for payment or send such checks for collection directly to
the bank on which they are drawn; that it may accept either cash or bank
drafts in payment of or in remittance for such checks and shall not be
held liable for any loss resulting from the acceptanceof bank drafts in
lieu of cash,
A further recital of the pleadings of appellees is pot
necessary in view of the disposition wo shall make of this case.
The case was tried to the court,
The evidence introduced showed
that appellee Barnes was indebted to appellant on a vendor*s lien note;
that he executed and delivered to Judge Hale, appellant's agent, his
check for $345.00 in part payment of the same, and that said check was
endorsed by Judge Hale and delivered to the Meridian bank; that said bank
credited his account xTith the amount thereof and forwarded the same to
the Fort Worth Bank, which in turn forwarded the same to the Reserve bank
at Dallas, and that that bank sent the same direct to the Morgan bank for
payment and remittance, substantially as alleged by appellant; that said
Reserve bank received and handled said check under the provisions of said
circular J so pleaded by it; that such receipt and handling was according
to its established custom, and that such custom was known to and acquiesced
in by both the Fort Worth bank and the Meridian bank.
The evidence further
showed that the Fort Worth bank transmitted to the Reserve bank its cash
letter, listing checks for credit to its account amounting in the aggregate
to more than $4,000.00; that among the checks so listed were certain checks
on the Morgan bank which amounted in the aggregate to over $800.00, and
among which checks the one in question was included; that the Reserve bank
thereupon transmitted direct to the Morgan bank its cash letter, listing
checks upon said bank for payment amounting in the aggregate to $1925.62,
in which list said check was included; that on November 10th the Morgan
bank forwarded to the Reserve bank its draft drawn on the Fort Worth Bank
in favor of said Reserve bank for the sum of $1850.77 in payment of said
list of checks, checks to the amount of $74.85 included in said list being rejected for insufficient funds or other reasons; that the Reserve
bank forwarded said draft to the Fort Worth bank for payment and that before it was paid a national bank examiner took charge of the Morgan bank
and stopped the payment of said draft; that said Morgan bank was insolvent
- 5 -
X-4824
and never resumed, business; that the Reserve bank proved said unpaid draft
as a claim against said bank and that fifty per cent thereof vras paid as
dividends on such claim by 'the receiver Who administered the assets of said
insolvent "bank.
The evidence further showed that the amount so received on
said claim was forwarded through the respective "banks, credited to Judge
Hale's account and turned over to appellant apparently without prejudice.
Notice of the non payment of said draft was transmitted to the Reserve bank
through the Fort Worth bank and the Meridian bank to Judge Hale, appellant's
agent, in due course of mail.
The amount of said chcCk was subsequently by
said Reserve bank charged back against the Fort Worth Sank, and by it against
the Meridian bank and by it against Judge Halo's account.
Appelle
Barnes
had at the time ho drew said check and at the time the sane was presented
to the Morgan bank for payment, funds to his credit therein sufficient to
pay the sane and said check was promptly charged to his account by said
Morgan bank and surrendered to him prior to the closing of the same.
was never returned to appellant.
all the defendants.
It
The court rendered a general judgment for
The court at request of appellant filed findings of
fact which are recorded in the transcript.
A regular statement of facts,
duly approved, was also filed.
OPINION.
Appellant by the first three propositions presented by him as
grounds for reversal, contends that the court erred in holding that the
evidence showed that the Barnes check had been paid by the Morgan bank and
in rendering judgment against him in favor of said Barnes.
The trial court
- 6 -
X-4824
199
found, as a fact that said check was accepted "by Judge Hale, appellant's
agent, as payment of the vendor's lien note held " y appellant against
b
appellee Barnes to the amount of such check.
Appellant assails this find-
ing on the ground that the same is without support in the evidence.
The
original vendor's lion note was neither declared on in appellant's pleadings
nor offered in evidence on the trial of the case.
The taking of such
check "by appellant's agent and the surrender of the note amounted at least
to a conditional acceptance of said check, or an acceptance of the same
subject to payment.
If such payment was in fact made the acceptance of the
check became absolute and discharged the original obligation. Johnson
vb Amarillo Improvement Co*, 88 Tex. 505, 510; Middlekauff ve State Banking
Board, 242 S. W. 442, 443; Waggoner Bank & Trust Co. vs. Gamer Co. (Sup. Ct.)
Said check was declared by statute to be a bill of
213 S. W. 927, 928-9.
exchange payable on demand, and in order to hold Barnes, the drawer thereof, it was necessary that the same be presented to the Morgan bank for
payment within a reasonable time, payment refused and notice of such refusal given hijn,
R.
S., Art. 5947, sees. 185 and 186.
Appellant con-
cedes • that it was customary in such cases for one bank holding a check on
another bank for collection to send such check direct to the said bank
for payment, and to accept the draft of such bank as a remittance therefor, and that the Reserve bank was not negligent in doing so in this case.
Appellant does contend, however, that such proceeding did not constitute
payment by the Morgan bank of Barnes' check because payment of the draft
so issued was stopped.
By the express terms of said circular J the Re-
serve bank was authorized to accept drafts in payment of checks presented
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1-4824
2 0 0
to said Morgan tank for payment.
lar and conformed thereto.
The custom proved was "based on said circu-
Mr. Ringer, who was cashier of the Morgan "bank
at the time, testified without objection that said check was paid "by the
issuance etid forwarding of said draft to the Reserve bank at Dallas.
Reserve bank evidently so regarded the transaction.
The
The trial court found
as a fact that it was the universal custom toong banks to accept remittance
drafts in payment of cash letters listing checks for collection, and further
found that as between appellant and appellee Barnes said check had been paid.
The statute required appellant to cause said check to be presented to the
Morgan bank for payment within a reasonable time, and further provided that
the drawer should be discharged from any liability to the extent of any loss
caused by delay.
R. S., art. 5947, sec. 186.
There is no contention that
said check would not have been paid in cash if such payment had been demanded.
Any loss sustained oust be held to have resulted from the delay incident to
accepting a draft On the Fort Worth bank instead of cash.
While commercially
speaking, the term "payment" relates to and is restricted to a payment in
money, such is not necessarily the case when applied to a transaction between a creditor and his debtor*
Neither is such necessarily the case in
a transaction between a creditor's agent and his debtor, when such agent
is duly authorized to accept other than money in settlement of his principal's demand.
An obligation may be paid and discharged by the delivery <
and acceptance of something equivalent to money which is regarded as such
by the party to whom the payment is due.
State vs Tyler County State Bank
(Con. Apps.) 277 S. W. 625, 627, and authorities there cited.
We think
the trial court correctly held that the surrender of said check to the
- 8 -
X-4824
SOI
Morgan 'bank and the acceptance "by the Reserve "bank of its draft therefor
constituted, as "between appellant and Barnes, the payment of said check
"by said Morgan hank*
Were we to concede that appellant is correct in
contending that said transaction did not constitute a paynent of said
check ^ y the Morgan "bank, we think it must "be held to have constituted
in effect an acceptance of said check "by said bank with a promise of payment when said draft was presented to its correspondent in Port Worth,
with which it had funds on deposit*
The statute expressly provides that
if the holder of a check procures it to "be accepted or certified, the
drawer and all endorsers are discharged from liability thereon.
Art. 5947, sec. 188.
E. S.,
If such transaction constituted a paynent of said
chock appellee Barnes was entitled to the .possession thereof.
If such
transaction did not constitute a paynont of said check and did not otherwise effect the discharge of said Barnes from liability, the physical possession of said check was not essential t6 enable appellant to sue theroon.
Waggoner Bank & Trust Co. vs Goner Co., supra, p. 929, par. 5; Western
Brass Mfg. Co. vs Maverick, 23 S. W. 728.
The action of the trial court
in rendering judgment in favor of appellee Barnes was proper.
Appellant contends "by the fourth proposition presented by him as
ground for reversal of the judgment appealed from that in event it is held
that the Morgan bank paid said chock, ho is entitled to judgment against
the bank or banks receiving such payment.
The evidence showed without
contradiction that said check was paid by a draft drawn by the Morgan bank
on the Port Worth bank in favor of the Reserve bank for the sum of $1850.77;
which amount included payment for various other checks besides the Barnes
•9 ••
X-4824
2 0 2
chock; that paynent of said draft was stopped; that the Re servo hank proved
the sane as a clain against the Morgan hank in the receivership proceedings
thereon; that the entire dividends received by said Reserve hank on said
clain so proved aaounted to only fifty per cent of the face thereof; that
appellant's pro rata part of such dividends was pronptly returned to hin
throng the Port Worth and Meridian hanks, respectively.
Appellant concedes
that the Reserve hank was, so far as he was concerned, authorized to accept
said draft in return for the Barnes chock and other checks surrendered to
the Morgan hank therefor.
No other or further sun was over received on
account of said check or draft hy said Reserve hank or any of the other
hanks involved.
The contention presented hy appellant in
said proposition
is overruled.
Appellant contends hy the fifth and last proposition presented hy
hin as ground for reversal, that the Fort Worth hank while acting as agent
for hin was guilty of negligence in surrendering the remittance draft drawn
on it hy the Morgan hank, and surrendering to the receiver of said hank the
funds it held on deposit without paying his said check or procuring the
return of the sane,
The situation upon which this contention is hased is
not alleged in appellant's petition.
Neither is there any allegation there-
in of the existence of any such duty on the part of the Fort Worth hank or
of its negligence in failing to perfora the sane.
The only theory of re-
covery presented hy said petition in event it was held that the transaction
between the Reserve hank and the Morgan hank constituted a payment of the
g a m e s check was that all of said several hanks had received such payment
and were liable to him therefor.
Regardless of the pleadings, however, we
• XO •
X-4824
2 0 %
do not think the evidence adduced showed any such duty #r liability to appellant for
failure to perform the sane.
Appellant insists that this case
\was tried upon the theory that the Meridian bank took said check for collection in behalf of plaintiff through his agent, Judge Hale, and that
each successive bank through which said check passed became in turn his
agent for the collection of the same and the return of the proceeds to him,
according to the rule laid down by our Supreme Court in Tillman County Bank
vs. Behringer, 113 Tex. 415, 423, 257 S. W. 206.
Such theory being the
most favorable to appellant, wo nay for the purpose of the disposition of
this case assume that appellant's contention is correct, and dismiss the
contention of the Fort Worth bank and the Be serve bank, respectively, that
the facts in evidence showed a purchase of said draft from Judge Hale by :
the lieridian bank, and not the taking of the same for collection.
Die
evidence disclosed that the Fort Worth bank transmitted the Barnes check
to the Reserve bank for credit to its account together with other checks
amounting in the aggregate to more than $4000.00; that of the checks so
transmitted those drawn on the Morgan bank amounted only to about $800*00;
that the Be serve bank transmitted direct to the Morgan bank for payment and
remittance checks amounting in the aggregate to more than $1900.00, among
which checks was included said Barnes check; that the Morgan bank in payment
of said checks returned its draft on the Fort Worth bank, payable to the
Beserve Bank, for $1850.77, and that this draft was forwarded to the Fort
Worth bank for payment.
The Barnes check was therefore a mere incident
in said series of transactions.
The evidence disclosed with reasonable
certainty that said draft was received by the Fort Worth bank after the
• 11 —
order from the "bank examiner stopping
X-4824
payment thereon.
There is no evidence
that the Fort Worth "bank was advised at the tine it received or returned said
draft that the some represented in part the proceeds of the Barnes check.
Said draft did not cf itself operate as an assignment of any part of the
funds on deposit to the credit of the Morgan tank in the Fort Worth tank at
the time.
R. S. Art. 5947, sec. 189.
There being no assignment of the funds,
the order of payment evidenced "by said draft was revocable at the pleasure
of the Morgan bank, the drawer thereof.
S. W. 828, 831.
Hall v. First National Bank, 252
The Fort Worth bank would have rendered itself liable to
the Morgan bank or its subsequent receiver if it had paid said draft after
payment thereof had been ordered stopped.
Hewitt vs. First Nat. Bank cf
San Angelo (Com. Apps.) 252 S. W. 161, 162-3.
We do not think that the
Fort Worth bank was authorized under these circumstances to pay the draft,
nor that it violated any duty it owed to appellant in refusing to do so.
Neither do we think that the Fort Worth bank was authorized to withhold
from the receiver out of the funds in its hands belonging to the Morgan
bank the amount of said Barnes check.
At that time it knew that the amount
of the Barnes check was included in said draft, which was a valid outstanding obligation against the Morgan bank in the hands of the Reserve bank.
It necessarily follows that it did not violate any duty it owed to appellant
in refusing to turn over said funds to the receiver.
The Barnes chock hav-
ing been paid, appellant was not entitled to the surrender thereof,
The judgment of the trial court is affirmed.
J. N. GALLAGHER.
Chief Justice,
FEDERAL RESERVE BOARD
X-4825
WASHINGTON
I
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 8, 1927.,
SUBJECT:
Daylight Saving Schedule,
Dear Sir:
The following Federal Reserve Banks and Branches
will operate under daylight saving schedule during the
period "beginning Monday, April 25th, and ending Saturday,
September 24th, 1927:
Boston, New York, Philadelphia, Pittsburgh
and Chicago.
The Buffalo Branch will operate under daylight
saving schedule from Monday, May 30th to Saturday, September 10th, inclusive.
Banking hours at the Helena Branch, May 15th to
September 15th, will be 9:30 a.m. to 2:00 p.m. mountain
time, except Saturdays, when the hours will be 9:00 a.m.
to 1:00 p.m.
Banking hours at the Salt Lake City Branch, May
1st to September 30th, will be 9:00 a.m. to .2:00 p.m. mountain time, except Saturdays, when the hours will be 9:00
a.m. to 12:00 noon.
Very truly yours,
J, C. Noell,
Assistant Secretary.
TO GOVEBNCBS OF AIL J\ R. BASKS,
flu
X-4846
TREASURY DEPARTMENT
Office of the Secretary
WASHINGTON
0
< 0
April 6, 1927.
The Governor
Federal Reserve Board.
Sir:
You are hereby advised that the Department has referred to the Disbursing Clerk, Treasury Department, for payment, the account of the Bureau,
of Engraving and Printing for preparing Federal reserve notes during the
period March 1, 1927, to March 31, 1927, amounting to $148,083.60 as follows:
Federal Reserve Notes, Series 1914
J*
Boston
200,000
New York
700,000
Philadelphia
350,000
Cleveland
250,000
Richmond
100,000
Chicago
500,000
St. Leuis
100,000
Minneapolis
50,000
Dallas
100,000
San Francisco 100,000
2,450,000
$10
go
550,000
150,000
50,000
250,000
100,000
75,000
50,000
50,000
50,000
50,000
100,000
525,000
950,000
|50
75,000
$100
24,000
5,000
10,000
2,000
87,000
5,000
34,000
Total
200,000
1,599,000
500,000
305,000
100,000
685,000
100,000
150,000
202,000
205,000
4,046,000
4,046,000 sheets at $36.60 per
The charges against the several Federal Reserve Banks are as follows:
Boston
New York
Philadelphia
Cleveland
Richmond
Chicago
St. Louis
Minneapolis
Dallas
San Francisco
$ 7,320.00
58,523.40
18,300.00
11,163.00
3,660.00
25,071.00
3,660.00
5,490.00
7,393.20
7^503.00
7,503.00
fl48,083.60
The Bureau appropriations will "be reimbursed in the above amount from
the indefinite appropriation "Preparation and Issue of Federal Reserve
Notes, Reimbursable", and it is requested that your board cause such indefinite appropriation to be reimbursed in like amount.
Respectfully,
S. R. Jacobs,
Deputy Commissioner.
Certified Copy*
( C O P Y )
X-4827
UNITED
STATES
CIRCUIT
COURT
OF
APPEALS
Fourth Circuit
No. 2588
W. A. CLEVE and D. &. WHITE, Partners trading as
CLEVF & WHITE,
Plaintiffs in Error,
versus
GRAVER CHEMICAL C0&3ANY and FEDERAL RESERVE
BASK of RICHMOND,
Defendants in Error.
No. 2589
CRAVES CHEMICAL COMPANY,
Plaintiff in Error,
versus
FEDERAL RESERVE BANK of RICHMOND and 1. A. CLEVE
and D. S. WHITE, Trading as CLEVE & WHITE,
Defendants in Error.
In Error to the District Court of the United States for the
Eastern District of North Carolina,
at New Bern.
X-<±837
(Argued January 26, 1927.
Decided Anril 12, 1927)
Ofto
Before Rose and Parker, Circuit Judges, and
Baker, District Judge.
Larry. I. Moore (Moore & Dunn on brief) for Cleve
White; George Roantree (Eountree & Carr on
brief) for Craven Chemical Company, and M.
G-. Wallace for Federal Reserve Bank.
&
Parker, Circuit Judge:
On December 6, 1923, the firm of Cleve & White, of
Vanceboro, H.C., sent to the Craven Chemical Company, of
Wilmington, N.C., a check for $7,467.50, drawn on the Bank
of yanceboro
in payment of a debt due the Chemical Company.
The check was received on December 7th, and on the same day
was deposited with the Murchison national Bank and credited
to the account of the Chemical Company.
The Mxirchison Bank
immediately forwarded it for collection to the Federal Reserve
Bank of Richmond, which received it on December 8th.
The lat-
ter bank forwarded it to the drawee, Bank of Vanceboro, and it
came into the hands of that bank when it opened for business
on Monday, December 10th,
On December 11th, the Bank of Vance-
boro charged it to the account of Cleve and White, whose deposit
balance exceeded the amount of the check; and, in payment of
this and certain other items, sent to the Reserve Bank an exchange draft for the sum of $8,333.42 on its reserve deposits
in the First National Bank of Hew Bern, !T. C.
- 3 -
X-4827
2
This exchange draft was received by the Reserve Bank on December
12th, and was immediately forwarded to the drawee, First National Bank
of Hew Bern.
It arrived in New Bern and was refused payment for lack
of funds on December 13th.
In this connection, it appears that the
Bank of Vanceboro had had a balance on deposit with the First.National
of New Bern exceeding the amount of the draft, but that on
December 10th the First National of New Bern had charged against
this balance the amount of a note which it held against the Bank of
Vanceboro, and this practically exhausted the balance.
The Bank of
Vanceboro failed, and a receiver was appointed for it on December
13th.
The check of Cleve & White was thereupon duly charged back to
the Murchison National by the Reserve Bank, and to the Chemical Company "by the Murchison National.
This action was instituted by the Chemical Company against
Cleve & White to recover the amount of their debt, and against the
Reserve Bank to recover damages for
the check.
alleged negligence in handling
The trial judge directed a verdict in favor of the Chemi-
cal Company as against Cleve & White, but against the Chemical Company and in favor of the Beserve Bank on the cause of action asserted
against it.
Two writs of error have been prosecutod to this court,
one by Cleve & Whitf* to review the judgment rendered against them in
favor of the Chemical Company, and the other by the Chemical Company
to review the judgment discharging the Bank.
On each writ of error
the principal ground of complaint is the direction of the verdict;
and the points raised by the exceptions thereto are the only ones
which need be considered.
Those relating to evidence are immaterial,
as the verdict should have been directed as it was whether the evidence which is the subject thereof be considered as admitted or ex-
http://fraser.stlouisfed.org/
cluded.
Federal Reserve Bank of St. Louis
- 4-
X-482^
21 s
On the ease presented by Clevc & White, the question which arises
is whether payment of their debt has been effected because the Chemical
Company accepted their check or because the Federal Reserve Bank, acting
for the Chemical Company in the collection of the check, accepted from
the drawee of the check a draft on its reserve deposits in the First
National Bank of New Bern.
As to the first proposition, it is well
settled that in the absence of special agreement to that effect, accept$
ance of a check does not operate as payment of a debt unless the check
is itself paid.
Little v. Man gum (C.C.A.4th) decided
January 11, 1927;,
Philadelphia Life Ins. Co. v. Hayworth (C.C.A.4th) 296 Fed.339; Hayworth
v. Philadelphia Life Ins. Co. 190 N.C. 757, 130 S.E. 612.
And an agree-
ment that a check is to be received in absolute payment is not to be
implied from the fact that upon its receipt evidences of debt are marked
is
paid and surrendered or a receipt/given.
2 Morse on Banks and Banking
(5th Ed.) Sec.544; 21 B.C.L. p 64; Interstate Bank v. Bingo 72 Kan. 116,
83 Pac.119, 115 Am. St. Hep. 176; Little v. Mangum, supra.
It is clear,
therefore, that the acceptance of the check by the Chemical Company did
not extinguish the debt of Cleve & White unless the check itself has
been paid.
Whether the check has been paid or not, depends upon whether or
not acceptance by the Reserve Bank of the exchange draft on the reserve
deposits of the drawee Bank of Vanceboro operated as payment of the check.
Undoubtedly the general rule is that acceptance of such draft operates
as payment of the check and discharges the drawer of the check from further liability.
Federal Reserve Bank v. Malloy 264 U.S. 160, (C.C.A.
4th) 291 Fed. 763, (D.C.) 281 Fed. 997, and cases cited.
The reason
of the rule is that a check is payable only in cash, and if the holder
accepts something other than cash he assumes the risk incident thereto
- 5-
X"±8'?:
and. is gstopped to dony payment as against the drawer.
As said in
Anderson v. Gill 79 Md. 312, 317, and quoted with approval by the Supreme Court in Bank v. Malloy, supra:
"How, a check on a bank or banker is payable in money, and in
nothing else. Morse Banks & Banking (2nd edition) p. 358. The
draper having funds to his credit with the drawee has a right ,
to assume that the payee will, upon presentation, exact in payment
precisely what the check was given for, and that he will not accept,
in lieu thereof, something for which it had not been drawn.
It
is certainly not within his contemplation that the payee should
upon presentation, instead of requiring the cash to be paid, accept at the drawer's risk a check of the drawee upon some other
bank or banker.
The holder had a right to make, immediate demand
for payment upon receipt of Anderson's check, though she was not
bound to do so. When her agent, the Old Town Bank - the collecting bank being the agent of the holder - (Dodge v. Freedman's Sav.
& Trust Co, 93 U.S. 379) did make demand it was only authorized to
receive money (Ward v. Smith, 7 Wall.451); and the acceptance by the
collecting agent of anything else rendered it as liable to the holder as though it had collected the cash."
In Horth Carolina, however, the rule that a check is payable only
in cash has been changed by statute.
Section 2 of Chapter 20 of the Pub-
lic Laws of North Carolina of 1921, entitled "An Act to Promote the Solvency of State Banks", provides:
"That in order to prevent accumulation of unnecessary amounts of
currency in the vaults of the banks and trust companies chartered by
this State, all checks drawn on said banks and trust companies shall,
unless specified on the face thereof to the contrary by the marker or
makers thereof, be payable at the option of the drawee bank, in exchange drawn on the reserve deposits of said drawee bank when any
such check is presented by or through any Federal Reserve Bank,
postoffice, or express company, or any respective agents thereof."
The history and purpose of the act, and particularly of this section,
are clearly set forth in the opinion of Mr.
Justice
Brandeis in Farmers &
Merchants Bank v. Federal Reserve Bank 262 U.S. 649.
The Federal Reserve
Bank of Richmond had been attempting to enforce its "par clearance" policy upon the state batiks of North Carolina by presenting checks over the
counters of the banks which would not agree to remit at par and demanding
payment in cash.
The effect of this demand for cash payment was not only
- 6 -
X-482^
312
to deprive the banks of their exchange charges on checks, but also to reduce their income-producing assets through the necessity of keeping in
their vaults in cash a much larger part of their resources than had heretofore been customary.
The purpose of this section of the statute was to
relieve the state banks of the pressure which was being exerted upon them
and of the embarrassment arising from this demand for cash by the Federal
Reserve Bank.
Its effect was as though the provision of the law had been
written into the faco of the check; and, consequently, where the maker or
drawer did not specify cash payment, he agreed, as did the payee, that if
presented by or through a Federal Reserve Bank the check should be payable
by an exchange draft drawn by the payee bank on its reserve deposits.
In other words, the. effect of the act was to change the rule of law that
the check should be payable only in cash.
As stated by Mr. Justice
Brandeis in the case heretofore cited:
"Thus the statute merely sought to remove (when the drawer acquiesced) the absolute requirement of the common law that a check
presented at the bank's counter m a t be paid in cash. It gave the
drawee bank the option to pay by exchange only in certain cases;
namely, when the check was 'presented by or through any Federal
Reserve Bank, postoffice, or express company, or any respective
agents thereof*. The option was so limited, because the only mtrpose of the statute was to relieve state banks from the pressure which,
by reason of the common-law requirement, federal reserve banks were
in a position to exert and thus compel submission to par clearance."
As CI eve & White did not specify cash payment in the face of the
check, they must be held under the Act of 1921 to have impliedly agreed
that the Bank of Vaneeboro might pay it by an exchange draft on reserve
deposits if it should . b presented by or through the Federal Reserve
'e
Bank.
The Reserve Bank could not require payment in any other medium.
Federal land Bank vsBarrov 189 17. C. 303, 127 S.l. 3.
The Reserve Bank ,
therefore, presented a check which, under the law, the Bank of Vance
- 7-
X-8V
-.2
2 1 3
"boro was authorized at its option to treat as an order for an exchange
draft.
When it exercised this option and gave an exchange draft pur-
suant to the order, was such draft payment when not itself paid?
think not.
We
If, under the case presented, Cleve & White had tendered an
exchange draft of the Bank of Vanceboro in payment of their debt, there
can be no doubt that this would not have extinguished the debt if the
draft had been dishonored, for the rule is well settled that "in the
absence of any special agreement to the contrary, the mere acceptance
by a creditor from his debtor of the check of a third person, payable
to the creditor's order, for a pre-existing debt, is not absolute, but
merely conditional, payment, defeasible on the dishonor or non-payment
of the check?1.
21 H. C.L. p. 61 and cases there cited.
The result can-
not be different where the draft is tendered by the bank upon the order
of the debtor instead of by the debtor himself.
The rule that accept-
ance of the draft of the drawee bank in payment of a check releases
the drawer can have no application; for the reason of the rule, the
common law requirement of cash payment, no longer exists, and the
maxim applies: "Cessante ratione legis, cessat ipsa lex".
We do not find that the exact point presented by this case has been
heretofore decided, but the principles which we deem controlling were
applied by the Supreme Court of North Carolina to a somewhat similar
case in Graham v. Proctorville Warehouse Co. 183 IT.C. 533, 127 S.E.540.
In that case the question was the right of a depositor to set off his
deposit in an insolvent bank against a note which its receiver held
against him.
He had drawn a check against this deposit, and in pay-
ment of the check an exchange draft had been given which had been dishonored.
It was held that the fact that the check had been charged
against depositor's
account did not preclude him from claiming the
1-3-.
.4
7
—3—
deposit upon the dishonor of the exchange dro-f t, nor from sotting it off
against liability on his note.
The decision was based upon the holding
that payment by exchange draft was conditioned upon the draft beirJg paid.
The court said;
"We have not overlooked the contention of plaintiff that by reason
of chapter 20, Public Laws, 1921, the Bank of Proctorville had the option to pay the check of J. 3. Lawson, its depositor, when same was
sent to it for collection through the post office, by draft on the Bank
at Wilmington. This statute has been declared by the Supreme Court of
the United States not to be in violation of the Constitution of the
IJnited States, and therefore valid. Farmers' & Merchants Bank of Moproe, N.C. v. Federal Reserve Banlc of Richmond Va., 262 U.S. 649 , 43
q. Ct. 651, 67 1. Ed. 1157, 30 A; L. R. 635. The provisions of the
Statute, however, must be construed in accordance with well-settled
rules of law; it will not be held that a drawee bank can charge checks
4rawn on it by its customers, to the accounts of such customers, remit
in drafts or exchange to the forwarding bank, and thereby be released,
notwithstanding that said drafts or exchange are, for valid and lawful
reasons, not paid. Where a check drawn on a bank or trust company,
chartered by this state, is presented to the drawee bank, 'by or through
any Federal Reserve Bank, post office or express company or any respective agent thereof ', and such bank or trust company in the exercise of
the option conferred by said statute, sends to the forwarding bank its
draft on its reserve deposits, in payment of such check, it will not be
discharged of liability for the collection of its depositor's check until such draft on its reserve deposit has been paid."
Debtors contend that the effect of the judgment of the court below
is to require them to pay their debt twice, but this argument begs the
question.
As we have seen, what has been done has not effected pay-
ment of the debt due the Chemical Company, and debtors may file claim
against the receiver of the Bank of Vanceboro for the full amount of
their deposit, just as though the check had not been charged against it
when the worthless exchange draft was sent.
house Co. supra.
Graham v. Proctorville Ware-
On the other hand, the Chemical Company has been
guilty of no negligence.
The check sent it was not payment, but a means
of securing payment or at most conditional payment.
It immediately put
this check in process of collection, and through no fault on its part
has received nothing in payment.
#
Debtors chose the bank in which they
- 9 -
X-4S2V
deposited the money to beet the debt due the Chemical Company.
They
2I
**'*
sent a check on this bank which under the law they impliedly agreed
might "be treated merely as an order for an exchange draft.
When, with-
out fault on the part of the Chemical Company, this exchange draft turns
out to be worthless - when the medium which they have selected for making p'ayaent fails to effect payment, they are not in position to say
that payment has been made.
It is true that there is no evidence that
debtors have themselves been guilty of any fault or negligence, and this
seems to be one of those unfortunate cases where one of two innocent parties must suffer from the default of a third.
Our conclusion that pay-
ment lias not been made and that the loss must fall on debtors is, we
think, not only in accord with the legal principles which we have discussed, but also with the "Broad general principle, that whenever one
of two innocent persons mast suffer by the acts of a third, he who has
enabled such third person to occasion the loss must sustain it".
Cleve & White insist, also, that the Chemical Company cannot maintain this action on the ground that, because the check was deposited with
the Murchison Bank, the sole remedy of the Chemical Company is against
that bank for negligence in the handling of the check, and in support
of this position they rely upon the case of City of Douglass v,Federal
Reserve Bank 271 U.S. 489, 46 Sup. Ct. 554;
case is not in point here.
We think, however, that that
That was an action against the Reserve Bank
based on negligence in collecting a check.
It appeared that the Reserve
#ank had accepted a worthless check of the drawee, which under the common
law rule constituted payment.
Plaintiff had deposited the original check
to its credit in the First National Bank of Douglass, Arizona, and the
court held that title to the check had passed to that bank and that, as
plaintiff had surrendered, its rights in the check, only rights arising
out of its contract with the initial bank remained.
In the case at bar
the action asserted against Cleve & White is for recovery not on the check
but on the original indebtedness, on the theory that there
payment as the check has not been paid.
has been no
It appears without contradiction
that while the check was originally credited to the Chemical Company by
the Murchison Bank, it was charged back to that company when the exchange
draft received in payment was dishonored.
Under these circumstances,
there can be no question that the right to recover upon the original indebtedness rests with the Chemical Company.
Upon the writ of error of the Chemical Company, we are also of opinion that the judgment of the District Court should be affirmed.
Assum-
ing without deciding that, under the special contract evidenced by the
deposit slip, the Chemical Company sustained such a relation to the Federal Reserve Bank as would enable it to maintain the suit for negligence,
we are satisfied that the evidence did not warrant submission of the
case to the jury as against the bank, for two reasons, (1) because there
was no evidence of negligence on the part of the bank, and'(2) because
it does not appear that plaintiff has sustained any injury as the result
of the failure of the bank to collect the check.
For reasons fully discussed in connection with the writ of error of
Cleve & White, this case is distinguishable from the case of Federal Reserve Bank v. Malloy, 264 U.S. 160, in that since the transactions there
involved chapter 20 of the Public Laws of 1921 has been enacted, and the
Federal Reserve Bank is not now chargeable with negligence in accepting
an exchange draft in payment of a check which it holds for collection.
Plaintiff contends, however, that the bank was guilty of negligence in
not requiring in payment a chock bearing the "I.C." (immediate credic)
symbol.
In explanation of this contention, it should be said that, when
the bank in which reserve deposits of a remitting bank are kept, itself
keeps a certain required balance with the Federal Reserve Bank, it ig
authorized to allow the remitting bank to draw upon it with drafts or
checks bearing this "I.C." symbol; and in such case the draft is charged
to the account of the dra.wce bank as soon as it comes into the possession
of the Federal Besorve Bank and is credited to the drawer.
This credit is
merely conditional, however, and if the draft is not honored upon presentation it is charged back to the drawer.
The "I.C." arrangement is merely
to take care of the interest loat in "the float".
There is nothing to
show that the Reserve Bank could have obtained an "I.C." draft if it had
insisted on it, or that it would have been honored by the drawee if obtained.
Furthermore, there is nothing in the statute which authorizes
the Federal Reserve Bank to demand an "I.C." draft, and in accepting an
ordinary draft on the reserve deposits of the Sank of Vsnceboro, it was
accepting that which both the drawers and the payee of the check had impliedly authorized it to accept.
Plaintiff further contends that the Federal Reserve Bank should
have ascertained the precarious financial condition of the Bank of Vanceboro and communicated the same to the Murchison Bank as the representative
of plaintiff.
There is no evidence that the Reserve Bank had knowledge of
the precarious condition of the Bank of Vanceboro, or of any facts or
circumstances which would have put it upon notice or inquiry; and there
is no evidence that it was guilty of any negligence whatever in its efforts to collect the check, or that any additional diligence on its part
would have resulted in collection.
-
But, even if negligence on the oart of the Federal Reserve Bank
be assumed, plaintiff cannot recover on account thereof, as there is
no showing whatever that plaintiff has suffered a1:7 damage,
It has
recovered in this action the full amount of its claim against Cleve
& White, and there is no suggestion that they are insolvent or that
plaintiff cannot collect from them the full amount of its judgment.
The judgment of the District Court is affirmed on both writs
of error.
Ho. 2588 Affirmed
Ho. 2589 Affirmed
(The late Judge Hose sat in the hearing of these cases, but died
before he had an opportunity to pass upon the foregoing opinion.)
True copy,
Teste:
Clerk,
Claude M. Deaa
U.S.Circuit Court of Appeals, 4th.Ct.
Deputy Clerk.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4529
April 18, 1927
SUBJECT:
Expense, Main Line, Leased Wire System,
March, 1927.
Dear Sir:
Enclosed herewith you will find two mimeograph statements, X-4829-a and X-4829-b, covering in
detail operations of the main line, Leased Wire System, during the month of March, 1927.
Please credit the amount payable by your
bank in the general account, Treasurer, U. S., on
your books, and issue C/D Form 1, National Banks,
for account of "Salaries and Expenses, Federal Reserve Board, Special Fund", LeasedWire System, sendiiyg duplicate C/D to the Federal Reserve Board.
Yours very truly,
Fiscal Agent.
Enclosures.
TO GOVERNORS OF ALL F. R. BANKS EXCEPT CHICAGO.
%
c>
rt
X-4S29-a
REPORT SHOWING CLASSIFICATION A M ) HUKB3B OF WORDS TRANSMITTED OVER MAIN LIME
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF MARCH, 192J.
From
Boston
Nov? York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Business
reported
by banks
32,049
157,55b
45,405
52,922
53,525
69,604
120,6SS
55,356
41,790
S4,7bS
70,119
115,554
Total
969,311
F. R Board
Total
Percent of total
Words sent
by New York
chargeable
to other
F.R.Banks(l)
00O
-
692
1,652
2,3)4
3,034
2,303
3,196
2,070
2,667
6,157
2,779
27,530
Total
38,935
157,593
46,100
54,604
56,159
72,63s
122,991
85,552
43,560
Treasury
Department
Business
War Finance
Corporation
Business
7,297
13,096
74
6,658
—
8,570
8,679
10,366
11,153
8,984
-
110,511
152,243
1,433,661
100.00#
262,754
15.334
3-57
16.32
4.45
8.58
-
69,602
—
108.478
886,556
100.0056
—
—
—
13,155
997,141
436,520
31,638
144,725
39,442
76,034
47,450
Percent of
total bank
Business ("O
5.36
7.02
12.61
8.97
4.25
8.78
7-85
12.24
-
6,217
9,602
6,704
87,435
76,306
121,663
Net Federal
Reserve B&rik
Business
74
62,272
111,838
79,568
37,043
77,833
284,277
—
74
1,170,833
81.67#
(•)
The so percentages used in calculating the pro rata share of leased wire expense as shown on the
ac cot Taking statement (X-4529-b).
(l)
Ncrabcr of words sent by Me?.' York to other F. R. Banks for their sole "benefit charged to banks
indicated in accordance with action talccn at Governors' Conference November 2 - 4, 1925-
TO
REPORT OF EXPENSE MAIH LI13E
FEDERAL RESERVE LEASED WIRE SYSTEM, MARCH, 1927
Nane of Bank
Operators1
Salarie s
Operators'
Overtime
Bos ton
$
$
260.00
New York
983.29
Philadelphia
225.00
Cleveland
288.66
Ricimond
190.00
Atlant a
270.00
Chicago
4.049.66(f)
St. Louis
200.00
Minneapolis
195,98
•
Kansas City
275-64
Dallas
251.00
San Francisco
370.00
Federal Reserve Board Total
(&)
'(#)
(*)
(a)
(b)
$ 7,559-23
$
1.00
1.00
-
'
Wire
Rental
$
" #
*
-
—
-
-
—
—
-
-
-
—
-
-
-
-
-
-
-
-
—•
-
15.339.91
2.00
$15,339.91
Total
Expenses
$
261.00
984.29
225.00
288.66
190.00
270.00
4,049.66
200.00
195-98
275-64
251.00
370.00
15.339.91
X-4S29-b
Pro Rata
Share of
Total
Expenses
$
667.70
3,052.33
832.29
1,604.72
1,002.48
1,312.95
2,358.45
1,677.66
794.88
1,64?.13
1,468,19
2,289,25
—
$22,901.14
$18,703.03
4.198.11(a)
$18,703-03
Credits
$
261.00
984.29
225.00
288.66
190.00
270.00
4,049.66
200.00
195.98
275-64
251.00
370.00
—
$ 7.561.23
Payable to
Federal
Reserve
Board
$
406.70
2,068.04.607.29
1,316.06
1,017.15(&)
1,042.95
l,691.21(f)
1,477.66
598.90
1,366.49
1,217.19
1,919.25
-
$13,037.68
1,691.21(b)
$11,346.47
Includes 3204.67 for branch line "business transmitted over main lino circuit.
Includes salaries of Washington operators.
Credit.
Received $4,197-20 from Treasury Department and $.91 from War Finance Corp. covering business for the
month of March, 1927 •
Amount reimbursable to Chicago.
t'O
IV
FEDERAL RESERVE BOARD
22a
WASHINGTON
X-4830
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 23, 1927
SUBJECT;
Topic for Governors' Conference - Proposed
Revision of Board's Regulations.
Dear Sir:
The Federal Reserve Board has placed on the program for
discussion at the forthcoming Governors' Conference the proposed
revision of the Board's regulations. In this connection there
are enclosed herewith a copy of the Board's existing regulations
with proposed changes noted thereon in red ink, and a memorandum
containing the text of proposed new provisions to be inserted in
the regulations, together with a brief explanation of the proposed changes.
It is important to note that the enclosed draft is
merely a tentative draft prepared by the Board's Counsel after
considering the changes made in the law by the McFadden Act and
the various suggestions made by the Governors and Federal Reserve
Agents in response to the Board's letter of March 4th (X-4804),
and is intended primarily to serve as a basis for discussion. It
has not been submitted to, or approved even tentatively by, the
Federal Reserve Board. Constructive criticisms and suggestions
are invited.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosures.
TO GOVERNORS OF ALL F. R. B A M S .
*>->
X-4830-a
TENTATIVE DRA.FT OF AMHTOMMTS TO REGULATIONS
(Confidential)
The attached draft of amendments to the Federal
Reserve Board's Regulations is merely tentative and is in-
tended primarily to serve as a basis for discussion.
It
has not "been submitted to, or approved even tentatively by,
the Federal Reserve Board.
Constructive criticisms and
suggestions are invited.
The changes in the existing regulations are noted
in red ink, and the text of new provisions to be inserted
is given below.
Following this, there is a brief explana-
tion of the changes proposed.
\
-2-
22D
X-4830-a
"
REGULATION A.
The following is the text of the new provisions to be inserted
in Regulation Ai
#!»' To "be inserted at place indicated on page 3.
(2) That such notes, drafts or bills of exchange have not been
acquired from a nonmember bank, or, if so acquired, that the applying
member bank has received permission from the Federal Reserve Board
to discount with the Federal Reserve Bank paper acquired from nonmember
banks.
#g.
To be inserted at bottom of page 6.
SECTION IX. PAPER ACQUIRED SROM NONMEMBER BANKS.
(a) Except with the permission of the Federal Reserve Board, no Federal reserve bank shall discount any paper acquired by a member bank
from a nonmember bank or bearing the signature or endorsement of a nonmember bank; except .fcMC Federal reserve banks may discount bankers1
acceptances and other eligible paper bearing the signature or endorsement of a nonmember bank, if such paper was bought by the offering bank
in good faith on the open market from some party other than the nonmember
bank.
(b) Applications for permission to rediscount paper acquired from nonmember banks shall be made in writing by the member banks which desire to
offer such paper for rediscount and shall state fully the facts which
gave rise to each application and the reasons why the applying member
banks feel justified in seeking such permission. Such applications shall
be addressed to the Federal Reserve Board, but shall be filed with the
Federal Reserve Agent, who shall forward them promptly to the Federal
Reserve Board with his recommendations.
(c) As a general rule, the Federal Reserve Board will not permit
member banks to rediscount paper acquired from nonmember banks which are
eligible for membership, because such banks should join the Federal Reserve System if they desire to participate in its benefits. The Board
will make exceptions to this rule in some cases in order to assist such
banks in emergencies for a limited time; but such exceptions will be
made only with the understanding that they will not be continued beyond
the period when the nonmember bank concerned can qualify for admission
to membership in the Federal Reserve System.
(d) The Federal Reserve Board hereby grants its permission for Federal
reserve banks to discount for member banks paper bearing the signature or
endorsement of Federal Intermediate Credit Banks, if such paper is otherwise eligible under the law and this regulation.
1
X«483a-cr'' -
-3-
TyPLAllATIOH OF CHA17&3S IN 3SGULATI0N A.
Section 1^ aage 1.
The provisions regarding the rediscount of paper secured by
"bonds or notes of the War Finance Corporation is omitted; because, as a
practical natter, it is obsolete.
It appears that all such bonds are
now overdue and that the amount outstanding is only about $17,000.
The phraseology of subdivision (c) is also changed to
conform more closely to the language of the law.
Section IliPage 3.
,
The obsolete provisions regarding the bonds or notes of
the War Finance Corporation are omitted.
Section III, page 3.
It is suggested that there be incorporated in this section
the requirement previously contained in Section IV(b) requiring the
application for rediscount to state whether the paper offered was
acquired from a nonmember bank.
Section 17(b). page 5.
It is proposed to eliminate from this section the requirement
that the application for rediscount shall state whether the note
offered for rediscount has been discounted for a depositor other
than a bank or for a nondepositor and, if discounted for a bank, whether
for a member or a nonmember bank.
This suggestion was originally made
by the Federal Reserve Bank of San Francisco as a result of the decision
—4—
in the G r n . Alfalfa Case.
-iri
X-4830-a
It will be re;ne:a'ocred that, in a circular
letter addressed to all Federal reserve banks under date of February
27, 1926, (X-4544), the Board salved compliance with this requirement, on condition that the application for rediscount should require
member banks to designate whether the paper offered for rediscount, if
any, was acquired from nonmember banks and should contain a certificate
that none of thd paper offered for rediscount, except that so designated,
was acquired from nonmember banks.
It is proposed to eliminate the old
requirement entirely from Section IV(b) and, in lieu thereof, to insert
in Section III a requirement that the bank certify that the paper offered for rediscount has not been acquired from a nonmember bank, or
if so acquired, that the applying member bank has received permission
from the Federal Reserve Board to rediscount with the Federal reserve
bank paper acquired from nonmember banks.
It is also proposed to amend subdivision (2) of Section IV(b)
so as to require financial statements whenever the amount involved
equals or exceeds $500, instead of $5,000 as heretofore.
This was recom-
mended by the Federal Reserve Bank of Minneapolis, on the ground that
$500 is the amount fixed by the Rational Bank Examiners as the maximum
amount of unsecured credit which should be extended unless supported
by a signed financial statement.
It is also proposed to eliminate from Section IV an obsolete
proviso to the paragraph regarding statements of borrowers having
closely affiliated or subsidiary corporations or firms.
5ew Section IX.
It is proposed to insert in Regulation A a new section IX con
X—4830—a
taining the substance of the Board's existing rulings with reference to the rediscount of paper acquired from nonraember banks.
(See rulings published on page 891 of the 1923 Bulletin and page
252 of the 1926 Bulletin.)
-6R-3GULATI0IT B.
It is not proposed to rake any changes in
this regulation.
X-4830-
B25UUTI0IT C.
It is not proposed to make any changes in this
regulation.
• 8 *•
»
X-4830-a
8 3 0
BSGULATION D.
The following is the text of the new provisions proposed to be
inserted in Regulation D:
#3. To be inserted at place indicated on page 16.
Deposits which are permitted to be withdrawn by check or otherwise, without the actual presentation of the pass-book, certificate., or other
similar form of receipt whenever a withdrawal is made, shall not be considered
" savings accounts" within the meaning of this regulation.
#4, To be inserted at -place indicated on page 17.
A member bank exercising trust powers need not carry reserves against
trust funds which it keeps segregated and apart from its general assets or which
it deposits in another institution to the credit of itself as trustee or other
fiduciary. If, however, such funds are mingled with the general assets of the
bank, as permitted to national banks under authority of Section ll(k) of the
Federal Reserve Act, a deposit liability thereby arises against which reserves
must be carried. In computing reserve requirements, trust funds deposited in
a member bank by another bank to the credit of such other bank as trustee or
other fiduciary must be classified by the member bank as individual deposits
rather than bank deposits.
#5.. To be inserted at place indicated on page 18.
Balances which are not payable on demand shall not be considered balances due to or balances due from banks within the meaning of this regulation,
#64. Zither this or 6B to be substituted for Section IV. pages 16 and 19.
SECTION IV. PENALTIES FOB EEFICIENCIESIN RESERVES.
(a) Basic Penalty. Inasmuch as it is essential that the law in respect to
the maintenance by member banks of the required minimum reserve balance shall
be strictly complied with# the Federal Reserve Board, under authority vested
in it by section 19 of the Federal reserve act, hereby prescribes a basic
penalty for deficiencies in reserves according to the following rules:
(1) Deficiencies in reserve balances of all member banks will be computed
on the basis of actual daily net deposit balances at the close of business
each day.
(2) Penalties for such deficiencies tfill be assessed monthly on the basis
of actual daily deficiencies during the preceding month.
(3) A basic rate of 3 per cent per annum above the Federal reserve bank
discount rate on 9Q*day commercial paper will be assessed as a penalty on
deficiencies in reserves of member banks.
— 9 —
X*4830-a
6
0 >#w*>.
(b) Progressive penalty* - The Fddoral. Reserve Board will also prescribe
for any Federal reserve district, upon the application of the Federal reserve
"bank of that district, an additional progressive penalty for continued defi«»
ciencies in reserves, in accordance with the following ruler.
When a member bank has had an actual deficiency in reserves for six
consecutive weeks* a progressive penalty, increasing at the rate of one-fourth
of 1 per cent for each week thereafter during which the actual reserve balance is deficient, will be assessed on daily deficiencies until the required
reserve has been restored and maintained for four consecutive weeks; provided
that the maximum penalty charged shall not exceed 10 per cent.
63. Either this or 6A to be substituted for Section XV. pages 18 and 19.
SECTION IV. PENALTIES FOE DEFICIENCIES I2J RESERVES.
Inasmuch as it is essential that the law in respect to the maintenance
by member banks of the required minimum reserve balance shall be strictly comrplied with, the Federal Reserve Board* under authority vested in it by section
19 of the Federal Reserve Act, hereby prescribes the following rules governing
deficiencies in reservesi
1* Deficiencies in reserve balances of all member banks will be computed on the b a M s of actual net deposit balances at the close of business each
day;:
2. Penalties for such deficiencies will be assessed monthly on the
basis of actual daily deficiencies during the preceding month;
3. Such penalties shall be assessed at a basic rate of 2$ per annum
above the Federal Reserve Bank discount rate on commercial paper;
4. When a member bank has an actual deficiency in reserves for six
consecutive weeks* there shall be assessed, in addition to the penalty at the
basic rate, a progressive penalty increasing at the rate of one-fourth of 1$
for each week thereafter during which the actual reserve balance is deficient,
until the required reserve balance has been restored and maintained for four
consecutive weeks; provided that the maximum penalty charged shall not exceed
10#;
5. Whenever the daily reserve balance of any member bank has been deficient for a time sufficient to subject such bank to the may-timim penalty of
10#, the Federal Reserve Agent shall promptly report the fact to the Federal
Reserve Board with a recommendation as to whether or not the Board should:
(a) In the case of a national bank, direct the Comptroller of the Currency to bring a suit to forfeit the charter of such national bank under the
provisions of Section 2 of the Federal Reserve Act; or
(b) lit the case of a State member bank, institute proceedings to require such bank to surrender its stock in the Federal reserve bank and to forfeit all rights and privileges of membership, pursuant to the provisions of
Section 9 of the Federal Reserve Act; or
X—4830—a
— 10 —
(c) In cither case, to take such other action as the Federal Reserve
Agent nay recoomend or the Federal Reserve Board may consider advisable.
#7. To be added at the end Of Section V. page 19.
The Federal Reserve Agent in each District shall promptly report to the
Federal Reserve Board all violations of this prohibition "by member "banks in his
District and shall in each case recommend whether or not the Board should;
(a) In the case of a national "bank, direct the Comptroller of the Currency to "bring suit to forfeit the charter of such national "bank under the provisions of Section 2 of the Federal Reserve Act; or
("b) In the case of a State member bank, institute proceedings to require
such "bank to surrender its stock in the Federal reserve "bank and to forfeit all
rights and privileges of membership pursuant to the provisions of Section 9 of
the Federal Reserve Act; or
(c) In either case take such other action as the Federal Reserve Agent
may recommend or the Federal Reserve Board may consider advisable.
EXPLANATION OF PROPOSED CHAKSES IN REGULATION D.
In general, it may be said that the recommendations received from the
Federal reserve banks evidenced more interest in the tendency of member banks to
evade the reserve requirements than in any other subject.
Numerous suggestions
were made to remedy this situation; but, unfortunately, many of then could not
be adopted without an amendment to the law.
Such of these suggestions as are
believed to be consistent with existing law were incorporated in the tentative
draft, however, ttad the entire regulation was considered with a view of strengthening the enforcement of the reserve requirements and checking the tendency of
member banks to evade them.
Section 11(d). page 16.
The amendments are designed to check* the tendency of member banks to
evade the reserve requirements by classifying as "savings accounts" deposits
which are
permitted to be withdrawn at will, by check or otherwise, without the
actual presentation of the pass-book.
(See the Board's ruling on page 677 of
- 11 -
X-4830-a
the 1923 Bullet.in*) Amendments of this general character Were suggested by
the Federal Reserve Banks of Boston and Chicago.
Section 111(a), page 17.
This amendment was suggested by the Federal Reserve Bank of New York
and is designed to incorporate in the Regulation the substance of the ruling
on page 572 of the 1922 Bulletin with reference to reserves against trust funds.
Section III(b% page 18.
This amendment was suggested by the Inderal Reserve Sank of Chicago,
and is designed to discourage the practice of borne banks treating as balances
due from banks time deposits carried with other banks against tfliich such other
banks carry only 3$ reserves.
Section IV. pages 18 and 19 *
Two alternative substitutes, designated as "6A" and
fl
6B", are suggested*
The proposed substitute designated as n 5A" is designed merely to base
*
the computation of reserves for the purpose of assessing penalties on actual
daily balances; instead of average balances for weekly or semi-monthly periods,
in order to "prevent some of the Wide fluctuations in actual reserves which now
take place."
This was suggested by the Federal Reserve Batik of Hew York, and
it is understood that such a proposal has been made a separate subject for discussion at the Governors1' Conference*
The proposed substitute designated £6 "SS" is designed to accomplish
the same object and, in addition thereto, to strengthen in Other respects the
enforcement of the reserve requirements Of the law*
lia. accordance with a
suggestion made by the Federal Reserve Bank of Philadelphia, it is designed to
correct the view entertained by some metiber banks that* so long as they pay
the penalties, they have a right to permit, the^r reserves to remain deficient;
« 12 •
•
*
X-4830-a
It would also prescribe a progressive penalty for all Districts and. relievo
the Federal Reserve Banks of the necessity of taking the initiative in this
natter.
The duty of prescribing penalties for deficiencies in reserves is
placed "by the law on the Federal Reserve Board, and it is believed that the
Board rather than the Federal reserve "banks should take the initiative in the
natter, especially in view of the fact that at tines there has "been a feeling
on the part of sone nenber banks that the Federal reserve banks are influenced
by the possibility of increasing their profits.
Section V, page 19.
The elimination of the last sentence of the present regulation is
suggested in order to harmonize this section with the proposed amendments to
Section IV.
The addition- of the proposed new provision designated as "Insert #7"
is designed to call forcibly to the attention of nenber banks the prohibition
against making loans or paying dividends while their reserves are deficient
and to provide nore adequately for its enforcement.
- 13 -
RESULATIOH 3.
It is not proposed, to naice any changes in this Regulation,
X--4830-
14 -
X-4830-a
BEOULATION F.
The following is the text of the proposed new provisions
to "be inserted in Regulation F;
#8> Insert on pfege 25 i
Section 3 of the Act of November 7, 1918* as amended
"by Section 1 of the Abt of February 25) 192?, which authorizes any
"bankj trtist company, havings bank, or other "banking institution
incorporated under the laws of any State or of the District of
Columbia to be consolidated directly with a national bank located
in the same city, town or village under the charter of such national
bank, provides in part that when such consolidation is effected:
"* * * all the rights, franchises, and interests of
such State or District bank so consolidated with a
national banking association in and to every species
of property, real, personal, and mixed, and choses
in action thereto belonging, shall be deemed to be
transferred to and vested in such national banking
association into which it is consolidated without
any deed or other transfer, and the said consolidated
national banking association shall hold and enjoy
the same and all rights of property, franchises, and
interests including the right of succession as trustee,
executor, or in any other-fiduciary capacity in the
same manner and to the same extent as was held and
enjoyed by such State or District bank so consolidated
with such national banking association."
* * * * * *
* * * * * * * * * *
"The words 'State bank1, 'State banks', 'bank',
or 'banks' as used in this section, shall be held to
include trust companies, savings banks, or other such
corporations or institutions carrying on the banking
business under the authority of State laws."
#9. Insert at end of Section II. page 25.
In the case of the organization of a new national bank,
the conversion of a State bank or trust company into a national
bank, the consolidation of two national banks,or the consolidation
of a State bank or trust company with a national bank under the
charter of the latter, application for such a permit may be made
in advance on behalf of the new, converted, or consolidated
national bank, and the permit may be issued simultaneously with
- 15 -
X-4830-a
iV'i > 4
the consummation of such organization, conversion or consolidation. In the case of the organization of a new national tank,
the application may "be made on "behalf of the new national bank
"by the organizers thereof, In the case of the conversion of a
State "bank or trust company into a national "bank, the application
may "be made "by the State "bank or trust company on "behalf of the
national tank into which it is to "be converted. In the case of
the consolidation of two or more national "banks or the consolidation
of a State "bank or trust company with a national bank under the
charter of the latter, the application may "be made by the national
bank the charter of which is to be retained.
#10. Insert after Section II, page 25.
SECTION III.
CONSOLIDATION OF TWO OR MORE NATIONAL B A M S .
Where two or more national banks consolidate under the
provisions of the Act of November 7, 1918, and any one of such banks
has, prior to such consolidation, received a permit from the Federal Reserve Board to act in fiduciary capacities, the rights existing under such permit pass by operation of law to the consolidated bank and the consolidated bank may exercise such fiduciary
powers in the same manner and to the same extent as the bank to
which such permit was originally issued. In order that the consolidated bank's records may be complete and its right to exercise
such fiduciary powers may not be questioned, however, it is advisable for the consolidated bank to obtain from the Federal Reserve Board a permit to exercise fiduciary powers in its own name.
Such a permit may be applied for in advance of the consolidation
and may be issued In the name of the consolidated, bank effective
when the consolidation is consummated.
#11, Insert after new Section III, page 25.
SECTION 17. - CONSOLIDATION OF STATE BANK WITH NATIONAL BANK.
Section 3 of the Act of November 7, 1918, as amended by
Section 1 of the Act of February 25, 1927* which authorizes any
bank., trust company, savings bank., or other banking institution
incorporated under the laws of any State or of the District of
Columbia to be consolidated directly with a national bank located
in the same city, town or village under the charter of such national bank, provides in part that when such consolidation is
effected,;
"* * * all the rights, franchises, and interests of
such State or District bank so consolidated with a
national banking association in and to every species
of property, real, personal, and. mixed, and choses
in action thereto belonging, shall be deemed to be
— 16 —
X-4830-a
transferred to and. vested in such national "banking
association into which it is consolidated without
any deed or other transfer, and the said consolidated
national 'banking association shall holdand enjoy the
same and all rights of property, franchises, and interests including the r U & $ of auccasgjon as trustee,
executor. or in any other f1#ri#rr capacity i# the
Iff"
rtf
^
hald and
'
suchState #y Matrtei haak bo consolidated
yith sucfo B»tioo4
"
"The words 'State hank', *State hanks', 'bank1,
or 'hanks', as used in this section, shall he held
to include trust companies, savings hanks, or other
such corporations or institutions carrying on the
hanking business under the authority of State laws,"
The purpose of this provision is to make clear the right of such
a consolidated national hank to succeed to the specific trusteeships,
executorships, and other fiitaciary appointments under which the State institution was acting prior to the consolidation or in which it had been
appointed or designated to act under wills or other instruments which
had not become effective at the time of consolidation through the death
of a testator, the probate of a will or otherwise; but it does not confer
upon such national hanks the right to act generally in fiduciary capacities or to undertake any new trust business. It is necessary for the
consolidated national hank to have a permit from the Federal Reserve Board
to act in fiduciary capacities, therefore, before undertaking to act generally in fiduciary capacities or to accept any new trust business. If
the national hank does not desire to act generally in fiduciary capacities
or to accept any new truet business, but desires merely to continue to
execute the specific trusteeships, executorships and other fiduciary • .
affairs which were actually being executed by the State institution at
the time of the consolidation or which the State institution had heen
designated to execute under wills or other instruments which had not yet
become effective through the death of the testator, the probate of the
will or otherwise, it is not technically necessary for the national hank
to have a permit from the Federal Reserve Board in order to execute such
specific trusts; hut it is advisable for the national bank to have such
a permit, in order that its right to continue to execute these trusts
may not be questioned* In all cases Involving the consolidation of a
State institution having a trust business with a national hank under the
provisions of the above mentioned act, therefore, the national hank
should obtain from the Federal Reserve Board a permit to act in fiduciary
capacities before the consolidation becomes effective, unless such
national bank already has such a permit*
- 17 -
X-4830-a
8 3 9
#12. Substitute for old Section III, page 25.
SECTION 7. SEPARATE TRUST DEPABTMEITTS.
Every national "bank which obtains from the Federal Reserve Board
a perait to act in fiduciary capacities shall establish a separate trust
department within six months after the issuance of such permit.
Such
department shall be established before such bank undertakes to act in
any fiduciary capacity and shall be placed under the management of an
officer or officers whose duties shall be prescribed by the Board of
Directors of the bank, either *by an amendment to the by-laws of the
bank or by a resolution Muly entered in the minutes of the Board of
Directors.
#15. Insert on page 25.
SECTION VI. DEPOSIT OF SECURITIES WITH STATE AUTHORITIES.
Whenever the laws of a State require corporations acting in a
fiduciary capacity to deposit securities with the State authorities for
the protection of private or court trusts, every national bank is such
State which obtains a permit from the Federal Reserve Board to act in
fiduciary capacities shall, before undertaking to act in such capacities, and at all events within six months after the issuance of such
permit, make a similar deposit of securities. Such securities shall be
deposited with the State authorities, unless the State authorities refuse to accept them. If the State authorities refuse to accept such
securities, they shall be deposited with the Federal Reserve Agent of
the District in which such national bank is located. Securities so
deposited shall be held for the protection of private or court trusts,
as provided by the State law,
#14. Substitute for old Section 7. page 26.
SECTION VIII. FUNDS AWAITING- INVESTMENT OR DISTRIBUTION.
(a) In General. Funds received or held in the trust department
of a national bank awaiting investment or distribution shall be invested or distributed as soon as practicable and shall not be held
uninvested by the bank any longer than is reasonably necessary.
(b) Deposits in Commercial or Savings Department of Trustee Bank. Funds received or held in the trust department of a national bank awaiting investment or distribution may be deposited in the commercial department or savings department of the bank to the credit of the trust
department; provided that the bank first delivers to the trust department, as collateral security:
— 18 —
X-4830~a
(1) Bonds or certificates of indebtedness of
the United States; or
(2) Other readily marketable securities of the
classes in which State trust companies or
State tanks exercising trust powers are
authorized or permitted to invest trust
funds under the laws of the State in which
such bank is located; or
(3) Other readily marketable securities of the
classes defined as "investment securities"
under the regulations of the Comptroller of
the Currency issued pursuant to Section 5136
of the Revised Statutes of the United States
as attended by the Act of February 25, 1927,
The United States bonds or other securities so deposited as
collateral shall be owned by the bank and shall at all tines be at
least equal in market value to the amount of trust funds so deposited
in the commercial department.
(c) Deposits in other Banks. If funds received or held in tfie
trust department of a national bank awaiting investment or distribution
are deposited in another bank, they shall be deposited to the credit of
the said national bank as trustee or other fiduciary and the said national
bank shall first require the bank in Which such funds are deposited to
deliver to the said national bank, as collateral security, United States
bonds or other readily marketable securities of the kinds specified in
Subsection (a) above, which securities shall be owned by the depositary
bank, and shall at all times be equal in market value to the amount of
funds so deposited. Such collateral security shall be held in the trust
department of the said national bank in the manner provided in Section IV
of this regulation for the security of the owners of the funds so deposited.
#15. Insert on page 26.
SECTION X. COMPENSATION OF B A M .
A national bank acting in a fiduciary capacity is entitled to
receive for its services such fee or compensation as may be allowed by
State law or provided for in the will, deed, court order or other instrument creating the trust. If the amount of such fee or compensation
is not regulated by State law or stipulated or provided for in the
instrument creating the trust, the national bank may charge or deduct
not more than a reasonable fee or compensation. Where the bank is
acting in a fiduciary capacity under appointment by a court, it may
receive such fee or compensation as shall be allowed or approved by
that court.
- 19 -
X-4830-a
24.1
After the deduction of a proper fee or compensation, determined in the manner prescribed above, all income derived from the investment of the funds of a trust sl^all be paid over to, or credited
to the account of, such trust.
#16. Insert on -page 27,
.
SECTION XIII. INSOLVENCY OR VOLUNTARY LIQUIDATION OF BANK.
(a) Insolvency. Whenever a national bank exercising fiduciary powers,
becomes insolvent and a receiver is appointed thcrofor by the Comptroller
of the Currency, such receiver will, pursuant to the instructions of the
Comptroller of the Currency and to the orders of the court or courts of
appropriate jurisdiction, proceed to close such trusts and estates as can.
be closed promptly and transfer to substitute fiduciaries all trusts and
estates which cannot be closed promptly.
(b) Voluntary liquidation. Whenever a national bank exercising fiduciary powers is placed in voluntary liquidation, the liquidating agent
shall, in accordance with the laws of the State in which such national bank
is located, proceed at once to liquidate the affairs of the trust department as follows:
1, All voluntary trusts which can be cancelled shall be
cancelled as soon as possible and all assets and papers
thereof shall be delivered to the rightful owner or
owners;
2. All court trusts and estates under the jurisdiction of
a court shall be closed or disposed of as soon as
possible in accordance with the orders or instructions
of the court having jurisdiction;
3. All other trusts which can be closed promptly shall be
closed as soon as possible and final accounting made
therefor;
4, All other trusts which cannot be closed promptly shall
be transferred by appropriate legal proceedings to
substitute trustees o r other fiduciaries.
EXPLANATION OF CHANGES IN REGULATION F.
Section I. page 25.
the
There is inserted at the end of this section
provisions contained in Section J of the McFadden Act with reference
.
to the effect of the consolidation of a State bank having trust powers
- 30 -
with a national tank.
X-4830-a
This was suggested hy the Federal Reserve Banks of
Boston and St. Jjouis.
Section II, page 35.
There is inserted at the end of this
section an explanation of the manner in which applications should " e made
b
for trust powers in cases where a new national "bank is "being organized, a
State "bank is converted into a national "bank, two or more national hanks
are consolidated, or a State "bank is consolidated with a national "bank
under the charter of the latter.
New Section III, page 35.
It is proposed to insert a new Sec-
tion III stating the effect of the consolidation of two or more national
"banks one of which has trust powers and the advisability of the consolidated "bank obtaining a new fiduciary permit.
New Section IV, page 35.
It is proposed to insert a new Section
IV stating the effect of the consolidation of a State "bank having trust
powers with a national "bank under the charter of the latter.
This was
suggested "by the Federal Reserve Banks of Boston and St. Louis.
Old Section III, new Section V. -page 35.
It is proposed to
redesignate old Section III as Section V, and to amend the section so as
to require every national "bank which obtains from the Federal Reserve Board a
permit to act in fiduciary capacities to establish a separate trust department within six months after issuance of such permit.
This was recom-
mended "by the last Governors' Conference and by the last conference of
Federal Reserve Agents.
New Section VI. page 35.
It is proposed to insert at this place
a new section with reference to the deposit of securities with State
- 21 -
X--4830~d,
authorities which will require such deposits to he made within six months
after the issuance of a fiduciary permit.
This was suggested "by the last
conference of Governors and "by the last conference of Federal Reserve Agents,
It is also proposed to insert here a provision covering the situation whore
the State law requires a deposit of securities "but the State authorities
refuse to accept such deposits from national "banks.
Old Section V, now Section VIII. page 26.
It is proposed to
designate old section V as Section VlII and to re-write the entire section
so as to cover more completely the handling of funds awaiting investment or
distribution.
There is incorporated in this section a statement of the
principle that funds held awaiting investment or distribution should be
invested or distributed as soon as practicable and should not be held by
the bank uninvested any longer than is reasonably necessary.
The provision
with reference to deposits of trust funds in the banking department of the
trustee bank to the credit of the trust department is amplified and made
more definite.
This was suggested by the Federal Reserve Banks of New York
and Cleveland.
There is inserted a new provision covering deposits of
trust funds in other banks and requiring that when this is done the trustee
bank shall require the bank in which such funds are deposited to pledge
securities with the trustee bank for the protection of such deposits.
This is believed to be absolutely necessary in order to afford trust funds
the protection which the Federal Reserve Act obviously intended should be
afforded.
If the trustee deposits trust funds in another bank to the
credit of Itself as trustee it incurs no liability therefor except in the
case of actual negligence or violation of the terms of the trust agree-
X-4830-a
— 22 "
nent; and, if the bank in which such fvmds are deposited should fail,
the trust estate would have no prior lien on such funds "but would he in
the position of a general creditor.
Such a result is clearly contrary
to the intent of that provision of Section 11(B) which provides that if
trust funds are used in the "business of the trustee "bank the "bank shall
pledge securities with the trust department for their protection.
Old Section VI. new Section IX. page 26.
It is proposed to
amend this section so as to state explicitly that funds held in trust oust
he invested as soon as practicable; and* also, so afc to authorize investments to "be approved "by a committee of directors appointed for that purpose,
instead of requiring then to he approved ty the entire Board of Directors.
New Section X. page 26.
It is proposed to insert a new Section
X stating what compensation the hank may receive for acting in fiduciary
capacities and providing that, after the deduction of a proper fee or
compensation, all income derived from the investment of trust funds shall
he paid over or credited to the account of such trust.
This is intended
to prevent a practice such as that which exists in Kentucky, whereby
some hanks hold trust funds uninvested, employ them in their "business,
pay the trust estate a penalty of 5$ as required by the State law, and
retain for themselves all earnings in excess of 5^6.
This was suggested
by the Federal Reserve Bank of St. Louis.
Old Section VIII. new Section XII. page 27.
It is proposed to
amend this section so as to authorize separate examinations of the trust
department to be made at any time.
Reserve Batik of Minneapolis,
This was suggested by the Federal
— 23 *
-
Nev; Section XIII, page 37.
24:5
X-4830 a
It is proposed to insert & new sec-
tion XIII providing for the winding up, of the affairs of the trust department of a national tank which is placed in voluntary liquidation or in the
hands of a receiver.
Old Section X. page 37. It has "been suggested "by the office of
the Comptroller of the Currency that there should he eliminated entirely
the existing Section X, whereby the Board now reserves the right to revoke
permits to act in fiduciary capacities for violations of law; because it
is believed that the reservation of this right by the Federal Reserve
Board is inconsistent with the policy of Congress as indicated in the
McFadden Act.
The McFadden Act contains a provision granting national
banks indetenninate charters, and it is clear that the purpose of Congress
in enacting this provision was to enable national banks to compete with
trust companies having indeterminate or perpetual charters.
It is argued
that this purpose of Congress would be defeated if the Federal Beserve
Board should continue to reserve the right to revoke fiduciary permits.
While it is believed that the Board technically has such a right under
the existing regulations, the legality of this section of the regulations
is at least open to doubt, especially since the enactment of the McFadden
Act.
Moreover, this power has never been exercised, and an equally ef-
fective remedy lies in the Board's power to direct the Comptroller of the
Currency to bring suit to forfeit the charter of a national bank for
violation of law.
- 24 -
X-4830-a
BE&ULATION Q.
It is proposed to eliminate entirely the old Regulation G dealing with loans "by national "banks on farm land and other real estate;
since this is a natter within the jurisdiction of the Comptroller of the
Currency, and it is understood that he is preparing to issue regulations
on this subject.
In order to avoid changing the familiar and well known designation of other existing regulations, it is proposed to redesignate
lation M as Regulation 6 and insert it at this place.
Regu-
— 25 —
X-4830-a
O/l m
REGULATION H.
The following is the text of the proposed new provisions to "be inserted in Regulation H:
#17. Insert in table on page 30.
In an outlying district of a city with a
population exceeding 50,000 inhabitants;
provided State law pemits organization
of State "banks in such location with a
capital of $100,000 or less
$100,000
$60,000
#18. Insert on page 51 at end of Section I.
(c) Branches. - In order to be eligible for membership in a Federal reserve "bank, a State "bank or trust company must relinquish any "branch or "branches
established " y it after February 25, 1927, beyond the limits of the city, town
b
or village in which the parent bank is situated.
#19. Alternative substitute for Section IV. "page 32.
SECTION IV. CONDITIONS OF MEMBERSHIP.
Pursuant to the authority contained in the first paragraph of Section
9 of the Federal Reserve Act, which provides that the Federal Reserve Board
may permit applying banks to become members of the Federal Reserve System
"subject to the provisions of this Act and to such, conditions of membership
as it may prescribe pursuant thereto", the Federal Reserve Board will prescribe for each bank or trust company hereafter applying for admission to
the Federal Reserve System such conditions of membership pursuant to the provisions of the Federal Reserve Act as the Board may consider necessary or advisable in the particular case, and such bank or trust conpapy will be required
to agree to such conditions of membership prior to its admission to the Federal
Reserve System.
#20. Substitute for Section VI. "Page 34.
SECTION VI. ESTABLISHMENT OR MAINTENANCE OF BRANCHES.
Every State bank which is, or hereafter becomes, a member of the
Federal Reserve System will be required to comply strictly with the following
provision of Section 9 of the Federal Reserve Act as amended by the Act of
February 25, 1927:
Any such State bank which, at the date of the approval
of this Act, has established and is operating a branch or
— 26 —
X-4830- a
tranches in conformity with the State law, may retain and
operate the same while remaining or upon "becoming a stockholder of such Fedeiral reserve hank; but no such State hank
may retain or acquire stock in a Federal reserve hank except Upon relinquishment of any "branch or branches established after the date of the approval of this Act beyond
the limits of the city, town, or village in which the parent
bank is situated.
This has been interpreted to mean that:
1.
Any State member bank v;hich, on February 25, 1927, had established and
was actually operating a branch or branches in conformity with the State law is
permitted to retain and operate the same while remaining a member of the Federal
Reserve System, regardless of the location of such branch or branches*
2.
Any nonmember State bank which, on February 25, 1927, had established
and was actually operating a branch or branches in conformity with State law may,
if otherwise eligible, become a member of the Federal Reserve System and retain
and operate such branches, regardless of their location.
3.
In order to remain a member of the Federal Reserve System, every State
member bank must relinquish any branch or branches established after February 25,
1927, beyond the limits of the city, town or village in which the parent bank is
situated.
4.
Any State member bank which establishes any branch or branches after
February 25, 1927, beyond the limits of the city, town or village in which the
parent bank is situated must either (a) relinquish such branch or branches or
(b) forfeit all rights and privileges of membership and surrender its stock in
the Federal reserve bank.
5.
Ho State bank which has established any branches subsequent to February 25, 1927, beyond the limits of the city, town or village in which the
parent bank is situated may become a member of the Federal Reserve System except upon relinquishment of every such branch.
6«
State member banks may establish branches within the limits of the
city, town or village in which the parent bank is situated without obtaining
permission of the Federal Reserve Board.
EXPLA1W102T OF PROPOSED CHANGES IN REGULATION H.
Section 1. page 30.
It is proposed to amend Section 1 so as to
permit the admission to the Federal Reserve System of State banks located in
outlying districts of the cities having a population exceeding 50,000 inhabitants with a capital of $100,000 or $60,000, in view of the amendment contained
- 27 *
*
X^4830-a
24!
in the McFadden Act permitting national "banks so situated to "be organized with
a capital of only $100»600*
It is also proposed to insert at the end of this
section a provision conforming to the provisions of the McFadden Act insofar
as it affects the eligibility for membership in the Federal Reserve System of
State "banks having "branches,
Section IV. page 32.
/
It is necessary to change this section to con-
form to the amendment contained in the McFadden Act which . authorizes the
Board to prescribe only such conditions of membership as are
provisions of the Federal Reserve Act*
are submitted.
"pursuant to" the
Two proposed revisions of this section
One of them would require certain changes in the existing text
of this section, and such changes are noted in red ink on the old regulations.
The other alternative draft is submitted herewith as proposed insert number
19.
This proposed revision of Section IV would omit entirely the text of all
conditions of membership, and probably would lessen materially the antagonism
to the Board's practice of prescribing conditions of membership.
Such a
revision of this section would not prevent the Board from prescribing any condition of membership which it may now prescribe under Section 9 as amended by
the McFadden Act, nor would it prevent the Board from adopting a definite
policy with reference to conditions of membership, which policy might be incorporated in a resolution to be adopted by the Board or in a circular letter
addressed to all Federal Reserve Agents,
Section V. page 33,
If the text #f Condition Bomber 1 is omitted
from Section IV, it is suggested that Section V should be omitted altogether
and the rea*i%iBg sections renumbered accordingly.
iSL
Section VI, page 34.
It is proposed to eliminate altogether the old
section VI containing "Principles Governing Establishment of Branches", and
to substitute therefor the text of the provision of the McFadden Act pertaining to branches of State member banks, together with a statement of the interpretation which has been given to that provision.
Section VIII. page 36.
It is proposed to omit entirely the second
paragraph of this section, in view of the fact that the Board or the Federal
reserve banks may wish to change the existing practice with respect to examinations of State member banks.
X-4830-a
- 25 '»«X J
<•,
REGULATION I.
The fevr slight changes proposed, to be nade in Regulation I are
noted in red. ink on the text of the old regulation and are "believed to "be
self-explanatory.
It nay "be stated, however, that the elimination of the
words "if earned." fron subdivisions ("b) and (c) of Section II are intended to
make the regulation conform to the ruling contained in the Board's circular
letter of April 17, 1925 (X-4322).
REGULATIONS J. K. M P L.
It is not proposed to make any changes in Regulations J, K, and L.
REGULATION M.
It is not proposed to make any change
in Regulation M, except to
redesignate it as Regulation G and transfer it to the place formerly occupied
by old Regulation G, which it is proposed to eliminate.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4831
April 19, 1927
SUBJECT:
Bankers' acceptances secured by terminal grain
elevator or warehouse receipts issued by the
borrower.
Dear Sir:
Reference is made to the recommendation of the last
Governors' Conference "that registered terminal elevator or warehouse receipts which are issued under conditions and practices
similar to those prevailing in the case of such receipts issued
under the supervision of the Railroad and Warehouse Commission of
the State of Minnesota, are within the spirit of the Board's
regulations recuiria-? that warehouse receipts to be eligible as
to collateral for acceptances must be issued by a warehouse independent of the customer and that, therefore, the Federal Reserve
Board should rule that acceptances secured by such warehouse receipts are eligible provided, of course, that such acceptances cootply with all of the relevant requirements of the Federal Reserve
Act."
After giving careful consideration to this matter the
Board has voted to disapprove the recommendation of the Governors*
Conference.
The Board has also given careful consideration to the recommendation of a previous Governors' Conference with reference
to the matter of adopting.an amendment to Section X(3) of its Regulation A so as to make eligible for rediscount or purchase by Federal reserve banks a bankers' acceptance drawn by an elevator or warehouse company and secured by terminal wareTTOuse receipts of the elevator or warehouse company that draws the draft, and has decided not
to adopt such an amendment.
TO GOVERNORS
Very truly yours,
D. R. Crissinger
Governor.
\
OF AIL F. R. BANKS
X-4833
C O P Y
F E D E R A L
OF
R E S E R V E
B A N K
B O S T O N
June 17, 1926.
My dear Mr. Hamlin:
Your letter of June 10th was duly received and I am glad to know
that#"before any change is made as to the existing Federal reserve bank:
agencies in Cuba, this "bank will "be given an opportunity to "be heard. I
note also that you are inclined to think that it will "be some little time
"before the matter is taken up "by the Board. The subject was discussed informally at our Directors' meeting yesterday* but no action looking to a
change in our present status was taken.
You suggested in your letter that if any further plan occured
to me for working out this problem, that I advise you.
My personal view
is that a Federal reserve agency in Cuba is not justified for the purpose
merely of providing the people of Cuba with currency fit for circulation
which I think is an obligation of the Cuban Government itself. By paying
transportation charges on unfit notes to Washington and on new currency
which is to replace the unfit notes* the Cuban Oovelmfaent could keep the
currency in circulation throu^iout the island in a reasonably fit condition, and at a cost no greater .than it would incur should it engrave
and print its own bills.
In fact, X understand that the Cuban treasury
has already expressed a willingness to bear one-half of this expense.
Nor do I think that an agency in Havana is justified for the purpose of
enabling any Federal reserve bank to keep in circulation in Cuba a large
volume of its Federal reserve notes. Indeed I think there are certain
vital objections to this which will be discussed later on in this letter.
I think, however, that a Federal reserve agency in Cuba is
justified upon the ground that the United States government by virtue of
the so-called Piatt amendment has entered into relations with Cuba rhich
it does not have with any other foreign country, especially in matters
of finance and currency, all United States currency having been made
legal tender by act of the Cuban Congress, and for the additional reason
that in the year 1923, the President of the United States and the Department of State advised the Federal Reserve Board that it was important
that a Federal reserve agency should be established in Cuba.
limiting
the functions of the agency to the purchase of bills of exchange and to
the purchase and sale of cable transfers, which transactions are authorized in section 14 of the Act, exchange rates in Cuba would be stabilized
and should sufficient currency be kept An hand by the agency, the banks
in Havana which include branches of three member banks of the Federal
— 2 •
2-4332
25
Reserve System wotild "be enabled to render more efficient and economical
service to the public and with greater safety to all concerned. In
this connection, it is well to consider the large investments "by Americans in Cuba, the amount of which is variously estimated at from one
M l lion to one M i l ion five hundred million dollars.
About 3 years ago, the Federal Beserve Bank of Boston made application to the Federal Reserve Board for permission to estaMish an
agency in Havana for the purpose of "buying M i l s of exchange and of buying
and selling cattle transfers.
This application was not made with a view
of circulating federal reserve notes in Cuba. TJhile this application was
being considered by the Board, the Federal Beserve Bank of Atlanta also
applied for permission to establish an agency primarily for the purpose
of maintaining the circulation of its Federal reserve notes in Cuba and
the Board on July 30, 1923, adopted a resolution establishing two agencies, the effect of which has been that purchases and sales of cable
transfers have been made by the Federal Reserve Bank of Boston which bank
has received the direct profits resulting therefrom, while the receipts
and disbursements of currency involved in these transactions have•been
handled by the Federal Reserve Bank of Atlanta and at its own expense,
without any direct profit although it has thereby been enabled to maintain and possibly to increase its circulation in Cuba.
The delays experienced by this bank in completing cable transfers on the occasion of the run on many of the banks in Havana beginning
April 9, 1926, when transfers aggregating $39,200,000 were requested of
this bank and could not be completed promptly (some transfers requested
on Saturday,April 10, were not completed until Wednesday, April 14) because the Havana Agency of the Federal Reserve Bank of Atlanta had on
Saturday, April 10, less than $7,500,000 in currency on hand, calls for
consideration of the question whether the two separate reserve bank
agencies in Havana should be continued.
She agencies of the Federal Reserve Banks of Atlanta and of
Boston exist for a service which either agency alone might render but
since one agency undertakes the initial part of each transaction and the
other attends to its completion in the receipt or delivery of its equivalent in cash, neither agency has the ability to furnish the complete
service and neither has entire responsibility for the proper performance
of agency functions. The dual organisations are therefore necessarily
cumbersome and unnecessarily expensive for the usual course of business
and the absence of a common control or direction of the service which
they share militates against their meeting promptly and efficiently emergencies such as the run commencing on April 9, which though in fact handled
successfully, could not have been met without the assistance which the
representative of this bank was able to obtain from the Cuban government,
assistance which was available solely because the Cuban treasury at the
moment happened to be able and to be disposed to render it, but which
might not be available on another occasion however helpful might be the
disposition of the Cuban officials.
- 3 -
X-4832
Considerations of efficiency and of respect for the favorable
opinion of tanks and "business houses which would undoubtedly hold both
agencies responsible for a failure of services such as that which impended
on April 9, suggest that one of the two agencies be discontinued; and
though the initiative in the establishment of an Havana agency for dealing
in cable transfers was taken by this bank and though its agency has been
conducted in such a way as to yield a substantial net profit and to receive
the good will and commendation both of Havana banks and of the Cuban government, especially during the emergency beginning April 9, I believe, in the
interests of trade relations with Cube and of the Federal Reserve System
as a whole, that if the Federal Reserve Board should not be disposed to
consolidate the two agencies under the direction and control of the Federal
Reserve Bank of Boston, the agency of this bank in Havana should be discontinued.
So far as concerns the service contemplated in this bank's original application for an agency in Havana, experience has demonstrated that
a single agency can perform that service more efficiently than two agencies
with a division of functions and of responsibility. While it is true that
the agency earnings of this bank have been considerable, earnings alone
without any consideration of service do not constitute a sufficient reason
for the continuance of the two agencies.
Aside from the practical difficulties of effecting cable transfers
through two separate agencies, the possibility of serious liability arising
out of the paying agency's inability to complete transfers should be borne
in mind. In emergencies like the one beginning on April 9, two courses
mig&t be open to the first reserve bank, that is, the bank receiving requests
for transfers which there is reason to believe the agency of the second or
paying reserve bank, may be unable to pay promptly. The first of these
courses would be for the reserve bank to decline to receive the requests at
all. Bit even assuming that the reserve bank would be strictly within its
legal rights in so doing, and could so decline without incurring liabilities similar to those which might attach for example to a refusal by a
common carrier to serve anyone complying with its published tariffs, the
availability of this course would be largely theoretical. Absolute declination of service while any possibility of accomplishment exists, would be
unthinkable in any crisis involving such consequences of financial disaster
as the one in Cuba in April, and though probably under no legal compulsion
to accept without condition orders for cable transfers, the reserve bank in
view of its inauguration of this service and its peculiar relation to other
banks which have come to rely on this service, would be subject to severe
condemnation were it to refuse service unconditionally, and would be under
a strong moral obligation at least to undertake the service on some basis.
As a practical matter, therefore, Only one course is open to the first reserve bank, namely, to accept the order and seek to protect itself by stipulation that the transfer is undertaken without guarantee of completion and
subject to the ability and readiness of the second reserve bank to make
payment.
- 4 -
X-4832
256
This course, conditional acceptance, can not "be considered free
from, peril, and liabilities for damages resulting from failure to complete
transfers might "be entailed if for any reason the conditions which the
reserve "bank sought to impose could not " e established as having "been acb
cepted "by the other contracting party, or if for any reason the failure
of service was not within the scope of those conditions. A state of rush
and more or leas confusion nearly always characterizes important crises
such as the Havana run, orders are given and accepted "by telephone and as
a rule through the intervention of another federal reserve "bank, and even
though confirmed "by telegrams and letters as required, it might la some
important cases "be difficult A o establish definite acceptance of the conditions by the bank asking for/Transfer and without such acceptance, the stage
may be set for serious loss or at least for litigation when it would probably
be found that the conditions invoked as a defense for failure of service, if
established, would be, construed strictly against the contracting reserve bank.
In connection #ith possible action by the Federal Reserve Board
authorizing a single agency in Havana, and in conformity with Section 14(e)
of the Federal Reserve Act which provides that whenever a foreign agency
has been established by a Federal reserve bank "any other Federal reserve
bank may, with the consent and approval of the Federal Reserve Board, be
permitted to carry on Or conduct, through the Federal Reserve Bank opening
such account or appointing such agency or correspondent, any transaction
authorized by this section under rules fend regulations to be prescribed by
the Board,M it seems to me that the federal Reserve Board should permit any
Federal reserve bank which cares to do so to share in the facilities, the
earnings sad the expenses of conducting the single agency as is now the
practice with Regard to foreign bank accounts Carried with the Federal Reserve Bank of Sew York.
It is my opinion also that the Federal Reserve Board should require the agency to confine its c&sh disbursements to gold and silver coin,
gold certificates* silver certificates, United States notes and National
bank notes, and that no Federal reserve notes issued by any Federal reserve
bank should be paid out by the agency* If such.a course were followed, it
would mean that when the agency received Federal reserve notes It would return them in the usual course of business to the United States for redemption, which would bring about a gradual retirement of Federal reserve notes
now in circulation. At this time this would cause no embarrassment to any
bank having such circulation* It is obvious that in the case of Federal
reserve notes circulating in a foreign country, the redemption of such notes
is greatly Impeded, however easy and frequent communication with that country
may be, and while the circulation of Federal reserve notes in foreign countries may not at All times be open to the same objections as excessive bank
note circulation trithin the United States, it is evident from the history
and provisions of the Federal Reserve Act, which originally permitted the
issue of such notes against red!scounted paper only, and particularly from
the provisions of the act with reference to issue and redemption and the
penalty against one Federal reserve bank paying out notes issued by another
5 -
X--4832
Federal reserve bank, that the circulation of Federal reserve notes in any
considerable volume in foreign countries was not contemplated "by the Act.
Such circulation, artificially stimulated and maintained "by any reserve hank,
and "bearing no relation to the requirements of commerce and industry in its
own district is inflationary; and in the case of Cuba it is entirely possible
that Federal reserve notes circulating there might at some future period he
returned for redemption at a time when it might "be very inconvenient for the
issuing "bank to redeem them. Furthermore, it should he h o m e in mind that
the so called War amendments (Acts of September 7, 1916 and June 21, 1917)
which authorize the issuance of Federal reserve notes against gold or against
bills purchased in the open market plus the gold reserve, have been under
criticism in certain quarters for some time past vpon the theory that they
encourage inflation.
Any continued artificial circulation of Federal reserve notes in foreign countries is likely to be used as an argument for
the repeal of these amendments which, under a proper construction, are useful and salutary.
Die sixth paragraph of the preamble to the Board's resolution of
July 30, 1923, reads as follows:
"Whereas, a substantial portion of the currency now in circulation in Cuba consists of Federal reserve notes of the Federal Reserve Bank of Atlanta; and it is feared that the establishment of an agency of another Federal reserve bank in
Cuba might result in the retirement of such notes from circulation; and the Federal Reserve Bank of Atlanta desires to
establish an agency in Cuba primarily in order that it may
maintain the circulation of its Federal reserve notes in
Cuba;"
Should the bill which Mr. McFadden introduced near the end of the
final session of the last Congress be re-introduced at some future tijne,
the advocates of such a bill could point to this as a horrible example of
the effect of the amendments to which reference has been made above, and
I sincerely hope that when the Federal Reserve Board has reached a conclusion
in the Cuban agency matter, the preamble and resolutions then adopted will
at least contain no reference to the use of an agency as a means of enabling
any bank to maintain the circulation of its notes in that country,
I expect to be in Washington on Monday to attend the meeting of
the Open Market Investment Committee, and hope to have an opportunity of
talking with you further on this subject.
Hon, Charles S, Hamlin,
Federal Reserve Board,
Washington, D. C.
Very truly yours,
(Signed) W. P. 0. Harding
Governor
258
X-4833
SUBJECT:
Memorandum regarding Cuban Agency prepared by the Federal Reserve
Bank of New York and submitted toy Deputy Governor Case at hearing "before Federal Reserve Board on November 11, 1926.
The proposal for some kind of Federal Reserve Agency in Cuba appears to
hate arisen primarily in the search for some means of improving the physical condition of the currency in Cuba. Cuba uses wholly United States currency, which
is the only legal tender currency there. The total amount of the circulation
in Cuba is estimated at about $100,000,000 as compared with total bank deposits
of perhaps something less than $200,000,000. This very high ratio of currency
to deposits indicates that the people of Cuba transact their business largely by
currency and their use of and confidence in banks is limited. Before the establishment of Federal Reserve agencies the currency was supplied largely through
the branches in Cuba of the National City Bank of New York, the American Foreign
Banking Corporation, later absorbed by the Chase National Bank of New York, the
Royal Bank of Canada, the Canadian Bank of Commerce, and the Bank of Nova Scotia,
which do a large part of the banking business of the island.
The shipment of currency to and from New York or Jacksonville and the
maintenance in Cuba of an adequate currency reserve were expensive. Financial
disturbances approaching money panics were of frequent occurrence and at such
times these banks found it necessary to ship huge amounts of currency to Cuba.
It was frequently difficult to get currency there quickly enough to meet emergencies and the currency reserves which the banks found it necessary to carry were
probably at times as large as $50,000,000., Shipments of currency from New York
to Cuba (either directly or through Atlanta) averaged about $30,000,000 a year
for the years from 1920, 1921, and 1922.
The question of Cuban agency of a reserve bank appears to have been first
raised in 1921 by Mr. George B. Roberts, vice-president of the National City
Bank of New York. With reference to a proposal which had been made to establish
in Cuba a central bank, modeled, perhaps, on the Federal Reserve System, Mr. Roberts suggested to Governor Strong in a letter that "the best thing that could
possibly be done would be to have a branch of the Federal Reserve Bank of New
York located at Havana". Governor Strong stated to Mr. Roberts his opposition to
this proposal, saying that he thought Cuba should have a separate bank of issue
under American supervision; that in any event he was against the establishment
by our bank of issue of offices to carry on normal banking functions outside the
United States. The governor advised Mr. Roberts .farther that means could be found
for retiring mutilated and worn-out currency in circulation in Cuba and issuing
fresh supplies "without the reserve bank being involved in a banking business in
Havana."
In September 1921, to meet an emergency situation, the National City
Bank of New York was appointed correspondent and agent of the Federal Reserve Bank
of New York in Cuba. The Federal Reserve Board approved of this appointment, with
the understanding that no actual transactions would be engaged in until regulations had been prescribed by the Federal Reserve Board. This appointment was
made with the object of restoring confidence in Cuba and stopping runs on Cuban
branches of the National City Bank# At the same time the National City Bank sent
X-4833
S 5 9
$5,000,000 to its Cuban "branches, in order to afford the desired relief.
In February 1923 Mr. Dwiglit Morrow proposed that this bank circulate
gold notes in Cuba with a view to supplying the Island with paper money fit for
circulation. Governor Strong at this time stated that he was opposed to this bank
undertaking any expense, duty or responsibility in the matter unless directed to
do so by Congress.
In April 1923 the Federal Reserve Bank of Boston applied to the Federal
Reserve Board for permission to establish an agency in (Xiba, to which application
it appeared that the Departments of State and Treasury at least made no objection.
A hearing on the application was set by the Federal Reserve Board for April 30,
1923. Governor Strong at that time was absent from the city in Colorado and by
telegram he renewed his objection to the proposal, on the ground that it was not
authorised by law and for various practical reasons, including expense and the assumption of responsibilities for which the bank had no liability and the fact that
a currency clean-up could be effected by other means. Further, that Boston should
not open an office to conduct business practically all of which was for Hew York*
The Federal Reserve Banks of Hew York, Philadelphia, and Atlanta, and others were
invited to attond the hearing before the Federal Reserve Board on May 7, 1923,
and this bank was represented by Messrs. McGarrah,and Case. Mr. Mitchell, President of National City Bank also attended. The views of this bank were expressed
in a formal memorandum, prepared after consultation among all concerned. The
memorandum was as follows:
"The Federal Reserve Bank of Hew York desires to present its views and
the following consideration in regard to the application to the Federal Reserve
Board by the Federal Reserve Bank of Boston for permission to establish an agency
in Havana, Cuba, under Section 14-B of the Federal Reserve Act*
"Attitude of Federal Reserve Bank of Hew York.
"1.
While for reasons set forth in the memorandum it is opposed to
any Federal Reserve Bank establishing an agency in Cuba, nevertheless if the
Federal Reserve Board reaches the determination that an agency of a Federal Reserve Bank should be established in Hayana, the Federal Reserve Bank of Hew York
would prefer HOT to be selected and could not therefore object to the selection
of the Federal, Reserve Bank of Boston or of any other Federal Reserve Bank.
"Purpose of Application.
"2.
At the hearing on this subject before the Federal Reserve Board
on April 30, 1923, it appeared that the application was made primarily to improve
the quality of the paper money now in circulation in Cuba. It appeared also that
branches of American banks in Cuba, as well as other banks operating there, might,
if the agency were established, feel justified in carrying a much smaller supply
of currency than at present* Our information leads us to believe that the banks
would thereby save; many hundreds of thousands of dollars.
"It further appeared that it might be ultra vires for the Federal Reserve Board to grant an application for the establishment of an agency for currency purposes alone, since Section 14*36 does not include carrying a reserve of
currency, and the issuing and redeeming of currency among the purposes for which
X-4833
2 6 0
%
a Federal Reserve Bank may establish an agency in a foreign country.
"The application, therefore, takes the form of a proposal to establish
an agency in Havana for the purpose of dealing in exchange, presumably for the
following two reasons:
"(a) In order that it may comply with the provisions of Section 14-E
under which such an agency may be established;
"(b) In order that by dealing in foreign exchange tho considerable expense of maintaining the agency may be met.
"Dealings in Foreign Exchange by Federal Reserve Banks.
"3* We have always been opposed, and ve believe the Federal Reserve
Board has held a similar view to the idea that a Federal reserve bank should deal
in exchange in the United States:
"(a) Because the number of dealers and the supply of capital engaged
in foreign exchange dealings was ample;
"(b) Because it would put the Federal reserve banks in direct competition with member hanks in all parts of the country who have highly developed exchange departments;
"(c) Because of the risks involved.
"With respect to dealings in foreign exchange by Federal reserve hanks
in foreign countries, it has been our belief that Section 14-E intended to provide
not for the establishment of independent agencies in foreign countries but for the
appointment of "banks in foreign countries as correspondents and agents of Federal
reserve banks. Through these agencies, the reserve banks, when such a course
seemed desirable, could purchase bills in foreign countries for the purpose of
assisting in the stabilization of international gold movements. We have, therefore, with the approval of the Board, entered into agency agreements with a number of foreign banks of issue whereby on order they will purchase for us with
their guaranty prime bills in their markets, and likewise, on order, we will purchase prime bills in their markets, and likewise, on order, we will purchase for
them with our guaranty prime bills in our markets. In each of these agreements
all other Federal reserve banks, in accordance with Section 14-E, have been invited to participate and have done so.
"We are opposed generally to the idea that a Federal reserve bank should
conduct a foreign exchange business ip a foreign country merely for the profit
involved. We are opposed specifically to the idea that a Federal Reserve bank
should conduct a foreign exchange business in Cuba merely for the profit involved:
"{*) Because there is no important international credit movement between Cuba and the United States to be stabilized, and if we are correctly advised,
(except in times of crisis) the fluctuations in exchange are limited to the cost
of shipping currency to or from the United States, say 1/8 of 1 per cent,
"(b) Because such business could be done only in active competition
with member and other banks with ample resources, now engaged in it.
"(e) Because of the risk involved.
#(d) Because the paper or the contracts purchased would not have the
number of names equivalent to those to which in the United States we restrict our
~4"
X-4833
26:1
open market purchases of "bills, (i.d., two tanking names).
"(e) Because it is a proceeding for which we "believe there is no precedent in the experience of other important "banks of issue.
"4. We are opposed to the principle of the establishment of a.direct
agency of a Federal reserve "bank in Cuba if any other means can "be found of accomplishing the desired results:
"(a) Because it renders some of our assets subject to the laws and the
courts of a foreign country,
"(h) Because of the expense involved in an undertaking which is not
the responsibility of the Federal Reserve System.
"(c) Because it creates a precedent for the establishment of direct
agencies elsewhere.
"(d) Because it raises the question of the responsibility of a Federal
reserve bank to redeem in a foreign country in gold or lawful money any or all
Federal Reserve notes that may happen to circulate in that country. The law provides that any Federal Reserve note (regardless of the bank of issue) may be redeemed in gold or lawful money at any Federal Reserve Bank, and a foreign agency
would in all probability be considered the Reserve Bank in law, just as much as
branches in this country are. Consequently, if the present application is approved and the Federal Reserve Bank of Boston actually opens its own office or agency
in Cuba might it not be expected as a matter of law '"to redeem in gold or lawful
money' all of the Federal Reserve notes now circulating in Cuba, estimated to be
well in excess of $100,000,000. As a practical matter it would of course not be
feasible for a small agency always to be prepared for redemption on such a large
scale."
On May 16, 1923, the Federal Advisory Council asked the Board for an
opportunity to be heard, later, Mr. Warburg and' others appeared before the Board
and expressed views adverse to the proposal, which were substantially the same
as those of the officers of this bank. Mr. Warburg, member of the Federal Advisory Council, prior to his appearance before the Board, asked the counsel of the
bank for an opinion as to the legality of the proposal. An opinion was rendered
(copy of which will appear later in the record) by letter of May 18, 1923, against
the legality of the proposal.
Mr. Warburg suggested to the Board other means by which a currency clean
up in Cuba might be effected.
By resolution passed June 27, 1923, and amended July 30, 1923, the Federal Reserve Board granted permission to the Federal Reserve Banks of Boston and
Atlanta to establish agencies in Havana, it being understood that the1Atlanta
bank would furnish the currency required for use on the Island, while the Federal
Reserve Bank of Boston would execute all exchange transactions, including cable
transfers. The agencies were accordingly set up and the business has been conducted on this basis.
On September 1, 1923, the appointment of the National City
York as agent and correspondent in Cuba of the Federal Reserve Bank
was terminated. This was by direction of the Federal Reserve Board
incident with the opening for business of the Cuban agencies of the
serve Banks of Boston and Atlanta.
Bank of Hew
of New York
and was coFederal Re-
-5-
X-4833
On Friday, April 9, 1926, there xras a run on the banks in Havana, On
Saturday, April 10, this bank was advised of the fact and informed that the run
was chiefly on the Royal Bank of Canada; also that large amounts of currency were
needed to meet the situation. Several of our member banks in this city deposited Federal reserve notes with us and directed this bank to make wire transfers of
large amounts — a total of $31,950,000 — with instructions to make payment in
Havana in currency. It then developed that the amount of currency held by the
Federal Reserve Bank of Atlanta at its agency in Havana did not exceed eight or
nine million dollars, "sfaile the payments directed to be made amounted to several
times that sum, so that the Federal Reserve Bank of Atlanta was unable to satisfy the cable transfers. The Cuban banks passed over the difficulty by dosing
at noon on Saturday, April 10. The New York correspondents of the Cuban banks
urged the Federal Reserve Bank of New York to take stops to see to it that there
was an adequate supply of currency there on Monday, April 12, to enable the
agencies of the Federal Reserve Banks of Boston and Atlanta in Havana to make the
necessary payments. This was finally arranged through the Federal Reserve Board,
which ordered the Federal Reserve Bank of Atlanta to charter a special train to
take the currency to Jacksonville. The money was then transported to Cuba by a
Cuban gun-boat. The fact that the run occurred on Saturday and a Sunday intervened before the next business day was the only thing which prevented the development of a serious situation.
^
Under date of June 17, 1926, in a letter addressed to Mr. Hamlin of
the Federal Reserve Board, Governor Harding outlined his objections to the dual
agencies in Havana and in particular his objections to the establishment of an
agency of a Federal reserve bank in Cuba for the purpose of providing the people
of Cuba with currency fit for circulation and for the purpose of enabling a Federal reserve bank to keep in circulation in Cuba a large volume of its Federal
reserve notes. Governor Harding, in commenting generally on the situation, also
stated his view that the functions of such an agency should be limited to the
purchase of bills of exchange and the purchase and sale of cable transfers, which
transaction he regards as authorized under Section 14 of the Federal Reserve Act,
since they would result in the stabilization of exchange rates in Cuba, and that
the agency should be confined to one Federal reserve bank. He stated that unless
the Board were willing to consolidate the two agencies under the direction and
control af the Federal Reserve Bank of Boston, the agency of the Federal Reserve
Bank of Boston in Havana should be discontinued.
On October 22, 1926, the Federal Reserve Board wrote this bank a letter
announcing that a hearing would be held before the Board on November 11, with
respect to the following proposals:
"(1) To consolidate the Havana agencies of the Federal reserve banks of
Boston and Atlanta, and
"(2) To place under the supervision of the Federal Reserve Bank of Atlanta an agency performing all of the functions now performed by the existing
agencies."
The officers of the bank have reviewed the situation in the ligfct of
existing conditions and see no reason to change the views which they have hitherto expressed on the matter, i.e., they are opposed to the maintenance of any direct agency of a Federal reserve bank in Cuba.
-6-
X-4833
(The letter referred to by Mr. Case is as follows:)
"FEDERAL RESERVE BANK OF HEW YORK, ifay 18, 1923.
"Paul M. Warburg, Esq.,
"31 Pine Street,
"New York, IT. Y.
"Dear Sir:
"You. have asked for my opinion as to the respective rights of Federal
re.erve banks and their tranches and foreign 'agencies' of Federal reserve hanks
to issue currency.
"Under Section 16 of the Federal Reserve Act it is provided that Federal
reserve notes are to he issued at the discretion of the Federal Reserve Board for
the purpose of making advances to Federal reserve "banks through the Federal reserve agents of the various districts, and for no other purpose.
"Branch offices of Federal reserve banks are provided for in Section 3
of the Act. They may be established on the initiative of the Federal reserve
banks or upon the mandate of the Federal Reserve Board within the Federal reserve
district of the bank of which they are made a branch, or within the district of
any suspended Federal reserve bank. They are subject to such rules and regulations as the Federal Reserve Board may prescribe, and the law provides that they
shall Ibe operated under the supervision of a board of directors of not more than
Ejlsven or less than three, of whom a majority of one shall be appointed by the
Federal reserve bank of the district and the remainder by the Federal Reserve
Board. It is provided that these directors shall hold office during the pleasure of the Federal Reserve Board. It should be noted that the operations of the
banks and their branches are expressly limited to their respective districts.
Also it will be noted that the law provides safeguards for the operation of banks
and branches, and that the establishment of branches was authorized in order to
extend to the various business communities within the Federal reserve district all
the facilities of the Federal reserve banks. The Federal Reserve Board has expressed the opinion that branches are merely extensions of the corporate entities
of the banks. In my opinion, the note issue power extended to the banks through
the Federal Reserve Board applies to branches as well.
"Section 14 provides for the appointment of agencies of Federal reserve
banks in foreign countries. The origin and pre-enactment history of this section
and its administration are sufficiently well known to you and clearly indicate
that its only purpose was to extend in proper cases the exchange operations of the
System. Ho express authority for the extension of the note issue privilege to
foreign agencies can be found in this section or elsewhere in the Act, nor can
such power be implied in the light of other limitations of the law1 and the history
and purpose of this section.
"You ask also whether the language of Section 14 (e) properly interpreted means that the Federal reserve banks are restricted to the appointment of for**
-7-
X-4833
eign banks or "banking firms as agents in foreign countries for the transaction
of foreign exchange business. The language of Section 14 (e) is that Federal
reserve hanks may 'appoint correspondents and establish agencies in such countries\
A fair construction of this language makes extremely doubtful, to say the least,
the power of the reserve banks to initiate a foreign agency as an integral), part
Of their own organization. That an already existing institution may be designated as a correspondent or agent is clear, but that the reserve banks may establish
in the sense of 1 found1 their own agency would seem to depend on the interpretation of the word 1 establish1. This word may mean 'appoint', (see Webster's
International Dictionary); and that this meaning, rather than that of 'found',
was intended appears from the language of the last sentence of the section, where
we find that in providing for the use of a foreign agency of one Federal Reserve
bank by the other banks the law says: 'Whenever any such account has bee# opened
or agency or correspondent has been appointed;1 and again, we find the language:
1
through the Federal reserve bank opening such account or appointing such agency
or correspondent.' A further consideration in support of this construction of
the law is that all of the purposes sought to be accomplished by Section 14 (e)
may be effected by the appointment of an existing foreign bank or banking firm
and consequently there can be no need for the extension by a reserve bank of its
own organization. There being no such need, it is hardly to be supposed that this
method was intended. If a charge should be made that an agency had been founded
instead of appointed, and that what was in name an agency was in reality a branch,
I think the courts would hold the transaction ultra vires and void.
"You inquire finally as to the obligation on the part of a foreign agency
to redeem in gold or lawful money Federal reserve notes.
"The Federal Reserve Act provides in Section 16 that Federal reserve
•notes shall be obligations of the United States' that they 'shall be redeemed in
gold on demand at the Treasury Department of the United States or in gold or lawful money at any Federal reserve bank*' From what I have said heretofore the conclusion seems inevitable that a branch of a Federal reserve bank is included in
the term Federal reserve bank for this as well as all ether purpose. The law,
therefore, imposes a plain mandatory duty on Federal reserve banks and branches
to redeem these notes in gold or lawful money. If it should appear that the
agency was in reality an agency for the purpose contemplated in Section 14, and
not a branch, I think the courts would hold that there is no binding legal obligations to redeem Federal reserve notes in Cuba in gold or lawful money, though it
seems quite clear that under the apparent arrangement now contemplated in Cuba
there would be a practical necessity to do so. If, on the other hand, a Federal
reserve bank should establish in Cuba what would prove to be in fact a branch,
though purporting to be an agency authorized by Section 14, and the question
should arise as to the obligation of such a branch to redeem Federal reserve notes
in gold or lawful money, it is my opinion that the courts would hold that the obligation of the branch to redeem in gold or lawful money is absolute, notwithstanding the ultra vires nature of such establishment.
"Very truly yours,
Signed) L.B.Mason, General Counsel."
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X—
April 21, 1927.
SUBJECT:
Topic for Governors' Conference - Member Bank
stamping on cashier's check "not payable through
Federal Reserve Bank".
Dear Sir:
The Board has voted to place on the program for the
forthcoming Governors' Conference for consideration and discussion certain questions which have arisen as a result of a
practice recently adopted by the First National Bank of Hartford, Alabama, of stamping on the face of its cashier's checks
the phrase "not payable through the federal Reserve Bank of
Atlanta". There are enclosed herewith for your information on
this matter copies of the letters received by'the Board calling
attention to this practice, together with a memorandum of Counsel to the Federal Reserve Board on the subject.
The Board has taken steps to employ the Honorable
Newton D. Baker in this connection, and has referred this matter to him for an opinion as to whether the points involved
may be successfully contested in the courts and on what grounds.
The Board has requested that Mr. Baker submit his opinion in time
for discussion at the forthcoming conference of Governors, and
if his opinion is received in time it will be forwarded to you
prior to the conference.
Very truly yours,
D. R. Crissinger,
Governor.
Enclosures:
TO GOVERNORS
OF ALL F.R.BAMS.
o; The Federal Reserve Board,
rom:
Mr. Wyatt- General Counsel.
April 15, 1927.
X-4834-a
Subject: National Bank stamping on
its cashier's checks "Not payable
through Federal reserve banks."
The attached correspondence relates to a practice recently adopted by
the First National Bank of Hartford, Alabama, of stamping on the face of its
cashier's checks the phrase "not payable through the Federal Reserve Bank of
Atlanta."
It appears that recently several cashier's checks of the First National
Bank of Hartford, Alabama, havo boon received by the Federal Reserve Bank of
Atlanta, several of which wero stamped "Not payable through the Federal Reserve
Bank of Atlanta," Such checks wore presented to the First National Bank of
Hartford for payment in tho ordinary way in cash letters sent to that bank by
the Federal Reserve Bank of Atlanta, and were returned to the Federal Reserve
Bank of Atlanta with the notation written on the backs of such chetiks, "Not
payable through the Federal Reserve Bank." Trie Federal Reserve Bank of Atlanta
returned such checks to the tanks from which they were received with similar
advice, taking the position that such checks are not negotiable and cannot be
handled by the Federal reserve bank under the terms of Regulation J because
they are not payable at par. The Federal Beserve Bank of Atlanta states that
it has had no intimation from the officers of the Fitst National Bank as to
• their reason for adopting this practice, but that it seems quite apparent that
theitf purpose is to fofce the presentation of such checks through other channels* presumably to make it possible for the First National Bank to exact exchange charges in remitting for such checks.
Governor Harding suggests that if a national bank can prevent its
Federal reserve bank from collecting one of the national bank's own cashier's
checks in this manner by stamping on its face the words "Not payable through
the Federal Reserve Bank of Atlanta", it could easily have those words printed
on all checks which are issued to its customers, thereby preventing the Federal reserve bank from collecting such checks and that, if such a plan were
successfully worked by one bank, it would soon be followed by others and the
whole par clearance system would be seriously embarrassed.
RECOMMENDATIONS,
I am not yet prepared to make a definite"recommendation as to exactly
' what legal steps should be taken; but, pending the determination of that question, I respectfully submit the following focommendations;
1» That this subject be put on the program for discussion at the next
Governors* Conference;
,
2. That prompt action should be taken irFth a view of putting an end to
the practice outlined above;
3. That whatever action is taken should be taken with a view of obtaining a final decision by the Supreme Court of the United States on the legal
questions involved;
4. That, before determining the form of its legal action in the premises,
the Board decide whether or not it desires to retain special counsel to handle
this matter;
—2—
X-4834-a
5# That, if the Board decides to rotain special counsel, he be retained
immediately and be consulted1 "before the Board determines upon its form of legal
action in the premises, in ordor that he might have an opportunity to frame
the legal issues which he is to argue before the Supreme Court in accordance
with his own views; and
6. That, if the Board decides to retain special counsel, it retain Honorable Newton D. Baker, in order to have the benefit of his recent experience in
thePascagoulaCase.
DISCUSSION.
What Governor Harding says is obviously true* If the First National
Bank of Hartfofrd is successful in this practice it could extend such practice
to all checks used by its customers and could in this way defeat the purpose
of Congress to have all member banks remit at par through the Federal reserve
banks. Moreover* if one member bank adopts such a practice the example would
soon be followed by other member banks and the whole par clearance system
would be jeopardized. It is obvious, therefore, that something should be done
to stop this practice at its very inception.
The legal problems presented in this matter are ouch more difficult
than those involved in any of the par clearance cases which have been tried
heretofore. I believe, therefore, that the matter should be given very
thorough consideration and should be discussed at the forthcoming Governors*
Conference before the Board decides definitely upon a course of action. The
discussion at the Governors! Conference might bring forth very helpful practical
suggestions, and would have the advantage of enlisting the interest arid sup"
port of all the Federal reserve banks in whatever coWrse df action is decided
upon.
Governor Harding has suggested that the Board might authorize the Federal reserve batiks to charge such checks to the member bank*s account, except
in cases where audi checks have bdeti protested for actual lads of funds.
the provisions of Sectidn 7(4) of Regulation J, the Board has already provided that "any Federal reserve bank may reserve the right in its check collection circular to charge such items to the reserve account or clearing
account of any such bank at any time when in any particular case the Federal
reserve bank deems it necessary to do so;" and the Federal Reserve Bank of
Atlanta has reserved the right in its check collection circular to charge
checks to the reserve accounts of member banks on which they are drawn at any
time when in any particular case it deems it necessary to do -so I seriously
doubt, however, that this would be the best way to lay the foundation for a
test suit. If this procedure were adopted, the suit probably would be brought
by the member bank and this might result in the legal issues being unnecessarily
complicated.
Two other possible courses of action have suggested themselves to met
1, The Board might request the Comptroller of the Currency to institute
a suit to forfeit the charter of the offending bank on the ground that ita 8,0*
tion in this matter is in violation of the provisions of . the •Federal.. ReeeyirS
. /
. .-L .
'
. -
-
-3-
X-4834-a
2. Ihe Federal Reserve Bank might "become the actual owner of such checks
(instead of a mere agent to collect them), "by giving final credit for such
checks to the hank from which it received them, and then bring suit against
the drawee bank to enforce payment without the deduction of exchange charges.
Either of these courses of action, however, would present certain difficulties which will be discussed below.
When a suit is brought to forfeit the charter of a national bank for
failure to comply with the provisions of the Federal Reserve Act, it is necessary at the very institution of the suit to state what provision of the Federal
Reserve Act the national bank has failed to comply with. This bank has not attempted to exact an exchange charge i i remitting to the Federal reserve bank
r
for its checks but has merely declined to remit iot sucn checksi and there is
no provision in the Federal Reserve Act which specifically requires meiriber
banks to remit to Federal reserve banks for checks drawn on such member banks
when presented through the mails for payment " y a Federal reserve bank# The
b
Hardwick Amendment merely prohibits the exaction of exchange Charges against
a Federal reserve bank.
Section 16, however,,provides that, "Every Federal reserve bank shall
receive on deposit at par from member banks or from Federal reserve banks checks
and drafts drawn on any of its depositors11, and the Supreme Court of the United
States has construed this provision as follows:
n
The depositors in a Federal reserve bank are the United
States* other Federal reserve banks, and member banks. It is
checks on these depositors which are to be received by the
Federal reserve banks. These checks from these depositors the
Federal reserve banks must receive. And when received they must
be taken at n a r . R (Ibrmers & Merchants Nat. Bank v. Federal
Reserve Bank of Ridhmond. 262 U. S. 649.665).
As construed by the Supreme Court, therefore, Section 16 provides that
a Federal reserve bank
t receive ffrom its member banks all checks drawn on
other member banks and that when such checks are received they must be received on deposit at par# It would seem that, being required to receive such checks,
the Federal reserve banks must be authorized to collect them, and that the refusal of a member bank to pay such checks would be a non-compliance with the
provisions of the Federal Reserve Act. Moreover, the legislative history of
both Section 16 and Section 13 discloses a legislative intent to make all checks
drawn on member banks collectible at par through the Federal Reserve System, and
the action of the First National Bank of Hartford in this case is a clear at*
tempt to thwart that legislative intent.
For these reasons, I am inclined to the opinion that the action of the
First National Bank of Hartford in stamping upon its cashier's checks the words
"Not payable through the Federal Reserve Bank of Atlanta" is in conflict with
the intent, if not the letter of the Federal Reserve Act.
If s however, an attempt should be made to establish this proposition
through a suit brought to forfeit the charter of the national bank, such suit
xMt
would be in the nature of a suit to enforce a penalty and every doubt would
be resolved in favor of the defendant bank. I rather hesitate, therefore, to
reconsnend that such a suit be instituted, especially in vie# of the fact that
this bank has not clearly violated any specific provision of the Federal Reserve Act requiring the doing of certain things by member banks, and the court
might very easily hold that the bank has not technically subjected itself to
a forfeiture of its charter.
I am inclined to believe that a better way to test this question would
be to have the Federal Reserve Bank of Atlanta become the actual ovmer of such
cashiers' checks and bring a suit against the drawee bank to enforce payment.
The holder of an ordinary check has no rights against the drawee bank, but the
holder of a cashier's check can bring suit against the drawee bank to enforce
payment. Moreover, such a suit would be an ordinary civil suit and there
would be no reason for deciding every doubt in favor of the defendant#
The Hartford National Bank would naturally set up a defense that, by
their very terms, such checks are not payable through the Federal Reserve Bank
of Atlanta, and, therefore, the Federal Reserve Bank of Atlanta can acquire no
rights in such checks which would be enforceable against the First National
Bank.. The Federal Reserve Bank of Atlanta could then argue along the lines indicated above that such a provision is contrary to the provisions of the Federal Reserve Act and contrary to public policy and therefore void and of no
effect. If this proposition could be established the case would be rron.
As stated above, the Federal Reserve Bank of Atlanta has taken the
position that such chocks are not negotiable and that, therefore, the Federal
Reserve Bank is not authorized to handle them under the provisions of the
Federal Reserve Act and Regulation J. Reference is made to an opinion of
Counsel to the Federal Reserve Board published on page 459 of the Federal
Reserve Bulletin of September 1916, wherein Judge Elliott held that a Federal
Reserve Bank cannot bo required to handle a non-negotiable check under section
16 because such an instrument is not a "check" within the meaning of that section. The First National Bank of Hartford might make this argument in defense;
but if it did and was successful the necessary result would be that such checks
would be held to be non-negotiable, and such a holding would practically put
an end to this practice because no one wishes to receive non-negotiable checks
in payment. In such an event, therefore, the Federal Reserve Bank would lose
the suit but would gain the object of putting a stop to this practice.
I am not at all sure, however, that the words "Not payable through the
Federal Reserve Bank of Atlanta" renders such checks non-negotiable, A similar
practice has been in force in England for years. It is customary there to make
checks payable only through some bank or banker or through a certain bank or
banker. Such checks are known in England as "crossed checks" and have been
held by the English Courts to be negotiable, 2 Daniel. Negotiable Instruments.
(4 ed), Sec* 1585a.
AMERICAN CA.SES INVOLVING SIMILAR CHECKS.
I know of only two cases decided by the courts of this country involving
checks containing provisions similar to that under consideration here. These
cases are Commercial National Bank of Charlotte v. First National Bank of Gas-
X-4834-a
tonia, 118 N,C* 783, and Farmers Bank of Nashville v, Johnson. King & Company.
134 Ga., 486, 68 S. E. 85.
The case of Commercial National Bank of Charlotte v. First National
Bank of Gastonia involved, the validity of a stipulation stamped on the face of
a check to the effect that, "This check will positively not " e paid to the
b
G-astonia Banking Company or its agents". The check came into the hands of the
plaintiff which forwarded it to the Gas tonia Banking Company for collection.
The pheck was presented for payment to the Gas tonia Banking. Company and payment was refused. Without having the check presented through any other channel, the plaintiff then brought an action against the drawee bank for the
amount of the check. The court held that the notation on the face of the
check was valid and that the holder could not maintain his action against the
drawer until the check had been presented to the drawee by some otner agency
than the Gas tonia Banking Company and payment refused. In so holding the
court said:
"The holder of a check cannot maintain an
action against the bank upon which the check is drawn until
after the acceptance of the check by the bank. Bank v. Mallard,
10 Wallace, 153; Hawes v. Blackwell, 107 N.C. 196; Marriner
v. Lumber Co., 113 N. C. 52. This is the uniform line of decisions in the Federal courts and our own, and it is sustained
by the overwhelming weight' of authority in other courts, though
there are a few decisions in other states to the contrary. The
bank is the agent of the drawer; till acceptance of the check,
it has assumed no liability to the payee; its liability, if
any, is to the drawer whose checks it has agreed to pay if it
has the drawer's funds in hand, and for breach of that contract
it is liable to the drawer, not to the payee- 'To its own
master it must stand or fall.' A check is simply an order given
by the principal upon his agent, and it is always open to the
principal to countermand an order to its agent before it is
executed, and there are occasions when it is important, to prevent imposition, that the drawer should have power to stop the
payment of his check, without casting any liability upon the
drawee. If the principal, the drawer, die before a check is
presented, it becomes invalid, which could not be the case if
the mere drawing the check created any liability in the drawee.
"But the more important point, since it is now
presented to us for the first time, is the validity of the stipr
ulation stamped on the face of the check: 'This
check will
positively not be paid to the Gastonia Banking Company or its
agents.' It appears that the check has never been presented to
the drawee, the defendant bank, except by an agent of the Gastonia Banking Company. Consequently, if this restriction is var
lid, the holder cannot maintain this action against the drawer
till the check has been presented to the drawee by some other
agency and payment refused. In England the system of 1 crossed
checks' has long been recognized as valid. 2 Daniel Neg. Inst.,
Sec. 1585a; Smith v. Bank, 10 I.E., (O.B.) 295, which was affirmed
on appeal, and is reported 1 L.R. 2 B, Div,, 31, By that
-6-
X-4834-a
*5V;
system there is stamped across the face of the check the name
of a certain "banker tAi /n whom it mast be presented for payment,
and. if presented "by arj one else it will not be honored. This
does not destroy the n. .liability in any wise. The present case
does not go that fax, "out merely stipulates that the check will
not "be honored if presented through one agency named. This can
not "be deemed aa unreasonable restriction of trade. Nor is it
a boycott. There is no evidence of a conspiracy to injure the
.C'
agency named, but it is agreed as a fact that it was an effort
on the part of the drawer firm to prevent its transactions and
the nature and extent of its business becoming known to a rival
house by its checks passing through that channel. Besides, if
it were a boycott, the parties to it are the drawer and the
payee who accepted the check with that restriction stamped on it. .
And if it was an illegal transaction, the check itself, and not
merely the stipulation which is part of it, would be void.
Ex mala causa non oritur actio. The restriction is a part of
the check, (Tiedman Com. Paper, Section 41 and 42; Benedict v.
Cowen, 49 17. Y. 396,) and if it is invalid the court could
not separate the good from the bad. (Saratoga v. King, 44 II.Y.
87) but it would all be bad and the holder could not recover.
In analogy, a conveyance of property, real or personal, with
a condition not to alien to a certain person or class of persons, or for a certain time, is valid. Cowell v. Springs, 100
U. S., 57; Gray v. Blanchard, 8 Pick., 288 Sheppard1s Touch
Stone, 129, 131; Coke on Littleton, 233.
"In Smith v. Lawrence, 2 N.C., 300 this court held that
a note could be limited so as to be payable to the payee only.
But it is not necessary to consider here the principle maintained in that case, tlv,t the drawee can by stipulation therein
make the check not assignable, for this is not attempted here,
but there is. simply a stipulation that it shall not be paid if
presented through the agency named, Wilcoxson v. Logan, 91 N.C.
449 holds merely that where a note is made payable to A.B., without the addition of the words 1 or order', or bearer, the holder
thereof can maintain an action thereon, being the party in interest.
There can be no question raised as to the validity of an express
stipulation that the note could not be assigned at all, or would
not be honored if presented by a particular party, as in this
case, nor by any party except one named as in the case of the
English 1 cross checks'. These questions could not arise, for
there was in that case no stipulation to either effect. On the
facts agreed, judgment should have been entered for the defendants."
In the case of Farmers Bank of Nashville v. Johnson. King & Co.,
supra, decided by the Supreme Court of Georgia in 1910, the facts were as
follows: Johnson, King & Company issued certain checks containing on their
faces the words, "Payable through the Citizens Bank of Valdosta, Valdosta,
Georgia, at current rate." These checks were drawn on the Bank of Nashville,
Nashville, Georgia, and were presented to that bank by the Farmers Bank of
.7-
X-4834-a
Nashville, Georgia. Upon presentation, the Bank of Nashville entered on the
"back of the checks the words, "Will pay when presented through the Citizens
Bank of Valdosta, Georgia." Thereupon, the Farmers Bank of Nashville caused
the checks to " e protested. Johnson, King & Co., the drawer of the checks,
b
"brought a suit for damages against the Farmers Bank of Nashville, alleging
that the defendant had wilfully disregarded the terms on which such checks
vrere payable, and for the pumose of casting suspicion upon the credit of the
plaintiff before the commercial world, protested the checks and thereby damaged the plaintiff. The Court held that;
1. The words "payable through the Citizens Bank of Valdosta, Valdosta, Georgia, at current rate" was a material part of such checks and that
the drawee bank was not required to pay the checks when not presented through
the bank thus named;
2. That, since such checks were not presented for payment through
the Citizens Bank of Valdosta, the protest of such checks was unauthorized;
and
3. That the action of the holder of the checks in unlawfully causing a protest of them to be made and notice to be given to the drawer or endorsers without proper presentation for payment, according to its terms, furnished a cause of action to the drawer.
In other words, the Court held that the Farmers Bank of Nashville
was liable in damages to Johnson, King & Company for unlawfully protesting
such checks.
In so holding the court said:
"In England there is a well known usage, which has
now been made the subject of an act of Parliament, for
the drawer or holder of a check to 1 cross' it rrith the name
of a banker.
"In 2 Daniel on Negotiable Instruments (5th Ed.)
Sec. 1585a, it is stated that the effect of this was, 'before
the statute which now exists, a direction of the drawee
hank to pay the check to no one but a banker; or rather,
according to the cases, with only a caution or warning to
the drawees that care must be used, in paying to any one
else •
"In 1 Morse on Banks & Banking (4th Ed.) sec. 245,
it was said; 'In this country the system of 'crossed
checks1, strictly so called, is unknown. But of ]a te the
germ of a similar custom has begun to manifest itself.
Occasionally checks have stamped or written upon them
some form of words which is intended to secure, .their
payment exclusively through the clearing house. No
especial form has yet been generally accepted and
the legal effect of none of those in use has ever been
passed upon. It is safe to say, however, that there is
no question but that the drawer could embody in his
order or direction to his bank to pay only upon such
X-4834-a
«>• v o
presentation of the instranient in the usual course through
the clearing house,and that such a direction would be
as valid and as binding unon the bank as a direction to
pay only to the order of a particular person. If the
check be payable to the order of A.B. it is probable that
the privilege of including such instruction in his order,
when indorsing over, might be accorded to him, certainly
.indorsements in this form are very frequent, and no bank
would be safe in disregarding them. Supposing the direction to be properly given, the collecting and the paying
bank must both respect it, and the English cases above
mentioned would be precedent directly in force. It would
amount to an express designation by the drawer, or the
payee, of the manner alone in which payment is authorized
to be demanded or made.
"A check being in the nature of an order on a bank
or banker to pay a certain sum purporting to be on
deposit, there would seem to be no reason why the drawer
could not direct the bank to pay only when presented
through a specified channel or by a particular person
or bank. The drawer is not compelled to make the check
payable to bearer or order. Likewise, no sound reason
is perceived why, in giving direction to the bank
of deposit, he cannot make an addition to the mere
order for payment. If the person to whom the check is
delivered is not willing to accept it with such direction, he can reject it; but if he accepts it payable
only through a particular bank, or through a particular
banker, he cannot insist that the bank on rhich it is
drawn mast disregard this direction given to it by
its depositor on the face of the paper. Ho ground has been
suggested why such a direction by one to his banker in
ordering the latter to pay money, is illegal or unreasonable;
the banks being in the same state and notfar distant from
each other. The case in hand does not present the question of whether the drawer of the check has been wholly
or partially discharged by negligence or delay in presentation, but whether, in giving direction to his banker
to pay the. check, he can lawfully direct payment to be
made through a certain medium, and whether the bank, when
so instructed, is bound to disregard such direction at the
demand of another collecting bank.
*
11
*
*
*
*
*
*
*
*
It follows from what has been said, that under the allegations of the petition, the drawee bank had a right
to decline to pay the checks until presented through the
Valdosta Bank, and that upon its entering upon the back of
the check that it would pay when so presented, the collecting bank was not authorized to cause the check to be presented and notice to be given."
-9-
X-4834-a
QUESTION Ci~ E3TAIMI3G SPECIAL COUNSEL.
S / 4
Since the practice under consideration is one which threatens the existence of the entire par clearance system, it is a matter of the gravest importance to the entire Federal Reserve System, and if a test suit of any character is instituted it should "be instituted with a view of carrying the case
to the Supreme Cburt of the United States if necessary in order to get a
favorable decision* Unless, therefore, the Board is trilling to have the case
argued in the Supreme Court lay this office or by local counsel to one of the
Federal Reserve banks, it would be advisable to retain and consult special
counsel before the suit is instituted, in order that such special counsel
might frame in Accordance with his own views the issues of lam which he will
have to argue before the Supreme Court.
Both Mr* Test and I are members of the Bar of the Supreme Court of the
United States; and, if the Board so desires, this office is folly prepared to
and i * perfectly willing to handle such a test case ftom its inception through
f
the final argument in the Supreme Court* A suit such as this, however, would
be infinitely more difficult to win than any of the other par clearance cases
which have been tried heretofore and naturally we could not undertake to assure the Board that such a test case would be successful.
If the Board desires to employ special counsel, 1 respectfully recommend
that it retain Honorable Few ton 2. Baker. In my opinion no one could handle
such a suit bettef than Mr. Baker and it would be especially appropriate to
retain him because of his familiarity with the subject due to his recent
handling of the Pascagoula case.
If the Board desires to retain special counsel, this office will be very
glad to cooperate to the fullest extent with such counsel and I respectfully
suggest that he be retained with the understanding that he will consult and
cooperate --ith this office to the fullest extent, in order that he may have
the benefit of our specialized knowledge on this subject.
If the Board decides to retain special counsel to represent the Board
itself and not the Federal reserve banks, it will be necessary to fix his
' compensation in advance, in order to comply with the requirements of section
11(e) of the Federal Reserve Act, which authorizes the Board to employ attorneys but provides that,
"All salaries and fees shall be fixed in advance
by said Board."
CONCLUSION.
I shall continue to study this problem with a view of being prepare^, to
recommend to the Board a definite course of action; but in the meantime I respectfully recommend that the Board put the subject on the program for discussion at the next Governors' Conference. It is obviously a matter of systemwide importance and a discussion of it at the Governors' Conference might
bring forth very helpful suggestions. It would at least enlist the active
interest and support of all the Federal reserve banks and would prepare them
to join in employing special counsel if the Board should decide that such a
course is advisable.
Respectfully,
(Signed) Walter Wyatt, General Counsel.
Kj / f
X-4834r»-b
C O P Y
F E D E R A L
R B S B R V B
OP
B A I K
T
A T L A N T A
March 25, 1927.
federal Reserve Board,
Washington, D. C.
Dear Sirs:
I am enclosing herein for your information copy of
a telegram from the Cashier of the Federal Reserve Bank of
Boston, copies of letters of Mr. M# W. Bell, Cashier of this
bank, to the Cashier of the Federal Reserve Bank of Boston,
and to Mr. Bills D. Robb, Chief National Bank Examiner.
These letters relate to the practice recently adopted
#
lay the First National Bank of Hartford, Alabama, in stamping
on the face of their cashier's checks the phrase "not payable
through the Federal Reserve Bank of Atlanta."
Very truly yours,
(s) Oscar Newton,
Federal Reserve Agent.
Enclosures.
& 3O
X-4834-c
C O P Y
¥2.^ .,SAL HESEBVB BA2E
OF ATLA2TTA.
March 24, 1927,
Mr. Ellis D. Hobb,
Chief National Bank Examiner,
Atlanta, Georgia..
Dear Mr. Bobb:
For your information, I am enclosing copy of a
letter today addressed to Mr* William Willett, Cashier
of the Federal Reserve Bank of Boston, dealing with a
practice recently adopted ty The First National Bank of
Hartford, Alabama, in using a rubber stamped phrase on
the face of their cashier's checks reading "not payable
through the Federal Reserve Bank of Atlanta".
Nothing in the way of information can he added
to what is stated in our letter to ISr. Willett, "but it
appears to us that this is a matter which should he "brought
to the attention of the Comptroller of the Currency, as it
is possible that he may have the authority to require the
discontinuance of the use of this restriction as to payment
of these checks. We know of no remedy that we can employ
as we cannot legally exercise any control over our member
banks' practices in this respect.
Yours very truly,
M. W. Bell,
C a s h i o r.
£-4834-<?
c o p y
JJj HBS1RVE m m c
0? ATLit-TTA
March 34, 1927,
Mr. William Willett, Cashier,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
/
Dear Mr. Willett:
I have your wire of this date requesting that we write
full particulars relative to the return to you of a check drawn
on The First National Bank, Hartford, Alabama, on which is stamped
the phrase "not payable through Federal Be serve Bank of Atlanta".
We are unable to detertnind from our records just what
particular check your telegram refers to, but we assume that it
is a cashier's check drawn by The First national Bank of Hartford.
%n the last few days, several cashier's checks of this
bank have reached our transit department and those stamped with
the phrase referred to Then presented "by us in the ordinary way
in our cash letters have been returned to us by The First National
Bank with notation written on the backs of the checks "not payable
through the Federal Reserve Bank". Two of these checks were included in today's business - one of them is drawn under date of
March 3, 1927, bearing the number 17215, drawn to the order of
Miss Aileen Metcalf for the amount of $100.00. The other is dated
March 9, 1927, bearing the number 17229, drawn to the order of Miss
Bnma Nell Metcalf for the amount of $5.00. Each of these checks
bear rubber stamp phrase in two places on the faces thereof reading
"not payable through the Federal Reserve Bank of Atlanta".
Both
of these checks were forwarded to The First National Bank of Hartford in our cash letter dated March 21, 1927 and were today returned
to us with the notation on the back of them "not payable through the
Federal Reserve Bank."
We have had no intimation from the officers of The First
National Bank as to their reason for adopting the use of this restriction, but it seems quite apparent that their purpose is to force
the presentation of the checks through channels other than the Federal Reserve Bank, presumably to make it possible for The First
National Bank to charge exchange when they are presented through
other channels.
Ji-4334-
fe understand that the laws of Alabama permit "banks to pay
checks drawn on them by their customers and also to pay their own
cashier's checks by means of drafts or exchange drawn on their commercial depositaries, subject to an exchange or service charge for
remitting, and in the past some of our member banks of that State
resorted to the practice of stamping on their cashier's checks and
also on some of their customers' checks a phrase reading "payable
in ITew York exchange at current rates".
In the opinion of our counsel and we believe also the
counsel of the Federal Reserve Board, such checks are not negotiable,
in that they are not an unconditional order for the payment of funds
in cash, and that as a consequence Federal Reserve Banks have no
power or authority to require member banks using this phrase on their
checks to remit for such checks at par. Therefore, under the conditions of the Federal Reserve Board's Regulation "J", they cannot be
handled by Federal Reserve Banks for collection, because they are hot
payable at par.
It is our intention to call this situation to the attention
of the Comptroller of the Currency through Mr. Ellis D. Robb, the
Chief National Bank Examiner of this District, for such action as the
Comptroller may dosiro to take.
Very truly yours,
M. W. Bell,
C a s h i e r .
FEDERAL RESERVE B A M OF
ATLANTA
C O P Y
X—4834—e
103BD R
BOS TOM MASS 225 P
MAE 24 1927
ATLANTA OA.
PLEASE WRITE FULL PARTICULARS RELATIVE TO RETURNING- CHECK ON FIBST
NATIONAL BANK HARTFORD AIiAEAMA OH WHICH IS NOTED "HOT PAYABLE
THROUGH FEDERAL RESERVE 2A3K OF ATLANTA"
AS T7E ARE UHABLE TO
UNDERSTAND IT ON ACCOUNT OF BOARD REGULATION J WHICH REQUIRES
FEDL RESERVE BANKS TO COLLECT AT PAR CHECKS DRAWN ON MEMBER BANKS
IN THEIR DISTRICT
WILLETT
142 PM.
X-4834-.-
THE FIRST NATIONAL B A H
Of Hartford.
Pay to the
order of
Hot payable through
Federal Reserve Bank,
Atlanta, Q-a.
Hartford, Ala. March 9, 1927 Ho.17227
B. Altman & Co
$6.00
..Six Dollars
CASHIER'S CHECK
(Signed) Q. J. Borland
a/Cashier
& X
C O P Y
j' I i 3 a a "
L
E 3 S S S V 3
BOS
I A H
103
X-4834-g
March 24, 192?
Dear Governor Crissinger:
A few days ago we received for collection Cashier's check
of the First National Bank of Hartford, Alabama, copy of which is enclosed herewith. We sent this check in regular course to the Federal Reserve Bank of Atlanta and have received it back unpaid today.
The endorsement shows that the check was duly forwarded to the bank
at Hartford, Alabama, by the Federal Reserve Bank of Atlanta, and
the reason for dishonor is given on the back as "not payable through
the Federal Reserve Bank".
It seems to me that this is a proper matter to bring to your
attention for if a National bank can prevent its Federal reserve bank
from collecting one of the National bank's own cashier's checks in
this manner by stamping it on the face "Not payable through
the Federal Reserve Bank Atlanta, Ga.", it could easily have these
words printed on all checks which are issued in book form to its
customers, thereby preventing the Federal Reserve Bank of the power
to collect such checks. Such a plan successfully worked by one bank
would soon be followed by others and the whole par collection system
would be seriously embarrassed.
It seems to me that in a case like this, the Board might
take the bull by the horns end authorize the Federal Reserve bank to
charge such checks to the nomber bank's account except in cases where
the check may have been protested for actual lade of funds.
Very truly yours
(Signed) W. P. G. Harding,
Governor.
Hon. D. R. Crissinger, Governor,
Federd. Reserve Board,
Washington, D. C.
X-4836
F E D E R A L
R E S E R V E
B O A R D
Statement for the Press.
2 8 2
For immediate release:
April 31, 1937.
Condition of Acceptance '..larket
March 17, 1937 to April 13, 1937.
Acceptances:
The acceptance market was comparatively quiet daring the four weeks ending
April 13, and rates for all maturities remained relatively unchanged from the lower levels established toward the end of February.
The supply of "bills, though
so&ewhat below the corresponding period of last year, Was considerably larger than
in the preceding four weeks with bills drawn chiefly against the export and storage of cotton, and imports of sugar and coffee.
Demand for domestic account was smaller than in the preceding period, but
purchases for foreign account especially of 90 day bills was large.
Dealers'
offerings to the reserve banks, consisting chiefly of the shorter maturities, were
in about the same volume as in the preceding period, but considerably greater than
last year and their portfolios on April 13 showed some increase from the low levels
reached four weeks earlier.
As in preceding months the greatest activity occurred
in the Few York market, especially during the last three weeks of the reporting
period.
Airing the first three weeks of the period dealers in Boston and Phila- i
delphia reported very little activity in their markets, while in Chicago bills of
shorter maturities remained in fair demand.
In the final week
of the period
some improvement was reported in Philadelphia in contrast to the Chicago market
which turned dull.
The following table shows the market rates on bills of various
maturities at the beginning and end of the period.
Maturity
30
60
90
130
180
days
days
days
days
days
Acceptance Rates in the New York Market
March
17
April 13
^
Bid
: Offered
:
Bid
t
Offered
3-5/8
3-3/4
3-3/4
3-7/8
4
3|
3-5/8
3^5/8
3-3/4
3-7/8
3-5/8
3-3/4
3-3/4
3-7/8
4
3&
3-5/8
3-5/8
3-3/4
3-7/8
5
FEDERAL RESERVE BOARD
WASHINGTON
X-4837.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 22, 1927.
SUBJECT:
Holidays during May. 1927.
Dear Sir:
On Friday, May 20th, the Havana Agency of the Federal
Reserve Bank of Atlanta will be closed in observance of
Cuban Independence Day.
On Monday, May 30th, there will be no Gold Settlement
Fund or Federal Reserve Note Clearing on account of observance of Memorial Day, and the books of the Board will
be closed.
All Federal Reserve Banks and Branches, with the exception of the following, will be closed on that day:
Atlanta» Mew Orleans, Birmingham,
Jacksonville and Little Rock;
Havana Agency*
Kindly notify Branches*
Very truly yours,
J. C. Noell.
Assistant Secretary.
TO GOVERNORS OF AIL F. R/BA1JKS.
X-4838
F E D E R A L
R E S E R V E
B O A R D
STATEMENT FOR THE PRESS
For release in Morning Papers
Thursday, April 28, 1927.
The following is a summary of general "business and.
financial conditions throughout the several Federal
Reserve Districts, "based upon statistics for the
months of March a.nd April, as contained in the forthcoming issue of the Federal Reserve Bulletin.
Industrial activity increased further in March and was larger than a
year ago, while the general level of prices continued to decline.
Distribution
of commodities at wholesale and retail was somewhat smaller than a year ago.
Production—
Industrial production, after increasing continuously
for three months, was larger in March, when allowance is made for usual seasonal
changes, than in any month since last September.
Output of bituminous coal,
crude petroleum, and steel ingots, and mill consumption of raw cott6h in March
were larger than in any previous montht
Since April 1, however, steel-mill oper-
ations have "been somewhat curtailed* and "bituminous coal output has been reduced " y about 40 per cent since the beginning of the miners' strike on April 1.
b
The consumption of silk and wool, sugar meltings, flour production, and the
output of rubber tires increased in March.
Production of automobiles has shown
seasonal increases since the first of the year but has been in smaller volume,
than a year ago.
The value of building contracts awarded in March was larger
than at any previous time, and the production of building materials has increased considerably in recent weeks.
The largest increases in contracts, as
compared with last year, were in the middle western states, while the largest
decreases occurred in the southeastern states.
In the first half of April
- 2 -
X-4838
% 8 5
contracts awarded were in slightly smaller volume than in the same period of
last year.
Trade. - Sales of department stores increased less than usual in
March and wore slightly smaller than last year owing in part to the lateness
of Easter.
Sales of mail order houses and chain stores* however, were some-
what larger than a year ago.
Inventories of department stores increased
slightly more than is usual in March in anticipation of the expansion in retail trade "before the Easter holidays, and at the end of the month they were
in about the same volume as a year ago.
Wholesale trade in March continued
slightly smaller than in the corresponding peried a year ago.
Stocks of mer-
chandise carried by wholesale firms were seasonally larger at the end of March
than in February, but in most lines continued smaller than last year.
Freight-car loadings which showed seasonal increases in March, declined in the first ten days of April, owing to the smaller shipments of coal,
but continued larger than in the corresponding period of previous years. Loadings of miscellaneous freight and of merchandise in less-than-car-load lots
were in large volume.
Prices. - The general level of wholesale commodity prices declined
further in March, reflecting decreases in most of the important groups of
commodities.
Prices of nonagricultural commodities as a group declined to
the lowest level since the war, while the average for agricultural products,
which advanced somewhat from November to February, remained practically unchanged in March.
During the first half of April prices of winter wheat,
sugar, cotton, silk, bituminous coal, and hides advanced; while those of hogs,
crude petroleum, gasoline, and nonferrous metals declined.
- 3 -
X-4838
Bank credit. - There was some decline in the volume of loans for
commercial purposes and in loans on securities at member "banks in leading
cities between the middle of March and the middle of April.
Member hank
holdings of United States securities, which had increased considerably in
the middle of March in connection with the operations of the Treasury, have
declined by more than $100,000,000 since that time, but are still about
$200,000,000 larger than in the early months of the year.
At the reserve banks total bills and securities, which have fluctuated
near the $1,000,000,000 level since the end of January, showed little change
during the six weeks ending April 20.
Discounts for member banks were in
about the same volume on that date as on March 9, while acceptances showed
a decrease and holdings of United States securities a slight increase.
During the first three weeks of April quoted rates on prime commercial paper and on acceptances were the same as in the latter part of March,
while call money averaged somewhat higher.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-4841.
April 28, 1927
Bear Sir:
For your information, I am enclosing
herem th copy of a letter received from the
Director of the Bureau of Engraving and Printing, which is self-explanatory.
Very truly yours,
J* C, SToell,
Assistant Secretary.
Enclosure.
To all F. E. Agents.
COP Y
X-42Ul-a
TREASUEY
DEPARTMENT
BUREAU OF EITG-EAVING- A ' D PRINTING
II
Washington, D . C,
April 26, 1927.
The Federal Reserve Board.,
Washington, D. C.
SirstWhen a new series of serial numbers is started on United
States and Federal Reserve currency, the number in the past has
started with No» 1. This number has a letter preceding it and
a letter following it. As the number of digits increase in the
number it is necessary to stop the press, take down the numbering
block, and move the letter over the space of one digit. In order
to make these changes from time to time it is necessary to carry
in stock more than 1500 parts of numbering blocks;
It has been found that by starting the new series at
No. 10,000,001, instead of No. 1, a numbering block simpler in
construction can be used. In addition there is no lost time in
production in making the changes on the blocks, neither is there
any necessity for carrying a large stock of small parts of blocks.
The department has approved of the method of using
10,000,001 as a starting number for each new series. Therefore,
in the future, a new series will commence with this number.
Ibis plan, of course, does not apply to National Bank
currency, and no change will be made in the present method of
numbering this class of currency.
Respectfully,
(s) A. W. Hall,
Director.
X-4S42
FEDERAL RESERVE BOARD
389
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
ApTlX
26, 192J •
Dear Sir:
Through the courtesy of Messrs. Locke, Locke, Stroud and
Bandolph, Counsel to the Federal Reserve Bank of Dallas, I enclose
for your Information a copy of an opinion rendered recently by the
&ipreme Court of Texas in the case of Lame Co. v. Cram, holding
that a trade acceptance containing the following clause Is non-negotiable:
"The obligation of the acceptor hereof arises out
of the purchase of geods free the drawer, maturity
being in conformity with the original terms of
purchase.*
Although no Federal reserve bank «*a a party to this suit,
the decision is of great importance to the Federal reserve banks,
because they frequently purchase trade acceptances containing statements similar to the above.
Ihile it la believed that the decision of the Supreme
Court of Texas and a similar decision of the Supreme Court of
Florida are wrong, but they have the effect of making such instruments non-nego tiable in Texas and Florida and raise doubts as to the
negotiability of such acceptances
other Hates where the Courts
have not yet held eueh acceptsaess to he negotiable. In view of
this fact, I am veceeMeading to the Board that a suggestion made by
the General Counsel ef the AwrSeea Beakers' Association be adopted
and that the stand*** form of traAe acceptance be changed to read
as follows*
"The traaaaetion wfeiefe gives rise to this instrument
is th# jmfcflNMe of goods by the acceptor from the
Tours very truly.
Salter Ifyatt,
General Counsel.
Enclosure
X-4840
3 OP r
BO. 910 - 4764
COMMISSION OF APPEALS,
SECTION A.
*
THE LANE COMPANY,
PLAINTIFF IN ERROR,
vs
MRS. B. V* CRUMi ET At,
DEFENDANTS IN ERROR.
*
*
FROM MCLENNAN COUNTY,
*
*
*
*
*
TENTH DISTRICT.
*
*
On June 24, 1934, W. E. Williams, under the trade name of
Cascade Products Company entered into a contract in writing with The
Lane Company, with reference to the delivery "by the Cascade Company to
The Lane Company of a certain number of washing machines.
The contract
is set out in full in the majority opinion of the Court of Civil Appeals.
It is unnecessary to a decision here, that we determine whether such
contract constitutes a sale contract or merely an agency agreement.
In
September, 1924, the number of machines called for in the contract were
delivered "by the Cascade Company to The Lane Company, who declined to
accept them "but held them subject to the order of the Cascade Company.
At the time the contract above mentioned was made, and as a
part of the transaction, The Lane Company accepted three trade acceptances or drafts drawn by the Cascade Company, each for the sum of
$378.00, and payable respectively sixty, ninety and one hundred and
twenty days after date.
The form of these instruments is such as to
make them negotiable instruments, unless the clause appearing in each
of them, which is hereinafter stated, renders them non-negotiable in-
struments.
On October 29, 1924, The Lane Company brought this suit
against W. 1. Williams and Mrs. B. V. Crum to cancel these three trade
acceptances on the ground that the washing machines were not as represented, and the machines were tendered to the defendants.
Mrs. Crum
answered by a cross-action seeking to recover on the trade acceptances,
alleging that she was an innocent holder thereof in due course of trade,
for value, "before maturity.
The cause was tried "before a jury and re-
sulted in a judgment "being rendered cancelling the three trade acceptances and awarding to Mrs. Crun the washing machines.
On appeal, this
judgment was reversed "by the Court of Civil .Appeals, and judgment rendered "by that court for Mrs, Crum on the trade acceptances, (234 S.W. 980)Associate Justice Stanford dissenting.
The contention of The Lane Company is that the following clause
of the trade acceptances renders same non-negotiable and therefore subject to the rights and equities of said company growing out of its said
contract with the Cascade Company, to wit:
"The obligation of the acceptor hereof
arises out of the purchase of goods from
the drawer, maturity being in conformity
with the original terns of purchase."
We agree with the conclusion reached by Associate Justice
Stanford in his dissenting opinion as to the legal effect of the clause
just quoted.
In our opinion the clause has effect to render the trade
acceptances non-negotiable under the law merchant as well as under the
Negotiable Instruments Act.
The obligation of the acceptor, according
to the terms of said clause, arises not from the instruments themselves,
• 3 ~
—
"but fron a collateral transaction,
X--4340 '
for an instrument to be negotiable,
the obligation of the naker nast arise exclusively fron the 'instrument.
Ho obligation arising fron a collateral transaction can bo imported.
into the terns of the instrument without destroying the negotiability
of the instrument.
8 Corpus Juris, pp. 113-114.
A negotiable in-
strument has been tensed, "a courier without luggage," whose countenance
is its passport.
This apt metaphor does not fit these trade acceptances,
for the reason they are ladened with the equipment of a wayfarer who
does not travel under safe conduct.
By their express terns, these in-
struments bear burdens whose nature oust be sought for beyond the four
corners of the instruments themselves.
The clause in question is more
than a mere "statement of the transaction which fives rise to the instrument," as permitted by paragraph 2, section 3 of Article 5932 of the
Revised Statutes.
So far from being a mere descriptive reference to the
transaction which gave rise to the instrument, the clause, in definite
terms, points to that transaction as the source of the acceptor's obligation to pay the amount named in the instrument.
The legal effect of
the clause is to render the paper subject to all the rights and equities
of the parties to the collateral transaction from which the obligation
of the acceptor arises.
Parker vs American Exchange Bank, 27 S. W.
1072, 8 C. J. 124.
We recommend that the judgment of the Court of Civil Appeals
reversing the judgment of the trial court and rendering judgment for
-
4
-
X-4840
defendant in error, "b* reversed and that the judgment of the trial court
he affirmed.
HARVEY,
Presiding Judge.
Judgment of the Court of Civil Appeals reversed, and that of
the District Court affirmed, as recommended hy the Commission of Appeals.
C. M. CUBETOH,
Chief Justice.
March 2, 1927.
X-4848
TREASURY DEPARTMENT
Office of the Secretary
WASHINGTON
May 9, 1927.
The Governor
'
*
Federal Reserve Board.
Sir:
You are hereby advised that the Department has referred to the Disbursing
Clerk, Treasury Department, for payment, the account of the Bureau of Engraving
and Printing for preparing Federal reserve notes during the period April 1,
• 1927, to April 30, 1927, amounting to $137,067.00, as follows:
Federal Reserve Notes, Series 1914.
|5
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Minneapolis
San Francisco
200,000
600,000
350,000
250,000
200,000
50,000
350,000
-
J3£
£50
sheets
300,000
-
—
50,000
100,000
100,000
50,000
-
1,250,000
-
50,000
-
350,000
Amount
200,000
1,550,000
675,000
25,000
300,000
50,000
270,000
20,000
150,000
450,000
100,000
50,000
-
7,320.00
56,730.00
24,705.00
10,980.00
9,882.00
5,490.00
16,470.00
3,660.00
1,830.00
95,000 3,745,000
#137,067.00
—
650,000
300,000
50,000
2,050,000
#20
<p0tal
•
3,745,000 sheets at #36.60 per M
#137,067.00
The charges against the several Federal Reserve Banks are as follows:
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Minneapolis
San Francisco
# 7,320.00
56,730.00
24,705.00
10,980.00
9,882.00
5,490.00
16,470.00
3,660.00
1,830.00
$137,067.00
The Bureau appropriations will he reimbursed in the above amount from the
indefinite appropriation "Preparation and Issue of Federal Reserve Notes,
RGimbursable", and it is requested that your board cause such indefinite appropriation to be reimbursed in like amount.
Respectfully,
S. R. Jacobs,
Deputy Commissioner.
X-4848a
TREASURY DEPARTMENT
Office of the Secretary
WASHINGTON
May 9, 1927.
The Governor
Federal Reserve Board.
Sir:
You are hereby. advised that the Department has referred to the
Disbursing Clerk, Treasury Department, for payment, the account of the
Bureau of Engraving and Printing for preparing Federal reserve notes
during the period April 1, 1927, to April 30, 1927, amounting to $>183.00,
as follows:
Federal Reserve Notes, Scries 1918.
5,000 sheets, $500
New York
at
$36.60 per M .... $183.00
The Bureau appropriations will "bo reimbursed in the above amount
from the indefinite appropriation "Preparation and Issue of Federal Reserve Notes, Reimbursable", and it is requested that your board cause
such indefinite appropriation to be reimbursed in like amount.
Respectfully,
S. R. Jacobs
Deputy Commissioner.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4S49
May 10, 1927
SUBJECT:
Expense, Main Line, Leased Wire System,
April, 1927
Dear Sir:
Enclosed herewith you will find two mineograph statements, X-4849-a and X-4s49-b, covering in
detail operations of the main line, Leased Wire System, during the month of April, 1927.
Please credit the amount payable by your
bank in the general account, Treasurer, U. S., on
your books, and issue C/D Form 1, National Banks,
for account of "Salaries and Expenses, Federal Reserve Board, Special Fund", Leased Wire System, sending duplicate C/D to the Federal Reserve Board.
Yours very truly,
Fiscal Agent.
Enclosures.
TO GOVERNORS OF ALL F. R. B A M S EXCEPT CHICAGO.
x-"4s49—a
REPORT SHOWING- CLASSIFICATION AMD NUMBER OF WORDS TRANSMITTED OVER MAIN LINE
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF APRIL, 1927
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Business
reported
by banks
31,592
132,970
41,302
79,100
47,132
57,026
104,263
75,714
31,904
75,141
59,258
105.310
Total
840,712
F. R . Board
Total
Percent of total
Words sent
"by Now York
chargeable
to other
F.R.Banks(l)
660
-
521
2,123
2,205
2,511
3,163
2,104
2,l40
2,262
4,396
2,409
24,494
Total
Treasury
Department
Business
32,252
132,970
41,823
81,223
49,337
59,537
107,426
77,818
34,044
77,403
63,654
107.719
3,233
7,372
3,958
3,710
3,335
4,877
5,957
4,914
2,246
3,765
2,67s
6,453
865,206
300.484
1,165,690
100.003
War Finance
Corporation
Business
Net Federal
Reserve Bank
Business
Percent of
total bank
Business(*)
—
29,019
125,096
37,865
77,513
46,002
54,660
101,469
72,904
3i,79S
73,638
60,976
101,266
3.57
15.40
4.66
9.54
5.66
6.73
12.49
8.98
3.92
9-07
7.51
12.47
52,498
37.268
502
465
812,206
262.751
100.00#
89,766
967
.08$
1-loi
502
-»
—
W
-
mm
—
-
1,074,957
92.22$
(*)
Those percentages •used in calculating the pro rata share of leased wire expense as shown on the
accompanying statement (X-4s49-b).
(l)
Number of words sent by New York to other F. R. Banks for their sole "benefit charged to banks
indicated in accordance with action taken at Governors' Conference November 2 - 4 , 1925.
XJ+s49-b
REPORT 0? EXFEKSE Mill LPTE
RESERVE LEASED WIRE SYSTEM, APRIL, 1927
FEEERAL
ITarcc of Bank
Operators <
Salaries
Boptcn
$ 260.00
Nevv York
983.29
Philadelphia
225.00
Cleveland
296.66
hic'riTio nd
190.00
Atlanta
270.00
Chisago
3,982.67(f)
St. Louis
224.00
Minneapolis
193.73
Z'itscs
City
275-64
Dallas
251.00
Sail Francisco
370.00
Federal Reserve Board.
Total
(&)
if)
(*)
(a)
(b)
$
Wire
Rental
$
5.00
-
-
-
—
-
-
-
-
-
—
-
-
-
-
-
-
-
-
-
-
-
—
-
$
$15,315.20
5-00
Total
Expenses
$15,315.20
265.OO
9S3.29
225.00
296.66
190.00
270.00
3,958.67
224.00
193.73
275-64
251.00
370.00
15,315.20
$
752.46
3,245.29
952.20
2,010.77
1,192.97
1,418.50
2,632.55
1,892.74
826.23
1,911.70
1,552.90
2,628.33
-
Credits
$
265.00
933-29
225.00
2SfD. 6b
190.00
270.00
3,923.67
224.00
193.73
275-64
251.OO
370.00
-
Payable to
Federal
Reserve
Board
$
487-46
2,262.60
757-20
1,714.11
1,207.64(&)
1.14S,50
1,356.12(*)
1,668.74
632.50
1,636.06
1,331.90
2,258.33
-
$22,848.19
$21,077-24
$7,532.99
$15,105.04
1.770.95(a)
_lJ56A2(b)
$21,077.24
$13,745,92
Includes $204.67 for branch line "business transmitted over main line circuit.
Includes salaries of Washington Operators.
Credit.
Received $1,759*^6 from Treasury Department and $11.49 from the War Finance Corporation covering business
for the month of April, 1927.
Amount reimbursable to Chicago.
$7,527.59
Operators1
Overtime
Probata
Share of
Total
Expenses
X-4850
(C 0 ? Y)
III T3S SUPREME COURT
STATE
OF
9 A
NORTH DAKOTA
Plaintiff and Respondent,
C. M. Berg,
-vsThe Federal Reserve Bank
of Minneapolis,
(1)
Defendant and Appellant.
In the absence of express stipulation negativing or limit-
ing liability, the drawer of a check admits the existence of the
payee and his then capacity to iidorse; and engages that on due
presentation the check will be accepted and paid, or both, according
to its tenor, and that if it be dishonored, and the necessary proceedings on dishonor be duly taken, he will pay the amount thereof to the
holder or to any subsequent indorser who may be compelled to pay it.
(Sec. 6946, C.L. 1913; N.I.L. :Sec.61.)
(2)
The legal obligation of 6 bank is to pay its customers1
checks in money; but this obligation may be waived by the holder of
the check.
He is at liberty to accept any medium of value which the
bank may offer; and where upon presentmee.* of a check the holder
accepts a draft in payment thereof the check is paid and the drawer
thereof discharged from all liability thereof
(Syllabus by the Court)
From a judgment of the district court of Ward County, Lowe,
Judge, defendant appeals.
REVERSED.
Opinion of the Court by Christiansen, J.
Mcfee & floss, of Minot, N.Dak., and A. Ueland, of Minneapolis,
Minn., T Attorneys for Appellant.
E. 3. Sinkler and
Respondent.
0. Brekke, of Minot, N.Dak., Attorneys for
X-4850
- 2 -
Berg vs. Federal Reserve Bank of Minneapolis
Christiansen, Judge.
;
The plaintiff, Berg, brought this
action against the Federal Reserve Bank of Minneapolis to recover
Five Hundred Forty Hollars and Twenty-five cents with interest from
October 8, 1923, alleged to be the amount of a check drawn by the
plaintiff, Berg, upon the Security State Bank of Hanks and payable
to the order of the State Bank of Stady.
The case was tried to the
court, without a jury, and resulted in a judgment in favor of the
plaintiff for the amount demanded and the defendant has appealed.
The material and undisputed facts are as follows: On October
50, 1923, the plaintiff, Berg, had on deposit, subject to check,
in the Security State Bank of Hanks the sum of One Thousand Twentyfour Dollars and Twenty-five cents.
On that day he went to the
State Bank of Stady, in this state, and purchased from that Bank
a draft in the sum of Five Hundred Forty Dollars and Fourteen cents,
drawn by the said State Bank of Stady on the Midland National Bank
of Minneapolis and payable to the order of E. S, Engberg, county
treasurer of Divide County in this state.
Plaintiff paid the
State Bank of Stady for said draft by giving to it his check, dated
on that day, drawn on the Security State Bank of Hanks, in the sum
of Five Hundred Forty Dollars and Twenty-five cents.
The plaintiff,
Berg, thereupon transmitted the draft to Engberg, the payee named
therein, and the Stady Bank placed upon the check it had received
from Berg, it's general and unrestricted endorsement and trans-
'301
mitted the same to the Midland National ™an> of Minneapolis.
The
Midland national Sank is one of the member banks' of the defendant.
On November 2, 1923, the Midland National Bank endorsed the check
and delivered, the game to the defendant for collection.
On the
same day the defendant sent the check, and certain other items on
the Security State Sank of Hanks, by mail direct to the Hanks Bank
for payment and remittance.
On ITovember 7th the defendant received,
from the Security State Bank of Hanks, its draft drawn, on the First
Rational Bank of Minneapolis for Mine Hundred Ninety-five Dollars
and Thirty-two cents, which said draft included the
check in suit.
.amount of the
This draft was presented by the defendant for pay-
ment on the same day but payment was refused and the draft protested for nonpayment.
ITovember 6, 1923.
The Security State Bank of Hanks was closed on
The Stady Bank refused to pay the draft which
it had issued to Engberg for the check in suit and such draft was
protested for nonpayment.
It is contended by the appellant that it was authorized to
send the check direct to the Security State Bank of Hanks and to
accept the draft of that bank in payment by virtue of Regulation
J (8) 1.920, and defendant's Check Clearing and Collection Circular
2To. 286, issued on the authority of said regulation.
A considerable
portion of the argument of both parties is devoted to the question
of the liability of a bank which undertakes the collection of commercial paper at a distance.
In short, it is contended by the ap-
pellant that the so-called "ITew York" rule is applicable to the
transaction in suit and that, hence, plaintiff had no contract
X-4850
4-
<
r
with the defendant concerning the check or its collection; that defendant has violated no duty which it owed the plaintiff, and, consequently, there is no cause of action.
On the other hand, the
respondent contends that while regulation J (8) 1920 authorized the
defendant "bank to send checks for collection direct to the drawee,
it did not authorize it to accept a draft in payment.
Federal Re-
serve Bank of Richmond vs. Malloy, 264 U. S. 160, 68 L. ed.617,
And he further contends that the "Massachusetts", and not the "New
York?', rule is applicable.
We find it unnecessary to determine the
correctness of these respective contentions.
The plaintiff did not
deliver the check in suit to the State Bank of Stady for collection.
He delivered it in payment of a draft which he purchased from that
Bank.
As a result of the execution and delivery of the check to the
State Bank of Stady certain definite obligations were created.
The
plaintiff engaged that on due presentation of the check to the Security State Bank of Hanks the check would be accepted and paid according to its tenor, and that if it was dishonored, and the necessary proceedings on dishonor duly taken, he would pay the amount thereof to the
holder, or to any subsequent endorser who might be compelled to pay
it.
Section 6946 C. L. 1913, H. I. L. Sec.61.
And the State
Bank of Stady in accepting the check undertook to present it for
payment within a reasonable time and with the understanding that
if the check w a s not so presented that the plaintiff as the drawer
thereof would "be discharged•from liability theroon to tho extent
X-4850
-5-
of the loss occasioned by the delay"*
Section 7070 C. L. 1313 ST.
I. L. section 1086; Lloyd Mortgage Company vs. Davis 51 K. D. 336,
199 IT. W. 869.
The State Bank of Stady did not receive the check in suit for
collection.
The check was received and accepted in payment of the
draft which the Stady tiank issued and delivered to the plaintiff.
The check was the property of the State Bank of Stady and n o t the
property of the plaintiff.
From the time of the delivery of the
check by the plaintiff to the bank "it became the owner of the
check; it could have torn it up or thrown it in tho fire or made
any other use or disposition of it which it chose and no right of
defendant would have been infringed."
Burton v. United States,
196 U.S. 283, 297; 49 L. ed. 482, 486.
The right to collect the
check was vested in the State Bank of Stady and the correlative
obligations arising from this right rested upon it.
The State
Bank of Stady transmitted the check to the Midland National Bank
as owner, and not as an agent of the plaintiff for the purpose of
collecting the amount of the check from the bank upon which it was
drawn.
The legal relations assumed by the plaintiff and by the
State Bank of Stady upon the execution and delivery of the check
were definite and certain.
If the check was duly presented but
dishonored and the necessary proceedings on dishonor duly taken,
plaintiff was obligated to pay the amount thereof to the holder
or to any subsequent indorser who might be compelled to pay it,
Section 694$, C. I. 1913.
http://fraser.stlouisfed.org/
i
Federal Reserve Bank of St. Louis
-6-
X-4850
'
r
The rights of the plaintiff in this case are only those which
arise out of his contract with the State Bank of Stady.
rights were affected by the act or
"If those
.ommission of the defendants,
they were affected only because the contract so stipulated.
The
defendant's duties arose out of its contract with the initial bank
or out of its relations with that bank as owner of the paper."
Douglas vs. Federal Reserve Bank 271 U. S. 489, 494; 70 L. ed.
1051-1054.
A check is payable in money.
If, however, the holder of the
check is willing to accept anything else in payment, and the
drawee bank is willing to give it, the drawer of the check is not
concerned.
His contract is fulfilled when the check is paid.
5 R. C. L. p. 498-499.
As is said in Morse's authoritative work
on Banks and Banking:1
1
The legal obligation of the bank is to pay the customer's
checks in such paper or coin, and in such quantities of paper or
coin of any specific denomination, as the law of the land makes
legal tender in the case of any ordinary debt. * * * Ho other
species of tender than that authorized by the laws of the land
can relieve the bank from liability to the drawer.
X-4850
3
Bat this obligation of the hank, at strict law, may of course
he waived and dispensed with by the express or inplied consent of the
holder of the check. He is perfectly at liberty to accept any representatives of value which the bank may offer to him.
If he does so accept,
that is to say, if, at the time when such representatives are offered
to him, he does not object to receive them on the ground that they are
not what at law he has a right to demand, then this acceptance operates
as a complete waiver of the holder's right to refuse anything save legal
tender, and the banker is discharged by this payment, both as towards
the drawer and the holder of the check.
Even if the holder assents to
take the promissory note of the banker, it will discharge the check
absolutely and without regard to the fact of whether or not it is paid
at maturity.
Payments are usually offered either in whole or in part
in the bank bills or notes, either of the bank on which the check is
drawn, or of other banks, which circulate as currency in the community.
The holder may refuse these, when offered to him, if he wishes; but
if h e takes them, in the absence of fraud on the part of the bank he
assumes as his own the risk of their value.
The waiver was perfected by
the very act of acceptance, and cannot be afterward undone.
Converse,
if it should happen that the funds are at a premium, the profit also is
that of the receiver.
In short, the money or representatives of value,
on j c e moment' when they have been paid over the counter and have been
fh
fairly received and accepted without objection by the payee, become
the property of the payee, for good or for ill."
3 Morse on Banks and
Banking, 5th ed., Sec. 247, pp. 45, 46.
The presenting of a check for payment implies that the holder
desires and is ready and willing to accept payment.
Mat, L. Ins, Co., 4 4 Cal. 139; Noble vs. Doughten
Simpson vs. Pac.
Kansas
X--4850
83 Pac. 1048; 3 L. R. A. (U.S.) 1167.
,,,
If the holder of the check pro-
cures it to he accepted or certified, the drawer and all indorsors are
discharged from liability thereon.
section 188.
Section 7072 C. L. 1913; H. I . I .
If, the holder or his collecting agent presents the check
for payment and the drawer has funds on deposit to meet it, which the
drawer is then ready and willing to deliver, the contract of the drawer
is fulfilled.
5 R.C.L. p. 498,
If the holder, instead of receiving
money, causes the check to he deposited to the credit of his account in
the drawee hank, the check is paid and the drawer released from liability thereon.
Barton vs. United States, 196 U. S. 283, 49 L. ed. 482;
First National Bank vs. Burkhart, 100 U. S. 686, 25 L. ed. 766.
A n d if
the holder in lieu of money accepts a draft from the drawee hank, such
acceptance amounts to payment and h e takes the draft at his own risk and
not at the risk of the drawer of the check.
Simpson v. Pac. Mat. Life
Ins. Co., 44 Cel. 139; Anderson v. Gill, 79 Md. 312; 4 7 Am. St. Rep. 402;
Comer v. Dafour, 95 Ga, 376, 51 A.S.R. p. 89; Loth et al v. Mothner et al
13 S. W. 594; 2 Morse oji Banks and Banking, 5th ed. Sec. 426; Daniel on
Negotiable Instruments, Soc. 1591.
The plaintiff cites and relies upon the decision of this court
in Pickett v, Thomas J. Baird Investment Company, 22 N. D. 343, 133 N.W.
1026.
In our opinion the decision cited is authority against, rather
than for, the.plaintiff.
In that case the plaintiff, Pickett, received
a check from the Baird Investment Company for certain moneys which that
company owed him.
state.
The check was drawn on a hank at Lakota in this
On receipt of the check
Pickett endorsed and delivered it to
the First National Bank of Duluth, where it was credited to his account.
The Duluth hank sent the clteck direct by mail to the drawee bank at
Lakota.
That "bank accepted, the chock and sent in payment thereof a
draft on a Minneapolis tank.
This draft was protested for non-payment.
Pickett thereupon brought suit against the Baird Investment Company,
the drawer of the check, and it was held that the Baird Investment
Company was discharged from liability, and that Pickett could not
recover.
If the State Bank of Stady had "brought suit against the plain-
tiff, Berg, upon the check in question here, the facte would have been
precisely the same as in the Pickett case.
In other words, upon the
ruling in the Pickett case, thd plaintiff, Berg, was and is discharged
from all liability/cpon the check.
%he Pickett case, it is true, lays
stre&q on the negligence ef the collecting bank in transmitting the
check direct to the drawee bank, rather than on the acceptance of a
draft, instead of eash, in payment of the check.
It is obvious, however,
that the real reason for the discharge of liability on the part of the
drawer of the check in the Pickett case was the acceptance ef a draft
in payment ef the check.
If the Lakota bank had paid the check in
cash instead of by draft, no injury would have resulted; and if the
cheek had been sent by the Duluth bank to some other bank at Lakota
instead of to the drawee bank and such other bank had accepted the
same draft, instead of-cash, inpayment of the check, the resulting
loss would have been precisely the same; and, in either event, the
drawer of the check would have been discharged from liability.
The ground on which liability is predicated in favor of the
owner of a check against a collecting bank for transmitting the check
direct to the drawee bank, or for accepting from such bank a draft in
308
-10-
X-4850
payment of the check, is that the collecting bank was negligent, and
"breached, the obligations which it owed to the owner of the check, in so
doing, and that, consequently, the owner of the check is entitled to be
compensated by it for the injury which he sustained by reason of such
breach of duty.
Of course, if the owner of the check sustains no in-
jury, he Is entitled to no compensation.
Thus, if the collecting bank
transmits a check direct to the drawee bank and accepts a draft in payment and the draft is subsequently paid so the owner receives his money,
he has no cause of action, even thouga the collecting bank was negligent
in the method it adopted in making the collection.
drawer of
*
And, clearly, the
check who is discharged from liability thereon has no cause
of action against a collecting bank which accepts the draft of the payee
bank in payment thereof.
In such case there has been no breach of any
duty owing to him, nor has he sustained any Injury.
T h o & c t that the State lank of Stady stopped payment on the
draft which it had issued and delivered to the plaintiff, obviously,
cannot affect the rights ef the pasties to this action.
That draft
belonged to the plaintiff and clothed him with the same rights as though,
instead of paying therefor by check, he had paid the State Bank of Stady
in actual cash at the time the draft was is sued.
Whether the defendant,
Federal Reserve Bank, we* authorized to accept a draft from the Security
State lark of Hanks in payment of the check, and whether such acceptance
renders
either the Federal Reserve Bank or the Midland Rational Bank
liable.to the State Bank of Stady (the owner of the check), for the
loss resulting from the acceptance of such draft, is a question not involved^ in this case and one upon which we express no opinion.
-11-
8 0 9
X-4850
It follows from what has been said, that there was and is no
such relationship between the plaintiff and the defendant as would
entitle the plaintiff to recover for any negligence on the part of
the defendant in the collection of the check.
The judgment appealed from is reversed and the action is
dismissed.
A. M. CHRISTIANS ON
W. L. UUISSL3E
J0H2T BURKE
A. &. BUBR
I>. S. BIRDZELL
FEDERAL RESERVE BOARD
10
X-4852
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
May 14, 1927.
CONFIDENTIAL
SUBJECT:
Member tanks stamping checks "Not payable through Federal
Reserve Bank,"
Dear Sir:
It has "been "brought to the attention of the Federal Reserve
Board that several member banks in the Sixth Federal Reserve District
have initiated the practice of stamping upon their cashier's checks,
and in some instances upon customer's checks, the notation, "Hot payable through Federal Reserve Bank, Atlanta, Ga..", or some variant of
these wordsi
The Federal Reserve Board has submitted the questions raised
by this practice to its own general and special counsel and is advised
that the use of such notations is contrary to, and in violation of,
the provisions of the Federal Reserve Act and the Regulations of the
Federal Reserve Board. It seems entirely clear that the purposes of
the Federal Reserve Act, with regard to check collections through the
Federal Reserve Banks, are a part of the general public policy embodied
in the Act, and that the duty of this Board and of the Federal Reserve
Banks is to carry out that policy and not acquiesce in the growth of
any -practice which would tend to render it ineffective.
A n effort will be made by the officers of the Federal Reserve Bank of Atlanta to secure the cooperation of the member banks
in question by a careful and conciliatory explanation of the possible
harmful effect of the practice. In the meantime, it seems wise that
all federal reserve banks should be informed of this situation, and
that a uniform course of procedure should be adopted.
The recent Governors' conference considered the situation
with the general counsel of the Board and Mr. Newton D. Baker, who
has been asked by the Board to represent the System in the matter.
As a result of this conference and of the consideration which the
Board has given the subject, the following practice was agreed upon
and approved.,
1All federal reserve banks should continue to receive
checks from member banks and from non-member clearing banks in accordance with the provisions of Regulation J, even though they bear
notations similar to the above.
—
2
—
X-4852
31.1
2If payable in another district such checks should
be forwarded in the usual course to the federal reserve bank
or branch of the district in which they are payable.
3When received by the federal reserve bank of the
district in which they are payable, such checks should be
forwarded in the regular course to the member bank on which
they are drawn in the usual cash letter.
4In all cases where the member bank returns such checks
and gives no other reason for failure to pay except the restriction attempted to be imposed by the legend stamped on the checks,
the federal reserve bank should charge the amount of the checks
to the reserve account of the member bank in question, return
the checks to the member bank, and notify it that it has been
so charged. (This course can be taken only in those federal
reserve districts where the check collection circular reserves
the right to charge checks to members' reserve accounts.)
5If member banks so notified that such checks have
been charged to the if reserve account again return them to
the federal reserve bank and protest against the action of
the federal reserve bank in charging them to the member's
reserve account, the federal reserve bank will notify the
member bank that it holds the checks in question subject to
its orders, and that the charge so made will stand.
All federal reserve banks will keep the Federal Beserve
Board fully informed of the situation created in tilts regard
in order that the Board may call to the attention of the
Comptroller of the Currency, or otherwise deal with, the situation of any member bank whose reserve is seriously affected
by the charges so made as to which exceptions are pending.
Federal reserve banks in dealing with member banks upon this subject will realize that the whole object of the Federal Reserve Board and of the federal reserve banks is to carry out
the purpose of Congress by maintaining the efficiency of the check
collection and clearing functions entrusted to them by the Act,
and that no disciplinary purpose or hostility is involved, but
that the action of the federal reserve bank in each case is
in the due course of business, and in pursuance of the plain
duty of the bank under the law and regulations of the Board.
-
3
-
X-4852
For your information there is enclosed a copy of a
letter this day sent to Governor Wellborn of the Federal Reserve
lank of Atlanta, and should any instance of this practice arise
in any other district it is recommended that a similar conciliatory effort "be made with the member bank at once.
Very truly yours*
D. R. Orissinger.
Governor.
Enclosure.
TO GOTORHORS AND CHAIRMEN OF ALL FEDERAL RESERVE BANKS
(COPY)
X-4852-a
«
May 14, 1927
\
Hon. M. 3. Wellborn, Governor,
Federal Reserve Bank,
Atlanta, Georgia.
Dear Governor Wellborn:
The attention of the Federal Reserve Board has been called
to the fact that a few member banks in the Sixth Federal Reserve District have recently adopted the practice of stamping on their cashier's
checks the words, "Hot payable through Federal Reserve Bank, Atlanta,
Ga."
The Federal Reserve Board has submitted the questions raised
by this practice to its own general and special counsel and is advised
that the use of such notations is contrary to, and in violation of, the
provisions of the Federal Reserve Act and the Regulations of the Federal Reserve Board. It seems entirely clear that the purposes of the Federal Reserve Act, with regard to check collections through the Federal
Reserve Banks, are a part of the general public policy embodied in the
Act, and that the duty of this Board and of the Federal Reserve Banks
is to carry out that policy and not acquiesce in the growth of any
practice which would tend to render it ineffective.
In view of the fact that the banks of the country generally
are cooperating heartily with the Federal Reserve Banks in this matter, it seems likely that the banks which have been placing such restrictions upon their checks, have not appreciated fully the significance of their action. JTo doubt they desire to be in full cooperation
in the policy established by Congress and to render their share of the
public service involved in this matter, in return for the benefits
which they and the country generally enjoy from the service rendered
by the Federal Reserve System to them and their customers. With this
thought in mind, the Federal Reserve Board asks that you secure a conference with the executive officers of these banks; draw their attention to the view which this Board, under legal advice, has of their
procedure; and ask its discontinuance.
Very truly yours,
D. R. Crissinger.
Governor.
X-4853
C O P Y
Law Office of
Locke, Locke, Stroud & Randolph,
American Exchange Building
Dallas, Texas.
May 10, 1927.
federal Reserve Board,
Washington, D. C*
Gentlemen:
Attention Wfalter Wyatt, General Counsel.
We are enclosing herewith twelve copies of the answer we
are filing in the case of Speer Hardware Company v. Federal Reserve
Bank ef Dallas.
This is the answer, a tentative draft of which was
discussed with you on the occasion of Mr. Stroud's last visit to
Washington.
In view of the number of suits "being "brought against the
various federal reserve hanks involving the liability of such "banks
in the handling of checks for collection under the terms of Regulation J,. series of 1924, and current circulars of federal reserve "banks
it has occurred to us that it might "be desirable for the federal reserve "banks to adopt a somewhat uniform answer to "be filed in connection with this character of litigation. By adopting such a course, it
is believed that the uniform and concerted effort may result in establishing constructive rules of law and obtaining favorable precedents
in all the districts.
It is our opinion that the courts need to be more fully advised as to the changes which have occurred in this country in connection with the handling of checks for collection, and to this end
we have made our answer rather long* hoping thereby to make admissible
testimony showing the change which has taken place, and acquainting
the court with "the fact that the rules of law heretofore applied are
not applicable at the present time. We have sought to make these historical allegations proper by alleging that they were known to the
plaintiff.
If you think well of the idea, we would suggest that a copy
of this answer be sent to the attorneys for the other federal reserve
banks, inviting their suggestions and criticisms, to the end that by
joint effort we may be able to arrive at some form of answer which,
with small variation, may be used in practically all of this character
of litigation.
Enclosures.
Very truly yours,
(s)
Locke, Locke, Stroud & Randolph.
X-4g5l-
COPY
I T O B A I W . S W T ? B0A.P.D
^ASFINGrTOH
May 18, 1927.
My dear Congressman:
The Federal Reserve Board has considered your letter of May
2nd enclosing a co"oy of a. letter addressed "by you to the Comptroller
of the Currency with reference to chain banking in the United States
through the purchase "by holding connanies or investment trusts of
the controlling stock interests of "banks. You suggest that the
Federal "Reserve Board adont administrative measures calculated to
control or -prevent the growth of this form of "banking control among
State bank members of the Federal Reserve System.
The Federal Reserve Board is powerless under the law to take
the action which you suggest. There is no provision of statutewhich confers upon the Board any authority to regulate or prohibit
the holding of the stock of State member batiks by any group or corporation. In this connection you ^ill recall that in a letter addressed to you under date of January 8, 1526, (a corsy of which is
enclosed herewith - see pages 8 to 10) the Federal Reserve Board
took occasion to recommend as amendments to your bill E.R. 2, then
pending in Congress, provisions designed to secure adequate information regarding national banks and State member banks which are
closely related in management, operation or interests to other
banking institutions, and in particular to afford some check upon
the abuses frequently occurring in chain banking. The suggestion
of the Federal Reserve Board on this subject was not adopted.
The Board has attempted in prescribing conditions roon which
State banks may be admitted to the Federal "Reserve System to effect some degree of control over chain banking. Among the conditions of membership with which State banks entering the Federal
Reserve System are required to comply is the following:
"Such bank or trust company, except after applying for and receiving the permission of the Federal
Reserve Board, shall not consolidate with or absorb
or purchase the assets of any other bank or branch
bank for the purpose of operating such bank or branch
bank as a branch of the applying bank; nor directly
or indirectly, through affiliated corporations or
otherwise, acquire an interest in another bank in
excess of 20 ror cent of the capital stock of such
other bank; nor directly or indirectly promote the
establishment of any new bank for the purpose of
acquiring such an interest in it; nor mafci any ar-
X-4854
rangement to acquire such an interest."
This condition of membership was incorporated in the Board's
Regulations of I92U and has been proscribed for every State bank
admitted to membership since that time. Under the provisions of
the recently enacted McFadden Act, however, the Board appears to
be without authority to continue to impose a condition of membership of this kind. Section 9 of the Federal Reserve Act, as amended
by the McFadden Act, provides that the Federal Reserve Board may
permit State banks to become members of the Federal Reserve System,
subject to the provisions of the Federal Reserve Act "and to such
conditions as it may prescribe pursuant thereto." As there is no
provision in the Federal Reserve Act which seems expressly or by
necessary implication to .authorize the imposition of a condition
of membership designed to control or prohibit chain banking among
State member banks, the Federal Reserve Board will be unable in
the future to prescribe such a condition.
Inasmuch as the existing law contains no provision designed
to check or control chain banking, the remedy lies with Congress.
The Board will be very glad to do anything in its power to assist
your Committee in making a study of chain banking.
By direction of the Board.
Very truly yours,
D. R. Crissinger,
Governor.
Honorable Louis T. McFadden,
House of Representatives,
Washington, D. C.
(Enclosure)
(COPY)
X-4854-a
f>-6 >".
<•'
« > 3 i'
.
f
Excerpt from Board's letter of January 8, 1926, to Honorable
Louis J, McFadden, Chairman of the Committee on Banking and Currency of
the House of Representatives (pages 8-10), referred to in the Board's
letter of May 18, 1927, to Congressman MdFaddent
"2. That Section 5240 of the Revised Statutes of the United
States, as amended, be further amended by adding at the end thereof a
new paragraph reading as follows:
' Whenever in the judgment of the Comptroller of the
Currency any national banking association is so closely related in management, operation or interest to any other bank,
banking association, trust company,securities company or
investment company that an examination of such national banking association fails to disclose its true condition in the
absence of detailed information regarding such other related
institution, such national banking association shall (a) obtain from such related institution and furnish to the Comptroller of the Currency a copy of a report of an examination
of such related institution inado by the State authorities
simultaneously with an examination of such national banking
association made by examiners appointed by the Comptroller of
the Currency, or (b) by such other means as may be deemed
satisfactory by the Comptroller of the Currency, furnish to
the Comptroller of the Currency detailed information regarding the condition and operation of such related institution.
In such cases the Comptroller of the Currency may, upon request,
furnish the State Supervisor of Banking, or other similar officers, copies of reports of examination of such related national banking association.
If any national banking association
shall fail to comply with the requirements of thru paragraph after
a demand for such compliance has boon made by the Comptroller of
the Currency, the Comptroller shall report the facts in the
case to the Federal Reserve Board, which may, after a hearing,
issue an order depriving such national banking association of
the privilege of receiving any discounts, advancements or accommodations from the Federal reserve bank of which it is a member until it has complied fully with all demands made by the Comptroller of the Currency pursuant to the provisions of this paragraph. The Federal Reserve Board shall send a copy of such order
by registered mail to such national banking association and a
copy to the Federal reserve bank of which it is a member; and,
after receipt of said order, such Federal reserve bank shall
not rediscount any paper for, or make any loan, advancement,
or other extension of credit to, such national banking association until said Federal reserve bank has been notified by the
Federal Reserve Board that such national banking association
has complied fully with the requirements of this paragraph/'
"This proposal is designed
to secure adequate information regarding national banks which are related to other institutions and in particular
to afford some check upon certain abuses frequently engaged in by chains
of banks. During the last few years a number of such chains have collapsed,
and investigation shows that when a national bank is in such a chain
an examination of it fails t 3 disclose its true condition, due to the
<
shifting of assets "back and forth between the various institutions which
make up the chain.
"3. That Section 9 of the Federal Reserve Act as amended he further
amended by inserting therein, immediately after the sixth paragraph
thereof, a new paragraph reading as follows:
•Whenever in the judgment of the Federal Reserve
Board any membor bank is so closely related in management,
operation and interest to any other bank, banking association, trust company, securities company or investment
company that an examination of such member bank fails
to disclose its true condition in the absence of
detailed information regarding such other related
institution, such member bank shall (a) obtain from
such related institution and furnish to the Federal
Reserve Board a copy of a report of an examination of
such related institution made b y the State authorities
simultaneously with an examination of such member bank,
or (b) by such other means as may be deemed satisfactory
by the Federal Reserve Board, furnish to the Federal
Reserve Board detailed information regarding the condition and operations of such related institution.
In such cases the Federal Reserve Board may, uoon
request, furnish the State Supervisor of Banking,
or other similar officers, copies of reports of any
examination of such related member bank which has
been made by .
direction of the Federal Reserve Board
or of the Federal reserve bank by examiners selected or
approved by the Federal Reserve Board. If any member
bank shall fail to comply with the requirements of
this paragraph after a demand for such compliance
has been made by the Federal Reserve Board, said Board
may, after a hearing, issue an order depriving such
member bank of the privilege of receiving any discounts,
advancements or accommodations from the Federal reserve
bank of which it is a member until it has complied
fully with all demands made by the Federal Reserve
Board pursuant to the provisions of this paragraph.
The Federal Reserve Board shall send a copy of such
order by registered mail to such member bank and
a copy to the Federal reserve bank of which it is a
member, and, after receipt of said order, such Federal
reserve bank shall not rediscount any paper for, or
make any loan, advancement, or other extension of
credit to, such member bank until said Federal reserve bank has been notified by the Federal Reserve
Board that such member bank has complied fully with
the requirements of this paragraph.*
- 3 -
*5^-4854-a
"This proposal is similar to the nrocoding and is intended to
apply to State "banks and trust companies which are members of the Federal
Reserve System. At present the only penalty for non-compliance with any
provision of the Federal Reserve Act by State member hanks is that provided
for in the seventh paragraph of Section 9 of the Federal Reserve Act,
which authorizes the Federal Reserve Board to expel from the Federal Reserve System any State member hank which fails to comply with the provisions of that Section.
The penalty suggested above is less drastic but
is nevertheless thought to be sufficient."
FEDERAL RESERVE BOARD
X-4855
WASHINGTON
May 18, 1927.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Holidays during June, 1927.
«
Deaf Sir:
The Federal Reserve Banks and Branches listed "below
will be closed on account of holidays on dates specified, and
therefore will not participate in either the Gold Fund Clearing or the Federal Reserve Note Clearing:
Friday, June 3rd, Birthday of Jefferson Davis.
Ri chmond
Memphi s
Atlanta
New Orleans
Birmingham
Nashville
Jacksonville
Dallas
El Paso
Houston
Tuesday, June 28th, Special Election Day in the State of
Oregon.
Portland.
Please include credits in the Gold Fund Clearing for
the offices affected on each of the holidays referred to, with
credits for the following "business day, and make no shipment of
Federal Reserve Notes, fit or unfit, on June 3rd for account of
the head offices mentioned.
Please notify Branches.
Very truly yours,
J. C. Noell.
Assistant Secretary,
TO GOVERNORS OF ALL F, R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4857
May 24, 1927.
SUBJECT:
Information regarding Branches of State Banks
applying for Menibership.
Ddar Sir:
Under the provisions of Section 9 of the Federal Reserve Act as amended by Section 9 of the McFadden Act, State
banks that have tranches beyond the limits of the city, town or
village in which the parent bank is situated which were established subsequent to February 25* 1927, the date of the approval
of the McFa&deri Act, are ihdligible to become members of the
Federal Reserve System except upon the relinquishment of such
branches. In view of this fact, it is necessary for the Board
in passing upon an application for membership by a State bank to
have information as to whether such bank has any branches beyond
the limits of the city, town or village in which it is situated
which were established subsequent to February 25, 1927. It is
requested, therefore, when you forward applications for membership
to the Board you advise the Board if the applicant bank has any
such branches that were established subsequent to February 25, 1927*
By direction of the Federal Reserve Board.
Very truly yours,
Walter L. Eddy,
Secretary,
TO CHAIRMEN OF A L L F. R. BANKS
X-4858
LOUISVILLE & NASHVILLE RAILROAD CO.
V.
NASHVILLE BRANCH OF THE FEDERAL
RESERVE BANK OF ATLANTA, et al.
Findings and Opinion.
This is a suit to recover of the Nashville Branch of the
Federal Reserve Bank of Atlanta and the American National Bank
$3995.00, with interest from July 14, 1924.
The suit is predicated upon the failure of the two "banks
to collect three cashier's checks, drawn by and on the Peoples Bank
of Springfield, Tennessee, and endorsed by the complainant and deposited for collection with the .American National Bank, and by that
bank delivered to the Nashville Branch of the Federal Reserve Bank
of Atlanta for collection.
It is alleged that the American National Bank was negligent
• in selecting the Reserve Bank as its agent to clear or collect these
checks, and that the Reserve Bank was negligent in sending these
checks to the peoples' Bank at Springfield, the drawee, and permitting that bank to hold said checks without remitting, until its failure.
The bill further alleges that the regulations of the
Federal Reserve Board did not alter the responsibility of the Nashville Branch of the Federal Reserve Bank, nor render non-actionable
or non-negligent a practice which, under the laws of Tennessee, is
negligent, towit, forwarding a check direct to the bank oftfrhltihit
- 2 -
X-4858
is dravm for collection; and that the American National Bank in
selecting the Federal Reserve Bank as its agent for handling the
checks became responsible to the complainant to the same extent as
if the American Bank had itself forwarded these checks direct to the
Peoples' Bank of Springfield.
The defendants deny they were negligent and rely.upon certain regulations adopted by the Federal Heserve Board and the Federal Reserve Bank of Atlanta, in force and effect when the transaction complained of occurred, authorizing the defendant banks to handle
the checks in the manner they did, and that these checks were handled
in accordance with the uniform custom and usage obtaining among banks
in Nashville and the regulations of the Federal Reserve Board and
the Federal Reserve Bank of Atlanta.
They aver that these regula-
tions have the legal force and effect of federal statutes, and as
such are binding on the complainant with reference to the checks
sued on in this case, and that the complainant authorized the
American National Bank to follow the general banking custom or usage
prevailing in Nashville in making collection of these checks.
The facts material to the determination of the question
involved follow:
The Federal reserve system was created by an Act of
Congress December 23, 1913.
Section 11 of this Act expressly em-
powers the Federal Reserve Board to make all rules and regulations
necessary to enable the Board to effectively perform the duties,
functions or services specified in the Act, and to exercise a
general supervision over all Federal Reserve Banks.
Section 16
of the Act authorizes the Federal Reserve Board to promulgate from
- 3 -
X-4858
time to time regulations governing the transfer of funds,
charges therefor, and in its discretion may exercise the functions of a clearing house for such Federal Reserve Banks, or
may designate a Federal Reserve Bonk to exercise the function
of a clearing house for its member banks. See 38 Statutes at
Large, 251-264.
The Federal Reserve Act, (38 Statutes, 251), Sees.
9785-9805, U. S. Compilation Statutes 1916, and the Acts amendatory and supplementary thereof, constitute the charter of the
federal reserve system.
The general control and supervision
of this system is lodged in the Federal Reserve Board, consisting of six members, appointed by the President with the consent
of the Senate.
The Secretary of the Treasury and the Comptrol-
ler of the Currency are members ex-officio of this Board.
The United States is divided into districts, and
there is a federal reserve bank in every district.
The reserve
bank for this district was established in 1914 and located in
Atlanta, and a branch thereof was established and located in
Nashville in 1919, known as the Nashville Branch of the Federal Reserve Bank of Atlanta.
The Nashville Branch of the Feder-
al Reserve Bank of Atlanta clears at par and all national
banks are required by law to bo members of this system, and
upon their failure to become members, their charters are forfeited.
The Federal Reserve Banks are national, not state,
institutions, existing and operating under the laws of the
Federal Government and those laws provide for a Federal Re
- 4
*
X-4858
serve Board appointed by the President, with power to make and
promulgate rules and regulations for the government of Federal
Reserve Banks and their branches, and of all banks which become
members of the federal reserve system.
Regulation J, Series of 1934, adopted by the Federal
Reserve Board, is as follows:
"SECTION V.
TERMS OF COLLECTION:
"The Federal Reserve Board hereby authorizes
the Federal Reserve Banks to handle such checks subject to the following terms and conditions; and each
member and nonmembcr clearing bank which sends checks
to any Federal Reserve Bank for deposit or collection
shall by such action bo deemed (a) to authorize the
Federal Reserve Banks to handle such checks subject
to the following terms and conditions, (b) to warrant
its own authority to give the Federal Reserve Banks
such authority and (c) to agree to indemnify any Federal Reserve Bank for any*loss resulting from the failure
of such sending bank to have such authority.
"(1) A Federal Reserve Bank will act only as
agent of the bank from which it receives such checks
and will assume no liability except for its own negligence and its guaranty of prior indorsements.
k
"(2) A Federal Reserve Bank may present such
checks for payment or send such checks for collection
direct to the bank on which they are drawn or at which
they are payable, or in its discretion may forward
them to another agent with authority to present them
for payment or send them for collection direct to the
bank on which they are drawn or at which they are payable.
"(3) A Federal Reserve Bank may in its discretion
and at its option, either directly or through an agent,
accept either cash or bank drafts in payment of or
in remittance for such checks and shall not b e held
liable for any loss resulting from the acceptance of
bank drafts in lieu of cash, nor for the failure of
the drawee bank or any agent to remit for such checks,
nor for the non-payment of any bank draft accepted in
payment or as a remittance from the drawee bank or any
agent.
- 5 -
X-4858
"(4) Checks received by a Federal Reserve Bank
on its member or nonmember clearing banks will ordinarily be forwarded or presented direct to such banks,
and such banks will be required to remit or pay therefor at par in cash or bank draft acceptable to the
collecting Federal Reserve Bank, or at the option of
such Federal Reserve Bank to authorize such Federal
Reserve Bank to charge their reserve or clearing
accounts; provided, however, that any Federal Reserve
Bank may reserve the right in its check collection
circular to charge such items to the reserve account
or clearing account of any such bank at any time when
in any particular case the Federal Reserve Bank deems
it necessary to do so.
"(5) Checks received by a Federal Reserve Bank
payable in other districts will be forwarded for collection upon the terms and conditions herein provided
to.the Federal Reserve Bank of the district in which
such checks are payable.
"(6) The amount of any check for which payment
in actually and finally collected funds is n o t received
shall 'be charged back to the forwarding bank, regardless of whether or not the check itself can be returned."
Circular Mo. F 5 of the Federal Reserve Bank of Atlanta provides as follows:
"The Federal Reserve Bank of Atlanta will handle
checks and other cash items subject to the following
terms and conditions, and each member and non-member
clearing bank which sends checks for deposit or collection to the Federal Reserve Bank of Atlanta (and
branches) or to another Federal Reserve Bank direct,
for our account, will b e understood to have agreed to
said terms and conditions and by such action shall be
deemed (a) to authorize the Federal Reserve Bank of
Atlanta to handle such checks subject to the following
terms and conditions, (b) to warrant its own authority
to give the Federal Reserve Bank of Atlanta such authority and (c) to agree to indemnify the Federal Reserve
Bank of Atlanta for any loss resulting from the failure
of such sending bank to have such authority.
"(1) The Federal Reserve Bank of Atlanta (and
branches) will act only as agent of the bank from
which it receives such checks and will assume no
responsibility or liability except for its own negligence and its guaranty of prior endorsements.
"(2) The Federal Reserve Bank of Atlanta (end
- 5 -
X-48S8
branches) may present such checks for payment or
send such checks for collection direct to the bank on
which they are drawn or at which they are payable, or
in its discretion may forward them to another agent
with authority to present them for payment or send
them for collection direct to the bank 'on which they
are drawn or at which they are payable.
"(3) The Federal Reserve Bank of Atlanta (and
branches) may in its discretion and at its option,
either directly or through an agent, accept either
cash or bank drafts in payment or of in remittance
for such checks and shall not be held liable for any
loss resulting from the acceptance of bank drafts
in lieu of cash, nor for the failure of the drawee
bank or any agent to remit for such checks, nor for
the non-payment of any bank draft accepted in payment
or as a remittance from the drawee bank or any agent.
"(4) Checks received by the Federal Reserve
Bank of Atlanta (and branches) on its member or nonmember clearing banks will ordinarily be forwarded
or presented direct to such banks, and such banks
will be required to remit or pay therefor at par in
cash or bank draft acceptable to the Federal Reserve
Bank of Atlanta, or at the option of said Federal
Reserve Bank to authorize said Federal Reserve Bank
to charge their reserve accounts or clearing accounts;
and the Federal Reserve Bank of Atlanta (and branches)
reserves the right to charge such items to the
reserve account or clearing account of any such bank
at any time when in any particular case it deems it
necessary to do so."
The agent of the complainant at Springfield would take
the cash he had received from the business of the L. & N. Railroad
at that point to the Peoples' Bank at Springfield, and get cashiers
checks for it, which checks he would deposit with the American National Bank at Nashville.
Peoples
Cashier's check 1050, issued by the
Bank of Springfield
in July 7, 1924, payable to the
L. & N. R.R. was for $450.00, and was endorsed by the complainant
and deposited for collection with the defendant American national
Bank on July 8, 1924.
The American National Bank endorsed this
check on July 8, 1924, and delivered it to the Nashville Branch
-7
-
X-4858
*i<*S
of tho Federal Be serve Bank of Atlanta, which bank endorsed it under
date of July 9, 1924, and forwarded it direct to the Peoples
Bank
of Springfield, and it was received by that bank on July 10, 1924.
Cashier's check No. 1091 was issued by the Peoples Bank of Springfield July 8, 1924, payable to the order of the L. & IT. 3. B. in the
sum of $1425.00, and was endorsed by it and deposited for collection
in the American national Bank on July 9, 1924, and by that bank
on the same day endorsed and delivered for collection to the Nashville
Branch of the Federal Beserve Bank of Atlanta, and that bank also endorsed the check on July 9, 1924, and forwarded it for collection
direct to the Peoples Bank at Springfield, and it was received by
that bank on July 10, 1924.
Cashier's check 1092 was issued by
the Peoples Bank of Springfield dated July 9, 1924, payable to the
order of the L. & IT. B. B. for $2120.00 and endorsed by that company and deposited for collection in the American National Bank on
July 10, 1924, and by the American Bank endorsed on July 10, 1924,
and delivered to the Nashville Branch of the Federal Beserve Bank
and that bank on the same day forwarded same for collection direct
to the Peoples Bank at Springfield, and the latter bank received
it on July 11, 1924.
Two of these checks came into, the hands of
the Peoples Bank on July 10th, and the third on July 11th, and
tho Peoples Bank was the drawee in each on a of these checks.
The Peoples Bank was open for business July 10th, 11th,
12th, and on the 14th, which was Monday, but did not open for
business on July 15, 1924, and on that day was taken over by
the State Bank Examiner about eleven o'clock A. M.
Sunday,
July 13th,was a holiday, and Monday, July 14th, was observed
http://fraser.stlouisfed.org/
as such
Federal Reserve Bank of St. Louis
by tho Nashville banks but was not observed at Spring*-
field.
At no time prior to July 15, 1924, did the Federal Reserve
Bank at Nashville, the American national Bank, or the Robertson
County Bank & Trust Co., the Springfield Bank and the CommerceUnion Bank, the three "banks at Springfield, suspect the insolvency of the Peoples Bank, and all did business with the latter
bank.
The L. & IT. agent at Springfield deposited cash and received
cashier's checks on July 10, 12th and 14th, with and from the
Peoples Bank.
On the 14th he deposited $710.00 and received a
cashier's check for that amount, and on July 14th the banks at
Springfield did banking business as usual with the peoples Bank,
and this was the last day that bank was open for business.
The I. & JT.'s agent at Springfield had deposited with
the American
National Bank daily for more than four years.
The
L. & N. had designated the American National Bank as its depositary and instructed its agent at Springfield to deposit his daily
receipts with that bank, together with about forty-two local agents
throughout Tennessee and Kentucky.
The local agent of the L. & N.
at Springfield would take his receipts, moneys, checks, drafts, etc.,
to the Peoples Bank at Springfield and exchange them for cashier's
checks drawn on that bank by its cashier, and made payable to the
L. & U. and these would be deposited in the American National Bank.
He continued to do this up to the time the Peoples Bank closed on
July 14th, and on that date, as stated, bought a cashier's check
with his daily receipts for $710.00.
Mr. Noel, the only official
of the L. 3c N. examined as a witness by the complainant, and who
is assistant treasurer of the home office at Louisville, testified
that he had been in the treasurer's office for about thirty years
and knew through the press that national banks were members of the
- 9 -
X-*858
• •
Federal Reserve banking system.
fI
He further testified that no in-
structions were given to any of its bank depositaries as to the
collection of checks delivered to then for collection, but it
was left to the general custom of the locality or region where
the depositary bank was located to collect the checks in accordance with their custom as stated.
Since the year 1920 the complainant has deposited
with the American National Bank for collection items on banks,
including the Peoples Bank at Springfield, Tennessee, and has
left the American Bank free to follow the banking uses and
customs at Nashville with reference to collecting items of
this character.
The Nashville Branch of the Federal Reserve
Bank of Atlanta was established in Nashville in 1919 and since
its establishment it has been the uniform custom and usage of
members of the Federal Reserve banking system at Nashville, the
American National Bank being a member, to use the Reserve Bank
for making collections on banks outside of Nashville.
Springfield is known to the Federal Reserve Bank at
Nashville as a three-day point, as three days represent the ordinary time in which items arc deposited for collection until
remittances thereon are received.
On July 11th, 1924, Mr.
Stratton, one of the officers of the Peoples Bank,was in
Nashville and as that bank had been rather slow in its remittances, Mr. Fort, one of the officials of the reserve bank, spoke
to Mr. Stratton about it and was informed by Mr. Stratton that
he was expecting to get in three large loans from debtors in
Robertson County known to Fort, and was arranging for a loan
of $50,000,00 from the American National Bank of Nashville.
- 10 -
X-4858
The next day, July 12, Mr. Fort was informed by the officers of the
American National Bank that a loan for $50,000.00 to the peoples
Bank at Springfield was pending and would he consummated.
This
opinion was so satisfactory to Mr. Fort that the federal Reserve
Bank at Nashville sent to the Peoples Bank at Springfield on July
12th items for collection amounting to over $52,000.00.
The hanks
at Nashville observe Saturday as a half holiday, and July 12th came
on Saturday, and the following Monday, July 14th, was observed as a
holiday by these banks.
When the Peoples Bank closed its doors on
July 15th, it had cash on hand of $15,925.15.
In July, 1924, there was no member bank of the Federal
Reserve system at Springfield, Tenn., and the Peoples Bank at that
point and three other banks there cleared at par items sent them by
the Federal Reserve Bank for collection, and the items on the Spring- .
field banks had been forwarded directly to the drawee by the Federal
Reserve Bank for collection and remittance.
On July 8, 1924, the Federal Reserve Bank at Nashville
forwarded to the Peoples Bank at Springfield items in excess of
$33,000.00.
During the week of July 7-12, 1924, the Peoples Bank
had remitted to the Federal Reserve Bank at Nashville on account of
items forwarded it for collection approximately $118,000.00.
The Federal Reserve Bank at Nashville from July 7-14,
1924, continued to send items to the Peoples National Bank for collection so that on July 14, 1924, the total amount of such items in
the Peoples Bank sent by the Reserve Bank amounted to approximately
$121,000.00.
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X-4858
8
t .* v<f
It has boon the cuutorn certain and uniform obtaining in
ITashville, to send checks for collection to the drawee bank and
this system has prevailed since the establishment of the ITashville
Branch of the Federal Reserve Bank in ITashville in 1919, and is
expressly authorized by regulations of the Federal Board.
The Congress may vest in Federal Boards the power to
issue rules and regulations and these rules and regulations have
the force and effect of law
Field v. Clark, 143 U. S. 649;
U. S. V. G-rimaud, 220 U. S. 506; Morrill v. Jones, 106, U. S.
466; Caha v. U. S. 152 U. 5. 211; U. S. v. Eaton, 144 U . S. 677;
In re Kellock, 165 U. S. 526; Buttfield v. Stranahan, 129 U. S .
470; U. S. v. United Copper Co., 196 U. S. 207; Union Bridge Co.
v. U. S., 204 U. S. 364; Williamson v. U. S. 207 U. S. 425; American Sugar Hef. Co. v. U. S. 211 TJ. S. 155; U. S. v. Antikamnia
Co., 231 U. S. 654; Mutual Film Corp. v. Ohio, 236 U. S. 230;
Oceanic Uav. Co. v. Stranahan 214 U. S. 320; Wichita R« Co. v.
Kansas, 260 U. S. - ; U. S. v. Mich. Portland Cement Co..46 Sup.Ct.
395 (decided Apr.12, 1926); Thornton, et al. v. U. S., 46 Sup.Ct.,
587, (decided June 1, 1926); Tindle, et al v. Eeiner, 17 Fed. (2s d)
522.
In the casd of First National Bank v. Fellows, 244 U. S.
416, the Supreme Court of the United States, discussing this subject, said:
"Before passing to the question of procedure wo think it necessary to do no r.oro than
to say that a contention which was pressed in
argument which it may be was indirectly referred
to in the opinion of the court below, that the
authority given by the section to the Reserve
Board was void because conferring legislative
power on that board is so plainly adversely
disposed of by many previous adjudications as
X-4858
to cause it to be necessary only to refer to
them".
3 3 3
In Tennessee, power is often givoh to boards to make
rules and. regulations
which have the effect of statutes.
v, State, 122 Term* 729;
Bishop
Hyde v. State, 131 Tenn. 215; House v.
Creveling, 147 Tenn. 597.
Courts, both federal and state, take judicial notice of
rules and regulations promulgated by federal boards pursuant to
the powers vested in them by the Congress.
U. S. 211;
1926;
Caha v. U. S., 152
Thornton v. U. S., 46 Sup. Ct. 595, decided June 1,
State v. Southern By. Co., 141 H. C. 855.'
In the Caha case, supra, the Supreme Court of the
United States said:
"It may be laid down as a general rule
deducible from the cases, that wherever by
the express language of any act of Congress,
power is entrusted to either of the principal
departments of government to prescribe rules
and regulations for the transaction of business
in which the public is interested, and in respect
to which they have a right to participate, and
by which they are to be controlled, the rules
and regulations prescribed in pursuance of such
authority become a mass of that body of public
records of which the Courts take judicial notice." .
It was held in the case of Milling Co. v. Bank, 120 Tenn.
225, that a bank w a s guilty of negligence in sending for collection
a check directly to the drawee bank.
The reason for this rule is
that the drawee bank cannot b e the disinterested agent of the
creditor to collect the debt, and is not a suitable agent in contemplation of law to enforce in behalf of another a claim against
itself, and it is not reasonable care to select an agent known
to be interested against the principal a n d put the letter into
the. hands of its natural adversary.
- 13 -
X-4858
fit
!•»
It has been held in this State that a custom or usage
which violates a settled rule of law cannot "be given force and
effect.
3. 3*. Co. v. Naive, 112 Tenn. 255.
The case of -Savings Bank v. National Bank, 98 Tenn.
340-1, holds that a party who selects a bank as collecting agent
and avail's himself of the facilities which it holds out in the
absence of special directions, is bound by . any reasonable usage
prevailing and established among the banks at the place where the
collection is made, without regard to his knowledge or want of
knowledge of its existence and that in choosing such a bank, he
impliedly agrees that the collection may be made in accordance
with such usage, where it is not in contravention of the general
law; but in the instant case, the usage is not in contravention
of law but in conformity to law, since Regulation J has the force
and effect of a statute, and the complainant was dealing with
banks established by the federal government and governed by these
laws.
It cannot be said that the usage which is in conformity
to this regulation is in contravention of law, because in strict
keeping with it.
It will not do to say that a party dealing with
a branch of the federal reserve bank through a national bank which
is required by federal laws to be a member of the federal system
can plead ignorance of these laws or that the federal reserve
system confers upon the federal reserve board only administrative
functions, that is, to pass regulations that are binding upon
member banks and not upon the public dealing with them.
These
regulations affect the public because a member bank can only deal
with or for people in its transactions with a Branch of the Feder
http://fraser.stlouisfed.org/ al He serve
Federal Reserve Bank of St. Louis
Bank.
— 14 —
X—4858
c> •
«
The Massachusetts rules which prevail in this State is
after all only a presumption of law as to what the parties to such
transaction intended to agree to,and may "be abrogated by statute
or departed from by mere agreement.
Capital, etc. Co. v. Federal
Reserve Bank, 3 3T. 3. 2d Ed. 614; Bank v. Malloy, 264 U. S. 160.
This rule or presumption of law as to what the parties
to a certain transaction intend to agree to is not "based on public
policy and may be varied, modified or changed by contract of the
parties, either express of im plied.
First National Bank v. Butler,
41 Ohio St. 519;
It has been pointedly and expressly held in Tennessee
that this rule of presumption of law may be changed by contract*
In the case of Bank v. Bank, 127 Tenn. 219, the Court, speaking
through Mr. Chief Justice lansden, said:
"Nor do we think that the Nashville Bank is
liable for not selecting the proper bank to make
the collection at Sparta. It is shown in the
proof that both the holder and the drawer of these
checks agreed with the Nashville bank that remittances might be made directly to the drawee and they
of course cannot now complain that such was done."
The custom as to collecting out of town items is uniform
and well known, and practiced by all the banks, and a party dealing
with a bank will be presumed to have contracted impliedly for the
collection of the item in accordance with such custom,
First National Bank, 118 Calif. 500.
Davis v.
This is true, though as a
matter of fact he had no knowledge of its existence.
Savings
Bank v. National Bank, 98 Tenn. 336.
Of course, the custom must be reasonable and established
among the banks where the collection is to be made.
90 Tenn. 221;
Howard v. Walker, 92 Tenn. 452.
Sahlien v. Bank,
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X-4858
In Sahlien v. Bank, 90 Tenn. 229, our Supreme
t
O »i(;>
Court said:
"A bank contracts to use diligence in
collections, but it is bound only to reasonable care and diligence in the discharge
of its assumed duties. In a case of doubt its
best judgment is all the principal has a right
to require, especially if the doubt arose by
reason of the neglect of the principal to give
specific instructions. The bank will be acquitted even if it exercised this discretion
erroneously."
Mr. Fort, the official of the Nashville Branch of
the Federal Reserve Bank of Atlanta, had no cause to doubt
the solvency of the Peoples Bank at Springfield.
He knew
that the L. & H. agent at that point and other Springfield
banks were doing business with this bank as usual, and that
the American National Bank was to make it a loan of $50,000.00
and that they had remitted collections between July 7th and
12th of approximately $118,000.00.
He did not hesitate to send
them a letter on July 12, 1924, containing items aggregating
about $52,000.00.
The cases of Malloy v. Federal Reserve Bank of Richmond, 264 U. S. 160, and City of Douglas v. Federal Reserve
Bank of Dallas, U. S. Supreme Court, decided June 1, 1926, are
not in point.
In the Malloy case the Federal Reserve Bank was
held liable because it received payment of a check other than
in money which was not authorized by the federal regulations
at that time; while in the City of Douglas case there was no
recovery against the Federal Reserve Bank as the deposit of
the check in the initial bank properly endorsed, made that bank
the owner of the paper, and the plaintiff having thus surrender
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X-4858
ed its fright to the paper, the only rights Remaining ttere
those arising out of its contract with the initial bank.
The case of Fergus County, et al. v."Federal Reserve Bank, 75 Mont. 582, is a case in point.
The plaintiff
in that case deposited a check in the Empire State Bank of
Lewistown.
system.
This bank was a member of the federal reserve
The check was drawn on the First State Bank of Cof-
fee Creek, Montana, also affiliated with the federal reserve
system.
The defendant Federal Reserve Bank forwarded the
check direct to the Coffee Creek bank and the Coffee Creek
bank remitted its draft for the amount of the check, but
closed its doors before the draft could be presented and it
was consequently dishonored.
When this transaction took place,
Regulation J of the Federal Reserve Board, Series 1920, authorizing Federal Reserve Banks receiving checks for collection to forward them directly to the drawee bank, was in force,
but there was no regulation of the Board authorizing the bank
to receive drafts instead of cash in payment of checks deposited vrith it for collection; but Regulation J provided that
each Federal Reserve Bank might establish rules governing the
details of its collections operations, which rules should be
binding on all member and non-member banks clearing through it.
Pursuant to this authority, defendant Federal Reserve Bank issued a circular which provided that every bank seeding checks
to the defendant for collection would be understood to have
agreed that the defendant was authorized "to send such items
for payment in cash or bank draft direct to the bank on which
they were drawn."
This rule was upheld by the Supreme Court as
-17-
being "binding on those
X-4858
ng use of the Federal Reserve
Bank's collection facilities.
The Supreme Court in that case
said:
1
1
(3) When the Lewistown bank, with full knowledge of the conditions imposed by Circular 286, delivered the checks to this defendant for collection,
it thereby expressed its acceptance of the offer as
made, and the result was a contract by the terms of
which the defendant was authorized to send the checks
directly to the Coffee Creek bank and to accept in
payment 1 cash or bank draft; 1 and when that contract
was entered into, defendant became the subagent for
the county, and the county became bound by the contract
to the same extent that the Lewis town bank was bound,"
The federal reserve system is a creature of the Federal government and it operates through Federal Reserve Banks,
and banks becoming members thereof.
Under this Act, a national
bank is required to become a member or forfeit or surrender its
charter.
The Federal Reserve Board which is the governing
authority of this system, is empowered to make regulations
for the government of banks operating under the system.
These
regulations have the force and effect of statutes and all
persons dealing with that system are chargeable with notice of
these regulations.
These regulations authorize these banks to send
checks direct to the drawee bank for collection and a custom
#
and usage certainly prevailing among banks in Nashville since
the establishment of the Nashville Branch of the Federal Reserve Bank of Atlanta in 1919, certain and uniform and known
to both complainant and defendants either in fact or presumptively, sanctioned this practice.
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X-4858
It has been held in this Str.te that it is negligence
in a collecting bank to send a check direct to the drawee
bank for collection, and it is insisted that the defendant
banks were guilty of negligence in handling the checks involved in this manner.
The compliinant in dealing with this sys-
tem is chargeable with knowledge of the aforesaid regulations
and this record shows that if it did not have actual, it had
presumptive knowledge of the custom in Nashville which sanctioned the practice of sending such checks direct to the drawee
bank.
The question presented is not without difficulty.
It
is true that a custom cannot change the law, but in this case
the custom is strictly in accord with the federal law and the
complainant is dealing ?ith federal institutions and charged
with knowledge of these regulations which had the force and
effect of law.
Furthermore, with knowledge of this custom and
of these regulations, it deposited for collection the checks
with the American National Bank.
The principle announced in
this State that a collecting bank is guilty of negligence in
sending a check to the drawee bank for collection can be waived by contract, either express or implied, and certainly it
was waived in this case, if any waiver was necessary, by the
complainant with full knowledge through federal law and custom
in Nashville, that the defendant bank would send the checks
for collection directly to the payee bank, delivered them to
the American National Bank, thereby impliedly contracting with
it to collect the checks in such manner.
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X-4858
8-
When a citizen of the State deals with ^ fsderal
agency and employs that agency to transact any business within
the scope of its authority, his rights growing out of the
contract of employment are governed and determined "by the law
establishing that agency and directing its operation.
This is
true, or otherwise a situation would be presented where federal reserve banks, though authorized by law to send checks for
collection direct to the drawee bank, could not follow such
practice in Tennessee without being guilty of negligence and
subjected to suit for doing exactly what the federal law empowered them to do.
The federal reserve system c&nnot be shackled in this
manner and its member banks rendered impotent to do business
according to the law creating the system and regulations lawfully adopted for their operation.
In the case of Davis v. El-
mira Savings Bank, 161 U. S. 275, Mr. Justice White said:
"National banks are instrumentalities of the
federal government, created for a public purpose,
and as such necessarily subject to the paramount authority of the United States. It follows that an attempt by a state to define their duties or control
the conduct of their affairs is absolutely void, whenever such attempted exercise of authority expressly conflicts with the laws of the United States, and
either frustrates the purpose of the national legislation, or impairs the efficiency of these agencies
of the federal government to discharge the duties for
the performance of which they were created. These
principles are axiomatic and are sanctioned by repeated adjudications of this Court."
The collections involved %ere not handled by the defendants in a negligent manner but they used reasonable care and
diligence in discharging the duties assumed by them.
*SG-
X--48I58,
The Court is of opinion, that the bill is without
equity and should be dismissed.
Decree accordingly.
1 4 3
I E D 3 2 A L
H E S B B V E
3 0 A 2 D
STATEM3TT FOB THE PBISS
For release in morning papers,
Friday, May 27, 1527.
The following is a summary of general "business and
financial conditions throughout the severs1 Federal
Reserve Districts, based upon statistics for the
months of April and May, as contained in the forthcoming issue of the Federal Reserve Bulletin.
Industrial output declined in April reflecting reduced activity "both in
mines'*and in factories.
Distribution of commodities by railroads and retail
trade increased, and the level of prices showed a further slight decline.
Production - Decreased output of industry in April, as compared with March,
was due chiefly to the coal miners' strike* which caused a large decline in the
production of bituminous coal.
Among manufacturing industries, which as a
whole were somewhat less active in April than, during the previous month when
allowance is made for usual seasonal changes, reductions were reported in the
iron and steel and textile industries, as well as in meat packing and in the
production of building materials.
The manufacture of motor cars, though it
showed the usual seasonal increase in April, continued at a lower level than
a year ago.
Petroleum production continued in record volume, notwithstanding
large stocks and declining prices.
Value of building contracts awarded declined
slightly in April from the record high figure in March, but was larger than last
year.
The dccline in building between March and April reflected reduced activity
in the construction of commercial, industrial, and educational buildings, while
contracts for residential and public buildings increased.
On the basis of conditions on May 1, the Department of Agriculture
forecasts a winter wheat crop of 594,000,000 bushels, or about 5 per cent
less than in 1926.
Digitized for and also in the
FRASER
Continued wet cold weather over much of the c o m belt
spring wheat area has retarded the planting of spring crops.
- 2 -
X-4859
Trade - Commodity distribution at retail was 1- r.rer in April than at the same
season of any previous /ear, owing in part to the lateness of the Easter
holiday.
Department store sales were approximately 7 per cent larger than
v
in April of last year, and sales of mail order houses and chain stores were
also in large volume.
Wholesale trade showed about the usual decrease
between March and April and continued smaller than in the corresponding month
of last year.
Inventories of merchandise carried by department stores were
in about the same volume at the end of April as in March, while stocks of
wholesale firms were smaller.
Railroad Qar loadings were larger in April than is usual at that season
of the year, reflecting chiefly large shipments of iron ore* coke, grain and
grain products, but also increased movement of miscellaneous freight and of
merchandise in less-than-carload-lots.
Coal shipments were 27 per cent
smaller in April than in the preceding month.
Prices - In April there was a further slight recession in the general
level of wholesale prices, as measured by the index of the Bureau of Labor
Statistics, but in the first three weeks of I&ay price conditions were firmer.
The decline in April reflected chiefly a decrease in the price of petroleum,
lumber, and several of the nonferrous metals.
There was little change in the
level of agricultural prices which have been fairly constant since the beginning of the year.
During the first three weeks of May prices of grain, cotton,
iron and steel, petroleum, lumber and hides advanced, while those of livestock,
coke and non-ferrous metal declined.
Bank credit - Volume of credit of weekly reporting member banks, as
measured by their total loans and investments, increased by more than
$300,000,000 during the month ending May 18, and was on that date at the higbr
est level on record.
This growth represented for the most part an increase in
the banks 1 holdings of investments and in the volume of their loans on stocks
- 3 -
X-4859
and bonds, while commercial loans shovjed relatively little change.
At -the reserve banks there was a decrease during the month in total
volume of credit outstanding, owing to the receipt of a considerable amount
of gold from ^abroad, in addition to the purchase abroad by these banks of
about $60,000,000 of gold that is now held earmarked with a foreign correspondent.
The banks' holdings of acceptances and of Government securities
declined by about $85,000,000, while discounts for member banks increased
by about $45,000,000, apparently in response to the increased reserve requirements arising from the growth in the member bank deposits.
Conditions in the money market were comparatively stable during the first
three weeks of May and there wore no changes in rates quoted on prime commercial paper and on acceptances.
FEDERAL RESERVE BOARD
X-4860
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
May 26, 1927.
SUBJECT:
Recommendation of Federal Advisory Council Regarding
Agency of the Federal Reserve Bank of Atlanta at
Havana, Cuba.
Dear Sir:
At the recent meeting of the Federal Advisory Council,
the question of the establishment and maintenance of the Federal Reserve Agency located in Havana, Cuba, was the subject of
considerable discussion, and I have been directed by the Board
to advise you of the following views of the Council with respect
thereto as expressed in its formal report:
"The Federal Advisory Council recognizes that it
is not advisable to discontinue the Cuban Agency at
this time. The Council, however, wishes to reiterate
the view to which it has given expression on several
occasions in the past, to wit: that it does not believe it to be good policy for the Federal reserve
banks to establish agencies of the character of the
Cuban Agency outside of the Continental United States.
The Council, therefore, suggests to the Federal Reserve Board that it study tho whole problem to the
end that, if possible, some plan be devised which may
be an effective substitute for the present arrangement."
Very truly yours,
Walter L. Eddy,
Secretary.
TO CHAIRMEN OF AIL F. R. BANKS.
A—±DO J
.
F E D E R A L
3 E S E I T
S
B O A R D
STATEMENT FOB EES PRESS
For immediate release
May 25, 1927
"46
C O m i l Q f f OF ACCEPTANCE MARKET
April 14, 1927 to May 18, 1927.
The total volume of transactions in the "bill market was relatively heavy
during the five weeks ending May 18, 1927, but rates for all maturities remained
steady.
The sun•ly of bills was slightly larger than during either the preceding
period or the corresponding period of last year and consisted principally of bills
drawn against cotton, sugar, coffee, and tobacco.
Over 55 per cent of total pur-
chases by dealers during the period were made from acceptors.
Sales to the market were at about the same rate as in the preceding period
but considerably smaller than during the corresponding period last year, with
foreign purchases of 90-day maturities constituting an important element in the
demand.
Dealers' offerings to the reserve banks were also at about the same
rate as in the preceding period but considerably larger than last year and consisted chiefly of short maturities.
Dealers' aggregate portfolios increased
somewhat during the period but remained well belo'.v the corresponding totals last
^ear.
The ITew York market showed the greatest activity in contrast to Chicago,
where the market remained quiet.
Reports from Boston and Philadelphia indicated
some quickening in the demand for short maturities during the latter part of
April, but these markets also turned generally quiet during the first part of
May.
The following table shows the market rate on bills of various maturities
at the beginning and end of the period.
Maturity
30
60
90
120
150
180
days
days
days
days
days
days
'
3
3
3
3
3
4
Acceptance rates in the New York Market
April 14
May 18
Bid
Offered
Bid
Offered
5/8
3 1/2
3~5j8
3 1/2
3/4
3 5/8
3 3/4
3 5/8
3/4
3 5/8
3 3/4
3 5/8
7/8
3 3/4
3 7/8
3 3/4
7/8
3 3/4
3 7/8
3 3/4
3 7/8
3 7/8 - 4 3f-S 7/8
FEDERAL RESERVE BOARD
e
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4864
June 2, 1927.
SUBJECT:
Special Condition of Membership.
Dear Sir:
The Federal Reserve Board recently received
from the Federal Reserve Agent at one of the Federal reserve banks an inquiry as to whether under Section 9 of
the Federal Reserve Act, as amended by the Act of February
25, 1927, known as the McFadden Act, the Board may prescribe for a state bank admitted to membership in the
Federal Reserve System a condition that the applying bank
shall eliminate certain losses or objectionable assets
within a reasonable period prescribed by the Board.
For your information, the Board in reply expressed the opinion that it still has power to prescribe
such a condition, which would be considered to be "pursuant
to" that provision of Section 9 which requires the Board, in
acting upon applications of state banks for membership, to
consider the financial condition of the applying bank, the
general character of its management, and whether or not the
corporate powers exercised are consistent with the purposes
of the Federal Reserve Act.
By direction of the Federal Reserve Board,
Very truly yours,
Walter L. Eddy,
Secretary.
TO ALL FEDERAL RESERVE AG32TTS.
if
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4867
June 15, 1927.
SUBJECT:
Location of Branches of State Member Banks.
Bear Sir:
Inquiry has recently been made of the Federal Reserve Board
as to whether a State member bank may properly establish a branch in
a town a part of the corporate limits of which coincides with . part
a
of the corporate limits of the city, town, or village in which the parent bank is situated.
Section S of the Federal Reserve Act, as amended by the McFadden Act, prohibits a State bank from retaining or acquiring stock
in a Federal reserve bank except upon relinquishment of any branch
established after February 25, 1927, "beyond the limits of the city,
town or village in which the parent bank is situated", In the opinion
of the Federal Reserve Board (in cases where an incorporated city, town
or village is involved) the word "limits" as used in Section 9 as amended refers to the corporate limits of the city, town or village in which
the parent bank is situated. A State member bank, therefore, may not
lawfully establish a branch at any place not within the corporate limits
of the city, town or village in which the parent bank is situated.
By direction of the Federal Reserve Board.
Very truly yours,
Walter L. Eddy,
Secretary.
TO ALL FEDERAL RESERVE A3EXTS.
TREASURY D E P A R T ! E H
Office of the Secretary
WASHINGTON
X-4870
June 6, 1927
The Governor,
Federal Reserve Board.
Sir:
You are hereby advised that the Department has referred to the Disbursing
Clerk, Treasury Department, for payment, the account of the Bureau of Engraving
and Printing, for preparing Federal reserve notes during the period May 1, 1927, to
May 31, 1927, amounting to $157,542.80, as follows:
Federal Reserve Notes, Series 1914.
$5
s
=0%
Boston
New York
Philadelphia
Cleveland
Atlanta
Chicago
Kansas City
Dallas
San Francisco
$20
600,000
200,000
50,000
450,000
300,000
150,000
250,000
50,000
50,000
300,000
100,000
100,000
400,000
1,750,000
#50
#100
15,000
8,000
Total
200,000
200,000
100,000
5,000
100,000
100,000
10,000
10,000
150,000
1,323,000
550,000
110,000
200,000
605,000
100,000
100,000
620,000
1,250,000
700,000
40,000
18,000
3,758,000
3,758,000 sheets at $36.60 per M
10,000
#137,542.80
The charges against the several Federal Reserve Banks are as follows:
f
Boston
New York
Philadelphia
Cleveland
Atlanta
Chicago
Kansas City
Dallas
San Francisco
$ 5,490.00
48,421.80
20,130.00
4,026.00
7,320.00
22,143.00
3,660.00
3,660.00
22,692.00
#137,542.80
The Bureau appropriations will he reimbursed in the above amount from the
indefinite appropriation "Preparation and Issue of Federal Reserve Notes,
Reimbursable", and it is requested that your "board cause such indefinite appropriation to he reimbursed in like amount.
Respectfully,
S. R. JACOBS,
Deputy Commissioner.
(.SOU
X-4-871
C O P Y
FED.EAL BSSE3VB B A M
OF m ? YORK
comiaaraiAt
toy
31/1927.
Federal Reserve Board,
"ashington, D. C.
Attention of Honorable D. R« Grissinger.
. ar Governor Crissinger:
On May 27
I forwarded to the Federal Reserve Board for its confidential
use eleven copies of the Secretary's Minutes of the Conference of Governors held in
Washington May 9 to 12, 1927.
In accordance with our usual custom, I am glad to
refer below to all of those paragraphs in the Secretary's Minutes which relate to
matters which the conference submits to the Board for its advice or approval or
to matters upon which the Board has asked for the opinion or recommendation of the
conference#
In our opinion, none of the matters discussed at the conference which
are not referred to in this letter, requires the Board's action before adoption by
the Federal reserve banks.
Paragraphs 1. 2 and 4 - Where the conference considered
the procedure to be followed in connection
with the collection of certain checks
stamped "not payable through the Federal
Reserve Bank" and where it was decided that
pending the action to be taken by Mr. Baker
and the Federal Reserve Board on this subject, each Federal reserve bank should give
instructions to its transit department to
watch out for checks of this character, to
handle them in the usual course and to forward them for collection,to the Federal reserve bank of the district in which they
are payable.
It was also agreed that the collecting Federal reserve bank should then forward these
checks to the member bank for collection
and, if returned unpaid, should charge them
to the account of the member bank under advice to the member bank,
X-4871
-2-
May 31, 1927
Paragraph 5 - Whore it was voted, that the Report of the
Standing Committee on Collections should
be received and studied by the various
Federal reserve banks, with the understanding that each Federal reserve bank should
submit its views or comments concerning the
proposed Time Schedules to the Standing
Committee on Collections before the next
Conference of Governors. (A copy of the
report is enclosed herewith).
Paragraph 6 - Where it was voted to approve the Report
of the Pension Commit tee, with the recommendations in that report, including the
appropriation of $10,000 for further
actuarial studies. (A copy of the report
is enclosed herewith).
Paragraph 7 - Where the conference discussed the procedure
followed in various districts in handling
for collection, items which are drawn on
nonmember banks, and There it appears to be
the opinion of the conference that such
items should be sent direct to the nonmember
banks on which drawn if they desire them to
be so sent and if they are willing to remit
in satisfactory exchange; the decision as
to whether or not the exchange is satisfactory being a matter for the determination of
the Federal reserve bank.
Paragraphs 10. 12. 43 and 43 - Where the subject of noncash collections was discussed, and where
(in paragraph 43) the following votes are
recorded:
(a)
that as definite recommendations on
the subject of non-cash collections have
been made at successive Conferences of
Governors for the'past three years to
the Federal Reserve Board, after full
discussion, and as all members of the
Conference as well as members of the
Federal Reserve Board are fully informed on the subject, there is no further
information necessary in order to enable
anyone to vote intelligently on this subject. (Nine Governors voted in the
affirmative. Governors Young, Bailey
and Wellborn voted in the negative.)
x 4371
-3- .
May 31, 1927
(b)
that the conference believes that
this question should not "be held in
abeyance any longer, and requests the
Federal Reserve Board to make, at an
early date, a definite-ruling on the
subject one way or the other. (Ten
Governors voted in the affirmative.
Governor* Young and Wellborn voted
in the negative.)
(c)
that in the opinion of the conference it is desirable that any ruling
made by the Federal Reserve Board
should be uniform vrith respect to
its application at all Federal reserve banks. (Nine Governors voted
in the affirmative. Governors Young,
Bailey and Wellborn voted in the negative.)
(d)
that the collection of all noncash items, including those payable at
street addresses, should be continued
at all Federal reserve banks. (Nine
Governors voted in the affirmative.
Governors Young, Bailey and Wellborn
voted in the negative.)
Paragraph 11 -
Where (as already reported to the Board)
the conference voted that it is in Savor
of having appropriate steps taken to employ Mr. Newton D. Baker to act as
special counsel in the par clearance case
of the State Bank of Hugo, Minn. vs. the
Federal Reserve Bank of Minneapolis.
Paragraph 13 -
Where it was voted that Mr. Harrison be
requested to confer with the counsel of
the Federal Reserve Board with a view to
determining whether a revision might not
, be made in the form of clause now stamped
upon trade acceptances so as to avoid the
obstacles raised in the decision by the
Supreme Court of Texas in the case of Lane
Co. vs. Crum et al.
Paragraph 18 - Where it was voted that the Report of the
Sub-Committee of General Committee on
Bankers Acceptances be received and approved and that a copy should be transmitted to the Federal Reserve Board for
its information. (A copy is enclosed
herewith.)
352
X-4871
-4-
0
May 31, 1927
,
.
. ..
. .
Paragraph 22 - Whoro it was voted that in tne opinion
>
of the conference any noto offered for
rediscount rrhich is endorsed "by an
officer of a nonmember tank puts the
Federal reserve bank on notice to investigate the facts and if the facts
show that the note is not being offered in effect for rediscount for the
benefit of the nonmember bank, there
is nothing in the endorsement to impair the eligibility of the paper.
It was also the sense of the conference that there is no need for a ruling by the Federal Reserve Board on
this subject.
8 5 8
Paragraph 23 - Whete it was voted in connection with
the expense involved in paying Federal
Farm loan coupons, to be the sense of
the conference that in principle a
Federal reserve bank should be reimbursed for services performed for
Government agencies other than the
Treasury, when the expense involved is
sufficient to Justify such bank's asking for reimbursement.
Paragraph 24 - Where it was voted that the Federal
Reserve Board be asked to reconsider
its previous ruling to the effect that
bran, flour, cottonseed meal, etc.,
are not non-perishable readily marketable staple agricultural products
within the meaning of Section 13, it
being pointed out that the particular
paragraph in question does not contain
the limitation "in the raw state" as
in the previous paragraph of the law.
It was understood (as reported in paragraph 19 of the Minutes) that this topic
should also be referred to the Advisory
Committee of Governors on legislative
Matters for consideration and recommendation in the event that it is not
possible for the Federal Reserve Board
to accomplish the desired results by an
amendment to its regulations.
Paragraph 29 - Where it was voted that the conference
recommend to the Federal Reserve Board
thatj if agreeable to the Board, a
^
X-4-871
-5-
May 31, 1927
Paragraph 29 - commit too representing some Federal
(cont'd)
reserve "banks be asked to assist tho
counsel of the Board in giving consideration to tho suggestions made by
the various Federal reserve banks relative to the preliminary redraft of tho
Board's regulations prepared by tho
counsel of the Federal Reserve Board,
and to assist the counsel in redrafting the nor/ regulations, vith the request that each Federal reserve bank
be given an opportunity to examine such
redraft before f^nal promulgation. It
was understood that any proposed suggestions would be mailed direct to
Mr. Harrison so that they could be
available for use by the Federal Reserve Board's counsel and the committee,
if approved by the Board.
This action by the conference was reported orally to the Federal Reserve Board,
and the Board's action was communicated
to me in its letter of May 18.
Paragraph 30 - Where it was understood that the question
of amending the regulation relative to
the method of computing member bank reserves for penalties, would be referred
to the committee which the conference
suggested should be appointed to assist
the counsel of the Federal Reserve Board
in redrafting new regulations.
It is assumed that this matter will be
handled in accordance with the suggestion contained in the Board's letter of
May 18, referred to in the above paragraph.
Paragraphs 34 and 39 - Where the conference discussed the
question of reserves against time deposits, and where it was voted that the
Governors of the Federal reserve banks
view with grave concern the weakening of
the reserve position of the banks of the
country due to the constantly growing
tendency to transfer what are in effect
demand deposits into so-called time certificates or savings accounts, and respectfully suggest that if the Board finds that
it cannot adequately cope with this tendency by regulation, steps should be taken
to impress upon the Congress, at its next
session, the importance of amending the
reserve provisions of the Federal Reserve
Act in such manner as to safeguard the banking position of the country.
X-4-871
-6-
May 31, 1927
Paragraph 37 - Where, in discussion of the Report of the
Committee on Safekeeping, previously filed
rrith the Board, the vie? -?as expressed
that the recommendations contained in the
report are consistent with the procedure
no? generally followed by most Federal reserve "banks, and where it was accordingly
voted that a report be received and approved. (A copy of the report is attached
for convenience.)
Paragraph 40 - Where it was voted that the conference respectfully call to the attention of the
Federal Reserve Beard the fact that the
ruling in its letter of March 24, 1927,
(1-4816), in reply to letters from the
Federal Reserve Bank of New York dated
November 8, 1926 and February 18, 1927,
will have the effect, if generally adopted as a practice by member banks, of reducing very considerably the liability in
the item "due to banks" upon which the reserve calculation is made, which appears
to bo unjustifiable because of the fact
that the items so deducted need not have
been credited to the depositors' accounts
under the terms of the Board's ruling.
It is understood that the stenographic record of the conference will be
forwarded direct to the Federal Reserve Board by the reporter as is usual, as soon
as it is ready for distribution.
If there is any further information concerning the minutos of the conference or the reports submitted herewith, that the Board would like to have, will
you please be good enough to advise me.
Very truly yours,
(Signed) George L. Harrison,,
Secretary, Governors Conference
X-4871-a
H O U S E
C A L 3 H T A R ' 2 0. 468
7
59th Congress
2d Session
S. 3 6 5 7
(Report No.227^)
IF THE HOUSE OF REPRESEITTAT IVES
#
December 18,1926.
Referred to the Committee on Banking and Currency
February 28, 1927
Referred to the House Calendar and ordered to "be printed
A E
i
A C T
To incorporate the Federal Reserve Pension Fund, to define its
functions, and for other purposes.
/
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
That Daniel R. Crissinger,
min Strong,
William P. G-. Harding,
George 7. iTorris,
Seay, M. 3. Wellborn,
B. E. Fancher,
James B. McDcu^al,
R. A. Young, W. J. Bailey,
Lynn P.
Benja-
George J.
David C. Biggs.
galley,
John U.
Calkins, and their successors are hereby created a body cor\
porate by the name of the "Federal Reserve Pension Fund,"
for the following purposes, viz:
(a)
To provide pensions or other forms of support for
officers and employees of the Federal reserve banks, Federal
Reserve Board, and Federal reserve agents, who by reason
of long and meritorious service, or by age, disability, or
other reasons shall
be
deemed entitled to the assistance and
aid of the corporation, on such terms and conditions,
how-
ever, as the corporation may from time to time approve and
—
X-4371-a
2 —
adopt.
<> ^
n
(b) To provide pensions or other forms of support
for persons who may be or who may have been dependent
upon such officers or employees, and who shall be deemed
entitled to the assistance and aid of the corporation, on such
terms and conditions, however, as the corporation may from
time to time approve and adopt.
(c) To provide pensions or other forma o f support for
officers and employees (and for persons who may be or who
may have been dependent upon such officers or employees)
of any bank or trust company that is or shall be a member
bank of any Federal reserve bank, and "/ho shall be deemed
entitled to the assistance and aid of the corporation, on
such terms and conditions, however, as the corporation may
from time to time approve and adopt.
(d) In general, to do and perform all things necessary
or appropriate to a corporation created for the purpose of
providing pensions or other forms of support for officers
and employees of Federal reserve banks, Federal Reserve
Board, Federal reserve agents, and member banks of Federal reserve banks and for persons who have been or may
be dependent upon such officers or employees.
The forms
of support provided by the corporation may be in the
form of annuities, disability payments, life insurance, or
other forms which from time to time shall sesem expedient
to the said corporation, and for the purposes aforesaid the
corporation may establish and maintain appropriate activities, agencies, and institutions and may aid or make use of
such activities, agencies, or institutions as may be now or
hereafter established for like or similar purposes, provided,
that the corporation shall not "nrovide tensions or other
1
forms of support for any member of the Federal Reserve Board
or for any person other than those described in sub-sections
(a), (b), or (c) of this section.
SEC. 2. The said corporation shall have power to
contract, to take and hold by bequest, devise, gift, contract,
purchase, or lease either absolutely or in trust for any of its
purposes any property, real or personal, without limitation
as to amount or value except such limitation, if any, as
the Congress shall hereafter impose; to convey such property, to invest and reinvest any principal and deal with and
expend the principal and the income of the corporation in
such manner as in the judgment of its trustees will best
promote its objects.
The persons named in the first section
of this Act, or a majority of them, shall hold a meeting and
adopt a constitution
not inconsistent with law, which shall
be subject to amendment.
The constitution shall prescribe
the qualifications of members who may or may not be restricted
to the same persons who are trustees of the corporation,
the number of members who shall constitute a quorum for the
transaction of business at meetings of the corporation, the
number of trustees by whom the business and affairs of the
corporation shall be managed, and the qualifications,
powers, tenure of office, and manner of selection and of
fixing the compensation of the trustees, managers, officers,
and employees of the corporation: Provided, however, That
x-4-871
— 4 —
« -
the trustees of the corporation shall consist of not
more than twenty-six persons, of whom twelve shall be
elected, one each by the respective boards of directors
of the several Federal reserve banks, and of whom twelve
shall be elected, one each by the respective employees of
the several Federal reserve banks, and of whom one shall
be elected by the Federal Reserve Board and of whom one
shall bo elected by the employees of the Federal Reserve
Board.
SEC.3. The corporation shall bo without capital stock
and shall conduct its business without profit, and the corporation and its property and the incomc derived therefrom
shall be exempt from all Federal, State, and local taxation,
except taxes upon real estate, and exccpt that it shall be
liable to such applicable Federal taxation as may be imposed
by the Congress,
The corporation shall submit its pro-
posed plan of providing pensions or other forms of support
to the Federal Reserve Board, who shall approve the came
in writing before any such plan or any substantial modification thereof is put in operation by the corporation.
The
corporation shall render an annual report to the Federal
Reserve Board in such form as may be prescribed by the
said board, and its business and affairs shall be subject
to examination by the said board.
SEC«4.
The pensions and other forms of relief to
be provided by the corporation shall be based upon the contributory system; thr.t is to say, that the person to whom,
or to whose dependents, a pension or other form of relief
X-4871-a
- 5 -
shall inure or be payable shall contribute to the corporation
a part of the cost of organizing and operating the corporation and establishing the funds out of which the pensions
and other forms of relief are to be paid, and a portion of
such costs shall be contributed by such person's employer:
And provided further, That no pension shall bo paid out
of the amounts contributed or to bo contributed by the Federal
reserve banks, the Federal Reserve Board and the Federal
reserve agents at a rate in excess of 30 per centum of the
maximum annual salary received by such officer or employee.
The several Federal reserve banks, the Federal Reserve
Board, the Federal reserve agents, and
such
bonks or
trust companies as may be now or hereafter be member banks
of a Federal reserve bank are hereby authorized to contribute
to the cost of the organization and
operation
of
the cor-
poration and the establishment and maintenance of the said
funds.
officer
The
respective
or
employee
amounts
and
by the
to be
contributed by an
employer of such officer
or employee, covering both past and current employment,
shall be established from time to time by the corporation:
Provided, That the total amounts contributed by the Federal reserve banks, the
Federal
Federal reserve agents
shall
butions
officers
made
by
the
not
Reserve
exceed
and
Board, and
the
the total contri-
employees thereof, with
interest.
SEC.5.
the Federal
The corporation, subject to the approval of
Reserve
forms of relief for
Board, may
provide pensions and other
the officers and employees of member
-
6
X~fe8?l-a
-
<
banks of a Federal reserve brink, ",nd z ,ch banks may contribute to
the
cost of
organizing
poration and establishing the funds
sions and
other
forms of relief
raid operating the corout of
are
which
the pen-
to be paid, all under
such terms and conditions and rules and regulations as may
be established from time to time by the corporation.
SEC.6; The
Congress
may
alter, amend, or
this Act, but no contract Or individual
right
repeal
made
or ac-
quired shall thereby be divested or impaired.
SEC.7. Ko
tribute
to
mei&er
any
vided for, unless
fund
it
bank
shall
be
the creation
shall elect
required
of which
to
to
con-
is herein pro-
participate in the
operation and maintenance of the said federal Reserve Pension
Fund.
SBC.8. This Act shall take effect upon its passage.
Passed the Senate December 17, IS25.
Attest:
E 0 W H P. THAYER,
Secretary.
' '
X-4871-b
March 11, 1927.
REPORT OF THE COMMITTEE 0:1 TH3 FJ!TO:riO;" OF CUSTODIES
III Tfflmu11 RES im
BJIIHCS
<
Pursuant to a letter from the Federal Reserve Board, dated January 5,
1927, i n regard to the safekeepirg of securities by Federal Reserve Banks, the
committee designated "by the Board, consisting of
R. A. Young, Governor, Federal Reserve Bank of Minneapolis,
W m . McC. Martin, Chairman and Federal Reserve Agent,
Federal Reserve Bank of St. Louis,
J. H. Case, Deputy Governor, Federal Reserve Bank of
New York, Chairman,
duly mot at the Federal Reserve Bank of Hew York on March 4 and 5, 1927.
The Bojrd requested that this committee give consideration to all
phases of the safekeeping problem.
The committee, therefore, after careful
consideration, has divided the problem into specific questions and makes the
following responses and recommendations in respect thereto, in which are incorporated their views as to the questions specifically raised by the Board, as
well as to other questions involved in a general consideration of the safekeeping problem.
These questions and respon d s and recommendations follow:
1. Should Federal reserve banks receive for safekeeping securities which are the property of member banks, and,if so, should
any distinction be made as to the location of the member bank;
that is, should the same service be rendered to both city and
country banks?
The Federal reserve banks arc all rendering a safekeeping service to
their member banks and it is doubtful if the banks could avoid the rendering
of this service to at least a limited extent, even if they desired to do so.
For instance, the banks necessarily hold large amounts of securities as collateral to loans.
The loans arc paid off and the securities generally are
X-4871-b
permitted to remain with the reserve bank as a matter of convenience and. in anticipation of the need for farther borrowing.
Securities so held, even though
originally pledged as collateral, are held in safekeeping and it would be very
difficult, if not quite impossible, to avoid the holding of securities in such
cases.
In addition, a large number of banks have lodged with their Federal
reserve banks for safekeeping all or a substantial part of their security holdings.
In some districts the reserve banks are already holding a majority of
all of the securities owned by the country member banks within the districts.
This represents a service of very great value to the country member bank and,
incidentally, to the public interest generally, for the reason that the majority
of country banks do not have vaults of proper strength for the safeguarding of
their property.
Your committee believes that the value of this service to the
member banks is far beyond its comparatively small cost to the Federal Reserve
System and that it is a service which is incident to the maintenance of the
reserve account.
It recommends, therefore, that the Federal reserve banks receive for
safekeeping securities which are the property of their country member banks.
As to whether or not this service should be rendered to both city and country
banks, it is the view of the committee that in general the policy should be to
limit the safekeeping of securities to member banks outside of reserve and
branch cities, but that the reserve banks should exercise discretion in the
case of banks which do not have adequate vault protection of their own, regardless of location.
2.
Should Federal reserve banks receive for safekeeping securities the property of correspondents other than member banks,
agencies of the Government, etc.?
It is the view of the committee that the reserve banks may propeply
receive securities to be held for the account of the Secretary of the Treasury
-3-
X-4871-b
and other agencies of the Government, in cases where the banks are specifically
authorized by law to render this service, or where they have been specifically
requested by the Secretary of the Treasury to render it as fiscal agents of the
United States Government.
The committee also believes that the holding of se-
curities for foreign or other correspondents may properly be undertaken*
3, Should Federal reserve banks hold securities in safekeeping for other Federal reserve banks?
It is the view of the committee that this is a service which may
properly be rendered by one Federal reserve bank for another, but that it should
be strictly limited to the holding of securities which are the property of the
depositing Federal reserve bank and should not in any case be extended to include securities which are the property of its member banks or others.
4. Should Federal reserve banks receive for safekeeping
from member banks, securities in which third parties have
an interest proprietary or otherwise?
Your committee is of the opinion that Federal reserve banks should
not in any case render this service, for the reason that it would impose liabilities which it is felt the Federal reserve banks should not assume.
Aside from
the question of possible lack of legal authority, numerous difficulties could
arise in connection with this service if it were undertaken, incident to the
accounting for securities held which were known to be the property of a third
party, or in which a third party has an interest; for example, the adminstration of the inheritance tax laws, etc.
In this connection the committee con-
sidered a letter addressed by Mr. Martin to Mr. Case under date of February 1,
1927, a copy of which is attached as Exhibit A.
Furthermore, and as a pract-
ical matter, if the reserve banks wore to undertake to render a service of this
character, the possible volume of business which might ultimately be offered
is enormous and would impose a very great burden upon the reserve banks, not
-4-
X-4871-b
'it>3
only for the expense which would be involved, but for the liability incident
to the handling of a great volume of securities.
There would also arise the
element of competition with member banks which are especially equipped to handle
such business for profit.
The committee recommends, therefore, that the Federal reserve banks
should not receive for safekeeping from member banks securities which are not
the property of the depositing member bank.
5. If Federal reserve banks are to hold securities for safekeeping should a charge be made for this service with respect to any
particular class of safekeeping?
It is the view of the committee that in all cases where it recommends
that the Federal reserve banks should render a safekeeping service to member
banks, this service, the cost of which to the reserve banks is not great, should
be rendered free of charge.
In the case of securities held in safekeeping for other than member
banks, as, for instance, foreign correspondents, agencies of the Government,
etc., it believes that the matter of a charge should be left to the discretion
of the reserve bank handling the business.
6. What are the legal responsibilities involved in the handling
of securities for safekeeping, and would this legal liability
be increased if a charge were to be imposed?
There is attached as Exhibit B copy of an opinion of counsel of the
Federal Reserve Bank of Hew York, dated January 20, 1927, which the committee
considered and adopted.
This opinion was rendered with reference to the law of
the State of Hew York.
The rule of law is that reserve banks holding securities
in safekeeping for member banks are not in any case insurers against loss.
In
any ease whore a reserve bank is expressly paid for these services, or where it
might bo found that in fact there is a lawful consideration passing from the
member bank to the reserve bank (and the opinion anticipates that in all
_5-
X-4871-b
these cases there would be found to be in fact a roal consideration passing
from the member
to the reserve bank), the reserve bank would be liable
in the event of loss of property held by it only if it should be proved that
the reserve bank, had omitted to give to the property held in custody the same
care that would be given by an ordinary prudent banker to the conduct of his
own business in like circumstances.
In any case where it might be found that
the custody of the reserve bank is gratuitous, the reserve bank would be liable
for any loss occurring only if gross negligence were proved.
These are definitely
settled rules of law in the State of Sew York, and while there might be slight
Variations, it is believed that they are of quite general application.
The
opinion expresses the view that while, theoretically, there is a difference
between a possible charge to a jury that the reserve bank is liable if it failed
to use the care that an ordinarily prudent banker would give ,to the Conduct of
his own affairs* and a charge that the reserve bank would be liable only if
gross negligence were proved, yet as a practical matter it 18 doubted that there
would be any great advantage to the bank in the event of the latter of these two
possible charges.
The opinion refers, also, to the legal effect of the clause in the
safekeeping receipt issued by the Federal Reserve Bank of Hew York, as follows:
"The Federal Reserve Bank will give to property left in its
custody the same care that it gives its own property; but
beyond that will not assume responsibility."
At the time the opinion was written it was thought that this provision would be
of doubtful effect.
However, in an opinion decided in the last month in New
York it was held that the liability of a bank holding securities in safekeeping
was limited to that expressed in the receipt.
The law is contrary to this in
many states, where the courts hold that contracts seeking to exempt a party
from the consequences of his own negligence will not be given effect.
-6-
X-4871-b
'
^ f ' K*
*®i
The opinion also discassos the liability of the banks in safekeep-< ><> 4
ing operations on behalf of various Government departments, and, after expressing the view that probably there would be found to be a consideration
moving from the Treasury to the reserve banks for the performance of these
services, states that the liability of the reserve banks is to use in the
custody of these securities that degree of care which an ordinarily prudent
banker would give to the conduct of his own affairs in like circumstances.
?. Should any distinction be made as to the class of
securities which will be held in safekeepingt
It is the view of the committee that no distinction should be made
as to the class of securities to be held, if its recommendations in other
respects are accepted.
That is to say, if the securities to be held for member
banks are restricted to those which are the property of the member banks for
whom held, then any securities which the member banks own should be held by
the reserve banks*
In submitting this report the committee desires to point out that it
has given careful consideration to the value of the service which the reserve
banks might render to theaBmber banks in relation to the cost of that service.
It believes that the value of the service is very great, especially to the country member banks, who, in many cases, are without proper facilities for caring
for their securities.
It believes that by restricting the service for member
banks to securities actually owned by member banks» the burden on the reserve
system will not be great, and that the expense will be very small compared with
the value of the service rendered.
The committee is convinced that the
service should be restricted to those securities which are the property of the
member banks, as, if this were not done, the volume of securities which would
ultimately find their way to reserve banks would be very great and would impose
9- burden on the reserve banks, which they would be unwarranted in assuming.
X-4871-b
it would also cause the reserve banks to enter into direct competition with
member banks which are equipped to render a safekeeping service for individuals
which it believes, the reserve banks should not do.
Respectfully submitted)
X
B . A. Young,
Wm. McGi Martin
J. H. Case, Chairman.
x
While the above report was unanimously adopted by the Committee, nevertheless
Governor Young desired to have noted his exception in one regard as follows:
"Governor Young desired to make an exception to the
rule described by Paragraph Four so as to allow the Federal
Reserve Bank of Minneapolis and possibly other reserve banks
similarly situated, to continue to receive from member banks
and hold in safekeeping collateral deposited by member banks
to secure State of other public deposits, the reasons for
such exception being that the Federal Reserve Bank of
Minneapolis, and possibly other reserve banks, have done a
substantial amount of this business for member banks with
mutual satisfaction and further that looal conditions are
such that the Federal Reserve Bank of Minneapolis, and
possibly other reserve banks, have relatively few opportunities for rendering services to members and hence are unwilling to refrain tirom giving this substantial aid."
X-4871-b
if
C O P Y
EXHIBIT A.
FEDERAL RESERVE B A M
OF
ST. LOUIS.
February 1, 1927
Mr. J. H. Case, Deputy Governor,
Federal Reserve Bank,
New York, H. Y.
Dear Mr. Case:
Referring to your letter of January 14, with which
you enclosed agenda for meeting of our Safe Keeping Committee,
I believe there is something we should at least have in mind in
connection with consideration of the question as to whether or
not we should accept custody of securities owned by customers of
member banks, and that is the effect of the state inheritance
tax laws.
Under the Missouri inheritance tax laws, should we accept the custody of securities owned by customers of member banks
we undoubtedly would be under the responsibility of notifying the
tax authorities in the event of the death of the individual customer, and in addition to this we, of course, would be under the
responsibility, in the event of the death of a member bank's customer, of seeing that the securities reached the proper legal representative -of the deceased, which would necessitate scrutiny of
letters of administration. All of this responsibility is obviated
if we deal only with securities owned by member banks.
We all here think that you have covered the matter very
thoroughly in your agenda and that after consideration of this our
committee should have an excellent starting point for its discussion. I hope very much that Mr. Young is not still sick* As it
may be of assistance to you in setting a date for our meeting, I am
advising that I have engagements on February 9th and February 14th.
Yours very truly,
Wm. McC. Martin,
Chairman of the Board
EXHIBIT 5
X-4771-b
January 20, 1927,
To
Mr. Kenzel
Prom L. B. Mason
m m m m
re
HANK'S LIABILITY IN CONNECTION WITH
SAFEKSEPING ACCOUNTS.
Reference is made to the letter of the Federal Reserve Board of
January 5, addressed to Mr. Case, in connection with the work of the committee
appointed to make a study of the question of the safekeeping of securities by
reserve "banks.
P
The Board asks to be advised specifically (a) as to the legal
liability of reserve banks acting as bailees of securities for pay and (b) as
to the legal liability of reserve banks acting as bailees of securities without compensation.
I shall endeavor to answer these questions with reference
to the law of the State of New York.
In order to answer fully, it seems de-
sirable, first, to state the various circumstances under which this "bank engages to act as bailee
of securities.
We shall then in each case teach a con-*
elusion upon the. question of whether thd bailment is for hire or gratuitous
and, having determined that question, express an opinion as to the measure of
care required of the bank.
First, then, this bank receives securities from member banks solely
for purposes of safekeeping. Upon the receipt of such securities the bank
issues a receipt, of which the following is a provision:
"the Federal Reserve Bank will give to property
left in its custody the same care that it gives
its own property; but beyond that will not assume
responsibility."
- 2 -
(Exhibit B)
X-4871-b
In these transactions there is no express provision for payment for
the services of this bank.. However , in view of the relation of the bank with
its members, the fact might well be established that the transaction involves
mutual benefits and is based upon a real consideration.
My best judgnent is
that we would be found in fact to be bailees for hire in these cases.
$ow as to liability in cases of this sort.
In the first place,
whether the bank is a gratuitous bailee or a bailee for hire, it is not in,
any sense an insurer against loss.
If we should be found to be a bailee for
hire, as anticipated, we are responsible under the decisions of the courts of
this state for the use of ordinary care - that is, the measure of care which
an ordinarily prudent banker would render in the conduct of his own business
in like circumstances.
If, on the other hand, we wor.c found to be in these
cases a gratuitous bailee, the courts would instruct a jury considering the
matter that the bank was liable only if gross n e g l i g e n c e p r o v e d .
It is
doubtful as a practical matter that any substantial benefit would accrue to
the bank, so far as legal liability is concerned, as a result of the latter
of these two possible charges by a court.
It might be contended that the clause quoted from the receipt is a
general avoidance of liability, if we had shown the property of a member in
our bank the same care as our own.
However, the courts do not look with favor
upon contracts in which parties seek exemption from consequences of their own
neglect, and I doubt that this provision would be of any effect at all if
there was proof of negligence or if there were circumstances giving rise to
an inference of negligence.
These remarks concerning the receipt apply, of
course, to all cases in which the receipt is issued.*
x
(Note - In the case of Sagendorph v. First National Bank
of Philmont, (reported 218 N.Y. Supp.,191), decided after this opinion was written, it was held that a stipulation against liability contained in the safekeeping receipt, identical with the one under consideration, limited
- 3 -
(Exhibit B )
X-4871->
the liability of the bank holding property in safekeeping
to that expressed in the receipt. This seems now to be
the law in New York. However, there is much authority
contrary to this in other states, where it is quite generally held that stipulations against negligence are of no
effect.)
*'
Another class of cases in which this bank has on occasion in the past
received securities for safekeeping from member banks is identical with the one
just considered and involves a receipt containing the same provision as the one
above referred to, except that the bank is on notice that the securities in
this class are the property of some person or corporation other than the member
bank.
It has long been the policy of this bank not to receive securities on
this basis.
However, since the question appears to be involved in the considera-
tions of the Board, we shall consider the question of liability in transactions
of this sort.
So far as concerns the question of whether we are bailees for
hire or gratuitous bailees and our consequent liability, the considerations are
exactly the same as in the case first discussed.
There is, however, another
aspect of the question of liability applying peculiarly to cases of the sort
now under consideration.
This question is as to our duty to inquire into the
terms of the trust under which the member bank acts for its customer.
The rule
of law in the State of New York is that where a trustee deposits funds belonging
to a trust the bank acting as bailee is under no obligation to inquire as to the
terms of the trust.
It is entitled to assume that the trustee will apply the
funds to their proper purposes.
If the trustee misapplies the funds without
this bank's knowledge, it is not responsible therefor.
Of course, if this bank
had knowledge of such violation or if it profited in any way by it, it would be
liable; otherwise not.
A further question which might arise in this class of cases is as to
the duty of this bank if, in a given case, it should be advised by a customer
of the member bank or by the member bank of any dispute between them as to what
i isposition should be made of property held in custody.
In such cases it is
- 4 -
(Exhibit B )
X-4871-b
clear that the duty of this bank would be to release the securities only upon
the consent of both parties, or to deliver them over in accordance with an
order of court.
The next class of cases for consideration is the one in which we hold
securities as collateral for loans to member banks or where we hold them with
she understanding that we may use them as collateral if required.
The receipt
in this class of cases contains tile Same provision as the one quoted above, and
the same remarks as to the legal effect of the provision apply.
In these instances I think we are clearly bailees for hire and are in
consequence chargeable not as insurers but with the duty of using the care an
ordinarily prudent banker in the conduct of his own business in like circumstances
would exercise.
There is a large class of safekeeping operations arising out of our
relation as fiscal agent of the Treasury of the United States and as fiscal
agent of other corporations organized under Federal law.
We in fact hold in
many accounts securities of various departments of the Government, either by
virtue of a special request of the Treasury or under the Treasury's Circular
No. 154 of May 15, 1922, and letter of Mr. Gilbert, addressed to
Governor Crissinger under date of July 17, 1923, authorizing reserve banks to
take securities tendered by Treasury officers in the ordinary course of their
duties.
Also, we hold collateral pledged by banks to secure special Government
deposit accounts.
These securities are held under letter of May 29, 1917, ad-
dressed by Secretary McAdoo to the bank and letter of April 25, 1919, addressed
to the bank by Assistant Secretary Leffingwell.
In none of these cases do we make any direct charge for our service
of,
of safekeeping, except that/the Alien Property Custodian.
However, it is
thought that in the event of any question about liability it would probably be
determined that in fact there is some consideration passing to us, in view of
- 5 -
our relations to the Treasury as its banker.
(Exhibit B )
X-4871-b
It is not adequate compensation
in any safekeeping transaction, but is nevertheless a real consideration.
As to liability in these cases, there is no judicial authority, the
question never having been presented to the courts.
However, in my opinion,
our responsibility in all these cases is not that of insurer but that of an
agent to his principal, and in my judgment in all of them we would b e held to
that degree of care which a reasonably prudent banker would ordinarily give
to the conduct of his own business in like circumstances.
It is true that the
letters of Messrs. McAdoo and Leffingwell, above referred to, are open to the
construction that the intention was to make this bank an insurer for the receipt,
custody and disposition of collateral for Government deposits.
In some of these accounts we have notice that the property held is
subject to rights of third persons.
In these casos the same considerations of
liability apply as appeared heretofore when we discussed those cases in which
the bank has in the past received securities for safekeeping from member banks
where this bank is on notice that the securities are the property of some person or corporation other than tho member bank.
X-4871-c
May 2, 1927.
***•*
REPORT OF SUB-COMMITTEE OF GENERAL COMMITTEE ON BANKERS ACCEPTANCES
TO GOVERNORS' CONFERENCE. HAY 9. 1927.
Since the last conference no question has "been reported to the
Sub-Comnyittee, consequently there is nothing new to report at this time.
Your Committee, however, again respectfully calls attention to
the fact that the matters referred to in the report of the General Committee
on Bankers Acceptances, submitted to the Conference of March 22, 1926,
printed on pages 370-378 of the Stenographic Record of that Conference,
outlining certain principles and rules desired by the Conference in its
consideration of a general broadening of practice in bankers' domestic
acceptance credits, and approved by that Conference, have, your Committee
understands, still to be disposed of by action of the Federal Reserve Board.
Respectfully submitted,
W.
C.
F.
E.
W.
R.
J.
R.
Paddock,
McKay,
Zurlinden,
Kenzel, Chairman.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4872
June 9, 1927
SUBJECT:
Revision of Regulation K.
Dear Sir:
Effective June 8, 1927, the Federal Heserve Board revised its Regulation K dealing with
banking corporations authorized to do foreign "banking business under the terms of Section 25(a) of
the Federal Reserve Act. A mimeograph copy of the
new regulation is enclosed herewith for your information, This regulation will not be printed until
the Board is ready to promulgate a complete revision
of all its regulations, but the Board will be glad
to supply you any additional number of mimeograph
copies which you desire.
Very truly yours
Walter L. Eddy
Secretary.
TO ALL GOVERNORS AITD FEDERAL RESERVE AG-EFTS
Enclosure:
f WS'MN
X-486S s *
3?^E0TIV2 JUKE- 8, 1327.
REGULATION K. SERIES OF 1927.
(Superseding Regulation K of 1924)
BANKING CORPORATIONS ATTTffnPTft-RT) TO DO FOREIGN BANKING BUSINESS UNDER THE TERMS OF
SECTION 25(a) OF THE FEDERAL RESERVE ACT
SECTION I. ORGANIZATION
Any number of natural persons, not leas in any case than fivd, may form
a Corporation* under the provisions of section 25(a) for the purpose of engaging
in international or foreign "bankingtit"other international or foreign financial
operations or in banking of other financial operations in a dependency or insular
possession of the United States either directly or through the agency, ownership*
#
or control of local institutions in foreign countries or in such dependencies or
insular possessions.
SECTION II. ARTICLES OF ASSOCIATION
.
Any persons desiring to organize a corporation for any of the purposes
defined in section 25(a) shall enter into articles of association (see F. R. B.
Form 151 which is suggested as a satisfactory form of articles of association)
which shall specify in general terms the objects for which the Corporation is
formed, and may contain any other provisions not inconsistent with law which the
Corporation may see fit to adopt for the regulation of its business and the conduct of its affairs.
The articles of association shall be signed by each person
intending to participate in the organization of the Corporation and when signed
shall be forwarded to the Federal Reserve Board in whose office they shall be filed.
•Whenever these regulations refer to a corporation spelled with a capital C, they
relate to a corporation organized under section 25(a) of the Federal reserve act.
-2-
SECTIOU III. OB&mZAIIOI:! CERTIFICATE
X-4868
"I'sH
"* "
All of the persons signing the articles of association shall under their
hands make an organization certificate on F. R. B. Form 152, which is rnde a part
of this regulation, and which shall state specifically:
First.
Second.
Third.
The *name assumed by the Corporation.
The place or places where its operations are to he carried on.
The place in tho United States There its home office is to "be
located.
Fourth.
The amount of its capital stock and tho number of shares into
which it shall bo divided.
Fifth.
Tho namos and places of business or residences of persons exe-
cuting the organization certificate and the number of shares to which each
has subscribed.
Sixth.
The fact that the certificate is made to enable the persons sub-
scribing the same and all other persons, firms, companies, and corporations
who or which may thereafter subscribe to or purchase shares of the capital
stock of such Corporation - to avail themselves of the advantages of this sep^*
tion.
The persons signing the organization certificate shall acknowledge the
execution thereof before a judge of some court of record or notary public who shal*.
certify thereto under the seal of such court or notary.
Thereafter the certifi-
cate shall be forwarded to the Federal Reserve Board to be filed in its office#
SECTION IV. TITLE
Inasmuch as the name of the Corporation is subject to the approval of
the Federal Reserve Board, a preliminary application for that approval should be
filed with the Federal Reserve Board on F. R. B, Form 150, which is made a part of
this regulation.
This application should state merely that the organization of a
-3-
X-4868
Corr>orati on under the proposed name is contemplated and m y request the approval""'
of that name and its reservation for a period of 30 days.
No Corporation which is-
sues it own bonds, debentures, or other such obligations mill be permitted to have
the word "bank" as a part of its title.
Bo Corporation which has the word "Fed-
eral" in its title will be permitted also to have the word "bank" as a part of its
title.
So far as possible the title of the Corporation should indicate the nature
or reason of the business contemplated and should in no case resemble the name of
any other corporation to the extent that it might result in misleading or deceiving the public as to its identity, purpose, connections, or affiliations.
SECTION V. A P H f r r f f nw n m f ^ y c E BUSINESS
After the articles of association and organization certificate have been
made and filed ?ith the Federal Reserve Board, and after they have been approved
by the Federal Reserve Board and a preliminary permit to begin business has been
issued by the Federal Reserve Board, the association shall become and be a body
corporate, but none of its powers except such as are incidental and preliminary to
its organization shall be exercised until it has been formally authorized by the
Federal Reserve Board by a final permit generally to commence "business.
Before the Federal Reserve Board will issue its final permit to commence
business, the president or cashier, together rrith at least three of the directors,
mast certify (a») that each director elected is a citizen of the United States;
(b) that a majority of the shares of stock is owned by citizens of the United
States, by corporations the controlling interest in which is owned by citizens of
the United States, chartered under the laws of the United States, or by firms or
companies the controlling interest in which is owned by citigens of the United
States; and (c) that of the authorized capital stock specified in the articles of
association at least 2 5 per cent has been paid in in cash and that each shareholder
has individually paid in in cash at least 25 per cent of his stock subscription.
Thereafter the cashier shall certify to the payment of the remaining installments
as and when each is paid in, in accordance with law.
-4-
X-4868
"~"v>
SECTION VI. CAPITAL STOCK
Uo Corporation may "be organized under the terms of section 25(a) with
a capital stock of less than $2,000,000.
The par value of each share of stock
shall be specified in the articles of association, and no Corporation will be permitted to issue stock of no par value.
If there is more than one class of stock,
the name and amount of each class and the obligations, rights, and privileges attaching thereto shall be set forth fully in the articles of association.
Each
class of stock shall be so named as to indicate to the investor as nearly as possible what is its character and to "out him on notice of any unusual attributes.
SECTION VII. TRANSFERS 07 STOCK
Section 25(a) provides in part t h a t —
A majority of the shares of the caoital stock of any such corporation shall at all times be held and owned by the citizens of the United
States, by corporations the controlling interest in which is owned by
citizens of the United States, chartered under the laws of the United
States or of a State of the United States, or by firms or companies the
controlling interest in irhich is owned by citizens of the United States.
In order to insure compliance at all times ?ith the requirements of this
provision after the organization of the Corporation, shares of stock shall be issuable and transferable only on the books of the Corporation.
Every application
for the issue or transfer of stock shall be accompanied by an affidavit of the
party to whom it is desired to issue or transfer stock, or by his or its duly authorized agent, s t a t i n g —
In the case of an individual*—(a)
Whether he is or is not a citizen of
the United States and, if a citizen of the United States, whether he is a naturalborn citizen or a citizen by naturalization, and if naturalized, whether hp regains for any purpose in the allegiance of any foreign •over-ign or State; (b)
-hether there is or is not any arrangement under which he is to hold the shares or
any of the shares which he desires to have issued or transferred to him, in trust
-5-
X-4856
for or in any way under the control of any foreign State or any foreigner, foreign
corporation, or any corporation under foreign control; and if so, the nature there
of.
In the case of a corporation.—(a)
Whether such corporation is or is
not chartered under the laws of the United States or of a State of the United
States.
If it is not, no farther declaration is necessary, tut if it is, it must
also be stated (b) whether the controlling interest in such corporation is or ie
not owned by citizens of the United States, and (c) whether there is or is not any
arrangement under which such corporation will hold the shares or any of the shares
if issudd or transferred to such corporation in trust for or in any way under the
control of any foreign State or any foreigner or foreign corporation or any corporation under foreign control; and if so, the nature thereof*
In the cftBp of a firm or company.«--(a)
Whether the controlling interest
in such firm or company is or is not owned by citizens of the United States; and,
if so, (b) whether there is or is not any arrangement under which such firm or
company will hold the shares or any of the shares if issued or transferred to such
firm or company in trust for or in any way under the control of any foreign State
or any foreigner or foreign corporation or any corporation under foreign control;
and if so, the nature thereof*
The Board of directors of the Corporation, whether acting directly or
through an agent, may, before making any issuo or transfer of stock, require such
farther evidence as in their discretion they, may think necessary in order to determine whether or not the issue or transfer of the stock would result in a violation
of the law*
No issue gr transfer of stock which vrould cause 50 per cent or more
of the total amount of stock issued or outstanding to be held contrary to the provisions of the lasr or these regulations shall be made upon the books of the Corporation.
The decision of the board of directors in each case shall be final and
—6—
X-4868
conclusive and not subject to any question by any person, firm, or corporation on
any ground whatsoever.
If at any time by reason of the fact that the holder of any shares of t
Corporation ceases to be a citizen of the United States, or, in the opinion of thn
joard of directors, becomes subject to the control of any foreign State or foreigner or foreign corporation or corporation under foreign control, 50 per cent or more
of the total amount of capital stock issued or outstanding is hold contrary to the
provisions of the law or these regulations, the board of directors may, Then
apprised of that fact, forthwith serve on the holder of the shares in question a
notice in writing requiring such holder within t*7o months to transfer such shares
to a citizen of the Unitod States, or to a firm, company, or corporation approved
by the board of directors as an eligible stockholder.
When such notice lias been
given by the board of directors the shares of stock so held shall coaso to confcr
any vote until they have been transferred as required above and if on the expiration of two months aftor such notice the shares shall not have been so transferred, the shares shall be forfeited to the Corporation.
The board of directors shall prescribe in the by-laws of the Corporation
appropriate regulations for the registration of the shares of stock in accordancc
• ith the terms of the law and these regulations.
The by-laws must also provide
that the certificates of stock issued by the Corporation shall contain provisions
sufficient to put the holder on notice of the terms of the law and the regulations
of the Federal Reserve Board defining the limitations upon the rights if transfer.
SECTION VIII. OPERATIONS IK THE UNITED STATES
No Corporation shall carry on any part of its business in the United
States except such as shall be incidental to its international or foreign business.
Agencies may bo established in the United States r?ith the approval of the Federal
Reserve Board for specific purposes, but not gonorally to carry on the business
-7-
X-4868
3 8 3
of tho Corporation.
SECTION IX. INVESTMENTS IN THE STOCK 0?
nCRPORATTOTTS
It is contemplated by the law that a Corporation shall conduct its business abroad either directly or indirectly through the ownership or control of corporations, and it is accordingly provided that vith tho consent of the Federal Reserve Board a Corporation may invest
other
ship, of any/corporation organized—
in
the stock, or other certificates of
owner-"
(a)
Under the provisions of section 25(a) of the Federal reserve act;
(b)
Under the laws of any foreign country or a colony or dependency
thereof;
(c)
Under the laws of any State, dependency, or insular possession of
the United States;
provided, first, that such other corporation is not engaged in the general business
of buying or selling goods, wares, merchandise, or commodities in the United
States; and second, that it is not transacting any business in the United States
except such as is incidental to its international or foreign business.
Except with the approval of the Federal Reserve Board, no Corporation
shall invest an amount in excess of 15 per cent of its capital and surplus in the
stock of any corporation engaged in the business of banking, or an amount in excess
of 10 per cent of its capital and surplus in the stock of any other kind of corporation.
No Corporation shall purchase any stock in any other corporation organized under the terms of section 25(a) or under tho la?s of any State, which is in
substantial competition therewith, or which holds stock or certificates of ownership in corporations which are in substantial competition with the purchasing Corporation.
This restriction, however, does not apply to corporations organized un-
der foreign laws.
-8-
X-4868 ' 1 8 4
3ZCTI0H X. EHAffCHES
Ho Corporation shall establish any branches except with the approval
of tl*e Federal Reserve Board, and in no case shall any branch be established in
the United States.
SECTION XI. ISSUE OF DEBENTURES. 50EDS M P PROMISSORY ITOTES
A Corporation is not required by law or by this regulation to make application *o or obtain the approval of the Federal Reserve Board before making an issue of its debentures, bonds, notes or other obligations, but corporations issuing their debentures, bonds, notes or other obligations must comply wit& the rules,
regulations and conditions hereinafter set forth.
(a)
General Conditions.
All debentures, bonds, notes or other such ob-
ligations issued by a corporation (except notes payable to banks or bankers within
one year) shall:
(l)
Be payable only in gold coin of the United States of the standard
of weight and fineness existing at the time of issue;
(3)
Be payable not more than twenty years after the date of issue;
(3)
Be secured by collateral which shall:
(a) Consist of lawful money of the United States and/or securities, notes, drafts, bills of cxchangc, acceptances, including bankers' acceptances, and other evidences of indebtedness and/or shares of stock in which the corporation
is authorized by law to invest its funds;
(b) Have an aggregate market value equal at all times to not
less than one hundred and ten per cent of the aggregate
principal (amount of the obligations issued or to be issued
against such securities; and
(c) Be transferred and delivered free of any prior lien, charge
-9-
X-4868
or encumbrance thereon of any kind, whatsoever, to a financially responsible bank or trust company, which is a member
of the Federal Reserve System, as Trustee under a Trust Indenture executed by the Corporation as security for the obligations of the Corporation issued or to be issued thereunder,
which trust Indenture shall prescribe the general form of
such obligations and shall require that every such obligation
shall be authenticated by the certificate of the Trustee
noted thereon.
(b)
Requirements after issuance.
Within ten days after the issuance of
any such debentures, bonds, notes or other obligations (other than promisspry notes
payable to banks or bankers within one year) the Corporation issuing the same
shall file with the Federal Reserve Board:
A.
A statement verified by the affidavit of its President or a Vice
President and its Treasurer, Cashier or Comptroller setting forth:
(1) That the requirements of this regulation in respect of the issue
of debentures, bonds, notes or other obligations have been*complied
with in all respects.
(2)
The aggregate amount of the debentures, bonds, notes or obliga-
tions issued under the Trust Indenture and the net price received,
by tlie Corporation therefor.
(3) The various items of the collateral security pledged under the
Trust Indenture and the market value, at the time of the issue of
such obligations, of each and every item thereof.
(4) The financial condition of the Corporation and, in detail, all its
assets and liabilities (fixed and contingent) as of the day immediately following such issue.
-10-
B.
X-48S8
fJ
A copy of the Trust Indenture pura:ir::t to which such obligations of
the Corporation zero issued, certified as corrcct "by the Trustee therein named.
C.
A certificate of the Trustee under such Trust Indenture setting
forth:
(1)
That it has accepted the trust created by such Trust Indenture and
is acting as Trustee thereunder;
(2)
The securities and/or cash which have been delivered to it and
which it holds as Trustee under the Trust Indenture;
(3)
D.
The name and address of the Counsel for the Trustee.
The latest published balance sheet of the Corporation, certified as
correct by the President or a Vice President and by the Treasurer, an Assistant
Treasurer, the Cashier or Assistant Cashier or the Comptroller of the Corporation.
B.
An opinion of the Counsel for the Trustee under the Trust Indenture
to the effect that:
(1)
The Trust Indenture has been validly executed in pursuance of due
corporate action.
(2)
That all necessary legal formalities have been complied with to
moko such obligations, when executed by the Corporation and authenticated by the Trustee, valid and enforcible obligations of the Corporation entitled to the benefits afforded by the Trust Indenture;
(3)
That the transfers executed to the Trustee of the collateral se-
curity held by it under the Trust Indenture are in appropriate and
sufficient form.
F.
Copies of all prospectuses and other literature issued by the Cor-
poration or its officers or bankers describing or affecting such issue.
In case there shall be any substitution of or change in the securities
at any time held under any such Trust Indenture securing an issue of debentures,
-11-
X-4868 ;;'
toads, notes or other obligations the Corporation, cach time it makes a report to
the Federal Reserve Board pursuant to the provisions of Section XVI, shall file
with the Federal Reserve Board a statement, verified toy the affidavit of the President or a Vice President and the Treasurer, Cashier or Comptroller of the Corporation
A.
Giving the details of such substitution or change, and
B.
Certifying that at the time of such substitution or change the ad-
ditional collateral transferred to the Trustee under the Trust Indenture had a
market value at least equal to the market value of the collateral security released from the lien of such Trust Indenture.
Such statement shall be accompanied by an acknowledgment by the Trustee
under the Trust Indenture that there has been delivered to it and that it holds as
such Trustee the additional collateral specified iv. such statement.
The Federal Reserve Board reserves the right to moke public whenever it
believes it to be necessary in the public interest any documents filed with it under this subsection.
(c)
Advertisements.
Bo circular, prospectus, letter, advertisement or
other statement published or issued in a n y form or manner by a corporation shall
contain any matter to indicate that any issue of debentures, bonds, notes or other
obligations by such corporation or the collateral securing same has in a n y Tray received the approval of the Federal Resesve Board or that the collateral securing
came has been appraised or approved in any way by the Federal Reserve Board.
This
requirement will be strictly enforced in order that there may be no possibility of
the public obtaining the impression that the Federal Reserve Board has approved in
a n y way any such issue of debentures, bonds, notes or other such obligations or
the collateral securing same.
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X-4368
^ ? k " C. }
-
SECTION XII, SALE OF SECURITIES WITH GUARANTY OR IITDCRSEIIBTT
Whenever a corporation sella, discounts or negotiates with its indorsement or guaranty any securities, notes, drafts, "bills of exchange, acceptances,
"bankers1 acceptances or other evidence of indebtedness it shall enter on its "books
a proper record thereof, describing in detail each such evidence of indebtedness
a© sold, discounted or negotiated, the amount thereof, the parties thereto, the
maturity thereof, and the nature of the corporation's liability thereon*
Every
financial statement of the corporation submitted to the Federal Reserve Board or
made public in any way shall show the aggregate amount of all such liabilities out**
standing as of the date on which such statement
purports to show the financial
condition of the corporation.
SECTION XIII. ACCEPTANCES
Kinds.—Any Corporation may accept (1) drafts and bills of exchange
drawn upon it which grow out of transactions involving the importation or exportation of goods, and (2) drafts and bills of exchange which are drawn by banks or
bankers located in foreign countries or dependencies or insular possessions of the
United States for the purpose of furnishing dollar exchange as required by the
usages of trade in such countries, dependencies, and possessions, provided, however, that, no Corporation shall exercise its po™er to accept drafts or bills of
exchange if at the time such drafts or bills are presented for acceptance it has
outstanding any debentures, bonds, notes, or other such obligations issued by it.
Maturity.—-No Corporation shall accept any draft or bill of exchange
which grows out of a transaction involving the importation or exportation of goods
with a maturity in excess of six months, or shall accept any draft or bill of exchange drawn for the purpose of furnishing dollar exchange with a maturity in excess of three months.
Limitations(l)
Individual drawers:
Ho acceptances shall be made for
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X-4868
'
% 9
the account of any one draper in an amount a{VTo..&tin.': at any tine in excess of 10
per cent of the subscribed capital and surplus of the Corporation, unless the trans
action be folly secured or represents an exportation or importation of commodities
and is guaranteed by a bank or banker of undoubted solvency#
(2) Aggregates;
Whenever the aggregate of acceptances outstanding: at any time (a) exceeds the
amount of the subscribed capital and surplus, 50 per cent of all the acceptances
in excess of the amount shall be Ailly secured; or (b) exceeds twice the amount of
the subscribed capital and surplus, all the acceptances outstanding in excess of
such amount shall be fully secured.
(The Corporation shall elect whichever
requirement (a) or (b) calls for the smaller amount of secured acceptances,)
In
no event shall any Corporation have outstanding at any one time acceptances drawn
for the purpose of furnishing dollar exchange in an amount aggregating more than
50 per cent of its subscribed capital and surplus.
Reserves^--Against all acceptances outstanding which mature in 30 days
or less a reserve of at least 15 per cent shall be maintained, and against all acceptances outstanding which nature in more than 30 days a reserve of at least 3
per cent shall be maintained.
Reserves against acceptances must be in liquid as-
sets of any or all of the following kinds;
(1)
Cash; (2) balances with other
banks; (3) acceptances of other banks or bankers, and (4) obligations of the Government of the United States.
SECTION XIV. DEPOSITS
In the United States.—No Corporation shall receive in the United States
any deposits except such as are incidental to or for the purpose of carrying out
transactions in foreign countries or dependencies of the United States where the
Corporation has established agencies, branches, correspondents, or where it opers-.,
ates through the ownership or control of subsidiary corporations.
Deposits of
this character may be made by individuals, firms, banks, or other corporations,
-14-
X-4869
jhother foreign, or domestic, and may to time deposits or on demand.
Outside the United States.—Outside the United States a Corporation nay
receive deposits of any kind fron individuals, firms, banks, or other corporations,
provided, however, that if such corporation lias any of its bonds, debentures, or
other such obligations outstanding it may receive abroad only such deposits as
are incidental to the conduct of its exchange, discount, or loan operations.
Reserves.—Arainst all deposits received in the United States a reserve
of not less than 13 per cent must be maintained.
This reserve may consist of cash
in vault, a balance with the Federal reserve bank of the district in which the
head office of the Corporation is located, or a balance with any nenber bonk.
Against all deposits received abroad the Corporation shall maintain such reserves
as may be required by local lews and by the dictates of sound business judgment
and banking principles.
i
SEOTIOU XV. GEHERA1 LIMITATIOHS AMP RESTRICTIONS
Liabilities of one borrower.—The total liabilities to a Corporation of
any person, c o m a n y , firm, or corporation for money borrowed, including- in the
liabilities of a company or firm the liabilities of the several members thereof,
shall at no tine exceed 10 per cent of the amount of its subscribed capital and
surplus;
Provided, however, That the discount of bills of exchange drawn in good
faith against actually existing values'and the discount of commercial or business
paper actually owned by the person negotiating the same, snd the m r chase of readily marketable bonds, notes, and other investment securities offered for sale in
the open market, shall not be considered as money borrowed within the meaning of
this paragraph.
The liability of a customer on account of an acceptance made by
the Corporation for his account is not a liability for money borrowed within the
meaning of this paragraph unless and until he fails to place the Corporation in
funds to cover the payment of the acceptance at maturity or unless the Corporation
X-4863^91
-15-
itself holds the acceptance*
Aggregate liabilities of the Comoration.—The ar- rerate of the Corporation's liabilities outstanding on account of acceptances, average domestic and
foreign deposits, debentures, bonds, notes, guaranties, indorsements, and other
such obligations shall not exceed at any one time ten times the amount of the Corporation's subscribed capital and surplus.
In determining the amount of the lia-
bilities within the meaning of this paragraph, indorsements of bills of exc-iiange
having not more than six months to run, drawn and accepted by others than the
Corporation, shall not be included.
Operations abroad.--Except as otherwise provided in the law and tiiese
regulations, a Corporation nay exercise abroad not only the powers specifically
set forth in the law but also such incidental powers as may be usual in the determination of the Federal Reserve Board in connection with the transaction of the
business of banking or other financial operations in the countries in which it
shall transact business.
In the exercise of any of these powers abroad a Cor-
poration must be guided by the laws of the country in which it is operating and by
sound business Judgment and banking principles.
S35CTI01T XVI. REPORTS A1TD 3XAMI&1TI0FS
Reports.—Each Corporation shall make at least two reports annually to
the Federal Reserve Board at such times and in such form as it may require.
"flya^nations, — B a c h Corporation shall be examined at least once a year
by examiners appointed by the Federal Reserve Board.
The cost of examinations
shall be paid by the Corporation examined.
SECTION XVII. AMSIIDiffiNTS TO KSGTJLATIOFS
These regulations are subject to amencLvieiit by the Federal Reserve Board
from time to tine, provided, however, that no such amendment shall prejudice obligations undertaken in good faith under regulations in effect at the tine they
were assumed.
,
tOOKEIDENTIAL)' •
( C 0. P Y
)
X-4873
June 16* 1927.
To
The Law Committee* *
SUBJECT!
From
REVISION OF BOARD'S REGULATIONS.
Mr. Wyatt, General Counsel, .
In accordance with the Board*a instructions,, I have carefully considered all suggestions received from the Federal Reserve Banks and Federal
Reserve Agents regarding the Board's Regulations, and respectfully submit
herewith a final draft of a proposed revision of all the Board's printed
regulations.
IMPORTANCE Of EARLY ACTION.
I respectfully call attention to the importance of amending the
regulations as soon as possible so as to conform to the amendments made to
the law by the McFadden Act of February 25, 1927.
REASON FOR DELAY-
.
The delay which has alreadjr occurred in the preparation of these
regulations is regrettable; but has been due to causes beyond my control,
as will be seen from the following chronology:
Feb. 25. - McFadden Act signed by President*
March 4. — Board requested Law Committee to prepare revision of Regulations.
March 4. - Circular letter (X-4804) sent to Governors and Chairmen of all
Federal Reserve Banks inviting them to suggest amendments to
Regulations.
April 12. - Board placed proposed revision of Regulations on program for
discussion at Governors' Conference.
April 15. - Last o f suggestions submitted pursuant to letter X-4804 received.
April 23. - Board mailed to each Governor tentative draft of revision of
Regulations. (X-4830)
April 25. - Copy of tentative draft of revised Regulations delivered to each
Bo^rd member.
May 2,
- Board invited suggestions of all Federal Reserve Agents re tentative draft of revised Regulations,
May 9 to 13. - Governors' Conference met at Washington, failed to discuss
Regulations, and suggested appointment of committee to confer
with Board's Counsel on the subject.
May 18.
- Law Committee requested to prepare and submit to Board for action
proposed revision of Regulations after consideration of all suge
gestions received from Federal Reserve Agents and suggestions
- 2 -
May 18.
May 31.
June 11.
"
X-4873
filed t-itli Secretary of Gove--'. v31 Conference by individual
Governors during the Conference.
- Secretary of Governors' Conference requested to send Board
suggestions filed with him during Conference.
- Lest suggestions re tentative draft received from Federal
Reserve Agents.
- Suggestions filed at Governors' Conference received from
Secretary of Conference.
From this It will be seen that most of the delay in the preparation
of these regulations has resulted from the very m&terial delay of the Federa
Reserve Banks in submitting their suggestions to the Federal Reserve Board.
EXPLANATION OF PROPOSED CHANGES.
Each amendment incorporated in the attached draft of the regulations
is explained below, and attention is especially called to every amendment
which has been the subject of any serious difference of opinion.
For the
further information of the Law Committee, there are attached hereto all
written suggestions regarding the regulation;? which have been received from
any source, and my comments on each suggestion are noted on the margin.
REGULATION A.
Section I, page 1,
The provisions regarding the rediscount of paper secured by bonds
or notes of the War Finance Corporation are omitted; because, as a practical
matter, they are obsolete.
It appears that all such bonds are now overdue
and that the amount outstanding is only about $17,000.
The phraseology of subdivision (c) is also changed to conform more
closely to the language of the law.
It is also proposed to eliminate from next to the last paragraph
of this section the words "under the terms of Section 5200 of the United
States Revised Statutes, as amended".
Harding for the following reason:
This was suggested by Governor
- 3 -
X-4873
,'294
"That portion of Section 9 of the Federal Reserve Act which
applies to the subject makes no mention of Section 5200 and
while it may be that as a practical matter this question
would he determined only by the provisions of Section 5200,
there might be a question whether Section 24 of the Federal
Reserve Act regulating real estate loans by national banks,
and Section 5136 of the Revised Statutes regulating the
amount of investment securities of any one obligor or maker
which a national bank may take, would have a bearing on the
subject."
Section XI, page 2.
The obsolete provisions regarding the bonds and notes of the War
Finance Corporation are omitted.
Section III, page 3.
It is suggested that there be incorporated in this section the
requirement previously contained in Section IY(b) requiring the amplication
for rediscount to state whether tho paper offered was acquired from a nonmember bank.
It is also proposed to eliminate tho words "under the terms of
Section 5200 of the United States Revised Statutes, as amended", for the
reason stated above under Section I,
Section IV(b), -page 3.
It is proposed to eliminate from this section the requirement that
the application for rediscount shall state whether the note offered for
rediscount has been discounted for a depositor other than a bank or for a
nondepositor and, if discounted for a bank, whether for a member or a nonmember bank.
This suggestion was originally made by the Federal Reserve
Bank of San Francisco as a. result of the decision in the Grimm Alfalfa Case.
It will be remembered that, in a circular letter addressed to all Federal
reserve banks under date of February 27, 1983, (X-4544), the Board waived
compliance with this requirement, on condition that the application for
- 4 *
X-4873
rediscount should require member banks to des:' uate whether the paper
* '
"
offered for rediscount, if any, was acquired from nonmember banks and
should contain a certificate that none of the paper offered for rediscount,
except that so designated, was acquired from nonmember banks.
It is pro-
posed to eliminate the old requirement entirely from Section 17(b) and, ig
lieu thereof, to insert in Section III a requirement that the bank certify
that the paper offered for rediscount has not been acquired from a nonmember bank, or -if so acquired, that the applying member bank has received
permission from the Federal Reserve Board to rediscount with the Federal
reserve bank paper acquired from nonmember banks.
It is also proposed to amend subdivision 2 of Section lV(b) so as
to require financial statements whenever the amount involved equals or
exceeds $1000, instead of. $5000 as heretofore.
The Federal Reserve Bank
of Minneapolis originally suggested that financial statements be required
whenever the amount involved equals or exceeds $500, on the ground that
that is the amount fixed by national bank examiners as the maximum amount
of unsecured credit which should be extended unless supported by a signed
financial statement.
In the tentative draff of the new Regulation it was
proposed to require such statements wherever the amount involved equals or
exceeds $500, and this developed considerable difference of opinion among
the Federal reserve banks.
Some of them advocated it; others stated that
they had been requiring it for some time wherever the amount involved
exceeds $1000; and others opposed it on the ground that the change would
be too drastic and that such statements are not really necessary*
It is
believed that it would be a fair compromise to require such statements
wherever the amount involved exceeds $1000.
It is also proposed to change the first paragraph regarding financial statements in such a way as to clarify the meaning thereof without
X-4873
making any change in the substance.
,
«>Ub
16 is axso proposed to eliminate from Section IV an obsolete proviso
to the paragraph regarding statements of borrowers having closely affiliated
or subsidiary corporations or firms.
Hew Section IX.
It is proposed to insert in Begulation A a new Section IX containing the substance of the Board's existing rulings with reference to the
rediscount of paper acquired from nonmember banks.
(See rulings published
* on page 891 of the 1923 Bulletin and page 252 of the 1926 Bulletin.)
Section XI, pa^e 7.
The change suggested in subdivision (3) is designed to conform
the regulation to the rulings published on page 740 of the 1919 Bulletin
and page 638 of the 1924 Bulletin*
This was suggested by the Federal He-
serve Bank of San Francisco.
HEOULATION B.
It is not proposed to make any changes in this regulation.
aSGULATION C.
It is not proposed to make any changes in this regulation.
REGULATION D.
In general, it may be said that both the original recommendations
received from the Federal reserve banks and their comments on the first tentative draft of the regulations evidenced more interest in the tendency of
member banks to evade the reserve requirements than in any other subject,
numerous suggestions were made to remedy this situation; but, unfortunately,
many of them could not be adopted Without an amendment to the law.
Such of
these suggestions as are believed to be consistent with existing law were
- 6 ^
X-487S
incorporated in the tentative draft, however, and the entire regulation was
considered with a view of strengthening the enforcement of the reserve requirements and checking the tendency of member banks to evade them.
Section 11(d), page 16.
The amendments are designed to check the tendency of member banks to
evade the reserve requirements by classifyinf as "savings accounts" deposits
which are permitted to be withdrawn at will, by check or otherwise, without
the actual presentation of the pass-book.
677 of the 1923 Bulletin).
(See the Board's ruling on page
Amendments of this general character were sug-
gested by the Federal Reserve Banks of Boston and Chicago.
It is also proposed to insert at the end of Section 11(d) a provision to the effect that, "Deposits of one bank in another shall not in any
case be considered 'savings accounts' within the meaning of this regulation."
This was suggested by the Federal Reserve Banks of New York and Chicago, and
is designed to discourage the practice of some banks
receiving so-called
"savings account" deposits from other banks and classifying them as time
deposits while the depositing banks treat them as "balances due from banks."
Section 11(e), pages 16 and 17.
It is proposed to change the language of this subsection so as to
clarify and strengthen the definition of "time certificates of deposit."
It is also proposed to insert at the end of subdivision (e) two
new provisions:
(1) A statement to the effect that the retention of the certificate,
or a duplicate of same, by the bank and the presentation of same by the bank
to itself is not an"actual presentation" of same within the meaning of this
regulation.
(2) A statement incorporating in the regulations the substance of
- 7 -
X-4873
the Board's ruling published on page 655 of the 1919 Bulletin.
*
Section 111(a), page 17&.
The new paragraph was suggested by the Federal Reserve Bank of New
York and is designed to incorporate in the Regulation the substance of the
ruling on page 572 of the 1922 Bulletin with reference to reserves against
trust funds.
It is also proposed to insert as a foot-note at the bottom of page
17| the definition of "outlying districts" recommended by Mr. Collins, Deputy
Comptroller of the Currency, and the undersigned under date of June 11, 1927.
Section 111(b), -page 18.
This amendment was suggested by Mr. Smead, and is designed to make
the regulation conform to the practice under the Board's existing forms of
reports.
Section IV. pages 18 and 19.
The proposed revision of this Section is designed primarily to base
the computation of reserves for the purpose of assessing "penalties on actual
daily balances, instead of average balances for weekly or semi-monthly
periods, in order to "prevent some of the wide fluctuations in actual
reserves which now takes place,"
This was originally suggested by the Fed-
eral Reserve Bank of New York, and has given rise to much difference of
opinion.
The difference of opinion which exists, however, is based largely on
f
grounds of expediency and there is a surprising uniformity of opinion that
some change along this general line is desirable.
Four of the Federal re-
serve banks favor this amendment with a modification permitting daily reserve
requirements to be based on deposit balances as of
the •previous day; four are
-
8
X-4873
-
opoosed to the change for practical reasons, most of which could be eliminated
"by the same modification; one favors the general idea "but advises "making
haste slowly"; and three suggest alternatives having the same general purpose.
The combined discussion of this subject by all the Federal reserve
banks is quite voluminous, but the views expressed on behalf of each Federal
reserve bank may be summarized very briefly as follows:
30STQI*
Suggests computation on daily basis for city banks
and on average basis for country banks.
TO?
TO2K
Favors some change
but suggests "making haste slowly"
and discussing the subject with member banks before
making such a change.
PHILADELPHIA
Favors adoption of proposed change with modification
permitting reserves to be computed each day on basis
of deposits for preceding day.
CLEVELAND
Believes computation on daily basis unworkable; but
practical objections raised by Cleveland would be
met by modification suggested by Philadelphia and
Richmond.
SICHMOin?
Favors computation on daily basis, provided reserves
for each day are computed on basis of deposits for
previous day.
ATLANTA
Favors the change without suggesting any modifications.
CHICAGO
Fears that cosputation on a daily basis would result
in financial loss to member banks and suggests a substitute plan.
ST. LOUIS
MIFJEAPOLIS
Favors a change with the some modification as suggested
by Philadelphia and Richmond.
Opposes the requirement for computations on a daily
9 -
X-4873
basis, "teacuse it is practically impossible for bank
to guess its reserve requirements before close of
business."
(This would be cured by modification
suggested by Philadelphia and Richmond) .
KANSAS CITY
Opposes the change because of practical difficulties,
W
which would largely be obviated by the modification
suggested by Philadelphia and Richmond.
DALLAS
Mildly opposed to the change for practical reasons;
but suggests as alternative that reserves of banks in
central reserve cities be computed on daily basis,
that reserves of banks in reserve cities be computed
on weekly basis, and that reserves of country banks
be computed on monthly basis, provided compulsory
progressive penalty is adopted.
SAN F R M C I S O O
Points out practical difficulties, which would be
overcome by the modification suggested by Philadelphia
and Richmond.
In accordance with the suggestions made by the Federal Reserve Banks
of Philadelphia, Richmond and St. Louis, the new Section IV, as submitted in
the attached draft, is modified so as to permit the reserves for each day to
be computed at the close of business each day on the basis of net deposit
balances of the member bank for the preceding business day.
This would give
the member banks twenty-four hours in which to restore their reserves in the
event of unexpected fluctuations, and it is believed that it would overcome
most of the practical objections to the computation of reserves on a daily
basis.
I have talked with Governor Seay, Mr. Smead, Mr. Horson and several
others about this, and they assure me that, with this modification, the
requirement for daily computation of reserves is entirely practical and is
- 10 a big step in the right direction.
X-4873
4C
It would impose no new burdens on member
banks in the matter of making reports; because the reports n o * submitted are
required to show deposit balances and reserves as of each day.'
It would
increase to some extent the accounting work at the Federal reserve banks, but
it is believed that this would be justified in view of the good it will
accomplish.
If adopted as revised, this Section would also prescribe a compulsory
progressive penalty for all Districts and relieve the Federal reserve banks
of the necessity of taking the initiative in this matter.
There was some difference of opinion as to this provision for a compulsory progressive penalty; but only two Federal reserve banks (Minneapolis
and Hew York) opposed it.
called
1
1
Because of unfortunate experiences during the so-
deflation period", Minneapolis is opposed to any progressive penalty.
New York recognizes the merits of the suggested change, but believes that the
old regulation "will permit of more flexibility in the treatment of individual
cases".
Of the other ten banks, seven favor the amendment, two suggest a
clarification of its provisions, and one makes no comment.
The duty of prescribing penalties for deficiencies in reserves is
placed by the law on the Federal Reserve Board, and it is believed that the
Board rather than the Federal reserve banks should take the initiative in the
matter, especially in view of the fact that at times there has been a feeling
on the part of some member banks that the Federal reserve banks are influenced by the possibility of increasing their profits.
Subdivision 5 of the proposed new Section IV is designed to correct
the view entertained by some member banks that, so long as they pay the penalties, they have a right to permit their reserves to remain deficient.
An
amendment for this general purpose was suggested by the Federal Heserve Bank
of Philadelphia and favored by a majority of the Federal reserve banks.
There
was no strong opposition to it.
- 11 -
X-4873
Section 7, page 19jThe elimination of the last sentence of the present regulation is
402
suggested in order to harmonize this section ">'ith the proposed amendments to
Section IV.
The proposed new provision to be inserted at the end of this Section
is designed to provide for the enforcement of the prohibition against member
banks making loans or paying dividends while their reserves are deficient.
None of the Federal reserve banks indicated much opposition to this provision;
but three expressed doubts as to its wisdom and two considered it too rigid.
One said it was "heartily in accord" with the idea; and the others made no
comment.
As now submitted, the provision has been slightly modified so as
to require reports only in cases of"wilful disregard" of the law.
REGULATION B.
It is not proposed to make any changes in this Regulation.
REGULATION F.
Section II, page 35.
There is inserted at the end of this section an explanation of the
manner in which applications should be made for trust powers in cases where
a new national bank is being organized, a State bank is converted into a
national bank, two or more national banks are consolidated, or a State bank
is consolidated with a national bank under the charter of the latter.
Insofar as this pertains to applications for fiduciary power3 by new
national banks at the time of their organization# it is inconsistent with the
Board's present practice of requiring new national banks to wait six months
or a year before obtaining fiduciary powers.
However, in view of the fact
that State banks and trust companies may exercise fiduciary powers from the
date they are open for business, and the adoption of the McTadden Act indicates
- 12 -
X--,273
that it is the policy of Congress to place national banks on a better competitive basis with State institutions, it would seem that national banks
should be given the same privilege.
Moreover
this provision of the Regu-
lation would not prevent the Board from withholding action in any individual
case if it doubts the wisdom of granting trust powers to the applying bank.
Kone of the Federal reserve banks expressed opposition to this proposed
change.
Hew Section III, page 25a.
It is proposed to insert a new Section III stating the effect of the
consolidation of two or more national banks one of which has trust powers
and the advisability of the consolidated bank obtaining a new fiduciary
permit.
New Section IV. page 25a.
It is proposed to insert a new Section IV stating the effect of the
consolidation of a State bank having trust powers with a national bank under
the charter of the latter.
This was suggested by the Federal Reserve Banks
of Boston and St. Louis.
Old Section III, new Section V. -page 25c.
It is proposed to redesignate old Section III as Section V, and to
amend the section so as to require every national bank which obtains from the
Federal Reserve Board a permit to act in fiduciary capacities to establish a
separate trust department within six months after issuance of such permit.
This was recommended by the Governors' Conferonce and by the conference of
Federal Reserve Agents in the fall of 1926.
Now Section VI. paao 25c.
It is proposed to insert at this place a new section with referonce
to the deposit of securities with State authorities '.vhich will require such
- 13 -
X-437E
deposits to be m a e within six months after the issuance of a fiduciary permit ^
This was suggested by the conference of Governors and by the conference of
Federal Reserve Agents in the fall of 1925.
It is also proposed to insert
here a provision covering the situation where the State law requires a deposit
of securities but the State authorities refuse to accept such deposits from
national banks.
Old Section V, new Section VIII, -page 26.
It is proposed to designate old section V as Section VIII and to rewrite the entire section so as to cover more completely the handling of -funds
awaiting investment or distribution.
The principal changes may be summarized
briefly as follows:
(1) There is incorporated in this section a statement of the principle
that funds held awaiting investment or distribution should be invested or distributed as soon as practicable and should not be held by the bank uninvested
any longer than is reasonably necessary.
(2) The provision with reference to deposits of trust funds in the
banking department of the trustee bank to the credit of the trust department
is amplified and made more definite.
This was suggested by the Federal Re-
serve Banks of Mew York and Cleveland.
(3) There is inserted as Subsection (c) a now provision covering
dep sits of trust funds in other banks and requiring that when this is done
the trustee bank shall require the bank in which such funds are deposited to
pledge securities with the trustee bank for the protection of such deposits.
This is believed to be absolutely necessary in order to afford trust funds
the protection which the Federal Beserve Act contemplates.
If the trustee
deposits trust funds in another bank to the credit of itself as trustee it
incurs no liability therefor except in the case of actual negligence or violation of the terms of the trust agreement; and, if the bank in which such
( - 14 - )
X-4872
4 0 5
funds aro deposited -should, fail, the trust estate would have no prior lion on
such funds but would bo in tho position of a general creditor.
Such a result
is clearly contrary to tho intent of tint provision of Section 11 (k) which
provides that if trust funds are used in tho business of tho trustee banjc tho
bank shall pledge securities with tho trust department for their protection.
With reference to this proposed now Subsection (c), Mr. Austin mokes
the following comment, dtie to a peculiar lical situation in Pennsylvania:
"Wo very much regret that it was found necessary to ptit such a provision in the regulations; the Pennsylvania law requires that unin-r
vested trust funds shall b o deposited b y the trustee bank with
another banking institution, no securities are required from such
institution, and the plan for many many years has worked well. To
require national banks now to acquire collateral security from
institutions with which they deposit uninvested trust funds is
going to make no end of trouble and ill feelings, and r e think
will practically result in national banks keeping such trust funds
in their own institutions and absolutely disregarding tho Pennsylvania State law, which requires uninvested trust funds to be
deposited in some other institution."
The Federal Reserve Board has consistently held, however, that
national banks in Pennsylvania exercising trust powers may deposit their uninvested trust funds in their commercial departments under the terms and
conditions proscribed in Section ll(k) of the Federal Reserve Act and the
Board's regulations.
The right of a national bank to do this, regardless of
the requirements of State law, would seem to have been definitely settled
b y the case of In re Turner 1 s Estate, decided b y the Supreme Court of Pennsylvania in 1923,
It would seem unfortunate to omit a very wholesome provision from
the Board* s regulations merely because one State of tho Union h a s an unsound
statute with which national banks cannot b e compelled to comply,
, Old Section VI t new Section IX, page 26a.
"
''
' •
It is proposed to amend this
>
as to state explicitly that
funds held in trust must be invested as soon as practicable; and, also, so as
to authorize investments to bo approved, by a co:.:ittco of directors appointed
for that purpose, instead of requiring them to b" approved by the entire
Board of Directors.
Nor Section X, page 36a.
It is proposed to insert a now Section X stating what compensation
the bank may rocoivo for acting in fiduciary capacities and providing that,
after the deduction of a proper foo or compensation, all incomo derived from
the investment of trust funds shall be paid over or credited to the account of
such trust.
This is intended to prevent a practice ouch as that which exists
in Kentucky, whereby some banks hold trust funds uninvested* employ them in
their business, pay the trust estate a penalty of 5$ as required by the State
law, and retain for themselves all earnings in excess of 5$.
This was sug-
gested by the Federal Reserve Bank of St. touis; nnd* on February 23, 1927,
the Board requested the Law Committee to prepare such in amendment.
Old Section VIII, new Section XII. page 26b.
It is proposed to amend this section GO as to authorize separate
examinations of the trust department to bo made at any time.
This was sug-
gested by the Federal Reserve Bank of Minneapolis.
New Section XIII, page 26b.
It is proposed to insert a now section XIII providing for the winding up of the affairs of the trust department of a national bank which is
placed in voluntary liquidation or in the hands of a receiver.
It has bean suggested by Mr. Await on behalf of the Comptroller of
the Currency that there should bo inserted at this point a provision for the
winding up of the trust department of a national bank which voluntarily
surrenders its trust permit and discontinues the exercise of trust powers.
Digitized for In view of the
FRASER
fact that this happens so seldom and the proper practice in
( - 16 - )
X-4873
such cases has never boon decided upon by the Federal Reserve Board, I
ij.
doubt the advisability of attempting to promulgate a regulation on this
subject at the present time.
If, however, the Board desires to promulgate
such a regulation, the following section could be inserted immediately after
new Section XIII on page 27;
"SECTION XIV.
DISCONTINUANCE OF THE EXERCISE OF
TRUST POWERS.
"Whenever a national bank exercising fiduciary powers
decides to discontinue exercising such powers and to terminate the operation of its trust department, it shall give
written notice to that effect to the Federal Reserve Board.
When such notice has been given, the bank shall thereupon
proceed to settle the affairs of the trust department in the
manner provided in the paragraphs numbered 1 to 4 of Section
XIII (b) of this regulation.
"When the affairs of the trust department of such
national bank have boon finally settled and disposed of in
accordance with the provisions of this regulation, the bnnk
shall so advise the Federal Reserve Board."
Old Section X , page 27.
It has boon suggested by the office of the Comptroller of the Currency that there should bo eliminated entirely the existing Section X,
whereby the Board now reserves the right to revoke permits to act in
fiduciary capacities for violations of law; because it is believed that the
reservation of this right by the Federal Reserve Board is inconsistent with
the policy of Congress as indicated in the McFadden Act.
The McF&ddon Act
contains a provision granting national bsnks indeterminate charters, and
it is clear that the purpose of Congress in enacting this provision was to
enable national banks to compete with trust companies having indeterminate
or perpetual charters.
It is argued that this purpose of Congress would be
defeated if the Federal Reserve Board should continue to reserve the right
to revoke fiduciary permits.
While it.is believed that the Board tech-
nically has such a right under the existing regulations, the legality of
( - 17 - )
X-4873
^
this section of the regulations is at least opon to doubt, especially since
the enactment of the McFadden Act.
Moreover, this power has never boon
exercised, and an equally effective remedy lies in the Board's power to
direct the Comptroller of the Currency to bring suit to forfeit the charter
of a national bank for violation of law.
REGULATION Or.
It is proposed to eliminate entirely the old Regulation G dealing
with loans by national banks on farm land and other real estate; since this
is a matter within the jurisdiction of the Comptroller of the Currency, and
it is understood that he is preparing to issue regulations on this subject.
In order to avoid changing the familiar and well lmown designation
of other existing regulations, it is proposed to redesignate Regulation M
as Regulation G- and insert it at this place.
REGULATION H.
Section I. page 30.
It is proposed to amend Section I so as to permit the admission to
the Federal Reserve System of State bnnks located in outlying districts of
cities having a population exceeding 50,000 inhabitants with a capital of
$100,000 or $60,000, in view of the amendment contained in the McFaddon
Act permitting national banks so situated to be organized with a capital
of only $100,000.
It is also proposed to insert a foot note at the bottom
of the page defining "outlying districts."
It is also proposed to insert at the ond of this section a provision conforming to the provisions pf the McFaddon Act insofar as it affects
the eligibility for membership in the Federal Reserve System of State banks
having branches.
( - 18 - )
,
SectioiV* III, page 33.
X-4873
4(}9
.It is proposed to chnnge the last p T ^ r - x p h of this Section so as to
conform tOK^the law as amended "by the McFadden Act and also so as to conform
to the Board"\^ actual practice in approving applications for membership sub\
ject to conditions.
Mr. Austin has twice called attention to the fact that
the Board does Spot issue any formal certificate of approval until after the
conditions of meijiborship are accepted by the applying bank.
Section IV. page o2.
It is necessary to change this section to conform to the amendment
contained in this McFadden Act which authorizes the Board to prescribe only
such conditions of membership as are "pursuant to" the provisions of the
Federal Reserve Act.
In the attached draft of the regulation only such
changes are made in Section IV as are made necessary by the amendment contained in tho McFadden Act.
As an alternative, the following could be
inserted in lieu of the present Section IVj
"SECTION IV. COffSITIOHS OF MEvSSRSHIP.
"Pursuant to the authority contained in the first paragraph of
Section 9 of the Federal Reserve Act, which provides that the Federal Reserve Board may permit applying banks to become members of
the Federal Reserve System ' subject to the provisions of this Act
and to such conditions of membership as it may prescribe pursuant
thereto 1 , the Federal Reserve Board will prescribe for each bank
or trust company hereafter applying for admission to the Federal
Reserve System such conditions of membership pursuant to the provisions of the Federal Reserve Act as the Board may consider necessary or advisable in the particular case, and such bank or trust
company will bo required to agree to such conditions of membership
prior to its admission to the Federal Reserve System."
This revision of Section IV would omit entirely the text of all
conditions of membership, and probably would lessen materially the antagr
onism to the Board's practice of prescribing conditions of membership. It
would not prevent the Board from prescribing any condition of membership
which it may now prescribe under Section 9 as amended by the McFadden Act,
I
/
nor would
-J.?-
X-487%
•
$ 1 0
prevent the Bbard from adopting a definite policy with refer-
ence to conditions of membership, which policy might be incorporated in a
resolution to be adopted by the Board or in a circular letter addressed to
all Federal Reserve Agents.
Both alternative revisions of Section IV were submitted to the
Federal Reserve banks; but only five of them stated their preference,
New
York, Philadelphia, and Minneapolis prefer the short form quoted above,
Richmond aftd St. Louis prefer the longer form embodied in the attached
draft of the regulations.
Section V. page 33.
If the shorter form of Section IV is adopted, Section V would have
to be omitted altogether.
Regardless of which form of Section IV is adopted, there is very
serious opposition to Section V on the. part of the Federal Reserve Agents
and Federal reserve banks, who claim that it is unworkable and causes them
much embarrassment.
I make no recommendation on this question; but suggest
that while it has the regulations under consideration it would be advisable
for the Board to weigh the practical advantages and disadvantages of this
Section and decide whether or not to omit it.
Section VI. page 34.
It is proposed to eliminate altogether the old Section VI containing "Principles Governing Establishment of Branches", and to substitute therefor the text of the provision of the JlcFadden Act pertaining to branches of
State member banks, together with a statement of the interpretation which
has been given to that provision.
Section VIII. page 36.
It is proposed to omit entirely the second paragraph of this lection,
-20-
X-4873
4 jj
in view of the fact that the Board or the Federal ceserve banks may wish to
change the existing practice with respect to examinations of State member
banks.
The omission of this paragraph would not of itself make any change
in the existing practice, but would merely l^-ive the Board free to make such
achange if and when it sees fit,
In the last paragraph of this Section it is proposed to eliminate
all reference to Form 107a, because the Board no longer requires State
member banks to furnish special notifications of dividends.
REGULATION I.
Section 11(a). page 39.
It is proposed to amend this section eo as to state the existing
rule in the case where a member bank reduces its surplus.
Section 11(b). -page 39.
The elimination of the words "if earned" is suggested in order to
make the Regulation conform to ths ruling contained in the Board's circular
letter of April 17, 1935, (X-4323).
Section 11(c). -pages 39 and 40.
At the suggestion of the Federal Reserve Bank of Chicago, it is proposed to amend this section so as to require tho cancellation and surrender
of Federal reserve bank stock by a member bank in voluntary liquidation,
even though no liquidating agent is appointed.
The law does not require
the appointment of a liquidating agent; but it does require that sufficient
legal steps be taken to place the bank in voluntary liquidation, and this
latter requirement will have to be retained in the regulation.
The amend-
ment to the regulation, therefore, will not cure the situation where a member bank sells out its business but does not go into liquidation,
require an amendment to the law to correct thit situation.
It will
-21-
X-4873
4 - $x #
" "'
The elimination of the words "if earned" is suggested in order to
make the Regulation conform to the ruling contained in the Board's circular
letter of April 17, 1925,(X-4322).
REGULATION J.
Regulation J, Series of 1924, has proven so satisfactory -and has
stood the test of the courts so well that no change appears to he necessary.
At the suggestion of Mr. Bsker, However, it is proposed to change
the period at the end of the second paragraph of Section II to a comma and
add the following:
"and each member hank and nonmember clearing bank shall cooperate fully in the system of check clearance and collection
for which provision is herein made."
This can do no harm and might be very helpful in dealing with the
practice of member banks stamping their checks, "Not payable through Federal Reserve Banks."
Mr. Baker, Mr. Parker, and I are agreed that this
practice should not be specifically mentioned, lest it serve to "educate
the Devil".
REGULATION K.
It is proposed to incorporate in the now edition of the regulations
the text of Regulation K as amended June 8, 1927, with only a few changes
in capitalization, punctuation, and numbering to make it conform to the
general style of the regulations.
REGULATION L.
It is not proposed to make any changes in Regulation L.
REGULATION M.
It is not proposed to make any change in Regulation M, except to
redesignate it as Regulation G and transfer it to the place formerly
-22-
occupied by old Regulation G, which is to be eliminated.
CONCLUSION.
It is respectfully recommended that the new regulations he promul
gated as soon as possible; because the existing regulations are in some
respects in conflict with the law as amended by the McFadden Act of'Fobru
ary 25, 1927,
Respectfully,
Walter Wyatt,
General Counsel.
FEDERAL RESERVE BOARD
X-4874
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
June 15, 1S27.
Collection of Non-cash Items.
Dear Sir;
The Federal Eeserve Board in its letter of September 24, 1926
(X-4677), advised all Federal Reserve "banks that the provisions of the
Federal Reserve Act authorize, "but do not require the Federal Reserve
"banks to handle non-cash items and suggested that each "bank exercise
its own option, as to the collection of non-cash items at street addresses, "but continue the collection of non-cash items collectible at
banks. Subsequent to the date mentioned, the Board approved a proposal
of the Federal Reserve Bank of Minneapolis to discontinue the direct
presentation of non-cash items drawn on Minneapolis and Helena and to
handle all non-cash items received by it from its own member banks and
from member banks in other Federal Reserve Districts by forwarding such
items to member banks for collection and returns. At the same time,
proposals were received from two other Federal Reserve banks, both
limiting collection items which the banks would handle to those drawn
on or payable at banks. The Board requested the two banks referred to
to make nd change in their procedure of handling non-cash collection
items until after the changed procedure at the Minneapolis bank had
been followed by that bank for sufficient length of time to determine
whether or not the effect thereof would be detrimental upon the collection system as a whole.
The Board is of the opinion, and has advised the Federal Reserve
Bank of Minneapolis that the change in the procedure of that bank in
the handling of non-cash items drawn on Minneapolis and Helena is having a detrimental effect upon the collection system as a whole, and the
Board's authority under which the changed procedure was inaugurated
by that bank has been rescinded effective July 1, 1927, When the Board
granted permission to the Minneapolis bank to change its procedure
with respect to the handling of non-cash items drawn on Minneapolis
and Helena, it was understood by both the Board and the Minneapolis
bank that if it should appear at any time that the new procedure was
having a detrimental effect upon the Federal Reserve Collection System
as a whole, the Minneapolis bank would, at the request of the Board,
revert to the practice which had been followed in the handling of
Minneapolis and Helena items. The Board has, therefore, requested
the Minneapolis bank to handle all non-cash items drawn on Minneapolis
and Helena in accordance with the procedure followed by it prior to
February 1, 1927.
-
X-4674
2
The discussions which have ensued during the period of the es• tablishment and development of the present Federal Reserve Collection
System, and the reports made by various committees of officials of the
Federal Reserve "banks relative to the operation thereof, clearly indicate that uniformity of procedure, insofar as is practicable, on che
part of the twelve Federal Reserve "banks in the matter of handling
items received "by them for collection, hap always "been deemed desirable,
if not indeed essential, to the successful operation of the collection
system. The Board, therefore, feels that so long as the Federal Reserve
banks continue to afford collection facilities to their member banks
the function should be regarded as a System function, based upon a
common policy, questions concerning which to be determined by the Federal Reserve Board after consultation with all of the Federal Reserve
banks, and with uniformity of procedure prevailing at .all points, insofar as may be practicable.
The Board understands that with the reversion on July 1, 1927,
by the Federal Reserve Bank of Minneapolis to the procedure followed by
it prior to February 1, 1927, in the matter of handling non-cash collections, the collection procedure followed by all Federal Reserve
banks will be on practically a uniform basis, and the Board now requests that no Federal Reserve bank make any material change in its
procedure prior to submitting a proposal to the Federal Reserve Board
and securing its approval thereto.
Very truly yours.
D. R. Grissinger,
Governor,
TO CHAIRMEN & G0VE3H0RS OF ALL F. R, B^ICOd.
FEDERAL RESERVE BOARD x _ 4 8 7 6
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 16, 1927,
SUBJECT:
Holidays during July, 1927.
Dear Sir:
On Monday, July 4th, Independence Day, there will be
neither Gold Settlement Fund nor Federal Reserve Note Clearing,
and the "books of the Federal Reserve Board will be closed.
The following branches will also be closed on the dates
specified:
Wednesday, July 13
Hashville
Memphis
General Forrest's
birthday
Monday,
Salt Lake City
Pioneer Day
July 25
On the dates indicated, the branches affected will not
participate in either the regular Gold Fund Clearing or the Federal Reserve Note Clearing.
Credits of July 13th for Memphis Branch and of July 25th
for Salt Lake City Branch should ba included with your credits for
the following business days in your Gold Fund Clearing telegrams.
Please notify Branches.
Very truly yours.
E. M. McClelland,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BASKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 16, 1927.
SUBJECT:
Expense, Main Line, Leased lire System,
May, 1927•
Dear Sir:
Enclosed herewith you will find two mimeograph statements, X-US77-a and X-4S77-T3. covering in
detail operations of the main line, Leased Wire System, during the month of May, 1927.
Please credit the amount pnyahle by your
"bank in the general account, Treasurer, U. S., on
your books, and issue C/D Form 1, National Banks,
for account of "Salaries and Expenses, Federal Reserve Board, Special Fond", Leased Wire System, sending duplicate c/D to the Federal Reserve Board.
Yours very truly,
Fiscal Agent.
Enclosures.
TO GOVERNORS OF ALL F. R. B A M S EXCEPT CHICAGO.
4 1 7
X-48J7
x-4877-a
REPORT SHOWING- CLASSIFICATION AM) NUMBER OF WORDS TRANSMITTED OVER MAP? LINE
OF TIH FEDERAL RESERVE TE'SED WIRE SYSTEM FOR THE MONTH OF MAY, 1927
From
Business
reported
by banks
Boston
"New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
32,195
i4o,s6o
40,972
73,570
43,115
54,551
102,641
73,541
32,151
74,870
56,278
103,774
828,818
Total
F. R. Board
Total
Percent of total
Words sent
by New York
chargeable
to other
F.R.Banks(l)
1,023
-
94I
2,022
2,961
3,945
2,955
2,839
2,656
2,790
5,247
3,128
30,507
Total
33,212
140,860
4I,Q13
75,592
46,076
58,4c)6
105,59b
76,680
34,807
77,660
61,525
106,902
859,325
355,160
1,214,485
100.00^
Treasury
War Finance
Department Corporation
Business
Business
3,703
7,772
3",875
3,690
3,782
4,963
5,221
4,890
2,129
3,949
2,290
5,877
„
421
-
-
29
-
-
Net Federal
Reserve Bank
Business
Percent of
total bank
Business(*)
29,515
132,667
38,038
71,902
42,294
53,533
100,^46
71,790
32,678
73,711
59,235
101,025
3.66
16.44
4.72
8.91
5.24
6.64
12.44
8.90
4.05
9.14
. 7.34
12.52
100.00
52,i4l
90,510
450
343
806,734
264,307
142,651
11.754
793
1,071,041
86.19#
(*)
These percentages used in calculating the nro rata share of leased wire expense as shown on the
accompanying statement (X-4877-b) •
(l)
Number of words sent by New York to other F. R. Banks for their sole "benefit charged to "banks
indicated in accordance with action taken at Governors' Conference November 2 - 4 , 1925.
X-4S77-"b
REPORT OF EXPENSE MAIM LIME
FEDERAL RESERVE LEASED 7 1 RE SYSTEM, KAY,
/
Name of Bank
Operators1
Salaries
$ 260.00
Boston
New York
976.41
Philadelphia
225.00
Cleveland
296.66
Richmond
190.00
Atlanta
270.00
Chicago
4,04S.33(#)
St. Louis
275.00
Minneapolis
193-73
Kansas City
275.64
Dallas
251.OO
San Francisco
370.00
Federal Reserve Board
Total
1 9 2 7
1.00
Wire
Rental
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
$1.00
-
15,106.77
Total
Exoenses
Credits
$
Operators 1
Overtime
Pro Rata
Share of
Total
Expenses
$
$
260.00
977-41
225.00
296.66
190.00
270.00
4,048.33
275.00
193.7)
275-64
251.00
370.00
15,302.77
740.63
3,326.75
955.13
1,803.00
1,060.35
1,343.65
2,517.33
1,800.98
819.55
1,849.55
1,485.30
2,533.51
260.00
977-41
225.00
296.66
190.00
270.00
4,048.33
275.00
193.73
275-64
251.00
370.00
Payable to
Federal
Reserve
Board
$
480.63
2,349.34
730.13
1,506.34
1,075.02(&)
1,073.65
i,53i.oo(*)
1,525.9s
625.82
1,573.91
1,234.30
2,163.51
$22,941.54
$14,335.63
$20,235.73 $7,632.77
1.531.00(b)
2.705.81(a)
$12,807.63
$20,235.73
(&) Includes $204.67 for "branch lino "business transmitted over main line circuit.
(#) Includes salaries of Washington operators.
(*) Credit.
(a) Received $2,694.67 from Treasury Department and $11.l4 from War Finance Corporation covering "business for
the month of May, 1927«
("b) Amount reimbursable to Chicago,
$7,631.77
$15,305.77
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECTS
X-4878
June 21, 1927
Revision of Board's Regulations,
Dear Sir:
There is enclosed for your information a copy of a draft of a revision
of all the Board 1 s printed regulations, together with a copy of a memorandum
prepared by the Board's General Counsel explaining each proposed change in the
old regulations.
The enclosed draft of the regulations has been approved tentatively by
the Federal Reserve Board, except that!
(1) The Board directed the preparation of an alternative draft of Section
11(d) of Regulation D, defining savings accounts;
(2) In the matter of assessing penalties for deficiencies in reserves, the
Board voted that, as to member banks located in reserve and central reserve cities,
deficiencies should be computed oi} an actual daily basis instead of an average
basis as heretofore, it being understood that the reserves for each day will be.
based upon the net deposit balances of the member bank at the close of business
the preceding day; and, as to banks outside of reserve and central reserve cities,
deficiencies should be computed on the basis of average reserves for weekly periods; and
(3) The Board directed that there should be prepared and added to the regulations a regulation on the subject of non-cash collections.
An alternative draft of Section 11(d) of Regulation D, a redraft of
Section IV of Regulation D to conform to the Board's views with reference to penalties for deficiencies in reserves, and a draft of a proposed regulation on noncash collections are also enclosed herewith; and the Board requests an early expression of your views on the enclosed draft of the regulations with these
changes. The proposed new regulation on non-cash collections was prepared very
hastily, and you are requested to examine it with special care and to criticize
it in detail.
Inasmuch as the Board's existing regulations are in some respects in
conflict with the law as amended by the McFadden Act of February 25, 1927, the
Board desires to promulgate a new edition of its regulations as soon as possible*
The Board, therefore, has set July 20 as the date upon which it will take final
action on these regulations, and, in order to receive any consideration, it will
be necessary for your suggestions and comments to be received not later than
July 15, 1927.
By order of the Federal Reserve Board.
DigitizedEnclosures.
for FRASER
Very truly yours,
Walter L. Eddy,
Secretary.
To Governors & Chairmen of all F. R. Banks,
X-4878-a
(Alternative substitute for Section 11(d) of Regulation D.)
(d) Savings Accounts.
*
The term "savings accounts"is defined
generally as accounts to the credit of which are deposited the savings
or accumulations of small depositors, which bear interest, which are
represented by pass books delivered to the depositors, which a re not
subject to check in the usual sense but can be withdrawn only upon the
as
presentation of the pass book, and/to which the bank reserves the
right to require the depositor to give notice of an intended withdrawal not less than thirty days before a withdrawal is made.
In order to constitute a "savings account" within the meaning of
this regulation, a deposit mast comply with the following requirements
(1)
It must be the deposit of an individual or of a religious,
charitable or similar corporation and not the deposit of one bank
in another or the deposit of a business corporation or firm;
(2)
It must bear interest;
(3)
It must be evidenced by a pass book, certificate or other
similar form of receipt delivered to the depositor, which must actually be required to be presented to the bank whenever a withdrawal is
made;
(4)
It must not be subject to check in the usual sense and
mast not be permitted to be withdrawn except upon the actual presentation of the pass book, certificate or other similar form of receipt
whenever a withdrawal is made;
(5)
The amount must not exceed $5,000; and
(6)
The bank mast reserve the right to require the depositor
to give notice of an intended withdrawal not less than thirty days
before a withdrawal is made*
X-4878-b 4 2 2
(Substitute for Section IV of Regulation D)
SECTION IV.
Pilil'ALTIljS ?0R IEJICIEKCIES 1:1 B3SESVES«
Inasmuch as it is essential that the law in respect to the maintenance " y member "banks of the required minimum reserve "balance shall be strictb
ly complied with, the Federal Reserve Board, under authority vested in it by
section 19 of the Federal Reserve Act, hereby prescribes the following rules
governing deficiencies in reserves:
(a)
Banks in Central Reserve and Reserve Cities.
(1)
Deficiencies in reserve balances of all member banks located
in central reserve and reserve cities will be computed on the basis of actual
net deposit balances, the required reserve balance of each member bank at the
close of business each day being based on its net deposit balances at the
close of business on the preceding business day;
(2)
Penalties for such deficiencies will be assessed monthly on the
basis of actual daily deficiencies during the preceding month;
(3)
Such penalties shall be assessed at a basic rate of 2$ per an-
num above the Federal reserve bank discount rate on 90-day commercial paper;
(4)
When a member bank in a central reserve or reserve city has an
actual deficiency in reserves for fifteen or more days in any month, there
shall be assessed, in addition to the penalty at the basic rate, a progressive
penalty on daily reserve deficiencies, until such member bank has maintained
the required reserves every day for a month.
Such progressive penalty shall be
at the rate of 1% for the first month and shall increase at the rate of 1$ for
each subsequent month thereafter in which the bank's^actual reserves have been
deficient for fifteen days or more; provided that the maximum penalty charged
shall not exceed 10$.
-2-
X-4878-b'
4 ^ 3
("b) Barks not in Reserve or Central Reserve Cities.
(1)
Deficiencies in reserve balances of member banks not located in
central reserve and reserve cities will be computed tin the basis of average daily
net deposit balances covering a weekly period of seven days.
(2)
Penalties for such deficiencies will be assessed monthly on the
b,",sis of average daily deficiencies during each of the weekly periods ondirg
.in feho preceding month..
(3)
Such penalties shall be assessed at a basic rate of 2$ per an-
num above the Federal reserve bank discount rate on 90-day commercial paper.
(4)
When a member bank not located in a central reserve or reserve
city has had an average deficiency in reserves for four consecutive weekly periods, there shall be assessed, in addition to the penalty at the basic rate, a
progressive penalty on weekly deficiencies until the required reserve has been
restored and maintained for four consecutive weekly periods.
Such progressive
penalty shall be at the rate of 1$ for the first four weeks and shall increase
at the rate of l/4 of 1$ for each subsequent week thereafter in which the bank's
average reserves have been deficient; provided that the maximum penalty charged
shall not exceed 10$.
(c)
Continued Deficiencies.
T~
""
Whenever any member bank is subject to the maximum penalty of 1 Cfo,
the Federal Reserve Agent shall promptly report the fact to the Federal Reserve
Board with a recommendation as to whether or net the Board should:
(1)
In the case of a national bank, direct the Comptroller of the
Currency to bring a suit to forfeit the charter of such national bank under the
provisions of Section 2 of the Federal Reserve Act; or
(2)
In the case of a State member batik, institute proceedings to re-
-3~
'
X-4878-b S: ^"^
quire such bank to surrender its stock in the Federal reserve bank and to forfeit all rights and privileges of center ship, pursuant to the provisions of
Section 9 of the Federal Reserve Act; or
(3)
In either case, to take such other action as the Federal Reserv
Agent nay recomend or the Federal Reserve Board nay consider advisable.
X-4G78-C
(Note: Make this Regulation 1 ; change old K to G; don' t change designation of' B7;
C
ftB&UUTlOJSr Ki SfiRlES OF 1927.
COLLECTION OF MATURING MOTES AND BILLS-.
SECTION I,
STATUTORY PROVISIONS.
Section 13 of the Federal Reserve Act authorizes Federal reserve "banks to receive from their member "banks and non-member clearing
banks, for collection, maturing notes and bills and to receive from
other Federal reserve banks for collection maturing notes and bills payable within the district of the Federal reserve bank receiving such
items.
The authority to receive such items for collection includes the
authority to take such steps and perform such acts as may be necessary to
effect collection, and to exercise such other powers as are reasonably
incidental to the collection of such items.
SECTION II.
(a)
DEFINITIONS.
Maturing; Notes and Bills.
The term "maturing notes and
bills" has been construed, and is hereby defined, to include:
1*
Maturing notes, drafts, bills of exchange, acceptances, bankers' acceptances, and certificates of
deposit;
2.
Drafts on savings accounts with pass-books attached;
3.
Checks, drafts and other cash items which have previously been dishonored;
4.
Maturing bonds and coupons; and
5.
All other negotiable instruments payable in the United
States, except checks, bank drafts, and other cash items
which have not been previously dishonored.
The term "maturing notes and bills'1 does not include checks,
bank drafts, or certificates of deposit drawn on or payable by nonmember banks and which cannot be collected at par in funds acceptable to
the collecting Federal reserve bank. .
-2(b) ITonmemb er Clearing Bank.
X-4878-b
The term "nonmember clearing bank"
is defined to mean a nonmember bank or trust company which maintains
with the Federal reserve bank of the district in which it is located
a balance sufficient to qualify it under Section 13 of the Federal Heserve Act to send cash items to the Federal reserve bank for purposes
of exchange or collection under Regulation J.
SSCTIOH III.
G-EjEHAL REQUIREMENTS.
The Federal Reserve Board, desiring to afford to the public end to
the various banks of the country a dircct, expeditious and economical
system for the collection of maturing notes and bills, has arranged to
have all Federal reserve banks collect maturing notes and bills on a
uniform basis and on the terms and conditions herinafter prescribed.
SECTIOff IV. ITEMS RECEIVED FOR COLLECTION.
(a) Each Federal reserve bank will receive from its member and
nonmember clearing banks, for collection on the terms and conditions
hereinafter prescribed, all items defined in Section II as "maturing
notes and bills."
(b) Each Federal reserve bank will receive from other Federal
reserve banks, and from all member banks and nonmember clearing banks
in other districts which are authorized to route direct for the credit
of their respective Federal reserve banks,for collection on the terms
and conditions hereinafter prescribed, all items defined in Section
II as "maturing notes and bills".
(c) iT Federal reserve bank shall receive for collection any
-o
check, bank draft, or certificate of deposit drawn on or payable by
a nonmember bank which cannot .be collected at par in funds acceptable
to the Federal reserve bank of the district in which such non-member
bank is located, nor any item payable outside of the Continental United
States.
- 3 -
X-4878-c
SECTION Y. TE&IS OF COLLECTION.
ht/oV
The Federal Reserve Board hereby authorizes the Federal reserve banks to handle such maturing notes and bills subject to the
following terras and conditions; and each member bank and nonmember
clearing bank which sends maturing notes and bills to any Federal
reserve bank for collection 'shall by such action be deemed: (a) to
have agreed to all the terras and conditions of this regulation; (b)
to have warranted to the Federal reserve banks that it has authority
to empower the Federal reserve banks to handle items in the manner
hereinafter provided; and (c) to have agreed to indemnify any Federal
reserve bank for any loss resulting from the failure of such sending
bank to have such authority.
1.
Federal reserve banks will act only as the collecting agents
of the sending banks and wi11 be responsible only for due diligence
and care in forwarding or presenting such items.
2.
Federal reserve banks may present or forward such items for
payment in cash or bank draft, direct to the banks on which they are
drawn, at which they are payable, or through which they are collectible;
or present them direct to the person, firm or corporation on which they
are drawn, for payment in cash or bank check; or, if the item is not payable in a city in which there is a Federal reserve bank or a branch of a
Federal reserve bank, then they may, in their discretion,
forward them
to another agent with the same authority that they have to present or
forward them for payment.
3.
Items payable in another district will be forwarded to
the Federal reserve bank of such district or to a branch of such
-4-
Federal reserve bazik for collection on the terms and conditions herein
prescribed.
4. Except as herein provided, Federal regorve banks shall be held
liable only when they have received actual payment in cash or in the
proceeds of any bank draft or check received in remittance.
SECTIOIT VI. CREDIT FPU KailgXAJCSS..
I o Federal reserve bank shall crcdit the reserve account of
T
any member or nonmcmber clearing bank with the amount of any maturing
note or bill until a remittance for such item has actually been received
in funds acceptable to such Federal reserve bank.
Upon the receipt of"'such
a remittance, the Federal reserve bank ''/ill give credit in the reserve
account of the member bink from which such item was received or in the
clearing account of the nonmcmber clearing bank from which such item
was received.
Such credit, however, shall be subject to final payment
of the remittance so received and, in the event of the failure of the
Federal reserve bank to receive payment of any remittance in actually
and finally collected funds, the amount thereof shall be charged to the
reserve account or clearing account of the bonk from which the item or
items covered by such remittance were'received.
-5-
X-4SF8-*
'
429
SBCTIOB VII.
(ft)
CHARGES FOB CC&IECtlON.
Charges by Federal Besorve Banks,
No charge shall to nado by any Federal reserve "bank for
the service p e r f o m b d "by it in the collection of maturing notes and
"bills, except th&t:
(1)
Any charge cade by another collecting agent shall he
deducted and credit given for the actual net proceeds;
(2)
The actual expense of registration, insurance, or
transportation of bonds and coupons forwarded to
other points for collection shall he deducted and
credit given for the actual net proceeds;
(3)
All telegraph and telephone charges in connection
with the collection of Maturing notes and M i l s shall
he charged to the bank caking the request involving
such expense; and
(4)
A service charge of fifteen cents per iten on all
maturing notes and "bi^ls returned unpaid and uiprotested shall be charged to the bank fron which such
itens were received for collection.
This charge shall
not be m d s on iteos that are protested.
M
i NIPMM
Agents,
Any hectber bank or noncenber bank selected by the Federal
reserve bank #6 an agent to collect maturing notes and bills received
Tinder the t a m e o f this regulation nay nake a reasonable charge for
its services in handling such maturing notes and bills,
• j fj
I e Meciber Banks and Bonaenber Banks frop which.
tr
X-487S-ti
-6-
Any mentor bank or nonmembor clearing bank sending matui'ing
notes and bills to a Federal reserve bank for collection under the terms
of this regulation may, at its option, mnke n reasonable charge to its
customers for its services in handling such items.
SECTION VIII.
OTHER RULES AMD REgPLATIONS.
Each Federal reserve bank shall also promulgate rules and
regulations not inconsistent with the terms of the law or of this regulation governing the details of the collection of maturing notes and
bills by such Federal reserve bank.
Such rules and regulations shall
be set forth by each Federal reserve bank in its letter of instructions
to its member and nonmembor clearing banks and shall be binding upon
any member or nonmembor clearing bank which sends maturing notes and
bills for collection to such Federal reserve bank or to any other
Foder-1 reserve bank for the accrunt of such Federal reserve bank.
FEDERAL RESERVE BOARD
X-4879
4
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 20, 1927.
*
CONFIDENTIAL
SUBJECT: Code words to be us-ed "by Federal -Beserve Bank of Hew York
in advices re Bank of England Account.
Dear Sir:
In order to reduce the length of telegrams "between the Federal
Reserve Bank of Hew York and other Federal reserve "banks in connection with participation in the Bank of England account, it has "been
suggested that additional code words "be supplied from the Federal
Reserve Telegraph Code.
The Board has approved this suggestion, and effective at once,
the following codc words will "bo usod between the Federal Boservo
Bank <xf Sow York and other Federal reserve banks in the messages
referred to:
KISSABL3: Wc have today sold from gold hold abroad for
which wo have rocoivod payment in sterling equivalent
to a dollar valuo of $
your participation being
$
. Please make entry on your books as follows: Debit: Participation in due from foreign banksBank of England $
Credit: Participation in
gold held abroad $
KISSED:
The Bank of England has today made investments
for our account in sterling bills having a face dollar
value of $
. Your participation amounts to
$
. Make following on try on your books:
Boblt: Investments through foreign banks $
Credit; Duo from foreign banks-Bank of England
$
KISSING; Your proportion of daily accrual on investments
through foreign banks beginning (dato)
is
$
daily. Until further notice wo shall
credit you daily through settlement with this amount.
Charge us and credit appropriate earning account.
3
1
X-4879
-
2
-
KITCHEN: Today's maturities of "bills hold in account "Investments through foreign "banks" amount to $
(in
cxccss of the amount "being reinvested in other sterling
"bills) . Your proportion of this reduction in the account
is $
. Make entry on your "books as follows:
Debit: Participation in due from foreign "banks-Bank of
England $
Credit: Participation in investments
through foreign "banks $
,
KITTENISH: The Bank of England is employing at interest
sterling having a dollar Value of $
Your
proportion is f
• Make entry on your "books as
follows: Do"bit: Participation in due from foreign
"banks-Bank of England spofcial interest account $_
Credit: Participation in duo from foreign "banks-Bank
of England $
.
KITTISH: The amount of our sterling balance with the Bank of
England employed at interest has "been reduced to the
extent of a dollar value of v
. your proportion
being $
. Make entry on your books as follows:
Debit: Participation in due from foreign banks-Bank of
England $
Credit: Participation in due from
foreign banks-Bank of England special interest account
$
•
KLICK:
Bank of England advise that they have credited our
account with sterling having a dollar value of $
,
representing interest at
on the employed
balance of our account for the week ended
Your proportion is. $
Make following entry on
your books: Debit: Participation in due from foreign
banks-Bank of England $
Credit: Miscellaneous
Income, or other appropriate account $
.
These words should be inserted in the Federal Reserve Telegraph
Code, following the supplemental code word "JUSTNESS" at the bottom
of page 130.
There are enclosed herewith a sufficient number of extra copies
of this letter to enable you to insert these code words in all of
the code books in the possession of your bank.
Tory truly yours,
Walter L. Eddy,
Secretary.
TO GOVERNORS OF ALL F . B . BANKS.
FEDERAL RESERVE BOARD
X-4880
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
1---
JUI16 21 , 1927.
Decision of the Supreme Court of Texas as to
negotiability of trade acceptances.
Dear Sir;
There is enclosed herewith for your information a
copy of an opinion recently rendered by the Supreme Court of
'Texas in the case of Lane Co. v. Crum, in which it was held
that a trade acceptance is rendered non-negotiable by a statement contained thereon as follows: "The obligation of the acceptor hereof arises out of the purchase of goods from the
drawer, maturity being in conformity with the original terms
of purchase"* There are also enclosed for your further information on this subject copies of certain correspondence which
the Board has had in this connection and a copy of a memorandum
of the Board's General Counsel with regard to this question.
A similar decision has also been rendered by the
Supreme Court of Florida with regard to trade acceptances bearing an endorsement of this kind.
these decisions false serious doubt as to the
negotiability of acceptances containing statements of this
kind in all jurisdictions where the courts of last resort
have not yet held auoh acceptances to be negotiable. The federal Reserve Board considers that it is advisable to chingd
tho standard fbfm of trade acceptance now in use by eliminating
therefrom the clause giving rise to this doubt and b y inserting
in lieu thereof a provision to read as follows: "The transaction which gives rise to this instrument is the purchase of
goods by the acceptor from the drawer."
Very truly yours,
D. R. Crissinger,
Governor.
Enclosures:
To Governors & Chairmen of all F. R . Banks.
A
4
o
'*3
(COPY)
X-4880-a
April 23, 1 9 2 7 ^ 4 .
To
From
Federal Reserve Board
SUBJECT: Negotiability of Trade Acceptances containing statement that, " The
obligation of the acceptor hereof
arises out of the purchase of goods
from the drawer."
Mr. Wyatt - General Counsel
The attached correspondence relates to an opinion recently rendered by
the Supreme Court of Texas in the case of Lane Company v. Crum, wherein the
Court held a trade acceptance is rendered non-negotiable by the appearance
thereon of the following clause:
"The obligation of the acceptor hereof arises
out of the purchase of goods from the drawer, maturity
"being in conformity with the original terms of purchase."
Ho Federal reserve bank was a party to this suit, but the decision is
of importance to all Federal reserve banks because they frequently discount
or purchase trade acceptances containing similar statements. ^t is also of
importance to the Federal Reserve Board, because the Board has heretofore
ruled that such acceptances are negotiable; and, relying upon such ruling,
the American Acceptance Council has prepared and furnished to its members
standard forms of trade acceptances containing a similar clause,
I have delayed reporting on this matter because Mr. Stroud advised me
that a motion for a re-hearing had been filed in the above entitled case; but
I was advised yesterday that such motion was denied.
It appears from the attached memorandum forwarded to me by tho General
Counsel of the American Bankers Association that the Supreme Court of Florida
has also held such acceptances to be non-negotiable.
opr.Toy
With all due respect to the Supreme Courts of Texas and Florida, I believe that their decisions on this question are wrong. They are contrary to
a number of decisions in other States and, in my opinion, are contrary to that
section of the Negotiable Instruments Act which provides in substance that an
instrument is negotiable even though coupled with "a statement of the transaction which"gives rise to the instrument."
I believe it is unlikely that these decisions will be followed by many
of the other State Courts; but they render such acceptances non-negotiable
in the States of Texas and Florida and raise serious doubts as to the negotiability of such acceptances in all States where the Courts of last resort
have not yet held them to be negotiable.
It is advisable,therefore, to change the standard form of trade acceptance so as to eliminate this doubt.
In my opinion, this could be accomplished by changing the standard clause to read as follows:
"The transaction giving rise to this instrument is
a purchase of goods by the acceptor from the drawer."
/ I ^
X-^SSBd-a
—2—
RECOmiMDATIONS.
It is respectfully recom...ended that:
1. Copies of the attached opinion, the attached correspondence and
this memorandum be sent to all Federal reserve banks for their information
as soon as possible; and
2. That the attached opinion of the Supreme Court of Texas be published
in the Federal Reserve Bulletin with a statement suggesting that, in view of
the doubts raised by these decisions, it is advisable to change the wording
of the standard clause of trade acceptances as suggested above.
DISCUSSION.
Section 3 of the uniform Negotiable Instruments Act, which has been
adopted in all of the States, reads in part as follows:
"An unqualified order or promise to pay is unconditional within the meaning of this Act, though
coupled with:
* * * * * * * * * * * * *
"2. A statement of the transaction
rise to the instrument."
which gives
Tiiis means, in effect, that an instrument which is otherwise negotiable
is not rendered non-negotiable by the appearance thereon of a statement of
the transaction which gives rise to the instrument.
Relying upon this provision of the Negotiable Instruments Act, the Board
provided in its Regulation ?, issued under date of July 15, 1915, that:
11
A trade acceptance ;nust bear on its face, or be
accompanied by, evidence in form satisfactory to the
Federal Reserve Bank, that it was drawn by the seller
of the goods on the purchaser of such goods. Such evidence may consist of a certificate on or accompanying the
acceptance, to the following effect.
'The obligation of
the acceptor of this bill arises out of the purchase of
goods from the drawer.' Such.certificate may be accepted
by the Federal Reserve Bank as sufficient evidence; provided, however, that the Federal Reserve Bank, in its
discretion, may inquire into the exact nature of the
transaction underlying the acceptance."
Subsequently, there was published on page 143 of the Federal Reserve
Bulletin for February, 1919, an opinion of the Board's Counsel holding that
a trade acceptance is negotiable although it contains a statement that,
"The obligation of the acceptor hereof arises out of the purchase of goods
from the drawer as per invoices, a record of which is given in the subjoined
statement."
-3-
X-4880-a
It appears that, relying upon these rulings, the American Acceptance
Council has prepared and distributed to its members a standard form of
trade acceptance containing the following statement:
"The obligation of the acceptor hereof arises
out of the purchase of goods from the drawer."
It is acceptances of this general character which have been held to
be non-negotiable by the Supreme Courts of Texas and Florida.
With all due respect to the Supreme Court of Texas, I am of the coinion
that its decision in the case of Lane Company v. Crura is wrong. The clear
intent of the clause quoted was merely to state the transaction out of
which the instrument arose, as permitted under the above quoted provision
of the Negotiable Instruments Act; but the Court ruled that:
"The obligation of the acceptor, according to the
terms of said clause, arises not from the instruments
themselves, but from a collateral transaction. For an
instrument to be negotiable, the obligation of the maker
crust arise exclusively from the instrument."
Except in the case of an accommodation maker or endorser, I hardly
see how the obligation of a party to any negotiable instrument could arise
out of the instrument itself, negotiable instruments are merely promises
or orders to pay certain sums of money arising out of obligations resulting
from business transactions and, except in. the case of an accommodation
maker or endorser, the obligation cannot possibly arise from the instrument
itself. On the contrary, the instrument is merely evidence of a preexisting obligation, which, in order to be negotiable, is stri oped of all
details of the contract or other transaction out of which it arose except
a bare unconditional promise or order to pay to bearer, or to a certain
person or order, a sum certain in money on demand or at a specified time.
The fact that such an instrument contains on its face the statenent that
the obligation evidenced by the instrument arises out of some other
transaction does not, in my opinion, have the effect of importing into the
instrument itself tho terms of the transaction out of which it arose, and
the above quoted provision of the Negotiable Instruments Act is clearly
intended to provide expressly that it shall not have such effect.
The Supreme Court of Texas, however, first reached the conclusion that
such an instrument was non-negotiable and than endeavored to support its
conclusion by arguing that the above quoted clause had the effect of making
the holder of the instrument subject to all equities in favor of the
acceptor resulting from the transaction out of which .the instrument arose.
This reasoning, however, merely "begs the question". A bona fide holder
for value would not be subjected to any equities existing in favor of the
acceptor, unless the instrument is non-negotiable, and the Negotiable Instruments Act provides that an instrument is not rendered non-negotiable
by the appearance thereon of a statement of the transaction which gave
rise to the instrument.
-4
~—
X-4880-a
Che Court apparently considered the above clause as more than a
statement of the transaction which gave rise to the instrument, because
it used the words "obligation of the acceptor."
Although I believe the decision of the Supreme Court of Texas to be
wrong, it renders such instruments non-negotiable in the State of Texas
and a~T^arently the sai® rule has been established in Florida by a decision
of the Florida Supreme Court. While it appears from the memorandum submitted. by the General Counsel of the American Bankers' Association that
such acceptances have been held to be negotiable in a number of other
States, the Texas and Florida decisions at least raise a doubt as to the
negotiability of such instruments in all States in which such instruments
have not yet been held to be negotiable. It is highly desirable, that
this doubt be eliminated, therefore, and I am of the opinion the best way
to eliminate it is to adopt the suggestions made by Judge Paton that the
clause contained in the standard form of trade acceptances be changed to
read as follows;
"The transaction which gives rise to this
instrument is the purchase of goods by the acceptor
from the drawer."
This would conform more closely to the language of the Negotiable Instruments
Act and would eliminate the troublesome word "obligation".
In view of the importance of this decision to all the Federal reserve
banks, I feel that it should be communicated promptly to them, together with
copies of this memorandum and of the attached correspondence. I note that
the Federal Reserve Bank of Dallas has placed this subject on the program
for discussion at the Governors' Conference, and the information contained
in this file would be helpful i% connection with that discussion.
In view of the fact that the Board^has heretofore published statements
to the effect that trade acceptances containing the statement that "the
obligation of the acceptor hereof arises out of the purchase of goods from
the drawer" are negotiable, I believe it would be advisable to publish in
the Federal Reserve Bulletin the opinion of the Texas Supreme Court and at
the same time to suggest that the standard clause used in trade acceptances
be changed to read as suggested above. This would prevent the public from
being mislead by the statement heretofore published by the Board and would
suggest a means of minimizing or eliminating altogether the harm which has
been done by the decisions rendered by the courts of Texas and Florida.
The only apparent disadvantage of publishing this decision in the Federal
Reserve Bulletin is that it might provoke further attacks upon the negotiability of trade acceptances now outstanding which contain this clause. I
believe, however, that it is only fair to advise the member banks of the
doubts as to the negotiability of such acceptances and to suggest a new
clause which would eliminate such doubts.
Respectfully,
(Signed) Walter Wyatt,
General Counsel.
O O P
Y
FEDERAL RESERVE BAlffi
OF DALLAS
X-4880— *
b
March 29, 1927
Federal Reserve Board.*
Washington* D* C&
Gentlemen:
Our Counsel, Messrs. Locks, Locke, Stroud & Randolph,
has called our attention to a recent decision of the Supreme Court
of this state in the case of Lane Co. vs. Crum et al, the language
of which it would seem to us would have a very far-reaching effect
The court held that the following language in a trade acceptance,
to-wit:
"The obligation of the acceptor hereof arises
out of the purchase of goods from the drawer,
maturity "being in conformity with the original
terms of purchase,"
renders the same non-negotiable.
The language used by the court in rendering this decision is as follows:
"For an instrument to be negotiable, the obligation of the maker must arise exclusively from
the instrument. No obligation arising from a
collateral transaction can be imported into the
terms of the instrument without destroying the
'
negotiability of the instrument."
Although a motion for re-hearing is now being prepared
this is law in Texas at the present time. The judgment of the
Supreme Court is so at variance with the expressed opinion of
some of the best legal talent of the country that I feel sure
that the Board will be interested in having the action of the
Texas Supreme Court called to its attention.
Yours very truly,
'
(Signed) Lynn P.. Talley,
Governor
4 3 9
C O P
X-4880-c
Y
April 28, 1527
Mrt Robert H* Bean, Executive Secretary,
American Acceptance Council,
120 -Broadway,
New York City.
My dear Mr. Bean:
I received your letter of April 21st referring to a memorandum prepared by Judge Paton, General Counsel to the American Bankers
Association, with reference to the negotiability of trade acceptances
containing the statement that "the obligation of the acceptor hereof
arises out of the purchase of goods from the drawer."
I should have replied more promptly to your letter but I
have been waiting to see whether the Supreme Court of Texas would
grant a re-hearing in the case of Lane Company v. Crum, wherein
it held such acceptances to be non-negotiable. I am now advised
that the Supreme Court of Texas denied a re-hearing in that case.
I agree with Judge Paton that the holding of the Supreme
Court of Texas appears to be wrong and that it is out of line with
the decisions of other States; but it certainly establishes the
law in the State of Texas and at least raises doubts as to the
negotiability of such acceptances in other States where the Courts
have not already held such acceptances to be negotiable. In view
of these facts, I am of the opinion that it would be very unwise
for the American Acceptance Council to distribute any further
forms of trade acceptances bearing this clause, I think it would
be wise to adopt Judge Paton's suggestion and change the clause to
read:
1
1
The transaction which gives rise to this
instrument is the purchase of goods by the
acceptor from the drawer.11
In view of the provisions of section 3 of the uniform Negotiable
Instruments Law, I believe that acceptances bearing this clause would
be held to be negotiable even in Texas andFlorida.
X-4880-c
I am taking the matter up v;ith the Federal Reserve Board and
the Board may decide to publish a new ruling suggesting the adoption of
the form proposed by Judge Paton.
With all best wishes, I am
Cordially yours,
Walter Wyatt.
G-eneral Counsel <
44J
C O P Y
X-4880-d
AKSKICAH ACCEPTANCE COUITCIL
"120 H A W Y
OP A
E3W YOEK
April 21, 1927
Hon. Walter Wyatt, General Counsel,
Federal Reserve Board,
Washington.
My Dear Mr. Wyatt:
Judge Paton, General Counsel of the American Bankers Association, has sent me a copy of a memo prepared in his office
on the subject of the negotiability of Trade Acceptances which contain the clause which has been in use for the past several years,
this question having "been raised by a recent decision of the
Supreme Court of Texas. Judge Paton has also sent me a copy of
his letter to you suggesting a change in the wording of the clause
under consideration so that it will completely conform to the
provision of the Negotiable Instrument Act.
This is quite an important matter as we are
continuing the sale and distribution of a considerable quantity
of Standard Trade Acceptance forms that bear the disputed clause.
If there is to be a change I am inclined to think that we should
withhold further distribution and advise inquirers that a revised
wording of the Trade Acceptance is under consideration.
I would appreciate very much you letting me know
whether in your opinion the action of the Supreme Courts of Texas
and Florida declaring that the present clause destroys the negotiability of the instrument warrants a change in the form for use in
other states. I am in doubt whether the Council should give any
publicity to the recent decision at this time and on this point I
would like your opinion.
With kind regards, I am
Very sincerely yours,
(Signed) Robert EE. Bean
Executive Secretary.
4
C O P Y
^
X-48S0-G
April 28, 1927
Mr. Thomas B. Paton, General Counsel,
American Bankers' Association,
110 East 42nd. Street,
New York City.
Dear Judge Paton:
I have received and. read with much interest your letter
of April 12th and the enclosed memorandum with reference to the
recent decision of the Supreme Court of Texas holding that a trade
acceptance is rendered non-negotiable "by the appearance of the
following clause on the face thereof:
"The obligation of the acceptor hereof arises
out of the purchase of goods from the drawer,
maturity "being in conformity with the original
terms of purchase."
1 should have replied more promptly to your letter, "but I
was advised that there was pending in the Supreme Court of Texas a
petition for a rehearing in the case of Lane Company v. Crum and I
was waiting to see whether such re-hearing would he granted. I am
now advised that the court denied a re-hearing.
I agree with you that the decision of the Supreme Court's
of Texas and Florida appear to he inconsistent with the provisions
of the Negotiable Instruments Law and v.ith the holdings in other
States. They have the effect, however, of rendering such instruments non-negotiable in the States of Florida and Texas and these
decisions at least raise a doubt as to the negotiability of such
instruments in other States where the Courts have not yet specifically held such instruments to be negotiable. In view of this
fact, I think it would be very wise to adopt your suggestion and change
the standard clause on trade acceptances to read as follows:
"The transaction giving rise to this instrument
is the purchase of goods by the acceptor from the
drawer."
Such a statement would, I believe fully serve the purposes to be
served by the clause now in use and would follow so closely the
language of the Negotiable Instruments Act that I believe such
acceptances bearing this clause would be held to be negotiable
even in the States of Texas and Florida.
X-4880-o
-2-
I an taking the liberty of submitting your valuable suggestion to the Federal Reserve Board with the ro connendation that it
be adopted. Inasmuch as the Board has not yet acted upon this natter,
I should appreciate it if you would kindly consider this letter
as purely personal and confidential. It expresses merely ny own
views and not those of the Federal Reserve Board.
With all best wishes, I an,
Cordially yours,
Vial tor Wyatt,
General Counsel.
44
C 0 F Y
THOLES B. P^TOIT
110 East 42nd Street
New York.
/
X-4880-f
April 12, 1227-
Hon. Walter Wyatt, General Counsel,
Federal Reserve Board,
Washington, D. C.
; D e a r Mr. Wyatt:The Suprone Court of Texas has recently hold, following the decision of the Supreme Court of Florida, a year or so ago, that the standard clause in the trade acceptance which has "boon proscribed, I "believe,
under authority of the Federal Reserve Board, namely,
"The obligation of the acceptor hereof arises out
of the purchase of goods from' the drawer"
destroys the negotiability of tfyo instrument. I an enclosing a statement
prepared in this office which explains the situation core fully.
The theory of the Texas court is that the quoted clause must bo
construed as meaning that the obligation of the acceptor does not arise
from the instrument itself by reason of the terms of the acceptance or by
reason of accepting the acceptance, but arises out of a collateral transaction, namely, the fact that the acceptor has purchased goods from the
drawer and that it is necessary for the purchaser, in order to'know what
such obligation is, to look into the transaction itself. In ether words,
the purchaser is put on inquiry as to the terms and conditions of the transaction.
Of course, the phrase "obligation of the acceptor" is intended to moan the instrument as an accepted obligation, or the acceptance itself,
and it seems to mo a misinterpretation of its clear meaning to hold that
the obligation of the acceptor arises cut of his making of the acceptance
rather than cut of the transaction which gives rise to the instrument*
It might just as well bo held where A makes h i s note "for goods sold" that
the note arises cut of itself and not out of the Sale of the goods.
Nevertheless, the fact rer.io.ins that the Supreme Courts of two
states have now held that the standard clause is net a statement of the
transaction which gives rise to the instrument under the Negotiable Instruments Act but couples the trade acceptance with the transaction of sale
of goods to the acceptor so as to make the obligation depend upon the
terms and conditions of such transaction.
In view of this, it might be well to consider the question of
4 4
-2-
X-4880-f
refraining the standard clause of trade acceptance scnowhat along the following lines:
"The transaction which gives rise to this instrument
is the purchase of goods "by the acceptor free the
drawer."
This would strictly conform to the provision of the Negotiable
Instruments Act that the negotiability is not affected by a statement of
the transaction which gives rise to the instrument.
I an taking the liberty of sending a copy of this letter and
enclosure to Mr. Robert H. Bean, Executive Secretary, American Acceptance
Council, 120 Broadway, IT. Y. City, for his information.
Very truly yours,
(Signed) Thomas B. Paton.
X-4S80-g
Legal memorandum from Office of General Counsel of American Bankers Association.
File Ho. 1808 (168).
Prepared by: D. W.
.trade acceptance Negotiability—Texas Decision--Suggested change in form of trade
acceptance to render instrument negotiable even in Texas and Florida—
On March 2, 1927 the supreme court of Texas held a trade acceptance
nonnegotiable. This decision followed an opinion of section A of the Commission of
Appeals*of Texas, Lane Company v* Crum, not yet reported. The trade acceptance
contained the following phrase: (first clause) "Tne obligation of the acceptor
hereof arises out of the purchase of goods from the drawer, (second clause) maturity being in conformity with the original terms of purchase.11 The opinion is quoted below- so far as it relates to the negotiability of the trade acceptance. (The
underlining is used to bring out such wording of the court as is most important
and striking.)
"We agree with the conclusion reached by Associate Justice
Stanford in his dissenting opinion as to the legal effect of the clause
just quoted. In our opinion the clause has effect to render the trade
acceptances non-negotiable under the law merchant as well as under the
Negotiable Instruments Act. The obligation of the acceptor, according
to the terms of said clause, arises not from the instruments themselves,
but from a collateral transaction. For an instrument to be negotiable,
the obligation of the maker must arise exclusively from the instrument.
No obligation arising from a collateral transaction can be imported into
the terms of the instrument without destroying the negotiability of the
instrument. 8 Corpus Juris, pp. 113-114. A. negotiable instrument has
been termed *a courier without luggage, 1 whose countenance is its passport. This apt metaphor does not fit these trade acceptances, for the
reason they are ladened with the equipment of a wayfarer who does not
travel under safe conduct. By their express terms, these instruments
bear burdens whose nature must be sought for beyond the four corners of
the instruments themselves. The clause in question is mora than a mere
as_
permitted by paragraph 2. section 3 of Article 5932 of the Revised Stautes^ So far from being a mere descriptive reference to the transaction
which gave rise to the instrument, the clause, in definite terms, points
to that transaction as the source of the acceptor's obligation to pay the
amount named in the instrument. The legal effect of the clause is to render the paper subject to all the rights and equities of the parties to
the collateral transaction from which the obligation of the acceptor
arises. Parker vs American Exchange Bank, 27 S. W. 1072, 8 C.J. 124."
The opinion of Justice Stanford to which reference is made is found
in 284 S. W. 980, at page 982. This opinion so far as it deals with the negotiability of the trade acceptance is as follows: (As in the above, quotations of the
most striking phrases are underlined.)
"There are two matters that stand out very prominently by rea~
—2—.
X-4880-g
son of the above indorsement, to wit: That 'the obligation of the acceptor arises,'not by reason of the terms of the acceptance, nor by
reason of the accepting of said, acceptance, but out of the fact that
acceptor has purchased goods from the dealer. Then, in order for hrs.
drum to know what the obligation of the acceptor was, she would necessarily have to look beyond the acceptance, she would have to examine the
supposed contract of purchase, and when she did this she would learn
t h e m was no purchase of said goods, but only a 1 special agency agreement.'
Again, said acceptances on their face appear to fall due in 50, 90 and
120 days, but said clause above referred to recites: 'Maturity being in
conformity with the original terms of purchase.1
If the original terms
of purchase had provided that said acceptances matured in 6, 9, and 12
months after date, then would not such provision of the contract have
been controlling? And if this be true, before Mrs. Crum could know
definitely when said acceptance matured, would she not be required to
examine the original terms of said supposed purchase? And when she did
this, she would have learned there was no purchase of said goods, but
only a 1 special agency agreement,1 entered into, by the termsof which,
in effect, said goods wore so left ' t the place of business of the
\
Lane Company and the Cascade Products Company agreed to put on a
special campaign and sell said goods itself, and, if it failed to
sell said goods in 60 days, to take them back, etc. In fact, it is
thought, under the terms of the contract, the obligation of the acceptor, as well as tho maturity of all said acceptances, wss dependent upon a sale of said goods by the Cascade Company or by the joint
efforts of the Cascade Company and the Lane Company, and that Mrs.
Crum was chargeable with notice of the provisions of said supposed
contract of purchase as they affected the obligation of the acceptor,
and also the maturity of said acceptances, and this being true, said
acceptances were not negotiable, and that the trial court was correct
in so holding and admitting appellee's evidence of fraud, etc."
It is possible to construe the phrase "maturity being in conformity with
the original terms of purchase" as the particular provision that renders the
instrument nonnegotiable. So far as this phrase is concerned it would seem
that there could be a reasonable difference of opinion as to the effect on
negotiability. While the opinion of the Commission of Appeals does not segregate
its treatment of the first clause from that of the second clause such segregation
is made by Justice Stanford. Consequently, with the decision that the second
clause renders the instrument nonnegotiable this office .has no particular quarrel,
especially in view of the fact that this clause is not embodied in the recommended
form for trade acceptance. However, this office is vitally concerned with the
question whether the first phrase, "The obligation of the acceptor hereof arises
out of a purchase of goods from the drawer?" renders the instrument nonnegotiable.
This matter is considered in detail in Pat'on's Digest, 1926, opinion 168 and the
following. Opinion 168a in the second volume is a criticism of the decision of
the Florida supreme court is. Citizens' State Bank of Marianna v. Carmichael, 103
So.Ill, holding a trade acceptance nonnegotiable. In this Florida case the opinion is a short "per curiam" opinion which does not give any extended reasoning
in support of the holding; in fact it is quite difficult to ascertain from the
opinion exactly what the decision of the court is., This lack of clearness
weakens the effect of the Florida decision as a precedent.. In addition to the
decisions cited in the Digest there have been several rendered subsequent to the
publication of the Digest, some of which are digested below:;
-3-
X-4830-g
448
J 1
Alabama; Exchange National Bank v. Abbott Nursery C o . A l a . — 110 So.
809. The trade acceptance on its face contained the following: "Part payment for
5,000 Vlag automatic grove heaters and contingent upon delivery -prior to October
1st, 1523.11 The court considered the trade acceptance nonnegotia'ole but this may
have been entirely due to the quoted provision.
California: Fagin v. Schilling, 250 Pac. (Cal. App.) 574. The opinion
does not give the form of the trade acceptances involved but it is presumed that
they were in the standard form and contained the first clause quoted in the Texas
decision. The court stated "that the acceptances were subject to the same defenses
as if they were nonnegotiable" because the holder was not a bona fide purchaser.
Kansas: Howard v. Eeiter, 243 Pac. 278; rehearing denied 244 Pac. 4.
The Kansas supreme court definitely committed itself to the proposition that a
trade acceptance is a negotiable instrument. It stated in support of such conclusion:
"There is nothing new in this case, and it is controlled by the
recent decisions involving similar instruments executed by other victims
of the same derelict oil company. Bank v. Fowler, 113 Kan. 440, 215 P. 290;
National Bank v. Greathouse, 114 Kan. 903, 220 P. 1053; State Bank v.
Harford Bros., 118 Kan. 262, 226 P. 750; State Bank v. Grennan, 116 Kan.
442, 227 P. 530; Bray v. Wetzel, 118 Kan 283, 234 P. 965."
New Jersey: As bury Park Electric Supply Co. v. McGill, 133 Atl.
(Sup.) 181. The trade acceptance is quoted in the opinion which shows that it
is in the regular form with the standard clause: "The obligation of the acceptor
hereof arises out of the purchase of goods from the drawer." The court seems to
assume that the instrument was negotiable since it quoted Sec. 14 of the Negotiable
Instruments Act, which is confined in its application to negotiable instruments.
It also stated that the plaintiff was not a holder in due course. Such a statement
implies that the instrument was negotiable for if it were nonnegotiable it woiild
be immaterial whether the holder was a holder in due course or not.
North Carolina: First National Bank of Columbus v. Bochamora, 136 S. E.
259. While the form of the trade acceptance is not given in the opinion nevertheless it is assumed as above, that such acceptance was in the standard form. The
court said: "The 'bill of exchange1 or 1 trade acceptance1 was a negotiable instrument. This is conceded on the record. Sherrill v. Trust Co., 176 N. C» 591, 97
S. E. 471."
Oklahoma: American Trust Company v. Walker, 246 Pac. 833. The form
of the trade acceptance is quoted in the opinion which shows that the standard
form was used. The court stated that there was no evidence 11 that the plaintiff was
not the holder of the notes (trade acceptances), in due course, for value and before maturity, and without notice of any claim of fraud." This phraseelogy is material only if the instrument be considered negotiable; consequently the use of
the above wording shows that the court considered the instrument negotiable.
Rhode Island:
Salem Trading & Finance Co. v. Peterson, 136 Atl. 445.
4 4 9
-4-
&-4880-g
The form of the trade acceptance is not given "but, as above, the presumption Is
that the standard form was employed. The court assumed that the trade acceptance
was negotiable and left to the jury the question whether the owner was a holdef
in due course. If the instrument were a nonnegotiable one, to leave such question
to the jury would have been erroneous.
The above list of digested decisions may not be exclusive. It, however,
shows the opinion of the courts outside of Texas and Florida to the effect that
trade acceptances in the standard form are negotiable.
It is well known that federal reserve banks discount trade acceptances.
This is expressly authorized by Regulation A of the Federal Reserve Board, series
of 1924. See particularly paragraph 1009 on page 859 of Paton's Digest. Furthermore federal reserve banks are authorized to purchase in the open market trade
acceptances. Regulation B, series of 1924, quoted on page 861 of Baton's Digest.
The standard form of trade acceptance has been approved by the Federal Reserve
Board. Mathewson's "Acceptances, Trade and Banker's, "p. 21. The original Regulation P of the Federal Reserve Board as quoted on page 42 of Mathewson1s book
reads in part as follows:
1
1
Such evidence", that the trade acceptance is drawn by the seller on the purchaser of goods, "may consist of a certificate on or accompanying the acceptance to the following effect: ' The obligation of
the acceptor of this bill arises out of a purchase of goods from the
drawer.1,1
(in passing it may be well to quote the following sentence from page 15 of this
book: "A trade acceptance is a negotiable acknowledgment of the receipt of goods,"
This statement the author quotes with approval from the president of a large national bank.) The statements immediately above are of particular value if it is
the invariable custom of federal reserve banks not to rediscount nonnegotiable paper. Such custom would seem to be inevitable for it would be decidedly improper
for a federal reserve bank to take paper which would be subject to defenses which
the purchaser of goods might have against the seller. That such is the custom of
federal reserve banks is made absolutely certain by a ruling of the Federal Reserve
Board given in the May, 1923 Federal Reserve Bulletin, p. 559. Certain extracts
from this ruling follow:
"Although negotiability is not required in specific terms by
the Federal reserve act or by the board's regulations as a condition of the eligibility of notest drafts, or bills of exchange for
rediscount, it has always been contemplated by the board as one of
the primary requisites of eligibility. ......'The definition of a
draft or bill of exchange contained in the board's Regulation A is
substantially the same as the definition of abill of exchange set
forth in the negotiable instruments law, thus indicating clearly
that these instruments also must be negotiable in order to be eligible for rediscount.
"All nonnegotiable notes, drafts, and bills of exchange, therefore, are ineligible for rediscount at Federal reserve banks,"
It appears from the above that neither the Federal ReserveBoard nor the
banks had prior to the decisions in Florida and Texas any doubt as
federal reserve
450
—o—
X—4880—g
to the negotiability of a trade acceptance in the standard form* This means that
the standard form was so interpreted in commercial circles as not to render the
instrument nonnegotiable. It would certainly seem that the courts should put into
effect this practically universal commercial interpretation of the form of the
trade acceptance.
We come now to the merits of the Florida and the Texas decisions. We
have already considered the Florida decision and as above noted this is criticized in Paton's Digest, opinion 168a. However, the Texas decision needs more extended treatment since the court gives reasons for its conclusions. The court
states in substance that the form, "The obligation of the accentor hereof arises
out of a purchase of goods from the drawer,M makes the instrument nonnegotiable
since if the obligation arises from a collateral transaction that collateral trans•
action must be resorted to in order to ascertain the exact obligation. In the light of the Texas decision it is seen that the statement, that the obligation of
the acceptor arises out of the purchase of goods, is subject to certain technical
objections. It is true that the obligation of the acceptor as acceptor arises
from his acceptance. Only indirectly does it arise from the -ourchase of goods.
The obligation arising from the purchase of goods is normally a nonnegotiable obligation. An obligation arising from an acceptance is usually negotiable* The
distinction between negotiable instruments and nonnegotiable instruments is very
marked. The former are not subject to defenses between the original parties while
the latter are. Notwithstanding the fact that the phrase used in the standard *
form is subject to technical objection nevertheless, as above stated, it seems
that the courts should take the real meaning of the phrase and construe the instrument accordingly. It is undoubtedly true that the parties to trade acceptances from their very inception have considered that such instruments were not
subject to any collateral transactions. In other words, such parties considered
that the face of the instrument itself embodied the whole obligation of the acceptor irrespective of any collateral transactions between the parties. "This is
the test of negotiability so far as the phrase in question is concerned.
Although the Texas and Florida decisions may be erroneous (and this
office considers them such) nevertheless such decisions do actually exist and if
the courts in two states have so held it is not beyond the realm of possibility
that the courts in some other states may follow these decisions as precedents.
Under these decisions of Texas and Florida trade acceptances are nonnegotiable.
(This is on the assumption that it is not the second clause in the Texas form
which alone renders the instrument nonnegotiable.) Trade acceptances accepted in
Texas and Florida undoubtedly circulate to a large extent throughout the other
stat.s; consequently the question is not merely a local one for the two jurisdictions h^ntioned#
Suggested amendment t standard form of trade acceptance.
o
The above discussion leads to the suggestion that it may be possible so
to alter the wording of the standard form of trade acceptance that the courts of
Texas and Florida as well of other jurisdictions will be compelled to hold a trade
acceptance negotiable. In other words, the question is presented whether it is
possible to make the case for negotiability so clear that no court can go so far
wrong as to hold them nonnegotiable* Sec. 3 of the negotiable Instruments Act
reads as follows:
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X-4880—g
"An unqualified order or promise to pay is unconditional, within the meaning of this act, though coupled with:- ....(2.) A statement of the transaction which gives rise to the instrument,"
It should "be noted that the standard form of trade acceptance states that the
of the acceptor arises out of the purchase of goods while the Negotiable Instruments Act makes reference to the "Instrument" which, arises out of
the transaction. There.is a distinction of course between an obligation and an
instrument. The very words of the Negotiable Instruments Act may be incorporated
in a trade acceptance by the use of the following phrase:
"The transaction giving rise to this instrument is a purchase of
goods by the acceptor from the drawer."
I do not see how the above suggested form could be so misinterpreted by
any court that it would hold the instrument nonnegotiable• Consequently this
form is recommended as a substitute for the present form used. Other forms
might be suggested. These, however, to a lesser extent embody the very wording
of the Negotiable Instruments Act, and consequently would seem to be less desirable.
One of these, more concise than that above quoted, is as follows:
"This instrument arises out of a pur chase of goods by the acceptor from the drawer."
It should be noted that both these forms follow the Negotiable Instruments Act in making an instrument rather than an obligation arise from the transaction.
c o p y
X-4840
HO, 910 - 4764
COMMISSION OF APPShI" '
S3CTI0N A.
*
THE LAKE COMPAHY,
PLAINTIFF IN ERROR,
*
*
*
FROM M c L E M A H COTSTY,
*
VS
MBS. B. V. GRUM, ET AL,
*
*
*
TENTH DISTRICT.
*
DEFE1TBA1JTS IN ERROR.
*
On June 24, 1924, W. E. Williams, under the trade name of
Cascade Products Company entered into a contract in writing with The
Lane Company, with reference to the delivery "by the Cascade Company to
The Lane Company of a certain number of washing machines.
The contract
is set out in full in the majority opinion of the Court of Civil Appeals
It is unnecessary to a decision here, that ve determine whether such
contract constitutes a sale contract or merely an agency agreement.
In
September, 1924, the number of machines called for in the contract were
delivered by the Cascade Company to The Lane Company, who declined to
accept them but held them subject to the order of the Cascade Company.
At the time the contract above mentioned was made, and as a
part of the transaction, The Lane Company accepted three trade accept
tances or drafts drawn by the Cascade Company, each for the sum of
$378.00, and payable respectively sixty, ninety and one hundred and
twenty days after date.
The form of these instruments is such as to
make them negotiable instruments, unless the clause appearing in each
of them, which is hereinafter stated, renders them non-negotiable in
453
X-4340
struments.
On October 29, 1924, The Lane Company "brought this suit
against W. E. Williams and Mrs. B. V. Crura to cancel these three trade
acceptances on the ground that the washing machines were not as represented, and the machines were tendered to the defendants.
Mrs. Crum
answered by a cross-action seeking to recover on the trade acceptances,
alleging that she was an innocent holder thereof in due course of trade,
for value, "before maturity.
She cause was tried "before a jury and re-
sulted in a judgment "being rendered cancelling the three trade acceptances and awarding to Mrs. Crura the washing machines.
On appeal, this
judgment was reversed "by the Court of Civil Appeals, and judgment rendered by that court for Mrs. Crum on the trade acceptances, (284 S.W. 980)Associate Justice Stanford dissenting.
The contention of The Lane Compa.ny is that the following clause
of the trade acceptances renders same non-negotiable and therefore subject to the rights and equities of said company growing out of its said
contract with the Cascade Company, to wit:
"The obligation of the acceptor hereof
arises out of the purchase of goods from
the drawer, maturity being in conformity
with the original terns of purchase."
We agree with the conclusion reached by Associate Justice
Stanford in his dissenting opinion as to the legal effect of the clause
just quoted.
In our opinion the clause has effect to render the trade
acceptances non-negotiable under the law merchant as well as under the
Negotiable Instruments Act.
The obligation of the acceptor, according
to the terms of said clause, arises not from the instruments themselves,
- 3 -
"but fron a collateral transaction.
X-4840
For an instrument to be negotiable,
the obligation of the maker must arise exclusively fron the instrument.
No obligation arising from a collateral transaction can be imported
into the terns of the instrument without destroying the negotiability
of the instrument.
8 Corpus Juris, pp. 113-114.
A negotiable in-
strument has been termed "a courier without luggage," whose countenance
is its passport.
This apt metaphor does not fit these trade acceptances,
for the reason they are ladened with the equipment of a wayfarer who
does not travel under safe conduct.
By their express terms, these in-
struments bear burdens whose nature must be sought for beyond the four
corners of the instruments themselves.
The clause in question is more
than a mere "statement of the transaction which fives rise to the instrument," as permitted by paragraph 2, section 3 of Article 5932 of the
Revised Statutes.
So far from being a mere descriptive reference to the
transaction which gave rise to the instrument, the clause, in definite
terms, points to that transaction as the source of the acceptor's obligation to pay the amount named in the instrument.
The legal effect of
the clause is to render the paper subject to all the rights and equities
of the parties to the collateral transaction from which the obligation
of the acceptor arises.
Parker vs American Exchange Bank, 27 S. W.
1072, 8 C. J. 124.
We recommend that the judgment of the Court of Civil Appeals
reversing the judgment of the trial court and rendering judgment for
-
4
-
X-4840
defendant in error, " e reversed and that the judgment of the trial court
h
" e affirmed.
b
HAEV3Y,
Presiding Judge.
Judgment of the Court of Civil Appeals reversed, and that of
the District Court affirmed, as recommended " y the Commission of Appeals,
b
C. M. CUBET01T,
Chief Justice.
March 2, 1927.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X—4881
.June 21, 1927j
SUBJECT:
Assessment for general expenses of Federal Reserve Board
July 1 to December 31, 1927.
Dear Sir:
Confirming telegraphic advice of this date, there is
enclosed herewith copy of a resolution adopted "by the Federal
Reserve Board at a meeting held on June 21, 1927, levying an
assessment upon the several Federal reserve "banks of an amount
equal to one hundred three thousandths of one per cent (.00103)
of the total paid-in capital stock and surplus of such banks as
at close of "business June 30, 1927, to defray the estimated
general expenses of the Federal Reserve Board from July 1 to
December 31, 1927.
Kindly deposit one-half of the amount of your assessment in the General Account, Treasurer, U. S., on your "books
July 1, 1927, and one-half September 1, 1927, in each instance
issuing a C/D for credit of "Salaries and Expenses, Fedora1 Reserve Board, Special Fund", assessment for general expenses,
and sending a duplicate C/D to the Federal Reserve Board. Also
please furnish a statement of your capital and surplus used as
a basis for the assessment.
Very truly yours,
Enclosure.
Fiscal Agent.
(SeiKt to Chairman of each Federal reserve bank).
4 5 7
X-4881-a
RESOLUTION LEVYING ASSESSMENT
Whereas, under Section 10 of the Act approved
December 23, 1913, and known as the Federal Eeserve Act,
the Federal Reserve .Board is empowered to levy semi-annually upon the Federal reserve hanks in proportion to
their capital stock and surplus an assessment sufficient
to pay its estimated expenses, including the salaries of
its members, assistants, attorneys, experts and employees
for the half-year succeeding the levying of such assessment, together with any deficit carried forward from the
preceding half-year; and
Whereas, it appears from estimates submitted
and considered that it is necessary that a fund equal
to one hundred three thousandths of one per cent (.00103)
of the total paid-in capital stock end surplus of the
Federal reserve banks be created for the purpose hereinbefore described,exclusive of the cost of engraving and
printing of Federal Reserve notes; Now, therefore,
BE IT RESOLVED, That pursuant to the authority
vested in it by law, the Federal Reserve Board hereby
levies an assessment upon the several Federal reserve banks
of an amount equal to one hundred three thousandths of one
per cent (.00103) of the total paid-in capital and surplus
of such banks as of June 30, 1927, and the Fiscal Agent of
the Board is hereby authorized to collect from said banks
such assessment and execute, in the name of the Board, receipts for payments made. Such assessments will be collected in two installments of one-half each; the first installment to be paid on July 1, 1927, and the second half
on September 1, 1927.
X-4882
F E D E R A L
R E S E R V E
3 0 A 1 D
STATE: iENT FOR THE PRESS
For immediate release.
June 22, 1927.
CONDITION OF THE ACCEPTANCE MARKET
May 19, 1927 to June 15, 1927
The supply of bills in the New York acceptance market was steady and
in good volume during the four weeks ending June 15, although slightly less
than during preceding weeks.
The bulk of bills bought by dealers was based
on cotton, silk, coffee and sugar.
There was a distinct decline in demand
early in the period on account of a falling off in orders for foreign account,
and rates on 6 months bills were increased by some dealers but exceptionally
heavy foreign buying of 90-day bills occurred toward the middle of June.
Dealers1 portfolios were thus reduced to mode.' Le proportions with small offerings to the Federal reserve bank. An inadequate supply of short bills was
reported from Boston and Chicago, with a surplus of 90-day bills during the first
three weeks of the period.
Market rates remained unchanged, except for an advance in 6 months bills
on June 8, and stood as follows at the beginning and end of the period;
Acceptance rates in the New York market
May 19
Maturity
30 days
60
"
90
"
120
"
180
"
Bid
3
3
3
3
3
5/8
3/4
3/4
7/8
7/8-4
Asked
3 1/2
3/5/8
3 5/8
3 3/4
3 3/4 - 3 7/8
Bid
3
3
3
3
4
5/8
3/4
3/4
7/8
.
June 15
Asked
3
3
3
3
3
1/2
5/8
5/8
3/4
7/8
X-4883
FEDERAL RESERVE BOARD
WASHINGTON
June 23, 1927.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Code word designating
San Antonio Branch.
Dear Sir:
The Board has been advised "by the Federal Reserve Bank of Dallas that its San Antonio
Branch will be opened for business on Tuesday,
July 5, 1927.
Accordingly, the code word "DREDGING-"
has been designated to indicate the San Antonio
Branch of the Federal Reserve Bank of Dallas,
which word should be inserted on page 76 of the
Federal Reserve Telegraph Code.
Very truly yours,
E, M. McClelland,
Assistant Secretary.
TO GOVERNORS OF ALL F.R.BA2TKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4585
Julie 23, 1927.
SUBJECT:
Report of the Pension Committee.
Dear Sir:
The Pension Committee submitted to the Governor
Conference held here last May a report recommending among
other things that there " e appropriated an additional
b
$10,000 for the expenses of the Committee which, with the
balance remaining from the original appropriation, the
Committee believes will be sufficient to permit the new
actuarial work recommended by it and to pay such other
necessary expenses as will be incurred within one year.
The Board approves of the Federal reserve banks
making the additional appropriation recommended by the
Committee and has requested the Federal Reserve Bank of
Hew York to call upon the other Federal reserve banks for
their pro rata share thereof.
Very truly yours,
D. R. Crissinger,
Governor.
TO ALL GOVERNORS .
FEDERAL RESERVE BOARD
WASHINGTON
2-4886
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 23, 1927.
SUBJECT: Report of the Standing Committee on
Collections.
Dear Sir:
The Federal Reserve Board has considered and
approved of the action of the Governors' Conference ifl
referring the report of the Standing Committee on Collections to all Federal reserve "banks for study and comment
upon the suggestions contained therein prior to the next
Governors' Conference.
Very truly yours,
D. R. Crissinger,
Governor.
TO GOVERNORS OF ALL F. R . BANKS
FEDERAL RESERVE BOARD
WASHINGTON
>
46<
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-48S7
June 24, 1927.
>
SUBJECT:
Expense of services rendered for Government
Agencies.
Dear Sir:
At the recent Governors1 Conference consideration
was given to the question of whether or not Federal reserve
banks should he reimbursed by Federal land banks for expenses
involved in paying Federal farm loan coupons. It was reported
to the Board to be the sense of the Conference that in principle the Federal reserve banks should be reimbursed for services performed for Government agencies other than the Treasury,
when the expense involved is sufficient to justify the banks
asking for reimbursement.
I am requested to advise you that the view of the
Board with respect to the Federal reserve banks seeking reimbursement for such expense incurred by them is not in
harmony with the vie* of the Conference, as expressed above.
Very truly yours,
>
D. R. Crissinger,
Governor.
TO AIL GOVERNORS.
FEDERAL RESERVE BOARD
WASHINGTON
X—4888
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 24, 1927.
Dear Sir:
The Federal Reserve Board has been viewing with some concern the constant growth of time deposits and the weakening of the
reserve position of the banks of the country due to the practice
which, it is believed, prevails to some extent of transferring
what are in effect demand deposits into so-called time certificates or savings accounts. This matter was also made the subject of discussion at the recent Governors' Conference, and
the Conference suggested that if the Board finds that it cannot
adequately cope with this tendency by regulation, steps should
be taken to impress upon the Congress, at its next session,
the importance of amending the reserve provisions of the Federal Reserve Act in such manner as to safeguard the banking
position of the country.
For its information and guidance, the Board desires
from each Governor, Federal Reserve Agent and from the Federal
Advisory Council any suggestions which they may have to make as
to action Vfoich can be taken by the Board, under existing law,
to deal with the tendency toward the conversion of deposits
from demand to time classification.
Veiy truly yours,
D. R. Crissinger,
Governor.
TO ALL GOVERNORS A W
FEDERAL RESBRV" AG3FPS.
X-4890
F E D E R A L
R E S E R V E
B O A R D
STATEMENT FOR THE PRESS
For immediate release:
June 25, 1927.
The Federal Reserve Board is advised by the Federal Reserve Bank of
Dallas that the "branch of that tank to be established at San Antonio, Texas, will
open for business on July 5, 1927,
The personnel of the directorate of the San Antonio Branch will cornrise the following:
Appointed by the Federal Reserve Bank of Dallas:
Mr.
Mr.
Mr.
Mr.
M. Crump, Managing Director.
Ernest Steves.
Franz C., Grcos.
R. T. Hunnicutt.
San
San
San
Del
Antonio, Tex.
Antonio, Tex.
Antonio, Tex.
Rio, Texas.
Appointed by the Federal Reserve Board:
Mr. H. H. Rogers.
Mr. Reagan Houston.
Mr. F. E. Scobey.
San Antonio, Tex.
San Antonio, Tex.
San Antonio, Tex.
X-4891
F E D E R A L
R E S E R V E
B O A R D
STATEMENT FOR THE PRESS
\
For release in Morning Papers,
Monday, June,27, 1927.
The following is a summary of general business and financial conditions throughout the several Federal Reserve
Districts, "based upon statistics for the months of May and
June, as contained in the forthcoming issue of the Federal
Reserve Bulletin.
Industrial production increased in May and continued at a higher level
than a year ago, while distribution of commodities was in smaller volume than
last year.
The general level of wholesale commodity prices has changed but little
in the past two months.
Production:
Output of manufactures increased considerably in May, while production of
minerals was maintained at the April level.
Increased activity was shown in cot-
ton and woolen mills, in meat packing, and in the production of lumber; the output of iron and steel, nonferrous metals, automobiles, and building materials,
after allowance for usual seasonal variations, was maintained at practically the
same level as in April.
Since the latter part of May, however, production of
steel and automobiles has declined.
The total value of building, contracts award-
ed continued slightly larger in May and in the first two weeks of June than in
the corresponding period of last year.
Production of winter wheat was estimated
by the Department of Agriculture on the basis of June 1 condition at 537,000,000
bushels, or 90,000,000 bushels less than last year.
The indicated rye production
was placed at 48,600,000 bushels, which is 20 per cent larger than the crop in
1926.
Trade:
Sales of retail stores in May showed more than the usual seasonal decline
-2from the high April level.
X-4891
Compared with May of last year, department store sales
were about 4 per cent smaller, while those of mail order houses were slightly larger.
Value of wholesale trade of all leading lines, except groceries and meats,
w&. \smaller in May than in April and in the corresponding month of 1926.
Inven-
tories of merchandise carried "by department stores showed slightly more than the
usual seasonal decline in May and at the end of the month were somewhat smaller
han a year ago.
Stocks of wholesale firms were also smaller than last year.
Freight car loadings increased in May by less than the usual seasonal amount, and
for the first time in over a year daily average loadings were in smaller volume
than in the corresponding month of the preceding year.
Loadings of all classes of
commodities except livestock, ore, and miscellaneous products were smaller than
last year.
Prices:
The general level of wholesale commodity -rices has remained practically
unchanged since the middle of April.
Prices of grains, cotton, and hides and
skins have advanced, "but these advances have been offset in the general index by
declines in the prices of livestock, wool, silk, metals, and rubber.
Bank Credit:
Demand for bank credit to finance trade and industry remained at a constant
level between the middle of May and the middle of June, and the growth in the vol
time of credit extended by member banks in leading cities during the period was in
io 1 dings of securities and in loans on stocks and bonds.
Loans to brokers and d e f -
ers in securities by reporting member banks in New York City increased rapidly and
on June 15 were in larger volume than at any previous time covered by the reports.
At the Federal reserve banks there was little net change in the volume of
bills and securities between May 25 and June 22, the fluctuations during the period reflecting largely the effects of Treasury operations.
Discounts for member
w
-3-
/
X-4891
banks toward the end of June were in about the same volume as a month earlier
while there was a decline in the reserve hanks' holdings of acceptances and an
increase in their portfolio of United States securities.
Conditions in the money market were fairly stable throughout the period,
with slight advances in the rates on commercial paper and more recently on bankers
acceptances.
X-4892
TREASURY DEPART!^! 1
Office of the Secretary
Washington
June 25, 1927.
The Governor
Federal Reserve Board.
\ Sir:
You are hereby advised that the Department has referred to the Disbursing
Clerk, Treasury Department, for payment, the account of the Bureau of Engraving
and Printing for preparing Federal reserve notes during the period June 1, 1927,
to June 24, 1927, amounting to $105,188.40, as follows:
Federal Reserve Notes, Series 1914
§5
Boston
Hew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Minneapolis
Kansas City
Dallas
San Francisco
69,000
452,000
200,000
37,000
348,000
23,000
54,000
23,000
250,000
1 ,456,000
$50
$20
10,000
Total
$100
69,000
949,000
15,000
272,000
61,000
100,000
50,000
32,000
200,000
50,000
50,000
200,000
139,000
100,000
10,000
10,000
125,000
50,000
69,000
642,000
73,000
104,000
23,000
509,000
954,000
419,000
20,000
25,000
2,874,000
261,000
25,000
94,000
2,874,000 sheets ti $36.60 per M
$105,188.40
The charges against the several Federal Reserve Banks are as follows:
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Minneapolis
Kansas City
Dallas
San Francisco
$
2,525.40
34,753.40
9,552.60
4,575.00
1,830.00
2,525.40
23,497.20
2,671.80
3,806.40
841.80
18,629.40
$105,188.40
The Bureau appropriations will he reimbursed in the above amount from the
indefinite appropriation "Preparation and Issue of Federal Reserve Notes, Reimbursable", and it is requested that your board cause such indefinite appropriation to be reimbursed in like amount.
Respectfully,
S. R. Jacobs,
Doputy Commissioner.
X-4893
FEDERAL, RESERVE BOARD
WASHINGTON
June 28, 1927,
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Inclusion of San Antonio in Inter-district Time Schedule.
Dear Sir;
At the request of the Federal Reserve Bank of Dallas, and
upon the understanding that the proposal has been taken up with, and
is satisfactory to,all other Federal Reserve Banks, the Federal Reserve Board has included the San Antonio Branch of the Federal Reserve Bank of Dallas in the Inter-district time schedule, with time
between it and other Federal reserve points as follows:
One Day:
Dallas
Houston
Two days:
Birmingham
Chicago
El Paso
Kansas City
Little Rock
Louisville
Memphis
Nashville
New Orleans
Oklahoma City
St. Louis
Three Days:
Atlanta
Baltimore
Buffalo
Cineinnati
Cleveland
Denver
Detroit
Jacksonville
Los Angeles
Minneapolis
New York
Omaha
Philadelphia
Pittsburgh
Four Days:
Boston
Helena
Portland
Richmond
Salt Lake City
San Francisco
Five Days:
Seattle
Spokane
Very truly yours,
Walter L. Eddy,
Secretary.
TO GOVERNORS OF ALL F.R.BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 29, 1927.
SUBJECT:
Redemption by Veterans Bureau of Renewal Noted
Secured by Adjusted Service Certificates.
Dear Sir;
One of the Federal reserve banks recently requested
the Federal Reserve Board to obtain from the TJ. S. Veterans
Bureau a rulihg on the question Whether the note of a veteran,
secured by an adjusted sefvice certificate, if renewed by the
bank riiaking the loan, will be redeemed by the Veterans Bureau
in caSe the note is not paid.
The Veterans Bureau has advised the Board as
follows:
"You are informed that renewals will be considered by the Bureau as new loans and new notes
will be redeemed not less than six months from the
date of such notes.
"In order to relieve any anxiety which the banks
may have concerning the Bureau's policy for redeeming
loans, you are informed that although the Regulation
states that redemption may be refused under the discretion authorized by law, the Bureau will not exercise
this discretion except under very extraordinary circumstances and will redeem notes and certificates properly
presented at any time they may be forwarded after the
necessary six months, required by law, have expired."
Very truly yours,
Walter L. Eddy,
Secretary.
TO GOVERNORS OF JELL F.R.BANKS.
FZ j ",am RESERVE BOARD
January 4, 1A27St.5215*
For immediate release
STATSM"^T FOR THE PRESS
Gross earnings of the twelve Federal reserve banks for 1926 were
$47,500,000 or about $5,800,000 more than for 1925, while current operating expenses amounted to $27,360,000 or $170,000 less than for 1925.
The banks set aside from their earnings $3,630,000 as reserves to cover
depreciation charges and reserves for losses on discounted paper, etc.
and paid dividends to member banks amounting to $7.329,000.
Het earn-
ings for 1 9 2 6 amounted to $l6,6l0,000 as against $9,450,000 for 1925.
The Federal Reserve Banks of Boston, Richmond, Minneapolis and
Kansas City paid a total of $818,150.51 into the Treasury of the United
States as franchise tax.
All of the net earnings of the eight other
reserve banks were transferred to their surplus accounts as required by
law, the surplus accounts of these banks at the end of the year being
materially less than their subscribed capital.
The total subscribed
capital of the twelve Federal reserve banks on January 1, 1927, amounted
to $249,628,000, and combined surplus accounts to $228,775,000.
Full
details as to the disposition of the gross earnings of each
Federal reserve bank will apooar in the forthcoming annual report of
the Federal Reserve Board.
FEDERAL RESERVE BOARD
WASHINGTON
#
mar;
January 5, 1927,
St. 5214.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
Dear Sir:
There is enclosed, herewith a list of member and non-member banks reported to the Board, as
having suspended operations during the month of December and cf banks previously suspended which resumed business during the same month. The statement
also includes any corrections made in the lists previously sent to you. It will be appreciated if you
will kindly check the data pertaining to your district against your records and advise the Board as
soon as practicable whether or not any corrections
or additions are necessary therein.
We are also enclosing a statement showing
the number of bank suspensions in each state in your
district by months during 1926 and it will be appreciated if you will have this statement checked against
your records and advise us of any changes that appear
necessary. In notifying us of changes in this statement kindly give the names, locations, etc., of the
banks added or eliminated. The names of these banks
may be ascertained by referring to the monthly lists
of bank suspensions furnished to you for checking
each month, since the number shown in the attached
statement for each month is the same as that contained
in the regular monthly statement with such changes
therein as you have requested us to make, and which
have been shown on the last page of subsequent statement s.
Very truly yours,
Walter L. Eddy,
Secretary.
L5JT3R TO ALL FEDERAL HE SERVE AGEHTS*-
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 6, 132J.
St.5218.
SUBJECT:
Schedule of Federal Reserve
Bank Personnel.
Dear Sir:
Will you kindly furnish the Board with a statement
relating to the personnel of your hank (including branches,
if any) as at close of business on December 31, 192$ and
1926, and as of January 1, 1926 and 1927, made out in accordance with the form attached hereto. The figures for December
31, 1925 a^d 1926 will be published in the Board 1 s 1926 annual
report, and accordingly should not take account of changes in
either the number or salaries of officers or employees that
are put into effect as of January 1. The figures for January
1 should include any changes in salary made after January 1,
if retroactive to that date. In determining whether or not a
given individual should be listed as an officer or an employee
the Board's letter X-3532 of October 5, 1922 should be used
as a guide. After the statement has been completed it should
be compared with data published on pages 261-26$ of the Board's
1925 annual report, so that any differences may be reconciled
before the report is transmitted to the Board and in order
that the figures for all dates may be on the same basis.
Kindly supplement the schedule with a statement
showing, by functions and units, the number and salaries of
t'other employees" whose salaries are reimbursed to the bank.
Very truly yours,
Walter L. Eddy,
Secretary.
•
Enclosure.
TO CHAIRMAN OF EACH FEDERAL BF.SSRVS BASK*
4 %
St. 5218a
FEDEBAL BE SERVE B A M OF
(Including tranches)
lumber
Jan. 1 Jan. 1 Dec. 31 Dec. 31
1926
1926
1927
1925
Officers:
Chairman and Federal Reserve Agent
Governor
*
Other officers
Employees by departments:
Banking department
Federal Reserve Agent 1 s department
Auditing Department
Fiscal Agency Department
Annual Salaries
Dec 31
Jan. 1
' 1926
1926
Dec,, 31
1925
|
1
*
Total
Employees whose salaries are
reimbursed to bank:
Fiscal Agency department
Other employees*
Grand Total
Temporary employees (not to be
included above)
* Subdivide by functions and units on separate sheet.'
Jan 1
1927
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 10, 1927
s t . 5221
SUBJECT:
Forms for use during 1927.
Bear Sir:
There are "being forwarded to you today under
separate cover a supply of the following forms for use
during 1927:
Form
Form
Form
Form
Form
Form
copies
copies
copies
copies
copies
comes
38,
E,
95,
96,
97>
171,
In connection with the monthly report of current expenses, form 96, it is requested that all contributions, other than for employees' education, made to the
Federal Reserve Club or Federal Reserve Society, whether
directly or indirectly, including any part of the cost of
printing the Federal Eoserve Club magazine paid by the
bank, be reported against sub-item 25 on the reverse side
of the form. Contributions made for employees1 education
whether through the Federal Reserve Club or otherwise,
should bo reported against sub-items 21 and 24*
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations
TO GOVEENOES OF ALL F. E. B A M S *
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 13, 1927s t . 5226.
SUBJECT:
Reports of Condition of State
Banks and Trust *Coroanies.
Dear Sir:
It will he grestlv appreciated if in accordance with, your usual practice you will kindly furnish
the Federal Reserve Board, as soon as available, with
a copy of the abstract of reports of condition of
State banks and trust companies in your state on December 1)1, 1926, or other recant date in case you did
not issue a call for reports of condition as of December ])1, and for any other date since June 30 for
which a call for condition reports ?as issued.
In submitting tho above mentioned data it
is requested that the number of banks be stated and
that separate figures be furnished for mutual savings
banks providing there are any such banks operating in
your state, also that tho figures be segregated by
Federal reserve districts.
A franked and self-addressed envelope, requiring no postage, is enclosed for use in transmitting the data requested.
Very truly yours,
J; C; Noell,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 13, 1927
s t . 5227
SUBJECT:
Reports of Condition of State
Banks and Trust Companies.
Dear Sir:
It will be greatly appreciated if in
accordance with your usual practice you will kindly
furnish the Federal Reserve Board, as soon as
available, with a cop;- of the abstract of reports
of condition of state banks and trust companies in
your state on December J>lr 192b, or other recent
date in case you did not issue a call for reports
of condition as of December 31. and for any other
date since June 30 for which a call for condition
reports was issued.
In submitting the above mentioned data it
is requested that the number of banks be stated and
that separate figures be furnished for mutual savings banks providing there are any such banks
operating in your state.
A franked and self-addressed envelope,
requiring no postage, is enclosed for use in transmitting the data requested*
Very truly yours,
J. C. Noell,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
January 13, 1927*
st.5229
SUBJECT:
Reports of Condition of State
Banks ana Trust Companies.
Dear Sir:
b
It will " e greatly appreciated if in accordance with your usual practice you will kindly furnish
the Federal Reserve Board, as soon as available, with
a copy of the abstract of reports of condition of
state banks end trust companies in your state on December 31, 1926, or other recent date in case you did
not issue a call for reports of condition as of December 31 •
In submitting the above mentioned data it is
requested that the number of banks be stated and that
separate figures be furnished for mutual savings banks
providing there are any such banks operating in your
sta.te.
A franked and self-addressed envelope, requiring no postage, is enclosed for use in transmitting
the data roquosted.
Very truly yours,
J. C. Hoell,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
January 13, 1927s t . 5230
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Reports of Condition of St?.te
Banks and Trust Comoanios.
Dear Sir:
It »ill " e greatly appreciated if in accordb
ance with your usual practice you will kindly furnish
the Federal Reserve Board, as soon as available, with
a copy of the abstract of reports of condition of
state banks and trust companies in your state on December 31» 1926, or other recent date in case you did
not issue a call for reports of condition as of
December 31.
In submitting the above mentioned data it
is requested that the number of banks be stated and
that separate figures be furnished for mutual savings
banks providing there are any such banks operating in
your state, also that the figures be segregated by Federal reserve districts.
A franked and self-addressed envelope, requiring no postage, is enclosed for use in transmitting the data requested.
Very truly yours,
J. C. Uoell,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
January 11, 1Q27
s t . 5232
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Paper Secured "by Adjusted Service
Certificates, and Revised Foi'm A.
Dear Sir:
In order that the method of reporting paper
secured "by adjusted service certificates discounted for
member and nonmember "banks, may " e substantially the same
b
at all Federal reserve banks, it is requested that such
paper " e designated "by the symbol ASC on BD-4 discount
b
schedules, and that paper discounted for nonmember banks
be grouped together under a general head or the word
"HOKMEMBBR" shown in capitals immediately following the
name of the nonmember bank for which discounted.
The number of member and of non-member banks
accommodated by the discount of paper secured by adjusted
service certificates should be reported separately eachmonth on Form A as indicated on the revised form, a
supply of which for use in 1927 is enclosed herewith.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
Enclosure.
LETTER TO GOVEHEOBS OF AIL F. R. B A M S *
FEDERAL RESERVE BOARD
WASHINGTON
January 14, lS2f\
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
St . 5 2 3 ^ •
Debits to Individual Accounts.
Dear Sir:
In compiling monthly figures of debits to individual accounts
from weekly reports received in 1927, it is proposed, as in the past
two years, to prorate the figures for each city for those weeks which
do not fall entirely within a given month, on the "basis of actual
"business days.. By reference to data available at the Board's offices we
find that the report weeks in 1927 which "begin in one month and end in
another, i.e., the report weeks for which the figures must be prorated
between two months, contain the following days observed as holidays in
the states specified:
January 1, 1927
March 1
March 2
April 4
April 28
Ma y 2
May 30
July 4
August 1
October 31
November 1
January 2, 1928
All states and the District of Columbia,
Alabama, Florida, Louisiana (Parish of
Orleans)
Texas
Michigan
New Hampshire
Wyoming
District of Columbia and all states except
Alabama, Arkansas, Florida, Georgia, Louisiana,
Mississippi, North Carolina, South Carolina.
All states and the District of Columbia
Colorado *
Nevada
Louisiana
All states and the District of Columbia
In case the above list is not correct for any of the states in
your district or there are any additional holidays observed locally by
cities for which debit figures are published by the Board, it will be
appreciated if you will furnish the Board with a corrected list at your
early convenience.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
LETTER TO ALL FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
January 17, 1927,
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
' 5^35 •
SUBJECT:
Bank Suspensions, 1Q21-1923.
Dear Sir:
There is enclosed herewith a list of member and
nonmember "bank suspensions (banks closed to depositors by
supervisory banking authorities or by the "banks' directors
on account of financial difficulties) in your district
during the years 1921, 1922 and 1923, compiled from such
data as are available at the Board's offices.
It will be
appreciated if you will kindly have the statement checked
in so far as your records permit and advise us of any
changes which you find necessary.
The Board realizes that
information on nonmember bank suspensions for these years
may not be readily available in all cases but will appreciate greatly your cooperation in order that its records
on this important subject may be as complete as practicable.
Very truly yours,
Walter L. Rddy,
Secretary.
Enclosure.
LETTER TO ALL
RESERVE AOESTS*
FEDERAL RESERVE BOARD
WASHINGTON
SUBJECT:
January 17, l$2~;
s t , 5235
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
Relationship of Federal reserve banks to
clearing house associations or other associations (clearing arrangements) for the clearing
of checks.,
Dear Sir:
In order that there may be available in the Bocrd's files a comprehensive statement of the relationship of each Federal reserve bank and
branch to the local clearing house association, and other associations
(clearing arrangements) for the clearing of checks, it is requested that
you kindly furnish the Board with the following information;
Federal reserve bank and branch cities.
1. (a) Is the Federal reserve bank or branch a member of the
local clearing house association, and if so (b) What dues is it requirod to pay per annum.
(c) What fines is it subject to.
(d) Does it have any vote in the management of the association.
2. (a) Is the local clearing conducted by the clearing house
association.
(b) Does the Federal reserve bank or branch exercise the
functions of a clearing house for local banks.
(c) If conducted by the clearing house association, does the
Federal reserve bank or branch participate regularly in
the clearing.
(d) If conducted by the Federal reserve bank or branch, when
was this function taken over, and what functions are still
performed by the clearing house association.
3. (a) To what extent are items assorted or bundled when presented
in the clearing.
(b) Are items sorted according to drawee banks when such banks
are not members of the clearing house association but clear
through members, or are they sorted according to the names
of the clearing-house member banks through which the items
are payable.
(c) Are items drawn on branches of clearing house banks sorted
separately for each branch.
4.
(a) How many of the local banks are members of the clearing
house but not of the Federal Reserve System.
(b) How many of the local banks are members of the Federal Reserve System but not of the clearing house, and how does
the Federal reserve bank or branch collect items drawn on
such banks.
st.5p.36.
-
2
-
(c) HOT many of the local barCcs are not members either of the
clearing house or of the Federal Reserve System, and how
does the Federal reserve bank or branch collect items drawn
on such banks.
(d) What items, other than those drawn on locrl banks, are collected through the local clearing.
5. (a) Is the settlement for daily clearings cede on the books of
the Federal reserve bank or branch, and if so, is this
done by making both debit and credit entries for the gross
amount of checks presented and received, or by a. debit or
credit entry for the net balance in the settlement.
(b) Does the Reserve bank receive checks from clearing house
banks in payment of debit balances.
(c) If the settlement for the daily clearings is made by check,
by whom are the checks drawn.
6.
Is the local clearing house association housed in the Federal
reserve bank or branch building, and if so, what annual rental
is received.
Outside of Federal reserve bank and branch cities.
Arrangements have been made
in a given city, county, or group
drawn on one another by debit and
eral reserve bank. Please advise
1.
in certain cases whereby banks located
of cities or counties, settle for checks
credit entries on the books of the Fedthe Board —
The name of each city, county, or group, if any, in your district in which such special clearing arrangements have been
made, state when the plan was put into effect, and describe
briefly the nature of the arrangements, setting forth
particularly
(s) the extent to which the Federal reserve bank is called
upon to handle the items or transactions,
(b) the number of member banks of the Federal reserve system
(located in the city, county, or group) which participate in the arrangement, and the number which do not
participate,
(c) the number of nonmember banks of the Federal reserve
system (located in the city, county, or group) which
participate in the arrangement, and the number which do
not participate.
St.5236.
- 3 -
If any clearing arrangements other than those of the kinds
specified above are in effect at your bank, or if there is any additional
information on this subject that may be of interest to the Board, please
advise us fully in regard thereto in your reply to the questions enumerated above. It will also be appreciated if you will advise us as of January 1 of each year what changes, if any, were ma.de in your clearing
arrangements during the preceding year.
Very truly yours,
Walter L. 5!ddy,
Secretary.
TO
AGENTS: 0? ALL FEDERAL R3S3RVE PATH'S
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
J m u a r y 2b, 1927.
s t . 5245.
SUBJECT:
Member Banks Borrowing Continuously
at Federal Reserve Banks.
Dear Sir:
It will be appreciated if you will kindly
have prepared and furnish the Board with a statement
listing all member banks which were borrowing continuously from your hank during 1926, showing their
capital and surplus, borrowings and deposits, in
accordance with the attached form.' In case you have
any continuous borrowing: banks which are not considered to be in an unsafe or overextended condition,
it will be appreciated if you will state whether you
expect such banks to liquidate their indebtedness
some time during 1S2J. This information, it will be
noted, is similar to that requested in letter
of April 6, 1926, covering the year 1925.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosure.
LETTER TO CHAIRMAN OF ALL FEDERAL RESERVE B A M S *
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 25, 1927
st. 5261
SUBJECT:
Functional Expenses,
Second Half, 1926.
Dear Sir:
There are enclosed herewith
copies
of the consolidated Functional Expense exhibit for
the half year ending December Jl, 1926.
A copy of
the exhibit is also being mailed to the Governor
of the bank.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
Enclosure.
LETTER TO CHAIRMAN OF EACH FEDERAL RESERVE BAITK*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 11, 1927
st. 5267
SUBJECT:
Circulars Issued by Federal
Reserve Banks.
Dear Sir;
It will " e greatly appreciated if you will
b
kindly furnish this division with a complete set of
the circulars or other formal instructions issued
"by your bank to member banks in its district, which
are now in effect, and also place the division on
the mailing list to receive copies of future circulars or instructions as issued. We would also
like to have a copy of each of the forms supplied
by your bank to member banks for use in submitting
reports to the Federal reserve bank, such as forms
used in reporting deposit liabilities for reserve
computation purposes, la applying for discount
accommodation* etc., and samples of forms used by
member banks in obtaining credit statements covering
paper offered for rediscount at the reserve bank.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
LETTER TO ALL AG-EHTS*
4 8 9
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February 15, 1927.
St. 5268.
SUBJECT:
Condition of Member Banks
as of December 31. 1926.
Dear Sir:
For your information there is enclosed herewith a preliminary statement regarding the condition
.
of all member banks combined as of December 31. 1926.
The data for all member banks should be treated as
confidential until the publication of the national
bank figures by the Comptroller of the Currency.
The Board's abstract (Ho.
tailed figures for State bank and
bers and the combined figures for
will be ready for distribution in
3*0 showing the detrust company memall member banks
the near future.
Very truly yours,
J. C. Noell,
Assistant Secretary.
Enclosure.
LETTER TO ALL FEDERAL RESERVE AGE IKS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February l5, 1927,
s t . 5271.
SUBJECT:
Bank Suspensions.
Dear Sir:
There is enclosed, herewith a list of
member and nonmember banks reported, to the Board
as having suspended operations during the month
of January, and of banks previously suspended
which resumed business during the same month. The
statement also includes any corrections made in
the lists previously sent to you.
It will be appreciated if you will
kindly check the data pertaining to your district
against your records and advise the Board on or
before February 2b, by telegraph if necessary,
whether or not any corrections or additions are
necessary therein, in order that correct summaries
by districts may be published in the Federal Reserve
Bulletin.
Very tr zly yours,
J. C. Noell,
Assistant Secretary.
Enclosure
LETTER TO ALL FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
February l6, 1927,
st. 5273.
SUBJECT:
Classification of Borrowings and. Reserve
Balances, "by Size of Cities.
Dear Sir:
On a number of occasions in the past the Board has attempted, to
determine the relative amount of accommodation extended to member banks
for agricultural and livestock purposes by classifying paper held under
discount into agricultural paper and other paper, also by classifying
member bank loans, borrowings, etc. , according to agricultural, semiagricultural, and non-agricultural counties. While the latter figures
were of more value than the former, neither of them were Reasonably
satisfactory indicators of the amount of accommodation that the Federal
reserve banks were extending for agricultural and livestock purposes.
More recently we have attempted to classify the volume of bills discounted according to the size of the city in which the discounting
member banks are located, adjusting the volume discounted for each group
to a common maturity basis. Such data have not been of much value,
principally because of the large amount of paper rebated. It is believed, however, that a classification of borrowings according to the
size of city or town in which the rediscounting bank is located would
be helpful in following the trend of borrowings and would throw as much
light on the general purposes for which the funds are borrowed as can
be well obtained. To give a fairly accurate picture of the relative
amount of accommodation received by the various classes of banks,
however, the amount of borrowings should be related to the size of the
borrowing banks, and it occurs to u s that this might be well brought out
by a comparison of borrowings with reserve balances.
In order to enable us to go a little more fully into the value
of such figures, it will be appreciated if you will classify your member
banks by states and population groups in accordance with the form shown
below and furnish the Board with a statement showing, as of January 26,
1927, the total amount of paper held under discount for member banks in
each group and the total amount of reserve balances actually maintained
with the reserve bank by all banks in each group (including those not
borrowing from the Federal reserve bank):
%
- 2 -
St. 5272a
BORROWINGS PROM FEDERAL RESERVE B A M A2JD RESERVE BALANCES OF MEKSER B A M S ,
BY POPULATION GROUPS, OH JANUARY 26, 192?.
District No.
(Amounts in thousands of dollars)
State and
population
group
Borrowings from
Federal reserve
bank
Reserve balances
of all banks in
group
1 Ratio of borrowings
to reserve balances
(per cent)
(Name of State)
Less than 2,500
2,500 to 5,000
5,000 to 10,000
10,000 to 25,000
25,000 to 100,000
100,000 or more
Total
It is understood, of course, that these figures, like any others,
are subject to possible misinterpretation, particularly as member banks in
the larger centers frequently make substantial loans to country correspondents,
nonmembers as well as members, at the same time that they are borrowing from
the Federal reserve bank. The amount of Federal reserve bank accommodation
going to banks in small communities in this indirect way is, however, extremely
difficult if not impossible of measurement.
In submitting your report we shall appreciate any suggestions which
you may care to offer regarding the value of data of this character for the
purpose of following the trend of borrowings at the reserve banks and of giving
a better idea of the purposes for which the borrowed funds are being used, as
well as suggestions for the classifications of borrowings in any other manner
which you feel might be more helpful for the purpose in mind.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
ALL FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March 15, 1927,
st. 5302.
SUBJECT:
Bank Suspensions.
Dear Sir:
There is enclosed herewith a list of member
and nonmember hanks reported to the Board as having
suspended operations during the month of February,
and of hanks previously suspended which resumed
business during the same month. The statement also
includes any corrections made in the lists previously
sent to you.
It will he appreciated if you mill kindly
chfeck the data pertaining to your district against
your records and advise the Board on or before March
26, by telegraph if necessary, whether or not any
corrections or additions are necessary therein, in
order that correct summaries by districts may be published in the Federal Reserve Bulletin.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosure
LETTER TO ALL F33ERAL EESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
March ig, 1 9 2 7 ,
St. 5306.
-SUBJECT:
Member Bank Call Report snowing Condition of All Member banks on Dec. 31>
1926.
Dear Sir:
We are forwarding to you under separate
cover
copies of the Board's Member Bank Call
Report ITo. 3^, showing the condition of all member
"banks on December 31. 1926. You will note that the
report is now printed in Bulletin size, whereas the
former abstract was 11-g "by 18-g inches, also that it
gives complete figures for all member banks and district and retrospective figures for national ."banks,
in addition to the complete figures for state "bank
members shown heretofore.
Please forward a copy of the abstract to
each member bank in your district that has expressed
a desire to receive copies of call reports as issued.
Very truly yours,
' J. C. floe11,
Assistant Secretary.
LETTER TO ALL F. R. AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
March 21, 1927,
St . 5J08*
St. 530S •
Condition Reports of State Member "banks, form 105-
Dear Sir:
There are "being forwarded, to you today under separate cover
copies of form 105» which has "been revised to show acceptances of other banks
and foreign bills of exchange or drafts sold with endorsement as a separate
item instead of with notes and bills rediscounted as heretofore. Please mail
three copies of the form to each State Bank and Trust Company member in your
district with instructions to hold the blank forms pending receipt of a call
for condition reports. Upon receipt of notice from the Board of the call for
condition reports, kindly notify the banks thereof by mail"and request them
to fill out the reports and mail them to you promptly - in no case later than
10 days after receipt of the call.
In order that the compilation of the Board* s member bank call report
may not be unduly delayed, it is requested that the condition reports be forwarded to the Board as soon as practicable after they are received by the
Federal reserve bank. If it is necessary to communicate with a bank regarding
apparent errors in its report, a note to that effect should be made on the report itself before it is mail&d to the Board, and the Board should be advised
of the necessary corrections when the desired information is received from the
member bank.
It is important that these reports be completely filled out in all
cases and particular attention is invited to the requirement that the reporting
bank insert an amount or the word "none" against each item both on the face and
on the reverse side of the report. In case a bank fails to comply with this
requirement, it is requested that it be asked for the information necessary to
complete the report and that such information be furnished the Board. It is
also requested that on receipt of condition reports for the forthcoming call,
the amount of time deposits and of net demand deposits subject to reserve requirements be calculated for each national and state member bank and that the
deposits as thus determined be compared with deposit liabilities as reported by
the respective banks for the same date in their regular weekly or semi -monthly
reports of deposits subject to reserve requirements. In the event that any
marked differences are found in the two reports it will be appreciated if they
are brought to the Board1 s attention.
Very truly yours,
Walter L. Eddy,
Secretary.
LETTER TO ALL F. R. AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
St. 5320 «
•
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
M a r c h 30, 1 9 E ? ,
Corrections in Weekly Statements*
Bear Sir:
For your information, and in order that correct comparative
figures may "be published in the consolidated statement of condition
of the Federal reserve "banks, if issued at your "bank, tfcere are
shown below corrections made in the weekly Federal reserve bank press
statements issued during 1926, which were received too late to be
shown in the comparative column of the following week's statement:
CHANGED
From
May 2o
B on ds
Treasury notes
Bills discounted:
June 30
Secured "by U.S.Govt, obligations
Other bills discounted
Gold Settlement Fund
July 14
Total gold reserves
Total reserves
Uncollected items
Member bank - reserve account
July 21
Other deposits
August 4- Gold Settlement Fund
Total gold rese ves
Total reserves
Total resources
F.H. notes in actual circulation
Total liabilities
November 3 *
Gold & gold certificates held by
banks
Total gold reserves
Reserves other than gold
97,123
167,364
263,106
251,925
671,297
2,845,392
2,991,052
791,025
2,208,327
16,587
685,170
To
102,990
161,497
252,929
262,102
671,516
2,845,611
2,991,271
790,806
2,208,307
16,707
4,885,277
685,178
2,836,956
2,976,596
4,885,285
1,678,096
4,885,285
617,997
2,807,274
618,186
2,807,463
2,836,948
2,976,588
4,885,277
1,678,088
127,411
Very truly yours,
El L. Smead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGEITS*
127,222
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 14, 1927,
St. 5336
SUBJECT:
Reports of Condition of State
Banks and. Trust Companies.
Dear Sir:
It will be greatly appreciated if in accordance
with your usual practice you will kindly furnish the
Federal Reserve Board, as soon as available, with a copy
of the abstract of reports of condition of state banks
and trust companies in your state on March 23, 1927, os
other recent date in case you did not issue a call for
reports of condition as of March 23.
In submitting the above mentioned data it is
requested that the number of banks be stated and that
separate figures be furnished for mutual savings banks
providing there are any such banks operating in your
state, also that the figures be segregated by Federal
reserve districts.
A franked and self-addressed envelope, requiring no postage, is enclosed for use in transmitting
the data requested.
Very truly yours,
J, C. Noell,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 14, 1927,
St. 5337.
SUBJECT:
Reports of Condition of State
Banks and Trust Companies.
Dear Sir:
It will be greatly appreciated if in accordance with your usual practice you will kindly furnish
the Federal Reserve Board, as soon as available, with
a copy of the abstract of reports of condition of
state banks and trust companies in your state on
March 23, 1927• o r other recent date in case you did
not issue a call for reports of condition as of
March 23.
In submitting the above mentioned data it is
requested that the number of banks be stated and that
separate figures be furnished for mutual savings banks
providing there are any such banks operating in your
state.
A franked and self-addressed envelope, requiring no postage, is enclosed for use in transmitting the data requested.
Very truly yours,
J. C. Noell,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
April 18, 1927,
st. 53U1.
SUBJECT:
Bank Suspensions.
Dear Sir:
There is enclosed herewith a list of member
and nonmember banks reported to the Board as having
suspended operations during the month of March, and
of "banks previously suspended which resumed "business
during the same month. The statement also includes
any corrections made in the lists previously sent to
you.
It will "be appreciated if you will kindly
check the data pertaining to your district against
your records and advise the Board on or before April
27, by telegraph if necessary, whether or not any
corrections or additions are necessary therein, in
order that correct simaaries by districts may be published in the Federal Reserve Bulletin.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosure
LETTER TO ALL FEDERAL RESERVE JL3EBTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
May 19, 1927.
St. 5359
Increase in Operating Efficiency
at Federal Reserve Banks.
Dear Sir:
A report was recently prepared, for the information of the Federal Reserve Board, in which an
effort was made to measure the increase in operating
efficiency at the head offices of the several Federal
reserve "banks since 1923, While it is recognized
that the results shown cannot be taken as an accurate
measurement in each instance of the increase in
operating efficiency, it is thought that they are
sufficiently correct to constitute a fairly reliable
measure of the very gratifying improvement achieved
in operating efficiency during the past few years.
The Board feels that you and your blnk will be interested in this report, and accordingly a copy is
enclosed herewith for your confidential use.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosure.
CHAIRMM OF EACH FEDERAL RESERVE BAJTK. *
500
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
May J, 1927,
s t . 5361.
SUBJECT:
Condition of Member Banks
as of March 23, 1927.
Dear Sir:
For your information there is enclosed
herewith a preliminary statement regarding the
condition of all member banks combined as of
March 23. 1927.
The Board's Member Bank Call
Report (SFo. 35) showing detailed figures for all
member banks and for State bank members will be
ready for distribution in the near future.
Very truly yours,
E. M. McCIS. 11 and,
Assistant Secretary.
Enclosure'/
LETTER TO ALL ESBEKIL EE SERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
l'a? 12, IS27,
st. 536s.
SUBJECT:
Bank Suspensions.
Dear Sir:
There is enclosed herewith a list of
member and nonmember tanks reported to the Board
as having suspended operations during the month
of April, and of hanks previously suspended which
resumed "business during the same month. The statement also includes any corrections made in the lists
previously sent to you.
It will be appreciated if you will kindly
check the data pertaining to your district against
your records and advise the Board on or before
May 26, by telegraph if necessary, whether or not
any corrections or additions are necessary therein,
in order that correct summaries by districts may be
published in the Federal Reserve "Bulletin.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosure.
LETTER TO ALL FEDERAL RESERVE AGEiJTS*
5 0 3
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
May 26, 1927,
St. 5382.
SUBJECT:
Payment of Dividends on *
June 30, 1927.
Dear Sir:
In submitting the usual semi-annual resolution
of your "board of directors with reference to the payment
of the June 30 dividend, kindly furnish the Board with
statements showing the following information as of May 31
for (l) failed hanks, and (2) member "banks considered to
" e in a seriously overextended condition:
b
Name and location of "bank.
Unpaid indebtedness to Federal reserve bank.
Character of security, if any.
Estimated los's to Federal reserve bank.
Very truly yours,
Walter L. Eddy,
Secretary.
LETTER TO ALL CHAIRMEN*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 3, 1927,
st. 5392
SUBJECT:
Member Bank Call Report showing
Condition of All Member Banks on
March 23, 1 9 2 7 .
Dear Sir:
We are forwarding to you under separate
cover
copies of the Board's Member Bank Call
Report No. 35> showing the condition of all member
banks on March 2 3 , 1927.
Please forward a copy to
each member bank in your district that has expressed
a desire to receive copies of call reports as issued.
Very truly yours,
J, C. Noell,
Assistant Secretary.
LETTER TO ALL F. R. AGENT'S*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 7, 1927
St. 5397
SUBJECT:
Bank Suspensions.
Dear Sir;
There is enclosed herewith a list of member and. nonmember banks reported to the Board as
having suspended operations during the month of May,
and of banks previously suspended which resumoa
business during the same month. The statement also
includes any corrections made in the lists previously
sent to you.
It will be appreciated if you rill kindly
check the data pertaining to your district against
your records and advise the Board on or before June
21, by telegraph if necessary, whether or not any
corrections or additions are necessary therein, in
order that correct summaries by districts may be
published in the Federal Reserve Bulletin.
Very truly yours,
Walter 1. Eddy,
Secretary.
Enclo sure.
LETITR TO AIL FEDERAL BESERVE AGENTS*
505
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
June 15, 1927,
st. 5406.
Earnings, Expenses, and. Dividends,
Reports of State Bank Members.
Dear Sir:
There are being forwarded to you today
under separate cover
copies of form 107 > revised in October 1926, for the use of state bank
members in submitting their reports of earnings,
expenses, and dividend payments for the six months
ending June 30, 1327.
As the form revised last October contained several new interest items among both income and expenses it was anticipated that the
records of a number of the banks would not be in
sufficient detail to enable them to fill in all
the additional information called for on the first
report following the change. The attention of
those banks which failed to furnish the detailed
information for the past call should be directed
to the omission, however, and they should be asked
to use particular care to see that all information
called for in the report form is filled out in the
June, 1927, and subsequent reports.
Very truly yours,
Walter L. Eddy,
Secretary.
TO ALL FEDERAL RESERVE AGENTS*'
506
FEDERAL RESERVE BOARD
WASHINGTON
June 21, 1927,'
St. 54x4.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
50?
Condition Reports of State Member tanks,
Form 105.
Dear Sir:
There are being forwarded to you today under separate
cover
copies of form 105. Please mail three copies of
the form to each State Bank and Trust Company member in your
district with instructions to hold the blank forms pending receipt of a call for condition reports. Upon receipt of notice
from the Board of the call for condition reports, kindly notify
the "banks thereof by mail and request them to fill out the reports and mail them to you promptly - in no case later than
10 days after receipt of the call.
In order that the compilation of the Board's member
bank call report may not be unduly delayed, it is requested
that the condition reports be forwarded to the Board as soon
as practicable after they are received by the Federal reserve
bank. If it is necessary to communicate with a bank regarding
apparent errors in its report, a note to that effect should be
made on the report itself before it is mailed to the Board, and
the Board should be advised of the necessary corrections when
the desired information is received from the member bank.
It is important that these reports be completely filled
out in all cases and particular attention is invited to the requirement that the reporting bank insert an amount or the word
"none" against each item both on the face and on the reverse
side of the report. In case a bank fails to comply with this
requirement, it is requested that it be asked for the information
necessary to complete the report and that such information be
furnished the Board.
Very truly yours,
Walter L. Eddy,
Secretary.
LETTER TO ALL F. R. AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 22, 1927
st. 5415
SUBJECT:
Gold Bullion and Foreign Gold Coin
held by Federal Reserve Banks.
Dear Sir:
For some time we have "been compiling figures
relating to the cash holdings of the Federal reserve
"banks for the earlier years in order that certain revisions may be made in the Treasury department's circulation statement from the beginning of the System to
date. In going into this matter we find that we have
no information on file showing the amount of foreign
gold coin and of gold bullion held by your bank (including amount pledged with agent) on the last day of
each month from November 1914 to November 1920. We
assume that your bank held very little, if any, foreign
gold coin or gold bullion during this period, but would
lilpe to have you furnish us with a statement as of the
end of each month during this period, in order that the
revision to be made in the circulation statement may be
as accurate as possible.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
TO ALL F. E. AGENTS EXCEPT HEW YORK*
508
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
June 29, 1927.
St. 5424
SUBJECT:
Bank Premises Accounting and
Functional Expense Reports.
Dear Sir:
The Board recently asked representatives of
six of the Federal reserve "banks to meet with a
representative of the Board at Chicago for the purpose
of discussing the accounting procedure with reference
to "bank premises and certain phases of the functional
expense reports. This committee met on June 2 and 3,
1927, and submitted a report, a copy of which is
attached hereto.
Before taking any action on the report of the
committee, the Board would like to be advised whether
or not your bank concurs in the committee's recommendations. If there are any recommendations of the committee in which your bank does not concur, it will be
appreciated if you will set forth your views in some
detail for presentation to the Board along with the
committee's report.
Very truly yours,
Walter L„ Eddy,
Secretary.
Enclosure.
LETTER TO GOVERNOR OF EACH FEDERAL RESERVE B A H *
509
St. 5424.
The Committee appointed to discuss certain questions in connection
with accounting of hank premises and functional expense reports, met at the
Federal Reserve Bank of Chicago on June 2nd and ]rd, 1927. The members of the
Committee present were:
B.
L.
M.
J.
J.
F.
J.
L. Smead,
R. Rounds,
J. Fleming,
s. Walden, Jr. ,
H. Dillard,
c. Dunlop,
w. White,
Federal
Federal
Federal
Federal
Federal
Federal
Federal
Reserve
Reserve
Reserve
Reserve
Reserve
Reserve
Reserve
Board
Bank of
Bank of
Bank of
Bank of
Bank of
Bank of
Hew York
Cleveland
Richmond
Chicago
Minneapolis
St. Louis
The meeting was also attended "by G-. H. Wagner and A. C. Black, of
the Federal Reserve Banks of Cleveland and Chicago, respectively.
Previous to the discussion of the specific topics referred to the
Committee, Mr. James of the Federal Reserve Board, and Messrs, Heath, Blair
and McKay of the Federal Reserve Bank of Chicago, discussed in a general way
the subjects to he considered by the conference, and expressed their opinions
regarding various phases of hank premises accounting.
After this informal discussion the Committee considered the following
questions.:
1.
Should the annual depreciation allowances on hank buildings
and on fixed machinery and equipment be set up as depreciation
reserve or should they be actually charged off?
It was the consensus of opinion that the present procedure of
carrying the annual depreciation allowances on buildings and on fixed machinery
and equipment as a reserve be continued. The net results obtained under that
plan or that of actually reducing the buildings and fixed machinery and
equipment accounts- each year are practically the same, but it was thought
advisable to preserve the replacement cost of buildings end the cost of fixed
machinery and equipment on the daily balance sheet of each bank, and deduct
the reserve carried against each account showing the net result.
2.
What should be the accounting procedure with reference to
replacements of fixed machinery and equipment?
It was decided to continue crediting to the reserve account the
annual depreciation allowances on fixed machinery and equipment, and to charge
the cost of replacements less salvage, if any, to this reserve account. Should
the cost of replacements materially exceed the cost of original equipment consideration should be given to the advisability of charging the excess cost td
fixed machinery and equipment. When purchases of equipment not included in
the original installation are made the cost of such items should be charged
to fixed machinery and equipment account.
St.5424.
When the use of any fixed machinery and equipment is discontinued
and is not replaced hut sold for selvage, the original cost should he credited
to fixed machinery and equipment account, and the difference between the
original cost and the amount of salvage obtained should he charged to reserve
for depreciation account.
Under ordinary conditions some of the Federal Reserve Banks will
accumulate within the next ten years a reserve account equal to fixed machinery
and equipment account. When they equal each other depreciation allowances
should he discontinued until an increase in the fixed machinery and equipment
account or a decrease in the reserve for depreciation account occurs. Provision should then be made for annual depreciation allowances in order to increase or restore the reserve account upon a fair depreciation basis.
The classification of certain items as replacements or as repairs
and alterations was thoroughly discussed. The Committee appreciated the fact
that the amount involved often affects to a great extent the classification
determined, but it was the consensus of opinion that if a whole unit is replaced, such an item should usually be considered as a replacement even though
the amount involved may seem small. Similar classification should be given
to the replacement of part of a unit if the amount involved is large.
2 A - Alterations for tenants.
It was the consensus of opinion that the cost of repairs and alterations made for the use of tenants should be amortized over the period of the
lease for the premises affected, as provided in the functional expense manual.
Mr. ^Dillard did not concur in this opinion, but recommended, in view
of the fact/the cost of repairs and alterations for tenants does not add to
the value of the building, that the cost of these items be charged to current
expense, particularly if the amount is relatively small when compared with
the amount of rent to be received; or if the expense incurred in making re-pairs and alterations for a tenant is large enough to materially affect the
current expense account from a comparative standpoint, that this item be
carried in a special account and charged direct to profit a.nd loss at the
end of the current year in the same manner that we now charge furniture and
fixtures.
3,
How much, if any, of the data shown in the functional expense
reports is it advisable to make public?
It was the opinion of the Committee that it is not advisable to
publish data with regard to functional expense reports, but the Committee
appreciated the fact that this subject is a matter of policy, and makes no
recommendation.
4.
Are the indices shown in Memorandum St. 5359 dated May 7, 1927,
from the Federal Reserve Board a satisfactory means of measuring
the trend in operating efficiency of the Federal reserve banks?
st. 5U2U.
-
3
•
?
The Committee thought that the indices presented showed a fairlygood picture of the trend of expenses in the individual Federal reserve hanks
and that it would he worth while to prepare such information periodically.
It was thought inadvisable to publish figures similar to those shown in the
memorandum, "but that the memorandum may be used as a "basis for general discussion of the System's operating efficiency.
The suggestion to discontinue or simplify functional expense report
Form E was presented to the Committee, and this subject was thoroughly
discussed.
It was the opinion of each member of the Committee that the functional
expense plan had undoubtedly accomplished many beneficial results, and although
additional benefits might be derived from the comparison of expenses of the
various Federal reserve banks, report Form E would probably not be as valuable
in the future as it has been far the past few years.
All of the Federal reserve banks now have in operation a budget for
expenses, and in some banks the budget plan has been in operation for some
time with the result that as far as those individual banks are concerned the
information obtained from the budget is adequate, but it was agreed that the
system of budgeting expenses could not be substituted for the functional expense plan at this time.
It was also agreed that the work necessary for the preparation of
Form E is a negligible item and its simplification would not provide much
of a saving in labor.
It was likewise thought advisable to continue some form of functional
expense report and, therefore, the Committee agreed th.rt for the present the
functional expense plan now in operation should be continued.
Respectfully submitted,
M. J. Fleming
L. E. Rounds
J.
r.
J.
J.
H. Dillard
c. Dunlop
w. White
s. Walden, Jr
For immediate release
Federal Reserve Board
June 30, 1927
St. 542s
STATEMENT FOR THE PRESS
Arrangements have been perfected whereby reporting member banks
in New York City and Chicago will hereafter submit their weekly condition
reports as at close of business each Wednesday to the respective Federal
reserve banks on the following morning in time to have the combined figures
reach the Federal reserve Board and be released to the press Thursday
afternoon.
Figures showing the condition of reporting member banks in
these two cities at close of business yesterday, June 29, will therefore
be released by the Board late today.
It is not practicable to obtain
figures for all of the other weekly reporting member banks in sufficient
time to release them along with the figures for banks in New York City
and Chicago, and accordingly the complete statement showing the condition
of all weekly reporting member banks will be issued on Monday afternoons
as heretofore.
The complete statement for June 29 will be issued on
Tuesday, July 5, because of the holiday Monday.
@FedFRASER